Novavax, Inc.

Q4 2021 Earnings Conference Call

2/28/2022

spk02: Ladies and gentlemen, thank you for standing by and welcome to the Novavax fourth quarter and full year 2021 financial results and operational highlights conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also be advised that today's conference call is being recorded. If you should need assistance during today's conference, you can signal an operator by pressing star and then zero. I would now like to hand the conference call over to your speaker today, Sylvia Taylor. You may begin.
spk01: Good afternoon, and thank you all for joining us today to discuss our fourth quarter and full year 2021 operational highlights and financial results. A press release announcing our results is currently available on our website at novavax.com, and an audio archive of this conference call will be available on our website later today. Before we begin with prepared remarks, I need to remind you that we will be making forward-looking statements during this teleconference, which are based on our current expectations and beliefs. For example... statements relating to future financial or business performance, conditions, or strategy, including expectations regarding revenue, operating expenses, cash usage, clinical development of our vaccine candidates, timing of future regulatory filings, authorizations, and actions, and other anticipated milestones are forward-looking statements. Novavax cautions that these forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. and actual results could differ materially from what is described in such statements. We encourage you to consult the risk factors discussed in our SEC filings for additional details. Joining me today is Stan Erck, President and CEO, who will provide an overview of recent achievements, discuss regulatory updates, and preview our upcoming strategic priorities. Additionally, John Trezino, Chief Commercial Officer and Chief Business Officer, will provide an update on the status of our global COVID-19 vaccine rollout, supply, and manufacturing, as well as address the broader market opportunity for our COVID-19 vaccine. Dr. Philip Dubovsky, Chief Medical Officer, will discuss recent clinical development across our pipeline. And Jim Kelly, Chief Financial Officer and Treasurer, will provide an overview of our financial results. Dr. Greg Glenn, President of Research and Development, will also be available for the Q&A section at the end of today's call. I would now like to hand the call over to Stan. Please turn to slide four. Stan?
spk05: Thanks, Sylvia, and thanks, everyone, for joining us today as we discuss the substantial progress made by Novavax in 2021 and into the beginning of 2022. Through continued execution across all areas of our business, today we have rapidly transitioned into a global commercial company, now delivering our COVID-19 vaccine throughout the world. Since making our first submission for authorization in August of last year, we've delivered upon all of our commitments across our entire business, including in regulatory, we have authorizations today from 12 regulatory agencies, as well as emergency use listing from the World Health Organization, rapidly expanding access to our COVID-19 vaccine. We are authorized in 38 countries and have emergency use listing from the WHO representing the potential to reach over 170 total countries. Adding this all up, these markets represent 6 billion lives. In commercialization, We've initiated the commercial rollout of Nuvaxivit. We have shipped our vaccine to the European Union, Australia, Indonesia, and South Korea, and first doses of our vaccine have now been administered in all of these markets. Manufacturing capacity. We've achieved our target of annual capacity of more than 2 billion doses with the ability to meet the current and future global demand for our vaccine. And with respect to clinical data, We have built upon our robust data of clinical evidence, robust body of clinical evidence, and we have generated additional data to support expanded indications and policy recommendations that will drive utilization across our three core targets, primary vaccinations, boosters, and pediatric populations. These include new data we announced today, demonstrating protection against all COVID-19 infection and durability of efficacy over six months, booster data demonstrating broad cross-reactivity against variants, and adolescent data demonstrating clinical efficacy against variants. With respect to COVID-19 variants, we also demonstrated our ability to rapidly respond to variants of COVID-19. we developed an Omicron-specific variant vaccine, and within weeks of initiating development, we began GMP manufacturing. This serves as an important proof of concept that we can evolve our vaccine as the pandemic evolves with new variants. With all of this momentum over the past 60 days, we are now delivering our protein-based vaccine to the world, and we expect this momentum will only accelerate. In 2022, we see significant opportunities for Novavaxvid due to the ongoing urgent need for vaccine globally. These include a global vaccination rate of only 56%. Clearly, we have not yet met the WHO goal of 70% global vaccination. Waning immunity over time after vaccination, the continued rise of variants, and pent-up demand for additional vaccine options, especially a protein-based option. All of these factors contribute to the urgency of bringing our vaccine to the market. With line of sight, into all of these factors informing the need for our vaccine today for the first time we are providing financial guidance outlining our expectation to achieve full year 2022 total revenue of between $4 and $5 billion. With that, please turn to slide five where we provide an overview of our regulatory progress to date. Through our focus on expediting our regulatory filing since the first submissions in August 2021, We've now gained authorizations in 38 countries. For our product, Nuvaxavid, we have received authorizations from all 27 member states of the European Union, Great Britain, Canada, Australia, Singapore, New Zealand, the United Arab Emirates, and in partnership with SK Bioscience, we also received approval of our BLA in South Korea. For Comavax, which is our vaccine manufactured and marketed by our partner, Serum Institute, we received authorizations from India, Indonesia, the Philippines, and Bangladesh. For both Novavax and Covavax, we've also received emergency use listing from the World Health Organization representing the potential for our vaccine to reach more than 130 additional countries. In these geographies, Novavax is the first protein-based COVID-19 vaccine authorized for commercial use based on Phase III data, allowing us to bring to the market an important alternative based on a well-understood technology. With significant regulatory progress made to date, we expect to expand our regulatory authorizations through additional submissions, including making Novaxavit available in the United States, where we have already filed our request for EUA in January. As Philip will discuss later on today's call, We are also executing upon a robust clinical development program to make our vaccine more widely available. And with that, I'll now hand it over to John to discuss our progress in delivering doses of our vaccine globally.
