MRNA - NASDAQ

Good day and thank you for standing by. Welcome to the Moderna third quarter 2024 conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during this session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-one-one again. 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.

Thanks Stéphane and hello everyone. Today, I will provide an overview of our financial results for the third quarter and share our outlook for the remainder of 2024. Let’s start by reviewing our commercial performance, which you can follow on Slide 14. For the third quarter of 2024, our net product sales were $1.8 billion, bringing year-to-date product sales to $2.2 billion. We also had approximately $100 million in year-to-date other revenues from grants, collaboration, licensing and royalties, which are not included in the figures on this slide. $1.2 billion of our 3Q24 product sales were from the U.S. market, where we experienced an earlier launch to the 2024 - 2025 season. While our 3Q results exceeded expectations, this was mainly due to sales timing between the third and fourth quarter, supported by receiving FDA approval of our updated COVID-19 vaccine three weeks earlier than last year. Also included in our U.S. sales of $1.2 billion is a provision release of approximately $140 million primarily driven by lower product returns from the 2023 - 2024 season compared to our previous estimate. Additionally, we commenced RSV vaccine sales in Q3. While initial RSV sales were limited at $10 million, we believe there is potential for long term growth as we work to capture a larger market share of over time. International sales of $0.6 billion were in line with our expectations but lower compared to the same period in 2023, when sales benefited from the fulfillment of orders deferred from 2022. For our full year 2024 outlook, we are reaffirming our product sales estimate of $3 billion to $3.5 billion, which implies a 4Q product sales range of $0.8 billion to $1.3 billion. We expect our U.S. 4Q product sales to be between $200 million and $500 million. The range is driven by the following three key variables: our Spikevax market share, which is currently tracking to approximately 40% in retail; at this time, it’s too early to call our share in IDNs and with the government. Next, vaccination rates - our range assumes a market size which has COVID vaccinations flat to down 10% versus the prior year. Finally, our performance in and the ultimate size of the RSV market in 2024. To summarize, if our retail market share remains constant at 40% and the U.S. market finishes this season down 10% compared to last year, and there is no uptick in RSV sales, we expect to be on the low end of this sales range. We expect our international 4Q product sales to be between $600 million and $800 million. We have a tighter range on our international sales as most of these sales are for contracted volume and confirmed orders. The final international sales amount will be dependent upon revenue recognition timing and our performance in a few specific markets. Moving to Slide 15, I will talk about our 3Q financial results in more detail. Net product sales for Q3 were $1.8 billion, as I just discussed on the prior page. Our cost of sales for 3Q24 was $514 million, representing 28% of net product sales for the quarter. This was a 77% year-over-year decline in our cost of sales from $2.2 billion in 3Q23. As a reminder, last year we undertook a strategic initiative to restructure our manufacturing footprint and recorded $1.4 billion of charges in 3Q23 from inventory write-downs, [indiscernible] wind down costs, and cancellation fees. Excluding the $1.4 billion charge, cost of sales still declined by 38% year-over-year as we continue to make progress driving additional productivity improvements in our manufacturing operations. R&D expenses were $1.1 billion in 3Q24, reflecting a 2% year-over-year decline from $1.2 billion last year. We purchased a priority review voucher during the third quarter of 2024 which is included in our Q3 results. Excluding the PRV purchase, we had strong year-over-year spending declines for research, development, and clinical manufacturing as we continue to drive cost efficiencies across all areas of the organization. SG&A expenses for 3Q24 were $281 million, representing a 36% year-over-year reduction. This decline reflects our focus on driving cost efficiency and making targeted investments that continue to strengthen our overall productivity. I will provide further details in the following slides. We recognized an income tax of $8 million for the third quarter, a significant reduction from the $1.7 billion in the same period last year. The decrease was largely attributable to the establishment of a $1.7 billion valuation allowance on deferred tax assets in 3Q23. The valuation allowance has remained in place since its initial recognition and continues to impact our tax expense. Our net income for the period was $13 million, a notable improvement from the net loss of $3.6 billion recorded in 3Q23. Earnings per share for the quarter was $0.03 compared to a loss of $9.53 per share in the same period last year. We ended the quarter with cash and investments totaling $9.2 billion, down from $10.8 billion at the end of Q2 primarily due to ongoing research and development expenses and operating activities. Moving to Slide 16, I want to provide additional detail on the cost reductions we are driving across the company. As discussed on previous calls, as a platform company, we are building a unique operating model, and over the last few years we have invested purposefully into people, processes and technologies to build foundational capabilities that will allow us to scale efficiently. We continue to see these efficiency gains in our 2024 results. As mentioned on the previous slide, we reduced 3Q SG&A expenses by 36% year-over-year. We had year-over-year reductions across all areas of our SG&A categories: commercial, medical, and G&A functional spending. Major drivers were from reductions in purchased services and external consultants as we better leveraged digital technology and AI. Year to date, our SG&A spending is down 24% year-over-year. While we continue to drive productivity improvements, we are also committed to increasing COVID-19 vaccination rates with investments in HCP education and consumer ad campaigns, as well as increasing our COVID-19 and RSV market share in competitive markets; therefore, we don’t expect as large a year-over-year decline in 4Q SG&A spending versus the prior year. For the full year, we expect SG&A to be down approximately 20% to $1.2 billion, which is reflected in our financial framework update on the next slide. Turning to that 2024 financial framework on Slide 17, our net product sales guidance remains at $3 billion to $3.5 billion, and as reviewed earlier, there are a handful of factors we are monitoring as the season progresses. For cost of sales, we are narrowing our guidance to 40% to 45% of product sales as a result of the continued manufacturing productivity improvements we are driving in the company. For R&D, we are lowering our full year estimate to $4.6 billion to $4.7 billion from our previous guidance of $4.8 billion. The reduction is due to cost savings from productivity improvements as well as clinical study timing. For SG&A, we continue to expect full year expenses to be approximately $1.2 billion, down from $1.5 billion in 2023, a decrease of approximately 20% year-over-year. We continue to expect taxes to be negligible in 2024 and we are updating our capital expenditures outlook to approximately $1.2 billion, which reflects the purchase of our Norwood campus from our landlord for approximately $400 million, partially offset by approximately $100 million of other capex reductions. The purchase of this highly strategic asset allows us full control to expand and build out the campus to drive future productivity and innovation. We anticipate this transaction will close in December. We continue to expect ending 2024 with approximately $9 billion of cash and investments. The additional cash outlay for purchasing our Norwood campus will be offset by reductions in our cost of sales, R&D, and other capital expenditures. Based on our 3Q actual product sales of $1.8 billion, we have strong visibility into our expected cash collection timing from our customers in 4Q. With that, I will now hand the call over to Stephen.

