Novavax Inc (NVAX) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Novavax 2008 first quarter results conference call. My name is Denise 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 towards the end of today's conference. (OPERATOR INSTRUCTIONS).

On today's call will be Dr. Rahul Singhvi, President and Chief Executive Officer; Penny Heaton, VP, Clinical Development and Chief Medical Officer; and Len Stigliano, Chief Financial Officer. Novavax, please proceed with your call.

Good morning. Certain statements contained herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to statements regarding future product development and related clinical trials of future research and development, including Food and Drug Administration approval and product sales. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company or industry results to be materially different from those expressed or implied by such forward-looking statements.

Such factors include, among other things, the following. Our ability to progress any product candidates into preclinical or clinical trials; the scope, rate and progress of our preclinical studies and clinical trials and other research and development activities; clinical trial results; the cost of finding, prosecuting, defending and enforcing any patient claims and other intellectual property rights; our ability to obtain rights to technology; our ability to enter into future collaborations with industry partners under terms; timing and success of any such collaboration; the cost, timing and success of regulatory filings and approvals; our ability to obtain adequate financing in the future through product licensing; copromotional arrangements; public or private equity or debt financing or otherwise; general economic and business conditions; competition; business abilities and judgment of personnel; availability of qualified personnel and other factors referenced herein.

Further information on factors and risks that could affect Novavax business, financial conditions or results of operations is contained in Novavax's filings with the U.S. Securities and Exchange Commission which are available at www.sec.gov. All forward-looking statements made herein are based on information available to the Company on the date hereof and speak only as of the date of this earnings call.

Novavax assumes no duty to update forward-looking statements. Doctor Singhvi, please proceed with the call.

Thank you. Good morning and welcome to the Novavax conference call for our 2008 first quarter financial results and business update.

We have a full agenda today. I will begin with an update of our various business initiatives and then ask Dr. Penny Heaton, our Chief Medical Officer, to provide a more detailed update on our preclinical studies and clinical trials. Len Stigliano, our CFO, will then proceed with the financial update for the quarter.

So let me begin with our product development activities. The clinical trial for our H5N1 pandemic flu vaccine candidate continues to progress as planned through Phase IIa. We expect to report topline data on immunogenicity and safety on this trial in the third quarter as planned.

You will recall that this trial is the continuation of the same study of our pandemic flu vaccine candidate for which we reported favorable interim results in December 2007. The interim results indicated that our VLP vaccine against H5N1 vaccine at 45 microgram dose was well-tolerated and appears to elicit a similar immune response as the H5N1 vaccine currently licensed by the U.S. government at 90 micrograms per dose. We remain cautiously optimistic in the ongoing trial where we will be testing our vaccine at 15, 45 and 90 microgram doses from a manufacturing process that has been optimized since the first clinical study.

Our seasonal flu vaccine program remains on track with a Phase II study commencing in early Q3. We have been able to begin the clinical development for this program in Phase II since we can utilize the safety data from our H5N1 flu trials for this program, demonstrating a clear synergy between these two programs.

Penny Heaton will provide more details regarding our planned studies for this program in her section. Penny will also update you on the progress we have made on our two discovery vaccine candidates.

In addition to our progress and product development, we made some significant technological advances during the past quarter. As mentioned in our press release, we made a significant breakthrough in our methodology of creating VLPs for various viruses. Specifically, our scientific team has created a VLP structure consisting of parts of different viruses to create for the first time, a means to efficiently produce a [SARS] VLP which we are working under a grant from NIH.

The key point is the fact that we have -- we may have a potential vaccine candidate against SARS and the principles that were learned from this powerful technological breakthrough are broadly applicable to other VLP vaccine disease targets. Since this methodology is Novavax's proprietary property we hope to take advantage of this breakthrough to create VLP candidates for other vaccine pipeline products.

On the manufacturing front, we opened our first vaccine plant on May 1st here in Rockville, Maryland. We celebrated this important milestone with a successful ribbon-cutting ceremony for this new pilot plant and commercial launch facility. As reported, we were able to build this facility in less than four months at a cost of under $5 million, using manufacturing equipment -- including manufacturing equipment. This facility is expected to have an annual of 10 million doses of influenza vaccine at the traditional seasonal flu dose.

