Novavax, Inc.

Good morning and welcome to Novavax second quarter 2024 financial results and operational highlights conference call. All participants will be in listen-only mode. If you need assistance, please signal the conference specialist by pressing star followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask questions, please press star one on your touchtone phone. To withdraw your question, please press star 2. Please note this event is being recorded. I would now like to turn the call over to your speaker today, Erica Schultz, Senior Director, Investor Relations. Please go ahead.

Good morning, and thank you all for joining us today to discuss our second quarter 2024 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, statements related to potential royalties and milestones, operating plans, objectives, and prospects, full year 2024 financial guidance, the amount and impact of Novavax's cost reduction plans, its future financial or business performance conditions or strategies, its partnerships, anticipated timing and outcome of future regulatory filings and actions, and the ongoing development, marketing opportunities, manufacturing capacity, and 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 can cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Cautionary Note Regarding Forward-Looking Statements in the slide deck we issued this morning and under the heading Risk Factors in our most recent form 10-K and subsequent form 10Qs filed with the Securities and Exchange Commission available at www.sec.gov and on our website at novavax.com. 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. This presentation also includes references to a non-GAAP financial measure, which is forward-looking information for R&D and SG&A expense as adjusted for expense reimbursement from Sanofi under the Sanofi Agreement. Please turn to slide four. Joining me today is John Jacobs, our President and CEO, who will provide an update on our progress during the quarter and highlight our four key value drivers. Additionally, John Trezino, our President and Chief Operating Officer, will provide an update on our operating activities. And Dr. Bob Walker, Chief Medical Officer and Interim Head of Research and Development, will discuss our clinical development and pipeline. Finally, Jim Kelly, our Chief Financial Officer and Treasurer, will provide an overview of our financial results and implications of the Sanofi Partnership. I would now like to hand over the call to John Jacobs.

Thank you, Erica, and thank you, everyone, for joining us. I'm pleased to be with you today, along with the members of our executive team, to highlight our recent achievements, progress on our annual priorities, and the shaping of a new vision for Novavax. When we spoke with you last quarter, we were taking the first steps on this exciting journey with the announcement of our global partnership with Sanofi. Our collaboration with Sanofi has allowed us to monetize the value of our COVID-19 vaccines, and proven technology platform, and frees up resources to develop multiple opportunities in the vaccine space. Since then, we have worked hard to execute on our objectives and are beginning to position the company back toward its roots as an innovation-driven organization, while remaining a close commercial partner to Sanofi for our COVID-19 vaccine. We are beginning to evolve from a company that is independently manufacturing, distributing, and commercializing vaccines on a global scale to a much more efficient and focused R&D model. This means that we intend to drive future value from additional business development activities and organic R&D via our proven and validated technology platform. With plans to unveil a new and expanded clinical pipeline by the end of this year, and to seek to execute our plans within a much leaner operating model in 2025 and beyond. The potential value drivers of our business are outlined on slide five and include value driver one, the Sanofi partnership, value driver two, late stage pipeline, value driver three, leveraging our proven technology platform to drive additional partnerships and deals, and value driver four, new early stage pipeline. It is our intention that these potential value drivers will be supported by an appropriately scaled infrastructure with significantly reduced expenses versus our 2024 baseline. Jim Kelly will provide more detail and clarity on our expense projections later on in the call. So let's take a moment to expand on each of these potential value drivers that are intended to be the foundation of our new growth strategy for Novavax. Value Driver 1, the Santa Fe Partnership. The Sanofi partnership has four potential areas of value. First, immediate upfront payment and equity investment of approximately $570 million. Next, midterm milestones related to our partnered COVID-19 vaccine of approximately $350 million and Sanofi's independent flu COVID-19 combination program were another $350 million. Third, anticipated royalty streams from both of these programs. And fourth, long-term royalties and or milestones from any other vaccines developed by Sanofi utilizing our COVID-19 vaccine and or our MatrixM adjuvant. That means, for example, any additional combination vaccine commercialized using our COVID vaccine is eligible for royalties. Also, any new vaccine developed using our MatrixM adjuvant is eligible for both milestones and royalties. That being said, the partnership structure offers potential opportunities for decades to come. And because Sanofi is a global leader in vaccine development and commercialization, with a substantial presence and proven track record in seasonal respiratory vaccines in the U.S. and around the world, We have the utmost confidence in their ability to perform when they begin commercializing our COVID-19 vaccine next year and potentially launch multiple additional vaccines using our technology in the future. We look forward to providing further updates on our partnership at the appropriate time. Value driver two, Novavax late stage pipeline. As we have stated on prior calls, we are on track to independently initiate our own late stage phase three trial in the fourth quarter of this year, to evaluate our standalone influenza and COVID-19 influenza combination vaccines. Top-line data from this trial is expected by the middle of 2025. These assets have already demonstrated promising Phase II data. We intend to partner or monetize these assets, assuming successful Phase III results, rather than commercialize them ourselves, which should allow us to avoid significant infrastructure expense and execution risk. Moving on to Value Driver 3, leveraging our proven technology platform to drive additional partnerships and deals. Beyond the two late stage assets, our proven technology platform has the potential to offer other companies significant value. And our ambition is to be a partner of choice to help others enhance or even expand some of the established inline vaccine franchises of larger players. For example, We believe that MatrixM can help enhance many existing vaccines in the portfolios of other companies by boosting immunogenicity and lowering COGS without adding to the side effects burden. Later in this call, Bob Walker will share some new data with you as an example of this capability. These MatrixM attributes may also enable companies with clinical stage vaccine portfolios to make those vaccines more competitive as they strive for the best product profile, and even allow for the creation of new vaccines that might not have otherwise been possible. We continue to explore the potential of our technology and believe that we have only just begun to tap into the value of our platform to our company and portfolio and to that of other vaccine companies. And finally, value driver four, new early stage pipeline. Our final and fourth potential value driver is the development of our own early stage organic pipeline. Rather than focus our efforts on seasonal commercial execution of a single vaccine asset, we will instead invest our time, energy, and capital on the development of an expanded pipeline that uses our recombinant nanoparticle technology platform to develop new assets focused on infectious disease and respiratory, as well as potentially vaccines in other disease areas and categories. We will be looking to develop assets that we believe can make a significant difference for global public health and at the same time present a significant commercial opportunity. We reserve the right to develop, launch, and commercialize any of these assets ourselves should the emerging data and business case support us. For the remainder of 2024, and in line with our key value drivers, we will continue to execute on our four priorities, which you should see on slide six. And these priorities are priority one, the successful execution of our new partnership with Sanofi. Priority two, driving incremental value from our technology platform via the initiation of our phase three trial for KIC and FLU, the development and unveiling of our new refreshed pipeline, and pursuing new business development opportunities. Priority three, continue to reduce our R&D and SG&A costs in line with our prior stated targets and prepare for additional significant reductions to scale and cost as we enter 2025 and beyond. And finally, priority four, delivering our updated COVID-19 vaccine for the 24-25 fall vaccination season. As we enter the second half of this year, we look forward to sharing more details on our updated plans as we continue to forge a new path forward. Now I would like to hand it over to the team to discuss our results from the quarter in more detail, beginning with John Trezino for our operating updates. John?

