Novavax Inc (NVAX) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Novavax, Inc. first quarter 2013 earnings conference call.

(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. Fred Driscoll. Sir, you may begin.

Thank you, Mary, and good morning, everyone. This is Fred Driscoll, Vice President and CFO of Novavax, and I thank you for joining us on today's first quarter 2013 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 Novavax.com. On today's call are Novavax's President and Chief Executive Officer, Stan Erck, myself and other members of our executive team.

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 forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Novavax cautions that these forward-looking statements are subject to numerous risks and uncertainties which change over time.

Further information on the factors and risks that could affect Novavax's business, financial condition and results of operations are contained in Novavax's filings with the SEC, which are available at www.sec.gov. These forward-looking statements speak only as of the date of this call, and Novavax assumes no duty to update such statements.

I will now turn the call over to our CEO, Stan Erck.

Thanks, Fred, and good morning to everyone.

I'll start this morning's call with a quick update on our recent progress, and then I'll turn the call over to Fred to summarize the quarterly financial results. After that, we'll take questions.

So I'm pleased to report that we are continuing our pattern of sharing positive results with you from a string of clinical trials in RSV, seasonal influenza and pandemic influenza. The most recent highlight has been the announcement of positive top-line results from our Phase II clinical trial of our RSV F vaccine candidate in women of childbearing age. The vaccine achieved the trial's objectives as specified in the clinical protocol.

The primary objectives of the trial were fourfold -- first, to monitor safety; second, to measure the difference in anti-F IgG elicited across doses of 60 mcg or 90 mcg of our RSV antigen; third, to evaluate the use of one versus two immunizations; and, finally, to evaluate the use of aluminum phosphate, or alum, as an adjuvant.

Overall, the results for this trial suggest that our RSV F vaccine candidate has the potential to induce safe and clinically useful immunity through maternal immunization designed to protect newborns, who have a high rate of RSV infection and medical care. Significantly, immune responses in this study also equaled or exceeded those seen in our previous Phase I clinical trial, which has added to our confidence level.

The results from this study provide a compelling rationale for continued development of our RSV candidate. I want to quickly review some of the key data. We provided some additional detail in the conference call last month, and a replay of that conference call is still available on our website for those who are interested.

The clinical trial was initiated in early October of last year and was fully enrolled in less than two weeks. This Phase II clinical trial was a randomized, blinded, placebo-controlled trial designed to evaluate the safety and immunogenicity of two dose levels of our RSV vaccine candidate with and without alum as an adjuvant.

The study enrolled 330 nonpregnant women of childbearing age. In total, there were nine cohorts, with 30 subjects in each cohort, actively treated cohort, and 60 subjects that received a placebo. The data that we announced covered the results from the trial through day 56 observations. Safety will continue to be evaluated over a total of six months and immunogenicity for four months for each participant.

In the Phase II clinical trial peak geometric mean titers of anti-F IgG in the two-dose alum adjuvanted groups ranged from 12,000 to 14,000, representing a 13- to 16-fold rise, compared to a 6- to 10-fold rise in the non-adjuvant group. Minimal increases were observed by increasing the antigen doses from 60 to 90 mcg, and this is an important observation. Thus we believe we are on the plateau of the dose response curve, and as a result we believe that a 60-mcg dose is the antigen dose we will move forward with. The use of alum adjuvant enhanced both the single and two-dose regimen of the anti-F IgG responses, with the greatest responses observed using a two-dose regimen.

Turning to safety, the vaccine was well tolerated, and the safety profile was similar to that observed previously in our Phase I clinical trial. The principal adverse event observed was transient mild to moderate injection site pain, which is predictably more frequent in the adjuvanted vaccine group. There was no clinically important difference in the systemic adverse events that were comprised mainly of mild to moderate headaches, fatigue, muscle ache, which are frequently noted after treatment by many vaccines.

