Novavax Inc (NVAX) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, welcome to the Novavax second-quarter earnings conference call. My name is Dana and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today's conference. (OPERATOR INSTRUCTIONS)

On today's call will be Mr. John Lambert, Chairman of the Novavax Board of Directors; Dr. Rahul Singhvi, President and Chief Executive Officer; Len Stigliano, Chief Financial Officer; Dr. Penney Heaton, Chief Medical Officer; 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 and business matters, including expectations regarding revenues, operating expenses, cash burn, and clinical developments and anticipated milestones, 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 forward-looking statements or historical experience include risks and uncertainties including the Company's ability to progress any product candidates in preclinical or clinical trials; the scope, rate, and progress of its preclinical trials and other research and development activities; the scope, rate, and progress of any clinical trials we commence; clinical trial results. Even if the data from preclinical or clinical trials is positive, the product may not prove to be safe and efficacious. Novavax's pilot plant facility is subject to extensive validation and FDA inspections which may result in delays and increase its costs. Dependence on the efforts of third parties. Risks that the Company may not be able to secure a buyer for its non-strategic assets, or that the Company will be able to negotiate a profitable sale with such a buyer. Dependence on intellectual property; competition for clinical resources; inpatient enrollment from drug candidates in development by other companies with greater resources and visibility; and risks that we may lack the financial resources and access to capital to fund our operations. Further information on the factors and risks that could affect Novavax's business, financial condition, and results of operations is contained in Novavax's filings with the US Securities and Exchange Commission, which are available at http://www.SEC.gov.

These forward-looking statements speak only as of the date of this press release and Novavax assumes no duty to update forward-looking statements. Mr. Lambert, I would like to turn the call over to you at this time, sir.

Thank you very much. Good morning and welcome to the Novavax conference call for our second-quarter financial results. I'm particularly pleased with the progress the Company has made since our last conference call.

Before I hand over the call, I would like to introduce the Novavax management team who you will be hearing from shortly. First, our President and CEO, Rahul Singhvi. Second, our Vice President of Global Influenza Programs, Dr. Rick Bright. Next, our Chief Medical Officer and Head of Clinical Development, Dr. Penny Heaton. And last, but not least, Len Stigliano, our Chief Financial Officer. Now, I would like to hand the program over to Rahul for his general business overview.

Thank you, John. I'm pleased to review our recent key accomplishments since the last conference call. First and foremost, I'm really excited that as a result of our first dosing of our pandemic flu VLP vaccine in humans, we're now a clinical stage vaccine company. This is a major accomplishment, especially given that our first clinical candidate, the H5N1 pandemic VLP vaccine, is a complex recombinant biological structure.

Prior to the commencement of this trial, we had submitted an Investigational New Drug, or IND, application to the Food and Drug Administration in June, as per our plan. The IND was reviewed and cleared by the FDA in advance of our enrolling of the first subject. Dr. Heaton will speak more about the clinical trial for our pandemic flu vaccine a bit later in the call.

Results from this clinical trial will be critical for demonstrating proof of concept in humans for our pandemic flu vaccine candidate both from a safety and immunogenicity standpoint, which means that we will know whether or not our product works. Equally important, these results should give us clues to the broad applicability of our novel VLP technology as a platform for vaccines against other infectious disease targets.

In addition to getting into the clinic, we're continuing to move the Company forward on a number of fronts, as highlighted by the following items. We obtained a license from Wyeth to have the rights on intellectual property related to VLP technology. The non-exclusive rights to the Wyeth family of patent applications complement our overall intellectual property position in the VLP vaccine area and allows us greater flexibility to construct optimal VLP vaccine candidates from an immunological and [EEL] standpoint. These rights will also be important in our ability to ultimately commercialize any VLP product that may fall under the Wyeth patent applications.

Once again, this agreement is complementary to our own patent applications for both current and potential new vaccine products.

In June, we restructured our convertible debt with the noteholders, effectively eliminating the call features of this convertible instrument. As a result, these notes will not be due until their maturity date of July of 2009.

We have continued to progress on our preclinical development of our second VLP product candidate for our seasonal flu vaccine. Dr. Bright will update you on the progress of this program shortly.

In July, we appointed our interim CFO Len Stigliano as CFO on a permanent basis. We are pleased to have Len officially join our team, given his years of experience in life sciences, both in financial and operational roles.

At this point, I would like to turn over our presentation to Drs. Bright and Dr. Heaton to talk about our influenza vaccine programs and specifically about the Phase I/IIa human clinical trial of our pandemic flu vaccine. I will report on some of the key milestones we can expect for the balance of 2007 during my closing remarks.

