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spk10: Ladies and gentlemen, thank you for standing by. And welcome to the Novavax fourth quarter and full year 2022 financial results and operational highlights conference call. At this time, all participants are in a listen-only mode. If you need assistance, please press star then zero to reach an operator. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star then one on your touch-tone phone. And to remove yourself from queue, please press star then two. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Erica Schultz. You may begin, ma'am.
spk00: Good afternoon, and thank you all for joining us today to discuss our fourth quarter and full year 2022 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. Please turn to slide two. Before we begin with prepared remarks, I need to remind you that this presentation includes forward-looking statements, including information relating to the future of Novavax, its key strategic priorities, operating plans, objectives, and prospects, its future financial or business performance, conditions or strategies, key commercial goals, future product demand trends, the ongoing development of our vaccine candidates, including strain selection, anticipating timing of trials and results, the scope, timing and outcome of future regulatory filings and actions, the efficacy, safety, and intended utilization of our vaccine candidates, including against COVID-19 variants, the global market opportunities for our vaccine candidates, our manufacturing capacity, and the future availability of our vaccine candidates and key upcoming milestones. Each forward-looking statement contained in this presentation is subject to risk and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding those factors appears under the heading Cautionary Note Regarding Forward-Looking Statements in the slide deck we issued this afternoon and under the heading Risk Factors in our most recent Form 10-K and subsequent Form 10-Qs filed with the Securities and Exchange Commission and available at www.sec.gov and on our website at www.novavax.com. as well as subsequent filings with the SEC. The forward-looking statements in this presentation speak only as of the original date of this presentation, and we undertake no obligation to update or revise any of these statements. Please turn to slide three. Joining me today for the first time is John Jacobs, our new President and CEO. John will provide an update on his first few weeks at Novavax. as well as provide an overview of our near-term priorities as we plan for the long-term path to success. Additionally, John Trezino, Chief Commercial Officer and Chief Business Officer, will provide an update on our commercial activities, and Dr. Philip Dabowski, President of Research and Development, will discuss our variant strategy and clinical development. Finally, Jim Kelly, Chief Financial Officer and Treasurer, will provide an overview of our financial results. Rick Crowley, Chief Operations Officer, will also be available for the Q&A section at the end of today's call. I would now like to hand over the call to John Jacobs. Please turn to slide four.
spk04: Thank you, Erica, and thank you, everyone, for joining us today. I'm pleased to be together with all of you for my first earnings call with Novavax, and I'm excited to have the honor of helping to shape this new chapter in the company's history in partnership with our board, our leadership team, and all of our employees. After spending 25 years in the pharmaceutical industry and having led the growth of several different organizations to become mature commercial entities, there are a few key factors that drew me to Novavax, including their validated and innovative technology platform, which has produced a differentiated and effective COVID-19 vaccine, a pipeline of additional assets, and their adjuvant matrix M, that together offer the potential to create significant value for the organization. Their fully integrated set of capabilities, ranging from discovery and manufacturing to commercial execution on a global scale. And finally, Novavax's people and company values, which have cultivated a mission-driven culture dedicated to improving global public health. Today, I would like to share a few insights from my first five weeks at the company and outline our near-term priorities before handing it over to additional members of our leadership team to discuss our results from the previous quarter. So let's talk about my observations during the first five weeks. Since joining Novavax in late January, I've spent my time listening, learning about the business, and gaining perspective from key stakeholders across our organization. Though I will certainly continue to listen and learn for months to come, As I visit our global facilities and meet all of our amazing employees, customers, and partners, I've had the chance in these initial weeks to gather some early insights and to gain an initial picture of our current business, our capabilities, and our challenges. These early interactions have made it clear to me that we need to focus our entire organization on a few key priorities, which I believe will give us the best chance for success in 2023. Importantly, they have also reinforced for me the remarkable technology, capability set, and talent that we have as a company, and the opportunity we have to build long-term value by leveraging the foundation that has been laid to date. So let's take a moment and talk about our near-term priorities. While the significant investments made to build the company over the past three years were necessary for Novavax to deliver our first commercial product during a complex global pandemic, we are now seeing a more traditional commercial market emerging as the pandemic settles into an endemic phase. This new emerging commercial market will require the company to adjust our level of investment and our plans to better align our efforts with this opportunity. In fact, the leadership team and I have already taken decisive actions together during my first few weeks with this in mind. These actions are intended to focus our efforts on the things that we believe are most important to our near-term success, while at the same time reducing our spend and our resource commitments in areas that may no longer be aligned with those goals. I'd like to take a few minutes to share with you these priorities and some of the actions we've already taken since my arrival. Priority one, deliver a competitive product for the upcoming 2023 fall vaccination season. We are a global company, and our intention is to deliver an updated COVID vaccine that aligns with public health recommendations. Additionally, we intend to make this product available in smaller dose files, which we know is important for our customers. Together, these factors are intended to help ensure we are well positioned to compete as markets move from an advanced purchase agreement to a commercial orientation over time. Importantly, globally, we do not yet have full clarity on strain selection for the upcoming 23 fall vaccination season, which will be an important factor for us as we update our vaccine. In the U.S., for example, we are working in partnership with the FDA to inform them about what we will need in order to deliver our product, including the timing of strain selection and the nuances of our own manufacturing process as a protein-based vaccine. Let's move on to priority two. Reduce our rate of spend, manage our cash flow, and evolve our scale and structure. Since my arrival, we have taken immediate steps to reduce our rate of spend, better align our investments with our near-term priorities, and focus our efforts and energy with the intent of delivering a successful launch this fall. I have already taken an important initial step to evolve our structure by modifying the organization of our executive leadership team, which we discussed in our earnings press release. These changes will allow us to better align our internal resources, operate more efficiently, and help to position us for long-term success. Highlights of these changes include the appointment of Elaine O'Hara as our new Chief Strategy Officer, who will focus