Thank you, John. Q2 was another quarter of progress for the business as we continued to lay the groundwork for a successful NUVAXAVID co-commercialization effort with Sanofi beginning in 2025. And with a 24-25 season start less than one month away, we have continued to lay the groundwork for success by updating and filing for authorization of our updated COVID-19 vaccine formulation. We turn to slide eight. In the U.S., as John mentioned, we are concentrating our commercial efforts for the remainder of the year on our largest market, the U.S. This should enable us to drive continued cost savings starting this season and continuing into 2025 and beyond as we wind down our independent commercial presence in markets around the world. In anticipation, of Sanofi taking the lead on commercialization of our COVID-19 vaccine starting in 2025. Turn to slide nine. For the first time, we expect our product to be available in a pre-filled syringe in the U.S. The product will be arriving in the U.S. this month and will be held in our warehouse as we await authorization before we can begin distribution. Turn next to slide 10. We have adopted a highly targeted commercial approach and will focus on the retail pharmacy channel, where over 90% of administrations occurred last season. We have secured contracts with CVS Pharmacy, Rite Aid, Walgreens, Costco, as well as regional grocers and independent pharmacies, and thus are tracking towards a significantly increased availability compared to last year. We have already initiated pre-season marketing efforts to build upon last year's campaign to drive increased awareness of new vaccines. Please turn to slide 11. In Europe, given our upcoming transition of primary commercial responsibilities to Sanofi, we plan to conduct a lean, limited, and targeted commercial launch in the region while still maintaining the necessary operations to ensure Sanofi is well positioned in Europe to execute beginning in 2025. This means we are focused on delivery of our updated vaccine in select European markets, including Germany, Italy, and Poland. We are already actively engaged in planning and partnership execution activities in the U.S. and Europe with the goal of creating a springboard for long-term value creation via enhanced Sanofi commercial sales of Nuvaxavid, while at the same time, streamlining our own commercial execution for the upcoming season. The APA contracts we have been managing since the pandemic played an important role over the past few years in helping to manage vaccine distribution and access for millions of potential consumers around the world. As the pandemic has moved to annual seasonal vaccination and vaccination rates around the world for COVID have dropped, we are working with our government customers to renegotiate, adjust, or where appropriate, exit these agreements while preserving as much of their value as possible. To recap, we remain intently focused on and are well on track for a more successful U.S. vaccination season than we experienced last year. With anticipated FDA authorization of our 24-25 formulation ahead of the fall campaign, manufacturing underway of our competitive pre-filled syringe presentation, continued traction in driving retail availability, and increased product awareness, we have all the components necessary for a better performance this 24-25 U.S. vaccination season launch, which we are confident will serve as a foundation for a continued new vaccine uptake in 25 and beyond under Sanofi. Now, I want to turn the call over to Bob to discuss our research and development updates.

