MRNA - NASDAQ

Good morning. My name is Kevin. And welcome to Moderna's Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we'll open the call up for your questions. [Operator Instructions] Please be advised, today's call is being recorded. At this time, I'd like to turn the call over to Lavina Talukdar, Head of Investor Relations at Moderna. Please proceed.

Thank you, Stéphane, and good morning or good afternoon to everyone. Today, I will provide an update on our third quarter performance, our U.S. commercial launch progress and our preparation for our RSV launch next year. Our total sales in the third quarter came in at $1.8 billion, which includes approximately $800 million in international sales and $900 million in U.S. sales. Total sales for the first three quarters of the year were $3.9 billion. Turning now to our expectations for the fourth quarter and full year 2023 outlook. In our international business, we expect an additional $1.1 billion in sales. These sales are based on government contracts and once vaccine doses are shipped and accepted by the customer, they are not returnable. More than half of these sales have already shipped in the fourth quarter. In the U.S., we expect at least $1 billion in sales in the fourth quarter, which would bring U.S. sales to approximately $2 billion for the second half of 2023. This assumes approximately 50 million doses administered in the U.S., which would be similar to the fall season of 2022. With $3.9 billion in sales recorded as of the end of the third quarter, expected fourth quarter sales of $1.1 billion internationally and at least $1 billion in the U.S., our updated sales outlook for 2023 is at least $6 billion. Now turning to the U.S. launch. The data shown here are from IQVIA. As a reminder, IQVIA data only captures the retail channel in the U.S., which includes retail pharmacies and long-term care. I'm first going to share what our weekly market share trends look like and then discuss our cumulative share since launch and how it compares to last year. On the fifth week post launch, for the week ending October 20th, what you can see on the slide here is that Moderna's market share is 51%. As we look over the season to date, Moderna's cumulative market share for this season is now 45%, which is higher than the 36% market share we had in 2022. As Stéphane mentioned, this progress demonstrates our ability to compete effectively in the commercial endemic market. Turning now to Slide 8, which shows cumulative vaccinations in the U.S. retail pharmacy channel. This year, COVID vaccines were launched two weeks later than in 2022. As a result, we analyze the data on a launch-adjusted basis as shown in the graph on the slide. To do this, we look at the data based on the number of weeks post launch rather than simply on a calendar basis. This helps us compare vaccines uptake in 2023 versus 2022. On the graph, the blue line represents cumulative vaccinations post launch in '22 and the red line represents cumulative vaccination post launch this year. And on a launch-adjusted basis, the total market is tracking ahead of last year's vaccination levels, both on a weekly basis but also on a cumulative basis. As a reminder, the retail channel is typically the largest segment, so these trends in the first five weeks are encouraging given the later launch and slightly shorter season in 2023. Let's now turn to look at the channel mix in the market on Slide 9. In 2023, we expect retail and non-retail mix to evolve as the season progresses. The non-retail segment includes independent networks, health systems, U.S. government entities, clinics, and other providers. Last year, this non-retail segment made up approximately 16 million doses in the season, or 33% of the total market. The gray line on the graph charts CDC-reported vaccinations, which capture both retail and non-retail channels in 2022. The blue line is vaccinations at retail pharmacies, as reported by IQVIA, in 2022. The difference between these two lines represents the non-retail segment. Looking at the data on the graph, you can see that the retail channel captures the majority of vaccinations early in the season. This can be seen in the narrow spread between the CDC and IQVIA data represented by the gray and blue lines, respectively. Now, if you look in the seventh week of launch in 2022, the current week that we are in, in '23, you can see that the slope of the non-retail channel is increasing. We know that distributors this year have recently increased shipments to the non-retail channel and, as such, we expect non-retail as a percentage of market to grow between now and year-end. Importantly, we expect our market share to be consistent across channels and higher in 2023 than in 2022. We are committed to focus on public health efforts to increase vaccination rates. In the United States, we are taking a multi-pronged approach to educate all stakeholders and increase the urgency to get vaccinated. Across the medical community, pharmacies and clinics, and advocacy groups, we are providing patient education resources to help our partners encourage their patients to get their COVID vaccine this fall. Earlier this week, we also launched our branded direct-to-consumer campaign, both on TV as well as across digital channels. For the remainder of the year, we will be amplifying education on the need for vaccination prior to gatherings, particularly with at-risk populations such as families, and traveling during the holiday season. We are also launching a focused education effort for consumers who are infected with COVID this summer on the importance of getting vaccinated in November and December. To summarize our COVID outlook, we expect at least $6 billion of sales this year based on the U.S. vaccination trends that signal a market of at least 50 million doses. Moderna's share, both in retail and non-retail, is expected to be consistent across channels and higher than in 2022. Vaccine administrations in the retail channel are tracking ahead of last year on a launch-adjusted basis, signaling strong early consumer demand. Last year, only about 55% of COVID vaccinations were given by the end of October, with an additional 23 million vaccinations given in November and December. We expect the non-retail channel to increase as a percentage of the market, which will provide additional sites of vaccination for consumers to allow for a strong November and December. This year, given the later launch of vaccines, the non-retail channels are just now beginning their vaccination campaigns. To continue the momentum from our launch and supplement our customers' efforts, we will be amplifying our marketing campaigns in November and December. Let me now turn to the upcoming RSV launch in 2024. We believe we have a best-in-class product profile that can make a difference both to patients but also to our customers. Our clinical profile shows strong vaccine efficacy. We have a well-established safety and tolerability profile that leverages the same mRNA technology that has been delivered in over 1 billion COVID vaccines. Additionally, we have not seen any cases of GBS in our Phase 3 trials. An important differentiator for our customers is that we will be the only company with ready-to-use pre-filled syringes, which are preferred by pharmacists and by clinicians. We continue to expect a 2024 launch of our RSV vaccine in the U.S., and are also preparing for launches in several international markets. We're encouraged by the recent RSV launches in the market this year, beating expectations due to robust consumer awareness and demand. And we believe that we are well positioned for our launch in 2024. Our strong clinical profile and ready-to-use pre-filled syringes are key competitive differentiators. My team and I are particularly excited about our ready-to-use pre-filled syringes given the robust demand for our COVID pre-filled syringes this fall. The majority of RSV vaccines in the U.S. will be given in the pharmacy setting. And given the ongoing pharmacy labor shortages, our ready-to-use presentation will save time and also reduce administration errors. We will be the only company with a one-step administration compared to competitive products, which require multiple preparation steps by pharmacists and clinicians. We are very excited for the launch of our RSV vaccine given the strong product profile. And the commercial team is well positioned to bring our RSV vaccine, our second respiratory vaccine, to market. I will now turn it over to Jamey to provide an update on our financials.

