Novavax Inc (NVAX) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Novavax 2010 third 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 third 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 www.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 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 and 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 Novavax's President and Chief Executive Officer, Dr. Rahul Singhvi.

Thanks, Sherry, and good morning, everyone. Since our last quarterly update we have continued to develop our seasonal and pandemic flu vaccines, prepared for new studies of seasonal flu and RSV vaccine candidates and prepare for a possible flu vaccine development contract from HHS. Let me walk you through some of the details of our accomplishments last quarter starting with an update on our H1N1 flu trial in Mexico.

In September we completed the six-month safety evaluation of more than 3,500 subjects in the second stage of our H1N1 clinical trial in Mexico. No vaccine-related serious adverse events were noted. This is encouraging news and speaks well towards the safety profile of our VLP vaccine. The final clinical study report is expected to be completed by the end of 2010 and we have submitted a manuscript detailing data from this study to a highly reputable journal and we are awaiting comments. As we have previously mentioned, that we have filed the BLA to the regulatory authority in Mexico, an authority called COFEPRIS, to receive licensure of our H1N1 vaccine candidate in the country of Mexico.

We've had several conversations with COFEPRIS and we recently presented to them what is called the new molecule committee. Discussions after this meeting now suggest to us that since the emergency related H1N1 in Mexico has abated COFEPRIS has reverted back to its normal standard of approving new products, and we plan to continue to work with the authorities on this process.

The value of the experience that we've had on the H1N1 vaccine trial in Mexico has been enormous. This work has catapulted Novavax's stature as a vaccine company globally. It has helped Novavax get a mention in the PCAST report of the President of the United States, and relevant organizations around the world are paying attention to what we are doing. Through this experience we have learned a great deal about our VLP vaccine both from a safety and immunogenicity standpoint, and we continue to make great strides in manufacturing and characterization of our vaccine.

We also have had a couple of facility inspections as part of this process with COFEPRIS which has helped us improve our standing from a cGMP compliance perspective. Finally, we believe that this work has helped us in our case to get BARDA funding which we will discuss later in the call. On the IP front in July we received a key US patent covering the use of influenza gene sequences for production of VLP vaccines against current and future seasonal and pandemic influenza strains. As many of you know it is not easy to get a vaccine patent issued and again it is testament to our strong science and the testing of our vaccine in humans that US patent office has granted us this patent.

I mentioned earlier about the great strides we have made on the manufacturing front. This is worth spending a little bit more time on. During the last quarter we made major progress on scale up of our manufacturing process. We produced several lots in our 1,000-liter reactor and are pleased with our VLP yield and quality of the scale. We have built a detailed cost of good model and we are pleased at the cost of goods model we are seeing at this scale and our yields is excellent. In the flu vaccine business, it's very important to have competitive cost of goods, and it is absolutely critical for commercial viability.

Having our own pilot plant in Rockville has been a major advantage in making this rapid progress. To lock down our final manufacturing process and get sufficient experience to support our conversations with FDA, BARDA, and other potential partners. This leads me to the discussion on our proposal to HHS BARDA to win a contract to develop recombinant vaccines for seasonal and pandemic influenza. This contract if awarded would be a transformational event for our Company.

As you know several biopharmaceutical companies have received multiyear, multimillion dollar vaccine development contracts this year and we're obviously excited about this opportunity for us. There's not a whole lot that I can say to you about this today, except that in late September we responded to a request from BARDA to provide final revisions to our business and technical proposals, which as we understand is the last part of the process.

We are pleased that this positive momentum is now moving us forward and we remain cautiously optimistic in eventually winning this award. We strongly believe our recombinant technology can play a key role in solving the problems of influenza vaccine supply, preparation and availability that have been the subject of recent government reports. We are pleased to endorse the proposal by the President's Council of Advisors on Science and Technology to accelerate the development of new vaccines, create more rapid and flexible US manufacturing capacities, and use new production technologies to transform our nation's ability to respond to infectious disease outbreaks.