spk06: Thank you, Stan. Novavax continues to build a body of evidence to enhance our highly competitive Nuvaxivid product profile, which demonstrates high levels of efficacy and a reassuring safety profile. Beginning with our positive phase three data, We have built upon our clinical package with new data from boosting studies, pediatric populations, and today with data demonstrating our vaccine's ability to protect against infection and its strong durability over time. Taken together, our product profile results in a differentiated vaccine that will help achieve global health policy goals and at the same time allow us to satisfy existing and future demand globally. As we look to expand access to our vaccine, we've already begun to see supportive policy recommendations for Nuvaxavid, which is a testament to the robust clinical data package we've generated to date. Ministries of health and national immunization technical advisory groups across the European Union at the World Health Organization and in Canada, Australia, and Singapore have published their recommendations for Nuvaxavid as a two-dose primary series. and in some national policy recommendation bodies have recommendations allowing heterologous vaccination and boosting. With regulatory authorizations and policy recommendations in hand, we've mobilized our global manufacturing and supply network to execute on the rollout of our first commercial product, Nuvaxavit. Since December of last year, we've begun shipping doses around the world, including 9 million doses to Indonesia, 6 million to Australia, 2 million to South Korea, and 27 million doses that have already been delivered to our European distribution center. Shipments are already arriving in individual EU countries, and we expect shipments to continue to additional countries in the EU. We'll quickly follow these initial deliveries. As already reported, an additional 42 million dose order commitment is in place for the second quarter resulting in 69 million total doses for Europe in the first half of 2022. In all of these markets, vaccinations with Nuvaxavid have begun. For the COVAX facility, we are collaborating closely with GAVI and our global partners to optimize supply quantities and delivery schedules. And together, we are committed to achieving our shared goal of equitable access. Now, with regulatory authorization in 38 countries and a WHO EUL, our vaccine has the potential to access more than 170 countries around the globe. This global access is supported by bilateral supply agreements already in process of being shipped, licensed partners Serum Institute, SK Bio, and Takeda, all manufacturing. We expect additional approvals in the U.S. and others with immediate product availability. And through our partnership with serum Institute, we have already shipped 9 million doses to Indonesia in support of our commitment to equitable access. In the U S we further solidified our partnership by extending our funding agreement through 2023 with this latest modification to our agreement, our $1.8 billion of allotted funding will support additional booster and adolescent booster studies for our vaccine. reflecting the U.S. government's ongoing investment to support expansions of our label. We are appreciative of the ongoing support from the U.S. government, and in the future, we see an opportunity to pursue procurement agreements to supply doses to the U.S. We are frequently engaged with health ministers, public health authorities, and KOLs around the globe, and it is clear that there is a strong demand for an effective protein-based alternative that is safe, effective, and refrigerator stable to allow for ease of transport and onsite storage. In addition, as doses of our vaccine are being received across the globe, we believe consumer choice will play an increasingly important role in driving demand. Through Nuvaxavid's reassuring tolerability and safety profile, we are confident that utilization of bar vaccine can support preferences over time, building additional demand now and into the future. Please turn to slide six. As we execute on the commercial rollout of Nuvaxavid, we have readied our global manufacturing infrastructure with sites around the world consistently producing vaccine at commercial scale. Through our partnership with Serum Institute, as well as our Novavax-owned facilities and other manufacturing partnerships, we have significant bioreactor capacity for antigen production, and achieved large-scale production of our matrix M adjuvant, together supporting our over 2 billion doses of annual capacity. Now please turn to slide not, please turn to slide seven. In evaluating the global market demand for Nuvaxavid, data today demonstrates continued need for primary vaccination, boosters, and for the pediatric market. there is still a need to increase vaccination rates globally. In fact, data from the CDC show a persistent increase in the mortality rate for the unvaccinated over recent months, reiterating the urgent need to deliver our vaccine globally. These data show that mortality rates are lower for those that receive a booster dose. Also, Boosting is necessary to increase protection versus those that have only received the primary series, especially as variants of COVID-19 continue to emerge. We believe this presents an additional opportunity for Neuvaxavit to support the fight against the ongoing pandemic. Please turn to slide eight, where we provide an overview of the market opportunity across primary, booster, and pediatric indications as well as global opportunities to ensure equitable access to vaccine. For primary vaccination, we believe that Nuvaxivit can serve as a desirable alternative for those that remain hesitant and those that want additional vaccine options. We also expect that waning immunity and the continued emergence of variant strains will drive ongoing demand for booster and annual revaccination and we believe our vaccine is ideally positioned to support this need through its demonstrated ability to produce robust immune responses against variants. In the pediatric populations, we see continued need for a differentiated vaccine option. We are encouraged by the positive results from our pediatric expansion in our PREVENT-19 phase three trial announced earlier this month, which demonstrated our vaccine's vast potential to serve as an alternative for pediatric populations. And finally, on a global scale, we see significant gaps in vaccine access, which we believe Nuvaxivit can address through its favorable distribution and storage profile. With that, I'd like to hand it over to Philip to discuss our clinical development plan in additional detail and recent clinical data for Nuvaxivit. Philip. Thank you, John.
