NVAX - NASDAQ

Good morning, and welcome to Novavax' First Quarter 2024 Financial Results and Operational Highlights Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Erika Schultz, Senior Director, Investor Relations. Please go ahead.

Good morning, and thank you all for joining us today to discuss our first quarter 2024 financial results and operational highlights. A press release announcing our results is currently available on our website at novavax.com, and an audio archive of this conference call will be available on our website later today. Please turn to Slide 2. Before we begin with prepared remarks, I need to remind you that this presentation includes forward-looking statements, including information relating to the future of Novavax. Its key strategic priorities, statements related to potential royalties and milestones, operating plans, objectives and prospects, full year 2024 financial guidance, the amount and impact of Novavax' cost reduction plans, its future financial or business performance conditions or strategies, its 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 risks 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 Securities and Exchange Commission available at www.sec.gov and on our website at novavax.com. The forward-looking statements in this presentation speak only as of the original date of this presentation, and we undertake no obligation to uptake -- update or revise any of these statements. Please turn to Slide 3. Joining me today is John Jacobs, our President and CEO, who will discuss our agreement with Sanofi announced this morning. Additionally, John Trizzino, our President and Chief Operating Officer, will provide an update on our commercial activities; and Dr. Filip Dubovsky, President of Research and Development, will discuss our clinical development and pipeline. Finally, Jim Kelly, Chief Financial Officer and Treasurer, will provide an overview of our financial results and implications of the Sanofi partnership. I would now like to hand over the call to John Jacobs. Please turn to Slide 4.

Thank you, Erika, and thank you, everyone, for joining us today. Today, we enter a new and exciting chapter in the history of Novavax. This morning, we announced that we have signed a global co-development and co-commercialization agreement with Sanofi. This agreement is both material and strategically important for Novavax. It is a further validation of our technology platform and provides significant opportunity to drive value creation and benefit global public health. The agreement represents a multibillion-dollar opportunity over time for Novavax. Via this agreement, we generate significant near-term cash flow, a strengthened balance sheet as well as the opportunity to strategically pivot to a new lean operating model, focusing more on our strength in research and development and pipeline expansion to accelerate our growth and generate long-term value for our shareholders. First, the upfront and near-term milestones associated with this agreement are anticipated to equate to approximately $1.3 billion in cash, of which approximately half is expected within 10 days of signing. These cash payments provide us with a significant capital infusion to help us manage our business. And this, in turn, also enables us to remove the going concern status for Novavax. Second, beginning in 2025, it allows us to leverage one of the largest proven global leaders in the vaccine business to commercialize Nuvaxovid in the U.S., U.K. and Europe initially and worldwide over time. Affording hundreds of millions of dollars in potential cost synergies, enabling us to drive toward a new, more lean operating model with total costs anticipated to be well below our prior stated cost reduction targets. And we expect our royalties and milestones from Sanofi's efforts with Nuvaxovid to exceed the value of what our own efforts might have yielded, if we had kept the product ourselves exclusively. By licensing Sanofi to use our Nuvaxovid to develop their own combination flu and COVID products, and to use Matrix-M as a component of other vaccines across their portfolio. We expect to realize substantial additional royalties and milestones valued potentially in the billions of dollars, driven by Sanofi's product development and commercialization efforts over the years and decades to come. The royalties and milestones associated with potential new vaccines, Sanofi may develop using Matrix-M as well as those royalties and milestones anticipated from sales of our COVID-19 vaccine and the development of Sanofi's combination flu COVID and other potential combination vaccines, should help us to sustain cash flow as we invest in our own R&D in an efficient and thoughtful manner for years to come. In fact, we have done all of this, while retaining the ability to broaden and accelerate development of our own wholly owned pipeline. This includes the modification of our planned 2024 pivotal trial for our combination flu and COVID vaccine to now also include the potential to yield pivot results -- for pivotal results for our stand-alone flu vaccine, and we now anticipate readouts for both the combination and our stand-alone flu vaccine in mid-2025. In addition to our late-stage CIC and flu stand-alone programs, we will now be able to assess and contemplate the addition of some new early-stage programs to our pipeline and do so within the cost structure of a new lean operating model. For both our late-stage CIC and stand-alone flu programs and any early-stage programs we may choose to add to our pipeline in the coming quarters, we will be pragmatic, shareholder-focused and market aware about how to bring these assets forward. For example, through partnering, out-licensing co-development, co-commercialization or commercializing on our own. And we would consider commercializing on our own only for the right asset and with the benefit of our learnings from the COVID experience. The key here is that we intend to have multiple organic opportunities from our own pipeline, with optionality on how we decide to optimize value from them. We look forward to providing additional details and updates on our new pipeline and future growth strategy for Novavax in the coming months as we operationalize our partnership with Sanofi. And finally, this transaction further validates both Novavax's product development capability and the extraordinary value of our Matrix-M adjuvant technology, potentially enhancing our future licensing and business development opportunities across our tech platform. In fact, we intend as part of our go-forward strategy to seek additional business development opportunities with our organic pipeline, new pipeline assets we intend to add and our Matrix-M and nanoparticle technology platforms. So in summary, this transaction capitalizes our current business, seeks to increase our future anticipated value from Nuvaxovid, while enabling us to significantly reduce our operating costs and complexity, creates a future stream of royalties and milestones from multiple potential new products to be developed by Sanofi, broadens and accelerates our own development pipeline and enhances our future deal-making capabilities, leveraging Matrix-M our late and early stage pipeline and our product development capabilities. Jim Kelly will now walk you through the financial terms. Jim?

