Moderna, Inc. (NASDAQ:MRNA) Q1 2024 Earnings Call Transcript

Moderna, Inc. (NASDAQ:MRNA) Q1 2024 Earnings Call Transcript May 2, 2024

Moderna, Inc. beats earnings expectations. Reported EPS is $-3.07, expectations were $-3.56. MRNA  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and thank you for standing by. Welcome to the Moderna’s First Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised, today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Lavina Talukdar. Please go ahead.

Lavina Talukdar: 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 investor 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 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. 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’ll now turn the call over to Stéphane.

Stéphane Bancel: Thank you, Lavina. Good morning, or good afternoon, everyone. Thank you for joining us today. I will start with a review of a business, Jamey 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 date 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.

In addition to our ongoing Phase 3 studies in adjuvant melanoma and adjuvant non-small cell lung cancer, a Phase 2 free study has started in neoadjuvant and adjuvant cutaneous squamous cell carcinoma, another form of skin cancer. Phase 2 clinical trials have started in adjuvant bladder and adjuvant kidney cancer. Together, our vaccines and therapeutic portfolio have a 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 collaboration. We entered into a non-exclusive IP out-licensing agreement with a leading pharmaceutical company in Japan. The agreement includes a lump sum payment and low double-digit royalties to Moderna on net sales of COVID-19 products marketed in Japan by this company.

It is nice to see a company recognizing our IP and asking us for a license. Second, we recently announced a contract to provide 12.5 million doses 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 the Brazilian government 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 with 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 to improve patient outcomes across our business. Finally, we agreed to Metagenomi to terminate our gene editing collaboration.

All rights granted under the collaboration will be returned to Metagenomi. It is a good proof point of Moderna’s continuing to prioritize our assessment for 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 loss was $1.2 billion. We ended the quarter with $12.2 billion of cash and investments. We communicated during the November call our focus on financial discipline. I am pleased with what the team has achieved. 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 turn to Jamey.

Jamey Mock: 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 towards 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 Latin American 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, net product sales were $167 million as I just explained. For the first quarter of 2024 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. This reduction was primarily due to the absence of upfront collaboration payments being made this quarter. The upfront payments made in the first quarter of 2023 were related to our strategic collaborations with Generation Bio and Life Edit. With the Q1 spend of $1.1 billion, we are tracking towards the full year expected spend of approximately $4.5 billion. Q1 SG&A expenses were $274 million, marking a 10% decrease year-over-year. Importantly, this 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. I will provide additional color on the next page.

We reported an income tax expense of $10 million for the first quarter of 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 evaluation allowance on the majority of our deferred tax assets, which we first established in the third quarter of 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. And over the last few years, we have invested purposely 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. As an example, we recently went live with a newly implemented rebuilt ERP system. SAP 4 HANA is our new digital backbone for all our operational activities.

We’ve used SAP in the past, however, it was built for a research and development-focused company. And now we have implemented an entirely 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’ve built over 750 GPTs. One example in the legal space, our Contract Companion GPT, streamlines the task of reviewing and summarizing contracts across the business, with the GPTs providing step-by-step guidance to craft a tailored, insightful summary. This enables any function to extract critical insights from contracts whenever needed, minimizing bottlenecks, and freeing up Moderna’s legal department to focus on work of higher strategic value, thus enhancing operational efficiency and decision-making.

Another example in G&A is a purchase-to-pay GPT for all questions around our procurement and payment processes. Instead of our employees having to find and read policies and procedures, they can easily query the GPT. It also saves time for our procurement and payables teams from answering numerous questions. AI has already changed our way in a short period. In general, we see the area developing at an incredible speed that allows for an unprecedented impact on productivity in many areas. We have rolled out a comprehensive training program and are committed to driving this technology breakthrough. As a result of these strategic investments in the people, processes, and technology, we were able to significantly reduce purchased services and our use of external consultants, which contributed 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 think will be a low point as we expect to return to growth in 2025. Sales in the first half of the year are now expected to be approximately $0.3 billion. We continue to expect cost of sales of approximately 35% of product sales for the full year. For R&D, we continue to expect full year expenses to be approximately $4.5 billion, down from $4.8 billion in 2023, rest we continue to expect full year expenses to be approximately $1.3 billion, down from $1.5 billion in 2023.