spk04: Please turn to slide nine. John outlined the three major areas where we see an opportunity for our vaccine to have an additional impact. We're gathering clinical data to support both label expansion as well as policy recommendations. Let's go to slide 10 and talk about primary vaccination. As John described, we continue to seek emergency use authorization in additional territories for primary vaccination. In parallel, we are readying data from our phase three studies to pursue full approvals. We expect to file our BLA in the second half of this year. We're also gathering additional data so our vaccine can be used for additional populations and in a more flexible manner to allow for greater use. Today I will give a couple of examples, one from our VLA data set from our UK Phase III study and another from a study we recently launched in South Africa. Please turn to slide 11. So here's the design of the US Phase III study, the UK Phase III study. In our old 15,000 participants, half received vaccine and half received placebo. The primary endpoint was PCR-confirmed mild-moderate severe disease beginning seven days after the second dose. Please turn to slide 12. This slide describes the emergence of variants during the conduct of the study. The cases for the primary efficacy evaluation were collected over three months during a time window from the 10th of November to the 24th of January. It's marked in the green box. You can see that the majority of cases were caused by the alpha variant which emerged during the conduct of the test. Now let's go to slide 13. Here we see the primary efficacy data that was used to obtain approval for emergency use authorization. The data was collected over that three-month period, which represents a median of 55 days surveillance. There were 10 cases in the vaccine group, 96 cases in the placebo group, with the resultant efficacy of approximately 90%. All the severe cases occurred in the placebo group, but due to low case counts, this was not statistically significant. Let's move on to slide 14. The data I will present today represents the BLI MAA data set. The efficacy endpoints were collected over a six-month time period, as marked in the green box on the slide. The alpha variant continued to be the predominant variant during the efficacy collection window. Now let's go to slide 15 and look at some data. Here we have displayed high-level safety data. The safety profile is very consistent with previous studies. The event rates are low and balanced between vaccine and placebo groups. Severe and adverse events of special interest occurred at very low frequencies. Let's move to slide 16. Now, here we have the placebo control efficacy data collected over the six-month surveillance period, which represents a median of approximately 100 days of surveillance. There were 24 cases in the vaccine group and 134 cases in placebo group, which yielded a vaccine efficacy of 82.7%, with a lower bound greater than 73%. This is consistent with what we know about the decay of antibody for this vaccine and for all other COVID vaccines. Importantly, in this expanded data set, we had an adequate number of cases to statistically demonstrate vaccine efficacy against severe disease. We saw a vaccine efficacy of 100% with a lower bound conference interval above zero. Now let's turn to slide 17. So this is a graphic representation of the protection. The vaccine group is in blue, while the placebo group is in gray. The vaccine group and placebo group diverge on day zero, which was the day the second dose of vaccine was administered, indicating that efficacy can be observed early in the primary vaccination schedule. Let's go to slide 18. The data on this slide represents our first evaluation of protection against infection. Infection was defined as either circumverting to the end protein or being PCR positive, thus capturing both symptomatic and asymptomatic cases. This analysis includes data collected through the extended data set. Overall, there were 36 cases in the vaccine group and 195 cases in the placebo group, which yielded a vaccine efficacy of 82.5% with a tight lower bound of 75%. Okay, let's jump to slide 19 for a quick summary. I've presented data from the extended data cut that will be used to support the BLI-MAA from our UK Phase III study. The top line safety continues to be reassuring. Clinical efficacy was maintained with the expected diminution as immune responses waned. Vaccine efficacy against severe disease was preserved with no severe cases throughout the extended surveillance period. The vaccine demonstrated protection from infection, which recapitulates what we saw in our non-human climate studies. And this has potential implications for transmission, as well as for prevention of long-term COVID-19. If you're not infected, you can't transmit the virus, nor can you have long COVID. Okay, let's turn to slide 20 and talk about a study we began last week. In this study, we're evaluating alternate dosing schedules. In people living with HIV, we're evaluating both a three-dose schedule and an extended dosing schedule to define the best approach for vaccinating immunocompromised participants. Additionally, we're comparing our classic zero and 21-day schedule to a zero and 70-day schedule to generate data that will support additional flexibility in how our vaccine is used in the real world. This study began last Friday and is an example of the approach we are taking to expand the reach of our primary vaccination population. Okay, please turn to slide 21, and we'll talk briefly about boosting. For heterologous boosting, we're encouraged by the policy recommendations in some countries allowing heterologous vaccination and boosting. We continue to collaborate with academic and government groups to gather additional data, and this will be used to, and we will initiate our own studies in the second quarter. For homologous boosting, our initial data and regulatory filings will leverage the USC Australia phase two study, as well as data from the South Africa phase two study. I will detail some of that data in the next slide. We anticipate this will be ready for regulatory submission in the second quarter. Additional data will be coming from our phase three study where we boosted all the participants. And as John mentioned, we have received support from the US government to expand the adolescent study to include boosting. Now let's go to slide 22. and review some of the data that will support the initial boosting indication. This is indicative data from our US and Australia Phase II study. The first two bars display the wild-type neutralization response after two doses in the UK and US-Mexico Phase III study. Above the bars are the high levels of efficacy seen against strains closest to the original strain, as well as variants. As a reminder, the majority of cases in both studies were determined to be variants. On the third bar is immune response we saw after a single boosting dose of six months. You can see that we induced neutralizing responses that were four and a half fold higher than that associated with protection in the phase three studies, giving us reason to believe we could have comparable or higher efficacy after a boosting dose. Now please turn to slide 23. The quality of the immune response is equally important as the magnitude of the immune response. This slide displays neutralizing response against prototype, delta, and omicron variants. This is a stringent assay conducted at the Matt Freiman Lab at the University of Maryland, which measures 99% neutralization. On the left-hand side are the results after two doses, neutralizing immune responses that were preserved against all variants. There's a four-fold decrease between the original strain and the omicron variant. On the right-hand side, you can see that after a single boost, there was a large increase in neutralizing titers against all variants. The absolute levels after boosting compared favorably with those seen after two doses. I want to remind you that in our Phase 3 study, we saw 96% to 100% protection against the clear type after two doses, shown here in black on the left-hand side, and 