Novavax Inc (NVAX) 2003 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Novavax conference call.

At this time all participants in a listen-only mode.

Following today's presentation, instructions will be given for the question and answer session. (Operator Instructions).

As a reminder, this call is being recorded on Thursday, March 11, 2004.

I would now like to turn the conference over to Ms. Julie Tu with Financial Relations Board.

Please go ahead, ma'am.

Good morning and thank you all for participating in Novavax's conference call to discuss fourth-quarter and year-end result.

By now, you should all have received a copy of the press release.

If anyone still needs one, you can call my office at 212-445-8300 and ask for Samantha Alfonso and we will send you will one immediately following the call.

Before we start, the Company has asked me to remind you that forward-looking statements can obviously differ from actuality and relying on them is subject to risks.

Factors that can cause forward-looking statements in this conference call and webcast to differ materially from actual results are discussed in the Company's 10-K and other periodic filings with the SEC.

For today's call we have with us Nelson Sims, President CEO;

Denis O'Donnell, Chairman;

Denison Genge, Vice President and Chief Financial Officer, and Ford Lynch, Senior Vice President of Sales and Marketing.

At this time I would like to turn the conference call over to Nelson Sims.

Thank you Julie.

Good morning everyone and welcome to Novavax's fourth quarter 2003 conference call.

As Julie mentioned, joining me today are Chairman of the Board Denis O'Donnell, our Chief Financial Officer, Dennis Genge; and our Senior Vice President of Sales and Marketing, Ford Lynch.

Before I turn the call over to Dennis Genge to review our financial performance, I would like to take a few minutes to review the launch status of Estrasorb, the first prescription topical emulsion for estrogen therapy and also update you one some other recent developments.

Since FDA approved our product on October 9th of 2003, we have made significant progress readying, manufacturing, and marketing for our launch of Estrasorb expected to begin in late March.

Our 24,000 square foot manufacturing facility in the Cardinal Health Facility in Philadelphia has now been substantially validated and on February 27th we filed our CBE -- that is Changes Being Effective for the FDA approval of our manufacturing scale up.

We continue to build inventory and as previously slated we plan to begin shipping product in the final week of March and should have the wholesalers and retail pipeline stock by mid-to-late April.

Of course, all of this assumes a positive site inspection by the FDA.

On the sales and marketing front, we have made significant progress.

We continue to work with our marketing partner, King Pharmaceuticals, Inc., to prepare our sales forces, and our marketing plan is also being finalized.

For competitive reasons, we will not address many of our strategic initiatives in this call.

However, let me assure you that the sales and marketing team that we now have in-place includes seasoned executives in our leadership positions.

And I am confident with their ability to execute our marketing and sales plan.

Ford Lynch will provide a brief update on marketing, later in this call.

While much of our attention is focused on preparing for the Estrasorb launch, we have also announced several significant advances since our last quarterly conference call.

In November of 2003, we completed a public offering of 4.5 million shares, raising $25.9 million.

Based on our current marketing plan, we should have sufficient capital to take us through the launch period.

In the fourth quarter, we completed the transition of our St. Louis operations to more efficient operational sites.

When we acquired Fielding in 2000, the primary objective was to obtain an OB/GYN sales force and an OB/GYN product line.

We concluded that the St. Louis facility was not strategic and significant savings were available through consolidation with our corporate headquarters and our distribution partner, Cardinal Health.

I am extremely pleased with the seamless transition and the reduced overhead.

Also we recently welcomed Dr. Gail Smith to Novavax.

As our Vice President of Vaccine Development, he is currently prioritizing investments in our vaccine portfolio.

Gale is an authority on vaccines and specifically the insect cell technology used in many of our vaccine candidates, including HIV.

I look forward to having Gale join us on a conference call in the near future, to give everyone an update on the progress of our vaccine business.

As I have said before, I continue to believe that our vaccine technology group is one of the more undervalued assets at Novavax.

In addition to our HIV vaccine candidates utilizing our virus-like particle platform technology, we're also focused on opportunities such as, SARS, influenza, and the E-selectin intoleragen for the prevention of stroke.

Again, I will have Dr. Smith join me on a conference call in the near future.

