Novavax Inc (NVAX) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Novavax first-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Mr. John Herrmann, please go ahead, sir.

Good morning. Thank you. This is John Herman, Executive Director of Legal Affairs and Corporate Secretary of Novavax. I thank you for joining us on today's first-quarter 2011 financial results conference call. Both the earnings release from this morning and an archive of this earnings call will be available on the Company's website at novavax.com. On today's call are Novavax's President and CEO, Stan Erck, Fred Driscoll, our Chief Financial Officer, and Dr. Greg Glenn, our Chief Medical Officer.

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, and other financial and business matters including expectations regarding revenue, operating expense, sources and use of cash, and clinical developments and anticipated milestones are all forward-looking statements within the meanings 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 www.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 our President and CEO, Stan Erck.

Thanks, John. Good morning, everyone. As most of you know, I've been with the Company as a director for almost two years and for the last year as Executive Chairman on a full-time basis. So recently, we announced that my role would change to CEO, and this call represents my first earnings call as CEO of Novavax, so all of you on the call have to behave. So, I'll begin by sharing a bit of my background but at least as importantly, I'll remind you of other recent leadership appointments in the Company that I'm confident will dramatically increase the odds that we will successfully execute our clinical-development plans as we move toward the commercialization stage of the Company over the coming years.

So first, my background. As I mentioned, I've been with Novavax for the past two years. Prior to that, I spent the last 30 years in biotechnology. The most recent 20 of those 30 years, I've taken two companies from start-up stage through an IPO, brought multiple drug and vaccine candidates into clinical development, and formed important partnerships with large pharmaceutical companies, and entered into M&A transactions. Prior to that, I worked as an executive at a biotech company that merged with Genzyme and in various roles at Baxter Healthcare.

Over the years, I've been fortunate to be able to attract some of the best talent in bio technology to work with me. Recently, we made some additions to our staff that will complement those already on board. We've named Dr. Jim Young, who's a PhD as the new Chairman of our Board of Directors. Jim has a unbelievable wealth of knowledge in the development and commercialization of flu vaccines and other important products, in addition to overseeing a large BARDA contract. Jim is one of the founders of MedImmune. As President of R&D of MedImmune, he developed that company into a successful biotech company that was recently sold to AstraZeneca for $15 billion. Jim will continue to work closely with me and our management team as we organize for our coming product successes.

Working with Jim and me are several people in our clinical and regulatory areas that we've hired over the last month or so. It's a great new group and includes two senior hires, Dr. Lou Fries, who's an MD, who's our VP of Clinical and Medical Affairs, has a long career in vaccines, especially flu vaccines, and importantly, running BARDA flu vaccine contracts for GSK. Lou worked on vaccine clinical development at NABI, at ID Biomedical, and GSK when they purchased ID Biomedical.

We were also able to recruit Dr. Jane Halpern as VP of Regulatory Affairs. Jane spent 10 years at the FDA, then moved into industry at ID Biomedical, GSK, Genocea, and most recently back into government at the Vaccine Research Center of the National Institute of Allergy and Infectious Disease. We're lucky to have both Lou and Jane, as well as other new members of our clinical and regulatory group.

The Novavax team and I appreciate the energy and passion required to move products from target validation and discovery to clinical testing and launch. New disruptive technologies, like virus-like particles, are improving the way we identify and produce vaccines, and I believe Novavax has a unique opportunity to use VLPs effectively to become a major player in the vaccine world. As you know, our vaccines are unique, as they are made in a non-egg based recombinant manufacturing system that produces particles resembling the influenza virus and has the potential to render them more immunogenic than simple recombinant vaccines. As a Board member, and now as President and CEO, I'm very excited about the clinical and commercial potential of this technology.

Our progress in the first quarter reflects how far we've come. In February, we received $179 million BARDA contract, which serves as a validation of our technology and provides non-dilutive funding to support the development of two licensure of our novel vaccines to prevent seasonal and pandemic flu, while our agreement with LG Life Sciences in South Korea advances our efforts to work with partners in and outside the United States to commercialize our technology. I won't review the details of those agreements, which we've discussed previously, but I can tell you that we are now moving ahead aggressively with both organizations to advance these important new programs.

