Q3 2023 Novavax Inc Earnings Call
Box its key strategic priorities operating plans objectives and prospects full year 2023, and first quarter 2024 financial guidance, the amount and impact of Novavax cost reduction plans.
Its future financial or business performance conditions or strategies.
Partnerships anticipated timing and outcome of future regulatory filings and actions and the ongoing development marketing opportunities manufacturing capacity and future availability of our vaccine candidates and key upcoming milestones.
Each forward looking statement contained in this presentation is subject to risk and uncertainties that could cause actual results to differ materially from those projected in such statements.
Additional information regarding these factors appears under the heading cautionary note regarding forward looking statements in the slide deck, we issued this morning and under the heading risk factors in our most recent Form 10-K, and subsequent form 10, Qs filed with the security and Exchange Commission and available at Www.
Q Dot SEC dot Gov, and on our website at Novavax Dot com as well as subsequent filings with the SEC.
Forward looking statements in this presentation speak only as of the original date of this presentation and we undertake no obligation to update or revise any of these statements.
Please turn to slide three.
Joining me today is John Jacobs, our President and CEO, who will provide an update on our progress during the quarter for our three key priorities.
Additionally, John <unk>, Chief commercial officer, and Chief Business Officer will provide an update on our commercial activities and Dr. Philip Dubowsky President of research and development, we will discuss our clinical development and pipeline and finally, Jim Kelly Chief Financial Officer and Treasurer.
To provide an overview of our financial results.
I would now like to hand over the call to John Jacobs, Please turn to slide four.
Thank you Erica and thank you everyone for joining us today.
Pleased to be here today, along with the members of our executive team to discuss our third quarter 2023 financial results and operating highlights.
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 and subsequent approval in the EU, we've demonstrated our ability to update our COVID-19 vaccine with seasonal strain changes and we are focused on commercial execution to gain market share and to deliver on our commitments.
In the U S. We started the season approximately three weeks ago with a 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 and although early we are seeing indicators of increased awareness and growing interest in our vaccine.
In Europe <unk> 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.
Given the U S launch of our vaccine in mid October we believe it's too early to assess the true market uptake at this point in time.
Market wide, we have seen lower than expected COVID-19 vaccine demand.
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 first quarter of 2024.
Importantly, we did not originally expect any revenue to occur in Q1 of 2020 for Jim Kelly will provide more context on this later in the call.
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 an optimized and differentiated product presentation in 2024, and 2025 as well as additional restructuring to create a more efficient business model, which will facilitate the late.
<unk> development of and a smooth transition to the anticipated launch of our combination COVID-19 influenza vaccine in 2026.
We believe that a combination COVID-19 influenza vaccine represents a significant opportunity in this market.
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 healthcare providers.
Now, let's move on to priority number two which is to reduce our rate of spend manage our cash flow and evolve our scale and structure.
In the quarter, we continued 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 million reduction to operating expenses versus 2022 and in addition, an approximate $1 billion reduction to current liabilities from our December 'twenty two baseline.
We are on track to exceed our previously announced global restructuring and cost reduction plan for 2023 by over $100 million for combined R&D and SG&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 cost.
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-19 market opportunity, while advancing our COVID-19 fluke combination vaccine program.
Therefore, we are prepared to initiate additional cost reductions to decreased 2024 expenses by over $300 million above.
Above and beyond the previously stated targets for 2024.
Jim Kelly will speak further about our 2023 guidance and plan to drive significant improvements to our cost structure.
In the call.
Finally, let's discuss priority number three which is to leverage our technology platform, our capabilities and our portfolio of assets to drive additional value beyond <unk>.
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&D investment and resources on bringing forward our protein based COVID-19 influenza combination vaccine product.
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 III in 2024 and to fund this program independently.
Initiating a phase III program in 'twenty four would enable a potential launch in the United States in 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 <unk> to discuss our commercial updates John.
Thank you John Please turn to slide six as John outlined in the U S. We are approximately three 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.
Date, the retail channel is the largest segment of the market with approximately 90% of COVID-19, 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 $65 35, which mirrors. Prior years. Therefore, we can reasonably expect the non retail channel for COVID-19, which includes health care provider offices could grow through.
The end of the year.
Please turn to slide seven.
In the U S. We have seen a slower season start in 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 first quarter.
However, we believe that multiple factors are leading to slower than anticipated vaccine uptake this fall, including distribution channel challenges in the U S market as it is converted from government purchased to commercial <unk>.
