Novavax Inc (NVAX) 2003 Q2 法說會逐字稿

Welcome to the Novavax conference call. (Caller Instructions).

At this time, I would like to turn the presentation over to Julie Tu with FRB Weber Shandwick.

Good morning and thank you all for participating in Novavax's second quarter 2003 conference call to discuss results.

By now you should all have received a copy of the press release.

If anyone still needs one, you can call my office at 212-445-8300 and ask for Samantha Alfonso and we will send you one immediately following the call.

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 subject to risks.

Factors that can cause forward-looking statements in this conference call and webcast to differ materially from actual results are discussed in the Company's form 10-K and other periodic filings with the SEC.

For today's call we have with us Mitch Kelly, Director and exiting CEO;

Denis O'Donnell, Chairman;

Dennis Genge, Vice President and CFO, and newly appointed President and CEO Nelson Sims.

With that, I would like to turn the call over to Mitch Kelly.

Thanks, Julie.

Good morning everybody.

Welcome to Novavax's second quarter 2003 earnings conference call.

As Julie indicated, we have Denis O'Donnell, our Chairman, here;

Dennis Genge, CFO, and our new President and CEO Nelson Sims who joined Novavax just this Monday, August 11th after a distinguished 28 year career with Eli Lilly.

We are very excited to have Nelson with us.

We lured him out of retirement, and I think he will talk more about it later himself, but he certainly has a shared vision as we do of the enormous opportunities we have here at Novavax.

Nelson has significant experience with new product planning and launch, sales and marketing, business development.

He has been involved in a number of the most excepting programs at Eli Lilly again during his career, and we are excited to have him here.

I will turn the call over to Nelson a little bit later, and he can provide some more detail on his background, why he is excited about Novavax and the opportunities he sees going forward.

Before that and before I turn the call over to Dennis Genge to go over financial information, I would like to take a few minutes to update where we are with Estrasorb and also a brief update on some of the other comments we've made during the quarter in other product areas.

Regarding Estrasorb, as we stated in our June 26 press release and conference call, we did receive an extension from the FDA of our PDUFA date in order to give them additional time for a view of our estradiol partner transfer study report which we filed with the FDA in May of this year.

This was an additional study we completed earlier in the year to determine how the active ingredient in Estrasorb estradiol (inaudible) around this case can be transferred from a patient to her male partner.

As we stated, the data in the study was terrific, dramatically better in our view than results shown for transdermal testosterone replacement therapies that have been commercialized.

So we are very comfortable with the results, and while the results are great, the FDA did ask for an extension so they could have some more time to thoroughly review that data.

As I said, we have a new PDUFA date, October 10, 2003.

We still hope the FDA can complete their review before the deadline.

Nevertheless, we do hope and expect for an approval, and we remain committed to a launch in the first quarter of 2004.

In the meantime as we await approval, we continue to move ahead with validating our manufacturing facility in Philadelphia, and we believe that all necessary approvals will be in place along the same time line that we forecast back to November that will get us to a first-quarter 2004 launch.

As we look out toward the remainder of the year, we have a number of other things we need to prepare for with the launch of Estrasorb as well.

We did hire a terrific new fellow, Howard Miller to be our Vice President of Sales.

He joined the Company on July 21st.

He is out there right now working on the launch of our two new prenatal vitamin lines and obviously more importantly getting geared up with the whole sales organization for the launch of Estrasorb, again anticipated for the first quarter.

He will be working obviously very closely with Nelson and the team that Nelson will be developing in-house here at Novavax.

Beyond Estrasorb, our product sales in particular our prenatal vitamins continue to be impacted by pressure from generic competition as we discussed in the past, as well as on a relative basis the comparison in 2002 when we had an aggressive sales promotion.

Our sales did double in the second quarter from a very low-level in the first-quarter, and we still believe that that can improve further.

As I indicated before, earlier this month, we introduced two new proprietary prescription prenatal vitamin lines, NovaStart and NovaNatal.

Our salesforce is working on that right now, and we have pharmacy and OB/GYN promotions planned for later this month.

