Weekend Update #153
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As we move further into the holiday season and the final quarter of 2023, the market's watchful eye has trained on the United States' economic data, yearning for signs of cooling that will allow the Federal Reserve to definitively end – and eventually reverse – their rate hike regime. This past week proved a pivotal point for the public's perception of future policy, with Tuesday's CPI readout igniting forceful optimism and an aggressive rally in the equities markets.
The Consumer Price Index published this week saw year-over-year price changes through the month of October fall to 3.2%, while Core CPI, which excludes volatile inputs such as food and energy, measured at 4.0% – both below analyst expectations. On a month-over-month basis, CPI remained flat as well. Throughout the recent press conferences that follow the Federal Reserve's Federal Open Market Committee meetings, Chairman Jerome Powell has made it distinctly clear that the governing body will remain data dependent when finalizing their decisions regarding the Federal Funds Rate, focusing particularly on the performance of the labor market and overall production in the context of changing inflationary pressures. Coupled with the non-farm payrolls data that was released at the start of the month – and showed job additions fell from 330,000 in September to 150,000 in October – this CPI announcement led many market participants to believe the Federal Reserve could terminate their rate hikes and achieve the soft-landing they have desired, leading the S&P 500 to rally X.XX% throughout the rest of the week.
However, such progress on inflation is not without cost. As reported by the Commerce Department on Wednesday 10/15, retail sales in the United States for the month of October fell 0.1% after six consecutive months of gains. Leading big-box retailers reporting throughout the week highlighted consumers pulling back on discretionary spending.
Politically, marked headlines arose on both the legislative and executive fronts. This week, Congress passed a short-term spending bill that will keep the federal government funded through the beginning of February. The previous resolution, orchestrated at the deadline by then-Speaker Kevin McCarthy, ultimately cost the Congressman his position of power, and while this bill passed with significant bipartisan support, the expectation is that the next budgetary debate will be a battleground fought on staunch party lines. Notably as well, President Biden met with Chinese President Xi Jinping before the Asia-Pacific Economic Cooperation conference, marking President Xi's first trip to the United States in six years. During the meetings, the two leaders reached agreements to re-open military communications and to work to curb fentanyl production, with tensions remaining over the future of Taiwan.
Weekly Performance
S&P 500 4,514.02 +2.44%
Nasdaq 14,125.48 +3.06%
Dow Jones 34,947.48 +2.03%
Thank you Blue Room Analyst AIDAN FETTERLY
Tami Zakaria — J.P. Morgan
Of course. Before I start, let me ask you the most important question that everybody wants to know, how many cups of coffee, do you have to drink a day to run a company like Caterpillar?
Jim Umpleby — Chairman & Chief Executive Officer
I have — my wife has got me to cut-back over the years. I have two very large cups. So it's actually there.
Tami Zakaria — J.P. Morgan
Got it. Okay, lovely. Okay, so on a more serious note. I wanted to start off, on the heels of your third quarter prints. Very healthy sales and strong margin performance in the quarter and it's looking like an impressive year for Caterpillar. So, talk to me about what you've seen and why the company seems to have elevated performance versus prior periods?
Jim Umpleby — Chairman & Chief Executive Officer
Well, thanks, Tami. I certainly I'm very proud of our team. What they've accomplished over the last seven years, as we've implemented our new strategy. Just you know recap for this year, our adjusted profit per share and ME&T free cash flow through the first three quarters of the year will be higher than any other record year in our history. So again, very proud of the team.
We expect to finish the year slightly above our adjusted operating profit margin range and we expect to exceed our ME&T free cash flow target range of $4 billion to $8 billion. We implemented that new strategy back in 2017, just really quickly to go through the main elements. It's really the answer to your question. And so, you know, we're focused on three key areas, operational excellence, which is safety, quality and Lean, the competitive and flexible cost structure, expanded offerings about new products and technologies and services, which I'm sure we'll talk more about here.
