Novavax Inc (NVAX) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the Novavax Incorporated second quarter conference call.

At this time, all participant's lines are placed in a listen-only mode.

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

If anyone requires assistance on today's presentation, press the star followed by the zero and an operator will assist you.

As a reminder, this conference is being recorded Tuesday August 10, 2004.

At this time, I will turn the presentation over to Julie Tu, with the financial relations board.

Please go ahead, ma'am.

Good morning and thank you all for participating in Novavax Incorporated second quarter conference call.

By now you should all have received a copy of this morning's press release.

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

With us today from management is Nelson Sims, President and Chief Executive Officer, Dennis Genge, Vice-President and Chief Financial Officer, Ford Lynch, Senior Vice President of sales and marketing, and Denis O'Donnell, Chairman.

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 discussed in the company's Form 10-K, and other periodic filings with the SEC.

So, at this time I would like to turn the conference call over to Nelson Sims.

Please, go ahead, Nelson.

Thank you, Julie.

Good morning and welcome to the Novavax's second quarter 2004 conference call.

This morning, Dennis Ford and I would like to cover the following agenda.

First, review our second quarter and year-to-date financials.

Second, update you on the progress following the King's transaction announced on July 19th.

Third, report on our progress with the Estrasorb launch.

Fourth, provide information on three new Micellar Nanoparticle development programs, and fifth, embellish on our recent announcement to relocate our corporate headquarters to Malvern, Pennsylvania.

Before we dive into the topics I just identified, I would like to look back and briefly comment on the progress we made during the past 11 months.

I personally arrived here at Novavax last September, and following a few weeks of additional due diligence, found plenty of opportunity to better position Novavax for the future.

With the help of many dedicated Novavax employees, we have achieved significant progress in what I think is a relatively short period of time.

Some of our teams accomplishments would include the following 7 items.

First, and importantly, the approval of Estrasorb, our first product utilizing our proprietary Micellar Nanoparticle technology.

Second, the completion, and then the FDA approval, of our Philadelphia manufacturing plant.

Thirdly, the development of a strategy to create a more functional and efficient organization.

We were a company of less than 120 employees, 65 of whom were in the sales field.

Yet, we were spread out in 6 facilities in 4 states.

In a matter of a few short weeks, we will have completed our facility strategy by reducing the number of facilities and headquartering our vaccine business in Maryland and our women's health and drug delivery business in Malvern, Pennsylvania.

I expect our efficiency and our productivity to greatly improve as a result of these strategic initiatives.

Fourthly, our attention to manufacturing had all but eliminated our Micellar Nanoparticle research and development programs 11 months ago.

Today I'm pleased to report that our micellar nanoparticle research and development is once again moving forward and during today's call you will hear about the beginning of 3 new programs.

The Novavax leadership team had significant capabilities gaps 11 months ago, marketing, sales, manufacturing, human resources, drug development, to name a few.

Today our team is in place and I'm proud to say that it's an exceptional team of talented executives positioned to build a strong and successful organization here at Novavax.

Sixthly, we have successfully raised $67 million in additional financing to support the launch of Estrasorb and other strategic initiatives.

And finally, the 7th item, we finally had addressed a business arrangement with our Estrasorb partner, that in many ways was not favorable for Novavax.

On July 19th, we announced our reacquisition from King of the worldwide rights for Estrasorb and other women's health products.

A truly transformational event, and one that's clearly accretive to earnings.

I could list more and will do so in the future, but needless to say, I'm pleased with our team's significant progress.

Let me now turn the microphone over to Dennis Genge, and review our financial performance for the second quarter and year to date.

Dennis.

Thanks, Nelson, and good morning, everyone.

For the second quarter of 2004, we reported total revenues of 3 million compared to total revenues of 2.3 million for the prior year period, a $730,000 increase.

Of that total, our product sales were 2.7 million, compared to 2 million, an increase of 700,000 or 36%.

The increase in product sales was primarily due to the commercial launch of Estrasorb, with initial orders to wholesalers generating sales of 1.5 million in June.