Please turn to slide 13. Thank you, John. I'm going to present key updates and highlights from our research and development activities from the last quarter, which support the four key value drivers John outlined earlier. I'll discuss the 24-25 COVID-19 strain change, our kick and influenza programs, our efforts to expand potential opportunities for Matrix M, and our internal preclinical pipeline. Please turn to slide 14. With regard to our COVID-19 vaccine and the 24-25 strain change, we were pleased that the CDC renewed their recommendation for universal vaccination for everyone six months and older for the upcoming season with the updated vaccine. and did not differentiate among manufacturers or vaccine strains. Our updated vaccine, which uses the JN1 strain, often characterized as the trunk of the tree from which the currently circulating variants emerged, is well positioned to compete with the mRNA vaccines this fall, in light of the guidance issued by the leading regulatory and policy bodies. We submitted our regulatory packages for the strain change to both FDA and EMA in June, and we continue to work with the regulators to facilitate a smooth review and approval in the effort to have our vaccine available early in the vaccination season. And as you've already heard from John, our updated vaccine is on track to be in warehouses this month and is expected to be ready for distribution upon authorization. Please turn to slide 15. We continue to monitor the performance of our JN1 vaccine against new variants in nonclinical studies. Our data indicate that our vaccine targeting JN1 should provide acceptable coverage for the currently circulating variants. This slide shows neutralizing antibody responses with JN1 vaccine in rhesus macaques. You can see that the antibody titers are robust across the spectrum of variants, and this includes the KP3 and KP3.1.1 variants that are now widely circulating. Using these data, when we look at antigenic distance among these variants shown in the table to the right, we see that in all cases, the antigenic distances are below 2.0 antigenic units. indicating that the variants are all antigenically similar to JN1. And that has been the consistent observation since we've started this monitoring, which we intend to continue to do for each newly prevalent variant throughout the season. So, as you can see, our data indicate that our vaccine targeting JN1 should provide acceptable coverage for the currently circulating variants. Please move to slide 16. As John outlined, our second value driver is our late stage pipeline, which has the potential to deliver vaccine candidates. Our phase three immunogenicity trial for our standalone influenza and kick vaccines remains on track to start in the fourth quarter of this year with top line data expected by the middle of 2025. We have alignment with FDA on the use of a single phase three immunogenicity study for both KIC and influenza programs and are still in dialogue with them on the feasibility of the accelerated approval pathway for both products. We look forward to bringing you additional updates as we continue to advance these programs. Potential timeline and pathway to registration will be dependent upon full alignment with FDA and the results of the trial. As a reminder, Data from our Phase II study demonstrated that our KICK vaccine induced anti-influenza neutralizing antibody levels in the top three plots, HAI antibody levels in the bottom three plots, and anti-spike neutralizing antibodies bottom left that were generally comparable, if not higher, than levels achieved after either of the comparator vaccines. We believe these results give us more confidence in the program. and in the feasibility of an accelerated approval pathway for either or both vaccines, depending on final data readout. In preparing to move into phase three, we have received FDA concurrence on the conduct of a single phase three immunogenicity study for both kick and standalone influenza vaccines. The trial will be conducted in older adults in the southern hemisphere in Australia and New Zealand during the off season. The FDA recommendations we have received during the pre-IND process are being incorporated into the trial. And we expect that with an anticipated fourth quarter start, we should have top line data by the middle of 2025 to enable internal decision making and potential partnering. Please turn to slide 18. Now I'd like to turn our attention to our proven tech platform, our third value driver, and to Recent preclinical work aimed at expanding the utility of Matrix M, our saponin-based adjuvant. Because we know that Matrix M is a potent adjuvant for our nanoparticle viral vaccines, we decided to investigate whether Matrix could boost immune responses in other vaccines, such as in inactivated influenza split virus vaccine already licensed. The results I'll show you indicate that Matrix M increases the magnitude and breadth of antibody responses when given with a licensed egg-based influenza vaccine with the potential to produce a more potent, more highly protective vaccine. In the figure on the left are egg HAI responses in mice vaccinated with a licensed inactivated quadrivalent influenza vaccine in the left four bars and in mice vaccinated with the same vaccine plus matrix in the right four bars. Responses to all four influenza strains are boosted in the vaccine plus matrix group. In the figure to the right, competition binning experiments against a panel of monoclonal antibodies demonstrate that matrix-induced antibodies directed to conserved epitopes in the HA, resulting in broader cross-reactive responses. These data demonstrate one of the most important attributes of matrix. its ability to increase the magnitude and breadth of antibody responses with the potential to produce a more potent, more highly protective vaccine. Please turn to slide 19. But what about the potential for matrix M to enhance the activity of non-protein and non-viral vaccines? Bacterial capsular polysaccharides are known to be poorly immunogenic vaccine antigens, especially in infants and young children. and we wanted to explore whether the benefits of matrix could be extended to bacterial vaccines. In this experiment, mice were vaccinated with a pneumococcal vaccine, either with or without matrix added, and anti-pneumococcal IgG antibody titers were increased over eightfold in mice that received vaccine plus matrix. A similar adjuvant effect was observed when looking at functional antibodies that mediate subtype-specific killing, or OPK, a known correlate. OPK responses were increased 2.6 to 7.5-fold in mice that received vaccine with matrix for the four subtypes shown on the right. And notably, the subtype with especially low immunogenicity, subtype 23F at the bottom right, showed the greatest increase, 7.5-fold, with the addition of matrix. These preliminary data I've shown you suggest that matrix could play an important role in augmenting certain currently available vaccines, such as influenza and pneumococcal vaccines, by increasing the quality and duration of immunity, reducing the amount of antigen needed per dose, and lowering manufacturing costs. Our data also suggests that the repertoire of antigens that could be combined with matrix for clinical benefit could perhaps be expanded to include bacterial polysaccharides, which we regard as an exciting area for more research. We believe that these matrix attributes could be attractive to partners with established vaccine franchises. Please turn to slide 20. Finally, I want to discuss our new early stage pipeline, which is our fourth value driver. As you heard, we are in the middle of a strategic assessment of our technology platform to determine how to best expand and refresh a new full product pipeline for Novavax. And we are excited about the new initiatives that may spring from that review. As we work to complete this analysis, in parallel, we have continued to advance our RSV and avian influenza H5N1 preclinical vaccine candidates. and continue to prepare both to move into the clinic. At our last earnings call, we shared the animal model results on this slide. On the left are data showing that our RSV nanoparticle vaccine with matrix was more immunogenic for both A and B subgroups than a comparator RSV vaccine with AS01E adjuvant. We believe our RSV candidate, though still early in development, has the potential to be first in class for both safety, because of matrix M, and effectiveness. The data on the right are for our H5N1 vaccine, showing that a single boost by injection was highly immunogenic in non-human primates previously primed with the seasonal influenza vaccine. And even a single intranasal boost in RIT showed responses above the commonly accepted threshold for protection of 1 to 40. An effective one-dose regimen for a pandemic influenza vaccine would provide a paradigm shift in public health and pandemic preparedness by providing more rapid protection and the potential to save many more lives than the current stockpiled two-dose regimens. We plan to start IND-enabling studies for both vaccines as soon as next month to support the start of phase one clinical trials. And you will hear more from us later this year about additional areas of development for our technology. Now, to discuss our financials for the quarter, I want to hand the call to Jim.