We also implementing, what we call our operating and execution model, O&E model that it used to be a Caterpillar I think is the way it was in many legacy manufacturing companies. If we had a division, let's say that had a dozen products in it, as long as that division was performing acceptably, I'm just kind of go along and get a bit more — get more expansive, get more capital the next year.
Michael Amoroso — Chief Executive Officer
Precision BioSciences is now a singularly focused in vivo gene editing company based on ARCUS
Today will be laser-focused on their first organic program, PBGENE-HBV
Cassie Gorsuch has been busy today presenting to a highly engaged group on the updated preclinical models with the final ARCUS nuclease
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ARCUS is the backbone of Precision BioSciences
It is highly differentiated
As opposed to all other bacterial restriction based gene editors, ARCUS comes from the homing endonuclease
The grey area is where most gene editing occurs today — in the liver with knockouts/deletion
Precision will focus further up the branches on more sophisticated edits
The first focus is elimination with PBGENE-HBV
More sophisticated edits are with partnered programs with excision in the DMD program with Lilly/Prevail and gene insertion with iECURE and Novartis
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An ARCUS cut leaves a 3’ overhang and allows for a high degree of homology directed repair, as the dominant type of repair
Today, they will focus on the size and simplicity advantages of ARCUS in the context of the HBV program — so ARCUS can penetrate HBV and that it’s packaged all in one protein
Roy Mann — Co-Founder & Co-Chief Executive Officer
Thank you, everyone for joining us today. As we reflect on our most recent quarter, it is with heavy hearts that we acknowledge the recent tragic events that have unfolded in Israel. Our thoughts are with all those affected by recent violent terrorist attacks. At this time, the impact on the current situation of our global operation is minimal, and we remain confident in our ability to meet all our business and financial targets.
In terms of revenue, Israel accounts for a low-single-digit percentage of our total ARR. While only approximately 7% of our global workforce have been called up for reserve duty, our global employees have gone above and beyond to seamlessly fill any gaps to help ensure our business continues to run smoothly. Furthermore, all of our data servers are distributed globally across North America, Europe, and Australia, ensuring our operations will continue seamlessly. We are monitoring the situation closely and will make necessary adjustments to our plans as needed.
Now, let's return to our results this quarter. We are pleased to share that we have achieved another quarter of strong growth, impressive margin improvement and amazing cash generation. In Q3 we continued to demonstrate our ability to scale with efficiency, posting record non-GAAP operating margin of 13% and a record free cash flow margin of 34%.
I'll now turn it over to Eran to walk you through some of our product highlights this quarter.
Eran Zinman — Co-Founder & Co-Chief Executive Officer
Thank you, Roy. We remain focused on our multi-product strategy, and ensuring that our products can successfully enable cross-functional collaboration for our customers. Our new products continue to show a remarkable cross-sell opportunity with 2,534 initial work management accounts adopting one of our new products. We are dedicated to providing exceptional solutions that meet the evolving needs of our customers, and we believe that our new products will play a pivotal role in achieving this.
Our target is to open access to our new monday sales CRM and monday dev products to all customers by the end of Q1 of next year. In Q2, we've successfully completed mondayDB 1.0. With the completion of that phase, all monday customers have been transitioned to our new cutting-edge infrastructure, and initial feedback has been amazing. Users are noticing a meaningful boost in performance and capabilities of the WorkOS platform. Our next phase, mondayDB 1.1 dashboards, is now live and already showing significant improvements in load times and performance of our largest and most complex dashboards.
On Sunday, November 12, at the American Heart Association Scientific Sessions, Verve Therapeutics announced first human proof-of-concept data for in vivo base editing from its ongoing heart-1 phase 1b clinical trial of VERVE-101. The release of the interim data marked a landmark milestone for the gene editing field as it was the first instance of a second-generation gene editing approach seeing clinical validation. While the data for the drug itself was met with skepticism and disappointment from investors, it was made clear that base editing will surely serve as a foundational technology in the future of gene editing.
