Novavax Inc (NVAX) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Novavax 2008 annual and fourth quarter results conference call.

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.

(Operator Instructions).

Novavax, please proceed with your call.

Good afternoon.

Statements during the call relating to future development results and performance conditions or strategies and other matters, including expectations regarding product 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 include risks relating to the early stage of Novavax's product candidates under development.

Current results may not be predictive of future results.

Further testing is required before regulatory approval can be applied for and the FDA may not approve a vaccine, even if further trials are similar to those disclosed previously by the Company.

Uncertainties relating to clinical trials, including possible delays initiating or completing the trials and safety and immunogenicity results, regulatory hurdles of foreign joint ventures, whether approvals to manufacture and commercialize any product in such foreign territories can be achieved, whether these joint ventures will have sufficient funding to achieve its goals, whether commercialization of any product that does achieve regulatory approval would be successful in the US or any foreign country, whether competitive products or technologies would hamper the Company's or foreign joint venture's ability to achieve its goals and be successful, dependence on the efforts of third parties, competition for clinical resources from other companies with greater resources and visibility, and risks that we may lack the financial resources and access to capital to further fund our operations, including further clinical trials, 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 US Securities and Exchange Commission, which are available at www.SEC.gov.

These forward-looking statements speak only as of the date of this call, and Novavax assumes no duty to update forward-looking statements.

On today's call will be Mr.

John Lambert, Chairman of the Board; Dr.

Rahul Singhvi, President and Chief Executive Officer, Dr.

Penny Heaton, Chief Medical Officer, and Evdoxia Kopsidas, Interim Accounts and Principal.

Dr.

Singhvi, please proceed with your call.

Thank you, Tricia, and good afternoon, everyone, and thanks for joining the call.

I'll begin today by first quickly reviewing our key accomplishments from last year, and then focus my remarks on the new strategic alliance with Cadila Pharmaceuticals that we announced today.

In 2008, we made significant progress in advancing our VLP-based vaccine pipeline, validating our technology and establishing our manufacturing capabilities.

As a result of this progress, we now have both our seasonal and pandemic flu vaccine candidates in Phase II clinical trials, and have expanded our VLP vaccine pipeline to include potential vaccine candidates against the Respiratory Syncytial Virus, or RSV, that are now undergoing preclinical studies.

Specifically, for our VLP-based flu vaccines, we reported encouraging clinical results from both Phase II flu studies last year.

We observed positive results in the second stage of the Phase II-A study off our pandemic flu VLP vaccine against the H5N1 virus, which demonstrated robust neutralizing antibody titres across all three doses tested and induced strong hemoglobin inhibition or HI responses.

The vaccine was also well tolerated, with no serious reported adverse events.

We also reported positive safety and immunogenicity results from a Phase II-A seasonal flu vaccine study that began in September last year.

This study evaluated different doses of our VLP vaccine against seasonal flu.

Safety follow-up has been completed, and we are awaiting the final safety and immunogenicity analyses.

In addition to the work on our flu vaccines, we conducted preclinical studies on two different RSV vaccine candidates in mice, showing encouraging results.

Selection of a candidate for preclinical studies to support an IND for human clinical trials is now underway.

In parallel with our clinical progress, we completed construction of our vaccine pilot plant at our headquarters in Rockville, and are now focused on scale-up and validation of the process.

We should have enough capacity to produce more than 10 million doses of our trivalent influenza VLP vaccine annually.

We have accumulated significant characterization data on our process and our product through our ongoing process development and clinical production and now have commercially viable [EOS] with expectation for higher EOS in 2009, prior to finalizing the process for Phase III.

We believe all these findings support the clinical and commercial potential of our VLP technology.

These accumulating data are critical as we work to build relationships with key medical opinion leaders, potential partners, and ultimately future customers.

This gives me a great segue to now discuss the strategic alliance we announced today with Cadila Pharmaceuticals, one of India's leading pharmaceutical companies.

