MRNA - NASDAQ

Good day, and thank you for standing by. Welcome to the Moderna Fourth Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lavina Talukdar. Please go ahead.

Thank you, Stéphane, and hello everyone. Today, I will review our financial performance for both the fourth quarter and the full year of 2023. I'll also provide our financial framework for 2024. Let me start with a review of our commercial performance this year. In the first half of 2023, we reported product sales of $2.1 billion, with the majority of sales from advanced purchase agreements signed for delivery in 2022 that were deferred into 2023. We do not expect these sales to repeat in 2024. In the second half of 2023, we recorded $4 billion in sales from seasonal endemic demand and an additional $600 million from deferred revenue related to Gavi. Sales in the fourth quarter were $2.8 billion, with $0.8 billion in sales in the U.S. and $0.6 billion in Europe and $1.4 billion in the rest of the world, including the deferred revenue from Gavi. For the full year, 2023, product sales were $6.7 billion, comprised of $1.7 billion in sales in the U.S., $1.4 billion in Europe, and $3.6 billion in the rest of the world, again, including deferred revenue from Gavi. Moving to side 10. As mentioned, net product sales were $2.8 billion this quarter, a 43% decrease from last year. This was largely attributable to the anticipated reduction in sales volume, which was partially offset by a higher average selling price. This decrease is indicative of the evolving market dynamics as we navigate the transition of the COVID-19 vaccine market towards a more predictable seasonal pattern like traditional flu vaccines. Cost of sales was $929 million, down from 39% of net product sales in the previous year to 33% this year. This is a demonstration of our strategic efforts in Q3 to resize our manufacturing footprint, which as expected, led to additional charges in Q4 of $169 million, primarily related to the wind down of certain contract manufacturing operations. Additionally, faster sales also includes an inventory write-down of $322 million, reflecting revised demand forecasts. R&D expenses increased by 16% to $1.4 billion. This uptick reflects our commitment to advancing our late-stage clinical development programs, particularly with our RSV vaccine, CMV vaccine, combination vaccine against flu and COVID-19, as well as our INT program. The increase also included an upfront payment of $120 million associated with the strategic research and development collaboration with Immatics. SG&A expenses were $470 million, up 25% year-over-year. The increase in spending was primarily due to the expansion of our commercial operations, particularly in the U.S. market. Income tax was a benefit of $147 million for the fourth quarter of 2023, largely attributable to the tax benefits as part of finalizing our 2022 U.S. tax return. Net income for the quarter was $217 million, compared to $1.5 billion in the fourth quarter last year. Diluted earnings per share was $0.55 compared to $3.61 in 2022. We closed the quarter with a strong cash position of $13.3 billion, which is slightly higher than the $12.8 billion we had at the end of the prior quarter. Now, let's turn to our annual performance on Page 11. Net product sales for the full year of 2023 were $6.7 billion, a decrease of 64% from the previous year, mainly due to lower sales volume of our COVID-19 vaccine. As mentioned earlier, this includes the recognition of $0.6 billion from the deferred revenue related to Gavi. Excluding this item, our sales of $6.1 billion were still in line with the framework we provided for the full year. Cost of sales for the full year represented 70% of net product sales, a substantial increase from 29% of product sales in 2022. This shift is largely attributable to our strategic efforts to optimize our manufacturing operations, resulting in charges of $1.6 billion, and other manufacturing and distribution costs over reduced sales volume. Overall, cost of sales came in at $4.7 billion, slightly below the $5 billion we provided in our latest framework. Research and development spend was $4.8 billion, and SG&A was $1.5 billion, both in line with our expectations. Our income tax provision was $772 million for the full year 2023. During our Q3 earnings call, we discussed the requirement under GAAP to establish a valuation allowance against deferred tax assets, when the current year and cumulative income projection for the next three years is in a loss position. It's important to note that future income from products not yet approved by regulators are excluded from these income projections, which restricts us to just our COVID vaccine, and it does not include expected future launches. This valuation allowance does not impact cash flows, future tax returns or the company's ability to utilize deferred tax assets in future periods. Net loss for the year was $4.7 billion, compared to net income of $8.4 billion last year. The decrease in profit was primarily due to lower product sales and higher R&D expenses in 2023. Diluted loss per share was $12.33, compared to diluted earnings per share of $20.12 in 2022. So now let's move to slide 12. We wanted to provide you additional perspective on our full-year financial results by presenting them alongside a summarized version that excludes the impact of the Gavi deferred revenue recognition, our resizing charges, and the tax valuation allowance. Our total GAAP net loss for the full year was $4.7 billion. However, when excluding these primarily non-cash items, the net loss is reduced to $1.6 billion. Now let's turn to our 2024 financial framework on slide 13, which is mostly in line with what I shared on our Q3 call. We expect net sales for 2024 of approximately $4 billion, which we think will be a low point, as we expect to return to growth in 2025. Sales in the first half of the year are expected to be approximately $100 million, reflecting the strong seasonality of respiratory vaccines. We expect cost of sales of approximately 35% of product sales, in line with our cost of sales framework which we introduced in our Q3 earnings call last year. For R&D we expect full year expenses to be approximately $4.5 billion, down from $4.8 billion in 2023, and for SG&A, we expect full year expenses to be approximately $1.3 billion, down from $1.5 billion in 2023. We also expect taxes to be negligible in 2024. In our Q3 earnings call, I provided our Moderna operating principles, which largely centered around a very disciplined approach to capital allocation. Our number one priority has been, and will continue to be, reinvesting in the business. In addition to the investment into our pipeline, we expect capital expenditures in 2024 to be approximately $0.9 billion, as we mostly complete the construction of our facilities across the globe. Our teams are laser-focused on operational improvements for both expense management and working capital. As a result, we expect to end 2024 with approximately $9 billion in cash. I will now turn the call over to Stephen.