The simplicity of utilizing our disposable manufacturing system was demonstrated to our guests during tours of this new facility. We are excited that this working prototype facility will become the showcase for a vaccine manufacturing solution that can be implemented without a substantial capital expenditure and infrastructure necessary for traditional vaccine manufacturing facilities. We believe that this manufacturing solution will be critical for our ability to commercialize our pandemic vaccine to international countries in collaboration with our partners, GE Healthcare.

Progress with the GE Healthcare collaboration continues along three key fronts. These include process optimization, facility engineering and, of course, comarketing of our pandemic vaccine solution to the select international countries. We plan to enter into discussion and submit proposal to these countries in the next several months.

We have been able to maintain a relatively healthy balance sheet with the influx of cash from our previously announced sale of Estrasorb assets to Graceway Pharmaceutical LLC. We expect to conclude our manufacturing obligations to Graceway by July, and continue our efforts to monetize the remaining (inaudible) assets after which we can consolidate all Company operations in Rockville, Maryland and focus completely on our core vaccine business.

With the addition of the Graceway transition, our cash balance at the end of the first quarter was $40.9 million. Len will provide further details on our financial performance for the quarter in his section.

We continue to seek other non-dilutive funding opportunities to strengthen our balance sheet. This includes grant funding opportunities with both government and non-governmental agencies. As I have stated before and as a matter of policy, the Company does not comment on such opportunities, including any requests for proposal or RFPs that may be sourced from outside agencies. Any communications with the funding agencies regarding these RFPs are also kept confidential.

Our experience is that most of these opportunities require advanced human data from clinical trials. We are currently relatively early in our human clinical trials for all our vaccine candidates and as a result, the likelihood of success should be awarded grants remains relatively low at this time as we advance our vaccine candidates for the (inaudible) clinical trials we hope to improve our chances of winning such awards.

Now I'd like to turn it over to Penny Heaton to provide an update on our vaccine candidate product development programs.

Thank you, Rahul, and good morning, everyone. I am delighted to update you on our progress for our growing discovery, preclinical and clinical candidate vaccine programs and please allow me to start first with our discovery projects.

We continue to develop our Varicella Zoster vaccine candidates. Our objective is to find an optimized vaccine candidate for prevention of shingles and its associated complications and then move this candidate forward into advanced preclinical studies. We've now developed several different vaccine constructs and are evaluating these constructs according to prespecified criteria to determine which candidate or candidates has the optimal properties for further development. We will keep you updated on our progress as we move along.

We have also made considerable progress on our unannounced discovery vaccine candidate. We have been working in conjunction with our collaborators at the University of Massachusetts and have developed several promising vaccine candidates for this yet to be announced disease target. We will announce the infectious disease target after we further evaluate it at the potential vaccines construct and demonstrate at the desired immune response in an animal model.

Based on our progress to date, we hope to be able to reveal this vaccine program to you in the second half of this year.

Now we would like to give you an update on the status of our clinical trial and our planned influenza vaccine programs. First, our pandemic influenza vaccine program. As Rahul stated, we will have topline results from the Phase IIa study of our pandemic influenza vaccine candidate in the third quarter. We anticipate announcing at that time the immunogenicity data from the multiple doses that are being evaluated in the dose ranging study and we will give you an update on our safety profile. We plan to select the final dose for later phase studies by the end of the year.

Since the virus-like particle vaccine is novel with respect to prevention of influenza, subjects in the study are followed up for safety for a period of six months after the final dose is administered. Accordingly we anticipate that the entire study will be completed by the end of the year with the final study report being available in the first quarter of 2009. Consistent with our plans and as previously discussed, we are not planning to perform any additional studies of our pandemic influenza vaccine candidate without funding from a partner, government or nongovernment agency.