Sales of Novanatal and Novastart, our newest prenatal vitamin products, continue to grow, however, sales in the vitamin category overall declined by 700,000 due to the effects of generic competition.

The vitamin products revenues for the quarter were also below first quarter results, and based on these current trends we now anticipate our third and fourth quarter vitamin revenues will be lower than the 2003 quarterly revenues.

Ford will expand on this later in the call.

For the second quarter, we also recorded 286,000 in contract research revenue compared to 253,000 in 2003.

For the first six months of 2004, total revenues were 6.2 million compared to total revenues of 3.5 million for the prior year period, an increase of 2.7 million or 79%.

Product sales increased 2 million to 4.9 million, again led by the $1.5 million launch of Estrasorb, as well as half million dollar increase in sales of prenatal vitamins compared to 2003.

Revenues for the 6 month period also included 1.2 million from research and development contracts, and 125,000 in milestone and licensing fees.

Overall, operating expenses, including cost of products sold, for the three months ended June 30th increased 3.4 million or 50% to 10.3 million versus 6.9 million for the 2003 period.

Cost of products sold was 1.5 million in the quarter, an increase of 1.1 million compared to 400,000 in the prior year period as a result of the launch and sales of Estrasorb.

Our cost of product sold as a percentage to sales increased from 20% to 57%.

In the initial period of Estrasorb sales, the cost of sales percentages will continue to be temporarily high until we increase production volume to offset and absorb the fixed cost of depreciation, amortization, facility costs and personnel related to supporting the facility to meet FDA and GNC requirements.

We will seek continual improvements to our Estrasorb cost-to-sale percentage particularly over the next year as we one, improved efficiency from the initial months of production which has already occurred.

Two, increase our volumes of production and further absorb the fixed costs.

Three, move to higher speed packaging equipment ,which is currently in testing and should be in place in the fourth quarter.

And four, design and market alternative packing solutions such as the bottle.

Selling and marketing expenses for the quarter were 5.6 million compared to 1.9 million of the second quarter of 2003.

This $3.6 million increase reflects planned expenditures associated with the launch of Estrasorb including advertising, promotions, samples, market research and sales rep training.

With the termination of our co-promote agreements with King, which resulted in the addition of 50 sales personnel and full P&L responsibility for marketing costs, we will see increases in selling and marketing costs in future periods.

G&A expenses were on plan for the second quarter and rose 14% to 2.1 million compared to 1.8 million in the second quarter of 2003.

Primarily due to increased investor relations and legal support related to the launch of Estrasorb and other strategic corporate initiatives.

Research and development expenses were 1.2 million in the second quarter, compared to 2.8 million in the prior year period.

This 1.6 million decrease was primarily due to manufacturing startup costs, which had previously been classified under research and development prior to the launch in April, and are now being accounted for under cost of products sold and inventory.

For the six month period ending June 30, total operating expenses, including cost of products sold were up 37% or $5 million to 18.5 million versus 13.5 million in the prior period.

Over 70% of fees increases occurred in the second quarter, which we had previously discussed.

The cost of products sold increased 1.1 million from 600,000 to 1.7 million relates to the Estrasorb launch, the cost of products to the percentage of sales increasing from 22% to 36%.

Selling and marketing expenses increased 4.1 million from 4.3 million to 8.3 million.

Again, related to launch activities.

G&A expenses increased 400,000 to 4.1 million for the six month period, from 3.7 million for the first six months of 2003.

And research and development expenses were 4.3 million, compared to 5.2 million the prior year period, a decrease of $900,000.

Interest expense for the second quarter was 377,000 compared to 396,000 in the second quarter of 2003.

And for the first six months of 2004, interest expense was 739,000 compared to 797,000 in 2003.

Thus, in total, we reported a net loss of 7.7 million, or 22 cents per share for the second quarter, compared to a net loss of 5 million, or 17 cents per share in the second quarter of 2003.

Our net loss for the six month period was 13 million, or 37 cents per share, compared to 10.8 million, or 38 cents per share in the first six months of 2003, an overall net loss increase of 2.1 million.

