BioNTech SE

NASDAQ:BNTX

Earnings Call Analysis

BioNTech Adjusts Financial Guidance for 2023

BioNTech's business in 2023 has been characterized by a notable shift in COVID-19 vaccine revenue, with lowered guidance from around EUR 5 billion to approximately EUR 4 billion, due to reduced Pfizer expectations and write-downs. This change reflects a broader transition to a 'flu-like' market for vaccines. Despite this, the company maintains a robust financial position, ending the third quarter with a cash and cash equivalent balance of EUR 17 billion, bolstered by steady cash collection and EUR 565 million received from Pfizer. The third quarter's revenue was EUR 0.9 billion, down from EUR 3.5 billion the previous year, while net profit for the first nine months reached EUR 0.5 billion, a decrease from EUR 7.2 billion in the comparative prior period. BioNTech has responded to vaccine market volatility by adapting its cost base and reducing R&D expenses guidance to between EUR 1.8 billion and EUR 2 billion, and narrowing SG&A expenses guidance. The estimated annual cash effective income tax rate is adjusted to around 21%, considering the company's strategic collaborations and financial prudence.

Adapting to Variants: BioNTech's Swift Response to COVID-19

BioNTech's agile adaptation to the evolving COVID-19 environment is demonstrated by its quick deployment of the Omicron XBB.1.5-adapted vaccine. The rapid regulatory approvals and the ability to ship initial batches within two months showcase the company's efficient operations and technological edge with mRNA vaccines. With anticipation of seasonal illnesses like COVID-19, BioNTech expects the need for annual adaptive vaccines to become a regular feature, preparing the company for sustained revenue from this segment.

Expanding the Clinical Oncology Horizon

BioNTech's oncology pipeline is advancing, with a focus on high medical need indications and leveraging partnerships to drive multiple Phase 2/3 trials. Their entry into Phase 3 for a non-small cell lung cancer monoclonal antibody and a Phase 3 trial for an antibody drug conjugate in breast cancer demonstrates their commitment to expanding their portfolio with innovative therapies.

Financial Stability Amidst the Pandemic to Endemic Transition

Despite the write-downs and market transitions from Covid-19 pandemic surges to more stable, endemic patterns, BioNTech has maintained financial health. Its revised 2023 Covid-19 vaccine revenue guidance to approximately €4 billion acknowledges the changes brought by the global shift in disease dynamics and highlights a careful financial recalibration to align with current market conditions.

Strategic Spending: Prudence in Investment

BioNTech is strategically adjusting its R&D and operational spending to strengthen its financial position. The company has reduced its R&D expense guidance from €2.4-€2.6 billion to €1.8-€2 billion and narrowed its SG&A guidance. This fiscal responsibility demonstrates its adaptability and commitment to propelling growth in a more predictable expenditure framework.

A Strong Finish to 2023 with Long-term Growth

Internationally, BioNTech's adaptive vaccine is gaining traction, and projections show a robust uptake towards the year-end. The strategic foresight of investing in a Covid-19/Influenza combination vaccine targets the consumer appeal of simplified immunizations, preparing the company for growth and market leadership in the vaccine sphere.

Earnings Call Transcript 2023-Q3

[Operator]

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, executive]

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 Investors 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 3, 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, Ugur Sahin; Ozlem Tureci, 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 Ugur Sahin.

[Ugur Sahin, executive]

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 5. 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 topline results. The Phase 1/2 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 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 the company's COVID-19 vaccine. A pivotal Phase 3 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 Duality Bio, we are initiating a pivotal Phase 3 trial to evaluate our next-generation antibody conjugate BNT323 in patients with hormone receptor positive HER2low breast cancer who progressed on previous standard of care but are chemotherapy naïve.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 step 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 3 targeted antibody drug conjugate from MediLink Therapeutics, and as announced today, our plan to bring forward anti-VEGF, anti-PD-1 bi-specific 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 first test 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 Innovation.In summary, we continued our focused execution against our strategic priorities in the first quarter and look forward to additional progress in all 3 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 6, focusing on our marketed COVID-19 vaccine, COMIRNATY. We continue 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, 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 adaptive vaccine for individuals aged 6 months to 11 years under emergency use authorization and for those aged 12 and above. The vaccines have been approved under supplemental biologics license application.Second, other national health regulators across the globe, including the U.K., Japan, Canada and South Korea have also approved our monovalent adaptive vaccine. Within 2 months, we went from the first regulatory recommendations for an XBB.1.5-adapted vaccine to our first shipment of the respective vaccine. The ability to execute this at such speed was enabled by our continued surveillance and analysis of variance 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 7, 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 death 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 risk associated with evolving COVID-19 variants.As shown on Slide 8, Long COVID has a significant societal and healthcare system impact, the studies indicating that 10% to 20% of SARS-CoV-2 infected inhibitors 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% to 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 9. 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 the re-infection. 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. And pre-clinical data demonstrate that vaccination of XBB.1 descendent lineage containing candidate elicit higher neutralizing antibody to currently circulating variant of concern compared to the responses elicited by previously approved COVID-19 vaccine.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 Ozlem.

