Novavax, Inc. (NVAX) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Novavax Third Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would like to hand the conference over to your speaker today, Erika Trahan, Senior Manager, Investor and Public Relations. Ma'am, please go ahead.

Thank you, operator. Good afternoon. I'd like to thank everyone who has joined today's call to discuss our third quarter 2019 operational highlights and financial results. A press release announcing 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 will be available for the Q&A portion of the call. Before we begin with 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 hand it over to Stan to start today's call.

Thanks, Erica, and welcome to our third quarter earnings call. In the third quarter, we focused on our two core vaccine programs and I'm pleased to say that we've made important progress in both. So starting with NanoFlu, as we discussed last quarter, we reached agreement with the FDA on the design of our Phase 3 clinical trial for NanoFlu. We also agreed with the FDA that these trial results will be considered pivotal data for purposes of licensure. With these understandings in hand, we focused our activities on conducting the pivotal Phase 3 clinical trial to evaluate the immunogenicity and safety of NanoFlu, co-formulated with our proprietary Matrix-M adjuvant in healthy adults age 65 and over. In October, we initiated and completed the enrollment of 2,652 healthy older adults across 19 U.S. clinical sites for this Phase 3 clinical trial. Trial participants received either NanoFlu or the license competitor Fluzone Quadrivalent, both of which contained the four influenza strains recommended for the 2019-2020 Northern Hemisphere influenza season. Participants are being followed for approximately one year after injection. However, the primary immunogenicity analyses are made on Day 28 sera samples. Trials primary objectives are to demonstrate; one, safety; and two, non-inferior immunogenicity of NanoFlu compared to Fluzone Quadrivalent as measured by HAI titers. Thanks to the hard work of the Novavax team over the last quarter, we are in a position to deliver top line data from the study in the first quarter of 2020. I'd like to take a moment to note that there – that the strategic value of Novavax has been significantly reinforced by the recent presidential executive order issued in September, recommending modernizing of the influenza vaccines for the benefit of national security and public health. We think this executive order is the culmination of years of growing concerns raised by public health advocates about the current state of influenza vaccines. NanoFlu, which is a non-egg based vaccine, formulated using recombinant nanoparticle technology and combined with the safe and potent adjuvant has all of the characteristics of the better flu vaccine mandated by that executive order. Clearly we believe positive top line data from our NanoFlu Phase 3 trial to generate significant value for Novavax and its shareholders. The completion of this trial is therefore the key objective and focus of our team. Successful top line results will support a subsequent BLA here in the U.S. using the FDA’s accelerated approval pathway. The importance of this opportunity cannot go understated. Accelerated approval provides us with a pathway to efficiently and cost effectively completed the pivotal Phase 3 clinical trial of NanoFlu and move forward towards commercialization. Again, we look forward to reporting our data by the end of the first quarter. Now turning to a brief progress report on ResVax, our vaccine for the prevention of RSV in infants via maternal immunization; as we have reported, the European Medicines Agency and the FDA have both recommended that Novavax conducted additional Phase 3 clinical trial to confirm the efficacy we observed in the Phase 3 trial data we reported earlier this year. Novavax is in continuing discussions with both global regulatory authorities and potential partners to explore the opportunity to bring ResVax to market globally. We presented additional safety, efficacy and safety findings from the program at the Infectious Diseases Society for Obstetrics and Gynecology Annual Meeting in August and at the World Vaccine Congress Europe last week. The presentations included new observations based on the recently completed analysis of the one-year safety data, including a 56.9% reduction in the incidents of serious adverse events diagnosed as pneumonia, with confirmation by chest X-ray, which extended through the first year of life. The strength and duration of this effect exceed the direct benefits of the RSV intervention and represent the potential for very significant benefit to global public health. Finally, before I turn the call over to John, I want to note that the Novavax’s Catalent deal we detailed last quarter closed in the third quarter. As a quick reminder, Catalent purchased Novavax’s manufacturing equipment and related assets for approximately $18 million, assumed the property leases to two Novavax product development and manufacturing facilities and hired approximately 100 of Novavax’s manufacturing and quality employees. I am pleased to say that Catalent has begun to provide process development and manufacturing services for our programs. And completion of this agreement has reduced our burn rate, while allowing us to maintain the necessary resources to execute on our business strategy. Now I'll turn the call over to John to present the financial review.

