Novavax Inc Q2 FY2020 Earnings Call

Thank you, Operator. Good afternoon and thank you to everyone who has joined today's call to discuss our second quarter 2020 operational highlights and financial results. A press release announcing our results 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. We will also post the slides from today’s call on our website. Joining me today are Stan Erck, President and CEO; Dr. Gregory Glenn, President of Research and Development and John Trizzino, Executive Vice-President, Chief Business Officer and Chief Financial Officer. 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, condition 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 like to hand the call over to Stan.

Thanks, Silvia. And thanks to everyone joining us this afternoon. The last few months have been historic for Novavax, since identifying our vaccine candidate in March. In just four months, we have garnered over $2 billion in funding for its development, secured significant manufacturing capacity, signed several research and manufacturing collaborations with organizations around the world, and most importantly, we delivered positive Phase 1 clinical data for the Phase 1/2 trial of Novavax CoV2373, our COVID-19 vaccine, and are poised to quickly move into Phase 2 this month. As we hosted a call last week to detail the 2373 Phase 1 clinical data, we're going to keep today's call short. In terms of an agenda, I'll start with a high-level review of the numerous achievements for the COVID-19 vaccine in the quarter. Greg will then go over the highlights of the Phase 1 data. I'll come back to provide some additional updates, and then review the financials for the quarter. We'll then wrap up and take your questions. Let's move to slide three. This slide illustrates the significant progress we've made for 2373. As I just mentioned, we identified 2373 as a candidate back in April, after preclinical testing demonstrated high immunogenicity for 2373 in animal models. Our clinical team was then able to start the Phase 1 trial in late May, leading to the data release last week. Simultaneously, we engaged with various global organizations leading to approximately $2 billion in funding for our vaccine program. We discussed the separate funding of $388 million on our last call, and since then, we've also signed a contract with the U.S. Department of Defense for $60 million. We're thrilled to be selected to participate in Operation Warp Speed, for which the U.S. government has given us $1.6 billion to develop the manufacture of the vaccine. Global access to 2373 is a key priority for the company and we have made significant progress since the beginning of the quarter in building a network of established partners. Recently, we initiated important partnerships for the global development and commercialization of 2373. For Japan, we've partnered with Takeda Pharmaceuticals for development, manufacturing, and commercialization. Given Takeda’s presence in Japan, we believe they are an ideal partner for us, and they expect an annual capacity of over 250 million doses of our vaccine. We will be entitled to receive payments for development and commercial milestones, as well as a portion of the proceeds from the vaccine. We also partnered with the Serum Institute of India for the development and commercialization of 2373 in low and middle-income countries and India. For those that are not aware, Serum is the world's largest vaccine manufacturer in terms of doses delivered, so we're delighted to partner with them to ensure global access in these geographies. We expect Serum to support a minimum of 1 billion doses annually from their facilities starting in January of 2021. It is important to note that Novavax retains the rights for the major, upper middle and high-income countries. I also want to highlight our acquisition of Praha Vaccines, now Novavax CZ, during the second quarter. This transaction includes a biologic manufacturing facility, and associated assets, including over 150 employees with significant expertise in vaccine manufacturing in the Czech Republic. This facility alone is capable of providing annual capacity of approximately 1 billion doses of antigen starting in 2021. To complement our efforts at Novavax CZ, we signed an agreement with FUJIFILM Diosynth Biotechnologies for production in the North Carolina and Texas facilities. In late July, large-scale manufacturing began at the North Carolina facility for use in the future pivotal Phase 3 trial, and additionally, we entered into manufacturing arrangements with AGC Biologics and PolyPeptide Group for large-scale production of Novavax’s Matrix-M adjuvant in both the U.S. and Europe. Based on our internal manufacturing expertise and the strength of our global partners, we're confident in our ability to produce 2373 on a global scale and ensure widespread access to our vaccine. Finally, in the second quarter, we were pleased to add David Mott to our board of directors. David is an established leader, board member, and investor, and we're happy to be able to benefit from his expertise. We also made several key new hires and promoted several senior people, strengthening our best-in-class management team. I'll now turn the call over to Greg to quickly review the Phase 1 data for 2373 that we reported last week.

