Novavax Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

Key Takeaways

  • We expect U.S. sales of Nuvaxovid to be $50–150 million this season, lower than prior guidance and with some revenue shifting into Q1 2024, reflecting a slower market start and limited early uptake.
  • All 2023–24 ex-U.S. doses are under advanced purchase agreements, with EU approval in October and pending authorizations in Canada, the UK, Australia and New Zealand to deliver on contracted commitments.
  • Year-to-date operating expense reductions reached $950 million versus 2022 with $1 billion in current liability reductions, and the company will cut an additional $300 million in 2024 to reshape its cost structure.
  • COVID-Influenza combination vaccine has selected its formulation and plans a pivotal Phase 3 study in H2 2024 aiming for a 2026 U.S. launch, leveraging its protein nanoparticle platform and Matrix M adjuvant.
  • Updated combined FY 2023 and Q1 2024 revenue guidance is $1.3 billion (split ~$850 million product sales, ~$450 million grants/royalties), supported by U.S. government funding and APA deliveries.
AI Generated. May Contain Errors.
Earnings Conference Call
Novavax Q3 2023
00:00 / 00:00

There are 11 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Novavax Third Quarter 2023 Financial Results and Operational Highlights Conference Call. At this time, all participant lines are in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Erica Schultz.

Operator

You may begin.

Speaker 1

Good morning, And thank you all for joining us today to discuss our Q3 2023 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 2. Before we begin with prepared remarks, I need to remind you that this presentation includes forward looking statements, including information relating to the future of Novavax, its key strategic priorities, operating plans, objectives and prospects, full year 2023 and first quarter 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 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 risks and uncertainties that could cause actual results to differ materially from those projected in such statement.

Speaker 1

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 ks and subsequent Form 10 Qs filed with the Securities and Change Commission and available at www.sec.gov and on our website at novavax.com as well as subsequent filings with the SEC. The forward looking statements in this presentation speak only as of the original date of this presentation, and we undertake no obligation to update or revise any of these statements. Please turn to Slide 3. Joining me today is John Jacobs, our President and CEO, who will provide an update on our progress during the quarter for our 3 key priorities. Additionally, John Trizzino, Chief Commercial Officer and Chief Business Officer, will provide an update on our commercial activities and Doctor.

Speaker 1

Philip Dabowski, President of Research and Development, will discuss our clinical development and pipeline. Finally, Jim Kelly, Chief Financial Officer and Treasurer, will provide an overview of our financial results. I would now like to hand over the call to John Jacobs. Please turn to Slide 4.

Speaker 2

Thank you, Erica, Thank you everyone for joining us today. I'm pleased to be here today along with the members of our executive team to discuss our Q3 2023 financial results and operating highlights and the important progress we've made across our three priorities. Let's begin with our first priority, delivering an updated product for the current fall vaccination season. Beginning with our launch in the U. S.

Speaker 2

And subsequent approval in the EU, to share and to deliver on our APA commitments. In the U. S, we started the season approximately 3 weeks ago with the shipment of doses to major retail pharmacies. We achieved our prelaunch goal of securing broad access to our vaccine, the only protein based non mRNA option in the country. Having launched several weeks after the competitor vaccines, we have limited preliminary data.

Speaker 2

And although early, we are seeing indicators of increased awareness and growing interest Genar vaccine. In Europe, NuvaXivir was approved in October. We are also awaiting authorization in Canada, U. K, Australia and New Zealand. In these markets, we have advanced purchase agreements under which we expect to deliver all of the contracted doses for the 'twenty three, 'twenty four season.

Speaker 3

Given the U. S.

Speaker 2

Launch of our vaccine in mid October, we believe it's too early to assess the true market Given the uncertainty in the U. S. Market and approval in Europe several weeks behind our competitors, we expect to deliver revenue at the low end of our prior guidance for the season with some of the revenue expected to shift into the Q1 of 2024. Importantly, we did not originally expect any revenue to occur in Q1 of 2024. Jim Kelly will provide more context on this later in the call.

Speaker 2

Our management team is leaning into and focusing on our opportunity to create a robust and sustainable business platform for years to come, which includes customized and differentiated product presentation in 2024 2025 as well as additional restructuring to create a more efficient business model, which will facilitate the late stage development of and a smooth transition to the anticipated launch of our combination COVID-nineteen Influenza Vaccine in 2026. We believe that a combination COVID-nineteen influenza vaccine represents a significant opportunity in this fit, which is why we are concentrating our portfolio investments to bring forward our unique protein based combination vaccine, which is likely to be a preferred option for many consumers and health care providers. Now let's move on to priority number 2, which is to reduce our rate of spend, manage our cash flow and evolve our scale and structure. In the quarter, We continue to make significant progress on our commitment to improve our financial position, while maintaining the capabilities to support long term value creation. Year to date results include a $950,000,000 reduction to operating expenses versus 2022 and in addition, an approximate $1,000,000,000 reduction to current liabilities from our December 2022 baseline.

Speaker 2

We are on track to exceed our previously announced global restructuring and cost reduction plan for 2023 by over $100,000,000 combined R and D and SG and A expenses, while at the same time having successfully achieved our objective of updating our vaccine and launching this season, demonstrating that we can significantly reduce costs while maintaining our core capabilities. While this reduction was an important step, There are more efficiencies we can achieve and we are prepared to further reshape and size the scope of our operations beyond previously announced 2024 targets to align with the emerging COVID market opportunity, while advancing our COVID flu combination vaccine program. Therefore, we are prepared to initiate additional cost reductions to decrease 2024 expenses by over $300,000,000 above and beyond the previously stated targets for 2024. Jim Kelly will speak further about our 2023 guidance and plan to drive significant improvement to our cost structure later in the call. Finally, let's discuss priority number 3, which is to leverage our technology platform, our capabilities and our portfolio of assets to drive additional value beyond NuvaXivit.

