Moderna Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 10 speakers on the call.

Operator

Morning. My name is Kevin, and welcome to Moderna's Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. Following the formal remarks, we will open the call up for your questions. Please be advised, today's call is being recorded.

Operator

At this time, I'd like to turn the call over to Lavina Talukdar, Head of Investor Relations at Moderna. Please proceed.

Speaker 1

Thank you, Kevin. Good morning, everyone, and thank you for joining us on today's call to discuss Moderna's Q3 2023 financial results and business updates. You can access the press release issued this morning as well as the slides that we'll be reviewing by going to the Investors section of our website. On today's call are Stephane Bancel, our Chief Executive Officer Stephen Hogue, our President Arpa Guray, our Chief Commercial Officer and Jamie Mach, our Chief Financial Officer. Before we begin, please note that this conference call will include forward looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 1

Please see Slide 2 of the accompanying presentation and our SEC filings for important risk factors that could cause our actual performance and results to differ materially from those expressed or implied in these forward looking statements. With that, I'll turn it over to Stephane.

Speaker 2

Thank you, Lavina. Good morning or good afternoon, everyone. Thank you for joining us today. I will start with a quick review of our business for the Q3. Arpa will then give you an update Our commercial progress and plans, Jimmy will present our financial results and will explain in detail The one time charges we announced this morning in our press release, given we're going to review our clinical programs And I will share our key priorities for 2024 2025 to mid term Moderna to sales growth and profitability.

Speaker 2

We delivered $1,800,000,000 in spite of sales of COVID vaccine in the Q1. Based on trends we are seeing in the U. S. COVID market in recent weeks, we expect our sales for 2023 to be at least $6,000,000,000 We'll be preparing for the 2023 full COVID launch throughout the year because the U. S.

Speaker 2

Market was pivoting from a pandemic government purchase market to commercial markets. I am very pleased to report that according to AKUVIA market data, We have a market share in the U. S. Of 45% season to date compared to 36% for 2022. As far as I will show you, we even achieved a 51% market share last week in the U.

Speaker 2

S. This commercial performance in the U. S. Market shows that Moderna can compete commercially with large established players. That will prove important as we launch RSV 2024, a combo of flu COVID in 2025.

Speaker 2

On the cost side of the company, we informed you at R and D Day that it was important for us to resize our manufacturing footprint As the world has moved from a pandemic to an endemic setting, I am pleased that our manufacturing And finance team were able to move fast and recycle manufacturing so that we can go back to 75%, 80% gross margin levels. This reciting resulted in a charge of $1,600,000,000 which Jamie will explain in detail in this section. Now let me turn over to Arpa to walk you through our progress in the U. S. Markets.

Speaker 1

Thank you, Stephane, and good morning or good afternoon to everyone. Today, I will provide an update on our Q3 performance, our U. S. Commercial launch progress and our preparation for RSV launch next year. Our total sales in the 3rd quarter came in at 1 point $800,000,000 in international sales and $900,000,000 in U.

Speaker 1

S. Sales. Total sales for the 1st 3 quarters of the year were $3,900,000,000 Turning now to our expectations for the 4th quarter and full year 2023 outlook. In our international business, we expect an additional $1,100,000,000 in sales. These sales are based on government contracts and once vaccine doses are shipped and accepted by the customer, they are not returnable.

Speaker 1

More than half of these sales have already shipped in the 4th quarter. In the U. S, we expect at least $1,000,000,000 in sales in the 4th quarter, Which would bring U. S. Sales to approximately $2,000,000,000 for the second half of twenty twenty three.

Speaker 1

This assumes approximately 50,000,000 doses administered in the U. S, which would be similar to the fall season of 2022. With the $3,900,000,000 in sales recorded as of the end of the third quarter, expected 4th quarter sales of 1 point And at least $1,000,000,000 in the U. S, our updated sales outlook for 2023 is at least $6,000,000,000 Now turning to the U. S.

Speaker 1

Launch. The data shown here are from IQVIA. As a reminder, QVM data only captures the retail channel in the U. S, which includes retail pharmacies and long term care. I'm first going to share what our weekly market share trends look like and then discuss our cumulative share since launch and how it compares to last year.

Speaker 1

On the 5th week post launch for the week ending October 20, what you can see on the slide here is that Moderna's market share Is 51%. As we look over the season to date, Moderna's cumulative market share for this season Is now 45%, which is higher than the 36% market share we had in 2022. As Stephane mentioned, this progress demonstrates our ability to compete effectively in the commercial endemic market. Turning now to Slide 8, which shows cumulative vaccinations in the U. S.

Speaker 1

Retail pharmacy channel. This year, COVID vaccines were launched 2 weeks later than in 2022. As a result, we analyze the data on a launch adjusted basis as shown in the graph on the slide. To do this, we look at the data based on the number of weeks post launch rather than simply on a calendar basis. This helps us compare vaccines uptake in 2023 versus 2022.

Speaker 1

On the graph, the blue line represents Cumulative vaccinations post launch in 2022 and the red line represents cumulative vaccinations post launch this year. And on a launch adjusted basis, the total market is tracking ahead of last year's vaccination levels, both on a weekly basis, But also on a cumulative basis. As a reminder, the retail channel is typically the largest segment, So these trends in the 1st 5 weeks are encouraging given the later launch and slightly shorter season in 2023. Let's now turn to look at the channel mix in the market on Slide 9. In 2023, we expect retail and nonretail mix to evolve as the season progresses.

Speaker 1

The nonretail segment includes independent networks, health systems, U. S. Government entities, clinics and other providers. Last year, this non retail segment made up approximately 16,000,000 doses in the season or 33% of the total market. The gray line on the graph chart CDC reported vaccinations, which capture both retail and non retail channels in 2022.

