Moderna, Inc. (NASDAQ:MRNA) Q4 2023 Earnings Call Transcript February 22, 2024
Moderna, Inc. 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 Fourth Quarter 2023 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 fourth quarter and full year 2023 financial results and business updates. You can access the press release issued this morning as well as the slides that we’ll be reviewing by going to the 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 two of the accompanying presentation and our SEC filings for important risk factors that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. With that, I’ll turn it over to 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 2023. Jamey will then present our financial results. Stephen will then review our late-stage clinical programs, and I will close by sharing our 2024 priorities. Let me start with our mission, Moderna’s commitment to deliver the greatest possible impact to people through mRNA medicine. In 2023, every member of the Moderna team helped to advance our mission, which is a driving force that motivates our team every single day. We impacted more than 100 million people around the world and we advanced our development pipeline across all of our franchises, including infectious disease, oncology, and rare disease.
2023 was a difficult year as we transitioned from a pandemic to a seasonal endemic market. We reported sales of $6.1 billion for 2023, which was at the low end of our financial framework range. These sales exclude the recognition of $600 million of deferred revenue from Gavi. In the U.S., the vaccination rate was down year-over-year. We were pleased that our U.S. commercial team drove an increase in our retail market share from 37% to 48%. Outside of the U.S., we were not able to compete in the EU market in the second half of 2023 due to a competitor contract, and our performance led to a low market share in Japan. We did have a strong performance in Israel, Switzerland and Taiwan. We took several important actions in 2023 that we set our commercial COVID business up for success.
We resized our manufacturing footprint, which has been established to support capacity at pandemic levels. We exited contract manufacturing relationships and reduced inventory levels. These initiatives will improve cash flow from our COVID business moving forward. We also flattened the commercial structure. All regions report directly to me now for more targeted sales execution and also a better integration with global teams. We focused on R&D spending and our SG&A expenditures towards near-term growth and higher return on investment projects. While sales were challenging in 2023, our development team had a great year with excellent progress across many of our late-stage pipeline programs. In 2023, we advanced our pipeline and now have nine late-stage programs.
Let’s start with Respiratory vaccine. For RSV, we filed for approvals around the world. We reported positive data from a flu P303 study, and we are fully enrolled in the Phase 3 studies for our next-gen COVID, mRNA-1283, and flu plus COVID combination vaccine, mRNA-1083. In our latent franchise, we are very excited that our Phase 3 CMV trial is now fully enrolled. In our Individualized Neoantigen Therapy Program or INT, where we partner with Merck, Phase 3 studies in adjuvant melanoma and non-small cell lung cancer are enrolling. We purchased and are currently building out a manufacturing site in Marlborough, Massachusetts to enable commercialization of our INT program. Our rare disease therapeutic programs continue to progress well. We are in dose selection of the restrictional study of our Propionic Acidemia Program.
In MMA, we are pleased to see improvement in biomarkers and clinical outcomes. In research, we made six estimated [ph] investments, including one acquisition, which we expect will increase the strategic reach and also the breadth of our mRNA platform. Now turning to our 2023 financial summary, we reported GAAP revenue of $6.8 billion, a net loss of $4.7 billion, primarily driven by mostly non-cash charges of $3.7 billion related to resizing of manufacturing and the tax valuation allowance. We are pleased to end the year with cash and cash investment of $13.3 billion. Let me turn to Jamey for more color on our financials.
Jamey Mock: Thank you, Stéphane, and hello everyone. Today, I will review our financial performance for both the fourth quarter and the full year of 2023. I’ll also provide our financial framework for 2024. Let me start with a review of our commercial performance this year. In the first half of 2023, we reported product sales of $2.1 billion, with the majority of sales from advanced purchase agreements signed for delivery in 2022 that were deferred into 2023. We do not expect these sales to repeat in 2024. In the second half of 2023, we recorded $4 billion in sales from seasonal endemic demand and an additional $600 million from deferred revenue related to Gavi. Sales in the fourth quarter were $2.8 billion, with $0.8 billion in sales in the U.S. and $0.6 billion in Europe and $1.4 billion in the rest of the world, including the deferred revenue from Gavi.
