Novavax Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

Key Takeaways

  • Novavax raised its full-year 2023 revenue guidance to $1.4–$1.6 billion, including $800 million in advance purchase agreements (APAs) for product deliveries this year.
  • The company announced a global restructuring plan to cut combined R&D and SG&A expenses by 40–50% in 2024 (20–25% in 2023), including a ~25% workforce reduction and facility consolidations.
  • Top-line Phase 2 data for the COVID/influenza combination vaccine were encouraging, with at least two formulations matching authorized comparators and moving toward late-stage development.
  • Novavax reduced its current liabilities by $541 million in Q1—funding the $325 million convertible debt maturity—and ended the quarter with $637 million in cash.
  • The company recorded a $7 million net reversal of product sales after a $65 million lot failed stability testing and was removed from the market, to be credited against future shipments.
AI Generated. May Contain Errors.
Earnings Conference Call
Novavax Q1 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Morning, and welcome to Novavax First Quarter 2023 Financial Results and Operational Highlights Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Erica Schultz, Senior Director, Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, and thank you all for joining us today to discuss our 1st 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 related to the future of Novavax, Its key strategic priorities, operating plans, objectives and prospects its future financial or business performance conditions or strategies, including projections on revenue and reductions in expenses and its global restructuring and cost reduction initiative Key commercial goals, including transitioning to a traditional commercial model future product demand trends The ongoing development of our vaccine candidates, including advancing multiple variant strains, strain selection, anticipated timing of trials and results, the scope, timing and outcome of future regulatory filings and actions the efficacy, safety and intended utilization of our vaccine candidates, including against COVID variants, the global market opportunities for our vaccine candidates, our manufacturing capacity and the future availability of our vaccine candidates and key upcoming milestones. Each forward looking statement contained in this 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 Exchange Commission and available at www.sec.gov and on our website at www.novavax.com as well as subsequent filings with the SEC.

Speaker 1

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. Please turn to Slide 4. 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, Doctor.

Speaker 1

Philip Dabowski, President of Research and Development will discuss our COVID variant strain development and pipeline and John Trizzino, Chief Commercial Officer and Chief Business Officer, will provide an update on our commercial activities. Finally, Jim Kelly, Chief Financial Officer and Treasurer, will provide an overview of our financial results. Rick Crowley, Chief Operations Officer, will also be available for the Q and A section at the end of today's I would now like to hand the call over to John Jacobs. Please turn to Slide 5.

Speaker 2

Thank you, Erica, and thank you, everyone, for joining us today to discuss our Q1 2023 financial results and operational highlights. We have an especially eventful call today because in addition to our Q1 results, we will also be discussing significant measures we have taken to reduce our costs and restructure our organization. And we look forward to sharing some encouraging top line Phase 2 results for our combination flu COVID program. The last time we worked together was in February for the Q4 earnings call, when I was only a few weeks on the job as the new CEO of Novavax. At that time, I shared with you why I was excited to join the company, my early observations and what our near term top priorities are based on those early observations.

Speaker 2

1st, delivering a competitive product for the upcoming fall season 2nd, reducing our rate of spend, managing our cash flow and evolving our scale and structure and finally, deriving additional value from our technology platform and portfolio. Now as I join you for the 2nd time with a full quarter of listening and learning behind me, I must say that this recent experience has further strengthened my resolve and confirm for me the strong potential that our company has to make a positive difference in global public health. As we continue to execute on our priorities, if successful, I believe we will place Novavax in a stronger position for future growth and value creation. I'm encouraged by the progress we've made to date. And while we know there are still significant challenges ahead of us before we can claim success, The leadership team and I will remain completely focused.

Speaker 2

During the quarter, we have taken decisive actions and made progress on each of our three priorities, which I would like to outline for you next. Let's talk about our first priority, Delivering a competitive product for the upcoming 2023 fall vaccination season. This includes aligning our COVID vaccine with regulatory and public health guidance on strain selection and making our product available in the right quantities and in a smaller unit competitive product presentation. Throughout the quarter, we have made significant progress on this priority, a critical component of which has been the collaborative relationship with the FDA and other global regulatory authorities as we prepare for the fall campaign. As part of that effort and as we noted in the Q4 earnings call, We've been advancing multiple variant strain vaccine candidates in order to optimize our readiness for final strain selection for the upcoming fall season by the U.

Speaker 2

S. VIRPAC on June 15. Following the FDA's decision, we will then focus all necessary resources on advancing the required To evolve to a commercial purchasing model, John Trizzino, our Chief Commercial Officer, will talk about how we are preparing to make our vaccine available across This includes significant progress in our U. S. Commercial team build out and our ongoing discussions and negotiations with customers ahead of the season.

Speaker 2

Outside of the U. S, we are pleased to report that we have secured $800,000,000 in potential APA orders for 2023. We are encouraged by our progress in this area I'm excited about the potential we have to positively impact global health with our updated vaccine this year. Assuming we execute Successfully on our plans for the U. S.

Speaker 2

And ex U. S, we expect total revenue in the range of $1,400,000,000 to 1.6 $1,000,000,000 for the year inclusive of product sales and grants. Let's now move on to priority number 2, which is to reduce our rate of spend, manage our cash flow and evolve our scale and structure. Today, we announced that we are implementing a global And cost reduction initiative, which will significantly reduce our expenses, while retaining the capabilities we need to help drive results and build value in the future. When fully implemented, we expect these actions will reduce our combined annual R and D and SG and A expenses for 2024 by approximately 40% to 50% when compared to 2022.

