Novavax, Inc. (NVAX) Q3 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Novavax Third Quarter 2018 Financial Results Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Erika Trahan, Senior Manager Investor and Public Relations. Ma'am, you may begin.

Thank you, operator. Good afternoon. I would like to thank everyone for joining today's call to discuss third quarter 2018 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. Greg Glenn, our President of Research and Development and Amy Fix, our Senior VP 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 strategies and other financial and business related matters, including expectations regarding revenue, operating expenses, cash usage in 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 assumptions, risks and uncertainties which change over time. I will now turn it over to Stan to begin today's call.

Thanks, Erika. Welcome to our third quarter second quarter 2018 earnings call. In the third quarter we continued to execute on all of our goals for RSV and flu vaccine programs. This puts us within three to four months from reporting data for both programs, the pivotal Phase 3 efficacy data from ResVax and Phase 2 data for NanoFlu. With these data in hand we will continue efforts related to submitting the very first marketing application for any RSV vaccine and are preparing to initiate a pivotal Phase 3 clinical trial for NanoFlu. We have taken and will continue to take steps to prepare for success of both programs, so more on that later. First, let me remind you what we've accomplished this third quarter and earlier this year. In our ResVax program we started the year with results of information and analysis of our Prepare trial that indicated that our vaccine was performing well in the first one third of the trial. That analysis told us that the level of efficacy in the first 1307 children who's mother's were given ResVax or placebo was somewhere between 45% and 100% and although we remain blinded to the specific point estimate we continue to believe that any level of vaccine efficacy in this range would represent an historic breakthrough and would be licensable by the FDA and EMA. Since then we have been carefully following and compiling the data for the remaining two thirds of the trial participants and while we are not quite at the very end yet we can look at the number of primary endpoints observed to day 90 and while we can't know into which group these primarily endpoints fall, we think the number of primary endpoints observed for the remaining two thirds participants looks very similar to what we saw in the first third of participants. This is very promising to us. Regarding trial execution, we've finished enrolling the 4636 pregnant mom representing the final enrolling in the trial in the second quarter and the final baby was born in July. We closely monitor the infants through their first six months of life and we now know when that six-month period will be over. We have initiated a massive effort of data collection and data cleaning [ph] in order to meet our commitment to end of database lock and unblinding in the first quarter of 2019. And I'm pleased to report that this effort is going on schedule. May team and I have just returned from the 11th International Respiratory Syncytial Virus Symposium, which is a biannual scientific meeting that brought the global RSV community including the academic, government, and industry together to present updates and progress towards the development of RSV vaccines, monoclonal antibodies and antivirals. As you would expect with the only RSV vaccine in late-stage clinical trials Novavax had the spotlight with two of oral presentations and five posters, all of which are available ton our website. Switching gears to our NanoFlu program, you will also recall that we started 2018 with Phase 1/2 clinical results, data from that trial demonstrated significantly improved NanoFlu hemagglutinin responses as compared to the leading competitor vaccine in older adults. These data were sufficiently robust that they merited publication in the New England Journal of Medicine last June, a rare occurrence for early stage clinical trial results. We've followed this trial with a meeting with the FDA during which the FDA acknowledged and agreed that the accelerated approval pathway could be available for NanoFlu. As many of you know, the accelerated approval pathway could allow Novavax to conduct a well-controlled Phase 3 trial designed to meet established immunogenicity endpoints against a licensed competitor with a commitment to conduct confirmatory or post marketing trials to demonstrate clinical effectiveness. We plan to discuss the Phase 2 clinical trial data and the proposed Phase 3 study design and reach agreement on the use of accelerated approval with the FDA during an end of Phase 2 in the first half of 2019. And in September we announced the initiation of our Phase 2 clinical trial of NanoFlu and I am happy to now report that we completed full enrollment in October and are on target to unblind and announce topline data early in the first quarter of 2019. So we are preparing for success and as I described in our last quarterly earnings call we have initiated a number of pre-licensure activities that are critical to enable us to launch our products as soon as possible post licensure. These activities cover the following four areas; manufacturing quality, global regulatory discussions, pre-commercial activities targeting private and government payers, health providers, and partnering discussions to help us leverage the infrastructure of big pharma and accelerate the process of setting up global manufacturing, distribution, sales and marketing. So let me provide you with a brief update