This is exactly what our vaccine technology is intended to do, and we truly are in the right place with the right product at the right time. During our last call we had a question whether the BARDA funding would be in place in time for this year's flu season to begin our Phase 3 trials for our seasonal flu vaccine in the United States. I'd like to be very clear on this point with you-- It is our expectation that the expenditures associated with the clinical trials associated with both the seasonal and pandemic flu vaccine candidates will be absorbed by the BARDA contracts all the way through the BLA submission. However, since the earliest this award could be made is in the fourth quarter, we are not in a position to begin a major pivotal study at this time without BARDA support.

So it's difficult to give you an exact timing on the initiation of Phase 3 clinical trials until we have concluded our negotiations with BARDA. Our joint venture in India with Cadila Pharmaceuticals, known as CPL Biologicals or CPLB, is making excellent progress. In June we announced that CPLB had completed construction of its vaccine facility in India. I'm pleased to report that CPLB has now completed the installation and validation of the state-of-the-art equipment that will enable fast and efficient productions of GMB grade materials. We also had some positive movement with the regulatory authorities in India and we expect to begin clinical trials shortly in both seasonal and pandemic flu vaccines there.

I want to remind you that all the operational and capital costs incurred by CPLB are being borne by our partner Cadila Pharmaceuticals, so as CPLB begins generating clinical data on our flu vaccines we'll be able to use this data in our dossier and continue to increase the safety and immunogenicity database without paying for any of these trials. Another significant benefit of this joint venture is now becoming obvious in our efforts to develop new vaccines and strengthen our pipeline. Recently, CPLB conducted preclinical studies on a new vaccine candidate that we have developed against rabies.

As you know, rabies is caused by a virus that results from the bite of a rabid animal. Once the patient has symptoms, this disease is 100% fatal. This is not only a serious problem in countries like India where dog bites are common, but also in developed countries for hunters, hikers, and others who come in contact with wildlife. The results of these preclinical studies are very exciting and are indicative of the applicability of our technology to another disease target with a possible profile that might be better than the current standard of care. Again, we likely wouldn't have gotten these data so quickly without CPLB and this result is now opening a new avenue for us to create value for Novavax through this partnership in India.

Speaking of new products, in the area of RSV we filed our IND as planned in September and had hoped to begin our Phase 1 trial in the fourth quarter. We recently have been notified verbally from the FDA that we should not proceed with the clinical trial until we can answer certain questions pertaining to our RSV production process. This officially puts us in what is called a clinical hold which is not uncommon for novel products.

However, once we receive a formal letter from the agency outlining their specific areas of concern we plan to address these issues and provide them all the required information expeditiously and proceed with the trial as rapidly as we can. We hope to get written notification from the FDA no later than mid November and we will keep you updated on the situation.

On the Human Resources front, I would like to mention that we have made two important appointments during the third quarter. Dr. Richard Douglas joined us -- joined our Board of Directors and Dr. Greg Glenn was named Chief Scientific Officer. Richard Douglas is currently Senior Vice-President of Corporate Development at Genzyme, and he brings tremendous experience in corporate development, technology assessment, and protein chemistry. Greg Glenn is a recognized authority on vaccine delivery and adjuvants and has been directly involved with the development of vaccines to prevent influenza, malaria, H.I.V. and cancer. He has been charged with rapid development of our pipeline and he is very busy with many ideas already in the lab. We will greatly benefit from the expertise of these gentlemen and I am pleased to publicly welcome them to Novavax.

So in summary, a lot has happened in the third quarter and we continue to approach an important inflection point in our Company's history. We are in contention for a transformational vaccine contract from the US government, we have hired outstanding new executives this year to guide our Company, our partnership in India is progressing well, we have created additional value for shareholders and partners by expanding our product pipeline and our patent estate and our manufacturing plant is going according to plan.

We are confident that we can address the FDA's questions regarding our RSV study and we will be working closely with the agency to move this program forward as quickly as possible. I look forward to providing a more comprehensive update on these efforts on our next call or sooner as events occur. This conclude my prepared remarks. And now I will turn the call over to our CFO, Fred Driscoll.

