Novavax Inc (NVAX) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Novavax Q4 and 2011 earnings conference call. At this time all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions)

As a reminder today's conference call is being recorded. I would now like to turn the conference over to your host today, John Herrmann. Please begin.

Good morning, and thank you. This is John Herrmann, Vice President and General Counsel of Novavax. I thank you for joining us on today's fourth-quarter 2011 financial results conference call. Both the earnings release from this morning and an archive of this earnings call can be found on our Company's website Novavax.com. On today's call are Novavax's President and CEO, Stan Erck, and members of our executive team.

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 usage, clinical developments, and anticipated milestones are all 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 that change over time. Further information on the factors and risks that affect Novavax's business, financial conditions, and results of operations are contained in Novavax's filings with the SEC. These are all 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. That said, I will turn the call over to Stan.

Thanks, John, and good morning, everyone. Thanks for calling in. I'd like to spend a few minutes discussing our progress over the last quarter and year, and I will follow that with a discussion of our plans for 2012. Over the last year, the Company has made a couple of high visibility announcements, notably the signing of $179 million contract that will fund our seasonal and pandemic flu programs for the next several years and, more recently, the superb data that we got from our RSV vaccine trial announced in October.

While both of these announcements were obviously important, what's equally important but gets much less visibility is the complete restructuring of the entire Company with the addition of a new management team at all levels within the Company and the internal focus over the last year on building robust, commercializable manufacturing processes and quality systems. In parallel we have built regulatory and clinical teams with experience in late-stage clinical development and regulatory filings from Phase I through product licensure. These accomplishments will serve as the base upon which we carry our product development efforts forward. I believe that we entered 2012 in our strongest position ever to realize the clinical and commercial potential for our vaccine technology and pipeline.

From a business development perspective, last year we landed two US government contracts, the $179 million BARDA advanced development contract to develop seasonal and pandemic influenza vaccines. The strategic importance of winning this award cannot be overstated since it now provides us the financial underwriting to take our seasonal and pandemic influenza vaccines through late-stage testing and BLA filing. We also were awarded a multi-year contract with the US Department of Homeland Security to develop a VLP vaccine countermeasure to protect the United States from foot-and-mouth disease.

On a commercial level, we launched a new collaboration with LG Life Sciences of Korea, to apply our VLP vaccine technology to markets in Korea and specified developing countries. And, we continue to build our joint venture in India with Cadila Pharmaceuticals as evidenced by the announcement of the pre-clinical progress of our new rabies vaccine. From a clinical and regulatory perspective, we presented our clinical findings in medical and scientific conferences throughout the year, including the Seventh WHO Meeting on Pandemic Influenza Vaccines in Clinical Trials at which we presented the final positive results of our H1N1 VLP vaccine study in Mexico. We also published results from the study in general vaccine and the results from our Phase I/II, which is an H5N1 pandemic influenza study in the Journal of Virology.

In the first half of 2011 we conducted a Phase I clinical trial with our third vaccine candidate targeted against respiratory syncytial virus, or RSV, and showed excellent results in our blinded placebo-controlled escalating dose study, in 150 healthy adults from 18 to 49 years of age. We presented interim top-line data from the trial in October at the Fifth Vaccine and ISV Annual Global Conference and reported that our results were consistent with pre-clinical studies and showed that the vaccine was well tolerated and had no systemic side effects. As importantly, the vaccine candidate was highly immunogenic and produced functional antibodies that neutralized RSV. The antibody response to the RSV-F protein was significantly increased compared to placebo in all groups and increased by 19-fold in the highest dose group at day 60. Needless to say, we were very excited about these results and the potential of this vaccine candidate as a prophylactic solution for RSV in both the pediatric and elderly populations.

Let me remind you that RSV is the leading cause of lower respiratory tract infections in infants and young children as well as the elderly. In infants, RSV is the leading cause of hospitalizations in the US. On a global basis, the disease burden is estimated at 64 million cases and 160,000 deaths every year. The need for a vaccine is greater than ever. There are no vaccines approved today to prevent RSV and current treatments are often inadequate, cumbersome, and expensive. This is a very important program for Novavax and it addresses a critical public health need globally.

