Hey everyone, good afternoon, and welcome to day two of the 2024 Bank of America Healthcare Conference. Thanks for joining this session with Novavax. My name is Alec Stranahan, I'm Vice President and Senior Biotech Analyst covering Novavax here at B of A, and I'm pleased to be joined by John Jacobs, President and Chief Executive Officer of Novavax; Filip Dubovsky, President of Research and Development; as well as Jim Kelly, Chief Financial Officer. Thanks for being here, guys.
Thank you, Alec. Appreciate it.
Hey, thanks for having us.
Yeah. Great. So John, maybe you just wanna, you know, give a brief introduction. You reported earnings on Friday. You also reported your collaboration with Sanofi. Maybe you can CIC things off and then we can jump into.
Thank you, Alec. Well, we couldn't be more excited, but first, if you didn't notice, we dressed for the role. So you can tell who the CFO, the scientist, and the CEO is by the way we're dressed. So just a little bit of humor to CIC things off. Thanks for having us, Alec. We've enjoyed the conference so far, and really our, our first conference since the news on Friday. So we, we couldn't be more excited as an executive team for our company, for our future, for the amazing partners in Sanofi, just a, a, a global leader in vaccine development and commercialization who have really validated our technology further through the recognition they provided us in, in the construct of the deal.
Couldn't be more excited about what it means for our future as a company and for consumers, 'cause our mission is to bring vaccines forward, to help the world take on tough diseases using our technology. If we had kept it all to ourselves, we could have done a few more, but with Sanofi by our side, we think that the opportunity is really limitless on what's possible to take on serious diseases around the world. And certainly for our shareholders, we really are working hard to earn the trust back from, and we think this is a step at least in that right direction to begin doing so.
Perfect. Well, maybe we can start, you know, any updates on your execution of the three priorities that you've been working towards, and, you know, how does the Sanofi deal help in redirecting the company?
It's a great question, and, you know, if I could just for a moment take us back to January of last year when I first joined the company. So about 15 months now in the role. It's been a blink of an eye, actually. It feels like less. It's been so exciting. And we sat together as a management team and our board that first month on the job, our three priorities that you just mentioned, and the three priorities for our corporate strategy. And the first one was to bring forward our vaccine, to show we could update the strain that had not been done before yet by the company, and that we could do so in season alongside mRNAs, which everyone knows as a tech platform can be faster than a protein-based vaccine. So how were we going to achieve that? Had to prove we could.
Number two, really clean up the balance sheet and significantly improve our cash position. With about $2.5 billion in current liabilities as I entered the company in January last year, we were able to remove well over $1.5 billion in current liabilities in the last 15 months, including over $800 million in the first quarter of this year alone, settle a $700 million dispute with Gavi, bring in $hundreds of millions in cash prepayments from our APAs, and put the company in a much better position from a cash flow and economic perspective. The success we had on those first two priorities, Alec, then enabled what we've just seen with Sanofi, which was priority number three since last February, to extract value beyond COVID alone from this technology platform.
The reason I came to the company was because of my belief and this company's belief in this proven technology platform and what it's possible to do. So this is the first of a pillar three success, and we're so proud of that. That's, that's the update. It was that 15 months of work on those first two priorities to put us in a position of leverage, not weakness, so we could negotiate a fair deal, a win-win deal, with a significant party like Sanofi.
Yes. I agree. It is a win for both of you guys. And it sounds like Sanofi will be taking over the COVID launch starting next year. Is that?
In January, correct.
In January of next year. Okay. I guess what makes Sanofi the ideal partner? Obviously, they're leaders in flu. What makes them the ideal partner for you guys to now drive the COVID launch?