Now back to Estrasorb -- for the approval of Estrasorb back in October of 2003, it was important in that it served to validate our platform technology for systemic topical delivery.

As a result, we have moved ahead to identify additional drugs for micellar nanoparticle platform.

We currently believe that the time for proof of concept to an NDA approval is possible in the 48-month timeframe, plus or minus a few months.

Our plan includes a two-pronged approach as we move forward with the commercialization of this platform.

First, we are vitalizing our prioritization and investment of our internal developed hormone candidates.

Second, we're targeting drugs that address large markets that could benefit from this unique delivery mechanism.

In fact, our business development team is working with outside advisers to identify compounds with the best profile for technical success.

In addition, we're screening those compounds with the highest technical probability in order of commercial success -- that is those compounds with the largest sales potential.

As soon as we lunch Estrasorb, we will step up our contact plans to meet with large pharmaceutical companies.

We hope that we will be able to sign at least one agreement to put an outside party's ethanol-soluble drug, in our micellar nanoparticle platform in 2004.

Finally, we had another solid quarter in product sales.

For additional detail on our financial performance, I would like to turn it over to Dennis Genge, to review our financial performance.

Thanks Nelson and good morning everyone.

I am pleased to report that for the fourth quarter of 2003 we reported total revenues of $4 billion, compared to total revenues of 2.5 billion for the prior year period.

Product sales were 3.7 million in the fourth quarter of 2003, compared to 2 million in the fourth quarter 2002, an increase of 1.7 million or 85 percent.

The increase was due to the recent introduction of Novanatal and Novastart, our two new prenatal products, as well as increased sales for AVC Cream Gynodiol.

While this signifies that there is good demand in the marketplace for these products, we believe that some of the increases may have been a result of some other overstocking of AVC and Gynodiol by our distributors in anticipation of year-end price increases which did not occur.

Due to this buy-in, however, we will probably see lighter sales than originally planned for sales of AVC and Gynodiol in the first quarter.

We also reported $284,000 in contract research revenue for the fourth quarter, a decrease of 44,000, compared to 328,000 in the prior year period.

For the full year of 2003 total revenues were $11.8 million, compared to total revenue of 15 million in 2002, a decline of 3.2 million.

Product sales declined $2.6 million, compared to 10.2 million in 2003.

The decrease was primarily due to a decline in prenatal vitamin revenue, resulting from the effects of generic competitive pressure against our Nestabs products.

This decline was partially offset by higher sales of Gynodiol and the fourth quarter introduction of our new line of prenatal vitamins.

Revenues for 2003 also included $1.3 million from research and development contracts and $275,000 in milestones and licensing fees.

Overall operating expenses for the three months ended December 31st increased $517,000 or 8 percent to 7.1 million, versus 6.6 million in the 2002 period.

Selling and marketing expenses for the quarter were $1.7 million, compared to 2.2 million in the fourth quarter of 2002.

This $.5 million decline was primarily due to cost-cutting initiatives and sales and marketing pursuant programs related to the delayed launch of Estrasorb last year.

With the approval of Estrasorb, we will see a substantial increase in our marketing and selling expenses beginning in the first quarter of 2004.

General and administrative expenses for the fourth quarter where $2.4 million, compared to 2 million in the fourth quarter of 2002, a 19 percent increase.

This $377,000 increase was primarily due to third and fourth quarter additions of senior management personnel, as well as increased third party costs, as compared to the fourth quarter of 2002.

Research and development expenses where 2.3 million in the fourth quarter, compared to 1.7 million in the prior year period.

This $695,000 increase was primarily due to the additional costs being incurred at our Philadelphia manufacturing facility, in preparation of our product launch, offset by a decrease in clinical trial expenses from 2002.

Total operating expenses for the full year were down 24 percent or $8.7 million to 27.8 million, versus 36.6 million in 2002, as a result of various cost-cutting initiatives during the year.

Selling and marketing expenses declined $5.1 million or 31 percent to 7.8 million, compared to 12.8 million for the prior year.

G&A expenses declined 8 percent or 721,000 to $7.9 million for 2003, from 8.7 million in 2002.

And research and development expenses where $10.1 million, compared to 11.5 million in the prior year, a decrease of 13 percent or 1.4 million.