This alliance represents a very exciting opportunity for Novavax and it consists of three elements.

First, this alliance involves the capital infusion into Novavax through an equity investment of $11 million by a wholly owned subsidiary of Cadila to purchase 12.5 million shares of Novavax's common stock, based on last night's closing bid of $0.88 per share.

Just make sure that you understand this was an at-market deal.

Second, this alliance involves the formation of a new joint venture company between Cadila and Novavax in India, which will be charged to develop and commercialize Novavax's seasonal influenza virus-like particle-based vaccine candidate, and Cadila's therapeutic vaccine candidates against cancer, as well as its adjuvants, biogenerics and biological diagnostic products within the Indian territory.

Note that Cadila will fund operations of this joint venture with an investment of approximately $8 million, or 400 million Indian Rupees over the next three years.

The Company will have revenues from the get-go through the sale of certain biogeneric products that are being contributed to the JV like Cadila.

Novavax will not be putting any cash in this venture.

This JV will be owned 80% by Cadila and 20% by Novavax.

Third, this alliance will provide Novavax the opportunity to reduce its cash burn by utilizing Cadila's world-class research, clinical development, and manufacturing expertise and infrastructure to support the development of current and future vaccine candidates at Novavax through a $7.5 million service contract to Cadila, spanning the next three years.

So you can see, this strategic alliance has immediate benefits for Novavax.

It should accelerate the development of our VLP vaccine candidates by providing financial and R&D support, it has the potential to reduce our clinical development costs and our overall burn rate through the utilization of Cadila's high quality and low-cost infrastructure, and it expands our international reach, particularly in emerging markets.

Not to say the least, it strengthens us financially through the $11 million cash infusion.

I know John Lambert has some perspective on doing commercial deals in India and we are fortunate to have him here with us today.

I will now ask John to provide his perspective on this deal.

Thank you, Rahul.

Firstly, I want to congratulate Rahul and his team on executing this important new venture with Cadila, which represents a strong endorsement of our technology and provides a welcome source of new capital.

The opportunity to expand into India in partnership with Cadila is quite compelling.

Cadila is one of India's leading pharmaceutical companies, with interests in vaccines, biotherapeutics, biogenerics, pharmaceutical manufacturing, bulk chemicals, and natural products.

Our common interests in novel vaccines, innovative research, and treating infectious diseases world-wide, has the potential to make this a very exciting and promising partnership.

The vaccine business is changing rapidly, and we believe that Novavax is uniquely well positioned to become a leader in this field.

Our recent clinical progress, the successful completion of our new portable manufacturing facility, and the achievement of our new joint venture with Cadila, represent positive steps in the execution of our business strategy.

We now have greater resources to execute our development programs, and realize the potential of our VLP technology.

I look forward to working with our team to achieve ambitious goals this year, which Rahul will outline later in this call.

Let me now turn to Dr.

Penny Heaton, who will give you more details on our scientific and clinical development activities.

Thank you, John.

Since the last earnings call, we have accumulated a significant amount of clinical and preclinical data, demonstrating the breadth of the immune responses induced by our vaccine candidates, and I want to summarize that for you briefly now.

Recall that our influenza VLPs contain three proteins, DHA, NA, and N1 proteins.

These were selected to activate multiple arms of the immune system with the goal of creating a vaccine with better efficacy than existing vaccines, which contain mostly HA and low or unpredictable amounts of NA.

Data from several of our studies, including preclinical and now clinical trials, have shown that the VLPs induce good antibody responses, not only against DHA, but also against the NA, which is important for preventing severe disease and pneumonia, which as we all know, is a significant complication of influenza in the elderly.

Further, the data have shown that the VLP activate cytotoxic T-lymphocytes, or CTLs, which kill cells in the body that are already infected with influenza virus.

CTL activation is also important for influenza vaccines in the elderly, because they have weaker CTL responses against flu than healthy young adults.