You know, and, and COVID launch as well as perhaps build out a portfolio of new assets beyond what would have been possible if we kept it all to ourselves, as I said earlier. But COVID launch, you have a world leader in vaccine development and commercialization, and specifically respiratory vaccines, specifically in flu. When you look at their high-dose flu for 65 and older, and then you look at their other flu programs that cover different age groups, they're the leader in flu, and they've proven that over time. So we now get to join them on that journey and have economics from that multibillion-dollar flu franchise as well as our COVID vaccine. Scope, scale, market presence, experience, pull-through, and, and channel strength are very important in vaccine sales. You have to be able to distribute the vaccine.
You have to have the leverage to negotiate good access in the US market through contracting with key national pharmacy chains. We've seen the COVID market surprising, I think, to everyone. Over 90% was retail. We didn't see the physician component that everyone anticipated. Sanofi also has their own distribution facility and company on US soil, and they're able to help with distribution and channel access. So we think for many reasons, guys, did you wanna add anything to that? They're just an ideal partner for the COVID launch itself next year, but then also for combination products and for new products with Matrix-M, etc., which we can get into. Jim, Filip, anything else?
One more thing. I mean, in particular on that Matrix piece, the breadth of their portfolio and the ability to either or, leverage Matrix to improve COGS in their existing portfolio or apply Matrix to novel new vaccines. My goodness, there's so many places this could go, so many patients that could be helped.
Right. And you do get upside economics, as part of the deal terms for any additional assets using your, your Matrix-M, right?
That's right.
Yeah. Can we talk about that for a moment? I think that's really important because the deal has many layers of value opportunity for us. Obviously, you have a $500 million upfront payment within 10 days of signing, the investment in our equity, 4.9% stake they took, roughly $70 million. Those are the table stakes upfront. But then you have another roughly $700 million in near-term milestones, Alec, associated with operationalizing the deal, handing over the marketing license, right, making that transfer, completing a tech transfer so they can take over manufacturing, right, early clinical milestones as they begin to develop their kick program, right? This is execution that we would need to do, go forward with the deal, and there are significant milestone value associated with that.
A lot of the headlines in the newspaper, quick grab, $1.2 billion deal or so with Sanofi, that's only the beginning of the actual value of this deal. This is truly a multibillion dollar opportunity for Novavax. So beyond the initial upfronts and those milestones that are roughly $1.2 billion-$1.3 billion if you include the equity piece, we have anticipated royalties from any sales of our COVID vaccine. They can also then and intend to put that in conjunction with their flu vaccine for a combination that will have royalties. And they can also make other combination products using our COVID vaccine, all of which would be subject to royalties go forward. And then there's a very important component beyond that, which you mentioned, Alec, Matrix-M, our adjuvant technology platform.
Through the deal, Sanofi has access to create any new vaccine they would like to using our Matrix-M adjuvant and/or improve anything they have in their pipeline, with the exception of their standalone flu. That's the only exception, using Matrix-M. Each new product they would develop using Matrix-M is eligible for up to $200 million in additional milestones, development and sales milestones, and ongoing mid-single digit royalties for up to potentially two decades follow on. So if you look at all of the different components from the upfront, the equity investment, another $700 million in near-term milestones that are available to us, anticipated and potential royalties from sales of our COVID vaccine standalone, their COVID/flu combination, any other combinations, just an example, influenza but RSV plus, right, etc., royalties there. And then in addition, any new product with Matrix-M, up to $200 million in milestones each plus royalties.
The last piece of value from the deal is our cost synergies. Roughly $300-$400 million we're currently estimating, maybe even beyond that, as we are able to shrink down SG&A to market our COVID vaccine and focus more on the core of what we're really good at, which is R&D. Novavax in 2+ decades had never commercialized anything before. And when you try to go up against Big Pharma, who's done that for decades and has scope, scale, and leverage, and you're a tiny biotech who grew up overnight, you're going up against Goliath as David, right? So much better for us to focus on the core of what we're great at. Last point, we maintain full independence and ability to operate, meaning we have our own CIC vaccine with our COVID and our flu.