Interest expense for the fourth quarter was $21,000, compared to $252,000 in the fourth quarter of 2002.

This decline was a result of the capitalization of some of our interest expense related to the buildout of our manufacturing facility in Philadelphia.

For the year, interest expense was 1.2 million, compared to 1.1 million in 2002.

On the bottom-line, we reported a net loss of 3.1 million or 10 cents per share for the quarter.

This compares to a net loss of $4.3 million or 18 cents per share in the fourth quarter of 2002.

The $1.3 million decrease and the net loss year-over-year was related to the increased product sales, offset by the increases in operating expenses.

Average shares outstanding for the quarter were 32.3 million, compared to 24.7 million in 2002, primarily due to the private placement of 4.75 million shares in February and the public offering of 4.5 million shares in November of 2003.

For the full year, our net loss was 17.3 million or 58 cents per share, compared to 22.7 million or 93 cents per share in 2002, an overall decrease of $5.4 million.

Looking briefly our balance sheet, we ended the year with $27.6 million, compared to 6 million at September 30th, and 3 million at the end of 2002.

The increase was due to the $16.6 million equity placement and the $25.9 million public offering.

This increase in cash along with the reduction in current liabilities compared to last year also improved our working capital from 378,000 at the end 2002, to 27.2 million at the end of 2003.

With that, I would like to turn it back to Nelson.

Thank Dennis.

Before I open the call for questions and answers, I would like to ask Ford Lynch to take a minute or to to briefly update you on where we are on the marketing front, with regard to the launch of Estrasorb.

Ford?

Thanks Nelson.

Well, we're ramping up for the launch.

We recently announced our wholesale acquisition cost -- it is going to be about $39 for a month's supply.

I think you realize, this is a slight premium over the leading patch products.

But we sincerely believe we're offering a new approach to estrogen therapy.

You've got to remember, this is a unique delivery system and it's an intriguing alternative for the treatment of VMS.

And I think most importantly, it supplies a consistent and physiological level of estrodyol (ph) over a 24-hour period.

By the way, the launch is actually a series of events and our plans currently call for product shipments in late March, through early April and this will be into the wholesale and retail channels -- both chain and independents.

That's well on its way shortly.

We completed our market research -- both attitudinal and message testing.

And I think we've developed a product message that will really resonate with the medical community.

In addition, I think it is important to remember that women will find this delivery technology very, very appealing.

Women like lotion, so this one's a natural and scented -- moisturizing emulsion-like lotion.

Additionally, we have increased our sales force to coincide with the King partnership.

We completed a rather sophisticated targeting drill and we're going to populate our territories with high potential physicians, predominantly OB/GYNs.

Our sales force training is well under way.

The folks have completed two of the three learning modules and then taking a series of tests on women's health, on menopause, and product specifics.

We really believe that this well prepared and motivated force will be one of the key factors to our success.

The promotional materials -- quite a number of them are underway -- the development is underway and they will be ready for the launch -- always, as you know, bumping the road on this type of thing.

But we are tracking it closely.

And we're sure they will be ready.

Additionally, we have got the print ad campaign ready to go and we have no doubt you will be hearing a lot about Estrasorb.

Incidentally it is good to mention that we have acquired a prominent position at the upcoming American College of OB/GYN -- the ACOG -- in Philadelphia.

We have got a primetime symposium that is going to coincide almost perfectly with the physician launch.

So we will have a lot of (indiscernible) out there amongst the OB/GYN community.

We have developed a fairly extensive medical infrastructure to support of our programs.

In fact, we've just completed a meeting with our academic advisers and it's a group of very well-known leaders in women's health and it is chaired by James Simons, who I think you know is the current President of the North American Menopause Society.

We have got our national sales meeting scheduled for April and the focuses, as you can suspect, will be on the material rollouts, the reviews, and additional training and message delivery.

So, I'm really excited to report over all that it is full-speed ahead and we're ready for the completion of the launch by late April.

Thank you.

Nelson?

Thanks Ford.

In closing, I just want to reiterate that every team member at Novavax is working extremely hard to make the Estrasorb launch a big success.

