Novavax Inc (NVAX) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Novavax Q2 earnings conference call. (Operator Instructions.)I would now like to introduce your host for today's conference, Mr. John Herrmann. You may begin.

Good morning. This is John Herrmann, Executive Director of Legal Affairs AT Novavax. I thank you for joining us on today's second quarter 2011 financial results conference call.

Both the earnings release from this morning, and an archive of this earnings call can be found on the Company's website, 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 will 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, cash burn, and clinical developments and 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 business, financial conditions, results 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 Stan.

Thanks, John. And good morning, everyone. I am happy to report that we have had a very productivity quarter since our last conference call. I would like to start by spending a few minutes reviewing our progress during the quarter and then I will follow those comments with some discussions regarding data that we expect to generate over the coming year.

So I'll start by reviewing our efforts under the BARDA program, a program that has been our primary focus over the last quarter, and will be throughout the execution of the contract. One caution that I have is that we are operating under strict confidentiality rules under the contract, but I will be able to generally report our progress and status.

I believe that we got off to a very good start. Most importantly I can report that we have a fully functioning program with them. We have had regular in person and telephonic meetings both to report to them on our progress, and to work with them to plan the regulatory and development pathway, and the timing for both the seasonal flu program and our H5N1 pandemic flu program.

From a contract execution point of view, we have been generating significant revenue on a routine basis, sending the government detailed monthly invoices and have been receiving what we expect will be regular payments -- monthly payments.

To remind everyone, this program is divided into two parts. The first part is called the base period, which covers a three-year period. During the base period, we plan to develop our seasonal flu vaccine into a large Phase III trial. Over the same period we will be developing our pandemic program through multiple Phase I and II trials.

The purpose of those pandemic trials will be to evaluate our H5N1 VLP based vaccine for safety and immunogenicity. both with and without an adjuvant. The budget for this base period is $97 million, and that should cover all of our program costs, plus a fixed fee.

The second period, or the option period, covers two years, and is expected to cover the seasonal program through to filing with the FDA for licensure and the same for pandemic flu. This option period has a budget of approximately $82 million. Combined with the base period, the option period is intended to allow us to collect all of the safety, immunogenicity, and product manufacturing data necessary for filing a BLA for the seasonal and pandemic vaccines.

As we have mentioned, the BARDA contract award provides Novavax with a financial pathway to conduct Phase III trials where previously we didn't have a clear path. Given that we have this financial support, we have recently built a management team at Novavax that brings in a seasoned group of senior managers who have experience with late stage clinical development in commercialization of vaccines.

As we have previously announced, Jim Young, the co-founder and President of R&D at MedImmune, was named Chairman and is actively involved in helping build the Company. We recently announced that Dr. Tim Hahn, who lead manufacturing of FluMist and Synagis at MedImmune, following a 15-year career in manufacturing management at Merck vaccines, has joined us as Senior VP, Manufacturing. Earlier in the quarter we announced that Dr. Jane Halpern and Dr. Lou Fries joined as Vice President of Regulatory Affairs and Medical Affairs, respectively. After ten years at the FDA, Jane ran regulatory affairs at ID Biomedical and then went to GSK after ID was acquired by GSK. Lou was Medical Director at ID Biomedical, and following the acquisition by GSK, ran GSK's flu program under a BARDA contract. They are both well-known to BARDA, and are key to helping us develop a strong partnership with BARDA.

Our goal has been to put together the financial resources, along with the team capable of executing a complex product-development program and I'm pleased to say that we have done that.

Now I'll move to another exciting program, respiratory syncytial virus vaccine, or RSV. We think RSV is one of the most important new vaccines being developed in the industry. RSV is the leading cause of bronchialitis and pneumonia in infants under one year old. It's a virus that infects virtually all kids under two years. It causes 75,000 to 125,000 hospitalizations in kids in the US every year, and there are no vaccines in the world for RSV.

We have a vaccine candidate that entered clinical trials at the beginning of the year. During the second quarter we achieved an important milestone for this program. We completed dosing of our last subject in this150 subject dose-escalating clinical trial with six groups. This is a vaccine candidate being administered with two immunizations 30 days apart. We finished dosing on schedule, with the last dose given on May 23.

