Novavax Inc (NVAX) 2002 Q1 法說會逐字稿

Welcome to Novavax Conference Call.

At this time all participants are in listen only mode. Later we will conduct a question and answer session, and instructions will follow at that time. If anyone requires assistance during the call please press star followed by zero on your touchtone phone. As remainder this conference is being recorded. I would now like to introduce the moderator for today's conference Ms. Julie

from

representative. Please go ahead ma'm.

Good morning and thank you all for participating in Novavax Conference Call to discuss first quarter results.

By now you should all have received the copy of yesterday's press release. If anyone still needs one you may call my office at 212-445-8455 and ask to send you one immediately following today's call. For today's call from Novavax we have, John Spears, President and CEO, Dennis O' Donnell, Chairman, Dennis Genge, Vice President and CFO, and Nita U.Patel Vice president of Regulatory Affairs and Quality Assurance.

This conference call will follow a standard format followed by a question and answer session. Before we start the company has asked me to remind you that forward-looking statements can obviously differ from actuality and relying on them is subjective risk. Factors that can cause forward looking statement in this conference call on web cast to differ materially from actual results are discussed in the company's form 10-K and other periodic filings with the SEC. At this time I would like to turn the conference call over to John Spears. Go ahead John..

Thank you Julie, good morning everyone and welcome to Novavax's first quarter 2002 conference call.

Before we review our financial performance, I would like to take few minutes and update everyone on the status of episode of NDA filing. I am sure you all know we announce

performing that we have withdrawn NDA on ESTRASORB.

As result of questions the FDA had regarding the Chemistry Manufacturing and Control for CMC section of our filing. We are now going to see the formal letter from FDA special panel the questions that need to be addressed. However we believe no, we have to do rectify the deficiencies that have in our original filing based on recent discussions with agency.

I want to reiterate that the filing is usual to receive the request for additional information in NDA filings. Before this is issue raised by the agency, our applications do not relate to the safety and

of the products. The questions specifically related to CMC section and with having to provide additional technical DCL to FDA and what is a new and novel technology platform.

At the present time, I can report that none of the questions repeated require any lengthy studies, that our current estimated that we believe will be able to provide the FDA with the response to the questions this summer. I am not able to provide an exact estimation, today we have met with the agency to review our response plan.

Still if I have a definitive time frame, I will let you all know. We remain confident that CST questions can be satisfactorily addressed and will ultimately lead to a favorable review by the FDA. Of course it is even more difficult to predict how long safety

FDA to review our submission. But this hard work that given the considerable work that has been done by the FDA files to withdraw our filings, we will be relatively

review.

All that concerns before this question, after seeing our quarterly results is our cash burn. Dennis Genge will discuss this in just in a few minutes. But let me decide that this is a highly unusual quarter for expenses. Remember, we had to build out on manufacturing facility and we will repair it for launch of ESTRASORB in the third or fourth quarter of this year from a marketing perspective.

We have expensive significant portion of the manufacturing build already and we are pushing back on our marketing expenses. We have aggressively examined all our expenses. We feel comfortable that our cash needs for 2002 will not exceed 3 to 4 million dollars of what we currently have in our treasure.

Again, we are putting much of pre-launch activities ad hoc to control our spending and our sales force continues to focus on promoting our line of limited products. We were very pleased with our first quarter performance as a lead process going forward look very good.

Now I would like to turn over to Dennis Genge to review our first quarter financial performance in the sale.

Good morning everyone.

I will be covering the details from yesterday's earnings press release as well as offering additional information and comments on our current cash position.

The first quarter of 2002, we reported a net loss of 5.3 million dollars, or 22 cents loss per share, compared to a loss of 2.2 million dollars, or 10 cents loss per share, in the first quarter of 2001. Our total revenues for the first quarter 2002 were 6.1 million dollars, an increase of 1.1 million dollars or 22.7 percent when compared to the first quarter 2001 revenues of 5 million dollars.

Revenues for the first quarter included 4.8 million dollars for product sales, which was a 12 percent increase from the prior year product sales. We also reported 500, 000 dollars in revenue from research and development contracts and 800,000 dollars in revenue from milestone. The milestone revenue recognized in the first quarter related to the 2.5 million dollars milestone payment from King Pharmaceuticals that we received in the third quarter of 2001.