The availability of multiple vaccines COVID-19 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 million doses or as high as 50 million doses should we see a trend break.
Pick up from other channels or an elongated vaccination season that goes into the first quarter.
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 will be representative of the future opportunity, including combination vaccine options in the future and see the COVID-19 market, providing a growing and sustainable revenue opportunity for novavax for years to come.
Please turn to slide eight.
We are encouraged that our vaccine is now available in the U S alongside mrna options offering consumers and health care providers of 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.
We are seeing some early indicators that where we are positioned on a level playing field and fully stocked and available we can effectively compete.
For example, based on recent feedback and a select national retailer, we have achieved up to 10% market share in our first 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 is the only protein based non mrna COVID-19 vaccine option, it's refrigerator stable product profile and ease of use and mark.
Research showing that around 25% to 30% of consumers and healthcare professionals prefer a protein based option.
Please turn to slide nine.
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.
And we will 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 in Novavax brand name and awareness and drive consumers to locations with availability of Novavax vaccine.
Just three weeks into our in season promotional efforts, we have seen substantial lifts and awareness of novavax.
The HCP aided awareness increasing from 46%.
72% and.
And we're seeing that within retail and over half of retail outlets that offer the novavax vaccine. It is offered as one of only two COVID-19 vaccines available.
Please turn to slide 10.
Outside of the U S. Our 2023 product sales continued to be driven by our existing Apis in the EU, we received approval and expect to deliver all of the remaining committed doses and other key markets, including in the U K, Canada, Switzerland, Australia, New Zealand.
Singapore, Taiwan and W. <unk> regions, we are awaiting regulatory authorization.
Based on committed dose delivery schedules and subject to those regulatory approvals, we expect to deliver all API doses for the 'twenty three 'twenty four 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-19 market and our ability to penetrate 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 <unk> will play a meaningful role with potential product sales for new vaccinate alone between the U S and rest of world projected to be greater than 1 billion.
There's opportunity annually.
This should provide a foundation for us to advance our pipeline, leading with our combination influenza COVID-19 vaccine, which when combined with our Standalone COVID-19 vaccine has the potential to be a multi billion dollar respiratory vaccine franchise in the future.
And with that I would now like to hand, it over to Philip to discuss updates for R&D.
Thanks, John Please turn to slide 12.
Today I will cover a couple of topics the progress in our Covid influence a combination program and how we are expanding the use of matrix M adjuvant.
These topics exemplified different approaches to capitalizing on our core technology.
I keep the Novavax after seeing the original nanoparticle plus matrix and publications for influenza and understood the promise of the technology.
This has been validated by the development licensure and commercialization of our Covid vaccine. The exact same technology is used in our combination vaccine.
Let's turn to slide 13 for an update on the Covid influence a combination vaccine.
As we previously discussed the combination vaccine program as a priority because it.
Has the potential to be a preferred product by consumers and health care providers.
Previously, we evaluated 11 discrete formulations and we have now selected the formulation to advance into the next study.
Display neutralization responses on this slide.
Mutualization responses are important because we believe that most closely predict clinical efficacy.
On the left side of the slide our Covid neutralization responses and the right influenza neutralization responses for the three strains that'll be included in future influenza vaccines.
Our selected formulation compares well to <unk> as well as Fluzone high dose <unk>.
Separately, we compared the geometric mean ratios of the Hai responses to these formulations. They achieved non inferiority margins previously used in the phase III studies paving the road toward late stage development.
I also want to remind you we observed a favorable react agency profile with our combination vaccine that was clinically indistinguishable from the license influenza vaccine competitors.
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 two in one vaccine coupled with the reactor GNC profile comparable to licensed influenza vaccines.
Formulation development is ongoing and we're still on track to initiate the next study in 2024.
And then final regulatory concurrence, we've designed the study to evaluate endpoints for an accelerated approval pathway, while simultaneously building a co formulated safety database. Therefore, we've updated next year steady designation to a phase III study.
Please turn to slide 14 to talk about the matrix M.
But first let me remind you about the adjuvant performance characteristics.
Matrix M induces high levels of broadly neutralizing antibody along lift polyfunctional CD for cellular response.
As antigen sparing, which may be appealing for companies that are difficult to manufacture antigens.
As a component of our Covid vaccine and is a large and well characterized safety database and as we've previously discussed even large quantities of antigen. It maintains a reactor GNC profile consistent with licensed vaccines.