on each of these areas, manufacturing and quality. Over the last two years we have been working on process improvements with a focus on yield improvements. For both of our programs we have been able to increase yields by 5 to 10 fold over the levels of our early development. These yields, gains, will allow us to manufacture products to meet global needs for product launch and through the near future in our current GMP production facilities. We are also confident that yield improvements of this magnitude should allow us to maintain gross profit margins that are similar to those generally found in the pharmaceutical industry. Additionally we are in the middle of a campaign for process performance qualification also known as PPQ for ResVax. PPQ data are required components of marketing applications. These data are needed to confirm that we have a validated manufacturing process capable of consistently producing vaccine at commercial scale. And finally from a manufacturing perspective, we have requested and have been granted a meeting with the FDA this December to discuss our commercial manufacturing facility. These manufacturing efforts provide assurance that we remain on track for submissions of our BLA and MAA in the first quarter of 2020. In regulatory affairs we have now had important and successful meetings with the FDA and with five major European regulatory agencies. We discussed and reached agreement on details of the ongoing ResVax program including requirements to for the future centralized application with EMA. We have also confirmed if the FDA the administrative requirements of our BLA, including the content and format of our clinical data sets. These regulatory activities are being done well in advance of our submissions as part of our ongoing BLA and MAA preparation with a goal of submitting both applications in the first quarter of 2020. With that in mind we are now preparing for pre-submission meetings with FDA and EMA that are expected to occur in the middle of 2019. Commercial activities we have a small core commercial group that has succeeded in several important pre-commercialization activities including prompting the CDC's advisory committee to set up a working group for RSV so that they will be ready when our BLA is approved. We have also been working closely with payers and providers over the years to understand strategies for introducing our vaccines into the markets and have been developing branding and market communication strategies. Partnering, we continue to have close discussions with potential pharma partners on both ResVax and NanoFlu. While we are confident we could launch both products independently, partnering with one or more of the large pharmaceutical companies with vaccine divisions will allow us to globally commercialize our products and mitigate the need for new investor funding for our product scale up and launch. So how do we manage all this? As you've just heard we have significant opportunities that come off the heavy lifting yet to be done. We're fortunate to have a very seasoned in-house team that has been with us through thick and thin for a long time. We have identified several people within our organization who have taken on the responsibilities that will ensure that we get both our RSV and flu vaccine across the goal line in a timely fashion. These folks have been working closely with me and the rest of my senior management team to get us where we are today and so I'd like to take a couple of minutes to mention a few recent promotions. In quality, Jordi Leecha [ph] has been promoted as Senior Vice President, Quality Assurance. In this late stage of development I cannot overstate the importance of our quality utilization to the success of our product launch. Jordi [ph] has the experience and the vision to continue to lead that effort as we begin to scale up next year to make product launch. In manufacturing, Brian Webb was promoted to Vice President of Manufacturing. Brain came to us several years ago after years of increased responsibilities in big biotech and big pharma and is responsible for manufacturing all of our vaccines. He is currently leading our efforts and scaling production for product launch for ResVax and for Phase 3 NanoFlu trials. In regulatory, Susan Hensley has been promoted to Vice President, Regulatory Operation. Susan is the operational lead for the overall BLA authorization and set up all of our publishing systems for electronic regulatory solutions, a complex job that requires us to systematically organize the work of multiple groups and departments. And Kathleen Callahan has been promoted to Vice President, Regulatory Affairs CMC. Kathleen has been the CMC lead on all of our development programs and continues to provide strategic direction to our project teams as we navigate in multitude of CMC regulations. And in commercial, Brian Rosen has been promoted to Senior Vice President, Commercial Strategy. Brian joined Novavax with commercial experience in RSV and flu. He has laid the groundwork for public and private payer strategy, worked with CDC multi-formation of an AIC working group for RSV and developing global analysis of the disease burden and economic impact of RSV. And I also want to mention what we announce last week that we've been very fortunate to attract a new member to our Board of Directors, Rachel King. Rachel is a very experienced and thoughtful biotech veteran. She is currently CEO of GlycoMimetics and a member of the Executive Committee of BIO and sits on the Board of the University of Maryland BioPark. Rachel's experience is in big pharma, venture capital and biotech companies will no doubt be invaluable to our Board. We welcome Rachel to the team. I'll now turn the call over to John Trizzino.