Speaker 2

Our recombinant protein based nanoparticle technology platform and Matrix M adjuvant have the potential to produce a variety of differentiated vaccines. Our priority here is to focus our R As Philip will discuss later in the call, contingent upon FDA concurrence on an accelerated approval pathway, we are now planning to move directly into Phase 3 in 2024 and to fund this program independently. Initiating a Phase 3 program in 2024 would enable a potential launch in the United States and 2026. Now I would like to hand it over to additional members of the team to discuss our results from the quarter in more detail, beginning with John Trizzino to discuss our commercial updates. John?

Speaker 4

Thank you, John. Please turn to Slide 6. As John outlined, in the U. S, we are approximately 3 weeks into our season launch. We are pleased that we have secured broad access to our vaccine through contracts with the majority of major retailers, including Costco, CVS, Giant, Publix, Rite Aid and Stop and Shop, as well as top integrated delivery networks and major medical groups across the country.

Speaker 4

To date, the retail channel is the largest segment of the market With approximately 90% of COVID-nineteen vaccinations thus far and availability of product was prioritized by distributors in the retail setting. Looking at the flu market, we see that the retail to non retail channel split is currently approximately 60 Fivethirty 5, which mirrors prior years. Therefore, we can reasonably expect that non retail channel for COVID-nineteen, which includes healthcare provider offices could grow through the end of the year. Please turn to Slide 7. In the U.

Speaker 4

S, we have seen a slower season start than 2022 for COVID. At this point last season, Just over a half of COVID vaccines have been administered. So we expect that a significant market opportunity could remain with the potential to extend the season into the Q1. However, we believe that multiple factors are leading to slower than anticipated vaccine uptake this fall, including distribution challenges in the U. S.

Speaker 4

Market as it has converted from government purchase to commercial. The availability of multiple vaccines, COVID, flu, RSV and updated pneumococcal for the first time in the same season, trailing vaccine fatigue from the pandemic amongst others. Based upon the data available to date and without a significant trend break, it is our estimate That the U. S. Market could be as low as 30,000,000 doses or as high as 50,000,000 doses should we see a trend break, pickup from other channels or an elongated vaccination season that goes into the Q1.

Speaker 4

We are expecting lower than anticipated sales in the U. S. Market due to these and other factors. Jim will provide more information during his section. Importantly, we do not believe that the 2023 market It will be representative of the future opportunity, including combination vaccine options in the future and C, the COVID market providing a growing and sustainable revenue opportunity for Novavax for years to come.

Speaker 4

Please turn to Slide 8. We are encouraged that our vaccine is now available in the U. S. Alongside mRNA options offering consumers and healthcare providers a choice this season. While we are currently seeing low single digit market share, which is consistent with analogs for third to market products in their early stages of their launch, We believe that it is too early to assess our full 2023 potential.

Speaker 4

We are seeing some early indicators that where we are position on a level playing field and fully stocked and available we can effectively compete. For example, Based on recent feedback in a select national retailer, we have achieved up to 10% market share in our 1st few weeks of launch. We anticipate market share improvement over the course of this season based upon both consumer and HCP demand for our vaccine As the only protein based non mRNA COVID-nineteen vaccine option, its refrigerator stable product profile and ease of use and market research showing that around 25% to 30% of consumers and healthcare professionals prefer a protein based option. Please turn to Slide 9. Given the high proportion of vaccinations we are seeing in the retail channel, we are currently focused on driving market share in this channel, working with pharmacies to promote the availability of our vaccine both in their online scheduling systems and in store.

Speaker 4

And we'll continue to work to stimulate new demand in the non retail channels. We are also focusing on executing highly targeted direct to consumer education and public relations efforts to drive the Novavax brand name and awareness and drive consumers to locations with availability of Novavax's vaccine. Just 3 weeks Into our in season promotional efforts, we have seen substantial lifts in awareness of Novavax. The HCP aided awareness increasing from 46% to 72%. And we are seeing that within retail In over half of retail outlets that offer the Novavax vaccine, it is offered as one of only 2 COVID-nineteen vaccines available.

Speaker 4

Please turn to Slide 10. Outside of the U. S, our 2023 product sales continued to be driven by our existing APAs. In the EU, we received approval and expect to deliver all of the remaining committed doses In other key markets, including in the U. K, Canada, Switzerland, Australia, New Zealand, Singapore, Taiwan and WHO regions, we are awaiting regulatory authorization.

Speaker 4

Based on committed dose delivery schedules and subject to those regulatory approvals, we expect to deliver all APA doses for the 2023 2024 season. Please turn to slide 11. I want to reiterate, We believe that this season is a transitional one, both for the size of the market opportunity and our market share potential. And that long term both the COVID-nineteen market and our ability to penetrate the market represent a significant ongoing opportunity for our company. Early feedback from our launch has reinforced our belief That there is a demand for a differentiated vaccine option and that Novavax will play a meaningful role with potential product sales for Novavaxovid alone between the U.

Speaker 4

S. And rest of world projected to be greater than $1,000,000,000 opportunity annually. This should provide a foundation for us to advance our pipeline leading with our combination influenza COVID vaccine, which when combined with our standalone COVID-nineteen vaccine has the potential to be a multi $1,000,000,000 respiratory vaccine franchise in the future. And with that, I would now like to hand it over to Philip to discuss updates for R and D.

Speaker 3

Thanks, John. Please turn to Slide 12. Today, I will cover a couple of topics: the progress in our COVID influenza combination program and how we're expanding the use of Matrix M adjuvant. These topics exemplify different approaches to capitalizing on our core technology. I came to Novavax after seeing the original nanoparticle plus matrix and publications for influenza and understood the promise of the technology.

Speaker 3

This has been validated by the development, licensure and commercialization of our COVID vaccine. The exact same technology is used in our combination vaccine. Please turn to Slide 13 for an update on the COVID influenza combination vaccine. As we previously discussed, the combination vaccine program is a priority We've now selected the formulation to advance into the next study. I'm displaying neutralization responses on this slide.