Finally, we have also been working closely with CPL Biologics, or CPLB, our joint venture with Cadila Pharmaceuticals. Progress is being made on several fronts, notably in the early stage development of a rabies vaccine. The current approved rabies vaccines are difficult to make, often run into shortages and require that four to five doses be given post exposure over a 28-day period. What is needed is a vaccine that is straight-forward to make, and can be effective in as few as two or three doses. During the quarter, the CPLB and Novavax team were able to demonstrate that a rabies vaccine candidate based on Novavax's VLP platform performed well in a proof of concept mouse study when compared to the traditional vaccine. CPLB will continue to develop this program to get additional safety and immunogenicity data in preclinical studies. And Novavax retains worldwide rights to the vaccine outside of India.

We believe that we have set the stage for our future. So let's turn to coming events over the next year.

We have a series of important data points from our three clinical programs coming up over the next 12 months. First, we expect to report interim top line data from our Phase I RSV clinical trial by October. These data will describe safety and immunogenicity results from the six different groups. From those data, we will be looking to design future clinical studies.

Later in the fourth quarter, we are targeting the initiation of our first new seasonal influenza trial under the BARDA contract. Trial design details will be available as we start the study. This will be a large-dose ranging and dose confirmation trial. Data from the study will be coming out late in the first half of 2012.

Similarly we should begin testing of our pandemic flu vaccine in the first half of 2012 with data becoming available during the second half.

Obviously data from these trials and progress on preclinical programs will drive the design and execution of future work. We look forward to reporting on these in coming quarters.

At this point, I'll turn the call over to Fred to review our second quarter financial results.

Thanks, Dan. In the second quarter of 2011, we reported a net loss of $5 million or $0.04 per share, compared to a net loss of $8.9 million or $0.09 per share for the second quarter of 2010. That represents a 44% improvement in the net loss year-over-year. The primary reason for the decreased loss in the quarter was the recognition of $3 million in revenue under the BARDA contract, which we expect will generate significant revenue for us this year as well as lower R&D spending.

Research and development expenses for the second quarter decreased to $5.6 million as compared to $6.3 million in the second quarter of 2010. General and administrative expenses for the second quarter of 2011 were $3.3 million as compared to $3.1 million in the same period in 2010.

As of June 30, 2011, the Company had $22.3 million in cash, cash equivalents, and short-term investments, compared to $31.7 million as of December 31, 2010.

As Stan mentioned earlier regarding BARDA, I would like to amplify the importance of the good relationship we have developed with BARDA pertaining to the administration of invoicing and a timely payment process from the US Government. To date we have been paid promptly and in full and this bodes well for the future, and provides real encouragement for our ability to efficiently accumulate non-dilutive funding for our entire influenza program.

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

Thank you. (Operator instructions.) Our first question comes from Ted Tenthoff of Piper Jaffray. Your line is open.

Great. Thank you, can you hear me okay?

Yes, Ted, how are you?

Hi, Stan, how are you doing? Hi, Fred. Two questions if I may. Firstly, againcongrats on this transformative relationship with BARDA. It's exciting to see that starting to kickoff, and I'm looking forward to the progress that you'll make with the flu programs with those moneys. When it comes to money in and R&D expense recognized, Fred, maybe now that we're a little further in to this, and you are giving some clarity in terms of how it is working, can you walk us through how that worked? The $3 million, was that all from BARDA, and was it then brought in and then expensed in R&D? Was some of it just offset to R&D? How does that recognition work?

Sure, Ted. So the way to contract is this is a cost reimbursable, plus a fixed fee contract. Now, what does that mean? That means basically we have to spend the moneys be it in -- and all of these moneys are in R&D, to -- essentially in R&D, to produce the product, to do clinical trials, et cetera. Once we conduct the work, we then invoice the government for those services and then the government -- the process they go through is their technical officer reviews the contract -- the invoice. If that is approved by her, that is handed off to the -- basically the Treasury Department and we receive payment. So it is money that we spend first at Novavax. We then invoice with a profit fee on the top, and as I say they then reimburse us and pay us, and I'm pleased to report, Ted, that this -- it's gone very well on the invoicing process that we have done to date and the collection.