on business and corporate development, portfolio strategy, and alliance management. Elaine brings to the organization over 15 years of senior strategic and commercial leadership experience in vaccines and infectious disease, including Chief Commercial Officer North America for Sanofi Vaccines and senior roles at both Otsuka and Pfizer. In addition, Dr. Philip Dubovsky will assume the role of president research and development following the retirement of Dr. Greg Glenn. Greg will move into a consulting role as a strategic R&D advisor to the company. Sylvia Taylor has been promoted to chief corporate affairs and advocacy officer with expanded responsibilities, including government affairs, policy, and advocacy. Troy Morgan, our chief compliance officer, will remain in his role and now report directly to me as CEO in order to elevate our company's focus on compliance. And finally, investor relations will move under our CFO, Jim Kelly, among other changes. In the coming months, we will be assessing our global structure in more detail with these priorities and long-term value creation in mind, and look forward to sharing any additional potential changes with you during future calls. You will hear more today about how we are reducing and streamlining our investments from Jim Kelly later in the call. And finally, priority three, leverage our technology platform, our capabilities, and our portfolio of assets to drive additional value beyond Nuvaxavit alone. Beyond our COVID-19 vaccine and the near-term opportunity for the Fall 23 vaccination campaign, we have a differentiated technology platform, a global footprint with a fully integrated capability set, and a portfolio of promising assets including a COVID-19 influenza combination vaccine in Phase 2 with data expected mid-year that presents significant opportunity for value creation. It is our intention to unlock the potential of these assets and capabilities, both in the near term and over time, via different strategies, including but not limited to business and corporate development. This could include the potential for out-licensing, partnering, co-promotion, and or other related activities. To further align our resources against this objective, I have added the new role of Chief Strategy Officer to my executive team, as mentioned earlier. As part of her new role, Elaine will be undertaking a strategic review of our pipeline, including an assessment of how we will prioritize our pipeline investments. We have already decided to pause clinical development on RSV, which Philip will discuss in more detail. As noted in my opening comments, I have been trying to learn as much as I can during my first few weeks at Novavax. And although I still have a lot to learn as I continue to get to know our business, what I can say for sure already is that I have truly been impressed with the energy and talent of this team. Impressed with our technology and the remarkable set of assets and capabilities we have built as an organization on a global scale. And importantly, the significant opportunity for future growth and value that this represents. At the same time, I'm aware that over the past few years along this journey, we have experienced both highs and lows. And although the company has achieved many successes along the way, we have also experienced some disappointments. I would like to take a moment today to pledge to you our commitment to be transparent about our opportunities as well as our challenges. to provide balance and perspective about the near-term and future priorities we are focusing on and with humility to admit the challenges we face. I would like to say thank you to all of our investors, our partners, and the consumers of our vaccine for your faith in us and in this opportunity and for your patience as we now lead Novavax down a path towards a new and exciting future. The road ahead will be filled with potential opportunity as well as some significant challenges, and it won't be easy. But we commit to give you all our energy and our effort with a goal of success. And we may falter along the way, but if we do, we'll work hard to correct our path and be continuously thankful for your belief in our potential. So let me close my opening comments by saying, in the coming months, we are committed to maintaining a strong focus on the priorities I shared with you today. with the goal of strengthening our position as a company in the near term and putting us in a good position for future growth and success. With that, I would like to hand it over to the team to discuss our results in more detail, beginning with John Trezino to provide an update on our commercial activities on slide five. John?
spk01: Thanks, John. Please turn to slide six to discuss commercial updates. As John has discussed, we are beginning to see the COVID-19 market evolve and stabilize as we transition from the pandemic to endemic phase of COVID-19. We expect COVID vaccines will remain an important part of annual seasonal immunization schedules to address waning immunity and protect against emerging variants. It is generally accepted by public health policy advisors that there is an ongoing need for an annual seasonal vaccination and we expect this will create long-term markets for COVID vaccines globally. We anticipate that these markets will take a slightly different shape country by country, similar to established markets for other vaccines like influenza. In the U.S., the government's decision to end the public health emergency in May signaled the intent to move away from government purchasing and toward a commercial market for the second half of this year. In regions such as the EU and Asia Pacific, the market is beginning to transition from pandemic APAs to a more traditional commercial market. We expect governments will continue to play a significant role in these tender and private markets by procuring a portfolio of vaccines and allocating those vaccines in-country. Taken together, we believe these market dynamics create a significant long-term opportunity with a potential global market size of greater than $15 billion annually over time, and we anticipate that the U.S. and EU, two of our priority markets, make up approximately $10 billion per year of this total projected opportunity. Now, let me outline our path to commercial success, and please turn to slide seven. To capture our share of this potential opportunity, we are leveraging the strong foundation we built in 2022 to advance key commercial goals that will support our path to long-term success. These activities for the 2023 fall vaccination season include, one, working to enable reliable access to our vaccine, two, leveraging our commercial footprint in priority markets in the Americas and Europe to drive demand, three, utilizing our global manufacturing and supply network, and four, delivering a differentiated product profile. So now let me dive a little bit deeper into each. Number one, enable reliable access to our vaccine. We believe the relationships we've built with customers in key markets through the launch of Nuvaxvid will help facilitate a smooth transition to the commercial market. In the U.S., We recently updated our agreement with the US government to deliver 1.5 million additional doses of our COVID vaccine, which maintains access throughout the country in advance of our intent to deliver an updated variant-specific vaccine for the fall season. Outside the US, we currently have $2.1 billion in committed APAs remaining. We expect to deliver doses against this commitment through 2023 and 2024, and we remain in ongoing discussions with our customers on supply. In the EU, we finalized our revised delivery schedule for the remaining 20 million committed doses under our APA. Number two, leverage our commercial footprint in priority markets. Our focus is on positioning Nuvaxavit as a critical protein-based option as well as working to generate additional pull-through in all our target markets. In the priority regions where we have established commercial operations, Americas, Europe, UK, and Asia Pacific, our efforts are focused on building brand awareness, improving access, and differentiating our product to build demand and support pull-through efforts. In the