Speaker 1

The blue line is vaccinations at retail pharmacies as reported by IQVIA in 2022. The difference between these two lines represents the nonretail segment. Looking at the data on the graph, You can see that the retail channel captures the majority of vaccinations early in the season. This can be seen in the narrow spread between the CDC and IQVIA data Represented by the gray and blue lines, respectively. Now if you look in the 7th week of launch in 2022, The current week that we are in, in 2023, you can see that the slope of the non retail channel is increasing.

Speaker 1

We know that distributors this year have recently increased shipments to the non retail channel and as such, we expect non retail as a percentage of market to grow between now year end. Importantly, we expect our market share to be consistent across channels And higher in 2023 than in 2022. We are committed to focus on public health efforts to increase vaccination rates. In the United States, we are taking a multi pronged approach to educate all stakeholders and increase the urgency to get vaccinated. Across the medical community, pharmacies and clinics and advocacy groups, We are providing patient education resources to help our partners encourage their patients to get their COVID vaccine this fall.

Speaker 1

Earlier this week, we also launched our branded direct to consumer campaign, both on TV as well as across digital channels. For the remainder of the year, we will be amplifying education on the need for vaccination prior to gatherings, particularly with at risk populations such as families and traveling during the holiday season. We are also launching a focused education effort for consumers who are infected with COVID this summer on the importance of getting vaccinated in November December. To summarize our COVID outlook, we expect at least $6,000,000,000 of sales this year Based on the U. S.

Speaker 1

Vaccination trends that signal a market of at least 50,000,000 dose load. Moderna's share, Both in retail and non retail is expected to be consistent across channels and higher than in 2022. Vaccine administrations in the retail channel are tracking ahead of last year on a launch adjusted basis, Signaling strong early consumer demand. Last year, only about 55% of COVID vaccinations were given by the end of October with an additional 23,000,000 vaccinations given in November December.

Speaker 3

We

Speaker 1

expect the non retail channel to increase as a percentage of the market, which will provide additional sites of vaccination for consumers To allow for a strong November December. This year, given the later launch of vaccines, the non retail channels Are just now beginning their vaccination campaigns. To continue the momentum from our launch and supplement our customers' efforts, We will be amplifying our marketing campaigns in November December. Let me now turn to the upcoming RSV launch in 20 24. We believe we have a best in class product profile that can make a difference both to patients, but also to our customers.

Speaker 1

Our clinical profile shows strong vaccine efficacy. We have a well established safety and tolerability profile That leverages the same mRNA technology that has been delivered in over 1,000,000,000 COVID vaccines. Additionally, we have not seen any cases of GBS in our Phase 3 trial. An important differentiator for our customers Is that we will be the only company with ready to use pre filled syringes, which are preferred by pharmacists and by clinicians. We continue to expect a 2024 launch of our RSV vaccine in the U.

Speaker 1

S. And are also preparing for launches in several international markets. We're encouraged by the recent RSV launches in the market this year, Beating expectations due to robust consumer awareness and demand. And we believe that we are well positioned for our launch in 20 Our strong clinical profile and ready to use prefilled syringes are key competitive differentiators. My team and I are particularly excited about our ready to use prefilled syringes given the robust demand for our COVID prefilled syringes Paul?

Speaker 1

The majority of RSV vaccines in the U. S. Will be given in the pharmacy setting. And given the ongoing pharmacy labor shortages, our ready to use presentation will save time and also reduce administration errors. We will be the only company with a one step administration compared to competitive products, which require multiple preparation steps By pharmacists and clinicians.

Speaker 1

We are very excited for the launch of our RSV vaccine given the strong product profile. And the commercial team is well positioned to bring our RSV vaccine, our second respiratory vaccine to market. I will now turn it over to Jamie to provide an update on our financials.

Speaker 3

Thanks, Elba, and hello, everyone. Today, I will review our financial performance for the Q3 and provide an updated framework for our full year 2023 financial outlook. Additionally, given we know it's top of mind for investors, we wanted to provide our early thoughts on 2024 and how we're approaching the next couple of years. Starting on Slide 15. Total net product sales for the quarter were $1,800,000,000 down 44% year over year, Gooded by lower sales volume and partially offset by a higher average selling price.

Speaker 3

Product sales were almost Evenly distributed between the U. S. Market and the rest of the world. We initiated product shipments to customers in mid September for the fall booster season, following the authorization of our updated COVID-nineteen vaccine. Cost of sales for the Q3 of 2023 was $2,200,000,000 compared to $1,100,000,000 in the prior year.

Speaker 3

I will provide detailed commentary on the following slides. Research and development expenses were $1,200,000,000 which increased by 41% versus the prior year. This increase was driven by our Expanded and maturing development pipeline with 6 products now in Phase 3 studies or pending approval. Selling, general and administrative expenses were $442,000,000 reflecting an increase of 59% year over year. The growth in spending was primarily driven by the build out of our commercial activities and in particular, our launch in the U.

Speaker 3

S. Commercial market. The income tax provision in Q3 was $1,700,000,000 as we reported a valuation allowance against deferred tax assets of $1,700,000,000 Under GAAP accounting rules, we are required to take a reserve also referred to as a valuation allowance for deferred tax assets When the current year and cumulative income projection for the next 3 years is in a loss position. These losses Indicate our deferred tax assets may not be fully realized. It's important to note, future income from products not yet approved by regulators are excluded from these income projections, which restricts us to just our COVID vaccine and it does not include expected future launches.

Speaker 3

In combination with our updated endemic COVID forecast, we determined it was appropriate to record a valuation allowance for our deferred tax assets. This valuation allowance did not impact cash flows nor future returns nor the company's ability to utilize deferred tax assets in future periods. Net loss for the period was $3,600,000,000 compared to net income of $1,000,000,000 last year. Diluted loss per share was $9.53 compared to diluted earnings per share of $2.53 in 2022. Finally, we ended the 3rd quarter with $12,800,000 in cash And investments, the decline versus prior quarter was driven by our operating loss and sales to be collected in Q4.

