Novavax Inc (NVAX) 2012 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to Novavax Third Quarter Earnings Conference Call. (Operator Instructions). As reminder this conference call is being recorded. I would now like to turn the conference over to Mr. John Herrmann. Sir, you may begin.

Thank you. Good morning everyone. This is John Herrmann, Vice President and General Counsel of Novavax. Thanks for joining us on today's third 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 at www.novavax.com.

On today's call are Novavax's President and CEO Stan Erck, our Vice President and CFO, Fred Driscoll, our Chief Medical Officer, Dr. Greg Glenn and our Vice President of Medical Affairs, Dr. Lou Fries.

Before we begin our prepared remarks I need to 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 expenses, cash usage and 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 which change over time.

Further information on the factors and risks that could affect Novavax as 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 are made only as of the date of today's call and Novavax assumes no duty to update these statements. With that said I would now turn the call over to Stan.

Thanks, John, and good morning to everyone. Last quarter I highlighted the fact that Novavax was beginning to see the fruits of our efforts over the last 18 months. Our strong momentum has continued since our last call and I'm pleased to report on the tremendous progress we've made during -- during and since the third quarter. Let me run through some of the highlights.

In the last seven months we've initiated five new clinical trials, vaccinating over 1700 subjects in four different product indications including seasonal influenza, pandemic influenza, RSV in the elderly, and RSV in women of the childbearing age. We reported safety and immunogenicity for three of these trials all positive.

We entered a new collaboration with PATH for RSV a world-renowned non-profit organization that is now providing funding for our maternal immunization program and we have significantly strengthened our balance sheet by increasing our institutional ownership, and bringing our cash horizon based on current projection of cash usage into early 2015. As usual I will first discuss our recent accomplishments and then turn the call over to Fred to summarize the quarterly financial results and after that we'll take questions.

So let me begin with the pandemic influenza vaccine program and the positive top-line results we announced two weeks ago from the two Phase I studies conducted under our contract with BARDA. These are identical, randomized, observer-blind, dose-ranging, placebo-controlled trials testing our H5N1 pandemic influenza vaccine in adults 18 to 49 years old. The only difference between the two trials were the use of two different adjuvants.

The primary objectives of the two trials were to demonstrate the safety and the immunogenicity of our H5N1 vaccine candidate at varying dose levels with and without an adjuvant. A total of 666 healthy adults, 18 to 49 year old were enrolled in the two trials. Each subject received intra-muscular injections of vaccine or placebo at day zero and day 21 and is being followed for 13 months after the first dose. The data I'm referring to today and that we reported a couple weeks ago relate to safety and immune responses during the first 42 days.

To demonstrate the immunogenicity we measured hemagglutinin inhibition or HI responses. If you follow influenza vaccine development, you know that the two primary measurements of immunogenicity that are commonly used for an influenza vaccine are the level of sero protection which is the percent of subjects who achieve a certain level of HAI titers and sero conversion which is defined as the percent of subjects who achieved a fourfold increase in the level of HAI titer. FDA utilizes these measurements as criteria for fulfilling accelerated approval.

Although these were Phase I trials it's important to note that they were large Phase I trials which improves our confidence about the results. We are able to demonstrate a number of important points about our avian influenza vaccine candidate that we believe to be very important. So first we met our primary [influence] which were to demonstrate that all three vaccine candidates were safe and generated robust immune responses to the vaccine.

The unadjuvanted vaccine at 45 micrograms per dose induced immune responses that met both FDA criteria after two doses, which is an unprecedented result, and definitely worth pursuing further. The adjuvanted vaccine candidates demonstrated strong adjuvant activity and provided statistically significant antigen sparing down to the lowest level which was 3.75 micrograms, at which dose the immune response remained at a very high plateau. This result indicates that further dose sparing may be available.

