Novavax Inc Q1 FY2020 Earnings Call

Thank you, Operator. Good afternoon and thank you to everyone who has joined today's call to discuss our first quarter 2020 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 today are Stan Erck, President and CEO; John Trizzino, Chief Business Officer and Chief Financial Officer; Dr. Gregory Glenn, President of Research and Development will be available for our 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 or strategy and other financial and business-related matters, including expectations regarding revenue, operating expenses, cash usage in 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 get the call started.

Thanks, Erika. And thanks to all of you listening to this call. First and foremost, given the ongoing COVID-19 pandemic, I sincerely hope everyone on the call and all of your respective families are well and safe. I'll start the call today by discussing the historic funding from CEPI for our coronavirus vaccine candidate that we just announced a few minutes ago and provide a brief status on our activities around NVX-CoV2373. I'll then provide a recap of the positive Phase 3 results for NanoFlu that we announced back in March, following a quick update on our ResVax program. John Trizzino will then provide a financial overview. After that, Greg Glenn, John and I will be available for questions. As a prelude to my remarks, I just want to say that our accomplishments so far in 2020, including our progress in our influenza and COVID-19 vaccine programs are the most impressive in the company's history. So let's get started. Beginning with our coronavirus program, we are thrilled that CEPI has chosen to invest up to $388 million of funding in support of 2373. As CEPI's CEO indicated, this arrangement represents CEPI's single biggest investment to date. This CEPI funding will allow us to advance our candidate through Phase 2. It will also support the rapid scale-up of the vaccine antigen and our proprietary Matrix-M adjuvant, the critical components of 2373. In addition, this funding will allow us to dramatically increase our large-scale manufacturing capabilities. As we previously announced, we identified 2373, which will incorporate Matrix-M, to enhance our immune response and immediately begin testing in preclinical studies. Our studies have shown that 2373 is highly immunogenic in animal models, including mice and nonhuman primates, with high levels of spike protein-specific antibodies and ACE-2 human receptor binding domain blocking activity. Neutralizing antibodies against the SARS-CoV-2 wild-type virus were observed after a single immunization. Additionally, the already high microneutralization titers seen after one dose increased eight-fold with a second dose. It is generally accepted that high-titer microneutralizing antibodies are evidence that the vaccine is likely to be protective in humans. We are now launching our Phase 1/2 clinical trial of 2373. In a few days, we will initiate a placebo-controlled, observer-blinded Phase 1 portion of the clinical trial in approximately 130 healthy adults in Australia. Key assessments include dosage amount and number of vaccinations. The Phase 2 portion of the trial will likely begin in Australia and the US; importantly, we are just a couple of months away from human clinical data as immunogenicity and safety results from the Phase 1 are expected in July. As I mentioned earlier, the additional funding from CEPI will have a significant impact on our ability to quickly begin manufacturing. It will now be possible for us to begin manufacturing the vaccine with a target of manufacturing 100 million doses by the end of 2020 and with the goal of escalating production to 1 billion doses in 2021. I should point out that these production goals are based upon two key assumptions regarding the actual dose of the approved product and the manufacturing yields that we actually achieve at large scale. We previously announced an agreement with Emergent BioSolutions to provide contract development and manufacturing services, including to supply Novavax with GMP vaccine product for Phase 1 and Phase 2 clinical trials. We are also exploring larger-scale manufacturing capabilities globally. Details of those efforts will be forthcoming in the coming months. The significance of this funding cannot be understated, nor can our appreciation for CEPI's vote of confidence in our technology platform and progress. I'd also like to reiterate my thanks to everyone at Novavax. It has been an enormous undertaking to get this program up and running since January, although we have made major progress in a very short period of time to make this vaccine a reality. Now, let's move on to Novavax's most advanced program, NanoFlu, our recombinant quadrivalent seasonal influenza vaccine. While COVID-19 has grabbed the world's attention, we believe that NanoFlu will also be a game-changer for the prevention of influenza. The Phase 3 data we delivered validates its potential. Given our detailed March update for the program upon announcement of the Phase 3 results, I'll just provide a high-level recap today. To put it simply, we achieved every single one of our goals in the Phase 3 trials. The trial included 2,650 clinically stable adults, 65 years of age and older at 19 US sites. It was randomized one to one between NanoFlu and Fluzone subjects given a single vaccination. The data we've presented to date has been the 28-day results. The trial's primary objectives were to demonstrate non-inferior immunogenicity of NanoFlu compared to Fluzone Quadrivalent using the day 28 ratio of geometric mean titers and the differences in seroconversion rates. Our primary objectives also included the overall safety of NanoFlu. We've measured immunogenicity by HAI assays using egg-derived reagents. We achieved the primary endpoints for all strains included in the vaccine. NanoFlu was well-tolerated and had a safety profile comparable to Fluzone Quadrivalent. The secondary endpoints, which evaluate immunogenicity utilizing both egg-propagated virus and wild-type reagents for all four homologous strains and select drifted strains at day 28, showed that NanoFlu demonstrated significantly higher geometric mean titers and seroconversion rates than Fluzone Quadrivalent across all four strains in the vaccine. Furthermore, NanoFlu also demonstrated significantly higher geometric mean titers and seroconversion rates compared to Fluzone Quadrivalent for four drifted H3N2 strains not included in the vaccine but circulated this year. We believe this validates NanoFlu's ability to overcome issues related to egg adaptation and antigenic drift, which are major challenges with current vaccines. We look forward to providing additional detail from the study in the near future, including cell-mediated immunity responses, T-cell responses, and microneutralization data. We believe these data will differentiate NanoFlu from leading licensed vaccines. NanoFlu has Fast Track status from the FDA and we plan to utilize the agency's accelerated approval pathway. We will conduct our required CMC activities in parallel with compiling the immunogenicity and safety portion of our BLA. We will communicate additional timelines once we have finalized our plan. Before I turn the call over to John, a quick update on our ResVax vaccine. We continue to believe in our ResVax vaccine. We're the only company to have demonstrated potent efficacy in clinical trials in both the older adult population and by vaccinating pregnant women to protect their infants. While not meeting the pre-specified primary endpoints for the Phase 3 trials, we observed significant effects on hospitalization and pneumonia volume in both trials, which provides critical insights into the continued need for an RSV vaccine. We believe that we can design an affordable pathway to a licensed product over the coming years and are designing new clinical trials that we believe could take us to a licensed product. Now, we have a strengthened balance sheet, and we will continue to invest in this program. Now, let me turn the call over to John.