Base editing was first introduced as an alternative gene editing technique in 2016 – four years after the epoch-making CRISPR/Cas9 paper that would eventually result in its authors, Jennifer Doudna and Emmannuelle Charpentier, receiving the Nobel Prize in Chemistry. In the initial paper, David R. Liu and team introduced the concept of base editing using a fusion of a catalytically impaired CRISPR/Cas9 protein and a cytidine deaminase enzyme. The fusion of these two biological mechanisms could convert the DNA base pair adenine-thymine (A-T) to guanine-cytosine (G-C) without causing double-stranded breaks. Simply put, base editing allowed for the repair of single point mutations in the genome – of which countless diseases are a known consequence. This groundbreaking approach allowed for more precise and predictable modifications compared to the traditional CRISPR/Cas9 methods, reducing the likelihood of unintended mutations. Metaphorically, scientists regard CRISPR/Cas9 as scissors – the editing mechanism goes into the genome and makes a cut, allowing for the removal of an unwanted mutation. Base editing, on the other hand, is thought of as an eraser – the editing mechanism goes into the genome and erases the point mutation, resulting in the mutation flipping to the desired end state.
Precision BioSciences Overview:
The company was started in 2006 by two scientific cofounders who spun the company off from Duke University
The company was founded to be an in vivo gene editing company
They did an IPO in 2019, which was an important period because the allogeneic CAR Ts were still a nascent idea whereas autologous CAR T products had been approved in 2017
There was a lot of interest in using gene editing tools to go into allogeneic CAR T, but that took a lot of focus away from the in vivo gene editing part of the company
In August, they divested the lead allogeneic CAR T assets earlier this year to Imugene to bring in extra cash and to focus exclusively on gene editing
Precision has a lot of experience in gene editing, they are the founders of the ARCUS platform, and they have a wealth of patents
They have a strong scientific background with 110 people at the company and more than half of those are scientists
Precision has $120 million in cash right now, which is sufficient runway to carry them through clinical data from their first two programs
Michael Yee – Jefferies – Analyst
Welcome to another session here at the Jefferies Global London Healthcare Conference. I'm Michael Yee, one of the biotech analysts, and I'm up here on the stage with the CEO of Beam Therapeutics, John Evans. I was chatting with John about how exciting things are these days because there was some recent data with your technology recently reported in Phase 1 in clinical efficacy and safety. And that was reported this weekend at AHA, so we'll talk about that.
But also, obviously, Beam has been embarking on their own Phase 1 in Sickle Cell. So maybe if I could just take a step back, I'd love to have John maybe just talk about where Beam is today with your lead program, with a little bit of your pipeline, and also obviously some data recently. Maybe you could summarize for us about how you're thinking about Beam today and going into 2024.
John Evans – Chief Executive Officer
Yes, thank you. So, it's great to be here. This is a tremendously exciting time in the field of medicine. We're really seeing gene editing become a reality. It's something that we've long dreamt about, but now, it's really happening. We've got CRISPR and Vertex taking the first, what's called the nuclease, sort of the first-generation version of gene editing to the FDA for approval in Sickle Cell Disease.
Sean Diffley — Morgan Stanley
So no further ado, Derek, you've been at Snap for just over five years, now, you're at Amazon before that, a lot of exciting, interesting things going on at the company right now. I wanted to kick off with the recent Amazon shopping ads on Snap announcement, which came out this week, which you confirmed. Maybe you can talk about what's involved in the announcement, where you see the opportunity, and how investors should be thinking about it?
Derek Andersen — Chief Financial Officer
Sure. Well, look, thanks for having me and it's exciting to be here. And thank you all of you who have joined us, including on the live stream. Look, I think, broadly, what we're seeing is an opportunity to make the experience better for our community, and generally, for advertisers.