U.S., our team's near-term focus is on communicating with and educating consumers and healthcare professionals to drive demand. While in the EU and APAC, our efforts are focused on advancing policy recommendations for national immunization programs and private purchasers. Number three, utilizing our global manufacturing network. As John discussed earlier, one of our key priorities is to align our structure and scale with the commercial market opportunity. This includes continuing to assess our manufacturing needs and modifying our global manufacturing footprint consistent with our contractual obligations to supply and for anticipated demand, especially in the U.S., for our COVID vaccine. We are working to establish our strain chain capabilities as we seek to manufacture variant-specific vaccines in monovalent or bivalent formulations. These efforts are intended to provide us with increased flexibility to supply our priority markets in line with seasonal demand. As part of these efforts, we have established our own internal drug substance manufacturing capabilities, which we see as a potential competitive advantage in the future. Our facility in the Czech Republic, Novavax CZ, recently received authorization from EMA to supply antigen drug substance to the European Union. And just this month, we completed our filing to the FDA to add this facility to our supply network. Lastly, our differentiated product profile. We believe our top organizational priority to help us capture market share is delivering a competitive product for the upcoming 2023 fall vaccination season in either a bivalent or monovalent formulation. In addition to the U.S., the EU has also stated their goal to harmonize their product and strain recommendations for the 2023 fall vaccination season. And with this in mind, we believe that EMA and potentially other regulatory bodies may also consider a variant strain approach for the fall season. For all our customers, we plan to remain in ongoing dialogue and prepare to supply the product that is requested. To further differentiate our product among healthcare providers, we are seeking to develop a smaller dose vial presentation. Nuvaxavit's competitive product profile is based on our validated technology platform, and our clinical data demonstrate our vaccine's high efficacy, strong durability of immune responses, protection against infection, and well-characterized safety and reactogenicity profile. These key characteristics coupled with our favorable transportation and storage attributes all contribute to our vaccine's differentiated profile. I'll now hand it over to Philip to discuss our strategy for developing our variant strain vaccine and ongoing clinical development.
spk07: Thanks, John. Please turn to slide eight. Today, we remain focused on developing our COVID-19 vaccine, including against variants, while also evaluating our influenza and combination vaccines. Beyond these three clinical assets, we are rationalizing our preclinical pipeline to align our resources with programs that we believe will drive significant value for our business. This includes pausing the planned clinical development for our adult RSV program until a strategic pipeline assessment is complete, and we are confident our other priorities are fully resourced. Let's turn to slide nine and look at a high-level overview of our ongoing COVID-19 studies. In alignment with the priorities that John Jacobs introduced, these studies are focused on two key areas. The first is to gather data to improve and expand our label, as well as to strengthen our policy recommendations. The second is to prepare for the upcoming vaccine strain change. Study 301 is our original phase three study in US and Mexico. We've continued the study and have administered first and second homologous boosts to both adults and adolescents. The adolescent boost data has been submitted to the FDA and is being submitted to other global regulators. Study 505 is being conducted in South Africa and is evaluating different dosing schedules for both immunocompromised and immunocompetent participants. This data will support a more flexible vaccination schedule and guide us on vaccine dosing in special populations. Study 312 is an extension of our lot-to-lot consistency study that I reported on in the previous quarter and at the January VRBPAC. In this extension, we are reboosting some participants to evaluate the breadth of immune response after a second boost with our vaccine. And study 503 is our global pivotal pediatric study, evaluating the safety and effectiveness of the vaccine in children as young as six months of age. We continue to enroll in the older cohort and began enrolling in children two to five years of age in January. All of these studies were designed to provide data that can be used to expand our label and support policy recommendations. Finally, study 311 is our strain change study that we've previously discussed. The study achieved its pre-specified endpoint, supporting a potential strain change to BA.1. However, as discussed at the VRBPAC, the prototype strain vaccine, BA.1 vaccine, and bivalent vaccine overall performed comparably, supporting the continued use of our prototype in ongoing boosting campaigns. Part two of this study will evaluate our prototype strain vaccine, a BA.5 variant vaccine, and a bivalent containing prototype plus BA.5. The study is being expanded to include a cohort of adolescents who will receive the same BA.5 containing formulations. It is unclear if the BA.5 will be a component of the 23-24 updated vaccine composition. However, in discussion with regulators, this study is designed to support our regulatory file irrespective of which strain or strains are chosen for the final composition. I'd be remiss if I didn't mention that with the exception of study 505, these are all being planned and conducted in partnership with the U.S. government. Before I move to our influenza COVID combination vaccine, I want to update you on our approach on doing preliminary work on emerging variants so we can be nimble once the strain composition has been announced. Let's move to slide 10. We monitor public health platforms for the emergence of new variants. When concerning variants emerge, they're placed into our variant development platform. Work begins with cloning the new sequence and evaluating spike proteins in vitro. The immune responses are evaluated in animal models, and monoclonal antibodies are developed for our structure function analysis. Concurrently, we develop master virus seed that's required for commercial manufacture, and we also manufacture monovalent vaccine bulk, which can be used for clinical evaluation, or if that variant is part of the selected future composition, it can be blended as a monovalent or bivalent vaccine and be available for initial commercial release. Although we cannot be assured any of the variants we are working on will be selected for the future composition, this approach may shorten the time between strain selection and deployment of vaccine. Okay, please move to slide 11. For our COVID influenza combination and standalone influenza vaccines, we initiated our phase two study in Australia and New Zealand in December. The study design is shown conceptually on this slide. We previously reported results from our initial phase one, phase two trial that confirmed the feasibility of the combination vaccine. The current trial enrolled approximately 1,500 participants and is evaluating different antigen and adjuvant dose ranges for our combination product as well as our standalone influenza vaccine. The immune responses will be compared to two licensed influenza vaccines. This study will determine the specific formulations that could be advanced into late stage development for both influenza and the combination vaccine. We expect initial results from our Phase 2 trial mid-year. We will evaluate the results and make a data-driven decision on our go-forward plan for these candidates. If the data are positive and demonstrate this program may have significant potential value, then we will expect to pursue options to continue advancing the program into the Phase 3 trial. With that, I'll hand it over to Jim Kelly to discuss our financial results.
