Novavax Inc (NVAX) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Novavax 2010 second quarter conference call. My name is Karen, and I will be your coordinator for today.

(Operator instructions.)

Novavax, please proceed with your call.

Good morning, and thank you for joining us on today's second quarter 2010 conference call. Both the earnings release from this morning and an archive of this earnings call can be found on the Company's website at Novavax.com. On today's call are Novavax's President and CEO, Dr. Rahul Singhvi, and members of our executive team.

Before we begin our prepared remarks, I remind you that we will be making forward-looking statements during this teleconference that could include financial, clinical or commercial projections. Statements relating to future financial or business performance, conditions or strategies or other financial and business matters, including expectations regarding revenue, operating expenses, use of cash 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. Further information on the factors and risks that could affect Novavax's business, financial conditions and results of operations are contained in Novavax's filings with the SEC, which are available at SEC.gov. These forward-looking statements speak only as of the date of this call and Novavax assumes no duty to update such statements.

I will now turn the call over to Dr. Rahul Singhvi.

Thanks, Gerri, and good morning, everyone.

During the second quarter we made progress on several strategic fronts, including the advancement of our product pipeline and receiving positive feedback regarding a possible influenza vaccine development contract from HHS/BARDA. We also reported positive findings from our seasonal influenza study in older adults. We made several significant management and Board appointments, and we made significant progress in manufacturing, including completing our joint venture production facility in India. Since the end of the quarter we also received a key patent supporting our core VLP technology, which strengthens our IP portfolio significantly. Let me take a few minutes reviewing these accomplishments before I have Fred review our financial results.

In April, we reported that HHS/BARDA determined that our response to their RFP for the advanced development of recombinant vaccines for seasonal and pandemic influenza was in the competitive range for the award of a development contract. The BARDA solicitation stated that contracts would be awarded to vaccine manufacturers that satisfy several specific requirements, and the advancement of Novavax's proposal into the competitive range means that it has been viewed by BARDA as one of the most highly rated proposals. We are not in a position to comment further on our proposal or ongoing discussions with BARDA at this time because of their highly confidential nature, but we are obviously very pleased with this significant development for the Company.

Our trivalent seasonal influenza vaccine studies in healthy and older adults have been prescribing well. In April we reported positive results from a head-to-head Phase II trial in older adults between our VLP vaccine against a marketed trivalent inactivated vaccine, or TIV. Both the 15- and 60-mcg doses of our VLP vaccine were well tolerated and showed no significant increase in severe local or systemic adverse events compared with the TIV vaccine.

As we have disclosed earlier in a press release, the immunogenicity data from this head-to-head trial showed that in the 15-mcg dose level of our VLP vaccine, the hemagglutinin inhibition antibody, or HAI titers, were comparable to two of the three 2009-2010 seasonal influenza strains and lower for the third strain against TIV. The higher 60-mcg dose was found to be more immunogenic against one of the three strains and showed no statistically significant difference from TIV in the seroconversion rate against the other two strains.

These results are encouraging and will be very useful in helping us select a dose for testing in upcoming studies. The clinical finding that a higher dose of VLP vaccine could be more immunogenic in this population is particularly important since there is a significant medical need for a better vaccine for older adults.

A quick note on H1N1 vaccine development in Mexico -- as we have discussed earlier, the immunogenicity data from this large, 4,500-subject trial are in, and the results confirm that not only the immunogenicity data are excellent, but the vaccine is well tolerated at all three dose strengths, 5, 15 and 45 mcg of hemagglutinin. The subjects are being followed for safety, and thus far there have been no vaccine-related serious adverse events. This is very encouraging, given the large size of this trial.

The immunogenicity data, as I said, are very solid. The HAI titers passed the seroconversion and seroprotection benchmarks set by the US and European authorities, even with a single shot of our 5-mcg vaccine. We continue to work with the Mexican authorities to gain licensure of our H1N1 vaccine, and those discussions are ongoing. The complete data set from this trial, which includes not only the HAI titer data but also data against neuraminidase inhibition titers, will be presented at upcoming scientific conferences later this year.