I'm extremely proud of our team and I look forward to updating you on the launch as it that approaches.

Novavax is truly unique in that we are one of the few specialty biopharmaceutical companies that have brought a product from concept to commercialization.

We believe that our micellar nanoparticle technology will be important in the future of tropical drug delivery and that this platform technology will ensure that Estrasorb will be one of the first of a long list of products to use this technology.

I feel extremely fortunate to be involved with a company such as Novavax, with such an exciting future.

I would now like to turn the call back over to our operator for questions and answers.

Thank you.

(Operator Instructions).

Ken Trbovich, C.E.

Unterberg, Towbin.

Good morning gentlemen.

I wanted to ask a quick question.

Nelson, if you could -- I know you mentioned that the launch schedule assumes a positive facility inspection.

Have you determined whether or not that is going to be required?

As you know -- I'm going to give you a high-level description.

You either have to file what is known as a CBE-30 or a different filing, which is a CBE.

Our manufacturing scale-up qualified for what is the CBE filing, which means that we filed -- we can actually go to launch without an FDA inspection.

However, they have the right to come in at any point in time -- and of course, they could cite either the fact that everything looks fine or deficiencies that you would need to correct.

So we are moving forward as though we have got a facility that is well prepared.

We are producing product and putting it in inventory.

I would be surprised, however, if the FDA doesn't come in with any inspection prior to our launch.

So we expect them, we're ready for them, and hopefully we are well prepared and have everything in order for the FDA.

Okay.

But while you expect it, it's been a couple weeks and they have not notified you yet.

Actually as I got a phone call this morning -- early this morning -- there was an intention for them to come in soon.

We do expect them soon.

Okay.

Then Ford, I know you mentioned you completed the sales force expansion.

Does that mean we are at 80 sells reps at this point?

We are very close -- we're about 73.

And they are all undergoing training.

But we will be up close to the 80, by launch time.

All right, terrific.

Thank you.

I can embellish on that to, having just observed the market team leadership in here.

I'm extraordinarily, pleased with their approach to adding this sales force.

Any sales representative that gets hired by this company is interviewed by all of our top senior marketing and sales management.

So it is a pretty high hurdle to qualify and get in.

Okay, terrific.

Daniel Metyenko, Gartmore Global Investments.

Thank you for taking my question.

Ken took all my questions.

But just a follow-up to his first one.

When do you expect the update to come in -- A -- and then B -- when do you expect the FDA to fully signoff on the facility -- give it the green light or the red light to you guys -- if you could kind of give me the timeline on that?

Thank you.

I expect the FDA to come in any moment -- seriously -- in fact, we hope they do come in any moment.

And how long does this usually take?

In my 30 years in this industry, it can take from 1 day to 30 days.

And I would expect the size and complexity of our facility -- it should not take over one week.

I would expect it to take a number of days.

But I would be surprised if it took over one week.

But again, I do not know.

That is strictly up to the investigator that walks in.

And it depends on how much detail they want to get into.

Sometimes it is a lot.

Sometimes it is a quicker process than we even anticipated.

Anything I would -- any direct guidance I would give you on their due diligence, would just be speculation.

Thank you.

Thank you.

Paul King, Morgan Stanley.

Good morning gentlemen.

Good morning Dennis and Mr. Sims, I haven't had an opportunity to address you in the past.

But I'm very impressed with the job that you're doing at Novavax thus far.

Also congratulations on the earnings, which I know was during a difficult period last year, especially in light of the upcoming launch of Estrasorb.

I think you guys did a tremendous job.

I have multiple questions.

And you can answer them in any order that you would like to.

One, I would like to know what the status is of Androsorb, in terms of further development or further -- I think you're in Phase II?

Also, I have not heard much about smallpox recently.

And whether or not there's any developments there with the NIH.

And also, the third question is King -- King Pharmaceuticals, Inc., had they actually ramped up for Estrasorb and added additional salespeople?

And those are pretty much my questions.

Let me take the first couple Paul.

Thanks for joining the call and your positive comments.

And then I will give Ford the question on where is King with ramping up.

First, the status of Androsorb -- we've completed Phase I with Androsorb for the indication of female sexual dysfunction.

It is a whole different approach than what we took with Estrasorb.

