Novavax, Inc. (NVAX) Q4 2023 Earnings Report, Transcript and Summary

Good morning and welcome to Novavax Fourth Quarter 2023 Financial Results and Operational Highlights Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Erika Schultz, Senior Director. Investor Relations. Please go ahead.

Good morning and thank you all for joining us today to discuss our fourth quarter and 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, objective, 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 the 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 could cause actual results to differ materially from those projected in such statements. 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, and our most recent Form 10-K and subsequent Form 10-Q filed with the Securities and Exchange Commission and 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 three key priorities looking towards the future. Additionally, John Trizzino, our President and Chief Commercial Officer, will provide an update on our commercial activities; and Dr. Filip Dubovsky, 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.

Thank you, Erika, 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 fourth quarter and full year 2023 financial results and operating highlights and to discuss our priorities for 2024. In 2023, we made significant progress in our priorities, strengthening our foundation and helping to position us for success in 2024 and beyond. Throughout the year, we kept you updated on the progress we were making against our three priorities, which were, number one, deliver an updated product for the fall vaccination season. Number two, reduce our rate of spend, manage our cash flow, and evolve our scale and structure. And finally, number three, leverage our technology platform, our capabilities, and our assets to drive additional value beyond new Nuvaxovid 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. Under priority one, 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 a COVID market that was smaller than we and many others had projected, we were able to achieve $1 billion of revenue for the full year 2023, including fourth quarter total revenue of $291 million. Despite this success, we also had some misses and were disappointed in our U.S. market performance last season. 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. Priority number two, 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 first year post-pandemic and represented the first 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 billion in current liabilities and over the course of the year reduced that figure by over $800 million. And with the resolution of the Gavi arbitration, this number should be reduced further by another $500 million. In addition, we reduced our total operating expenses by over $1.1 billion in 2023, almost $150 million ahead of our stated target. And finally, under priority three, leveraging our technology platform, our capabilities and our assets, to drive additional value beyond Nuvaxovid alone. During 2023, we were able to outline a faster 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. Dr. Filip Dubovsky will provide details later on the call on this matter. So, looking ahead to 2024 and beyond, I would 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 successful launch of our combination vaccine, which we anticipate in 2026. When achieved, the launch of our combination vaccine will mark our third and potentially most exciting chapter yet post-pandemic, allowing us to expand beyond a one product company. When combined with the potential both organic and inorganic product expansion, this further supports our vision of becoming a leading global vaccine innovator. Filip 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 three main priorities for 2024. So please turn to Slide 5. Our first priority is to deliver an updated product for the 2024-2025 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 third 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. 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 Trizzino for our commercial updates. 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 would 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. Please turn to Slide 7. First, I would like to provide some high level context on 2023 and the opportunities in 2024. Full year 2023 product sales were $531 million, which includes $251 million in the fourth 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. Importantly, we entered 2024 with over $1 billion outstanding in 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 first year competing in a dynamic, post-pandemic, U.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 five dose product presentation and our timing to market entry impacted our ability to gain market share. However, factors outside of our control, namely the disappointing COVID market size at just over 30 million 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. 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. 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 first 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. 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 change. 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 and an effort to convert that market to Novavax vaccine shots and arms. We are also closely watching the ACIP meeting today, which will potentially result in a recommendation for spring vaccination for high-risk groups including those over 65 and increased opportunity to benefit from our updated vaccine. 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., 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 Nuvaxovid 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 Nuvaxovid. The Health Security Agency recently updated its green book to include our vaccine and discussions are underway with leading retailers and occupational health providers. We are already seeing interest in potential orders for our Nuvaxovid 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. Our efforts are focused on securing NACI recommendation on par with mRNAs and driving awareness of our differentiated vaccine with health care 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 for the 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 Nuvaxovid's protein-based vaccine and that Nuvaxovid will play a meaningful role across the U.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 era 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. We think we are well-positioned to capture our fair share of that market opportunity by bringing together our technology platform, Matrix-M adjuvant, proven COVID vaccine and an outstanding flu vaccine candidate with positive Phase 3 data. To discuss this and other key R&D updates, I would like to hand it over to Filip.

Thanks, John. Please turn to Slide 11 and 12. I want to cover two R&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. 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 XBB.1.5 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 into 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. Last summer, the strain was updated to XBB.1.5 and we ran 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 XBB.1.5 neutralization and circumversion responses. ,: Now, on the right hand side of the slide are local and systemic reactogenicity symptoms. Despite the study subjects having received a minimum of three 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. They concluded that the overall adjusted vaccine effectiveness of the three vaccine brands combined was 54% and that included protection against JN.1, which was estimated to account for about 39% of the 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 adjustment 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%. 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. JN.1 is causing the vast majority of disease globally, including in the U.S. is depicted on the left hand side in purple dots. 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 antigen distance between XBB.1.5 and JN.1, which is over four 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 is appropriate to update the vaccine to protect from future drift variants. Updating will narrow the antigen existence and should future proof the vaccine effectiveness when subsequent mutations occur. Therefore, we’ve advanced JN.1 into commercial manufacture while continuing to evaluate upcoming variants. 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. The study is designed to compare the immune responses in two 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 mean infill therapeutic benefit is demonstrated. We're also planning a lot-to-lot consistency study in the fourth quarter 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.