Thank you, Bob. Please turn to slide 22. We're focused on improving the financial health and performance of Novavax to enable long-term value creation. Today, we outline more detailed plans to deliver on this vision. To begin, I'll share a few of the key themes for the second quarter of 2024 and a look towards full year 2024 and beyond. For the second quarter of 2024, Novavax recorded total revenue of $415 million, consisting primarily of $391 million from the GAAP revenue recognition for the $500 million upfront payment from Sanofi received fully in the second quarter. The remaining $119 million from the upfront milestone payment will be allocated over the transition services period through 2026. We estimate full-year revenue recognition for this upfront payment to be approximately $400 million for 2024, and the remaining $100 million evenly split across 2025 and 2026. We have incorporated this gap revenue recognition into our full-year 2024 guidance. As we continue to transform Novavax into a more lean and agile organization, we reduced our second quarter 2024 combined R&D and SG&A by 34% compared to prior year. When excluding Santa Fe transaction costs for the period, we saw a decrease of 43%. As we look forward to the full year 2024, we are reiterating our targeted guidance for combined R&D and SG&A expenses of between $700 and $750 million as we continue to resize our organization. Novavax is prepared to initiate an additional cost reduction program to further reduce combined R&D and SG&A expenses, a portion of which we expect to be reimbursed by Sanofi under the agreement. For 2025, a net of reimbursement We're targeting non-GAAP combined R&D and SDNA of below $450 million. We ended the second quarter of 2024 with cash and accounts receivable of approximately $1.1 billion. We believe the Santa Fe agreement provides for a multi-billion dollar cash flow over time. During the second quarter of 2024, we received approximately $570 million in cash payments that further improved our financial position. Importantly, we are prioritizing the completion of our APAs, enabling a reduction to Novavax commercial operating activities and complexity as a means to further reduce our costs. Please turn to slide 23 for a more detailed review of our second quarter 2024 results. For the second quarter of 2024, we recorded total revenue of $415 million compared to $424 million in the same period in 2023. Our product sales of $20 million in the second quarter of 2024 were primarily related to the expiration of certain EPA purchase rights. Our cost of sales for the second quarter of 2024 were $46 million as compared to $56 million for the same period in 2023. These periods include $24 million and $31 million, respectively, related to excess, obsolete, and expired inventory, losses on firm purchase commitments, and unutilized manufacturing capacity. As previously noted, for the second quarter of 2024, Novex's combined R&D and SG&A of $208 million reflects a 34% reduction from the same period in 2023. Excluding the $31 million in Sanofi transaction costs, our second quarter 2024 combined R&D and SG&A was approximately flat to the first quarter of 2024. Please turn to slide 24. The Sanofi agreement provides for a multibillion-dollar potential across upfronts, equity investments, milestones, and royalties. The anticipated present value of the royalties on Sanofi's Navaxavid flu, COVID, and combination products, and new vaccines with Matrix-M are expected to be the largest individual component of value from this transaction. Of note, this agreement reflects just one of the four pillars of value for Novavax, and given its many layers, it's worth another review to be better appreciated. Please turn to slide 25. The COVID-19 and Sanofi COVID flu combination related terms include the potential for up to approximately $1.3 billion in one-time milestone cash payments and equity investment. During the second quarter of 2024, the initial cash payment included $500 million upfront and approximately $70 million equity investment in Novavax stock. Near-term Novavax-evaded COVID-19 milestones of $350 million and COVID flu combination milestones of $350 million should provide important cash flow to the company. We expect to complete database lock in the fourth quarter of 2024, which would enable earning the first $50 million milestone. Revenue recognition for this milestone will be allocated over the transition services period through 2026. All other milestones under the agreement will be recognized in the period when earned. The 175 million BLA milestone is anticipated to align to our BLA PDUFA date and approval, which is presently targeted for April 2025. The two 25 million authorization transfer milestones are expected to follow as we enable Sanofi to commercialize Novavaxivid in the U.S. and Europe for the 2025-2026 vaccination season. The $75 million technology transfer milestone is expected to follow completion of our transition services obligations that we currently estimate