Moving to our operating expenses, selling, and marketing expenses for the first quarter were 4.4 million dollars compared to 1.4 million dollars in last year's first quarter. General and administrative expenses for the first quarter was 2.8 million dollars compared to 2.1 million dollars in last year's first quarter.

The 3 million dollars increase in selling and marketing expenses was the plan to increase and primarily related to increase in sales and marketing personnels to expand current product sales efforts as well as to prepare for launch of ESTRASORB and initiates to marketing launch programs related to ESTRASORB.

The rise in G&A was primarily related to increase in administrative and executive employees over the past year offset by reduction of 600,000 dollars by amortization of goodwill due to the adoption of FASB 142.

R&D expenses were 2.9 million dollars for the first quarter compared to 2.6 million dollars in the prior year period. This 300,000 dollars increase is due to manufacturing start up and personal costs for our facility in Pennsylvania offset by decrease clinical trials expense when compared to 2001.

Interest expense for the quarter was 248, 000 dollars compared to interest expense of 79,000 of last year's fiscal quarter. This increase relates to issuant of additional 10 million dollars or 4 percent reviewed on those to King since the first quarter of last year and roll over cash balances when compared to last year.

Turning to the balance sheet, here I will concentrate on our cash balance. We ended the quarter with 10.9 million dollars of cash compared to 20 million dollars at year-end. This quarter we decrease in cash of 9 million dollars exceeds our historic and projected future quarterly cash requirements for several reasons.

First of all we began the build out of our manufacturing facility in Philadelphia area. This was an investment about 2.5 million dollars in the quarter. We will continue to have adjustments in the facility in the second quarter. However, these will be offset with debt financing we have already arranged.

Secondly, as mentioned previously, we also initiated when our marketing programs for the launch of ESTRASORB adjusted our account over 2.5 million dollars in cash. Finally our inventory, our initial inventory purchase for ESTRASORB totaled over 500,000 dollars in the quarter.

Going forward, we will now deferring the timing of many manufacturing, sales force expansion, and marketing program cost that we have planned for this year. We will also be delaying inventory purchases and manufacturing equipment investments related to ESTRASORB product launch.

In addition, we don't perceive occurring any or additional cost related to the submission of the NDA.. On the other hand if we do not currenlty have any plan to cut that or product development activities, and we will complete to build out for the manufacturing facility. Based on these current plans, we do feel we will need some combination of debt and equity financing before the end of the year. And we are actively dealing many options at this time. We are confident, we will be able to raise the capital required to take up it to anticipated launch of ESTRASORB.

With that I will turn it back to John.

Thanks Dennis.

Prior to our monetary withdraw of ESTRASORB NDA, we are just planning to launch ESTRASORB in the third or fourth quarter of 2002. Based upon our current expectations, we are shifting our launch. Therefore as a result our revenue and expenses will shift accordingly this year. I would like to take this opportunity to restate our expectations for 2002.

In our existing product line, we continue to estimate product sales between 15 and 18 million dollars for the year. As we have said previously at standalone business these products are profitable to the gross margin in excess of 75 percent currently. We still anticipate an excess of 3.5 million dollars in contract, research and milestone and license as well.

On the expense side, we expect G&A under 2001 level of 10 million dollars and additionally expected to remain relatively flat with last year's 10 to 20 million dollars of spending. Although we have flexibility in this area and spending will be driven by opportunities and cash availability.

Selling and marketing expenses given revise expectations with 2003 margin of ESTRASORB are expected to be reduced by 7 to 9 million dollars from our fourth quarter March scenario. Finally, I want to reiterate, that the management team and partner King Pharmaceuticals continues to believe in efficacy and opened its marketability of ESTRASORB. We will continue to update investing community on our progress towards recent submission of our NDA.

With that I would like to turn it back to the operator for questions and answers.

Thank you sir.

Ladies and gentlemen at this time if you have a question, you need to press one on you touch-tone phone and you will hear tone that acknowledges your request. Your questions will be taken in the order that they are received. If your question has already been answered you may remove yourself from queue by pressing the pound key.

In addition, if you are using the speakerphone please pick up your handset before pressing the key. One moment for the first question.

Michael

A.G Edwards. Please state your question.

Good morning everybody.