Speaker 3

Neutralization responses are important because we believe they most closely predict clinical efficacy. On the left side of the slide are COVID neutralization responses On the right, influenza neutralization responses for the 3 strains that will be included in future influenza vaccines. Our selected formulation compares well to Novaxibid as well as Fluzone High Dose and Fluad. Separately, we compared the geometric mean shows of the HAI responses to these formulations. They achieved non inferiority margins previously used in Phase III studies paving the road toward late stage development.

Speaker 3

I also want to remind you we observed a favorable reactogen C profile with our combination vaccine that was clinically indistinguishable from the licensed influenza vaccine comparators. This appears to be a hallmark of our technology. We can increase the antigen load while maintaining acceptable tolerability. Overall, this points to a favorable product profile, demonstrating both the convenience factor of a 2 in-one vaccine coupled with a reactogenicity profile comparable to licensed influenza vaccines. Formation development is ongoing and we are still on track to initiate the next study in 2024.

Speaker 3

Pending final regulatory concurrence, We've designed the study to evaluate endpoints for an accelerated approval pathway, while simultaneously building a co formulary safety database. Therefore, we've updated the next year study designation to a Phase 3 study. Please turn to Slide 14 to talk about Matrix M. But first, let me remind you about the adjuvant's performance characteristics. Matrix AM induces high levels of broadly neutralizing antibody, along with polyfunctional CD4 cellular response and its antigen sparing, which may be appealing for companies that have difficult to manufacture antigens.

Speaker 3

As a component of our COVID vaccine, it is a large and well characterized safety database. And as we've previously discussed, even large quantities of antigen, It maintains a reactive agency profile consistent with licensed vaccines. We pursued multiple approaches to increase the adjuvant's value. It's included in veterinary vaccines commercialized by MSD Animal Health and Intravac in Europe with additional vaccines in development. It's included in the R21 malaria vaccine that has recently received WHO Sage recommendations for use.

Speaker 3

As we have previously announced, It's in preclinical evaluation by the Bill and Melinda Gates Medical Research Institute for targets of public health importance. And in addition to its use in our own pipeline products, it is being evaluated as a component in 12 clinical stage candidates by biotech, academic and government partners. And finally, it's being evaluated in animal models by a biopharma partner to improve currently authorized vaccines against herpes and respiratory viruses. As these projects mature, it will expand the Matrix performance data set, and if these projects are Successful Unlock Additional Value. These external Matrix M collaborations represent opportunities for long term future of Novavax And do not distract us from our top focus on the development of the combination COVID influenza vaccine.

Speaker 3

Please turn to Slide 15, and I'll lay out our planned time lines for the combination vaccine program. For the COVID influenza combination vaccine program, we've selected our dose and are developing our formulation and finalizing our manufacturing strategy. Pending regulatory concurrence, we are anticipating initiating the accelerated approval Phase 3 study in the second half of twenty twenty four. This implies a regulatory filing in 2025, which could allow for us to participate in the fall 2026 season Okay. Let me hand it over to Jim to discuss our financial results.

Speaker 5

Thank you, Philip. Please turn to Slide 17. Before discussing our Q3 financial performance, I would like to first share updates on 3 important financial themes to drive shareholder value. Today, we are sharing our updated financial guidance that includes Our expectation to achieve total revenue for the COVID 2023 2024 season of $1,300,000,000 reflecting the lower end of our prior guidance range of $1,300,000,000 to $1,500,000,000 which was for the full year 2023. For updated total revenue guidance, we have combined the full year 2023 and the Q1 of 2024 total revenue to reflect the full delivery timing and revenue recognition of sales associated with the 2023, 2024 vaccination season.

Speaker 5

Consistent with 2023, we originally expected no product sales revenue in the Q1 of 2024. However, due to the delayed start to an expectation for a longer season in the U. S, we expect Some portion of revenue recognition will extend into the Q1 of 2024. In addition, Outside of the U. S, some portion of the committed APA dose deliveries may extend into the Q1 of 2024.

Speaker 5

Therefore, our guidance now includes our expectation for approximately $1,000,000,000 for the full year 2023 total revenues and approximately $300,000,000 of sales in the Q1 of 2024. This updated total revenue guidance of $1,300,000,000 reflects a lower U. S. Sales estimate based on current market expectations, offset by $150,000,000 in favorability in our EPAs plus grants and royalties. As noted earlier, our management team is leaning into and focusing on our opportunity to create a robust and sustainable business platform for years to come.

Speaker 5

While we're pleased to be over $100,000,000 ahead in our previously announced cost reduction efforts For R and D and SG and A, for the full year 2023, we are prepared to initiate additional cost reductions to decrease expenses by over $300,000,000 in 2024 beyond our existing targets. Regarding cash and APAs, We have over $960,000,000 across cash, accounts receivable as of the Q3 2023 plus expected cash from the contingent Canadian payment. In addition, we will have $750,000,000 in EPA contract value post the 2023, 2024 season deliveries. As we move forward, our U. S.

Speaker 5

Market opportunity along with this combination of APA sales aggressively reducing costs and managing our cash are key financial levers to drive towards profitability and long term shareholder value. Please turn to Slide 18. Turning now to our Q3 2023 highlights. For the Q3 of 2023, We recorded $187,000,000 in total revenue. The $165,000,000 in grant revenue recognized during the quarter puts Novavax on track to realize the full value of the $1,800,000,000 funding under our U.

Speaker 5

S. Government agreement. The decrease in total revenue quarter over quarter compared to the prior year was consistent with our expectations for a later start for the 2023, 2024 COVID vaccination season. Combined R and D and SG and A expenses for the Q3 of 2023 were 213,000,000 This reflects a $214,000,000 or 50% decrease compared to the Q3 of 2022 and includes a $58,000,000 benefit associated with the manufacturing settlement. Year to date results highlight a $950,000,000 or 47 percent reduction in total expenses and an additional approximate $1,000,000,000 reduction to current liabilities.