Vaccine homologous virus responses of all adjuvanted doses easily fulfilled FDA sero conversion and sero protection criteria for accelerated approval. The data suggests that even lower doses of adjuvant or antigen or both could be successful. When tested against a clade 1 drift strain our unadjuvanted candidate gave a substantial sero conversion rate, 54%, while vaccine with one of the adjuvanted candidates gave sero conversion and sero protection rates up to 80%, meeting FDA requirements at all dose levels at least at the point [estimate]. The response measured to the drift variant antigen is especially encouraging as the data suggest that our vaccine may be protective even when the vaccine strain did not perfectly match pandemic virus strain, which is an important consideration in the emergent response to a pandemic.

In summary with this trial we have demonstrated that we can produce antigens from avian influenza strains that are at least as or more immunogenic as any described in medical literature to date. We believe these results are sufficiently positive to allow us to advance our avian influenza vaccine program into later stage clinical testing and are now working with BARDA on developing that clinical pathway forward.

Also, Dr. Lou Fries, our VP of Medical affairs will be presenting data at the upcoming. Influenza Congress conference being held in Washington DC on November 13th.

So moving from our pandemic to our seasonal vaccine program, in July we announced positive top-line results from the Phase II dose-ranging clinical trial of our quadrivalent vaccine. We reviewed these results in detail on our last call so I'll just remind you that our quadrivalent vaccine met the FDA's sero protection requirementsfor all four viral strains and sero conversion levels for three out of the four strains with a good safety profile. We are taking the time to optimize our upstream and downstream manufacturing processes and to optimize our portfolio of analytical assays.

We will work with BARDA to define our clinical pathway for licensure and begin GMP manufacturing of our quadrivalent vaccine with the expectation that we will initiate clinical trials in the second half of 2013. We expect that the pandemic and seasonal product candidates will progress toward licensure in parallel.

Turning now to RSV. In September we presented clinical findings from our RSV vaccine development program at the eighth annual International Respiratory Virus Symposium meeting which was held in Santa Fe, New Mexico. The data showed our vaccine candidate induced neutralizing antibody responses to multiple sites on the fusion protein, what we call the F protein, and was also found to induce Palivizumab-like antibody responses -- response levels in our vaccine that are up to tenfold higher levels than the level identified as being protective.

As I have said in previous calls, Palivizumab is a monoclone antibody marketed by Medimmune as Synagiz, which is effective in the treatment of RSV. We believe these data to be unique to our vaccine candidate. Based upon the results of our initial RSV trial we are generating a lot of interest from outside companies and organizations.

PATH is an International non-profit organization whose goal is to transform global health through sponsorship of innovative technologies. In July we entered a research collaboration with PATH which is --which is provided approximately $2 million in initial funding to support a Phase II dose-ranging clinical trial of women of childbearing age.

We initiated this study in early October and it was fully enrolled in less than two weeks the current study being partially funded by PATH is a randomized, blinded, placebo-controlled Phase II study designed to evaluate the immunogenicity and safety of two dose levels of our RSV vaccine with and without aluminum phosphate as an adjuvant. The study enrolled 330 women of childbearing age who received either one or two intramuscular injections at each dose levelof vaccine or placebo at days zero and 28. Safety and immunogenicity will be evaluated over six four month periods respectively. We expect to report top-line results from the trial through day 56 observations in the first quarter of 2013.

So although PATH's initial funding was just for this trial the intent of our collaboration is for PATH to continue to support the ongoing development of our vaccine, specifically for maternal immunization at 50% funding. This collaboration underscores PATH's focus of protecting newborns in low resource countries.

Another important market for an RSV vaccine is protection of elderly during the annual RSV season much like the flu season. A week after the start of the RSV trial of women, we initiated a Phase I dose-ranging study of our RSV vaccine in elderly patients and this study is now fully enrolled as well. Randomized, blinded, placebo-controlled study will evaluate the immunogenicity and safety of two doses of our RSV candidate with and without aluminum phosphate as an adjuvant.