Thanks, Stan. As we provided a detailed review of the data last week, I'm just going to give a high-level overview today. So, on slide five, what you can see is that 2373 is a product of a technology platform that uses the insect cell and Matrix-M adjuvant. We are able to take a sequence from a virus, such as the spike protein sequence from SARS-CoV-2, manufacture this into a nanoparticle that has the full-length protein, and combine this with Matrix-M, which is a potent adjuvant for which we have a great deal of clinical experience. So let's turn to the trial on slide six. This slide shows the study objectives. The phase 1 trial evaluated the safety and immunogenicity of the Novavax-CoV2373 protein nanoparticle vaccine with or without Matrix-M adjuvant. The primary outcomes were reactogenicity, safety, and lab assessments, and the IgG anti-spike protein response in humans. Secondary outcomes included adverse events, wild type neutralizing antibodies, and T-cell responses. So on slide seven, we give some details on the design. It was a randomized, observer-blinded, placebo-controlled trial designed to evaluate the immunogenicity and safety of Novavax-CoV2373. Our focus is on the trial, you can see in the red box, so in Groups C and D, we had two doses of our antigen, either 5 micrograms and 25 micrograms with Matrix-M. And that was given twice on day zero and day 21. We compared that to placebo. We also compared it to Group B, which did not have the adjuvant, and we compared it to Group E, which had the adjuvant with our Matrix-M given once, followed by placebo at day 21. So on slide eight, overall, we summarize the conclusions here. And again, we provide a great deal of detail about this last week. The data demonstrated a dose-independent response; both dose levels induced high and comparable levels of IgG. The trial showed a dose effect. The IgG levels compared favorably to those seen in convalescent serum that we obtained from the Baylor College of Medicine, and we noted a 100% IgG seroconversion rate. There was an adjuvant required for the optimal immune response, which is quite clear. The demonstration of the adjuvant effect was an important finding in this trial. With respect to wild-type neutralizing antibodies, they appear to be in the two dose groups, numerically superior to what we saw in the convalescent sera overall, and both dosage levels again induced high comparable wild-type neutralizing antibodies. We saw 100% wild-type neutralization seroconversion rates after the second dose, and the neutralization response was tightly correlated with the IgG response. We also looked for T-cells in the pulmonary way and we saw that we had polyfunctional CD4 T-cells that favored the Th1 phenotype. Overall, the Phase 1 trial did demonstrate a reassuring safety and reactogenicity profile. We saw no serious adverse events. All unsolicited adverse events were mild or moderate, and local systemic reactogenicity was not dose-limiting. Let's just talk to the next slide to briefly look at some of the highlights of the immunogenicity. We covered this previously, but this is the anti-spike IgG ELISA. You can see that on the Y-axis, it’s on the log scale. You can see on the far left are the subjects who represent the human convalescent sera. The next row has the placebos. The next row has the 25 microgram dose given on day zero and 21 without adjuvant. Then the five microgram dose given with Matrix-M adjuvant on day zero and 21, 25 micrograms on day zero and 21, and the 25 micrograms dose given once on day 21 followed by placebo. You can clearly see the difference between the Groups in B, where one of the two doses compared to Group D, where they had the equivalent antigen dose; you can see the adjuvant effect was profound. We can also see that there is a great benefit in the second dose, achieving very high levels of anti-spike IgG. With Group C, for a second dose, we have a log titer and it compared to convalescent sera where the titer on a geometric mean basis was 8,344. So robust responses. The overall geometric mean was approximately seven-fold higher than the convalescent sera and a robust response. Go to the next slide. Here we show the wild type neutralization. This is done through collaboration at the University of Maryland School of Medicine. Again, you can see the graph organized in the same way, very similar messages regarding the importance of the adjuvant, importance of the second dose, and with respect to convalescent sera, you're seeing again the vaccine group exceeds the geometric mean of this group from Baylor College of Medicine. We did discuss fairly extensively and note that there is a tiered response based on the severity of outcome. It appears our vaccine compares very favorably with the subjects in that trial. So, as we mentioned in the results, this correlation between the IgG and the neutralization was a very tight correlation. We also saw a strong T-cell response. We won't go into that detail again here. That was a preliminary result, and we will expand on those results as we go. But it was consistent with what we've seen in our pre-clinical programs and our previous clinical trials, where we see a robust T-cell response, CD4 effective memory cell response, and it's a polyfunctional T-cell that has a Th1 phenotype. Overall, if you go to the next slide, we’ve been very buoyed by this result. I just want to show how this fits into our pipelines. We are still very committed to our NanoFlu vaccine program, where we had very good results at all of our eight co-primary endpoints in March, and we expect to continue that development. So with that, I'm going to turn this back over to Stan.

