Great. Good afternoon, everyone. Thanks so much for joining us. I'm Salveen Richter, Biotechnology Analyst at Goldman Sachs. Really pleased to have the team from Moderna here today. We have Jamey Mock, CFO, and Lavina Talukdar, Head of IR. With that, maybe we'll start here with some financial questions. You've provided some guidance in the beginning of the year and on COGS and other aspects. Could you just help us understand what COGS is going to look like for this year and beyond, and what the key components are on this line and how they change over time as commercialized COVID as that market's better understood and then additional assets are commercialized?
Terrific. Well, first, thanks for having us, Salveen. Pleasure to be here, and thanks, everybody, for joining. As we transition from a pandemic to an endemic, largely two things change. One is the presentation style that I'll talk about that, and then the second is volume. The predictability of volume and the size of the volume is actually going down quite a bit. Maybe I'll just talk through the components of our COGS as well, and then talk about how those things impact it. First, we have the drug substance, then we have our own conversion costs, then we have our fill finish partners, that they have conversion costs, and then we actually have the vial or the syringe. In a pandemic, we were making five to 10 doses per vial.
We're now moving to more single-dose presentation, be that a vial or a prefilled syringe, that increases our cost. The largest variable is volume and the predictability of volume. We've taken a guess. We've got our whole footprint for the year already laid out, and we've actually put in some hedge in our COGS estimate of 35%-40% that we will actually not utilize some of that. I can refer back to last year as an example. Over time, that will come down. As it becomes a more predictable market, we think our long-term COGS will be more in the 20%-25% range. If you look at last year as a data point, in 2022, almost half of our COGS, as a percent of revenue, was wasted.
It was either excess in inventory or unutilized capacity. We'll still see some of that in 2023, maybe 2024, but by the time we get to 2025, 2026, 2027, we believe it'll be a more predictable market and come down to that 20%-25% level.
Got it. You have over $16 billion in cash, and you've talked about, you know, deploying it into internal R&D, but also potentially BD as you look at informational medicine. Can you just speak to your strategy at this point for deploying cash? When you look at R&D, which areas you feel like you want to more heavily invest in?
Sure. Yeah, we've been very consistent and disciplined in our capital allocation priorities, and it is the lion's share is in reinvesting in the business, and that really comes in three forms: R&D, as you suggested, I'll come back to that, SG&A, and then capital expenditure. If you look at 2023 as an example, we'll invest something like $7 billion back in the business. $4.5 billion of that's through R&D, $1.5 billion of that's through SG&A, and then $1 billion in capital expenditure. I'll come back to the R&D part in a second. After that, we look at, you know, collaborations and business development, and we think of that in three ways. One is how to use our technology to deliver others' medicines.
A good example is our Carisma collaboration, where we are using our delivery technology to deliver their CAR-M therapy. The second is whether we can complement our platform in our OriCiro acquisition, which is a cell-free DNA plasmid manufacturing business that we acquired at the beginning of this year, is great, and that helps understand and complement our platform. The third is to expand into other areas like genomics as well. Some of the investments and collaborations we've done it with Metagenomi is a good example of that. Whatever's left over, we look at returning to shareholders through share buybacks. Through the first quarter, we've done $4.7 billion. Since the inception of the program, we still have $2.3 billion outstanding. No timeline in terms of when we're gonna use that.
To answer your follow-up question around R&D, we largely are putting the bulk of our R&D is in respiratory right now. We laid that out at our Vaccines Day. It's a little over 50% of our overall R&D spend right now, we still have more to do. We've done a lot through COVID and RSV and some of the recent results in flu, we still have more to do in RSV. We still have more to do in flu in terms of getting to the next generation vaccine, we still have a lot to do on combinations as well and trying to make it either a doublet or a triplet as well. After that, it really comes into three areas.
One is our manufacturing sciences, getting the right quality, getting the right delivery mechanism, getting the right production levels, that's one area. The second is research, new mechanisms of action, new pipeline that we're coming out with. We've got 48 drugs in the pipeline right now, and we continue to build upon that every single year, and that's the research area. The third is the remaining development. In that 48, after the respiratory, we still have a lot going on with INT, which I'm sure we'll talk about, and we still have a lot going on with latent disease and rare disease as well. That's how we kind of allocate our capital in terms of R&D.
Maybe starting with COVID here. On the first quarter earnings call, you reiterated this expectation that you're gonna get minimum sales of about $5 billion from both deferrals and APAs. Maybe a two, you know, a two-part question. One is: What gives you the confidence that the $5 billion still stands, seeing that we've seen some countries choose to defer some of their orders? When you look at consensus, that's sitting at higher levels, I know you've talked about Japan and Europe and the private COVID market in the U.S. How confident are you in those verticals kind of getting you to where you need to go for the year?
