Novavax Inc (NVAX) 2005 Q2 法說會逐字稿

I would like to welcome everyone to the Novavax Incorporated second quarter conference 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 could cause forward-looking statements in the conference call and webcast to differ materially from actual results are discussed in the Company's Form 10-K and other periodic forms with the SEC.

At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided for you at that time.

If anyone has any difficulties hearing the conference please press the star followed by the zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Tuesday, August 9, 2005, at 8:30 a.m. Eastern time.

I will now turn the conference over to Mr. Gary Evans, Chairman of the Board of Novavax. Please go ahead, Mr. Evans.

Thank you, Operator, and thank all of you for dialing in this morning to hear the Novavax second quarter financial results conference call as well as we had another announcement this morning concerning some senior management changes at the Company.

Today, here with me on this call is our new President and CEO, Rahul Singhvi, Dennis Genge, our Treasurer and CFO, and Ray Hage, our new Senior Vice President and Chief Operating Officer. I'd like to just take a minute and go over some of the highlights for the second quarter and then I'm going to turn the call over to Rahul.

We will go through some of the business aspects of what's happened in the second quarter. It's been a busy period for our Company. Dennis Genge will go over some of the financial highlights and give us a financial report, and then we will talk about some of our immediate priorities then we'll have a call for the question-and-answer session for all our listeners.

If you look at the second quarter as compared to the first, while it is definitely not acceptable, our results were drastically improved with increase in revenues and a decrease in expenses over the results that were announced in the first quarter of 2005.

We also announced some pretty favorable results from our micellar nanoparticle technology in our pre-clinical testing for seven additional compounds using this technology, and so we will also talk further about that today. We believe that's a significant part of our growth and future for this Company.

We've completed pre-clinical testing of a pandemic influenza virus-like particle vaccine and we'll talk about that a bit today. Our continued business efforts for potential co-development and license arrangements with a number of different companies are progressing nicely.

We believe the future of Novavax is to copartner and bring in significant pharmaceutical companies to help us fund the development of all of these compounds that we are working on. And those discussions continue to attract some of the best-known companies in the world in this effort, and we believe that we'll be able to announce some of these collaborations before year end.

We have significantly reduced the ESTRASORB manufacturing costs. This went into effect July 1st. We announced this earlier, a couple of months ago, and this will help our financial results for the second quarter and third quarter, I mean, the third quarter and fourth quarter of this year.

We also completed an equity raise of $4 million. While we initiated that in June, the actual closing of that occurred in the first week of July, and that money has been received.

I was elected as the Chairman of the Board of the Company in early April and have kind of been on the job here about 90 days now, and I want to assure our listeners that we have a lot of work to do here at Novavax. We are on top of it. We're making significant changes as indicated by some of the news today.

You will see additional news forthright as we make changes to get this Company to a much better financial position. We've too long been in a mode of burn rate, and the definition of burn rate is not in my vocabulary, so we are going to fix that. You will see some dramatic changes going forward with this Company.

Very excited that Rahul has accepted our offer to be our new President and CEO. I've had a chance to know Rahul over a year, and the Board of Directors of the Company has been very impressed with the actions he's taken and the contacts he has and the energy level he has, and we're very excited about our future.

We've got to do a better job convincing the market of that, and nothing does that better than improving our financial results, and I feel confident and Rahul's capabilities in this regard, and he's going to go over a bit of the second quarter highlights for you.

We had a very, very busy second quarter, and we accomplished a lot. Even though the financial results are beginning to reflect that, you'll see even better reflection as the year goes on. Rahul.

Thanks, Gary. Welcome everyone.

Like Gary said, I'm very excited to be in this position, and I'm up for the challenge, and I'm looking forward to working with a very talented management team to move this Company forward.

I'd like to begin by reiterating the highlights for the second quarter. As Gary said we had an improved quarter from the previous one where we have increased our revenues over the first quarter by 141%.

