Waters Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 11 speakers on the call.

Operator

Good morning, and welcome to Novavax 4th Quarter 2023 Financial Results and Operational Highlights Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Erica Schultz, Senior Director, Investor Relations. Please go ahead.

Speaker 1

Good morning, and thank you all for joining us today to discuss our Q4 full year 2023 operational highlights and financial results. 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, operating plans, objectives and prospects, full year 2024 financial guidance, the amount and impact of Novavax's 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 can cause actual results to differ materially from those projected in such statements.

Speaker 1

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 ks and subsequent Form 10 Qs filed with the Securities and Exchange Commission available at www.sec.gov and on our website at www.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 update or revise any of these statements. Please turn to Slide 3. Joining me today is John Jacobs, our President and CEO, who will provide a review of our progress this past year focusing on our 3 key priorities looking towards the future. Additionally, John Trizzino, our President and Chief Operating Officer, will provide an update on our commercial activities and Doctor.

Speaker 1

Philip Dibalski, 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. I would now like to hand over the call to John Jacobs. Please turn to Slide 4.

Speaker 2

Thank you, Erica, and thank you everyone for joining us. I'm pleased to be with you today along with the members of our executive team to reflect on our Q4 and full year 2023 financial results and operating highlights and to discuss our priorities for 2024. In 2023, we made significant progress on our priorities, strengthening our foundation and helping to position us for success in 'twenty four and beyond. Throughout the year, we kept you updated on the progress we were making against our 3 priorities, which were number 1, deliver an updated product for the fall vaccination season number 2, reduce our rate of spend, manage our cash flow and evolve our scale and structure And finally, number 3, leverage our technology platform, our capabilities and our assets to drive additional value beyond neumaxabit alone. So let's take a look back at 2023 and what we were able to accomplish in these three key areas of focus for Novavax.

Speaker 2

Under priority 1, deliver our updated vaccine for the fall season. All of us at Novavax are very proud that this fall we delivered on this priority. And in the face of the COVID market that was smaller than we and many others had projected, we were able to achieve $1,000,000,000 of revenue for the full year 2023, including Q4 total revenue of $291,000,000 Despite this success, we also had some misses and we're disappointed in our U. S. Market performance last season.

Speaker 2

Last season was a transitional season and the first fully commercial one for us in the U. S. Market. And we intend to make improvements in key areas for 2024. Later on in our presentation, John Trizzino will discuss this topic in more detail.

Speaker 2

Priority number 2, reduce our rate of spend, manage our cash flow and evolve our scale and structure. 2023 was a pivotal year for the COVID market and for Novavax, as it was the 1st year post pandemic and represented the 1st chapter in our new journey as a company post pandemic. A key priority for Novavax in 2023 was to scale the organization appropriately and reduce our spend to better align with the evolving market opportunity. To that end, we took decisive action to reduce our expenses and our scale. We entered 2023 with approximately 2.5 $1,000,000,000 in current liabilities and over the course of the year reduced that figure by over $800,000,000 And with the resolution of the Gavi arbitration, this number should be reduced further by another $500,000,000 In addition, we reduced our total operating expenses by over $1,100,000,000 in 2023, almost $150,000,000 ahead of our stated target.

Speaker 2

And finally, under priority 3, leveraging our technology platform, our capabilities and our assets to drive additional value beyond nabaxavit alone. During 2023, we were able to outline path forward for our flu COVID combination vaccine program with a potential launch as soon as 2026. We are still on track to initiate a Phase 3 study this fall and last week the FDA confirmed the data requirements to achieve accelerated approval. Doctor. Philip Dubovsky will provide details later on the call on this matter.

Speaker 2

So looking ahead to 2024 and beyond, I'd like to say with 2023 now behind us, we intend to build upon our successes, learn from our disappointments and drive towards a successful 2024. In this second chapter of our new journey post pandemic, over the next two seasons, our focus will be on share growth in the COVID market, further streamlining our business model and preparing the market for a vaccine will mark our 3rd and potentially most exciting chapter yet post pandemic, allowing us to expand beyond 1 product company. When combined with the potential for both organic and inorganic product expansion, this further supports our vision of becoming a leading global vaccine innovator. Philip will give an update on our combination program shortly through the course of this presentation. Before handing it over to the rest of the management team, I want to outline our 3 main priorities for 2024.

Speaker 2

So please turn to Slide 5. Our first priority is to deliver an updated product for the 20 four-twenty five fall vaccination season with a more competitive presentation, broader retail availability and early availability in the market with the goal of capturing increased share. Our second priority is to independently launch the Phase 3 trial of our COVID flu combination vaccine product and showcase more of what our scientific platform is capable of through the generation and sharing of new clinical data. Finally, our 3rd priority is to continue the evolution of Novavax with our eyes firmly on the future opportunity, further reducing our operating expenses and enhancing our processes and while maintaining our capabilities so we can deliver on our intended business objectives. We are excited about the prospects ahead of us as we enter the second chapter of our post pandemic journey.