Speaker 2

Included in the plan is an approximate 25 reduction of our global workforce as well as a consolidation of our global facilities and infrastructure. While reducing our workforce was certainly a difficult decision, this was necessary as part of a comprehensive effort to better align our infrastructure and scale to In addition to significantly reducing our scope, scale and expense base in R and D and SG and A, we are aggressively addressing our significant one time current liabilities. To this end, we are pleased to report that since our last interaction, we've made significant progress in reducing these liabilities. You will hear more today about our cost management, our restructuring and cash flow from Jim Kelly, our CFO, later in the call. And finally, let's discuss priority 3, which is to leverage our technology platform, our capabilities and our portfolio of assets to drive combination and stand alone influenza vaccine dose confirming trial.

Speaker 2

Doctor. Philip Dubowski will update you on these data later in the call. Depending on the outcome of the full data set, which we expect to receive over the coming months, we will evaluate our options to advance this program through strategic collaborations and or other financing alternatives. These positive results further validate our technology platform and are another example of the potential of our science to contribute to global public health. Additionally, regarding our Matrix M adjuvant, we continue to evaluate opportunities and advance partnerships to leverage this This includes our ongoing partnership with the Serum Institute of India for their malaria vaccine R 21 that is formulated with our Matrix M adjuvant.

Speaker 2

This vaccine has now been authorized in Ghana and Nigeria. The approval of this novel malaria vaccine with our Matrix M adjuvant is another example of how we are working to extract additional value from our technology platform and our assets. Regarding Business and Corporate Development, we've been enhancing our internal focus and efforts on business and corporate development opportunities With the intention of positioning Novavax to build additional value and opportunity through our proven technology platform and our pipeline of early and mid stage vaccine candidates. This includes the potential for outlicensing, collaborations, partnerships, joint ventures, co promotion and other types of opportunities over time. As I mentioned in my opening comments, my experience at Novavax the past several months has helped to reinforce my belief in the potential of our company, and I am encouraged by our recent progress.

Speaker 2

I also believe that our core business is robust and that our strategy is the right one to help us achieve our objectives. Let me summarize those objectives one more time for you as I close my opening comments. First, we intend to make our business even stronger through the successful launch of a competitive product for the fall vaccination season. At the same time, we are working towards building a solid financial foundation to help And finally, we are working to leverage our proven technology platform, pipeline of early and mid stage assets and fully integrated global capabilities to drive additional value over the long term via clinical business and corporate development activities. As I noted during our Q4 call, we intend to routinely share with you both our potential opportunities as well as the challenges we face and to provide balance and perspective on our business.

Speaker 2

With that in mind, let me be clear. 2023 will continue to be a challenging year for Novavax. Yes, we have made progress during the quarter, but we still face several challenges and have significant work to do before we can fully achieve our objectives for the year. In the coming months, our commitment is that we will continue to focus on our three priorities and put forward our best efforts in all that we do, And we will do so with gratitude for the ongoing support of our key stakeholders. Now I'd like to hand it over Two additional members of the team to discuss our results from the quarter and in more detail, beginning with Philip Dubovsky to discuss updates for our pipeline and COVID variant strategy.

Speaker 2

Philip?

Speaker 3

Thanks, John. Please turn to Slide 6. Our research and development program remains focused on our COVID vaccine. While we have multiple ongoing studies to generate additional data needed to expand our label, Today, I will update you on our Verint strategy in preparation for the 'twenty three fall vaccination season, which as John discussed is our number one priority. We also continue to advance our standalone influenza and COVID influenza combination vaccine candidates, and I'll show you some preliminary top line data from our Phase 2 study.

Speaker 3

Development of our other pipeline assets, including RSV remains paused, allowing us to focus our resources on the programs that are critical to our near term success. Okay. Let's turn to Slide 7 and discuss our variant strategy. On our last earnings call, we described our approach to developing and evaluating vaccines for different variants. Have executed that strategy and continue to refine variant strain development based on the evolving epidemiologic data and ongoing dialogue with the global regulators.

Speaker 3

Displayed in this table are the recent variants we have progressed into our variant development platform. Whenever a new variant emerges, we manufacture the variant The variants that continue to be of concern are advanced into production of GMP mastovirus seed and then into large scale manufacture if warranted. This manufactured vaccine can be used for clinical studies or for commercial release. Based on regulatory input, our currently candidate is ex VB-fifteen, which we have progressed into manufacturing of multiple 6,000 liter batches. XUV16 is also of interest.

Speaker 3

And although there's only a single amino acid difference, We're making a match of our C to be prepared for the vaccine composition announcement. Based on our close interaction with global public health agencies, we remain optimistic that this strategy has the potential to minimize the time between strain selection and delivering our vaccine this fall. Please move to Slide 8, so I can remind you of our ongoing strain change study. In the Q1, Part 2 of Study 311 the new composition for the 2324 vaccine, we previously conducted a companion study with VA1 variant and bivalent and therefore anticipate similarly successful results in the current study. Okay, let's turn to Slide 9 and 10 to discuss our standalone influenza and COVID influenza combination vaccines.

