Moderna Inc (MRNA) — Q1 2024 Earnings Call Transcript

Thank you, Kevin. Good morning, everyone, and thank you for joining us on today's call to discuss Moderna's First Quarter 2024 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 Stéphane Bancel, our Chief Executive Officer; Stephen Hoge, our President; and Jamey Mock, our Chief Financial Officer. Before we begin, please note this conference call will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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. I will now turn the call over to Stéphane.

Thanks, Lavina. Good morning or good afternoon, everyone. Thank you for joining us today. I will start with a review of our business. Jayme will then present our financial results. Stephen will review our late-stage clinical programs, and I will close by sharing our 2024 commercial priorities and major upcoming milestones. Our COVID vaccine has already impacted hundreds of millions of people. I'm excited by the progress we've made with our pipeline that has the potential to impact many more people. During the first quarter, we presented substantial clinical progress during our Vaccine Day, with exciting data on EBV, VZV, and Norovirus. In addition, along with our partner, Merck, we expanded studies for Individualized Neoantigen Therapy, INT into three new indications. Additionally, through ongoing Phase III studies in adjuvant melanoma and adjuvant non-small cell lung cancer, a Phase II/III study has started in neoadjuvant, adjuvant, cutaneous squamous cell carcinoma, another form of skin cancer. Phase II clinical trials have started in adjuvant bladder and adjuvant kidney cancer. Together, our vaccines and therapeutic portfolio have the potential to impact hundreds of millions of people each year. I am pleased with our Q1 performance. Since the beginning of the year, we announced four important business agreements and collaborations. We entered into a nonexclusive IP out-licensing agreement with a leading pharmaceutical company in Japan, which includes an upfront payment and low double-digit royalty to Moderna on net sales of our key COVID products marketed in Japan by this company. It is nice to see a company recognizing our IP and our figures for our license. Second, we recently announced a contract to provide 4.5 million royalties of COVID-19 vaccine to the Ministry of Health in Brazil. I am very pleased with this partnership as it is the very first time that Moderna works with a broad environment, and we look forward to providing these doses to protect people in Brazil as they go into their winter season. We announced a project financing program for up to $750 million in funding to Blackstone to further develop our flu program. We also made public our collaboration with OpenAI to use AI as a transformative tool to increase speed and efficiency and ultimately improve patient outcomes across our business. Finally, we agreed with Metagenomi to terminate our gene editing collaboration. All rights granted under the collaboration will be returned to Metagenomi. This is a good proof point of Moderna's continual aim to prioritize our investment for our best opportunities to drive returns. Turning to Q1 financial results, in revenues, we were ahead of our plans at $167 million, reflecting the highly seasonal nature of our respiratory vaccine business. The net growth was $1.2 billion. We ended the quarter with $12.2 billion of cash and investments. We communicated during our November call about our focus on financial discipline. I am pleased with what the team has achieved with our operating expenses; cost of manufacturing expenses plus cost of R&D expenses plus cost of SG&A expenses were down almost $800 million in Q1 2024 versus Q1 2023. Jamey will elaborate on this in his section. With that, I will now hand over to Jamey.