Speaker 3

Now let me come back to cost of sales on Slide 16. We now expect full year cost of sales of $5,000,000,000 Driven by $1,500,000,000 of unit driven expenses, which also includes royalties and $3,500,000,000 The inventory write downs and charges related to CMO purchase commitments, cancellation fees and wind down costs. As Stephane previously highlighted, in our pursuit to optimize the cost structure of our COVID-nineteen franchise, we undertook a strategic initiative in the 3rd quarter to restructure our manufacturing footprint, which was built for the pandemic. As part of this initiative, we reduced our capacity and commitments with several third party vendors. We reevaluated our raw material inventory levels and cut back on our purchase commitments for raw materials not anticipated to be consumed before expiration.

Speaker 3

As a result, we are reporting charges of $1,600,000,000 $1,400,000,000 of which are in Q3 And an expected $200,000,000 in Q4. The $1,400,000,000 charge in Q3 consists of inventory write downs of $900,000,000 And CMO wind down costs and cancellation fees of $500,000,000 The Q4 charge is related to CMO wind down costs. Despite the immediate financial impact, we are confident that this strategic move will improve the efficiency of our manufacturing operations and establish a strong foundation for improved margins going forward. As part of the $1,600,000,000 in total restructuring charges I just mentioned, Only the CMO related costs and cancellation fees are cash restructuring costs. We project this approximately $700,000,000 charge We'll have a payback in less than 2 years and a net cash benefit of approximately $1,000,000,000 through 2029.

Speaker 3

As I mentioned, our full year forecast for cost of sales in 2023 is now $5,000,000,000 before resizing charges of $1,600,000,000 Our cost of sales for the full year is expected to be at the low end of our previous guidance of $3,500,000,000 to $4,000,000,000 So now coming back to my commentary on Q3. In addition to unit driven manufacturing costs and the cost from this initiative, We also incurred approximately $400,000,000 of inventory charges for excess and obsolete material, demand related write downs of our latest Spikevax product And unutilized manufacturing capacity charges. Moving to Slide 17. In summary, we made substantial progress to resize our COVID cost structure Sure. And accelerated our path towards our longer term target of 20% to 25% of sales.

Speaker 3

We expect our cost of sales to not only be at a lower level, but also be more predictable in the future. In recent quarters, our cost of sales were highly impacted by write offs and charges As we just addressed today and in previous calls, year to date write offs and charges for inventory CMO and supplier related commitments are 74% of sales. Starting in 2024, we expect those to be less than 10% of sales on an annualized basis. Our capacity is now better positioned to scale with volume. At a $4,000,000,000 sales level, we expect cost of sales of approximately 35%, Reducing to approximately 30% at $6,000,000,000 of sales and 20% to 25% at even higher sales levels.

Speaker 3

In other words, With our resized manufacturing footprint, we now expect to achieve significant volume leverage moving forward. Let's now move to Slide 18. While we intend to continue to focus on GAAP results, we wanted to give you a view of our financial results in Q3 with and without the resizing and tax valuation allowance charges. While our total GAAP net loss in the Q3 was $3,600,000,000 Our loss excluding these charges would have been $500,000,000 Now let's turn to our updated 2023 financial framework on Slide 19. As Arpi mentioned earlier, we now expect product sales for 2023 of at least $6,000,000,000 for the full year, which is comprised of $3,900,000,000 of sales through the 3rd quarter, an additional $1,100,000,000 of international sales in Q4 And at least $1,000,000,000 of Q4 sales from the U.

Speaker 3

S. As explained earlier, we now expect cost of sales for the full year of approximately $5,000,000,000 which includes resizing charges of $1,600,000,000 For R and D and SG and A, we now expect full year expenses to be approximately $6,300,000,000 With approximately $4,800,000,000 in research and development, our R and D spend is slightly higher than the $4,500,000,000 previously forecasted, which is mainly driven by business development activities as well as additional investments in our late stage clinical trials. Our forecast for SG and A expenses remain consistent at approximately $1,500,000,000 We now expect a full year tax expense Of approximately $800,000,000 to $1,000,000,000 driven by the $1,700,000,000 increase in the deferred tax allowance I referenced earlier. And finally, we now expect capital expenditures of approximately $900,000,000 down from our previous guidance of $1,000,000,000 Before I get into the specifics on 2024 2025, I wanted to share with you our principles on how we are operating the company today And our plans over the next 3 years, we are laser focused on making our COVID franchise profitable in 2024 and beyond. We look at our Spikevax product profitability, excluding research and development costs for our future pipeline, and we believe our recent resizing efforts will ensure that our COVID franchise It is a continuous and increasing source of income and cash generation.

Speaker 3

At the same time, we also recognize the significant and unique opportunity For organic sales growth ahead of us with our late stage pipeline, we will be disciplined in our investment approach and adjust R and D and SG and A based upon the sales performance of our product lines, which in 2024 is still mostly COVID, but we expect it to also include RSV. We expect this investment in our late stage pipeline will result in a loss over the next 2 years, but help us to breakeven starting in 2026. We believe our current balance sheet is more than sufficient to fund our plans without the need to raise equity. We are also not planning to repurchase shares in the intermediate term. Stepping back, we believe this is an unparalleled opportunity to impact the lives of patients, while creating shareholder value at the same time.

Speaker 3

Moving to Slide 21. Let's start with our view on sales over the next couple of years. We are expecting sales to hit a low point in 2024 at approximately $4,000,000,000 The biggest change year over year is related to our signed APAs. We currently have $1,000,000,000 of COVID related APAs for delivery in 2024. Recall that our first half sales in 2023 Of $2,100,000,000 were mostly deferrals from our 2022 existing contracts.