to occur in late 2026. For the Sanofi Flu COVID program, there are two milestones totaling $350 million related to the development and first commercial sale. Sanofi recently noted on their earnings call that they expect to start clinical trial manufacturing activities in 2024. We are working to support Sanofi in these efforts and await more visibility into the potential timelines. In addition, Novavax is eligible to receive tiered royalties on net sales from COVID-19 mono and COVID combination products. This enables Novavax meaningful participation in future economics from the current and future products under this agreement. New vaccines developed with MatrixN by Sanofi create a broad opportunity to advance this technology and provide Novavax with multiple revenue generation opportunities. we're eligible to receive up to $210 million in milestones plus ongoing royalties for two decades from the time of launch for each new vaccine developed utilizing Novavax's MatrixM adjuvant. For example, if Sanofi developed five products with our MatrixM, each with a billion in sales, this represents hundreds of millions in royalties per year plus over a billion in one-time milestones. Novavax will support Sanofi as it prepares to advance all programs associated with this agreement, and Novavax will be eligible for cost reimbursement across the host of spend categories. Please turn to slide 26. We're committed to creating a more lean and agile organization to align with the company's market opportunities. To advance that goal, For 2024, we are reiterating our targeted combined R&D and SG&A expense guidance of $700 to $750 million. We are currently at the high end of the range when accounting for the Sanofi transaction costs, and we will continue to push to find savings in our cost structure as the year progresses. Novavax is prepared to initiate an additional cost reduction program to reduce combined R&D plus SG&A expenses a portion of which we expect to be reimbursed by Sanofi under the agreement during 2025 and 2026. For 2025, a net of expected reimbursement, we expect our non-GAAP combined R&D and SG&A to be below $450 million. By 2026, we expect to drive down combined R&D and G&A expenses to below $350 million. In addition, as we assume a secondary role in commercial markets, this enables the reduction of commercial and supply chain costs. We are actively exploring the sale of our Czech Republic manufacturing facility, which could both provide cash proceeds and reduction to our ongoing operating costs. Please turn to slide 27. Now turning to financial guidance that we have updated to incorporate the GAAP revenue recognition for the 500 million Sanofi upfront payment and outlook for APA and commercial sales. Of note, we received the full upfront payment of 500 million and approximately 70 million equity investment from Sanofi during the second quarter of 2024. For the full year 2024 and on a GAAP basis, we expect to achieve total revenue of $700 and $800 million. This includes $400 million of revenue recognition from the $500 million Santa Fe Agreement upfront payment and $25 million in royalty and other revenue from partner-related activities, which is recorded as licensing, royalty, and other revenue. We are updating our full year 2024 product sales guidance and expect to achieve between $275 million and $375 million. This includes $100 million for APAs already delivered through mid-year and commercial product market sales of $175 to $275 million in the second half of 2024. Importantly, our expectations for the U.S. market performance remain unchanged, and we expect the majority of remaining product sales to occur in the fourth quarter of 2024. The $150 million reduction to the midpoint of our full-year 2024 product sales guidance reflects $100 million from the New Zealand APA. We are in ongoing discussions with New Zealand in response to their desire to cancel this agreement, and $50 million from EU commercial sales as we target a smaller set of prioritized countries for the 2024-2025 vaccination season. For the remaining APA agreements, our intent is to amicably negotiate or deliver doses or, when appropriate, exit agreements with the goal of these activities to be cash flow neutral or favorable on a go-forward basis. To be conservative, we're removing APA sales from our forward-looking revenue expectations until further clarity is available on each. We'll instead emphasize realization of cost savings that come from exiting commercial markets. Our current operating plan, including the multi-year combined R&D and SG&A expense targets, highlights a path to maintaining our goal of at least one to two years of cash on hand prior to receipt of cash flows from the Sanofi agreement in the form of milestones and royalties. We look forward to sharing additional updates as we seek to improve Novavax's financial performance, cost structure, and strength to deliver shareholder value. With that, I'd like to turn the call back over to John for some closing remarks.

