Moderna Inc CEO Stephane Bancel Talks Costs

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Moderna, uh, is trying to adjust basically to the post-pandemic era. The vaccine maker Under a little bit of pressure today. This after reporting a larger than expected loss. It's taken a $3.1 billion charge. It's basically writing down excess COVID shots. Alex and I sat down with the company's CEO a little earlier today. We started by talking about that write-down. The market is focusing very much on the one-time resizing of the company, the write-down that you've taken. Is it a one-time hit that we're talking about here? Something that we're going to see next quarter and next quarter, or is it just going to be limited to this quarter?

So good morning and thank you for having me. It's really a one-time restructuring. As we talked about that on the day back when we spoke in September, we said we're going to rightsize manufacturing because, you know, we built manufacturing to deal with the COVID pandemic. But now that we're going back into endemic setting, we don't need as much capacity. And the cost structure was too high. So we're taking a one-time hit. There's a tiny bit of it that will be in Q4 just because accounting rule, $200 million of that. But that's, that's a one-time thing. With this, we have the right size to deal with the company and then we'll be able to grow with the new plants that we are building in Canada, in the UK, in Australia. So, so we're going to be good.

Stephane, just one more piece on that, though. Do we know why the COVID uptake shot has just not been as good? And I'm also wondering if there's been any sort of shift because of how the US pays for it. Like it's not the government, it's now on insurance. And has that kind of changed the COVID take-up?

So if you look at the COVID market in the US, it's trending a little bit above last year. I think it's still too early to tell where it's going to finish the season because we're hearing that, you know, there's still a lot of desire to get vaccinated in November and December. So, so let's see. But I don't think that it's a commercial market that's changed things because for the consumer, It's still free. If you are insured, you walk into the pharmacy, you get your shot and you walk out. You don't pay anything of copay. So I don't think the fact that it's commercial now changes anything.

Stefan, you are going to be leaning much less now on what is happening with COVID and focusing more elsewhere. But nevertheless, I do wonder whether the, the, the scaling back of the COVID side of the business means that ultimately you're going to struggle to generate the top line, the revenue necessary to make that transition to the next phase. How would you answer that kind of a question and that kind of concern at the moment that exists?

Sure. I think there's 2 questions people have. First is, where's the bottom of COVID And we think, because we announced this morning that we think the sales next year will be around $4 billion, we think that's what's going to be the base of COVID And then it's a new product. As you know, we have a platform. We talked about it many times on your show. We have 6 products in phase 3. As you know, the biggest issue the industry has is what's next. Well, at Moderna, because of a platform, 6 phase 3, we're going to launch RSV next year. We have flu product with great phase 3 data, flu-COVID combo, the cancer product launching in '25. So if you think about it, we think that we have $4 billion-ish of COVID base and then you're going to layer on that new products coming. And those products are very, very close, starting in '24.

So you have to get there, though, first. And you're planning to spend like $25 billion over the next 5 years. If you don't reach that $4 billion base for COVID shots, when do you start considering cutting your other programs?

Yeah, so we look into, into this if we have to. I think it's more for a '25 timeframe. I think in '24 we're pretty comfortable with the numbers. The other piece about RSV we just spoke about, the RSV, we have a best-in-class product, we believe. With very high efficacy, very good safety, and it's going to be very good because it's prefilled syringe. The other products on the market today have many, many steps of preparation. As you know, in pharmacies, you even have workers walking out on strike because it's too complicated. The workload is too big. And that's a big market. Just on the Q3 sales, the 2 players in the market reported $1.2 billion for the quarter, Q3. So if you think about this market, that's a brand new market. We might be the leading company once we launch because we believe we have the best product.

Stefan, the biotech sector is getting hit pretty hard right now, certainly within the stock market. And I'm wondering when you think that phase is going to bottom out. And I'm wondering as well whether or not you think there are opportunities within that. You're doing quite a lot at the moment with what you've got. But I'm wondering, as you look across the landscape, whether there would be potential bolt-ons at current valuations. Are you going through that process at the moment, thinking about synergies, how opportunities could evolve?

Yes, very much so. I mean, we bought a company in Japan during the Christmas break last year. We've done a couple of deals this year, a company in Germany, a company in the US. So we think there's very interesting companies out there. As you say, the environment for biotech is very hard now. And I think as long as the long-term rates stay high, You know, biotech, because it's many, many years to launch and it's quite risky, a very different cost of capital than it used to have when, you know, interest rates were close to zero. So that's the issue that biotech is facing as an industry. So as you say, there are some good companies that maybe went public too early, that maybe have not the right size of burn compared to their ability to raise money. So it gives a company like Moderna the ability to really size opportunity like we have done and will continue to look into.

So when you're looking at those opportunities, do any of those opportunities include weight loss drugs? Like, are you in the wrong shop business here?

No, actually, you know, we are focused on infectious disease and cancer. This is a 2 big priority of a company, you know, latent virus and also rare disease. We want to focus where our strength is at. You know, there's a lot of players in that market, many more coming with pipeline products. Potentially even some oral products that will disrupt the market as well. So we're focusing on our strengths and where we can add value to patients and to shareholders.

In terms of the opportunity you see in front of you, do you think there's a danger at the moment that you are almost spread too thin, that the opportunity could be more focused, that maybe actually you do need to maybe do a little less but do more in those areas? Are you convinced that your current trajectory with the areas that you're focusing on is, is at the right level, or do you think at some point there is going to be a winnowing process here?

So I think we're at the right level now. You know, we stopped working on cardio products. We had in the past a partnership with AstraZeneca. This, this was stopped. We're really focusing on infectious disease because, again, the platform allows us to do a lot of products. With the same science, with the same manufacturing footprint, with the same commercial team. If you think about it, COVID, RSV, flu, and those combos, we always talk to infectious disease doctors. So we think that's a very important part of the company and we can really scale that part very well. We have now 30 programs in development, but it's always same technology, same manufacturing tools, and same commercial teams. In cancer, we partnered with Merck, as you know. With Keytruda. And so we're going to be basically partnering with one of the biggest and best oncology companies to bring our technology to improve the performance of Keytruda alone. So we think that's very synergistic. We're focusing on the science, on the clinic, on manufacturing, because we know how to make mRNA pretty well at scale. Merck will focus on the commercial side of that proposition because we have a relationship with the doctors. And rare disease is really A very small endeavor because it's a rare genetic disease. You have hundreds of thousands of kids. We have a small dedicated team doing that. But because kids have no option, that's not a very heavy lift commercially.

That was our interview with Stephane Bancel, Moderna CEO.

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