Speaker 2

Our base plans, should we succeed in executing them in 2024 and 2025 promise to place Novavax in a stronger, leaner position, ready to launch our new combination vaccine and accelerate the company towards profitability and significant growth potential. Now I would like to hand it over to additional members of the team to discuss our results from the quarter in more detail, beginning with John Terzino for our commercial updates.

Speaker 3

John? Thank you, John. Please turn to Slide 6. As John explained, 2023 was a year of significant change for our business and we have learned many lessons that are allowing us to better position ourselves for a stronger 2024, 2025 COVID vaccination season. I'd like to focus today's update on how we plan to translate these lessons into action with a goal to grow share in each of our key regions, as well as the changes we've made to our commercial strategy.

Speaker 3

Please turn to Slide 7. First, I'd like to provide some high level context on 2023 and the opportunities in 2024. Full year 2023 product sales were $531,000,000 which includes $251,000,000 in the 4th quarter. Over 90% of that came from APA sales from Europe, Australia and New Zealand with the remainder of our product sales in the U. S, Canada, Singapore, Korea and Taiwan markets.

Speaker 3

Importantly, we entered 2024 with over $1,000,000,000 outstanding and expected APA contract value with deliveries planned for 2024 through 2026. For 2024, our XBB remaining product sales include Q1 APA deliveries for Europe and then for the Southern Hemisphere and APA sales to Australia and New Zealand upon regulatory approval. We also see incremental opportunity for the private market this year in the UK as well as the potential for CDC to recommend an additional springtime dose for individuals 65 and over on which ACIP is meeting to discuss today. Please turn to Slide 8. As John mentioned earlier, we learned a lot in 2023, which was our 1st year competing in a dynamic post pandemic U.

Speaker 3

S. Commercial market. We successfully secured regulatory authorization and approval for our updated vaccine in key markets around the world and made significant deliveries under our APA agreements. In the U. S, several factors related to our 5 dose product presentation and our timing to market entry impacted our ability to gain market share.

Speaker 3

However, factors outside of our control, namely the disappointing COVID market size at just over 30,000,000 doses and the fact that the retail channel accounted for over 95% of vaccinations also led to U. S. Performance below our expectations. We continue to believe that the U. S.

Speaker 3

Market holds opportunity for Novavax. In the U. S, we achieved some important milestones that should provide an opportunity for a much better performance in 2024. We built significant levels of awareness for the first time in the U. S.

Speaker 3

Market, over 80% aided awareness and have seen pockets of rapid uptake, where in some retail outlets we saw up to 10% share when we were carried on an even playing field regarding pharmacy processes and availability. For 2024, we are focused on being in market in early September, which we anticipate as the start of the vaccination season. We also intend to offer our vaccination in a prefilled syringe and if approved under full BLA licensure. We know that in the 1st post pandemic season COVID vaccinations overwhelmingly took place in pharmacies. So we have recalibrated and streamlined our customer engagement teams to focus on this channel.

Speaker 3

Today, we are already leveraging the relationships built this past season and are currently at the negotiating table with the top major retailers who drove 90% of the pharmacy business last season, potentially setting the stage for expanded access to our updated vaccine in the top national and regional retail chains. Additionally, we believe that if we achieve early September delivery, a prefilled syringe and BLA approval, we can secure a meaningfully improved market share. We especially see opportunity in the 65 plus segment, which had the highest vaccination rates of 42% last season. And this is where we plan to concentrate our promotional spend in an effort to convert that market to Novavax vaccine shots in arms. We are also closely watching the ACIP meeting today, which will potentially result a recommendation for spring vaccination for high risk groups, including those over 65 and increased opportunity to benefit from our updated vaccine.

Speaker 3

Finally, we are also making important progress on our objective of on time delivery. We are working closely with the FDA on a rolling submission of our BLA. Please turn to Slide 9. Now let's talk about markets outside the U. S.

Speaker 3

Starting with Europe, which converts to a commercial market this year for the first time. Our APA in the European Commission ended in 2023 and we are now entering for the first time a commercial market opportunity in which despite strong competitive pressure from mRNA's APAs, we see revenue potential for our new vaccine in Italy, Spain and France as well as in the UK. In these markets, our focus will be on delivering a single dose presentation with timely availability. In the UK, we are planning for the launch of a private market featuring nevaximab. The Health Security Agency recently updated its green book to include our vaccine and discussions are underway with leading retailers and occupational health providers.