Thanks, Rahul. For the third quarter of 2010 we reported a net loss of $10.4 million or $0.10 per share as compared to a net loss of $7.5 million or $0.08 per share for the third quarter of 2009. The primary reason for the increased loss for the third quarter of 2010 as compared to the same period in 2009 was due to higher research and development activities supporting the Company's clinical trials which also includes a significant investment in manufacturing scale up costs.

Research and development expenses for the third quarter of 2010 increased to $7.9 million as compared to $5.3 million in the same period in 2009, which again was primarily driven by increased clinical trial activities in the aforementioned manufacturing scale up activities. General and administrative expenses for the third quarter of 2010 were $2.8 million as compared to $3.2 million in the same period in 2009, which is primarily a result of lower outside professional services. As of September 30, 2010, the Company had $36.9 million in cash, cash equivalents, and short term investments compared to $43 million as of December, 2009. Our cash position increased from $26.8 million in the second quarter by $10 million due to our utilization of our at-the-market financing vehicle.

From a liquidity and capital resources perspective, at the current planned operating levels, we believe that we have at least one year of cash on hand. This of course would be substantially improved with the award of the BARDA contract. That concludes our prepared remarks.

Operator, we'll now open the call for questions please.

Thank you, sir. (Operator Instructions) . Our first question comes from the line of George Zavoico of MLV.

Hi, Raul, hi Fred. Thanks for taking my call. Good morning and congratulations on continuing progress and a good quarter. Thanks in particular for explaining a little bit about what's going on with HHS BARDA since everyone had hoped that this decision would be a little bit earlier this year. I hope that it will happen sooner rather than later now. My question is about Mexico. Can you tell me a little bit more about the process now? I mean you're right. The pandemic flu has abated. Is the process now going to switch over to a tribalanced seasonal flu application or are you still going with the single monovalent proposal?

Right. So we continue to pursue our monovalent file. In addition we are now seeking partners who can help us with the seasonal flu program there. Our current partner, Avimex, is of course someone that we will be speaking with as well. Our partnership with them was limited at the moment to the pandemic flu program. We are speaking to them about possibly working on the seasonal flu as well because we will need to do additional clinical trials in Mexico on seasonal flu to eventually get in the position to file an application for that product. But it remains a country of great importance to us, and we will continue to work there.

And speaking of ex-US territories, can you provide an update on how progress is going on other ex-US agreements?

Yes. I've already talked a great deal about what we have done in India. And we are in discussions with some other players around the world. We are really quite hopeful that we will be able to make one or more of these discussions into actual deals and announce them shortly. But we remain in discussions. And as you know in many of these things there are many moving parts and not all of them are in our control. But we continue to have very, very positive discussions with a number of parties.

Okay. Great. Thank you very much, Rahul. Thank you, Fred.

Thank you.

Thank you, sir. And our next question comes from the line of Ed Tenthoff with Piper Jaffray.

Great. Thank you very much.

Hi, Ted.

How are you, Rahul? So I'm sorry, just back to the clinical hold, did you say that's for the RSV program?

Yes.

And what is the hold about and how long would it take to resolve that?

We absolutely have no clear clarity around what that is. We've been just told that hold on before you can begin your clinical trials until we get you the questions. And we have not actually received the written notification from the FDA. Since we have not really done any clinical work on RSV these questions have to be related to the production process of what is called the CMC. So we are awaiting those questions.

All right. Now, when it comes to potentially receiving the BARDA contract, if this occurs still by year end would you be able to turn around and initiate the Phase 3 study in North America this flu season? Or is that pretty much scratched for this year and pushed out until next year?

Yes. No. It's not possible for us to at this late hour begin a Phase 3 study in this flu season.

Great. Now, what were the total funds raised in the ATM? And is that finished? Total --

Yes, let me take that. So we've raised in the quarter is a total of $22 million year to date. And actually $19 million in the quarter itself. There is still -- we have a total availability, Ed, of up to $50 million with that vehicle. So we've utilized that in advance of BARDA. So that's kind of the picture on the ATM.

The $22 million year to date from the ATM for how many shares?

Approximately 10 million.

