BioNTech - Q3 2023

Transcript

Operator (participant)

Welcome to the BioNTech third quarter 2023 update call. I would like to hand the call over to Dr. Victoria Meissner, Vice President of Strategy and Investor Relations. Please go ahead.

Victoria Meissner (VP of Strategy and Investor Relations)

Thank you. Good morning and afternoon. Thank you for joining us today for BioNTech's third quarter 2023 earnings call. As a reminder, the slides that accompany this call and the press release issued this morning can be found in the investor section of our website. On the next slide, you can see our forward-looking statements disclaimer. Additional information about these statements and other risks are described in our filings made with the U.S. Securities and Exchange Commission. Forward-looking statements on the call are subject to substantial risks and uncertainties, speak only as of the call's original date, and we undertake no obligation to update or revise any of the statements. On slide three, you can find the agenda for today's call.

Today, I'm joined by the following members of BioNTech's management team: Our CEO and Co-founder, Uğur Şahin, Özlem Türeci, our Chief Medical Officer and Co-founder, Jens Holstein, our Chief Financial Officer, and Ryan Richardson, our Chief Strategy Officer. I would like to turn the call over to Uğur Şahin.

Uğur Şahin (CEO and Co-founder)

Thank you, Victoria. A warm welcome to all those joining us today. I will summarize our third quarter highlights before turning to my colleagues, who will provide further details. Slide five. Let me start by providing an overview of our strategic priorities and latest achievements. This quarter, we continued to build on our global COVID-19 vaccine leadership with first to market Omicron XBB.1.5-adapted vaccine launches across multiple regions worldwide. I thank our team and collaborators for their tireless efforts to make this accomplishment possible, again, in such a short period of time. Our COVID-19 influenza combination program, run in partnership with Pfizer, leveraging our proprietary mRNA technology, has also reported positive top-line results.

The phase I/II study evaluating the safety, tolerability, and immunogenicity of co-administered mRNA-based vaccine candidates for COVID-19 and influenza among healthy adults 18 to 64 years of age when compared to a licensed influenza vaccine, demonstrated obvious immune responses to influenza A, influenza B, and SARS-CoV-2 strains, as well as a safety profile consistent with the safety profile of the company's COVID-19 vaccine. The pivotal phase III study will be initiated in the coming months. Our second strategic priority is to advance our oncology platforms by initiating multiple trials with registrational potential. Jointly with our partner, DualityBio, we are initiating a pivotal phase III trial to evaluate our next generation antibody conjugate BNT323 in patients with hormone receptor-positive, HER2-low breast cancer, who progressed on previous standard of care but are chemotherapy-naive.

Furthermore, during this quarter, we and our respective collaboration partners published original scientific papers and presented new clinical data across several programs at international scientific congresses, including ESMO and SITC, that will inform our development strategies and next steps for these programs. Based on the successful results, we have expanded existing collaborations and made new deals with specialized developers, which add to our proprietary toolkit of technologies and strengthen our therapeutic product candidate portfolio. This covers the in-licensing of our HER3-targeted antibody-drug conjugate from MediLink Therapeutics, and as announced today, our plan to bring forward an anti-VEGF, anti-PD-L1 bispecific antibody in collaboration with our partner, Biotheus. Our first strategic priority is to initiate and accelerate clinical programs that target infectious diseases of unmet medical need.

In the third quarter, we initiated our third first-in-human trial in infectious disease this year, a program aimed at advancing mRNA-based vaccine candidates for the prevention of mpox, run in partnership with the Coalition for Epidemic Preparedness Innovations. In summary, we continued our focused execution against our strategic priorities in the first quarter and look forward to additional progress in all three of these areas for the remainder of the year and into 2024. We will share more detail on our oncology as well, infectious disease programs at our Innovation Series Day in Boston tomorrow, an event that I invite you all to attend in person or online. Slide six, focusing on our marketed COVID-19 vaccine, Comirnaty. We continued to build on our global COVID-19 vaccine leadership with first to market Omicron XBB.1.5-adapted vaccine launches. This was preceded by a robust and successful regulatory process.

In late August, the European Medicines Agency recommended full marketing authorization for our monovalent XBB.1.5-adapted vaccine. This was followed in September by the U.S. Food and Drug Administration, authorizing the adapted vaccine for individuals aged six months to 11 years under emergency use authorization and for those aged 12 and above. The vaccines have been approved under supplemental biologics license applications. Second, other national health regulators across the globe, including the U.K., Japan, Canada, and South Korea, have also approved our monovalent adapted vaccine. Within two months, we went from the first regulatory recommendations for an XBB.1.5-adapted vaccine to our first shipments of the respective vaccine.

The ability to execute with such speed was enabled by our continued surveillance and analysis of variants of concern, the strength of our mRNA technology, which allows for scalable production, rapid manufacturing and adaptation, and our expertise at navigating the evolving regulatory landscape on a global scale. Historically, we have seen an increase in COVID-19 hospitalizations in the winter, in line with other common respiratory diseases. On slide seven, you can see independent on formal projections across scenarios, assuming different vaccination recommendations and immune escape levels. Based on this, it is expected that weekly hospitalizations are likely to increase this winter and have a healthcare impact similar to last year. COVID-19 burden is currently lower than in previous years. However, the absolute number of hospitalizations and deaths is still high in certain regions, with thousands of hospitalizations and hundreds of deaths each week.

The emergence of new variants, coupled with the waning of both vaccine and infection-induced immunity, indicates that susceptibility to infection remains a concern and may increase over time. Moreover, the data shown here suggests that providing simple, stable recommendations for updated doses could contribute to improved vaccine coverage over time, mitigating the risks associated with evolving COVID-19 variants. As shown on slide eight, long COVID has a significant societal and healthcare system impact, with studies indicating that 10%-20% of SARS-CoV-2 infected individuals may develop symptoms recognized as long COVID. It is estimated that 36 million people across Europe may have experienced complications arising from COVID-19 weeks after infection, commonly defined as long COVID, from the start of the pandemic to date.