In addition, the manufacturing process for the influenza VLPs, which utilizes cell culture based recombinant technology with no pathogenic viruses and disposable equipment, has been significantly optimized with yields now greater than 21-fold higher than those reported for egg-based seasonal influenza vaccines.

The accumulating data show the robustness of the manufacturing process and the breadth of the immune response induced by the influenza VLPs, and they support the potential of the VLP influenza vaccines to be distinguished from the other vaccines that are currently on the market.

As Rahul indicated, our vaccine pipeline is also quickly expanding beyond influenza.

We now have several vaccine candidates against VZV, the virus that causes shingles, and RSV, which is the virus that's the leading cause of hospitalizations in children and second only to flu as the leading cause of hospitalizations for pneumonia in the elderly.

Preclinical studies of both of these candidates have shown consistently robust antibody responses and activation of cell mediated immunity.

Further, mice that are vaccinated with our RSV candidates and then infected with live RSV were protected with no RSV replication in the lungs.

We are now in the process of selecting one or more RSV vaccine candidates for pre-clinical studies to support an IND and future clinical trials.

So in summary, we have made tremendous progress in developing our influenza, RSV and VZV vaccine candidates over the last several months, and we now have mounting evidence that this platform has the potential to have a significant impact on public health worldwide.

I will now turn the call over to Evdoxia Kopsidas, Novavax's Interim Accounting Principal.

Thank you, Penny.

I would like to give a brief synopsis of our fourth quarter and annual results, which were announced in this afternoon's press release, and will be fully discussed in our Form 10-K, which will be filed by close of business today.

Once again, I would like to remind everyone that we have reported all activities related to the production of Estrasorb as discontinued operations for both the fourth quarter of 2008 and the year.

This presentation is consistent with our reporting since the fourth quarter of 2007, when we made the decision to discontinue production.

The financial results for all periods presented in both our press release and our Form 10-K have been reclassified to separately disclose the results of these discontinued operations.

I would like to start out first with the summary of our revenues.

Revenues from continuing operations for the fourth quarter of 2008 were $100,000, and consisted primarily of contract research revenue, a decrease from $400,000 for the fourth quarter of 2007.

Revenue from continuing operations for the year ended December 31, 2008 was $1.1 million, a decrease from $1.5 million for the year ended December 31, 2007.

The decrease in our revenues from 2007 was principally due to lower contract research revenue, as two of our programs were completed during the first quarter of 2008.

In the area of operating expenses, we are reporting that total operating expenses for the fourth quarter of 2008 were $9.3 million as compared to $7.1 million for the fourth quarter of 2007, an increase of $2.2 million.

For the year ended December 31, 2008, our operating expenses were $35.4 million, which reflect a $3.6 million increase from $31.8 million in the prior year.

The increase in our operating expenses was principally due to higher expenses in research and development, for employee costs, facilities and outside costs associated with expanded preclinical studies, human trials, process development, and manufacturing-related activities.

The increase in the research and development costs is partially offset by a decrease in our general and administrative expenses, which were impacted partially by $1.2 million credit to the allowance previously established for two notes receivable from two former directors.

Accordingly, our total operating loss from continuing operations from the fourth quarter of 2008 was $10.6 million, which reflects an increase of $4.2 million in the loss from $6.4 million in the fourth quarter of 2007.

The total operating loss from continuing operations for the year ended December 31, 2008 was $36.3 million as compared to $28.6 million for the year ended December 31, 2007, an increase of $7.7 million.

This increase in the loss for both the quarter and the year are primarily the result of the increase in our operating costs, which we previously discussed.

Consequently, we've also recorded a loss from our discontinued operations of $500,000 for the fourth quarter of 2008, which is a decrease of $2.3 million from the loss of $2.8 million for the fourth quarter of 2007.

We did record income from discontinued operations for the year ended December 31, 2008 of 300,000, compared to a loss for the prior year of $6.2 million.

The change for both the quarter and the year was a result of the completion of our production activities associated with the Graceway transaction during the third quarter of 2008.