Thank you, John. Please turn to Slide #5. This new agreement with Sanofi provides for a multibillion-dollar potential across upfronts, equity investment, milestone and royalties. The anticipated present value of the royalties on Sanofi's Nuvaxovid and CIC sales are expected to be the largest individual component of value in this transaction. The COVID-19-related terms include the potential for up to approximately $1.3 billion in cash payments and equity investments. Plus Novavax is eligible to receive two royalties on related product sales. In addition, were eligible to receive up to $200 million in milestones plus ongoing royalties for each new vaccine developed utilizing Novavax' Matrix-M adjuvant. For example, if Sanofi develops five products with our Matrix-M each with $1 billion in sales, this would represent hundreds of millions in royalties per year plus up to $1 billion in onetime milestones. During the second quarter of 2024, the initial cash payments include the $500 million upfront and the approximately $70 million equity investment in Novavax stock. Near-term Nuvaxovid COVID-19 milestones of $350 million and CIC milestones of another $350 million should provide important future cash flow to the company. In addition, Novavax is eligible to receive tiered royalties on net sales in each of the COVID-19 related product categories, that enable Novavax' meaningful participation and future economics from the current and future products under this agreement. Please turn to Slide #6. New vaccines developed with Matrix-M by Sanofi, create a broad opportunity to advance this technology and provide Novavax with multiple revenue generation sources. Novavax will support Sanofi as it prepares to advance all programs associated with this agreement, and Novavax will be eligible for cost reimbursement across a host of spend categories. John will now walk you through the first quarter commentary. John?

Thank you, Jim. Please turn to Slide 7. It took a lot of hard work over the past 15 months to get here, and a determined focus on the strategic priorities we identified when I first joined the company. To better position Novavax to execute significant business development opportunities like this partnership with Sanofi. In fact, since early 2023, the management team and I have been making significant progress on our three priorities: Priority one, delivering an updated product for the fall vaccination season, priority two, reducing our rate of spend, managing our cash flow and evolving our scale and structure. And finally, priority three, leveraging our technology platform, our capabilities and our assets to drive additional value beyond Nuvaxovid alone. Importantly, we had to make significant progress on the first two priorities in order to optimize the potential of our third priority. And over the last 15 months by strengthening our balance sheet, reducing significant onetime legacy liabilities, including Gavi, and proving that we could streamline our strain selection process and update our vaccine to align with regulatory requirements, we put Novavax in a position to be able to execute meaningful business development agreements. The Sanofi agreement is strategically important for our company, as it enables a pivot to a new growth strategy, a new lean operating model and a new chapter in the history of Novavax. With that in mind, we have made appropriate adjustments to our priorities for the remainder of 2024. For the remainder of this year, we will be focusing on the following: #1, prioritizing the successful transition of our new partnership with Sanofi. #2, continuing to expand and diversify organic opportunities and create additional value from our technology platform. #3, preparing to initiate an additional cost reduction program to reduce 2025 R&D plus SG&A expenses, net of Sanofi cost reimbursement to below $500 million. And #4, delivering an updated product for the '24 '25 fall vaccination season. As our strategy, vision and new expanded pipeline for the company evolved we intend to share more with you about the new path forward for Novavax. We will spend the next several months analyzing and crystallizing our future pipeline and our strategic focus with the goal of sharing our updated plans for Novavax in more detail towards the end of this year. And now I would like to hand it over to the team to discuss our results from the quarter in more detail, beginning with John Trizzino for our commercial updates. John?

Thank you, John. Please turn to Slide 8. We are very excited about the potential of the Sanofi agreement for our business. And as John mentioned, our first priority is operationalizing the agreement to enable Sanofi to commence co-commercialization activities starting January 1 of next year. This collaboration agreement with Sanofi is a validation of the significant investment made in the Novavax technology platform to date and of the dedicated and passionate effort of the many people that have contributed along the way. While we are steadfast in our belief that our COVID vaccine is the best one approved for use, it has been challenging to transition from being an innovator focused on developing vaccines for infectious diseases to being a commercial business focused on operational execution. Now, partnered with Sanofi, we see very clearly the opportunity to leverage their brand and global infrastructure for the benefit of public health, revenue generation and increased return to our investors. The burden of disease for COVID remains clear and well documented. Vaccination continues to be recommended as the best defense for the prevention of severe disease, hospitalization and death. Advisory committees like the CDC ACIP and other health policy bodies around the globe continue to recognize this need. The COVID virus for now continues to circulate throughout the year, but with concentrated disease burden during the typical winter respiratory disease season from late fall to early spring. The ongoing need for both a COVID and influenza annual seasonal vaccination leads to the public health benefit for a single combination vaccine. A single visit and vaccination creates a convenience that we believe will translate into improved vaccination rates, especially in older adults who are most at risk. Sanofi is well recognized -- Sanofi is the well-recognized leader in influenza vaccines, and this collaboration agreement creates the opportunity for COVID-influenza combination vaccine with their existing licensed product. In parallel with preparing for Sanofi's '25 commercialization activities for the upcoming '24/'25 season, we intend to support our key markets of the U.S., Europe and U.K. but to do so in an increasingly streamlined, targeted and cost-efficient manner during our last season commercializing on our own. Recently, both WHO and EMA recommended the use of a monovalent JN1 lineage COVID-19 vaccine. Novavax plans to be ready to deliver our JN1 protein based vaccine globally this fall, and we have been developing and manufacturing this vaccine candidate as we anticipate the VRBPAC meeting for U.S. strain selection on June 5. Please turn to Slide 9. In the U.S., we intend to build upon our efforts from the '23 season by offering our vaccine in a more competitive, single-dose prefilled syringe presentation and we intend to have product at distribution centers in the U.S. no later than mid-August, and ready for the season start in early September pending FDA release. We expect that the CDC and competitors will do preseason disease awareness campaigns to drive vaccination rates. And we will focus our efforts on building upon our increased healthcare provider awareness of Novavax, which we achieved last season, and we intend to focus our marketing efforts and investment on the retail and 60-plus age group, where we foresee the highest potential for conversion to Novavax's vaccine given their historically higher vaccination rates. In retail, we are having encouraging discussions which increase our optimism that we will have improved retail access for the season. As John mentioned, we have completed the submission of our BLA. While we are pleased with this progress, we have decided in consultation with the FDA to seek emergency use authorization for our updated vaccine, targeting JN1 in order to be available by early September at the start of the season in a prefilled syringe. This pathway has been mapped out together with the FDA to enable an expedited review time frame, and a more straightforward review process. This effort will occur in parallel with the BLA review process, with the goal of having the potential for full BLA approval sometime this year. Though the BLA is indeed important, we intend to achieve BLA approval, the most important factors for a successful campaign are a timely launch at the beginning of the season, broad availability in retail, high levels of awareness, which we already have from last year and a competitive product presentation in a prefilled syringe. We believe we can more effectively achieve these parameters this year by choosing the EUA option in parallel to the BLA pathway. Please turn to Slide 10. With our pandemic error APA complete in Europe, we are entering a commercial and tender market for the first time in the region and are prioritizing our goal of timely delivery of an updated COVID-19 vaccine in several key European countries. In our major APA markets in Australia, New