From a personnel and infrastructure perspective, we have made great progress. I'd like to spend a couple of minutes focusing on the details of this because we spent over a year recruiting a first-class team. While every department within the Company is key to our success, I would like to focus on a few areas that are of particular importance when developing new vaccines. So let's start with manufacturing. Overseeing manufacturing process development engineering and facilities is Dr. Tim Hahn, Tim brings tremendous experience from MedImmune where he was involved with their FluMist vaccine and synergist antibody programs preceded by 15 years at Merck in various roles of increasing responsibility and manufacturing. Tim has been involved with both commercial products and products in clinical development.

Working with Tim are Dr. Erica Shane, VP of Process Development, and Mervyn Hamer, VP of Manufacturing. Erica ran process development at MedImmune for 17 years and is an expert in the ins and outs of early- to late-stage product development. Merv also has a long career managing manufacturing and operations at various companies, from Alza to PATH, and then Intercell. Process development manufacturing work hand-in-hand with quality assurance in order for us to assemble a package for submission to regulatory agencies such as the FDA. Dr. Jane Halpern, VP of Regulatory Affairs, runs these areas. Jane joined us after 10 years at the FDA Biologics Division, CBER, followed by industry experience running regulatory and quality functions at GSK, ID Biomedical and Genocea.

Finally, as we add products into the clinical setting, we need strong clinical trial planning and execution. Dr. Lou Fries, VP of Medical Affairs, heads up our clinical strategy and works with Nigel Thomas, Executive Director of Clinical Operations, who is an expert at running clinical trials worldwide. Lou's career spans from, most recently, head of the GSK pandemic flu program, also sponsored by BARDA, and previously as head of clinical affairs at ID Biomedical where he was instrumental in the development and FDA approval of their flu vaccine in the US. These are a few of the people that we have added in the last 10 months that are now working as a team to bring our product candidates to commercialization.

Turning to 2012 and beyond, we will need the capacity to develop processes and make product for at least three vaccines, one of which is a quadrivalent flu vaccine requiring four production runs for each clinical trial. This is very important since just a week ago the FDA approved the first egg-based quadrivalent vaccine which is a clear sign where the industry is headed, and we're also now positioned to be there.

As we announced late last year, we've acquired the ability to do this through the negotiation of a very favorable long-term lease arrangement to occupy 74,000 square feet of manufacturing, laboratory, and office space in two facilities in neighboring Gaithersburg, Maryland. The main facility will become the primary commercial-scale manufacturing facility for production of our vaccines and will provide twice the production capacity of our current facility so we can meet our projected clinical and commercial supply requirements for the foreseeable future. Because of these achievements last year, we now have the technology platform, the people, and the physical plant to become a commercial vaccine company.

So now let me speak about what you can expect for us -- from us in the rest of 2012. On the strength of the 2011 achievements, last week we initiated a Phase II trial in the southern hemisphere to select the optimal dose of our new quadrivalent seasonal flu VLP vaccine. We will provide, in early quarter 3, the top-line clinical data from this trial. At the conclusion of this trial, we will conduct a dose-confirming Phase II trial later this year in young and elderly adults. These studies represent the last Phase II trials planned prior to our end of Phase II meeting with the FDA in 2013. In addition, we are now preparing to launch, in the second quarter, two Phase I studies of our H5N1 pandemic influenza vaccine candidate, with multiple adjuvants, and we expect top-line clinical data in the second half of this year. All of this work will be performed and paid for under the BARDA contract.

With respect to RSV, we are planning to advance our RSV vaccine candidate into two Phase II trials in both elderly adults and women of childbearing age. These separate trials will be conducted with and without an adjuvant and will provide both safety and immunogenicity results of these different age populations. As we've indicated in the past, there continues to be a strong interest in partnering this vaccine, and we will continue to explore these strategic initiatives. We will remind you that RSV represents one of the largest vaccine markets globally, and there is no vaccine currently available.

