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Novavax, Inc (NASDAQ:NVAX)

Piper Jaffray HC 2013 Conference Call

December 03, 2013 1:30 PM ET

Executives

Gregory M. Glenn – Senior Vice President and Chief Medical Officer

Stanley C. Erck – President and Chief Executive Officer

Analysts

Ted A. Tenthoff – Piper Jaffray, Inc.

Ted A. Tenthoff – Piper Jaffray, Inc.

Great, so we’re going to get started and just a second or two here. Great, excellent, so good afternoon everybody. My name is Ted Tenthoff. I am a senior biotech analyst here at Piper Jaffray. And before I begin, I am required to point out certain disclosures regarding the relationship between Novavax, our next presenting company and Piper Jaffray, which are listed both at the back of the room and outside the registration desk.

Novavax is a next generation virus company or a vaccine company, pardon me, that is poised for a breakout 2014. I really started getting interested in Novavax when this gentleman to my right, Stan Erck took over as CEO about two and half years ago. And I told him, I am going to embarrass him a little bit.

So Novavax has just been awarded a $97 million BARDA contract to develop a pandemic flu vaccine and Stan went about hiring a, really an A+ team including this gentleman to my left and with him onto other right. To really bring about and make this contract a success. They also acquired a state-of-the-art facility at a great price and we’ll probably talk about that a little bit.

Now the company is really focused on creating a pipeline of novel and innovative vaccines that I think are going to drive Novavax share value into 2014. So here with us is President and CEO Stan Erck. Also to my left is Dr. Greg Glenn, who is the Chief Scientific Officer.

Gregory M. Glenn

Thank you.

Ted A. Tenthoff – Piper Jaffray, Inc.

And good long-term friend Buck Phillips, Chief Financial Officer. So just to start out and again you guys can kind of tag team and decide how you want to break this up. But Stan or Greg, tell us about how these nanoparticle vaccines that Novavax is making differ from more traditional approaches.

Stanley C. Erck

Yes, so I will turn it right over to Greg.

Gregory M. Glenn

So, yes, first of all the recombinants. So as you may know traditional vaccines and PATHs were made from pathogens that were isolated and grown up, killed and injected. That’s a very dirty system. It’s not a very directed system. So the recombinant, we can choose the proteins of interest from a pathogen and make it. And so in a sense we can download the gene sequence from the Internet put it into our recombinant system. The way the system works is a insect cell Baculovirus system.

So a Baculovirus is a virus that infects all bugs [indiscernible]. The Baculovirus has been adapted for an insect cell that is an army of [overly] cell that is an immortalized cell. So we put the gene in the back of ours and infects the insect cell and outcome is the protein of interest, usually a vaccine. So we make two end particles, a virus side particle, or a nanoparticle. And the virus like particle looks like a virus, it has a structure like the flu for example has hemagglutinin and neuraminidase on the outside and that looks to the immune system like a virus. So the immune system is programmed to recognize large particles, you induce a very robust response to a particle.

If you have a single peptide or a small protein, those types of immunities are actually very poor as far as inducing strong immune response or functional immune responses. So we make particle, any type of particle we make is called nanoparticle where we take a single protein like our RSV vaccine and there we have it as primers that are engineered to form a 40-nanometer size particle with repeating [indiscernible] surface. All those configurations generate very robust immune responses and functional immune responses which are really critical for the types of immuno vaccine especially for viral vaccines like we are working on.

Ted A. Tenthoff – Piper Jaffray, Inc.

So this is where slides actually are very helpful, but I’ll try to do some hand puppets to explain. So the VLP basically look like viruses where is a protein called with the DNA or RNA inside?

Gregory M. Glenn

There is no. The vaccines are just proteins, so there is no genetic material that comes in. So it can't replicate. So it’s just a recombinant protein.

Stanley C. Erck

And then the protein vaccines are literally just a protein and kind of forms these [something simple] almost star shaped molecules.

Gregory M. Glenn

That’s right. That's right. And from an immune system standpoint, they look very much like a virus. So you are actually replicating what happens in the natural infection, but obviously when you inject just the protein, it almost replicates you don't get infections. So you have immunity without the downside of the infection.