Studies show that mRNA vaccination has a significant impact in reducing the development of long COVID by 10%-45%, depending on the criteria used to define symptoms. The protective effect of mRNA vaccination is largely attributed to its ability to reduce susceptibility to infection. We continue to look closely at the role of mRNA vaccination in addressing the unmet need of long COVID. Slide nine. Studies have demonstrated that natural immunity acquired by SARS-CoV-2 infection is variable across individuals, and the protection it offers wanes over time. Vaccination can restore and enhance infection-acquired immune protection and further reduce the risk of reinfection. The risk of severe COVID-19 disease remains high in vulnerable populations, and that vaccination serves to not only reduce the risk, but can also mitigate the risk of long COVID.

Preclinical data demonstrate that vaccination with XBB.1 descendant lineage-containing candidate elicited higher neutralizing antibodies to currently circulating variants of concern, compared to the responses elicited by previously approved COVID-19 vaccines. Given all this and our current understanding of COVID-19 seasonality and its burden on healthcare systems during autumn and winter season, we anticipate the need for annual adaptive vaccines to be a long-term feature of COVID-19 vaccination practices. With that, I would like to thank you all for your confidence in our success and your continued support. I will now turn the call over to Özlem.

Özlem Türeci (CMO and Co-founder)

Thank you, Uğur. Glad to be speaking with everyone. Today, we will provide a high-level pipeline update. We will delve into the more advanced programs in greater detail at our Innovation Series Day event tomorrow. Starting with an overview of our infectious disease pipeline on slide 11. In addition to our marketed product, Comirnaty, we continue to pursue our multi-pronged innovation strategy to improve upon our vaccine with next generation approaches aimed at generating broader and more durable immunity. This includes our stabilized spike vaccine approach being studied in a phase II trial and our T-cell enhancing vaccine candidate in an ongoing phase I trial. We believe that our COVID-19 vaccine has the potential to be combined with a seasonal flu vaccine. Across many parts of the world, people are currently receiving the Omicron XBB adapted vaccine boosters at the same time as their flu shots.

A combination product has the potential to provide seasonal protection from both viruses with a single shot. We are working together with our partner, Pfizer, to develop an influenza combination vaccine, which leverages our mRNA technology. We recently reported phase I/II results, where our combination candidate showed robust immune responses to influenza A, influenza B, and SARS-CoV-2 strains, as well as a safety profile consistent with the safety profile of a company's COVID-19 vaccine, which met the criteria for advancement to a phase III trial. In addition to the previously mentioned COVID-19 and influenza vaccine programs, we started multiple first-in-human trials of our mRNA vaccine candidates in the last year that addressed shingles, HSV, TB, and mpox. On Slide 12, as expected, SARS-CoV-2 continues to evolve. The Omicron XBB sublineages currently account for the majority of COVID-19 cases globally, including the XBB descendant, EG.5.1, whose dominance is growing.

Slide 13. We and our partner, Pfizer, tested the potential effectiveness of an Omicron XBB.1.5-adapted monovalent vaccine as a primary series and booster in preclinical models. You can see here the neutralizing antibody response in mice immunized with our Omicron BA.4/BA.5-adapted bivalent vaccine as a booster after two doses of the original BNT162b2 vaccine. One group of mice, again, received the BA.4/BA.5-adapted bivalent COVID-19 vaccine as a fourth dose, and the other group received the new XBB.1.5-adapted monovalent COVID-19 vaccine as a fourth dose. You can see a four to five-fold increase of neutralization of several XBB-related variants when dose four is the XBB.1.5-adapted monovalent vaccine as compared to last season's BA.4/BA.5-adapted vaccine. These preclinical data indicate that an XBB.1.5 variant-adapted monovalent vaccine in the pre-vaccinated setting, has the potential to induce broad cross-neutralizing antibody titers against multiple XBB sublineages.

We can also see an increase in geometric mean titers of neutralizing antibodies across XBB lineages, including EG.5.1 and BA.2.86, when compared to the previous bivalent BA.4/5 vaccine comparator arm. Slide 14 shows the design of our ongoing phase II/III clinical study, testing the safety, tolerability, and immunogenicity of our Omicron XBB.1.5-adapted monovalent vaccine in 700 vaccine naive and vaccine-experienced participants. While data from this study will be reported in 2024, there's already clinical real-world data shown on Slide 15, demonstrating that our XBB.1.5-adapted vaccine elicited significantly higher neutralizing antibody responses against XBB.1.5, XBB.2.3, EG.5.1, and BA.2.86, compared to pre-vaccination levels. Moving now to our oncology pipeline on Slide 16, which is grounded in our multimodality toolbox and is advancing through focused execution. We now have one phase III study ongoing and a second phase III expected to dose its first patient soon.

Gotistobart, our anti-CTLA-4 monoclonal antibody, which we believe offers a differentiated safety profile. A phase III clinical trial evaluating its efficacy and safety as monotherapy in metastatic non-small cell lung cancer patients who have progressed on previous IO therapy, has started in June this year and will enroll 600 patients. BNT323, our anti-HER2 antibody drug conjugate, also being studied in a phase III clinical trial to assessing its efficacy versus investigator's choice of chemotherapy in patients with hormone receptor positive, HER2-low chemotherapy naive breast cancer patients whose disease has progressed on at least two lines of prior endocrine therapy, or within six months of first-line endocrine therapy plus CDK4 inhibitor. We've also recently initiated two new phase II trials. One in partnership with Genentech, is evaluating our individualized cancer vaccine candidate, BNT122, in the adjuvant setting for patients with pancreatic cancer.

The other, in partnership with Genmab, is evaluating our BNT311 bispecific, conditionally PD-L1x4-1BB agonistic antibody as a second-line treatment for patients with endometrial cancer. Also, as part of our collaboration with Genmab, BNT314, a bispecific antibody designed to boost antitumor immune responses through EpCAM-dependent 4-1BB agonistic activity, is ready to move from preclinical to phase I clinical testing, with the first patient dose expected in the next few months. Within our bispecific portfolio, I'm excited about our expanded collaboration with Biotheus, announced today. We've partnered to develop and commercialize PM8002, a bispecific antibody candidate targeting PD-L1 and VEGF-A in various cancer indications. PM8002 is currently being tested in a phase II/III study to evaluate the efficacy and safety of the candidate as monotherapy or in combination with chemotherapy in patients with non-small cell lung cancer.