Thanks, Stéphane, and hello, everyone. Today, I will walk you through our financial performance for the first quarter and provide commentary on our 2024 financial framework. Let me start with our commercial performance on Slide 8. Net product sales for Q1 were $167 million, down 91% year-over-year, mainly driven by lower sales volumes of our COVID-19 vaccine in regions outside the United States. This decline aligns with the anticipated transition of the COVID-19 vaccine market or it's a seasonal pattern, whereas in the first quarter of 2023, we primarily delivered doses that were deferred from 2022. Q1 was driven by sales in the U.S. and the Rest of the World, largely in Latin America markets. For Q2, we expect about $100 million in sales for a total of approximately $300 million in the first half of 2024. Q2 will include a portion of our recently announced contract with Brazil. Moving to Slide 9. Our cost of sales was $96 million, which included third-party royalties of $8 million, inventory write-downs of $30 million, and $27 million related to unutilized manufacturing capacity and wind-down costs. This resulted in our cost of sales representing 58% of net product sales, up from 43% in the same quarter last year. The increase in cost of sales percentage was primarily due to the lowest level of sales in the quarter. We continue to expect the full-year cost of sales to be approximately 35% of product sales. However, due to the strong seasonality of our business, we expect a higher percentage in the first half. Moving to our R&D efforts, Q1 R&D expenses were $1.1 billion, reflecting a decrease of 6% year-over-year, primarily due to the absence of upfront collaboration payments this quarter. Q1 SG&A expenses were $274 million, marking a 10% decrease year-over-year. The decrease was driven by all functions in SG&A, and it is a result of our strong focus on cost discipline and strategic investments, driving productivity. We reported an income tax expense of $10 million for Q1 2024 compared to an income tax benefit of $384 million in the same period last year. The shift is primarily due to the continued application of valuation allowance on the majority of our deferred tax assets, which we first established in Q3 2023. Net loss for the period was $1.2 billion compared to net income of $79 million last year. Diluted loss per share was $3.07 compared to diluted earnings per share of $0.19 in 2023. We ended the first quarter with cash and investments totaling $12.2 billion, down from $13.3 billion at year-end 2023, largely attributable to research and development expenses and operating activities. Moving to Slide 10, I want to take a moment to elaborate on the efficiencies we are now seeing across the company. As a platform company, we have the opportunity to build a unique operating model. Over the last few years, we have invested purposefully into people, processes, and technologies to build foundational capabilities that will allow us to scale efficiently. First, we ended 2023 with nearly 6,000 employees, up from 1,300 at the end of 2020. Every function scaled capabilities to enable the increasing product launches we expect over the coming years. Additionally, as you know, Moderna has always led with a digital-first mindset. Over the past three years, we have nearly doubled our built-for-purpose software applications to digitally enable our teams. We have used SAP in the past, however, it was built for a research and development-focused company. We have implemented a revised version, supporting our end-to-end business processes more effectively and efficiently. Another example is our rapid adoption of artificial intelligence. Over the past year, we have built over 750 GPTs, one example in the legal space is our contract companion GPT that streamlines the task of reviewing and summarizing contracts across the business. AI has already produced significant wins in a short period of time. We have rolled out a comprehensive training program and are committed to driving this technology breakthrough. As a result of these strategic investments, we were able to significantly reduce purchased services and our use of external consultants, contributing heavily to the 10% year-over-year reduction in SG&A spend. We are also seeing similar benefits in R&D and manufacturing. In general, we now have a solid foundation with our operating model. As we continue to grow our commercial activities, we will need to further invest; however, we will be able to do that more efficiently. Now let's turn to the 2024 financial framework on Slide 11, which is in line with what I shared on our last earnings call in February. We continue to expect net sales for 2024 of approximately $4 billion, which we see as a low point as we expect to return to growth in 2025.

Thank you, Jamey. Today, I'll review updates from our clinical programs that were shared during our recent Vaccines Day, as well as new developments in our therapeutics portfolio. Starting with respiratory vaccines, our RSV vaccine in Canada is undergoing regulatory review in multiple countries, and pending approval, we expect to launch the product in the United States following the June ACIP meeting this year. We shared updates from co-administration studies of RSV, confirming the ability to administer our vaccine with other vaccines during the respiratory season. With our flu program, we recently presented data from our Phase III P303 study at ECCMID and continued discussions with regulators globally towards the goal of filing this year. For our next-generation COVID vaccine, mRNA-1283, we have presented positive Phase III safety and immunogenicity data and are engaging with regulators on the path to approval for that product. Our combination flu and COVID vaccine, mRNA-1083 is in Phase III, and we look forward to sharing clinical data in the current quarter. Turning now to our leading and other vaccines. Our CMV vaccine, mRNA-1647, has fully enrolled its Phase III trial, and we have the potential for an interim analysis of efficacy this year. We announced positive Phase I immunogenicity and safety data from our EBV vaccine candidate, mRNA-1189, and we are now advancing towards pivotal trials with that program. A second therapeutic EBV candidate, mRNA-1195, is in a separate ongoing Phase I study. mRNA-1468, our vaccine against varicella-zoster virus, showed strong immunogenicity, including strong T cell responses, and we are preparing to move that program forward towards a pivotal Phase III study as well. Our HSV vaccine against Herpes simplex, mRNA-1608, is now fully enrolled in its Phase I/II study, and we look forward to sharing clinical data updates when available. We presented positive clinical data from our norovirus vaccine candidate, mRNA-1403, and shared that we are advancing that program towards its pivotal Phase III trial. Now regarding our Oncology Therapeutics, we are happy to report our ongoing Phase III studies are enrolling well. We were excited to announce three new INT trials, including a randomized Phase II/III study in neoadjuvant, adjuvant cutaneous squamous cell carcinoma; a randomized Phase II trial in adjuvant high-risk muscle invasive bladder cancer; and lastly, a randomized Phase II trial in an adjuvant renal cell carcinoma. At AACR, we presented Phase I data from our INT program in advanced unresectable HPV-negative head and neck cancer in the metastatic setting. At AACR, we also presented Phase I translational data from another oncology therapeutic program, mRNA-2752, in various tumor types. Links to both of these presentations are provided on the slide. Now as a final note, at ASCO, we'll be hosting another Moderna oncology event on the evening of June 3, and we look forward to seeing you there or having you join us virtually.