Speaker 3

Before I share preliminary data from the Phase 2 trial, I want to remind you that we previously reported on our successful Phase 3 study with Quadrivalent Influenza as well as the Phase III combination study, which demonstrated that influenza COVID vaccine is feasible with our technology. In fact, we believe our This is a feature that not all vaccine platforms share. Go ahead turn to Slide 11 and review the Phase 2 study design. This is a Phase 2 dose confirming study and is not a provisional registrational trial. In fact, the primary endpoint is evaluating safety, Although there are multiple secondary and exploratory immunogenicity endpoints.

Speaker 3

These endpoints were designed to inform which formulations could be advanced into late stage development As you can see, this is a complicated design of experiment study with 20 different treatment groups. Once all the data is available, it will be entered into a 3-dimensional computational model identify the optimal dose levels. We also took the opportunity to explore high dose COVID vaccine formulations, which I will share with you later. We enrolled 1575 adults 50 to 80 years of age. 95% had previously received 3 or 4 doses of COVID vaccine With the last dose a median of 28 weeks prior to being enrolled.

Speaker 3

The data that is available today is safety through day 21 and anti SIG and co neutralization responses as well as wild type HAI for the 4 strains included in the vaccine. Additional immunogenicity data will be available over the next 2 to 3 months, including cellular immune responses, influenza micrometeorization responses, Immune responses to DRIFTA strains and HAI against egg adapted strains. Please advance to Slide 12 to look at high level safety. Overall, the standalone influenza and combination vaccines had a reassuring preliminary safety profile and the reactogenicity was clinically indistinguishable from the licensed influenza comparators. As we expected from the small data set, there were no adverse events of special interest, no potential immune mediated medical conditions and no treatment related SAEs.

Speaker 3

Unsolicited adverse events occurred in less than 25% of any group and were consistent with diagnoses in older adult populations. Local and systemic symptoms were mostly mild and moderate and are recorded rates comparable to the licensed influenza comparators. We did not observe a consistent pattern of increased reactogenicity This seems to be a hallmark of our technology and is an appealing feature when developing combination vaccines. Let's go to Slide 13, which describes the key competitors for our standalone flu vaccine. For the standalone quadrivalent influenza We evaluated 3 different hemagglutinin dosage levels formulated with 75 micrograms of MatrixM adjuvant.

Speaker 3

These were compared to 2 licensed premium price vaccines. Some preliminary data is printed on Slide 14. Presented here are the wild type HCI results of our dose level and was used in the previous Phase 3 study. Although the non inferiority endpoints was not prespecified or specifically powered for this, An ad hoc analysis indicated immune responses were non inferior for all four strains for both competitor vaccines. For H1N1, the HAI for our vaccine was 44% greater than both Fluzone high dose and FLUAD.

Speaker 3

For H3N2, which has been a problem for all vaccines in recent years, we were 89% 55% better. BVictoria, we were non inferior to Fluzone High Dose and 31% greater for FLUAD and for BialymeGaDA, we were non inferior to Fluzone High Dose and 32% greater We've seen lower HAIs for BIAMAGARA in previous studies and expect this difference to resolve when we eventually receive the micro neutralization data. Our belief that our technology may play a role in developing a better influenza vaccine. Okay, let's go to Slide 15 and talk about combination vaccines. We evaluated 3 different COVID dosage levels, 3 different hemagglutinin dosage levels and 2 different Matrix M levels for a total of 11 independent formulations.

Speaker 3

The anti S and COVID neutralization responses were compared to our authorized COVID vaccine and the influenza HCI were compared to Fluzone high dose and adjuvanted FLUAD. I won't show you all data for all 11 formulations. Instead, I'll show you data for a couple of formulations that performed well. Until we receive and analyze the rest of the immune data, won't be able to make a final determination of the formulation we intend to advance. Let's turn to Slide 16.

Speaker 3

On the left hand side of the slide are 2 combination vaccines in black and compared to our authorized COVID vaccine depicted here in a solid red bar. The combination vaccine achieved both IgG and neutralizing levels comparable to NVX-two thousand three hundred and 73. In fact, the new titers were about 3 fold higher than seen in our successful Phase 3 study in unprimed adults, giving us additional confidence of its potential performance. On the right hand side of the slide, the 2 combination formulations are compared to Fluzone High Dose in a solid orange bar and Fluidad in a solid purple bar. For the A strains, the combination levels were greater than that for Fluzone High Dose and Fluid and for the B strains, the responses were similar.

Speaker 3

Although for Yamagata, high dose fluzone did have a higher point estimate. Clearly, these results have been more favorable in the comparator that we'd use for the standard dose licensed influenza vaccine. Overall, based on this preliminary data, we believe we have identified at least 2 combination vaccine formulations Okay. Let's go to Slide 17 and look at some high dose COVID data. Shown here is a dose ranging from 5 micrograms to 35 micrograms of spike antigen and 50 micrograms of Matrix M adjuvant.

Speaker 3

In these well primed individuals, we hypothesized a larger antigen dose will lead to a better immune response, but this was not true in COVID naive individuals 5 micrograms and 25 performed comparably. We will be looking not just for increase in magnitude, but also durability and breadth of immune response. The highest dose COVID vaccine achieved a statistically significant increase of approximately 30% or anti SIG and neutralization compared to Novak's We're planning to conduct a Phase 2 study in the Q3 of this year to explore the use of high dose nuvaxitin as an annual vaccine for older adults. The study will be done with XB-fifteen vaccine. Please turn to Slide 18 and I will sum this up.

