Novavax Inc (NVAX) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, andwelcome to the Novavax Q1 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll have a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. John Herrmann, Vice President General Counsel. Sir, you may begin.

Thank you. Good morning, everyone. I want to thank you for joining us on today's first quarter 2012 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, which is Novavax.com. On today's call are Novavax's President and CEO, Stan Erck; our CMO, Greg Glenn; and our CFO, Fred Driscoll.

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

With that said, I will now turn the call over to Stan.

Thanks, John. Good morning, everyone. I'm pleased to report to you that once again we had a very productive quarter. I'd like to take a few minutes to review our key accomplishments before Fred reviews our financial results.

The most visible achievement in the first quarter was our launch of a Phase 2, dose ranging, 500 subject clinical trial of our trivalent and quadrivalent seasonal VLP influenza vaccine candidates. That is key milestone for our seasonal flu vaccine program. We're conducting the trial in Australia because the flu season in the southern hemisphere hasn't started yet, which allows to us evaluate our flu vaccine without waiting for the end of the flu season here in the northern hemisphere.

In this trial, we're evaluating the immunogenicity and safety of three dose levels of our quadrivalent vaccine in healthy adults between the ages of 18 and 64. The goals of the trial are to allow us to transition from a trivalent to a quadrivalent seasonal vaccine candidate and to determine the most effective and appropriate dose for later clinical evaluations. From a timing perspective, we are on plan and expect to report top line clinical data from this trial in the third quarter.

As I mentioned, we initiated this Phase 2 trial in Australia under a the Company's trivalent IND with the FDA, rather than waiting to conduct a trial under a new quadrivalent IND, which we plan to file later this year prior to the initiation of our next Phase 2-B dose confirmation trial. From a financial reporting perspective, this decision means that we will record the revenue associated with these outside clinical trial costs when we submit trial data, under the new quadrivalent IND later this year and it's reviewed by the FDA. This is a timing issue and Fred will discuss the details and impact to our financials later.

This week, we also announced that we had launched the first of two Phase 1 clinical trials of our H5N1 pandemic influenza vaccine candidate, using an adjuvant in 333 adults 18 to 49 years old. This randomized, observer-blind, dose ranging, placebo-controlled trial is also being conducted under our contract with BARDA. We continue to be on track to also launch the second Phase 1 clinical trial using the same clinical protocol design but with a second different adjuvant. At the conclusion of both Phase 1 trials, we will select one of the adjuvants and move into the next stage of pandemic clinical development.

Turning to our RSV program, in March, we presented results from the Phase 1 trial of our recombinant nanoparticle vaccine candidate against RSV, respiratory syncytial virus at the 14th International Symposium on Viral Infections. Short-term and six-month safety and immunogenicity data from this study suggests the vaccine has the potential to elicit protective immunity from RSV. You may recall that last October we presented interim top line data from the trial at the 5th Vaccine and ISV Annual Global Congress, which were consistent with pre-clinical studies and show that the vaccine was well-tolerated and had no systemic side effects.

We're very excited about our results and the future potential of this vaccine candidate as a prophylactic solution for RSV in both the pediatric and elderly populations. Our continuing analysis of the data confirms that our vaccine has the potential to uniquely stimulate antibodies at high levels and mimic the activity of an approved monoclonal antibody therapy known as Synagis, made by MedImmune for the prevention of RSV in premature infants. We plan to advance our RSV vaccine candidate into two Phase 2 trials in both elderly adults and women of child-bearing age.

These separate trials will be conducted with and without an adjuvant and will provide both safety and immunogenicity results in these different age populations. As I've said before, RSV represents one of the biggest vaccine markets globally. By our estimates, greater than $5 billion and this is a product that could be the first RSV vaccine brought to market.

Switching topics to CPL Biologics, our joint venture in India with Cadila Pharmaceuticals, CPLB has been making great progress in recent months with the development of new vaccines in its new fully complete vaccine manufacturing facility in India. CPLB is now preparing to begin clinical testing of a VLP-based influenza vaccine and a new rabies vaccine.

Both of these vaccine candidates were initially developed at Novavax and then transferred to CPLB for scale-up and testing. CPLB is in the process of getting regulatory approvals for testing these vaccines in clinical trials in India. I remind you that we share in their success and can utilize CPLB's development work on vaccine candidates, like rabies, to initiate similar efforts in other territories that would benefit from such a program.