And we expect taxes to be negligible in 2024 and capital expenditures in 2024 to be approximately $0.9 billion. Finally, we expect to end 2024 with approximately $9 billion in cash after touching a low point of approximately $8 billion at the end of Q3 due to the seasonality of collections. Finally, let me also touch on our recently announced project financing deal with Blackstone, which we are excited about. In March, we entered into a development and commercialization funding arrangement, which commits Blackstone to providing us with up to $750 million of funding for our flu program so that we can strengthen the product label and fulfill our remaining regulatory applications. Subject to the regulatory approval in the United States, which depends on data from the funded activities, Blackstone will be entitled to receive up to $750 million in sales in milestone payments.

These milestone payments are contingent upon achieving specified cumulative net sales targets for our future influenza and combination vaccines. Additionally, Blackstone will earn royalties on applicable net sales at a low single digit percentage rate. This funding will offset R&D expenses and is factored into our R&D framework for the year of approximately $4.5 billion. Overall, we are excited that this deal enables us to accelerate the advancement for our pipeline. And with that, I will now hand the call over to Steve.

Stephen Hoge: Thank you Jamey. Today I will 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, we shared updates to many of our respiratory programs at Vaccines Day in March. Our RSV vaccine candidate 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 and Recommendations this year. At Vaccines Day, we shared updates from core administration studies of RSV confirming the ability to administer our vaccine and other vaccines given during the respiratory season. With our flu program we have recently presented data from our Phase 3 P303 study at ESCMID, and continue discussions with regulators globally toward the goal of filing this year.

For our next generation COVID vaccine and mRNA-1283, we’ve presented positive Phase 3 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 3, and we look forward to sharing those clinical data in the current quarter. Turning now to our latent and other vaccines. I shared at Vaccines Day, we’ve had — we’ve made significant progress in this portfolio. Our CMV vaccine, mRNA-1647, has fully enrolled its Phase 3 trial, and we have the potential for an interim analysis of efficacy this year. We announced positive Phase 1 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 1 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 3 study as well. And our HSV vaccine against herpes simplex, mRNA-1608 is now fully enrolled in its Phase 1/2 study, and we look forward to sharing clinical data updates when that’s available. Now, rounding out this portfolio, we presented the positive clinical data from our norovirus vaccine candidate mRNA-1403, and shared that we are advancing that program towards its pivotal Phase 3 trial. Turning now to Oncology Therapeutics. We are happy to report our ongoing Phase 3 studies are enrolling well.

We were excited to announce three new INT trials, including a randomized Phase 2/3 study in neoadjuvant and adjuvant cutaneous squamous cell carcinoma, a randomized Phase 2 trial in adjuvant high risk muscle invasive bladder cancer, and lastly, a randomized Phase 2 trial in an adjuvant renal cell carcinoma. Now, recently at AACR, we presented Phase 1 data from our INT program in advanced unresectable HPV negative head and neck cancer in the metastatic setting. At AACR we also presented Phase 1 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 will be hosting another Moderna oncology event on the evening of June 3rd and we look forward to seeing you there or having you join us virtually.

With that I’ll turn it back over to Stéphane.

Stéphane Bancel: Thank you Stephen and Jamey. Slide 18 is an overview of our COVID-19 strategy for 2024, which is focused on the needs of each region. In the U.S. our focus is 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. The tender allows for up to $36 million 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. U.S. COVID vaccination rates were 11%, with flu vaccination rates at four times that.

And yet COVID continues to show a higher burden of disease. U.S. hospitalizations for COVID between October 2023 and last week were 424,000 people which is markedly higher than hospitalization from either flu or RSV infection. Actually, COVID hospitalizations were around the same level as hospitalizations of flu plus RSV combined. In addition, long COVID coughs continues to be a serious risk. Too many healthy young adults in their 20s, their 30s, their 40s are losing lung capacity and/or mental capacity due to long COVID. The data shows that COVID-19 vaccine reduces the risk of long COVID by 70%. We believe education and awareness will be very important. We are working on educating consumers about the need for an annual COVID vaccine just like flu.

Too many people are getting hurt when we have safe and effective vaccines available. Our job will not stop until these hospitalization numbers come down significantly. As you know, strength detection will help authorities receive approval and launch of COVID vaccine. Health authorities, including the W.H.O. and EMA in Europe, have recently selected JN. 1 strain for the 2024-2025 formula. The FDA will host the VRBPAC Meeting on May 16th to select a strain for the U.S. market. Moderna has already manufactured JN. 1 drug substance to support the potential August launch. We have also prepared for backups in case the FDA does not select JN. 1. In 2023 COVID vaccines were available five weeks later with flu vaccine. In the recent channel alone, more than 3 million flu vaccines were administered before the updated COVID vaccines were available.