Speaker 3

So for our standalone flu vaccine, we observed a safety and recidgenc profile that was comparable to the 2 licensed influenza vaccines, But the immune responses were favorable compared to these market leaders. If we had selected a standard dose comparator, the difference, this would have been even greater. The additional immunogenicity endpoints will further define the value of this vaccine, but in my opinion, the data we've shared today significantly increases the probability of technical success for future Our COVID influenza combination, the ractogenicity was once again comparable to licensed influenza vaccines. And based on the anti COVID and influenza ACI responses, we believe we've identified at least 2 formulations that could be advanced into late stage development. Essentially, the combination vaccine appears to be immunologically on par with authorized and licensed comparators.

Speaker 3

We await further data to make a final selection. And for our high dose COVID vaccine candidate, we believe the preliminary safety and tolerability profile looks promising and there's some indication of higher immune responses with higher dosage levels. We're planning a Phase 2 study with exUBV15 in 3rd quarter as the next stage of development with special attention paid to the breadth, Durability of immune responses. We also know that our vaccine induces mucosal immune responses in nonhuman primates, so we plan on measuring those as we select our final high dose formulation for annual vaccination. With that, I'll hand it over to John Tregino to provide an update on our commercial activities.

Speaker 4

Thanks, Philip. Please turn to Slide 19 and then Slide 20. As key markets transition to more traditional commercial models, We are gaining more visibility into the expected size of the long term COVID vaccine market. We remain confident in an ongoing need for annual Seasonal vaccination. With likely demand in the U.

Speaker 4

S. In 2023 of approximately 100,000,000 doses, we believe it is reasonable to think this is a Approximately $7,000,000,000 U. S. Market with a total global demand greater than $15,000,000,000 Please turn to Slide 21. I'd like to discuss our recent progress and commercial readiness efforts to prepare for the 2023 fall vaccination season in the U.

Speaker 4

S. And rest of world. Beginning with the U. S, we delivered doses during the Q1 under our modified agreement with the U. S.

Speaker 4

Government for up to 1,500,000 doses, which importantly maintains access to our protein based option in advance of the fall season. This included initial delivery of our product in a 5 dose file presentation in March 2023. In parallel, we are preparing for the transition to a commercial market in the U. S. Utilizing the existing flu vaccine logistics and Go to Market Infrastructure.

Speaker 4

Today, we have a fully deployed commercial team across the U. S, Canada, EU and UK that have established relationships with key commercial stakeholders and vaccine providers across all distribution channels who are actively working towards ensuring our vaccine is available to consumers at key points of service for the fall season. This includes ongoing discussions with all major retail pharmacies nationwide, educating healthcare providers and pharmacists about our COVID vaccine across the country engagement with distributors, physician buying groups, doctors' offices and integrated delivery networks Coordinating with the U. S. Government to provide vaccines through various national public health programs and we are finalizing our participation in the CDC, VFC and VA programs this season.

Speaker 4

We are closely monitoring the COVID vaccine market to inform our pricing We expect our strategy will allow us to be competitively positioned in the U. S. Market and will provide support from public and private payers consistent with established vaccine payer infrastructure. We are also preparing our BLA submission and expect to file with the FDA in the second half of twenty twenty three. While this is an important milestone, we will be able to sell 2023 full vaccination season and beyond.

Speaker 4

We are enabling reliable access to Nuaximid by leveraging our commercial footprint and priority markets to drive demand. And we plan to continue to deliver doses against our outstanding APAs and have secured approximately $800,000,000 in APA orders for 2023 based upon committed delivery schedules subject to updated variant manufacturing and regulatory approvals. We expect to deliver the remainder of our APAs in 2024 and 2025. In the EU, we previously did not anticipate new sales during the Q1 due to the emerging seasonality of COVID vaccines. However, We accelerated our planned shipments and delivered doses committed under our existing APA during the Q1 to ensure our customers maintain supply in market.

Speaker 4

We expect to deliver the remaining 20,000,000 doses of committed doses under our APA in the EU in 2023. In both Europe and APAC, Asia Pacific, we continue to service these customers through our existing APAs. At the same time, our commercial teams are engaged with key decision makers at both the regional and local levels to prepare for the transition to tender and private markets in 2024 and 2025. We are confident in our Importantly, across all our priority markets, we are engaged with policy making bodies to advance policy recommendations for NuvaXimed, which will be critical to enabling broad market access and capturing market share during the upcoming fall season. Finally, as John discussed earlier, our top organizational priority remains delivering a competitive product for the upcoming 2023 fall vaccination season.

Speaker 4

We are transitioning to a smaller dose presentation, which will be important to further differentiate our vaccine in market. This includes in the U. S. Where our product will be available in single dose files. Both variant strain update and single dose presentation are key product attributes that we believe will contribute to a Strong market acceptance for our adjuvanted protein based vaccine.

Speaker 4

Market research tells us that there is a demand For a non mRNA COVID vaccine, when we asked healthcare providers in the U. S. For their preference, they indicated an approximately 31% Preference share for our vaccine. This tells us that there is significant market share available to us as we are working towards an unrestricted policy recommendation for the fall season. And as Philip outlined today, We advanced our variant strain development ahead of regulatory guidance on strain selection for the fall season.

Speaker 4

In the coming months, we will remain in ongoing dialogue with our customers and commercial stakeholders as we seek to ensure our vaccine is aligned with market needs and competitively positioned in the portfolio of COVID vaccines. With that, I'll hand it over to Jim Kelly to discuss our financial results.