The study is similar to the Phase II RSV study in women of childbearing age I just discussed, but enrolled 220 adults, 60 years of age and older who will receive a single intramuscular injection of our RSV vaccine or placebo plus a single dose of licensed influenza vaccine or placebo at days 0 and 28. Safety and immunogenicity will be evaluated for up to one year. We expect to report top-line results from the study in the second quarter of 2013.

We continue to make progress developing our vaccine platform in India through our joint venture with Cadila Pharmaceuticals. Near term candidates for influenza and rabies are progressing well. I expect to be reporting on the clinical development of these programs in India throughout 2013 along with other pre-clinical programs including malaria. So I'm very pleased with the progress we made in parallel with our success and discovery, process and analytical development, and the clinical development of these programs we have started to build our balance sheet in order to support these successes.

As announced two weeks ago, we competed a $27 million direct placement with sophisticated life science institutional investors who are familiar with the Company. We expect that this additional investment in concert with our focus on managing our cash burn rate will fund the Company into 2015. It is our intent to maintain sufficient cash balances so that we can pursue our successes on our timetable. With that I will now turn the call over to Fred.

Thanks, Stan. For the third quarter of 2012 we reported a net loss of $7.2 million or $0.5 per share compared to a net loss of $3.2 million or $0.3 per share for the third quarter of 2011.

For the nine months ended September 30, 2012 the net loss was $20.5 million or $0.16 per share compared to a net loss of $15.7 million or $0.14 per share for the same period in 2011.

Revenue in the third quarter of 2012 increased to $5.8 million as compared to $5 million for the same period in 2011 as a result of the Company's contract with BARDA for seasonal and pandemic influenza. In conjunction with this increased BARDA revenue the costs of contract revenue increased to $3..8 million in the third quarter of 2012 as compared to $2.2 million for the same period in 2011.

R&D expenses increased to $6.4 million in the third quarter of 2012 as compared to $4 million for the same period in 2011. Primarily due to increased costs relating to our RSV clinical trials, higher employee-related costs due to our increased overall R&D staff and expenses associated with our new manufacturing facility.

General administrative expenses decreased to $2.4 million in the third quarter of 2012 as compared to $2.7 million for the same period in 2011.

As of September 30, 2012 the Company had $28.4 million in cash, cash equivalents and short-term investments compared to $18.3 million as of December 31st, 2011. This cash balance does not include proceeds from the recent $27 million equity offering that Stan mentioned earlier and with those funds added to our September 30th balance we now have in excess of $50 million in cash on hand. To put that into perspective this is the highest cash position the Company has had since 2006 and will provide for more than two years of operations.

A key financial measurement that we monitor is the net cash used in operating activities. For the nine months ended September 30, 2012, cash used in operating activities was $14.1 million compared to $20.8 million for the same period in 2011. A 32% reduction from the prior-year period due primarily to revenue under the BARDA contract.

That concludes our prepared remarks and operator we will now open the call for questions.

Thank you. (Operator Instructions). Our first question comes from George Zavoico from MLV and Company.

Hey Stan and Fred, [Bill] and everyone. Congratulations on a terrific quarter, a tremendous amount of progress you've made in the last quarter and since the end of the last quarter. I have a couple questions. Regarding the pandemic flu you talked about the cross reactivity. That really wasn't part of the -- of the BARDA goals, but it's clearly very important. How do you plan to leverage that going forward?

This is Lou Fries. I think although -- although not actually articulated by BARDA as a key goal it obviously is a very important thing to them because the ability to elicit a cross reactive immune response is critical in the response to a pandemic. The major feature of an influenza vaccine in responding to a pandemic is time and as a pandemic advances the virus may not exactly match those that are available and those sequences that are available to help develop a vaccine.