Ted A. Tenthoff – Piper Jaffray, Inc.

That's helpful. That’s very clear. Now this Baculovirus virus approach may sound very novel, but there have been actually some recent approvals of back expression systems getting through the FDA.

Stanley C. Erck

That’s right.

Ted A. Tenthoff – Piper Jaffray, Inc.

So can you tell us a little bit about that regulatory experience and how that gives you confidence moving forward?

Stanley C. Erck

That’s right. It’s very important, because obviously the FDA is extremely interested in safety. So and vaccines are giving a – vaccine to healthy people, previously healthy people. So you don’t want to introduce anything new. So the FDA has extensively got at the insect cell Baculovirus system for products to be licensed and in particular the HPV vaccine that GSK has licensed. Cervarix is going through that process and several other products.

So the product has been the basis for license here, both valid and then also productive to make these vaccines as you probably know, for example Cervarix, the very efficacious vaccine. And back to my earlier point, it is that the particle of mix is in the native configuration, very immunogenic unless you get extremely good vaccines.

Ted A. Tenthoff – Piper Jaffray, Inc.

Fantastic. So as I mentioned in February 2012, Novavax was awarded a two part BARDA contract. The first part, this is a $97 million agreement on contract to develop VLP flu vaccine. Stan, and again we can kind of hand this off as you see there, but what has the money specifically enabled Novavax to deal? And how much is left to receive from that contract?

Stanley C. Erck

Good question. So there is actually – February 2011, so we were two and half years under this, no problem. So what that allowed us to do is that gave us a financial pathway to license your two products, seasonal influenza plus pandemic influenza. For a biotech company having that pathway is terrific. It’s a great strategic asset. It takes full cost plus profit. On top it, let’s say, full cost of it not just the variable costs of supplies and people, but also full overhead in G&A.

So it actually not only funds that program, but it allows us to start some other programs such as RSV, which is a key program of ours. And so that program has been going on. It’s actually – the total contract was budgeted originally at $179 million. So we bill on a monthly basis. We get paid monthly. And so that’s like clockwork down, and particularly it’s a small company. The government actually pays in 20 or 25 days, which is great. Even our government when it’s closed down pays, which is good.

So that is going to grow. We’ve booked about $45 million in revenue out of the total of – anticipated total of $180 million. That’s going to accelerate fairly dramatically in 2014 as we go into a final Phase II trial, and then enter our pivotal Phase III trials. So that’s going to make a big impact on the company. Again it gives us not only a pathway to a license product, but it will also helps the company with its infrastructure building.

Ted A. Tenthoff – Piper Jaffray, Inc.

Yes. Now the real goal of this BARDA contract was to develop pandemic flu?

Stanley C. Erck

That’s right.

Ted A. Tenthoff – Piper Jaffray, Inc.

Vaccine and preparedness in case of a pandemic emergency. And you guys achieved frankly a remarkable proof of concept this year by being the fastest company to develop an H7N9 vaccine with Phase I results that were actually just published online in The New England Journal Medicine. So if we cut out our specimen when you’re working through this, but tell us about this process, and what are the next steps in order to either gain licensure or potential stockpiling in case of a pandemic emergency?

Stanley C. Erck

Right. So with a little bit of background, a year ago, so BARDA started – BARDA got formed in 2004 to help the nation prepare for natural and man-made threats and one of those natural threats is a pandemic influenza. The original one that they are most worried about is something called H5N1, which has started circulating and probably known as infected 500 people or 600 people with a high mortality rate and our first program was to develop a vaccine for H5N1 as had virtually all the large vaccine companies and we published in October last year, well so BARDA investing in us because where technology allows you to have non-egg based manufacturing system versus the traditional egg-based allows you to make a particle which is in theory highly immunogenic, it allows you to use an adjuvant, so you can dose spare. So if you can make a vaccine work at 5 micrograms, done 50 micrograms, in effect you get a tenfold increase in production capability.