Quick question on the debt equity and financing. Can you give us some better --.little bit more color on timing and what will be gone there, may be break down of that vs. equity and also in terms of the -- little bit better qualification in terms burn rate on.. per quarter for the year.. for this year? Can you quantify little bit better as to when you are looking for 2003 launch. I know that with the comments in terms of the FDA and the timing of new drug application and that may be something near. Can you give us little bit more on focus on timing on that and profitability, what profitability we expected then with the quarter after launch still be through timings in any these on the small pox. Thanks.

First expanding on the cash burn, we don't have exact numbers since the change in the NDA filing were continuing to run. The second quarter, I will say will be higher than the third quarter. We still have, as I mentioned, the development of facility in Philadelphia. I did mentioned debt and equity financing, we have been working with the Philadelphia development corporation for travelling three or four months now. There was about 3 or 4 different funds available from different agencies for equipment financing and lease financing. We have already obtained equipment financing and we are still pursuing lease financing. So that is one of the instrument from we say debt financing we are referring to. Other debt financing is available and we will be pursuing that. Timing of any equity will just continue to pursue that to look at what is available. They will obviously like our stock to go up little bit. Before you do that, you know, it depends on our need. So we don't have any specifications at this time.

In terms of the profitability aspects, I think that still valid assumption Michael.. that we could be profitable quarter after we would have launch that...I certainly think there would be some time in 2003, I just can't predict at this time will..based of that..with that event. I think the best thing we can do is make sure we keep shareholders are placed on the process that were going through in terms of resubmission and any information we get back on the FDA, with extremely difficult to pin-point timing as we have all learned over recent weeks.

We again remain confident that we are going to have an extra resubmission and we think it will go through the agency, hopefully, relatively expected

fashion. But again I have to say still we have sit down with the agency, show them what kind of supply them get some feedback from them and then we may be out to negotiate our review time with them. So I think the best thing to do is to just stay tuned and as we get information over the next weeks or months, will certainly share that with everyone.

In terms of the small pox update we are continuing to aggressively pursue that inactivated small pox program. We are just getting ready now to do the filing of our initial loss of the product to begin the animal

that was required for an IND as we said before we have we start some amount of work for we believe we need to do another animal species before file in IND. So we are still hoping to get that IND files in second half of next year and get into human before the end of this year.

Before the second half of this year John.

I mean..second half of this year. sorry.

The filing of the IND not next year this year.

OK. That's right.

Yes. Thank you very much.

OK.

Henry

with Bearstearn you state your question.

Good morning everybody.

I would like to join the comment on revenues from the current product sales, which are supporting the R&D and launch of ESTRASORB and what percentage it is and how much of burn rate there is in that product alone?

I didn't understand the question on?

I am looking for the current product that Novavax has. What percentage of the revenues that are coming through the door at Novavax are supporting the R&D and the launch of ESTRASORB?

OK.

Sorry, I didn't make it clear

.

That's fine. I understand that was probably my fault. The product sales this quarter were 4.8 million dollars. Net sales of prenatal vitamin line represented about 3.7 million dollars of that. AVC was about 600,000 dollars for the quarter and

got about 500,000 dollars for the quarter. We don't have any numbers for more debt. We get that on quarterly basis and we haven't got that information yet.

The gross margins on those products are as that I have mentioned are over 80 percent and honestly all that money is going back in supporting the Research and Development of our product line -- I mean of the research product line. Right now, there are not a lot of additional expenses on ESTRASORB research and development and for the all the clinical work has been completed. It is just the only spending on going on ESTRASORB is for the resubmission and those expenses are going to be relatively minor in terms of the other relative R&D budget. I answered your question..?

Yeah! Yes. Just little bit more on that what expenses are going to be incurred with relaunch of ESTRASORB? Do you have any idea what that is in.. if it is legal, or in-house expense or what it is?

Uh! For the resubmission..for the resubmission of the NDA...?

Yes, please.

OK. The expenses are going to be minimal. I can't give you an exact number. That's going to be you know, I would say, you know a couple hundred thousand dollars may be as a whole -- I mean it is just not a --- in this level lot of activity to be done from.. other than some internal expenses of personnel to reduce some

.

I see. OK. You have answered all my questions thank you very very much.

OK.

