Novavax, Inc. (NVAX) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to your Novavax Incorporated Third Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn you over to your host for today's conference. Mr. Buck Phillips, Chief Financial Officer. Mr. Phillips, the floor is yours.

Thank you, very much. Good morning. This is Buck Phillips, Chief Financial Officer of Novavax. I want to thank all of you for joining us on today's third quarter 2013 financial results conference call. Both the earnings release from this afternoon and an archive of the earnings call can be found on the company's website at novavax.com. Joining me on today's call is Novavax President and CEO, Stan Erck; and Novavax Chief Medical Officer, Greg Glenn; as well as other members of our executive team. Before we begin our prepared remarks, I need to remind you that we will be making forward-looking statements during this teleconference that could include financial, clinical or commercial projections. Statements relating to future financial or business performance, conditions or strategies and other financial and business related matters including expectations regarding revenue, operating expenses, cash usage and clinical developments and anticipated milestones are forward-looking statements in 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. Further information on the factors and risks that could affect Novavax’s business, financial condition and results of operation 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 Stan Erck, President and CEO.

Thanks, Buck. Good afternoon, everyone. Thanks for joining us today, in particular thank you for joining us given that we've just had an investor -- an Analyst and Investor update call last September, a month ago, where we spent a couple of hours going through in some detail our clinical development plans. But there are a number of key items we would like to discuss with you today, and I'll begin the call with a brief overview of recent developments and then I'll turn the call back over to Buck, to go over quarterly financial results, and then we'll be happy to take any questions that you have. So first let's get started with some updates from the RSV program that's in clinical development. So after reporting in July, top line data in elderly results - in elderly adults, we presented the details from the study in a post-recession at ICAAC which is possibly the largest infectious disease conference held every year and we did that this past September. And also, at the same meeting in a separate post-recession, we were able to show very promising past [ph] immunization data in the cotton rat which is a relevant animal model which demonstrated protection from the vaccine induced palivizumab competing antibodies or Synagis antibodies. Also last month, we began our Phase II dose-confirmatory study of the RSV F vaccine in 720 women of child-bearing age to further evaluate the products immunogenicity and safety in the maternal immunization study, and I am happy to be able to report that we've already completed enrollment of the study and we look forward to sharing data from the study with you in the second quarter of 2014. I'll point out, that just once again, we've enrolled the study and this is a large study in less than 2 weeks. We are quite good at study execution. So regarding our pandemic influenza program, you'll recall that in July we initiated a Phase I clinical trial of our H7N9 influenza vaccine. This is the virus that began circulating in China back in March of this year. Again, the trial was fully enrolled in under 10 days, and I want to remind you a couple of key facts about this vaccine: So from gene sequence, from the date of gene sequence to first subject in was 91 days. We showed in parallel, in an animal efficacy challenge model, we showed a 100% efficacy. We published those data in the journal Vaccine and the trial has been completed, the dosing and follow-up visits were on schedule and data is coming out this quarter and we will announce the results later on this quarter. So finally, we also announced that we're moving forward to initiate new seasonal and pandemic influenza trials under the BARDA contract, and that BARDA had agreed that our pandemic influenza trial should use our H7N9 vaccine candidate, and our newly acquired adjuvant Matrix-M, this is a big move forward for us, and I'm also pleased to report that we're continuing to work with BARDA on both of these trials, the pandemic and seasonal, and expect that they will both be launched in the first quarter of 2014. And just to remind you, that with the activities in late 2013 and 2014, these activities will drive substantial increases in revenue in 2014 versus 2013, because of the new activities in clinical trials. So in addition to advancing our pipeline, Novavax has improved its capital positioning significantly during the third quarter in September in advance of our Analyst and Investor Day, we conducted a secondary stock offering and successfully raised net proceeds of $94.7 million. And with that, I'll turn the call over to Buck, to review the third quarter 2013 financial results.