There are no differences in the safety assessments across doses or worsening of reactogenicity with the second dose. Laboratory testing did not reveal any clinically significant changes in normal blood chemistries or hematology parameters.

We recently presented some of the data from the study at the World Vaccine Congress in Washington, DC. We expect to present additional data at other upcoming scientific meetings, and, based on the data we've seen in this trial, we believe we have a strong basis for moving forward with the development of this important vaccine.

As a reminder, PATH provided approximately $2 million of non-dilutive initial funding to support the clinical trial, and as part of our agreement with PATH they can elect to continue to collaborate on additional clinical phases to develop the vaccine for maternal immunization, potentially funding 50% of Novavax's external clinical development costs all the way through to licensure.

Before turning to the influenza programs, I also want to remind investors that we have a Phase I dose-ranging clinical trial of our RSV vaccine in elderly patients that is ongoing. This trial, which is fully enrolled, is a randomized, placebo-controlled study that will evaluate the immunogenicity and the safety of two dose levels of our RSV candidate with and without alum as an adjuvant. We expect to report top-line results from that trial later this quarter.

Moving now to our pandemic influenza program, we announced positive top-line results from two Phase I clinical trials conducted under our contract with BARDA in the fourth quarter of last year. Although these were Phase I trials, they were very large trials, which improves our confidence in the results. We were able to demonstrate a number of characteristics about our pandemic influenza vaccine candidate that we believe to be very important.

First, we met our primary objectives, which were to demonstrate that all vaccine-adjuvant combinations and unadjuvanted vaccine had a suitable safety profile and generated robust immune responses. High levels of seroprotection and seroconversion were observed at very low doses with the adjuvant, and, importantly, high levels of cross-protection against a distant H5N1 clade was also seen with both our unadjuvanted and adjuvanted vaccine candidates at levels not previously observed, together suggesting the advantages of the Novavax VLP technology in the face of a pandemic.

As we read about new strains of viruses that are being reported, with H7N9 in China and with the coronavirus being reported in Saudi Arabia, we are aware of the potential importance of our VLP platform. As part of our ongoing pandemic program, I can now report that we have made a VLP vaccine candidate for both of these pathogens. We will watch very closely the progress of these outbreaks and report on our plans as they develop.

Moving from our pandemic to our seasonal vaccine program, following positive top-line results from the Phase II dose-ranging clinical trial of our quadrivalent vaccine last year, we are continuing to work with BARDA as we finalize our manufacturing process and define our clinical pathway for licensure of our quadrivalent vaccine. As we discussed on our last earnings call, we plan to provide an update on the process development progress we have made and provide an update on our late-stage clinical plans later in the third quarter.

During the quarter, BARDA completed an in-process review, or IPR, of Novavax's contract covering our seasonal and pandemic programs, which, as you know, is a $179 million contract. A team of US government experts, including representatives from BARDA, the FDA, NIH and the CDC, reviewed the program. Based upon the results of the IPR, a milestone decision has been made to continue the contract for both the seasonal and pandemic influenza programs.

Before I turn the call back over to Fred, I also wanted to highlight a few personnel updates.

First, we recently announced that Fred Driscoll, our CFO, notified us that he will be resigning to pursue an opportunity with a Massachusetts-based specialty pharmaceutical company located just a few miles from his home. Many of you who know Fred know that he is a diehard Red Sox fan and is a native of Boston, with a wife and family in Boston. Fred has endured a weekly commute for the past four years between Maryland and Massachusetts and is ready to return to his roots.

Fred has helped to position the Company such that it is in an excellent financial condition and has -- and was key in the building of the Company to its healthy status today. And in this meeting I want to thank Fred for his many years of service, and we wish him well with his new opportunity. We will be conducting a search for a new CFO and will update investors as appropriate.