Speaker 3

So we expect minimal sales in the first half of 2024. For the U. S, we expect 2024 to be at least $2,000,000,000 and believe it will grow over time. Lastly, we expect approximately $1,000,000,000 from RSV and other international COVID sales. And finally, in 2025, we expect to return to growth.

Speaker 3

Let me finish by giving you a more fulsome view on 2024 and our thinking on 2025. Starting with 2024, as I just explained, we expect sales to be approximately $4,000,000,000 Cost of sales are expected to be approximately 35% of sales. R and D expenses of approximately $4,500,000 in 2024 would be down 6%. In 2024, the majority of our R and D expenses are for registration on trials, which are now mostly committed. I will speak to our view on 2025 R and D expenses in a moment.

Speaker 3

SG and A expenses of approximately $1,300,000,000 2024 would be down 13%. We expect taxes to be negligible in 2024 and capital expenditures to be Similar to 2023 at $900,000,000 In summary for 2024, Spikevax will generate nearly $1,000,000,000 of income. When we combine that with our estimated investments in R and D and capital expenditures, our cash balance is projected to be approximately $9,000,000,000 at the end of 2024. Now for our preliminary thoughts on 2025. As mentioned earlier, sales will return to growth.

Speaker 3

Cost of sales will improve with the increased sales growth. R and D will be flat to down and we have much greater flexibility for reduction, Given that only approximately half of our current R and D spending levels for registrational trials are committed for 2025. SG and A will be flat to down, taxes will continue to be negligible and capital expenditures will be materially lower after the completion of our in the UK, Canada and Australia in the first half of twenty twenty five. In summary, our COVID operating income will grow And our investments will remain flat or lower, leading us to an estimated ending cash balance of approximately $6,000,000,000 to $7,000,000,000 in 2025. Finally, during this period, we expect to launch 5 new products to help us breakeven in 2026.

Speaker 3

So with that, I'll now turn the call over to Steven.

Speaker 4

Good morning or good afternoon. Today, I'll do a quick review of our clinical programs. Many of the details from these programs were shared at our R and D Day in September. I will also review the Phase 3 trial designs for our combination flu and COVID vaccine mRNA-ten eighty three and the Phase 3 trial design for our INT in non small cell lung cancer. During R and D Day, we shared the significant progress we've made through the year in advancing our late stage pipeline, creating the opportunity to have up to 15 product launches in the next 5 years.

Speaker 4

Through 2025 and subject to regulatory review and approvals, we anticipate launches for our RSV vaccine, Our flu vaccine, a next generation COVID vaccine and our combination flu and COVID vaccine. Looking beyond 2025, We have a diverse pipeline of other vaccines, cancer therapies and rare metabolic disease medicines. We're very excited by the potential benefits These medicines offer across a diverse range of therapeutic areas. Slide 25 is an overview of our respiratory vaccines pipeline. Our leading pipeline includes commercial and Phase 3 programs against COVID, RSV and flu, as well as earlier stage next generation programs in COVID and flu and multiple nominations.

Speaker 4

We recently shared positive top line Phase onetwo data from our combination flu and COVID vaccine mRNA-ten eighty three and on the heels of this success, we've started and are rapidly enrolling a Phase 3 study for mRNA-ten eighty three in adults 50 and older. Slide 26 shows the Phase 3 design for mRNA-tena3. The Phase 3 study is a randomized Stratified, observer blind, active control study evaluating the immunogenicity and safety of 1083 compared to co administered flu and COVID vaccines. The study will enroll 8,000 participants overall with 2 cohorts of 4,000 participants stratified by age 65 years and older And 50 to 64 years of age. Both cohorts will receive mRNA-ten eighty three or in the control arm, An age recommended licensed quadrivalent flu vaccine plus our approved COVID vaccine.

Speaker 4

Study participants will be followed for 6 months. The next on Slide 27 is an overview of our latent and other vaccines pipeline. As previously announced, our Phase 3 study evaluating vaccine and safety of our CMV vaccine in women of childbearing age is now fully enrolled, including the adolescent cohort. The study is accruing cases and we look forward to vaccine efficacy data when it becomes available. Earlier stage clinical programs against EBV, HIV, VZV, HSV and against the norovirus and Lyme disease continue to progress.

Speaker 4

Slide 28 is an overview of our therapeutics pipeline. We're proud of the progress across cancer, rare diseases and other areas. Many of the details of these programs were highlighted at our recent R and D Day, And I refer you to that presentation on our website. Notable since R and D Day is the continued rapid enrollment of the INT Phase 3 Adjuvant melanoma study, which has seen a great deal of interest from investigators and patients since presentation of the Phase 2 data at ASCO earlier this year. As previously announced, before the end of the year, we will conduct another analysis of the Phase 2 study with longer follow-up time in approximately 3 years.

Speaker 4

And we are looking forward to sharing that data. INT is also moving forward in other types of cancer with the initiation of a second Phase 3 study in adjuvant non small cell lung cancer. The Phase 3 design for adjuvant non small cell lung cancer is shown on Slide 29. It is a randomized placebo blind double blind placebo and active comparator controlled study of a combination of INT plus KEYTRUDA 1st is placebo plus KEYTRUDA in patients with non small cell lung cancer. The study will enroll approximately 900 patients with Stage II to IIIb tumors who were resected and previously treated with adjuvant chemotherapy.

Speaker 4

Each patient will receive up to 9 doses of INT P administered intramuscularly every 3 weeks with KEYTRUDA administered every 6 weeks in the active arm or 9 doses of a placebo injection administered every 3 weeks and KEYTRUDA at every 6 weeks in the comparator arm. The primary endpoint of the study is disease free survival. Key secondary endpoints include overall survival, distant metastasis free survival and patient reported outcomes. This study marks an important milestone in our collaboration with our partner Merck and our shared commitment to rapidly bring INT to patients. With that, I'll turn it over to Stefani.