We pursued multiple approaches to increase the adjuvant value.
It's included in veterinary vaccines commercialized by MSC animal health and <unk> in Europe with additional vaccines in development.
It is included in the <unk> malaria vaccine that has recently received W. Cho sage recommendations for use.
As we have previously announced its in preclinical evaluation by the Bill and Melinda Gates Medical Research Institute for targets with public health importance.
And in addition to its use in our own pipeline products is being evaluated as a component in 12 clinical stage candidates by biotech academic and government partners.
And finally is being evaluated in animal models by our Biopharma partner to improve currently authorized vaccines against herpes and respiratory viruses.
As these projects mature it will expand the matrix performance dataset in any of these projects are successful unlock additional value.
These external metrics and 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-19 influenza vaccine.
Please turn to slide 15, and I'll lay out our planned timelines for the combination vaccine program.
For the Covid influence a combination vaccine program, we've selected our dose and are developing a formulation and finalizing our manufacturing strategy.
Pending regulatory concurrence, we are anticipating initiating the accelerated approval phase III study in the second half of 2020 for.
This implies a regulatory filing in 2025, which could allow for us to participate in the fall 2026 season, if development goes smoothly.
Okay, Let me hand, it over to Jim to discuss our financial results.
Thank you Philip.
Please turn to slide 17.
Yes.
Before discussing our third quarter financial performance I would like to first share updates on three 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, 24 season of $1 3 billion, reflecting the lower end of our prior guidance range of $1 3 billion to $1 5 billion, which was for the full year 2023.
<unk>.
For updated total revenue guidance, we have combined the full year 2023, and the first quarter of 2020 for total revenue to reflect the full delivery timing and revenue recognition of sales associated with the 2023 2020 for vaccination season.
Consistent with 2023, we originally expected no product sales revenue in the first quarter 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 first quarter of 2024.
In addition outside of the U S. Some portion of the committed EPA dose deliveries may extend into the first quarter of 2024. Therefore, our guidance now includes our expectation for approximately $1 billion for the full year 2023, total revenues and our practice.
<unk> $300 million of sales in the first quarter of 2024.
This updated total revenue guidance of $1 3 billion reflects a lower U S sales estimate based on current market expectations offset by $150 million and favorability in our EPS plus branch in 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.
While we're pleased to be over $100 million head and our previously announced cost reduction efforts for R&D and SG&A for the full year 2023, we are prepared to initiate additional cost reductions to decrease expenses by over $300 million in 2024 beyond our existing targets.
Okay.
Regarding cash and Apis.
We have over $960 million across cash accounts receivable as of the third quarter 2023, plus expected cash from the contingent Canadian payment.
In addition, we will have $750 million in EPA contract value post the 2023 24 season deliveries.
As we move forward our U S market opportunity along with this combination of EPA sales aggressively reducing costs and managing our cash our key financial levers to drive towards profitability and long term shareholder value.
Please turn to slide 18.
Turning now to our third quarter 2023 highlights for the third quarter 2023, we recorded a $187 million in total revenue.
The $165 million and grant revenue recognized during the quarter puts <unk> on track to realize the full value of the one 8 billion funding under our U 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 24 Covid vaccination season.
Combined R&D and SG&A expenses for the third quarter of 2023 were $213 million.
This reflects a $214 million or 50% decrease compared to the third quarter of 2022.
<unk> includes a $50 million $58 million benefit associated with our manufacturing settlement.
Year to date results highlight a $950 million or 47% reduction in total expenses.
And an additional approximate 1 billion reduction to current liabilities.
Please turn to slide 19.
A few comments regarding the more detailed review of our third quarter 2023 results. Our operating expenses in the current period include the 79 million 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&D expense.
Our cost of sales for the third quarter of 2023 were $99 million compared to $435 million in the third quarter of 2022.
Third quarter 2023 cost of sales included $82 million related to excess obsolete or expired inventory and losses on firm purchase commitments as compared to $249 million in the same period in 2022.
For the third quarter of 2023, we recorded a net loss of $131 million as compared to a net loss of $169 million in the third quarter of 2022.
Please turn to slide 20.
As noted we are prepared to initiate additional cost reductions to decrease expenses by over $300 million in further reshape the size and scope of business operations to align with the current market opportunity.
We plan to do so by reducing 2020 for R&D and SG&A expenses by over $200 million compared to prior targets to reflect $750 million or lower spend in 2024 and.