Speaker 5

Thank you, John. Please turn to Slide 22. This morning, we announced our financial results for the Q1 of 2023. Details of our results can be found in our press release issued today and our 10 Q filing. I'll begin by providing an overview of our Q1 2023 results and progress to date on our liability management.

Speaker 5

Then I'll provide more details regarding the global and cost reduction initiative announced today. Finally, I will share financial guidance for the full year 2023. Please turn to Slide 23. For the Q1 of 2023, we recorded combined R and D and SG and A expenses of $360,000,000 This reflects a $120,000,000 or 25 percent decrease compared to the Q1 of 2022 and a $60,000,000 or 14% increase compared to the Q4 of 2022. This improvement represents the initial impact of our cost reduction initiative, putting us on a path towards a significantly lower cost structure We recorded $81,000,000 in total revenue for the Q1 of 2023, which is consistent with an emerging Seasonal demand pattern for COVID vaccines.

Speaker 5

Importantly, we reduced our outstanding current liabilities by 541,000,000 including funding the maturity of the $325,000,000 convertible debt. And finally, We ended the quarter with $637,000,000 in cash compared to $1,300,000,000 at the end of 2022. Please turn to Slide 24. Beginning with revenue, we recorded $81,000,000 in total revenue for Of note, you will see we recorded a net $7,000,000 reversal of product sales in the Q1 of 2023. This relates To a $65,000,000 credit that resulted from a single lot sold to the Australian government that upon a pre planned 6 months STABILITY testing was found to have fallen below the defined specifications and therefore was removed from the market.

Speaker 5

This credit will be applied against the future sale of doses to this customer. Our cost of sales for the Q1 of 2023 were $34,000,000 compared to $15,000,000 in the Q1 of 2022. This includes $20,000,000 related to excess, obsolete for expired inventory and losses on firm purchase commitments. Research and development Expenses for the Q1 of 2023 were $247,000,000 compared to $383,000,000 for the Q1 of 2022. The decrease was primarily due to a reduction in clinical and manufacturing spend.

Speaker 5

Selling, and administrative expenses for the Q1 of 2023 were $113,000,000 compared to 96,000,000 in the Q1 of 2022. The increase is related to expansion of our commercial sales operations in Europe and commercial investment in preparation for the fall 2023 vaccination campaign, partially offset by certain cost containment measures to reduce our operating spend. For the Q1 of 2023, we recorded a net loss of $294,000,000 compared to net income of $203,000,000 in the Q1 of 2022, again reflecting the emerging seasonality of our business. Please turn to Slide 25. In addition to making great strides to reduce the rate of spend during the Q1 of 2023, We also made significant progress to reduce our outstanding current liabilities from $2,500,000,000 to 1,900,000,000 The $541,000,000 decrease, including funding of the maturity of the 3 During April 2023, we addressed additional liabilities totaling 140,000,000 Supportive of funding this April activity is $100,000,000 payment to Novavax secured for the Q2 of As of March 31, 2023, the $858,000,000 of their current liabilities balance includes Approximately $700,000,000 related to the ongoing GAFI arbitration and $113,000,000 related to a 2023 UK APA payment.

Speaker 5

Eliminating the more significant near term liabilities Is a key component of our objectives this year and combined with our significant cost reduction initiative is intended to strengthen and stabilize our cash flow position as we seek to position Novavax for future growth. Please turn to Slide 26. Today, we announced that we are implementing a global restructuring and cost reduction initiative, which will significantly reduce our expenses while retaining the capabilities we need to drive results and build future value. When fully implemented, we expect these actions will reduce our combined R and D and SG and A For 20.24 to below $1,000,000,000 reflecting an approximately 40% to 50% decrease when compared to 2022. For 2023, we expect to realize about half that amount or 20% to 25% reduction as compared to 2022 due to timing, local laws and regulations and other factors.

Speaker 5

For the full year 2023, we expect combined R and D and SG and A expenses to be between 1,300,000,000 and $1,400,000,000 as adjusted to exclude one time restructuring cost. This global to our global workforce, of which 80% of those impacted are full time employees as well as a consolidation of facilities and infrastructure. We believe these decisive actions were necessary as we establish a path forward towards long term financial health and align Novavax to the opportunity ahead. Please turn to Slide 27. For the full year 2023, We expect to achieve total revenue of between $1,400,000,000 $1,600,000,000 from a combination of grant revenue and product Our projected product sales includes approximately $800,000,000 in APA orders secured for 2023 based on committed delivery schedules and currently uncontracted U.

Speaker 5

S. Market sales, each subject to updated variant manufacturing and regulatory approvals. For expenses, we expect to lower our combined R and D and SG G and A expenses for the full year 2023 to between $1,300,000,000 $1,400,000,000 as adjusted to exclude one time restructuring which at midpoint is approximately $375,000,000 lower than 2022. This expense guidance reflects our COVID standalone business cost structure and excludes potential costs associated with a Phase 3 flu kick program. We plan to evaluate our positive Phase 2 flu kick results announced today to frame our options to advance and finance this program via strategic collaborations and or available finance alternatives.

Speaker 5

For the fall 2023 season. In the combined second and third quarters of 2023, We expect to receive cash inflows of over $500,000,000 from product sales of our prototype Wuhan vaccine, government grants and $100,000,000 payment secured for the Q2 2023 related to a renegotiated APA. This $100,000,000 payment is excluded from full year 2023 sales guidance and we plan to continue to negotiate for additional 2023 payments from our committed APA book of business as we explore a full range of non dilutive and dilutive funding alternatives If successful in achieving the full year 2023 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 on our going concern disclosure, which we first provided in our 10 ks filing in February. Specifically, That this forecast continues to be subject to significant uncertainty related to revenue for the next 12 months, funding from the U.

