Novavax, Inc. (NVAX) Q4 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Novavax Fourth Quarter and Full Year 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's call, John Herrmann, General Counsel. Sir, you may now begin.

Thank you. Good afternoon, everyone. This is John Herrmann, General Counsel of Novavax. I'd like to thank everyone for joining today's call to discuss our fourth quarter and full year 2014 financial results. Today's earnings release is currently available on our website at novavax.com, and an audio archive of this conference call will be available on our website later this evening. Joining me on today's call is Novavax's President and CEO, Stan Erck; along with Buck Phillips, our CFO; and Dr. Greg Glenn, our Senior Vice President of Research and Development. 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 all 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. With the front over, I will now turn the call over to Stan Erck, President and CEO. Stan?

Thanks, John. Good afternoon, everyone. So our accomplishments during the fourth quarter culminated in a productive year for Novavax, as we delivered on all the key clinical and corporate objectives that we outlined at the beginning of the year. With the initiation of several important clinical trials during the second half of 2014, we anticipate announcing top line data from all of our key pipeline programs in 2015, making the upcoming year incredibly exciting for us. As usual, I'll now ask Greg to review our recent clinical and scientific accomplishments. After that, I'll provide detail regarding key anticipated events in 2015. We'll finish the call with a financial overview by Buck and then open the line for questions. With that agenda, let me hand the call over to Greg.

Thanks, Stan, and good afternoon, everyone. During 2014, we announced a number of clinical and preclinical accomplishments. Our efforts have built a strong foundation for moving our key programs into later-stage development. As Stan mentioned, 2015 will be a busy and exciting year with several important clinical data readouts. I'll start with a review of our accomplishments and focus first on our comprehensive RSV program. The first major achievement I'd like to highlight is the Phase II clinical trial of our RSV F vaccine in elderly adults that we initiated in the fourth quarter of 2014. This trial is a randomized, observer-blinded, placebo-controlled trial of 1,600 elderly adults over 60 years of age, which is being conducted at 10 U.S. based sites. The trial is designed to evaluate the safety and immunogenicity of 135-microgram dose of the RSV F vaccine compared with placebo and the incidence of all respiratory illnesses due to RSV, including medically attended respiratory illness due to RSV and hospitalizations for respiratory illness due to RSV in community-living elderly adults. The trial will also estimate the efficacy of the RSV F vaccine in reducing the incidence of respiratory illnesses due to RSV. Another major achievement occurred in the third quarter of 2014 when we initiated the Phase II trial of RSV F vaccine in pregnant women as the next step in our maternal immunization program. This trial is a randomized, blinded, placebo-controlled Phase II study enrolling 50 healthy women in their third trimester of pregnancy. The trial evaluates the safety of the vaccine in mothers and their infants. It also studies the transfer of RSV-specific antibodies from mother to infant and assesses the RSV antibody half-life in the infants of immunized mothers. This trial is continuing to enroll, and we expect to provide top line data in…

Thanks, Greg. Based on Greg's comments, I'm sure that you can appreciate how much we've accomplished in 2014 and how that momentum is continuing into 2015. At the risk of repeating some of what Greg mentioned, let me recap both where we are and update you on guidance of our expected progress in 2015. First, after initiating and completing our H7N9 pandemic flu trial last year with very positive results in the last months of 2014 and into February of this year, we've started 3 new Phase II clinical trials and 2 new Phase I clinical trials. We will use data from 3 of these trials, specifically the quadrivalent flu trial, the elderly RSV trial and the maternal RSV trial to help us design our pathway forward into Phase III trials, which are all targeted to start as early as the fourth quarter of this year or later in 2016. With Ebola, the pathway forward there will depend on both the progression of the epidemic and the opportunities for financial backing. Data from the Phase I RSV pediatric trial will help us determine what will be required for a Phase II trial and the timing thereof relative to the more advanced elderly and maternal trials. So let me update you on the timing of the data from these trials. We continue to expect data from the quadrivalent flu trial by the end of the second quarter. Our 1,600 elderly adult RSV trial remains on target to report on preliminary results in the third quarter. Our Phase II maternal immunization trial is also expected to report preliminary results in the third quarter. And as Greg mentioned, the Phase I pediatric trial is taking longer than originally planned, and while we still continue to target data in 2015, that could slip into 2016. And finally, from the startup of our Ebola program in September to the initiation of our Phase I trial this month, we expect data in mid-2015. We've grown the company to over 300 very talented employees. This group now has the critical mass and capabilities to help us achieve our aggressive development goals in 2015. We continue to broaden our exposure in the RSV, flu and emerging virus communities, and I believe now command a great deal of respect for the breakthroughs we've made in all of these fields of vaccination. We see this recognition from academic, governmental and nongovernmental key opinion leaders as well as from our industrial colleagues. So with that, I'll turn the call over to Buck to review our fourth quarter 2014 financial results.