It is important to note that the safety data that is being generated in the ongoing pandemic influenza vaccine trial will be useful in supporting the safety database for our seasonal influenza vaccine candidate, as both of them use our VLP platform and are manufactured using essentially an identical process. So as a result we will commence human studies of our seasonal influenza vaccine with a Phase IIa study, currently projected to begin in early third quarter 2008 as planned.

This study will evaluate the safety and immunogenicity of different doses of the trivalent seasonal influenza vaccine in two age groups, including healthy adults, 18 to 59 years of age, and older adults, 60 to 80 years of age. Topline safety and immunogenicity results from this Phase IIa study are anticipated in late third quarter or early fourth quarter.

Pending a successful outcome of the Phase IIa study that I just described, we will then continue the seasonal influenza vaccine program with a Phase IIb study, just targeted to began in the fourth quarter of this year. This noninferiority study will focus on healthy older adults to provide the first indication of potential differentiation of our VLP trivalent seasonal influenza vaccine candidate from a marketed vaccine for this population.

As most of you know, the immune response to currently licensed vaccines in the patient population -- in this patient population is modest, leading older adults as a key market segment opportunity for seasonal flu vaccines.

We are very excited about our development programs which are moving forward aggressively to accumulate additional human data on our VLP vaccine candidates. I am looking forward to continuing keeping you updated on our progress over the coming quarters.

Now I would like to turn over the agenda to Len Stigliano, our CFO.

Thank you, Penny, and good morning. I would like to give a brief synopsis of the first quarter results for the Company. I would also urge our conference attendees to read the press release of this morning and our Form 10-Q which will be filed by the close of business Monday, May 12.

Before I start I would also like to remind the audience that as we decided to discontinue production of Estrasorb in the fourth quarter of 2007, for financial reporting purposes, all activities around Estrasorb have been classified as discontinued operations for fiscal 2008 as well as prior years which have been reclassified as well on our financial statements.

Revenues for the first quarter were $458,000 consisting principally of contract research, essentially the same revenue amount of $461,000 in 2007. Total operating expenses for the first quarter were $7.7 million as compared to $8.3 million in 2007. The decrease in operating expenses was principally due to a reduction of the amount charged to reserves established for former Board of Directors of $0.8 million from the prior year, lower consulting and moving expenses in 2008, partially offset by higher expenses and research and development as we advance our vaccines in preclinical and human studies.

Total operating losses from continued operations for the quarter were $7.1 million as compared to $7.2 million in prior quarter. Loss from discontinued operations was $700,000 for the quarter as compared to $1.2 million for the same period in 2007. The decrease in the loss was due to lower production of Estrasorb in the first quarter of 2008 due to the original plan of shutting down operations for such production at the end of fiscal 2007.

The Graceway transaction executed in February has created a renewal of production supply agreed-upon quantities of production of the product to be delivered by mid 2008. As a result total net loss after discontinued operations for the first quarter was $7.8 million or loss of $0.13 per share which was lower than the prior year loss of $8.4 million or a loss of $0.14 per share for the regions I previously cited.

Total cash, cash equivalents and short-term investments were $40.9 million as compared to $40.6 million at the end of fiscal 2007. The total burn rate for the first quarter of 2008 was $5.6 million due to operating losses, capital expenses associated with our GMP Pilot Plant and launch facility, partially offset by upfront cash related to be Graceway transaction. It is anticipated that our cash burn rate will accelerate in fiscal 2008 as we advance our influenza vaccines in human trials.

As mentioned in our press release, the Company believes we have sufficient cash to fund contemplated operations through the first quarter of 2009. The Company expects it will raise additional capital in the future through several potential venues such as the sale of equities securities, partnering transactions and/or nondilutive funding.

I would like to make one additional point of clarification around finances. I would like to reiterate that the GE Healthcare collaboration that we announced in the fourth quarter of 2007 did not include any equity or any other investment by GE Healthcare and Novavax.

I want to make this clear to everyone because there seems to be some misinformation both on the Internet and selected media around this topic.

That concludes my remarks. I would like to turn it over to Rahul for his summary comments.