The broader cross reactivity a vaccine can generate lessens the concern that you need and absolutely exact match with the circulating virus. So in point of fact a vaccine that's characterized by the ability to elicit cross reactive antibodies is exceedingly attractive to public health authorities. So we will leverage that by continuing to demonstrate that our vaccine does that with newer and more modern strains of avian viruses, and provide that information to both BARDA and, indeed, FDA, both of whom are acutely aware that that's a very desirable characteristic for a pandemic vaccine.

Is this something that may be emerging because of the technology, the VLT technology, as -- and it wouldn't come up from more traditional egg-based (multiple speakers) avian flu virus in eggs?

It's probably multi-factorial to be -- to be honest with you. What we've observed with the VLP -- you can indeed observe some cross reactivity with a traditional egg-based vaccine, but typically you observe that only in the context of adjuvant.

In the -- in this instance what we've observed is cross reactivity in the presence of adjuvants but also even in the absence of adjuvant and that's very encouraging because it suggests that there is an intrinsic capacity of our antigens to more actively elicit that cross reactive immunity. And it's worth noting that unadjuvanted pandemic vaccines have their own attractiveness. There are -- there are niche populations that both public health authorities and the FDA would prefer to give adjuvanted vaccines to. And the fact that we can fulfill the CBER criteria with an unadjuvanted product even if it is a little larger dose than one would usually want to give is really encouraging and should prove attractive.

Okay. Thank you. Another question about the seasonal vaccine. You have had three out of four on the sero conversion with the seasonal and you're going through various optimization procedures. Might that also include adding adjuvant to the seasonal? Because all of these trials so far have been without an adjuvant ; is that correct?

That is correct. I think that you have to -- that might be part of the endgame strategy at some point, but one does have to approach that with some cautiousness. Unlike pandemic vaccines seasonal vaccines are given yearly and there's a great deal of regulatory reserve regarding the desirability of repeatedly dosing people with adjuvanted vaccines.

So our focus with the seasonal program is really to do as best as we possibly can with the unadjuvanted product and to that end we're undertaking a number of investigations including whether we can adjust aspects of how the B virus antigens in particular are expressed in insect cells to make the -- to make the expression of hemagglutinin more efficient, to make sure it appears as native to the immune system as possible and last but not least to insure that aspects of our downstream purification process don't damage the hemagglutinin.

We are in a good position there with the A strains. We are in a good position with some B strains. Other B strains appear to be more sensitive and that's a problem not only for us but also for egg derived manufacturers.

Some of the B strains including the one that we experienced some difficulty with are real dogs in the egg-derived vaccine. They're just not very good and this is a widely recognized problem. We're actually in an advantageous situation that we may be able to manipulate the actual molecular structure of some of the problem B antigens and, hopefully get better expression and better immunogenicity.

That's a -- and that's an exercise we're going through right now in a very careful stepwise manner. I can't say that we'll have -- that we will have success in that regard, but it's something that we have the opportunity to look at and to twist the dials on as it were that the egg manufacturers do not.

Does the outcome of those particular studies for optimization, you expect them to be done in order to meet the guidance you mentioned earlier of starting these trials in the second half of 2013? I guess the faster you go the sooner you can start the trial, right?

Yes. I think that we're carefully focusing our work in the optimization so that we can get back in the clinic as quickly as we can. We're fully mindful of the time pressures of vaccine development.

One of the things that we are looking here -- and we have already done it in the first -- in the S205 trial that you -- that has been spoken about. We're looking hard at stepping outside the classical paradigm of doing clinical trials flu season by flu season. We will leverage both the northern and southern hemispheres flu seasons and in addition attempt adopting a strategy which I have used in the past of testing flu vaccines in equatorial environments where there is no real flu season. Where there is transmission of flu year-round, so you can actually start a trial at any time.

Wow. Okay. And finally one question about the RSV. The elderly trial is a Phase I, the childbearing -- women of childbearing age is a Phase II. If the Phase I in elderly proves to be -- proves to deliver positive results will all you need after that is a confirmatory Phase II and in that regard, if so, does that suggest that mean a faster path to market for the RSV vaccine?