PM8002 may lead to reduced systemic toxicity by enriching anti-VEGF activity in the tumor microenvironment. Now moving on to our antibody-drug conjugate portfolio. During the quarter, one of our and Duality's ADCs, BNT324, entered a phase I/II basket trial. Furthermore, on the ADC front, I would like to note our latest addition, YL202, a candidate being developed in partnership with MediLink. We continue to broaden our access to ADCs because we believe this technology has the potential to replace highly toxic chemotherapy regimens to become a new commercialized combination backbone of cancer treatment. In summary, we can see a diversified clinical oncology pipeline in solid tumor indications of high unmet medical need and more than 30 clinical studies.

On slide 17, I would like to highlight five across our multiple platforms that have disclosed clinical data in recent medical conferences this autumn. In September, clinical data from the ongoing phase I/II clinical trial evaluating BNT323 in patients with advanced HER2-expressing solid tumors were presented at the ESGO annual meeting. BNT323 was shown to have a manageable safety profile and no new safety signals were observed. It also demonstrated promising anti-tumor activity in patients with advanced, recurrent, or metastatic HER2-expressing endometrial cancer, with an objective response rate confirmed and unconfirmed of 58.8%, and disease control rate of 94.1%. At ESMO, we presented alongside our partner, DualityBio, clinical data from the ongoing phase I/II trial evaluating our TROP2-targeted ADC candidates in patients with advanced solid tumors.

The data suggested a manageable safety profile at lower dose levels, and encouraging efficacy signals were observed in non-small cell lung cancer patients with unconfirmed objective response rate of 46.2% in six out of 13 evaluable patients, and an unconfirmed DCR of 92.3% in 12 out of 13 patients. We also reported data from the ongoing phase I/II clinical trial with BNT211, detailing the new dose escalation of Claudin-6 CAR-T cells with and without a Claudin-6 encoding mRNA vaccine for the treatment of Claudin-6 positive relapsed refractory solid tumors using an automated manufacturing process. BNT211 demonstrated an encouraging anti-tumor activity, and in patients treated at a higher dose level, the addition of CARVac improved CAR-T cell persistence. The rate of treatment-dependent adverse events was dose-dependent.

After determination of a recommended phase II dose, BioNTech plans to initiate a pivotal trial in germ cell tumors. Also at ESMO, we presented initial data from our first in human phase I dose escalation trial evaluating BNT221, our autologous, fully personalized T-cell therapy directed against selected sets of individualized neoantigens. Using our proprietary NEO-STIM technology on the patient's peripheral blood cells, we expand memory T-cells and induce naive T-cells with the aim of generating a strong polyclonal immune response to overcome antigen escape. The initial results showed a manageable safety profile and tumor regression in several patients with anti-PD-1 and anti-CTLA-4, pretreated advanced or metastatic melanoma. This past weekend at the SITC, clinical data was shown from the ongoing phase I clinical trial evaluating BNT116, our off-the-shelf mRNA-based cancer vaccine candidate for non-small cell lung cancer patients.

The trial evaluates BNT116 alone and in combination with cemiplimab or docetaxel across multiple settings. BNT116 was generally well tolerated, with an expected safety profile as monotherapy and in combination with cemiplimab. In heavily pretreated non-small cell lung cancer patients, treatment with BNT116, with an optional addition of cemiplimab from cycle three onwards, showed early clinical activity. These updates show the momentum across our cancer pipeline. This year and next year, we plan to advance our key programs into late-stage development, including multiple programs toward the pivotal stage, with the aim to deliver the next generation of oncology medicines. With that, I now pass the presentation to our CFO, Jens Holstein.

Jens Holstein (CFO)

Thank you, Özlem, and a warm welcome to everyone who dialed in today's call. Before we go into the financial details for the third quarter and the first nine months of 2023, I'll start by giving you an overview on some key financial highlights, which you can find on the next slide. Our total revenues reached EUR 2.3 billion for the first nine months of 2023, and were significantly derived from sales of our recently approved Omicron XBB.1.5-adapted monovalent vaccine, which started to pick up at the end of the third quarter of 2023, and are expected to accelerate for the remainder of the year. Our revenues during the first nine months of 2023 were negatively influenced in the amount of approximately EUR 0.6 billion, triggered by write-downs and other charges reported by our collaboration partner, Pfizer.

As a reminder, as part of our gross profit share arrangement with Pfizer, write-downs and similar charges by Pfizer reduce the gross profit, which both parties generally share equally, and this ultimately impacts BioNTech's revenue figure. As part of this contractual model, we only commercialize Comirnaty in Germany and Turkey, and commercialization costs remain with the party being responsible for its respective markets. While we have impacted by such write-downs on the top line, our sales and marketing expenses remain low. As we have outlined in earlier earnings calls, the revenue development for COVID-19 vaccines is expected to mimic a flu-like setting.

I will go into more details concerning our financial guidance in the course of the call, but want to emphasize now that taking the Pfizer announcement and its implications onto the 2023 revenues into account, we have updated our 2023 COVID-19 vaccine revenue guidance of around EUR 5 billion to somewhere around EUR 4 billion for the full financial year 2023. During the first nine months of 2023, we generated a profit before tax of EUR 0.5 billion, which on top of our operating results, demonstrates our positive financial results generated from our strong financial position. Overall, resulting in earnings per share on a fully diluted basis of EUR 1.94. We started into the financial year 2023, with a total amount of EUR 13.9 billion in cash and cash equivalents, which we significantly increased due to our steady cash collection.

Hence, we have now ended the third quarter of 2023 with EUR 17 billion. This amount comprises approximately EUR 13.5 billion, reflected as cash and cash equivalents in our financial statements, as well as approximately EUR 3.5 billion, partly current and partly non-current security investments. Subsequent to the end of the quarter, in October 2023, we received EUR 565 million in cash from our collaboration partner, Pfizer, settling our gross profit share for the second quarter of 2023. Our strong financial position is a strategic advantage. These days, where financial stability is key for companies in this industry, a cash surplus is a tremendous asset. Our cash position offers us opportunities to invest in capabilities and assets to build a highly innovative later-stage R&D pipeline.

