Novavax Inc (NVAX) 2003 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Novavax Incorporated third quarter conference call.

At this time all participants are in a listen only mode.

Following today's presentation, instructions will be given for the question and answer session.

If anyone needs assistance at any time during the conference, please press the star followed by the zero.

And as reminder, this conference is being recorded today, Tuesday, November 11th of 2003.

I would now like to turn the conference over to Miss Julie Tu, at the Financial Relations Board.

Good morning and thank you all for participating in Novavax's conference call to discuss third quarter 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 risk.

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 10K and other periodic filings with the SEC.

So for today's call we have with us Nelson Sims, President and CEO, Denis O'Donnell, Chairman, and Dennis Genge, Vice President and CFO.

At this time I'd like to turn the conference over to Nelson Sims.

Please go ahead, Nelson.

Thank you, Julie.

Good morning, everyone, and welcome to Novavax's 2003 third quarter conference call.

As Julie mentioned, I have joining me Dennis O'Donnell, our Chairman of the Board, and Dennis Genge, our Chief Financial Officer.

Before I turn the call over to Dennis Genge to review our financial performance, I would like to take just a few minutes to review the recent FDA approval of ESTRASORB, and also update you on recent accomplishments we've made in our other product areas.

This has been an exciting time for everyone at Novavax.

I'm sure as you are all aware, on October 9th we received the FDA approval of ESTRASORB, the first prescription topical emulsion for estrogen therapy.

Since we last spoke to you, we've made measured progress in preparing for the launch, which we continue to expect in the late first quarter of 2004.

We continue to put the final touches on our 24,000-square-foot manufacturing facility, located within the Cardinal Health facility in Philadelphia.

In fact, we're continuing to manufacture ESTRASORB as we sit to build inventory to prepare for launch.

On the sales and marketing front significant progress is under way.

Together with King Pharmaceuticals and Novavax we have approximately 145 sales representatives that can call on our targeted OB-GYN community.

Over the next four to five months, we will be adding to the Novavax organization to mirror the size of King's organization, bringing the total sales force closer to 160, or approximately 80 sales representatives in each sales force.

As you're well aware, we've brought Ford Lynch, our newly hired senior vice president of Sales and Marketing, on board, and his team has been working closely with the King organization to target research, our sales force targets, finalize marketing programs and of course our advertising campaigns.

While much of our attention is focused on making sure that ESTRASORB is successful, we've also made progress throughout other areas of Novavax.

In fact, we had a solid quarter for our existing product sales driven by the recent addition of NovaStart and NovaNatal to our line of prenatal vitamins.

We also saw a rebound in our [AVC] Cream product line during our quarter.

This top line improvement combined with a continued focus on cost reduction led to the further reduction in our net loss versus plan in the quarter.

I have to say I'm impressed with how effective our vitamin samples have been for our sales representative to open doors to see very busy, high-prescribing physicians.

This will be particularly useful during our sales campaign for ESTRASORB, as we attempt to see all of the high-prescribing OB-GYNs.

I'd also like to say a few words about our research and development programs at Novavax.

Let me address vaccines first.

I believe this is one of Novavax's most unrecognized and significant assets.

I believe the technology, the people, and the potential we have in this area are underappreciated.

For example, in the third quarter we presented results on the use of functional influenza virus-like particles, or [FVLPSs] at the annual society of virology's 22nd annual meeting.

This is an exciting addition to our vaccine program for viral diseases, particularly for influenza.

Our vaccine group is also working to develop a novel HIV vaccine, and we received two awards in this area during the quarter.

I'm sure you saw those press releases, which combined (inaudible) over $20 million to Novavax in the next five years.

We also continue to use our proprietary technologies to target such significant areas as SARS, West Nile, and smallpox viruses, as well as develop our extremely exciting human e-selecting protein for stroke prevention.

I would also like to say how excited we are about the potential of our micellar nanoparticle technology platform well above ESTRASORB.

This drug delivery platform, we believe, has significant opportunities in a vast array of pharmaceutical applications.