Thanks, Greg. So we're now on slide 11. At the end of the first quarter, we announced successful pivotal phase 3 results, and during the quarter, we added important immunogenicity data demonstrating the development of robust T-cell mediated responses. We believe these data will further differentiate NanoFlu from the leading licensed vaccines; the combination of these results will form the basis for future BLA submission using the FDA's accelerated approval pathway. As part of this effort, we are currently exploring pathways to manufacture product for required lot consistency clinical trials. Phase 2 data from the program has been posted to the online preprint server, and phase 3 data have been submitted to the server as well, and should be up this week, with both submitted for peer review in leading journals. Finally, a quick update on our ResVax vaccine. Our Phase 3 results of ResVax in pregnant women assessing the impact of vaccination on infants were published in the New England Journal of Medicine at the end of July. We still believe that we can design an efficient pathway to a licensed product over the coming years. And with that, I'll have John provide the financial results.

Thank you, Stan. Today we announced the financial results for the second quarter and first six months of 2020. I'll focus my comments on the quarterly results. So now we're on slide 12. For the second quarter, we reported a net loss of $17.5 million, or $0.30 per share compared to a net loss of $39.6 million, or $1.69 per share in the second quarter of 2019. The reduction in net loss is mainly due to increased revenue under the CEPI agreement, partially offset by increased R&D and SG&A expenses. Revenue in the quarter increased $35.5 million from $3.4 million for the same period in 2019. As I just noted, the increase was primarily due to the CEPI agreement. R&D expenses increased 15% to $34.8 million in the second quarter of 2020 compared to $30.4 million in the same period for 2019. This increase was primarily due to increased development activities for 2373 under the CEPI agreement, partially offset by lower employee-related costs and development activities of ResVax. G&A expenses increased 84% to $17.7 million in the second quarter of 2020 as compared to $9.6 million for the same period in 2019. The increase was primarily due to increased professional fees relating to the Novavax CZ acquisition, supporting our 2373 program, and increased employee-related expenses. As of June 30, 2020, Novavax had $609.5 million in cash and cash equivalents, marketable securities and restricted cash. Net cash provided by operations for the first six months of 2020 was $92.5 million compared to net cash used in operation activities of $80.6 million for the same period in 2019. During this quarter, we further strengthened our balance sheet. We completed a private placement with RA Capital of a Series A convertible preferred stock for gross proceeds of $200 million and raised $206 million in net proceeds through our ATM offerings. For the six months ending June 30, our total amount raised is $593 million. Additionally, we secured $2 billion of non-dilutive funding to support COVID vaccine development activities. That concludes my financial review and I'll turn the call back to Stan.

Thanks, John. So even with all the significant progress so far in 2020, we still have work to do and major milestones ahead in the remainder of the year. Now on slide 13 for our Coronavirus program, as I said last week, pending FDA approval, we plan to proceed into a trial of approximately 1500 people in the U.S. and Australia, which will expand what we've done in the initial part of this trial and extend these results into the older adult population. In parallel, we will, we are making plans for global trials to demonstrate efficacy. Our goal is to initiate our first efficacy trial in September and conduct efficacy trials in multiple countries. We will keep everyone updated appropriately. As you all know, the space is evolving extremely quickly, and we are moving forward in parallel on multiple fronts. In the coming weeks, we will continue to update you on manufacturing supply and collaboration agreements that we are currently working through. Before I open the call for questions, I would just like to thank all the dedicated employees at Novavax for their huge and tireless efforts since the beginning of the pandemic. Without them, none of this progress would be possible. And with that, I'll turn it back over to the operator for Q&A.

And our first question comes from Eric Joseph from JPMorgan. Your line is now open.

Can you hear me? Thanks for taking the question.

Yes, we can, Eric.

Great. So I guess in thinking about the upcoming Phase 2 study, can you talk about whether there are opportunities in that trial for looking at vaccine efficacy? I know that it would be unblinded and non-randomized, but is there any other endpoints being assessed? What's follow-up in the Phase 2 allow for any read on protection? And as you are also thinking about expanding eligibility to include the older adult population, can you just talk about numbers there and whether that's included in the 1500 patients that you're anticipating?

Hi, Eric. This is Greg. I’m going to introduce you to Filip Dubovsky, our new Chief Medical Officer, who's here, and I'll let him give you a chance to talk to him. I think over the next six months, you will have lots of conversations.

Right? So the study is actually a randomized study, and half of those subjects will be older than 65 years of age, and the other half under 65. We are looking at efficacy in the study, but with the size of the study, we're unlikely to get a very robust answer to that question.

