Novavax Inc (NVAX) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Novavax Second Quarter 2019 Financial Results Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Ms. Erika Trahan, Senior Manager of Investor Relations and Public Relations.

Ms. Trahan, you may begin.

Thank you, operator.

Good afternoon.

I'd like to thank everyone for joining today's call to discuss second quarter 2019 operational highlights and financial results.

A press release of our earnings is currently available on our website at novavax.com, and an audio archive of this conference call will be available on our website later today.

Joining me on today's call are Stan Erck, President and CEO of Novavax; and John Trizzino, Chief Business Officer and Chief Financial Officer.

Dr. Gregory Glenn, our President of Research and Development; and Amy Fix, Senior Vice President of Regulatory Affairs, will also be available for the Q&A portion of the call.

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 strategy and other financial and business-related matters, including expectations regarding revenue, operating expenses, cash usage, and clinical development 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 assumptions, risks and uncertainties, which change over time.

I'll now turn it over to Stan to begin today's call.

Thanks, Erika.

Thanks to all for joining the call.

I think we've had a very productive quarter.

And on this call, I'll focus on 3 areas: first, we've just closed on a deal that will have a significant positive impact on our future cash flows and balance sheet.

Next, as we expected, we recently reached agreement with the FDA on the design of our Phase III clinical trial for NanoFlu.

The data from this trial will support the use of the accelerated approval pathway for licensure.

And finally, I'll provide a progress report on our partnering and regulatory efforts for RSV.

So let's start with the Catalent Paragon deal, the closing last week of our recent deal with Catalent Biologics and their Paragon Gene Therapy unit.

This was a win-win strategy in which Novavax raised capital.

We significantly reduced our burn rate.

And at the same time, the agreement allowed us to maintain access to our GMP manufacturing infrastructure and personnel, and Paragon acquired manufacturing expertise and capacity for its growing business.

So briefly, some of the key points of the agreement include: in addition to its purchase of equipment and related material for approximately $18 million in cash, Paragon assumed leases to 2 Novavax product development and manufacturing facilities and is now employing approximately 104 Novavax employees.

As part of the agreement, we entered into a long-term arrangement with Paragon to provide process development and manufacturing services for specified Novavax programs, including for the support of our biologics license applications and post-licensure activities.

The impact of this deal will allow us to initiate the Phase III clinical trial of NanoFlu later in this third quarter.

So moving on to NanoFlu.

As a reminder, in the first quarter of this year, we demonstrated in a Phase II clinical trial that NanoFlu is a differentiated, more broadly immunogenic flu vaccine when compared to Fluzone High-Dose, which is the best-selling flu vaccine in the older-adult market.

So our NanoFlu is a quadrivalent, recombinant protein nanoparticle vaccine that includes our proprietary Matrix-M management.

The robust immune responses we saw earlier this year give us confidence that we will see similar immunogenicity results in the Phase III clinical trial that we plan to initiate this fall.

Likewise, we are confident in the potential for NanoFlu to close the gap created by current egg-based flu vaccines, which have been shown to have low vaccine effectiveness, particularly with the H3N2 strains as highlighted in recent flu seasons.

Earlier this week, we were pleased to share with you that we reached agreement with the FDA on the design of the Phase III noninferiority immunogenicity clinical trial that we expect will support the future BLA and licensure of NanoFlu.

The upcoming trial will compare hemagglutinate antibody inhibition, or HAI, responses of NanoFlu against a licensed flu vaccine comparator.

And to remind you, HAI response is a surrogate marker of efficacy for seasonal flu vaccines.

And as we announced in June, the FDA has previously acknowledged that the accelerated approval pathway is available for licensure of NanoFlu.

We plan to have top line clinical data in the first quarter of 2020, and with positive results, we expect to file a U.S. BLA following completion of required manufacturing validation activities.

We will announce time frames for these activities as we refine our plans in the coming quarters.

We are confident that we are currently well positioned to efficiently and cost effectively complete the clinical development of NanoFlu through to the filing of our BLA and to licensure.

And I'd like to thank our team here at Novavax for these significant advances to our NanoFlu program in a very short time line.

And now move on to ResVax, our maternal RSV vaccine for infants, which, in the recently completed Phase III prepared clinical trial, demonstrated protection from serious consequences of RSV.