Our average shares outstanding for the quarter and six month period increased to 34.8 million, due to the sales of our 4.5 million shares of stock in November 2003.

We ended the quarter with 15.6 million of cash, compared to 27.6 million at year end, and with working capital of 14.5 million, down from 27.2 million at year end.

However, our July financing transactions, in connection with the King transaction, which I will review in a minute, added net cash for approximately 23 million.

Thus, our pro forma cash position would have been almost 39 million at June 30th, with total shares outstanding for approximately 39.6 million shares.

Not including the July financings, we expect our operational net use of cash to peak in the third quarter as marketing and manufacturing expenses come due, and we await receivable collections for Estrasorb sales.

For the next six months our monthly use of cash from operations will likely average around $3 million, which now includes the additions of 50 sales personnel and marketing expenditures.

The monthly net use of cash should decline in 2005, but will obviously depend on product sales, development activities, and licensing, and/or partnership agreement.

Before I turn it over to Ford, to report on the progress of the Estrasorb launch, let me review the components of the King and financing transactions that occurred in July.

As most of you know, with King divesting itself of its women's health business, on July 19th we were able to reacquire all rights to Estrasorb, including International rights, and all rights to future women products that would use our Micellar Nanoparticle technology.

We also redeemed all 40 million of the notes held by King, and hired 50 members of their sales force.

As part of the transaction, we paid King a net of 14 million in cash, and issued approximately 3.8 million shares, which at the time of closing had a market value of approximately $18 million.

Looking ahead, accounting-wise in the third quarter, these transactions will result in a one time gain of approximately $18 million, and the recording of an intangible asset of between $8 million and $9 million on the balance sheet.

Concurrent with this transaction, we executed a $40 million financing through the private placement of $35 million in convertible notes, and the issuance of 952,000 shares of stock at 5.25 for a total of $5 million.

Taking into effect both transactions, we've thus increased our net cash position by about $23 million, and reduced our debt by 5 million.

We also expect the King transaction will accelerate the break even point for Estrasorb, and will greatly increase the earnings potential of Estrasorb for Novavax in the future.

With that I would like to turn it over to Ford.

Thank you, Dennis.

Before we talk about the Estrasorb update, let me just take a minute to talk about the King's transition and then a little bit on the vitamins.

Okay?

First, on the King transition, and we know this is a very competitive marketplace and we will work quickly to fully integrate the sales team of King.

You recall, we closed the King deal on Friday, the 16 of July.

Made offers to the 50 King representatives over the weekend and all accepted.

The sales reps flew to Chicago on Monday evening, the 19th, and spent Tuesday transitioning to the Novavax sales force.

This one day meeting allowed us to provide additional Estrasorb training.

The reps were in the field on Wednesday, the 21st of July, and fully equipped with Novavax's business cards, automobiles, territorial operational binders, et cetera.

So, there was a swift, and hopefully, seamless transition.

Let me just take a minute or two to talk about the vitamins that Dennis had mentioned earlier.

The two issues with the vitamin lines, specifically, let's talk about Nestabs, the older of the two.

The product has suffered from forward buying in anticipation of price increases.

In a recent, steeper than expected, generic erosion.

To remedy this situation, we installed a manager of trade relations, who's put protocols in place at both SPS, which is our cardinal wholesale distributor, two wholesalers, and at Novavax itself, to monitor wholesale of purchases, returns, and keep most importantly, keep the inventory levels transparent to us.

We were also looking at opportunities with a patentable and prenatal vitamin line.

More importantly though, on the short term, we're increasing emphasize on Nova stock, a pre-conception vitamin still patented that we believe can add to revenues in the remaining two quarters.

Also, we will put in, where regionally appropriate, an extensive written campaign for Novanatal.

Let me move on now to a promotional update with Estrasorb, as Dennis had mentioned.

We have completed the distribution in June, and are now in all major wholesalers and retail outlets with broad national distribution, allowing our sales team to continue full promotion.