Thank you. [Operator Instructions] Our first question comes from Michael Yee with Jeffries. Your line is open.

Thank you. Our next question comes from Gena Wang with Barclays. Your line is open.

Thank you. I have two very quick questions. First one is regarding the RSV vaccine. What portion of 35,000 to 36,000 participants that completed two seasons and regarding February 29 ACIP meeting, what additional data you will be presenting? And very quickly on 2024 guidance, now we have a better understanding of both COVID and RSV market size for 2023 and 2024 season. What could be the upside or downside for your 2024 revenue guidance of $4 billion?

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

Hey guys, thanks so much for taking the question. Just turning to the CMV Phase 3, can you talk a little bit about what you would view as clinically meaningful or commercially relevant on vaccine efficacy? And if successful, also, how are you thinking about use in seronegative versus seropositive patients? Thanks.

For sure. So thank you for the question. So in CMV, obviously there's currently no vaccine that can prevent infection against CMV. And as it is a source of devastating birth defects, anything that provides a statistically significant reduction in the rate of infection and therefore vertical transmission would be, we think terrific. Now, the minimum bar that we are powering in our study would support is a vaccine efficacy of approximately 50% as we've shared previously. Anything above that would obviously beat our expectations and be incredibly exciting for the field. We are in the Phase 3 study, enrolling both seropositive and seronegative participants. And part of the reason for that is that there's currently no broadly used diagnostic. And so we want to demonstrate benefit or safety in both populations, because we do believe that the most likely use of the vaccine could be that it's given regardless of serostatus to both seronegatives and seropositives. And there are potential benefits for seropositives that could include control of shedding or viremia or other long-term sequelae of CMV, but we would have to prove those. And again, those are not something we're exploring explicitly in the current Phase 3 study. So as a practical matter, from a labelling perspective and a launch perspective, our goal is to try and launch the product for both seropositives and seronegatives, so that no diagnostic would be needed and it can be broadly used across populations to try and prevent the devastating effects of CMV on vertical transmission to newborn babies.

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

Great. Thank you. You had indicated that you are going to complete the enrollment for CMV this year and maybe have a readout. Can you just walk us through the steps or how that would look like, and maybe just give us some ideas on powering statistical assumptions? Thank you.

Yeah, of course. Thanks Hartaj. So we're currently fully enrolled and we're accruing cases in that study. I think as we've shared before, we've actually made substantial progress in a number of cases. It is a case-driven endpoint and we'll need to see approximately 80 cases before we'll do the first interim analysis for efficacy. That, its 81 cases to be specific. That interim analysis actually will look a lot like our other vaccine efficacy studies. DSMB will evaluate that data and if we meet the statistical threshold, which is for early efficacy, meaning we're doing better than our minimum of 49.5% vaccine efficacy, then they will at that moment tell us to unblind and share the results, and of course, we will share them broadly with the world. If for whatever reason we don't quite have the statistical power in that first interim analysis efficacy, the study is powered to continue on and continue to accrue cases towards a final analysis of efficacy. Now, given the rate of the final analysis at 112 cases, now given the rate of a case accrual that we're currently seeing in the study, we do expect that we will have more than enough cases this year. We are therefore pretty confident that we're going to be seeing a readout from the interim analysis, possibly even a final analysis for efficacy in 2024. But again, since its case and event driven, we just have to bide our time. And ultimately, we will depend upon the DSMB to tell us whether or not we've met that statistical threshold.