Based on the introduction of these new products and some independent market data we have seen, we continue to expect sales to improve in this line for the third and fourth quarter.

Sales of our AVC product line, which had been weak, again rebounded in the second quarter as did our prenatal vitamin line and should continue to recover to prior year levels as well.

With regard to the vaccine, I am just going to a touch on a couple of things very briefly.

In July -- there will be a press release on this that will be filed as well -- we presented results on the use of functional virus-like influenza at the Annual Society of Virology meeting.

I think that was the second or third week of July.

This is a very exciting addition to our vaccine program for viral diseases and particularly influenza.

Later this year we will be looking to initiate protection studies in animals and expect to perform additional scale-up development work on an avian influenza, which currently has no available vaccine and in turn has a very high mortality in humans as seen in China particularly in 1999.

Our vaccine group is also working as a collaborator with a group led by the University of Alabama.

The University of Alabama had a press release just yesterday indicating they had received a large $16 million grant over the course of four years from the government.

They named us as a collaborator.

We will be delighted to be working with University of Alabama subject to finalizing the details which will probably be forthcoming in the next 60 to 90 days in utilizing our manufacturing expertise in the area of VLPs, in this case for work with their HIV vaccine candidates.

So that is an exciting project which is (inaudible).

We hope to develop that further.

With that, I would like to turn it over to Dennis Genge to review our financial performance.

I am here.

Good morning everyone.

For the second quarter of 2003, we reported total revenues of 2.3 million compared to total revenue of 1.2 million in the first-quarter and 4.5 million for the prior year period.

The $2.2 million decrease in total revenues over the prior year period was primarily due to an identical $2.2 million reduction in product sales.

Product sales were 2 million in the second quarter of 2003 compared to 4.2 million in the second quarter of 2002.

The product sales were primarily impacted by a $1.8 million decline in revenue from our prenatal vitamin line, in addition to decreases in the AVC product line.

The revenues for our prenatal vitamin line while up from first-quarter levels continue to be impacted by a combination of factors that included, as Mitch mentioned, the competitive pressure from generic sales promotions in the first half of 2002 and a higher than average volume expired product return this year as a result of those promotions.

While our current prenatal productline sales will continue to face generic competition, third quarter sales should continue to improve over the first two quarters of the year based on independent market share data on the actual usage of those products.

In addition, third and fourth quarter prenatal product sales will be boosted by the (inaudible) introduction of our two new product area prenatal vitamin lines, NovaStart and NovaNatal.

The AVC product line, which began to see increases in orders at the end of the second quarter, will also show improvement from the first two quarters of the year or in the third quarter and then should stabilize for the remainder of the year.

For the quarter, (technical difficulty) -- increase in contract research revenue year-over-year from 109,000 in the second quarter of 2002 to 253,000 in the second quarter of 2003.

For the six-month period, total revenues were 3.5 million compared to total revenues of 10.2 million for the prior year period, a decline of 6.7 million.

Product sales were down 6.1 to 2.9 million in the period due to the same reasons I previously stated related to the second quarter.

Revenues for the year-to-date period also included 457,000 from research and development contracts and 150,000 in milestone and licensing fees.

Offsetting the decreases in revenue, we had been successful in continuing to control and reduce expenses in all areas of the Company.

Operating expenses for the three months ended June 30th declined 2.5 million or 27 percent from 9 million in 2002 to 6.5 million in 2003.

Selling and marketing expenses for the quarter were 1.9 million compared to 3.5 million in the second quarter of 2002.

This $1.6 million decline is primarily due to scaling back the salesforce to 2001 levels which started in the third quarter of 2002 and deferring certain marketing programs related to the delayed launch of Estrasorb.

General and administrative expenses for the second quarter were 1.8 million compared to 2.2 million in the second quarter of 2002, an 18 percent decline.

This decline resulted from reductions in administrative and management headcount which occurred in the second half of 2002.

R&D expenses were 2.8 million in the second quarter of 2002 compared to 3.2 million in the 2002 period.