Speaker 2

Thank you, Stephen, Jamie and Apak. Our focus is to return Moderna to sales growth And profitability. To achieve that, we have 3 priorities. Number 1, commercial execution. Our market share in the U.

Speaker 2

S. Demonstrates we can compete. We are focused on launching our lead 2024. We believe we have best in class profile for our new vaccine, high efficacy, food safety profile and the easiest to use in pharmacies or doctor's office. As you know, pharmacy chains are having challenges given the workload, especially in the fall season.

Speaker 2

The 2 active vaccines on the market today are very complicated to prepare No injection. 1 is 9 steps and 1 is 4 steps. On that, we'll actually quickly arrange and as Arthur said, we're very excited about that. And from the discussions I had with the leadership of pharmacies, I believe that this will be an important differentiation. Our coming first 2 combo vaccine should And as you know, flu is a higher volume market than COVID.

Speaker 2

In the U. S. For example, With around 3 times the number of doses compared to the COVID market. With the new product launches in 2024 2025 In the termination of COVID sales in the endemic setting, we believe more than half would be in sales growth again in 2025. Priority number 2, disciplined investments.

Speaker 2

We'll be disciplined in our investments and tight return based on our sales performance. As you saw, we have taken bold actions to recycle manufacturing footprint in the Q3. The team is not done and there are many continuous improvement projects to drive a reduction in cost of manufacturing. We'll also look at the R and D costs And we'd consider partnering some programs if needed to allow us to be responsible and disciplined about our costs. For SG and A, as Jimmy mentioned, we're currently going through our 2024 budget and our goal is to have a lower spending SG and A in 2024 Then we have in 2023.

Speaker 2

We're still trying to keep SG and A flat in 2025 versus 2024. We're launching respiratory products in 2024 and 2025 and we're anticipating the same teams will sell them. We'll expect productivity gains as we improve our commercial operations. As Jamie mentioned, we expect to breakeven in 2026. Pricing number 3, executing on our late stage pipeline to drive sales growth.

Speaker 2

As you all know, We have an exciting late stage pipeline with 6 Phase 3 assets, 4 respiratory program RSV, flu, NextGen COVID amounted to 83 and COVID plus 2 combo that Steven just spoke about. One latent program, CMV, Which is fully enrolled in Phase 3 and are 3 cases. 1 oncology program, ILT in melanoma and 2 that Steven mentioned in lung cancer. We look forward to having and sharing free of IND data from melanoma study before the end of this year. If the data are strong, we believe it would be the basis for regulatory discussions for potential accelerated approval.

Speaker 2

We have been investing in building a factory in Marlborough, Massachusetts, to enable the commercial launch for R and D. Thanks to the mRNA platform we built. We have an exciting pipeline. We have to 15 launches in the next 5 years. We have the largest, less stage pipeline of any mRNA company in the world and we'll continue to focus to deliver the greatest possible impact to people for mRNA medicine.

Speaker 2

I've never been more excited about the potential we have to deliver for patients. The actions we are taking help us to execute on that vision. With this operator, we'll be happy to take questions now.

Speaker 3

Thank you.

Operator

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

Speaker 5

Thank you for taking my questions. I have two questions all regarding the commercial questions. First, you You did mention 2026, you're looking to have a breakeven. And when we take a quick look based on your 2024 2025 Outlook, it seems the total cost could be in the $8,000,000,000 to $9,000,000,000 that range. Could you give us a sense What could be the additional sales if we're using 2024 guidance as a base point?

Speaker 5

And the second very quickly regarding the manufacturing resizing. After resizing, what is the full capacity regarding doses and what percentage of the manufacturing will be internal in 2024 2025.

Speaker 3

Maybe I'll take the first one, first part of the question. So in terms of 2026, Gina, thanks for the question. Let's talk to you about how we're thinking about it. So we mentioned $4,000,000,000 in 2024, approximately $4,000,000,000 And this is all about our late stage pipeline coming to fruition. So in 2024, we'll launch RSC, but it's mostly kind of in the second half is sales and then we'll have a full year in 2025, so that will provide growth.

Speaker 3

We will also come to market with flu in 2025. We'll also come to market with a combination of flu and COVID in 2025. Again, it depends on timing, but by 2026, we should have a full portfolio. So We're not going to say what the exact sales numbers are, but you mentioned $8,000,000,000 to $9,000,000,000 in cost. I'm not exactly sure where you get there unless you're assuming a certain sales line But let me go back to what we tried to lay out here.

Speaker 3

If you assume, for instance, dollars 6,000,000,000 of sales, we should have 30% of cost Or $8,000,000,000 of sales, which have 25% of costs. And then we've said historically at our R and D Day that we need $25,000,000,000 overall to make this investment, We should average $5,000,000,000 a year. So hopefully, we're giving you enough pieces without officially guiding any kind of numbers in 2026. But here's what's also important is, If those sales don't come to fruition, we are telling you that we will adjust our expenditures and our investment. So That's we hope that we are they will.

Speaker 3

We are confident in our pipeline, but

Speaker 2

should it not happen,

Speaker 3

then we were prepared to adjust our investment. I missed the second part of the question.

Speaker 5

Capacity.

Speaker 3

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

Speaker 5

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

Speaker 3

Yes. Thank you for the question. So we as we try to lay out here and are showing you this capacity is built for volume leverage. So we at least put $10,000,000,000 of sales on that page and it will require no additional capacity. We will complete, of course, over the next year and a half, The UK facility, the Canada facility and the Australia facility, but for the respiratory framework, we need no more, At least the $10,000,000,000 I won't project beyond that, but that should answer that question.

Speaker 3

IMT is a little bit different and we are building that and getting that ready for commercial purposes, but we're built for volume leverage moving forward.