Thank you, Jim. Before we take your questions, I'd like to thank you all for joining us today and for your ongoing support as we work to build a new vision and future growth platform for Novavax. As you have heard, we're working hard to position the company for future growth with a focus on our new value drivers, including DriverOne, the Sanofi Partnership, which provides for a multibillion-dollar potential across upfronts, equity investment, milestones, and royalties over time. Value driver two, our late-stage pipeline. Value driver three, leveraging our proven tech platform to drive additional partnerships and deals. And finally, value driver four, our new early-stage pipeline. I'd now like to turn the call over to our operator for questions and answers.

Thank you.

Thank you. We will now begin the question and answer session. To ask a question, please press star one on your touch-tone phone. If you're using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star and two. At this time, we will pause momentarily to assemble our roster. Once again, star and one if you wish to ask a question. Thank you for waiting. We now have our first question, and this comes from the line of Roger Song from Jefferies. Please go ahead.

Great. Congrats for all the progress, and thank you for taking our questions. Thank you, Roger. Yeah, thank you, John. So the first one is regarding the updated 2024 guidance, understanding nothing really changed for the U.S. government. expectation, mostly driven by the EU and New Zealand. Just curious about the, can you give us some of the updates regarding the U.S. contracting, you know, given this timing of the season, how confident you are you will be able to deliver this guidance in the U.S. particularly? Thank you.

Good question, Roger.

John T., you want to take that one? Yeah, sure. Operator, can you hear us okay?

Is that better? Roger?

Yes, sir. You're live.

Okay. So we had a bit of a technical difficulty there for a moment, so maybe let's back up to address Roger's question. So as far as retail pharmacy contracting, execution so far has gone extraordinarily well. As you can see from the slide that we presented, all of the top retail pharmacies are under contract. as well as many of the buying groups for the smaller grocers and independents. We've made great progress over last year with things like online schedulers, and access and stocking orders that will be in each of those. So much better progress from last year. I think that will provide an opportunity for those interested in getting the vaccine to come into the pharmacy. Some of our communication programs at the consumer level and then also at the pharmacist level will open that door to availability to the product. So I think all that's gone in a very positive direction.

Excellent. Thank you.

Thank you. We will now take the next question. And this comes from the line of Amayank Mamthani from B Reilly Securities. Please go ahead.

Thank you for your questions and congrats on many components of your portfolio showing progress today. About your kick phase three study, maybe if you could learn some, you know, protocol differences that you have integrated in your program, you know, having the advantage of going third here. So, if you could maybe highlight that, and then, you know, why do, you know, both the nano, flu vaccine and the combination vaccine in the same study versus maybe trying to do separately is the other question because, you know, there are control arm differences, and you obviously have pretty, you know, strong, compelling data on strain B from the previous nanoflu candidate. So if you could maybe help clarify your strategy here, it would be helpful. And then I have a follow-up.

