Novavax Inc (NVAX) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Novavax first-quarter earnings conference call. My name is Laurie and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. On today's call will be John Lambert, Chairman of Novavax; Dr. Rahul Singhvi, President and CEO; Len Stigliano, Acting CFO; and Dr. Rick Bright, Vice President of Global Influenza Programs.

Statements herein relating to future financial or business performance, conditions or strategies and other financial business matters, including expectations regarding future revenues, operating expenses and clinical developments, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Novavax cautions that these forward-looking statements are subject to numerous assumptions, risks, and uncertainties which change over time. Factors that may cause actual results to differ materially from the results discussed in the failure by Novavax to secure and maintain relationships with collaborators, risks relating to the early stage of Novavax's product candidates under development, uncertainties relating to clinical trials, risks relating to the commercialization if any of Novavax's proposed product candidates, dependence on the efforts of third parties, dependence on intellectual property, competition for clinical resources and patient enrollment from drug candidates in development by other companies with greater resources and visibility, and risks that we may lack the financial resources in excess to capital fund our operations. Further information on the factors and risks that could affect Novavax's business, financial conditions and results of operations is contained in Novavax's filings with the U.S. Securities and Exchange Commission, which are available at www.SEC.gov. These forward-looking statements speak only as of the date of this conference call and Novavax assumes no duty to update forward-looking statements. I will now turn the call over to John Lambert. Please go ahead.

Thank you. Good morning, and thank you for joining us. Before I turn the call over to Rahul, I would like to take a moment to express how pleased I am to be working with the Novavax team. Since being appointed Chairman in March, I've spent much time with the Company's senior management and scientists getting to know them and gaining a deeper understanding of the Company's proprietary technology and business strategy. This is a bright, forward-thinking and committed group that I am confident can deliver on the promise of VLPs as the next frontier in vaccines.

Novavax is moving forward rapidly, and this is a pivotal year for the Company, including the commencement of our first clinical trials. We have the people, the technology, the strategy and the determination to succeed, and I am really excited about the possibilities that lay before us.

Now I'd like to turn the call over to Rahul for a review of our key achievements during the first quarter.

Good morning and thank you, John. Before I begin, I am pleased to welcome John to our call. We are very excited to have him on board and to be able to benefit from his broad knowledge and deep experience in the vaccine field. We are already benefiting from his wise counsel.

Now I'd like to review our key accomplishments during the first quarter. As you may know, we began the year in our new headquarters facility here in Rockville, Maryland. Not only does our building here have state-of-the-art lab space and offices, but we also have the capability if we so choose in the future, to create pilot scale manufacturing and even commercial launch of a new product. The new facility is the ideal consolidation of all our operations that are now for the first time under one roof.

On the scientific front, we have completed all our planned toxicology work for our H5N1 pandemic flu VLP vaccine. This is a key milestone for us, but let me put this into context. The vaccine material we used for these studies was produced using the same process that produced the vaccines for the initial phases of our upcoming clinical trials. All our quality control testing is in place and we have been able to repeatedly produce vaccine using this process. This is a major achievement for Novavax during a year that will be marked by many firsts.

The same vaccine material was also used in a very important efficacy study involving ferrets that we announced just last week. In this study, ferrets that were inoculated with our H5N1 pandemic flu vaccine were protected from a lethal challenge of life for flu virus. What's more significant is that those ferrets that received even the lowest doses of our vaccine were protected from the virus as well as from a different strain of the virus. This study demonstrated protection and cross protection with a single vaccine using the material from our final manufacturing process.

I will let Rick address our flu program in greater detail as well as why the ferret data are particularly significant. But suffice it to say, all of these data combined put us on track for filing our first vaccine investigational new drug application with the FDA by midyear. Once the application is accepted, we can begin clinical trials and I said, there are several complex steps to go through in both preparing and filing the IND, as well as in gearing up for the clinical trials. While we cannot put a precise date on when our first patient will be enrolled, we're moving forward in the process and are confident we have an excellent vaccine candidate to take into the clinic.