Thanks, Len. In summary, we continue to track our key clinical milestones, advancing our relationship with GE Healthcare and making progress on the scientific front in terms of our discovery candidates as well as breakthroughs in on our methodology of creating new vaccine candidates.

By the second half of this year, we expect to have our two influenza vaccine programs in Phase II clinical trials as well as at least one of our discovery vaccine candidates in advanced preclinical trials. We continue to advance our core technology of VLPs with strong intellectual properties supporting this effort.

We continue to believe our proprietary technology combined with a novel manufacturing solution has the potential to make a significant impact in the vaccine market with a number of vaccine candidates. We have continued to achieve our established milestones for our vaccine candidates, as well as further refine our unique manufacturing solution. In doing so, we believe each step further reinforces the validity of our technology and its inherent advantages that could have a significant impact on the way vaccines are developed and manufactured. We are committed to move our programs forward in an aggressive manner and create value for our Company and our shareholders over time.

This completes our prepared comments and we would now like to open up the conference to questions from our participants.

(OPERATOR INSTRUCTIONS) (inaudible) of [Fiesta]. Your line is open. (OPERATOR INSTRUCTIONS)

Kevin DeGeeter of Oppenheimer.

First of all. I just want to congratulate you on the opening of the manufacturing facility. Is quite an accomplishment in the Company's history here.

Thank you, sir.

In terms of -- a few more things here. Can you comment that this points to what you see as the preferred competitor in this elderly population in terms of a head-to-head study for seasonal flu? What's the [peripheral] arm? What's the other arm -- (inaudible) going to be?

We are actually looking at a variety of possibilities right now including currently licensed vaccines in the U.S. and Europe. So we haven't made a definitive decision yet but it will be a currently licensed vaccine that's approved by regulatory authorities in the EU and US.

Fair enough. We are going to move pretty quickly, I guess, on the seasonal program. Are we going to see the immunogenicity data in terms of in either a press release or some other format or forum prior to you kicking off to IIb in the fourth quarter?

Yes. We are hoping to present that as (technical difficulty) scientific meeting this fall.

Could you just give us an update on the herpes zostra program in terms of -- yes I know they are still preclinical, but how should we think about the time onset?

Sure. As I indicated in the discussion today, we have several candidates that we are currently evaluating and certainly we have a set of prespecified criteria that we use looking at things like not only the appropriateness of the immune response in animal models, but also things like yields and whether or not we would be able to manufacture them in a commercial scale.

So we are currently evaluating all of those factors and we will be moving forward. And as we've said we hope to get that and/or the other unannounced candidate into advanced preclinical studies by the end of the year.

Maybe one for Len and then I will jump back into queue. Can you just give us your [year] of most recent thoughts on the convertible debt that is out there? Do you see that most likely rolling over? You know, we are about a year out. How do we think about that in context of your broader capital considerations here for the remainder of the year?

Okay, so for the rest of the group there's a $22 million convertible debt is due July of '09. The answer, Kevin, we are looking at a couple of different options. But let me just take the worst case so you know that if it goes to term and it does not convert, and the convert prices are $4, the Company has the option to pay it off with up to 50% in equity and 50% in cash. So I just want to state the facts on that.

Still a little too early to tell. We are going to -- we are going to look at different options. As you know, Kevin, that's probably an overhang on the stock. So it's something that we are starting to investigate pretty thoroughly.

And would you -- at this point does it look like -- would you be adverse to rolling over? In essence, issuing more convert, would you rather kind of take that piece out and clean up the structure with regard to going completely into common equity? I mean what's kind of -- I realize all of this is market [drivel]. What is kind of your philosophical preference here?

I think the answer is going to be -- first of all I can't answer the question directly. I think the answer is going to be really direct and on what is the best, what will be the best impact for the shareholders and I don't want to sound cute when I say that. So we are going to keep our options open. I mean as you know, the market plays a lot of input on this as well. So I'd like to leave it at that.

Vernon Bernardino of Rodman & Renshaw.