I'll be moving to our financial results for the third quarter of 2023, as shown on the next slide. Our total revenues reported reached EUR 0.9 billion for the third quarter, compared to EUR 3.5 billion for the comparative prior-year period, and decreased corresponding with the lower COVID-19 vaccine market demand. The already mentioned write-downs by Pfizer reduced our gross profit share in the third quarter by approximately EUR 0.5 billion. Let me move to cost of sales, which amounted to EUR 161.8 million in the third quarter of 2023, compared to EUR 752.8 million for the comparative prior-year period. For the first nine months of 2023, the cost of sales reached EUR 420.7 million, compared to EUR 2.8 billion for the comparative prior-year period.

The change is in line with decreasing COVID-19 vaccine revenues. Research and development expenses reached EUR 497.9 million for the third quarter of 2023, compared to EUR 341.8 million for the comparative prior year period. For the first nine months of 2023, research and development expenses amounted to EUR 1.2 billion, compared to EUR 1 billion for the comparative prior year period. Our R&D expenses are mainly influenced by progressing clinical studies for pipeline candidates, the development of variant-adapted, as well as next-generation COVID-19 vaccines, and the expansion of our R&D headcount. General and administrative expenses amounted to EUR 144.5 million for the third quarter of 2023, compared to EUR 141 million for the comparative prior year period.

For the first nine months of 2023, G&A expenses reached EUR 386.6 million, compared to EUR 361.8 million for the comparative prior year period. G&A expenses for the first nine months were mainly influenced by increased expenses for IT services, as well as expanding the G&A headcount. Our profit before tax amounted to EUR 227.4 million for the third quarter of 2023, compared to EUR 2.4 billion for the comparative prior year period. As mentioned, this reflects the performance in our financial results derived from our strong financial position. Income taxes were accrued with an amount of EUR 66.8 million for the third quarter of 2023, compared to EUR 0.7 billion for the comparative prior period.

In total, for the first nine months of 2023, income taxes were accrued with an amount of EUR 50.5 million, compared to EUR 2.6 billion for the comparative prior period. The derived effective income tax rate for the first nine months of 2023 were approximately 9.7%, which is expected to change over the 2023 financial year to be in line with the estimated annual cash effective income tax rate of somewhere around 21% for the BioNTech group. We recognized the net profit during the third quarter of 2023, amounting to EUR 160.6 million, compared to EUR 1.8 billion for the comparative prior period. For the first nine months of 2023, net profit reached EUR 4.5 billion, compared to EUR 7.2 billion for the comparative prior period.

Our earnings per share on a fully diluted basis for the third quarter of 2023 amounted to EUR 0.67, compared to a diluted earnings per share of EUR 6.98 for the comparative prior period. For the first nine months of 2023, our diluted earnings per share was EUR 1.94, compared to EUR 27.70 for the comparative prior period. As mentioned in the beginning, please allow me now to address the inventory write-downs and other charges related to Comirnaty, recently announced by our collaboration partner, Pfizer, in more detail. Please note, those charges were mainly triggered when the world moved from a pandemic environment into an endemic flu-like setting. In this context, we announced on October 16, an estimated impact of up to EUR 0.9 billion.

We have assessed the initially announced estimate further, particularly to address the question whether those inventory write-downs and other charges indicated by Pfizer have already been reflected in our accounts. The good news is, the charges which originated at BioNTech's end, have largely already been reflected in our 2022 financial results, and to a smaller extent, will continue to be reflected during 2023. Ultimately, the impact from our collaboration partners' charges onto our revenues have been identified to be roughly EUR 0.6 billion for the first nine months of 2023, and EUR 0.5 billion for the third quarter of 2023. To explain the partnership mechanism in respect of write-downs and comparable charges, please remember that risks are borne by both partners equally. As part of our shared responsibilities, both partners are responsible for manufacturing activities.

Hence, Pfizer is responsible for a certain level of inventories, and so are we. If, for example, Pfizer writes down inventories under its control, those charges reduce the gross profit that is shared with us. As a result, we are affected by half of those charges. Those charges lead to a decrease in our revenues, according to IFRS accounting rules. In cases where we have to book charges for, e.g., write-downs, at our end, those charges lower the gross profit that we share with Pfizer. Let me now turn to the next slide. As stated before, based on what we know of the expected market development and our partners' guidance for their markets, we update our estimated COVID-19 vaccine revenues from previously around EUR 5 billion to somewhere around EUR 4 billion for the full 2023 financial year.

Our guidance is influenced by the mentioned write-downs and charges on the Pfizer side in the amount of EUR 0.6 billion, as well as our partners' reduced expectation on 2023 COVID-19 vaccine sales. We at BioNTech reacted on the volatility around the COVID-19 vaccine market and adapted our cost base in the course of 2023. Our strategic collaboration model with Big Pharma supports drug development and delivery at scale, but it also provides us additional financial flexibility by leveraging the global clinical trial network of our partners, as well as their commercial network and their internal resources. In comparison to other models, this collaboration setup allows us to accelerate our development initiatives while having a lower level of expenses.

Our updated financial outlook for the 2023 financial year excludes effects caused by, but not limited to events like in-licensing arrangements, collaborations, or M&A transactions that might take place until the year end. As summarized for you on this slide, we reduce the initial 2023 R&D expense guidance range from initially between EUR 2.4 billion and EUR 2.6 billion to between EUR 1.8 billion and EUR 2 billion, including the R&D costs identified from our latest publicly announced M&A activities. We also update our SG&A expenses and narrow the initial 2023 guidance range from between EUR 650 million and EUR 750 million, now to between EUR 600 million and EUR 650 million.

Lastly, we reduced our spending for growth and maintenance CapEx for operating activities from the initial 2023 guidance range of between EUR 500 million and EUR 600 million to between EUR 200 million and EUR 300 million. Comparing the initial 2023 guidance to our updated guidance announced today, we are significantly decreasing our spend as we effectively manage our expenditures as part of our ongoing cost review procedures. Nonetheless, let me clarify here as well, that we further intend to invest in our capabilities and our pipeline of product candidates as those will create the value of the company in future. As noted before, we have updated our group estimated annual cash effective income tax rate in Q2 from around 27% to around 21%, excluding potential effects from share-based payment settlements in the course of 2023.