Sure. There's two related but different things. Let me first talk about the $5 billion, and then you talked about EU and Japan and US. That's all additive to the $5 billion. First on the $5 billion, we broke that up into two halves. In the first half, we said we'd deliver $2 billion, and in the first quarter, we delivered over $1.8 billion. We gave guidance for the second quarter of $200 million-$300 million, and still feel very confident in achieving that first $2 billion. As you turn to the second half, there's several countries that we're working with that have been long-term partners with us, countries like the U.K., Canada, Switzerland, and they really entered into that during the pandemic and have good pricing as well.
Also, the ministries there understand the need and understand the fact that vaccinations will help. We haven't come off the $5 billion and still plan on achieving the $5 billion. As I move to what's additive to that, as you mentioned, we're working with Japan, we're working with the EU, and a lot of activity in the U.S. as we move to a commercial or endemic model. Right now, we believe that there will be substantial orders above the $5 billion, and primarily, the U.S. is the biggest market out of those three, but still with the EU and Japan, we're still working on it as well.
Got it. Is China a possible market for you, or do you think that that market just remains closed in terms of being focused on internal COVID assets?
As it pertains to COVID in the year 2023?
Mm-hmm.
Probably not. I would say a low probability of success for COVID in 2023. Longer term, China is a very important market to us, not just for COVID, but for all respiratory and in particular, in cancer and oncology as well, just due to the incidence rate in China. We believe that we will try to expand in China and try to grow into China in those markets.
Got it.
COVID in 2023, I would say, is a low probability.
Just to delve a little bit more into the, you know, the levers that could come out in the second half. In the EU, we saw that Pfizer-BioNTech had a reduction in their contract, and does that leave more for you to potentially sign a contract there, or is that an overall decrease in demand? There was also rephasing of delivery doses. I guess what I'm trying to understand is, you know, how you think about your situation in the context of that.
Yeah. Yeah, we think of it as a positive event for us, and the fact that we believe the EU wants a second provider out there, and we're already in talking to the EU about that. I think they recognize the effectiveness of our vaccine, the fact that they want a second supplier, and we will try to do our best to help 130 million people of the more vulnerable population in the EU. We think that helps open up at least an additional source, maybe not to the same size as Pfizer, but we do believe that we will hopefully crack that market.
Got it. There is a VRBPAC meeting scheduled for June 15th to address strain selection. Do you expect this to catalyze governments to place additional orders, and if not, you know, when do we get clarity on these potential government orders coming or private orders coming from the U.S. or ex-U.S.?
Yeah, I'd say it's probably more commercial orders.
Mm.
You know, we've already been discussing or negotiating contracts with national pharmacies, regional pharmacies, integrated health delivery systems, you know, doctors, hospitals, including some government agencies like the VA or the CDC as well. Yes, they might be interested in understanding the final strain, which we'll know tomorrow, but I don't think that was really the reason for where we are in the negotiation. I just think it's playing out over the couple. We said it really started kind of in May, and we thought it would go through July, August anyway. Maybe that'll catalyze it at the end here.
How is the private market in the U.S. playing out when you talk to, commercial payers?
Good. The team is hard at work. I would say, you know, the biggest thing on everybody's mind is just trying to predict the size of the market.
Yeah.
That'll factor into, you know, our pricing as well in the form of discounts and how much you're willing to order, what's the, you know, returns, and that's all being played out with many different customers at this point in time.
Any thoughts on how to think about the size of the market as you look forward to, you know, the endemic period? I mean, I feel like we're in a pseudo period right now, but how can you guide us?
Sure
Think about the forward?
Well, I'll start with the United States first, you know, we've come out and said that we believe the United States will be a 100 million dose market in the year 2023. Last year was a bit of a funky year, and it was more of a 50 million dose market in the fall, but there were several different, you know, advocates for boosters along the way. We don't think that's the best data point, and we think that as you look at the vulnerable population, that's a little over 80 million patients in the United States, and so therefore. Our competitors also come out and said that a 100 million is the right number as well.
Can't give you know, exact size on pricing, but our gross price is closer to the value of what we believe the vaccine's worth, which is, we've come out and said $129, but the net price will be, you know, orders of magnitude less than that. That should give a kind of range on where we think the United States will be. The rest of the world will be pretty similar in terms of contracting with, you know, the health authorities and so therefore, we think that the rest of what we see this year in our book of business could be similar moving forward as well.