Speaker 5

Thank you.

Operator

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

Speaker 6

Good morning. Thanks for taking my Questions, 2 for me here. One is you provided guidance of about $4,000,000,000 between COVID and RSV On the forward here for 2024, could you just speak to the contribution from each and how you're thinking about flu monotherapy? And the second question is that your financial framework for 2025 includes the ability to flex R and D and SG and A. And Are there any parameters you can share on the range of this flexibility and how you would prioritize R and D programs and development?

Speaker 6

Thank you.

Speaker 3

Yes. Thanks, Albin. I appreciate the question. So on the $4,000,000,000 we're not going to break out the $1,000,000,000 that we attributed to RSV and COVID. All we can say is we've talked about our PDUFA dates and that we filed in certain amount of countries across the globe.

Speaker 3

I will also say as Arpa mentioned in her Prepared remarks that we're super confident in the product profile. We are encouraged by the market and how it's already started from an uptake perspective and we think we will Very well in 2018 and beyond. As it pertains to the flexing on our spending for 2025, Obviously, I don't know, 80% of our expenses or investments are in R and D, so $4,500,000,000 for R and D and $1,300,000,000 for SG and A. So That as I mentioned, 50% of the current spending levels is not committed. So we have time to make And watch the market to be able to say what amount of registrational trials and what amount of R and D are we going to spend in 2025.

Speaker 3

So hopefully that gives you a sense for How much is still the ability to flex? We also have other levers that we can pull, etcetera. SG and A, we also have some flexibility, probably not to the same magnitude, But there is still some amount of flexibility to bring that down from a variable expense perspective. And Simon, it's Stefan. Maybe just

Speaker 2

to add to Jamie's point on the R and D. As I mentioned in my remarks, if we have to, we will be open of those to partnerships some of those programs, Which is an important way we would flex the R

Speaker 3

and D

Speaker 2

number based on where the sales are, as Jamie mentioned, which is If the sales are going to our plan, we're going to be okay. If the sales are below, we will be very open to partnering. I know we've done that in the past, but he knows how to do it. But we will be disciplined about our investments in the business based on where the sales line is.

Operator

Thank you. Our next question comes from Elena Moreau with UBS. Your line is open.

Speaker 6

Hi. This is Sarah on for Ali. Thanks so much for taking our question. First, I guess, can you talk about in 2024 again on that $1,000,000,000 RSV international sales number, are you expecting any contribution From flu in 2024, and maybe how you're thinking about it into 2025? And then on CMV, Can you talk about where you are in cases and how they're tracking versus R and D Day where I think you said a 4th of them We're currently tracked.

Speaker 6

That would be great. Thanks so much.

Speaker 3

So thanks, Sarah. I'll take the first part and then hand it over Steven on CMV. So there is no flu contribution in our 2024 sales outlook Of approximately $4,000,000,000 So in that $1,000,000,000 or that is solely RSD and other COVID international sales. We do, as I mentioned in my answering Salveen's question, we do expect to launch flu in our combination products sometime in 25 and we'll see what we projected that time.

Speaker 4

And on the CMV question, thanks for that. So yes, We did update that we're about a quarter of the way through the case accrual, back in R and D Day. I think the next and we continue to accrue cases at a steady pace. I do think the next update

Operator

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

Speaker 3

Great. Thanks so much for taking the question. I know GSK has provided an estimate in terms of size of the RSV market about £5,000,000,000 and Pfizer has given some metrics as well. Given what we're seeing now with these early launches, can you provide us with your assessment of total market size here? And then given some of your comments on competing with larger companies as you're doing in COVID now, where ultimately do you see your market share shaking out in the RSV space.

Speaker 3

Thank you.

Speaker 1

Thank you for the question. In terms of the total RSV market, as I mentioned earlier, we're excited by the uptake and the consumer awareness of the market overall. And our projections are similar to what both GSK and Pfizer have already guided. In terms of our market share with RSV, We have not yet provided or are ready to provide any forward looking projections on share, but we are very excited about our Strong product profile, both in terms of efficacy, safety and as I mentioned, our ready to use prefilled syringes. So We will be leveraging the learnings and the success from our COVID commercial launch this year and applying them to RSV next year.

Speaker 2

Yes. There will be just to Apa, Terence, Stephane. The point that Apa and I made about the market share of COVID is what I think is really important. I think some people believe that because we're a new company in commercials, we're not able to compete. And I think the market share data that Our past share ratio that OUS is able to compete and we will continue to improve things that we are doing because we're not done in That's part of our culture as you know us, but the share already moving from 36% last year to 40 5% cumulative so far in the season.

Speaker 2

I think it's already a demonstration of what the team is able to achieve. And the season is not over, so last week is at 51%. So let's see where this one finish when the season is over. But basically, the different trend we have, as I mentioned, I've been speaking to pharmacist leadership and they are all I think a very big workload issue as you know, we're even striking some pharmacy And you think about the seasonality, we've all been on our business of a pharmacy for progression and then the flu and then the COVID And then, Alex, as I mentioned, those 2 of our products, if you just download the label of those products from the FDA website, then you look at how many steps they are, It's a very complicated and when you talk to the pharmacy leadership, they don't know how they're going to deal with that type of workload. And so coming with prefixed syringe is a Tremendous differentiator, right.

Speaker 2

We have very good efficacy. We have very good safety profile. We really believe that we have the best in class product in the market. And

Operator

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

Speaker 6

Hey, guys. Good morning. Thanks for taking my questions. Just a couple, coming back around to one that I think some others were trying to get at, But maybe a little differently, when we think about breakeven in 2026, what are you contemplating in that sales number embedded in your assumption? Does it reflect just respiratory vaccines?