The manpower we have in the field is competitive and actually exceeds the total effort before the King transaction.

If you consider that the King reps are now only detailing Nova products -- Novavax products and spending 90% of their time on Estrasorb specifically.

Our market spending is also competitive, matching or exceeding our transdermal competitors.

As an example, we will shortly support the mailing of CME materials from our widely attended [ACOG] symposium to over 40,000 Ob-gyn's.

Incidently, this weekend we are hosting another conference on Estrasorb, and we expect over 150 physicians to attend.

In addition to the marketing efforts, we have placed on managed tier team, nationally and to ensure adequate formulary availability.

Today, we have five weeks of IMS data post-national launch, and are pleased to report that our earlier results have been encouraging.

With that said, there's always opportunity to accelerate and enhance the efforts.

Nonetheless, in the first month of promotion, we were ahead of the [Viodel] dot launch.

I would also like to comment briefly on the estrogen marketplace.

We are entering a market with Estrasorb at a [repicious] time when we are starting to see a recovery in transdermal sales.

There has been a trend towards using estrogen sensors, Estradiol, that are identical to those produced by a woman's body, and, switching to transdermals, which, of course, have the benefits such as avoidance of first past metabolism.

All of this bodes very well for Estrasorb, which meets the needs of today's women who want a discreet, effective, and aesthetically pleasing therapy.

Now, as we promote Estrasorb we are finding that our message indeed resonates in the marketplace.

Both clinical advantages and patient appeal messages for Estrasorb are well received.

On the patient front, a recent survey from our preference program gave Estrasorb an 85% overall positive rating, and as you recall, we've had similar surveys in the past that have confirmed this.

Incidentally, 90% of the folks that were taking Estrasorb on our patient preference study said that it fits daily into their routine, very easily to use, et cetera.

We are seeing adoptions by physicians across the country.

The adoption is broad, throughout the physician population, and very importantly, it's geographically dispersed.

We are also encouraged by patient switching.

In fact, over half the Estrasorb patients are women that were previously on other forms of estrogen.

That means that patients who are dissatisfied with current therapies are switching to Estrasorb.

Switching is coming about equally from the two market leaders in both pills and the two market leaders in patches.

This is a higher level of switching, incidentally, from the oral market than we had anticipated in the past.

So, in summary, on overall execution to date, and one can always do better, we believe we are on track.

The message is crisp, we are hitting our physician call targets, sample usage is strong and patient surveys are positive.

I'm confident our launch will continue to be successful, and our sales and marketing programs will deliver.

With that said, I will turn it back to Nelson.

Thank you, Ford.

Well, so far we have completed a review of our second quarter and year to date financials.

We've updated you on the progress of our King transaction, and that transformational event, and Ford just updated us on our sales and marketing efforts, specifically for Estrasorb.

I mentioned two other things that I wanted to comment on in this conference call, so I will move on to those right now.

One of those was our topic for discussion, is our progress with our Micellar Nanoparticle product development under the leadership of Dr. Rahul Singhvi and Dr. Craig Wright.

Our strategy has been focused on the following three items.

One, better defining the criteria for technical success, and screening the market of approved drugs to identify our best targets.

Secondly, we then prioritize those targets, identified according to the greatest market potential.

And finally, I'm pleased to report, that we have selected three of our top priorities and now have those drugs in testing in our California lab.

We plan to identify for those specific drugs -- for identify for you those specific drugs once we have successfully achieved blood levels in animals.

For each one of these molecules, we need to complete a three step process before we enter the clinic.

First, we need to determine the solubility, or answer the question, can we put this drug into our Micellar Nanoparticle platform?

Secondly, is a stability question.

Will this product stay in the emulsion and is it stable?

And finally, can we achieve blood levels in animals with the transdermal application?

Those three steps can be done in as little as four to five months.

And then we would be ready to go into Phase One PK studies.

I will tell you that one of the drugs is in the area of women's health.

One is an analgesic, and one is an OTC product.

We're excited about the possibilities and look forward to keeping you updated.

I do want to emphasize that I continue to believe that the true value of Novavax lies in the future, our pipeline.