We are continuing to make excellent progress with preparations to pursue clinical testing of our vaccine to prevent respiratory syncytial virus, or RSV. This is a very important opportunity for us to help prevent the leading cause of serious respiratory disease in infants and young children worldwide. Bronchiolitis or pneumonia occurs in 25% to 40% of RSV-infected infants. RSV is also a significant pathogen in the elderly, and nearly 1 million people in the U.S., Europe and Japan are hospitalized annually due to RSV. Despite the incidence and severity of these infections, there is no RSV vaccine currently available, and it represents an enormous unmet medical need. We hope to begin Phase I testing of our RSV vaccine before the end of this year.

I want to highlight some very significant progress that our team has made in the area of manufacturing. During the past several months we have developed -- we have successfully scaled up the manufacturing of our influenza VLP vaccine to production scale and have now produced batches at scale that give us confidence that our yields at scale are commercially viable and could lead to very competitive product costs. These accomplishments are obviously critical in our ability to eventually commercialize the product.

We reported another accomplishment in manufacturing in June, when we announced that our joint venture with Cadila Pharmaceuticals, known as CPL Biologicals, has completed construction of its vaccine facility in India. CPL Biologicals is now installing and validating state-of-the-art equipment that will enable fast and efficient production of up to 60 million doses of novel vaccines every year. By every reasonable measure, this will be a world-class manufacturing facility, and we congratulate our partner on reaching this important milestone. This facility offers the option to become an additional manufacturing asset for Novavax. Note that Novavax does not have any obligations to spend cash for the ongoing operations or capital expenditures within CPL Biologicals.

On the intellectual property front, in July we received a very broad patent covering technology for the rapid, efficient and uniform production of VLP vaccines from strains of seasonal and pandemic influenza. The patent covers the use of influenza gene sequences for high-yield production of consistent influenza VLP vaccines to protect against current and future seasonal and pandemic strains of influenza. We believe it reflects our innovative and elegant approach to manufacturing efficient, high-quality immunogenic influenza vaccines, and it helps ensure that our unique technology is well protected.

We made significant management and Board appointments during the second quarter. In addition to the appointment of Dr. James Young to our Board, which I discussed on our last call, we also appointed Dr. Mark Thornton as Chief Medical Officer; Dr. John Madsen as Head of Process and Manufacturing Operations; and Dr. Steve Pincus as Head of Analytical and Quality Operations. Last month we also named Dr. Gregory Glenn as Chief Scientific Officer.

Mark Thornton is a talented clinical pharmacologist and epidemiologist with more than 20 years of experience in the design and execution of clinical trials and the development of novel vaccines and therapeutics. He spent more than six years as a medical officer at the FDA's Centers for Drugs and Biologicals Evaluations and Research and has a keen understanding of the need for innovative new drugs and what is required to obtain their approval. Mark is well suited to guide the Company through the late-stage development of our influenza vaccines.

The promotions of John Madsen and Steve Pincus to new positions reflect their unique qualifications to manage our manufacturing, process development and quality organizations.

Lastly, Greg Glenn is a recognized innovator and authority on vaccines, vaccines delivery and adjuvants, and he brings to Novavax considerable experience in the discovery, development and clinical evaluation of a wide variety of vaccines to prevent diseases such as pandemic influenza, tetanus, malaria, HIV and cancer. He will be critical in helping Novavax broaden our vaccine pipeline.

Earlier this morning we were very pleased to announce the appointment of Dr. Richard Douglas to our Board of Directors. Richard has more than 25 years of corporate, business and product development experience at Genzyme. This will be very valuable to Novavax. In addition, he brings strong scientific skills, since he received his doctorate in biochemistry from the University of California at Berkeley, and we welcome Richard's counsel and contributions to our future success.

I believe these appointments will not only strengthen our ability to create and advance promising vaccine candidates, but they also reflect the promise that Novavax holds in becoming a force in the vaccine industry. These appointments will also help us continue to attract some of the industry's best and brightest talent. That's a great reflection on the team we have assembled and a sign of how far we've come as a company over the past several years.

So, in summary, we are continuing to advance our vaccine development programs. We are in contention for a potentially significant vaccine development funding contract from the US government. We've hired outstanding new executives to guide our clinical, preclinical and discovery programs, and we have created additional value for shareholders and partners by expanding our patent portfolio. I thank my colleagues for their continued hard work and commitment, our collaborators for their diligence and encouragement, and our shareholders for their financial support.

This concludes my prepared remarks, and now I'm going to turn the call over to Fred.

Thank you, Rahul.