Speaker 5

S. Government and pending arbitration. With that said, I'd like to turn the call back to John for some closing remarks.

Speaker 2

Thank you, Jim. Please turn to Slide 28. I'd like to underscore that as I've learned more about our organization and our people in recent months That I've seen a passion across our company to advance our mission and deliver innovative vaccines to improve global public health. As the team demonstrated today, we've taken decisive actions on the priorities we outlined in our February call, including our intent and work to derive additional value from our pipeline and technology platforms. We continue to operate with this focus on fiscal responsibility in parallel with making the investments needed to achieve our 3 key priorities.

Speaker 2

The reductions to our workforce that we announced today were a difficult But we felt they were a necessary one to put the company on a better pathway towards financial strength and sustainability. Let me say that we deeply appreciate the contributions made by those employees who have been adversely impacted today, and we We will now be conducting a review of our Our prior Positive Phase 3 results for both our COVID and flu vaccines plus this new Phase 2 data provide additional confidence for us to move toward Phase 3 for 1 or more of these products potentially in the future. It is our intention to leverage this technology to build a robust portfolio of vaccines to further support our mission of positively impacting global health. As we continue to execute on our strategy and key priorities, We're confident that we're taking the right steps with the goal of positioning Novavax for success and delivering positive results for our stakeholders in 2023 and over the long term. And with that, we will now take your questions.

Operator

Thank you. We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. Our first question comes from Roger Song with Jefferies.

Speaker 6

A couple from us. So the first one It's regarding this, the revenue guidance, since you provide this revenue guidance and ex U. S. 800,000,000 APA, just want to get some additional comments related to How confident you are about this APA given the recent EU they have some proposed Deal with your competitor. And in terms of the breakdown within the $800,000,000 can you provide additional color around Timing, geography, maybe last portion, last part of the question is the Related to the remaining APA, last quarter you say you have RMB 2,100,000,000 in total.

Speaker 6

Since you are doing some renegotiation, just curious What's left for your APA to be delivered in 2024 and the 2025? Thanks a lot.

Speaker 2

Thank you, Roger. Appreciate the question. John Trozzino, would you like to take that one?

Speaker 4

Sure. Hey, Roger. There's a couple of components to your question. Let me try to parse them out. First of all, the $2,100,000,000 is still a true kind of adherence to the original value of all those contracts and we expect that And to date, still have a confidence in that value.

Speaker 4

Now that's going to be some of that is going to fall into 2024 and 2025. The $800,000,000 for 2023 are locked in orders, committed orders allocated to be shipped during Various quarters of the balance of this year. So confident in the $800,000,000 That settlement that's happening in Europe with Pfizer, I think there are still some details to be determined there, but that will not affect revenue generation during the APA period. There are possible implications to that in the future when we go to tender and private market selling, but have already had multiple conversations with the European Commission, Director General and his staff about the need for A protein based vaccine in a vaccine portfolio. So critical, is an awareness and a need to make sure that our vaccine is available.

Speaker 4

The contracts and APA's support the $2,100,000,000 and the $800,000,000 is locked in delivery schedules for 2023.

Speaker 5

And Roger, you had a question about the allocation of that $2,100,000,000 relative to 2023 So the items we discussed today were the $800,000,000 secured APAs for delivery. And I also mentioned a $100,000,000 payment, which came from a renegotiated APA that has been secured for the 2nd quarter. That gets you to $900,000,000 total of the $2,100,000,000 that leaves an additional $1,200,000,000 outstanding. And as I mentioned in our remarks, that these are available for delivery. They're of course committed And we are going to actively seek to renegotiate some of these APAs as a mechanism for non dilutive financing and certainly more on that in future calls as we move forward.

Speaker 6

Excellent. That's very helpful. Thank you Thank you for the comment. And then so moving on to the U. S.

Speaker 6

Market, understanding you're doing the The inventory view for the stream change and you will have the midyear data to potentially support the stream change. Just curious What additional data you needed once the VERTAC meeting June 15 decided which strain to change to select What additional data you need to be able to deliver in the U. S. Market for the fall? And related to that is for the U.

Speaker 6

S. Market, That's also part of the revenue guidance outside of the $800,000,000 How much you are building for the U. S. Market? Or it's kind of upside, you have a range of the revenue guidance, it may be towards the upside of the revenue guidance.

Speaker 6

Thank you.

Speaker 2

Philip, would you like to take the first part of Roger's question?

Speaker 3

Sure. I'll at least take the first part of the first part of Roger's question. And that's really the main thing we're waiting for is the strain composition selection, right? The study that we're conducting will read out as you mentioned and we've done this And we're successful with that study, so we don't see why it should be any different. The additional details that need to be part of that file are in fact manufacturing details And that includes stability of the strain that's selected, etcetera.

Speaker 3

And that's all part of the regulatory timeline that we've developed and we've discussed Multiple times with global regulatory agencies, so they understand the kinds of barriers we have to putting the vaccine in the market and we're pretty confident about that right now.

Speaker 2

Thank you, Philip. And Jim, maybe you could take the second part of Roger's question.