Thank you, Stan. Today, we announced results for both the 2014 fourth quarter and full year. The summary of financial statements can be found in today's press release. For the fourth quarter of 2014, we recorded a net loss of $31.5 million or $0.13 per share. This compares to a net loss of $14.1 million or $0.07 per share for the prior year period. The increase in net loss for the fourth quarter is primarily the result of increased R&D expenses related to our successful RSV F vaccine program and the initiation of 3 RSV clinical trials in the third and fourth quarter of 2014. I will discuss those expenses in greater detail in the R&D section of my comments today. Revenue for the quarter was -- net loss for the year, excuse me, everyone. Net loss for the year of 2014 was $82.9 million or $0.37 per share. This compares to a net loss of $52 million or $0.31 per share for the period -- for the prior year period. The increase in net loss was primarily due to higher R&D expenses, specifically related to the initiation of the 3 clinical trials of our RSV vaccine, as well as higher employee-related expenses and the full year impact of our Novavax AB acquisition. The revenue for the quarter was $6.7 million compared to $8.7 million for the same period in 2013. The 23% decrease in fourth quarter 2014 relative to the same period in '13 is primarily related to revenues recognized under our past agreement for the fourth quarter of 2013 related to the initiation of the Phase II RSV trial in women of childbearing age. Revenue for the year ended 2014 increased 47% to $30.7 million compared to $20.9 million in 2013. The increase in full year revenue results…

All right. Thanks to all of you for participating today. I look forward to talking to you all in the next quarter. We will now open it up to Q&A.

[Operator Instructions] Our first question comes from the line of Edward Tenthoff from Piper Jaffray.

Well, firstly, I just have to say congrats on another great progress, and it's great to see getting reflected in the stock price, too. Really exciting time for the company. First, I just -- I -- my hearing is going with my increase in age, so I wanted to make sure I heard something correctly. Did you say that the Phase III for seasonal flu could start as early as the fourth quarter of this year?

So this is Stan. So we have 3 Phase II clinical trials. All will give us data that will help us design Phase IIIs for those programs that is: quadrivalent flu, elderly flu, maternal flu -- I'm sorry, elderly RSV and maternal RSV. Our expectation is the first trial to start a Phase III is likely to be the elderly. That could be by the end of this year. Flu, as we've been saying for quite some time, it's -- we have to go through in addition to the end of Phase II -- in getting the Phase II data, we have to go through an end of Phase II data with the FDA. We have an additional step of going through an in-process review with BARDA, and that will give us the input to design a Phase III to start in 2016. The maternal program Phase III will be somewhere around either the end of this year or beginning of next year, and that's to be determined.

Great, that's really helpful. And then if I may, just kind of digging into the sort of go, no-go on the RSV study. What do you guys kind of have as a threshold here? What do you need to see where this would make sense to proceed in maternal and/or the elderly? Do you have a specific immunogenicity levels that you think you need to achieve? Is there a time duration, for example, in the cord blood? Or how long do you think you need to see protection in the infants?

