Novavax, Inc. (NASDAQ:NVAX) H.C. Wainwright 21st Annual Global Investment Conference Call September 10, 2019 11:15 AM ET

Company Participants

Conference Call Participants

Unidentified Company Representative

Okay. Good morning. Welcome to Novavax. I’m going to tell you about a couple of our programs and we believe that we have created a significant opportunity for an investment based upon a couple of our lead programs. We have two late-stage programs including our NanoFlu vaccine for influenza and ResVax for maternal applications in preventing RSV.

These — both these programs address very large markets with the ResVax program for RSV vaccine, people have been working on RSV vaccines. The industry has been working on RSV vaccines for 60 years and has no vaccine in late-stage clinical trials. Novavax is the only company to have developed a vaccine in Phase III clinical trials and demonstrated efficacy.

So, the flu market as you know is a crowded market and we’ll talk about why there’s room for new entrants in that market because as in this crowded market, the vaccines don’t work as well as we want them to.

So, we have a couple important opportunities and especially we have NanoFlu where we will have pivotal Phase III data expected to be in the first quarter of 2020 and in addition for both programs, we have parallel discussions going on with pharmaceutical companies who could support the ongoing licensure and commercialization of these programs.

So, pipeline is as follows. We’ve got several very interesting programs. I will tell you about the first two because they are the Phase III programs, NanoFlu and ResVax, but behind that we have a substantial pipeline of good opportunities.

Let’s start with NanoFlu. So flu, influenza in the older adult market it’s an opportunity. It’s $2 billion in the United States, $4 billion in the United States in the main countries thereafter. It’s a premium price market. Typically, the market leader, Fluzone High-Dose sells its vaccine to this market which is Medicare paid for at a rate of about $50 versus $15 for a standard flu vaccine in the non-older adult population, so it’s a premium price market and a good target for us. Why is that? Because it doesn’t work as well as it should.

So, as an example last year in the 2018-2019 U.S. flu season, it’s a clear demonstration and this has been happening for several years now, clear demonstration of a need for an improved vaccine, especially in older adults because older adults comprise half of the reported flu associated hospitalizations. Why is that? Because vaccine efficacy was only 12% for older adults last year and the negative 43 means basically no efficacy in all ages. And I’m going to explain why that came about.

So — and the other thing of note because I sometimes get blank stares when you talk about flu. Well, everybody gets the flu, but flu is not another cold, it’s — if you’ve had it recently, you know the difference between flu and a cold. And in this slide I just saw recently and I thought I’d demonstrate the importance of flu as a target and you look at what’s — what do we think about in terms of death in the United States, you look at motor vehicle accidents, 40,000 a year every year. But then all the news is on opioid overdose of which there are 47,000 opioid overdoses and compared to flu, 79,000 deaths in flu last year. It’s a serious disease. And the effectiveness of vaccines is not very good.

On the left of this slide, you’ll see a chart which shows the circulating viruses are not just one flu virus. There’s two types of viruses 1A and 1B. And within those there are different strains that have drifted over the years. And — but in recent years the largest section of that circle is H3N2 and that has caused the most morbidity and mortality over the years. And the reason is that the effectiveness of the vaccine is very low.

You see in this chart, 17% vaccine effectiveness against the H3N2 strain in older adults. It’s just not good enough. Why? So, there are two issues in making a vaccine here and one of those issues is that the virus that we’re targeting, the value — so we put four — three or four different strains of our virus in the vaccine every year and it changes from year-to-year and it’s one strain. But when we pick it, we pick it in February and we manufacture the vaccine and we deliver it in September, October, November. During that period of time, there’s been antigenic evolution and drift and what circulates may not match what’s in your vaccine.

Then the other problem is even if you pick the right strain six months before the season, the way the virus — the way the vaccine is made is made in a way that causes egg adaptation which makes the vaccine less efficacious as an example. So, this is complicated, I won’t go through all the details of this, but this is a phylogenetic tree. So, if you start way back in 2019, H3N2, first got identified as the as the new flu strain that was going to infect everybody. And just over the last eight years, you can see how it is as evolved into many different strains, drifted strains of H3N2 and where you see a red bar and an X, in that particular year, the vaccine strain was picked and that’s what — that’s the strain that went into the vaccine.