Speaker 5

Please turn to Slide 19. A few comments regarding the more detailed review of our Q3 2023 results. Our operating expenses in the current period include the $79,000,000 favorable impact associated with the previously announced SK Bioscience settlement of certain manufacturing liabilities that is recorded to both cost of goods sold and R and D expense. Our cost of sales for the Q3 of 2023 were $99,000,000 compared to $435,000,000 in the Q3 of 2022. 3rd quarter 2023 cost of sales included $82,000,000 related to excess, obsolete or expired inventory and losses on firm purchase commitments as compared to $249,000,000 in the same period in 2022.

Speaker 5

Q3 of 2023, we recorded a net loss of $131,000,000 as compared to a net loss of $169,000,000 and the Q3 of 2022. Please turn to Slide 20. As noted, we are prepared to initiate additional cost reductions to decrease expenses by over $300,000,000 and further reshape size and scope of business operations to align with the COVID market opportunity. We plan to do so by reducing 20 24 R and D and SG and A expenses by over $200,000,000 compared to prior targets to reflect $750,000,000 or lower spend in 2024. In addition, we intend to reduce supply network costs by over $100,000,000 as we continue to rationalize our manufacturing footprint.

Speaker 5

Please turn to Slide 21. Now turning to financial guidance. We're providing some additional details related to our full year 2023 financial guidance and total revenue guidance for the Q1 of 2024. Our total updated revenue guidance for the combined full year 2023 and 1st quarter 2024 of $1,300,000,000 reflects $850,000,000 for product sales and $450,000,000 related to grants and royalties. Product sales includes over $700,000,000 from committed APA dose deliveries, secured new orders and U.

Speaker 5

S. Market sales of between $50,000,000 $150,000,000 The Q1 2020 4 total revenue guidance of $300,000,000 reflects the balancing amount to achieve our expected combined full year 2023 and Q1 2024 product sales and total revenue of $1,300,000,000 Of note, we previously expected no product sales in the Q1 of 2024. For R and D and SG and A expenses in 2023, we're on track to exceed our previously announced global restructuring cost reduction plan by over $100,000,000 We now expect full year 2023 R and D and SG and A expense to be approximately $12,000,000,000 at the midpoint and positions us well as we prepare to further improve our cost structure in 2024. If successful in achieving the guidance outlined today, we believe this will support the funding of our operations for the next 12 months. In our 10 Q filing, you will see that we have provided an update on our ongoing concern disclosure, which we first provided in our 10 ks filing in February.

Speaker 5

Specifically, that this forecast continues to be subject to significant uncertainty related to revenue for the next 12 months and pending arbitration. 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.

Speaker 2

Thank you, Jim. Please turn to Slide 22. I am proud of the significant progress we've made against our 3 priorities year to date in 2023, including the launch of our updated vaccine in the United States, being $100,000,000 ahead of our cost reduction targets, paying down over $1,000,000,000 in current liabilities and enabling a potential Phase 3 initiation of our combination vaccine program in the coming year. We are excited about our ongoing U. S.

Speaker 2

Commercial launch and the opportunities ahead as we begin to see the long term shape of the business to come. This includes the potential for Sustainable COVID-nineteen Business to generate annual seasonal revenue, a combination COVID flu program to capture significant future market opportunity and our Matrix M adjuvant to further strengthen and diversify our revenue generation opportunities for the company in the future. As I said earlier in the call, we are leaning into and focusing on our opportunity to create a robust and sustainable business platform for years to come, which includes an optimized and differentiated product presentation in 2024 2025 as well as additional restructuring to create a more efficient business model, which will facilitate the late stage development of and a smooth transition to the anticipated launch of our combination COVID-nineteen influenza vaccine in 2026. I remain confident in and grateful for our employees' dedication to advancing our objectives. We are also appreciative of the ongoing support of our loyal investors as we strive to deliver on our objectives with the intent of driving long term shareholder value.

Speaker 2

And with that, we will now take your questions.

Operator

We will now begin the question and answer session. Our first question comes from Roger Song from Jefferies.

Speaker 6

Great. Your line is open. Thanks. Great. Thanks for the comprehensive update.

Speaker 6

So a couple of questions from us. Maybe start from the U. S. Market. Understanding you're updating the guidance to $50,000,000 to $150,000,000 sales for the season, I want you to give us a little bit kind of color how confident you about that guidance given based on the 3rd party Database seems you are still way behind that number so far and just curious about Your thinking around the season, how Novavax will capture further market share in the toward the end of the season.

Speaker 6

And also more importantly, how do you think about the next season and the future to come Thank you.

Speaker 2

Hi, Roger. Thank you for your question. Appreciate you joining the call. Roger, obviously, it's very early in the season right now. We're just a few weeks in with a Few weeks of data before us, we've seen some very strong sparks that I'll ask John Trizzino to elucidate here for you on the call of early interest in the vaccine.

Speaker 2

And it's still one of the biggest unknowns is how large the market will really be, right? And that's something that no one's really sure about. And so I'll ask John to comment on a few of those things, but that remains the largest uncertainty as market size in the U. S. As we go through the John?

Speaker 4

Yes. Thanks, John. Hey, Roger. Look, I think we're learning a lot every day about this current 'twenty three, 'twenty four season With some number of factors that we talked about during the presentation about delayed season start, the dynamics Associated with multiple vaccines being in the market, the distribution challenges that have been there. And then I think we're also dealing with total market size and some fatigue here.

Speaker 4

So but related to us, I think that there's an opportunity for the balance of November and December as we look at ongoing pharmacy vaccinations. I think we also are going to see some significant growth and change in the non retail sector. Based upon how low that is right now, I wouldn't expect that there would be Consumer behavior significant change of not going to the doctor's office. So, I think we'll see that. And then we'll see it being a little bit elongated into Q1.