Our recent clinical progress has also been impressive. We received FDA clearance late last year, and in January, launched our first phase-one study of a novel vaccine to prevent the spread of respiratory syncytial virus. RSV is a major health problem for infants and older adults, and there are no proved vaccines to prevent it today. RSV represents an important unmet medical need to which our VLP technology can and should be applied. I look forward to reporting on the status of this program in the months ahead.

In February, we presented the final results from our H1N1 influenza vaccine trial in Mexico. This study, which was conducted in more than 3,000 subjects, found that the vaccine was well-tolerated and exceeded the immunogenistic criteria for seasonal influenza vaccine licensure at all dose levels, including the 5 microgram dose. An important component of Novavax is our joint venture with Cadila Pharmaceuticals of India. Cadila is a 60-year-old pharmaceutical company, which has built a new biotechnology arm to develop vaccines and biologic drugs and will focus on VLP-based vaccines. With the construction of a new vaccine-manufacturing facility, including a fill-finish operation capable of vialing tens of millions of doses in a month, our joint venture, called CPLB, is now working on bringing new vaccines into clinical trials in India. Novavax will have rights to these products outside of India. We anticipate bringing you news of their progress over the coming years.

So with the BARDA contract in place, a new development partnership launched in South Korea with LG Life Sciences, phase-one clinical testing underway for our RSV vaccine, encouraging clinical results for our flu-vaccine program, coupled with accelerating progress with our CPLB joint venture, we are now in a much stronger financial and strategic position to move the Company to the next level of clinical and commercial success, and I look forward to leading that effort. Now, I'll turn the call over to Fred to review our first-quarter financial results.

Thanks, Stan. For the first quarter of 2011, we reported a net loss of $7.5 million, or $0.07 per share, compared to a net loss of $10.3 million, or $0.10 per share, for the first quarter of 2010. The primary reason for the decreased net loss in the quarter was due to lower research and development spending to support clinical trials of pandemic and seasonal influenza candidates. Research and development expenses for the first quarter of 2011 decreased by $3.6 million to $5.4 million, as compared to $9 million in the same period in 2010. This reduction was due primarily to the high level of clinical-development costs associated with our pandemic H1N1 and seasonal trivalent vaccine trials that were incurred in Q1 2010.

General and administrative expenses for the first quarter of 2011 increased by $300,000 to $2.8 million, as compared to $2.5 million in the same period in 2010. The increase was due to higher related employee costs in the current quarter. As of March 31, 2011, the Company had $23.9 million in cash, cash equivalents, and short-term investments, compared to $31.7 million as of December 31, 2010. That concludes our prepared remarks. Operator, we'll now open the call for questions.

Certainly. (Operator Instructions) Ted Tenthoff, Piper Jaffray.

I appreciate all the new energy and new blood coming into the Company, as well as the finances coming from our government. Congratulations on all that progress over the last quarter. I guess my question would have to do in terms of a little bit more color on what this year is going to look like with respect to actual deliverables on that contract, understanding that it's still a relatively new funding arrangement. When do you expect to start the studies? How do you expect the cash flow to be managed? What other additional color can you provide us?

Sure. This is Stan. I'll take the question. So, as you can imagine, this contract is a complex -- it's a 5-year contract covering the clinical development of a seasonal flu vaccine through Phase III studies into licensure. And in parallel, we'll be developing a seasonal flu vaccine -- I'm sorry, a pandemic flu vaccine, and comparing an adjuvanted version versus a non-adjuvanted version. So the contract has several milestones, and it's broken into what's called a base period, which is the first 3-year period, and something called an option period, which is the years 4 and 5.