spk09: Thank you, Philip. Please turn to slide 12. This afternoon, we announced our financial results for the fourth quarter and full year 2022. Details of our results can be found in our press release issued today and in our 10-K filing. I'll begin by providing an overview of our total revenue performance and cash position. Then I will discuss our quarterly and full year results in additional detail. Finally, I will discuss our recent initiatives to reduce and control our spend with the intent of improving Novavax's cash runway, and best position the company to deliver near and long-term value. Please turn to slide 13. For the fourth quarter of 2022, we recorded total revenue of $357 million, a 61% growth over the fourth quarter of 2021. For the full year 2022, we recorded total revenue of $2 billion, a 73% growth over a prior year. The growth in each period resulted from our Novavax-evaded product sales, which offset a decline in grants, royalties, and other revenue, and reflect the transition of Novavax to a commercial stage company. Additionally, we ended 2022 with $1.3 billion in cash, compared to $1.5 billion as of the end of 2021. In December 2022, we raised $250 million in gross proceeds through concurrent equity and convertible securities offerings. In January 2023, we funded the maturity of our 325 million convertible notes. Please turn to slide 14. Taking a look at our full year financial performance, our cost of sales for the fourth quarter and full year 2022 were 182 million and 903 million respectively. This includes $99 million and $604 million, respectively, for expenses related to excess, obsolete, and expired inventory and losses on future supply commitments. These write-offs are associated with the rationalization of our supply network in light of lower demand as we transition to an endemic COVID-19 market. Research and development expenses for the fourth quarter and full year 2022 were $258 million and 1.2 billion, respectively, compared to 963 million and 2.5 billion for the comparable periods in 2021. The decrease in both periods was primarily due to a decrease in development activities related to coronavirus vaccines and an increase to capitalized manufacturing costs that previously were expense to R&D. Selling general and administrative expenses for the fourth quarter and full year 2022 were $162 million and $489 million respectively, compared to $84 million and $298 million for the comparable periods in 2021. The increase in both periods relates to the commencement of our commercial sales operations in support of our Nevaxavid product launch. We recorded a net loss of $182 million for the fourth quarter and $658 million for the full year 2022. This compares to a net loss of $846 million and $1.7 billion for the comparable periods in 2021. Please turn to slide 15. In ARC 10-K, you will see that we have added a going concern disclosure. While our current business plan and cash flow forecast estimate that we have sufficient capital available to fund our operations for the next 12 months, we recognize that this plan is subject to significant uncertainty related primarily to future revenue, funding from the U.S. government, and our pending arbitration with GAVI. I'd like to first discuss these uncertainties and then share with you immediate actions we have taken to mitigate these concerns and improve our financial position. Regarding our full year 2023 revenue, Our performance will depend on our ability to deliver an updated version of our COVID-19 vaccine for the 2023 fall vaccination season. Key activities in support of this plan include our timely completion of the 311 study to demonstrate our strain change capabilities and delivering an updated COVID-19 vaccine consistent with public health recommendations for strain composition. Regarding our U.S. government funding, in February 2023, the U.S. government indicated our existing agreement would not be extended past December 2023, which may place a portion of the remaining $416 million of funding at risk. We are proactively discussing mitigation options with the U.S. government in an effort to realize the full amount outstanding. And finally, regarding GAVI. we recognize that the outcome of our pending arbitration is inherently uncertain. We are taking immediate actions as we seek to address these concerns with the intent of improving Novavax's cash runway and best position the company to deliver near and long-term value. Earlier this month, we initiated an organization-wide effort to assess our capabilities and more closely align our investments and activities with the top business priorities that John outlined at the start of today's call. Through this initiative, we have implemented multiple measures to reduce and control our operating spend. These include alignment on our key priorities for investment for 2023, cost containment measures to reduce spend, and an immediate hold on non-critical hiring. Given the uncertainty of the 2023 fall vaccination strain selection process and implications on our full year 2023 revenues, we've decided not to provide full year 2023 financial guidance at this time. We will assess whether it is prudent to do so in the future based on the clarity provided by government agencies globally that will in turn inform our revenue and operating plans. However, today we are providing preliminary insights into our near-term financial performance expectations. In the first quarter of 2023, our intent is to lower our combined SG&A and R&D expense to $370 million or less. If achieved, This would reflect a 50 million reduction to our run rate when compared to the 420 million recorded in the fourth quarter of 2022 and is based on the anticipated impact of our enhanced spend controls, prioritization, and gating of activities. Regarding pipeline investment, Among other things, we are gating funding for our Flu Kick Phase 3 program pending an assessment of our Phase 2 clinical results in mid-2023. This will include an evaluation of dilutive and non-dilutive options to fund this important program. On revenue, we are seeing an emerging seasonality for the demand for COVID-19 vaccines globally. Because of this, we do not anticipate any new vaccine sales for the first quarter of 2023. We do anticipate vaccine sales beginning in the second quarter and the majority of our Novavaxavid sales to occur in the second half of 2023. Outside the United States, we currently have 2.1 billion in committed APAs remaining. We expect to deliver doses against these commitments throughout 2023 and 2024. Regarding our U.S. government funding, We entered 2023 with $416 million of funding outstanding and expect to recognize the majority of this amount in 2023 and are proactively discussing mitigation efforts with the US government in an effort to realize the full outstanding amount. With that said, I'd like to turn it back over to John for some closing remarks.