For the full year, 2023, product sales were $6.7 billion, comprised of $1.7 billion in sales in the U.S., $1.4 billion in Europe, and $3.6 billion in the rest of the world, again, including deferred revenue from Gavi. Moving to side 10. As mentioned, net product sales were $2.8 billion this quarter, a 43% decrease from last year. This was largely attributable to the anticipated reduction in sales volume, which was partially offset by a higher average selling price. This decrease is indicative of the evolving market dynamics as we navigate the transition of the COVID-19 vaccine market towards a more predictable seasonal pattern like traditional flu vaccines. Cost of sales was $929 million, down from 39% of net product sales in the previous year to 33% this year.
This is a demonstration of our strategic efforts in Q3 to resize our manufacturing footprint, which as expected, led to additional charges in Q4 of $169 million, primarily related to the wind down of certain contract manufacturing operations. Additionally, faster sales also includes an inventory write-down of $322 million, reflecting revised demand forecasts. R&D expenses increased by 16% to $1.4 billion. This uptick reflects our commitment to advancing our late-stage clinical development programs, particularly with our RSV vaccine, CMV vaccine, combination vaccine against flu and COVID-19, as well as our INT program. The increase also included an upfront payment of $120 million associated with the strategic research and development collaboration with Immatics.
SG&A expenses were $470 million, up 25% year-over-year. The increase in spending was primarily due to the expansion of our commercial operations, particularly in the U.S. market. Income tax was a benefit of $147 million for the fourth quarter of 2023, largely attributable to the tax benefits as part of finalizing our 2022 U.S. tax return. Net income for the quarter was $217 million, compared to $1.5 billion in the fourth quarter last year. Diluted earnings per share was $0.55 compared to $3.61 in 2022. We closed the quarter with a strong cash position of $13.3 billion, which is slightly higher than the $12.8 billion we had at the end of the prior quarter. Now, let’s turn to our annual performance on Page 11. Net product sales for the full year of 2023 were $6.7 billion, a decrease of 64% from the previous year, mainly due to lower sales volume of our COVID-19 vaccine.
As mentioned earlier, this includes the recognition of $0.6 billion from the deferred revenue related to Gavi. Excluding this item, our sales of $6.1 billion were still in line with the framework we provided for the full year. Cost of sales for the full year represented 70% of net product sales, a substantial increase from 29% of product sales in 2022. This shift is largely attributable to our strategic efforts to optimize our manufacturing operations, resulting in charges of $1.6 billion, and other manufacturing and distribution costs over reduced sales volume. Overall, cost of sales came in at $4.7 billion, slightly below the $5 billion we provided in our latest framework. Research and development spend was $4.8 billion, and SG&A was $1.5 billion, both in line with our expectations.
Our income tax provision was $772 million for the full year 2023. During our Q3 earnings call, we discussed the requirement under GAAP to establish a valuation allowance against deferred tax assets, when the current year and cumulative income projection for the next three years is in a loss position. It’s important to note that future income from products not yet approved by regulators are excluded from these income projections, which restricts us to just our COVID vaccine, and it does not include expected future launches. This valuation allowance does not impact cash flows, future tax returns or the company’s ability to utilize deferred tax assets in future periods. Net loss for the year was $4.7 billion, compared to net income of $8.4 billion last year.
The decrease in profit was primarily due to lower product sales and higher R&D expenses in 2023. Diluted loss per share was $12.33, compared to diluted earnings per share of $20.12 in 2022. So now let’s move to slide 12. We wanted to provide you additional perspective on our full-year financial results by presenting them alongside a summarized version that excludes the impact of the Gavi deferred revenue recognition, our resizing charges, and the tax valuation allowance. Our total GAAP net loss for the full year was $4.7 billion. However, when excluding these primarily non-cash items, the net loss is reduced to $1.6 billion. Now let’s turn to our 2024 financial framework on slide 13, which is mostly in line with what I shared on our Q3 call.