Thanks, John. Please turn to Slide 12. Today, I want to cover several topics. First, I want to share data on our JN1 candidate before I touch base on our revised CIC and influenza Phase III plans. Then I will show you some preclinical data on our optimized RSV vaccine candidate that we evaluate for future development. Finally, I want to introduce you to two innovative expansions of our technology, mucosal vaccination and the development of a novel nanoparticle format, which we are exploring is an avian H5N1 pandemic vaccine. As John mentioned, these innovations are examples of work we've been doing over the past year, to generate additional value from our technology platform. Please turn to Slide 13 and 14. The World Health Organization and EMA have recommended the JN1 line vaccines for the '24/'25 season. This is a variant we've previously advanced in the commercial development. Here, I'm showing neutralizing responses in nonhuman primates that were vaccinated with XBB.1.5 vaccine and boosted with a single dose of JN1. On the left-hand side, you can see the responses to the JN1 variants were low prior to boosting. On the right-hand side, the responses to JN1 and JN1 drift variants are robust following a boost. These data provide us confidence our vaccine has utility against the currently circulating strains, such as KP2 as well as potentially future proofing our vaccine against other variants that evolve from JN-1. The strain selection will be confirmed by VRBPAC on June 5, and we plan on submitting our string change filing shortly after that. Okay. Let's go to Slide 15 and 16. We've modified our plans for the upcoming Phase III study to include the valuation of a stand-alone seasonal influenza vaccine in addition to our COVID influenza combination vaccine in adults, greater than 6 years of age. As depicted on the right-hand side of the slide, this is planned to be an immunologic noninferiority superiority study with our vaccine compared to age recommended licensed comparators. Although we have previously received supportive regulatory guidance for the stand-alone influenza program, we will reconfirm the acceptability of this design for the flu influenza portion of the study. The study is still on track for the second half of this year and that [indiscernible] for decision-making will be available in mid-'25. Okay. Let's move to Slide 17 and 18. We have optimized our RSV F nanoparticle vaccine antigen with a specific goal of maximizing the breadth of neutralizing responses. Here, I'm showing the immune responses in mice, vaccinated with our RSV antigen with Matrix compared to the licensed GSK vaccine with the ASL1E adjuvant. We used competitive bidding against a panel of monoclonal antibodies, known to bind neutralizing epitopes, including Side 0,2,4,5 and P27. On the left-hand side, our bidding results on our antigen. On the right-hand side are bidding results on the GSK antigen. In both cases, a favorable breadth of response is demonstrated for our vaccine. It's interesting to note, on the right-hand panel that the P27 neutralizing sequence is not present on the GSK antigen. Okay. Let's go to Slide 19, and look at RSV neutralizing responses. Here, I'm showing new responses for our RSV A on the left and RSV B on the right. We have driver 6 increase for RSV A compared to the licensed GSK-vaccine, which represents the difference of [titers] from 3,700 to over 23,000. And for RSV B, a titer difference from 440 to over 1,500. This antigen can be used as a stand-alone vaccine or as part of a broader combination vaccine program. Based on our previous clinical experience with a related construct, we are evaluating whether additional preclinical or toxicology studies are required. Partnering discussions for this antigen are ongoing. Okay, please shift to Slide 20 and 21 to look at our early progress in expanding our core technology into mucosal vaccinations. We've developed an intranasal formulation that includes our PS80 nanoparticle antigen with our Matrix in adjuvant. In this experiment, we explore this technology with our COVID antigen, we've primed these mice with bivalent vaccine containing prototype in BA 5 and boosted them with intramuscular or intranasal XBB.1.5 vaccine formulations. On the far left side, you can see the initial priming sequence induces no XBB.1.5 specific Mucosal IgA antibody. In the middle, after intramuscular boosting, eligible mucosal IgA was detected. However, when the mice were boosted with intranasal vaccine, there was a very large IgA signal. This is important because mucosal IgA is the first line of defense against respiratory viruses and has implications for prevention of infection and potentially impacting transmission. Let's move to Slide 22 for additional characterization of immune response. Here we're displaying XBB.1.5 new responses in the blood on the left and mucosal neutralizing responses on the right. On the left-hand side, unsurprisingly, there was little evidence of SERUM XBB.1.5 neutralizing response after priming with bivalent BA5 vaccine. However, XBB.1.5 responses were increased 27-fold with intramuscular boosting, and surprisingly, intranasal vaccination boosted these central responses over tenfold. When we looked at mucosal [indiscernible] on the right-hand panel, once again, there was no response after priming, but a profound response was seen after intranasal boosting supporting the hypothesis, this approach may have utility and blocking infections. We believe the small rise in mucosal neutralizing responses following intramuscular boosting represents antibody transited from blood compartment. These results are being prepared for publication, and we are evaluating this approach with different antigens in different preclinical models. If these findings are validated in the clinic, this opens the door for a needle-free vaccination, and the potential to block infection and potentially transmission, specifically for respiratory and gastrointestinal infections whose point of entry is through the mucosa. Please turn to Slide 23 and 24 to look at the development of Matrix as a core for a new class of nanoparticles. We've identified transmembrane domains in service in molecular anchors and can link antigens directly into the Matrix adjuvant. On the left-hand, image shows a model and an electronic photomicrograph of a classic PS80 nanoparticle. You can see the antigens decorating the polysorbate core. On the right-hand side, we have the novel matrix antiparticle where the antigens shown in blue are anchored directly into the vertices of the matrix structure. This model is confirmed by the EM image on the right. This new format is larger than the PS80 nanoparticle, and we hypothesize [indiscernible] facilitate allogeneic cognition and phagocytosis. This also increases antigen density with up to 40 to 60 copies per nanoparticle, which may increase activation of antigen processing cells. And finally, linking to antigen at an adjuvant assures co-delivery into a single endosome in antigen processing cells and may increase T cell responses. And this format is amenable to intramuscular and intranasal administration. Okay. Let's go to Slide 25 and with how this performs in nonhuman primates. In this experiment, we used a highly pathogenic avian H5N1 2344b antigen, specifically American wigeon as a model antigen. This is the influenza clade, the devastating wild in domestic birds globally and is spread into our mammalian food chain. Here we're prime resets with our quadrivalent seasonal vaccine to more closely mimic the ammulogic background in humans. We then boosted them with a single dose of H5N1 matrix nanoparticle vaccine intramuscularly or intranasally in measured neutralizing responses. On the left-hand side, a single 60-microgram intramuscular dose boost H5N1 [indiscernible] responses to a very high level in all animals. And on the right, you can see a single intranasal dose results in a 100% seroconversion with a geometric mean titer of 263. I have a marked level of 1 to 40, which has been used in the literature as a level relevant for protection. Single-dose pandemic influenza vaccination has been elusive. So certainly, these results caught our attention. If these results are validated in the clinic, it could lead to a game-changing approach because a single-dose vaccination in a pandemic setting would be much easier to deploy and could have a huge public health impact. We're in discussion with government agencies on the best way to advance these candidates into the clinic, so we can evaluate them and this approach can be validated. Okay. I covered a lot of territory today. As a summary, we're in commercial production of JN1 [indiscernible] vaccine, which has shown good results in preclinical evaluation and our goal is to have this product available at the beginning of the vaccination season. We've expanded our Phase III study to include stand-alone influenza, in addition to our combination vaccine and the study is on track to begin in the second half of this year, consistent with its original timeline. We've optimized our RSV construct and we're evaluating additional work needs to be done before we decide on advancing the candidate into future development. Finally, we developed two different derivatives of our core technology, the ability to vaccinate intranasally, with adjuvanted PS80 nanoparticles which in preclinical models induce mucosal immune response, while boosting serum-neutralizing responses. And finally, we've identified molecular anchors, which can attach Amgen directly on to Matrix, and in nonhuman [primates] prior to the seasonal vaccine, this has resulted in unprecedented immune response with a single dose for H5 pandemic vaccine. Okay, let me hand it over to Jim.