In addition, we intend to reduce supply network cost by over $100 million as we continue to rationalize our manufacturing footprint.
Please turn to slide 21.
Now turning to financial guidance.
Yeah.
We're providing some additional details related to our full year 2023 financial guidance and total revenue guidance for the first quarter of 2024.
Our total updated revenue guidance for the combined full year 2023, and first quarter 2024 of $1 3 billion reflects $850 million for product sales and $450 million related to grants from royalties.
Product sales includes over 700 million from committed EPA dose deliveries secured new orders and U S market sales of between 50 and $150 million.
The first quarter 2024, total revenue guidance of $300 million reflects the balancing amount to achieve our expected combined full year 2023, and first quarter 2020 for our product sales and total revenue of $1 3 billion of note. We previously expected no product sales.
In the first quarter of 'twenty 'twenty four.
For R&D and SG&A expenses in 2023, we're on track to exceed our previously announced global restructuring cost reduction plan by over $100 million. We now expect full year 2023, R&D and SG&A expense to be approximately $1 2 billion at the midpoint and.
<unk> as 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.
And our 10-Q filing you will see that we have provided an update on our going concern disclosure, which we first provided in our 10-K filing in February.
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 <unk> financial performance cost structure and strength to deliver shareholder value.
With that I'd like to turn the call back over to John for some closing remarks.
Thank you Jim Please turn to slide 22.
I am proud of the significant progress we've made against our three priorities year to date in 2023.
Including the launch of our updated vaccine in the United States.
Being $100 million ahead of our cost reduction targets.
Paying down over $1 billion, and current liabilities and enabling a potential phase III initiation of our combination vaccine program in the coming year.
We are excited about our ongoing U S 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 a sustainable COVID-19 business to generate annual seasonal revenue.
The 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.
Which includes an optimized and differentiated product presentation in 2024, and 25 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-19 influenza vaccine in 2026.
<unk>.
I remain confident in and grateful for our employees' dedication to advancing our objectives.
We're 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.
With that we will now take your questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Roger song from Jefferies.
Greg Your line is open.
Okay great.
Thanks for the comprehensive update.
So a couple of questions on this maybe start from the U S market.
Understanding you updating the guidance to 50 to 150 million in Dallas for the season.
Yeah.
One you guys.
Would it have any kind of color how.
How confident are you about that guidance given based on the third party.
Database, you are still way behind that number so far and that May just curious about your thinking around the Seton Hall, novavax well capture further market share in that.
Towards the end of the season and also more importantly, how do you think about the next season and the future to calm in terms of the potential market share for Novavax protein based.
Well Colby thank you.
Hi, Roger Thank you for your question I 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 have seen some very strong sparks that I'll ask John <unk> to elucidate here for you on the call of early interest in the vaccine and it's still one of the biggest unknown is.
How large the market will really be alright, and thats something that no. One is 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 there.
Yes, Thanks, John Hey, Roger look I think we're learning a lot every day about this current 'twenty three 'twenty four season.
Some number of factors that we talked about during during the presentation about.
Delayed season start the dynamics associated with multiple vaccines being in the market the.
The distribution strategy challenges that are that have been there.
And then I think we're also dealing with total market size and so on.
Fatigue here, so but related to us I think that there is 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 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 will see that and then we'll see it being a little bit elongated into into Q1.
As far as some of the early metrics that we're seeing.
Look I think overall, we said, we're seeing low single digits and some of the.
National and one in particular national retailer, we're seeing 10% market share. This is where we are on a level playing field there is product in the pharmacy.
And we're having good recommendation coming from from the pharmacy. So we remain optimistic about the balance of the season, obviously that is all.
A controlled enthusiasm.
You will understanding that we're kind of third to market and 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.
Okay.
Got it yes, thanks, Jim.
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've got three weeks of data in our hands here, but we've seen that spark like John mentioned major retailer up to a 10% share.
And next year, we anticipate having a better presentation unit dose vial right BLA, a full label, including pediatric data et cetera. So right now we're much better than we were in years before when it comes to <unk>.
Or 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 and really leaning in to position ourselves very well for market penetration in 2024.
Okay.
Yeah, Hey, Ken Okay great.
And then so in terms of the ex U S.
Can you let us know.
How likely this clients <unk> in total I think at around 400 million for the remaining of the year in Q1, Q, we'll be vastly they renegotiate data or are those.