[Özlem Türeci, executive]

Thank you, Ugur. 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-prompt 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 the Phase 2 trial and our Tcell-enhancing vaccine candidate in an ongoing Phase 1 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 influencer combination vaccine, which leverage our mRNA technology.We recently reported Phase 1/2 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 company's COVID-19 vaccine, which met the criteria for advancement to a Phase 3 trial. In addition to the previously mentioned COVID-19 and influenza vaccine program, 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 sub-lineages currently account for the majority of COVID-19 cases globally, including the XBB-descendent EG.5.1 whose dominance is growing.Slide 13. We and our partner, Pfizer, tested for 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 2 doses of the original BNT162b2 vaccine. One group of mice again received the BA.4-5 adapted bivalent COVID-19 vaccine as a fourth dose and the other group received the new XBB.1.5adapted monovalent COVID-19 vaccine as a fourth dose. You can see a 4- to 5-fold increase of neutralization of several XBB-related variants when dose 4 is the XBB.1.5-adapted monovalent vaccine as compared to last season's BA.4-5adapted vaccine.This 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 titer against multiple XBB sub-lineages. 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.Slide 14 shows the design of our ongoing Phase 2/3 clinical study, testing the safety, tolerability and immunogenicity of our Omicron XBB.1.5-adapted monovalent vaccine in 700 vaccine-naive and 16 experienced participants. While data from the 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 BA2.86 compared to pre-vaccination levels.Moving now to our oncology pipeline on Slide 16, which is grounded in our multi-modality toolbox and is advancing through focused execution. We now have one Phase 3 study ongoing and the second Phase 3 expected to dose its first patient soon. Gotistobart, our anti-CTLA-4 monoclonal antibody, which we believe offers a differentiated safety profile, a Phase 3 clinical trial evaluating its efficacy and safety as monotherapy and 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 3 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 2 lines of prior endocrine therapy or within 6 months of first-line endocrine therapy plus CDK4 inhibitor.We've also recently initiated 2 new Phase 2 trials, one in partnership with Genentech. It's evaluating our individualized cancer vaccine candidate, BNT122, in the actual setting for patients with pancreatic cancer. The other in partnership with Genmab is evaluating our BNT311 bispecific, conditionally PD-L1/4-1BB 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 response through EpCAM-dependent 4-1BB agonistic activity is ready to move from preclinical to Phase I clinical testing with the first patient dosed 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, in various cancer indications. PM8002 is currently being tested in a Phase 2/3 study to evaluate the efficacy and safety of a candidate at monotherapy or in combination with chemotherapy in patients with non-small cell lung cancer. PN8002 may lead to reduced systemic toxicity by enriching anti-VEGF activity in the tumor micro environment.Now moving on to our antibody drug conjugate portfolio. During the quarter, one of our [ antibody ] -- ADCs, BNT324, entered Phase I/II basket trial. Furthermore, on the ADC front, I would like to note our latest addition, YL202 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 commoditized combination backbone of cancer treatment.In summary, we can see a diversified clinical oncology pipeline and solid tumor indications of high unmatched medical needs and more than 30 clinical studies.On Slide 17, I would like to highlight 5 across our multiple platforms that have disclosed clinical data in recent medical conferences this autumn. In September, clinical data from the ongoing Phase 1/2 clinical trial, evaluating BNT323 in patients with advanced and unresectable recurrent or metastatic HER2expressing 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 HER2expressing endometrial cancer with an objective response rate confirmed and unconfirmed of 58.8% and disease control rate of 94.1%.Data at ESMO, we presented alongside our partner, DualityBio, clinical data from the ongoing Phase 1/2 trial, evaluating our TROP-2 targeted ADC candidate in patients with advanced solid tumors. The data suggests that a manageable safety profile at lower dosages and encouraging efficacy sickness were observed in non-small cell lung cancer patients with unconfirmed objective response rate of 46.2% in 6 out of 13 evaluated patients and an unconfirmed CCR of 92.3% in 12 out of 13 patients.We also reported data from the ongoing Phase 1/2 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 additional CARVac improved CAR-Tcell persistence.The rate of treatment dependent adverse events was dose dependent. After determination of a recommended Phase 2 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 1 dose escalation trial, evaluating BNT221. Our autologous fully personalized T-cell therapy directed against selected sets of individualized neoantigens. Using our proprietary NEOSTIM technology on the patient's peripheral blood test, 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 1 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 3 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 towards the pivotal stage with the aim to deliver the next generation of oncology medicines.And with that, I'll now pass the presentation to our CFO, Jens Holstein.