Thank you. [Operator instructions] Our first question comes from Salveen Richter with Goldman Sachs.

Thank you, good morning. Two questions from me. One is can you speak to the source of the rest of world revenue generated in the third quarter and expected in fourth quarter with regard to which countries are contributing here, and that these contracts, that should you expect them to recur in 2025? Then separately on CMV, you talked about the DSMB--you’ll share the results if the DSMB recommends un-blinding. Can you speak more to that, as to whether we will actually get interim data provided to us, or we’re going to have to wait for the full analysis here? Thank you.

Sure, thanks for the question, Salveen. I’ll take the first one in terms of rest of world revenue. Without getting into too much specifics, I think you know we’re establishing a presence in the United Kingdom, in Canada and Australia. We announced an order in Brazil, and so that’s been--the balance will be shipped either in the third quarter or the fourth quarter. When we look at the fourth quarter, of the $600 million on the low end, the large majority of that is contracted with those countries and others, but I just wanted to name a few. As we look to 2025, I think as we mentioned at R&D day, there will be a decline in some of those countries and then it will then uptick--our anticipation is that it will uptick in 2026 based upon the contracts that we have in certain countries, so that’s a little bit on the rest of world split.

On the CMV question, if the DSMB recommends un-blinding to the sponsor at the first interim analysis, to your question, that would be because we met the criteria for vaccine efficacy, and obviously we would share those results if we receive them. There is a change that the DSMB will not recommend un-blinding, which would mean perhaps that we did not make statistical significance in that first interim analysis and be going then to the final analysis, which could happen quite quickly, and depending upon the conditions of that communication and the timing of that final analysis, we may or may not be communicating right then about the fact that we’re waiting for that final analysis, but we would in any event, if the DSMB recommended un-blinding, share those results.

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

Thanks for taking the question. Just another one on how to think about the ex-U.S. COVID revenues. In the past, you’ve talked about some contracts with some countries for guaranteed purchases, like some even throughout the end of the decade. Maybe can you just in broad strokes characterize the size of some of these contracts that you have outstanding ex-U.S., and I guess, what’s essentially guaranteed from a revenue perspective here in terms of some of these ex-U.S. contracts, if you have a sense of maybe, like, what the minimum sales ex-U.S. could be in certain years going forward based on that. Then just a second follow-up on CMV, I think you alluded to this in the last answer, but maybe just in terms of the rate of accruals, I guess what’s your latest expectation in terms of the time frame between when you will accrue the number of events to trigger the interim versus the number of events to trigger the final analysis, just the timing between those two. Thanks.