82% against Delta displayed in blue on the left-hand side. Okay, please turn to slide 24, and let's talk about children. We have concluded the study in children 12 to 18 years of age and plan to submit this to our global regulators in the first quarter. In fact, we have already submitted the clinical study report to the regulatory agencies that have mechanisms to accept submission of clinical data in advance of the complete filing. As we have previously detailed, we plan to initiate an age de-escalation study in the second quarter. But let me review a bit of data from our adolescent study to show you why we're so excited about the pediatric indication. Please turn to slide 25. This slide reviews our adolescent data. Importantly, we achieved our primary effectiveness endpoint, which showed the immune responses in 12 to 18-year-olds were non-inferior to those seen in young adults in the main part of the phase three study. In fact, those responses were 1.5-fold higher than seen in adults. From a regulatory perspective, by achieving this endpoint, the efficacy in the adult portion of the study is deemed to apply to the adolescents. Additionally, although the number of cases was modest, we saw 82% efficacy against the Delta variant. Now let's move to slide 26. Displayed here is the local reactogen study comparing 12 to 18-year-olds to the 18 to 25-year-olds. Overall, the adolescents compared favorably to young adults. There was a small increase in mild swelling and redness seen after dose two, likely because of the growth of teenage arms. All the events were short-lived with a median duration of one to two days. Now let's turn to SPI-27 and look at the solicited symptoms. The solicited reactogenicity was also favorable and compared well between adolescents to those in the young adult. It's a small increase in grade 3 fatigue seen in teens. However, overall, the rates of all grades of fatigue were lower than in the young adult. All events were short-lived, a median duration of one day, except for muscle pain, which was two days. The reason we're so excited about this data is because the reactogenicity appears favorable compared to the young adult, despite the immune response being significantly higher than seen in the younger adult. This may bode well for vaccine evaluation in young children and may help increase vaccine acceptability in this age group. Finally, let's go to slide 28 and look at our near-term pipeline. Displayed here is our near-term pipeline, and I want to point out some of the clinical highlights. As we've talked about from the vaccine, we will continue to work on our labeling policy expansions, including boosting and pediatric indications. For the Omicron vaccine, we have previously stated we have one in development. It still isn't clear if an Omicron vaccine is needed. I've shared data that our vaccine has worked well against all variants in the U.S. and U.K. phase 3 studies, and our immune responses against Omicron appear sound, especially after boosting it. However, we are in the midst of a GMP campaign to manufacture the vaccine, and the material will be available toward the end of the first quarter. Our plan is to conduct a strain change study immediately thereafter. In these sorts of studies, you gain licensure by comparing the immune response induced by the Omicron vaccine to the immune responses induced by the original strain. This is similar to what's done for influenza when the strains change on an annual basis. As far as our combination influenza-COVID study goes, it's complete and being analyzed. As you remember, the study explored a wide range of antigen doses for the combination vaccine, as well as for the crowd-available influenza vaccine by itself. We expect the results to be available in April, and based on those results, we'll conduct a Phase II study to confirm the specific formulations that we will take into the PIVL study. Okay, let me turn it over to Jim to discuss our financial results.
spk07: Thank you, Philip. Please turn to slide 29. This afternoon, we announced our financial results for the fourth quarter and full year 2021. I'll begin with an overview of the full year 2021 total revenue performance and our year in cash position, and then my commentary will focus primarily on our fourth quarter results. For the full year 2021, Novavax recorded total revenue of $1.1 billion, a milestone for the company. This $1.1 billion reflects 141% growth in total revenue year-over-year and consists of $949 million of grants revenue and $198 million of royalty and other revenue. Grants revenue has been an important source of capital to fund our NevaxaVid clinical program and scale up of our commercial manufacturing capabilities. During 2021, we recorded grants revenue of $811 million and $135 million from the U.S. government and CEPI, respectively. Under the U.S. government agreements, we have $800 million of funding remaining, and we expect to recognize the majority of this amount during 2022. For 2022, we do not expect to recognize a material amount of grants revenue from CEPI as we've completed the activities funded under this agreement. We ended 2021 with 1.5 billion in cash and received an additional 350 million milestone payment from GAVI in the first quarter of 2022. This means Novavax is well capitalized as we launched Novavax Avid globally. Please turn to slide 30. Turning to our fourth quarter 2021 results, Novavax recorded total revenue of $222 million compared to $280 million in the fourth quarter of 2020. Fourth quarter 2021 royalties and other revenue grew to $127 million compared to $20 million in the prior year and reflect the additional royalties from our licensed partners on their sales to South Korea and Indonesia. Fourth quarter 2021 grants revenue of $95 million compares to $259 million in the prior year. The decline in grants revenue resulted from the completion of the manufacturing scale-up activity funded by CEPI earlier in 2021. We recorded total operating expenses of $1 billion in the fourth quarter of 2021, including $963 million for R&D. This reflects a significant increase to R&D expenses as compared to both the same quarter prior year and the third quarter of 2021. This increase was primarily the result of the accelerated recognition of embedded lease expenses tied to our contract manufacturing agreements and the expensing of Nevaxavid pre-launch inventory that in the future will be capitalized to the balance sheet. Neither of these items impact cash flow in the period, and by expensing these manufacturing costs in 2021, we expect lower cost of goods sold expense in future periods. We will revisit the concept of less than full cost COGS on our first quarter call. When seeking to understand the operational run rate for R&D costs during 2021, We believe our Q1 to Q3 R&D expense run rate is a better starting point for estimating future R&D cost trends. We expect our full year 2022 R&D expenses to be lower than 2021, and a significant portion of 2022 R&D costs will continue to be funded by the US government. We recorded general and administrative expenses of $84 million in the fourth quarter of 2021 as compared to $61 million in the fourth quarter of 2020. This increase to GNA is a result of our support of the Navexavid launch, and we expect GNA to continue to grow into 2022 as we further enhance our commercial capabilities to bring Navexavid to markets around the world. And finally, for the fourth quarter of 2021, we recorded a net loss of $846 million, as compared to a net loss of $178 million in the fourth quarter of 2020. Please turn to slide 31 where we'll provide an overview of our financial guidance for 2022. As discussed earlier, we expect to achieve full year 2022 total revenue of between $4 and $5 billion. As a reminder, Total revenue reflects all sources, including product sales by Novavax, grant revenue, royalties and other revenue. We look forward to sharing our progress towards realizing this total revenue guidance and plan to provide additional guidance related to full year 2022 operating expenses on future earnings calls. With that, I'd like to turn it over to Stan to discuss our upcoming strategic priorities.