As we look into the Fall 2024 season, we see the potential to align the timing of flu and COVID vaccine approvals. We are encouraged by an earlier VRBPAC for this year’s COVID front selection versus last year. And we’re working with the FDA and regulators to offer timely COVID approval. We expect higher vaccination updates if COVID vaccines are available sooner. Turning now to the anticipated launch of a second respiratory vaccine, or RSV vaccine, which is expected to launch into a large market. In its first year, the older adult RSV market was $2.5 billion in sales, and analysts expect the older adult market to grow between $6 billion and $8 billion per year. With marketing applications filed in markets globally, we anticipate seeing approval beginning in the first half of 2024.

In the U.S. we are targeting a launch after the June ACIP meeting. We’re very excited to bring a product with a strong differentiated profile to market. Our vaccines has shown stronger efficacy and safety data in clinical trials. And will be the only product available in a pre-filter range of PFS presentation. Let me now double-click on what we believe are the benefits of PFS. We recently published a time-and-motion study that shows faster preparation time for PFS relative to vaccines that require constitution. Recall that both RSV competitors’ vaccines on the market require multiple steps to prepare their vaccines for administration. One vaccine requires four steps and the other nine steps to prepare. Our PFS presentation is ready to use vaccine straight out of the box.

The study found that PFS presentation to be three to four times more efficient as measured by preparation time. Details from the study can be found through the link on the slide. We believe our PFS presentation for RSV vaccine has the potential to ease the personal burden on pharmacies during the fall respiratory season. Big pharmacies chains but also independent pharmacies were looking forward to launch. Let me close with major upcoming pipeline milestones. While we are excited about our commercial prospects for the year, we are even more excited about the upcoming pipeline milestones and the effect they will have on our commercial outlook for the next several years serving patients. In respiratory vaccines, we are eagerly awaiting the approval of RSV and ACIP [ph].

We are also waiting for data for RSV in the age group 18 and above. We are in discussion with regulators on our flu program, and intend to file in 2024. With our next-gen COVID vaccine, mRNA-1283, we are pleased with positive Phase 3 immunogenicity data and are engaging with regulators. Our flu plus COVID vaccine combo should get its Phase 3 data soon. In latent, with CMV fully enrolled and occurring cases, we look forward to potential for Phase 3 data efficacy data in 2024. In INT program, we are looking forward to completion of our enrollment for Phase 3 adjuvant melanoma study. In addition, we are keen to discuss the possibility of accelerated approval with regulators based on Phase 2 study data. As we shared before, there are three things we view as necessary before we could consider pursuing accelerated approval for INT.

First, durability data from our Phase 2 study, which we announced in December last year. Second, a substantially enrolled Phase 3 adjuvant melanoma study. And third, manufacturing readiness at our Marlboro site. And last but not least, our REVD [ph] portfolio, we look forward to initiating pivotal study for PNMMA. This milestone will represent continued progress toward our mission to deliver the greatest possible impact to people through mRNA medicine. And as Moderna, we are dedicated to achieving them all. Every data continues to confirm the power of our platform and its breadth in the service of patients. Two important save-the-dates for your calendars. We will discuss oncology program in Chicago on June 1st and our Annual R&D day will be held in New York the morning of September 12th.

Thank you for listening and we look forward to taking your questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions]. Our first question comes from Salveen Richter with Goldman Sachs. Your line is open.

Salveen Richter: Good morning. Thanks for taking my questions. Firstly, could you discuss your strategy for pursuing contracts for the RSV vaccine, given two approved vaccines that have a head start timing-wise and help us understand, if you’ve communicated with large retail pharmacies, how significant the PFS formulation is to them? And then secondly, with regard to moving into the three new indications for the INT program, maybe help us understand signals or specific data points that support that? Thank you.

Stéphane Bancel: Good morning. On the RSV contract, so as you know we’re not allowed to contract until the product is approved by the regulator. But what we are doing, because we can do that, is our medical team actively engage with retail pharmacies, but also IDN hospital networks, in terms of making sure the data on the efficacy profile of a product, on safety, and of course on the PFS and the benefits of PFS in terms of productivity. Those discussions are ongoing literally on a daily basis, including with leadership of those pharmacies. And the next step, of course, is to wait for the FDA approval. Steven?