And then finally, it allowed us to manufacture our technology allows us to manufacture vaccine at under 12 weeks from buyer, pathogen identification to manufacture. So a year ago, we published date on H5N1 showing that an egg-based system that makes – the non-egg based system that makes a particle and with an adjuvant at 3.75 micrograms per dose, we were able to show 100% zero protection. So we proved all of these points, so we also had a vaccine that had broad cross protection, but because we didn’t try, we hadn’t shown that we can do it quickly, so what happened is, this is in March 31 in China, started publishing that they had a new virus emerging which is H7N9 and we were concerned that just like in 2009 when H1N1 started circulating and the government made a decision and WHO made a decision in April for the vaccine manager they declared it as a pandemic.

Everybody switched over to making a pandemic vaccine and the vaccine got released in November of 2009, but the pandemic occurred in September and October, so you couldn’t protect anybody.

So we decided to make one and on April 8 we made the decision. We are going to go forward and our company met, we got together and we start meeting everyday, seven days a week for the next 81 days, we made our first batch at commercial scale in 1,000 liter, we got it released on day 81. We are in patients and patients and subjects on day 91 and we vaccinated 280 people, we got results after two doses on day 35, and the data were so positive whereas previous attempts of making H7 vaccine had proved futile.

Ours showed that we can get 80% plus zero protection based upon hemagglutinin, 90% plus zero conversion based upon neuraminidase, which makes our vaccine unique. And this data were so compelling that we went to the – we showed the data to the Head of NIAID, Tony Fauci and the data went to Secretary, Sebelius. They suggested that we could take it to The New England Journal, we did. We got it published. It came out a couple of weeks ago and it’s Phase I data and then to give you an idea of how important those data are, The New England Journal rarely publicize Phase I data, so it’s a big deal.

Ted A. Tenthoff – Piper Jaffray, Inc.

For us it is a huge accomplishment, absolutely and I think going through this exercise, really hardened the company around this process in case there is pandemic going forward. Now you mentioned the use of adjuvant and this is important in particular for dose-sparing on the pandemic influenza vaccine. This summer, you acquired a company called Isconova for their M-Matrix adjuvant, so tell us about what the deals terms were and what is the rationale for bringing that in-house?

Stanley C. Erck

So we showed that the saponin-based adjuvant which is what we used in the H5N1 study allowed us to get 100% zero protection when although our un-adjuvanted vaccine actually did remarkably well. I think we got 80% zero protection un-adjuvanted, and a 100% zero protection with the adjuvant, but also at a dose of 3.75 micrograms versus 15 microgram, 45 microgram un-adjuvanted. So, we love the adjuvant, it has been used broadly in the clinic and preclinically and Isconova was making– it’s a Swedish company that was public, 25 people small which their whole business was to produce this saponin adjuvant. So, we purchased the company, we purchased for $30 million in a stock exchange I think close to early September with a purpose and the reason for is specifically to use it with our vaccines and we are now – the plans are to use it with our H7N9 vaccine going forward in 2014 and beyond all the way through the licenser. We have the added advantages as far its data on this adjuvant which we now own, this is published by Genocea, a private company on an HSV vaccine. So it could have broad applicability although we’re satisfied if it just works with our vaccine since it is well worth the effort.

Ted A. Tenthoff – Piper Jaffray, Inc.

So one of the positive developments from the pandemic flu effort is obviously your efforts to develop a quadrivalent seasonal flu vaccine and we’re just initiating a Phase 2B study. So how much worth that study is going to look like and when do you think you’d be able to get into Phase 3 studies for that.

Stanley C. Erck

So the goal here is, as we’ve been spending the last year or so after getting good Phase 2 data with a quadrivalent for the first time for us, quadrivalent vaccine is to do a dose conformation study which we think will be the last, the final Phase 2 study prior to going into an efficacy study, so that study will start some time in the mid first half of next year with data coming out in the summer, we’ll take those data to the FDA and end of Phase 2 meeting the expectation, it will begin a Phase 3 efficacy study will be a pivotal study for a quadrivalent seasonal vaccine, that will start at the end of next year and go through the following flu season, data coming out in 2015.