spk05: Thanks, Jim. We're pleased to report these results of a highly productive fourth quarter, reflecting our rapid transition into a global commercial organization. With significant results achieved to date and our expectation of achieving $4 to $5 billion of total revenue in this year alone, I'd like to end today's call by providing an overview of our strategic areas of focus for the remainder of 2022. On the commercial front, Through 2022, we will distribute doses globally to our customers to meet our revenue targets. On the regulatory and manufacturing fronts, we expect to gain additional authorizations where we have already filed, including in the U.S. We will pursue full approval of our vaccine, including filing our BLA in the second half of 2022. We'll add additional manufacturing sites to our filings, and we'll manufacture doses to supply all of our current as well as additional demand for 2022. we will develop, we will advance clinical development of other vaccine candidates in our pipeline, including continuing clinical development to expand the use of Novavaxivib into additional indications such as boosters and into the pediatric population, as well as continuing the development of our Omicron vaccine. And we'll advance our COVID influenza combination vaccine, which is a key component of our pipeline. We expect to announce date in April and to initiate a phase two trial That will also include a Nanoflu standalone arm, bringing us one step closer to pursuing licensure of our product. Thanks for your attention. I will now turn it over to the operator for Q&A.
spk02: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touchtone telephone. With drawing or questions, you may press star and two. If you are using a speaker phone, we do ask that you please pick up the handset before pressing the numbers to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Roger Song from Jefferies. Please go ahead with your question.
spk10: Great. Thank you for taking the question and congrats for all the progress. So the first question from me is regarding the sales guidance or revenue guidance. I think that's very nice. You provided 45 billion overall guidance. Could you provide any comments around the breakdown between the product sales like APA versus the royalty and the grant and other revenues?
spk05: Yeah, I'll take it. This is Stan. And the vast majority is related to product sales. And of that, the vast majority of that's related to Novak's event product sales. And so We book new vaccine product sales as product is shipped and into the hands of our customers. On our partner sales, such as serum, we book the portion of the sales that is revenue related to us through royalties. And so it's virtually all product-related sales with the exception of the government grants that Jim mentioned would be largely expended in 2022 and on the order of magnitude of, what, $600 million to $800 million in that range?
spk07: Of the $800 million, we expect more than half will occur in 2022.
spk05: Yeah, okay. So it's product-related revenue.
spk10: Go ahead. No?
spk05: Next question, yep. Sorry, did I miss something?
spk10: Yeah, no, yeah, that's great. And then regarding the COVID flu combo vaccine data in April this year, so can you just provide some kind of expectation and what is the go-no-go decision point to move forward into the phase two?
spk05: Yeah, so we go into this trial knowing some things already. We know how our the response to our flu vaccination was, and including in a phase three immunogenicity trial, we know from preclinical studies, what we wanted to show was that by putting the COVID and the nanoflu vaccine together is neither one suppressed the immune response to the other. And in animals, we found that we need to confirm that in humans, but we're pretty confident that those data will be available to us. And then we took a pretty broad range of vaccine arms so that we could come to a conclusion on what dose level we want between flu and COVID in various arms. And that'll be really key because it's a more complicated vaccine and we want to make sure we've got the right dose. So that's the point of the Phase 1-2 trial. I think it'll give us information to go into a Phase 2 trial that will confirm the dose selection, and that'll be later this year.
spk10: Great, thank you. Maybe just one last one from me is, recently, your competitor, Sanofi and GSK, they provide some positive data for their protein-based vaccine, and maybe just curious your thoughts around how this will impact your commercial adoption for Nolax vaccines.
spk05: Yeah, I don't think it has much impact on us right now. I mean, it's hard for us to tell about a competitive product when we haven't seen the data and we don't know the timing of when they're going to file or enter into the marketplace. So we're pretty confident, based upon what little we've seen, that our combination of efficacy data and safety data and the fact that we're in the marketplace will give us a good head start on any potential competition.
spk10: Great. Thank you, Stan. That's all I have.
spk02: Our next question comes from Charles Duncan from Cancer Fitzgerald. Please go ahead with your question.