Secondly, I'm pleased to announce that we recently appointed Amy Fix as Vice President of Regulatory Affairs. Amy has held a regulatory -- has held regulatory affairs positions of increasing responsibility at some of the leading vaccine pharmaceutical companies, including MedImmune and Baxter International, where she was Head of Global Regulatory Affairs for Baxter Vaccines. Amy brings a wealth of experience in viral vaccine development as well as a global regulatory perspective.

And with that I'll turn the call over to Fred to review our first quarter 2013 financial results.

Thanks, Stan, and thanks for those kind and very gracious words.

For the first quarter of 2013 we reported a net loss of $10 million, or $0.07 per share, compared to a net loss of $7.3 million, or $0.06 per share, for the first quarter of 2012. Revenue in the first quarter of 2013 was $3.8 million, compared to $4.6 million in the first quarter of 2012. The decreased revenue was primarily the result of a lower level of clinical trial activity related to the BARDA contract in the first quarter of 2013 as compared to the first quarter of 2012.

First quarter of 2013 operating expenses were $13.8 million, as compared to $12.1 million in the first quarter of 2012. The increase in operating expenses was primarily due to increased research and development expenses related to our two RSV clinical trials in women of childbearing age and the elderly, as well as higher employee-related costs.

As of March 31, 2013, the Company had $45.4 million in cash, cash equivalents and investments, compared to $50.3 million as of December 31, 2012. Net cash used in operating activities was $10.6 million in the first quarter of 2013, compared to $4.2 million in the first quarter of 2012. The increase in cash usage from the prior year was due to higher influenza-related billable activity associated with clinical trials in 2012 as compared to 2013. In addition, the increase was also associated with higher research and development spending, including the Company's RSV clinical trials and increased employee-related costs.

Cash usage may fluctuate from period to period due to the timing of initiation and payments of clinical-related activities. With the impending completion of our process development enhancements associated with our seasonal and pandemic influenza programs, we expect to ultimately initiate later-stage clinical trials, which will have a positive impact on revenue and cash usage in the future.

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

Certainly.

(Operator Instructions)

And our first question comes from George Zavoico, from MLV. Your line is open.

Thank you, and thanks, Stan and Fred, for taking my questions. And, Fred, I wish you very well in your next endeavor. And I know what you've -- I see what you've done with Novavax, and it's -- you've done a terrific job.

Thank you, George.

Question about the process enhancements. How close are you to completing the build-out of the new plant, and what ultimately will be the capacity there for all your -- all the multiple products that you're -- the pandemic, the seasonal and the RSV flu there?

George, how are you? So, the process, we've been -- as we've mentioned, both -- this actually applies across all of our programs. It includes RSV, seasonal and pandemic influenza. We've been working on defining the process, taking where we've been, which is in Phase I trials and Phase II, with a process that's designed for Phase I and Phase II, and refining it and finalizing it so that we have a process that we can actually take to commercial vaccine.

And I think we're very close to finishing up a process that we had designed to take nine to 12 months. We expect this summer, I think, as we mentioned, to finalize that process. And I think I've also mentioned that our expectation is is that toward the end of the summer or right after Labor Day we would get together with the various analysts and have a plan to lay out our clinical development plan for all of our programs and catch everybody up on that. So that's going, I think, well, and as planned.

With respect to our capacity, Fred and I just walked over to the new plant in Gaithersburg and saw the next 1,000-liter bioreactor being installed in the plant. So we now have, in Maryland, two 1,000-liter bioreactors and various smaller bioreactors, including a 200-liter. That gives us capacity to take all of our programs into commercialization. And clearly it depends on which product and what doses are as to what the number of doses. But we are in really good position to take products into Phase III and commercialization. So it's -- the plant in Gaithersburg, the new one, is -- they're installing the 1,000-liter tank today, and our guess is is that it will be ready for actual GMP production starting in July or August.

That sounds -- that's great. Now, for the RSV, that previously was made in a Wave reactor, or was that in a smaller bioreactor? And so the scaling up for the later trials it's going to go into the 1,000 liter?