Thank you, Rahul. On the scientific front, it has been a very busy quarter for both influenza vaccine programs. First, for our pandemic influenza vaccine program, we are very happy to report that we received positive data from the study in ferrets, which as you know is the best animal model for influenza vaccines. Ferrets were vaccinated with varying doses of our pandemic flu vaccine without the addition of any adjuvants.

In our collaboration with the Centers for Disease Control and Prevention, the Influenza Division, and Dr. Terry Tumpey there and his team, we have learned that, as in our previous animal models, antibodies raised in ferrets against our clade 2 VLP vaccine were also able to react against a broader panel of H5N1 viruses from clade 1 and other clade 2 subgroups that represent families or groups of more recent H5N1 viruses that differ in several ways, including having mutations that have evolved as the virus has spread from birds to humans. In these tests, scientists at the Centers for Disease Control and Prevention have confirmed that antibodies raised against our H5N1 VLP vaccine -- this is the same vaccine that we are utilizing in our clinical trial -- are clearly immunogenic in the important ferret model. And that these data are similar to what was observed in our previous mouse experiments with our collaborators at the University of Pittsburgh.

Therefore, these animal data could indicate that our pandemic flu VLP vaccine may provide protection throughout an entire pandemic, even as strains might [drip] and mutate. These data are all being compiled and will be submitted for scientific publication very soon.

The data from our three preclinical collaborators, the CDC, University of Pittsburgh, and the Southern Research Institute, now wrap up the basic animal studies for the pandemic influenza VLP program. These were all summarized in our IND application that Rahul mentioned.

The next and most exciting and most important proof of concept step for our pandemic influenza vaccine and for our VLP platform was the initiation of a clinical trial. Before I review progress on the seasonal influenza vaccine program, I would like to turn the presentation over to Dr. Penny Heaton, our Chief Medical Officer, to talk about our Phase I/IIa human clinical trial for pandemic influenza. Penny?

Thank you, Rick. As both you and Rahul have indicated, we began vaccinations in our very first clinical study of the pandemic influenza vaccine on July 31. This vaccine is made of virus-like particles of the Indonesia clade 2 H5N1 avian influenza strain.

This study is a Phase I/IIa study. We have designed it to evaluate safety and the immune response to different doses of the vaccine. The study is important because it is going to provide the first clinical data for our flu virus-like particle or VLP vaccine.

So first I am going to share with you the details of the study; and then I will follow that by discussing the timing for data availability and the potential applications of the data.

The study is being conducted in two stages. The first stage, which will include approximately 70 subjects, will focus primarily on safety but will also include an interim immunogenicity analysis. Study participants will be randomized to receive either two doses of the vaccine intramuscularly, or a placebo, approximately one month apart.

Safety data will be monitored by an Independent Data and Safety Monitoring Board. If the safety data are acceptable at the initial dosage level, then enrollment will be conducted at the next highest dosage level.

We will be doing an interim immunogenicity analysis for these two dosage levels that will be available at the end of the year.

If the safety and immunogenicity data from the first stage of the study are acceptable, then we will begin enrollment in the second stage. Approximately 160 subjects will be randomized in that stage to receive one of three dosage levels or placebo. Again, two intramuscular injections will be given, approximately two months apart.

The safety and immunogenicity of the different dosage levels will be evaluated with the goal of selecting a final dosage level for evaluation in a Phase IIb study.

Similar to the first stage of the study, an Independent Data and Safety Monitoring Board will continue to evaluate safety throughout the course of the study. The final analyses of the safety and immunogenicity for the entire study are anticipated in approximately one year, in about the third quarter of 2008.

In addition to measuring antibody responses against the surface hemagglutenin or Ha protein of the vaccine strain, we are also going to be evaluating several other aspects of the immune response including antibody production against different clades or families of the H5N1 virus, similar to what we did with the ferret study that Dr. Bright just discussed. We will be looking at antibody against another surface protein, neuraminadase or Na, and looking at cell-mediated immune responses. These measures of the VLP flu vaccine performance may help differentiate it from that of other pandemic vaccines.

This study is important for several reasons. As has been demonstrated in several studies, the H5 and other avian influenza strains are not as immunogenic -- in other words, they don't induce as strong of an immune response in humans -- as seasonal or epidemic flu strains do. Therefore, doing our very first study with an avian strain is a real challenge for our VLP platform. However, favorable results from this study will cause us to be quite optimistic about the performance of our seasonal flu VLP vaccine in future studies.