<unk> already set for that.
Delivery upon approval.
Also you already got just recently got approval.
<unk> start to deliver based on holiday. Thank you.
Jim Kelly you want to handle that he certainly.
So with our EPA is included in our guidance for the fourth quarter and first quarter. These are secured apa's theyre tied to committed delivery schedules of course and in the case of Europe, we have that approval, it's about getting the doses in the market and for important market.
Like Australia, and New Zealand were.
We're in the process of completing those regulatory filings to enable us to deliver those doses importantly, theyre southern hemisphere. So when those doses arrived they're going to have that type of shelf life to be meaningful to them as they enter their season.
Now all of <unk>, they do come with stipulations that we have to deliver on time per the agreement and if not they can attempt to renegotiate. We currently have the expectation that we will get them there on time per the agreement.
Excellent great. Thank you maybe just one last one from me is the.
It's good you can directly to moving to the <unk>.
<unk> trial Phase III trial next year.
Given the additional.
Operational expenses for 2024, how do you think that will impact our phase III plan and the way you'll be able to use efficiently.
Trial with all of that partner. Thank you.
Good question. Roger go ahead, Jamie Great question and.
First reference back to what is I think a pretty exciting update from fill up today about a very lean approach and path and potentially accelerated path to get our combination product in 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 a terna recently, and we think and enables us a path to market in a highly capital.
Call it efficient manner, okay. So with respect to the update we.
Provided today, where we are going to drive our R&D and SG&A to below $750 million 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-19 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 three really important components and I'm going to describe these components before factoring in the U 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 billion in cash through three critical pieces I.
I described as of today over $960 million in cash and expected cash.
Combining cash on hand accounts receivable plus that $175 million expected contingent payment from Canada.
To that 600 million at midpoint of current season 'twenty three 'twenty four sales in the fourth quarter and first quarter and next year.
And then we described over $750 million outstanding EPA contract value for 24 and 25 million.
Net out some of the Upfronts and <unk> got clear visibility of over 200 or excuse me $2 billion in cash.
And 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 in that combination program. So hopefully that's helpful and Jim and Roger also that doesn't include what Jim just laid out that over $2 billion runway over the next 24 months does not contemplate any.
Anything else from U S from Europe from other markets like South Korea, which just placed a new order with us from our our 'twenty, one vaccine, which just received two 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 potential.
So what Jim laid out is just whats primarily secured revenues already contemplated through Apa's. One other point is on the $600 million Jim talked about between Q4 and Q1. The vast majority of that is secured revenue through Apis, which we intend to deliver the full doses for and the minority of that is the first year launch in the United States. So just to give.
The opportunity we have before us from a revenue standpoint, a cash standpoint, the carriers independently forward to our <unk> program launch and then the upside potential beyond for all of those other Pete.
Okay.
Our next question comes from Eric Joseph of JP Morgan.
Your line is open.
Thanks, Good morning.
In the U S looking across the pharmacies that you contracted with to carry the updated vaccine can you just.
How should we be thinking about the aggregate market share.
As it relates to seasonal vaccines.
Perhaps prior COVID-19 season's flu seasons.
Really getting at the question of how much the ceiling.
Walgreens is 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, Alright, Eric I'll ask John to comment first John maybe on channel share and then the dynamic with Walgreens, Yes. So I think youre talking about what is historical channel mix and then what is it looking like so far this year 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% and non retail that's approximately accurate for the last five six plus years or so.
Typically.
For a seasonal vaccine for Covid last year similar statistics in there was about.
60, 60%, 70% in retail and the balance in non retail we're just not seeing that at the moment we're seeing.
Sub.
Let's call. It a few hundred thousand doses in the non retail channel based upon the IQ via data that we're seeing so far so we expect to see that change a bit and market mix.
Consumer behaviors and actions don't change dramatically in that short a period of time, but we are monitoring that to see if thats true, but so far it's heavy heavy retail sector.
And not yet seeing not yet seeing that shift, but we're also seeing is.
A season that has elongated.
Typically for.
Flu you'd see 50% of the volume before the end of October.
Again, we're not seeing that for Covid and we saw that for coat with last year. So there is there is a push for multiple reasons I think theres a heavy burden on pharmacy vaccinations.
Is affecting all of that.