Got it. On the manufacturing side, could you discuss your current capacity in terms of annual doses and identify any gaps that still need to be addressed with additional CDMO partnerships to reach your target of 100 million doses in the U.S. with OWS, and how you plan to expand from there?

So there's inside U.S. and outside, and so it's just a lot happening in real time, Eric, and we'll have some announcements in the fairly near future. There’s been a lot that will better articulate what the global capacity will be, including that in the United States as you point out in the U.S. passage coming primarily from the two Fuji sites. Our expectation is for U.S. only, that we will be able to supply at least U.S. needs, which we project could be as high as 500 million to 600 million doses in a year. We're looking to expand that further. Outside of the U.S., we've already started working on the facility; it’s getting ready to complete the reconstruction process. The remodeling process has been going on for three years. We expect engineering runs to start within the next several weeks and then GMP production and large-scale at the beginning of the year. We'll announce some of the other places. As I’ve said very shortly, we expect to have well over a couple billion units of capacity on an annual basis.

Got it. Great. Thanks for taking the questions and congrats on the progress.

And thank you. And our next question comes from Charles Duncan from Cantor. Your line is now open.

Thanks for taking the questions, Stan and team. Congrats on a really interesting year thus far. I had a couple of questions on the COVID vaccine and maybe one on the broader pipeline. First of all, going back to the Phase 2 study that you mentioned, including some older adults. Thinking a little bit about immunosenescence and the activity of NanoFlu, I’m wondering what particular metrics do you think will be most interesting to look at and to see whether or not 2373 will work in the older adult population?

So this study we’re planning on will look at two dosage levels on the assumption that immunosenescence may play a vital role here. We do have data from the previous work that suggests that the five milligram dosage level will likely be the one we end up with. We're looking at the same things we looked at in the first study regarding IgG responses and migraine responses. Based on that, I will submit the data to the FDA for final concurrence with our plans.

Yes, I mean, this kind of predates Filip. So, I’ll jump in and say, I think that the adjuvant is, in some ways, the perfect match for immunosenescence. Inducing T-cell responses, especially polyfunctional CD4 effect memory cells is what we saw in older adults. That’s really what’s needed to establish high antibody affinity and durable responses in older adults. So, that’s kind of where flu vaccines are going for sure. Adults are looking for adjuvants to sort of repair the incidences that we saw there. I was rather staggering, surprised by the fact that there were so few specific T-cells in the placebo on the day zero T-cells and then afterwards, how good the T-cell response was, in addition to having an immune response. It’s harder to show a huge antibody response with flu because there’s a lot of prior immunity, but that was distinctive, and we’re seeing here that we have the T-cell response. So, I’m expecting this to be a really good match for immunosenescence and probably not, if any decrement in the antibody response, what we’ll see. That’s part of why we’re studying it. We don’t want to miss some critical gap in immunogenicity by going down to the dose, but it appears to us where we are today with younger adults that we’re at the peak of immune response. So given the formulation of the dose, it’s likely that we’ll be able to push that up by using the higher dose, which will expand our safety population very nicely. At the same time, we want to make sure we have no gaps in our dosing strategy.

And it’s also additional color, Greg. If I could just ask you to pull out your crystal ball, I know you’ll be kind of speculating here. But when you think about the competitive environment in terms of the Phase 3 and clinical study participation, or participant enrollment, what do you think you can do to facilitate interest in your program, besides demonstrating already having demonstrated pretty interesting data?

In recent months, it's clear that the investors involved strongly believe in technology. The initial funding was based on preclinical work and the historical performance of the platform. We believe our immune response is exceptional and potentially the best. While there are some challenges in making direct comparisons, our T-cell and immune responses appear to be very robust. As we move into efficacy studies, we are optimistic about achieving high efficacy. Our partners, including CEPI, the Bill and Melinda Gates Foundation, and OWS, share this belief. We are committed to focusing our efforts, which is why Filip is here to kick off our studies aimed at demonstrating efficacy. I am hopeful about our prospects; however, execution is key. The functional data we have looks very promising.

And in Japan, does the collaboration with Takeda enable a local clinical study there? Or will that PMDA interaction kind of dovetail on the other Phase 3 results? I’ll hop back in the queue.

That's a detail we haven't really disclosed yet. Look, everybody is going to be watching the global trials, those results and paying attention to that. At this point, we don't know how relevant it will be to actual licensure in the specific countries we’re working with. I think we’ll have more to say about that in the near future as we start up our next set of trials. Right now, we provided our data to the FDA. We’re waiting for them to come back, and that will be important for us to start the Phase 2 trial in the U.S. and Australia.