Our net loss in total for the quarter was $11.1 million or $0.15 per share as compared to the prior year's period loss of $9.2 million or a loss of $0.16 per share.

Our net loss for the year was a total of $36 million, or $0.53 per share, compared to the prior year loss of $34.8 million, or a loss of $0.57 a share.

Our total cash, cash equivalents and short-term investments at December 31, 2008 were $33.9 million, compared to $46.5 million at the end of 2007.

The total net burn rate for the year ended December 31, 2008 was $30.1 million, before consideration given to the $17.5 million from our net equity financing, which was completed in the third quarter of 2008.

The funding from the 2008 equity financing was entirely offset by increased spending for the continued development of our vaccine preclinical and clinical programs.

Our cash and short-term investment balance at December 31, 2008 is net of a $1.2 million impairment charge recorded for our auction rate securities, due primarily to their ill liquidity.

There has been insufficient demand at auction for the Company's securities.

Finally, we believe that with the proceeds from Cadila of $11 million, we have sufficient cash to fund our contemplated operations for the next 12 months.

We expect to raise additional capital in the future through both public or private equity and/or debt financing.

At this point in time, we have not obtained any further financing.

I will now turn to Rahul to make his concluding remarks.

Thanks, Evi.

So as you can imagine, we've had a few very exciting weeks here at Novavax.

We believe that we have made exciting advances in the clinic and on the scientific front, and now these are being complemented with the exciting partnership with Cadila.

We believe that the alliance with Cadila will be the first of several alliances that we are now contemplating.

As you know, we have been talking about regional deals for some time that are enabled by the combination of our broad base VLP technology platform and the associated low cost manufacturing.

You can see how the partnership with Cadila is strategic.

It allows us to leverage Cadila's substantial clinical and financial support, along with low cost infrastructure to create a unique opportunity for us.

It has already given us financial strength.

It provides us the opportunity to work together in India through a joint venture and monetize a flu vaccine there.

And it gives us a means to reduce our bond rate.

I want to conclude by saying that this deal with Cadila will be a catalyst for other regional alliances, where we will work with pharmaceutical industry leaders synergistically to develop novel vaccines against influenza and other infectious diseases within the region and globally, ultimately to solve important medical problems and alleviate human suffering.

Thank you for your attention.

Operator, if there are any questions, we would be happy to answer them now.

(Operator Instructions).

Our first question comes from Kevin DeGeeter.

Hey, good afternoon, guys, and congratulations on both the financing and the innovative partnership.

Thanks, Kevin.

Couple of things here.

Just first of all, from an accounting perspective, I suppose will any of the JV flow through the P&L?

I guess it wouldn't.

We're currently evaluating the proper accounting treatment of this.

We will consult with our accounting groups, both our independent auditors and other consultants.

Until such time as there's earnings on it, I don't believe there will be any P&L impact on it.

So you don't have to realize any of the JVs, presumably accumulated losses in the interim period before launch of influenza?

We don't believe so.

Okay, terrific.

And just couple points of clarification on the agreement, in terms of territory covered, is it just India?

Yes, that's right.

And no rights of first negotiation, et cetera, for any other territories or anything of that nature?

So if there are any products that are developed by the JV, Novavax will have right of first refusal in several territories outside of India, including the United States.

Okay, terrific.

Rahul, can you you perhaps discuss what the access to the lower cost infrastructure that comes along with Cadila's expertise and partnership here.

How I do think about that in the P&L?

I guess one of the questions on investors' mind, if we think of that $30 million burn rate last year, how do we kind of control that in '09 while continuing to advance the pipeline?

Well, I think what Cadila brings is this very high quality infrastructure for conducting clinical trials.

They have a CRO, they have phenomenal animal facilities.

They have all the equipment that we would potentially need for doing assays.

So specifically, the projects that we will have to -- we will do will have to be worked out, but the capabilities are there for us to be able to take advantage of that capability and reduce our cost.