Speaker 3

We are already seeing interest in potential orders for our new vaccinated vaccine. Finally, in Asia Pacific remains an opportunity for us for the next two seasons through the expected deliveries under existing APAs. Overall, our commercial efforts in Asia Pacific remain focused on Australia and our largest APA global market as well as New Zealand, Singapore and Taiwan. We expect approval of our updated vaccine in Australia and New Zealand soon. Finally, in Canada, we continue to execute on our APA.

Speaker 3

Our efforts are focused on securing NASH recommendation on par with mRNAs and driving awareness of our differentiated vaccine with healthcare providers and consumers. Now please turn to Slide 10. As John noted, we have made significant changes to our organization, to how we work, to our scope and scale and how we are working tirelessly to coordinate the many critical activities needed to be ready for a successful fall season. Across all key areas from CMC to regulatory to our commercial efforts, we are coordinating our workflows and streamlining our processes and remain singularly focused on operational execution for the upcoming 2024, 2025 season in all of our key markets. We continue to believe and our data indicates that there is significant demand for Novavax's protein based vaccine and that NuvaXivir will play a meaningful role across the U.

Speaker 3

S, Europe and the rest of the world. As we focus on the future, we expect continued transformation in our business with commercial product sales continuing to grow and to contribute to Novavax's total revenue mix over the next two seasons as the pandemic error APA sales agreements mature and reach their conclusion between now and 2026. We believe that the market is migrating towards seasonal combination respiratory vaccines, especially for flu and COVID. Our market research shows that over half of the flu market is anticipated to convert to combination products and that 25% to 30% of healthcare providers and consumers prefer a protein based option. And to date, we believe we are ahead of other non mRNA competition in combo product development.

Speaker 3

We think we are well positioned to capture our fair share of that market opportunity by bringing together our technology platform, matrix management, proven COVID vaccine and an outstanding flu vaccine candidate with positive Phase 3 data. To discuss this and other key R and D updates, I would like to hand it over to Philip.

Speaker 4

Thanks, John. Please turn to Slide 112.

Speaker 5

I want to

Speaker 4

cover 2 R and D priorities for 2024. The first priority is the delivery of updated variant vaccines. I will share clinical and real world evidence about the performance of our XBB containing vaccine before I update you on our approach for the 2024, 2025 season. Our second priority is launching the next phase of our COVID influenza combination program. Like John said, the program is on track and we have received FDA guidance of how to achieve accelerated approval.

Speaker 4

Before I move into my slides, I want to reflect on the data we have accumulated over this past year and that continues to support the promise of our nanoparticle and adjuvant technology. We continue to see broad long lived immune responses in our clinical studies, while maintaining a favorable reactogenicity profile. And this has proven to be true for our initial COVID vaccine, our XUV15 vaccine, the R21 malaria vaccine as well as our experimental COVID influenza combination vaccine. And we've also started to accumulate real world effectiveness data that shows the immune responses seen in our studies translate to disease prevention in the real world. Okay, let's move to Slide 13 and review where we are with strain change starting with a summary of last year's update.

Speaker 4

Last summer, the strain was updated to XBB15 and we are on a clinical study to reconfirm our strain change approach and evaluate the vaccine's performance. The vaccine achieved its co primary endpoint of inducing robust XBB15 neutralization and seroconversion responses. On the left hand side of the slide are neutralization responses in adults who previously received 3 or more mRNA vaccines. XGB15 responses increased 7 fold with a single boosting dose. Also displayed are neutralization responses to JN1, which is currently the most common circulating variant.

Speaker 4

As you can see, we had a 5.6 fold response to this forward drift variant, once again demonstrating this vaccine technology can induce broadly neutralizing responses. Now on the right hand side of the slide are local and systemic grafted Janssen symptoms. Despite the study subjects having received a minimum of 3 prior doses of mRNA vaccine, our tolerability profile was very favorable and this has been reported multiple times in academic publications. Okay, let's go to Slide 14, which depicts how these immune responses translate into clinical effectiveness. On February 1, the CDC published early season COVID vaccine effectiveness estimates.

Speaker 4

They concluded that the overall adjusted vaccine effectiveness of the 3 vaccine brands combined was 54% and that included protection against JN1, which was estimated to account for about 39% of symptomatic cases. The effectiveness was not calculated by vaccine manufacturer or platform, but the vaccine specific case counts were included in the publication and are depicted on the right hand side of the slide. This appears favorable for Novavax. The just one factors are not available, so individual vaccine effectiveness cannot be calculated. Although this part of the study captures a small number of Novavax cases, we calculated the crude relative rate reduction for our vaccine, which was 75%.

Speaker 4

The imbalance in the case counts and the relative rate reduction gives us confidence our vaccine is providing protection. Okay, let's go to Slide 15 for this year's variant. JN1 is causing the vast majority of disease globally, including in the U. S. Is depicted on the left hand side in purple dots.