Thank you, Stan. Today we announced financial results for the third quarter of 2019. A summary of our financial statements, including nine-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. For the third quarter, we reported a net loss of $18 million or $0.74 per share compared to a net loss of $44.6 million or $2.33 per share in the third quarter of 2018. The reduction of net loss was mainly due to decreased development activities for ResVax, partially offset by decreased revenue under the Bill & Melinda Gates Foundation grant agreement. Also the third quarter net loss in 2019 includes a gain of $9 million recorded as a result of the Catalent transaction. Revenue in the quarter decreased 68% to $2.5 million from $7.7 million for the same period in 2018. Again, this decrease was driven by the completion of enrollment of participants in the Prepare trial in the second quarter of 2018. R&D expenses decreased 55% to $18.6 million in the third quarter of 2019 compared to $41.3 million in the same period in 2018. This decrease was primarily due to decreased development activities of ResVax, lower employee related costs and other costs savings due to the Catalent transaction. G&A expenses decreased slightly coming in at $7.9 million as compared to $8.3 million for the same period in 2018. As of September 30, 2019, Novavax had $75.9 million in cash, cash equivalents, marketable securities and restricted cash. Net cash used in operating activities for the first nine months of 2019 was $112.9 million compared to $139.6 million for the same period in 2018. Regarding our cash needs, we expect our cash used in operating activities to continue to decrease in the second half of 2019 as compared to the first half of 2019 due to the Catalent transaction, including the reduction in salaries due to the transfer of employees, assignment of facility leases and as 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. It's an exciting time to be part of this company. We look forward to updating you on our progress as we close out 2019 and transition into 2020, especially with regards to the NanoFlu as we anticipate Phase 3 data in the first quarter of 2020. Thanks again to everyone with us on the call today, and now I'll turn it over to the operator for Q&A.

Thank you. [Operator Instructions] Our first question comes from the line of Kevin DeGeeter with Oppenheimer. Your line is open. Please go ahead.

Hey, guys. Thanks for taking my questions. Maybe just one or two for me. Can you just comment on your provider perspective as to grow trends, you're going among vaccination of the elderly in the influenza market, and just how we think about sizing out the addressable opportunities in the event of a positive Phase 3 readout for our NanoFlu?

Maybe one thing I could say – hi, Kevin, it’s Greg. I was looking at the flu vaccine uptake last year recently and in older adults it was 68%, gone up over 2% year before. So even though the vaccines aren't working well, they are promoting the use of the vaccines. It’s true, all age groups, but even older adults, 65 and above, had the greatest usage and that was about 68%.

Yes, I'll just add on top of that. From a commercial standpoint, Kevin, what you have is a marketplace, as Greg said, that continues to see high vaccination rates. But you're also seeing the growth of the elderly population in the U.S., where the over 65-year-old population is expected to continue to grow just coincidentally to about 65 million or greater over the next several years. But also you have – continue to have supporting policy there for vaccination of older adults, you continue to have solid payer support there as well, given Medicare Part B coverage for influenza vaccines and support for any person over 65 years of age, walking into the doctor's office or the pharmacy and getting their flu vaccine for free under Medicare. So I think overall what you have is a population that's in need of an effective or more effective influenza vaccine, we have supporting policy and supporting payer strategy.

And following up on that, in this scenario where NanoFlu was demonstrated to be non-inferior but not statistically superior, which seems like a reasonable base case. Can you just kind of talk about what really drives shift in market share for the flu market, how a regulatory play superiority which we have not seen in this space? And just how we think about when we see the efficacy profile, how – to lay that metric against opportunities to really drive market share shift in the future.

Yes. Kevin, it’s Stan. So let's look at what's happened and then look at what our vaccine should to be able to do it in the market. What's happened is, is that flu's on high dose, who's data showed when they did their accelerated approval trial showed I think roughly an 80% superiority over flu on standard dose in terms of HAI response. And then they did follow that up with a efficacy trial and they showed something like 23% or 24% benefit. We already know that we can in our Phase 1, Phase 2, that we have shown at least with H3N2 higher dose – higher immune responses with our vaccine. There's a particularly on the important strains that are circulated but have drifted. And so we think we have an advantage over Fluzone high doses advantage over Fluzone. So, and they've done well. They've gone from 0% to 68% market share and with a very premium price product over the last six or seven years. And so I think the quality differences is sales product. And so we come in the market and we have a couple of things. I think our expectation is, is that we will have higher HAI levels as in the Phase 3 trial. And particularly we expect to repeat much higher HAI levels in the H3N2 on drifted strains and we think that will be noticeable. And then secondly, we have cell-mediated immunity responses that are compared to, we compare it to Flublok and Fluzone high dose and therefore approached zero in terms of responses and ours were very potent and robust. And so that will be a differentiating factor. But so there's a couple of things that make our vaccines standard. And then of course that will be followed by an efficacy trial. And that trial will start, as we get license the trial will start right away and then all those things, including the cell-mediated immunity should translate into approved efficacy. So I think, our goal all along has been we will go up and show differentiation against all vaccine products and make sure we're not just a me too, we can't be just as good as we will be better than. And so that's what we – that's what we have so far and we expect to build on that.

Terrific. Thanks for taking my questions.

Thank you. And our next question comes from the line of Eric Joseph with JPMorgan. Your line is open. Please go ahead.