spk08: Yeah. Thanks for taking the question, Stan and team. Congrats on executing well during a challenging environment throughout 21. Also, thanks for the sales guidance. I did want to ask you a little bit more detail about that in terms of you said that it was primarily driven by actual sales of new vacs. Could you give us some color on the timing? Is this a quarterly build, or would you anticipate bulk of the sales in the first half of this year and then it to be relatively stable over the course of the year?
spk05: Well, we're not, I'm sorry, Charles, but we're not giving quarterly guidance. And so we've come up with, we've got these APAs that are in place. We have manufacturing schedules, which will support them. And it's the timing of our customers and when they want their shipments will determine the quarterly pace of these. And of course, there's going to be a fairly quick out the door because we've already announced that we've shipped 27 million doses to Europe. I note that we've shipped 27 million doses to Europe in January, and so for further distribution to our customers. So a lot's gone out the door. We've got, as John also noted, we have a 42 million dose order just from Europe in the second quarter. But as far as further definition of doses and doses by quarter, we're not able to provide that guidance right now.
spk08: Okay, that's cool. We're okay with that. Regarding the guidance, though, is it dependent on U.S. approval? It doesn't seem like it would be, but is there perhaps the four versus $5 billion dependent on approval and use in the United States?
spk05: I think the U.S. represents upside potential for us.
spk08: Okay, and then relative to the BLA, you mentioned the BLA in Europe and then potential for BLA filing here in the United States. Can you give us a little bit of color on what additional work needs to be done to support a BLA filing here in the U.S.? And are you signaling that we should forget about an emergency use authorization and really focus on a BLA filing?
spk05: No is the answer to the last question, but I'll let Philip step in and maybe provide some opinion on BLA.
spk04: Sure. And just to reiterate, we're going full blast for our EUA. We're in contact with the FDA periodically, you know, to make sure all the questions are answered. So we're looking forward to moving forward with that. And as you know, we don't control the pace they review the file in, but we're looking forward to it as a potential for a packet in the near future. The clinical data that's required for the BLA and the MAA are very similar. What they're really looking for is longer-term safety, and it's also long-term safety of the product. The U.S. is different from some territories, including Europe, in that from time to time, they want a locked-lock consistency study. So that's an additional small study we would have to conduct to support the U.S. BLA as opposed to the MAA. Now, all that being said, a condition for us to get the MAAs or, well, we have these successful EUAs first before we move on to the final licensure. And that's a path we're going to be following in the U.S. as well.
spk08: Okay, that's super. Last quick question is on safety since you brought it up, Philip. I guess I'm wondering if you've seen – any outsized incidence of myocarditis in patients or in people who have been vaccinated, and does that change over time as you track them over time? Any incidence?
spk04: Yeah, so we, of course, take all safety very seriously. We've previously announced that in any safety database as large as ours, you can expect to see cases in the vaccine and placebo groups. What I can tell you is those rates of myocarditis are balanced between the vaccine and placebo group. Additionally, you know that our safety has been adjudicated by close to a dozen regulators globally, and if you scrutinize our label, you'll see that we don't have myocarditis as an adverse drug reaction in any of our labels. Now, all that being said, I have to acknowledge that ours is a relatively small database, only roughly 60,000 individuals. So as we start selling millions and millions of doses, we'll get a much better ability to understand if there's any risk for myocarditis or not.
spk08: Okay, very good. Thank you. That's helpful. Congrats on the progress last year and into this year.
spk02: Our next question comes from Georgie Lordenoff from Cowan & Company. Please go ahead with your question.
spk11: Everyone, congratulations on all the progress for me as well. Just a clarification on the guidance. Is there an expected timeline that countries that have signed the APAs will need to accept doses by? And again, related to the $4 to $5 billion, do you expect the majority of the currently signed APAs to be satisfied this year? And then as a follow-up, our estimates suggest that you could generate $2 to $3 billion in cash flows in the next let's see, 12 to 18 months. How do you plan to utilize this cash? What are your thoughts on potential BD opportunities or share buyback?
spk06: Hi, John Truzzino here. So, yeah, the APAs are behind in backing up all of the expectation for our revenue guidance this year. We don't typically reveal any kind of detailed timing obligations. But we're, as we've talked about in the presentation, you know, shipping across the board to all of the APAs. And so I think the timing of all the shipments is in line. And we feel real confident about what the APAs are that are supporting the revenue recognition. You know, as far as As far as BD opportunities are concerned, you know, I think I'll probably toss it back to Stan mostly for that, but I think it's probably an expectation, you know, that we would be utilizing our cash in an effective way. But, Stan?
spk05: Well, thanks. Thanks for ducking that one, John. So, yes, we do expect to generate cash, and the cash will be used for investment in our internal projects like – The combination nanoflu and other respiratory parts of our franchise, part of it will be used to explore BD opportunities, and I think that's where our focus will be. I doubt that our focus will be on stock buyback in the next 12 months.
spk11: That's great. And then just a quick follow-up. Given that there could potentially be a significant booster market this fall, maybe could you just talk about how you see yourself prepared to participate in it? Some of your competitors have indicated plans to develop bivalent boosters. Is that something in the plans, and would you be able to generate data to get authorization ahead of the fall? Or given the strong data you've already generated, do you believe a standalone vaccine would be sufficient?