Speaker 4

As a recombinant protein vaccine company, we make many of the variants and cross test them against each other. On the right hand side of the slide is antigenic cartography depicting the antigenic distance between XBB15 and JN1, which is over 4 antigenic units and represents over 16 fold reduction in immune responses. Despite the fact I showed you data, the XBB vaccine induces good immune responses and those translate into real world protection from the CDC publication, we believe it appropriate to update the vaccine to protect from future drift variance. Updating will narrow the antigenic distance and should future proof the vaccine effectiveness when subsequent mutations occur. Therefore, we would advance JN1 into commercial manufacturer while continuing to evaluate upcoming variants.

Speaker 4

Okay, let's go to Slide 16 for a brief update of our COVID influenza combination program. We've been interacting with the FDA on the design of our Phase 3 program and the accelerated regulatory approval pathway. We have agreement on the study design, study endpoints, trivalent comparators and size of licensure enabling safety database. We're still on track to initiate the Phase 3 study in the fall. Based on supportive data from our Phase 2 study, which is shown on the right hand side of the slide, we have confidence in achieving the agreed upon endpoints.

Speaker 4

The study is designed to compare the immune responses in 2 age groups, 50 to 65 and greater than 65 to licensed age recommended influenza vaccines as well as our own COVID vaccine. The granting of accelerated approval will occur after the data is reviewed by FDA and meaningful therapeutic benefit is demonstrated. We're also planning a lot to lot consistency study in the Q4 of the year, which should enable a regulatory filing in 2025 and potential launch in the 2026 season. Okay. Let me hand over to Jim for a financial update.

Speaker 6

Thank you, Philip. Please turn to Slide 17. This morning, we announced our financial results for the Q4 and full year 2023. Details of our results can be found in our press release issued today and in our 10 ks filing. Please turn to Slide 18.

Speaker 6

We are focused on improving the financial health and performance of Novavax to enable long term value creation. Towards that goal, I'll share a few of the key themes for 2023 and a look towards 2024 and beyond. For the full year 2023, Novavax recorded total revenue of $1,000,000,000 and significantly improved our balance sheet profile by reducing current liabilities by $825,000,000 dollars In addition, the Gavi settlement announced last week removes the risk of arbitration with Gavi and will further reduce short term liabilities by over $500,000,000 As we continue to transform Novavax into a more lean and agile organization, we reduced 2023 total operating expenses by $1,100,000,000 or 41 percent and exceeded our savings targets for R plus SG and A by $150,000,000 As we look to 2024, we are targeting R and D and SG and A expenses of between $700,000,000 $800,000,000 with the intent to drive them below $750,000,000 midpoint if possible as we continue to resize our organization. We ended 2023 with cash and accounts receivable of $881,000,000 In addition, as we enter 2024, we have over $1,000,000,000 in APA contract value outstanding with expected deliveries over the next 3 years. We believe this positions us well as we focus our investments to establish new commercial COVID markets and advance our KIC program.

Speaker 6

Please turn to Slide 19. Turning to a more detailed view of our 2023 financial results, I will provide commentary on our Q4 2023 financial results with specific focus on revenue and COGS. For the Q4 of 2023, we recorded total revenue of $291,000,000 compared to 350 $7,000,000 in the same period in 2022. Our product sales of $251,000,000 in the Q4 of 2023 were primarily related to APA deliveries to Europe and Canada plus commercial market product sales in the U. S, South Korea and Taiwan.

Speaker 6

Grants of $38,000,000 for the Q4 of 2023 reflect the realization of the full value of the $1,800,000,000 U. S. Government funding agreement. For the full year 2023, our total revenue of $984,000,000 was consistent with our guidance. In the U.

Speaker 6

S. Market, product sales for the 2023, 2024 vaccination season are now expected to come in below 25,000,000 which is less than our prior target. That said, we are closely monitoring the potential for the CDC to recommend a spring COVID-nineteen booster and we'll assess how that could impact demand and potential sales in the first half of twenty twenty four. Our cost of sales for the Q4 of 2023 were $155,000,000 as compared to $182,000,000 in the same period in 2022. These periods include $30,000,000 $99,000,000 respectively related to excess obsolete or expired inventory and losses on firm purchase commitments under 3rd party supply agreements.

Speaker 6

Please turn to Slide 20. We are committed to creating a more lean and agile organization to align with the company's market opportunities. To advance that goal, over the past year, we've reduced our workforce by over 30% compared to the Q1 of 2023. We have also reduced our full year 2023 R and D and SG and A by over $500,000,000 compared to the full year 2022. This result was approximately $150,000,000 better than our original target and we did so while maintaining core business capabilities and progressing our combination vaccine program.