Thanks. Those are good questions. This is Greg here. So I think we'll see -- maternal immunization, we're looking for 3 factors here. First of all, this is a trial we're learning to execute, and I think recruitment there is very important and I'm very confident what we're doing will deliver on our milestones. Then presuming that we will look at the transfer of cord blood and, generally speaking, the antibody level found in the mother and the infant in that setting has shown concentration. Now as you know, in our Phase II trials of women of childbearing age, we have shown antibody titers as measured by palivizumab competing antibodies that would be what we would consider tenfold greater than what would be the protected level. So we're looking to see that kind of level show up in the infant, and so it's our expectation that it will, at least, be similar -- quite similar to what you see in the mother. Now a very, I'd say, positive additional win on that would be to see relative concentration, which you do see with some vaccines, for example, tetanus. So I think that's the kind of data we're looking for, and we will be able to make an estimate of the half-life of the antibodies in an infant. And again, this is a relatively small sample size, but we're looking for -- as we go forward, we're looking the 2 in our primary endpoints prevent severe RSV infection in the infants at least to 3 months. So we're looking for a significant level of antibody that would exceed what we think is a protective level in the general population, at least out to 3 months. And again, a very big win would be to see that level of antibody extend beyond…

Our next question comes from the line of Kevin DeGeeter from Ladenburg. Kevin DeGeeter - Ladenburg Thalmann & Co. Inc., Research Division: Could you just give us an update on your current thinking on the pentavalent program, combining -- potentially combining RSV and quadrivalent influenza?

Yes. Kevin, this is Stan. We're -- we think it's as important as we did with the last time we talked to you. We don't have it on the schedule officially yet. We're trying to get it in this year. It's -- we're -- we have the 5 different strains available to go in and then have bandwidth to do it. I'm hoping that we get it started in the second half of this year, but we don't have it officially plugged [ph] up. Kevin DeGeeter - Ladenburg Thalmann & Co. Inc., Research Division: Great. That's helpful. And could you maybe provide or share an updated thinking on business development? Obviously, a very busy year on the clinical side. Just what makes sense in terms of PD? And is that a high priority here, just given the volume of clinical development over the next 12 months?

Yes. Again, we just have a potful of data coming out in the third quarter, fourth quarter of this year, and those data are going to give us a really good look at how we're going to try to design and execute Phase III clinical trials toward licensure, but it will also give us an idea of -- we'll start thinking about how we want to develop global sales and marketing plans and how we develop partners for those programs. And I think, as you know, we hired -- last year, we hired a Senior Vice President for Commercial Operations. We've now hired a couple other senior people, and we're starting the process of planning our way into these markets. And so I think data dependent, second half of this year, we'll design our PD strategy as well. Kevin DeGeeter - Ladenburg Thalmann & Co. Inc., Research Division: And then maybe just one more, if I could sneak this in. I get a fair number of questions up from clients trying to appreciate some of the work that's being done on potential pre-fusion vaccine approaches versus the Novavax post-fusion approach. Greg, could you just kind of give us your thoughts as to your just sort of -- or what's sort of understood in terms of some of these alternative approaches and just kind of more, generally, how you think about the competitive landscape out there?

Okay. So let's dive a little technical for a minute. So the -- some of this work has come from defining the crystal structure for the RSV F-protein. Now when that's done, you have to solubilize it and make changes. So the changes were made such that you truncate the protein, and so you don't have the portion that sticks into the membrane. So lots of that to say that, that I think the crystal structural work is extremely exciting. It's very interesting. There is conclusions about the structure that I think many people accept that, that would be -- that would represent a form that would be in the pre-fusion or the form that you would find before the fusion process occurs. So that's been extended then to try to replicate that in vaccines on the assumption that it may provide a type of construct that would work. I think where I have some critiques of that approach is that the -- I think the general consensus of the self antibodies you see to the F-protein in the general population will be considered pre-fusion for the most part, and I would just point out that natural immunity is not highly effective. And so you have these, of course, infants who were born with very high levels of antibodies from mothers, and yet they continue to have RSV infection. Healthy adults have RSV infection and the elderly, despite the fact the presence of these pre-fusion-type antibodies. So I believe if you take that vaccine and push the antibodies high enough, they could be protected. So in our case, we don't make real claims about the pre- or post-fusion nature of our vaccine. I would say we have a full-length nanoparticle trimeric F vaccine. It displays the palivizumab epitope in a…

Our next comes from the line of Heather Behanna from Wedbush.

This is Allison [ph] in for Heather. I was hoping you could give us an update on the next steps for the pandemic flu program and then maybe some ideas on the timing of Ebola -- the Ebola funding that might come? Does that have to wait until after the data midyear?

