A recently announced three-prong partnership with India's Cadila Pharmaceuticals should enable Novavax to pay off $22 million in convertible debt due in July and still have about one year's worth of operating cash, the vaccine maker's chief executive, Rahul Singhvi, said in an interview.

Novavax is seen as offering a promising, new approach to recombinant anti-infective vaccines through a proprietary virus-like particle process, which creates vaccine candidates with two surface proteins and one core protein, rather than just hemagglutinin found in most vaccines. Privately held Cadila, meanwhile, sells cancer vaccines, adjuvants and biosimilars, among other products, in India and has been actively making deals lately.

The collaboration will create an India-based joint venture called CPL Biologicals that will develop and sell Novavax's seasonal flu vaccine along with Cadila's line, which includes diagnostic products ([See Deal]). Novavax will own 20 percent of the new company, with Cadila owning the rest and financing its work with an $8 million infusion of cash over three years.

As part of the deal, Cadila also took an $11 million equity stake in Novavax, which is based in Rockville, Md., obtaining 12.5 million common shares at $0.88 each The pricing demonstrates the decline in value seen in Novavax's stock price in the past nine months. In a PIPE deal last summer, Novavax netted $17.6 million by selling 6.69 million shares at $2.68 million to existing investors and new ones, included the UK's Abingworth ([See Deal]). The firm's stock closed the trading day at $0.85 on April 20.

In a recent Biotechnology Balance Sheet report, Rodman & Renshaw reported that Novavax had lost 60.3 percent of its market cap over the prior 12 months, ninth-highest among small-cap biotechs the financial firm tracks. Despite that, Rodman initiated coverage of Novavax April 1, saying the firm's VLP technology offers potentially significant upside compared to current valuation.

"[The] recent partnership with Cadila Pharmaceuticals Limited not only relieved an immediate financing overhang, but provided an additional validation of the technology, as well as a template for future joint ventures," analyst Elemer Piros wrote.

Cadila partnership should produce quick revenues

Singhvi noted that the joint venture with Cadila will enable Novavax to realize revenues quickly since the new company will sell some of Cadila's already marketed products. It also marks Novavax's first partnership to commercialize on of its VLP vaccines, with the biotech slated eventually to contribute other vaccines for hepatitis E, chikungunya fever and dengue fever to the partnership.

"We believe that this is a very good blend of marketed products as well as solid pipeline products that take advantage of the capabilities of both Cadila and Novavax," Singhvi said. "Through this deal, we have created a nice company in India which over time will help monetize our seasonal flu vaccine in that country."

The Indian firm's managing director will join the Novavax board and Cadila will have the option to buy into any future offering of Novavax stock, as long as it maintains a 5 percent interest in the biotech.

Another aspect of the deal involves a $7.5 million master services contract under which Novavax will advance its VLP vaccine candidates using Cadila's research and development expertise and infrastructure. Singhvi says this three-year agreement will reduce his company's cash-burn. Novavax's R&D costs increased 38 percent to $24.3 million last year, with the company ending with roughly $33.9 million in cash and equivalents.

Essentially, Cadila's equity purchase enables Novavax to pay off $22 million in convertible debt to three hedge funds - Hybridge, SF Capital and Ramius Capital - with $11 million in cash and the other half in stock (Also see "PIPE Proceeds In Hand, Novavax Looks To Score With Two Late-Stage Flu Vaccines" - Pink Sheet, 21 November, 2008.).

That will allow Novavax to use its remaining cash to continue advancing its trivalent seasonal flu vaccine, while also working on preclinical programs to develop VLP vaccines for shingles, HIV and respiratory syncytial virus, Singhvi said. The RSV and shingles programs are moving from discovery into preclinical development, he added.

The seasonal flu vaccine currently is in Phase IIa, while Novavax's Phase II pandemic flu vaccine will not be advanced further without a co-development partner, Singhvi said. For seasonal flu, Novavax plans eventually to do a Phase III registrational program, but is not giving timeline guidance on when that could occur.

Novavax began a dose-ranging study for the seasonal flu program last September, testing 5 mcg, 15 mcg and 30 mcg doses in healthy adults. That study produced favorable safety and immunogenicity results in December, with a new dose-ranging and safety study in adults slated to begin next month. Later this year, Novavax also hopes to do a comparator study in patients over 65, testing its vaccine against currently marketed flu therapies.

In February, Novavax unveiled data at the World Health Organization's pandemic flu vaccine conference showing that its recombinant VLP candidate against the H5N1 A Indonesia strain showed robust hemagglutination inhibition across three doses in patients ages 18 to 40. The highest dose, 90 mcg given in two separate injections, produced a four-fold or greater improvement in HAI in 63.6 percent of test subjects.

Direct-to-government deal strategy abandoned

While Novavax still hopes to win a U.S. government contract for its pandemic flu candidate, it otherwise has given up on its prior strategy of trying to negotiate deals to sell its vaccines and/or production technology directly to governments.

"As we have gotten more involved in those discussions and learned more about how these deals would happen, we've learned that it's better to deal with a company within those countries that the government relies on because the government cannot really take the technology themselves," the Novavax CEO explained.

"[Governments] have to work with a local company … to whom we would transfer the technology, and then that company would have the capabilities to produce the vaccine in that geography," Singhvi continued. "The government can certainly play a key role by funding the acquisition of the technology from us."

Rodman & Renshaw's Piros wrote that a U.S. government request for proposals for seasonal and pandemic flu vaccines is expected near-term. "Novavax believes that [its] pandemic vaccine can be stockpiled and approved by 2012," he said.

Singhvi said he would be interested in bidding on such an RFP, but the process is "somewhat speculative. Where that RFP stands at the moment, we don't know," he said. "There is no information as to when that RFP will be issued, if at all."

- Joseph Haas (j.haas@elsevier.com)

[Editor's note: This article also appeared in 'The Pink Sheet' DAILY - April 20, 2009.]

Novavax Looks To Increase Runway Through Strategic Alliance With India’s Cadila Pharma

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