Thank you, Stan. Before I continue, please note that the financials I will be discussing here today reflect consolidated results inclusive of our July 31, 2013 acquisition of Isconova AB, now Novavax AB. For the third quarter of 2013, we reported a net loss of $15.3 million or $0.09 per share, compared to a net loss of $7.2 million or $0.05 per share for the third quarter of 2012. Novavax had revenue in the third quarter of 2013 of $4.8 million, as compared to $5.8 million for the same period in 2012. The decrease in revenue this quarter was primarily a result of a lower level of BARDA-funded clinical trial activity associated with the company's seasonal and pandemic influenza programs as compared to 2012. This decrease in revenue was partially offset by $400,000 in revenue from Novavax AB in the third quarter of '13. In conjunction with the decrease in revenue, the cost of revenue declined to $2.3 million in the third quarter of 2013, compared to $3.8 million in the same period of 2012. Again, this decrease was related to the lower levels of activity associated with the company's previously mentioned influenza clinical trials. Research and development expenses increased to $13.9 million in the third quarter of 2013, compared to $6.6 million for the same period in 2012. This increase was primarily a result of increased costs relating to the company's initiation of RSV and pandemic H7N9 influenza clinical trials, as well as higher employee related costs and approximately $1.4 million in R&D expenses consolidated from Novavax AB. General and administrative expenses increased to $3.9 million in the third quarter of 2013, compared to $2.1 million for the same period in 2012. This resulted from higher professional fees including those associated with the acquisition of Novavax AB, and approximately $600,000 in G&A expenses consolidated from Novavax AB. Net cash used in operating activities for the 9 months of 2013 was $33.1 million, compared to $15 million for the same period in 2012. The increase in cash usage from prior year was due to higher research and development spending including the company's RSV, and pandemic H7N9 influenza clinical trials, as well as increased employee related costs. As of September 30, 2013, the company had $146.4 million in cash, cash equivalents and investments, compared to $50.3 million as of December 31, 2012. In the third quarter of 2013, we determined that our development plans required financing that would address the long-term capital needs of the company. We did this in 2 ways: first, we raised $24 million in net proceeds at an average price of $3.07 per share through the use of our ATM facility early in the third quarter. Based on the strength and the stock price during that period, and our assessment of institutional demand, we halted ATM issuances and closed a public offering of common stock in late September raising $94.7 million in net proceeds at $3.14 per share. With these financings, we believe the capital at the end of the third quarter of 2013, will fund our very aggressive operating plan into 2016. For that reason, at this time we have no plans to issue equity through the ATM or through other forms of equity offerings for the foreseeable future. With that, I'll close my comments and turn the call back over to Stan.

Okay, this concludes our prepared remarks for the day. At this point, we'll turn it back over to Doug, who is our operator who can orchestrate the questions.

[Operator Instructions] I do have one question from the line of Bill Tanner with FBR Capital. William Tanner - FBR Capital Markets & Co., Research Division: I guess the questions I have may be for Greg, Glen is he on the line, on the call.

I am here. William Tanner - FBR Capital Markets & Co., Research Division: I had a couple of questions for you #1, for those of us who, I know you presented at the RSV Vaccine Conference in Portugal. So for those of us who were unable to attend be interesting or helpful I guess if you could maybe give us some -- not necessarily a synopsis, but just a viewpoint as to how the conference went, what the level of interest is, and the space in general, and how your vaccine stacks up with some of the other -- with the other modalities that are being investigated?

So this was a conference, a international conference focused on vaccine development of RSV only. So it was very concentrated, meaning that being said it was well attended, it was packed. The sessions were packed, there were a lot of topics addressed from pathophysiology of the virus to epidemiology. We had 3 presentation, the first was done by Dr. Gail Smith, who is our head of research. He reviewed the -- our approach to using the F protein as a vaccine, and particularly how we had displayed the SY2 [ph] or Synagis or palivizumab-like epitopes, and I think his talk was extremely well-received. We had a compelling preclinical data set, a mechanism of action, rationale for the vaccine antigen choice. I think it was extremely well-received as I said, and we followed that with a presentation on maternal immunization which I did, and then, Dr. Lou Fries provided a detailed presentation of the elderly data which we generated this year. So with respect to maternal immunization, this is a modality to address RSV in the earliest months of life, since it is such a -- there isn't really any other strategy, in fact I would say, months there's pharma companies and developers there is clearly a consensus that this is the best clinical strategy to address the very young. And then, looking at the stage of the program, we are clearly many years in advance of any other candidate vaccine. So we're again presenting our Phase II data from a large trial 320 subjects, we showed that we induced robust antibodies, functional antibodies, and had a very safe vaccine. So I think that was well accepted. And these by the way, these presentations are about to be put up on our website in the next few days. And then, finally Dr. Fries presented the data and we will reevaluate the RSV F vaccine in the elderly. And again, I think what's remarkable in all these trials is the consistency with which we are showing the new responses to the vaccine that is the anti-F, the neutralizing the antibodies and the palivizumab or the heating [ph] antibodies which we think are very important. So, I would say in general, it was extremely well-received in terms of the data and science. There were some other, I would say interesting concepts, most of them were quite early in development and we were able to, I think, stand up well with some of the scientific and developmental criticism questions that we had there. I think we'll shortly post all 3 of the presentations on the website, they have more detail than we provided at the Analyst update, so I think it will be quite interesting and worth reviewing. William Tanner - FBR Capital Markets & Co., Research Division: Great, and then I guess a follow-up as it relates to the ongoing Phase II study appreciating that it's far larger and that the company is wanting to make sure that you've got the appropriate dose. Is there anything incremental coming out of the data do you think, or anything coming out of the data that would be incremental to the story just in terms of more confidence that you're on the right track, or is this just basically going to be pretty much the data similar to what has been revealed thus far?