Got it. At the Vaccines Day, you outlined an estimated 2027, I think, respiratory sales of $8 billion-$15 billion. Just walk us through the assumptions underpinning this?
Sure. The assumptions. The first assumption is that we have approved products, in the form of COVID is already approved, RSV and flu as well, potentially combination vaccines, which we said we believe will have our first combination vaccine to market in 2025. The second, maybe I'll just break down the overall TAM that we see right now. We think COVID is, today, a $15 billion marketplace. I think a range on that is $10 billion-$20 billion, but let's say $15 billion. Flu is about a $6 billion marketplace. RSV, not including maternal and infants, is about an $8 billion marketplace right now. That gets you to close to $30 billion, thereabouts.
That'll grow over time, due to inflation as well as what we're targeting is older adults, and the percentage of older adults in the population in the globe is growing faster than the rest of the population. We think that grows over time. But if you take a $30 billion number, our $8 billion is about 25% share. $15 billion would obviously be 50% share. If it's at the high end, and you say it's $40 billion, maybe we're at 40% share, and if it's only $25 billion, we're at 33% share. We feel comfortable in this 25%-50% share range. What are the big levers? The big levers are, one, our own efficacy. We feel very good about COVID. We feel very good about RSV.
We have more work to do on flu, not just for this current generation product, but also for future generation products to try to get the efficacy level up, and then how the combination vaccine works as a, in total. The second is vaccination rates, we're doing a lot, both ourselves and others, to educate the market in terms of getting vaccination rates up. Third, and probably the biggest wild card, is combination vaccines. We just think that there's a lot of synergy that if you can combine maybe even three in one, let alone two in one, but if you can combine three in one, we think that'll grow the share of the marketplace.
You take flu in the United States as an example, there's 150 million people that are dosed with flu every single year, and people are debating COVID in the 50 million-100 million range. If you have a triplet combination vaccine, hopefully you get to the 150, and that grows the market by itself. That's kinda how we thought about it, both our share, the size of the market, and kinda the important factors to get there.
Great. Turning to RSV, there are two approved RSV vaccines on the market. Your strategy is to carve out some of this market, but looking at a commercial launch in 2024. I guess, what is your strategy to carve this out? What share of the market do you think you'll get?
We think it's great that there's three players. That validates the market, and I think all of us will help educate the market to help grow it over time. It won't start out at the same level that a COVID will be, but over time, we expect it to get there. We're very pleased with our product profile. Both, we think it's best-in-class efficacy, great safety and tolerability profile as well, and then ease of use as well. We think we're the only one with a prefilled syringe, so we believe the product profile will sell itself, and the overall market will grow by all three competitors helping to educate the market as well.
Yeah. Could we talk about flu for a bit here? You talked about the work that needs to be done, you know, not right now, but, I mean, not just right now, but also in the future. You have a more optimized construct now, which is gonna read out by year-end, that's, you know, ideally going to be able to target the B strains in a better way. What should we be looking for from that program first, and then help us understand what you're talking about with this optimization in the future?
Sure. Yeah, first, just to go through history here. We were very proud of what happened on the A strains, which makes up 99% of the disease burden. You're right, on the B strains, we did not meet non-inferiority, and that's really what we're looking for on this particular generation. By the end of the year, when this reads out, we're hoping that the B strains meets non-inferiority, and then we'll go to market and try to obtain licensure from there. Over time, as we add, I think the flexibility with our platform is that you can add several different antigens.
We've got, I think, three or at least two or three flu candidates in the pipeline right now, where we add extra antigens to it to increase the efficacy, to hopefully make it superior. That'll take a little bit of time. We'll come out with the first generation. That opens up combination vaccines, that opens up getting, just getting into market in the first place, becoming more of a name, but being transparent that we believe that the product will be improving year by year over time, so that when we get to the next generation flu vaccines, that we can actually show superiority.
Great. When you get this data by year-end, then what are the next steps on the regulatory side?
That's our hope. We believe that we can file for licensure next year with immunogenicity data. As we look at all those candidates in the flu, we hope to be able to understand which one we want to actually bring for full vaccine efficacy, and then at that point, get permanent approval, which could be 12-24 months from now at that point.
Perfect. Talk about the INT or the neoantigen therapy platform here. You presented data at ASCO on distant metastasis-free survival for your program, that's in combination with Merck. Could you speak to why this is considered a hard endpoint and how you think HR was so strong, notably in the context of what you saw with RFS?
Yeah, Lavina was at ASCO. I'll turn this one over to her.