For example, you're well aware that we have ANDROSORB, our topical testosterone in the clinic.

Our other two top-private products for our drug delivery research and development group would include topical progestin emulsion, and then also a topical [estrodigestion]combination emulsion.

That's the focus for the hormone side of the business.

We're also, as I mentioned in previous calls, extremely optimistic about the application of micellar nanoparticle technology to other pharmaceuticals that are ethanol soluble.

We think there's great opportunities in the area of neuroscience as well as analgesia, for example.

With that as preliminary comments, I'd like to turn it over to Dennis Genge, our Chief Financial Officer, to review our financial performance.

Dennis?

Thanks, Nelson, and good morning, everyone.

I am pleased to report that for the third quarter of 2003 we reported total revenues of $4.3 million compared to total revenues of $2.3 million for the prior year period and $2.3 million in the second quarter.

Product sales were $3.6 million in the third quarter of 2003 compared to $2 million in the second quarter and $1.8 million in the third quarter of 2002, an increase of $1.8 million over last year, or 100%.

The increase was due to the introduction of NovaStart and NovaNatal, our two new vitamin products, as well as increased orders for AVC Cream, Nestabs, and Gynodiol.

We also recorded $560,000 in contract research revenue for the third quarter, an increase of $150,000 compared to $410,000 in the prior year period.

For the nine-month period, total revenues were $7.7 million compared to total revenues of $12.5 million for the prior year period, which was a decrease of $4.8 million.

Product sales declined $4.3 million to $6.5 million in the period due to decreases in revenues for our prenatal vitamins and AVC product line in the first half of the year.

As we have discussed in previous calls and reports, the decline of prenatal vitamin revenues year over year was due to effects of competitive pressure from generic products and sales promotions in the first six months of 2002, which also resulted in some higher than average product returns this year.

The AVC product line decline was also the result of sales promotions in the first half of 2002.

Based on third quarter results, however, it appears the negative impact on product sales in the first two quarters of 2003 from 2002 competition and promotion has run its course.

And we expect our product sales to trend more toward the third quarter results.

Revenues for the year-to-date period also included $1.1 million for research and development activities, and $212,000 in milestone and license fees.

Throughout 2003 we have been successful in continuing to control and reduce expenses in all areas of the company.

Overall, operating expenses for the three months ended September 30th, 2003, declined $1.6 million, or 18%, to $7.2 million versus $8.8 million in the 2002 period.

Selling and marketing expenses for the quarter were $2 million, compared to $2.7 million in the third quarter of 2002.

This $700,000 decline was primarily due to the reductions in sales force and the deferring of marketing programs related to the delayed launch of ESTRASORB last year.

With the recent approval of ESTRASORB, we will be increasing sales and marketing going forward as we plan on increasing our sales force and initiating market launch programs.

General administrative expenses for the third quarter were $1.9 million, compared to $1.6 million in the third quarter of 2002, which was a 17% increase.

This $300,000 increase was more a factor of lower than usual G&A expenses in the third quarter of 2002, rather than any increases in 2003 as quarterly G&A expenses during 2003 have been fairly consistent.

Research and development expenses were $2.6 million in the third quarter compared to $3.7 million in the year-ago period.

This $1.1 million decrease was primarily due to decreases in clinical trial and MDA-related expenses for ESTRASORB when compared to the prior year period.

Total operating expenses for the first nine months of 2003 were down 31%, or $9.2 million to $20.7 million versus $30 million in the 2002 period.

Selling and marketing expenses declined $4.5 million to $6.1 million, compared to $10.6 million for the prior year period.

G&A expenses declined $1.1 million to $5.6 million for the period from $6.7 million in the first nine months of 2002.

And research and development expenses were down $7.7 million compared to $9.8 million in the prior year period, which was a $2.2 million decrease.

Interest expense for the third quarters of 2003 and 2002 were $401,000 and $375,000, respectively.

For the nine-month period, interest expense was $1.2 million, compared to $886,000 in 2002.

On the bottom line we reported a net loss of $3.4 million, or 11 cents per share.