Thank you, Stephen and Jamey. Slide 18 is an overview of our COVID-19 strategy for 2024, which focuses on the needs of each region. In the U.S., our focus is on working with public health officials, healthcare providers, and pharmacies to increase vaccination coverage rates. In Europe, we are actively participating in the 2024 tender process, allowing for up to 36 million doses per year for up to four years. And in the Rest of the World, we have reoriented our commercial teams to prioritize markets for greater commercial focus and impact. As mentioned earlier, the Brazil contract is an example of how this is working. In the fall of 2023, U.S. COVID vaccination rates lagged behind flu vaccination rates, at only 11%, while flu vaccination rates were four times that. Indeed, COVID continues to present a higher risk. U.S. operation for COVID began October 2023. Our initial efforts engaged 424,000 people, marking a markedly higher demonstration than either flu or RSV infection. Actually, COVID operations were around the same level as flu plus RSV combined. Additionally, long COVID continues to pose a serious risk to many healthy young adults in their 20s, 30s, and 40s, who are facing ongoing challenges with lung and mental capacity due to long COVID. Data shows that the COVID-19 vaccine reduces the risk of long COVID by 70%. We believe education and awareness will be very important. We aim to educate consumers about the need for an annual COVID vaccine, similar to flu vaccinations. Too many people are suffering when we have safe and effective vaccines available. Our mission will not stop until these vaccination numbers come down significantly. As you know, health authorities received approval and launched the COVID vaccine. Authorities, including the WHO and EMA in Europe, have selected the JN.1 strain for the 2024-25 formula. The FDA will hold a meeting on May 16 to select the strain for the U.S. market. Moderna has already manufactured JN.1 drug substance to support the potential August launch, and we have also prepared for backups in case the FDA does not select JN.1. In 2023, COVID vaccines were available five weeks later than flu vaccines. In the recent channel alone, more than three million flu vaccines were administered before the updated COVID vaccines were available. As we look ahead to the fall 2024 season, we see the potential for synchronized timing of flu and COVID vaccine approvals, encouraging us by the earlier meetings for this year's COVID trend selection compared to last year. We're working toward timely COVID approval as we anticipate higher vaccination uptake if COVID vaccines are available sooner. Turning now to the anticipated launch of our second respiratory vaccine, our RSV vaccine, expected to launch into a significant market. In its first year, the older adult RSV market generated $2.5 billion in sales, with analysts expecting the market to grow to between $6 billion and $8 billion per year. With marketing applications filed globally, we anticipate receiving approvals beginning in the first half of 2024. In the U.S., we're targeting a launch after the June ACIP meeting. We are very excited to bring a product with a strong differentiated profile to market. Our vaccine has demonstrated strong efficacy and safety in clinical trials and will be the only product available in prefilled syringe (PFS) presentation. Our PFS presentation is ready-to-use, offering a significant advantage over competitors that require multiple steps for preparation. Studies indicate that our PFS presentation could be three to four times more efficient compared to others, easing the burden on pharmacies during the fall respiratory season. We believe our PFS presentation for the RSV vaccine has the potential to mitigate the personal burden on pharmacies.

Firstly, could you discuss your strategy for pursuing contracts for the RSV vaccine given two approved vaccines have a head start? And help us understand how significant the PFS formulation is to them? And then secondly, regarding the three new indications for the INT program, can you help us understand the signals or specific data points that support that?

On the RSV contract, we are not allowed to contract until the product is approved by regulators. However, our medical teams are actively engaged with retail pharmacies, IV, and hospital networks to present data on the efficacy and safety profile of the product, including the benefits of the PFS in terms of productivity. These discussions are ongoing daily, including with pharmacy leadership. The next step is to wait for the FDA approval.

On the three additional INT indications, these are in adjuvant settings, similar to the encouraging results from our melanoma Phase II studies, where there's known benefits of KEYTRUDA and where we believe there's an opportunity to enhance that with driving specific T cell responses using INT. In Phase I, we examined various indications in metastatic settings. Following the positive Phase II melanoma results, we have aggressively pursued adjuvant indications where IO is approved, and all three fit squarely in that space.

Two questions as well. On RSV, competitor GSK recently commented that they're expecting you to be in the mix and that contracting is ongoing. Can you comment on how you've adjusted your guidance and your confidence in RSV sales? And then on INT, can you discuss the importance of Phase III enrollment progress before engaging with the FDA?