Sure. We, we're very pleased with that data set. Just to kind of level set everyone, RFS was the primary endpoint, but hierarchically, the secondary endpoint was distant metastasis-free survival. RFS, which is Recurrence-Free Survival, really looks at both local recurrence as well as distant recurrence as well. The reason why we think the quality of a distant metastasis-free survival is a little bit better than just plain RFS, is because it's asking the question whether or not your therapy does in fact delay or prevent a metastasis, which arguably, when you have a metastasis, particularly for an adjuvant patient, the prognosis for that patient is much worse. If your therapy is preventing that distant metastasis, you're really having a more powerful impact on the prognosis of that patient, and which is what we saw play out with that secondary endpoint.
The hazard ratio, as you mentioned, looked better than recurrence-free metastases in of itself. We saw a 65% reduction in distant metastases with DMFS, which is something that we think is, you know, a very strong result, very pleased with that result.
That's great. In light of the data that we now have in melanoma, how do you view the probability of success for translation to non-small cell lung cancer, and what really drives your confidence here?
It really goes back to speaking to the mechanism of action. What we've proven in phase I is the utility of this mechanism of action, where we're having your T-cells recognize the specific cancer fingerprint, if you will, that is very private and individualized to that person, to that patient. That mechanism of action should translate to anywhere else that KEYTRUDA also works, because it's the combination that works. We now know through KEYTRUDA's history, which also started off in melanoma, that they've proven that IO, as a modality in cancer, works in various different tumor types, which is what we think INT as a combination with KEYTRUDA will follow as well.
You've noted that the data is premature, to this point, and, I guess, is it sufficient at this point for approval or accelerated approval, or do you think you need the data to mature, or do you think you need to run a pivotal study here?
That, at the end of the day, is a question for the regulators. We are very pleased with the data thus far. There will be another look at the data set at 51 events, and arguably, the patient population will mature even further on that, maybe possibly even a year longer on the therapy. That gives us another opportunity to look at that data. We have not actually shared the DMFS data with regulators yet. In this regulatory environment, what the FDA and other regulators around the world also want to make sure that sponsors are serious about the confirmatory studies.
Yeah.
Starting that phase 3 study and enrolling patients is the best way to prove that we are serious about that phase 3 study, which may put us even in a better position to then discuss the possibility of an accelerated approval. Again, it's a decision that resides with the regulators.
Yeah. When we look to the pipeline reads outside of respiratory and outside of INT over the next 12 months, if you could walk us through where we should focus on and how we would unlock that vertical?
Sure. Jamie mentioned a couple of those already. In latent viruses, we have our phase III CMV study that's enrolling. More than 50% enrolled is the last update that we made. As soon as that study is fully enrolled, it really starts the clock in terms of a difference between vaccine arm and placebo arm. There isn't any vaccines that are available with CMV, just like with COVID, when we're up against placebo, depending on how powerful our vaccine is, we do anticipate that you'll start seeing the separation of those curves, the vaccination versus placebo. We do have interim looks built into that study, so that could really unlock the value of each and every subsequent latent virus, like EBV and the other herpes viruses that we're going after. That's one aspect.
As soon as we're fully enrolled there, I think the clock starts.
Yeah.
In rare diseases, we just shared some exciting data in PA, which is the furthest along in a phase 1, 2 study at the American Society of Gene & Cell Therapy. There we showed that the data, longitudinally, as we're looking at these repeat dosed patients, that the data is getting stronger and stronger. Just to kind of lay the context there, the first look that we did at that data set was at R&D Day of last year, September 2022, there we saw a 50% reduction in what's known as metabolic decompensation events, where these children have episodes that can land them in the hospital. What we've shown was that there was a 50% reduction.
Following those patients and adding additional patients in higher cohorts now yielded, as of a cutoff of March 31st, a 78% reduction in those MDE rates, pre- and post-therapy. The data is really trending in the way that we want it to. We're currently now picking or have picked a dose to take into an expansion phase. This was a dose-escalating study. We've picked the dose we want to take into that expansion phase. Once that data is mature, we'll have a conversation with regulators as well.
Got it. Do you think One area, one program you didn't talk about was lung with Vertex, and so help us understand when that program might read out, and, you know, is there anything else?
Sure.
Yeah.
Definitely excited about the lung modality as well. It is a Vertex-run study. Our understanding is that they are currently in the single ascending dose phase of that study, and we'll take it ultimately into that multiple ascending dose portion of the study. They are going to be the ones that control the data readout. We've seen very clean activity in the preclinical phase of that development, and we're looking forward to that data set when it is available, but very excited about that lung modality.