Ted A. Tenthoff – Piper Jaffray, Inc.

Excellent, now assuming that all goes well with the pivotal study, is the manufacturing and selling a seasonal flu vaccine something that Novavax could do yourselves or is it something where you would potentially seek a larger partner--?

Stanley C. Erck

So in the U.S. we think we can do it ourselves. I think that’s a strategy, just take the quadrivalent and postlicensure market ourselves. So it’s all through a distribution network that’s well known, you don’t need a 200-person sales force. You need handfuls of people to develop that. But having said that we haven’t talked about much, so this RSV and RSV is also a seasonal respiratory vaccine. It’s one of the two main respiratory diseases on an annual basis and the goal for a quadrivalent is long-term is to actually put it together. So you have a pentavalent combination vaccine and uniquely. So we would have the only vaccine that would have that character.

Ted A. Tenthoff – Piper Jaffray, Inc.

Well, that Segway is nicely into RSV and if anyone does have any questions please don’t hesitate to raise your hands. So I think that this really where most of the current investor focus is because it’s really unique and novel approach here was the RSV vaccine. You started to touch on the pentavalent kind of respiratory panel in the elderly. But lay out more broadly what’s the three patient population who are – you see as relevant and addressable with a ….

Stanley C. Erck

Well, I’ll let our program leader to answer that.

Gregory M. Glenn

So RSV as you probably know is a respiratory virus that comes on an annual seasonal basis, so it’s a predictable epidemic. It affects the extremes of age both infants and old people. And particularly infants and has very high rate of hospitalization. So leading cause of hospitalization, if you think about the U.S. [indiscernible] about $4.2 million, they were around 150,000 annual hospitalizations among healthy infants and some intermittent.

So that’s the population we expect to address, so the first by 6 months of age about 80% of the hospitalization that have occurred. We believe for this particular population we need to – we will do this clinical strategy is to immunize their mothers, and mothers as you may know, babies born with all the immunity that the mother has acquired over the years both vaccine induced and naturally acquired. This is not a new strategy, probably you’re familiar with influenza where mothers who are pregnant are immunized, but babies you see their antibodies and this is also a strategy being used for whooping cough in the U.S. where infants are – if mothers are arriving at the child-bearing age they no longer have the vaccine induced antibodies they had as a child, babies completely immunize and exposed to [indiscernible] and have very bad outcomes.

So it’s not (inaudible) we are jus digressing a little bit because it is not a new strategy and most people [inherently turn their] immunization there, and not so familiar with it. So the way the physiology works is that the placenta is actually a concentrating mechanism, so the receptors in the placenta that actually grab the antibodies from the mother side, play them through and release them into the baby side.

So the baby is up with something supra level of the mother’s antibody. So up to for example a tetanus baby will be found to have 160% of the mother’s antibodies. So this is a very nice mechanism for protecting infants because the peak hospitalization happens in the first few months away and they are very difficult to immunize immunate, they have an immature immune system and really can’t use adjuvants there is many factors that go against. So most people in the field need to address this very large population who will do this through maternal immunization.

We found based on our data, we’ve been in now three clinical trials of our vaccine, we take that our strategy in women of childbearing age, the level of antibodies we induce that we can potentially protect infants up to 4 to 6 months of age. So that gives you a very nice demarcation in terms of…..

Ted A. Tenthoff – Piper Jaffray, Inc.

What is the ultimate endpoint? How do you measure that transfer of immunization?

Gregory M. Glenn

So, RSV I’ll digress a little bit first. RSV has been a six tier [level]. The virus was discovered in late 1950’s. It’s always been the leading cause of infant hospitalization. So you can imagine, there’s been a tremendous amount of work and attempts to make a vaccine.