We, along with RSV key opinion leaders, believe that these clinical data support the belief that our vaccine can provide a significant global public health benefit that warrants further clinical development and licensure.

We are working with global regulatory agencies and potential partners to determine the best path forward to commercialization.

As we announced earlier this year, our Phase III clinical trial demonstrated that our vaccine has important clinical benefits against the most severe forms of RSV disease.

But we fell short of meeting the primary endpoint, which complicates the regulatory approval process.

And as we reported in June, for U.S. licensure, the FDA recommended that we conduct an additional Phase III clinical trial to confirm efficacy against medically significant RSV disease in infants born to mothers vaccinated with ResVax.

In Europe, we continue to solicit input from national regulatory agencies and other important experts on potential pathways to licensure.

We will be seeking formal scientific advice this fall from the European Medicines Agency.

We're also working to identify a path for introducing ResVax to low and middle income countries.

We have launched this global partner research with the help of our partners at the Bill & Melinda Gates Foundation and with PATH, and we expect to move these efforts along in parallel with our ongoing discussions with potential partners for further development in the high income countries, including the U.S. We hope to brief you further on these important steps later in the year or early 2020.

I should note that we are continuing to review our data to better understand the full potential of our vaccine.

Some of these important new efficacy findings will be discussed later this week in a presentation by Dr. Geeta Swamy, Associate Professor of Obstetrics and Gynecology and Vice Dean and Associate Vice Provost for Scientific Integrity at Duke University.

Dr. Swamy will present at the annual IDSOG meeting, which is the Infectious Diseases Society for Obstetrics and Gynecology, at the conference on August 9, this Friday.

We will announce the timing of that presentation in a separate press release.

We remain confident that with the right partnerships in place, ResVax can offer an opportunity to be the first licensed RSV vaccine in the world.

And now I'll turn the call over to John to present the financial overview.

Thank you, Stan.

Today, we announced financial results for the second quarter of 2019.

A summary of our financial statements, including 6-month results can also be found in today's press release.

Before we start, I would like to remind everyone that effective May 10, 2019, we completed a reverse stock split of our issued and outstanding common stock at a ratio of 1:20.

Share and per share information have been restated to reflect the reverse stock split.

So for the quarter, we recorded a net loss of $39.6 million or $1.69 per share compared to a net loss of $44.5 million or $2.37 per share in the second quarter of 2018.

The decrease in net loss was primarily due to decreased development activities of ResVax, partially offset by decreased revenue under the Bill & Melinda Gates Foundation grant agreement.

Revenue in the quarter decreased 69% to $3.4 million compared to $10.8 million for the same period in 2018.

Again, the BMGF grant revenue is directly related to operating activities in the Prepare trial.

And so therefore, this decrease in revenue is a result of completing enrollment of the Prepare trial in the second quarter of 2018.

Related to our net loss for the quarter, R&D expenses decreased 32% to $30.4 million, primarily due to decreased development activities, including lower clinical trial costs of ResVax.

G&A expenses decreased -- G&A expenses increased, sorry, 17% to $9.6 million for the quarter as compared to $8.2 million for the same period in 2018.

The increase was primarily due to higher professional fees and recent stockholder meetings.

As of June 30, 2019, Novavax had $78.2 million in cash, cash equivalents and restricted cash.

Net cash used in operating activities for the first 6 months of 2019 was $80.6 million compared to $106 million in the first 6 months of 2018.

Regarding our cash needs, we expect our cash used in operating activities to decrease significantly in the second half of 2019 as compared to the first half of 2019 due primarily to the Catalent transaction, including the reduction in salaries due to the transfer of employees, assignment of facility leases and as the Prepare trial expenses continue to wind down the balance of this year.

This concludes my financial review.

I'll now turn the call back to Stan.

Thanks, John.

We look forward to providing updates on NanoFlu as we anticipate Phase III data in the first quarter of 2020.

We look forward to updating you on our progress, both in this quarter and throughout the year.

And operator, I can turn it over to you for Q&A, please.

(Operator Instructions) And our first question comes from Eric Joseph with JPMorgan.

This is Turner on for Eric.

I just have a couple of questions on the Phase III NanoFlu study.

I'm kind of curious if you have any specifics on sizing of the trial and powering?

And then a couple of follow-ups to that.

Greg, I'll let you handle that one.