Thanks Stan. Today, we announced financial results for the first quarter of 2020. For the first quarter, we reported a net loss of $25.9 million or $0.58 per share compared to a net loss of $43.2 million or $2.11 per share in the first quarter of 2019. The reduction in net loss was mainly due to reduced R&D expenses. Revenue in the quarter decreased 15% to $3.4 million from $4 million for the same period in 2019, and the decrease was primarily due to the completion of the Prepare trial in 2019, partially offset by revenue reported from CEPI's funding. R&D expenses decreased 52% to $16.9 million in the first quarter of 2020 compared to $35.5 million in the same period of 2019. This decrease was primarily due to decreased development activities of ResVax, lower employee-related costs, and other cost savings due to the Catalent transaction in 2019. G&A expenses increased coming in at $9.4 million in the first quarter of 2020 as compared to $8.7 million for the same period in 2019. As of March 31, 2020, Novavax had $244.7 million in cash, cash equivalents, and restricted cash. Net cash used in operations for the first quarter of 2020 was $23.1 million compared to $50.6 million for the same period of 2019. During this quarter, we further strengthened our balance sheet. In the first quarter of 2020, we raised $186 million in net proceeds. And from April 1 to May 8, we raised an additional $74 million in net proceeds for a total of $260 million since the end of 2019 through our ATM offerings. Novavax's cash position is now in excess of $300 million. That concludes my financial review and I will turn the call back to Stan.

Thanks, John. We look forward to updating you on the Phase 1 clinical trial of 2373 in July. And with that, I'll turn it back over to the operator for Q&A.

And I'm showing our first question comes from Michael Higgins with Ladenburg Thalmann.

Congrats on the CEPI funding. That's impressive, especially as it's the largest they have put out so far. Looking ahead a bit, I'm trying to understand with this ACT accelerator, what kinds of margins you can expect and do you look at anything you're learning from Gilead's Remdesivir and the discussions you are having with the investment community? Thanks.

Yes, it's a bit early to predict margins at this point. We do know that we are going to be producing at a very large scale, and we expect to have efficient production. We don't know the cost of that production yet, nor do we know what the selling price is. So it's a new world out there in the pandemic setting, and my expectation is that this will have reasonable gross profit operating margins.

The question we will be looking ahead to this summer is just a follow-up from two months ago in the last quarterly call. Once you've got data in July, can you provide a bit of an update as to how you will roll into a larger study coming into the fall? Does the IND stay open? Is it a separate study, separate sites? Obviously, you want to review the data before you can start moving forward, but it sounds like it's happening in a bit of a rolling fashion. Can you provide us an update on that? Thanks.

Great. So I can jump in. Yes, it will be done under IND, the data we file to IND. And when we see the Phase 1 data, we've written the protocol so that we can pivot rapidly into a later-stage trial. Right now, we anticipate that will be a Phase 2 trial on the order of 2,000 subjects. However, there is a lot of discussion about how one might accelerate that. So we're doing our best just to be prepared with sufficient animal data and human immunogenicity data to take the next step. And you'll see, you may have seen we announced that on Wednesday, we're going to give a more detailed update on the COVID preclinical and next steps.