As we've mentioned, Novavax has worldwide rights outside of India to vaccines developed by CPLB. CPLB is a valuable, long-term strategic partner and we congratulate them on their success in expanding our vaccine development capability and global manufacturing capacity.

As a final comment, I wish to acknowledge the appointments of Merv Hamer as Vice President of Manufacturing and the promotion of John Herrmann as Vice President General Counsel. They are both very talented executives and we're delighted to have them on our senior management team.

And now, I'll turn the remarks over to Fred.

Thank you, Stan. For the first quarter of 2012, we reported a net loss of $7.3 million, or $0.06 per share, compared to a net loss of $7.5 million, or $0.07 per share, for the first quarter of 2011. The Company had higher revenue in the first quarter of 2012 of $4.6 million as compared to $800,000 to the same period in 2011, due to the BARDA contract being in full effect in 2012.

In conjunction with the increased BARDA revenue, the costs of contract revenue increased to $3.8 million in the first quarter of 2012, as compared to $300,000 for the same period in 2011. As Stan mentioned earlier on this call, revenue recognition for outside clinical trial costs for the Phase 2 seasonal influenza vaccine trial, currently underway in Australia, will occur in the second half of this year.

The total effect of this delay in revenue recognition and ultimate payment is based on this trial's outside clinical trial costs that are expected to total approximately $3.1 million, of which approximately $1.7 million was incurred through March 31, 2012. These costs are recorded in our financial statements as costs of contract revenue. We will seek reimbursement from BARDA for these costs once the data from the trial have been submitted to the FDA and reviewed under the new quadrivalent IND and recognize the revenue at that time.

Research and development expenses of $5.11 million in the first quarter of 2012 were flat compare to the same period in 2011. General and administrative expenses increased to $3.2 million in the first quarter of 2012, as compared to $2.8 million for the same period in 2011, dueprimarily to noncash-related expenses associated with the Company's new office facility, as well as higher professional fees.

As of March 31, 2012, the Company had $20.7 million in cash, cash equivalents, and short-term investments, compared to $18.3 million as of December 31, 2011. As was mentioned in this morning's press release, the cash used in operating activities of the Company decreased from $9 million in Q1 2011 to $4.2 million in Q1 2012, which represents a 53% reduction in our burn. This clearly amplifies the significance of the BARDA contract to our Company.

That concludes our prepared remarks. And now, operator, we'll ask for questions.

(Operator Instructions). Our first question comes from Bill Tanner from Lazard. Your line is open.

Thanks for taking the questions. Maybe just a quick one, Fred, for you as it relates to the Company seeking the revenue reimbursements. And, Stan, I don't know if it was my connection or, when you mentioned earlier when the data would be available, just curious, Fred, is this reimbursement likely to occur in 2013?

Bill, the expectation right now is that we will file the IND in the second half of this year. And at that time, we will seek reimbursement from BARDA at that time. So our expectation now is, at this point, is that it would be a second half event in 2012.

That you would actually get reimbursed the money?

Yes, sir.

And, Stan, just on the RSV vaccine, testing it in women of child-bearing age, I wonder if you could elaborate a little bit on that. Is the contemplation then if the vaccine were commercial that women would become vaccinated perhaps prior to when they wanted to become pregnant and just take advantage of passage of the antibodies across the placenta?Just want to understand that a little bit better, that aspect.

We take five different indications for the RSV vaccine, and two of them are in kids. We expect zero to two year olds and then two to five year old toddlers, both of whom are exposed to RSV. In the zero to two year olds, RSV is the largest cause of hospitalization of kids. So those are both of our targets.

And as part of our global -- our grand clinical development plan, we'll start approaching those targets after we've developed a safety database in adults. The other two indications, one is for women of child-bearing age, and the expectation is to vaccinate women in their third trimester so that they build up a high antibody level that gets transferred to the newborns and protecting the newborns in the first few months of life, maybe the first three to six months.

And then finally, the elderly, we would target a single dose vaccine in the elderly, possibly an annual vaccine that would represent a -- just like the flu vaccine in the elderly on an annual basis and then possibly as a combination vaccine with our flu vaccine so that you would have what would be known as a respiratory vaccine, an annual respiratory vaccine for flu and RSV. So those are our target markets.

And then as it relates to the kids that are zero to two, wondering if you could just remind me what the expectation would be for the vaccine to be appropriately immunogenic in kids of that age.