Thanks, Arpa, and hello, everyone. Today, I will review our financial performance for the third quarter and provide an updated framework for our full year 2023 financial outlook. Additionally, given we know it's top of mind for investors, we wanted to provide our early thoughts on 2024 and how we're approaching the next couple years. Starting on Slide 15. Total net product sales for the quarter were $1.8 billion, down 44% year-over-year, driven by lower sales volume, and partially offset by a higher average selling price. Product sales were almost evenly distributed between the U.S. market and the rest of the world. We initiated product shipments to customers in mid-September for the fall booster season, following the authorization of our updated COVID-19 vaccine. Cost of sales for the third quarter of 2023 was $2.2 billion compared to $1.1 billion in the prior year. I will provide detailed commentary on the following slides. Research and development expenses were $1.2 billion, which increased by 41% versus the prior year. This increase was driven by our expanded and maturing development pipeline with six products now in Phase 3 studies or pending approval. Selling, general and administrative expenses were $442 million, reflecting an increase of 59% year-over-year. The growth in spending was primarily driven by the buildout of our commercial activities and, in particular, our launch in the U.S. commercial market. The income tax provision in Q3 was $1.7 billion, as we reported evaluation allowance against deferred tax assets of $1.7 billion. Under GAAP accounting rules, we are required to take a reserve, also referred to as evaluation allowance, for deferred tax assets when the current year and cumulative income projection for the next three years is in a loss position. These losses indicate our deferred tax assets may not be fully realized. It's important to note, future income from products not yet approved by regulators are excluded from these income projections, which restricts us to adjust our COVID vaccine, and it does not include expected future launches. In combination with our updated endemic COVID forecast, we determined it was appropriate to record a valuation allowance for our deferred tax assets. This valuation allowance did not impact cash flows, nor future returns, nor the company's ability to utilize deferred tax assets in future periods. Net loss for the period was $3.6 billion compared to net income of $1 billion last year. Diluted loss per share was $9.53 compared to diluted earnings per share of $2.53 in 2022. Finally, we ended the third quarter with $12.8 billion in cash and investments. The decline versus prior quarter was driven by our operating loss and sales to be collected in Q4. Now, let me come back to cost of sales on Slide 16. We now expect full year cost of sales of $5 billion, driven by $1.5 billion of unit-driven expenses, which also includes royalties, and $3.5 billion of inventory write-downs and charges related to CMO purchase commitments, cancellation fees, and wind-down costs. As Stéphane previously highlighted, in our pursuit to optimize the cost structure of our COVID-19 franchise, we undertook a strategic initiative in the third quarter to restructure our manufacturing footprint, which was built for the pandemic. As part of this initiative, we reduced our capacity and commitments with several third-party vendors, we reevaluated our raw material inventory levels, and cut back on our purchase commitments for raw materials not anticipated to be consumed before expiration. As a result, we are recording charges of $1.6 billion, $1.4 billion of which are in Q3 and an expected $0.2 billion in Q4. The $1.4 billion charge in Q3 consists of inventory write-downs of $0.9 billion and CMO wind-down costs and cancellation fees of $0.5 billion. The Q4 charge is related to CMO wind-down costs. Despite the immediate financial impact, we are confident that this strategic move will improve the efficiency of our manufacturing operations and establish a strong foundation for improved margins going forward. As part of the $1.6 billion in total restructuring charges I just mentioned, only the CMO-related costs and cancellation fees are cash restructuring costs. We project this approximately $0.7 billion charge will have a payback in less than two years and a net cash benefit of approximately $1 billion through 2029. As I mentioned, our full year forecast for cost of sales in 2023 is now $5 billion. Before resizing charges of $1.6 billion, our cost of sales for the full year is expected to be at the low end of our previous guidance of $3.5 billion to $4 billion. So, now coming back to my commentary on Q3. In addition to unit-driven manufacturing costs and the cost from this initiative, we also incurred approximately $0.4 billion of inventory charges for excess and obsolete material, demand-related write-downs of our latest Spikevax product, and unutilized manufacturing capacity charges. Moving to Slide 17. In summary, we made substantial progress to resize our COVID cost structure and accelerated our path towards our longer-term target of 20% to 25% of sales. We expect our cost of sales to not only be at a lower level, but also be more predictable in the future. In recent quarters, our cost of sales were highly impacted by write-offs and charges as we just addressed today and in previous calls. Year-to-date write-offs and charges for inventory CMO and supplier-related commitments are 74% of sales. Starting in 2024, we expect those to be less than 10% of sales on an annualized basis. Our capacity is now better positioned to scale with volume. At a $4 billion