I think that -- I think that the Phase II development in the elderly has -- has several questions that will need to be fleshed out and I would not characterize it as simple. While there's a -- while there is a very important and known burden of disease in the elderly, RSV disease in the elderly is not that well defined in terms of a -- of a clinical syndrome.

Not the way influenza is and so we would have to undertake a number of parallel activities including characterizing that disease, including looking at our vaccine in substantially larger numbers of elderly subjects to make sure that we had a constructive immune response, to make sure that we knew how long that immune response lasted, and how frequently we would have to boost the vaccine. And with that information in hand then we would be able to construct a well designed pivotal trial. But it's not -- I would be disingenuous to say it's a one trial path and then we're ready for Phase III.

Okay. Fair enough. Thank you very much and looking forward to the next set of results.

Thank you, George.

Thank you. Our next question comes from Greg Wade from Wedbush.

Thanks for taking my questions as well. So, Stan with respect to the RSV opportunity, you now have the financial to press forwards on your own time scale as you indicated. Can you tell us what your preferred path to registration is? The potential timeline for that and costs, and whether your preference now is to perhaps retain US rights for the product and seek more regional partnership or you would still be open to a global deal? Thanks.

Thanks, Greg. So you asked some questions that I don't have full answers to because I don't think we have charted out the complete costs of the multiple path ways to registration that face us. I think that the two nearest term ones that we're looking at right now, I think as Lou mentioned, are vaccinating pregnant women for maternal immunization [trans], and protecting the zero to three or zero to six month old kids. That's a relatively straightforward path way that requires development of a safety database and then just going into the trial and it will take some years to do that.

I think we won't be in pregnant women in 2013 and maybe not in 2014, but that would lead to a straightforward -- ultimately straightforward trial where you just measure kids whose moms got vaccinated and not -- and just follow the course of disease. On the elderly I think the -- Lou described the pathway and so I think we'll pursue both of those so that we get a proof-of-concept likely to be both in non-human primates and then ultimately in humans for both of those programs. We're hoping to be able to fund those programs on our own until we have that proof-of-concept and -- but this is an area of great interest to everybody in the vaccine world and will be -- we'll look at opportunities as they present themselves.

Thanks.

Thank you. Our next question comes from Ted Tenthoff from Piper Jaffray.

Can you hear me okay?

Yes.

Yes.

Excellent I apologize if this question has been asked. I was actually dropped from the call just for a second. But when it comes to the encouraging results we saw with the pandemic vaccine can you walk us kind of that you what next steps are there and how soon could that be available for license or if there is another pandemic, and what would be your thoughts for commercialization around the pandemic vaccine? Thanks.

Well, the thoughts around commercialization are pretty straightforward. The US Government in a non-pandemic scenario has had a history of stock piling H5N1 vaccine antigens and adjuvants and we expect that to continue at a level that's -- the government doesn't publish what the level will be, but -- so that's an opportunity for us. As I think it's become clear to us through the data that we have generated that we have a -- a differentiable vaccine which has been very good results. The commercialization strategy beyond pan -- stockpiling with the US Government is the possibility of stock piling with other governments.

There are several countries that would be interested in stockpiling vaccine. Then obviously in a pandemic scenario there would be unlimited opportunity there for commercialization. So the pathway is going to be for pandemic influenza, relatively straight forward. We do dose confirmation trials, we go into the elderly, the pivotal trial is going to be based upon immune responses and so it will be a pretty well known pathway right there.

And when do you think the earliest it would be available for stockpiling?

I think 2016. I think that's about the right number.

For the pandemic one.

Yes. For the pandemic one yes.

Okay. Good. Well, congrats on all the progress. You guys have really been continuing to move the pipeline along and it's a pleasure to see. Thanks so much.

Thank you, Ted.