Hey, good evening. This is Turner on for Eric. Thank you for taking my question. So just a couple from us. Are there plans to expand NanoFlu outside the U.S and if so, do have any additional trial work needs to be performed internationally to enable registration with the EMA? And then I have one quick follow-up after that. Thank you.

So, yes. Of course, we would expect once we have U.S. licensure for us to expand to in particular the EU. I think the once the common technical document would allow us the opportunity to apply rather quickly after a submission of our BLA in the U.S. and of course there is a robust, robust market place in the EU for a differentiated vaccine with our recombinant technology.

Yes. If there are other markets like China which are just starting on the way up on booming in China, I think now, so lots of opportunities.

Okay. And then do you plan on marketing NanoFlu yourselves or would you anticipate partnering up? And then in the latter case what does an ideal partner look like to you? And when could we pick up potentially expect the timing of a partnership announcement? Thanks.

Yes. So not before data, and the partnership we haven't decided. We have – since we started this program, we have considered commercializing the RSV and flu vaccine in the U.S. on our own and finding partners for outside the U.S. We've not made any decision to do that. That will depend a part of on the cost of capital at the time that we make that decision and our talks with partners. Partnering would look like something pretty standard. Either you would go partner with Sanofi who's got the best market share right now in competing products. And who would consider this? They'd have to demonstrate that they consider this something that they would put in front of their other products. But you've got number twos and number threes or GSK and Sirius who are would like to be number one. And this is a vaccine that we think that can make them number one. So there are plenty of potential partners out there and plenty of potential reasons. We just have to get, we're so close to our Phase 3 data, we just need to get the Phase 3 data and I think that will pave the way for those discussions.

Thank you. And our next question comes from the line of Charles Duncan with Cantor Fitzgerald. Your line is open. Please go ahead.

Hi guys. Thanks for taking my question and congrats on the progress. One month to enroll that trial is pretty impressive. Had a quick question though regarding timing of data and then timing of an accelerated BLA; I'm wondering if you can imagine a scenario in which you'd be able to get all that done before the next flu season. Seems like that would be a big ask, but what are your thoughts there?

We have already started that risk to do some of the things necessary to file a BLA. And they focus mainly on the CMC, the manufacturing issues and making product for consistency, lot trials and clinical lot trials. And so it's long pole in the tent. We're trying to make that pole as short as possible. So we've started working on those areas in the summer and we continue to do so. But as a practical matter, we will not be able to have those data by the end of this year. So this year's BLA is not an additional next flu season. We will not be there in the next flu season.

So, not 2020 flu season, but perhaps 2021 flu season seems like a reasonable guess.

That would be a target.

Okay. And then the second question that I had for you is Day 28 sera samples. Can you help me understand kind of the rate limiting steps between now and data and then secondarily, if there were any other clinical studies that you needed to do. Anything else that you needed to before you found that BLA? Well, nonclinical or otherwise?

Well, [indiscernible] those should be the last studies that we need to do before filing the BLA. All the rate limiting – the rate limiting step between the Day 28 sera and data, the reason it's in the fourth quarter, not November, December is because we have 2,650 samples from Day 28 and Day 0 to assay for probably eight or nine different virus strains, because we going to do the four strains of ResVax and we test our vaccine against the drifted strains where we know or where we have demonstrated in the past a superior response to the competitor. And then we're going to do cell-mediated assay. So there's a lot, there's a ton of work to do and we're having people scheduled themselves six days a week through the Christmas season and January to get the data. So that's the right volume step for data.

Okay, got it. And last question. I appreciate you taking my questions. Stan is related to the actual clinical trial population that you ran and whether or not there were any kind of college special groups, for example, the healthy old, greater than 85 years old that were represented. And then finally, could you anticipate possibly conducting or starting the efficacy study though it's not required for approval in the 24 to – 2020 flu season here in the States?

So the answer to the first question, Greg, do you have?

Ambulatory healthy adults 65 age and older, and we did a little bit of stratification, so but I think, we'll see the demographics will be, we announced the results. So it was not – we did not try to collect, as you suggested, the very old, this is trial.

And Charles timing is, will depend upon what data we get. And again, we go back to cost of capital is as to whether we would try to start it by the end of next year. It's not a bad suggestion. It would speed up the process of getting, obviously having see data, we have choices every six plus as to whether you start these things in the Northern Hemisphere, the Southern Hemisphere. And so we'll make that as we get there. And we have designed – although we have to designed the trial before we let although we have to design the trial before, like obviously correlations start and so, and we don't know whether, which what the size of the trial is and et cetera.

Yes. Got it. Thanks for taking the questions. Good luck for the upcoming day.

Yes. Thanks.

Thank you. This does conclude our Q&A portion for today's conference. And I would like to turn the conference back over to Stan Erck for any further remarks.

Okay. I think that's about it. Thanks for participating. Thanks for asking good questions and we'll be in contact with you as data comes up.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.