sales level, we expect cost of sales of approximately 35%, reducing to approximately 30% at $6 billion of sales, and 20% to 25% at even higher sales levels. In other words, with our resized manufacturing footprint, we now expect to achieve significant volume leverage moving forward. Let's now move to Slide 18. While we intend to continue to focus on GAAP results, we wanted to give you a view of our financial results in Q3 with and without the resizing and tax valuation allowance charges. While our total GAAP net loss in the third quarter was $3.6 billion, our loss excluding these charges would have been $0.5 billion. Now, let's turn to our updated 2023 financial framework on Slide 19. As Arpa mentioned earlier, we now expect product sales for 2023 of at least $6 billion for the full year, which is comprised of $3.9 billion of sales through the third quarter, an additional $1.1 billion of international sales in Q4, and at least $1 billion of Q4 sales from the U.S. As explained earlier, we now expect cost of sales for the full year of approximately $5 billion, which includes resizing charges of $1.6 billion. For R&D and SG&A, we now expect full year expenses to be approximately $6.3 billion, with approximately $4.8 billion in research and development. Our R&D spend is slightly higher than the $4.5 billion previously forecasted, which is mainly driven by business development activities as well as additional investments in our late-stage clinical trials. Our forecast for SG&A expenses remain consistent at approximately $1.5 billion. We now expect a full year tax expense of approximately $0.8 billion to $1 billion, driven by the $1.7 billion increase in the deferred tax allowance I referenced earlier. And finally, we now expect capital expenditures of approximately $0.9 billion, down from our previous guidance of $1 billion. Before I get into the specifics on 2024 and 2025, I wanted to share with you our principles on how we are operating the company today and our plans over the next three years. We are laser-focused on making our COVID franchise profitable in 2024 and beyond. We look at our Spikevax product profitability, excluding research and development costs, for our future pipeline, and we believe our recent resizing efforts will ensure that our COVID franchise is a continuous and increasing source of income and cash generation. At the same time, we also recognize the significant and unique opportunity for organic sales growth ahead of us with our late-stage pipeline. We will be disciplined in our investment approach and adjust R&D and SG&A based upon the sales performance of our product lines, which in 2024 is still mostly COVID, but we expect it to also include RSV. We expect this investment in our late-stage pipeline will result in a loss over the next two years, but help us to breakeven starting in 2026. We believe our current balance sheet is more than sufficient to fund our plans without the need to raise equity. We are also not planning to repurchase shares in the intermediate term. Stepping back, we believe this is an unparalleled opportunity to impact the lives of patients while creating shareholder value at the same time. Moving to Slide 21, let's start with our view on sales over the next couple of years. We're expecting sales to hit a low point in 2024 at approximately $4 billion. The biggest change year-over-year is related to our signed APAs. We currently have $1 billion of COVID-related APAs for delivery in 2024. Recall that our first half sales in 2023 of $2.1 billion were mostly deferrals from our 2022 existing contracts. So, we expect minimal sales in the first half of 2024. For the U.S., we expect 2024 to be at least $2 billion and believe it will grow over time. Lastly, we expect approximately $1 billion from RSV and other international COVID sales. And finally, in 2025, we expect a return to growth. Let me finish by giving you a more fulsome view on 2024 and our thinking on 2025. Starting with 2024, as I just explained, we expect sales to be approximately $4 billion. Cost of sales are expected to be approximately 35% of sales. R&D expenses of approximately $4.5 billion in 2024, would be down 6%. In 2024, the majority of our R&D expenses are for registration trials, which are now mostly committed. I will speak to our view on 2025 R&D expenses in a moment. SG&A expenses of approximately $1.3 billion in 2024 would be down 13%. We expect taxes to be negligible in 2024 and capital expenditures to be similar to 2023 at $0.9 billion. In summary for 2024, Spikevax will generate nearly $1 billion of income. When we combine that with our estimated investments in R&D and capital expenditures, our cash balance is projected to be approximately $9 billion at the end of 2024. Now for our preliminary thoughts on 2025. As mentioned earlier, sales will return to growth. Cost of sales will improve with the increased sales growth. R&D will be flat to down, and we have much greater flexibility for reduction, given that only approximately half of our current R&D spending levels for registrational trials are committed for 2025. SG&A will be flat to down. Taxes will continue to be negligible. And capital expenditures will be materially lower after the completion of our facilities in the UK, Canada and Australia in the first half of 2025. In summary, our COVID operating income will grow and our investments will remain flat or lower, leading us to an estimated ending cash balance of approximately $6 billion to $7 billion in 2025. Finally, during this period, we expect to launch five new products to help us breakeven in 2026. So with that, I'll now turn the call over to Stephen.