Now I would like to turn over the presentation back to Dr. Bright who will provide you with an update on our seasonal flu vaccine program, including progress on the preclinical studies. Rick?

Thank you, Penny. I speak for everyone at Novavax when I say how proud we are to have met this important milestone in our development plan. It speaks very highly of the incredible team that we have built at Novavax and to the quality of the leadership that we now have in place at the senior management level.

As we have stated before, our seasonal influenza vaccine program continues to be right in step behind our pandemic influenza program. We have now selected three VLPs to be included in the vaccine for our preclinical studies and that will be useful used for our first clinical trial, which will be conducted with a trivalent influenza A H1N1, H3N2, and influence B formulation.

In addition, we have further optimized our manufacturing process, which has been designed for a rapid production of vaccine. This advancement should allow Novavax to provide seasonal influenza vaccines more rapidly each influenza season before the flu season begins, to meet the early demands to ensure that everyone has their vaccine before the seasonal flu peaks each winter. This is a very important advancement.

As we have said before, despite the existence of several licensed influenza vaccines, seasonal influenza is still responsible for approximately 36,000 deaths in the United States each year. The vast majority of these occur in the elderly. We are designing a seasonal VLP vaccine that we expect to be more efficacious against this disease.

As we have published recently, our seasonal VLP H3N2 vaccine induced robust antibody responses against not only the vaccine strain but also against various mutated H3N2 strains from several different flu seasons in both mice and ferret models. The next step in the seasonal preclinical program is to evaluate our trivalent seasonal formulation, where we mix the H3N2 and the H1N1 and the influenza B VLPs together to demonstrate protection against all three subtypes of influenza viruses that circulate and infect and kill people each year.

We are using animal models and new analytical assays designed to give us indications about the quantity and the quality of the immune responses elicited by our vaccine, as well as information on both humoral or antibody and cell-mediated immunity. We plan to have this preclinical data on our trivalent seasonal influenza vaccine to report in the fourth quarter of 2007.

Now in addition to our two influenza programs, we have also made a significant amount of progress in the discovery phase of our two new pipeline candidate vaccines. To do so, we have bolstered our scientific and manufacturing teams, and we will soon a report on these new and promising vaccine candidates.

I will now turn -- welcome, first, Len Stigliano to our team as our official CFO, and turn the presentation over to him for an update on our financial results.

Thank you, Rick. The Company ended the second quarter with $61.2 million of cash and cash equivalents, a use of cash during the quarter of $6.5 million, and a cash burn of $12.4 million for the first six months of 2007.

Based on our assessment of the availability of capital and our business operations as currently contemplated, and in the absence of any new financing, licensing arrangements, or partnership agreements, we believe we have adequate capital resources to sustain operations into late 2008.

For the first six months ended June 30, the Company reported a net loss of $16.6 million or $0.27 loss per share as compared to $11.9 million for $0.21 loss per share for the comparable period in 2006. The increase in net loss in 2007 over the prior year was principally due to increases in research and development related to the progression of our vaccine development programs; increased rent related to our move to our new headquarters in Rockville, Maryland; and reserves established for receivables for former Board of Directors has as been reported in both the first-quarter and second-quarter 10-Qs.

For the second quarter, the net loss was $8.2 million or $0.13 loss per share, as compared to a net loss for the comparable period in 2006 of $6.4 million or $0.11 loss per share. The increase in net loss quarter on quarter was due in part to lower revenues of $700,000 related to a discontinuing of sale of a gonadal product; lower contract research; and lower contract research revenues.

In addition, research and development expenses increased by $800,000 due to the aforementioned increased activity in our vaccine development. General and administrative expenses increased by $700,000 due to increased rent, by moving to our new headquarters in Rockville, Maryland, and other expenses related to compliance with FIN 48 requirements.

Now, I would like to turn the presentation back to Rahul for a summary.

Thank you, Len, Rick, and Penny. The team you just heard from is representative of the talent and dedication we now have at Novavax. I am really proud of this team that we have now assembled. You should all have confidence in our ability to move these programs forward.

Now, I would like to give our investors some of our key milestones that we will be focusing on over the next few months as we advance our Company as a clinical stage vaccine company.

First, we expect to announce two new vaccine candidates in our drug discovery phase over the coming months, which will further demonstrate our ability to discover and develop novel and improved vaccines for unmet medical needs in large potential markets.

Second, we have begun the process of attempting to divest some of our noncore assets outside the field of vaccines. We are cautiously optimistic as to this divestiture. However, there is no assurance as to the success or the value of this project.