Now, hopefully, that strain was effective against that that tree — that part of the tree that was circulating in 2018 or 2019 for instance. But as you can see, it might not be effective against all of the other strains, so that drift is a source of vaccine ineffectiveness and that red box shows you all the strains that were that were circulating in 2017.

So, let me come back to this in a minute, but that’s the problem. You choose your vaccine strain and then the vaccine evolves and there are many more strains. And so the second thing is probably equally important egg adaptation. So, how vaccines are made is they pick a strain and the manufacturers go and take that strain of virus and start putting it into eggs because 87% of the 50-year old technology for vaccines — for flu vaccines is to put — literally to put virus into millions and millions and tens of millions of eggs, let them grow and the ones that grow best are the ones that they use for purifying and then making into a vaccine. And so the vaccine that grows best isn’t necessarily the vaccine that remains the same as the virus you started with.

So, what you’re sticking in your arm is a purified virus that has adapted and made enough changes that it doesn’t look like the original strain. So, antibodies that are made to that vaccine are antibodies that may bind and neutralize that particular vaccine virus strain, but it’s now what’s circulating. And so you get — you don’t have antibodies that protect you. And that’s the source of ineffectiveness.

And so what do we do about that? Novavax has made a novel flu vaccine. It’s not egg-based. So, what we do is we take the genetic — the exact genetic sequence of the strain of virus that’s been identified as circulating and what we — what comes out of that is a virus that’s exactly the same as the strain that was certainly — the main strain that was circulating. So, we’ve taken care of the drift — we’ve taken care of the egg adaptation problem and then how do we take care of the drift. Well, we add an adjuvant, an adjuvant which stimulates a higher form of protection and broadens the antibody response to the virus. And so that is often intended to protect you against those similar, but drifted strains that the standard vaccine won’t do. So, we’ve got something that gives you the exact match for the virus and we give you something that gives you broader protection against the drifted form. So, we specifically address drift and egg adaptation.

So, going back to my phylogenetic tree to make it even a little more complicated, we put a blue box around there. And what does that blue box represent? It represents what we’ve shown in clinical trials and preclinical trials and we measure — when we vaccinate, we measure what antibody levels we get against all of the H3N2 circulating strains, so we take not only the strain, for instance, the A/Singapore strain which is on top which is in our vaccine, but we see what antibody response as it gets to the other strains, so we test them against all those.

So, our vaccine in these Phase I and II trials does exactly what it is intended to do which is to set up high levels of antibody responses to the all the drifted strains for H3N2 and we do it in a way that is at higher levels when we compare it to the best-selling Fluzone High-Dose vaccine, it’s remarkable that we’ve accomplished this.

So, that was — and we did it in the Phase I/II trial and it made such a — raise so many eyebrows that it got published in The New England Journal that we had compared our vaccines to the market leader in around 300 subjects and which was Fluzone High-Dose. And if you don’t know, but I’ll tell you Fluzone High-Dose got approved based upon their having 80% higher antibody levels than Fluzone standard dose and therefore, turned into higher efficacy.

We went against this high standard and improved it by 28% to 64% depending upon what strain, that’s over the high dose, which is 80% over the low dose. So, that’s a remarkable achievement and it’s much stronger responses over the drifted strains.

So, then we went to the FDA and said we want to do a Phase II and the FDA said fine, we made a primary endpoint. If we’re going to use this adjuvant, then you have to show that the adjuvant has a superior effect to a non-adjuvant vaccine. So, we did the trial, it was in 1,375 subjects and we were testing a number of things, what was the dose be, what would the formulation be, and what would be the effect of the adjuvant.

So, it turns out we — our primary endpoint was met, hurray for us. The matrix end adjuvant resulted in significant enhancement of immune responses when compared to the unadjuvant formulation.