Thanks for taking my questions.

Thanks for your interest.

And thank you. Our next question comes from Mayank Mamtani. Your line is now open.

Good afternoon. Thank you for taking my question and congratulations on the recent progress. Welcome, Filip; I look forward to our future interactions. My first question is for either Greg or Filip. Regarding the NanoFlu publication releasing this week, could you comment on the specificity of the T-cell data and the safety profile, particularly in relation to muscle and the indiscernible rate we observed? Could you provide qualitative or quantitative insights on that?

Yes. First of all, we’ve covered everything that we saw in reporting the paper last week. There’s close concordance of the details on what we showed in that paper and what we reported. That being said, the T-cell response looks quite good. We tried to match up the reporting axes, if you will, with what had been reported in terms of the percent of CD4 positive T-cells. We needed to get something done some subset in order to file our data with the FDA. So, there’s really only four subjects in total, four per group, and we’ll expand that information going forward. But it’s consistent with what we’ve seen in our previous trials and pre-clinical work. So we felt very comfortable sharing that information. The fact is we’re seeing these polyfunctional CD4 cells, which we think is kind of our functional target, and a Th1 phenotype, which is helpful to the FDA as they assess the potential safety of these vaccines. So, turning back to the safety profile; overall, we feel like it's really good. If you look at the graph we provided on the local symptoms, the vast majority of subjects have a grey bar for no bar; grey being mild symptoms, where they were collected, they indicated no symptoms. I think a pretty good, very good looking profile for local reactogenicity. There might be a little local pain, which is the norm I take with any vaccine, but I think it’s relatively modest. We have a smattering of symptoms. A hint that the five microgram is a little better than the 25 micrograms. I wouldn't make too much of that. We feel this is an acceptable safety profile. One of the difficult things you have when you vaccinate in a pandemic; you induce fevers in your vaccine; that's problematic and creates management issues. We see no fevers – there’s one in the first dose, there's one very low-grade fever we recorded which I tell people means the thermometer was on and working. I really think a very good safety profile overall.

That's great. So maybe a quick follow-up to that. Has that data now been looked at by the FDA? Any guidance given the impressive immunogenicity and also the safety profile you just described? Any feedback? Do you know next steps here from the FDA yet or is that…

That’s a good question. We did file this with the FDA as soon as we had it ready to go and they are reviewing the data, our plans, and a number of questions. They will be the ones to agree that will lead their agreement that the profile is suitable for moving on into development. We have not heard from them, but we expect to because we’re going to start the phase – we expect to start the Phase trial in the not too distant future. They've been super responsive and efficient and frankly constructive. I don’t expect any large issue that would impede our going forward. But it is, of course, important and not assumed that they are going to give us their blessing. We’ve got a mixed bag here.

And if I can sneak in one more for John, communication cadence regarding some of these stockpiling or distribution arrangements. How and when can we learn more of the granularity around financial terms? Is that really around the Gulf, the different government allocating budgets and then the downstream effect of what could flow as part of some of these country-specific arrangements? Could you just comment on that? John?

Yes. If I think I'm hearing your question the right way, you're concerned about how we will be allocating doses produced. Stan made reference to before that we're going to be coming out with a much more kind of robust global supply plan in the coming weeks that will make that much more clear to everyone. Right now, we're kind of building the capacity out in a pretty significant and dramatic way with not only the funding support, but also other partnering arrangements. We’re seeing especially since the release of our data significant demand for advanced purchase agreements and we have to balance the growing supply against that demand to ensure we're doing that with global access and allocation in mind. We are being very thoughtful and diligent about how we're making a determination around where those doses will be provided under these various agreements. So, Mayank, stay tuned, there’s more to come. We’re learning something new every day about what's happening as each country makes their decisions about how to stockpile products while keeping in mind all of the work we’re doing with CEPI from a global allocation standpoint.

Any color you could give on pricing? Or is it too early because it was really the economic terms and the some of these arrangements is what is missing right? So…

I can't give you any more color other than what we've said before, which is going to be fair pricing. I think there’s more work that has to be done in talking with our partners about what that strategy looks like. So, again, Mayank, stay tuned. It’s an evolving process.

Thank you. And I am showing no further questions. I would now like to turn the call back over to Mr. Erck for further comments.

Thank you, everyone. This has been an exciting second quarter for us. We anticipate that the future will resemble our last quarter. We are focused and working diligently. We leave you with the vaccine's clinical data, and we need to produce a substantial amount of it. This is the priority for the company. We will keep you updated. Thank you.

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