Yes, so I’ll take the first part, Eli. In terms of the contract that we have with some of these countries - we’re not going to disclose the specifics, but what I will say is that as we add products over time, you can imagine that the amount of the minimum purchase commitment will grow over time. That’s why, as I just mentioned in my prior response, that it will drop in 2025 and then start to grow in 2026, but I don’t think we’re going to disclose anything more than that.

On the question on CMV and the timing of case accrual, it is coming quite steadily right now, and in fact we do have a bit of a backlog of case confirmation that we are working through - there’s multiple steps that have to go and multiple testing to validate a case, and so we actually--obviously we don’t control the rate of case accrual, but we do expect that if we are going to that final analysis, that it won’t be a very long period of time between, and actually could happen quite quickly.

Great, thanks.

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

Thank you. I have two questions. One is regarding the commercial questions. If we calculate US $1.2 billion revenue and accumulate 19 million U.S. doses, is the calculation $63 per dose as a net price a right way to think about it? Then regarding the reserve return, could you provide a final reserve return from last winter season, and what is your reserve return so far for this winter season? Quickly, regarding the flu combo, flu-COVID combo, not using priority voucher, maybe give us a little bit more rationale for this, and then will all three that you submit this year, how many of these will make it for 2025 winter season?

Yes Gena, maybe I’ll take the first question on the U.S. pricing. The 19 million, I think is the total market you might be referring to for COVID vaccinations, not specific to Moderna. That said, the pricing that you’re talking about, we won’t specifically disclose, but it’s not that far off.

On the pipeline question, Gena, thank you for both, so first on the priority review voucher for the flu/COVID combo, given where we are in terms of timing of this year and relative timing of the contracting season for flu vaccines, we no longer think it makes sense to use a priority review voucher to try and accelerate that process because ultimately we believe we would miss that contracting season. For that reason, we’ll hold back that PRV and use it for a different product in the future. As far as the submissions, as we confirmed today, we are expecting two--the other two submissions to go forward with priority review vouchers, and given the timelines, you can understand that we think that means approval next year is possible and can happen prior to the season. However, we do not include any revenue from either the 18 to 59 RSV SBLA or 1283 in our 2025 guidance or expectations, and if we were able to deliver those with those priority reviews and approvals, we still wouldn’t include any revenue and that would be an upside.

Reserve return?

Sorry, could you repeat the question, Gena? I missed the sales return part.

Yes, sure - reserve return, could you provide the final reserve return from last winter season, because I know you initially booked over $500 million, and you need to adjust it to see the final numbers, so if you could provide the final numbers, and what is your reserve return assumption so far for this winter season?

Yes, so as I mentioned in my prepared remarks that we released in the quarter about $140 million primarily driven from return reserve being lower than prior estimate. That $500 million-plus went down to, let’s say, $400 million for the prior season. We learned from that and continue to forecast what an anticipated product returns reserve is for this season, and we will continue to monitor it as we look at vaccination rates throughout the entire quarter and what we project into the first quarter of next year.

Thank you.

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

Thank you. Two questions, not 10, but on the combo, I know that you say you’re in discussions with the FDA. Can you just clarify what are the different factors that are contributing to why you have maybe lack of confidence on filing, or I guess not certainty on filing the combo, for example, would there be an infection state that has to be run? I think it’s a little unclear to us on the combo. Then on RSV, I think the market anticipated this was going to be a big market; however, obviously there are a lot of dynamics going on there. Can you maybe comment on whether you think there will be a change to this market, and what would give you confidence that you’re going to actually be a player here, given you’ve already--given your current position now and where your guidance is for 2025? Thank you.

Thank you.

Our next question comes from Tyler Van Buren with TD Cowen. Your line is open.

Yes, and maybe I would just add that, remember, when we sell product, that is not tied to vaccination, so when you look the decline from the third quarter to the fourth quarter, we had an early approval, to Stéphane’s point, so therefore we were better ready to ship more within the third quarter, so that’s what I think you see on a year-over-year basis, what’s happening here.

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

Yes, and on the question of bridging, once the plant is operational, we’ll transition our clinical work to that plant as well, and so effectively all of the programs will include--or many of the programs may include, I should say, that data, so the bridging will be done in stream.