We also showed that the H3N2 responses — antibody responses compared to both Fluzone, we had two competitors now, Fluzone High-Dose and comparable to FluBlok, both Santa Fe’s vaccines FluBlok being the recombinant version of the vaccine, non-adjuvant and we showed equal to or superior responses on antibody responses, but importantly, we showed something that they didn’t show. We showed that we also stimulated a strong T-Cell response and higher than both Fluzone High-Dose and FluBlok because we have an adjuvant vaccine. And then, of course, it goes without saying, it has to be well-tolerated and our safety profile is great.

So, let me just give you a set piece of data that’s fairly new which is showing that our cell-mediated immune responses, antibody-mediated immune responses in their cell-based mediated immune responses, we had substantially greater cell-mediated immune responses within Fluzone High-Dose and mediated immune by the — you can read the chart, it’s evident that we have a very different vaccine.

And so we went to the FDA after the Phase II data and we said we want to know whether the accelerated approval pathway is available to us. This pathway allows you to run a clinical trial — a Phase III clinical trial against a licensed competitor product comparing their antibody response to our antibody response and all we have to do is be non-inferior. That’s a regulatory term, I don’t like very much, but you have to non-inferior so.

So, we are on our way to a Phase III trial and — that data from those trial could be the basis for licensure. So, the trial is going to be a non-inferior trial against the license quadrivalent vaccine. We’re going to go against Fluzone standard dose. We’ve already beat Fluzone High-Dose in the Phase I and Phase II trial. Now, we’re going to go against probably an even easier competitor which is Fluzone standard dose. We’ll look at — we’ll draw blood on day zero, we’ll draw blood on day 28, we’ll compare the antibody responses on day 28 versus day zero. It’s a very standard trial, very fast. We will collect data. We’ll have the data analyzed and we’ll announce it in the first quarter of next year. So, that’s a big important milestone. That — those data will be the basis for a license for a brand new flu vaccine.

Unidentified Analyst

Great. [Indiscernible]

Unidentified Company Representative

It’s not outcome, it’s just antibody responses and so we’ll — the endpoints will be non-inferior to the strain that’s in the four strains that are in the vaccine. And in addition we will measure other things like drifted strains and how we do against that, but no efficacy outcomes now.

What we have to do is commit. Once we get a license, we will commit to do future studies to show either the effectiveness or efficacy of our vaccine post post-licensure, but we’ll have a license. A very powerful program.

So that’s flu, exciting; RSV, exciting, but let me explain where we are right now. I think there is no question that it’s one of the most — it’s the most — it’s a disease without a vaccine and it’s probably the most important new vaccine that’s being developed.

So, why? So, Respiratory Syncytial Virus is the second leading cause of death worldwide in children under one year of age after what — after malaria. It’s a big deal. It’s the leading cause of hospitalization in infants in the U.S. and especially in the first six months of life. And what’s the best way to protect against it if because kids who are born and through the first six months have only either non-existent or maturing immune systems and can’t defend themselves against RSV. The best way to do this is to vaccinate the mom, pregnant mom, her antibodies transfer to the infant and you get maternal protection. And that was the goal of our trial that we started five years ago.

We have now the only RSV vaccine with efficacy demonstrated in the Phase III clinical trial. I’ll tell you a little bit about that. But first it’s — you could recognize that it’s a big market. It’s in the U.S. alone; it’s probably 1.5 billion U.S. and maybe European markets. And there’s no other vaccine out there.

So, what did we learn from our Phase III clinical trial? So, it’s the first vaccine to demonstrate efficacy against RSV, respiratory tract infection hospitalization in a Phase III clinical trial. It’s the prevention of hospitalization and RSV with severe hypoxemia. And it’s a reduction in all cause hospitalization and respiratory illness with severe hypoxemia. It has a major public health information.

When I say all cause hospitalization, it means that when you take — when you go through your database and look at all the hospitalizations, even if during the process you were not able to identify RSV infection, it still counts. And so we — that’s the goal of healthcare is to reduce all cause hospitalization.

So, the vaccine appears to be safe and it’s — we’ve had a lot of safety data and then we also have something profound. We had a reduction in the incidence of severe adverse events diagnosed as pneumonia and I’ll show you the data on that, it’s a complicated slide. I’ll pick out a couple pieces that are important on this.