spk04: Dr. Gavasky. Thank you. It's a good question. And, you know, we're obviously building our database both for homologous boosting, including looking at multiple rounds of boosting. The phase two in U.S. Australia has now vaccinated people with up to four doses, and the studies we're planning for heterologous boosting also envision three or four doses in boosting on top of heterologous vaccination. So it really isn't clear to us If bivalent will be required. It isn't clear to us that Omicron specific vaccine will be required. But we're going to be prepared for both. So the initial study design calls for looking at Omicron compared to the original prototype Wuhan. But how we insert the bivalent product into that study or subsequent study or alternate study, we're deciding on right now. I guess I should say you know that our antigen level is very, very low in our vaccine, and there's not a problem for us to include alternate additional antigens. You can see that from our flu product, which the amount of antigen we have is much, much higher than what we have in the COVID vaccine. So there's not a specific technology limitation for us to have a polyvalent vaccine, including bivalent vaccine.
spk11: This is great. Thank you so much.
spk02: Our next question comes from Mayonic Memtani from B. Riley Securities. Please go ahead with your question.
spk12: Good afternoon. Congrats on a productive quarter, and thanks for providing a helpful 2020 outlook, and let me also pass on thanks for the revenue guidance there. So first question, causing some confusion on the fourth quarter numbers. Maybe I can ask them. So two-part on revenue and cost recognition methodology here. As you've recognized stockpile doses on P&L and maybe going forward on balance sheet, could you just clarify, do we still assume manufacturing about 2 billion doses this year? And more importantly, you know, it would be helpful to understand the OPEX rate. I know you said 1Q to 3Q to be a better proxy, but, you know, obviously people are interested in learning about your cash flow generation this year. So OPEX is an important part of the equation. And then I have a follow-up on revenue, right?
spk07: Well, thanks for the question. And of course, uh, certainly anticipated a great deal of interest in, uh, our, the shape of our business as we commercialize the vax of it. You know, when, when providing guidance on the R and D trend, um, What we're sharing with you is the R&D trends whereby we are capitalizing the inventory, meaning that the vast majority of our R&D is clinical activity and then, of course, the manufacturing in support of clinical. And that's very different from what you saw in the fourth quarter, where there was a significant pre-launch inventory that in subsequent periods would find its way onto our balance sheet. The shape of R&D when you compare 2022 to 2021 full year is we expect 2022 to be lower. So hopefully that alone is helpful. We will provide additional cost structure guidance beginning next quarter. And so I'm not going to be able to provide any more details on that today. I will reinforce that we have built up our manufacturing capability to produce up to 2 billion doses in the year.
spk12: Okay, great. And then the second question, maybe for John, you know, in terms of the quality control process that is happening, you know, in the original country, India, where the vaccines are coming from, and then, you know, they get to the particular country, there's a local quality control process, and then subsequently there's revenue recognition. So can you clarify, you know, different countries have different timing and processes. Can you just clarify what would be the expectation for U.S., for instance? And then how does this all come together for, you know, a statement you put out in third quarter filing of potentially recognizing $7.2 billion in in APAs at some point across these different quarters, initial quarters.
spk07: To clarify, I think what you're referencing is disclosure around performance obligations of $7.2 billion. Is that correct?
spk12: That's correct.
spk07: Okay. You know, when you see RK, it will say $8 billion. And it's everything from the outstanding amounts under Operation Warp Speed, our order book of APAs, milestones, and adjuvant commitments from our licensed partners. So there's a number of different items in there. And so as you can tell, it's above our guidance range of $4 to $5 billion. And therefore, you'd expect that we'd meet those obligations in this year into next.
spk12: Great. And then just a quick follow-up for Phil on the nano flu-COVID combo next study. Would that include a bivalent or an Omicron-specific construct, this study you're planning for? And then on the great-to-see-the-six-month-durability data, you know, some cases in the delta wave, are you able to put in context what we may have seen from the, you know, currently very effective EU-approved vaccine at that time period? you know, maybe in a comparable wave, because it looks like most of the data was in the alpha wave.
spk04: Yeah, so let me show you this separately. Right now, our plans are to not use Omicron in our combination in the Phase II study. Now, some of that will depend, you know, what happens as the pandemic evolves. We'll have that vaccine in hand, and it certainly wouldn't be a problem to include the Omicron into the quadrivalent study. What we're really looking for is more of a proof of concept, and by including the prototype strain in there, we can do a direct immunologic comparison back to the phase three studies that were associated with protection both in the UK and the US. Now, as far as I think you're wanting me to speculate on what the durability of protection would be like as alternate strains emerge, And as you know, we don't have any data on that other than the immunogenicity data I shared with you, which show that we have an immune response, which does recognize Delta, as well as Omicron, as well as a host of other variants. If you remember back to the adolescent efficacy data, that, although we didn't have a lot of cases, that had a good estimate of efficacy against Delta, which was 82%, and a lower bound of roughly 75%. And I think that's consistent with what the other sponsors have shown in their studies against Delta.
spk12: Thank you for that. I appreciate you all taking that question.
spk02: Our next question comes from Eric Joseph from J.P. Morgan. Please go ahead with your question.
spk09: Hi. Good evening. Thanks for taking the question. confirmatory one to start. Is there anything from your interactions with FDA so far that would suggest that the EUA path is not still open? I think a lot of investors are just looking for confirmation that the EUA path with Novavaxivit is indeed open. And then secondly, as it relates to the non-clinical BLA requirements and needing to demonstrate log consistency runs, does it matter which facilitated Excuse me, which facilities those are being generated at? Is CIRM sufficient or would you need to conduct those in part using your own supply chain?