And so what our are obligations under the contract, which, I think the official start date was February 24, so we have about March, April -- we have a couple of months under our belt now. The first milestones, the first deliverables, are to do 2 things. One is to prepare and discuss and agree upon a clinical development plan, which details all of the activities over that 5-year period of everybody in the Company that's working on the program.

The second piece of early deliverables is to develop a plan, which, a pathway to be able to manufacture up to 50 million doses of pandemic influenza. So it's a manufacturing plan and facility plan and a clinical-development plan. And so where are we, and what happens this year? So we are working on and will deliver the clinical-development plan over the coming weeks. We have already started the manufacture of all of the material for the Phase II dose-ranging and dose-confirmation studies that will begin in the second half of this year. It's a large study.

That study will provide the data that we'll take to the FDA in the end of Phase II meeting, and from that meeting we will have agreement on what the design and strategy will be for the Phase III trial. So, it's a lot of activity to manufacture and get prepared and initiate the final Phase II seasonal flu clinical trial.

And in parallel, we are manufacturing product for the pandemic Phase I-II trial that will start by the end of this year is the target. And again, Phase II data from that program will be available to us next year, and we'll work out the pathway from there. So those are the BARDA deliverables at a high level. There's lots of detail to that.

And then in parallel, we're working on a non-BARDA clinical-development program for RSV. As I mentioned, we initiated the trial in early January. We have finished dosing, or we have one last dose to do -- one last dose that will occur in May. And data from that trial will be available from the end of the third quarter. And then from that, we'll make a determination of what our Phase II will look like.

Okay, very helpful. Appreciate it.

Sure.

Thank you. George Zavoico, MLV.

Congratulations, Stan, and welcome to all the new people joining Novavax. I heard something very interesting a year -- couple years coming up for you guys at [this time]. I'm wondering whether the BARDA -- how flexible the BARDA contract is. [You've claimed to have been subclient] coming out with some increasing deaths reported in Ecuador, Mexico, Venezuela, and some Air Force recruits have gotten sick, with some deaths. I wonder, [with your subclimb], shouldn't you be flexible enough to actually change your production or react to this perceived or possible threat independently of the BARDA contract?

Let's see, your question, I think, was how flexible is the BARDA contract to react to current events around the world and pandemic influenza threats.

Yes, exactly.

Okay, good. So, both on the seasonal and on the pandemic influenza programs, the structure of the BARDA contract is that we agree upon a clinical pathway going forward, and we execute that. Then we sit down and look at the data that comes out of each of the trials, and that's where we have flexibility with BARDA. As you normally would do, you react to the data, and you change the plans going forward. We will provide them with a 5-year plan, and we will react to data as it comes out.

More specifically to your question about how we'll react to any change in pandemic influenza, our program will be to get data as quickly as we can in Phase I-II data. If something changes where there's a need to produce additional quantities more quickly than the original plan for pandemic and for H5N1 influenza, we always have the capability to switch over our production in-house and produce it at scale in-house, plus use contract manufacturing organizations to fill the need for surge production. And I think that as was shown in 2009 with H1N1, BARDA and the FDA reacted very quickly to the current events, and you saw manufacturing in the entire industry shift over quickly. So I think that's how we'll respond.

Okay. So basically, and I hope it doesn't happen, if it's similar seasonal flu events that there was in 2009, you're going to be able to do pretty much exactly what you did back then, which is to be at the genetic sequence and be able to come up within 12, 13 weeks with a first batch.

That's right. That's the beauty of our technology, to be able to do that.

Okay, great. All right. Thank you very much. I look forward to some of the BARDA milestones as you outlined to Ted as we go into this year and next year. Thank you.

Thanks.

Vernon Bernardino, Dawson James.

Hi, thanks for taking my question. Regarding the BARDA grant, just a few details there, if I could. How will the Company be paid for performance? In particular, how is the revenue, for example, recognized? Will it be current quarter or next quarter?

And then also, if you could update on the flu VLP licensing activities beyond LG Life Sciences. I know there were some activities in other regions of the world, and was wondering if anything useful will be gained from that. And then regarding the Varicella Zoster Virus, I was wondering what is the next milestone for that program.