Speaker 6

Or are you considering INT could be on the market then? And then second, I know you said the percentage of non retail jabs would grow as the season progresses from where it has been so far this season. Do you believe that the proportion of COVID shots running through the retail channel has shifted at all bigger picture in 2023 relative To 2022 or should we think of that proportion as remaining similar year over year? Thank you.

Speaker 3

Yes. So thanks, Jess, for the question. Again, without getting into too much detail on 2026 In terms of how we think about it, I mean, the best way to keep going back to that late stage pipeline that we've been talking to you about RSV, Flu, our combination, our next gen COVID product as well, will all be very much there for the year 2026. And we are confident in all those product profiles and how we will compete. As I mentioned, at 6%, our cost of sales at $6,000,000,000 sorry, our cost Sales would be 30%, SEAT 1,000,000,000 or cost of sales would be 25% and of course, we'll try to improve on that.

Speaker 3

And that will give us the envelope For how much we can continue to invest in the future products, which we said will launch 15 by 2028. That will be all of our latent portfolio, that will be our INT portfolio that will be our rare disease portfolio. So I think that's as much as we can say right now. I just want everybody to know that we are very committed to Breaking even in that year and we have a lot of flexibility both from a growth standpoint and a disciplined investment standpoint.

Speaker 1

And I can take the second question on the percentage of non retail. So as expected, in 2023, the retailers In the majority of the market with more than 90% of the volume during the 1st few weeks. However, we're now beginning See a shift towards more non retail channels, as I had mentioned. We are seeing increased shipments, to IBMs, to clinics, Pediatricians, as of the recent weeks. And as I think about full year 2023, we I believe the retail mix will be Stronger than in 2022 and could land at about 70% to 80% of total vaccinations, whereas in 2022, We saw that the retail channel was only about 2 thirds of the mess.

Operator

Thank you. Our next question comes from Meluca Iasi with RBC Capital. Your line is open.

Speaker 7

Great. Thanks so much for taking my questions. Maybe circling back on the P and L, appreciate all the effort on resizing manufacturing and Turning to focus on gross margin, but how should we think about OpEx plus CapEx as COVID numbers continue to come down? We've seen Avayan Teck and Pfizer materially realigning OpEx plus CapEx to their top line. I believe Viantech lowered by $600,000,000 this year and Pfizer by $1,000,000,000 this $2,500,000,000 next year.

Speaker 7

However, your OpEx plus CapEx has not materially changed this year and you anticipate that the next year It's going to be generally flat to down. So can you just maybe comment on why you think that's the right strategic decision for the organization? And And then maybe second question on RSV, obviously impressive initial launch by GSK and Pfizer and appreciate the differentiations of your product. But what's the latest thinking on whether the vaccine is needed every year or less frequently than that? Is there a scenario where Pfizer and GSK penetrated the market Pretty aggressively this year and then you face an uphill battle next year as it turns out that you need a vaccine maybe every other year and not every year.

Speaker 7

Any thoughts there, much appreciated. Thanks so much.

Speaker 3

Maybe I'll take the first the second part of

Speaker 4

that question and then hand it over to James first. So on RSV and the need for it, obviously, we're continuing to follow the public health Situation in terms of the rate of occurrence, the RSV, epidemic this year. At this point, I think we don't Have data yet on whether or not it will ultimately be an annual or something less than annual, say every 2 or 3 year vaccination regime. I think like everybody else, we'll be looking to our data, the other manufacturers' data as well as the public health, the epidemiologic data To guide that decision, there are plenty of vaccines for which there is an approach of flu as an example where there's a seasonal vaccination approach, Both because of the benefit offered by the vaccine, but also because of the convenience of just making sure that every season, every year people are reminded to get that vaccine. So The ultimate decision on whether this is going to be recommended is not ours to

Speaker 2

the manufacturer. It will fall

Speaker 4

to public health officials based on a number of factors, which will include the epi and the data we provide, but other factors as well. And we'll work to make sure they have the data they need to make that decision.

Speaker 3

And I'll take the first part. Thanks, Luca, for the question. I think the short answer is The opportunity set ahead of us and we are active. So you referenced some of our competitors. I just want to break that down.

Speaker 3

I mean, we are Super encouraged by the opportunity for additional growth and our ability to impact patients. And we have this 15 products that we think will launch by 2028 or by 2025. We think that's the right thing to do. We have to grow out of our We had to grow this company and to be able to afford the investment to be able to capture the unparalleled opportunity for this. And I think we are acting.

Speaker 3

I believe we are acting. I had mentioned everything that we're doing from a cost of sales perspective. And so I think that's very much in line And sized appropriately to have volume leverage when it comes because it will come. And we are saying in 2024, we can adjust both R and D and SG and A down To a good level, down 6% in R and D, down 13% or so on SG and A. We are largely committed to our trials for 2024.

Speaker 2

So as I mentioned,

Speaker 3

we don't have as much flexibility in that particular year, but by 2025, we have even more flexibility. So We're prepared to take action should we need to, but we're very optimistic about the pipeline that's coming. And hopefully, this will just come through growth and we'll still be able to afford much of this investment.

Speaker 2

Yes. And Stefan, just maybe adding to Jamie, we said it's SuperValuation. As you know, we have a platform company. And The priority of the new success of those programs we feel very good about. If you just look at with COVID and Phase III R and D and so and Phase III IV R and D and the Phase III IV, we are 3 out of 3 positive Phase III.

Speaker 2

This is not your industry average. So we think we can create value increase with some capital for shareholders by investing that capital to high priority projects that are in Leases pipeline. As I said, we have the largest LHS pipeline of any M and A company with 6 program right now. And as soon as the launch starts, which is very, very soon, there's only 7 We believe the best way to create return for our shareholders is to invest that capital to drive sales growth and profitability.

Speaker 7

Got it. Thanks so much.