The $400,000 decrease was primarily due to decreases in clinical trial expenses for Estrasorb and Androsorb when compared to the prior period.

Operating expenses for the six months of 2003 have declined $6.2 million or 33 percent from 19.2 million in 2002 to 12.9 million in 2003.

Again, selling and marketing expenses were 4.1 million compared to 7.9 million for the prior year period, G&A expenses declined to 3.7 million for the period from 5 million in the first six months of 2002, and R&D expenses were 5.2 million compared to 6.1 million in the prior year period.

Interest expense for the second quarter was $396,000 compared to 263,000 in the second quarter of 2002 and was 790,000 for the six- month period compared to $510,000 in the prior year period.

Both increases for interest expense related to the issuance of an additional $10 million convertible note to King Pharmaceuticals in last July 2002 as well as decreased interest on our cash balances due to lower balances overall and a decrease in short-term interest rates.

Our net loss for the three-month period was $5 million or 17 cents per share compared to a net loss of 5.8 million or 24 cents a share in the second quarter of 2000.

The decrease in the net loss of $750,000 was related to the significant reduction in our operating expenses offset by the decreases in product sales.

For the six-month period, the net loss was $10.8 million or 38 cents per share compared to 11.5 million or 48 cents per share in the prior year period.

Looking briefly at our cash position, we entered the second quarter with $9.6 million compared to $14.3 million at March 31st and $3 million at the end of 2002.

The net increase of $6.6 million since year-end is the result of $18.2 million provided by our financing activities this year, offset by $11.2 million used by operating activities and $400,000 for our investing activities.

And with that, I will turn it over to Denis O'Donnell.

I would like to just say a few brief words.

One, I would like to thank Mitch Kelly for stepping up to the plat and guiding the Company during his 10 months run here at the helm of Novavax.

Mitch and I were asked on a constant basis when are you going to bring in your full-time CEO?

The answer that we gave them is when we find the right person who can run Novavax and take us to the next level, and we did a very very thorough and exhaustive search, and I am very happy to report to the shareholders that we found the right person.

And that person is sitting here with me today, Nelson Sims, who is now on his third day as CEO and President of Novavax.

So with that, I would like to thank Mitch for his activities, and with a very very warm welcome to Nelson Sims, your new CEO, and I will turn it over to Nelson.

Thank you, Denis, and I am delighted to be here.

I would like to start by saying how pleased I am and excited about this opportunity to join Novavax at an extremely interesting period of time.

I think it is exciting.

As Mitch mentioned, I spent almost my entire career at Lilly in a variety of functions.

It included experiences that should serve me very well as President and CEO of Novavax.

Those experiences would have included product management, sales management, business development, strategic alliance management and, of course, general management.

My career included significant experience with smaller entrepreneurial divisions of Eli Lilly & Co. such as hyper-tech (ph), Lilly's medical instrument companies which, of course, now has spun publicly and would be known as the Guidant Corporation, and then, of course, eight and half years as President of our division, Eli Lilly Canada.

What excites me about coming to Novavax is not only Estrasorb but the portfolio of products and technologies as well as the experienced salesforce coupled with the distinguished scientific team.

In addition to the products that Mitch reviewed with you, we are working on filing up to an additional seven INDs over the next 12 to 18 months, as well as moving Androsorb, our topical testosterone emulsion for women, and our Androsorb Estrasorb combination product forward as well.

While we have many exciting pipeline opportunities, we do continue to spend wisely and look for opportunities to partner and collaborate with others.

I might mention just a few words about my first 30 to 60 day goals.

I have got a wealth of experience over the past two days, so I think a continued listening is certainly in order.

I need to travel around to the various Novavax sites to meet the team, to meet our partners, to meet investors and other key stakeholders.

I need to pay particular focus to ensuring that we have appropriate resources and progresses being made for the launch of Estrasorb and particularly in manufacturing and sales and marketing.

And as we near our expected Estrasorb approval, you will see us significantly add to our existing talent pool.

So as CEO, I do think it is real important to maintain an extreme amount of focus.