Thank you, Filip. Please turn to Slide 17. This morning, we announced our financial results for the fourth quarter and full year 2023. Details of our results can be found in our press release issued today and in our 10-K filing. Please turn to Slide 18. 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 billion and significantly improved our balance sheet profile by reducing current liabilities by $825 million. 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 million. As we continue to transform Novavax into a more lean and agile organization, we reduced 2023 total operating expenses by $1.1 billion or 41%, and exceeded our savings targets for R&D plus SG&A by $150 million. As we look to 2024, we are targeting R&D and SG&A expenses of between $700 million and $800 million with the intent to drive them below $750 million midpoint if possible, as we continue to resize our organization. We ended 2023 with cash and accounts receivable of $881 million. In addition, as we enter 2024, we have over $1 billion in APA contract value outstanding with expected deliveries over the next three years. We believe this positions us well as we focus our investments to establish new commercial COVID markets and advance our CIC program. Please turn to Slide 19. Turning to a more detailed view of our 2023 financial results, I will provide commentary on our fourth quarter 2023 financial results with specific focus on revenue and COGS. For the fourth quarter of 2023, we recorded total revenue of $291 million compared to $357 million in the same period in 2022. Our product sales of $251 million in the fourth quarter 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. Grants of $38 million for the fourth quarter of 2023 reflect the realization of the full value of the $1.8 billion U.S. government funding agreement. For the full year 2023, our total revenue of $984 million was consistent with our guidance. In the U.S. market, product sales for the 2023-2024 vaccination season are now expected to come in below $25 million, which is less than our prior target. That said, we are closely monitoring the potential for the CDC to recommend a spring COVID-19 booster, and we'll assess how that could impact demand and potential sales in the first half of 2024. Our cost of sales for the fourth quarter of 2023 were $155 million as compared to $182 million in the same period in 2022. These periods include $30 million and $99 million, respectively, related to excess, obsolete or expired inventory and losses on firm purchase commitments under third-party supply agreements. 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 first quarter of 2023. We have also reduced our full year 2023, R&D and SG&A by over $500 million compared to the full year 2022. This result was approximately $150 million better than our original target, and we did so while maintaining core business capabilities and progressing our combination vaccine program. For 2024, we are targeting combined R&D and SG&A expenses of $700 million to $800 million. 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 million and with the recently announced Gavi settlement, we will further reduce current liabilities by over $500 million in 2024. Of note, the Gavi settlement provides for an equitable resolution of our differences and spreads any remaining liabilities over five 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 million to $400 million. Please turn to Slide 22. 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 million and $1 billion. Our projected total revenue includes $500 million to $600 million of APA sales based on expected dose delivery schedules and non-APA related revenue of $300 million to $400 million from a combination of commercial market product sales plus royalties and other revenue from our partner related activities. We have previously guided to first quarter 2024 expected total revenues of approximately $300 million. 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 first quarter of 2024 to now occur later in 2024 upon their respective authorizations. As a result, our first quarter 2024 total revenue is now expected to be approximately $100 million. 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-K 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. 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.

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 2024-2025 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. 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.

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

Great. Good morning, everyone. And thanks for the update and taking our question. Maybe start with a few clarification for the guidance. First is the 1Q $100 million. So, given this is not coming from Australia and New Zealand, so can you specify what are the countries for those APA? And then for the rest of the – for the entire 2024, $500 million to $600 million APA, it’s coming out of the entire $1 billion APA – outstanding APA. And my question is, do you expect to see new APA beyond this $1 billion in the coming years? If so, where will be those country coming from? And last question, related to the revenue guidance, is the $300 million to $400 million APA 2024 guidance, how much is coming from the U.S.? If you can give us some color around that. Thank you.

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

Yes, certainly. Hey, good morning, Roger. So when we look at our Q1 guidance for 2024 that we just shared of $100 million, virtually all of that has in fact already been shipped. It is APAs to Europe that were delivered in January. So that is the vast majority of the guidance. As you referenced, our prior guidance for the first quarter of approximately $300 million 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.

Jim, Roger’s third 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.

Exactly. So, Roger, the component of our revenue guidance, and I’ll just restate it here, the $800 million to $1 billion midpoint $900 million is split between APA sales and non-APA revenue. You correctly noted $500 million to $600 million midpoint, $550 million for APAs, non-APAs, $300 million to $400 million. And within that we have two primary buckets. One is related to royalty and other revenue. As you might remember, we have begun to receive some reimbursement related to our R21. 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.S., Europe, UK. And while we have not provided specific breakouts across those, these are exceptionally important markets for us. You heard John Trizzino 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.