We just changed that study design to include, in addition, a second potentially registrational product in our standalone flu. So now we have two shots on goal versus one in that program, which starts second half of this year. We turn those data cards over mid-next year, and we can choose to license that out to anyone else we want to, partner those assets with anyone else that we want to, and we also can partner out our Matrix-M to any other company we wish to to build out their own portfolios. And now we've set a bar on anticipated value for those types of things. Yeah. Gentlemen, anything to add on that context?
I think you hit it.
I tell you what, multiple ways to win. It really is. And, you know, not just for the, Sanofi opportunity and all the just incredibly promising sides to it, but also this, as John noted, renewed focus on our pipeline, creating value, new transactions. We can just have so many different, programs come forward from our portfolio to create value.
Right. And that newly operating model, it's so important for us to get that. It was $1.7 billion cost structure when I joined the company. We're now targeting below $750 million prior to this deal. And Jim, I think we can get that well below what we've said in our earnings call starting next year and then even beyond that.
Well, that's exactly right. I mean, you know, we're targeting $500 million next year, a significant portion to be reimbursed by Sanofi, maybe somewhere between $50 million and $100 million. But as we get past the tech transfer, certainly the ability to go even further, and appropriately scale to the opportunity. We've shown that we've been nimble, and we act with urgency to do so. In the near term, let's not get there too fast. We have to ensure we get Sanofi where they need to be to succeed.
Yeah. Filip, you wanted to add a comment.
Yeah. I mean, you touched on this, but one thing I find interesting is to think about how the adjuvant, how Matrix can be used to improve their currently commercialized vaccines, right? We, we know it's profoundly dose-sparing, which could have huge implications for COGS, especially for difficult to, or expensive to manufacture vaccines. We, we also know it provides a, a T-cell response as well as a, antibody response, which may be lacking in some of their current vaccines. We, we also know that the reactogenicity profile is, is very, favorable. And we, we've shown this over and over again, that even with high levels of antigen, we're clinically indistinguishable from licensed flu vaccines. So we, we think it there's a real potential. Now, you, you have to approach that, with a lot of forethought because it may cost you time and effort to redevelop a vaccine.
On the other hand, it might be worth it depending on the savings.
Right. That makes sense. And John, I wanna drill down on a point you made. You know, the setup before the Sanofi deal was David versus Goliath, like you said, but now you're riding on the shoulder of a giant, which is Sanofi. One question I've been getting is you have 20% economics from COVID as a royalty, correct?
Oh, it's high teens to low twenties, yes.
Okay. Yeah.
Tiered. Yeah.
Tiered. But there could be a volume or increased demand component with Sanofi at the reins, right? So I think what people are trying to wrap their head around is what does the demand kinetic look like with Sanofi driving the ship? Any, any forward-looking color that you can provide there?
Well, I think as a good partner and to take a step in the direction of our new partner, Sanofi, I don't wanna project guidance for them in the conversation, but I'll ask Jim if he wants to add anything else to that.
Well, it's just two comments without, of course, guiding on their behalf. You know, the first comment would be, my goodness, they're the demonstrated global leader in vaccines and respiratory vaccines, and it couldn't the our, our COVID program and, and future development programs couldn't be in better hands. It certainly couldn't. And so our expectation is that they will do better in their hands from a top-line perspective, certainly. From a bottom-line perspective, meaning cash flow from our franchise, we believe through this transaction, the cash flow is better than if we had sold these ourselves. We are in a better position.
Okay. And maybe one follow-up for that since you guys will be doing the majority of the launch work for this season.
Correct.
You've already talked about J, JN.1 as sort of the variant that you're going after. We've talked about single-dose presentation. We've talked about, you know, getting a greater foothold with pharmacies. We've talked about BLA. What's sort of the progress on all those fronts, and how does that feed in even without Sanofi, how does that feed into a, a, a stronger demand kinetic this fall?