Congrats as well on the completion of the pilot [G&P] manufacturing plant. Could you please provide some additional detail on the plant's capabilities? For example, what kind of capacity is the plant's full potential? You had mentioned 10 million, but it looks like you could probably, with additional (inaudible) be capable of manufacturing more.

Also how quickly can you turn around from flu vaccines, for example, to varicella or SARS vaccine and then regarding the GE Healthcare collaboration, how does the pilot manufacturing facility leverage into those efforts?

Thanks, Vernon. I see there are three questions here. First is what is the capacity and how much can we expand it? Second question is can we make other products in the facility? And third is, how does it leverage the GE Healthcare partnership?

So I'm going to have Jim Robinson address the first two questions.

Thank you, Rahul. First the capacity we stated is 10,000 -- I'm sorry 10 million doses in a six-month period which is about what we are looking for for our pandemic response, as well as the typical flu manufacturing season.

We do have the capacity for [it], to put in additional reactors. That capacity is based on having a single large-scale disposable reactor. So by putting in additional capacity, we could conceivably get up near the 50 million dose capacity with additional capital investment within this facility. But that's currently not in our plans.

For the standpoint of converting, currently the process that we have developed for flu has mentioned at the last conference call, the last earnings call, actually is the same process that we use for other secretable VLPs. And so there really is no equipment changeover and because all of the product contact agreement is disposed after each run -- in fact the next batch, I would say varicella could begin as soon as the first batch -- or the last batch of flu is complete.

So the changeover is very quick and the process equipment would be identical. So we could campaign flu and do development and/or campaign other products within the same facility with nil impact.

Thanks, Jim. With regard to the impact on the GE Healthcare, this facility that we have in Rockville essentially is a prototype facility that can be showcased to all of our potential partners; and it really is something that is very tangible for them to come and see, see for themselves what they're going to buy, assure they do a collaboration with us. So I think from that standpoint it is a very powerful statement that we can make to our potential partners.

Is then part of the plan to bring government officials to look at the plant and then that's how you would proceed to form a collaboration or installation of a facility in other countries?

Well, I think it will be up to them. I mean if they want to come and take a look at it, I mean, certainly we will open it up for them.

Then on a financial note, if I could, what additional associate income and expenses net of the Estrasorb activity do you anticipate for second quarter '08 as discontinued operations?

Let me have Len address that.

Could you repeat the question? I'm not sure I followed you.

You had a charge for discontinued operations. What additional should we expect in second quarter?

In terms of -- ?

Yes. It won't be done until mid-July so --.

We have other -- I don't have it in front of me, but we have other income associated with producing the additional quantities that we outlined in our press release for this transaction so there will be some income. So I would assume that if you look at the first quarter Q and look at those losses, those losses should be down slightly in Q2 and Q3. And then it will end. We're out of it then.

Okay. Just so I wanted some modeling help (multiple speakers) --.

Understand.

Ken Trbovich of RBC Capital Markets.

Actually the question is for Penny as a follow-up to the discussion on the seasonal flu vaccine. On the IIb, would that study just look at immunogenicity or would you also look at the incidents of flu that occurs in the population that you treat?

The primary end point will be immunogenicity. We are currently exploring the possibility of following subjects in that study for influenza disease as well, but it will be powered to look at immunogenicity and an efficacy study may follow later, but not at that time.

And as a IIb, would you expect to test more than one dose in that study as well?

That will depend on the outcome of the study we do this summer. As of the summer, it is a dose-ranging study and hopefully we will with just that initial dose ranging study be able to select the dose for the head-to-head study definitively.

But if we are not able to do that then we would consider some dose ranging in that IIb study as well.

And will the doses tested in the IIa be the same across those age populations or are you planning to test higher doses in the elderly than you are in the younger?

Yes, we are looking at a variety of doses and some higher doses in the elderly. Yes.

So they wouldn't necessarily be all the same across both populations?

That's correct.

I'm not showing any further questions at this time.

I think with that, we really appreciate all of you coming on the call and thank you again for all your support. We look forward to giving you another update in about a quarter. Thanks.

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