spk04: So maybe I'll take the second part of the question. And just to make the point that CIRM is, in fact, part of our supply chain. And all of our global filings were harmonized to include the product in the manufacturing process out of CIRM to be part of their filings. Now, our application to the FDA includes CIRM as a manufacturer, and therefore the lot-to-lot consistency study has to be made from material made in CIRM. Okay. And on the first question, it's EUA all the way. I mean, I think both us and the agency are working toward getting an EUA for this product. All right.
spk09: And maybe just a follow-up to... The second question, as it relates to manufacturing, part of the prior communication was that you were expecting to supplement your, supplement two regulatory bodies with additional CMC packages. Can you, I guess is there any updated timing that you might be providing tonight?
spk05: No, I think that the first goal was accomplished with all the filings. First of all, Philip said that we harmonized all of our productions, which is really important. Number two, our first filings has been with CIRM because they are there with the volume that can service all of the various EUAs. And right after we get those EUAs, which, as you recall, has only been within the last weeks, we put together packages to file. additional sites such as SK and Korea and our CZ facility. And so those will just be coming in time. It will be supplements to all of our filings. We'd like to have the flexibility to ship virtually anywhere from any of our plants.
spk09: Okay. Just to clarify, finally, as it relates to just manufacturing, when it comes to, you know, plants, the plant and prog agreements with Fujifilm, DioSynth, and Leica in terms of making API. I guess what should be the current understanding of the integration of those facilities as part of the supply chain? From all the commentary, everything seems to be very heavily weighted towards Serum. I guess is there really effectively should we be thinking about those other facilities making API that I mentioned earlier kind of factoring into the global supply chain?
spk05: Yeah, they will. It's just somebody has to be first. Serum was there and ready and scaled up and producing very large quantities. But SK has made on the order of 100 million doses that will be folded into the supply chain very quickly. And same for Prague. And we continue to work with Fuji. So as I say, it gives us multiple options. We have done what we said we would do two years ago, which is to go from zero manufacturing capacity to this level now, which frankly exceeds 2 billion doses a year. So that gives us a lot of flexibility in terms of supplying any anticipated and unanticipated orders that we get from parish governments. We're in good place.
spk09: Okay. Thanks for taking the questions.
spk05: Yeah.
spk02: Once again, if you would like to ask a question, please press star and 1. Our next question comes from David Risinger from SVB. Please go ahead with your question.
spk03: Yes, thanks very much, and thanks for the updates. So I have a few questions. The first is, could you just discuss the gross margin prospects for the company and how we should think about gross margin? Because there are a lot of partners that you have, and it's, you know, difficult to try to estimate what the various cost components would be from the various supply sources. The second question is, the release indicates that you initiated a Phase III booster study. When do you expect to generate data from that trial and file for booster approval in the U.S.? And then the final question is, Omicron-specific vaccine. For that, when do you plan to submit that for approval in the U.S.? And, you know, both as a primary vaccine and also as a booster. Thank you very much.
spk05: So let me distribute this. First, we'll give it to Jim to talk about or not talk about our future margins. and then turn it over to Philip, if I could, to address the others.
spk07: So, thanks for the question. And I'll start by saying gross margin as a percent of revenue is a little complicated because you have different price points, right? So, you've got some degree of variability depending on the local market price. So, perhaps easier to view it on in absolute terms. So we expect that we're going to have price or cost per unit in the call it $3 to $5 a dose range. But that said, you heard earlier that we've written off an expense, a fair amount of inventory expense in 2021. And so what that means is that as we move into 2022, begin to recognize sales and COGS, we're going to have periods of It's called zero cost or low cost COGS early on as we realize the benefit of manufacturing expenses that hit R&D in 2021.
spk04: Okay, I think it's over to me. I think it's over to me. And boosting initially. And so I guess I'll start. So right now we have the Facebook. two study in Australia and the U.S., which we have in hand, as well as the South African study, which is also a boosting study. We know from our interactions with regulators that many consider this adequate to get a core boosting indication. And we've had discussions with MHRA, EMA, TGA, and they all seem to have a pathway for using that data by itself. Whether that's sufficient for the U.S. isn't clear. In case it isn't, We do have the boosting study, which is ongoing, from the 301 U.S. study where we boosted those participants. So that will be ready in due course. Now, that study is started much later than the other two, so that data wouldn't be available for a while. So in short, it's not really clear, and that will be based on regulatory discussions with the FDA, whether the data that we're trying to file in the first quarter, or the second quarter, sorry, will be adequate to get a boosting indication in the U.S. I think you had a question that was similar to that about timelines of US for Omicron, and we haven't disclosed when that study will read out.
spk03: Okay, and just to quickly follow up on that, will that include any assessment of a booster in that Omicron study that you just mentioned?
spk04: Yeah, we haven't gone into detail into the design of that study, but in short, we're going to be looking at people who've been vaccinated with other people's vaccines, primarily because there are no more sero-naive people left in this world. So that's the most relevant population to evaluate the vaccine. The study design we have in mind should be able to fill both data that's required for boosting indication as well as for strain change. it'll be able to serve us.
spk03: Thank you very much.
spk02: And ladies and gentlemen, with that, we'll conclude the question and answer session. I'd like to turn the conference call back over to Stan for any closing remarks.
spk05: Thank you. I think that people who have been following us for some time will recognize that this has been a very transformational quarter for us. We've We're a revenue-generating company. We've got obligations to support that revenue generation and report on that. We're very excited by this. We've now got a manufacturing process that's been approved by virtually the world. We've got regularity to our shipping. We've got good cadence, and we're looking forward to every quarter talking with you more. Thanks very much, and Keep your questions coming. Talk soon.
spk02: Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may now disconnect your lines.
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