I'll let our RSV champion in (inaudible).

Yes, hi, George. Greg Glenn, Chief Medical Officer. How are you, George?

Hi, Greg. Good, thanks.

So, yes, we're in the process of the PD and scale-up development for RSV, and we are making it in Waves, and we're just in the process of making that transition to the --

Stir tank.

-- to the stir tank. So we are making PD lots in the stir tank at this time.

Okay. Great. And a final question as regard to the CPL Biologics, you mentioned an award for the malaria vaccine in your press release. You didn't mention it on the call. Could you talk to us a little bit about the significance of that and when it might translate into trials and a product? And also where do we stand with the rabies vaccine?

Yes, okay, malaria first, so it was almost a year ago today that we got a grant, a contract from the Department of Biotechnology, part of the Indian government, and the ICGEB to collaborate and develop a malaria VLP. We have made a VLP that we've designed that's been put into animal trials, so we've got first animal studies. And that's just an ongoing process of deciding on which antigens will go ultimately into a human trial. So that's a year into the process. I think results we've got in mice look good. We'll be developing a later-stage product during this year. So that's fine. I can't predict right now when malaria will be in humans. We try not to make that prediction --

Sure.

-- versus -- so, anyway, so that project's going really well. The significance of it is I think that just like we've been announcing with viral-based pathogens, it shows that we can make recombinant nanoparticles for bacterial pathogens, for parasitic pathogens. This is a very broad platform that we have for vaccine development, and it works really well for everything we've tried. So that's highly significant.

So, with rabies, I think we've announced that we have a rabies vaccine candidate that has the potential to be -- have a significant advantage over all of the current rabies vaccines that are in the marketplace by allowing -- by having the potential to protect people postexposure in fewer doses than the current five-dose regimen. We're hoping to show that we can dose with two -- anywhere from one to three doses. The data will tell us, which we have. We have said that we have been in preclinical regulatory discussions with the DCGI, which is the Indian equivalent of the FDA, and when we get response back and we have a timetable for first subject in we'll announce that.

Great. Look forward to those announcements. Thank you very much.

Thank you. Our next question comes from Elemer Piros, from Burrill & Company. Your line is open.

Yes, good morning.

Good morning.

What I'd like to ask is, Stan, you -- I don't know if this is part of the process development, but you were working on improving the fourth valency for the seasonal vaccine, seasonal flu vaccine. Is that -- do you see some results there? And how could you measure whether you achieved the goals that you set out to be so it would work more robustly?

Yes, so, yes, that's all part of it. So what we've been working on for the past nine months or 10 months is both to -- to do two things. One is to improve the immune response to the B/Brisbane clone, which was the least robust in our trial, and figure out ways to make sure that the process either doesn't diminish the immune response to it or enhances immune response to it without harming immune response to any of the other strains.

And we've been working -- and that's what the whole -- and the other part of that is to make sure that we get the highest yields and most pure end product. All those are related activities, and they are coming together very nicely. And so I can report that we've -- we're making progress on all fronts at the same time, and that should give us a process that we go forward with on the time table. Was there a second question, or was that it? I guess that was it.

No. No, that was pretty much it. And on the BARDA revenue and the R&D expense side, do you expect that the second and third quarter would remain at these relatively lower levels? And once you start the program perhaps in -- the flu program in the fourth quarter or thereabouts, would the revenue ramp up again? And also a related question on the R&D side, now that you're almost done with the second RSV trial, do you expect those expenses to trail off and then pick up again once you've started the Phase IIb -- Phase II/III program?

Yes, so, yes, you're -- you've got it right. So, we have had in the -- so, the BARDA revenue comes with -- are hand in hand with the costs, and we have higher costs when we make large-scale batches of GMP product, and we have higher costs when we run clinical trials. And so in the first, second and into the third quarter of this year we'll have lower BARDA revenues and lower outside costs associated with the program, as well. And you're absolutely right, starting in the fourth quarter and beyond we expect that to improve significantly.