I think I'll turn that over to our Chief Medical Officer.

Hi, this is Greg Glenn. So the disease in that population and the burden on hospital and outpatient care is mostly ER visits and outpatient visits. So we would be looking to reduce what we call medically attended respiratory illness to the vaccination.

As Stan mentioned, the current trial on women of child-bearing age allows us to create a safety database, which would be necessary to go into pediatric population. And the level of immunity that we are expecting, the qualitative measures that we make, for example, the neutralization measures we make are the type of immune responses that would be expected to be protective, and we saw those quite robustly in our Phase 1 trial.

Okay. And then maybe just one last question. Then maybe it's for you then, Greg, on the quadrivalent versus the trivalent. Maybe if you could speak to the expectation for perhaps the difference in the protection of a quad versus a tri.

Well, the reason that the health authorities at the WHO and CDC have recommended to add a second B strain is through the surveillance in the past decade or so, there's been an observation that the vaccine match for the B strain has been off and on, and to this would increase coverage for the second B strain that we're seeing out in the surveillance settings in the rest of the world.

So this is a recommendation that has been taken up by all of the major manufacturers to make the quadrivalent and this increases the coverage. There's two lineages of these, and by doing the second B strain, we're able to cover both of these lineages.

Okay. All right. Thanks very much.

Thank you, Bill.

Thank you. Our next question comes from Ted Tenthoff from Piper Jaffray. Your line is open.

I appreciate the update and taking the question. Maybe you can give a little bit more information about the strategy to go into -- to go down under first with the Phase 2 study and the trivalent vaccine as I understand it. I get the time benefit, but if ultimately the goal is to get the quad approved, what additional data are you going to be generating from this Phase 2 study?

Well, first of all -- this is Stan. And we will -- it's a comparative study. We'll look at one arm of the study, we'll have the trivalent vaccine and we'll compare it to the arms that have the quadrivalent vaccine. So we're trying to --

I see.

We'll do that comparison to show that we don't lose immunogenicity of the strains by adding a fourth strain. And then what we want to do is also do a dose ranging trial so that we can pick a final dose for a Phase 2 dose confirmation study that will start later this year. All of this is planned and timed so that we can begin Phase 3 trials next year.

I got it. I think I missed that it was a kind of comparative study on that standpoint. So when should we get data from that Phase 2 study then?

Well, we publicly state the third quarter, so it's early third quarter.

Early Q3. Excellent. That's very helpful.

Thank you. Our next question comes from George Zavoico from MLV. Your line is open.

Hi. Thanks for taking the questions. Fred, Stan, Greg, good morning. Couple questions. I looked at the clinicaltrials.gov, and it said that the Australian trial was active, but not recruiting. Does that mean that it's fully enrolled now with 500 patients. That quick -- not too long a time to get that big of an enrollment, if that's the case?

That's a great question. One I'd love to answer. We enrolled all 500 in two weeks.

Wow. Congratulations. Next question is regarding the reason for the delay and the reimbursement with the pandemic -- I'm sorry, with the Australian trial. I mean, the pandemic flu trials here in the US are reimbursed as they occur, but in Australia, there's apparently going to be this one or two quarter, maybe longer, delay. Is there -- what's the reason to that?

Yeah. That actually doesn't have anything to do with Australia. It's a technicality that we had to address is the Australian trial, so we originally designed this trial as a trivalent, so it was going to be 205-A, followed by a quadrivalent 205-B. There were delays in the manufacturing last year that we got over, but we didn't want to delay the results from the trial and any delays in Phase 3, so we combined the trial into this trivalent quadrivalent.

So now we have to file a quadrivalent IND, which we'll do later this summer, and these data will be reviewed under that and BARDA is prohibited technically from paying for the data unless it's under that IND. So it's a timing issue.

So you chose to start the trial to coincide with the flu season before you were able to file the IND here, basically, is the --

That's right.

Oh, okay. Great. Love those technicalities. And last question, the LG, is that on schedule? They're building a manufacturing plant there, correct?

Yes. We're on a weekly basis doing tech transfer with them. And they use the information from our process that is being locked down, will be used to -- in their plant design. So that's going just fine.

Have they broken ground yet, or is it still in the architectural rendering stage?

It's in -- I can't even say the word. It's in the planning stage.

Okay. All right. Great. Thanks, and congratulations on the progress.

Thanks a lot.

Thanks, George.