[Jens Holstein, executive]

Thank you, Ozlem, 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 9 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 9 months of 2023 and were significantly derived from sales of our recently approved Omicron XBB.1.5adapted 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 9 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 at Pfizer, write-downs and similar charges by Pfizer reduced the gross profit, which both parties generally share equally. And this ultimately impacts BioNTech's revenue figure. As part of this contractual model, we own and 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 I want to emphasize now that taking the Pfizer announcement and its implications on to 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 9 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 as 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.Help me move into 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 a 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 9 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 9 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 varied 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 9 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 9 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 year period. In total, for the first 9 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 year period. The derived effective income tax rate for the first 9 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's growth.We recognized a net profit during the third quarter of 2023 amounting to EUR 160.6 million compared to EUR 1.8 billion for the comparative prior year period. For the first 9 months of 2023, net profit reached EUR 0.5 billion compared to EUR 7.2 billion for the comparative prior year 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 year period. For the first 9 months of 2023, our diluted earnings per share was EUR 1.94 compared to EUR 27.70 for the comparative prior year 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 moves 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 small 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 9 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 a 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 [ EG ] 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 in our partners' guidance for their market, 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 for M&A transactions that might take place until the year-end.As summarized for you on this slide, we reduced 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 updated our SG&A expenses and narrow the initial 2023 guidance range from between EUR 650 million and EUR 750 million, down 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 revenue procedures. Nonetheless, let me clarify here as well that we further intend to invest in our capabilities, in our pipeline of product candidates as those will create the value of the company in the 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.And 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, executive]

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 3 main strategic objectives. Regarding our COVID-19 vaccine franchise, we look forward to advancing our COVID-19 influenza combination vaccine into a Phase 3 trial in the coming months. If successful, we believe simplifying immunization practices for health care providers could positively impact compliance and help reduce the burden of these diseases and its impact on health care 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 months 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 adaptive vaccine. In the 2.5 months following regulatory recommendation for an XBB.1.5-adaptive 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 the 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-adaptive 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 2 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 6 Phase 2 or 3 trials. We plan to continue this trend through the initiation of additional late-stage trials in the next 12 months 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 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]

[Operator Instructions] We'll now take our first question. This is from the line of Daina Graybosch from Leerink Partners.

[Daina Graybosch, analyst]

I have 2 financial questions. One, you have many programs going into Phase 3, and that's certainly going to increase your R&D expenses. And I wonder if you can give us any guidance on sort of the near to mid-term and how much R&D we should expect in our model? And 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 then through 2 years after that.

[Jens Holstein, executive]

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, if we have to, with new variants coming up, always have some sort of write-offs to be reflected, be it on Pfizer side or on our side. So there will be something, but not at all at that magnitude that we have seen now with the shift in '23. So, I think from our perspective going forward, the magnitude is a fraction of what we had to announce unfortunately for '23.Then in terms of the R&D expenses, Ryan was alluding to additional clinical trials, further late-stage trials. Of course, that means that our R&D expenses are expected to go up. That's something that we 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 we have -- and I think we have highlighted that in terms of all our costs for '23 that we are carefully looking at how much money do we want to spend or do we need to spend, but first and foremost, we want to create value with a cash position that we'll have. And that, of course, goes hand-in-hand with increased R&D expenses going forward.