Our market analysis suggests that sales of this product could exceed $5 billion globally. This is a product that we feel will attract the attention of larger pharmaceutical companies who will be instrumental in helping us to commercialize the product around the world. In 2012, from a manufacturing process development perspective, we will continue to move towards -- one, locking down our production process at a commercial 1,000 meter scale; two, preparing for an end of Phase II meeting with the FDA in 2013; and, three, for manufacturing material for the launch of our Phase III trial in late 2013.

In summary, let me leave you with these key take away points. First, Novavax now has three promising vaccine candidates undergoing six clinical trials with a wealth of clinical data coming in 2012. Second, we have the funding from BARDA to take our influenza vaccines through late-stage testing and BLA filing, which provides a tremendous financial benefit to us. Third, our RSV vaccine candidate represents significant value to the Company. And, finally, we are advancing international collaborations in India and Asia and now have the needed US manufacturing, laboratory, and office facilities to support our expansion and commercial plans.

With a stronger team in place to build on this record of success, 2012 promises to be another very productive year for our organization. Financially, we've made significant progress in reducing our net loss and improving our liquidity and cash usage position. So now I'll turn the call over to Fred to review our fourth-quarter and year-end 2011 financial results. Fred?

Thank you, Stan. For the fourth quarter of 2011, we reported a net loss of $3.7 million, or $0.03 per share, compared to a net loss of $6.3 million, or $0.06 per share, for the fourth quarter of 2010. For the full-year 2011, we reported a net loss of $19.4 million, or $0.17 per share, compared to a net loss of $35.7 million, or $0.34 per share, in 2010 -- almost a 50% reduction year over year. The primary reason for the decreased loss in the quarter and full-year was the recognition of revenue under the BARDA contract which we expect will generate significant revenue for us in 2012.

Fourth-quarter operating expenses were $10.1 million as compared to $7.1 million in the fourth quarter of 2010. For the full-year 2011, operating expenses decreased to $36.3 million, compared to $38.8 million in 2010. The decrease in operating expenses for the full year was primarily due to lower outside testing costs as a result of fewer clinical trials ongoing during 2011, as compared to 2010. This was partially offset by higher expenses associated with the BARDA contract.

For 2012, we expect a significant increase in research and development expense due to increased clinical trial activities. As of December 31, 2011, the Company had $18.3 million in cash, cash equivalents, and short-term investments compared to $31.7 million as of December 31, 2010. The reduction in our cash position from 2010 primarily occurred in the first half of 2011 since reimbursement under the BARDA contract did not begin until the second half of the year.

However, with the full funding of the BARDA contract in place in the second half of 2011, we were able to significantly improve our cash position. To amplify that point, our cash used from operating activities dropped from $17.4 million in the first half of 2011 to only $6.2 million in the second half, or a 65% drop in cash used. We expect this reduced cash usage rate to continue in 2012, again, due primarily to our BARDA contract for influenza. But, this will be partially offset because of higher R&D expenses associated with our planned trials in RSV that are not fully funded externally, at this time.

Overall, we have entered 2012 in a sound financial position with the available resources to move all our programs forward. That concludes our prepared remarks. Operator, we will now open the call for questions.

Thank you.

(Operator Instructions)

One moment for the first question. Bill Tanner, Lazard Capital Markets.

Thanks for taking the question. Congratulations, Stan and the team, on all the progress.

I have a question for you, Stan -- just as it relates to the RSV vaccine, can you remind us of the intellectual property on that? And then, also, as it relates to commercialization -- understand maybe needing a partner for rest of world, but is that something that would be feasible commercially for Novavax? I guess to at least undertake the domestic part of the commercialization?

Yes, with response to the intellectual property, we have a string of intellectual property filings that we believe will give us complete protection in all important global markets.

Number two -- with respect to the commercialization strategy and partnering -- I think this is a product that is of interest to all regional and global vaccine companies. It represents a real opportunity, because there are no RSV vaccines in the marketplace. I think that we will pick our partners carefully. We clearly need, as a 113-person biotech company, we will need help in commercializing the product; and we will select our marketing commercialization partner both on a regional and global basis.

Okay, and then maybe just on -- how should we think about, then, just the seasonal opportunity in terms of obviously very competitive environment? And just thinking about how your quad seasonal vaccine might fit in there?