So, Mayank, thank you for your questions. Bob, two questions from Mayank. The first is have we made any changes to the protocol? based on what we've learned, the fact that we're going third here. And then secondly, his question about one program versus two, if you want to handle that one. Thank you.

Sure. Thanks for that. So we do have, as I mentioned earlier, we do have alignment with FDA on conducting a single phase three protocol to support both products. And we remain in dialogue with them on some of the details. So I don't think we're prepared to actually discuss the specifics of the protocol design at this time. But let's say to answer your second question, we will leverage certain efficiencies by incorporating both products into the same study, by using shared comparator control groups, And we also do know that the previous experience that you allude to with the influenza vaccine can also be leveraged to support the safety database for the product, for the new product.

Okay. Got it. And then just on the long-term OpEx guidance that you put out there, you know, given that there are some interesting parts of your earlier stage pipeline that you'd look to also advance and you talked to some of that. Could you just give us a little bit of a mix of, you know, R&D, SG&A, and also when should we start to see, you know, some of these candidates get into the clinic from either you or even your partner, Sanofi? And thanks again for taking our questions.

Good question, Mike. Jim Kelly will address the financial question.

Exactly. Mike, you're right on spot in terms of capturing the dynamic of our cost structure change while we strategically enable really the unlocking of significant value from our early stage pipeline. We expect the vast majority and the majority of our cost structure as we approach that 2026 below 350 million to be invested back in this value creating early stage pipeline as we continue to drive to a lean and agile organization.

And then, Mike, I believe the second part of your question was when do we expect to see some new assets emerge in our pipeline and what timing might that be regarding hitting the clinic? So I think we're excited to unveil what that new pipeline is by the end of the year. As you know, we're also deep into a search for our new president of research and development. We've had a lot of interest in Novavax, especially post the Sanofi deal with further validation of our MatrixM and proven technology platform. The fact that around the world people are recognizing what this technology is capable of, and I hope everyone was able to hear it. Some of the examples that Bob Walker shared, where we've added MatrixM to other products that are established and in market right now that are significant franchises for other companies, we've shown an ability to potentially improve those products and even reduce their cost of production. These are significant. And we believe our technology, we've only just begun to tap into that potential. So we're very excited to unveil. what our exploration of that technology right now might be telling us on what else we can do beyond a seasonal vaccine, beyond even respiratory potentially. We know that's where our wheelhouse is right now, but this technology has capabilities well beyond what we've explored with it so far. So as we get to that unveiling, we will be sharing also, Mayim, some timelines on that. And we look forward to doing that in the future when we have more context. Importantly, we're deep into the analysis and exploration of what else we could do with the tech. And post-Sinofi and post the last 18 months of lifting our going concern, putting the Gavi situation behind us, reducing our current liabilities significantly, improving our balance sheet, improving our cash position, we've now put Novavax in the position to focus more on what we do best, which is research and development from this amazing technology platform. So we're excited to share that with you in the future. We're working diligently on transitioning the company away from focusing all of our energy on one product every season to now being able to focus on multiple shots on goal for potential future growth, which we laid out as our four drivers. We're in that transition now, and it's a period that we ask for a little bit of patience as we wrap up our last season and and we change the direction of the company toward this. We're excited about what the future holds, and we're excited to unveil that pipeline in the coming quarters.

That's helpful. Look forward to learning more details on that. Thanks again.

Thank you. Once again, if you wish to ask a question, just press star and one on your telephone keypad. And the next question comes from a bank of America. Please go ahead.

Hey, guys. Thanks for taking our questions. Just a couple from me. One follow-up just on the KIC program. Is your expectation that there could be an approved KIC therapy in the U.S. given you've shifted your Phase 3 enrollment to Australia and New Zealand? And then I'm just curious since the PDUFA for the BLA will be after handing the reins over to Sanofi, whether they had any input into the filing or if if any of the terms under the collaboration are contingent upon receiving the BLA. Thanks.

Alec, great to hear from you. Thank you for your questions. I think the first question, we just want to make sure we understand your question correctly. If I heard you clearly, you were asking, is there the chance for a U.S. approval since the recruitment is occurring in Australia? So I'll hand that over to Dr. Bob Walker. Go ahead, Bob.

Right, so the study is, our plan is to conduct the study in the Southern Hemisphere, Australia, New Zealand, as mentioned. The study would be done under USIND, so those data would apply to a US application.

And I believe, Alec, your second question related to the timing of BLA and the related milestone with Sanofi and the timing of handoff of commercialization. Just to clarify, if you might clarify that, are you seeking to understand timing of the potential receipt of that milestone payment that would be associated with that?

Yeah, I guess I was asking more in terms of input from Sanofi on the BLA and whether you know, if there's anything contingent, milestones or otherwise on that BLA. Thank you.