We 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 expected to be approximately $100 million, reflecting the strong seasonality of respiratory vaccines. We expect cost of sales of approximately 35% of product sales, in line with our cost of sales framework which we introduced in our Q3 earnings call last year. For R&D we expect full year expenses to be approximately $4.5 billion, down from $4.8 billion in 2023, and for SG&A, we expect full year expenses to be approximately $1.3 billion, down from $1.5 billion in 2023. We also expect taxes to be negligible in 2024. In our Q3 earnings call, I provided our Moderna operating principles, which largely centered around a very disciplined approach to capital allocation.
Our number one priority has been, and will continue to be, reinvesting in the business. In addition to the investment into our pipeline, we expect capital expenditures in 2024 to be approximately $0.9 billion, as we mostly complete the construction of our facilities across the globe. Our teams are laser-focused on operational improvements for both expense management and working capital. As a result, we expect to end 2024 with approximately $9 billion in cash. I will now turn the call over to Stephen.
Stephen Hoge : Thank you, Jamey. Good morning or good afternoon, everyone. Today I’ll do a quick review of our clinical highlights from our late-stage programs in 2023, and then look ahead to anticipated milestones in 2024. While we have over 40 programs in development, they’ll focus on our late-stage pipeline, which consists of nine programs across four franchises, all made significant progress in 2023. Four of these programs are in our respiratory vaccine franchise. We hope to launch all of these potential products by the end of 2025. I’ll discuss these further in a moment. The other five late-stage programs are spread across latent vaccines, oncology therapeutics, and rare disease therapeutics. We hope to begin launching these beginning in 2026, and I’ll discuss our progress in these areas as well.
In infectious disease vaccines, we’ve achieved many important clinical milestones in 2023. Within our respiratory vaccine franchise, we filed for RSV vaccine approvals in many countries around the world. We recently presented follow-up data from our Phase 3 study at the RSVVW meeting that I’ll recap in a moment. In our mRNA-1010 flu program, our Phase 3 P303 study met its primary safety endpoints and hit all eight co-primary immunogenicity endpoints against all strains of influenza. We’re also excited that we fully enrolled the Phase 3 immunogenicity and safety study of our Next-Gen COVID vaccine and the Phase 3 immunogenicity safety and safety study of our flu and COVID combination vaccine. In our latent and other vaccines franchise, we’re proud of the great progress our team made to complete enrollment in the Phase 3 study of our CMV vaccine in 2023.
That study is now accruing cases towards its first interim analysis of efficacy. On slide 17, I want to briefly review the primary analysis for our RSV vaccine, which was first shared in January of 2023. The study met its primary and key secondary endpoints, leading the DSMB to recommend unblinding. Vaccine efficacy was 83.7% against RSV with two or more symptoms of lower respiratory tract disease at a median follow-up of 3.7 months with a wide range of two weeks to 12 months of total follow-up. The primary analysis also showed 82.4% and 68.4% vaccine efficacy against three or more symptoms and acute respiratory distress respectively. These data were recently published in the New England Journal of Medicine in December of last year. We’ve continued to follow the participants in the trial and announced follow-up data at the RSVVW conference earlier this month.
An additional analysis showed sustained vaccine efficacy against RSV with VE of 63.3% against RSV, lower respiratory tract disease with two or more symptoms through a medium follow-up of 8.6 months and a maximum follow-up of 17.7 months. The vaccine efficacy was 74.6% against RSV, lower respiratory tract disease associated with shortness of breath, which has been shown to be a key driver of seeking a higher level of medical care and the associated burdens and costs. Now, slide 19 summarizes the overall timing of enrollment, primary efficacy analysis, and subsequent analysis overlaid against the epidemiology of RSV over the two seasons that have now contributed to the efficacy in the trial. Our trial enrolled steadily over 13 months between November 2021 and December 2022.