Ladies and gentlemen, if there are any additional questions please press one at this time.

please state your question.

I had a couple of questions this morning, one on ESTRASORB product that you said it was the inventory that was purchased, Um! what is the stability on that?

I think we are talking about raw materials for...

OK. So you that have no..there is no currently this kind of the product that may be we will start to prepare for a launch?

No, raw materials for years of stability for those.

OK Um! And as far as it is looks like you spend -- some erosion in the building revenues some of that can be primarily be related to the introduction of KV's generic of prenatal vitamins? Is there any plans for new brand in response to that?

Ah! much near that the revenues that we have for the first quarter...I think that is actually about what we had for the first quarter last year end, with about fourth quarter..

..looks like that is slightly below fourth quarter.

You know, this is -- the prenatal vitamin business obviously is a very highly competitive genericized businesses, you know, you don't know it is tough to predict to from quarter-to-quarter how it is going to go. But we think we did it pretty well in first quarter and I think we had a pretty good quarter in second quarter. We have you know, put some set up in place to help to push that business without sales force and I think it seems to be pending off.

In terms of introducing new products, we are looking at we don't have any specific prenatal vitamin product that we are going to launch in the immediate future and we are always looking at opportunities to enhance the revenue line either through introducing, you know, our own products or acquiring products or co-promotion of products and we will continue to do that over the year. I expect that we will have some additional revenue generating products in our pipeline before the end of the year.

OK. One final ESTRASORB question. What is the status of the European filing?

Actually, I think you need this contact Genge to get the response from that and that their responsibility --- you know -- actually instructed us this the fourth question

them.

OK. Thanks John.

Yeah!

Robert Vellinga with Vertex Group please take your question.

Yes. I have heard that you were impacted by the events of late last year in the bombings etc and the smallpox that kind of impacted the FDA and you have already their attention away from some of the things that they might have been focusing on that time and I just wanted if that all had an impact in their delay and getting this information to you because usually these kinds of visits for manufacturing and etc. are done not in advance that you could respond and that you didn't have a chance this time I guess, so could you comment on that?

Yes thanks Robert. I think its hard to say you know for sure you never prove something like that in you know in life time. We certainly know the FDAs had a lot other

during that time between the air crash situation and other bio terrorist threat. There has been a lot of I don't know if you have came across when you follow the industry better has been a lot of actions by the agency over the last several months in terms of delays and other actions in filing once

you know that has to do with it has do with events of last year, but I really can't prove that one or other. We have been working closely with the agency and we think we have a good relationship with them and I think we will get all products back on track during the future.

Robert this is Dennis O' Donnel I think its just echo John's statement I think he is very clear to say that you know the CMC section of the NDA was the last part that was reviewed in the inspections. At the end the good news is on the safety and efficacy which reviewed our front. We didn't get any questions or comments or concerns about that you know had the order been reverse I think it is clear to say we certainly would have more time to respond to this but we had inspection right up you know to literally days to weeks before we made this decision with FDA so I think it is clear to say they are very busy they have got of lot of biotech's small pharmaceutical companies as well as the large pharmaceutical companies that are now indent

the FDA with everything from INDs the phase one two three and NDAs submissions. So they are overworked they are under staff it is safe to say clear to say that the majority of the questions we received were kind of a deal

so if we had more time I think we would have been able to respond to them appropriately.

Thank you.

Ladies and gentlemen if you have any additional question please press one this time. Henry Malkestone with Barestone please take your follow up question.

Good morning John again. I want to ask you a quick question, I know you can't attend this down directly, but what in your opinion is going to be the world stage scenario

it is short down by the FDA. Will the other products of the company support development of other products?

That is a tough question.

Of course it is. Sure it is a

question.

I think it is

let me first me first emphasize that I am very confident

that we will get approved it is just a timing issue there is actually really no doubt in mind that it will get approve. If it doesn't you know we do have we are not a one trick pony.

Sure.

Actually there is lot of project in development and project that we can develop internally we could capitalize the companies for additional revenue and support if we need to I don't like to do that I like to keep as much as we can in house and that is really been our strategy for long but you know I suppose if we had to we could

some of our project and change our plan little bit. But we don't obviously what we have continuous plans but right now our focus is getting the

that we submitted in a single result and a very favorable result in the end.