We were successful in reducing sales and marketing expenses and at the same time increase sales. And we reduced manufacturing expenses with an agreement with Cardinal Health.

On the business development front we have continued to work very hard under the leadership of is Ray Hage to negotiate on a partnership deal for ESTRASORB. And we've had some very encouraging discussions with other companies on co-development programs for some of our newer products.

On the product development front we've had successful results with several new candidates demonstrating that our micellar nanoparticle technology platform is broad and is capable of working for a number of very important therapeutic categories.

On the biologic side we demonstrated that our experimental virus-like particle based avian flu vaccine is effective in controlling the morbidity and mortality associated with avian flu in a rodent model, which is one of the very few vaccines that have shown this level of effectiveness.

On the next slide, I just wanted to give you a snapshot of what is going on with ESTRASORB. As you can see that we have demonstrated prescription growth quarter-by-quarter since the launch of the product which demonstrates that this is a very, very good product and is well accepted by the consumers.

The absolute prescriptions are not close to what we wanted to see, but nevertheless, we know that the patients, the subjects that actually use the product, they like it and they continue to use it. We believe that the resources required to move this product further are best suited for bigger companies that have the marketing wherewithal to take this product to where it really deserves to be.

So our strategy is to continue to find the right partner for this product but we will continue to sell this product as long as we continue to make money on it.

And where we are right now with this product is that our manufacturing cost is now favorable that we can make money even at low volumes. So we are not under any significant pressure to partner this product because we don't lose money on the product at the volumes that we're sending it at.

On the next slide, we show you the updated product pipeline where you can see the new products that we've been able to show systemic delivery of the drug using the micellar nanoparticle technology. Some of the new products that we have demonstrated success with is Ketoprofen, which is a non-steroidal anti-inflammatory medication, and we're very excited to work with this product.

We have also demonstrated good results with an allergy product which we haven't announced, for oxybutynin for urinary incontinence, clonidine for high blood pressure control, and for nicotine for smoking cessation. Previously we announced that we were able to get fentanyl and several of the other hormones that are useful in women's health treatment for the micellar nanoparticle utility.

I'll now move to the financial review and turn it over to Dennis Genge who's going to give you the update on the financial results for this quarter.

Thanks, Rahul.

I'm going to begun on Slide 9, and this is what I call our main financial drivers affecting our Q2 results.

As has been mentioned, the revenues were up substantially from the first quarter with all product lines showing steady increases on the months of the quarter and total product sales were up 1.1 million, or 162%. Total product sales were down compared to last year as the ESTRASORB launch of 1.5 million occurred in June of last year, but all other product line sales were up over last year.

Expenses continued to decline with the main driver being the reduction in sales and marketing, which had a decrease of 2.3 million from the first quarter following the restructuring of our sales force and marketing programs. Overall, total operating expenses continued to decline, and I'll look into that in more detail in a minute.

With the improved performance in product sales combined with the reduction in expenses, our cash used in operations dropped from 7.9 million in the first quarter to 4.8 million in Q2, an improvement of over $3 million. As Gary mentioned, right after the end of the quarter we also completed an equity financing with gross proceeds of $4 million.

On Slide 10 is a snapshot of our Q2 results versus last year and versus last quarter. As usual, additional details will be available in the press release and our 10-Q, which will go out later today.

As we mentioned, revenues were down compared to last year but only due to the initial ESTRASORB sales launch in '04.

Operating expenses decreased from 10.3 million in '04 to 7.5 million this year, and further reductions will occur in the third quarter. While net loss improved by 2 million over last year, and improved by 2.7 million from just the prior quarter.

And as footnoted, post our equity financing, our pro forma cash balance at June 30th was approximately $8 million.

Slide 11 highlights the major cost reduction measures we've taken over the past few months, which positively affected Q2 and we'll continue to reduce our operating expenses going forward.

As we announced in March, we restructured our sales force and marketing program to better align our sales efforts with current sales opportunities. This reduced our quarterly sales expense in Q2, and we will still see the benefits in those restructuring with further reductions in Q3 and Q4.