Speaker 4

As far as some of the early metrics that we're seeing, look, I think overall we said we're seeing low single digits in some of the national in one in particular national retailer. We're seeing 10% market share. This is where we're on a level playing field. There's product in the pharmacy And we're having good recommendation coming from the pharmacy. So we remain optimistic about the balance of the season.

Speaker 4

Obviously, that is all A controlled enthusiasm, if you will, understanding that we're kind of 3rd to market. We're also dealing with kind of consumer behavior where I'll just get the same vaccine that I had before and we're beginning to see some of that shift taking place in the marketplace. So stay tuned.

Speaker 6

Got it. Yes. Thanks, John.

Speaker 2

And then Roger, the other part of your question was Confidence about next year and I think right now it's too early to tell as we said we got 3 weeks of data in our hands here, but we've seen that spark like John mentioned major retailer up to 10% share. And next year, we anticipate having a better presentation, unit dose vial, right, BLA, a full label including pediatric data, etcetera. So right now we're much better than we were in years before when it comes to We're even playing field with mRNA, but next year we're taking the learnings from this year. It's a transition year in the U. S.

Speaker 2

And really leaning in to position ourselves very well market penetration in 2024.

Speaker 6

Yes. Thanks, Ken. Okay, great. And then so in terms of the ex U. S.

Speaker 6

APA, can you let us know how likely this Current $700,000,000 in total, I think around $400,000,000 for the remaining of the year into 1Q will be For the renegotiated or are those APA, are they set for the delivery upon the approval? And also you already got just recently got approval if that starts to deliver based on the order? Thank you.

Speaker 2

Jim Kelly, you want to handle that?

Speaker 5

Hey, certainly. So with our APAs included in our guidance for the Q4 and Q1. These are secured APAs. They're tied to committed delivery schedules. Of course, in the case of Europe, we have that approval.

Speaker 5

It's about getting the doses into market. And for important markets like Australia, New Zealand, We're in the process of completing those regulatory filings to enable us to deliver those doses. Importantly, Their Southern Hemisphere, so when those doses arrive, they're going to have the type of shelf life to be meaningful to them as they enter their season. Now all of these APAs, they do come with stipulations that we have to deliver on time per the agreement. And if not, they can attempt to renegotiate.

Speaker 5

We currently have the expectation that we'll get them there on time per the agreement.

Speaker 6

Excellent. Great. Thank you. Maybe just one last one from me It's good you can directly move into the COVID flu combination trial Phase 3 trial next year. Given the additional operational expense cut for 2024, how do you think that will impact Phase plan and will you be able to sufficiently fund that trial without a partner?

Speaker 6

Thank you.

Speaker 2

Good question, Roger. Go ahead, Jim.

Speaker 5

Yes, great question. And I'll first reference back to what is, I think, a pretty Signing update from Philip today about a very lean approach and path and potentially accelerated path to get our combination product to the market as early as 2026 with a single pivotal study. I mean this is an important game changer. I think many folks heard something very similar from Moderna recently and we think it enables us a path to market in a highly capital, I'll call it efficient manner. Okay.

Speaker 5

So with respect to the update we provided today, where we are going to Thrive our R and D and SG and A to below $750,000,000 next year. That is inclusive of beginning this study next fall. And so we have contemplated that that we are both focused on creating not just the competitive COVID product, but also accelerating our combination product while establishing a lean and focused organization to do so. And if you wouldn't mind, I'll talk a little bit about the cash runway that enables that. I described to you 3 really important components And I'm going to describe these components before factoring in the U.

Speaker 5

S. Market opportunity, which I think John did a really nice job highlighting. We can see a path through the end of 2025 to over $2,000,000,000 in cash through 3 critical pieces. I described as of today over $960,000,000 in cash and expected cash on combining cash on hand, accounts receivable plus that $175,000,000 expected contingent payment from Canada. Add to that the $600,000,000 at midpoint of current season 20 3, 20 24 sales in the Q4 and Q1 of next year.

Speaker 5

And then we described over $750,000,000 outstanding APA contract value for 2024 2025. You net out some of the upfronts and you've got clear visibility of over $200,000,000 or excuse me $2,000,000,000 in cash. Then as you seek to execute against that lean and focused organization, reducing our cost structure to ensure we are prepared with financial strength for both next fall and to accelerate and invest in that combination program. So hopefully that's helpful.

Speaker 2

And Jim and Roger also that and include what Jim just laid out that over $2,000,000,000 runway over the next 24 months does not contemplate anything else from U. S, from Europe, from other markets like South Korea, which just placed a new order with us from our R21 vaccine, which just received 2 authorization or from things like UNICEF in low income countries, all additional opportunities for the company to generate revenue in the coming years and even in the coming quarters potentially. So what Jim laid out is just what's primarily secured revenues already contemplated through APAs. One other point is on the $600,000,000 Jim talked about between Q4 and Q1. The vast majority of that is secured revenue through APAs, which we intend to deliver the full doses for And the minority of that is the 1st year launch in the United States.

Speaker 2

So just to give you the opportunity we have before us from a revenue standpoint, a cash standpoint to carry us independently forward to our kick program launch and then the upside potential beyond for all of those other

Operator

Our next question comes from Eric Joseph of JPMorgan. Your line is open.

Speaker 7

Thanks. Good morning. In the U. S, Looking across the pharmacies that you've contracted with to carry the updated vaccine, can you just well, how How should we be thinking about their aggregate market share as it relates to seasonal vaccines, perhaps prior COVID seasons, flu seasons. Really getting at the question of how much

Speaker 3

of a

Speaker 7

ceiling Walgreens not being a part of the mix, not being a carrier represents for your product uptake? And I guess should we see perhaps Walgreens revisiting that decision over the season? Thanks.

Speaker 2

All right, Eric, I'll ask John T. To comment. 1st, John, maybe on channel share and then the dynamic with Walgreens.