With that, I would now like to turn the call over to our Chief Strategy Officer, Ryan Richardson, for the corporate overview and concluding remarks. Thank you very much.

Ryan Richardson (CSO)

Thank you, Jens. I'll now provide a brief summary of the outlook for our updated COVID-19 vaccine franchise and an overview of our latest progress in oncology, before concluding with our strategic outlook for the remainder of the year. We're making good progress on our three main strategic objectives. Regarding our COVID-19 vaccine franchise, we look forward to advancing our COVID-19 influenza combination vaccine into a phase III trial in the coming months. If successful, we believe simplifying immunization practices for healthcare providers could positively impact compliance and help reduce the burden of these diseases and its impact on healthcare systems. In immuno-oncology, we are building a unique and powerful portfolio of complementary therapies. We expect to start multiple trials with registrational potential over the next 12 to 18 months, while continuing to generate data that inform our go, no-go development decisions.

In infectious diseases, we plan to broaden our pipeline with new therapies that target high medical need indications. Now moving to the next slide on the ongoing global rollout of our adapted vaccine. In the 2.5 months following regulatory recommendation for an XBB.1.5-adapted monovalent vaccine, we and Pfizer have shipped vaccine doses to more than 40 geographies around the world. Across key markets, we continue to benefit from a strong market position. In some regions, such as Europe and Japan, we have gained considerable share. In the U.S., where we leverage our partner, Pfizer's commercial capabilities, we are seeing approximately 50% of vaccines going through the retail channel. We expect that vaccine uptake will continue to increase through the end of the year.

In a recent national immunization survey in the U.S. by the CDC, published last month, more than 30% of adults reported to have received or planned to receive an XBB.1.5 variant-adapted vaccine. We believe this data reflects the potential baseline demand for an annual vaccination. As outlined in the next slide, we expect our Comirnaty franchise will be a long-term source of revenue. We expect to enter 2024 with a manufacturing base, which has been reset to serve the future endemic market. In the next two years, we expect the continuation of several market shifts to play out. Those include the continued opening of private markets and the shift to commercial pricing globally, along with the continued transition from multi-dose vials to single-dose vials and prefilled syringes, which could bring upside opportunity to the franchise.

We also expect the combination vaccines, if successful in late-stage trials, could present growth opportunities for the franchise from 2025 onwards. We see the potential for increased vaccine uptake from a potential combination flu and COVID vaccine by connecting protection from COVID to a well-accepted paradigm of annual flu vaccination. We will continue to invest for the long term in next-generation COVID-19 vaccines, with the aim of increasing robustness and durability of immune response. Now turning to the next slide. I'd like to wrap up with a snapshot of the progress we're making in accelerating our innovative oncology portfolio toward the market. So far in 2023, we and our partners have initiated 11 oncology trials, including six phase II or III trials. We plan to continue this trend through the initiation of additional late-stage trials in the next 12 to 18 months.

We will continue to look for additive bolt-on BD and M&A opportunities that fit with our strategy, while reinvesting to build world-class capabilities and accelerate our growth. We remain as optimistic as ever on our ability to continue to create long-term value for patients, our shareholders, and society. Before concluding, I would like to remind and invite you all to attend our innovation series event tomorrow, starting 9:00 A.M. Eastern Time, where we will provide further details on our pipeline and corporate strategy. With that, I would like to thank everyone for their continued support and open the floor for questions.

Operator (participant)

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, you can press star one and one again. Thank you. We'll now take our first question. This is from the line of Daina Graybosch from Leerink Partners. Please go ahead.

Daina Graybosch (Senior Managing Director and Biotechnology Analyst)

Hi. Thank you. I have two financial questions. One, you have many programs going into phase III, and that's certainly going to increase your R&D expenses. I wonder, Jens, if you can give us any guidance on sort of the near to midterm on how much R&D we should expect in our model? The second one is whether you could help us at all with any inventory write-down, understanding more predictability behind how we might see that next year and in future years after that. Thank you very much.

Jens Holstein (CFO)

Yeah. Thanks, Daina. Thanks for the question, and let me start with the second one, maybe first, with the inventory write-offs. As I stated in my speech, I think this EUR 600 million that we had to face from Pfizer this year has been really a reflection of the situation that we moved from the pandemic into an endemic situation. Going forward, of course, you know, we have to, with new variants coming up, always have, you know, some sort of write-offs to be reflected, be it on Pfizer's side or on our side. So there will be something, but not at all at that magnitude, you know, that we, that we have seen now, with this shift, in 2023.

So, I think from our perspective, going forward, the magnitude is a fraction of what we had to announce, unfortunately, for 2023. Then, in terms of the R&D expenses, Ryan was alluding to additional clinical trials, you know, further late-stage trials. Of course, that means that our R&D expenses are expected to go up. That's something that we, they envisage and want because we believe strongly that we have valuable compounds that we need to invest money in. So those numbers will go up. In terms of the magnitude for the next couple of years, you got to bear with us a little bit until we give our guidance.

But, you know, we have, and I think we have highlighted that in terms of all our costs for 2023, that, that we are carefully looking at how much money do we want to spend or do we need to spend. But first and foremost, you know, we want to create value with the cash position that we'll have, and that, of course, goes hand in hand with increased R&D expenses going forward.

Ryan Richardson (CSO)

Yeah. And maybe, Daina, just to add one point to Jens's remarks on the R&D line. You know, I think it's important to remember as well that on a number of these pivotal stage or near or soon-to-be pivotal programs, we do expect to share R&D expenses with a partner. So that's the case in the Pfizer collaboration, of course, where we share R&D expenses 50/50, and we mentioned today that we expect a couple of pivotal trials to start with combination vaccines that could become a midterm growth driver if successful. And similarly, on the oncology side, we have a number of programs that are partnered as well, where we share expense.

Operator (participant)

Great, thank you. We'll now take our next question. This is from the line of Tazeen Ahmad from Bank of America Securities. Please go ahead.

Tazeen Ahmad (Managing Director and Senior Equity Analyst)

Okay, great, guys. Thanks so much. Good morning. I have a couple of questions. It was encouraging to see that the safety profile in general for the COVID and flu combo vax resembles what you saw just for the regular COVID vaccine. But I'm wondering if you could just provide any additional data, particularly on what reactogenicity might have looked like and what you found, for example. And then secondly, a financial question on R&D, can you elaborate on whether at least some of your expenses have come from deprioritizing certain programs? And if so, can you talk to us about what programs those were? Thanks.