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

Yes. Thanks, John. So APAs, 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. In Europe, it's again a mix between tenders and private market, as we're already seeing in the UK, 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.

Thank you, John. Thank you, Roger.

Thank you.

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

Hi, good morning. Thanks for taking the questions and all of the – as it relates to forward guidance.

Good morning, Eric.

You can hear me, okay?

We can. Good morning.

Morning. So just a clarification question. When it comes to U.S. sales this past quarter, there's an $82 million 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 million in the U.S.? Is the difference there just the difference between gross and net sales? And then is there any concentration of those returns by – among your contracted pharmacies? And then perhaps just one on the development side as it relates to CIC 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 CIC offering in the market? Thank you.

Right. Jim Kelly, why don't you take the first part of that question, then we'll hand it over to Filip to address the question on CIC.

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.S., we're expecting total revenues for the U.S. market to be below $25 million. We did not break out the specific number for the fourth quarter, but given that guidance we just gave you, the vast majority is in the fourth quarter. As you are looking at what folks will find in our 10-K, 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 million. What that means is that we have sales into the channel. Those are to our direct purchasers. They in turn sell to retail establishments. And then we make an estimate based on the shots and 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 fourth quarter, is a function of that return estimate that you're seeing in our roll forward financials. It is net of that amount.

Okay, great. That’s very helpful.

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

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

Yes, we have a couple of lines of evidence to give us confidence. I mean, as you know, we've had a prior Phase 3 study that was actually granted the accelerated approval pathway by the FDA [ph]. 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 that they're pursuing accelerated approval pathway. 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 accelerate approval. Now, they also said that 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.

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

Thank you.

One more follow-up if I could, on full year 2024 guidance, the non-APA portion of that. What – to what extent is that guidance sort of conditioned or dependent on additional regulatory approvals or recommendations in the U.S., UK and Europe?

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

Well, hey, certainly. So the non-APA revenue guidance, $300 million to $400 million, 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 the market and regulatory authorizations to support that commercial market performance.

Thank you, Jim. Thanks, Eric.

Thank you. Your next question comes from the line of Brendan Smith from TD Cowen. Please proceed.

Hi, guys. Thanks very much for taking the questions. 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. in retail outlets, where you were carried on an even playing field. Just wondering if you could 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 are to prioritize that prefilled syringe and any meaningful differences you'd expect to that process versus last year? Thanks.

John Trizzino, do you want to take Brendan’s question and maybe discuss what's different in our intentions for 2024 versus 2023?

Yes, sure. So that was a great example of the 10%. And we also had in another instance where we had 4% to 5% share in similar circumstances. As we said, we came to the market a little bit late. So vaccinations were underway and five-dose vial created some challenges. And so as we look forward to this, the benefit of having a well-informed pharmacy population and pharmacist educated is going to help in that regard of timely availability of product, prefilled syringe is going to make it much more convenient for use. And so, as we've mentioned, three 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. We believe that these will make dramatic difference in what we see as our performance in 2024.

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 five-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 first year in the U.S. market. And we're encouraged by the early dialogue we had starting this past fall with retailers, 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.

Great. Thanks, guys.

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

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, et cetera, if you could just break that down that would be great? Then I have a follow-up.

Yes. And Jim Kelly will take that, Mayank. 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?

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, hey, we were able to knock down current liabilities by $825 million 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 million on our balance sheet. And that's really by spreading the remaining – any remaining liability over five 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 12/31/2023, I'll reference a couple of spots. I'll start with the other current liabilities category of 861 [ph]. So within that, it's approximately $700 million related to Gavi. And so as just noted, over $500 million 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 million 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 [ph]. With respect to AP and accrued, when you look at the 527 [ph], 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. And this is one of the things that we're exceptionally proud of. As the years progressed we have increasingly, I'll call it cleared the deck of many of these legacy pandemic era manufacturing take or pace, and we're moving much more to a traditional, streamlined balance sheet of operating entity. So hopefully that helps with the balance sheet.

Super helpful. And then just on monetization of non-core assets. Any update on the check manufacturing plant would be helpful? And then I have just one more follow up for Filip.

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

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 without 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 Czech 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. 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.

Great. And just last question about the CIC 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? Filip, just if you could lay that out, that would be helpful. Thanks again for taking the question.

Yes, I think that’s kind of a tricky 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 at 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.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 though, 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.

Thank you.

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

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

We can. Good morning, Alec.

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 your go forward assumption that a formal BLA will be required to commercialize your COVID vaccine next fall in the U.S. 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.

John Trizzino, do you want to take question?

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. 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. Can’t comment upon kind of regulatory timing, but we’re making significant headway in making that possible for the fall season. So look, we’re confident in the data that we’re providing, we’re confident in that process, and we’re confident in the data that we have so far to deliver against those three objectives.

Thank you, John.

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

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

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