Thank you, Stan. Today we announced financial results for the third quarter of 2018. For today's call I will focus on the key results for this quarter, but the nine month financial results can also be found in today's press release. For the quarter, we recorded a net loss of $44.6 million or $0.12 per share compared to a net loss of $44.6 million or $0.15 per share in the third quarter of 2017. Revenue in the quarter decreased 7% to $7.7 million compared to $8.4 million for the same period in 2017. The Bill and Melinda Gates Foundation grant revenue is directly related to operating activities in the Prepare trial and so therefore this decrease in revenue is the 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 1% to $41.3 million in the quarter and G&A expenses increased 2% to $8.3 million in the quarter. As of September 30, 2018 Novavax had $145.6 million in cash, cash equivalents, marketable securities and restricted cash. Net cash used in operating activities for the third quarter of 2018 was $33.5 million compared to $44.2 million in the third quarter of 2017. The decrease in cash usage was primarily due to receiving a $15 million payment under the BMGF grant in the third quarter of 2018 whereas no payment was received in the same period of 2017. This concludes my financial review. I'll now turn the call back over to Stan for closing remarks.

Thanks John. So by the time we see you again we expect to be sharing our data for both of our ResVax and NanoFlu trials. It's an exciting time for the company as you can imagine. So we'll open it up. I'll turn it back to the operator.

Thank you. [Operator Instructions] Your first question comes from Eric Joseph with JPMorgan. Your line is open.

Hey guys, thanks for taking the questions, just a couple from us on NanoFlu. I guess with the flu season sort of about to get underway I am wondering if you have any visibility on the types of strains that are taking root and how that tracks with NanoFlu coverage versus some of the commercial products? And it looks like five different formulations being evaluated in the Phase 2, maybe just sort of elaborate on how the different formulations differ and whether there's any meaningful impact into how they'd be produced or manufactured? Thanks.

Yes, this is Stan. So I don’t have any insight into how the flu season is shaking out yet relative to what strains of the vaccine. Greg, do you have anything on that?

No, there's nothing, I think…

I think it is too early. With regard to our trial, I think as we mentioned a while back the strategy here is to get a formulation that we can take into Phase 3. We expect that a few of these formulations will work, but we have to accomplish a couple of things. One of the things we're going to accomplish was to show that our adjuvanted vaccine had an improvement over our non-adjuvanted vaccine. You have to show that when you had - to the FDA that gives you benefit. Another issue is we want to try couple different dose levels of our antigen in particular to see whether in B strain which is typically the least robust immune response, whether boosting the antigen would be - would take care of that and we'll find that out. We looked at a couple different adjuvant doses. We've always gone on 50 mcg, we boosted up a little bit and we'll see – with the goal of picking the final product for Phase 3 from this trial.

Got it, and when do you say you hope to share data early in the first quarter of 2019, could that be at the Healthcare Conference in San Francisco?

Well, that's early in the first quarter, so we cannot promise that yet, because we don’t have the data. So we're shooting for – we're targeting as early as possible in the first quarter.

Great, thanks for taking the questions.

Thank you. [Operator Instructions] Your next question comes from George Zavoico with B Riley, FBR. Your line is open.

Hi everyone, good afternoon. I was looking over the posters at the RSV International Symposium. You really had a lot of information there characterizing your RSV vaccine and I wanted to ask you to put that into context of how your ResVax differentiates from other vaccines that are coming up in development. I mean, you've got three different forms of pre-fusogenic, fusogenic and post-fusogenic and you've characterized the epitopes on the vaccine the kind of antibodies that are developed and help me understand how differentiated that is and how that might be pressing for the outcome of the maternal immunization trial?

Yes hi George, this is Greg.

Hi Greg.

Thank you for taking a look at those posters. I think we have some very good work there. So in the last – so we started our vaccine program about approximately 8 to 10 years ago and in the meantime there has been a lot of work done on mapping of epitopes through the use of broader utilizing antibodies on to the F protein. And then as you noted, there have been descriptions of several structures including a prefusion vaccine, a postfusion vaccine, and our vaccine. So we took many of these monoclonal antibodies, we looked to see if those epitopes were on our vaccine, which they are. And I think what we can say today is in addition to the [indiscernible] like antibodies which we have made quite a bit of paid quite a bit of attention to there are other epitopes making other broadly neutralizing antibody sites that showed neutralized virus. So what does that mean? That means that we should be able to cover the F viruses both RCA and RCB very robustly with our vaccination. There has been some debate about the most ideal construct and they become prefusion form is the most ideal form and so we took these critiques into account, we made prefusion vaccine. We compared them head to head to our vaccine as you can see in those posters, and you can see we're quite a bit more immunogenic than the prefusion or postfusion form. So all that has I think again reassured us that our construct is good, it's very stable to the particle. It makes strong and protective antibody responses and so I think in that setting it was very important to carry that message to the rest of the field and meeting the RSV meeting there is a meeting held every two years, it gathers all the experts of the field. And I think generally speaking people are very, very enthusiastic about our program and looking forward to this data as we are.

Okay, I had a question about one of the poster talked about feasibility evaluation very much related to the goals of the Bill and Melinda Gates Foundation in terms of formulating the vaccine to make it stable at 37 degrees and looks like you've achieved that with this process if I'm interrupting the poster correctly.