We've also accelerated our seasonal flu program. In the first quarter, we demonstrated that our trivalent seasonal flu vaccine is equivalent to the three monovalent streams given separately. This means that we can combine the three vaccines and they work well and do not interfere with each other. This is an important proof of concept and it gives us confidence to proceed.

With all these important developments involving our science and process, I am pleased to tell you that we have made significant strides in strengthening our intellectual property protection during the first quarter. We've done this in such a way that we have been able to extend our IP beyond influenza, paving the way for us to go after other disease targets with our proprietary VLP vaccines. As we have stated, we intend on announcing our next vaccine candidate later this year.

Our new collaboration with the University of Massachusetts was a big step in securing our future. Under terms of an agreement we announced during the first quarter, we have licensed the VLP (technical difficulty) we developed at [U] Mass, which broadly expands our ability to create new VLP vaccines. We now have the worldwide rights to use this technology to develop VLP vaccines for any infectious disease we so choose. The possibilities are endless.

Finally, we continue to recruit top talent to Novavax. During the first quarter, we announced the appointment of Jim Robinson as Vice President of Quality and Technical Operations. Jim already has had a big impact on our manufacturing process. And while we announced the departure of Jeff Church, our Chief Financial Officer, we were fortunate to have Len Stigliano join us on an interim basis within a week of Jeff's departure. Len has been able to take the reins without skipping a beat.

In summary, let me say that we're moving forward aggressively. Our entire team is excited by the very strong foundation we have built so far and by the opportunities that lie ahead. We are well on our way to delivering on our commitments to you, our investors, as well as the broader goal of improving public health. Now let me turn the call over to Rick.

Thank you, Rahul. We started the year by wrapping up our preclinical program for our pandemic influenza vaccine and by gearing up to begin clinical trials on schedule later this summer. This is taking a lot of work from both our internal team as well as from our collaborators at the University of Pittsburgh, the CDC Influenza Division and the Southern Research Institute in Birmingham, Alabama.

Of important notes for the last quarter, we completed our vaccination and live virus challenge studies in both mice and ferrets. These studies, particularly the ferret study, provided critical data sets needed to demonstrate full potential of our pandemic influenza vaccine for H5N1. In each animal model, we showed that our VLP vaccine made against a highly lethal H5N1 virus isolated from an Indonesian patient was able to protect both mice and ferrets that were subsequently challenged with a lethal dose of that virus. This means that animals that received our vaccine were protected from death, unlike the control groups.

It is noteworthy that all of our studies were done without the addition of any adjuvants. The survival was also seen in animals that received even very low doses of our vaccine, again, without the addition of any adjuvants. These results are quite impressive.

In addition, we took a group of animals that were given our clade 2 H5N1 vaccine from Indonesian, again both mice and ferrets, and subsequently challenged them with a live H5N1 viral strain from a different family from Vietnam, again, all animals that received our VLP vaccine survived a lethal dose of virus that was from a different family of H5N1 viruses, even those animals that received the lowest dose of our vaccine without the addition of any adjuvants. Again, both mice and ferrets survived this test and it is particularly noteworthy to see this level of protection in the ferret model.

Now serum collected from those ferrets has been shipped to the CDC influenza division and is undergoing additional testing to see if our vaccines are able to neutralize -- or the immune response raised to our vaccine -- is able to neutralize an even broader panel of H5N1 viruses that have been collected recently from different parts of Asia. These data are all being summarized in manuscripts and we anticipate these will be published soon.

We have already submitted a new manuscript in the first quarter of this year and we plan to submit additional data this upcoming quarter.

This more or less wraps up the basic proof of concept preclinical studies for our pandemic influenza vaccine program. I am sure that everyone is as excited as we are about moving into the next phase of our testing, human clinical trials. On that note, we've been working diligently to prepare the IND application for our first clinical trial. Toxicology studies have been completed and are currently under review. We have also manufactured our vaccine for our clinical trials that is now undergoing final analytical testing.

Our new kid on the block, well the one with over 20 years experience influenza vaccine manufacturing, Jim Robinson, has taken the helm to help reach our targets in this area. As an aside, it is nice to realize that Jim has probably manufactured more doses of influenza vaccine than almost anyone in the world in his career. We are truly fortunate to welcome him to our team.