Can you tell us what that fixed fee is? Is that disclosable?

It is not. We can't disclose that. That is confidential with the government.

Understood. And when it comes to the timing here, should we think of it as kind of the $3 million you got as expenses you did in the first quarter or what kind of lag is there?

The lag I would say is -- it's in the vicinity of 30 to 60 days, in that range. But the majority of this work on the $3 million was done in the quarter.

Got you. Looking at R&D this year, again I know you are not providing specific guidance, but we have seen it kind of flat in the first two quarters. Do we expect that to jump pretty significantly then starting in the fourth quarter and going in to 2012 to 2013.

Absolutely. As Stan laid out in his prepared remarks, we will be initiating trials in the fourth quarter, and that will then ramp up -- continue to ramp up in the pandemic area in the first quarter. So -- first half, I should say, and so, yes, we are absolutely expecting to see that ramp up. You should recall, I think that the reduction year-over-year in R&D as I mentioned, was really due to a lot of the cost that we incurred last year in the H1N1 Mexican trial that we did. And those were in our numbers for last year. Of course that is now over, so they are not in our numbers this year, so we have had that, as you mentioned, that reduction. But we absolutely do expect to see this ramp up -- start ramping up in the fourth quarter.

Great. And the last one, if I may, with the cash of $22.3 million, would you hazard how long that lasts you?

Yes, in our 10-Q that we will be filing in the next day or so, we have indicated that we have -- that represents 12 months -- at least 12 months worth of on-hand cash.

Great. I appreciate it. And look forward to continued progress.

Thank you, Ted.

Thank you. (Operator instructions). Our next question comes there Vernon Bernardino of Dawson James. Your line is open.

Hi, thanks for taking my questions, and congratulations also on the performance on the BARDA contracts. Just a little bit more detail on those. Just -- can you provide some detail on what the activities were? And then I know the performance will likely be choppy as clinical activities will vary month to month and so on. Can you provide an idea of a potential guesstimate on the run rate going forward? And lastly on the RSV program, what kind of data will you be announcing later this year? Thank you.

As far as the invoicing to date, what I would say is that the majority of that -- those invoices have pertained to product development and product characterization, the cost really associated with manufacturing and PD have been the, I would say, the majority of those costs that we have incurred to date. So as I think Stan has mentioned in previous calls, we have made a lot of progress in the overall manufacturing area, and that's really where I would say that the majority of the costs, for the $3 million of revenue that we booked this quarter came from, Vernon. We do not, as a matter of policy give guidance on exact numbers moving forward, but as I mentioned to Ted earlier, I think what you can expect to see is a continuing rise in R&D expenses as we move in to the later part of this year, which will mean a rise in revenue, because those costs, as I mentioned, are billable to the government, so as expenses increase, revenue increases, and that's something I think that you clearly can expect as we move forward.

And then any detail on what kind of data in the RSV program you will provide.

Oh sorry, yes let me turn that over to Greg.

Greg Glenn here. So in RSV, the key immune readout is in neutralizing antibodies, very much like the HAI. So we'll report on the neutralization response and safety in this 150-subject trial. I think it is known that neutralizing antibodies are protective both through the information generated through Synagis, the program at MedImmune, and through naturally conferred antibodies to infants. So we'll be reporting on what we think is a very important immunologic data set.

As a follow-up to that do you think you'll be positioned to start a Phase II part of the program in time for the next RSV season?

So the -- I think the answer is we'll be looking very carefully at our clinical development plan, and our expectation is we will be moving into Phase II. I wouldn't expect that that would be an efficacy trial, and so with respect to the RSV season we won't be looking for an efficacy end point. Typically we would dose range or dose find in a Phase II trial.

Okay. Thanks, and congrats again on the BARDA performance.

Thanks, Vernon.

Thank you. (Operator instructions). We will wait a few seconds. I'm showing no further questions in the queue at this time. I'll hand the call back to you.

Okay. Thank you. Thanks for your time and attention, and we appreciate your interest in our progress, we look forward to giving you an update on the next call. Have a great day thanks.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect and have a wonderful day.