Yes, so this is Stan again. So pandemic, we have on the schedule a pandemic trial to start in the -- right around the beginning of the fourth quarter of this year. That would be a trial that would include healthy adults and elderly, leading to what we presume would be a Phase III clinical trial. We don't have a time table for that. It's probably sometime around mid next year, but that's the steps toward Phase III and licensure. With respect to -- and as you know, the pandemic's going to be licensed based upon an immune response rather than efficacy. So it's a simple immunogenicity trial. And with Ebola, so we got into the clinic. So what we're doing right now is we are collaborating with NIH with our vaccine they're using in advanced nonhuman primate studies. There's a lot of interest in this vaccine. It solves a lot of the potential problems of the other vector-based vaccines that are there and so people are really interested in. We are -- we started a Phase I trial. We did this, and the timing of this was so fast because we decided to do it without seeking government support first because we thought timing was a real important aspect to this. So we started the Phase I trial, I think, 2 weeks ago now. It's -- step-wise, you do a low dose and then you wait for safety evaluation, and then you step it up in a higher dose. I think data from the trial will be in the, what we advertised, midyear, I guess, but it'll probably early third quarter. And during that time, we're not going to sit on our hands. We're talking with all of the interested parties, which include people like BARDA, people like NIH.…

Our next question comes from the line of David Lebowitz from Janney Montgomery

I have a question on the Phase III program for the seasonal influenza. Given that the vaccine represents a kind of a unique vaccine versus what is currently out there and what's been historically submitted, are there any unique aspects to this Phase III program and the ultimate submission afterwards that might need to be different because it's a newer type of vaccine?

No, but I like your question because I do think our vaccine has advantages over the current vaccines out there, and I'm happy to be able to tell anybody who's willing to listen about them. But we have a nanoparticle. We have a virus-like-particle vaccine that is -- should have high immune response to the standard hemagglutinin antigen. We have a vaccine that we think might have immunogenic sites that are more conserved across a broader range of strains, that's possible, that we would like to show on a Phase III. And third, and maybe very important, is we have neuraminidase. We have active neuraminidase that -- and we've shown high levels of neuraminidase antibodies when we vaccinate animals and people. To demonstrate the effect of all 3 of those, we need to do an efficacy trial and as opposed to just an immunogenicity trial, and so we look forward to conducting an efficacy trial to show the benefit -- the combined benefit of all these aspects of our vaccine so...

And with the ultimate submissions, how broad an array of different types of viral strains would ultimately need to be encompassed in a submission?

Well, it would just be a standard -- our standard quadrivalent vaccine, whatever the strains are recommended for next year I suppose, and -- but with -- and -- but you never can predict, just like this year, you can't predict what the circulating strains are all going to be. And so we'll have the potential, the ability to show that it works on strains that may not be contained in the vaccine itself.

[Operator Instructions] Our next question comes from the line of George Zavoico. George B. Zavoico - MLV & Co LLC, Research Division: I just had a quick follow-on from previous question regarding the Ebola. You said it could be effective in many different strains of Ebola. Have you tested it in other strains beside the guinea strain? I'm not sure if I heard you discuss that before or not.

Greg, here. As you probably know, since people have been working on Ebola vaccine for quite a while, most of the assays and the challenge models are done with previous strains. So for example, the mouse challenge data where we showed 100% protection was done with Mayinga strain, which is from 1976, and the macaques strain was done with Kikwit, which was a 1996 strain. So just by definition in our challenge studies, we are showing cross-protection. Also that's true of the way the neutralization is assessed because, again, those assays and challenges have been historic and getting the assays up-to-date have been challenging for investigators. So our collaborators have to say [indiscernible] are just beginning to have the neutralization assay for the current strain available. And by the way, it's circulating in Guinea, but they've renamed the sequence of the strain word to Makona. So our 2014 Makona vaccine represents the circulating sequence currently in Africa. Maybe I'd just add a little bit. I would have -- you would expect with Matrix-M that you get some additional presentation of conserved antigens, and I think what we see with this relative cross-protection would be at least in part explainable by the very, very robust response we see to the protein in the Matrix-M. And you probably noticed, but we posted some of that data with a WHO presentation. But you can see we have very, very high immune responses, and I think that would explain -- they're also high affinity. If you see in that table there, we did a competitive ELISA. We measured the affinity. These antibodies are very, very high affinity antibodies. So typically, that also should add to cross-protection. George B. Zavoico - MLV & Co LLC, Research Division: Now the customers for the Ebola strain -- I'm sorry, for the Ebola vaccine, you mentioned the 4 main customers. That's all government, and so what -- and it's probably too early to predict or to project what the costs may be, but the intent would be to -- for broad application through government purchasing, would it be like cost plus? Or is it just early to talk about it?