And in some cases, that's involving doing more custom or bespoke types of integrations that makes the flow of discovering products, learning more about them, and actually completing transactions smoother for the community and smoother for the advertiser.
What you'd expect will improve flow through and the completion of funnels and whatnot. So I think this is just an example of a way that we can work with an advertiser to make the experience better for them and better for the community.
Sean Diffley — Morgan Stanley
Great. And I think Amazon's often reported to be the largest advertiser in the world. I think, for a little while, there was some speculation that they were not super involved on the platform. Is it fair to assume that this is kind of that relationship improving and getting better as a result of this announcement?
Derek Andersen — Chief Financial Officer
Yes. I mean, I think this is, certainly, an example of a way that we can work with large advertisers in order to help them have a great experience on the platform. And, so, not even specific to any one advertiser, but being able to work through ways that we can cooperate and make the experience better for them, and in a way, that's also better for our community.
If you can discover a product on Snap and more easily complete the purchase funnel, even without leaving the application, in some cases, that's going to be a better experience for the community, and hopefully, a better experience for the advertiser too.
Dae Gon Ha – Stifel – Analyst
Let's go ahead and get started with the next session. Thanks everyone for joining us. For the next half hour or so we're going to be talking to Editas Medicine. My name is Dae Gon Ha, Biotech analyst at Stifel. Joining me here on stage, we have Erick Lucera, the Chief Financial Officer; and then Cristi Barnett from Investor Relations. So thanks very much for spending the time.
Before we dive into the questions, maybe I'll just turn it over to you guys for a brief recap of Editas Medicine, the programs you guys are working on, and then we'll get into Q&A.
Erick Lucera – Chief Financial Officer
Yes. Thanks. So Editas is a company where we edit genes for cures. The company will be ten years old tomorrow and was founded with technology that came out of the Broad, Harvard and MIT for Cas9, Cas12 editing. The company's been around, like I said, for 10 years. We brought in a new CEO about a little over a year ago, and he refocused the company on autologous stem cell therapies for sickle cell disease. So he announced that last year at a competitor conference.
So our lead asset is EDIT-301 for sickle cell disease, where we initially had some data at EHA last year, or this year. We'll have more data upcoming at ASH, and we look forward to talking about that. The second pillar that we have for our growth is out-licensing of those Cas9 and Cas12 licenses for sources of non-dilutive capital. So we look forward to discussing that when we get to it.
And then finally, the third pillar of our growth story, which Gilmore announced last year, was the pursuit of in vivo technology. So we think autologous is a great way to prove the gene editing works, but the future will be in vivo due to ease of delivery and lower cost of goods, which should allow it to get to a broader set of patients.
Dan Arias — Stifel
Yes, our pleasure. Maybe we can just start Jeff with a bit of a 3Q overview, maybe perhaps above consensus for the quarter, 31% growth in screening, 3% growth for precision oncology, and EBITDA was above the street as well, which I think has been a focus for you guys for a couple of quarters now. Maybe just sum up given that level of performance and the consistency that you've had, truthfully, over the course of the year, how you feel going into your end?
Jeff Elliott — EVP, Chief Financial Officer & Chief Operating Officer
Well, the team put together what I thought was a very good quarter. We're pleased with results. That allowed us to raise guidance for the third time this year. And we're really fortunate to have a broad set of growth drivers today and into the future. When you dig into the business, which I know we will, call it as our flagship product. Obviously, it's a colon cancer screening product.
I's a huge market. There's 60 million people who still need to be screened. So there's a long runway ahead. So when I look ahead, whether it's ‘24 or way down the line, there's a long runway ahead for these growth drivers. Again, we feel really good about the state of the business. We're not affected by a lot of the things out there that I'm sure — I mean, if your minds, whether it's a slowdown in China, GLP-1s affecting the business, even inflation, for that matter, we're relatively insulated from that. So the team's done a really nice job of executing. We're pleased to have a broad set of growth drivers for this year and beyond.