All right. Thank you, Filip. Please turn to Slides 26 and 27. We're focused on improving the financial health and performance of Novavax to enable long-term value creation. Today, we announced the strategically important Sanofi agreement and have removed our going concern disclosure that evidence this progress. I will now share a few of the key themes for the first quarter of 2024, and a look towards full year 2024 and beyond. For the first quarter of 2024, Novavax recorded total revenue of $94 million and significantly improved our balance sheet profile, by reducing current liabilities by $831 million. The Gavi and Fuji Film settlements continue our efforts to address legacy contractual matters. As we continue to transform Novavax into a more lean and agile organization, we reduced our Q1 2024 R&D and SG&A by 50% compared to prior year. As we look to 2024, we are updating our targeted guidance for R&D and SG&A expenses of between $700 million and $750 million, as we continue to resize our organization. For 2025, Novavax is prepared to initiate an additional cost reduction program to reduce R&D plus SG&A expenses, to below $500 million. A portion of which we expect to be reimbursed by Sanofi under today's announced agreement. We ended the first quarter of 2024 with cash and accounts receivable of $570 million, and have over $600 million in potential dose deliveries under our APAs over the next 3 years. With the Sanofi agreement announced today, we have approximately $570 million in cash payments for the second quarter of 2024 that further improved our financial position. Please turn to Slide 28. Turning to a more detailed view of our first quarter 2024 financial results, where I'll provide commentary with specific focus on revenue, COGS and combined R&D and SG&A. For the first quarter of 2024, we recorded total revenue of $94 million compared to $81 million in the same period of 2023. Our product sales of $82 million in the first quarter of 2024 were primarily related to the APA deliveries to Europe, and reflect the successful completion of the European APA agreement. Royalties and other of $12 million for the first quarter of 2024 include license fees and Matrix-M reimbursement under our agreements with Takeda and SK Biosciences. Our cost of sales for the first quarter of 2024 were $59 million as compared to $34 million in the same period of 2023, these periods include $15 million and $25 million, respectively, related to excess obsolete or expired inventory, losses on firm purchase commitments and unutilized manufacturing capacity. As previously noted, for the first quarter of 2024, Novavax's R&D plus SG&A of $175 million reflects a 50% and $180 million reduction from the same period in 2023. Please turn to Slide 29. We're committed to creating a more lean and agile organization to align the company with our market opportunities. To advance that goal. Over the past year, we've reduced our workforce by over 30% compared to the first quarter of 2023. For 2024, we're updating our targeted combined R&D and SG&A expense guidance to $700 million to $750 million our prior stated target of $700 million to $800 million, as we continue to push to find savings in our cost structure. Novavax is prepared to initiate an additional cost reduction program to reduce 2025, R&D and SG&A expenses to below $500 million as noted, a portion of which is expected to be reimbursed by Sanofi under the agreement. In addition, we're prioritizing improvements to long-term supply chain efficiency, including exploring the sale of our Czech Republic manufacturing facility. Please turn to Slide 30, where I'd like to discuss progress on our balance sheet and liability management. Since December 31, 2022, we have reduced the company's current liabilities by $1.7 billion, including an additional $831 million reduction in the first quarter of 2024, and primarily driven by the Gavi and Fuji settlements. Please turn to Slide 31. Now turning to financial guidance with an emphasis on our combined revenue and initial Sanofi payments that totaled $970 million to $1.17 billion. This reflects a material improvement to our sources of cash flow for 2024. Beginning with the $570 million of initial payments under the Sanofi agreement, they'll be received in the second quarter of 2024, and reflect just the beginning of a potential multibillion economics across upfront equity investments, milestones and royalties under this agreement. For 2024, we are updating our total revenue and now expect to achieve total revenue of $400 million to $600 million. Our projected total revenue includes $150 million to $250 million of APA sales based on expected dose delivery schedules, and non-APA revenue of $250 million to $350 million from a combination of our commercial market product sales plus royalties and other revenues from our partner-related activities. The $400 million reduction to our full year 2024 expected product sales guidance reflects the following: $100 million from the Canada APA as we await the Canadian order for 2024. It's our intent to add this back when we have clarity on this order. $250 million related to Australia, New