I think - Fred, you can help me on this, but I think that we have a $97 million planned expense in the base period of this program. I think we've billed BARDA under $40 million of that $97 million, so we've got $50 million to $60 million planned in a very short period of time. So I think you'll see, particularly in 2014, starting at the end of 2013, significantly higher revenue and expenses.

Similarly with RSV, so we're waiting -- we've got data from the elderly trial coming out. We've already got our data from women of childbearing age. We will be planning out what the clinical development plan is for late 2013 and '14 in women of childbearing age, getting into pregnant women, with the elderly and ultimately with kids that are anywhere from six months to five years old, as well. So those will -- to the extent that we finance that on our own, those expenses will go up next year. To the extent that we are able to get non-dilutive financing for that project that will lower the internal burn -- the net burn rate.

And one last question on the H7N9 vaccine that you developed. I think you are the third or fourth company announcing. At what point would you make a commitment to run safety trials with the vaccine?

Yes, so, again, I have to say that our policy is not to forecast clinical -- products into clinical trials until we get to the point where we do first subject in. I can say that we have -- as you can imagine, this is right -- this is what we do. This is what BARDA invested in us, is to be able to make a vaccine more quickly than other folks making pandemic flu vaccines.

And, having said that, we received the genetic sequence and made clones, and we have now manufactured H7N9 VLPs, and animal testing has begun, and it's all happened within 27 days, very consistent with the advantages that our technology brings to this section. This is not only with H7N9 but with the coronavirus, as well. So we're well positioned to be very aggressive on this, but we don't have plans that we're announcing right now for further human studies.

Thank you very much. And I wanted to wish good luck to Fred in his future endeavors.

Thank you, Elemer.

Thank you. Our next question comes from Greg Wade, from Wedbush. Your line is open.

Good morning, and congratulations on the progress. Stan, with respect to H7N9, perhaps you could help us to better understand the government's planning process here. I believe they've started to enable the egg manufacturers, and I'm not sure whether there's a campaign going forward there in egg-based vaccine manufacture, but if you could give us some insights as to how things might play out, kind of a time course if you were to be called upon. Thanks.

Yes, so, yes, so my insight into government planning, that's an interesting question. But we do have close conversations -- we're working with BARDA very closely on this. BARDA is -- I think BARDA would characterize their activities as organizing and planning how to get the industry involved in any threat, biologic threat, and H7N9 certainly fits into that category. They have a process that they have to go through to organize funding and contracts, and they're going through that process now. And I don't have particular insight as to what the result of that is. I know that this is a high priority, and that's -- I guess that's all we can say right now.

Okay. Have any RFPs been published?

No. Not yet.

Okay. And if I might just have a quick follow-up for Greg with respect to the coronavirus. So, the human response to coronavirus infection was characterized as overaggressive, often leading to -- that was what killed the patients. Do you think, or are there animal models that would suggest that prevaccination with the virus could help to avoid that response and protect the patients, or could we be in a situation where -- which was similar to the RSV problems that happened in the past, where overaggressive responses to infection were [commonplace]? Thanks.

Yes, actually, that's a good question, Greg. I think the -- there's a bifurcation. If you look at the -- you can see robust immune responses without neutralizing the antibodies. And those types of responses can lead to the sort of the ADE, the antibody-dependent enhancement. And if you look at our paper -- we published a paper in Vaccine 2011 where we did a SARS-CoV S spike protein-based VLP and nanoparticle, and in that study we generate very robust neutralizing antibodies.

So I think that the -- if you look at the reviews on ADE in the context of SARS, you see that in settings where they're not developing robust neutralizing antibodies. And that's similar to RSV. So I think our data that we have published -- and, of course, in that study at the Vaccine paper, we show very robust protection against live challenge. So I think we're -- we have moved into that very confidently, generating neutralizing antibodies and showing protection in relevant animal models.