So we -- so we're -- it's a noninferiority trial and that -- the criteria for success includes the rolling out of a lower bound of a 2-sided 95% confidence interval on the day 28 HAI unit mean titer.

So you take the HAI titer of the -- of our vaccine, the quadrivalent flu, and then we take the mean titer of the comparator.

And that lower bound of confidence interval will have to be greater than 0.067.

And we have to have criteria for what's called seroconversion, which is approximately a fourfold rise in titer at the end of day 28, and that would be the difference.

So subtract the seroconversion rate of quadrivalent NIV minus the seroconversion rate of the license comparator.

And again, that has to be greater than the minus 10.

So those are the specific criteria for success on the primary endpoint.

So it's -- I know that's a big mouthful, but that's where we are.

So I don't know if you have any questions on that.

So it's noninferiority, 2 criteria, it is the ratio of HAI titers; and second, is a difference between seroconversion rates.

We can provide you that detail.

It's a fairly standard mathematical criteria that does apply to noninferiority.

Okay.

Yes, that would be very helpful.

And then I'm just kind of curious from the strains that are emerging for the 2019 to 2020 season.

How far along are you in the process of developing NanoFlu against those strains?

Is there any difficulty in adapting the vaccine to the new strains?

Well, that's a good question.

And it plays to our strength.

What's happening with respect to circulating strains is there are -- as you know, we are including 4 strains in vaccine, which is quadrivalent vaccine, to try to have 2 B strains and 2 A strains.

The particular problem in older adults has especially been associated with evolution of the A strain called H3N2, and there's been a lot of, what we call, antigenic drift, so mutations in that strain.

And I think we presented that -- those diagrams for the previous season.

And we again have a similar, very active evolution of the virus.

And so the challenge for the CDC and the WHO, who make recommendations for content of the vaccines, the selective strain, that might predict what's coming in the coming year.

So what we -- and you may recall this, what we found in 2 years running where we conducted our -- both our Phase I trial and our Phase II trial is we included the recommended strain in our vaccine.

And that changed, there was evolution.

But because we are a recombinant vaccine, that is, we reflect a wild-type strain, and we have an adjuvant, we induce very broad immune responses.

So to some degree, our vaccine is immune to the antigenic drift.

And so we have very broad levels of antibodies, functional antibodies to these evolving strains.

And that really is why I think we have such a good technology for the times because the framing of all of this is the rapid evolution of H3N2.

H3N2 is the major cause of morbidity and mortality in older adults.

And last year and the year before, it seems that the vaccine efficacy in that population against this strain was very, very low to negligible.

The CDC looked at vaccine effectiveness, and their estimation is that the vaccine, of course, in the H3N2 coverage, effectiveness of that vaccine was not -- it could not be confidently stated there was any vaccine efficacy, so approximately 9%.

So a good question.

We -- the strength of our technology is that we can induce an immune response that's very broad with respect to these evolving strains, and we believe that will be a major innovation for flu vaccines in the future.

Our next question comes from Kevin DeGeeter with Oppenheimer.

Stan, I think you called out in your prepared comments work from the Bill & Melinda Gates Foundation to identify a global partner or a partner for developing economies.

Can you just provide us an update as to if you don't get a clear path to market from the EMEA, other strategies that might be available to make the product commercially available sooner perhaps for some of the developing markets where the market may be and the need may be greatest?

Yes, Kevin.

I think that the Gates Foundation, when they saw the data, became very excited that this is exactly what they wanted [it] for.

Their mission is infant mortality.

And what are -- the data that we provided shows it worked very well, particularly in their territory.

So we're working -- they have -- they are confident that we will do what's necessary to get the vaccine approved in high income countries, and they want to make it as easy as possible for us to get it approved in the rest of the -- globally, the rest of the world.

It's a large market.

It's a large world for low and middle income countries.

So we're working with them.

They've engaged PATH, which is a large NGO that -- with whom we worked.

We started working with before our Phase I trial many years ago.

And so we're all working together to identify a very competitive process to have other companies who would be capable of developing and producing very large-scale quantities of material.

And that process has officially started.

So we'll keep you posted as it progresses.

It should go fairly reasonably quickly, I think.

And with regard to NanoFlu, have you identified the comparator?

You mean, on the flu?

Yes.

Yes, the comparator is the quadrivalent vaccine, it's Sanofi's Fluzone.

Got it.