And and so we're monitoring it closely as we said earlier on in the presentation. We're only three 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 and Eric I believe the other part of your question was specific to Walgreens for John So we're in over 14000 retail outlets in the United States right now with broad distribution and also working with the IV ends to make sure if physician network or other channels want the vaccine it's readily.
<unk> to them, including our participation in the U S government British program, but John you may want to just put into context. The Walgreens piece that was our specific question. There I believe so yes.
Hello, operator.
We can hear you.
Oh, sorry, and it's important to understand that we're <unk>.
Seeing that through.
Through that retail locations for all of the retailers a great relationship with Cvs.
I think they are seeing a lot of vaccines coming through their locations, we're talking about programs to evolve.
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 health care 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 Eric I'll just add thank you John I will just build one one.
On top of what John So clearly stated there which is that based on Cvs alone roughly 75% of all Americans are within five miles of one of their one of their retail outlets. So the vast majority of Americans are very close if they want our vaccine that can get our vaccine 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.
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.
Okay great.
I can ask one follow up for Jim just thinking about sort of how the.
Opex efficiencies, perhaps will be recognized over the course of 2024.
<unk>.
And maybe it's too early for this but just thinking about sort of the longer term outlook, how whether we should anticipate sort of resumption of.
Our buildup of.
Opex in 'twenty five.
Particularly as you think about obviously self funding the CIC phase III trial. Thank you.
Alright excellent.
Again, this with what I'll call a profile of profitability that we're driving to.
And then when we think about.
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&A Alright, and then of course, you reinvest in R&D under that and in doing so you really got to get your gross margins.
Sort of sales minus Cogs in that 70% to 80% range. So start with that with that as hey, what's your blueprint to drive this company to be an efficient and capital our cash producing entity. That's the vision and then as we look at the evolution of that through.
<unk> 24, and 'twenty five.
While we are describing an urgency to evaluate and act and drive to this cost structure.
Today announcing for example, a specific restructuring 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 dry.
Towards that $750 million or less in R&D and SG&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 show those.
The I'll call it the blueprint the guiding principles for where we're headed.
That's very helpful. Thanks, Joe Thanks for taking my questions guys.
Thank you Eric.
Okay.
Our next question comes from Brendan Smith from TD Cowen your.
Your line is open.
Hi, great. Thanks, guys for taking the question just a couple of quick ones from US first I wanted to clarify something I think I might have heard for the ex U 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.
Can you maybe provide any additional color you have on the potential timing or cadence for the remaining issue its approvals kind of just based on your conversations there.
It's kind of really related to your routers earlier question trying to understand just the possibility that any of those might get pushed a little past Q1 is kind of based on the cadence.
And then related to that.
Can you kind of tell us how youre thinking about that $300 million in Q1 have any of the Q4 Apa's renegotiated at all or have you actually confirm delivery in Q1 with some of these territories.
Or does it kind of just our best guess based on the current trajectory of how things are going.
Alright, and then yes.
And then I have a follow up thanks.
Yes, John as you know when you take that first question and then we'll hear the follow up yes. So ex U S. Approvals, we are still waiting on several we have U S and EMEA at this point, we are waiting on UK, Canada, Australia, and New Zealand.
Singapore, Taiwan.
And also have expectation for W. H O.
Regions to be received.
Within within the next few weeks and certainly that will allow us to make those deliveries are many of them before the end of the year and the possibility that some of that timing right rollover into Q1, as we've provided some guidance for and that can I leave.
Yeah, the explanation of the $300 million in Q1 two to Jim.
Go ahead, Jim Yes, certainly.
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.
Within that guidance that our.
Approximately 500 million so call it sort of $4 75 to $5 25 spread across the fourth quarter and the first quarter.
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 with some of them like the European deliveries there could be some it could end up hitting in the fourth quarter in total, but we just don't want to over promise. The bottom line is we don't expect we don't.
Expect any of this to drift beyond Q1 right.
Jim anything to add to that no thats it.
Alright, 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&D cuts will be coming from how they are distributed across 2024.
Maybe whether these are being accounted for elsewhere in your filings just kind of trying to get a little bit of a sense.
The plan really what they'll look like in <unk>.
And potentially if there's been any tangible changes in accounting methods over the past your upcoming quarters. Thanks very much.
Yeah. So.
We shared with you that we're going to be reducing our R&D and SG&A by over $200 million.
And also reducing our supply chain related expenses by over over 100 million for a total of over $300 million in savings.
Or did this come from.
