Novavax, Inc.
Q1 2013 Earnings Call Transcript

Published: 8 May 2013

[Operator:]

Operator

[Frederick W. Driscoll:]

Thank you Marie 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 earning 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 you 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 filing 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.

[Stanley C. 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 Fred to summarize the quarterly financial results. After that we’ll take questions. So I’m pleased to report that we’re 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 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

[Frederick W. Driscoll:]

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.

[Operator:]

(Operator Instructions) And our first question comes from George Zavoico from MLV. Your line is open.

[George Zavoico:]

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 you’ve done a terrific job.

[Stanley C. Erck:]

Thank you.

[George Zavoico:]

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 the multiple products that you’re – the pandemic, the seasonal and the RSV flu there?

[Stanley C. Erck:]

George, how are you. So the process as we have mentioned in both is actually applies across all of our programs that includes RSV, seasonal pandemic influenza. We’ve been working on defining the process taking where we’ve been which is in Phase I trials and Phase II were that’s designed process such design 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 the process that we had designed to take 9 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 that towards the end of the summer or right after Labor Day, we would get together with the various analysts and have a plan to layout 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, 2,000-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 that it will be ready for actual GMP production starting in July or August.

[George Zavoico:]

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?

[Stanley C. Erck:]

Now, what our RSV shaping in.

[Gregory M. Glenn M.D.:]

Hi, George. It’s Greg Glenn, Chief Medical Officer. How are you, George?

[George Zavoico:]

Hi, Greg good, good thanks.

[Gregory M. Glenn M.D.:]

So, yeah, we’re in the process of the PD and scale-up development for RSV. And then we are making it in waves and we’re just in the process of making that transition to the…

[Stanley C. Erck:]

stir tank

[Gregory M. Glenn M.D.:]

The stir tank. So we are making PD loss in the stir tank at this time.

[George Zavoico:]

Okay. Great and a final question as regard to the CPL Biologics, you mentioned an award for the malaria vaccine in your press release did you 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?

[Stanley C. Erck:]

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

[George Zavoico:]

Sure.

[Stanley C. Erck:]

So that project is going very well. Significant of is I think that just like we've been announcing with viral-based pathogens, it shows that we can make a 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 what we get a response back and we have a timetable for first subject in we’ll announce that.

[George Zavoico –McNicoll Lewis Vlak:]

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

[Stanley C. Erck:]

Thank you.

[Operator:]

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

[Elemer Piros:]

Yes, good morning.

[Stanley C. Erck:]

Hey, good morning.

[Gregory M. Glenn M.D.:]

Good morning.

[Elemer Piros:]

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?

[Stanley C. Erck:]

So, yes, that’s all part of the – so what we’ve been working on for the past nine months or ten months is both 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 have coming together very nicely. So I can report that 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.

[Elemer Piros:]

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?

[Stanley C. Erck:]

Yeah, so, yes, you’ve got it right. So we have added the BARDA revenue comes with – hand in hand with the cross and we have higher costs when we make large scale batches of GMP product and we have higher cost when we make clinical trials. And so in the first, second and then into the third quarter of this year, we’ll have lower BARDA revenues and lower outside costs associated with the program, as well. But 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 built 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 and starting at the end of 2013, significantly higher revenue and expenses. Similarly with our 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 it out what the clinical development plan is for late 2013 and 2014 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 grow up next year to the extent that we are able to get non-dilutive financing for that project that were lower than the internal, the net burn rate.

[Elemer Piros:]

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

[Stanley C. Erck:]

Yeah. So again, I have to say that our policy is not to forecast clinical – products into clinical trial, until we get to a 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 that’s all happened within 27 days very consistent with the advantages that our technology brings to this session. 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 future human studies.

[Elemer Piros:]

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

[Frederick W. Driscoll:]

Thank you Elemer.

[Operator:]

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

[Greg Wade:]

Good morning and congratulations on the progress. Stan, with respect to H7N9, perhaps you could help us to better understands 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.

[Stanley C. Erck:]

Yeah, so yes, so my insight into government planning, that’s an interesting question. But we do have closed conversations. We’re working with BARDA very closely on this. BARDA is, I think the BARDA would characterize their activities as organizing and planning how to get the industry involved in any threat, biologic threat, and H7N9, it 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.

[Greg Wade:]

Okay. Have any RFPs been published?

[Stanley C. Erck:]

No, not yet.

[Greg Wade:]

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 pre-vaccination 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.

[Gregory M. Glenn M.D.:]

Yeah, actually that’s a good question, Greg. I think there’s a bifurcation. If you look at the, you can see robust immune responses without neutralizing antibodies. And those types of response can lead to the ADE, the antibody-dependent enhancement. And if you look at our paper, we published a paper in Vaccine 2012 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 published and, of course, in that study at the Vaccine paper, we show very robust protection against the live challenge. So I think we have moved into that very confidently and generate neutralizing antibodies and showing protection in well with animal model.

[Greg Wade:]

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.

[Stanley C. Erck:]

Yeah so what I could say is that we’ve not had direct discussions with the Saudi Arabian Ministry of Health. So we’re not sure that what’s the pathway to periodic clinical trials are for that region. Any other questions?

[Operator:]

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

[Edward Tenthoff:]

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?

[Stanley C. Erck:]

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 would 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 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’re looking at the data we have from the Phase II trial in women. We will receive 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 generating 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. So…

[Edward Tenthoff:]

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?

[Stanley C. Erck:]

Yeah, thanks Edward.

[Operator:]

(Operator Instructions) our next question comes from Vernon Bernardino from Brinson Patrick. Your line is open.

[Vernon Bernardino:]

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?

[Stanley C. Erck:]

Are you talking about our preclinical results?

[Vernon Bernardino:]

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

[Stanley C. Erck:]

Yes. So we’ve had some discussion to be had with the ICGEB, CPLB and ourselves and, for that matter, the Department of Biotechnology. I’m not sure because of the ICGEB is more of a international research organization and its there is may be more likely that preclinical data will be put into public form and that’s something that would happens it will happen sometime later this year or early next year. Vernon Bernardino – Brinson Patrick Okay. That’s it. Like I said, most of my questions have been asked, and congratulations and best wishes, Fred.

[Frederick W. Driscoll:]

Thank you, Vernon.

[Operator:]

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

[Stanley C. Erck:]

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

[Operator:]

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.