[Ryan Richardson, executive]

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

[Operator]

We'll now take our next question. This is from the line of Tazeen Ahmad from Bank of America Securities.

[Tazeen Ahmad, analyst]

Okay. I have a couple of questions. It was encouraging to see that the safety profile in general for the COVID and flu combo vacs 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 at, and what you we found, for example? And then secondly, a financial question. On R&D, can you elaborate on whether some of your expenses have come from deprioritizing certain programs? And if so, can you talk to us about what programs those were?

[Ryan Richardson, executive]

Do you want to take the first one?

[Özlem Türeci, executive]

Yes, we were struggling with unmuting. The first one was about reactogenicity profile for our variant-adapted vaccine. And that is, in principle, more or less equal to the [indiscernible] type vaccine. We have developed to BA.4, BA.5 adapted version and what we see with the flu and RNA vaccine in the respective dose levels. And that supports the safety profile, including the reactogenicity as a platform characteristic. So in all that regard.

[Ugur Sahin, executive]

Yes. So the combo vaccine with regard to the safety and the reactogenicity profile does not differ from the dose-dependent reactogenicity profile of the COVID-19 vaccine. [Technical Difficulty] answer the second question goes to the prioritized program?

[Jens Holstein, executive]

Do you want to say something? Otherwise, shall I jump in, Ugur?

[Ugur Sahin, executive]

You can jump in, yes.

[Jens Holstein, executive]

I'll jump in. So, I mean there is -- it's a couple of activities that we undertook during our review of activities. We have de-prioritized a few programs, earlier stuff as well. Of course, we'll keep you updated in terms of updates if they are of relevance in terms of our later-stage programs, 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 at a very close look as for other programs of 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 '23 to '24. So as always, there are a couple of things. But those costs, I wouldn't call as something where you save money. De-prioritization as well as maybe being able to run clinical trials at a cheaper scale is something that we take as real cost savings. And that has been a big chunk of what we have -- where we can explain for the cost reductions.

[Operator]

We'll now take our next question. This is from the line of Chris Shibutani from Goldman Sachs.

[Chris Shibutani, analyst]

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 a 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 formulations were compared to concomitant administration of COVID and flu vaccines. Is that the immunogenicity comparison that the FDA will be evaluating in Phase 3? Or are they looking for titers compared to monotherapy vaccination of COVID and flu separately?

[Ryan Richardson, executive]

Maybe I'll take the iNest question first and then turn it over to Ugur and Ozlem for the fluCOVID. So on BNT122, actually, on our last earnings call, we provided revised guidance that we did not expect data this year. As you remember, the trial is randomized and has a PFS threshold to trigger the PFS analysis, which 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.

[Ugur Sahin, executive]

And the second question was related to the...

[Özlem Türeci, executive]

To the comparator to the flu combo vaccine.

[Ugur Sahin, executive]

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

[Chris Shibutani, analyst]

And that's what the FDA will be evaluating in the Phase 3?

[Ugur Sahin, executive]

At least in our case.

[Operator]

We'll now move to our next question. This is from the line of Akash Tewari from Jefferies.

[Unknown Analyst]

This is Amy on for Akash. So just 2 from us. Number one, we've seen Pfizer reduced cost in the face of reducing COVID vaccine demand, while at the same time, we're seeing Moderna increase cost. What do you think about BioNTech planned spend over the next 3 to 4 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? And then number two, on the COVID flu program, given the economics between you and Pfizer are 50% right now and they 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 breakeven for BioNTech's cash generation? How should we think about the increased demand potentially being offset by lower economics?

[Ryan Richardson, executive]

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

[Unknown Analyst]

Yes, yes, the cover-flu combo vaccine.

[Ryan Richardson, executive]

Okay. So, I'll take the first one and maybe...

[Jens Holstein, executive]

Yes, I'll chime in.

[Ryan Richardson, executive]

Jens can chime in. Yes. So we see that -- 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. And we're also transitioning to become a commercial stage oncology company, and we've outlined some of the programs that we think are going to 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, executive]

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

[Ryan Richardson, executive]

And to your question on the combination vaccines, 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 3 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. And we think that from a time line perspective, if successful, that those vaccines could be -- start to have an impact for us from 2025 onwards.