This compares to a net loss of $6.8 million, or 28 cents per share in the third quarter of 2002, and a net loss of $5 million or 17 cents per share, in the second quarter of 2003.

The $3.5 million decrease in the net loss year over year, was related to the improvement in product sales and the significant reduction in our operating expenses.

For the nine-month period our net loss was $14.2 million, or 49 cents per share, compared to $18.3, or 75 cents per share in the 2002 period, a $5.1 million improvement.

Looking at our cash and liquidity position, we ended the third quarter with $6 million, compared to $9.6 million at June 30th and $3 million at the end of the fourth quarter of 2002.

Our net cash used for operating activities -- $3 million -- was well below previous quarters over the past two years.

In addition, we ended the period with $2.9 million in accounts receivable, which is $1 million above previous quarter, or year-end balances.

As you know, in August we filed an S-3 shelf registration to raise up to $50 million.

We are actively in the process of raising capital under this registration to adequately meet our financing needs for the successful launch of ESTRASORB, and to expand our development activities.

And with that I will turn it back to Nelson.

Thank you, Dennis.

Before I open it up for questions and answers, I just want to say a few more words to everyone about Novavax and how hard we're working to make the ESTRASORB launch a success.

As we prepare for the launch, we are meeting often and talking almost daily with our marketing partner, King Pharmaceuticals.

I can tell you we have a lot of activity under way, and with our King partners we have met with our advertising agency, we're fine-tuning our market research, we're finalizing our marketing programs and our advertising campaign, we're finalizing sales training programs, and we're building opinion leader programs et cetera, et cetera, et cetera.

I could comment on some very specific activities within sales and marketing, but I must tell you for the purpose of this conference call I need to be quite careful in that our competitors sit on these calls as well.

Finally, this call would not be complete without a little more further iteration regarding the importance of our drug delivery platform, micellar nanoparticle technology.

I just want to reemphasize it again.

ESTRASORB has provided the validation of this topical delivery system that it works.

The FDA spent a significant amount of time reviewing ESTRASORB.

But while this meant some delay in its approval, we're hopeful that ESTRASORB will be the first in a long list of products to use this technology.

We truly believe that micellar nanoparticle technology will be important to the future of topical drug delivery.

I feel fortunate to be involved with Novavax, a company that is so rich in this technology base, with such significant commercial potential.

I can tell you that no one understands this more than our Chairman, Denis O'Donnell, who's been with Novavax from the beginning.

And I think it would be appropriate to ask Denis if he'd like to say a few words before we begin our question and answer session.

Dr. O'Donnell?

Nelson, thank you.

And just before I comment on the platform, I'd just like to say Nelson Sims has been with us for slightly under 100 days right now, and I'd just like to assure the shareholders that everything we said that we would do in finding a world-class pharmaceutical CEO, Nelson has proved that he's that and more, and I couldn't be and the board couldn't be any happier that we have Nelson on board, and he's doing just a terrific job.

Regarding the ESTRASORB approval for the 2,000-plus life science companies in the United States, there are very few of these companies who have raised, you know, literally billions of dollars, and still have failed to get a single product approved by the FDA.

I'm so proud of the scientists and the members of this Novavax team who worked diligently to get ESTRASORB approved.

But frankly, as happy as we are and as thrilled that we are at the potential of ESTRASORB, there was something that I think was miss the by a significant number of the shareholders and the street, if you will, in that what was also approved by the FDA on October 9th was a platform delivery system unique to anything else that's ever been approved by the FDA.

And we would often get calls from shareholders saying, gee, the FDA's taken a long time to review this process, what's going on?

As everybody knows, we at one Time, had to poll the NDA in the spring of 2002 when we explained to the street that the FDA assured us that they really had no issues with safety or the efficacy, how the product worked, but had a number of CMC questions.

I really think that I should expound a little bit and elaborate on where FDA was at that point and what we were both thinking.

Clearly, FDA on a daily basis sees generic drugs, sees new chemical entities that are put in standard pharmaceutical delivery systems, systems that FDA is extremely comfortable in knowing, systems such as a caplet, a capsule, a gel cap, a patch, an injectable, whether it's intravenous or intramuscular or subcutaneous.