Well, I think it's a little early to talk about it. We don't rule out doing this with a pharmaceutical partner as well, so someone who might have more weight in getting distribution where the vaccine needs to be done. So we're open to a lot of things. We think we have a unique vaccine right now, and we've worked hard to get data to back up that statement. But it's hard to say what the nature -- the kind and nature of the contract might be different for different customers as well with different uses. George B. Zavoico - MLV & Co LLC, Research Division: Okay. Switching over to the RSV and the flu. You mentioned you want to start one of these trials in the fourth quarter of this year. At least, in the northern hemisphere, the flu season actually starts maybe in September, just before the fourth quarter starts. Are you constrained? Or are you going move part of the trial to the southern hemisphere? How -- and then with regard -- the same thing with the RSV and the maternal immunization, do you immunize the women in the third trimester with the birth expected during the RSV seasons? Do you have to time the trials to match the seasons, in other words?

I'll let Greg do that.

Yes, so we're aware of that. It's possible we may use the southern hemisphere trial for combo, as you described. And in maternal, we do want to immunize women in the season, so the women that -- so throughout the season, so infants are born and exposed, so which is that be real life. So the trial is designed to have births going on during RSV season at various time points.

Okay. And George, it's Stan. So the trial that we have, the most confidence that we can target the fourth quarter on to see elderly RSV vaccine, but a lot of stars have to line up. We have to get data. We have to get a timely end of Phase II meeting with the FDA. We have to get product available by the time and get a response from the FDA at that time, and then vaccinate them just before the RSV season, and we think we can do that. It's possible to do that in the fourth quarter in the northern hemisphere. If we don't, then you'd be looking for us to try southern hemisphere. So that's the advantage of our hemispheric epidemics, and so we have more flexibility to go north or south. George B. Zavoico - MLV & Co LLC, Research Division: And just a quick question, the flu and RSV seasons, do they overlap? Or do they -- is RSV a little bit later than the flu in when it starts?

You're right. RSV is typically a little bit later.

Did you hear that? RSV is a little bit later.

They overlap, but RSV is a little bit later. George B. Zavoico - MLV & Co LLC, Research Division: Okay. And finally, you didn't mention this at all in your prepared remarks, because of all the focus and attention to the RSV and flu, but you have a terrific collaboration going with Cadila in India on rabies and everything. If you could just give me a -- give us a brief update on where that stands and the potential milestones and timelines in 2015 for that might be?

Yes, great question. You're right. We have a lot to talk about, and I think you'll hear more about our progress in India with the CPLB, Cadila Pharmaceuticals Ltd. Biologicals, joint venture that we have. They've been making a lot of progress both on developing a seasonal flu vaccine, and the rabies vaccine has been in the clinic. Both are in the clinic now. We'll report on data from both of those and give you some timelines. Certainly, during 2015, we'll give you timelines on when we think we can have either Phase III clinical trial data or approvals. And so be patient on that one, but it's going quite well.

This concludes our Q&A portion of the call. I would now like to turn the call back over to CEO, Stan Erck, for closing remarks.

Yes, so whoever's still on the line, thank you very much for calling in. We've had -- for the last year, we've been talking about -- we've been making projections about doing all the things necessary through process development and manufacturing and QA and QC and regulatory and clinical to get new trials started. I think we projected to get 4 started by the end of the year, and we actually got 4 plus a little surprise, which is Ebola, a couple of weeks ago. So we've executed on our promises, and what I'm really looking forward to is seeing the data. This is going to be a full data year, and it's really going to give us some subsequent data to tell us how we're going to get into Phase IIIs and give us more visibility into our product marketing timeline. So thank you. That's it.