spk04: Thank you, Jim. And please turn to slide 16. Looking ahead, I'm excited about our opportunity this year and also believe that we have a significant opportunity to create value over the long-term at Novavax. We recognize that we'll face some significant challenges on our journey from here and that the near-term road ahead will be tough as we work hard with the intent of updating our differentiated vaccine in line with emerging requirements around the globe for the fall season, reshape our ways of working, reduce our spend, and refocus our time, energy, and resources on our emerging priorities for the year. The support of our shareholders, partners, and customers has been instrumental in guiding us to where we are today, and this support will continue to be critical to our long-term success. Because of this, our commitment is to put forward our best effort in all that we do and to conduct our business with the highest standards of integrity. Over the coming months, I will continue to work with the executive leadership team and our board of directors with the intent of delivering strong results this year and to develop our long-term vision for growth, positioning our business to eventually become one of the leading global vaccine companies. We look forward to sharing updates and additional details on our execution of this plan and our emerging long-term vision on our first quarter 2023 earnings call. I'll now turn it over to the operator for Q&A.
spk10: Thank you. We'll now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Today's first question comes from Roger Song with Jefferies. Please go ahead.
spk12: Great. Thank you for taking our question. A few ones from us. The first is about the liquidity. Maybe the team can give us a little bit more granularity in terms of the top line versus the outback spend. On the top line, we are hearing you have 20 million US, no, the EU kind of APA, revised APA. And also you have the 2.1 APA, 2.1 billion APA remain to deliver in 2023 and 2024, and how should we think about the 2023 revenue kind of in general? And also in terms of the op-ex, how flexible your op-ex will be based on the top-line revenue, understanding you're cutting the costs overall? Thank you, and I'll have a follow-up after that.
spk04: Hi, Roger. John Jacobs here. Thank you for joining, and thanks to everyone for joining our call today. Just a couple of comments and I'll hand it over to Jim Kelly to add some additional context, our CFO. But as you mentioned, we have just over a $2 billion book of business globally outside of the U.S. that the company will be optimizing between 2023 and 2024. Discussions around that are ongoing right now. In addition, the U.S. represents an exciting and relatively new opportunity for Novavax, as the company didn't fully penetrate the U.S. market in the past. We're working closely with USG, who just put an order in for additional vaccines right now, as well as the FDA to align on what we're going to bring forward for this fall season and are excited about the additional opportunity that the U.S. marketplace offers us regarding potential revenue. And Jim, Roger also had some commentary about OPEX, and maybe you want to add some more context to that answer for that.
spk09: Certainly. And thanks for your question, Roger. One of the things that we shared was our expectations around trajectory of spend into the first quarter. That's certainly something we provided. And one of the things you're seeing is that we do have leverage in our business. We're seeing the ability to reduce sequentially that number of SG&A plus R&D by 50 million, which is just over 12%. What you also heard is that we have an operating plan that we think provides sufficient capital for us to be successful this year, although acknowledge it's not without risk. And for that reason, that's why we're not providing financial guidance. You are correct that there are certain variable aspects to our cost structure that do coincide with sales that would be avoided. But the reality is we look forward to delivering an updated vaccine in the fall and bringing that product to people around the world.
spk04: And, Roger, just to make sure we were crystal clear that 20 million doses in Europe is part of that $2.1 billion book of business outside the U.S. And you had a follow-up question, Roger? Great, yeah, thanks.
spk12: Yeah, I understand. In terms of the variant-specific vaccine, since the global aid that the regulator and the public health agency is looking for, just curious about your current, the CNC capacity or the speed of the production. What is the timeframe you're looking for to be able to meet the stream change Specific US seems looking for three months, but, you know, will you be able to meet that, or you really need six months to be able to make the stream change? Thank you.
spk04: Great question, Roger, and obviously everyone knows that it takes a little bit longer to develop a protein-based vaccine than an mRNA vaccine, but there are things we can do to speed up our timeline, and we are taking decisive action with that intent in mind. First and foremost, that's partnering with the FDA very closely in conversations between our team and FDA senior leadership and FDA technical leadership to make sure that they understand what our requirements are and that we understand what their requirements are in a crystal clear fashion so we can move forward together with the goal of offering our protein-based vaccine as an option for U.S. consumers. In addition to that, we as an organization have a fully integrated capability set that allows us to bring forward multiple variants at the same time and bring those variants to scale in our CMC process so we can hedge our bets, if you will, ahead of the curve in anticipation of variants that may be selected. And what I'll do is turn it over to Mr. Rick Crowley, who runs our manufacturing organization for additional color and context. Rick?
spk08: Roger, it's a good question. As As said, we are actively producing variants of interest and we're identifying those through the public health authorities and our discovery team is developing the variants that we are then moving on into the large scale manufacturing. And so we anticipate having a pool of inventory ready at the time of the decision being made. And that allows us to, even though it still takes about six months to go from inception to commercial, We are getting a jump start on that by creating this inventory and putting this material in stock ready to be delivered in the fall.