It would be a whole new indication, require extensive Phase II and Phase III clinical programs.

We have actually been to the FDA, submitted a protocol to enter into Phase II -- have not heard back from them as of this point in time.

In the meantime we are taking a hard, hard look at our hormone candidates for micellar nanoparticles to try to determine what is the quickest, best payoff in -- I will call it the interim term -- that term from the next 3 to 6 years.

Androsorb, if we continue down the path of female sexual dysfunction, would be well beyond that point.

And so we have decisions to make and, obviously, they would have to be made in consort with our partner King, because they do have co-marketing rights for Androsorb.

So we are progressing -- lots of decisions need to be made.

Secondly, with smallpox is what I would really like to do -- I hate to do this to you Paul.

But I would like to come back to you with the answer on where are we specifically with smallpox.

Gail Smith, who is an extraordinary scientific leader and an expert on vaccines has just joined us in January.

And he is making a complete analysis of all of our programs in vaccines.

And I think I would best answer that question for you through Gail Smith.

I would be glad to get back to specifically within just -- today if you would like, in fact -- and have him address where we are with smallpox.

Thank you.

But I don't think it's necessary to get back today.

But when an opportunity arises.

And for the entire group, I do plan to have Gail either on the next call or the one after.

But the next call I'm sure will be intensive with Estrasorb since we will have launched the product and -- but I do what you to hear from Gail.

You will be pleasantly surprised at both the assets that we have in our vaccine group, as well as his leadership capabilities and scientific ability.

I will turn it back to Ford -- the question was -- has King ramped up for sales and how are they participating in this launch process.

Okay Paul, King had 80 reps out there.

And we are the ones -- we are matching them with the rep numbers and the territories are cut in the exact same footprint.

So there will be overlapping reps.

On the marketing and sales and training front, we do everything in concert -- in fact, we think we're getting a little synergy out of the alliance -- and that's not, as you guys know, always the case with these partnerships.

But we do everything together, at all of the levels and, in fact, the training, the materials are being developed by both of us.

And the venue where we will do the training, national meetings, and distant meetings, will all be the same.

So we're working very closely with them.

Great.

Thank you gentlemen.

Thank you.

(Operator Instructions).

Ken Trbovich, C.E.

Unterberg, Towbin.

Good morning, again.

Actually, this question is more for Dennis but Nelson you may want to take -- I'm curious, with the $39 wholesale price, what kind of margins do you expect at this point for the product, when you get to full manufacturing scale?

As you know -- I think we have placed in a lot of our publications -- we have put a lot of investment in the facility, up in Philadelphia.

And it is built to reach a capacity or produce a capacity way beyond our need for this current year.

So our margins will not be where we would like them to be, currently, because we have to absorb a lot of that cost into the production level this year.

There will not be, again, industry -- standard industry margins that we can get there probably in the next year of 1.5 years.

I'll embellish that Ken, with, obviously, we're taking a close look at everything we can possibly do, throughout the next 12 to 36-month timeframe to improve margins.

And of course, the two sensitivity points that impact our margins the greatest with the sales volume.

And then secondly moving from what we currently will put the product up in -- in the packets to a multi-dose dispenser, which we're currently working on.

So I think the margins that you will see in the first -- I will take a guess at 18 months, will be somewhat lower than the margins that you could expect to see from about 18 to 24 months on, because both increasing volumes, as well as a put up that we plan to launch for multi-dose which has a much lower cost of sale.

Okay, thanks.

Raymond Clark, J.P. Turner.

Congratulations on the quarter, fellows.

One thing -- with the launch in April of Estrasorb, do you guys have a projected revenue number from launch to year-end?

We do and we have not -- we have purposely not provided any guidance.

We're a small company.

There is a lot of variables in the launch of any product.

I can tell you, there are several people here that have been in the industry over 25 years.

And it is rare that you even see the big pharmaceutical companies accurately hit their forecasts in the first few months out.

So in the spirit of not releasing any unfair guidance, we're going to hold that to ourselves.

Now, with that said, we have done a lot of market research.

And we definitely have a five-year forecast that we feel is about as good as one could possibly produce at this stage of the game.