Yes, I noticed that. That's helpful. And then the last one, I'm sure it's a busy Q. Just trying to get a sense for the global manufacturing. This is a great update from the up to 10 million per month by year-end to 100 million by year-end '20, possibly billings next year. I would think it depends not just on yield that you mentioned on the call, but also on securing access to manufacturers. Obviously, CEPI can help with that, but a lot of the folks that are involved in this data top five globally have had a lot of press releases and comments out about securing other manufacturers. How confident can you be that you'll have enough ability to manufacture? Is that something that CEPI helps with or that the WHO helps with? How do we think about that?

So we did just start thinking about that and so we've been working on it for a while. We have been very optimistic about our data. We've seen this before, we've seen it with two coronaviruses. We've seen it with the pandemic flu viruses, we've seen it with Ebola, where we get early clinical data, sorry, early preclinical data that translates into nonhuman primates, which then translates into humans and then Phase 1 and Phase 2 trials with the immunogenicity. We bet - and of course, as you know, we don't have Phase 1 results yet. We bet a while ago that our technology would give us good data in Phase 1. So we didn't wait. We didn't lose six months by waiting for Phase 1 data. We started on it right away and are securing sufficient capacity to be able to make the statement that we made in this press release.

Thanks for taking my question and congrats on the amazing achievement. I'm very curious and that's because I'm very excited about your large amount of funding that you got from CEPI. I was wondering if you could tell me what exactly excited them the most as far as the vaccine programs out there to choose your program in particular? And as far as the candidate concerned, you chose CoV2373, how many candidates did you screen and what led to the choice of that particular candidate for going forward into clinical trials?

Thanks for that, and I'll answer the first question and let Greg answer the second part. I think what got them most interested in our program was the fact that we are an experienced emerging infectious disease vaccine company. Our platform has produced, as I mentioned in my last comment, has produced vaccines that have shown not only good immune responses and safety but efficacy in models in animal trials. We've done it in Ebola and have probably had the best immune responses ever achieved from a vaccine with our Matrix adjuvant vaccine. So I think it's the experience of that combined with the fact that our process has been scalable. We've done it with flu and we've done it with RSV. There is a lot of confidence that we can scale. When you ask how they compared to others, I think there are a lot of other good technologies out there that just have not had the experience that we have, both with immune responses and with scale. Ours probably represents a fairly safe bet. Others are exciting and time will tell.

Yes, hi, Vernon, and thanks for your support. Let me just jump on this question. I think the hallmark of our vaccine is the immunogenicity. It's very immunogenic and we were able to construct some good assays to demonstrate that, and so I think that's good. That was important. As you asked, we actually tested about 30 constructs we made in a short period of time. We did evaluate them based on several factors: stability, productivity, because we knew a lot of doses would be required, and immunogenicity. I think when we look at our immunogenicity, you may know this on Wednesday, we're going to provide some detail. We have a half-an-hour talk on our COVID program, and you'll see our preclinical data. I think when they saw that, it was compelling that the vaccine should work and be protective. The combination of immunogenicity, productivity, stability of the construct, these are proteins that are inherently unstable, and their structure is really critical. I think it's a mature technology. We just completed a Phase 3 trial with the same type of construct. It's a recombinant nanoparticle Matrix-M, and we had very good results there. So I think all those things have come together at this moment.

Great. I have two follow-ups on that that are related. One part of the deal is to increase production of Matrix-M adjuvant. What exactly is that for? And then Stan, you mentioned that you saw high neutralizing antibodies just after a single dose. Is part of the thinking all this such that if you need only a single dose but you're testing, let's say, V2 too two doses, but because of Matrix-M, the availability of it allows you to get away with a single dose. Does that play into the whole thinking about the one billion doses by the end of 2021?

Well, I think I'll let Greg respond.

Yes, first of all, I think we're not seeing real limitation with the adjuvant supply. So our staff has worked hard to make sure that when you look at those dose numbers, they won't be limited by either. It's a relatively simple process to make Matrix-M. It's a very good adjuvant. We're going to look at this in the trial setting. After one dose, we get a very good response. We see neutralizing antibodies and we see dose sparing. This virus is highly infectious. It has a very tight binding to the human cell, so disrupting that is going to be very important. There could be a lot of merit in having really high neutralizing antibody, and we will consider all those factors as we move into our late-stage trials. We'll have the data to look at that, and I think we have assays that are really meaningful. They're conservative in terms of neutralization, functional in terms of blocking receptor binding, and we think they get to the heart of the critical nature of how this infection spreads. So we will take into account all those factors in making dosing decisions moving forward.

Congrats on the update and thanks again for taking my questions. Very quickly, on the Phase 1 study design, I noticed that you are testing dose without Matrix-M adjuvant. So I'm just curious about the rationale for that, doing it with and without Matrix-M? And as you think about the IgG antibody assessment, just curious how you think about what you learned from there about other endpoints, the more core endpoints of geometric mean units and others like seroconversion. Could you maybe talk to that?