Michael Yee – Jefferies – Analyst
Good morning, everyone. Thank you for joining us here on our opening morning session for Moderna. Up here with me on the stage, I have the Senior Vice President of Investor Relations, Lavina Talukdar.
Lavina, I would love to just maybe start coming away from third quarter earnings, the company provided some new guidance. What I thought was most intriguing about it was short-term guidance for 2023 as well as, for the first time, some forward-looking guidance for '24 and '25. That was quite helpful.
The Street has had some reactions to some of that. But also, I think taking a step back, and I know you have some slides you can maybe talk to, is perhaps a confusion and uncertainty about where Moderna is going. On one side, we have the Covid vaccine revenue stream and then this whole pipeline of like 43 things that people just maybe are not paying attention to.
So maybe you could talk a little bit about the audience -- to the audience about how you guys are looking at Covid and the vaccine revenue stream as well as what you guys are most focused on for the next couple of years that kind of drove your guidance.
Lavina Talukdar -- Head of Investor Relations
Sure. Great. Thank you, Mike, for having us. Why don't we just dive right into that Covid revenue number because I think that what most people care about is in this new endemic phase, what is that tail revenue stream going to look like from Covid. So we provided some guidance not only on 2023, which we think will set the floor to some degree this year, especially in the United States, but also what we think we'll see in 2024 and 2025 in terms of a tail revenue stream from Covid in this endemic phase.
So why don't we start with 2023? And just recently on our third quarter call, we highlighted that we're expecting roughly $6 billion or at least $6 billion in sales for the full year. So what does that entail? We've already recorded about $4 billion in sales in the first three quarters of the year. So we're looking at another roughly $2 billion to be coming in from international markets as well as the U.S.
In the international markets, those are driven by advanced purchase agreements, which are non-returnable. $1.1 billion is what we're looking for in the fourth quarter and about 50% of that has already been shipped in that October, November time period. So international, we're on track to do that roughly $1.1 billion for the remainder of the year.
Then in the U.S., we're expecting at least $1 billion in sales. We've recorded about $900 million in the third quarter. So that $2 billion in total roughly is what we're anticipating is coming from the U.S. market in this endemic phase, which equates to about 50 million Americans going in and getting their vaccine this fall between September and December of this year.
Dae Gon Ha — Stifel
All right. Thanks everyone for joining us for the next half hour session. Again, my name is Dae Gon Ha one of the biotech analysts here at Stifel. For the next half hour pleasure — it is my pleasure to host Rocket Pharma. And from Rocket we've got Kinnari Patel, President and COO, and we have Jonathan Schwartz who has this very fancy title Chief Gene Therapy Officer. So thanks to both of you for showing up today. Let's let's start off with a brief overview. I know a lot of us know your story, but for those of us that are not familiar, give us a brief intro and we'll dive right in.
Kinnari Patel — President & Chief Operating Officer
Sure. So Rocket Pharmaceuticals, we've been in this industry in the business of selling gene therapy for about eight years now. And we really started as a Lenti company that focused on developing first and only curative gene therapy for diseases that are severe unmet medical need, only treatment option is bone marrow transplant. So we started as a company that focused on Fanconi Anemia, PKD, LAD-I, these are really a Lenti portfolio.
About five years back we said we're not a platform company, we're really drug developers at the heart of it. So when we came across great programs like Danon Disease, we said let's use the AAV technology to see if we can make something happen for our heart disease using AAV platform. So, now we have a portfolio of therapies that are publicly known ranging from a BLA that's under review with FDA for the lenti portfolio and the second one being submitted next year. To our Danon programs, starting our Phase 2 pivotal study in U.S. and Europe. And we have two other cardiac myotonic diseases, PKP2 and BAG3 — one’s in the clinic and the other one's going to the clinic next year.
Meeting #133
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Agenda:
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