So, if you go down to the bottom, so we went through our safety database after a year. So, we follow all these kids for a year and pick apart where serious adverse events and in particular hospitalization. So, we looked at the bottom section, you’ve got clinical pneumonia where they had a positive chest X-ray and we did a swab and they are diagnosis positive with RSV. And we did it for zero to 90 days and then we did it all the way for 180 days in this particular case. We didn’t measure RSV beyond six months, but in that case, we showed that our vaccine works has 72% protection against the most severe form of the disease and with RSV induced.

If you take out and look at the rest of the whole year because we — and we didn’t test for RSV, but just look at chest X-ray and pneumonia, you get effectiveness rates of 50% to 62% over a year and nobody expected that this vaccine would have that effect over an entire year.

And then, of course, just clinical pneumonia reported all cases and you get a 50% reduction over an entire year. This data we just reported a couple of weeks ago, it is probably the most important data we’ve produced in our history. It’s really a big deal and blow up.

One way to understand what the importance of the vaccine as people do economics and so assess and try to look at how many people do I have to vaccinate to prevent one hospitalization and Prevnar which is the best-selling vaccine and other vaccines, generally after we have to vaccinate somewhere between 50 and 150 or 200 somewhere in the hundreds of the after vaccine — hundreds of people to prevent one hospitalization and our is 40. So, we vaccinate 40 people, you’re going to reduce one hospitalization. Think of the healthcare benefit of doing that.

So, what are the next steps? We’ve got a vaccine we know works, but we have to continue to receive input from global regulatory agencies and possible pathways to licensure. The problem with this trial not with the vaccine, the problem with this trial is we didn’t meet the primary endpoint that we set five years ago which was just medically is less severe form of RSV. All the brightest groups that we could come to including ourselves said that’s the primary endpoint and we’ll make hospitalization and we’ll make severe hypoxemia secondary endpoints.

And if we had them reversed, we wouldn’t be talking about missing our primary endpoint. But we are and that’s where we are so we have to work with the FDA and the European regulators and other global regulators and figure out what additional trial do we need. We have more knowledge on how to vaccinate pregnant women; we’re the only company in the world to use an experimental vaccine in pregnant women. We’re the only company to have efficacy — Phase III efficacy data for an RSV vaccine. We know exactly what the endpoint should be, we are determining what the size and type of the trial is, how long it will take, and it will be something that we — with — we are talking with partners both in high income countries and low — middle income countries to get that to a point where we can start a licensure trial starting next year and within the next couple of years afterwards get data that would get us a license for this product.

We remain years ahead of our competition just time wise and number two, we have data — efficacy data that nobody else has and I have not seen any data that suggests that somebody has a vaccine that can do what our vaccine can do. Time will tell.

So, who’s helped us do this? Bill & Melinda Gates and PATH have been behind us since day one, PATH started funding our Phase I and Phase II, Bill & Melinda Gates stepped in when they saw the data. They said this is a big Phase III program. This is our mission is infant mortality in lower and middle income countries. We believe in this vaccine. And so they put an $89 million to help fund a program which cost many hundreds of millions of dollars that we’ve raised. And — so the Bill & Melinda Gates are staunchly behind us and helping us get partners and get this vaccine approved globally.

So, back to the first slide. Late-stage programs including NanoFlu and ResVax, were addressing both influenza and RSV market opportunities of $5 billion and we have a pivotal Phase III data and are talking to partners about defining the pathway to licensure. Pathway licensure is clear on flu and pathway to licensure has become clearer for RSV. And now we just need to go back to the agencies and partners with a defined plan for a Phase III program. Questions?

Question-and-Answer Session

Q – Unidentified Analyst


Unidentified Company Representative

We believe so, yes. I think — look at — you have to — when you look at the data and you say these are the — and in fact the hospitalization — pneumonia hospitalization and I’m speaking, I’m projecting what the FDA has to agree that that’s the endpoint, we will not do a trial with the old endpoint.

Unidentified Analyst

[Indiscernible] Okay. Thank you so much.

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