Thank you. Our next question comes from Vernon Bernardino from Brinson Patrick

Congrats again on the progress. Just one question about the -- the revenue recognition. Could you just go over again, please, what are the components that are the drivers of revenue recognition and the costs of revenues. How are those recognized? And then I have a question about the quadrivalent.

Okay. Vernon. Sure. So the -- the major component is of course the BARDA contract. We do have a smaller government contract in hoof-and-mouth disease but the contracts we have are cost-reimbursable contracts with a fixed fee on the top. And the way these contracts work is that as we do the work, incur the costs and we at that point recognize the revenue, we bill the government and the government pays us. So it's really on incurred costs of services that we provide under the contract as we incur those costs we book the revenue.

Likewise, in our P&L we have costs of contract revenue and costs of contract revenue again is directly associated with the government contracts. It is for the direct costs associated with those contracts such as subcontracting costs, the direct costs to produce the vaccine. The overhead costs and indirect costs associated with a government contract reside in R&D. So that -- that gives you sort of a way out of how it flows.

But -- but those -- so modeling purposes you cannot really look at -- and project in relation to the clinical activities that we have seen so far or is that not true?

Well, we -- yes, it is. We don't provide as you know we don't provide future financial guidance, but what I would say to you is certainly as we initiate new trials, we saw that as and example in the second quarter. If you look at the second quarter revenue, it was almost $8 million and that was driven on -- by the two pandemic trials that we spoke of earlier that were run in that quarter. So yes, there's definitely a linkage to the activity of the trials.

Okay. And then regarding the quadrivalent you have already talked about the work done and the work that needs to be done and maybe, Fred, you could also shed some light on this. Is it as simple as adding another strain and because with the applications from the current licensed manufacturers it seems like that's all they did and that has shown activity. With your vaccine could you talk a little bit about how it relates to the gross margins that may change by adding a fourth strain and what work needs to be done scientifically and clinically?

Well, let me address the question around costs and then I will hand it to Dr. Fries to answer the clinical side of it, but yes adding a fourth strain clearly will have an effect on our costs of goods as it does with the egg-based manufacturers, but we still view the process that we use to be a very cost effective one. As you know, Vernon, we do not have to spend the infrastructure costs that the egg-based technology has to. We use single-use disposable technology so it's very cost effective, but without a doubt it would be -- there would be an increase due to the fourth valent that would go into the...

Yes but it's unanswerable at this point.

Right.

Because the other half of gross profit margin is the price. So we don't know where the industry price is going to be heading until the other products are introduced next year.

Okay. But with -- I haven't been able to check very well, but AstraZeneca with its product do you know offer hand what their projected pricing is going to be?

I don't.

Okay. Okay. And then one follow-up question. Regarding the manufacturing what else needs to be done for certification with the additional manufacturing facility?

Nothing. We're -- in the facility that we've been manufacturing in it's -- it continues to produce GMP product for clinical trials. In the new facility that we've been rebuilding-- that we've been getting ready to move into I think the plans are that we'll have finished construction next month, we'll be validating the systems in the plant and be ready for manufacture in the first half of next year. And will be...

Okay.

We'll be manufacturing product all -- all throughout next year in both places.

Okay. So you still need to make a batch there and then validate and then get FDA approval?

Yes. FDA doesn't approve -- they don't come in and approve before you get into Phase III so it doesn't require any inspection or approval.

I see. But they don't need to look at any of the efficiencies for example or -- regarding quality control and GMP certification?

No. Other than what we -- other than what we sends to them every time we make material, and file an IND amendment with all the clinical manufacturing and control data that comes along with it so they get to see that.

Okay.

This is just standard in the practice of the industry.

Okay. Congrats again on the progress and thanks for taking my questions.

Thank you.

Thank you, Vernon.

Thank you. I'm showing no further questions in queue at this time.

Okay. Everybody. Thank you very much for attending the call and we look forward to catching you up next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.