We haven't provided specific guidance or numbers for RSV. In the past, we did break down the $4 billion guidance into three segments: the U.S. market, APAs we walked into the year with, and another category of other COVID sales, including Brazil. So no specific guidance for RSV from a financial perspective.

Regarding INT, it’s crucial to demonstrate diligent enrollment in the confirmatory study, especially if we’re considering accelerated approval by the FDA. We intend to ensure that this study matures and demonstrates substantial enrollment before we proceed.

Could you provide your perspective on the likely ACIP recommendation for the RSV vaccine? Also, any update on your conversations regarding the filing of your seasonal flu vaccine?

Caveating that we must complete the approval process with the FDA, we hope that once the ACIP reviews the data package, they will provide a parity recommendation, as we believe the data supports that.

Regarding flu, we are engaged with regulators on the submission process for the flu vaccine. We expect to file the flu product this year, but this depends on multiple considerations, including critical data we anticipate seeing soon.

On CMV, how are you thinking about the need for boosting from a clinical and commercial perspective? If you don't meet the interim analysis, would you disclose that?

Currently, we expect durable immunity from our three-dose series. The end of the Phase III study will yield insights into the need for potential boosting. If we reach the interim analysis, we will provide updates given the positive progression of the study.

Can you clarify the development plans for your refrigerator-stable vaccines and their expected approval timelines?

We are developing our respiratory portfolio, including RSV, flu, and COVID vaccines toward refrigerator-stable, prefilled syringes, which we see as crucial for facilitating vaccine delivery to patients.

What conditions would allow you to achieve 36 million doses in the EU, and how should we approach pricing in international markets?

The tender process for the EU will inform how many doses we can supply, based upon the number of countries applying. As for pricing, we cannot disclose specific numbers due to competitive reasons.

While we have not set a timeline for completing our manufacturing readiness with INT, we expect to continue making progress. Merck is supportive of submitting for accelerated approval when ready, pending further discussions with regulatory bodies.

Can you confirm if the PDUFA date for RSV is still May 12th, and your thoughts on the recent decisions regarding patents?

There is no change to our expectation of the PDUFA date for RSV. As for the patent decision, we remain confident that our technology stands independently.

The collaborative work regarding INT is ongoing and we are strategically prioritizing our studies with Merck. We are enthusiastic about the potential expansions, and we will continue to review those strategically.

Can you provide a status update on INT manufacturing scale-up and clarify the timeline for its completion?

We have been preparing the manufacturing facility in Marlborough for our INT program. The facility is designed to scale efficiently, accommodating different cancer indications. We will add modules as necessary to ensure we meet patient demand.

Regarding the flu vaccine, we anticipate sharing immunogenicity data soon, which will play a role in our regulatory discussions. The order of submission will depend on the data we collect from our studies.

The potential risk of CMV in seropositive individuals is acknowledged, and we are exploring vaccines for both seronegative and seropositive populations. The strategy will evolve as we gather more data on efficacy and safety.

When should we receive updates on your pivotal strategy for the zoster vaccine and any insights on your competencies regarding the MMA and PA programs?

We are in discussions regarding the pivotal strategy for our zoster program, including dose selection. We are excited by the Phase I data, and we will follow up with updates as we progress toward a pivotal study. Our MMA and PA programs have shown a sound safety profile based on clinical data, and we are monitoring them closely.

Regarding the 1083 program, how comprehensive will the top-line update be, and what conditions would lead to a regulatory filing? Also, any thoughts on your international positioning for RSV?

We expect to provide comprehensive updates as data becomes available. In parallel, we are focused on exploring our international approach for RSV, seeing significant interest from healthcare leaders. This is a global market with strong demand for our preventive measures.

Our main intention remains robust, and we have reason to believe that our accomplishments will begin to align with global expectations. We are excited about the upcoming opportunities but remain cautiously optimistic.

Could you provide insights regarding the CMV interim data timing and thoughts on HSV associated with Alzheimer's?

We maintain our expectation for a readout on the CMV interim analysis this year. The relationship between HSV and neuroinflammation is being studied, though it is still early to draw firm conclusions. Our focus is on clinical outcomes and disease management for our HSV vaccine.

On the cancer efforts, can you break down the R&D costs and the indications you plan on pursuing?

While we are aware of our spending on R&D for cancer programs, we are not prepared to disclose specific figures at this time. We are strategically assessing our partnership with Merck for future indications and opportunities.

Thank you, everybody, for joining today's session. We look forward to seeing you at ASCO. Have a great day.