Modified manufacturing agreements that were announced last quarter actually went into effect July 1st, thus our charges to cost of goods will show marked improvements for the remainder of the year.

On the R&D side, we will continue to invest in moving our new product candidates through the development process so we may see some increases in R&D.

And finally, we have identified some cost savings initiatives which will be put in place in Q3 to reduce G&A expenses.

Slides 12 and 13 graphically demonstrate the results of our cost reduction measures on expenses and operating cash. As you can see on slide 12, our quarterly operating expenses have come down from a high in the third quarter of last year of over 12 million to 5.5 million in Q2 this year.

With the additional cost savings measures in place over the next two quarters we will see further reductions in Q3 and Q4.

The graph on Slide 13 demonstrates the improvement in our cash used in operations as a result of our cost reductions as well as some recent increases in revenues. From a high of 3.4 million per month last year, we have brought down our cash used in operations to approximately 1.4 million per month in this past quarter and those averages will continue to drop.

In summary, on Slide 14, revenues on both gross and net sales were up, expenses continue to decline, and we plan through product partnerships opportunities to pursue either raising capital, increasing revenues, or decreasing R&D expenses. Prior to completion of any further capital or partnership transaction we believe our current cash position is sufficient at least through the remainder of the year.

And Rahul, with that, I'll turn it back to you.

Thanks, Dennis.

In terms of the Company's priorities moving forward, our number one priority continues to be finding the right partner for ESTRASORB so we can harvest the value of this important product. And also finding good partners to do co-development with some of the new opportunities we have with the new products.

In terms of product development we have a number of priorities. The first is to continue to expand our pipeline, and we are going to be focused on finding the right compounds that match with our formulation to ultimately result in a product that is something that the consumer would want to have, and so that target selection process to expand our pipeline is a key focus for us.

We are continuing to expand our capabilities and part of that is finding a GNP facility to produce clinical supplies for both our drug delivery product as well as the biological products, and also to enhance our organization with bringing in some high quality formulation scientists and analytical scientists.

We want to continue to move along the value chain for some of the more important products that we believe internally have the highest value for us, so we would like to put a few of those in the clinical phase by the end of the year, or by the first quarter of next year. And we want to also expand our technology base beyond the micellar nanoparticle technology so that we can have multiple ways to address the delivery of important compounds.

On the operational end we have a number of priorities. The first one to improve focus so that we can do what we want to do the best we can and not spread ourselves too thin.

We are streamlining our operations by consolidating our facilities, for example, and also by reducing expenses and ultimately our goal is going to be to significantly reduce our monthly burn rate to a point that we can extend our [run rate] so they can create some value in this Company.

At this point I'd like to end conference call and turn over to the Operator for some questions and answers.

Shawna, we're ready to take questions.

Ladies and gentlemen, we will now conduct a question-and-answer session. [Operator instructions] One moment, please, for your first question. Your first question comes from Cole Eckhardt from Unterberg Towbin. Please go ahead.

Rahul, congratulations and I hope everything's going to go very well in the future, and I trust that it will. Can you update us a little bit on the vaccine division? Because I feel like there's some things going on that the public's not getting, and as shareholders we may be leaving a little bit on the table there.

Thanks, Cole. I agree that we need to do more with regard to announcing what we're doing on the vaccine end.

I can tell you a couple of things. One is that we, what we just announced on the avian flu side, we have a product that we believe that we can move forward. We will, of course, require some capital and we are trying to attract some capital to move that program forward.

On the HIV vaccine front we have had some very interesting and exciting results lately with pre-clinical studies and we are trying to get that data published. Once we have that in a form that we can announce we will bring that out and share with the rest of you.

On some of the other programs that we have contracts with the government, we are trying to see if we can get some rights to get some ownership and move these products towards commercialization ourselves. Again, those are things that are currently in discussion, and as we get more firm on those programs, we will certainly come and update you all on that but I feel very, very excited about some of the opportunities we have in the vaccine and biologics side of the business.