In my view the major breakthrough came when the group now primarily in AstraZeneca came up with a monoclonal antibody they’re called Synagis or palivizumab. That antibody binds -- proteins of the virus. It doesn’t change from year-to-year. So you can give the same treatment from year-to-year even though the RSV virus changes. So that product is given to premature infants, and infants who have bronchopulmonary dysplasia or other reasons with very high risk, if they acquire RSV, that have very bad outcome. So one RSV season rolls around, they are given an annual intramuscular injection of the monoclonal antibody.

So that is my view from a scientific vaccinology standpoint is a major breakthrough. So we see this pathway is very important, because now we’re going into a field where we know a certain type of activity work. In fact this type of binding has been evaluated in five randomized clinical trials. In those trials they determine the level of antibodies that are protective and now we still have a target.

Our vaccine actually turns people into palivizumab factories. So we can measure these types of antibodies after immunization. We preserve the key part of the protein that induces this type of activity. When they immunize it we can see very robust prices and what’s so intellectual with RSV is you have adults who usually have an annual infection.

You have immunity, but it’s not effective. The immunity that a mother can force the infant after decades of infection evidence that this new means [indiscernible] model compares to infant after decades infection. Obviously it is not fully effective because you can still get RSV disease. So, it tells you that the entire community l induced by natural [indiscernible] is not effective.

What we found certainly with major observation in our clinical trials, we try to measure palivizumab like antibodies in a general population. They’re almost completely absent. And after vaccination we had very robust titers. And in fact 10x about what we think is a protective level based on the study of palivizumab. So it’s really a tremendous finding, because of great guidance. As we look at our clinical trials it gives a lot of confidence going forward. It doesn’t [supplant] the new degree of randomized clinical trial, but it does highly de-risk the program and I think that’s why we see a huge amount of interest in that program. So that needs breakthrough, but (inaudible) manifest itself in our program as a way of de-risking the program going forward.

Ted A. Tenthoff – Piper Jaffray, Inc.

I really appreciate that additional color. And I didn’t mean to interrupt you, but we were starting to layout the three different, so go back to that question.

Stanley C. Erck

So that’s important. So we think we’ll get babies palivizumab via the mother. So we immunize the mother in the third trimester, get a very strong level of antibody transported into the placenta and the baby now is analyzed. We hope this will last three to six months. Clinically, benefit of three months will be profound. It will be my dream as a pediatrician to make that reach out to six months. Then you have an [easy] divider. Six months and above, they get a seasonal respiratory vaccine. Today, all infants six months and above are supposed to receive a seasonal flu vaccine. So September, October timeframe they go visit the pediatrician. We would like to combine the RSV vaccine with the seasonal flu vaccine.

So six months to six years, during that time the RSV virus still have many of the current infections. They mostly -- as office visits in the ER [indiscernible] so commencing that of medical care associated with this. And then when the child has a viral infection, he is at this age, they have ongoing leaving. So they become these thick medical charts that you see them time after time because they have ongoing. So we will be both presenting the near term say qualitative hospital visits as well as long-term.

And then finally, (inaudible) as Dan mentioned, tremendous amount of pathology about like a seasonal flu virus, 15,000 annual death, 180,000 annual hospitalizations and high risk, heavily dose. So this would make sense to add this to the flu vaccine, have a seasonal, annual vaccine and include a coverage for both RSV and flu.

Ted A. Tenthoff – Piper Jaffray, Inc.

Really, super cool program. So thanks for going in great detail on that. We are just about out of time and I want to make sure I ask Buck at least one question here. You guys recently were successful of raising $100 million. It was really great institutional investors and it ended 3Q with $146 million. With the BARDA contract how long will this cash last?

Barclay A. Phillips

Thanks, Ted. I think first of all we are very fortunate to recruit the kind of investors that we saw in that last financing. The capital and the balance sheet at the end of the third quarter of this year was $146 million. Based on the development plans that we’ve identified in the company we believe that that $146 will fund us into 2016. So over two years of cash at this point in time.

Ted A. Tenthoff – Piper Jaffray, Inc.

Well, with that we’ve run out of time, but I appreciate you all joining us to hear this very interesting story of Novavax. And thank you guys for joining us at the conference.

Question-and-Answer Session

[No Q&A session for this event]

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