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

Oh, great. Thanks so much for taking my question. Maybe Stephen, at INT, maybe can you remind us what's your latest thinking in terms of potential for accelerated approval there for melanoma? And then maybe on the additional tumor types that you guys and Merck are thinking about it, can you just maybe talk about what are the tumor types that you are contemplating and whether those tumor types are going to be in the adjuvant settings or in the metastatic settings? And then maybe on RSV quickly, can you just maybe expand on durability in the context of your competitor? Is there a scenario where ACIP recommends the GSK vaccine for every other year versus your vaccine for every year? Any color there is much appreciated. Thanks so much.

Quite a few questions there. I'll try and get them all. I apologize if I forget any one. So first on the question of INT and accelerated approval in the adjuvant melanoma setting. So as we've said before, we continue to be really excited about the data and are excited to start looking to talk to regulators about it. There have been three things that we've tried to say that had to be true for us to believe it was appropriate to even ask about accelerated approval. The first was we had to see durability. And clearly the data that we just saw from December, just two months ago, shows that durability and really a clear statistically significant result where the comparator arm, the control arm looks really just like the labeled data, and so we're incredibly encouraged by that durability, that was criteria one. But the second and third are still there and really important. The second is that we have to substantially enroll the confirmatory Phase 3 study. For an accelerated approval in this space, we do believe we have to show we've really already done the diligence to allow that confirmatory data to come in, so that three or four years from now, that further readout would confirm anything that would happen in accelerated approval context. And then the third and perhaps now increasingly important criteria, was that we had to establish the commercial manufacturing facility. And so as we've announced, we've been building a facility in Marlborough, Massachusetts. It'll be a purpose-built, personalized, individualized neoantigen therapy facility that is ultimately what will be licensed to create this product for the world, whether it's in an accelerated context or in the future with full approval. That facility is coming online. We look forward to hosting many of you and others in tours as we bring it online. But without that facility, there isn't really a product here to talk about. And so all three of them are essential. We're making progress on all three. And I think the most exciting thing is what you were just alluding to, which is the durability of the benefit we've been seeing really causes us to now lean into completing, working hard to complete the enrollment of that confirmatory study criteria too, and finish the build out of that Marlborough facility, which is the third criteria. Now, on the point of other indications that we're going after, I will defer to our partners, Merck, on the specifics. We will do it together at the right time, opening up additional Phase 3 and confirmatory studies. We do expect to open multiple this year. Those include some additional adjuvant indications. They also include some potential metastatic indications, and we are looking at monotherapy indications. And that can be either in places where PD-1s, KEYTRUDA, may not be indicated or even earlier lines of therapy. And so all of those are under consideration, and as soon as we start those studies up and begin enrolling, of course, we'll make announcements about them with our partner, Merck. Now lastly, on the question of RSV, we continue to be really enthusiastic about the data that our product has, and I think the durability now shown through this second large season is quite encouraging. We'll be sharing that data with the ACIP. Well, first we have to get to the regulatory process and approval in this country. And Stéphane mentioned our PDUFA date in May. And if we have the opportunity, we'll be sharing the data with the ACIP, which includes, in our case, booster data on immunogenicity from ongoing work that has actually already previously been presented publicly at meetings. And so just like our competitors, we have shared data of what a second dose looks like in terms of boosting neutralizing antibody titers back up, both at one year, and we're also going to be looking at two years. And all of the data, ourselves, as well as that similar booster data from the competitor products, will likely be brought together to inform the ACIP's recommendation of how they think RSV vaccines should be readministered when a booster might be necessary. It really falls to the committee to make that determination, not us. Your question was about whether we expect there to be any difference or distinction in terms of how they treat the vaccine. You know at this point, given the immunogenicity data and booster data that has been shared across all three products, which is remarkably consistent, as well as the consistent picture in terms of efficacy, including some waning efficacy for all products in the second year, we would suspect that they will continue to view the products as more similar than not and therefore continue with consistent recommendations. But it's really up to the committee to make that determination. At least from my perspective, I certainly think the science would support that.

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

Thank you. Our next question comes from Geoff Meacham with Bank of America. Your line is open.