Third, as Rick said, you'll be hearing more about the preclinical results from our seasonal flu program.

Fourth, we will expect to complete the construction of a GMP vaccine pilot plant in Rockville, Maryland. I would like to take a moment to expand on this particular project. This project is strategically important for us, because as we demonstrate efficacy of our VLP vaccine in the clinic it is imperative for us to be able to manufacture these products at scale under GMP conditions.

This facility is based on our disposable manufacturing approach and is substantially less expensive to build and commission compared to current vaccine productions. It would be a poster child for what our technology can do to create vaccine supply. The completion of this pilot plant will be particularly important for us to be able to potentially attract government funds for advanced development of our pandemic flu VLP vaccine candidate and for vaccine stockpile contracts for our pandemic vaccine. This facility is expected to be validated in the first quarter of 2008 and should provide capacity for millions of doses of our flu vaccine.

Finally, we should expect interim data from our Phase I human study for our pandemic flu vaccine, as Penny presented, by the end of the year. As I stated in my business overview, the initial results of this trial could be predictive of the dosing that we may be able to use not only for our pandemic flu candidate, but also it could provide us clues on the potential efficacy of our seasonal flu vaccine.

As you can see, we're gaining momentum in our vaccine development programs. We're committed to providing 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 and now I would like the operator to open the call to your questions.

(OPERATOR INSTRUCTIONS) Vernon Bernardino of Rodman & Renshaw.

Thanks for taking my call. Just wondering if you could please let us know, what is the capability of the capacity of the pilot plant?

Also, can you also go over again the timelines for the seasonal flu? Just wondering if you could give an update, if possible, on the Bharat Biotech activities.

Okay, let me first give you an idea of the potential capacity for our pilot plant. Depending on the dose that we are able to show immunogenicity in the study that is currently ongoing, we can have between 10 to 30 million doses per year of pandemic flu vaccine capacity here in Rockville. So that is the answer to the question on capacity.

On the seasonal flu timelines, I will ask Penny or Rick to elaborate on that. Regarding Bharat, let me just --.

Hi, this is Penny Heaton. As far as the timelines for seasonal flu goes, as Rick explained, we are starting the preclinical program shortly with the trivalent vaccine. Recall, we have already done studies with the monovalent H3 strain. So we are beginning now studies with the trivalent vaccine.

We will be looking at having our first clinical study and some data available -- the study would start second quarter of next year. Then of course, depending on the results we get from initial studies, then that will drive the rest of the program.

What are the components of the trivalent vaccine, again?

It will be H3H1 and influenza type B strains, as recommended by CDC and WHO every year.

Great, thanks. And then Bharat Biotech?

Yes, at the moment, we are focusing on developing the flu vaccine at Novavax here in the US. When the right time comes, we will use any potential leverage that we have with Bharat to help us in the flu area or other areas that we are working on.

Thanks, I will get back into queue.

Ken Trbovich of RBC Capital Markets.

Thanks for taking my question. I had a couple, I guess I wanted to direct them -- I am not sure if I will direct them to the right folks. But I guess with regard to the ongoing pandemic study, if Penny could help us understand how the doses differ between the first stage and the second stage.

Penny, can you take that? I don't think Penny is online anymore. I can help you with that, Ken.

In the first stage, which is Phase I, we're testing two doses, two different strengths, 15 micrograms and 45 micrograms. Depending on the results that we get on these two doses, we would then have the ability to escalate the dose up to 90 micrograms should that be required.

Or if the data or sufficient in these two doses, 15 and 45, we would have the ability to amend the protocol and go down to 7.5 micrograms. So the three doses that we will use in the second phase would be either 15, 45, 90, or 7.5, 15, 45.

Okay. Then for Rick, I guess with regard to the progress on the preclinical side for the seasonal vaccine, could you give us a sense for timing on when that process is wrapped up and we can kind of see you make the same progression into human clinical studies with that program?

Yes, Ken. As we have stated before, our seasonal program is probably six months behind our pandemic program. So we have already proven in animal models the effect of a monovalent A strain 2 strain VLP vaccine.

We have started the preclinical process for the trivalent formulation, and we will have data from our collaborators in the next couple months, actually. So we can wrap up most of that preclinical program by the end of the year and report on those data. So we can then begin our clinical trials in the seasonal trivalent vaccine in the second quarter of next year.