Speaker 5

Hey, certainly. And thanks for asking because, gives me the opportunity to walk you through in a To walk you through in a little more detail our revenue guidance. So we've guided to total revenue of 1.4 to $1,600,000,000 of course midpoint at $1,500,000,000 and that guidance is inclusive of both our product sales and grants and I'll begin with grants. Grants at the midpoint is $350,000,000 a range of $340,000,000 to 3 As folks know, we've been operating with the U. S.

Speaker 5

Government under Operation Warp Speed to fund much of our Clinical activity and that continues through this year and is the basis for Grant's revenue. For product sales, our guidance is 1.0 $6,000,000,000 to $1,240,000,000 and that's inclusive of both the $800,000,000 we spoke of just a moment ago, which is for secured EPA delivery. And if you subtract that, it results in U. S. At $260,000,000 to $440,000,000 or $350,000,000 at the midpoint.

Speaker 5

So hopefully that's helpful.

Speaker 3

Thank you, Jim.

Speaker 6

No, that's helpful. Okay, I understand. Basically the balance of the $800,000,000 outside of your product sales, that's the U. S. Market.

Speaker 6

Got you. Okay, great. Bear me for the last one question. So related The COVID Flu combination therapy data looks pretty robust. But noticing, I think, John, you mentioned you are moving towards the partnership, maybe some strategic collaborations for to move forward this Program, just maybe elaborate on your plan there.

Speaker 6

What will be the next immediate next step for the combo And some other kind of standalone vaccine, a little bit different from what you already have. Do you need a Phase 2b efficacy study before you move into the Phase 3. Just a little bit more details that would be appreciated. Thank you.

Speaker 2

Thank you for your question, Roger. Let me answer it this way and I can let Philip addressed the Phase 2b question, etcetera. As we noted in our call and in our prepared comments, our focus this year is on our 3 priorities. Our top priority at Novavax is launching our updated NuvaXavit in line with regulatory authority requirements for this fall season in a competitive product profile And on time for our customers as the fall season emerges. That's our number one goal.

Speaker 2

In parallel with that, it's reducing our costs and resizing the company and addressing Our near term and current liabilities aggressively. I think we've demonstrated some decisive actions that the leadership team and I have taken with the support of our Board In that direction, very clearly now in the Q1. We're excited and encouraged about the data. This is a Phase 2 top line results. And if we continue to execute on our plan successfully this year, we should be able to position Novavax in a stronger place from a financial perspective, So we can have options next year on how to bring forward these unique and interesting assets that are in development right now.

Speaker 2

And we'll continue to learn from the data in the coming months and have With regulatory authorities on how to best bring these forward. Philip, would you like to add additional commentary on Roger's question around what type of study may be next for these assets? Yes.

Speaker 3

I mean a lot of that really depends on regulatory guidance. We would clearly not go into pivotal study without very firm regulatory guidance. And that may well depend and what we see in the rest of the data. Additionally, if we do move forward with strategic partner that ultimate design and timeline would be determined in collaboration with such a partner. Now what we are planning and doing right now is doing a Phase 2 study with our high dose COVID product and that's going to be done with the HUG-one hundred and five format.

Speaker 3

I mentioned that earlier and the idea there is going to be to really explore the optimal formulation including the antigen as well as adjuvant dose levels To optimize immune response, you followed us for a long time. So you know that we did our initial dose ranging in naives at the very beginning of the pandemic. We saw there was no difference when you change the antigen dose level, but we're in a different place now where people are heavily primed and we are Seeing evidence that as we increase the dose level in these prime individuals, we do get a better immune response. So we're looking to develop a high dose formulation to be used for our annual vaccination, Primarily in the elderly market, similar to what has been done in influenza.

Speaker 2

Thank you for your questions, Roger.

Operator

Our next question from Derek Joseph with JPMorgan. Please go ahead.

Speaker 7

Hi, guys. Good morning. Thanks for taking the questions. So I just wanted to come back on launch preparedness for the fall season and just and kind of get a sense of where your confidence Comes from being able to launch ahead of BLA approval and I guess is currently planned Proceeding under EUA, can you talk about whether there are any amendments or expansions of the existing EUA that are necessary to facilitate a commercial launch in the U. S?

Speaker 2

John Trazina, would you like to take that question from Eric?

Speaker 4

Yes. So we have been in constant coordination with the FDA On where we are today under emergency use authorization as well as submission of the BLA and the timing of the BLA submission and where that leaves us So we have emergency use authorization for the product that is today approved and labeled By the FDA and around the globe, we will need an additional emergency use authorization similar to all of the other manufacturers for the new strain and the new Which is yet to be decided. Based upon those conversations with the FDA, it is our expectation and Specifically based upon conversations we've had with them that we will be operating under an emergency use authorization without restriction. So, I think that really says all that we need to know at this point. And that means that all of the activities that I talked about During our planned remarks, with access to pharmacies, access to all health care providers, access to distributors, Will be unrestricted.

Speaker 7

Okay. And maybe just a follow-up on the Manufacturing side, can you just talk about sort of the manufacturing lead time after appropriate strain selection, It sounds like in June, I guess what ultimately what those quantities do you think could be supplied Are market ready at launch? And also a little more detail on sort of where supply is being sourced from, Whether it's from Suramour, other facilities? Thanks.