Speaker 6

For 2024, we are targeting combined R and D and SG and A expenses of $700,000,000 to $800,000,000 In addition, we are prioritizing improvements to our long term supply chain efficiency, including exploring the sale of our Czech Republic manufacturing facility. Please turn to Slide 21, where I'd like to discuss progress on our balance sheet and liability management. During 2023, we reduced the company's current liabilities by 825,000,000 dollars and with the recently announced Gavi settlement, we will further reduce current liabilities by over $500,000,000 in 2024. Of note, the Godby settlement provides for an equitable resolution of our differences and spreads any remaining liabilities over 5 years, allowing us to better manage cash flows and make appropriate investments to grow our business. When assessed on a present value and cost of capital basis, we estimate that the cost of the settlement to be in the range of $300,000,000 to 400,000,000 Please turn to Slide 22.

Speaker 6

Now turning to financial guidance with an emphasis on our total revenue. For the full year 2024, we expect to achieve total revenue of between $800,000,000 1,000,000,000 dollars Our projected total revenue includes $500,000,000 to $600,000,000 of APA sales based on expected dose delivery schedules and non APA related revenue of $300,000,000 to $400,000,000 from a combination of commercial market product sales plus royalties and other revenue from our partner related activities. We have previously guided to Q1 2024 expected total revenues of approximately $300,000,000 Based upon a delay to our Australia XBB regulatory review, we now expect APA sales for both Australia and New Zealand originally anticipated for the Q1 of 2024 to now occur later in 2024 upon their respective authorizations. As a result, our Q1 2024 total revenue is now expected to be approximately 100,000,000 dollars If successful in achieving the guidance outlined today, we believe this will support the funding of our operations for the next 12 months. In our 10 ks filing, you will see that we have provided an update on our going concern disclosure, specifically that this forecast continues to be subject to significant uncertainty related to revenue for the next 12 months.

Speaker 6

We look forward to sharing additional updates as we seek to improve Novavax's financial performance, cost structure and strength to deliver shareholder value. With that, I'd like to turn the call back over to John for some closing remarks.

Speaker 2

Thank you, Jim. Please turn to Slide 23. I am proud of the progress we made in 2023 and the opportunities we have identified that should help us to build a stronger business with our key priorities of executing on the 'twenty four, 'twenty five COVID season, advancing our combination vaccine and creating a more financially stable organization. We are operating a business in a complex and challenging marketplace, which is undergoing significant change, but which also offers immense opportunity to positively impact global public health and drive significant value creation in the future. I would like to thank all of our employees and their continued work in advancing our business.

Speaker 2

Together, we remain committed to generating successful performance and value creation for all of our stakeholders. And with that, we will now take your questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Roger Song from Jefferies. Please go ahead.

Speaker 7

Great. Good morning, everyone. Thanks for the update and taking our question. Maybe start with a few clarifications for the guidance. First is the 1Q 100,000,000 So given this is not coming from Australia and New Zealand, so can you specify what are the countries for those APA?

Speaker 7

And then for the rest of the for the entire 2024, 500 to 600 APA, it's coming out of the entire 1,000,000,000 APA outstanding APA. And my question is, do you expect to see new APA beyond this $1,000,000,000 in the coming years? If so, where will be those countries coming from? And last question related to the revenue guidance is the $300,000,000 to $400,000,000 APA 2024 guidance, how much is coming from the U. S, if you can give us some color around that?

Speaker 7

Thank you.

Speaker 2

Thank you, Roger. Three questions in there. Jim, do you want to take Roger's first question on the source of the $100,000,000 in Q1?

Speaker 6

Yes, certainly. Hey, good morning, Roger. So when we look at our Q1 guidance for 2024 that we just shared of 100,000,000 dollars Virtually all of that has in fact already been shipped. It was it is APAs to Europe that were delivered in January. So that is the vast majority of the guidance.

Speaker 6

As you referenced, our prior guidance for the Q1 of approximately $300,000,000 did include expected sales to Australia and New Zealand. Now as we have shared with all today, that review of our XBB dossier is still ongoing. And so it is our expectation that upon authorization that we will make those deliveries, but later this year.

Speaker 2

Jim Rogers, 3rd question you may want to address as well, just a breakdown of the non APA revenue and what proportion of that comes from the U. S. If we heard you correctly Roger?

Speaker 6

Hey, exactly. So Roger, the component of our revenue guidance and I'll just restate it here, the $800,000,000 to $1,000,000,000 midpoint $900,000,000 is split between APA sales and non APA revenue. You correctly noted $500,000,000 to $600,000,000 midpoint $550,000,000 for APAs, non APAs $300,000,000 to $400,000,000 And within that we have 2 primary buckets. 1 is related to royalty and other revenue. As you might remember, we have begun to receive some reimbursement related to our R21.