Good morning or good afternoon. Today I'll do a quick review of our clinical programs. Many of the details from these programs were shared at our R&D Day in September. I will also review the Phase 3 trial designs for our combination flu and COVID vaccine, mRNA-1083 and the Phase 3 trial design for our INT in non-small cell lung cancer. During R&D Day, we shared the significant progress we've made through the year in advancing our late-stage pipeline, creating the opportunity to have up to 15 product launches in the next five years. Through 2025, and subject to regulatory review and approvals, we anticipate launches for our RSV vaccine, our flu vaccine, a next-generation COVID vaccine, and our combination flu and COVID vaccine. Looking beyond 2025, we have a diverse pipeline of other vaccines, cancer therapies, and rare metabolic disease medicines. We're very excited by the potential benefits these medicines offer across a diverse range of therapeutic areas. Slide 25 is an overview of our respiratory vaccines pipeline. Our leading pipeline includes commercial and Phase 3 programs against COVID, RSV, and flu, as well as earlier-stage next-generation programs in COVID and flu and multiple [combinations] (ph). We recently shared positive topline Phase 1/2 data from our combination flu and COVID vaccine, mRNA-1083. And on the heels of this success, we've started and are rapidly enrolling a Phase 3 study for mRNA-1083 in adults 50 and older. Slide 26 shows the Phase 3 design for mRNA-1083. The Phase 3 study is a randomized, stratified, observer-blind, active-control study evaluating the immunogenicity and safety of 1083 compared to co-administered flu and COVID vaccines. The study will enroll 8,000 participants overall, with two cohorts of 4,000 participants stratified by age 65 years and older and 50 to 64 years of age. Both cohorts will receive mRNA-1083, or in the control arm, an age-recommended licensed quadrivalent flu vaccine plus our approved COVID vaccine. Study participants will be followed for six months. The next, on Slide 27, is an overview of our latent and other vaccines pipeline. As previously announced, our Phase 3 study evaluating vaccine efficacy and safety of our CMV vaccine in women of childbearing age is now fully enrolled, including the adolescent cohort. The study is accruing cases and we look forward to vaccine efficacy data when it becomes available. Earlier-stage clinical programs against EBV, HIV, V