, Well we have a lot of confidence in our program. So I think we have 3 trials, where we've seen the immunogenicity and safety performed or the vaccine performed in those arenas very consistently. So in this current trial, it's quite large. So in order for us to step into maternal immunization, we determined that we needed a large safety database. So we will see that in this trial, and then we answered some very important questions in terms of dosing regimen and use of alum dose, and together that will allow us to determine at what stage of pregnancy and how many doses we will be providing immunizations, so that we have the peak antibody response. And I think one of the real step forwards here is we will have detailed antibody kinetics. As you can imagine, what we would like to do is immunize in such a way that the antibodies peak, therefore the babies receive the maximum amount of antibodies that we can safely induce. And we have a very detailed set of sera [ph] assessments to do that, so we can compute the area in the curve and provide the vaccine in the best dosage regimen. So this really is a critical study, because it will allow us to evaluate the correct dosing regimen and optimize the dosing going forward.

Our next question comes from the line of Thomas Yip of MLV & Co. Thomas Yip - MLV & Co LLC, Research Division: With promising data from the RSV vaccine, from both women of childbearing age and the elderly population, obviously [ph] 2 very susceptible populations. Can you please remind us of what is your next step for the RSV vaccine?

Yes, so with respect to covering infants through maternal immunization, we're looking to be -- our current plan is to begin the study in pregnant woman approximately this time next year, and there we will be immunizing in the third trimester based on the dosing regimen we determine from the current study. And I think that study will be a very important landmark. First of all, we want to establish that the vaccine is safe in this population, we have a lot of confidence that it will be, then we will look for the level of palivizumab-like antibodies, neutralizing antibodies in the mother and in the baby. So we will be to evaluate -- able to evaluate placental transfer of these functional antibodies to the infant. And then thirdly, I think we will be able to collect some data on the antibody kinetics and so as you can imagine the baby will get a certain amount of antibody after birth. It will no longer be supplied the antibody from the mother. So there will be a level of decay a time over which the antibodies would go away. And determining that, it will be very important for us to determine the endpoint and the extent of the time duration of protection that we might expect. So that would happen, that we do expect to start that trial, as I said, approximately this time next year. With respect to the elderly, we were looking as this trial was actually very important that we conducted and saw [ph] results this year. We were looking for an immune response that would give us confidence that we would elicit -- could elicit protection. Given that, that allowed us to then advance the program into what we see as the future for this vaccine which would be to combine it with the seasonal influenza vaccine. So there we would combine our late-stage VLP quadrivalent seasonal vaccine with the RSV vaccine. We intend to begin testing that vaccine in the second quarter of next year, and that is obviously a very important result, we expect to see those results towards the end of the coming year. So that's our -- and our goal there, of course is to supplant the current seasonal flu vaccines that's given to this population because the RSV itself causes, as you know causes a great deal of pathology in elderly and high-risk adults. So, there is approximately 180,000 annual hospitalizations due to RSV, and approximately 15,000 deaths. So it lines up very well with, it's one of the influenza strains, and we think this would be -- we believe after discussing this with many key opinion leaders, this will be a very important medical intervention to offer to this population. So that's our -- in a nutshell that's our plans with these 2 programs. Thomas Yip - MLV & Co LLC, Research Division: All right, that sounds great. I just want to confirm, so is the seasonal flu RSV vaccine combination trial only limited to elderly patients?

That's a good question. So, we will, what we plan to do is to do this in healthy adults and elderly adults in this trial. By doing that will provide us the safety data which will allow us to move into pediatric population as well, where we think at least in the 2- to 5-year olds we could safely test and license a combination flu vaccine as you probably know, it's recommended this population has a seasonal flu vaccine and we would like to add RSV and this population continues to cause many hospital -- many outpatient visits, the hospitalization rates are lower, but the children suffer bouts of RSV often leads to wheezing and ongoing wheezing, and we think there is a role for an RSV vaccine in the combination in this population. So that would be our consideration, that we may start a pediatric combo trial, and we will make that decision after we've looked at the data from this upcoming trial in healthy adults.

[Operator Instructions] At this time I see no further questions in the queue. I would like to turn it back over to Stan Erck, President and CEO. Mr. Erck, please go ahead.

Thanks, Doug. So my hats are off to all of you who sat through both the Analyst call for a couple of hours and today, and we look forward to reporting to you on further results over the next quarter in 3 months. Thanks. Bye.

Ladies and gentlemen, thank you, for your participation in today's conference. This does conclude the program and you may all disconnect. Have a wonderful evening.