And if I just might have one last question, Stan, the biggest issue with this coronavirus seems to be in the Middle East. Can you maybe just give us an update as to any discussions you've had with some of the governments over there and where that process might be, if they're interested in assessing some vaccine? Thanks.

Yes, so I can -- what I can say is is that we've not had direct discussions with the Saudi Arabian Ministry of Health. So we're not sure what the pathway to [periodic] clinical trials are for that region.

Any other questions?

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

Great. Thank you very much for the update, and congrats on all the exciting progress, and my very best wishes to Fred, as well. So, lots of good update here, a lot of questions answered. Mine, I guess, has to do with RSV with respect to kind of next steps, and I guess as I sort of look at the Phase II data rolling out positively here, I wonder are we at sort of an inflection point where -- is this a logical point to partner, or is this something where you guys intend to continue to steam ahead? And what would next steps be with respect to the RSV program?

Yes, so let me take that question. So, the question of partnering I think we've addressed before, and we have decided that in the foreseeable future we're going to take the product forward on all fronts, and in large part because we are ahead of the industry in this area, and the only way that we see going forward and staying ahead of the industry is to control our future, our clinical development plan, our process development, and so we're going to continue to do that. To the extent that we have avenues for funding of that program that are non-dilutive, we'll take advantage of that. But we're not planning on finding the traditional pharmaceutical partner at this point.

What's next for the program is, as I said before, we are -- we're looking at the data we have from the Phase II trial in women. We will see the data in a couple of months on the elderly, and we'll look for a path -- we'll put together a path forward for all the programs, including whether to combine RSV with a flu vaccine for the elderly. And so that path forward will be announced, as I mentioned, in the third quarter, number one.

Number two, we know that the path forward for -- you're right, we're at an inflection point. We've confirmed in a large trial that our vaccine has generated very potent -- what we feel are very potent immune responses, the right kind of immune responses in women of childbearing age. And so ultimately we have to move that into pregnant women, which we expect to do in 2014. Prior to that we would want to do a reproductive tox study that will start in the second half of this year. And probably in parallel with that we would want to do some dose ranging on alum-based RSV vaccine prior to going into pregnant women. And pregnant women would give us the proof of principle, we hope, that the vaccine creates antibodies that are transferred at birth and be able to take a look at whether that has impact on the incidence of RSV.

Good. Well, I appreciate it. I'm glad to hear you guys are keeping that program. I think there's a lot of value to be retained for Novavax shareholders there.

Yes, thanks. We agree.

(Operator Instructions)

Our next question comes from Vernon Bernardino, from Brinson Patrick. Your line is open.

Hi. Thanks for taking my question. Actually I thought I had gone out of the queue. But I just want to say congrats also and best wishes to Fred. It has been great working with you. And also congratulations to the Company for the malaria results. That's very exciting. I guess a question there. Do you anticipate publishing those early results, or how may we see some of the early results before the next activities?

Are you talking about our preclinical results?

Yes, the malaria, yes. You've had a policy in the past to perhaps publish before --

Yes. Yes, so that's a discussion to be had with the ICGEB, CPLB and ourselves and, for that matter, the Department of Biotechnology. I'm not sure -- because we're -- the ICGEB is more of an international research organization and it's -- this may be more likely that the preclinical data would be put into a public forum, and that's something that would -- if it happens it will happen sometime later this year or early next year.

Okay. That's it. Like I said, most of my questions have been asked, and congratulations and best wishes, Fred.

Okay. Thank you.

Thank you, Vernon.

Thank you. I show no further questions at this time and would like to turn the conference back to Mr. Erck for closing remarks.

Okay. Appreciate it. We had a good quarter. We're pleased to be able to look forward to coming quarters and telling you about our clinical development plans for all of our programs and progress. So thanks very much.

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.