Thank you. [Operator Instructions] Our first question comes from Gena Wang with Barclays. Your line is open.

Thank you for taking my questions. I have two questions regarding the commercial questions. First, you did mention 2026, you're looking to have a breakeven. And when we take a quick look based on your 2024 and 2025 outlook, it seems the total cost could be in the $8 billion to $9 billion, that range. Could you give us a sense what could be the additional sales if we're using 2024 guidance as a base point? And the second very quickly regarding the manufacturing resizing. After resizing, what is the full capacity regarding doses and what percentage of the manufacturing will be internal in 2024 and 2025?

Maybe I'll take the first one -- first part of the question. So, in terms of 2026, and thanks for the question, let's talk to you about how we're thinking about it. So, we mentioned $4 billion in 2024, approximately $4 billion. And this is all about our late-stage pipeline coming to fruition. So, in 2024, we'll launch RSV, but it's mostly kind of in the second half year sales, and then we'll have a full year in 2025, so that'll provide growth. We will also come to market with flu in 2025. We'll also come to market with a combination of flu and COVID in 2025. Again, depends on timing, but by 2026, we should have a full portfolio. So, we're not going to say what the exact sales numbers are, but you mentioned $8 billion to $9 billion in costs. I'm not exactly sure where you'd get there unless you're assuming a certain sales line on that, but let me go back to what we tried to lay out here. If you assume, for instance, $6 billion in sales, we should have 30% of cost, or $8 billion in sales, we should have 25% of cost. And then, we've said historically in our R&D Day that we need $25 billion overall to make this investment, which should average $5 billion a year. So, hopefully, we're giving you enough pieces without officially guiding any kind of numbers in 2026. But here's what's also important is, if those sales don't come to fruition, we are telling you that we will adjust our expenditures in our investment. So, that's -- we hope that we are -- they will, we are confident in our pipeline, but should it not happen, then we were prepared to adjust our investment. I missed the second part of the question.