Ryan Richardson (CSO)

Uğur, do you want to take the first one or Özlem?

Özlem Türeci (CMO and Co-founder)

Yes, we were struggling with unmuting. Thank you. Thank you, Tazeen, for the question. The first one was about the reactogenicity profile for our variant-adapted vaccine. And that is in principle more or less equal to the bivalent vaccine we have developed to the BA.4/BA.5 adapted version, and what we see with the flu mRNA vaccine in the respective dose levels. And that supports that the safety profile, including the reactogenicity, is a platform characteristic. So in that regard.

Uğur Şahin (CEO and Co-founder)

Yeah. Yes, so the combo vaccine, with regard to the safety and reactogenicity profile, does not differ from the dose-dependent reactogenicity profile of the COVID-19 vaccine. That's the first piece to answer, and the second question goes to the prioritized programs?

Özlem Türeci (CMO and Co-founder)

No, I think-

Jens Holstein (CFO)

You wanna- Sorry?

You want to say something? Otherwise, shall I jump in, Uğur?

Uğur Şahin (CEO and Co-founder)

You can jump in, Jens.

Jens Holstein (CFO)

Yeah, I'll jump in. So, I mean, there is—it's a couple of activities that we undertook during, you know, our review of activities. We have prioritized a few programs, you know, earlier stuff, as well. You know, of course, we'll keep you updated in terms of updates if they are of relevance in terms of our later stage program that, you know, but there's nothing that I can report at this point in time. We have also, in terms of the collaboration with Pfizer on the programs, had a very close look as for other programs of, you know, how much money do we really need to spend to come to the desired outcomes. So, that's another part that plays a role. A little bit of shifting from 2023 to 2024.

So as always, there are a couple of things, but, you know, those costs I wouldn't call as, as something where you save money. Deprioritization, as well as, you know, maybe being able to run clinical trials at a cheaper scale is something that we take as, as real cost savings. And that has been a big chunk of what we can explain for the cost reductions.

Tazeen Ahmad (Managing Director and Senior Equity Analyst)

Okay, thank you.

Operator (participant)

Thank you. We'll now take our next question. Please stand by. This is from the line of Chris Shibutani from Goldman Sachs. Please go ahead.

Chris Shibutani (Senior Analyst and Managing Director)

Oh, thank you very much. Good morning and good afternoon. Two questions, if I may. First, on the oncology program, BNT122, the iNeST cancer vaccine, ongoing melanoma study, but we noticed that there was an absence of commentary in the press release. Should we still expect the study to report top-line results by year-end? And perhaps you can comment on what your expectations are for this program and if they've changed. My second question is on the COVID-flu combination data to make sure in terms of immunogenicity, the press release mentioned titers generated by lead combinations were compared to concomitant administration of COVID and flu vaccines. Is that the immunogenicity comparison that the FDA will be evaluating in phase III, or are they looking for titers compared to monotherapy vaccination of COVID and flu separately? Thank you.

Ryan Richardson (CSO)

Yeah, thank you, Chris. Maybe I'll take the iNeST question first and then turn it over to Uğur and Özlem for the flu COVID. So on BNT122, actually, on our last earnings call, we provided revised guidance that we did not expect data this year. As you remember, that the trial is randomized and has a PFS threshold to trigger the PFS analysis, which we said had not been met and which we didn't anticipate would be met this year. We do plan to provide a trial update this year, but we're not expecting data this year.

Uğur Şahin (CEO and Co-founder)

The second question was related to the-

Özlem Türeci (CMO and Co-founder)

To the comparator, to the flu combo vaccine, if I got that right.

Uğur Şahin (CEO and Co-founder)

Yes. Yes. This is so we are comparing both. We are comparing flu mRNA, COVID mRNA as comparator as well as established flu vaccines that are based on proteins or inactivated flu vaccines. And both comparisons will be in the study.

Chris Shibutani (Senior Analyst and Managing Director)

That's what the FDA will be evaluating in the phase III?

Uğur Şahin (CEO and Co-founder)

At least in our case.

Operator (participant)

Thank you. We'll now move to our next question. This is from the line of Akash Tewari from Jefferies. Please go ahead.

Speaker 13

Hi, this is Amy on for Akash. Thanks so much for taking our question. So just two from us. Number one, we've seen Pfizer reduce costs in the face of reducing COVID vaccine demand, while at the same time, we're seeing Moderna increase costs. When you think about BioNTech's planned spend over the next three to four years, how willing are you to eat into the cash generated during COVID? Should we expect it to decline on an annual basis, or will the team aim to sustain R&D solely off of residual vaccine demand?

Number two on the COVID-flu program, given the economics between you and Pfizer are 50% right now and may drop to potentially in the 30% range, if this program does become a success for BioNTech, do you anticipate it being net positive, net negative, or break even for BioNTech's cash generation? How should we think about the increased demand potentially being offset by lower economics? Thanks so much.

Ryan Richardson (CSO)

Amy, can you just clarify the second question you asked, was that in reference to a combination vaccine?

Speaker 13

Yes. Yes, the COVID flu combo vaccine.

Ryan Richardson (CSO)

Okay, so I'll take the first one and maybe-

Jens Holstein (CFO)

Yeah, I'll chime in.

Ryan Richardson (CSO)

Jens can chime in. Yeah, so we see that we're, we're in the midst of a transition period right now. Our COVID vaccine franchise is transitioning from pandemic to endemic market. This is, of course, happening this year, but we also expect that transition to continue next year. We're also transitioning to become a commercial stage oncology company. We've outlined some of the programs that we think are gonna drive that transition. As we go through this transition, we think it's an immense asset to the company to have a strong balance sheet, and we're very happy with our ability this year, if we meet revenue guidance, to maintain profitability. That's an important point for us.

As we go into the next couple of years through this transition, we expect to continue to maintain a very strong balance sheet, and that's going to continue to be a priority for us.