We have used the best resources that the industry can use for outside consultant help to forecast this product -- and some very sophisticated modeling techniques.

Building up from targeted patients with menopausal symptoms, using assumptions such as, how many will ever even go to the doctor for treating the assumptions, how many will get prescriptions, then how many would fill, versus not fill those prescriptions -- how many would not refill those prescriptions on and on and on, with very detailed analysis.

And we come up with this forecast.

Surprisingly, as you look at the uptake curve of the current market leaders in the estrogen patch market, you would see some similarities.

For example, Vivaildot (ph) just completed its fifth year from marketing.

And it finished 2003 just a touch under $100 million.

But if you would have gone back and looked at their year of launch, it was a pretty low year.

You now have a lot of hurdles to get over with reimbursement by all the formularies, stocking in some of the chain drugstores which create a pretty big hurdle rate for us.

So with the launching of any new pharmaceutical in the first year, you have some pretty significant hurdles to jump over.

But once all those are in-place though, you'll see a pretty rapid uptake.

For example, Vivel (ph) sold under 5 million the first year but ramped up to 27 the second year and then up to like 56, 57 the third year.

So we have got our expectations under control -- we are convinced this is a $100 million plus potential opportunity.

We even think recent announcements by the closure of the estrogen trial with the Women's Health Initiative creates advantages for us.

So with a new product offering that is -- the market has ever seen one like it -- with the advantages of a transdermal estrogen delivery, versus oral, we are optimistic.

One follow-up -- in the media outlets, are you going to use a -- I know you said you were going to go paper.

Is there going to be any advertising on television?

No.

That is a whole different universe of financial requirements.

We would love to be able to do it.

But we will launch in the third or fourth quarter -- some direct-to-consumer pilot programs.

We do think it is an important element for the success of this product.

In fact, it is what leads us to believe -- in all of our focus groups, as well as the women that participated in the clinical trial, those that have used this product, have been extremely pleased with it.

We are ecstatic with the feedback we get from patients.

So we believe one of the keys to success is helping the general population understand about Estrasorb.

So direct-to-consumer will be important -- television advertising for a company of our size, however, is just not affordable at this point.

Thank you.

Stephen Young, Young & Associates.

Does Novavax's arrangement with King provide for Novavax to share any revenue from overseas sales of the Estrasorb?

And if so, what is the status of overseas approvals and sales?

King does have the right to sales outside of the United States and Puerto Rico.

We have -- we will receive milestone payments when Estrasorb is approved in Europe and in Canada.

And then, from the sales volume in those countries we will receive royalties.

King's strategy has been to focus on an FDA approval, launch the product and then we will begin to focus on other markets in the world.

So they will follow the US.

Does that answer your question?

Yes.

Thank you very much.

Ben Slate, George White & Associates.

I was wondering, Nelson, if you're able to elaborate at all, on potential targets for your micellar nanoparticle technology with external partners?

I know you mentioned you might have one this year.

But is there anything more you can say on that?

Actually not.

I really could not.

It would be disclosing confidential information, as far as other companies are considered.

In fact, as we develop partnerships with companies, it is still a little bit up in the air as to weather or not we will be able to disclose some of those, because it would be competitive information on their behalf.

But we are pretty excited about some opportunities.

We think there are several candidates in the analgesic category.

We have got several people here on staff with expensive neuroscience experience that most of those compounds are ethanol soluble.

We would like to think that not only are we going to focus on compounds that could be delivered with micellar nanoparticles, but also compounds that -- where it would create an advantage for the patient for a topical delivery, versus an oral or an injectable.

Also, we're just in the early stage, but beginning to take a look at the possibility even for nicotine.

Nicotine patches -- that is a pretty competitive market.

But it is a huge market.

And we are beginning to convince ourselves there is room for an alternative to topical, other than the patch.

So we have got several possibilities on our plate right now.

And, hopefully, we can do a deal by the end of the year -- if not the end of the year, certainly in the early part of next year.

But I'm still optimistic we will get something done this year.

Does that answer your question, Ben?

Yes.

Thank you.

Ken Trbovich, C.E.

Unterberg, Towbin.