But these are systems that FDA has worked with literally for decades and understands the chemistry, the analytical methodologies, manufacturing, stability, storage, packaging.

They have a very good handle on all of these.

We presented them with ESTRASORB, a delivery system that they had never seen, nor has anybody else in the world seen-- a tiny, probably the smallest reproducible stable lipid structure that's ever been invented, designed, manufactured; that is able to entrap alcohol soluble drug.

And FDA had numerous, reasonable questions, and to FDA's real benefit, in the spring of 2002 they said this is potentially a terrific product.

Let's sit down, learn this together, let's devise some analytic methodologies, let's analyze how we're going to look at this drug during manufacturing, post-manufacturing.

And what we did with our chemists, with our scientists, with FDA's chemists is together we walked hand in hand down the road to educating FDA and allowing their scientists to now have a full appreciation of what this technology is.

I can't emphasize how important that is.

From the first time that Dr. Craig Wright had the idea of developing a micellar nanoparticle, to working with it in the laboratory, to working with it in animal models, to doing stability testing, to putting a drug in, to doing preclinical animal testing with that, toxicology testing, IND phase 1, 2, 3, NDA, manufacturing, all of that was done in about a nine-year time frame.

We now think, based on FDA's list of tests that they want us to do both preclinically, intraclinically, that this is a product that we think is now a machine that will be able to put potentially one out of three of the drugs that are approved in the world, put it into a system like this, and from proof of concept that we have a formulation to NDA approval, we think that this will be somewhere in a 30-month to 48-month timeline.

We know what they want.

They now understand our platform.

So as opposed to our brother and sister biotechnology pharmaceutical companies that have developed a single product, and it may be a decade before they have the next product, we are very excited, and we think frankly that the message was missed on October 9th that yes, Novavax has a wonderful product approved by the FDA, but we're more excited that we now have a platform we can work with.

And as Nelson has brought his big Pharma, big picture perspective to Novavax, he has assured me and the board that his mission is to successfully launch ESTRASORB but his next mission, very closely to follow, is to get as many drugs into the micellar nanoparticle technology as possible, both internally developed Novavax products, as well as products that we'll be going out and now talking with the large pharmaceutical companies as the solution to their problem of what do I do with this multibillion-dollar drug that's coming off a patent in three, four, five, six years, so that we can have a two-pronged approach developing products in conjunction with big Pharma and developing our own projects.

It's a terrific system.

It's now well defined, well understood, and we couldn't be more excited about it.

Nelson, thanks for letting me expound on that, and I'll throw the call back to you.

Thanks, Denis.

Julie, I return it to you for questions and answers.

Thank you, sir. (Operator’s instructions) Our first question comes from Ken Turbovich.

I was wondering, Denis, could you verify --

Ken, we can barely hear you.

Now we can hear you.

Okay.

Could you clarify --

Before you ask your question, we should tell you, we actually coached the operator on how to pronounce your name.

I appreciate it.

Denis, I was hoping you could clarify the comment you just made on the 30 months to 48 months.

Was that from the time that you've shown you can actually deliver the drug through the skin and into the blood, or was that from the time you've shown that you can formulate the product?

They're so close together, Ken, they go hand in hand.

Once we show we can put a formulation in it's a matter of weeks before showing in an animal model that it actually is delivered and we get blood levels of some degree.

Okay.

So that they go hand in hand.

And then for Dennis -- excuse me.

For Dennis Genge, I'm just curious, to what extent do you think the third quarter revenues benefited from stocking and how did you try to control that?

I don't think it was very much stocking at all.

I think it was just getting back to a normal level of ordering patterns and as well as there was maybe some initial stocking on the NovaNatal or NovaStart, but not much.

Okay.

Thank you.

I can tell you, Ken, this is Nelson, that we are monitoring our existing product sales to do everything in our power to make sure we are not in an overstock situation through the distribution channel.