For the second quarter of 2010, we reported a net loss of $9.4 million, or $0.09 per share, as compared to a net loss of $8.5 million, or $0.10 per share, for the second quarter of 2009. For the six months ended June 30, 2010, the net loss was $20.8 million, or $0.21 per share, compared to a net loss of $16.9 million, or $0.22 per share, for the same period in 2009.

The primary reason for the increased loss for the second quarter of 2010 as compared to the same period in 2009 was higher research and development spending to support the Company's clinical trials related to its H1N1 and seasonal influenza vaccine candidates. Research and development expenses for the second quarter of 2010 increased to $6.3 million, as compared to $5.3 million in the same period in 2009.

General and administrative expenses for the second quarter of 2010 were $3.1 million, as compared to $2.6 million in the same period in 2009.

As of June 30, 2010, the company had $26.8 million in cash, cash equivalents and short-term investments, compared to $43 million as of December 31, 2009. Furthermore, since June 30 we have officially raised an additional $13.5 million through our aftermarket financing vehicle, which provides added liquidity to our balance sheet. Based upon our current operating plans we now have enough cash to last at least through the second quarter of 2011.

That concludes our prepared remarks. Operator, we'll now open the call for questions, please.

Thank you, sir.

(Operator instructions.)

And our first question comes from the line of, and pardon my pronunciation here, George Zavoico, of McNicoll Lewis Vlak. Sir, your line is now open.

I beg your pardon?

Your line is open, sir.

Okay, thank you. Actually, the pronunciation was pretty much on target. Thank you. Good morning, Rahul. Hi, Fred.

Hi, George.

Hi. I had a question about the India operation. With regard to developing the vaccine for the Indian market, can you tell me what your plans are or what Cadila's plans are in collaboration with you?

Absolutely. There is absolute interest in developing both H1N1 and seasonal vaccine in India, flu vaccines in India. And we continue to remain in contact with the Drug Controller General of India, which is the equivalent of the FDA, to get approvals for our clinical protocols, and we are cautiously optimistic that we will get those approvals shortly and we will begin the development of those two products in India, the clinical development, that is. We have already successfully transferred our manufacturing technology to India, and, as I've mentioned in my prepared remarks, that a joint venture has already built a facility that is by every stretch of the imagination world class. So I think all the pieces are being put in place so that they can be fully enabled to bring this product to market in the next several years.

What's going to be required in India with regard to clinical trials?

I think it's a good question. I think we can only say broadly that we expect to do a very similar program that is normally required for US. I mean, you have to -- all the work that has been done in the US is going to be very useful as backdrop, but eventually you have to produce the product in the Indian facility and test that product in the Indian population and then show consistency of manufacturing. So those two pieces of information are absolutely necessary.

Will there have to be a separate safety study before going into the actual final Phase III, or what would be equivalent to Phase III in India?

We might be able to use not only all the safety data that we have but may do a very small study with material produced in the US in India and then go in with -- to do the safety study in the Indian population, and then go in with indigenously produced product to do the remaining trials.

Okay. And as far as the RSV vaccine is concerned, you mentioned you're projecting to start the trial, a Phase I trial, before the end of the year. Have you -- is an IND filing, then, imminent?

Yes. We believe that it is going to be filed shortly. We are going through the process. We have had a pre-IND meeting and that has gone well, and so we expect that we will be able to hit that milestone before the end of the year.

And as far as Mexico is concerned, it's just a waiting game now, right, pretty much, (inaudible)?

Yes, unfortunately with the H1N1 pandemic situation kind of going out of the kind of serious situation it was and the emergency situation it was now, we've kind of fallen in more of a traditional timeline for approval, and so it's going to take (inaudible) the time.

And, finally, last question before I get back in the queue, can you comment at all on progress in negotiations regarding any new licensing and supply agreements with -- like you had in Spain?

Yes, we are in negotiations, and I think these things a lot of the times are out of our control, but we remain in active discussions.

Okay. Very well. Thank you very much, and congratulations on a good quarter.

Thank you, George.

Thank you, sir. Our next question comes from the line of Ted Tenthoff, of Piper Jaffray.

Great. Thank you. I think George covered a lot of ground there. Just coming back to, I guess, the BARDA agreement and plans to initiate the Phase III, is your expectation that the BARDA funding should be in place in time for this year's flu season to begin that Phase III in the United States, and, if not, would it delay it? Would you partner it? What would your plans be for funding the Phase III seasonal in the US?