I think over time, it will become more clear in terms of the quantification of how much we will be able to save through this capability that has become available to us.

But in terms of rough order of magnitude, are we talking about 30%, 40% lower cost for projects you choose to collaborate with, and ultimately run that expense through?

Is that kind of order of magnitude?

I think it's going to be hard for me to give you a number at the moment, but I'm sure by the next conference call when we've had a chance to really look at the capabilities of projects that we have, that we can potentially do, we might be able to come up with a more firm number.

Okay, terrific.

And turn over to RSV, here, can you help walk us through the steps that you're currently taking to decide which one of the two candidates, or potentially both, to move into the IND phase?

What are the incremental steps and perhaps walk us through a time line to when we may see that program move towards clinic.

With any of our discovery candidates, we have a series of factors that we evaluate before deciding which ones to move forward into more formal preclinical studies to support an IND.

Certainly one of the things we look at is what's the market and the commercial potential.

We look at intellectual property.

We look at the immunogenicity and effectiveness of the vaccine candidate in a probe study, typically a mouse study, and we look at whether or not we think that they can be manufactured at commercial yields.

So there's a series of factors that we look at, and we actually score the different candidates based on these factors and then select, as I indicated, one or more VLP candidates for entering into formal pre-IND studies.

We're actually at the point with RSV where we're making our final selections for our pre-IND candidates, and we'll be moving forward with further preclinical studies this summer and into the fall, and at the next earnings call, we'll give you probably be able to give you a much firmer update on the time lines for development, but we are moving forward very rapidly with the RSV candidates.

Okay, terrific.

Then maybe one last one for me, then I'll get back in queue.

I do want to talk about manufacturing yield for influenza.

I mean Rahul, and John and the entire team here, each one of you has been through the process of optimizing yield and scale-up for numerous vaccines before.

Where are we on that optimization curve?

You said now we're comparable.

How much further would you expect to be able to go on yield given your kind of collective experience?

Kevin, I'm going to have Jim Robinson who is here with me answer that question.

Hi, Jim.

Hi, Kevin.

We said actually in Penny's comments, that we were already at a yield and ability to make HA that is better than 20 times better than egg-based flu production, and that's demonstrated in small scale reactors.

We are planning to do scale-up this year.

We believe that in scale-up we'll also see another improvement, maybe doubling those yields again.

But even at the 20-fold yield improvement, we have a very favorable cost structure and capacity from our current facility.

Terrific, thanks for the additional clarity.

Sure.

Thank you.

Our next question comes from Boris Peaker.

This is actually Elemer Piros from Rodman.

How are you.

What I would like to ask you, Rahul, could you please elaborate how the Cadila deal could be a template for other regional deals, or do you think they would come in all different flavors or do you think you have found the right template?

First of all, thank you for the question.

We believe that the synergy of the deal is going to be one that is going to be common in other deals, but the flavor is going to be different.

Here what you've seen is an example where you have synergies through potentially use of lower cost development infrastructure.

We believe that there might be other deals where the synergy might be more on the commercial side.

So we think that these regional deals are going to be very important for us and we will leverage them, just like we are leveraging the Cadila deal, but they will come in different flavors.

Okay.

In terms of timing, when do you think we would see the first commercial product in India approved?

Well, we just formed the joint venture company.

We haven't even hired the management yet, so I think it's hard to kind of pin down the time to market.

All I can tell you is that the Company has already marketed products.

Some of the biogeneric products that Cadila has contributed to the joint venture are already marketed in India at the moment, and there's going to be cash flow coming from that.

And we believe that the Cadila folks are very eager to bring these products, the newer products to market.

They don't have a philosophy of waiting several years before they get any cash flow.

I see.

Going to your P&L, I noted that G&A component is a bit lumpy quarter over quarter.

What would be the right sort of quarterly number if this remains fairly stable to assume for 2009?

And the same question would go for the R&D expense as well.