We also have been working closely with the clinical research organization and clinical site partners to finalize all of the plans we need so we can begin our clinical trial on target. Dr. Penny Heaton, again, a very seasoned professional in clinical trials, has been leading this effort. I cannot imagine a more exciting time for the Novavax team.

I know I've taken up some time here with my excitement about our pandemic vaccine program moving into the clinic, but I also want to update you on our seasonal influenza program as well. This program is more complex than our pandemic program because we have made a vaccine that is a trivalent formulation, meaning it contains three separate influenza subtypes, like the typical annual flu vaccine. However, unlike the typical annual flu vaccine, we, at Novavax, are developing a truly differentiated product that we hope will be more beneficial to those most vulnerable to seasonal flu, the elderly, the very young, and those with compromised immune systems. One potential advantage we're seeing with our VLP vaccines is their ability to raise both an antibody and a T-cell response. We have seen this consistently in both our pandemic and our seasonal influenza programs, and recently, an independent group from Emory University published a paper demonstrating this again quite eloquently. I cannot stress enough the importance of the ability of our vaccine to activate both B and T-cell immune responses with our VLP program. This has tremendous implications for our broad, robust, long-lasting immune response, as well as for broadening the world of diseases that we can target with our VLP platform.

In addition, the preclinical data we are observing so far shows us that our VLP vaccines produce a quite broad immune response that could potentially protect the elderly in those flu seasons where there is a mismatch between the vaccine and the infecting strain of influenza. This seems to happen more and more around the world as the world continues to rely upon old ways of making influenza vaccines each year. If the viruses continue to mutate or drift throughout a season, the immune responses raised by our VLP vaccine for seasonal flu can still offer protection and potentially save many lives every year.

Finally, we know that to be the most successful in our endeavors, we need to be more than just an influenza vaccine Company. We know and we understand the importance of a strong pipeline. We have identified new disease targets last fall based on several criteria, including an unmet medical need, commercial opportunity and technical feasibility. We selected two of those targets already beyond flu and we are securing the necessary intellectual property protection. We plan to announce at least one of those targets by the end of this year. So as you can see, there's a lot going on and we're very excited about our teams and the progress we are making.

With that said, I want to turn things over to Len for an update on our financial results. Len?

Thank you, Rick. The Company ended the first quarter with $67.6 million of cash and cash equivalents, a use of cash in the quarter of $6 million from the year-end balance of $73.6 million. Our current cash position based on current plans should be sufficient to fund clinical development into late 2008.

During the first quarter, we reported a loss of $8.4 million compared to a cash burn of $6 million. The difference between the reported loss of $8.4 million and the cash burn of $6 million was principally due to the following non-cash items, an increase in bank overdraft of $800,000 and reserve for certain Board of Directors receivables in the quarter of $1 million and depreciation expenses of $700,000.

Net revenue for the quarter was $700,000 compared to $1.3 million in the comparable quarter of 2006. The decrease in revenue was principally due to lower ESTRASORB sales as well as a decrease in contract research and development revenue. Cost of sales was $1.3 million in the quarter, a slight increase over the same period in 2006. While cost of sales remains essentially unchanged in the first quarter from prior quarter, despite lower revenues, this is a result of higher idle capacity costs in 2007 resulting from lower production for the period.

Research and development costs for the quarter were $3.7 million, an increase of 82% over the comparable quarter in 2006. The increase in spending is primarily due to increased research activity in support of vaccine drug development in the current period.

Selling, general, and administrative expenses were $4.6 million in the quarter compared to $2.8 million for the same period in 2006. The increase in expenses was principally due to a reserve for former Board of Directors receivables of $1 million and higher facility costs for the Company's new facility in Rockville, Maryland which we occupied in early January, 2007 of $400,000.

Interest income net of interest expense was $600,000 for the quarter as compared to a net interest expense of $500,000 in the first quarter of 2006. This significant change quarter on quarter was principally due to higher investment balances quarter to quarter related to the equity financing completed in late first quarter 2006 of $56 million. Accordingly, the net loss for the period was $8.4 million or the equivalent of $0.14 per share. I will now turn the call back to Rahul for a summary.