Yes, you are, yes we have two posters actually that look at the stability of our vaccine. I would say that's a hallmark of the vaccine that we made is that we originally made it to be stable because F-protein as you know in its natural state is metatarsal stable as there has been some product failure in the past because of the stability. So we I think conquered that very ably and the one poster is for blow fill seal which is sort of a presentation format that's suitable for the developing world that Bill and Melinda Gates is funding development of that technology. And the other poster was looking at some of the - what we think are key epitope on the surface of the F-protein and again comparing it to a prefusion form of the vaccine. So when you heat it up you could really - our vaccine melting point is almost 95 degrees centigrade which is almost boiling as you know, so it’s very hard to D nature our vaccine whereas a prefusion has a much lower melting point and it forms aggregates and so we showed that in the poster or within the poster. So two very good posters reflecting what we know internally the stability of our vaccine is very, very good and as you know that's really key for advancing it to commercialization.

But so what are your obligations now as far as the Bill and Melinda Gates Foundation and are they providing any more resources for you to be able to manufacture this using this blow fill seal process to make it available to the Third World and underdeveloped country?

Yes, George this is Stan. Sorry, I missed you at the meeting, I left early, bu. I'm glad you were there. So yes, so our group at the Bill and Melinda Gates Foundation is the $89 million of the funding, is to fund us through Phase 3 and we have a commitment to once we file a BLAs is to follow up with WHO and apply it for pre-qualification which is a process that is necessary to be able to distribute products in lower income countries. There are some questions that will be opened once we get our efficacy data about what the proper presentation of the vaccine will be in low income countries. And our agreement with the Gates Foundation does not cover the costs of evaluating that formulation beyond what our standard formulation is, so that will be a negotiation and it will be up to the Gates Foundation and WHO to help us determine what the best presentation will be so…

The launching to the rest of the world is going to, is this going to be very different formulation for the U.S. and Europe and so the launch in the rest of the world will be sort of a later problem?

Yes, U.S. and Europe will be the same formulation.

Right, the rest of the world will not.

And the rest of the world could be better but it might not be, we don't know the answer to your question. John Trizzino is right the formulation itself, the active ingredient in the formulation will be the same, it goes in prefilled syringe or vial or something called a blow fill seal will depend on what the world wants.

Okay, alright. By the way I wish I went to the meeting, but I didn't. I accessed the posters online and was taking a look at them and, but would have been nice to been there, I would have liked to have seen that, seen all that.

It's a nice venue and it was great meeting because as I pointed out in the presentation we are in the game right now as far as a late-stage clinical data.

And are you, when you mention you want to get launched as soon as possible after - as we all hope it will be approved, how long of a window are you actually aiming for, can you disclose link like almost immediate?

I think the answer George is it’s almost immediate and there is lots, we will be making products and put it into inventory during the BLA review process and once we get approved then we can launch we think probably immediately. The question is uptake and uptake will be enhanced greatly through the process of ACIP recommendation because that’s what your payers get recommended and that occurs three times in a year. So depending on when the BLA gets approved, it will be one to four months before ACIP weighs in.

And if the timing is good, you will be ahead of either the Northern or Southern Hemisphere RSV season?

Look we don’t, actually we don’t you can’t think of this as a seasonal vaccine anymore. Our expectation is we’re going to get year around recommendation. Remember we’re vaccinated in week 24 to 28 in the quarter and there is gestation and the kids are going to be around for six months and so this is the season doesn’t matter anymore.

Okay, thanks a lot for the clarification. All right, thank you all.

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

Great, thank you very much, can you hear me okay? A - John Trizzino Great, Ted, how are you?

Really well and thanks for the update. I missed a little bit of the call sometime back at four and I just wanted to get a little bit more clarity about how this year’s flu season is impacting development and the study and just submit your [indiscernible] back for data in the first quarter of next year?

Hi Ted, this is Greg here.

Hi Greg.

There isn’t much going on in the flu season. We designed the trial to as an immunogenicity trial that we conducted as far as possible outside of the flu season, the flu virus circulating. So right now, we are really not seeing much in the CDC Surveillance and we wouldn’t expect it, it will start soon, but we have our last bleed and it is outside the season so that is good time…

That makes sense. And we’re still on track then for data in the first quarter?

We’re very much focused on getting immunogenicity as early as possible first quarter.

All right, good excellent. Well I'm also excited for the kind of data coming up, so thanks so much for the update guys.

Thank you.

Okay, thank you, Ted.

Thank you. And I’m showing no further questions at this time. I'd like to turn the call back over to Stan Erck for closing remarks.

Okay, thanks everybody, we’re excited, I hope that came across. We’re going to be talking publicly again in the not too distant future about our data. So look forward on that.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you all may disconnect. Everyone have a wonderful day.