We're doing, I think, a better job of monitoring prescriptions, which of course would be the precursor to generating a sale.

And we also are incenting our sales organization based on prescriptions, not sell into the drugstore or the wholesalers.

Okay.

Thanks.

Thank you.

Our next question comes from Jeff Appel (ph) Please state your company name followed by your question.

Aoliss Capital (ph).

I had a few questions in regard to how some of the other products' under development are.

Clearly we've been focused on ESTRASORB, but as we analyze the company, we see the prenatal business, the vaccine business, and clearly we see the new drug platform business, which is the most attractive.

And clearly, I think that when people see revenues, they look at the company a little bit different in trying to do a P/E multiple and trying to do kind of traditional multiples, where you sort of have these businesses that aren't quite as exciting.

Are there any plans in the future to maybe help maximize some value off of them to make a cleaner company that some of us who are more growth and long-term oriented would like to focus on?

And also, can you just talk about some of the other products that are under the hopper that could have some real potential like e-selectin (ph) and some of the other products?

Okay.

Jeff, thanks for joining the call today.

Jeff, we -- in terms of the existing pipeline in the micellar nanoparticle platform, let me talk to that first, and then I'll address your e-selectin question.

As you can imagine, with a very small company, especially a year ago, when the company had to draw back on a number of resources within the company when they withdrew the NDA, there was a shift of personnel that were currently working, I would call it, in product development for the existing pipeline over to also help with ESTRASORB manufacturing.

I mean, that was the team that essentially built ESTRASORB in the laboratory and in the pilot plant.

And so they have focused a significant amount of their resources to help us prepare our manufacturing facility with ESTRASORB.

We are getting very, very close, where now we can take resources and shift them back into the lab for, you know, focused product development work, proof of principle work, so then we can move into the clinic as fast as possible.

Earlier in the call I reviewed our current hormone priorities.

We're not prepared to make any statements regarding priorities outside of the hormone market right now.

But hopefully, in the next six months we will begin to sure up some of those opportunities outside hormones and we will obviously share those with the investment community.

In terms of e-selectin, as I mentioned in my first conference call, which I think was my second day on the job in the last quarter, I had a lot to learn about the vaccine group at that point in time, and I'd be foolish not to admit that I still have a lot more to learn.

It's much more technical than the other side of our business, drug delivery.

I actually spent the entire day Friday over there, and I am as excited if not more excited than when I joined the company about possibilities.

The hurdles are high in our vaccine group, there is question about that, but the rewards could be significantly higher as well.

The e-selectin product is extremely exciting because it addresses so many unmet needs in the marketplace in the stroke field.

I actually met with our team on Friday, and they're quite comfortable that if we -- if the development plan progresses as it's stated today that we have an opportunity to be in the clinic with e-selectin in a 12 to 14-month time frame.

As that work progresses, we'll obviously keep you abreast.

Any other questions, Jeff?

And my thought is, again, as we see a lot more value in the company than the market is, maybe have you thought about, you know, maybe taking some of the slower growth businesses and carving them out or possibly spinning them off or even selling them to sort of focus on what has the most up side?

I think those are very, very sound questions.

And as any CEO coming into a new company, I think one would be misadvised if he didn't say all opportunities are on top of the table.

We currently are not looking at the spinning off of assets, but as we dig into them deeper and we see new ways to create shareholder value, we obviously will have to look at that.

And I'm very open-minded to that and my track record in the past would suggest that I'm open-minded to that.

I guess that should answer your question.

Thank you very much.

Thank you.

Thank you.

At this time we have no further questions.

Please go ahead.

If there are any other questions, we'd be glad to address those.

I think that's a wrap-up, Nelson.

I think he said there were no further.

Okay.

Well, thank you very much, ladies and gentlemen.

We appreciate your time and attendance to this conference call.

We look forward to keeping you abreast as to our progress.

We're as excited as ever.

We look forward to the next conference call in three months.

Thank you very much.

Ladies and gentlemen, this concludes the Novavax, incorporated third quarter conference call.

You may now disconnect.

Thank you.