spk11: Excellent. Thank you.
spk12: Thank you for taking our questions.
spk10: Thank you. And our next question today comes from Alex Shanahan with Bank of America. Please go ahead.
spk06: Hey, guys. Thanks for taking our questions. Just a few from us. As a follow up to the question that was just asked on the vaccine turnaround, do you have any additional info on the spring versus summer strain selection? I know this was sort of the topic of debate at the most recent VRBPAC meeting. And just from a technological perspective, how accurate would it be to have multiple, I guess, irons in the fire? What would sort of be the hit rate historically when you look back at prior flu seasons. And one more question on innovation outside of COVID. I know you mentioned that RSC might be deprioritized. Is this due to how crowded the space has gotten, or are there some other technological hurdles in any color around sort of the first stops or best applications for technology that would be helpful? Thanks.
spk04: Philip, do you want to take the question on strain selection?
spk07: Sure. Let's start there. So, I mean, what we're hearing from all the regulators, more or less globally, is that they're moving toward an annual vaccination schedule. And we heard at the VRBPAC that they're really trying to select strains around the summertime or a bit earlier to be deployed in the 23-24 northern hemisphere season, which is really fall-winter for us. So those are the timeframes that Rick was talking about meeting by selecting the strains. Now, you had an add-on question, you know, what's the hit rate? And I think you mentioned flu. Now, flu is different from COVID. And we talked about that at BRBPAC. It's recognized that, you know, COVID is changing a lot faster than influenza. Now, that being said, there are some of these that, as we look at the landscape, the global landscape, appear to continue to be important variants and cause disease, and some of them appear to be quite stable. In the slide that I showed you, I outlined the ones that we're pushing forward actively now, but we have other ones that are further in the pipeline that we can move toward GMP manufacturing if that's the way it looks. And I got to tell you, the public health authorities globally are aware of what it takes to take a vaccine to market in the timeframe they're talking about, and they're trying to be as helpful as they can.
spk04: Thank you, Philip. And regarding RSV, you know, we're in the process, and good question, we're in the process of rationalizing our portfolio, our supply chain, our global footprint, et cetera, to better align that with the emerging opportunity we see coming at a global level as these markets transition from APA to a commercial opportunity for the long run. And as John Trezino said, we see the market evolving eventually to over a $15 billion global opportunity with about two-thirds of that opportunity in the U.S. and Europe. But in the short run, Our goal is to deliver results in 2023, to focus our energy, our efforts, our resources, and our investment on what matters most. And our top priority at Novavax is introducing a differentiated and competitive vaccine alternative for this fall season at a global level and in the U.S. market in alignment with what regulatory authorities are looking for. By channeling our resources on that priority, as well as streamlining our business, we hope to have a very successful year in 2023. Philip, any additional color there?
spk07: Yes, so we're aware of the competition in the RSV space, but there's no specific reason we can't be competitive in that space as well. The construct we have now has been modified and improved, as has the manufacturing process. Right now we're just, like John said, we're in the position of trying to decide which ones to push forward and make sure that the resources are available to cover the priorities before we go deeper into the pipeline.
spk04: Thank you, Philip. And one other comment to add to that. One of the reasons I came to Novavax and I'm so excited about being here is our portfolio of assets that we have and our differentiated technology. And as I said earlier in the call, Pillar 3, our top priorities, all three are equal in priority to us. And Pillar 3 was extracting value and leveraging that technology and that portfolio through business and corporate development opportunities beginning in this year and in the future. And RSV could very well be part of that. So We look forward to sharing more updates with you in the future as that develops. Thank you.
spk10: Thank you. And our next, excuse me, and our next question today comes from George Yordanov with Cowan & Company. Please go ahead.
spk03: Thank you so much for taking our questions. And John, congratulations on the new role. Thank you. So maybe starting with you in general, you've talked about the opportunity to offer differentiated product to the market. So maybe can you talk about what would be the key aspects of differentiation that you would like to market and communicate to consumers, that being both the general population but also prescribers? And then as part of that also to talk to also like what is your ability to actually communicate and market these differentiating aspects given that we don't really have clear head-to-head studies? And then I have a couple of follow-ups.
spk04: John Trezina, would you like to take that question?
spk01: Yes, certainly. Thank you. Hey, Yorgi, how are you? I think the differentiation takes many different kind of shapes and sizes. And so, first of all, you know, clearly protein vaccine and the only other protein vaccine licensed in the U.S. is a key important differentiating characteristic of our vaccine, right? I think if you understand the comfort in dealing with protein-based vaccines, the refrigerator stability of the vaccine. And I think the label right now, I think it puts us on a level playing field or will put us on a level playing field with mRNA vaccines are critical attributes today that make us competitive for the 2023 season. I think if you also consider the number of kind of market research studies that we've done up to this point, really clearly indicate that there's a need in the marketplace, not only with healthcare professionals, but also consumers who are looking for an option away from mRNA and looking to protein-based vaccines in order to provide that. I think as we go forward, there are a number of other studies that are underway, some of which Philip outlined. that'll look at some additional differentiating characteristics going into the future. So not only do we want to be competitive today, but we want to be clearly differentiated on a number of points going into the future.
spk03: Great. And then just a couple follow-ups. The first one is specifically around what you mentioned in terms of the strategy of manufacturing multiple strain vaccines at risk. Can you maybe talk about what would be the impact of that on your gross margins? And I guess how suitable is this strategy in the longer term?
spk04: Philip, Rick, why don't you comment on how suitable that strategy is over the long term? And then we'll turn it over to Jim Kelly to comment on the cost.