As a result, the primary efficacy analysis included cases from both the smaller RSV season of 2021 and 2022 and the much more significant RSV season of 2022 and 2023. Due to enrollment throughout the year, the median follow-up of the primary analysis was 3.7 months, but as I noted, the maximum follow-up was 12 months. The primary analysis met its success criteria leading to a study on blinding. We continued a pre-plan additional analysis on April 30, 2023. At that analysis, the medium follow-up was 8.6 months, with a maximum follow-up of 17.7 months. Or put another way, approximately 17,000 participants were between nine and 18 months of study follow-up at the time of the analysis, with many completing their second RSV season on the study. Per protocol, we are continuing to follow cases through one year, but as is evident from the epidemiology, very few cases would be expected in the six months after the April 30th cutoff date from the last analysis.
In summary, we are pleased that the data shows sustained efficacy through two seasons, including the large RSV season of 2022, 2023, and we look forward to providing further updates from this ongoing study. We also achieved clinical milestones across our therapeutics franchises in 2023. In oncology, our Individualized Neoantigen Therapy developed in partnership with Merck, began Phase 3 clinical studies in both adjuvant melanoma and non-small cell lung cancer. Both phase three trials are now actively enrolling. Our primary analysis from the Phase 2 study was recently published in The Lancet, giving greater detail on the two-year follow-up data that we had released in 2022. Now in December of 2023, we shared top-line follow-up data from that same Phase 2 study in adjuvant melanoma patients, confirming the durability of the initially reported responses.
At a medium follow-up of now three years, the recurrence-free survival and distant metastasis-free survival remained extremely favorable, with a reduction of the risk of recurrence or death by 49% and a reduction of the risk of distant metastasis or death of 62%. Both results were highly statistically significant at three years. And in PA and MMA, our most advanced rare-disease therapeutic programs, we continued to see positive clinical data in our Phase 1/2 studies, including improvements in biomarkers and clinical outcomes, such as metabolic decompensations. Now, turning to slide 21. While we’re proud of the progress in 2023, we have much more ahead in 2024. Let me take you through some of the late-stage milestones we anticipate for this year.
I’ll start with our respiratory franchise, where we are targeting the first approval for our RSV vaccine, beginning in the first half of 2024, with commercial launches shortly thereafter. With our flu vaccine, we’re in discussions with regulators about potential submissions for approvals, and we expect to begin filing this year. Phase 3 data from our Next-Gen COVID vaccine is expected in the first half of 2024, which will inform the next steps. And we expect Phase 3 data for our flu and COVID combination vaccine this year. In latent vaccines, we are looking forward to potential efficacy data from our CMV Phase 3 study. In oncology, we expect continued progress enrolling our two Phase 3 studies in INT for adjuvant melanoma and non-small cell lung cancer.
We also expect to expand into additional tumor types this year. And finally in rare diseases, we expect to move into registrational studies for both PA and MMA in 2024. It’ll be a very busy year, and we look forward to sharing progress with you as the year progresses. With that, I’ll turn the call over to Stéphane.
Stéphane Bancel : Thank you, Stephen and Jamie. For Moderna and the patients we serve, 2024 is all about execution. Execution in commercial, execution of our late-stage pipeline, and execution with financial discipline. Starting with commercial, first our COVID vaccine. We continue to work with health authorities to increase vaccination rates and improve public health by reducing the substantial burden of disease from COVID in this upcoming 2024-2025 season. While I am pleased with the U.S. market share outcome of the current season, I believe we can and must do better on vaccination rates. Our teams are actively working on it already. A few weeks ago, the EU published a new mRNA COVID vaccine tender, up to 36 million doses per year for up to four years.
