Novavax Inc (NVAX) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Novavax third-quarter earnings conference call. My name is Christina, 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; and Dr. Penny Heaton, Chief Medical Officer.

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 includes risks and uncertainties including the Company's ability to progress any product candidates in preclinical or clinical trials. The scope, rate of progress of preclinical trials and other research and development activities, the scope, rate and progress of any clinical trials we commenced, clinical trial results, even if the data from preclinical or clinical trials is positive, the product may not prove to be safe or effectuate. Novavax pilot plant facility is subject to extensive validation and FDA inspections which may result in delays and increases costs. Dependence on the efforts of the third parties, risks that the Company may not be able to secure a buyer from or is not a strategic asset or that the Company will be able to negotiate a profitable sale with such a buyer. Dependence on intellectual property, competition for the clinical resources and patient enrollment from drug candidates and development by other companies with greater resources and visibility. And risk that we may lack in our financial resources and access to capital to fund our operations.

Further information on the factors and risks that could affect Novavax business, financial conditions and results of operations is contained in Novavax filings with the U.S. Securities and Exchange Commission which are available at www.SEC.gov. These forward-looking statements speak only as the date of this press release and Novavax assumes no duty to update forward-looking statements. Mr. Lambert, please proceed with your call.

Good morning, and welcome to the Novavax conference call for our third quarter financial results. I am particularly pleased with the progress the Company has made since our last conference call and to tell you more about this, I would like to introduce the Novavax management team. First our President and Chief Executive Officer, Dr. Rahul Singhvi; second, our Chief Medical Officer and head of clinical development, Dr. Penny Heaton; and finally, Len Stigliano, our Chief Financial Officer. I will now hand over the program to Rahul and his general business overview.

Thank you, John. I would like to review our recent key accomplishments since our last conference call. To begin, our first human clinical trials for our pandemic flu vaccine has started and continues as planned. Dr. Penny Heaton will provide an update on this trial in a few minutes. Results from this clinical trial will be critical for demonstrating proof of concept of our pandemic flu vaccine candidate. Since our seasonal flu vaccine is very similar, data from this trial should also provide insight into what we can expect with our seasonal flu vaccine in human clinical trials.

In general, these results will give us clues to the broad applicability of our VLP technology as a platform for vaccine candidates against other infectious diseases. We've also made good progress in the preclinical development of our second VLP product candidate against seasonal influenza. Dr. Heaton will discuss this shortly, as well. I want to recognize the important work that has been done this quarter in manufacturing this vaccine candidate. Our team has worked diligently to create bulk GMP materials at good [eals] for all three of these seasonal flu VLP strains, that go into the trivalent formulation of this vaccine candidate. This accomplishment demonstrates the value of our ability to utilize a single manufacturing platform that can be used to produce VLP materials for all strains of influenza.

During the quarter we also introduced a third vaccine candidate as part of our proprietary product pipeline. This vaccine candidate is against the Varicella Zoster Virus, which is the ideological agent behind Shingles, a disease associated with intense pain known as post hepatic neuralgia or PHN. The program is in the discovery research phase and we are poised to begin preclinical work this quarter. The target market for the prevention of Shingles is considerable and Penny Heaton will comment more on the disease burden and the value of our novel vaccine.

As a result of the acquisition of Esprit Pharma by Allergan last month, both Allergan and Novavax have agreed that Novavax will discontinue the production of Estrasorb. If you recall, Novavax licensed the commercial rights to Estrasorb to Esprit Pharma for North American markets in 2005.

The plan to discontinue the production of Estrasorb has been a goal of Novavax this year, as the production of this product is not strategic to our focus in vaccines and the operation has a negative cash flow impact on the business. While we are working on quantifying the shutdown costs of our manufacturing facility in Philadelphia, based on our current best estimates, ceasing this production activity will reduce our cash burn by approximately $3.5 million per year.

We are continuing our efforts to divest the non-core assets specifically around our micellar nanoparticle technology. While there can be no certainty of success, we have hired an investment bank to market these assets, and are cautiously optimistic that we will be able to capture fair value from the sale of these assets.

Finally, I am pleased to report that the buildout of our GMP pilot plant in Rockville is proceeding extremely well. We expect to complete construction by the end of this year and begin validating this plant during the first quarter and start production in the second quarter next year.