[Operator]

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

[Yaron Werber, analyst]

Great. I have a couple. Just on 1046, the PDL combo, you mentioned moving to a second line endometrial study in combination with pembro. Just any update -- and I'm not sure on a front around to more, 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 [indiscernible] before?

[Ugur Sahin, executive]

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

[Özlem Türeci, executive]

Target of interest.

[Ugur Sahin, executive]

Target of interest in lung cancer. For BNT 323, yes, low is defined as staining, which is -- and 2 plus without any amplification and activity of the 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]

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

[Jessica Fye, analyst]

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 the 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?

[Jens Holstein, executive]

Ryan, please go ahead.

[Ryan Richardson, executive]

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

[Jessica Fye, analyst]

And then what about on the new iNest trial in adjuvant pancreatic? Can you talk about what drove the decision to start that up, and SG&A flexibility question.

[Özlem Türeci, executive]

Maybe I can take this one. We will also talk about that trial tomorrow in our Innovation Day set up. We [Technical Difficulty] an IIT, an investigator-initiated trial, a small one, which, however, showed very promising results in terms of anti -- the immune responses and the magnitude of immune responses induced in pancreatic cancer patients, which are traditionally always seen as immune suppressed. 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 2 trial, which has already dosed first patients.

[Jens Holstein, executive]

And 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 and all. So, in that respect, we need to invest as well. But you see, I mean, the scale of cost here is relatively small in comparison to what you see at competitors' levels. And therefore, if you look at the basis currently that we're having here, I think we are already relatively lean. But most important really is to set up a sales and marketing organization. So that will be something where we have to invest going forward, some money.

[Operator]

We'll now move to our next question. This is from the line of Bill Maughan from Canaccord Genuity.

[William Maughan, analyst]

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 the strain update isn't needed? And then a second question. Looking more broadly, with the broad -- the multiplicity of platforms that you have, how do you think about bringing a specific modality into the clinic against the tumor target when you have the option of using an ADC or bispecific or anything or several different options here?

[Ugur Sahin, executive]

I can take the question. So, with regard to the evolution of SARS-CoV-2, we have to consider 2 BRAF mutation patterns. We have [Technical Difficulty] a vertical 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 variants 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 [Technical Difficulty] but we have also seen it most recently with a variant which is called BA286 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. So, this pattern will continue also in the future, whereas the mutations based on single changes will not foster the generation of a new variant-adaptive vaccine. 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 2 mechanisms. One is the erosion of the immune response itself, which is associated with a higher rate of infections and also associated with higher severity. And the second is the evolvement of new variants.So, in short, yes, we expect that also, also in the future, we will -- we have to [Technical Difficulty] of 2 variants. And this patterns, the space, might differ from season to season like we are seeing that for flu infection.And 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. And the answer is yes. This is something we are working on.

[Operator]

We'll now take our next question. This is from the line of Simon Baker from Redburn Atlantic.

[Simon Baker, analyst]

Two very quick ones, if I may. Just going back to R&D spend. From what I can 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 deferrals 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 have the rights across all tumors?

[Jens Holstein, executive]

Yes, let me maybe quickly start with the CapEx question. So indeed here, we have some savings, but we also have, to some extent, some shift here. So, we're delaying some investments going forward, specifically in terms of the production area where we anticipated to invest maybe a bit more in '23, given where we stand with COVID, the activities around other programs in the infection disease area. We said, we watch how and when we actually invest, and in that respect, we have some lower spend than anticipated. But of course, also when you go through the cost base, you try to figure out if there are some savings here and there.

[Ugur Sahin, executive]

Can you shortly repeat on which compound you referred in your question? In the first part.

[Simon Baker, analyst]

Yes, it was the Biotheus PM8002.

[Ugur Sahin, executive]

Yes, yes. The Biotheus PM8002 is a bispecific antibody which combines and neutralizing anti-VEGF arm. There's 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 synergetic to 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 [Technical Difficulty] partner for our ADCs.

[Operator]

We will now take one more question. The last question is from the line of Ellie Merle from UBS.

[Eliana Merle, analyst]

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.

[Ryan Richardson, executive]

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 shift to 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 Holstein, executive]

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

[Ryan Richardson, executive]

Does that answer your question? Okay. Thank you.

[Operator]

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

[Ryan Richardson, executive]

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

[Operator]

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