Speaker 4

Yes. So I think you're talking about what is historical channel mix and then what is it So I made reference to some of that in the presentation where for flu, What we're seeing this year is about 65% in retail and 35% in non retail. That's approximately accurate for the last 5, 6 plus years or so, and typically, for a seasonal vaccine. For COVID last year, Similar statistics and there was about 60%, 70% in retail and the balance in non retail. We're just not seeing that at the moment.

Speaker 4

We're seeing sub, let's call it a few 100 1,000 doses in the non retail channel based upon the IQVIA data that we're seeing so far. So, we expect to see that change a bit in market mix. Consumer behaviors and actions don't change dramatically in that shorter period of time, but we're monitoring that to see if that's true. But so far it's heavy, heavy retail sector and not yet seeing that shift. What we're also seeing is A season that's elongating, typically for flu, you'd see 50% of the volume before the end of October.

Speaker 4

Again, we're not seeing that for COVID and we saw that for COVID last year. So there's a push for multiple reasons. I think there's a heavy burden on pharmacy vaccinations That is affecting all that. And so we're monitoring it closely. As we said earlier on in the presentation, We're only 3 weeks into data that we're seeing, and so more to come over the next few weeks as we monitor that mix in the market.

Speaker 2

And Eric, I believe the other part of your question was specific to Walgreens for John. And so we're in over 14,000 retail outlets in the United States right now with broad distribution and also working with the IDNs to make sure if physician network or other channels want the vaccine, it's readily accessible to them, including our participation in the U. S. Government bridge program. But John, you may want to just put into context the Walgreens piece.

Speaker 2

That was Eric's specific question there, I believe.

Speaker 4

Yes.

Speaker 7

Hello, operator?

Operator

We can hear you.

Speaker 4

Sorry. And it's important to understand that we're seeing that Through that retail locations for all of the retailers, a great relationship with CVS. I think they're seeing a lot of vaccines coming through their locations. We're talking about programs to evolve that communication into the pharmacy to make sure that there's awareness looking at all any and all other opportunities to create awareness for the consumer as well as awareness for the healthcare provider and mentioning that earlier that that awareness and acknowledgment is up over the last couple of months and we expect to see that trend continue.

Speaker 2

Eric, I'll just add. Thank you, John. I'll just build one point on top of what John so clearly stated there, which is that Based on CVS alone, roughly 75% of all Americans are within 5 miles of one of their retail outlet. So the vast majority of Americans are very close. If they want our vaccine, they can get our vaccine.

Speaker 2

That was the goal. Would we like to have Walgreens? Absolutely. We continue to work with them. They're a good partner and will be for the long run.

Speaker 2

But despite that, we're close to most Americans and if they want our vaccine, they have access to it. That's the important thing.

Speaker 7

Okay, great. Maybe just I can ask one follow-up for Jim, just thinking about sort of how the OpEx efficiencies perhaps should be recognized over the course of 2024. And maybe it's too early for this, but just And thinking about sort of the longer term outlook, how whether we should anticipate sort of resumption of or build of OpEx in 2025, particularly as you think about obviously self funding the CIC Phase 3 trial? Thank you.

Speaker 5

All right. Excellent. I'm going to begin this with what I'll call a profile of profitability that we're driving to. When we think about a long term sustainable profitable organization, We're looking to what I'll call at least 50% commercial contribution margins. And what I mean by that is sales minus COGS minus SG and A, all right.

Speaker 5

And then of course you reinvest in R and D under that. And in doing so, You really got to get your gross margins and sort of sales minus COGS in that 70% to 80% range. So start with That as, hey, what's your blueprint to drive this company to be an efficient and capital or cash producing entity? That's the vision. And then as we look at the evolution of that through 2024 2025, While we are describing an urgency to evaluate and act and drive to this cost structure, We're not today announcing, for example, a specific restructuring.

Speaker 5

We're previewing it for you, but you witnessed us earlier this year Act with speed. And so you should expect that we will do so, so that we can recognize as much of those savings as early As possible to fully drive towards that $750,000,000 or less in R and D and SG and A for 2024, While continuing to accelerate the KICK program and driving to a filing in 2025 that in turn could enable a launch as early as 2026. So those are the, I'll call it, the blue Sprint, the guiding principles for where we're headed.

Speaker 7

That's very helpful. Thanks, Jim. Okay. Thanks for taking the questions, guys.

Speaker 2

Thank you, Eric.

Operator

Our next question comes from Brendan Smith from TD Cowen. Your line is open.

Speaker 8

Hi, great. Thanks guys for taking the questions. Just a couple of quick ones from us. First, I wanted to clarify something I think I might have heard. For the ex U.

Speaker 8

S. Approvals. Are you still in the process of completing some of these filings? Or are they all done and you're just waiting on actual approval? And can you maybe provide any additional color you have on the potential timing or cadence for the remaining ex U.

Speaker 8

S. Approvals kind of just based on your conversations there? It's kind of really related to Roger's earlier question, trying to understand just the possibility that any of those might get pushed a little past Q1 just kind of based on the cadence. And then related to that, can you kind of tell us how you're thinking about that $300,000,000 in Q1? Have any of the Q4 APAs renegotiated at all or have you actually confirmed delivery in Q1 with some of these territories?

Speaker 8

Or is this kind of just a best guess based on the current trajectory of how things are going? And then, yes, and then I have a follow-up. Thanks.

Speaker 2

Yes. Yes. John Trazino, why don't you take that first question, then we'll hear the follow-up. Yes.

Speaker 4

So ex U. S. Approvals, we are still waiting on several. We have U. S.

Speaker 4

And EMA at this point. We're waiting on UK, Canada, Australia, New Zealand, Singapore, Taiwan, and also have expectation for WHO regions To be received within the next few weeks and certainly that will allow us to make those deliveries, many of them before the end of the year and the possibility that some of that timing might roll over into Q1 as we've provided some guidance for In that cut, I'll leave the explanation of the $300,000,000 in Q1 to Jim.