I should first say this is not a function I would say a forward looking accounting. 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-19 opportunity and prepare for the combination opportunities to start with focused investment then you assess your people.
Your site's facility's capabilities capital investments to support that.
You then evaluate third 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 a specific example, so thinking along supply chain. One we got a better manage the alignment of supply with demand we've got to avoid these write offs.
This has to do with how much we do at risk as we further sharpen our focus on the demand signal we have got a knock that out then you look at your internal operations and based on that you've got to be leaner I'm talking about facilities reduce idle capacity in any overhead support and then we got to continue to negotiate.
Aggressively third party agreements relating to our supply network. So that's how you come after your supply side on the R&D side.
<unk> heard from Philip a lean focused approach with kick outs.
That's how you do it you get to market faster with kick 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.
And Jim just to build upon that and thank you for that clarity. The company was originally scale then built for a much larger opportunity in the global pandemic.
And we demonstrated earliest early this year with decisive action as a leadership team management team and board that we can make the right decisions to scale down that business and in fact, we're proud of the fact that this year. We're over $100 million ahead on the 2023 cost reduction targets that we announced earlier in the year and we did so without.
<unk> imaging or capabilities to operate that's really key and now as a new team here management team since I joined at the beginning of the year. We've had line of sight on strain selection to shots and arm cycle. This year and an assessment of how the Covid market is unveiling itself post pandemic and with that line of sight in 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 by 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 tech program to a filing status.
Yes.
Jim anything to add to that.
It's that focused.
The way, we're operating day in and day out we're laser focused on driving towards towards everything you just said John.
Okay, great. Thanks, very much guys appreciate it.
As a reminder, if you do have a question. Please press Star then one on your Touchtone phone.
And our next question comes from Maggie Madden Tony of B Riley Securities. Your line is open.
Good morning team. Thanks for taking our question. So maybe just a follow up to comment.
Comment on cost of goods.
Expectation.
Hello <unk>.
The.
As expected retail and non retail segment, no youre trying to model.
Diamond is possible.
And I also more this year.
<unk> revenue is particularly high demand and there were some write offs I guess could you just got it Paul.
Saddam going on in that line item.
Hey, sure Theres three particular pieces you hit there one is hey, what are we learning about returns.
Second one has to do with grant revenue and what are we seeing there and forgive me Mike What's the third one.
Yes, the cost of sale line item today.
Yes, yes, you got it okay. So beginning with returns our return window really opened the first in November so too early to tell what we're pleased with is hey, we had really good I'll call it, especially distribution uptick and also sell through to ensure we've got.
<unk> vaccine across the country available, but too early to give feedback on returns we're going to be monitoring that one very closely of course on grant revenue you are seeing across both grants and royalties that were uptick in our guidance by $100 million why Philipp has done an exceptional job working with.
Our partners in the U S government to.
To enable us to take full advantage of that one eight.
Grant revenue and then in addition to that there were multiple milestones tied to our success in being prepared for the U S market, we met them and Thats why youre seeing improvements. There. In addition about $12 million this quarter matrix, our 'twenty one revenue related to the malaria, our 'twenty one vaccine as our.
<unk> is preparing to launch as early as next year, 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.
A quarter, where we had no revenue, we had cogs and $99 million Alright, let's talk about what's happening there. There is a benefit from the SK biased buyer settlement of $22 million. I think you know that said that would take it up to about $1 21.
What is in that you've got 85 million or <unk> $82 million in excess capacity, we noted that add to that some scrap and overhead what I mentioned is hey, we got to be better we can have that happen.
To be more focused on that front and then finally, some unknown absorbed overhead about $20 million again. This is a part of being lean and focus. These are the types of things, we're seeking to drive down.
Hopefully that helps you.
Yes Super helpful very comprehensive and then maybe just sticking on that Greg.
Billing milestones that I think it was not at all.
Q, including Florida.
<unk>, maybe for higher dose that youre looking at <unk> could you just.
We'll update on what all is going on there.
The updated Duane Quincy Green cooler vaccine and then also a similar roadmap.
Kate program lifestyle bowls.
Those optimization will domains and also if you anticipate any ex U S.
Regulatory guidance to also come along with the discussions you're having with the FDA.
Mike why don't we ask Filipe to address some of your questions on the clinical programs and the related regulatory milestones there Philip.
Thanks, you mentioned squeeze a lot into that once run on sentences Mike.
So we laid out.