Thank you.

Your next question comes from Matt Fox from Spectra Financial. Please go ahead, sir.

Rahul, congratulations on your new position. Nelson, I wasn't aware that there was going to be a leadership change at the Company and I was wondering if you could give any kind of clarity or color as to the change, any rationale behind it and the timing now with the deal, I mean possible, for ESTRASORB, and any kind of guidance or clarity going forward with that product?

Well, this is Gary Evans responding to your question. Nelson is not here, so he can't answer your question, but Nelson Sims had been with the Company a number of years. He's elected to retire. His home is still in Florida, and this was a bit of a different location for him and his family.

A lot has been accomplished over the last couple of years, but we changed direction in the Company. I mean, we thought with the launch of ESTRASORB that we would be a sales and marketing organization that would need leadership of a Nelson Sims who's got significant experience in that area from his prior employment.

Obviously ESTRASORB did not take off in the women's health space like we had originally envisioned, so based upon that performance of that product and the fact that this Company historically has been a one product company, which is not a very good business model, we've made the decision that we needed to expand our horizons and look at other new products that uses this very successful technology, and so that transition began under Nelson's leadership. He's the one that hired most of these key executives that are running the Company here today, and for that we're extremely grateful that he was able to attract such great talent.

But this Company is taking a new direction. It's not going to be the old ESTRASORB product company. It's going to be a company that is seeking out additional products using this technology and we're going to, instead of fund the development of these products, we're going to find partners that will fund this development. It will not be cash burning off our financial statement.

So we have definitely got a new business model that requires a different leadership. That's really the answer.

Your next question comes from Whit Davis from Credit Suisse First Boston. Please go ahead.

Mr. Evans, regarding Nelson's retirement, is there any severance or anything being paid to him there?

There will be an 8-K filed appropriately concerning that, and I think, you know, it was fair to both parties. Obviously Nelson had a contract, and we negotiated that yesterday and got that resolved, so I think when you see the 8-K filing that's made public, you will be pleased with the results.

What is the timing on that 8-K?

I think it's within four days, something like that.

I had one other question regarding the joint venture you've been discussing with a major pharma firm and the discussions you have there. What is the status of your negotiations?

You know, that is something that obviously with confidential negotiations going on with a lot of companies that we're not at liberty to disclose because these are big companies, and we are bound by confidentiality agreements. If we were to disclose those discussions it could very well hinder our ability to close them. I don't think any shareholder would like that.

So at this point we can't really comment about what is going on in those discussions. I can assure you they are continuing, they're going on daily, and we have discussions with not just one but a number of companies.

The one thing I want to emphasize is this Company is not going to give away this drug. We are going to get a proper agreement with a company that we believe in the best interest of our shareholders and if that means keeping the product longer, we'll keep it longer. If the means doing a transaction tomorrow, we'll do it tomorrow.

But we are going to be sure that our shareholders get the most value for this product. We've got a heck of a lot of money, a heck of a lot of time and pain and suffering in this product and as you can see from the product sales it's going up quarterly.

If we can continue to reduce our costs, which we have done, and it went into [inaudible] July 1st, we have a profitable product that's increasing in sales with a very much reduced sales organization. So that should tell not only ourselves something, it should tell our potential partner something, and so we believe that something will happen with ESTRASORB eventually, whether it's tomorrow, next week, next month or next year, that, I can't answer because I don't have a crystal ball. That's all we can tell you at this point.

Ladies and gentlemen, if there any additional questions at this time, please press the star followed by the one. As a reminder if you are using a speaker-phone please lift the handset before pressing the keys.

Operator, thank you. We appreciate everybody dialing in today. We look forward to reporting continued improved results on the Company.

We have a lot of work to do. We have a very energetic team, and we are excited about this Company, and we believe that as we continue to show progress in all the things we're working on, you, as shareholders and owners of the Company will be appropriately rewarded, and we appreciate your time today and look forward to reporting our future results. Thank you.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.