Yeah. I mean, we believe we can have a much superior performance in the US market, for example, than we did last year. You know, Alec, we're on track with a prefilled syringe, actually, which is really important and helps us to be more competitive. JN.1 strain and good, good, cross-functional data that Filip presented on the emerging strains that emerge from JN.1, so we're very confident about that. And we have a dual pathway, right, BLA and EUA, and we did that by choice in consultation with the FDA to give us a much better chance to be on time at the beginning of the season. So last season, we were a few weeks behind mRNAs. We were close, but half the market occurs in the first month, right? So that's opportunity. We do not intend to miss this year. That's our intention.
So with the dual path, we completed our BLA filing, and we expect an answer on the BLA this year from FDA. In parallel, for the prefilled syringe and only for the variant, we're choosing the EUA pathway together with FDA because that gives us the best chance to be on time at the start of the season in that prefilled syringe with JN.1. We've had excellent conversations so far with retailers. Can't provide you more context than that, but we're confident that we're set up in a much better position this year to perform in the U.S. market than before.
Fantastic. Maybe we can shift now to the combo vaccine. Maybe we can talk through, you know, the decision to add in the flu monovalent within that. And I also, I'm curious, what is the comparator arm that you're considering? Is it Sanofi's flu?
We have not been specific on that arm beyond age designation, but I'll hand it over to Dr. Dubovsky to comment, so.
Yeah. So, so what we've said is the comparators for both of those arms of the study, both of the kick and the standalone flu, are gonna be age-recommended vaccines, right? And there are only three of those in the U.S. But we haven't disclosed which of the three we're gonna use as comparator. We think it's important to use a age-recommended vaccine. It's relatively trivial to have a successful study against standard dose, but that doesn't really help you unless you get the high-dose recommendations and probably wouldn't allow you to be competitive in the marketplace. So, that's why we took that decision. And we're going in with a lot of confidence. We've presented this data previously, at the earnings calls. We, we have, in my opinion, a, a obviously excellent influenza vaccine, which looks superior, at least to my views.
For the combination product, it's at least not inferior if not better.
Okay. Any updates that you're making to your flu standalone, or is it?
I mean, the only update is that, well, clearly, the first strains are gonna be in there. And as the world has migrated to a trivalent vaccine, we've also done that. I was in discussions with the FDA.
Yeah. Okay. And then, you know, I think the other question I've been getting, you guys will have a Matrix-M kick. Sanofi will have a Matrix-M kick with.
With their flu vaccine.
With their flu vaccine, same COVID component.
Correct.
How does that shake out in terms of, if both are approved? You know, how are you thinking about that?
I think it'd be fantastic if both were approved. Look, this is going to be a multi-vaccine marketplace. You have Moderna and Pfizer competing to get in the marketplace. We would be up against them alone with our kick program with an amazing partner like Sanofi who is a world leader, and we get to join with them with that world-leading flu franchise. Look, Pfizer changed their clinical trial. They publicly stated that they're not targeting the older age group segment in their clinical trial, which happens to be the segment 60, 65+ that has the highest need for vaccination, the highest vaccination rates, and the highest margins and the best economics for a flu marketplace you'd wanna target. So now you only have Moderna with that component in their clinical trial, and I believe those data cards get unfolded this year for both Pfizer and Moderna.
We would expect if they're going to file and have a launchable product next year. Yeah. Let's see how that turns out and what happens. We could wind up being the only combination vaccine or one of two. And if both of ours wound up there, even with Moderna, if there's three combo vaccines, there's economics in it for Novavax on two out of three. I like those odds. And I also, though, you know, really like the odds of Sanofi as an amazing partner. They'll be able to really drive the market. They're the global leaders in this, and we're so, so pleased to be on that journey with them here.
Yeah.
You know, I think importantly, as John noted, these cards are being flipped in the coming months, and that strategic context of the data Filip shared this time last year of how our standalone flu and our combination performed against market standards. Hey, we're gonna see what happens in phase threes to compare against to Pfizer and Moderna, and it's gonna tell a lot about the setup you just asked about. What does our competitive profile look like? We like what we've seen so far. We think we're well positioned.