Ok.

John can I just follow after that either just to let the shareholders know we are we have been accused many times of being a very conservative company that we don't hype a lot in news that we are not outdated with lot of press releases and that is my intent that is just the nature of people like John Spears and Dennis Genge and myself and our board. We do things honestly with high integrity and we have responsed to things appropriately. I just need to let the shareholders know that since the first discussion of this at the end of April there haven't been an hour of the day and that is a seven-day week when John, Dennis Genge, Dr.

, Dr.

, Dr.

, myself, and their staffs haven't been all over this issue.

There is no hidden agenda everything that we are finding everything that we are discussing all these is to believe that these are straightforward CMC issues. Our partners have been totally informed our partners come in reviewed all the materials with us we think all of these things can be appropriately answered in a timely fashion. We had an expert engineering group that prepares the CMC section with us we have an NDA expert group put together the NDA and submitted this is a new technology; it is a new platform drug that the FDA has never seen before.

The think that they wouldn't have questions about characterization in our CMC section would be nice to think that. We have not found anything that we think we can't answer and we are going to address this with

our own group in house are terrific in doing this but just you know to kill the

we say in medicine we are going to get outside consultants who have been discussion with people who are considered to be the best of the world and we are asking them to review and question us and look over our shoulders so that when we submit this NDA on a resubmitted format it will be the best that is humanly possible so I mean I answered a short question long in a long with it fashion but we have never ever in house at any moment ever had the discussion what if this isn't approved what are the probabilities of the possibilities we don't think that anything on the table to even discuss.

There is no safety issues there is no efficacy issues these are the state-forward CMC issues that are addressable that we will address we will respond in a timely fashion and no body in this company none of our consultants our partners no one is ever even other

this looks like it could be problematic what if we don't get this approved. We believe we will answer this FDA question and they will appropriately act on this drug.

I have no problem with Novavax at all but the volatility of the FDA is as you know?

Yes they are overworked, they are under staff, they are underpaid and we are not going to change that we are just going to have to make this submission a submission that is easy for them to review that answers all their questions that are fourth-rate manner you know there are things you can do in NDA to make things easier for your reviewing partners from everything from the way you layout tables to the way you explain things verbally, so you know that is our job that is it we need to do we are not going to change the fundamental bureaucracy the agency we have to prepare our documents in most favorable fashion so that it is easier for them to review our documents and it is for any of our competitors.

That was great. Thanks very much.

please take your question.

Good morning just a general one or two questions, can you quantify the extend of this additional information was it a general comment a general question by the FDA?

These are specific, these are very technical chemical analytical question these are not what if for give me a scenario these are you know at X degrees what is this product do on Tuesday at 5 pm they are very very specific analytical chemistry questions and they are answered in a very precise scientific format.

And when there are number of great number of questions how would you characterize them?

I would characterize them as a as best you can, you know never compare apples-to-apples but I think that these are I would characterize them in Dr. Patel's comment. These are standard CMC issues and number of questions for the first time platform technology so we really wanted to

. It is not so much tight enough it answer their additional questions.

Ok.

Let me just

Dr. Patel and

Dennis O' Donnell's comments that from an agency perspective I suppose John and Dennis have mentioned that this is the

technology

estrogen replacement therapy is not noble but the delivery mode in this particular case is noble and as you can clearly understand what the agency wants to do is to make sure that they are able to feel confident and try and have enough information about the product such that it gives them a platform for any other future products such as this which this delivery kind of system. And these are standard typical questions from the agency. These are due diligence questions and we definitely account for these in a reluctant kind of fashion.

Ok good thanks. Given the conservative nature in the past these

of information I just want to make sure I would assume that you would put out a press release to notify the

you resubmitted?

That is a material event absolutely we would notify that as a public release.

Ok I assume so I just wanted to make sure.

Yes.

Thanks. Thanks for your answers.

Sure.

Mr. Spears there are no further questions at this time. Please continue with your closing comments.

Ok I just again will like to thank everyone for participating in the call and certainly appreciate shareholders for

believe us for what we said and we are acting as rapidly as humanly possible to follow these information together for the FDA and we will be keeping you informed about the progress. Thank you very much have a good day.

Ladies and gentlemen that will conclude our conference call today thank you for participating you may all disconnect now.