Speaker 2

Thank you, Eric. Right now, we're not disclosing specific quantities or And we've as we've said on our prior call, we've changed the way we're working with FDA and the way we're internally with our project teams to do everything we can to appropriately minimize the time it takes to be ready for the fall season. And that includes Quite a nice shift in the dynamic with FDA. We've seen an excellent partnership from both FDA and global regulatory authorities who have expressed to us that they value a protein based option in the marketplace for consumers around the globe. And we've made significant progress as said before in bringing multiple strains forward and that's key because we're able to get the data, assess the data on which strains are becoming predominant And bring several strains forward and Philip discussed that during his prepared remarks earlier and we have some slides on that.

Speaker 2

So we feel that we're currently on track To be ready, despite it potentially taking protein based vaccines a little bit longer from the very beginning of go to get finished, We've been taking steps right now already to prime that pump and to be ready to bring the vaccine forward. John Trazina, would you like to add any Comment to that and Rick Crowley as well who leads our manufacturing as you know. No, I

Speaker 4

think John that pretty well captures it. Of course, Eric, you can imagine that as we're We're thinking through exactly all of those timelines. And it's manufacturing timelines, Phil finished. Getting product to the right distribution centers, making sure that the regulatory approvals are in place. So end to end, those timelines have been examined and scrutinized to make We have product available at the start of the fall season.

Speaker 7

Okay, great. Thanks for taking the questions.

Speaker 2

Thank you, Eric.

Operator

Our next question comes from Mayank Mamtani with B. Riley. Please go ahead.

Speaker 8

Good morning, team. Thanks for taking our questions and appreciate the level of detail this morning. Including the progress on balance sheet and OpEx Resizing, are you able to provide any granularity on how fiscal year 'twenty three reductions will be split between R and D and G and A, and in terms of workforce restructuring also 2023 versus 2024, any level of granularity there would be helpful? Then I have a couple of follow ups.

Speaker 2

Thank you, Mike. Jim Kelly, would you like to take Mike's question?

Speaker 5

Hey, certainly. And good morning, Mike. As we announced this morning, I mean, we have a significant global restructuring cost saving initiatives that touches Each corner of our organization, both functionally and geographically, that means that, we will, among other things, focus On our core priority of delivering our vaccine this fall, so you're watching a sharpening of our investment on our COVID program. The cost structure that we're describing today is the COVID standalone cost structure. I described in more detail that It did not include at this time advancement of pipeline including based on some of the great flu kick results we saw today.

Speaker 5

So when we look back to these reductions, again, it's a sharpening of our focus on the COVID business. It is a pausing of our pipeline. It includes a continued rationalization of our manufacturing network as we size it for the endemic opportunity. It also includes a 25% reduction in our total workforce, inclusive approximately of 80% Of those impacted our full time employees and then also a consolidation of facilities and infrastructure. When you look at where this from 2022 to 2024 will hit in different aspects of R and D plus SG and A, It is primarily going to be in the R and D realm.

Speaker 5

And this is because as we continue to make investments in our commercial Footprint to ensure success in the marketplace in our priority markets of the U. S, Europe and select APAC. What we're seeking to do is further reduce our G and A and infrastructure to enable that investment. So watch us Seek to hold steady as best possible SG and A and then when you look at the reductions from 2022 to 2024, A significant amount will be reflective of those steps I just described. So hopefully that's helpful.

Speaker 8

Yes, super helpful. And since we're on that topic, if you could comment also on the liabilities reduction program. Obviously, great updates on the PAR and UK Government payment, but there are a number of other things in the works like Gavi, if you could provide any update on that, that would be helpful.

Speaker 2

Yes. Jim, do you want to just cover the liabilities question first?

Speaker 5

Hey, certainly. Beginning with the liabilities, we made significant progress this quarter reducing our Current liabilities by over $541,000,000 And you will see that one of the key components of that was funding the maturity of our Convertible notes for $325,000,000 but also you saw a significant reduction in our payables, Approximately $190,000,000 So that's a part of a really important step for us to address So hopefully that covers at least through threethirty one, your question. But we also made sure we made folks aware that we addressed Another $140,000,000 in liabilities in April, including resolution of the par arbitration for $27,000,000 And then also we did make that payment to the UK per EPA of $113,000,000 and that related to the terms of the agreement that had previously been discussed. Now one of the things that is helpful here is I announced that we had secured $100,000,000 payment under a renegotiated APA. So that's incredibly helpful to help fund those liabilities.

Speaker 5

And I also described in our remarks That during Q2 and Q3, we expect inflows of cash flow of over $500,000,000 It is the combination of liability management progress to date, our expectations around future cash flow Into Q2 and Q3 that we find important to put us on the right footing towards being prepared for the fall vaccination season.

Speaker 2

And then Mike, you did ask about Gavi. So look, there's obviously not much I can say related to the legal matters that the company is addressing. What I can do is confirm that we're currently in the arbitration process with Gavi regarding this matter and to restate Novavax's position that we do not believe we owe the money that's in question. And obviously, we cannot predict the outcome of any arbitration, but what I can say is we'd like to put the matter behind us as soon as possible. And that frankly, we're frustrated by the situation.

Speaker 2

And that's because we believe we share the same mission as Gavi, to help improve global public health and to provide high quality vaccines to people in low income countries. We're frustrated that the current matter is not yet resolved and has the potential of impeding our ability to fulfill this mission to the best of our capabilities.

Operator

This concludes our question and answer session. I would like to turn the conference back over to John Jacobs for any closing remarks.

Speaker 2

Just like to thank everyone for joining us today. We appreciate your time and your confidence in us. Thank you very much. Appreciate it.

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