Okay. And very, very importantly, Filip shared data in our earnings call on H5N1 bird flu. It's really scary when you read about that in the news and you see how it's jumping across mammalian populations. You know, COVID, COVID, as, as difficult as that was and as many millions of lives were lost, it's just a small fraction of what might happen if something like that happens to humans. Now, we, we don't want that business. We hope that never happens. But the data from our vaccine against that is remarkable. And Filip shared it. We're in discussions with the USG on that right now. So we wanted to make sure we have a registrational vaccine pathway. And by adding our flu, it gives us that option to help protect global public health and fulfill our mission.
Filip, you also shared data on RSV against GSK, which is currently the one of the market leaders there. If you wanna comment on that.
Yeah. Yeah. And that goes back to one of the reasons I like the idea of pushing forward both the kick and the standalone flu, is it really gives us optionality on what to anchor the next combination against, right? So, it isn't clear to me yet what would be perceived at the market as a winner. Is it a triple, or is it just flu and RSV? In either case, we're gonna have that option to do that. The data I presented was really an improvement on our antigen design. And when we look at the fine neutralizing responses, they were really superior to the GSK product, which is a market leader because they work better, and they have better immune responses. So we think we're particularly well-suited with that antigen.
It's also one we could just outlicense or partner with, another company as well.
That's right. I mean, you can imagine for a small company like Novavax, Alec, it took almost everything we had every quarter to be ready for an upcoming fall season: energy, focus, thousands of employees, resources, dollars, risk, right? By handing that off to a global leader like Sanofi who's great at it and can do that much more easily and more successfully, we believe, than we ever could alone, it allows us to focus back on R&D. For 20+ years, that's what Novavax is good at. All of a sudden, a pandemic hits, and they emerge on the commercial scene to take on Goliath with a slingshot and grew up overnight. That's not what the company had done before or honed that skill set. It's not that eventually, we couldn't have done that. Much better for us to focus back towards our R&D roots.
The deal with Sanofi allows us to expand our own wholly owned organic pipeline and consider across multiple disease areas, not just respiratory, for future business development and value accretion.
That's great. I do remember, you know, when you were developing RSV, you guys were at the forefront, right? Even.
Way before my tenure, but yes, I believe so.
Even before, you know, sort of the new information came in in terms of how to design, you know, an effective RSV vaccine, which.
Right. But those products were without Matrix.
Yes.
They were also with an older construct, which doesn't have the benefits of the one I showed on Friday.
Yeah. Yeah. Great. You know, you mentioned reinvesting in the pipeline. How does, you know, that $500 million milestone, how does that change the way you're approaching your, your pivotal for the kick? You've added the, the flu arm. That's obviously, you know, maybe adding a third in terms of enrollment, which is not cheap, but anything else that you're changing there in terms of, you know, enrollment size, powering, etc.?
Thank you for asking. It's critical that we clarify this. We were able to do this with virtually no change in the cost footprint of that clinical trial, but I'll allow Filip to explain why and how we did that.
Yeah. I mean, I mean, previously, we were looking at two age cohorts with the kick product alone, above and below 65. What we did instead is we swapped out the younger group for kick for an older group for flu. We decided to at this point, they're both designed as greater than 60. We think that's an obvious way to expand, and it's consistent with where RSV vaccines are given. So we think we'll have access to that, a very important older age group with this design.
Okay.
Same size, same dollars, and the same timelines.
Okay. Great. So still targeting 2026.
Yes. Right.
For that launch.
Yeah.
Okay. Very good. Maybe we could talk about, just, you know, one of the pillars, which is cleaning up the balance sheet, right? You settled with Gavi. That's, you know, how does this maybe spread repayments through 2028, and, you know, how should we be thinking about any remaining liabilities on the balance sheet going forward?
Jim?