Capacity.

Hey, Gina, can you maybe repeat the second part of your question? I apologize. I missed it.

Sure. Basically, after manufacturing resizing, what is the full capacity regarding doses, and what percentage will be internal?

Yeah, thank you for the question. So, we -- as we try to lay out here and are showing you, this capacity is built for volume leverage. So, we at least put $10 billion of sales on that page, and it will require no additional capacity. We will complete, of course, over the next year and a half the UK facility, the Canada facility and Australia facility, but for the respiratory framework, we need no more, at least the $10 billion. I won't project beyond that, but that should answer that question. INT is a little bit different and we are building that and getting that ready for commercial purposes, but we're built for volume leverage moving forward.

Thank you.

Our next question comes from Salveen Richter with Goldman Sachs. Your line is open.

Good morning. Thanks for taking my questions. Two from me here. One is, you provided guidance of about $4 billion between COVID and RSV on the [forward here] (ph) for 2024. Could you just speak to the contribution from each and how you're thinking about flu monotherapy? And the second question is that your financial framework for 2025 includes the ability to flex R&D and SG&A. Are there any parameters you can share on the range of this flexibility and how you would prioritize R&D programs and development? Thank you.

Thank you. Our next question comes from Eliana Merle with UBS. Your line is open.

Hi, this is Sarah on for Ellie. Thanks so much for taking our question. First, I guess, can you talk about in 2024 again on that $1 billion RSV international sales number? Are you expecting any contribution from flu in '24, and maybe how you're thinking about it into '25? And then, on CMV, can you talk about where you are in cases and how they're tracking versus R&D Day where I think you said a fourth of them were currently tracked? That would be great. Thanks so much.

So, thanks, Sarah. I'll take the first part and then hand it over to Stephen on CMV. So, there is no flu contribution in our 2024 sales outlook of approximately $4 billion. So, in that $1 billion, that is solely RSV and other COVID international sales. We do, as I mentioned in my -- to answering Salveen's question, we do expect to launch flu in our combination products sometime in 2025, and we'll see what we've projected that time.

And on the CMV question, thanks for that. So yes, we did update that we're about a quarter of the way through the case accrual back in R&D Day. I think the next -- we continue to accrue cases at a steady pace. I do think the next update will provide is likely our Vaccines Day in the spring.

Okay, thanks.

Our next question comes from Terence Flynn with Morgan Stanley. Your line is open.

Great. Thanks so much for taking the question. I know GSK has provided an estimate in terms of size of the RSV market, about £5 billion, and Pfizer has given some metrics as well. Given what we're seeing now with these early launches, can you provide us with your assessment of total market size here? And then given some of your comments on competing with larger companies, as you're doing in COVID now, where ultimately do you see your market share shaking out in the RSV space? Thank you.

Thank you. Our next question comes from Jessica Fye with JPMorgan. Your line is open.

Hey, guys, good morning. Thanks for taking my question. Just a couple coming back around to one that I think some others were trying to get at, but maybe a little differently. When we think about breakeven in 2026, what are you contemplating in that sales number embedded in your assumption? Does it reflect just respiratory vaccines? Or are you considering INT could be on the market then? And then second, I know you said the percentage of non-retail jobs would grow as the season progresses from where it has been so far this season. Do you believe that the proportion of COVID shots running through the retail channel has shifted at all, bigger picture in 2023 relative to 2022, or should we think of that proportion as remaining similar year-over-year? Thank you.