spk08: Yeah, hi, this is Rick. As Philip had stated earlier, COVID is a very different animal than flu. And so the evolution of the strain changes is more rapid. I think the only way any vaccine manufacturer can keep up with that is to manufacture variants of interest at risk and have a stockpile. So I think we're no different than any of the mRNAs in that respect.
spk04: And that's certainly a sustainable strategy, Rick, with our global supply chain that we've built over the last several years here at Novavax. That's correct. Jim, did you want to comment on impact to the P&L there?
spk09: Yeah, sure. Sure. So that's a great question. When you think about the amount we'd be manufacturing at risk to enable the strain change strategy, it's not the full season's worth. It's just an initial start that keeps us on track for the fall. And so in that way, I don't view it as being a meaningful impact on our long-term cost structure.
spk03: Great. And then the final question is just on the COVID flu combination studies. Clearly, your mRNA competitors recognize that as a major upside to the eventual COVID market. So maybe can you clarify specifically the regulatory paths that you see ahead of that? The cities that you're running are specifically in elderly patients. And so do you expect that that combination product would only be used in elderly patients? What is the path to actually getting that product on the market?
spk04: Yeah, and first let me just make a comment here that we're excited in anticipation of those results mid-year this year. The team's been working very hard on that. We're looking forward to getting those results. And those results will help inform our strategy moving forward on how we bring the product to the next stage of development. But why don't I turn it over to Philip to address that in more detail. Philip?
spk07: Yeah, I mean, you're right. The studies are being done in older adults, and that's actually where we see the maximal value for this product. That's the place where differentiated products are being used globally, and that's where we want to play, compete, and win. The studies are designed to choose the optimal dose for both the COVID combo product as well as the flu product. Now, remember from our previous work that we've demonstrated that we're able to induce a very long lip T cell response with our adjuvant. And we're even trying to see if we can get a bit more juice out of going to higher doses of matrix in these studies. That, along with what we're going to see from the antibody response, is going to give us some assurance whether we have a product that can really compete in that high-cost space.
spk01: Thank you so much. Yeah, let me just add an additional comment there, if I may. You know, let's be clear here, and as we've seen from some of the data that's already come out from Moderna, that coming up with a very effective influenza vaccine is no small task. And recall that we already have some experience with our flu candidates. and a very successful phase three clinical trial. So you're taking an already demonstrated successful flu vaccine candidate and combining it with our already demonstrated successful COVID candidate on a common technology platform or a common protein nanoparticle plus the adjuvant. So I think you've got a combination here that has the potential to be very strong. We have a little bit to learn, a lot to learn here about how they interact with one another. But we do know that we've got two strong components that we're taking forward.
spk07: And let me just pile on, because why not? So the other point is, remember, we've already done the combination study with our previous phase one, phase two, and there we were successfully able to innovate our way around the immunologic interference that was seen just by adjusting dosage levels. We dropped the hemagglutinin, and we jacked up the spike, and we were able to recapitulate the immune responses we wanted. So this is really to fine-tune those and to start building initial safety databases as we move forward with the product if the data says we need to do that.
spk04: So we see this as a key potential value driver for the organization by mid-year. We look forward to sharing results with you when we get them. Thank you so much.
spk10: Thank you. And our next question today comes from Eric Joseph at JPMorgan. Please go ahead.
spk05: Hi, good evening. Thanks for taking the questions. Just wanted to get a sense of where you might see operating efficiencies on the R&D side. You noted the halt of the RSC program. But I'm wondering if you're appropriately sized on the manufacturing side of things. It sounds like there's support for Novavax CZ going forward. I guess, how should we be thinking about where products with Activate is being sourced over the long term, and in particular, the relationship with the CIRM Institute? And then as a couple of follow-ups, Secondly, we'd like to get a sense of whether there's a sunset period for the 2.1 billion remaining in APAs, whether there is potential for them to stay in place beyond the 2024 horizon. And then finally, also just wanted to get clear on John T's role within the executive leadership team with Elaine coming in as chief strategy officer. Thank you.
spk04: Let me address, you have a lot of smiles in the room here. Thank you for your question. I'll address John T. first as he sits right across from me. John Trezino is an outstanding chief commercial officer and will remain so here at Novavax by my side as the new CEO and with the executive team moving forward. Elaine's focus will be as a chief strategy officer on business and corporate development, which is a new role for the executive leadership team. And it speaks to pillar number three that I spoke to about in my opening comments, that We see an opportunity to begin to unlock more of the value from our extensive pipeline, our differentiated technology, and you alluded to already our global footprint. We have a fully integrated infrastructure here from discovery through to manufacturing, through to full commercialization across several continents. And that in and of itself is a very important feature that Novavax has to offer potential partners. So Elaine will be leading those efforts for the organization to expand our efforts around business and corporate development. John will remain in his very important role as our chief commercial officer and help lead the launch of our new, new vaccine this fall. That's our intention. When it comes to the supply chain, we're in the process of rationalizing our, our global supply chain, as well as our portfolio and our global footprint as a company to make sure that it's aligned with the emerging opportunity we see now in the short run for COVID and also potential future opportunities as there are long lead times involved here, as you know. as we expand our portfolio and continue to move those assets forward. And why don't I hand it over to John Terzina for some additional content.
spk01: John Terzina Yeah, I think, yeah, thanks, Eric. I think that, you know, regarding the $2.1 billion of remaining APA, It's important to understand that we're retaining the value of that through 23 and 24, as we mentioned, you know, during the script. Right now, we see a pathway towards satisfying those APAs during the course of 23 and 24 and don't see a sunsetting of any of the value of those contracts.