Jens Holstein (CFO)

Yeah, Ryan, you've raised it very nicely. It's not much to add. I mean, going forward, of course, you know, with the collaboration, we first and foremost got to invest in these combination trials currently, and, flu, COVID, flu-COVID, RSV, you know, those settings will eat up some cash, but, you know, we're very positive in terms of our expectations on the profitability share that we will get out of the co- collaborations and those combinations. In our view, this will, that will create new markets, and will secure, of course, the existing part and, and business that we have for COVID. So we, we think, you know, economically, that should be something of, of great value for the company going forward.

Ryan Richardson (CSO)

To your question on the combination vaccines, you know, we haven't yet disclosed the full economics with Pfizer on combination vaccines. We plan to do that in the near future. We have communicated today that we intend with Pfizer to embark on pivotal trials, phase III trials, with those combination vaccines. And we do think that there is substantial potential for combination vaccines, if successful, to improve uptake of our COVID vaccine based on the rates that we're seeing now in terms of uptake. There's a large difference between, for example, where flu vaccines are in terms of uptake versus what we're expecting this year for COVID. So we do think the combination vaccines can play an important role in terms of offering convenience and added benefit to increase the franchise over time.

We think that from a timeline perspective, if successful, those vaccines could start to have an impact for us from 2025 onwards.

Operator (participant)

Thank you. We'll now move to our next question. Please stand by. This is from the line of Yaron Werber from TD Cowen. Please go ahead.

Yaron Werber (Managing Director and Senior Biotechnology Analyst)

Great, thanks for taking my question. I have a couple. Just on 1046, the PD-L combo, you mentioned moving to a second-line endometrial study in combination with pembro. Just any update, and I'm not trying to front-run tomorrow, but just any update on the checkpoint experience, non-small cell lung cancer cohort, and is that still sort of in the cards? And then secondly, for 323, BNT323, on the HER2-low side, how do you define HER2-low? Is it histology? Do they have to have any expression at all? And why do you think you're confirming activity in a population that sort of failed Kadcyla before? Thank you.

Uğur Şahin (CEO and Co-founder)

Yeah. To your first question, 1046. Yes, the lung cancer cohorts are continuing, and we will most likely report data on this cohort in the next year, mid-next year. Yeah, and it's still targeted for follow-up.

Özlem Türeci (CMO and Co-founder)

Target of interest.

Uğur Şahin (CEO and Co-founder)

Target of interest in lung cancer. For BNT323, yes, HER2-low is defined as staining which is 1+ and 2+ without any amplification. Activity of this ADC compound in this patient population, which is clearly better than trastuzumab alone, is based on the highly potent ADC activity and on the bystander activity, allowing not only to remove antigen-positive tumor cells, but also the tumor cells in the surrounding, which are negative.

Operator (participant)

Thank you. We'll now move to our next question. This is from the line of Jessica Fye from JPMorgan. Please go ahead.

Jessica Fye (Managing Director and Equity Research Analyst)

Hey, good morning. Thanks for taking the question. Can you outline what key pipeline updates we should expect between now and year-end? You mentioned an update on the iNeST melanoma trial. What else should we be looking forward to, whether from the 4-1BB programs or otherwise? And then related to iNeST, with the new trial starting in adjuvant pancreatic cancer, can you talk about what drove that decision, and was it based on something you're seeing? And then lastly, just a financial question. You lowered OpEx guidance again this quarter, but also suggested that from here, R&D will likely grow to support these pipeline investments. What about SG&A? That guidance didn't change as much. Is there less flexibility in that line if expenses need to be cut again? Thank you.

Uğur Şahin (CEO and Co-founder)

I think-

Ryan Richardson (CSO)

Thank you, Jess. I'll start.

Uğur Şahin (CEO and Co-founder)

Okay, Ryan. Ryan, please go ahead. Please go ahead.

Ryan Richardson (CSO)

On the pipeline update, I was just gonna say on the pipeline update that we do expect data on BNT116 at SITC this just around the corner. And of course, tomorrow we do expect to give a pretty wholesome update across our late-stage oncology pipeline as well.

Jessica Fye (Managing Director and Equity Research Analyst)

What about on the new iNeST trial in adjuvant pancreatic? Can you talk about what drove the decision to start that up-

Ryan Richardson (CSO)

Yeah

Jessica Fye (Managing Director and Equity Research Analyst)

and the SG&A flexibility question?

Özlem Türeci (CMO and Co-founder)

Maybe I can take this one. We'll also talk about that trial tomorrow in our Innovation Day setup. An IIT, an investigator-initiated trial, a small one, which, however, showed very promising results in terms of the antitumor immune responses and the magnitude of immune responses in pancreatic cancer patients, which are traditionally always seen as immunosuppressed. We also could see that the success of inducing immune responses in half of this population was correlated with prolonged time to recurrence. And this data has motivated us to now set up a phase II trial, which has already dosed first patients.

Jens Holstein (CFO)

Then on the SG&A question, Jessica, we have reduced the cost here as well. Of course, we need to support the growth of the business going forward. Here, specifically in the years to come, we need to set up a sales and marketing organization for our parts, where we commercialize on our own. So in that respect, we need to invest as well. But you see, I mean, the scale of costs here is relatively small in comparison to what you see at competitive levels. And therefore, you know, if you look at the basis currently that we're having here, I think we're already relatively lean. But most important really is to set up a sales and marketing organization.

That will be something where we have to invest going forward, somebody.

Operator (participant)

Thank you. We'll now move to our next question. Please stand by. This is from the line of Bill Maughan from Canaccord Genuity. Please go ahead.

Bill Maughan (Director and Senior Analyst)

Hi, thank you. So looking at the ongoing evolution of SARS-CoV-2, do you expect the virus evolution to slow down to the point where annual strain updates aren't necessary? And if that does happen, how strong is the proposition for annual boosters if a strain update isn't needed? And then, on a second question, more looking more broadly, with the broad, you know, the multiplicity of platforms that you have, how do you think about bringing a specific modality into the clinic against a tumor target when you have the option of using, you know, an ADC or a bispecific or anything, or, you know, several different options here? Thank you.