Hi. Sorry about that -- small technical snafu. So I'm back. I believe I caught the end of the question, which is when do we think we'll have a correlative of protection that can inform dynamics, both between products and boosting, if that's correct. We and all the other manufacturers have been sharing publicly our work on a correlative protection. We do believe that we've identified a strong candidate in neutralizing antibodies, not surprisingly, from our clinical study. We've been sharing that data with regulators, and we've been sharing the preliminary analysis with public health officials, including advisory groups and ITAGs like the ACIP. We will be publishing that data and ultimately submitting that to our regulatory submissions as a correlate through the balance of this year. And if we and I think the other competitors are successful in establishing neutralizing antibodies against RSV as a correlative protection in RSV, then it really will probably be the primary way that public health officials make determinations about revaccination and boosting, and ultimately how we maintain durable protection against RSV for high-risk populations like older adults. From a competitive dynamics perspective, once each product has established their correlate, their correlate will relate to them. But we do think there's probably going to be more commonality than not in the correlates of protection, which makes sense, because at the end of the day we're still talking about the same virus and vaccination against it for all three products.

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

Great. Thanks for taking the question. I was just wondering if you could provide an update on your discussions with the FDA for 1010, your seasonal flu vaccine, and what's gating to filing here. Thank you.

Thanks. So we are speaking to the FDA and regulators around the world about what would be – what they would like to see from a submission perspective for – in first-generation or influenza program, our mRNA 1010 program, as you referenced. I don't have any specific updates right now. We're in those conversations as we speak. I really don't want to get ahead of them. The kinds of things we're talking about are what's the total submission data package, what's the duration of follow-up in some of these studies, and what additional studies or data might be supportive to the application. Those conversations are ongoing. We will provide updates as and when we have them, but I have nothing further to add right now.

Thank you. Our next question comes from Jessica Fye with J.P. Morgan. Your line is open.

Hey guys. Good morning. Thanks for taking my question. For INT, can you talk about what's driving your confidence to go into metastatic settings? How is enrollment going in the Phase 3 melanoma trial? And I know you touched on manufacturing being important here. What's the status of that manufacturing scale of work, and when is that facility going to be ready to go live?

Great questions all. So, I'll take the first part of that. So first of all, metastatic. So we have not formally decided or announced that we're going into a metastatic indication. We do have data from our Phase I study, our initial Phase 1 study in metastatic patients, including non-small-cell lung cancer, but we have not yet made a determination that we're going into the metastatic indication. And I think behind your question is a view that I would agree with, which is to the extent that INT is going to provide a really substantial benefit, we think it is probably in earlier lines of therapy. So not just adjuvant, but perhaps even Stage I disease or a Stage II disease, depending on the indication, because the safety and tolerability profile is we think incredibly favorable, and the benefits we're seeing are pretty remarkable from an immune perspective. That said, there is still a really high unmet need in the metastatic space, and even immunotherapies like the PD-1s, like KEYTRUDA, provide a substantial benefit there. And so at the right time, we may well choose to study the metastatic indication, but as I said or metastatic indications and settings, but as I said, we have not yet formally decided to do that today, and we are really focused on adjuvant and earlier and monotherapy principally. On the manufacturing process and enrollment, we have substantially scaled up our ability to enroll patients in those Phase 3 studies. I can assure you that with our partner, Merck, we wouldn't have opened a second Phase 3 study and be talking about the third if we didn't have confidence in our ability to rapidly meet the demand for the substantial demand from those clinical research sites for INT manufacturing. We haven't specifically put out numbers, but suffice it to say, we are rapidly enrolling in those studies, and we would expect to make substantial progress this year and even perhaps getting close to completing enrollment in at least one of those studies if it continues trajectory. So we're excited about the progress we've made in scaling up the manufacturing for clinical supply. We're excited about the progress we're making right now in enrolling patients and the demand that we're seeing from clinical sites. And we do believe that we've solved a lot of the, for clinical research, for clinical development, the manufacturing requirements. The question then becomes commercial, and as we alluded to a few minutes ago, the Marlboro site would really become the purpose-built commercial site, which needs to not only be able to deliver high-quality products at high volumes, but also do it at a valuable price and cost point and all of that work is ongoing. We've made great progress in building that site. Our goal is to establish that site for at least clinical supply this year, but we haven't provided further guidance on when we will have that fully operational for potential commercial use. And ultimately, it depends upon discussions with regulators as well.

Kevin, we'll take our last question.

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

Great. Thanks guys. Two from me. First, on RSV, I know there are some additional studies to expand the initial population. Can you comment on when we may see data from the Phase 3 and 50-plus in the higher-risk younger adults, and when you could potentially supplement the filing if everything's positive? And then, I know you commented on Australia. So just, as you were thinking about or as you've talked about Australia as a proxy for COVID sales in 2023. Now can you comment on how interpretable Australia would be? Will it be through your RSV launch, and as we look for trends in COVID vaccination rates? Thanks.