spk04: And one last point, and I'll ask Rick Crowley if he wants to comment as well on the CZ plant in Europe. That's an important asset for Novavax, and the company has built out that asset over the last few years as we got ready to take on the global pandemic, and we see it as a competitive advantage for us to have that level of quality and that manufacturing capacity in-house. Eric, did you want to comment any more on CZ?
spk08: I was just going to say that we've utilized the CZ facility and staff there to become our global center of excellence for both manufacturing and quality. Additionally, it is our license holder for our EU license. So it's an important role in the facility. Now, you'd also asked about Serum. And by having Serum and CZ operating and approved, we're able to be very flexible in terms of how we manufacture our future variants because we're not dependent on just one facility. And so we can... we can split our variant risks across both facilities and be able to supply the market appropriately at that point. And one final note is that we have gone through a serious analysis of our footprint and what it really needs to be to meet the demand as we currently see it, and that has been executed, and that resulted in CZ being as important as it is to us at this point.
spk05: Okay, great. Really helpful caller. Thanks for taking the questions.
spk10: And glad you're still... And our next question comes from Mayank Mamthani with B-Rally Securities. Please go ahead.
spk02: Good afternoon. Thanks for taking our questions. Welcome aboard, John and Elaine. Appreciate the helpful level of detail on many fronts, including having your 10K. Also, that just came out. So maybe just a quick... big picture strategy question. Is there a particular scale, R&D, SG&A, CapEx, you know, that you're working towards? And if there's like a medium to long-term timeline you may have put out for that. And what could be the adjacent pipeline opportunities you could pursue? I know you talked about some rationalization and discontinuation of RSV, but could you look to... and license something that you may see interesting out there. Then I have a couple of follow-ups.
spk04: Jim Kelly, would you like to take the first question?
spk09: Well, certainly. And thanks for the question. The assessment that you're hearing us discuss today really began over the past year with respect to our manufacturing network. We have scaled that network down, especially the external participants. That enabled us a great deal of flexibility to get to where we are today. And, you know, I think Rick highlighted the significance of, of course, our check plant with respect to not just DS production, but so much happening at that site. And then we'll also emphasize the importance of our Swedish site for Matrix. So, of course, we'll move forward. And as a company, we'll continue to be thoughtful about how we scale to the opportunity and We're really looking forward to this fall season. I think that's going to give us a great opportunity to see how our vaccine competes globally. And we'll continue to update you from there.
spk04: And regarding your question on adjacencies and the pipeline, you know, what I can say is that we intend to pursue a range of potential options from partnerships to co-promotion to out-licensing and even other opportunities that could be much larger in scale. You know, business development is complex and takes a lot of thought and care. strategically for us to frame around these opportunities and bring them forward. So I won't speculate on timing or scale at the moment, but we'll say that we're opening the door for much more opportunity to leverage the technology, the capabilities we've got as a potential partner at a global level, our manufacturing scope and scale, and the assets that we have in our pipeline to mine more value from those things over time and grow the potential of Novavax to become a leading vaccine company on the global stage.
spk02: Got it. Thank you. And just a quick follow-up on the regulatory and commercialization discussion on the strain change vaccine. How important is securing the full BLA to your partners, you know, private or public? Just maybe clarify what steps remain there. And a related question that often comes up, you know, why not pursue nanoflu monotherapy where you did have you know, both influenza A and B strain specific potency. Could you just sort of clarify that?
spk01: John Trezina, would you like to take the first question on the BLAP? I'll take the BLAP first and then hand it back over to Philip. I think it's worth clarifying that the U.S., in particular the U.S. government's action to suspend the public health emergency will not affect our ability to sell under the emergency use authorization during during the 2023 season. Of course, we'll be filing our BLA in the second half of the year, and of course, we'll see expectations of a BLA approval probably by late this year or early next year. But there's no, in conversations with FDA, there's no concern at this point relative to operating under an emergency use authorization.
spk07: And let me try to unwind the influenza standalone. So first of all, the study we're doing now does, in fact, include standalone influenza. And a couple of things to remember about the study that you referenced previously. One of them is that to compete in the elderly market with a differentiated product, we really need clinical data. That would be difficult to do without it. And the other thing is, you know, we've learned an awful lot about manufacturing – COVID vaccine over the past couple of years, and those learnings were brought into the flu standalone product. And that means we have a much more efficient process going forward. So in a sense, we were obliged to do the phase two study, which we're doing now, and it opens up the doors to pursue either the standalone quadrivalent flu or the combination.
spk02: got it thank you and final question you know in your 10k there is some level of detail on your Gavi arbitration it looks like a response might be due next week as early as next week could you maybe just touch on that you know what your argument sort of seems like and just broadly any comments on the deferred revenue of I think 700 million or you know how should we think about that going forward thanks for taking our questions
spk04: Thank you for your question. Yes, in late January, we did receive a request for arbitration from Gavi. And while Novavax stands by its prior statements regarding that matter, we don't comment any further on legal matters. And arbitration is inherently uncertain, so it is possible that we could be required to refund all or a portion of those advance payments. Look, we share Gavi's goal of improving global health via providing vaccines to consumers in low-income countries. And we intend to work to seek an amicable resolution for both parties. and we'll keep you posted as the situation unfolds appropriately.
spk09: And if I could, you brought up the point of where exactly would this fall on our balance sheet. What you'll notice in our 10-K is that $700 million has shifted from deferred revenue to other current liabilities, and it just captures the inherent uncertainty associated with that arbitration.
spk02: Understood. Thanks again for taking our questions.
spk10: Thank you, and ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to John for closing remarks.
spk04: I want to thank everyone for joining us today. Really appreciate your time and your energy, and we look forward to providing additional updates as the year pursues. Thank you.
spk10: Thank you. The conference call is now concluded. You may disconnect your lines at this time, and have a wonderful day.
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