At this point I would like to turn over our presentation to Dr. Penny 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 expect for the balance of 2007 during my closing remarks.

Thank you and good morning everyone. I am going to begin by providing an update on our pandemic and seasonal flu vaccine programs. To begin with, as Rahul as already indicated, the Phase I/IIa clinical trial of our H5 pandemic VLP vaccine has continued as planned. Enrollment of the first stage of the study has been completed, including 70 subjects in all. The scheduled topline results from this stage of the study are on track for December as we've previously announced. The data and safety monitoring board for this study or DSMB will further evaluate these data along with the associated safety data and will make recommendations for initiation of the second stage of the study, which we anticipate will begin in early January of next year. We are eagerly awaiting these data because they will be the first indication of the performance of our H5 pandemic flu vaccine and the first data available for our VLP platform.

Before I address our seasonal flu program I would like to say a brief word of thanks for the excellent way in which this study has been executed to date to the investigator, the study personnel and our colleagues at the CRO who are assisting us with this endeavor. The seasonal flu program is also progressing well. We have successfully manufactured vaccine containing all three seasonal influenza strains, and we've initiated preclinical studies. Data from the first preclinical study in mice will be available later this month to be followed by data from a study in ferrets which is of course the most relevant model for influenza in humans in the first quarter of next year. These studies have been designed to show that our seasonal flu vaccine induces a good immune response against all three of the flu strains in the vaccine.

In addition, we will evaluate the effectiveness of the vaccine against drifted flu strains from various seasons. Initiation of the preclinical program is important because it keeps us on track to initiate our Phase I/IIa clinical trial of the seasonal flu vaccine in the second quarter of next year as we've previously announced.

Our new vaccine candidate is targeted against Varicella Zoster Virus or VZV. This virus causes Shingles which is a blistering rash that may be associated with chronic pain months after the rash subsides. Approximately one million cases of Shingles occur in the United States each year. The majority of which are in adults over 60 years of age. Currently there is only a single licensed vaccine to prevent this disease. We are beginning the preclinical studies for VZV vaccine candidates, and will provide more information about this program early next year.

Finally I want to mention a new collaboration that we have with the Center for Vaccine Research at the University of Pittsburgh. Utilizing a grant from the US Department of Defense, we will be assisting our colleagues at the University in developing a strategy for a vaccine against the dengue virus. This virus, which is found primarily in tropical areas causes millions of cases of dengue fever each year. In some instances it may be associated with a severe hemorrhagic fever which has a 5% mortality rate, mostly among children and young adults. We look forward to assisting the University for developing a vaccine strategy against this significant illness.

Now I would like to turn the teleconference over to our Chief Financial Officer, Len Stigliano, for a financial update.

Thank you, Penny. The Company ended the third quarter with $52.3 million of cash and cash equivalents, a use of cash during the quarter of $10 million and a cash burn of $21.4 million for the first nine months of 2007. Consistent with our previous guidance based on our assessment of the availability of capital on our business operations as currently contemplated, and an absence of new financing, licensing agreements or partnership agreements we believe we have adequate capital resources to sustain operations into late 2008.

For the nine months ended September 30, 2007 the Company reported net loss of $25.5 million or and $0.42 per share as compared to a loss of $16.9 million or $0.29 per share loss for the comparable period in 2006. The increase in net loss in 2007 over 2006 was principally due to increases in research and development related to progression of our vaccine development programs, licensing fees to Wyeth Holdings related to the previously reported licensing agreement, increased rent related to our move to our new headquarters in Rockville, Maryland, and reserves established for receivables from former Board of Directors as has been previously reported.

For the third quarter the net loss was $9 million or $0.15 per share as compared to a net loss in the third quarter of 2006 of $5 million or $0.08 per share. The increase in net loss for the quarter as compared to the prior year was principally due to losses related to the production of Estrasorb, increased research and development due to our increased activity in our vaccine development, increased expenses in general and administrative expenses, principally due to the increased rent due to our move to our headquarters in Rockville, Maryland and also expenses related to our compliance with FIN 48 requirements.

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

Thank you Len and Penny. Now I would like to review some of our key milestones that you can look forward to over the next few months. We will be announcing another new vaccine candidate in the discovery phase over the coming months, which will further demonstrate our ability to develop novel and improved vaccines in large potential markets using our platform vaccine technology. We expect to initiate and report preclinical results from our seasonal flu programs as outlined by Dr. Penny Heaton.