Thank you. (Operator Instructions). Our next question comes from Kevin DeGeeter from lad Ladenburg. Your line is open.

I want to add my congratulations to all of the progress. Stan, Greg, maybe you could talk a little bit about how we should think about pricing and perhaps economics of quadrivalent influenza vaccines. We do have a few that have been launched into the market this year. Do you think there's some price elasticity around quadrivalent and what does this sort of incrementally do with COGS?I think directionally it potentially raises COGS. But just any feel you can offer from what we're seeing today commercially in the market would be helpful.

So I don't have incite into what the planned pricing model is from the large pharma quadrivalent. So we'll have the benefit of knowing what that is by the time we get to the marketplace and designing our pricing policy around that. So I can't -- you know, I can imagine that it's going to be a higher price.

The cost, of course, will not go up 33%;they'll go up a portion of that because it's only the raw material -- it's only the active ingredient, so they'll go up somewhere in the 10% to 20% range I would guess. And I'm sure the prices will at least cover that. But it's not clear to me at this time what the pharmaceutical pricing will be doing.

Okay. Fair enough. And maybe on a somewhat related issue, I mean the Company's made tremendous amount of progress over the last two, three years in terms of manufacturing (inaudible) influenza, generally. Does the transition here to really pushing forward with the quadrivalent as the most likely lead vaccine for influenza result in any more meaningful changes or improvements to process development that the Company will need to undertake or were those larger and already factored into a lot of the work that's been done over the last several years?

So I'm glad you point out that there's been progress in process development. It's been one of the most important efforts internally in the Company is to develop and improve a process, both for product quality and for yields. And we've just brought on some people who are the best in the world at process development, analytical development, manufacturing. They've made a huge difference and just in the last 12 months, our yields have gone up dramatically andthe product purity and quality has been dramatically improved as well.

We're very happy with the way that that's gone. We think we're in a stage right now where we can lock down the process for flu. It's a similar process that we use for RSV and other products, as well. And so we've just built up a knowledge base that will allow us to make a competitively cost -- a cost competitive flu vaccine.

And maybe just one last one, if I can slip this in. With regard to the two adjuvant programs that you'll be evaluating in Phase 1, assuming we get an interesting profile and read-out, should we think of the adjuvant technologies the Company's working on is potential sources of partnering or outlay sensing opportunities in addition to the work in combination with potentially in pandemic? Just how do we think about the economic model generally around the adjuvants the Company has developed?

So we're working on in-licensed adjuvants, and so that doesn't -- it doesn't represent a separate opportunity for us, I don't think. I think our adjuvant and pandemic vaccine, our adjuvant -- well, I guess that's what we're working with on the in-licensed products, so it's not an economic opportunity.

Great. Thanks so much.

Thank you. Our next question is a follow-up from Bill Tanner from Lazard Capital Markets. Your line is open.

Thanks for the follow-up. Fred, just quickly on the numbers. So the increase in the cost of contract revenue year-over-year, so $1.7 million of the delta over first quarter of last year was attributable to doing the trials in Australia and the balance of it, can you tell me what that was related to then?

Yes. First thing, Bill, it's -- remember, we started the contract on March 1st last year, so we really didn't get into full steam until the second quarter. So we really have first, I think most important, is the full-year effect of really having -- today, we have 116 employees in the Company. When we did the contract, we had I think the number was 79 employees. So we've dramatically added to the work base, which is a big part of the increase in the cost year-over-year in the billings, labor, and overhead and related materials to build the product. And, of course, as you say, the effect of the 205 study, of course, is in -- a portion of that is in the first quarter, so that's another reason why that cost to contract revenue is higher.

So then we should be looking at -- call it $1.5 million or so per quarter as sort of the x-205 cost of contract?

Yes, we would be -- yes, that's right. As we move forward, as we said in our prepared remarks, the total cost of this is $3.1 million, so you're right, it'll be an additional slug of cost to come in from the 205 study in the second quarter and beyond. And I would add that the expectation clearly as we move throughout this year with what Stan took you through and the number of trials that we'll be running, we do expect the revenue line to continue to increase throughout the year and the cost of contract revenue.

Okay. That's helpful. Thank you.

Thank you, Bill.

Thank you. I show no further questions in the queue and would like to turn the conference back to Mr. Stanley Erck for closing remarks.

I'd just like to thank everybody for calling in and paying attention. Good questions and we look forward to talking to you over the next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect at this time.