All right. Good. All right. Thank you.

Thank you.

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

Thanks for taking questions. Just back on the RSV vaccine, this is not something that you guys have seen before, I guess, with any of your other interactions with the FDA just in terms of the questions they're asking?

No. We have not received this kind of a hold. We have never had a hold situation in influenza. So this is the first time that we've been asked by FDA to hold onto a clinical trial. And again, we don't know exactly what their questions are. Until we find them out we really can't give you any more color on that.

But I mean, do you suspect it may stem from what the prior history has been with RSV vaccines or do you think it's something that's more specific to your particular manufacturing?

I think for sure, I think the previous history with RSV vaccines makes RSV a much -- everybody is more cautious about doing anything in RSV. But I really don't know whether it is specific to RSV or is it more specific to our production process for making the RSV vaccine. And I think we'll find out hopefully in the next couple of weeks.

And then thereafter, how quickly could you ramp up the trial and then at what point in time -- I mean let's just say for -- just assume end of the year you've got an answer back from the FDA, at what point in time, how quickly could you ramp up the trial and how quickly might you have a result?

Yes. So the trial itself, the enrollment doesn't take very long at all. As you know, these are healthy volunteers and we're talking about people over 18 years of age. So the enrollment can go very, very fast. And I would say a month to six weeks we can enroll everybody in this trial. And after that it's a question of observing them for a short 21 days for acute reactogenicity and then certainly the immunogenicity date can be obtained in a matter of a couple of months, two to three months. So I think we can have data in a matter of a quarter or two.

So potentially by mid year next year is not unreasonable?

Yes. It really all depends on how quickly we can get this issue resolved.

And then presumably the Company would announce when the trial hold has been lifted and if you're allowed to proceed?

Yes.

Okay. All right. Good luck with that. Thank you.

Thank you, Bill.

Thank you. (Operator Instructions.) And one moment for any further questions. We do have another question from the line of Bud Leedom of Global Hunter Securities.

Good morning. Thanks for taking my questions.

Hi, Bud.

You had discussed or sort of characterized it as negotiations with BARDA. And I know this is sort of sensitive. Obviously your discussions back and forth. Can you characterize maybe what the conversations allude to and maybe to apply some degree of confidence that you're the Company they're looking at? Or do you think this is the same conversations they're having generally with other potential candidates?

Hi, Bud, this is Fred. We certainly -- so as far as process is concerned, let me say where we've come. We obviously earlier this year we went into the competitive range. There were a variety of discussions that went on between us and BARDA which was followed up by a site visit here in Rockville, where they did perform due diligence on our whole process. And then again a variety of questions back and forth which finally led us to the end of September, as Rahul mentioned in his prepared remarks. We received a request from BARDA to submit what is called the final proposal revisions or your final and best offer, which is what we did on September 30. And as we understand it, that is sort of the final part of the process before they make an award. So that's kind of the process we're at. We have no idea as to timing. And secondly, the second part of your question, we have no vision nor do they share it with us as to who else is in the game, whether it's who else is participating in this RFP response. So we really have no view towards that. But as Rahul mentioned in his prepared remarks, we do -- this is, as we understand it the last part of the process. So hopefully we'll be hearing something in short order.

Okay. I appreciate that. And just sort of looking at your trivalent program going forward, is there sort of a fall back strategy if BARDA doesn't come through? What are you thinking in the event that that doesn't happen? Does it kind of call it into question here? Or do you have any backup plans you might be able to articulate?

Yes. So we are obviously in discussions with potential partners. So I think the backup strategy could be to work with partners both the majors as well as the regional partners that we've just alluded to.

Okay. Great. Appreciate the color. Thanks again.

Thanks, Bud.

Thank you, sir. And I show no further questions in the queue. I'd like to turn the conference back over to Novavax for any further remarks.

Okay. Well, that's great. Thank you for those good questions. And again I want to thank you all for your time and attention this morning and appreciate your interest in our progress. We certainly look forward to providing you another update on our programs in the next call and sooner if necessary. So all of you have a great day and a good weekend. Thank you.

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