Thank you, Jim, and thank you, everyone, for joining us today. Before we take your questions, I would like to reiterate our key priorities for the remainder of this year. Priority one, prioritizing the successful transition of our new partnership with Sanofi. Priority two, continuing to expand and diversify our organic opportunities and create additional value via our technology platform. Priority three, preparing to initiate an additional cost reduction program to reduce 2025 R&D plus SG&A expenses, net of Sanofi cost reimbursement to below $500 million and priority four, delivering our updated product for the '24-'25 fall vaccination season. I would now like to turn the call over to our operator for Q&A. Operator?

[Operator Instructions] Your first question comes from Roger Song from Jefferies.

Congrats for the Sanofi deal. A couple of questions from us. Maybe start from the Sanofi deal. Can you give us a little bit clarity around the reimbursement for the co-development, commercial and regulatory costs, particularly helpful you already give us the guidance for 2024 and 2025. And how should we think about the cost moving forward after 2025?

Yes, Roger, good question. Roger, I'll have Jim Kelly address that, but we believe the deal affords us hundreds of millions of dollars in potential cost synergy. But Jim, why don't you take the question?

Yes, certainly. And thank you, Roger. The categories of cost reimbursement under this agreement include R&D activities that Novavax may do under the joint budget, to support the COVID-19 program from 2025 forward. And that includes, for example, the pediatric studies that are ongoing and select medical affair activities. An additional category of reimbursement will include activities related to the technology transfer, this is going to be exceptionally important as we support Sanofi as they ramp up their commercial capabilities. In addition to that, we are entering into supply agreements for both COVID-19 supply in the coming years, plus for specifically Matrix-M adjuvant. And so we're eligible for reimbursement across all those. As I look specifically, and I'll put the supply to the side, and I look to potential reimbursement in 2025 with respect to R&D activities and track transfer, we believe that reimbursement amount could be up to $100 million, and so I think, $75 million to $100 million. And then as I described driving our R&D plus SG&A to below $500 million you then subtract that reimbursement. And now we're talking about, hey, we're targeting $400 million or so, on a go-forward basis. You're watching the continued evolution of our cost structure. We know we're nimble. We know we act with urgency. This is our path.

Excellent. That's very, very helpful. Thank you for color. And then in terms of the milestone payment, I see you laid out the milestone payments for the COVID side. Just curious about the COVID [flu] combination side, how much near term milestone we should look at all those are back-ended milestone?

Go ahead, Jim.

Yes. Listen, we're exceptionally excited by the potential for Sanofi to advance the combination of COVID vaccine along with their market-leading flu vaccine. Those milestones, the $350 million are, in fact, across both product development and approval milestones. So [indiscernible] non-sales base, but rather related to the near-term development and approval of those programs. We're not offering additional detail at this time, but it is certainly a priority of the agreement.

And Roger, it's John. Just to build upon Jim's response to your good question. I want to make sure that everyone understands that this deal is not a $1.2 billion or $1.3 billion deal. This is a multibillion-dollar deal. The $1.3 billion represents the initial upfront, the $70 million equity investment in the company and the near-term milestones associated with our activities related to Nuvaxovid and Sanofi developing their own combo vaccine. But importantly, the majority of what we see as the future value of this deal according to our estimates, come from the anticipated royalties that will be ongoing from Sanofi's ability to sell. Our COVID vaccine and their own combination or combination vaccines, plural, using our Nuvaxovid and through the deal, they have the opportunity to develop their own flu COVID combination, but also other combination products, including additional antigens, each of which we get royalties for. And in addition, there's another component beyond that, which is their access to our Matrix-M adjuvant platform. which allows them to develop multiple products using Matrix-M. Each of the products they may develop using our adjuvant technology platform has up to $200 million of potential onetime miles, as well as ongoing royalties, a flat royalty rate for years to come. When you look at the entirety of the agreement between the upfront payments and the near-term milestones, which are the $1.3 billion that we noted, including the equity investment. And then you consider the immensity of the potential royalties when we partner with the power of a company like Sanofi that's a world leader in vaccine development and commercialization with a leading flu franchise, plus what they could do with our Matrix M over time. We truly believe this is a multibillion-dollar opportunity. So I want to make sure people don't misunderstand the potential of this partnership and what it might do for the future of Novavax and for global public health.

Excellent, that's very helpful. I understand the milestone payment for the COVID combination is contingent upon the development approval, not the sales milestone payment. Got it. Okay. And then maybe just lastly for the existing APA understanding you are reducing to [indiscernible] $600 million. I just want to confirm that's already post negotiation with different parties of your partners, compared to the last time, maybe around $1 billion? And then the second part of the question is for the outstanding APA given the partnership with Sanofi, who's going to book the sales or Novavax will only get the royalty from the APA?