Yeah. Thanks, Jess, for the question. Again, without getting into too much detail on 2026 in terms of how we think about it, I mean, the best way to keep going back to that late-stage pipeline that we've been talking to you about, RSV, flu, our combination, our next-gen COVID product as well, will all be very much there for the year 2026. And we are confident in all those product profiles and how we will compete. As I mentioned, at 6%, our cost of sales -- at $6 billion, sorry, our cost of sales would be 30%. At $8 billion, our cost of sales would be 25%. And of course, we'll try to improve on that. And that will give us the envelope for how much we can continue to invest in the future products, which we said we'll launch 15 by 2028. That'll be all of our latent product portfolio, that'll be our INT portfolio, that'll be our rare disease portfolio. So, I think that's as much as we can say right now. I just want everybody to know that we are very committed to breaking even in that year, and we have a lot of flexibility, both from a growth standpoint and a discipline investment standpoint.

Great. And I can take the second question on the percentage of non-retail. So, as expected, in 2023, the retailers have been the majority of the market, with more than 90% of the volume during the first few weeks. However, we're now beginning to see a shift towards more non-retail channels, as I had mentioned. We are seeing increased shipments to IDNs, to clinics, to pediatricians, as of the recent weeks. And as I think about full year 2023, I believe the retail mix will be stronger than in 2022 and could land at about 70% to 80% of total vaccinations, whereas in 2022, we saw that the retail channel was only about two-thirds of the mass.

Thank you. Our next question comes from Luca Issi with RBC Capital. Your line is open.

Oh, great. Thanks so much for taking my questions. Maybe circling back on the P&L, I appreciate all the effort on resizing manufacturing and the focus on gross margin, but how should we think about OpEx plus CapEx? As COVID numbers continue to come down, we've seen the BioNTech and Pfizer materially realigning OpEx plus CapEx to their top-line. I believe BioNTech lowered by $600 million this year and Pfizer by $1 billion this year and $2.5 billion next year. However, your OpEx plus CapEx is not materially changed this year and you anticipate that the next year it's going to be generally flat to down. So, can you just maybe comment on why you think that's the right strategic decision for the organization? And then maybe second question on RSV. Obviously, impressive initial launch by GSK and Pfizer and appreciate the differentiations of your product. But what's the latest thinking on whether the vaccine is needed every year or less frequently than that? Is there a scenario where Pfizer and GSK penetrate the market pretty aggressively this year and then you face an uphill battle next year as it turns out that we need a vaccine maybe every other year and not every year? Any thoughts there much appreciated. Thanks so much.

Maybe I'll take the first -- the second part of that question and then hand it over to Jamey for the first. So, on RSV and the need for it, obviously, we're continuing to follow the public health situation in terms of the rate of occurrence of the RSV epidemic this year. At this point, I think we don't have data yet on whether or not it will ultimately be an annual or something less than annual, say every two or three year vaccination regime. I think like everybody else, we'll be looking to our data, the other manufacturers' data, as well as the public health, the epidemiologic data to guide that decision. There are plenty of vaccines for which there is an approach, flu as an example, where there's a seasonal vaccination approach, both because of the benefit offered by the vaccine, but also because of the convenience of just making sure that every season, every year, people are reminded to get that vaccine. So, the ultimate decision on whether this is going to be recommended is not ours, the manufacturer, it will fall to public health officials based on a number of factors, which will include the [indiscernible] and the data we provide, but other factors as well. And we'll work to make sure they have the data they need to make that decision.

That's it. Thanks so much.

Our next question comes from Michael Yee with Jefferies. Your line is open.

Hi. Thanks for taking our question. This is Dina on for Mike. I just wanted to get a sense of your assumptions for Q4 COVID jabs and what are you seeing in Q4 right now? How much of that is actually jabs and actual injections versus channel fill? And just to follow-up on that. Now that you've seen sort of half of the 2023 fall season play out, what are your assumptions for 2024 and 2025 for COVID? Are you essentially assuming that the same people who got vaccinated this year will continue to get COVID vaccine every year? Thanks so much.