Operator

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

Speaker 8

Hi. Thanks for taking our question. This is Dina on for Mike. I just wanted to get a sense of your assumptions for Q4 COVID jabs and What are you seeing in Q4 right now? How much of that is actually jabs and actual injections versus channel fill?

Speaker 8

And just a follow-up on that. Now that you've seen sort of half of the 2023 fall season play out, what are your assumptions for 2024 and 2025 for COVID, are you essentially assuming that the same people who got vaccinated this year will continue to get COVID vaccine every year? Thanks so much.

Speaker 1

Thank you for the question. In terms of the Q4 2023 Jabs, what we saw in 2022 is there is a Significant portion, about 45% of the total COVID vaccinations happening in November December. This year, we're expecting a similar split, Likely larger given that we launched 2 weeks later into the season in 2023 than we did last year. And what we are hearing from our different non retail As well as our retail pharmacy partners, they're planning vaccination campaigns and marketing efforts to really capture on the November December December month. So, in total, we do anticipate getting to at least 50,000,000 doses this year.

Speaker 1

And we do believe that, November December will be Strong mode for us. In terms of 2024, our assumption is everyone who has gotten their booster in 2023 We'll at least get through Booster also in 2024 and beyond. Now given the higher burden of disease with COVID, As consumers become more understanding of the annual recommendations, and as, the Convenience of getting both flu and COVID becomes more normalized. We do believe over time, we'll start to see some increase in the overall COVID market.

Operator

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

Speaker 9

Great. Thank you for my question. I just got a question on the combination programs. And just to give a little bit of frame the question, in other therapeutic areas aside from vaccines for infectious diseases, for example, Oncology, monotherapy treatments generally tend to be minority of treatments, 10%, 15%, 20%. Currently, monotherapy vaccines dominate the market in COVID-nineteen flu.

Speaker 9

So when you get the combination vaccines going, Do you imagine as your market research tend to suggest that you would again probably a combination approach might dominate that versus a monotherapy approach, Singular vaccines going forward? And then secondly, will the cost of goods sold be any different for the combination versus The monotherapy products. Thank

Speaker 1

you. All right. Thank you for the question. So we do That our combination vaccine will take a substantial share of the monotherapy vaccines that are available. We have seen in the pediatric vaccine market that upon availability of combinations, we see very strong uptake in conversion from monos to combinations, And we expect a similar trend in the adult market.

Speaker 1

From our market research, we have heard consistently from consumers that they prefer one shot over multiple shots. From a customer perspective, we are hearing, as Stephane had mentioned, just with workload issues, one shot saves a lot of time and also help them to get more patients protective. And from a broader health care system and government and payer perspective, We are hearing an increased need, to help get greater uptake and compliance in adult vaccinations. And our healthcare authorities believe that combinations can help actually boost the vaccination rates. So we are very excited about our combination products In the future and think this could really be an inflection point for respiratory vaccines.

Speaker 2

Yes, Amy, Stefan, just to add to our past comments. During COVID, we have been discussing to a lot of health care mini sales and the topic of vaccination combination has come a lot. And as you speak especially outside the U. S. Where you have a lot of what I call closed health care system where you have one payer of the government taking care of people From birth to death basically, we are very, very interested in combinations because they know that if a Participants of a country got the vaccine because production against several viruses, which prevent hospitalization.

Speaker 2

As you know, we've done partnership with some countries like the UK, Canada and Australia. And through those negotiations, The concept of combination was critical in the decision making. Because as they see their population getting older, they will read actually with number of hospitalization will just go up Over time and the ability to prevent that when you see shortages of healthcare worker and as you project those shortages in the future is a key determination of a So I only think in integrated health care system, the drive to go to combo will move even faster than actually in commercial market like the U. S. Market.

Speaker 3

Yes. And Hockaz, maybe I'll take the cost of sales question. Thank you for it. So this provides a substantial margin expansion opportunity. So if you think about our cost of sales, the smallest portion is our drug substance.

Speaker 3

So it's our actual mRNA and that's a very small portion of our overall cost of sales. Everything from drug product in terms of the cost to finish the product and the presentation type, whether it's PFS Or a while or whatever, that now gets cut in half. So when we sell 2, it's a very limited amount of cost increase versus a single presentation. So it does provide a significant margin expansion opportunity. So thank you for the question.

Speaker 9

Thank you all.

Operator

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

Speaker 7

Hey guys, thanks for taking the question. Appreciate you guys sharing early thoughts on 2024 and beyond. For 2024 specifically, can you talk about some of the contribution from COVID and RSV In terms of split, it sounds like you plan to hit the ground running there in RSV. With international, how are you thinking about the longer term contribution from COVID as competitor food agreements expire? And with flu, with the comments on margin 25, wondering if you've had any recent conversations with regulators there in terms of Potential approval.

Speaker 7

Thanks.

Speaker 1

About international sales. Thank you for the question. In terms of our expectations in 2024, we have put about $1,000,000,000 across international COVID and RSV. We do anticipate a strong launch in the second half of the year with RSV. And on the international side for COVID, We are continuing to pursue multiple options across a number of countries.

Speaker 1

In Japan, we will be in a fully commercial market is our Expectation where we'll be competing, for the Japanese business. In the EU, we continue to work with countries on, agreements To secure our COVID-nineteen vaccine, as publicly disclosed, the EU has renegotiated their contract with Pfizer Earlier this year, so the EU demand has been substantially satisfied in many markets, but we are hearing from individual member states That they are looking for a second supplier for vaccines, and we are in those discussions right now, both at a country level, But also at a European Commission level, to see if a joint procurement agreement can be established in 2024.

Speaker 4

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

Speaker 4

But we will once we have clarity across all markets on the pathway licensure provide an update.

Operator

Thank you. Ladies and gentlemen, this does conclude the Q and A portion of today's conference Ending the call itself, you may now disconnect and have a wonderful day.

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Moderna Q3 2023
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