And when do you hope to begin enrollment or kind of first patient in for the NanoFlu Phase III study?

Well, I think very late in this quarter.

So the trial will be -- we've been making product.

It's in the process of being released and shipped to centers.

And so later this quarter, we expect to be day 0, and then day 28 will be the blood draw date, and then it takes a few months to get all the data analyzed and announced.

Our next question comes from Michael Higgins with Ladenburg Thalmann.

Just a quick follow-up on the Fluzone enhancers.

Is it Fluzone HD as the comparator?

No, we used Fluzone HD as a comparator in Phase I and Phase II because our strategy has always been to introduce our product in a premium-priced older adult market and compare ourselves to the best-selling flu vaccine, which has been Fluzone High-Dose, and we did that successfully twice in a row.

But in this particular trial, we want to go against a quadrivalent vaccine.

And Sanofi's Fluzone is the biggest selling quadrivalent vaccine.

Fluzone High-Dose is only a trivalent vaccine.

So we have the data -- the data gets -- we have the comparator data against Fluzone High-Dose in our pocket already.

Right.

Right.

Okay.

Good.

And Greg, thanks for the recap.

That was very helpful.

I just want to understand the timing for the BLA.

It sounds like you're saving some comments, but just trying to get a sense if we can here, when that BLA may be filed?

Best guess may be back half of the year.

It sounds like you've got some manufacturing to square away before filing.

Is that a fair assumption at this point?

Yes, I'll answer that.

This is Stan.

So -- well, I don't think we'll be filing.

We won't be filing the BLA by the end of this coming year because of the CMC, because of the manufacturing issues.

And so we have not announced a target date, but we will as soon as we get closer and we see our data, and we'll keep everybody informed when we have a date for all the manufacturing activities to be done and a BLA to be filed.

Okay.

Great.

And then also, we've talked in the past about some data releases coming from the Phase II, maybe 56-day and additional data.

Anything now that we're getting closer to the fall that we can look for coming up in the next few months?

Well, typically, what we do is, as we did with the Phase I, we published that in a letter to the New England Journal, which was, I think, indicative of the importance of the data.

We're in the process of preparing publications for the Phase II data, and they take time.

We'll get them out as soon as possible, but that would be the desired priority first.

Our next question comes from [Wayne Wu] with B. Riley FBR.

This is Wayne on for George.

So I have 2 questions.

The first one is about NanoFlu.

Could you please comment on what are the FDA's last concerns for the end of Phase II questions?

And the second is about ResVax.

Have you received any feedback from EMA yet?

Amy, do you want to do it?

Sure.

This is Amy.

And so we did receive input on all the questions we asked, and there were no concerns of FDA.

They actually were providing us a lot of guidance to make sure we were on track with our BLA.

So no concerns whatsoever.

Again, complete agreement with the study design.

So it was really quite a good communication.

(Operator Instructions) Our next question comes from Vernon Bernardino with H.C. Wainwright.

Congrats on the agreement with the FDA.

Certainly, I guess, you could have expected it, but it was an uncertainty, so congratulations.

The question I have, so could you remind us again when the strains were released for this coming flu season?

And you had mentioned that you had manufactured the batches and that they were at the point where they would be cleared, I believe, or some other word, I can't remember now, what you had described as the term.

And so can you remind us again, at least with the current technologies, and this is going to be adjuvanted -- NanoFlu is adjuvanted, how long it takes to manufacture a batch?

And lastly, could you also remind us what is the current manufacturing capacity in the number of doses?

Yes.

Those are a lot of questions.

So first of all, the CDC and WHO get together twice a year to look at and recommend Southern and Northern flu strains.

And this year, they did so.

They actually -- I think they recommended the 3 flu strains, 2 Bs and 1 of the As, on a particular -- on the usual schedule, which was at the end of February and 1st of March.

And it took an extra, what, maybe 30 days to get -- to determine what they wanted to predict on the H3N2.

So there's an extra time period in there.

One of the advantages of our technology is that we don't have to spend the time to egg-adapt our strains that are chosen because we have this recombinant cell-based production system.

So that gives us somewhat of an advantage.

And that's what we made.

And we made the 4 strains on time.

It's a process.

I don't think I can divulge what the actual time from seed to product release is, that's, I think, proprietary information, but it's faster than with an egg-based vaccine.