And then you had some revenues, about $834,000. What was the driver of that revenue? Thanks.

Hi, Vernon, this is Fred. I think I'll take the first question, and then I'll hand it back to Stan. The question was regarding the finances and the revenue recognition on BARDA, and as you know, the BARDA contract, as Stan outlined in his remarks, it's a cost-reimbursable contract. So what that means is we have to actually perform the work that's approved and agreed upon with BARDA, and then at such time, we then produce a monthly invoice to BARDA. And then it would go into the normal contract office of BARDA which they would review the invoice, prepare the invoice for payment, and then ultimately payment back to the Company. So as you can imagine, that process takes -- that's a couple, 2- to 3-month process from initiation of work all the way through to payment. So that's kind of the timeframe we're looking at.

But we will recognize on the financial statements, as we did this month, and you refer to the press from earlier this morning, revenues over $800,000 was our first invoice to the government for the BARDA work. So that's in essence how it will work. We were pleased I would say by the level of activity starting right out of the gun early in the month of March in that invoice. And as Stan had said, as the clinical development plan unwinds, we would expect to see more in the way of costs that will be incurred with contract.

So let me turn the call -- let me turn your other questions over to Stan.

Thanks, Fred.

Okay, so 2 issues. One is partnering. We have, as you've seen, we have been able to complete 2 regional partnering agreements, one with Cadila in India and one with LGB in Korea. We have, I would say, constantly we talk with other companies in the industry, both large and small, both internationally and locally, about potential opportunities to partner our vaccine programs. That's an ongoing part of our business, and we will make announcements as those partnerships mature to an agreement. And so there's, at the moment, we're just executing our strategy, and as the partnerships come about, as I say, we'll announce.

Regarding new products in our pipeline, I think what we will report in the future is progress on our clinical-development programs and new products that come out of our pipeline and head toward the clinical trials. As you might imagine, we have a very robust pipeline of product candidates that range anywhere from early pre-clinical research into later-stage pre-clinical programs. And as they approach the clinic, we'll announce those. We have the benefit of a research group, both here and through our joint venture with CPLB in India that has produced these vaccine candidates, and we expect to see those in the clinics over the coming years.

Great, thanks for taking my questions.

Thank you. (Operator Instructions) Ted Tenthoff, Piper Jaffray.

Just following up too with the good progress that we've seen from the Cadila relationship in India. What are the next steps over there, and how can that potentially leverage or accelerate overseas development of both seasonal and pandemic vaccines?

So, Cadila is going through their pre-clinical process in India for both the pandemic and a seasonal flu candidate. The process in India is a bit different than it is in the US. The pre-clinical phase, the toxicology studies, and pre-clinical development lot manufacturing process is actually a bit more complicated and more time consuming than it is in the US. And in contrast, the clinical-development plan, once they are actually in humans, has the potential to go much more quickly than in the US. So, it's an interesting process to learn.

They have filed with the Indian equivalent of the FDA, and for entry into clinical trials. And that's where they are right now. They have built a manufacturing facility that was intentionally designed to be a world-class facility that can supply product anywhere in the world. So it's not just for production of material for India. They can produce material outside. They could produce it and ship it to the US.

So, we look at it as an extension of what we do here, both pre-clinically and clinically. We have access to all of the data that they produce with their vaccines in India. We, importantly, have rights to the products outside of India, and can use those data and those rights to commercialize vaccines here. It's essentially an expansion of our capabilities. They have a company now that's about the same size as Novavax, and full laboratory and manufacturing and quality controls in their company.

Thanks. That's very helpful. Thanks.

Thank you. (Operator Instructions) And I'm not showing any further questions at this time. I'd like to turn the program back to management for any further remarks.

Okay, well, we thank everybody for calling in, for your time and attention this morning, and appreciate your interest. We look forward to providing updates on our programs 1 quarter from now. So have a good day.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.