We are company with limited resources, and we will stay focused and succeed at those priorities we select.

Together with the management team and the Board, we are committed to take advantage of all the opportunities before us, and now I would like to turn this conference call back over to the operator for questions and answers.

(Caller Instructions).

Ken Turboviche (ph), CE Anderburg Tobin (ph).

Gentleman, I was wondering -- I know you've got plans to scale-up manufacturing in the second half of the year, and I have started looking at this from an accounting perspective.

I am trying to figure out when you manufacture the commercial loss on the larger scale of a thousands kilograms skid, are those going to go into inventory, or will we see those charged to our R&D and not really be available for distribution at a later date?

Good question.

I think there is a variety of factors.

The short answer is they will very shortly start going into inventory.

How much goes into inventory will be an accounting discussion between myself and Ernst & Young.

The first criteria obviously would be the approval of Estrasorb or there would not be inventory.

From there, what do we use as a standard.

When you first start manufacturing, your costs are always higher than they will be when you get into full production.

So I think will move from splitting some of those costs to inventory -- some will be in R&D -- to gradually having everything in inventory.

Okay.

So some of those initial low yields might get charged off to R&D, but in general the bulk of it would be inventory?

I don't know about the bulk.

It will be a gradual progression.

It will depend on what, like you're saying, what those yields are and what our experience is because we will be starting to make batches fairly soon.

As it relates to NovaStart and NovaNatal, when Mitchell makes a comment of those products being introduced, does that mean that they are available for sale to distributors and wholesalers and that we are going to see stocking orders in the current quarter, or is that really just the promotional materials being put in the hands of the salesforce?

They actually started taking orders, I think it was August 8th.

So they have received quite a few orders from the major distributors.

One of the products will be shipped next week, and I think the other will be available early September.

Okay.

One other question.

Just as it relates to the balance sheet in terms of looking at the cash situation, are there any other milestones or payments that you would expect to receive from King associated with the approval of Estrasorb?

I know for example last year you folks incurred an awful lot of prelaunch costs in anticipation of possible approval.

Are some of those costs then that King would actually have to pay half of once the product is approved?

There are no other milestones at this point related to Estrasorb as is I think one of your questions.

Upon approval we will begin sharing marketing costs when we gear up the marketing program.

So the marketing committee at TMC should be meeting fairly soon to discuss the marketing plan.

But none of the prelaunch costs incurred last year would be reimbursed?

No, they would not.

Eric Yee.

T&I Securities.

Thank you for taking my call.

I just have some overall 30,000 foot questions here.

Could you provide some additional details on the item necessary for getting the manufacturing facility online, just some general comments there please?

Mitch, you want to take that?

As you know, we have manufactured material to date on our 100 kilo machine which was subject to the FDA's preapproval inspection back in January.

The district office recommended approval and so forth.

We are going to be making the commercial lot on a 1000 kilo machine which is a tenfold scale-up.

We believe our manufacturing -- we will be manufacturing the commercial lots beginning in October on that machine.

That goes to Ken's question a bit earlier about what is going to be in inventory and so forth.

We need to file what is called a CBE-30.

It called -- it stands for changes being affected within thirty days for that 1000 kilo machine.

CBE-30 allows a tenfold manufacturing scale-up on previously approved equipment and processes.

So we would expect to file our CBE-30 either very late this year or at the very beginning of 2004 and would expect to receive what amounts to an approval by default.

The agency has to get back within thirty days and ask more information or have more question, otherwise it is approved.

So we are in the process between now and year- end of validating that 1000 kilo machine, making lots on that machine and doing all the steps that are necessary to be able to file in a timely basis our CBE-30, which then hopefully would be approved by the FDA in very short order.

So that is the 30,000 foot answer.

I guess my second question, again very general, to Nelson Sims.

Can you detail the specifics of your marketing effort?

Is there going to be a direct to consumer campaign, or are you going to be hitting the doctors directly?

Can you give us a little bit more color on that, please?

Following two days on the job, I would really like for you to ask me that question again at the next conference call.