Yes, we think the seasonal vaccine represents -- we have some advantages over the competing egg-based products. Including -- we have the potential of having a vaccine that will be first to market. We think we will be competitive on a cost of goods sold basis, and we think we will be able to enter the marketplace -- particularly in the United States, we can likely enter the market ourselves.

I think we will still need a global partner, but the advantage that we now have is, we have a financial pathway all the way to commercialization through our BARDA contract; and we can make that determination as we get closer to the commercialization stage of the product.

Okay, thanks very much.

George Zavoico, MLV and company.

Thank you. Hello, Stan; hello Fred -- everybody, congratulations on a good quarter and putting together what appears to be a pretty robust clinical development plan for 2012. And that leads to my first question.

You guys had the BARDA contract now for almost a year, and it's taken a while to launch the first trial, which just came out a couple of weeks ago. Could you just explain a little bit -- I understand that there were a tremendous amount of changes from when the contract was first applied for, including the change to quadrivalent; and you've also mentioned using a number of different adjuvants now, which you haven't used before in your VLP trials.

So, could you just review briefly what kind of discussions you've had with BARDA since the original application? And now, the formation of what appears to be a pretty robust clinical development plan?

I'd be happy to.

So, originally, when we responded to the RFP, I wasn't here; but if I recall correctly, we put in the RFP in the first half of 2009, or were preparing it in 2009, based upon a plan to make a trivalent vaccine. And, through the process, the time that it takes to go through review and approval -- you're right, it was one year ago, February 24, that we got the contract.

And the first thing we do with the contract is then to update what the production and clinical development plan would be. That took the first quarter of the contract to work with BARDA, get everybody's buy-in as to what the right strategy was. And as you can see, we all agreed that developing a quadrivalent vaccine for seasonal flu was the right strategy, because we felt that that's where the market was going to turn. And it turns out we were correct. To do that requires, in the background, in the manufacturing and process development, developing a larger-scale process for manufacturing not just three flu strains, but getting a fourth strain up and running and in the formulation.

That necessarily took some additional months, so we decided to delay the clinical trial from what was originally going to be the fourth quarter of last year, and put it into Australian, in the southern hemisphere, in the first quarter. So we think that was the wise choice to make with BARDA. And now, we, as you said, we have a robust pipeline of clinical trials going on in the next 12 months leading to Phase III by the end of next year.

With the pandemic, I think that was the same thing -- we wanted to develop a clinical plan that would lead us to licensure. We wanted to use the best adjuvants at our disposal, and so we now have trial plans that were not anticipated in the original filing that allows us to compare competing adjuvants and then down-select based upon human [clinical] data that we get in the second half of this year.

Are these adjuvants that Novavax has developed or working on? Or are these adjuvants that you're going to have to license in?

Well, we have candidates that include both. And we are not able to disclose the licensed-in adjuvants right now.

Okay. Thanks. With regard to the executive team -- this is a pretty high-level team; and congratulations for attracting these folks. But, there is I guess an expense associated with such high-quality people. Can you comment a little bit about on how that might affect G&A, or R&D expenses, depending on where these people -- their work is allocated to?

Yes. So, yes, to get good people you have to pay competitive compensation packages. I think that what you do, in my view -- in a biotech company everything is centered around time, and the more effectively you execute your plans, the more money you save; and we will save lots of money by having a team that can get product developed quickly.

George, this is Fred. I would also add to Stan's point is, that it's important to note that all of the people that Stan mentioned in his prepared remarks actually are on the roster with BARDA; and all of those people are people whose time is actually billed as part of the influenza program through the government. So these types of costs are all embraced under that agreement.

Terrific. Okay, I look forward to execution on your plan and the start of additional trials this year and results later on as well. Thank you very much and congratulations again.

Thanks, George.

Thank you, George.

(Operator Instructions)

Ted Tenthoff, Piper Jaffray. Ted, your line is open. Could you try pressing your mute button? Pardon me -- Ted, your line is open; please go ahead with your question.

(Operator Instructions)

I am not showing any other questions in the queue. I would like to turn it back over to Stan Erck for closing comments.

Okay. So, we thank you for taking the time to call in and listen to the report today. We look forward to providing an update on our programs in 90 days. Thanks a lot.

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