Our team is actively working to respond to this standard. We are prioritizing our commercial focus on specific markets around the world to deliver where it matters the most. Moving to our RSV vaccine candidates, we are very excited about launching the RSV vaccine this year. That will be the launch of our second product. Our mRNA platform is delivering. The FDA PDUFA date is May 12. If the outcome is positive, we anticipate that ACIP will include mRNA-1345 on the agenda in late June. In Europe, we expect Germany to launch in 2024. We also expect Australia to launch this year, while other markets will likely launch in 2025. In many markets around the world, we need to secure regulatory approval before we can participate in tenders. As communicated last year, given expected approval outside the U.S., Germany and Australia will anticipate launching RSV in this market in 2025.
The RSV market is estimated to be a $10 billion opportunity, consisting roughly of $6 billion to $8 billion in older adults and $2 billion to $4 billion in the pediatric and maternal setting. In 2023, the first-year RSV vaccine launches, consumer awareness of RSV, and demand for RSV vaccine was strong. The 2023 adult RSV vaccine market was around $2.5 billion. This is quite impressive, given the first year RSV vaccines were available, they were not even available for a full year, and the products were not approved in many countries. With 2023 RSV vaccination rate as a small percentage of a total addressable market, we are quite excited to launch our product into this large and growing market. Let me now turn to our RSV vaccine profile. We believe we have the best profile to serve patients and completing the RSV market, efficacy, safety, and ease of use.
Our clinical data shows strong vaccine efficacy. We have a well-established safety and tolerability profile that leverages the same mRNA technology that has been delivered in over 1 billion COVID vaccines. Additionally, we have not seen any case of Guillain-Barre Syndrome or GBS in our Phase 3 trials. We expect to be the only company to offer an RSV vaccine in ready-to-use prefilled syringe or PFS. Our one-step administration compares well relative to competitive products and requires multiple preparation steps by pharmacists and clinicians. As you know, one of our competitors’ products requires nine steps of preparation for each consumer needing an RSV vaccine, and the other competitors’ product requires four steps of preparation. With over 90% of U.S. RSV vaccines given to-date in the pharmacy setting, PFS presentations offer ease of use, time saving and the potential to reduce medical errors.
Given the labor shortage in retail pharmacy channels, we anticipate our PFS presentation will be welcomed by pharmacists in a very busy respiratory vaccine season, where pharmacists need, in addition to their regular tasks, to administer flu vaccine, COVID vaccine and RSV vaccine. Today we talked about how much progress we made in the late-stage pipeline in 2023. This year, we look forward to continue the execution and reporting milestones in each of these programs. If you look at this slide, it is going to be a very busy and very exciting year with multiple Phase 3 readouts like the COVID Next-Gen, also Flu plus COVID Phase 3 data, and potentially CMV Phase 3 data. But also we’re going to be filing products like flu, which will be our product file, and of course approvals in many countries around the world for RSV.
Finally, we are all committed to exercise financial discipline across the business. While we have resized our manufacturing footprint in 2023, we will continue to find ongoing cost improvements in manufacturing. We will reduce operating expenses in R&D and SG&A and prioritize programming R&D with near-term commercial potential in areas of unmet medical needs. Overall, our CapEx will be up modestly in 2024 compared to 2023, and will mostly complete construction of several important plans in Marlborough, Massachusetts for INT, and Canada, UK and Australia. In 2025, we expect CapEx to be down significantly. We’re also targeting working capital improvements. And importantly as you know, we are adopting AI across the business, which we expect to save time, increase productivity, and drive scalability in addition to cost saving.
Our use of AI is increasing by the week, and new use cases are exciting to see how our teams are embracing this new tool across the business. In summary, 2024 is an important year of execution across our company, one that will set the stage for the next several years. I am very excited by how our company is positioned. I believe 2024 will be a year where many observers of Moderna go from thinking of us as a COVID vaccine company, to seeing Moderna as an mRNA platform company, with several products approved and more approvals on the way for 2025 and beyond. Over the next few years, our ability to deliver on our mission will increase significantly and be very meaningful for our teams. With that, Operator, we’ll be now happy to take questions.
Operator: Thank you. [Operator Instructions] Our first question comes from Michael Yee with Jeffries. Your line is open.
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