I don't want to completely punt here.

Obviously we will have direct to physician detailing.

You have to have in today's markets some semblance of direct to consumer whether it is brochures that the physician hands to the patient or if affordable, obviously there are all kinds of other mechanisms to go direct to the consumer.

Then we will obviously have convention coverage and typical product promotion as we see in the industry.

I will have a better handle on that after 90 days, and hopefully we will have some additional team members that we can share some names and experiences.

But we will be gearing up very shortly.

Thank you very much.

(Caller Instructions).

Mark Mensel (ph).

Wachovia Securities.

Good morning and welcome, Mr. Sims.

I was wondering, your experience at Lilly, was it just in sales, or was it the full gamut including manufacturing and R&D?

Are you talking about at Lilly Canada as when I was a General Manager?

Or your experience in general, was it in sales, or did it run the full gamut?

28 years, 12 different assignments, actually 11;

I believe it was a 11 physical moves.

I started in sales, went to product management, went to sales management, came back into business development, was manager of U.S.

Pharmaceutical Market Research.

I moved to New York as Sales Director for the East Coast, moved to San Diego as Vice President of Sales and Marketing for HyperTech (ph), our diagnostic play, then moved to Lilly Canada where I was a General Manager.

And at Lilly Canada, it was a fully integrated company -- sales, marketing, manufacturing, R&D, build a $30 R&D manufacturing site while I was there, and, of course, in a country with socialized medicine, a significant load of experience with the government.

Does that answer your question?

It is sure does.

So it looks like you have got all the basis covered.

In 28 years, I had a little time to get it done.

The question is important because some multinational and U.S. pharmaceutical based companies initially when they were in Canada had only sales and marketing distribution effort if you will, but when Nelson was running the Canadian operation for Lilly, they were in essence a pharmaceutical company in that, as Nelson mentioned, they had their own R&D effort, they had their own manufacturing effort.

So Nelson as President of that Lilly Canadian operation really had P&L responsibility for a fully integrated pharmaceutical company doing several hundred million dollars a year in revenues.

Very good.

(Caller Instructions).

Sorry to bother you again.

I was going back through my notes from the first part of the call, and I know Mitchell had mentioned a University of Alabama grant.

I am still at a loss as to how that relates to Novavax?

I did not quite draw the connection, other than the fact that Robin Robinson got his PhD there.

I don't understand the connection to the University of Alabama.

It is Mitch.

The University of Alabama received as the lead in a group received a government award of a $16 million grant with regard to certain HIV vaccine projects.

I think they announced that in a press release on Monday.

Their collaborators on the project are Harvard University, Emory University and Novavax.

We still have some details to be worked out amongst the group, but Novavax's connection is that we are the subcontractor that will be again subject to getting all the paperwork done in the next 30, 60 to 90 days here.

We will be the group that actually makes the virus-like particles for the vaccine trial, the vaccine candidate.

So it is specifically in HIV, and you are the contract manufacturer of the clinical trial material?

Yes.

And that would give you rights if this ever were commercialized to producing the commercial quality materials as well?

All the details of what the exact contract and relationship between the consortium members including Novavax have not all been sorted out yet, but we will have more to say on that in the next few weeks.

At this time, we have no further questions.

Please continue with any further statements.

If there are no further questions, we would like to thank everyone for participating at Novavax.

We are very excited about what the short, intermediate and long-term future is going to mean for the company.

We are working diligently with the FDA and hope for FDA approval prior to the October 10 PDUFA date.

We are excited about the up to seven INDs that we will be filing in the next 12 to 18 months, and we are very very excited to welcome Nelson Sims onboard for his first conference call, the first of many.

I am sure Nelson looks forward to bringing the shareholders information as to the progress of the company in the not too distant future.

Thanks very much, enjoy the rest of the summer, and we will be talking to you shortly.

Ladies and gentlemen, this will conclude today's teleconference presentation.

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We would like to thank you for participating in today's conference call.

At this time, we will conclude today's conference.

You may now disconnect.

(Conference Call Concluded)