Thanks, Len. So in summary, we have made important progress in this quarter towards our goal. As Len indicated, we have seen a significant increase in our R&D costs, which is entirely consistent with our strategy to channel our resources into vaccine development. These are the very activities that will create value for our shareholders. As you know, we have committed to improving shareholder value as well as human health worldwide and to reaching our full potential as a biopharmaceutical company. I believe we have the right team focused on the right strategy to achieve that goal.

This concludes our prepared remarks. Now I would like the operator to open the call for questions.

(OPERATOR INSTRUCTIONS). Ken Trbovich, RBC Capital Markets.

A couple of quick questions. Rahul, as we now approach the time of entering into human clinical trials on the pandemic side, can you give us a sense as to sort of the staging in terms of longer term for this program? Is this something you guys fully intend to take all the way through Phase II so that you can file a mockup dossier? Or do you do the Phase Is and essentially get proof of principal and wait to see what happens before moving to the next stage?

More the latter. I think we will get our Phase I/II completed and I say Phase I/II because we are doing a dose escalation trial in the first clinical trial. And certainly we would be at that moment looking to get some outside funding to take this program forward, and I would suggest that we would be channeling most of our resources on the seasonal flu program if we do not get funding on the pandemic flu. So, I think the answer to your question is that the mockup dossier idea is something that we will look at, at that point. But at this point, currently, our strategy is to take it to Phase I/II, get our manufacturing in place, our demonstrated manufacturing that we can make product to scale, and then wait and see what we can do to attract some [non day] due to financing.

Okay. And then with regard to the seasonal program, obviously there's things you've learned through the development of a pandemic that perhaps make it easier to advance that program. Is it unreasonable to expect that you might be able to file an IND on that program next year?

Oh, absolutely, yes.

And then the last question just on the financial side, are you currently in negotiation with the noteholders?

No. We cannot really say whether or not we are in negotiations, but at this point I would suggest that we are looking at all possibilities to address that debt, but we haven't really started any negotiation.

Okay, thank you.

Vernon Bernardino, Rodman & Renshaw.

Thanks for taking my questions. Just wondering, you said you'd select new senior targets and I suppose those are for the VLPs related to the Massachusetts technology by year-end?

It may or may not use the Massachusetts technology.

Okay. Would you then be able to announce INDs perhaps for those new targets by year-end or would that be a 2008 event?

No, the INDs will not be filed by the end of the year, but we will certainly hope to present some proof of concept data. At least one of them.

Okay. And what kind of studies are you currently conducting that are leading into preparation to the announcements of these targets?

The optimization of the clones, that is the expression and also the proof of concept preclinical studies.

Great. Thanks for taking my questions.

(OPERATOR INSTRUCTIONS). Scott Henry, Oppenheimer.

Thank you. First I just wanted to confirm, do you expect the seasonal vaccine to enter patients -- I think in the past I had thought Q2 2008. Is that still a reasonable assumption?

Yes.

Okay, thank you. And then, I did have a question, in the SG&A line, there was an increase of $1 million for reserves for a former Board of Director receivables. Could you provide some color on that?

Len, can you please take that one?

These are probably loans the Company made a while ago to two individuals and they were unable to pay these loans. So we've -- it's disclosed in the 10-Q in more detail -- actually a fair amount of detail.

Okay. Do you intend to try to pursue those loans?

Yes, and we have some liens against these loans, but from a financial perspective, we have to take the loss because we've extended the loans. And it's a net loss between the outstanding balance and some of the common shares that we actually do have to reserve against it that they were holding.

Okay, thank you. That is very helpful. And then I guess just the final question, anything new on [kind of] the lotion technology?

No.

Okay, thank you very much.

There are no other questions in the queue. (OPERATOR INSTRUCTIONS). There are no other questions. Dr. Singhvi, I will turn it over to you for any additional or closing comments.

Well, all I would like to say is I want to thank all my shareholders for their support and just stay tuned for the progress. Thanks again.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.