The regulatory timing for kick in the U S. We think thats going to be the most important market for us right.
It's a product that we see.
Demand from from consumers as well as from health care providers and Thats our focus.
The timelines, we laid out was a potential regulatory filing in 2025 with a potential accelerated approval and in the market in 2006 now as far as a high dose.
Product that's a program that was supported by U S government.
<unk> finished enrolling that study or we will today.
So the timelines of that arent going to be available until the following year pediatric data. We previously said that we would be filing that.
Have data available in the first quarter of next year, and we think that older age group will be irrelevant to the following season.
I think we have time for one or two more questions here.
Okay I'll jump back in queue. Thanks. Thank.
Thank you Mike.
And our next question comes from Alex Stranahan Bank of America.
Your line is open hi.
Hi, Alex.
Hey, guys.
Great. Thanks for thanks for taking our questions a couple from us as well. The first is on the multi dose format given the demand kinetic you've seen to date.
Do you see a risk of some dose in a vial not being used and what happens to those doses are they sit back and you guys and how does that feed into the price or reimbursement.
Pharmacies, and then I've got a follow up.
Yes. Good question, Alex I'll have John <unk> address that one on returns.
Let's look we're in a we're in a five dose vial.
And I think of course they would.
Dissipated for future, we'd be in some kind of unit dose presentation on that.
What the marketplace wants and we're moving moving in that direction as far as.
The use of those vials, we've made sure that.
There is flexibility to the health care provider and the use of that vial. So if not all five doses are used.
There is an opportunity to return partial vials and we're tracking and we're tracking that through a third party provider of that returns process. So so it's been made clearly clearly communicated that our intent is to provide access getting product on the shelf and available.
Then it's good utilization of whatever is available in that period of time.
And that.
That there is a returns provision in place that allows for that with no cost and economic disadvantage to.
The health care provider and then and then we monitor we monitor that on our end.
And then quick comment on Rev. Rec, I mean pharma products highly common to have a return provision services.
Far from Uncharted territory will have the regular gross to net entry and will make an estimate we've got visibility on our return rate as we seek to close the books for the fourth quarter based on.
Actual returns come in and then visibility through the channel. So this will be an important part of our revenue recognition go forward.
And Alex you said you had another question.
Yes.
Just a quick one I noticed some new language in the queue.
Around the.
Withholding the installment payment to Fuji film business.
Is this due to a breach of contract or something else are there other vendors that you may have.
Stick to withhold payments to for similar reasons.
Just high level, how you see the arbitration playing out.
Hello, you wanted to make that one absolutely Alex.
You're exactly right, we have disclosed that with respect to the remaining two payments that were targeted for the third and fourth quarter that 68 million total that we are currently in a.
Dispute or.
Difference of opinion with Fuji at this time it is a legal matter. So I can't speak too much about it you might remember that those payments for each subject to commercially reasonable efforts to mitigate our exposure.
And I think that's all I can say at this time.
Thank you.
And time for one more question.
And our last question comes from Vernon Bernardino of private Investor.
Your line is open.
Okay.
Hi, Thanks for taking my question.
From HC Wainwright.
Can you comment on what regulatory clearances being discussed for our final clinical study design for the combination vaccine and not just the other follow up now for the 'twenty four 'twenty five season can you give us your thoughts on what dynamics, you expect going authorization of your updated vaccine and thats for all that color.
That season, thank you.
Hey, Philip do you want to take the first part of earnings question.
Sure. So the major focus with us is going to be with the FDA and this is really going to be part of a pre.
Indeed discussion with them since we're filing that.
An IND in the U S to support the U S study.
That's our interaction that we have planned for the first quarter.
We are going into that with a lot of data to bring to them and that's why the timing is in the first quarter of 'twenty four.
Yes, So let me follow up on that next question Vernon on plans for 'twenty four 'twenty five.
We're intending to have a updated profile for the vaccine Thats 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, its our reasonable expectation that we would be on under BLA for the 2425 season as well. So I think those are significant factors that are driving an improved uptake in market share.
And.
And presentation to the marketplace.
Thank you Vernon and operator I believe we're at time at this point.
And this will conclude our question and answer session.
Like to turn the conference back over to John for any closing remarks.
I want to thank everyone for their time and energy and for your questions and wish you a great close to your weight I. Appreciate you all thank you.
Okay.
The meeting has now concluded.
Thank you for joining joining and have a pleasant day.
The host has ended this call goodbye.