Yes, that's a great question. Look, whenever you do a trial with an adjuvant, you need to clearly demonstrate the adjuvant effect. So that is important, and it allows you to compare and contrast the safety and immunogenicity. With our Ebola vaccine, we could see that the adjuvant was critical for going forward for regulators and for public health, and ourselves. That's its role, to demonstrate the need for the adjuvant. The different measures all look at the immune response. Overarching, we measure the spike response, so we measure the IgG. Because people are immune naive, we expect high levels of seroconversion on the order of 99%. That would be the norm here, and I think we're going to see that in our adjuvanted, especially our two-dose formulation. The other assays measure different things. As I mentioned earlier, receptor binding is an important event, and if you can block it, it's a very high-affinity event; it requires a really good antibody in our opinion. When we look at all of them, they relate really well, and I think those different looks at immune response give us a lot of confidence that the vaccine should work.

Great, that's super helpful. And then on the Wednesday presentation, I'm assuming this is a combination of a nonhuman primate and mice study that you've talked about.

That's correct.

Any incremental color you could give on - I think you said 30 constructs you tested in mice, but in the nonhuman primates, was it just one candidate you tested?

Yes, we down-selected. By the time we got to nonhuman primates, we had generated a lot of confidence in the construct we made. So the nonhuman primate study involved just the 2373 construct.

Okay, great. And just a final question on NanoFlu. Are there any alternative regulatory thoughts that become available, obviously given the current environment, beyond the ones you already have like the Fast Track and the accelerated approval that are potential options for NanoFlu?

That's a good, that's an interesting question. So right now, no, I think we expect to go through accelerated approval. We have an obligation to do a post-licensure efficacy study. I think we're on track for that. I think it is very, very good data. I think it is intriguing as there was a lot of flu when the COVID came around, and we need a better vaccine. So I think we have very good evidence we have a superior vaccine going forward. The pandemic will emphasize the problem we see every year with seasonal influenza vaccines. The key issues we're addressing revolve around drift, and especially around H3N2. So our data look very strong in that area. Shortly, we'll be able to show the CMI data and the Phase 2 data will be published shortly as well. You'll see we think that is the missing arm of a good immune response to flu in older adults.

Great. I appreciate you taking my questions and look forward to going through the NanoFlu update and then the July update on the Phase 1 study for COVID-19.

Thanks for taking my follow-up. One thing as far as the vaccine candidates are concerned, what is the actual amount of protein for the CoV2373 candidate that is being administered?

Yes, we've mentioned this before. We're using two dose levels in our Phase 1 trial, 25 micrograms and 5 micrograms. It was our experience with Ebola using similar levels that we were really at the top of the dose response S-curve, so 5 and 60 micrograms were really no different in terms of immune responses. So our expectation is that it's likely to be the case here. So obviously 5 micrograms is a very nice dose, whereas 25 micrograms is relatively low, so we're just executing those two arms, with Matrix and one arm without the adjuvant as a control.

As a follow-up, given the confusion of symptoms when you initially look at someone infected with SARS-CoV-2 and those infected with flu, is there potential for actually a combination vaccine?

Well, yes, I think we think about that because our specialty is in registering vaccines, so it has potential. I think we need to see where this will go. Many experts think this will become a common annual issue and it would make sense to have a combination vaccine. It's certainly theoretically possible. We could formulate the vaccine; it's the same platform. It's a nanoparticle, our recent Matrix-M in both those settings, so it's a good thought.

Because if it doesn't go away, then conceivably if you added it to a seasonal flu vaccine, then you're kind of taking care of both, even - and not really relying on the fact of the SARS-CoV-2 ever going away.

Yes, it's a good thought. It's a good thought. Thanks for your support. Yes. Thanks, Vernon.

Thank you. And I'm showing no further questions at this time. I will now turn the call back over to CEO Stan Erck for any further remarks.

Yes, thanks. As you can imagine, we are euphoric in the company. It takes a long time. We've been working to be at this point for at least a decade that I've been with the company. We've, in the last six weeks, worked on a project that virtually everybody in respiratory vaccines has been trying to do, which is to get a better flu vaccine. Our goal is to get a differentiated flu vaccine, not just as good as the best flu vaccine, but differentiated from that, and we've accomplished that. And then coronavirus comes along, and we do what we've been doing for the last half a dozen emerging infectious diseases. We have a lot of confidence, and we are being supported by large groups of academic and non-governmental organizations, as well as corporations that will help us get to the point where we can help solve this problem. We are proud of the work we've done, and we're happy we're finally receiving recognition for it. We look forward to reporting data in a fairly short period of time. And with that, I'll sign off.

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