Right, so, all I'd say is at the moment our plan is that a Phase III program is going to be -- we expect that program will be funded by BARDA, and that's our expectation. And so the entire clinical development plan and the timelines associated with our seasonal and pandemic flu program will be dependent on the negotiations that we are having with BARDA. So, until those negotiations are completed, I think it's very difficult for me to give you any guidance in terms of the start of those trials, because we have made a decision that we are going to have BARDA funding really pay for that late-stage development.

Explain to me what is left to be done, if you can do that, just from a procedural basis.

Well, I think, broadly, as I pointed out in my prepared remarks, that we've kind of scaled up our process. So one of the things that we would want to test before we go into pivotal trials is to ensure that the product that we made with our scaled-up process actually behaves -- the locked process, that is, the final manufacturing process, behaves the same way in the clinic as the material that we made previous and really get comfort in our final dose that we want to test in the pivotal trial. So that's one thing that we would like to do before we enter into a pivotal trial. And then the pivotal trial is going to be either a safety and immunogenicity trial, depending on whether we get the accelerated regulatory pathway, or, if not, then we'll have to really do an efficacy trial. And then, lastly, we have to show batch-to-batch consistency. So, really, those are the three steps.

Great. Thank you very much, and good luck.

Thanks, Ted.

Thank you, sir. Our next question comes from the line of Bill Tanner, of Lazard Capital Markets.

Thanks for taking the question. Rahul, just on the RSV vaccine, at what point in time or over what time do you think you would get some proof of concept?

I think this first clinical trial is going to be quite telling, because we, as you know, in this particular program, the NEUT antibody titers are generally considered to be quite predictive of efficacy. And so we will be able to measure those from the efficacy standpoint. And then safety is paramount, as you know, and so demonstrating safety at least in the healthy adult population is going to be a key gating event for us to then take this vaccine down in the age groups, because eventually you want to end up in the naive population, and so demonstrating a clean safety profile and the ability to elicit neutralizing antibodies, all of which, I think, will be information that will become available from this first trial.

And that would be in maybe the first half of next year?

Yes, I think we, depending on when we begin the trial, the data will start rolling in. And, as you know, these are fairly quick trials.

Right. Right. And then, how should we think about the seasonal, the seasonal flu vaccine in the elderly? Just, I mean, I know it may be a bit of a mixed bag in terms of the data.

Right. I think the thing I can tell you is that it works. I mean, it is able to elicit immune responses in the older adults. Eventually we will have to demonstrate non-inferiority against an active control, which is a marketed product. We believe that from this trial that we have just concluded we have enough information now to be fairly confident in the doses that we will be able to select to pass a non-inferiority test from HAI titer standpoint. And then it's a matter of plowing through the Phase III and getting the product on the market.

And if -- how do you think about the commercial viability of it if you don't see a differential response relative to the TIV?

I think the necessary and sufficient condition to enter this market is to have a cost of goods advantage. So you have to have that, which I think with our efficient manufacturing I think we are very confident of that. And I think the differentiation piece is going to become apparent over time. I think we have to get this product on the market and then continuously prove through efficacy studies that our product is superior. And I think without that it's almost impossible to get the credit for a differentiated product. We can have as much immunogenicity, and we will continue to demonstrate that, but eventually I think the most important thing is to enter the market and continuously demonstrate that the product is better in the populations where the medical need is highest through efficacy data.

Right. Right. And then maybe, just last question for you, Fred, just on the BARDA grant, I mean, that, in the capital needs, that would not really impact much in the way of OpEx, or would it, for the Company, on just the base operations?

Well, if you're talking about this year, Bill, we are not planning at this point, at least from our projection perspective, we're taking a conservative position on that, so we are not. But, obviously, going forward, if we were to win the award, then obviously it would have a significant effect on our OpEx going forward.

And just any thoughts on, so if you could go through the first half of -- or cash through 2011 is what you said, I think.

Yes, that's the guidance that we're giving now, and what you'll see later today when we file the 10-Q is that the guidance we're giving is that we have 12 months of on-hand cash at this point in time, so that --

And then the BARDA would -- so if you did get that that would extend it considerably.

That's exactly correct, Bill.