Okay. Then final question, I guess, Rahul, just with regard to the sort of two new vaccine candidates, I know in the past you have been looking forward to perhaps having the issuance of IP before discussing those. Is that still sort of the gating factor with regard to these disclosures? Or are these, for whatever reasons, compounds that you feel more comfortable talking about that are different from those you have discussed in loose terms in the past?

Right, I don't think we will have issued IP. That is a bit -- that takes longer. But I think we will establish enough distance between ourselves and potential competitors -- you know, approximately at least a year -- to feel comfortable about disclosing those programs.

Okay. So what is the gating factor on disclosure?

I think it is time partly; and partly it is having sufficient claims in our patent applications that will provide us protection against competition.

Okay, thanks again.

Scott Henry of Oppenheimer.

Thank you. I apologize if this has been asked; I have been on a couple conference calls. I wanted to ask something just a little bit away from the vaccines, with regards to your kind of lotion technology. Have you reviewed looking at perhaps monetizing or selling that business? I think I saw recently someone paid a pretty big upfront milestone for an estrogen spray, which could indicate demand out there for these type of technologies. Just trying to get a sense of what you are doing with that business.

Scott, thanks for that question. I did mention briefly in my closing remarks that one of the projects we have ongoing in the next -- later part of the year is to start the process of divesting our nano particle business.

You raised a good point about this one deal that resulted in substantial milestone payment for an Estrogel -- estradiol spray-tech product. We have engaged a bank, and we are in the process of attracting or going to customers to go through this process of valuation of our technology and, ultimately, finding someone who will pay us a reasonable or fair deal.

On a shorter-term basis, is there anything you can do to kind of stop this? It is not a very material number, but there is sort of a bleed as far as your current deal on Estrasorb.

Right, yes, absolutely. I think you are right, and that is related specifically to our Estrasorb product. There, I think our goal is we are working closely with our partner Esprit to help them find another source of Estrasorb supply, so that we can get of that business which is causing us to lose money.

Thank you, Rahul.

[Terry Niver] of Stifel Nicolaus.

Hi, how are you today? A couple questions. One, any further progress towards an HIV vaccine?

Yes, we continue to work with our partners at University of Alabama in Birmingham as well as NIH to progress our VLP-based HIV vaccine in small animals. We are going to be providing some of that information in an upcoming publication, which I believe has been accepted. As soon as I have that, you know, we would either put out a press release or somehow make that available on our website.

But the answer to your question is yes, the program is alive and well, and we continue to get encouraging data on that particular product candidate.

How far are you away from human trials?

That depends on our partners. Because as you know, we're not using investor money to fund that particular program. We are relying on government funding. Depending on our ability to continue to attract government funding, the timelines of the human trials will be dictated by that.

Okay, very good. Number two, what is the timeline on getting through Phase III on the flu vaccine?

As you know, there is no Phase III trial for pandemic flu, because generally Phase III trials would require you to do an efficacy experiment, and in the case of pandemic you can't do an efficacy trial until you have a pandemic. So you essentially would be able to finish development after Phase II -- in our case, Phase IIb -- where you not only test a larger population, but also with your final manufacturing process and consistency of manufacturing.

So that we expect, depending on whether we continue to move forward with pandemic, and that would depend on whether we attract government funding in 2009 time frame. For seasonal, again, I think the timing would be in that range to be into the Phase III trials.

That's quick. Congratulations. One last question. You have had quite a bit of cash on the books, and I noticed your revenue number this quarter is negative. I asked this question a couple quarters ago. Is there some reason that you're not showing any interest income from the millions -- my computations would say you should have about $800,000 in revenues from interest this quarter; and that has been an ongoing.

I will have Len address that.

I am not sure. I mean, we have interest income based on our cash balances, so I am not really clear on how that relates to revenue. It would be revenue less any expenses. (multiple speakers)

So that is part of the -- revenue contributes or mitigates some of our burn rate. That is how it contributes. If you are asking why the revenue this quarter is so low, is that your question?

No. My question is how come you're not showing the interest income as revenue. Or where is the interest income going?

It is in below the line in interest income, interest expense, a net number on the statement of operations. So we don't show it in revenue if that is your question. It is in interest income, below the line.

Okay, very good. Thank you. Thanks very much, gentlemen.

That will conclude today's conference -- I'm sorry, today's question-and-answer session. I would like to turn the call back over to our speakers for any additional or closing remarks.

Again, I want to thank you all for your support and just stay tuned for further progress. We are very excited, and we hope to present to you more data in the upcoming months. Thanks again.

Thank you for your participation in today's conference. This does conclude the presentation and you may disconnect at this time.