Hey, sure. So, as we think about our short-term liabilities with respect to Gavi, it's about $80 million in our short term, right? And that'll be spread out quarterly over the next 12 months. The remaining component of Gavi is all in our long term. And you might remember it's approximately $80 million a year for five years. So you've got four years times $80 million or $320 million. And then also, there's an option for an incremental $225 million, should Gavi seek to do that, to buy incremental doses, again, in long term. So that's how you take the remaining Gavi potential liabilities and spread them over half a decade.
Okay. Any other liabilities that, you know, could be coming due in the next 12 months?
Yeah. So if we look at current liabilities of approximately $800 million, it breaks down the following way. I've got about $250 million in deferred revenue. I got another $250 million in other liabilities. There's three components. Gavi, we just talked about, $112 million for the UK and another small amount to Canada. So that's $500 million of the $800 million. The remaining $300 million, it's just regular AP and accrued. We have, over the course of the past 18 months, taken this company with near short-term liabilities to $2.6 billion and knocked it down to $800 million. Just quite a journey to change.
It's quite a journey. 15 months.
Quite a journey.
Yeah. No, it's, it's great progress you guys have been making.
Lifted the going concern along the way.
Yeah. That was gonna be my next question. That one got removed with the Sanofi collaboration.
That's right.
What was sort of the remaining gating there that the Sanofi collaboration helped clear up?
Yeah. Well, I tell you what. There was certainly two critical matters coming into the year, and it was certainly Gavi, commercial execution, and, of course, the balance sheet of cash in hand. And the Gavi we took care of in February with this most current; it certainly bolsters our balance sheet to 12 months and beyond. So it addresses that piece. And then, you know, we still have $600 million in APAs to fulfill in the coming years. So it just all three of those dimensions put us on the positive footing we needed to lift that going concern.
Okay. That's fantastic. Maybe just in the two minutes we have left, I don't know, John, if you wanna wrap things up in terms of what you're most excited about as you turn.
Thanks.
You know, a new chapter in the Novavax story.
Well, look, I was really excited last year when I came in in January to start this new adventure because I really, truly did my homework on this tech platform and truly believed that Novavax wasn't anywhere near reflecting the potential value that it could offer the world when it came to global public health and shareholders and all of our constituents. And joined this amazing management team, and we've worked so hard over 15 months. And what I'm most excited about is to see those labors, currently right now, get rewarded with the opportunity to negotiate a deal with such an amazing partner in Sanofi. And the energy of that team, the culture at Sanofi, the people we've met, it's not just multibillion-dollar opportunity. I say, "Josh, that's a big deal for our shareholders," but there's a chemistry there between the teams.
You know, that's a big part of making any deal successful. And our new top priority I shared with investors is making that deal work. So I couldn't be more excited about operationalizing that deal, digging in as our top priority with our new amazing partners, and setting them up for success because when they succeed, we succeed. And then the opportunity to lead a Novavax go forward in a new lean operating model where we actually get to unleash people like Filip and our scientists to expand our own organic pipeline and potentially drive additional value there and through future business development. So I couldn't be more excited about the road ahead. This is just the first few steps down a new pathway with a little bit less briar bush and a little bit of sunshine coming through after the rain and the clouds.
Look, I'll close with this. In all sincerity, biotech's really hard. I, you know that. Everybody here knows that. Not every day's a good day in biotech. When you get a good day, you embrace it, but you should never, ever take that for granted. What we've done in the past is behind us, including this deal right now. We have a lot of hard work ahead of us. We need to execute. We need to stay focused. There's still risk ahead for Novavax, albeit a different risk profile and picture that's more, more investable, I hope, now. Last but not least, we really wanna earn back the trust of our investment community that was lost, rightfully, after what happened during the COVID pandemic era. We don't assume we have that back yet.
In all humility, we wanna thank our loyal investors for believing us and hanging in there. For those on the fence, you know, we're gonna keep working really hard to not let you down, and we hope to earn back your trust over time.
Fantastic. Well, I think with that, we're gonna have to leave it there, but.
Thank you, Alec.
Guys, really thanks, guys.
Thanks again.
Thank you, everybody.