Speaker 6

That income or economics would come in the form of both reimbursement of the matrix we manufacture in support of launch and ongoing sales. And then finally, also a royalty that we could be eligible for upon those commercial sales. That's a single digit royalty. So that's a component of it and I would say frankly a small component of it. In the remaining commercial portion, this is virtually all U.

Speaker 6

S, Europe, UK. And while we have not provided specific breakouts across those, these are exceptionally important markets for us. You heard John Trazino speak a little bit earlier about how we are prioritizing our focus in these markets to establish them this year. And in the case of Europe, an important transition year from APA to commercial markets.

Speaker 2

Thank you, Jim. And then finally, Roger, the third portion of your question, John Trazino, perhaps you can answer. I believe Roger was asking, would we expect after this $1,000,000,000 that we noted and remaining APA value to have future APAs in the out years beyond 2026?

Speaker 3

Yes. Thanks, John. So, APA is generally speaking were a function of the pandemic period of time in which we had advanced purchase agreements in place. As we transition to the commercial market, you're going to see a mix of normal commercial market as in the U. S, so payer driven purchases through retailers.

Speaker 3

In Europe, it's again a mix between tenders and private market. As we're already seeing in the U. K, for example, we're going into private market, retail and occupational health. And so there's a mix there of what those purchases will be. The traditional APAs will wind themselves down between now and 2026, and then we'll go to the normal commercial markets.

Speaker 2

Thank you, John. Thank you, Roger.

Speaker 7

Thank you.

Operator

Thank you. And your next question comes from the line of Eric Joseph from JPMorgan. Please go ahead.

Speaker 5

Hi, good morning. Thanks for taking the questions and all of the additional details as it relates as it relates to forward guidance. You can hear me okay?

Speaker 2

We can. Good morning.

Speaker 5

Good morning. So just a clarification question when it comes to U. S. Sales this past quarter, there's a $82,000,000 product sales return accrual item that we noticed. Can you just help reconcile that with recorded product sales for the full year of around $29,000,000 in the U.

Speaker 5

S? Is the difference there just is there an interest in growth in net sales? And then is there any concentration of those returns by contracted among your contracted pharmacies? And then perhaps just one on the development side as it relates to Kik and your expectation of accelerated approval path there. Can you just sort of clarify what gives you confidence in being able to pursue a sort of it sounds like an approval on the basis of immunogenicity just given that there isn't yet an approved reference tick offering in the market?

Speaker 5

Thank you.

Speaker 2

All right. Jim, Kelly, why don't you take the first part of that question, then we'll hand it over to Philip to address the question on kick.

Speaker 6

Hey, certainly. Good morning, Eric. So in our feedback today on the U. S. Market, what I shared with folks is that for the 2023, 2024 season in the U.

Speaker 6

S, we're expecting total revenues for the U. S. Market to be below 25,000,000 dollars We did not break out the specific number for the Q4, but given that guidance we just gave you, the vast majority is in the Q4. As you are looking at what folks will find in our 10 ks, which is a gross to net roll forward, what you have identified is that we have a reserve for returns that are embedded within our financials. That number is just over 90,000,000 dollars What that means is that we have sales into the channel.

Speaker 6

Those are to our direct purchasers. They in turn sell to retail establishments. And then we make an estimate based on the shots in arms that we have through IQVIA for what may be eligible and we estimate would be eligible for return upon the end of the season. It is simply an estimate at this time, we will monitor it closely as the year goes on. But our net revenue in the case of the United States for the Q4 is a function of that return estimate that you're seeing in our roll forward financials.

Speaker 6

It is net of that

Speaker 5

amount. Okay, great. That's very helpful.

Speaker 2

Philip, do you want to take Eric's second question on Eric, did you have a follow-up there?

Speaker 5

No, no, no, no. That's fine. Thank you. Yes, the follow-up question on the development side.

Speaker 4

Yes, we have a couple of lines of evidence to give us confidence. I mean, as you know, we had a prior Phase 3 study that was actually granted, the accelerated approval pathway by the FDA. So we know what endpoints and how we need to achieve that. And certainly the immune responses that, I shared in the slides today would be adequate to achieve the same ones we used in our prior Phase 3 study. We also know the competitors are talking about timelines, which would indicate they're pursuing accelerated approval pathway.

Speaker 4

But I think most importantly, the FDA told us, right. So they reviewed our plans in our study and what they told us was that if we achieve the agreed upon endpoints and we are able to demonstrate meaningful therapeutic benefit then there's a pathway forward to accelerated approval. Now they also said they would have to wait to see the data before they took the final determination. But the strength of the immune responses we're seeing compared to the comparators as well as our prior experience gives us confidence that we have a pathway forward.

Speaker 2

Thank you, Jim and Philip. Thanks, Eric. Eric, did you have a follow-up?