And our capacity is at a stage right now where we have the capacity to make whatever vaccine we need to finish clinical trials, plus launch product when that time comes.

And we'll design our capacity based upon our then-current yields per liter and where we choose to manufacture the product in a contract manufacturing facility.

Our next question comes from Matthew Lillis with Cantor.

I was curious if you could talk about the difference in comparing between a trivalent and a quadrivalent and that's going to be in this study.

Could you just talk about the differences for you guys and kind of what we could expect from a scientific point of view with regards to how that's expected to play out?

Yes.

So we -- go ahead, Greg.

Well, I was just going to say that we know this that the Fluzone High-Dose and the Fluzone are -- have different doses, but they're egg-based, egg-derived vaccines.

The Fluzone quadrivalent vaccine is appropriate for us because we want to compare ourselves to a quadrivalent vaccine.

So the High-Dose is not licensed for quadrivalent at this point.

And so we selected the Fluzone regular dose.

And that has -- that we have matched with the strains that were selected for that in our vaccine.

So I think scientifically, these are -- the comparator is an egg-derived vaccine, and that means that they've isolated the virus.

They grew it up in eggs and adapted to eggs.

They then purified the important proteins.

And so it's an egg-derived vaccine.

Ours is recombinant where we have the sequences from the wild-type circulating strains that we then make the key protein hemagglutinin from those.

And so they are -- they have perfect fidelity with those strains that are circulating.

And they're selected -- they're selected because these are strains that are prominent, especially with respect -- the selection difficulties are associated with selecting the A strains, in particular, the H3N2.

And so again, I think we had some discussion with that earlier that the strength of our technology by having a recombinant nanoparticle that's adjuvant, we get a very broad response.

So we're much less -- we, in fact, think we can overcome the antigenic drift that might occur between what was selected last -- based on last year's surveillance data and what may come in the coming year.

And I think that was the reason that the New England Journal published our Phase I data because we showed that precisely -- that precise situation, where we had a strain selection from the year before, that was not a good match or circulating, and yet the immune response to our vaccine, based on the functional assay, showed that we were able to neutralize or address the antigenic drift, both the forward drift, we call it, where it was an unpredicted strain that arose.

And then looking back, we also had very broad antibody response against those strains.

So we have a fundamental -- a fundamentally different technology from what's licensed.

We have a recombinant.

It's a nanoparticle and it's adjuvant.

And those things are allowing us to, I think, address the major unmet need in older-adult-influenced immunization, this antigenic drift and the egg adaptation, and these things are bringing the older-adult flu vaccine actually down to very, very low levels.

So I think the CDC and the public health authorities are very interested in having a technology like Novavax' to address these clinical problems.

Our next question comes from Michael Higgins with Ladenburg Thalmann.

Just a follow-up, 1 or 2, if I could.

Could you give us some sense of the cost of the Phase II and then upcoming for the Phase III?

We've not talked on this much.

Then, on a related note, your cash runway following the recent sale?

Yes.

So I think as we have in the past, Michael, we do not give forward-looking projections on cash balances.

We raise money to get us comfortably through data, and that's where we are right now, and future funding needs are dependent upon success of trials and partnering discussions.

And I think we have mentioned in the past that the Phase III trial was going to be a very affordable trial.

I don't think Greg mentioned the number of people in the trial, it's 2,600, and it's simply a day 1 dose and a day 28 blood draw and then analyze the trial.

So it's a very cost-effective trial for us and so, yes.

Great.

Okay.

And then just a follow-up then on the 2,600 patients.

How many sites is this, and then any other design elements you can provide for us would be helpful.

It's approximately 20 sites, I believe?

Is it?

Yes, I believe so.

Around 20 sites.

And these are North American sites?

Yes.

It's all North American.

This is a relatively simple trial.

The reason we have a number of sites, we will recruit in a very efficient manner.

So it's an immunization, a bleed, a return visit at day 28.

So we want to do that very efficiently and enroll at a very tiny time window.

And then lastly, same sites as the Phase II for the most part, how much overlap is there?

They overlap, but they're not completely overlapped.

At this time, I'm showing no further questions.

I would like to turn the call back over to Mr. Stan Erck for closing remarks.

Okay.

Again, thanks, everybody, for paying attention and good questions, and we'll be communicating with you as news progresses.

Thanks.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the program.

You may now disconnect.

Everyone, have a wonderful day.