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

Thank you. Our next question comes from Edward Tenthoff with Piper Sandler. Your line is open.

Great, thank you very much. Appreciate all the time and all the detail. Just looking at the orphan disease pipeline, with respect to pivotal trial starts for MMA in the first half and I think also maybe generating some registrational data this year, what do you see as the path forward here in terms of trial design, patient numbers, follow-up? When do you think we could actually see these two data that could lead to the filing here? Thank you.

Thanks Ted. In both cases, we’ll be moving forward, as we said, either presently or very quickly in 2025 in the case of MMA, into the pivotal study design. The answer is a little bit different for both. In the case of MMA, as we’ve discussed previously, we do believe there is a biomarker that can serve as the basis for approval - that’s the subject of our discussions with the FDA, and that biomarker results, as you can imagine, can be achieved somewhat more quickly. In the case of PA, what we’d be looking--because there is not as clear a biomarker, we’ll be looking at event rates, which can take some more time. In any event, it will depend upon the rate of enrollment in those studies and then how quickly we can get to the--you know, ultimately we hope there’s a significant benefit, either with the biomarker or with the event rates from PA. As we’ve previously described at R&D day, we do expect that can happen within the next couple of years, and our goal is to be launching that product in that sort of third window, 2026-plus - both of those products, I should say, in the 2026-plus time horizon. If we approve patients more quickly into those studies, it could be sooner. If it takes longer, it could be a little bit longer. We’ll obviously update as we go forward in how we’re doing in enrollment in those studies.

Great, thanks Steve.

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

Thank you. Our next question comes from Courtney Breen with Bernstein. Your line is open.

Fantastic, thanks so much for the time today. Appreciate getting a question in. The first one that I wanted to ask was just around the INT - obviously you have just initiated this new 009 trial in non-small cell lung cancer that has the chemo combo preceding the INT. There’s a few different reasons as to why you might be doing it--running the trial that way, it could be that you’re being--the current paradigm is falling in the direction of chemo combination, there’s a scientific belief that the INT works well in the post-chemo space, or all just about practical timing for INT preparation. Can you give some context to that particular trial design, and then as we think about expansion of this program more broadly to other tumor areas, what’s primarily gating that? Is that the scientific signal or is that manufacturing capacity for the Phase III development plan?

Thank you for both questions. First in the non-small cell lung cancer context, there has been a move--it’s really an evolving standard of care, so there obviously has been a move from just adjuvant towards neo-adjuvant use of checkpoints, and Keytruda specifically, and there are a number of patients that have a pathologic complete response, clearance of their tumor, they have evidence of that as a result of that neo-adjuvant chemo plus Keytruda. Recognizing that there’s a move towards that standard of care, we also want to confirm the potential for INT to benefit those patients. Obviously you wouldn’t be expecting a substantial benefit on those that have had a pathologic complete response because, fortunately, they do have very good clearance of their tumor, and so the structure of the study is to obviously enrol patients, allow them to get that treatment, and approximately half, you can see about 680, we would expect to not have had that pathologic complete response, and that’s the group that we then randomize and go see whether INT can add on top of adjuvant at that point Keytruda treatment, with further Keytruda. Really, I think the driver there is a view of where we see potential standard of care moving in the lung cancer space towards neo-adjuvant use of Keytruda. There may be other applications, thinking more broadly, where neo-adjuvant treatments start to emerge and we choose to go study the benefit of INT in the neo-adjuvant setting, not just in the adjuvant setting. As far as other indications, the short version is we continue with our partner, Merck to systematically look at all the places that we think that INT can offer a benefit .We aren’t done yet - there are more studies coming. We are pacing ourselves as we stand up those investments, but manufacturing capacity is only one of the considerations. It’s not the primary consideration. To some extent, this is about also just pacing the start of these studies. As you can see, we’re starting to build quite a large Phase II and Phase III program, and we just want to be disciplined about not adding too many at the same time. We will continue, we do continue to discuss with our partner, Merck additional Phase III programs. We will start new ones in the coming year that we haven’t yet announced, but we will pace ourselves both for manufacturing and just simply the ability to execute and the overall scale of that program.

Thank you. Our last question comes from Manos Mastorakis with Deutsche Bank. Your line is open.

Thank you, two questions - Manos Mastorakis from Deutsche Bank on behalf of Emmanuel. If approved, how quickly do you expect the flu market transition to combination flu-COVID, and would that be expected to happen in 2025 already or more of a midterm thing? Secondly, what’s the latest update and perspectives you have on the COVID litigation, in particular GSK’s recent lawsuit? Thank you.