We will also begin the process to divest our noncore assets outside the field of vaccines, and we are cautiously optimistic to the divestiture of these assets. We expect completion of construction of our GMP pilot plant in Rockville by the end of the year. And finally we expect to announce scheduled topline results from the Phase I/IIa human study from our pandemic flu product 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 for the pandemic flu candidate as well as the potential efficacy of our seasonal flu vaccine. As you can see, we have started to gain momentum in our vaccine development programs. We remain committed to improving human health worldwide and to reaching our full potential as a vaccine 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 to turn the call over to the operator to open for questions.

(OPERATOR INSTRUCTIONS) Brant Jaouen, RBC Capital Markets.

Three quick questions for you, on the cash burn is there a plan to possibly raise money before the 10-K is filed, or do you guys expect a going concern on the K and if you guys are planning on trying to raise some money between now and then, what kind of strategies are you guys thinking about? Or is this, is there some thought that maybe a sale of Estrasorb would push you through to the at least 2009 timeframe?

Thanks for the question; I will have Len answer that.

At this point in time we are keeping all options open. As we said before if we can get nondilutive financing or the sale of these assets give us additional cash flow we may or may not raise capital. But at this time we are not in a position to really comment on that.

Another question for Len, what is the current value of the Estrasorb equipment on the balance sheet?

Again, we disclose in the 10-K that -- or 10-Q -- I'm sorry -- that we are in the process of evaluating that because some of those assets we may sell. So at this point we are not prepared to comment on the net effect of that, until the end of the fourth quarter.

Do you have any way of at least giving us a ballpark of what the maximum charge would be if you basically had to write down the entire equipment related to Estrasorb or maybe alternatively what you know isn't related to Estrasorb? Our feeling is that prior to Estrasorb there was probably $2 to $3 million in equipment on the balance sheet that was unrelated, which would leave maybe somewhere in the $6 to $9 million range for Estrasorb equipment.

Actually the number is less than that but that is all I will say at this point because the assets that are related to Estrasorb are all in our Philadelphia manufacturing facility. So at this point I would rather not comment again.

Okay, that's helpful. And how long do you guys expect to Estrasorb sales to continue, and what is the plan for that ramp down?

We don't own that asset, Allergan does. So we are not prepared to comment on somebody else's -- they have the rights to Estrasorb. So we are not prepared to comment one way or the other because we are not really sure either.

Okay, but are you still selling them product? Is the manufacturing, has the manufacturing ceased on your end and is the inventory gone, or is there still some residual selling going on there?

We've completed manufacturing actually in the past week and there is inventory that they can sell-through for a period of time.

That's helpful. Thanks a lot, guys.

[Justin Scattone], Oppenheimer.

This is Kevin; a few quick questions here. Just first of all, Sanofi last week initiated programs, I guess additional studies and a cell culture vaccine. I was just wondering whether -- for seasonal flu -- I was wondering if you could comment on how you see the profile of their product relative to your VLP based.

We expect that particular product will have a very similar efficacy, that they see with their other inactivated vaccine that is made in eggs. I think the production system change has no impact on the efficacy. All it does is just changes the substrates so it just secures a supply chain away from eggs.

Okay, that is great. And I was hoping perhaps you would give us a little more clarity on the steps we will see coming months on the herpes zoster program.

Let me have Penny comment on that.

Yes, for the herpes zoster program as I announced we are just now initiating our first animal studies of our various VZV candidates. And what we will be doing is over the course of the next few months we will be mapping out the development program for that. And we certainly will pass that information along to you probably the first half of next year.

Fair enough. And in terms of medical conferences in the coming months, where do you hope to present some data or publications? What format are we going to see some additional scientific information?

We will be looking at the various available medical conferences coming up over the next, in the spring and fall of next year and as the data rolls out we will look at the timing and match that up and then we will be presenting from there. So it is really a little bit too early for me to give you specifics.

Okay. Fair enough. I will get back in queue.

And at this time there appears to be no further questions in the queue.

Great; then if there are no further questions we thank you all for your support, and we will look forward to presenting another update in the next three months or so. Thanks very much.

That does conclude our teleconference for today. We like to thank everyone for your participation and have a wonderful day.