Nelson, to your point, I guess, about the necessity to get PBMs and national accounts up, in order to get the full distribution of Estrasorb, how are you actually targeting those?

Is there a couple of folks -- are there a couple of folks internally that are focused specifically on gaining acceptance on the formularies and targeting some of these national accounts?

Exactly what are you doing to try to accelerate that process?

Well, I know a lot of that work was going on in the office next to me yesterday.

So, I'm going to let Ford answer that call.

That's very pivotal for us.

We've put a lot of thought into it.

We've got about 40, 45 accounts nationally and they carry about 80 percent of the patient load.

We have already been in contact with several of them.

And we have got the formulary kits all cranked out from the ad agencies etc.

We are working with an outside consultant.

Some other people are ex-Cardinal Health.

So they have a good feel for the business out there.

I think we have got a rope around it.

This is a difficult one because some don't go and review it for up to six months.

But we think that we will get in a very good position second or third Tier -- that's where most of the patches are.

And this was priced at a level -- in fact the whole class was priced at a level where some of these PBMs and HMOs don't put a lot of focus on it.

Most of the average prescriptions that they're concerned with are well into the $100 mark.

So we think we'll get reimbursed without a lot of problems.

Incidentally we meet all the wholesalers next week at their national meeting, which is kind of fortuitous and we've got early information that the wholesale and retail trade is going to be very receptive to this product.

It is a good question.

Does that answer it Ken?

It does, thank you.

And I guess the last question is, if in fact you do plan on shipping the distribution and having a print ad, I assumed that you have got to have confidence that you're going to have substantial volumes in distribution, such that you're not going to end up with an out-of-stock situation?

Well, we would not be truthful Ken, if we didn't tell you we don't worry about that.

I hope we have those kind of problems, actually.

It's a good problem to have.

We will obviously monitor the uptake of this thing very, very closely.

If we are challenged with production requirements in the early days, we have thought through strategies to modify those challenges, so that we would focus more on thought leaders, versus the whole universe of GYNs.

But we are still pretty optimistic that we have got our production running at the level that will be able to supply the market.

And every month we learn so much more.

We're getting better and better at it.

We still have a ways to go.

It would be misleading if I told you were as good as the MERCs and Pfizers and Lillys of the world in manufacturing.

We are not yet.

But we seem to be making good progress.

Okay, terrific.

Thank you.

Mark Menzel, Wachovia Securities.

I guess this is a question for Dennis.

I really have two questions.

With the second arm of the WHI study, it ended two weeks ago.

And you did come out and say something.

But, what is your perspective on where the world is going, with respect to HRT.

And then, Estrasorb itself, if it is leaning towards the patches and the emulsion, how we going to get the word out, besides our sales force, given that we cannot really afford right now to go on nationally TV?

Can we expect to see some articles -- Menopause Magazine, etc.?

Or have you been approached about the subject yet?

I'll direct that question to a couple of different people.

It is always great to have a Chairman of the Board that is a physician.

So I think probably the best person to answer your question about Estrasorb and how it relates to the Women's Health Initiative would be for Dr. O'Donnell to land that question.

And then we we'll let Ford take the marketing part of the question.

Thanks Nelson.

Since the second arm, the estrogen-only arm, of the Women's Health Initiative came out a few weeks ago.

We're seeing a number of things.

One, we're trying not to gloat, frankly, because everything that we said regarding the Women's Health Initiative study and the prospects for Estrasorb and for human estrogen transdermally, has come through since the summer of 2002.

What the results of that study showed -- and we have to remember that the Women's Health Initiative study was not designed to evaluate estrogen replacement therapy for the treatment of menopause.

It was designed to evaluate what would happen to women who were on long-term -- i.e., a minimum of 10 years of estrogen replacement therapy -- to see what effects that it may or may not have on cardiovascular health, neurologic health, bone density, etc.

It was never a question as to estrogen's success in treating what we call the vasomotor systems -- the hot flashes, the night sweats, the vaginal drying associated with the acute symptoms of menopause.

And what was shown was that the estrogen-only arm, at seven years, did not demonstrate any significant health risks and that the FDA has recommended that estrogen is a safe and effective treatment for the short-term treatment of the vasomotor symptoms associate with menopause.

I think that we all get that.