Great. given your revenue projections for 2023, where you're at the floor of $5 billion and beyond, how do you balance R&D spend with the aspect of profitability? Is there a target goal at this point of when you want to, you know, transition back to profitability?
Yeah, I mean, we get this question a lot, know it's on top of investors' minds, and I want everybody to know it's on top of our minds every single day as well. And we just feel that investing back in the business right now is the best option for long-term value creation. We've got to complete the respiratory franchise, which we believe, to your prior projections there, that we gave out, the $8 billion-$15 billion. We'll kick off $4 billion-$9 billion in cash flow at least per year, come 2027. We look at it every single day. I think the second half will tell us a lot, whether we're gonna be in a lower case environment in terms of vaccination rates and COVID, because that is the bulk of our revenue for the foreseeable future.
Of course, we will add RSV next year. We hope to add a little bit of flu, but probably more so in 2025, and those will help. I think, you know, we look at, "Hey, what's a low scenario? What would our spending level be at that level? What's a medium kind of base case scenario? What's our spending level at that level?" We are and will continue to be fiscally prudent about this. You know, we're fortunate to be in a position that we had started the year with $18 billion in cash. It'll obviously dip down because we're a seasonal business, and then it'll come back towards the end and even into the first quarter of next year. We don't want to take this much lower.
You know, we might be willing to eat into some amount of this cash balance to complete the respiratory investment that we need for R&D. If you look at the other programs, you look at, you know, INT, it could get substantial over time, but we've got a partner there to share 50/50 on that. Rare disease is a smaller patient population, the studies aren't as expensive. CMV is one of the bigger ones. We're cognizant of it. I think we would be willing to, in a low scenario, I know we would be willing to take our cash balance down. We're never gonna get back to wanting to finance the company again. That's how we think about it at this point.
Got it. On the BD side, you have engaged in some smaller BD transactions. Help us understand if this is indicative of what you want to do and how you're integrating these, you know, these companies or technologies into your portfolio.
I mean, most of them are relatively small from a dollars perspective. OriCiro was, you know, less than $100 million, or most of the collaborations are, you know, $50 million-$75 million. I don't think it'll ever be a significant driver of our cash outflows. I think, you know, $300 million-$500 million a year maybe or something like that. The value from them, we believe, will come in the very near future. OriCiro, we're already putting into INT, as an example. We are putting it into our production processes for the future here, or in our new products. Carisma, we'll have readouts from that, and CytomX, we'll have readouts from that.
We think that the value creation opportunity is not that far away, but again, these are relatively small investments and collaborations at this point in time.
Got it. How would you integrate Generation Bio, for instance, in your portfolio?
So more on the oncology side, in terms of, how it blocks some of, the proteins or the cells that it's not supposed to get into, so that's where we look at it for Generation Bio.
Perfect. Before we end here, is there anything you want to highlight about the pipeline or levers that you're excited about on the forward?
I think, I mean, From a pipeline perspective, I think we've covered most of it. I think the other big thing that's going on at Moderna that we're spending a lot of time on is how to build this into a very different size and style of company. We think we're building at least four franchises. We talked about respiratory, latent, oncology, rare disease, that'll be very substantial, and someday we expect this to be a very large company. We don't want to have the same size employees. We think if we can really build a digital-first company, and we do that through every single function, and we review it every single quarter.
We go through all the finance and sub-activities, HR, CMC, sales, et cetera. We're embedding AI in everything we do, machine learning in everything we do. I think that'll be a radically different company than what has been built. We're really at the beginning of the company still. Yes, we're 12 or 13 years old, but we have the opportunity right now because we don't have 10, 20 products in the marketplace right now. We have the ability to build digitally first, so that we can be a different sized company and a more digital company and have better outcomes. I think that'll also help the culture. The culture will if you're 50,000 to 100,000 people versus if you're 10,000 people, is radically different.
I think that is the other big thing that right now, aside from all the exciting things going on in the pipeline, how we are building the company is very different than I think we've seen in other companies.
Yeah.
I've seen in other companies, I should say.
Sure. That's good. If I could just add, just building on what Jamie was talking about, I think what investors really are missing is how much AI is already embedded into, like, the research and development processes at Moderna. We've held a, digital- manufacturing and digital day way back in 2020 with use cases for AI. That's still available on the website. I would encourage people to kind of look at that, as a, as a first stop in understanding how AI is embedded into the research function at Moderna. Since then, the use cases have really just gone up and up, and there are many, many more of those. That's one area that I think is very important to make sure that people understand.
Great! Well, with that, thank you so much.
Thank you for having us.
Thank you.