Speaker 5

One more follow-up if I could on full year 'twenty four guidance, the non APA portion of that. What to what extent is that guidance sort of conditioned on or dependent on additional regulatory approvals or recommendations in the U. S, U. K. And Europe?

Speaker 2

Jim, did you want to take that one? And then John Trezino can add color if needed. Go ahead.

Speaker 6

Well, hey, certainly. So the non EPA revenue guidance, dollars 3,000,000 to $400,000,000 is virtually all except for that small portion related to R21 concentrated on the fall vaccination season. And so the regulatory authorizations that would be supportive of recognizing that outcome are all linked to our updated variant speed to market and regulatory authorizations to support that commercial market performance.

Speaker 2

Thank you, Jim. Thanks, Eric.

Operator

Thank you. Your next question comes from the line of Brandon Smith from Cedar Cowen. Please proceed.

Speaker 8

Hi guys. Thanks very much for taking the questions. Just a quick one from us actually. Apologies if I missed it in your comments, but I think you mentioned that you saw up to about 10% share in the U. S.

Speaker 8

In retail outlets where you were carried on an even playing field. Just wondering if you can maybe expound on that a little bit, really kind of what that looks like. If there's something about those areas where you could expand even further this year and into next year, Maybe what your plans for that would look like? And then just maybe quickly, what kind of the important steps between now and a potential approval would look like if you were to prioritize that prefilled syringe, any meaningful differences you'd expect to that process versus last year? Thanks.

Speaker 2

John Trizzino, do you want to take Brendan's question and maybe discuss what's different in our intentions for 2024 versus 23?

Speaker 3

Yes, sure. So yes, so that was a great example of the 10% and we also had in other instance where we had a 4% to 5% share in similar circumstances. We as we said, we came to the market a little bit late, so vaccinations were underway and 5 dose vial created some challenges. And so as we look forward to this, the benefit of having a well informed pharmacy population and pharmacists educated is going to help in that regard. A timely availability of product, pre filled syringe is going to make it much more convenient for And so as we've mentioned, 3 critical elements here for success in 2024 is early September, on time availability of product in front of the vaccination season, BLA, which is in process right now through rolling submission and prefilled syringe making it easy and convenient use for the pharmacists.

Speaker 3

We believe that these will make dramatic difference in what we see as our performance in 2024.

Speaker 2

And John, just a little bit of additional commentary well said, but I think that 10% Brendan that you mentioned in a key retailer, when we say even playing field, we were still several weeks behind the competition in a 5 dose vial and we were able to achieve that in just a few weeks being on the market. So we're confident that should we execute on the plans we intend to execute upon, which include a prefilled syringe an on time launch in the marketplace, being on an even playing field when it comes to the pharmacy schedulers that consumers can go in and schedule their shots, which wasn't the case in 2023 in our 1st year in the U. S. Market. And we have we're encouraged by the early dialogue we had starting this past fall with retailers.

Speaker 2

And I think it was a surprise to everyone that the COVID market in the United States was over, like John said in our earlier commentary, 95% plus retail, nothing really coming out of the IDNs of the physician offices. So we've recalibrated, reorganized our internal team and our focus on retail, started those conversations in the fall, are very encouraged by where those are headed right now. And that makes us more optimistic for it to be much better positioned for success in 2024. Thank you.

Speaker 4

Great. Thanks guys.

Operator

Thank you. And your next question comes from the line of Mayank Mamtani from B. Riley Securities. Please proceed.

Speaker 9

Good morning, team. Thanks for taking our questions and appreciate the level of detail including on the Gavi settlement. So maybe just on the current liabilities section, could you just break out beyond Gavi what sort of components remain and how they contribute to the influence on going concern language and maybe just the cash outlays you expect in 2024 specifically UK, etcetera, if you could just take that down, that would be great. Then I will follow-up.

Speaker 2

Yes. And Jim, Kelly will take that, Mike. And I think we're very proud that in the past year, we've made a lot of good progress on removing significant portion of the one time current liabilities that were a legacy of the pandemic, many of the take or pay contracts or other matters. I'll let Jim Kelly give you more detail on current liability breakdown. Jim?

Speaker 6

All right. Hey, good morning, Mayank. And if I'm going to reference Slide 21 from our presentation for listeners. And so as John noted, we were able to knock down current liabilities by $825,000,000 during 2023. And as we look at the impact of the Gavi settlement, we will be in a position to reduce those liabilities by over 500,000,000 dollars on our balance sheet.

Speaker 6

And that's really by spreading the remaining, any remaining liability over 5 years. So we are actually exceptionally pleased on what that means in terms of predictability of cash flow and marrying that up with our core operating plan. And then with respect to liabilities at twelvethirty onetwenty 23, I'll reference a couple of spots. I'll start with the other current liabilities category of 861. So within that, it's approximately $700,000,000 related to Gavi.