How do we get the world to understand that -- the physicians?

The world is understanding that now, because there was a dramatic decline in estrogen prescriptions from the outset of the results of that study in the summer of 2002 which has now shown a leveling to even -- in some product categories -- a slight up tick.

It needs to be reemphasized that estrogen is used for the acute treatment of menopausal symptoms, which, frankly, occur somewhere between six months and three years -- is the bell-shaped curve.

And most women are on estrogen replacement therapy for 6 to 12 months -- excuse me 6 to 18 months -- not for 10 years, or 7 years.

One of the most encouraging things that I saw -- to answer your question on how do we get that message out.

Dr. Susan Johnson was a very outspoken critic of estrogen replacement therapy in the summer of 2002.

She was one of the physicians involved in the Women's Health Initiative and she has come out recently in a major health conference and frankly said, she was wrong.

And as a practicing OB/GYN clinician, she said I am spending a good portion of my day educating women on the benefits of estrogen replacement therapy and why they should be taking it for the acute treatment of their vasomotor symptoms.

So the message is getting out.

There are academics around the world -- a lot of this previously had come from Europe.

Now we're seeing it come out of the United States showing the clear benefits of human estrogen 17 beta estrodyol being given through the skin in a transdermal fashion, which is what we have been saying all along.

And so our beliefs, our paradigms, are now being validated.

I don't want to sound too high on the horse, saying we're being vindicated.

But the answer is -- the important thing -- 17-beta estradyol is an appropriate treatment.

It is being endorsed by FDA.

The labels clearly indicate to the patients how they should use this, when they should use it and for what reasons they should use it for.

So we feel very good about the results of these studies that are coming out and we feel very good about the probabilities for Estrasorb.

Okay, so you see combo out, estrogen in, patch, pill, or lotion?

I see estrogen either in a combination meaning that physicians can prescribe a progesterone component to our Estrasorb product, for women who have an attacked uterus or Estrasorb alone for women who have been hysterectomized and use that for the acute treatment of the symptoms associated with menopause.

Have you been approached by any of the people in the industry that -- asking about Estrasorb?

Or any publications out there?

I will turn the marketing part back to Nelson.

I'm going to turn it over to Ford.

But very quickly, yes, we have several publications -- we're in discussions with several of them right now.

In fact one very major publication that has interviewed at least a half a dozen of us and are preparing for a significant article.

So interviews have already taken place?

Those interviews have already taken place.

Beautiful.

Thank you.

Let me take a shot at the DTC.

We've given it a lot of thought and it is very important.

I think the first steps though, is we've got to get around to the doctors.

Because we've seen these type of things backfire -- if a doctor does not know all about the ins and outs of Estrasorb and a woman comes in and asks for it, we will have a lot egg on our face.

So, we've got to make several calls on the doctors to get them up to speed and that they're comfortable answering their patients' questions.

Because it is pretty bad if we embarrass our customers out there.

Having said that, there will also be a significant word-of-mouth about this.

Women love lotions.

They're going to like this one.

And there will be quite a buzz.

We have a early-on campaign for DTC prepared right for the waiting room -- the EUs and all of that.

And obviously the doctor will know about the product if they have got these in his waiting room.

But people will clearly talk about this.

We've done a consumer study and they were the patients on our Phase III trial.

And they said overwhelmingly whether oral or patch, that they would be very interested in staying on the lotion.

Specifically with the DTC, we have got a very intentional series of studies etc. of plant.

And we're going to do a pilot in the late fall, to make sure that we're rolling it out correctly.

Does that help?

Yes it does help.

I've actually spoken with a few pharmacists and described the product.

And they sounded very excited about it -- didn't know anything about it.

But I would like to think that women that need this would be excited about it.

We will blitz the pharmacies for two weeks prior to the launch, so the pharmacists will be informed about it.

There is always a little debate about this.

But most people come down on the side that you want to keep it kind of quiet.

And then you have a major promotion.

But the doctors have got to be upfront first.

Thanks.

Thank you.

Management, at this time we have no further questions.

I would like to say thank you to all, for your listening to the conference call and your participation.

And we look forward, as a team, to deliver superior results to our investors.

Thank you so much.

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