I think the current run rate on the R&D expenses is approximately what we will see in the first quarter.

I don't think that it's very easy to say that there's a regular expense.

A lot of the R&D costs depend on what we're doing in clinical and preclinical trials so I think it is going to be lumpy.

It's very hard to keep a straight line on these things.

G&A has a few oddities in it.

As we mentioned, the adjustment from the notes receivable of $1.2 million, and of course, I welcome you to take a look at the 10-K this afternoon.

There's some additional discussion on G&A in that document.

Okay.

I think -- I do think that it's going to normalize as we go into 2009, barring any unusual adjustments in this type of business, you always have something that hits G&A.

So when you combine the two numbers, and if we don't look at the quarter to quarter fluctuation, what do you think would be an approximate number to forecast for 2009?

It would be very hard to forecast at this point because one clinical trial depends on what we do in one -- one impacts the next one.

It's very hard.

We do try to manage to certain plans.

We have operational plans, but we never know how our trials are going to turn out, and what further work we may have to do as a result of those, so it's very hard to predict.

This isn't the kind of business that's easily predictable.

Right, right.

Rahul, turning back -- thank you very much for that.

Thank you.

Could you give us a preview of what to expect in terms of clinical data in 2009, please?

Sure.

We are going to conduct an expanded dose-ranging study in healthy adults.

That clinical trial is expected to begin in May.

This is a study with our trivalent seasonal flu vaccine.

Just recall that we've done a dose ranging study with our seasonal flu vaccine where we've studied 5, 15 and 30 microgram doses.

We now want to expand that dose range and we want to also look at the safety of the vaccine.

So that study, as I said, is going to be completed, or will be initiated in May, and past that study, we are contemplating doing a study in the elderly population based on the data that we see from this healthy adult dose-ranging study and that study is currently contemplated to be later this year and certainly the data from the healthy adult study is going to define the timing for that.

Right, right.

Maybe one last question, and thanks for taking all these.

What sort of publications are queued up for, say, during the next quarter or two that we should expect from the Company?

Sure.

This is Penny.

Hi, Penny.

Hi.

We have several publications that are lined up, publications that report some of the results that I summarized for you here in the call today.

Certainly we plan a publication of our pandemic influenza data.

They are quite unique.

This is a recombinant vaccine that induced very good neutralizing and HAI antibody responses, but also induced responses against the neuraminidase and the cell mediated immune responses.

So we plan that publication, that will be one or more publications.

In addition, we have our seasonal influenza vaccine trial that was just completed.

We'll be getting the final data on that is coming in even as we speak literally, and we'll have that publication as well.

We also have some interesting ex-vivo studies, if you will, where we took human peripheral blood mononuclear cells and looked at how the VLPs are processed in the immune system and the fact that we can now know that they do activate these cytotoxic T-lymphocytes.

It's not just a theory anymore.

We want to publish those data.

We have our preclinical RSV vaccine candidates.

One manuscript I literally have laying here on the desk in front of me and another one will be coming along shortly.

So we have those as well as potentially some presentations on our vis-a-vis candidates.

So actually quite a lot coming out here over the next several months.

Sounds like you are going to be very busy.

We are.

We're hiring medical writers and trying to get all of this stuff out as quickly as possible.

Thank you for that overview.

Thank you, Rahul, as well.

Thank you.

Thank you.

Our next question is a follow-up from Kevin DeGeeter.

Hey, just real quickly, with regard to the convertible that comes due in July, I believe you mentioned in the release plan to repay, I think it's up to 50% of it in stock.

Can you just remind us sort of what the pricing period mechanism will be to determine the number of shares that will be issued there?

And, you know, will the holders be subject to any lock-ups or any other factors once those common shares, I believe they are common shares, are issued?

They are common shares.

There's going to be no lock-up.

The pricing is clearly laid out.

I think it's 20-day [vivant] prior to the due date.

Okay.

Thank you.

Thank you for participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.

Thank you.