Speaker 2

Yes, go ahead, Jim.

Speaker 5

Yes, certainly. As John mentioned, we've got secured orders for delivery. If you look at the midpoint of our guidance, You are going to see that we've got EPAs within that guidance that are approximately $500,000,000 So call it sort of $475,000,000 to $525,000,000 spread across the Q4 and the Q1. And with that said, The way things are moving with our supply chain, we've got inventory ready to go. It's really about lining up those deliveries and With some of them like the European deliveries, there could be some it could end up hitting in the Q4 in total, but we just don't want Overpromise on that.

Speaker 2

Yes. The bottom line is we don't expect any of this to drift. Jim, anything to add to that?

Speaker 4

No, that's it.

Speaker 8

All right, great. Thanks so much. And then just on the cost cuts, can you maybe expand a bit on maybe where some of the new R and D cuts Coming from how they're distributed across 2024, and maybe whether these are being accounted for elsewhere in your filings. Just kind of trying to get a little bit of a sense Beyond the plan really what they'll look like and potentially if there's been any tangible changes in like accounting methods over the past few or upcoming quarters? Thanks very

Speaker 5

much. Yes. So we share with you that we're going to be reducing Our R and D and SG and A by over $200,000,000 and also reducing our supply chain related expenses by over $100,000,000 for a total of over $300,000,000 in savings. Hey, where did these come from? I should first say this is not a function I would say of forward looking accounting.

Speaker 5

It is not. This is about real savings, real cash, real improvement to our cost structure. Where these come from? It's a focused evaluation that begins with the markets we serve and the return on that investment as we pursue The COVID opportunity and prepare for the combination opportunities to start with focused investment. Then you assess Your people, your sites, facilities, capabilities, capital investments to support that.

Speaker 5

You then evaluate 3rd party vendors and what it takes To have them along assisting us on that journey and you resize and reshape all of it. So I'll give you specific examples of thinking along supply chain. 1, we got to better manage the alignment of supply with demand. We got to avoid these write offs this This has to do with how much we do at risk as we further sharpen our focus on the demand signal, we've got to knock that out. Then you look at your internal operations and based on that you got to be leaner.

Speaker 5

I'm talking about facilities, reduce idle capacity and any overhead support. And then we got to continue to negotiate aggressively 3rd party agreements relating to our supply network. So that's how you come after your supply side. On the R and D side, you heard from Philip, a lean focused approach with Kik. That's how you do it.

Speaker 5

You get to market faster with Kik in a more efficient investment profile. And then everything I said about commercial market and infrastructure and overhead, we're going to drive for higher efficiencies to support this leaner focused company.

Speaker 4

And Jim, just

Speaker 2

to build upon that, thank you for that clarity. The company was originally scaled and built for a much larger opportunity in a global pandemic. And we demonstrated earlier this year with decisive $100,000,000 ahead on the 2023 cost reduction targets that we announced earlier in the year and we did so without damaging our capabilities to operate. That's really key. And now as a new team, your management team, since I joined in the beginning of the year, we've had line of sight on stream selection to shots and arms cycle this year and an assessment of how the COVID market is unveiling itself post pandemic.

Speaker 2

And with that line of sight and the knowledge of the capabilities we need to continue to operate efficiently and bring forward our program, we're confident we can make the real cuts, as Jim said, not accounting function, but by reducing scope and scale and taking expense out of the system to make this company leaner and more focused and more competitive and able to independently bring forward that KIC program to a filing status. Jim, anything to add to that?

Speaker 5

It's that focused, the way we're operating day in and day out. We're laser focused on driving towards everything you just said, John.

Speaker 2

All right, great. Thanks very much guys. Appreciate it.

Operator

And our next question comes from Mayank Mamtani of B. Riley Securities. Your line is open.

Speaker 9

Good morning, team. Thanks for taking our questions. So maybe just a follow-up to prior comment on cost of goods expectations for 4Q, 1Q. Any early insight on The returns expected retail, non retail segments, know you're trying to manage this as real time as possible. And I also noticed your Grant revenue was particularly high today and there were some write offs, I guess.

Speaker 9

Could you just clarify what's sort of going on in that line item?

Speaker 5

Hey, sure. There's 3 particular pieces you hit there. One is, hey, what are we learning about returns? A second one has to do with grant revenue and what do we see in there and forgive me Mayank, what's the third one?

Speaker 9

Yes, the cost of sales line item today that we reported for 3 years.

Speaker 5

Yes, you got it. Okay. So beginning with returns. Our return window really opened the 1st November, so too early to tell. What we're pleased with is, hey, we had really good, I'll call it, specialty distribution uptick and Also sell through to ensure we've got our vaccine across the country available, but too early to give feedback on returns.

Speaker 5

We're going to be monitoring that one very closely, of course. On grant revenue, you are seeing across both grants and royalties That we're upticking our guidance by $100,000,000 Why? Philip has done an exceptional job working with our partners in the U. S. Government to Enable us to take full advantage of that 1.8 percent revenue.

Speaker 5

And in addition to that, there were multiple milestones tied to our success in being prepared for the U. S. Market. We met them and that's why you're seeing improvements there. In addition, about $12,000,000 this quarter, Matrix R21 revenue related to the malaria R21 vaccine as our partner Serum is preparing to launch as early as next year.

Speaker 5

So really important advancement there. Okay. Let's talk a little bit about the COGS line. What you're noting is that we had COGS in a quarter where we had no revenue, we had COGS of 99,000,000 All right. Let's talk about what's happening there.

Speaker 5

There's a benefit from the SK Bios settlement of $22,000,000 I think you know that. So that would take it up to about 121. What is in that? You've got $85,000,000 or $82,000,000 in excess capacity. We noted that Add to that some scrap and overhead, what I mentioned to you is, hey, we got to be better.