Thank you for the question. In terms of the fourth quarter '23 jabs, what we saw in 2022 is there was a significant portion, about 45% of the total COVID vaccinations happening in November and December. This year, we're expecting a similar split, likely larger, given that we launched two weeks later into the season in 2023 than we did last year. And what we are hearing from our different non-retail customers as well as our retail pharmacy partners is they are planning vaccination campaigns and marketing efforts to really capture on the November and December months. So, in total, we do anticipate getting to at least 50 million doses this year, and we do believe that November and December will be strong months for us. In terms of 2024, our assumption is everyone who has gotten their booster in 2023 will at least get their booster also in 2024 and beyond. Now, given the higher burden of disease with COVID, as consumers become more understanding of the annual recommendations and as the convenience of getting both flu and COVID becomes more normalized, we do believe over time we'll start to see some increase in the overall COVID market.

Our next question comes from Hartaj Singh with Oppenheimer. Your line is open.

Great. Thank you for my question. I just got a question on the combination programs. And just to give a little bit of -- frame the question, in other therapeutic areas, aside from vaccines for infectious diseases, for example, oncology, monotherapy treatments generally tend to be minority of treatments, 10%, 15%, 20%. Currently, monotherapy vaccines dominate the market in COVID-19 flu. So when you get the combination vaccines going, do you imagine -- does your market research tend to suggest that you would -- again, probably a combination approach might dominate that versus a monotherapy approach, singular vaccines going forward? And then secondly, will the cost of goods sold be any different for the combination versus the monotherapy products? Thank you.

And, Hartaj, maybe I'll take the cost of sales question. Thank you for it. So this provides a substantial margin expansion opportunity. So, if you think about it, our cost of sales, the smallest portion is our drug substance, so it's our actual mMRA, and that's a very small portion of our overall cost of sales. Everything from drug product in terms of the cost to finish the product and the presentation type, whether it's PFS or a vial or whatever, that now gets cut in half. So, when we sell two, it's a very limited amount of cost increase versus a single presentation. So, it does provide a significant margin expansion opportunity. So, thank you for the question.

Thank you all.

Our next question comes from Evan Wang with Guggenheim Securities. Your line is open.

Hey guys, thanks for taking the question. Appreciate you guys sharing early thoughts on '24 and beyond. For '24 specifically, you talked about some of the contribution from COVID and RSV in terms of split. It sounds like you plan to hit the ground running there in RSV. With international, how are you thinking about the longer-term contribution from COVID as competitor agreements expire? And with flu, with the comments on [marketing] (ph) '25, wondering if you've had any recent conversations with the regulators there in terms of potential approval. Thanks.

Thank you for the question. In terms of our expectations in 2024, we have put about $1 billion across international COVID and RSV. We do anticipate a strong launch in the second half of the year with RSV. And on the international side for COVID, we are continuing to pursue multiple options across a number of countries. In Japan, we will be in a fully commercial market, is our expectation, where we will be competing for the Japanese business. In the EU, we continue to work with countries on agreements to secure our COVID-19 vaccine. As publicly disclosed, the EU has renegotiated their contract with Pfizer earlier this year. So, the EU demand has been substantially satisfied in many markets, but we are hearing from individual member states that they are looking for a second supplier for vaccines. And we are in those discussions right now, both at a country level, but also at a European Commission level to see if a joint procurement agreement can be established in 2024.

And thank you for the flu question. So, as you referenced, we had really strong data out of our P303 Phase 3 study for flu that we released at R&D Day. We're excited about that. We are engaging right now with multiple regulators about the pathway to licensure. I don't have an update about all those conversations because they're happening as we speak, but we will, once we have clarity across all markets on the pathway licensure, provide an update.