Speaker 6

And so as just noted, over $500,000,000 of that will move to long term liabilities as we continue to move forward. And then the remaining components of that were there's $112,000,000 related to the UK. We've got some other small refund liabilities related to other APA related matters, small items. And then finally, there's a facility operating lease in there as well. So those are the components of the 861.

Speaker 6

With respect to AP and accrued, when you look at the 527, we continue to have our Fuji matter outstanding. I think folks have or heard the update, you'll see it. We are on a track towards an arbitration hearing in May. We of course feel strongly about the merits of our case and await that outcome. In addition to that, as we look at the remaining components of AP and accrued, they're part and parcel, primarily of just the standard business operations of the company.

Speaker 6

And this is one of the things that we're exceptionally proud of. As the year has progressed, we have increasingly, also I'll call it cleared the deck of many of these legacy pandemic era manufacturing taker base and we're moving much more to a traditional streamlined balance sheet of operating entity. So hopefully that helps with the balance sheet.

Speaker 9

Super helpful. And then just on monetization of non core assets, any update on the Czech manufacturing plant would be helpful? And then I have just one more follow-up for Philip.

Speaker 2

Yes, go ahead, Jim. You want to take the check plant question?

Speaker 6

Yes, well, certainly. And Mayank, as we continue to drive towards a more lean and agile organization, supply chain is of exceptional importance to us with that question. And while certainly a difficult decision, right, to explore this sale, we recognize that it is an area of opportunity for streamlining and improving efficiencies in our supply chain. We do anticipate leveraging this check plant this year. It is a part of our network for delivery of doses into Europe and other, I'll call it Europe Reliant markets that rely on their regulatory authorization.

Speaker 6

And so we're exceptionally thankful to that team and everything they're doing to drive product sales this fall. We are at the beginnings via working with our broker to get indications of interest. It's a great plant and I have every expectation that we will certainly have a robust interest and we'll keep you posted on that.

Speaker 9

Great. And just last question about the kick combo program, integrating what you've learned from the COVID plus and flu monotherapy Phase 3 trials. Just what should we look for in these ACIP public meetings for respiratory vaccines that help sort of build on the recent FDA interactions that you've had? So just if you could lay that out, that would be helpful. Thanks again for taking my question.

Speaker 4

Yes, I think that's kind of a tricky question. I mean, we don't have any combination COVID influenza vaccines that have received ACIP approval to date. And we really don't expect it to come up before ACIP for a couple of years to the earliest. So I think we'll have to wait and see. We know there's a lot of interest from the public health authorities, both in the U.

Speaker 4

S. And globally to reduce the number of jabs to get people protected. And they see it as a way to increase COVID vaccination because people are in large getting their flu vaccines. So I think we will see when it happens, but I think that as you know, us and other people in the world are pursuing this because we think it's the right way to go forward.

Speaker 9

Thank you.

Operator

Thank you. And your last question comes from the line of Alex Shanahan from Bank of America. Please go ahead.

Speaker 10

Hey, guys. Good morning. Can you hear me okay?

Speaker 2

We can. Good morning, Alec.

Speaker 10

Great. Thanks for taking my questions. Just two quick ones from me. Maybe just to put a finer point on the BLA, I guess based on the latest FDA guidance, is there a go forward assumption that a formal BLA will be required to commercialize your COVID vaccine next fall in the U. S?

Speaker 10

And maybe if you could walk us through what's going on now and remaining hurdles to get both the single dose presentation and the BLA over the finish line, that'd be great. Thanks.

Speaker 2

John Trazino, do you want to take Alex's question?

Speaker 3

Yes. Yes. So, the BLA pathway is what we're pursuing at the moment. But, as you stated, there is an availability for EUA if that's needed given timing. The most significant piece of the strategy here is to be on time for market.

Speaker 3

So whether that be under EUA or BLA will allow us to be present in front of the vaccination season, allow us to bring our pre filter into the market for the convenience of the healthcare providers. And so I think those elements are the most significant piece. We do have a lot of work that's being conducted between our regulatory teams and our CMC teams with CBER to ensure that there's a sharing of information. Under this rolling submission, the intent of the rolling submission is to get them as much information as early as possible to streamline their review process. I can't comment upon kind of regulatory timing, but we're making significant headway in making that possible for the fall season.

Speaker 3

So, look, we're confident in the data that we're Thank you, John.

Speaker 2

Thank you, John.

Operator

Thank you. There are no further questions at this time. I will now turn the call over to Mr. John Jacob. Thank you.

Operator

Please proceed.

Speaker 2

Thank you everyone for joining us today. We wish you a great close to your week.

Operator

Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect.

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Earnings Conference Call
Waters Q4 2023
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