Speaker 5

We can't have that happen. We got to be more focused on that front. And then finally some unabsorbed overhead about $20,000,000 Again, this is a part of being lean and focused. These are the types of things we're seeking to drive down. Hopefully that helps you.

Speaker 9

Yes, super helpful, very comprehensive. And then maybe just sticking on that regulatory milestones that I think was noted also in your Q, including for under 18 year old, maybe for higher dose that you're looking at for the elderly. Could you just fill update on what all is going on there for the updated 2023, 2024 vaccine and then also a similar roadmap for the Kate program, what sort of Those optimization work remains and also if you anticipate any ex U. S. Regulatory guidance to also come along with all the discussions we are having with the FDA.

Speaker 2

Mike, why don't we ask Philip to address some of your questions on the clinical programs and the related regulatory milestones there. Philip? Thanks. You mentioned to squeeze

Speaker 3

a lot into that once run on sentence, Mike. So we laid out the The regulatory time is for KICK in the U. S. We think that's going to be the most important market for us, right? It's a product that we see Demand from consumers as well as from healthcare providers and that's our focus.

Speaker 3

The timelines we laid out was a potential regulatory filing in 2025 with potential accelerated approval in the market in 'twenty six. Now as far as a high dose product, that's a program that was supported by U. S. Government. We We've finished enrolling that study or we will today.

Speaker 3

So the timelines of that aren't going to be available until the following year. Pediatric data, we previously said that we would be filing in the We have data available in the Q1 of next year. And we think that older age group will be relevant for the following season.

Speaker 2

I think we have time for 1 or 2 more questions here.

Speaker 9

Okay. I'll jump back in queue. Thanks for taking the question.

Speaker 2

Thank you, Mike.

Operator

And our next question comes from Alex Stranahan of Bank of America. Your line is open.

Speaker 3

Hi, Alex.

Speaker 7

Hey, guys. Great. Thanks for taking our questions. Couple from us as well. The first is on the multi dose format.

Speaker 7

Given the demand kinetics you've seen to date, do you see a risk of Some doses in a vial not being used and what happens to those doses? Are they shipped back to you guys and How does that feed into the price or reimbursement to pharmacies?

Speaker 3

And then I've got a follow-up.

Speaker 2

Yes, good question, Alex. We'll have John Trizzino address that one on returns.

Speaker 4

Yes, Alex. Look, we're in a 5 dose vial. And I think, of course, it would anticipated for our future, we'd be in some kind of unit dose presentation, and that's what the marketplace wants, and we're moving in that direction. As far as the use of those vials, we've made sure that there's flexibility to the healthcare provider and the use of that vial. So if not all 5 doses are used, there's an opportunity to return partial vials And we're tracking that through a 3rd party provider of that returns process.

Speaker 4

So it's been made clearly communicated that our intent is to provide access, getting product on the shelf and available, that then is good utilization of whatever is available and that period of time. And that there is a returns provision in place that allows for that with no cost and economic disadvantage to the healthcare provider and then we monitor that on our end.

Speaker 5

And then quick comment on revrec. I mean pharma products highly common to have a return provision. So this is Far from uncharted territory, we'll have the regular gross to net entry and we'll make an estimate. We've got visibility on our return rate as we seek to Close the books for the Q4 based on both actual returns come in and then visibility through the channel. So this will be an important part of our revenue recognition go forward.

Speaker 2

And Alec, you said you had another question.

Speaker 7

Yes. Just a quick one. I noticed some new language in the Q around the withholding the installment payment to Fujifilm. Is this due to a breach of contract or something else? Are there other vendors that you may seek to withhold payments to for similar reasons?

Speaker 7

And Just high level, how you see the arbitration playing out? Thanks.

Speaker 2

Kelly, you want to take that Absolutely.

Speaker 5

Alec, you're exactly right. We have disclosed that with respect to the remaining 2 payments that were targeted For the 3rd and Q1 that's $68,000,000 total that we are currently in a dispute or Difference of opinion with Fuji at this time, it's a legal matter, so I can't speak too much about it. You might remember that those payments were each subject to commercially reasonable effort to mitigate our exposure. And I think that's all I can say at this time.

Speaker 7

Thank you.

Speaker 2

And time for one more question.

Operator

And our last question comes from Vernon Bernardino, a Private Investor. Your line is open.

Speaker 10

Hi, thanks for taking my question from H. C. Wainwright. Can you comment on what regulatory concurrence is being discussed for a final clinical study designed for the combination vaccine? And I'll just throw the follow-up now.

Speaker 10

For the 2024, 2025 season, can you give us your thoughts on what dynamics you expect regarding authorization of your updated

Speaker 2

Philip, you want to take the first part of Ernan's question?

Speaker 7

Sure. So the major focus with us is going to

Speaker 3

be with the FDA and this is really going to be part of a pre IND discussion with them Since we're filing an IND in the U. S. To support the U. S. Study, that's an interaction that we have planned for the Q1.

Speaker 3

We are going into that with a lot of data to bring to them and that's why the timing is in the Q1 of 2024.

Speaker 4

Yes. So let me follow-up on that next question, Vernon, on plans for 2024, 2025. We're intending to have an updated profile for the vaccine that's being offered. We're looking at a unit dose presentation available on a more timely basis than we were able to this year, so earlier in the season availability. And then of course it's our reasonable expectation that we would be under BLA for the 'twenty four, 'twenty five season as well.

Speaker 4

So I think those are significant factors that are driving an improved uptake in market share and presentation to the marketplace.

Speaker 2

Thank you, Vernon. And operator, I believe we're at time at this point.

Operator

And this will conclude our question and answer session. I'd like to turn the conference back over to John for any closing remarks.

Speaker 2

I want to thank everyone for their time and energy and for your questions and wish you a great close to your week. Appreciate you all. Thank you.

Operator

The meeting has now concluded. Thank you for joining

Speaker 3

and have

Operator

a pleasant day.

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