Stephen Hoge: Yeah, sure. So thanks for the question. So on the three additional INT indications, I think the short version of it is they are all adjuvant settings, similar to our melanoma Phase 2 results is encouraging where our KEYTRUDA has a known benefit, and where we still believe that there’s an opportunity to improve upon that by driving a specific T cell response with INT. And so, as you know, in Phase 1 we looked across a range of different indications. That was more in the metastatic setting. But as we announced, since we first saw that positive Phase 2 results from melanoma, we have been aggressively pursuing adjuvant indications where IO is approved, and where we see an opportunity in all three of these fits squarely in that space.

Operator: Thank you. Our next question comes from Michael Yee with Jefferies. Your line is open.

Michael Yee: Hey guys, thanks. Two questions as well. On RSV, I guess the competitor GSK as well this week was commenting about how they are expecting you to be in the mix and contracting is ongoing. I know you have some RSV in your guidance. I think the math implies maybe hundreds of millions of dollars. Can you just perhaps comment on how you adjusted or probability adjusted or thought about how much is there in your guidance and your confidence on that for this year? And then secondly, on INT as well, I know you have some data at ASCO. I know you have breakthrough therapy and prime designation. How important is the Phase 3 enrollment progress, the confirmatory study, I feel like that’s always an important discussion with FDA, so how important is that progress before you can really engage with FDA? Thank you.

Jamey Mock: Yeah, maybe I’ll take the first one. Thanks, Mike, for the question. So as you may know, we haven’t guided any specific guidance or number for RSV. In the past, we did break down the 4 billion into three different segments around the U.S. market, the APAs we locked into the year with, and then another category of other COVID sales that didn’t have any APAs across the rest of the world. So a good example is Brazil that we just signed, as well as RSV. So no specific guidance for RSV from a financial perspective.

Stephen Hoge: And on the question of INT, I think you nailed it. It’s a really important topic. In particular right now, as we think about accelerated approval, that we demonstrate the diligence and substantially enroll the confirmatory study. So really all you’re waiting for is for that study to mature, could be several years. We think it’s really important. To be fair, we have not consulted with the agency on that yet. As we’ve said, we’re waiting until we’ve crossed our own threshold and also at this point until we’ve established the manufacturing facility or outlined site to them. But we do feel that, as we’ve said, substantial enrollment demonstrating that essentially all you’re waiting for is the readout on that confirmatory study is our obligation before we even want to go full of that question.

We are making great progress this year, and we’re optimistic that both that and the facility will be available in short order. And then, of course, we’ll want to start engaging with our data, including the FDA on the question of accelerated approval.

Michael Yee: Got it. Thank you very much.

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

Terence Flynn: Great. Thanks for taking the question. Maybe two parts for me. Just on the RSV vaccine, can you provide your latest perspective on what the most likely ACIP recommendation will be, will you get a parity recommendation to the competitors or do you think there’s a potential for a differential recommendation here? And then just wondering, any update on your ongoing conversations regarding filing your seasonal flu vaccine, I know you mentioned in your prepared remarks, but just any more insight in terms of what the guiding steps are here? Thank you.

Stephen Hoge: Thanks for both questions. So first on RSV, caveat by saying we have to complete the approval process with FDA. And then at the end of the day, the recommendation really falls to ACIP and the committee members that defer to them. Our expectation, our hope, is that when they review the data package that we already have, as well as additional data that we expect to be able to share at the ACIP meeting on durability through a second season and on immunogenicity across other populations, we expect a parity recommendation. We certainly think the data supports that. But again, I’ll defer to the committee members on the ultimate decision. On the question of flu, we are actively engaged right now with regulators on the process for submission of the flu vaccine.

As I mentioned a moment ago, we are also closing in on clinical data from our combination flu COVID vaccine, mRNA-1083 and that obviously has an important role in our engagement with regulators generally on flu versus flu COVID combinations. And so those discussions are ongoing. I won’t provide any other update on it, except to say, as we said today, and we continue to say we expect to file the flu product this year. But it will be dependent upon a number of considerations, possibly also including the COVID data that we expect soon.

Operator: Thank you. Our next question comes from Ellie Merle with UBS. Your line is open.