All right. So looking to John Trizzino, maybe talk a little bit about the status of our APAs, but I'll just kind of reiterate, kind of bridging what the pieces to the change in our revenue guidance are. Emphasizing that specifically the $350 million related to APAs -- we're continuing active dialogue with these APAs have been great partners. The pieces there were, we took $100 million related to Canada and we've placed it to the side while we await that order. It just seemed prudent at this time to not have it in our guidance. While we await their order for the upcoming season, our intent is, of course, to add it back once we have clarity. And then when it comes to the $250 million across Australia, New

Yes. And Roger, just to build upon Jim's answer, I think you asked about the $600 million total go forward. And I think Jim notes in his commentary that, that did not include deferred revenue, from Canadian prepayments in the past. So you might have been looking at that and thinking it could have been higher, but we excluded deferred revenue, which is an accounting matter and you looked at the $600 million. I believe you asked about -- and we can have Jim further clarify if needed, Roger. You also asked about what happens if I heard you correctly, as the APAs wind down when it relates to Sanofi. And right now in our commentary, you heard us say that Sanofi will take commercialization on in 2025 for the U.S., Europe, U.K. and then over time, the rest of the globe. So we're maintaining responsibility to manage these APAs through their fruition in 2026, and we take that responsibility seriously and intend to bring forward the majority of value in the remaining APAs, albeit it may be spread out over time to better meet global market demand. But our future is not about the APA business. So as those APAs wind down, it's the final chapter in the legacy of the pandemic, we moved to a bright and exciting future for Novavax. And when I first got here, Roger, the APA value in our business was 100% of our business opportunity. It was the business model. It was over $2 billion. We've pulled down roughly 2/3 of that value. In the last 15 months, we have roughly 1/3 left, we intend to optimize that between now and the end of 2026, and we're looking forward to a bright future. So as those APAs wind down, it's our intention to have those markets offered to Sanofi so they can begin commercializing our Nuvaxovid vaccine and the other products they may develop in those markets as APAs wrap up. I hope that answers your question.

Your next question comes from Eric Joseph from JPMorgan.

My congrats on the deal. What I'm hoping to do is just get a better -- a bit of a better understanding of the strategic positioning of your Covid-flu program versus Sanofi's Covid-flu ambitions, right? Would you be targeting different market segments? And I'm also curious on whether you see opportunities for your own flu stand-alone, and maybe as a follow-up to that, can you talk about sort of what work Sanofi has done on the feasibility of a Nuvaxovid Fluzone Quad combination or Fluzone HD combo?

Eric, for competitive reasons, we're not going to get into details on specific strategies around our pipeline assets. But what I can say to address your question is we're very excited that we've been able to double our shots on goal in our late-stage program, by adjusting our original CIC clinical trial, as Filip described today to include a stand-alone flu vaccine. And Filip shared some exciting data on H5N1 flu, and has previously shared positive immunogenicity and other data results from our prior flu work. So we're very excited that we have two potentially registration-worthy vaccine assets, this time next year, should we succeed with that clinical program. And as I said before, our strategy is to consider optionality on how we would monetize those and bring them forward should we have success. And that could include additional partnering and business development, out-licensing to other organizations who would like to see those vaccines, creating additional deals of this nature that we have with Sanofi or deciding to go it alone. What we'll do is allow the data to feed that strategy, Eric, to make sure we see how those cards overturn by mid next year, and that will guide further strategic thinking on the assets. What we're excited about is the value of our technology platform, and that the Sanofi deal has further validated the immense value that Matrix-M and our nanoparticle technology have to offer, and we intend to keep optimizing that. And in addition, what you see is we're expanding our portfolio with some early stage work, exploring RSV, et cetera. So hopefully, that addresses your question. I'd rather not comment on what Sanofi may be thinking, or why they came to the conclusion that this is such an exciting platform to partner with, but we're not surprised because we know the value our technology can offer. And I'll leave it there for now.

Your next question comes from Alec Stranahan from Bank of America.

Congrats on the deal. This is John on for Alex. Probably just some clarification questions for us. I think the first one, for the $350 million in milestones for activities related to Nuvaxovid. What are the potential milestones in the upcoming like a year or 2 that we could see for your company to receive? That's the first question. And secondly, for marketing and branding, in terms of future commercialization of Sanofi branded products. So like how would that work? Could you maybe shed some light on the branding message in the future?

John, do you want to take that question?

Yes. I'll take the second one first, right, which is talking about what the opportunity is in the marketplace. So as John said, we can't comment on exactly what the marketing and sales strategies are. But I think it's good to understand what the marketplace looks like today, and how the combination of our COVID vaccine with their flu vaccine could have profound opportunities in the market, as we said, both from a public health standpoint, and revenue generation. Understanding that Sanofi is the market leader in flu vaccinations in the U.S. around the globe. There's a clear need for a combination vaccine. Any market assessment for combo vaccine would include what we would refer to as the cannibalization of the flu market, the leveraging of the flu market for the benefit of uptake of COVID vaccination in that combination format. So there's a significant opportunity here with the market leader to identify what that opportunity is, and to expand vaccination rates for both COVID and flu by virtue of the combo, the vaccine. As we're building towards that, obviously, their position in the marketplace from a co-commercialization standpoint would be critical in helping us leverage the Sanofi brand, leverage their infrastructure, leverage their deep reach into the vaccine market and their confidence in the strength and safety and efficacy of that product, I think, says volumes about what the potential is. And we see much more market -- significant market share and vaccination rate increase as a result of this relationship.