Well, obviously, we're working very closely with our partner, Sanofi, and very excited about that partnership and what it could mean in the future. But we have already filed that BLA, and that's already under review by FDA.

Yeah, just to add to that a little bit, you know, there's ongoing and constant interaction with Sanofi on all of these necessary steps. The BLA, importantly, one, for the sake of the milestone, but also as we move forward and look at each and every next season, the preparation for the season, having the BLA in place is an important next step for us. And so, yeah, there's significant coordination between our organizations to make sure that we have the value of their inputs and that we're moving forward as quickly as we can.

Makes sense. Thanks for the color.

Thank you. And we'll now take the next question. And this comes from the line of Eric Joseph from JP Morgan. Please go ahead.

Hi. Good morning. Thanks for taking the questions. Just on – first on commercial, just with your U.S. sales guidance here, can you just talk about sort of what that – anticipates in terms of dose volume you expect to go into market with and how you should think about sort of gross margins for your COVID vaccine moving to a PFS format. And then secondly, for the phase three study starting early, later this year, maybe just sort of by way of backing into the design of that trial. Can you talk a little bit about sort of what activity profile or, yeah, comparative activity profile you'd like to be in market with or hope to be in market with, with a standalone flu vaccine? Thanks.

Eric, we'll hand the first question over to John Trezino. I don't believe, John, we're disclosing specifics of dose volumes, et cetera, for competitive reasons, but you may want to take an attempt at Eric's first question.

Yeah. No, I think what's important to talk about here is our readiness for the season. You know, the guidance is one thing, but our ability to accomplish what we think is aligned with that guidance has multiple factors. Focus on the pharmacy one, which we've talked about, which is significantly important. Also, what, you know, pricing strategy is, and, you know, we're not going to get into disclosing what our kind of discounting strategy is on this call. But all pulled together to make us well-positioned availability of product near the end of the month and certainly at the start of the season, making sure that the contracts are in place, that we're well-positioned from, you know, a discounting strategy to support access into the product and then availability throughout the whole season. So I think that's kind of the most important takeaway.

Thank you, John. And, Eric, your second question, if we understood you correctly, you were asking about, I believe, what type of profile we're seeking or hoping to have out of our clinical program that could make our product competitive against others. Bob, did you want to address that?

Well, I'll say that for the purposes of the Phase III profile, The statistical test will be that the combination product performs in a non-inferior way immunologically to each of the individual components. So to kick to the influenza component and kick to the COVID component. So that would be the immunologic test. And the value of the product, I think, is the fact that it's a combination. The Design enables a hierarchical statistical analysis that can also evaluate superiority, so that's built into the design. And so we'll be able to make conclusions on both of those points.

Thank you, Bob. That was helpful on the design of the study and potential data points we could assess afterwards. John T., any commentary on target product profile?

Commercial viability here is critically important, right? As we look at the viability of our KIC program, Right. Primary focus of the trial. We also took the opportunity to look at standalone flu. Right. So standalone flu continues to be an important product and public health vaccine profile. But we also believe we've got a very strong candidate that could demonstrate improved efficacy in the market. We also want to establish a seasonal influenza vaccine as a foundation for possible pandemic. In the future, H5N1 continues to be important and is being observed around the globe. So having the opportunity to have data coming out of our standalone flu vaccine, knowing what some of those other dynamics are, and knowing the profile of our flu vaccine and the significant improvements over existing flu vaccines, I think position us well for future value creation.

Thank you, Bob and John. And, Eric, one last comment there is that certainly we believe that our technology can afford the development of vaccines with a very good tolerability profile. And as the market moves toward combination, which our research indicates it should, with multiple seasonal diseases out there that people are trying to protect themselves against, that having a product where you can combine multiple antigens in with a very nice tolerability profile potentially versus competitors is is very important in the marketplace for consumers as they make a decision on which combination vaccine they may want. So, again, when we get the data, we'll assess. The data will steer the strategy and tell us how competitive it is, but we have confidence in our tech platform that it has a good chance to really produce a nice profile that will be competitive. Thank you.

Thank you. And we don't have any further questions at this time.

Oh, sorry, we have Oh, yeah. No further questions at this time. This concludes our Q&A session as of the moment. Over to your speaker, John Jacobs, for any closing remarks. Please go ahead, sir.

Thank you, operator. Appreciate it. And thank you, everyone, to join us today. We appreciate your support. We appreciate your Your patience as we work through the future strategy for Novavax and start to deliver opportunities for long-term growth in four different categories that we highlighted today. We're excited about what the future holds as we continue to reduce our cost basis, move toward a more lean operating structure, and prepare for the next chapter in the company's history. Thank you so much for joining us, everyone.

Thank you. This concludes our conference for today. Thank you for your attendance. You may now disconnect.