Uğur Şahin (CEO and Co-founder)

Thank you. I can take the question. With regard to the evolution of SARS-CoV-2, we have to consider two rough mutational patterns. We have the typical mutation of an existing variant, which is continuing in more or less changing of single spike protein amino acids in various positions. This is what we have observed for the Alpha, Beta variant, and now observing for the Omicron variant. But there is also a second mutational pattern, which are variants that evolve with dozens of additional mutations.

We have seen that for the first time, but we have also seen it most recently with a variant, which is called BA.2.86, which is actually covering more than 30 additional mutations as compared to the Omicron strain. It is still called Omicron, but if we look closer, it is actually really a new variant. And this is something that we would also expect in future. Yeah. So this pattern will continue also in future, whereas the mutations based on single changes will not foster the generation of a new variant-adapted vaccines. I expect that the major changes will require variant-adapted vaccines.

And we have also to consider that the antibody titers decline over time. So we have two mechanisms. One is the erosion of the immune response itself, which is associated with a higher rate of infections and also associated with a higher severity. And the second is the evolvement of new variants. So in short, yes, we expect that also in future, we will have to think of two variants and this patterns the space might differ from season to season, like we are seeing that for flu infections.

The second question was about our interest in ADC technology, and whether we would like to combine that with our expertise in target identification and antibody generation. The answer is yes. Yeah, this is something we are working on.

Bill Maughan (Director and Senior Analyst)

Thank you.

Operator (participant)

Thank you. We'll now take our next question. Please stand by. This is from the line of Simon Baker from Redburn Atlantic. Please go ahead.

Simon Baker (Head of Global Biopharma Research)

Thank you very much for taking my questions. Two very quick ones, if I may. Just going back to R&D spend. From what I could gather from what you were saying, it sounds like essentially you're doing the same for less rather than delaying or deferring. But I wonder if you could just give us a little bit more color on CapEx, whether that's savings-driven or whether there are some fulfills in there. And then secondly, on PM8002, you highlight the non-small cell lung indication, but that molecule is in, I think, about half a dozen other tumor types. So I was just wondering what your interest in the other tumor types is for PM8002. Is that something you're looking to develop? And do you indeed have rights across all tumors? Thanks so much.

Jens Holstein (CFO)

Yeah, let me maybe quickly start with the CapEx question. So, indeed, here we have some savings, but we also have to some extent some shifts here. So we're delaying some investments going forward, specifically, you know, in terms of the production area, where we anticipated to invest maybe a bit more in 2023. Given where we stand with COVID and, you know, the activities around other programs in the infectious disease area, we said, you know, we watch how and when we actually invest, and in that respect, we have some shifts. Some lower spend than anticipated. But of course, you know, also when you go through the cost base, you know, you try to figure out if there are some savings here and there.

Uğur Şahin (CEO and Co-founder)

Can you shortly repeat on which compound you referred in your question with-

Jessica Fye (Managing Director and Equity Research Analyst)

In the first part.

Uğur Şahin (CEO and Co-founder)

In the first part?

Simon Baker (Head of Global Biopharma Research)

Yes. It was the Biotheus PM8002.

Uğur Şahin (CEO and Co-founder)

Oh, yes. Yes. The Biotheus PM8002 is a bispecific antibody which combines the neutralizing weak anti-VEGF arm with a blocking PD-L1 arm. The antibody has been evaluated in more than 500 patients and shows a very favorable safety profile and has shown activity in multiple indications, also combination therapies with chemotherapy. And we see this molecule indeed as an opportunity, a new generation IO which combines bispecific activity for multiple indications. And we are seeing particularly an opportunity to combine this with our ADC portfolio.

It's well known that anti-VEGF treatment is synergistic with chemotherapy by improving the penetration of chemotherapeutics and modifying the tumor microenvironment, and thereby increasing the efficacy of chemotherapy. And this is something that we are also expecting to be an additional partner for our ADCs.

Simon Baker (Head of Global Biopharma Research)

Great. Thanks so much.

Operator (participant)

Thank you. We will now take one more question. Please stand by. The last question is from the line of Ellie Merle from UBS. Please go ahead.

Ellie Merle (Executive Director and Biotech Equity Research Analyst)

Hey, guys. Thanks so much for taking the question. Just in terms of thinking about the profitability of the COVID vaccine business, just how should we think about the Pfizer COVID vaccine gross profit margins going forward, just given the endemic market and the impact this has on the revenue you recognize? You mentioned the continued shift to single-dose vials and prefilled syringes. Just trying to think about how you're thinking about long-term potential margins for that business and the impact on the revenues that you'd recognize as part of the profit share. Thanks.

Ryan Richardson (CSO)

Yeah. Thanks, Ellie. I'll start, and then Jens, I think can come in. So I think the short answer is that we expect the COVID vaccine franchise to continue to be highly cash generative and highly profitable on a product basis for us going forward. You rightly point out the shift to endemic market that we've talked about today. You have to remember that because we share gross profits 50/50 with Pfizer, and the bulk of our revenue comes in the form of a Pfizer gross profit share from countries outside of Germany and Turkey, which are our revenue reporting regions. Because of that, we don't expect the direct shifts to a single-dose vial and prefilled syringes to have a significant effect on our gross margins, because it's already...

Most of that revenue is already coming to us net of cost of goods. It's rather the mix between Germany and Turkey, the relative contribution of Germany, Turkey, to the total that would affect the gross margins. Jens, you want to-

Jens Holstein (CFO)

Yeah, I think you said it, basically. So, everything that comes from Pfizer is 100% profit for us. So the relation between of what we generate as revenue and what Pfizer generates is actually driving the story here at the end of the day. Remember, that for me and you, we have multi-dose contract anyway for the next couple of years for the COVID standalone solution at this point in time. So, Ryan made the point.

Ellie Merle (Executive Director and Biotech Equity Research Analyst)

Great. Thanks.

Ryan Richardson (CSO)

Does that answer your question, Ellie?

Ellie Merle (Executive Director and Biotech Equity Research Analyst)

Yeah.

Ryan Richardson (CSO)

Okay, thank you.

Operator (participant)

Thank you. That concludes the question and answer session. I will now hand back to the speakers for any closing remarks.

Ryan Richardson (CSO)

Thank you very much for joining our call, and we look forward to speaking with you again tomorrow.

Operator (participant)

Thank you. That does conclude the conference for today. Thank you for participating, and you may now disconnect.