And then I'm happy to take the first question regarding the breakdown and timing of the $350 million in future milestones. So on Slide #5, we mapped it out. the expectation is that these are all near-term activities over the next 12 to 24 months. certainly, the COVID-19 manufacturing tech transfer may take a little bit longer as we look at these, but the other ones are certainly -- we're not, at this time, providing more timing on that beyond that, they're all important strategic activities that are priorities.

And Eric, as I said earlier, the majority of value we anticipate from this deal goes well beyond the initial $1.2 billion or $1.3 billion, to ongoing royalties of anticipated sales that Sanofi will have for our Nuvaxovid and their own combinations product. And then in addition to that, anything they may develop with Matrix-M, each individual new Matrix-M product eligible for up to $200 million in additional onetime milestones and ongoing flat royalties. So I think it's very important to understand the different pieces of value in this deal, and why we believe it has the potential to be a multibillion dollar deal for Novavax. Thank you.

And your next question comes from Mayank Mamtani from B. Riley Securities.

Congrats on this landmark deal. So glad to hear the BLA is being -- is already submitted. Is there a PDUFA date granted yet? That's my quick follow-up to the prior question. And then with everything in place now, the BLA plan and the FDA EUA, some pharmacy contracting, preferred [indiscernible] looks like on plan. I was just curious in your non-APA revenue guidance, which I assume is royalty revenue focused. Could you comment on what that market share assumption might be, in that $250 million to $350 million that you have in a footnote? And then I have a couple of follow-ups.

Yes, John, why don't you take the BLA question first. Yes.

Yes. Mayank, there's a couple of pieces to the question there. So first of all, as you all know, we have been intending and have accomplished in fact, the submission of the BLA to FDA. But there was a couple of steps involved with that. So it was the initial approval of the BLA for the XBB strain that was under emergency use authorization last year. We were then going to be adding the prefilled syringe and the strain change into that BLA submission, and having that all tied up in a nice bow in front of the season, right? While that strategy was communicated to the FDA, and it was very thoughtful about the ability for that to get us to the market on time. Reassessing that we in collaboration and conversations with FDA, we felt like if we focused on the strain change and we focused on the prefilled syringe, authorization that the EUA pathway would be the best way to do that, instead of the more formal BLA path. So as I said in the remarks, we're going to be pursuing in a parallel path. This parallel pathway ensures our timeliness to the marketplace. And I think that's most critical. The product is authorized for use. There are no restrictions in how we communicate the benefits of this vaccine. We're going to have inventory in our 3PL distribution center in mid-August. As soon as authorization is granted, we're going to be in the market, and I think that's the most critical component of that strategy.

And Mayank, as we said in our comments, and I'll hand it back to John on your market share question, and maybe, John, you could take that as the potential we see in the U.S. marketplace, assuming we are indeed staying on track, which we are now, with our prefilled syringe in a time we launch the season. Because we -- Mayank, we're excited about the opportunity to perform significantly better than we did last season in the U.S. market. But let's address the PDUFA date question. We will get a PDUFA date from FDA once they formally accept our file. We have completed that file and are waiting for that formal acceptance. John, go ahead on the market share question.

Yes. So the -- yes, the PDUFA date question is part of yet another element of why the timing for EUA and BLA was kind of critical balancing act here. While the FDA could act more quickly if they so desired, the PDUFA data is not the ultimate -- they don't have to fill to the PDUFA date, but it just streamline the activities in a significant way. As far as market share is concerned, again, the critical elements; the new strain, prefilled syringe, on time to the market, awareness of Novavax access, some awareness and access to critical elements. We think that there's a significant opportunity in the U.S. market, and we're going to see a dramatic shift from where we were last year. As you recall, in the '23 season, we relate to the market by almost a full 4 to 5 weeks, and almost 50% of the COVID market had been administered by that time. And we were also in a 5-dose presentation. So a dramatic shift in positioning for us. And so I think there will be well established and set up for the '24 season.

Very helpful. Makes sense. And then on the Phase III CIC trial design, obviously, awesome to see the stand-alone [indiscernible]. I was just curious since you already have control data from a Phase III study with NanoFlu, and I don't know if this candidate is the same as NanoFlu, but could you just talk about what the key immunogenicity objectives are being agreed upon with the FDA on the different strains and how noninferiority or superiority will have to be relative to the three arms that you're using?

Yes, Filip, why don't you take that one?

Yes. So you're right. We've kind of tried this ground before. And the real difference in this is twofold. One of them is a specific age population we're targeting. because we think that's where the medical use the greatest and is also the most lucrative market in the U.S. at least. And the second one is the competitors. So the competitors we're choosing are going to position us to have commercial success going into the future. And I'm not going to give any more details about the specific criteria used to establish superiority or non-inferiority but certainly the non-inferiority criteria that's also well to ground, which many other sponsors have used in the past.

Understood. And lastly, I don't know if it's too early to comment, but investors care about profitability because you guys do have a real business. So if you could talk about your expectations for breakeven given OpEx ramp down, should it continue into next year. But then obviously, you're looking to build a broad respiratory pipeline infrastructure long term. How should we think about that?

Thank you, Mayank. Go ahead, Jim. And then we'll need to move on to the next set of questions. Go ahead, Jim.

All right. Guiding principle one. We're building an enterprise towards cash flow positive and value creation. One of the things you heard John mention earlier is, we believe that the economics and cash flow under this agreement with Sanofi across this portfolio is, in fact, superior to the cash flow we might have been able to drive to ourselves. You are hearing that we are creating and driving to an important value creation platform, to increase shareholder value. And so we will continue to give you updates on how our business model evolves to deliver against that guiding principle.

Your next question comes from Brendan Smith from TD Cowen.

Huge, huge congrats. It's really great to see. Maybe just a quick one from us first. Apologies if I missed this, but we've been hearing a little bit from some of the COVID competitors that FDA might actually be considering authorization the updated boosters even earlier this year, possibly for August. I wanted to see if that's been part of your conversation, do you think that would impact any of your timing or launch capabilities. And then honestly, just stepping back maybe to the broader opportunity now. I wanted to get your thoughts on strategy and what you're thinking -- how you're thinking about each of these other non-COVID non flu areas for you, namely like what strong you were and how you're thinking about where to go first maybe what makes sense for Novavax alone versus part of the collaboration.