Okay. Okay, thanks a lot.

Thanks, Bill.

Thank you, sir.

(Operator instructions.)

Our next question comes from the line of Vernon Bernardino, of Dawson James.

Hi. Thanks for taking my questions. Fred, just to drill down a little more, the R&D spend was a little lower, so would you, for modeling purposes regarding OpEx, consider that the rate going forward unless you do get a BARDA grant?

You know, Vernon, I'd really be -- to give guidance at this point -- now, you're right, the reduction in R&D is really sort of a trail-off of the H1N1 expenses that we had in the fall of last year, so -- but at this point we really don't want to give guidance, because it's really unclear as to what will happen with the BARDA award. And, as Rahul said earlier, there's a variety of different ways we could go forward under that BARDA arrangement, and to give guidance at this point I think would be clearly premature. So I think -- at this point I think I'm just going to hold off on that question, and I think as things unfold over the second half of the year I think we'll be able to give you a clearer view. But we simply just don't know right now as to what will come out of that.

Okay. If I could follow up on that, what were the primary drivers for the sequential quarter and quarter difference?

The real key, the keys, again, were if we look at 2009 to 2010 the key driver really was clinical trials. It was the seasonal -- our seasonal flu trials that we ran in the -- last year as well as H1N1. So those are clearly the drivers behind the increase.

Okay. Now, going to the trial in Mexico, in information from other companies regarding clinical trials going forward, the vaccines have had trouble recruiting patients because there's been a lot of people exposed to H1N1. Now, with the trial in Mexico, those are naive subjects, correct?

Actually, interestingly, when we conducted the trial, almost 40% of the subjects were seropositive because of there was so much disease going on in the middle of this pandemic. But even with that level of baseline antibody that these people had, our vaccine was able to pass the seroconversion test. That is, we had to show that even with baseline antibody titers that we had to get fourfold increase in the titer levels from the baseline. And, as I mentioned, even with our lowest dose, one shot of a 5-mcg dose, we were able to achieve those seroconversion levels that are prescribed by the European and US authorities. So, no, I mean, it was not a naive population, and even with some preexposed population we were able to achieve the benchmarks for our vaccine efficacy.

So you think going forward anybody trying to test an H1 vaccine would have similar problems. Your vaccine looks, I guess in my opinion, a lot better than others. Do you think that's a hurdle for other competitor vaccine manufacturers?

Well, I think you're right. I mean, you can expect that in any future trials, with all the exposure to H1N1 and being -- H1N1 being one of the strains in the seasonal vaccine now there's going to be a lot of preexposure to that, and passing the seroconversion/seroprotection levels with that level of preexposure would be hard. But, as I mentioned, I mean, every trial that we will likely do is going to be a head-to-head comparison. So if our vaccine works, hopefully we'll be able to test whether it works equal or better than the competitor. But time will tell.

Okay. And then just a little more on that trial. Now, the estimated completion, collection of data point is October, so all the subjects have been vaccinated, and you're just trying to get the data together for a presentation later this year, or there are already plans and the data has been presented to a conference?

Right, so this is the H1N1 trial in Mexico you're asking about, right?

Yes.

Right, so, yes, the follow-up subjects that -- this is only the six-month follow-up that is left right now. This October timeline that you are pointing out to --

Yes.

-- is the end of that follow-up. And in that follow-up we are basically looking for serious adverse events, and thus far we haven't found anything. So the trial is, for all practical purposes, complete. And so we are just collating all the data. We hope that we will be able to publish this in a prestigious journal, because, remember, this is not just a clinical trial, it is a trial that was done with an experimental vaccine in a country that was facing a pandemic. And so this has some very significant value, and people need to know that. So we hope that this is going to be accepted in a prestigious journal. And then over the next several months we hope to present the data from this trial in international scientific conferences.

Great. Looking forward to that data, and congrats on the great progress this quarter.

Okay, thanks, Vernon.

Thank you, sir.

And we have no further questions in queue. I'd like to turn the conference back to our speakers for any further remarks.

All right, thanks, Operator. And we just want to thank you all for your time and attention this morning, and we appreciate your interest in our progress, and I believe that we are continuing to execute our development programs well and are on track to reach several significant milestones later this year, and we look forward to providing an update to you all on our programs in the next call later this fall. Have a great rest of the day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.