Brendan, excellent questions. I'll take the second question and then hand it over to John Trizzino and Filip to address your question about strain timing and launch timing for the season. So when it comes to strategy, we're going to continue to crystallize our future pipeline and organic growth strategy from our own tech platform in the coming months and look forward to sharing more detail with you. What we were so excited about sharing with you today was the new science that Filip and his team have been working on new data and approaches to leverage our technology in different ways for months and months now, and we unveiled some of that today to share with the investor community. We're still working through the best way to optimize some of those assets, and we're also considering additional early-stage assets that we can work with in our pipeline, and we intend to do so all within the new lean operating model that Jim Kelly started to outline before in his prepared comments and the questions he answered. So more to come on that. We look forward to sharing more details with you as our thoughts crystallize further, and we're ready to share them. So why don't I hand it over to John Trizzino and Filip to answer your first question.

Right. So you know that the EMA and the double [indiscernible] have already designated a strain, and we aren't expecting the strain to be designated from the FDA until early June. And we've been in discussions with all those agencies for on a continuous basis. Right now, what we stated is that we're going to be submitting our supplemental filing immediately after VRBPAC. And I think that John has mentioned before, we anticipate having product available in mid-August. Now none of that matters as much as when the season is -- doesn't get to start by the FDA and by the CDC. So that's really what we're targeting. We feel like we're in a good position to be able to achieve really whatever time frames the season starts. And John?

I think the variability in there is they're reviewing three files simultaneously, so the FDA has a bit of work to do. I think they've already signaled that they're going to have a formal kind of campaign kick off, post the Labor Day holiday in the U.S. and there's going to be a readiness in front of that. As we said, we're going to have product availability in the warehouse. It might even be queued up at the distributors or even an staging, awaiting that campaign to kick off. But I think the timing is -- it makes a lot of sense, right? We're coming out of the summer vacation period. We're coming back to school, back to work, the CDC's campaign, the other competitors' campaigns will begin kicking in that September 1 -- 1st week in September time frame. And so we're synchronized around that.

Yes. And finally, Brendan, and we'll take final questions next. But finally, to build on John's point earlier, that's another reason for the dual pathway for regulatory authorizations this year, the BLA and the EUA John mentioned because it gives us a chance to have -- to be more nimble and more quick through the EUA pathway with our prefilled syringe and the updated strains fall. We believe we'll be ready and we're excited about the opportunity in the U.S. this fall. One last comment when you asked about portfolio, I just want to make sure everyone is clear, that we have a wholly owned independent portfolio and that our combination influenza COVID vaccine is completely ours and completely independent from the vaccine that Sanofi will develop in their pipeline, using our Nuvaxovid. Just want to make sure that, that's clear to everybody. And we'll take a final questions, Erika, from the final analyst.

Your next question comes from Vernon Bernardino from H.C. Wainwright.

Congratulations from me also. I think one thing that needs to be mentioned is, I think you've found a great partner because you both are advancing protein-based vaccines. I think that's nothing to be recognized. Question I have, just like other analysts and what we tend to do is a 3-part question, but maybe it's just only two now. Regarding the combination vaccine, is there any consideration as far as an [indiscernible] that you'll need to have a BLA approved flu vaccine or Covid vaccine for them to actually progress the work on a combination vaccine, that includes their quadrivalent flu vaccine. And then as a follow-up to that, I was just wondering, obviously, the vaccine does not have Matrix-M. I was wondering if you could remind us the comparison of the [indiscernible] of their quadrivalent versus yours [Fluvax], for example. And with their potential to add Matrix-M to their quadrivalent, what kind of expectancy enhancement do you think they could actually achieve?

Yes. Vernon, I'll hand the question over to Filip. Excellent questions. We're not going to comment on Sanofi's particular technology platform. But Filip, do you want to address the questions about the BLA?

Yes. Their regulatory path will really involve a stand-alone BLA. So in that regard, it doesn't really rely on our regulatory process with Nuvaxovid alone. So, they're going to put together a package, which has to show that their combination of their flu vaccine plus Nuvaxovid is safe and efficacious. And the approach they take, is it going to be really [up] for them to define and to get approval with the regulators.

Perfect. And you won't be able to comment on what you think the addition of metric ton to Sanofi's flu quadrivalent could be?

No, we're not going to comment on that today, Vernon.

Okay. Congratulations.

Thank you, Vernon and one comment to thank you for asking. And importantly, again, we don't want anyone to walk away without total clarity that this deal has tremendous value, multibillion-dollar potential deal for Novavax. Including the upfront payments of the $1.3 billion and then well beyond that anticipated royalties of significant value, we think, even greater value than those upfront payments. And then on top of that, to your point, Vernon, what they could do with Matrix-M, and we think there's immense potential with Sanofi as a powerhouse in vaccine development and commercialization, and we're very excited about some of the concepts and ideas they may be contemplating about what to do with Matrix-M. And with each new Matrix-M product they would choose to bring forward should they do so. We have the potential for up to $200 million in onetime milestones, and ongoing flat royalty for years to come. So those pieces of value are absolutely critical, and that's what makes this deal well beyond the upfront milestones and payments that everyone has been talking about -- a multibillion-dollar deal we feel for Novavax. Thank you so much, everyone, for your questions. Erika, I'll turn it back to you and then the operator to close.

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

No. Thank you, everyone. Thank you for joining us today. We appreciate your time. We'll keep working with humility, diligence and all of our efforts to return value to our loyal shareholders. And I want to thank all of our employees at Novavax for their time, energy and effort to get us to this next stage in the beginning of a new chapter for the future of our company. Thank you, everyone, for joining us today.