Finally, I want to embellish upon our recent announcement upon our moving to Malvern, Pennsylvania.

This decision was part of our strategy to reduce our total number of facilities, and improve our operational costs and efficiencies.

Philadelphia was a serious contender for the location to consolidate our women's health and drug delivery business, since our manufacturing facility was already up and running in Philadelphia.

We did evaluate several locations, including Maryland, and in the end elected to locate our vaccine headquarters in Rockville, Maryland, very close to the NIH, and our women's health and drug delivery business in Malvern, Pennsylvania.

We have, intentionally, kept our Columbia head count to a minimum, in the event we elected to relocate.

As a result, we will move 5 or less employees that were permanently located here in Columbia, Maryland.

Cost is always a concern with this management team, and for all of our initiatives, and I'm pleased to tell you that the state of Pennsylvania helped to make this decision an easy one by offering us a significant grant, low cost loans, and training funds for our organization.

Dennis could embellish further on those if asked, but they nearly totalled $1 million.

As a result, cost of our move will not impact our P&L this year.

In addition, the cost of leasing our new building is extremely favorable.

In other words, we got more for less.

For those living in New York City and Boston, or other high rent areas, you would be impressed at the low cost of our new facility.

Our lease cost will be less than $7 a square foot.

The facility offers room for adequate growth in office space, allows for build out of our new Micellar Nanoparticle development labs, and provides adequate space for additional manufacturing, when required, for our new products.

In addition, we have the right to capture an additional 17,000 square feet in the same building if needed.

I want to express my appreciation to the governor's office of Pennsylvania for their support.

Finally, the move places us in one of the most robust pharmaceutical corridors in the United States.

Significant talent resides in the area to build our future organization.

In fact, two of our Vice Presidents hired within the last six or seven months, were already located in the Philadelphia area and that would be Ray Hage, our VP of Marketing, and Rahul Singhvi, our VP of Manufacturing and Product Development.

In closing, I'm pleased to say, that we met all of the milestones we set targets for during our last conference call.

We told you that we needed to increase our sales force, which now stands at 130, of which we hired 50 from the King organization.

We completed our training programs, and we held our national sales meeting.

We shipped commercial quantities of Estrasorb into distribution beginning in May, completing the wholesale distributor on June 22, with product available in retail pharmacies across the country following that date.

We generated and prepared for distribution, papers from the ACOG clinical symposium to the Ob-gyn community nationwide.

We've made progress on identification of additional compounds for preclinical work in our Micellar Nanoparticle platform.

We have, as I mentioned, three new products under investigation.

So, to finalize our comments on this conference call, I would also like to out line 6 milestones for you to measure us by during the next quarter.

First, is Estrasorb, in fact we could say all 6 would be Estrasorb, it's so important.

We will continue the successful launch.

We will accelerate our sales growth, and we will identify an International partner and look for alternative packaging solutions.

Secondly, we will continue to work on improving our manufacturing margins by better structuring future partnerships, improving our manufacturing costs, and consolidating facilities we have significant room for improvement.

We will complete the transition to our new corporate headquarters, for our drug delivery business and women's health business.

Fourthly, we will make additional progress on the three new compounds outlined in this discussion.

Fifth, we will identify a pharmaceutical partner that has a molecule that would benefit from our Micellar Nanoparticle platform, and sign an agreement, hopefully by year end, but, probably, more realistically, early '05.

During the second half of the year, we will also report to you on our significant progress with our vaccine programs, which, of course, ar lead by Dr. Gale Smith.

In closing, everyone at Novavax is focused on the future, with the reacquisition of Estrasorb, the rights to our entire women's health portfolio, and additional funds in the bank, it is indeed a new era for our company.

We've made tremendous progress over the last year, and we have plans in place to make even greater strides in the next 12 months.

We do not, however, believe that our current stock price reflects the value of this business, our technologies, or the opportunities we have in front of us.

We are excited about the future and we are committed to executing the strategies we have in place.

Operator, I'd be glad to take questions.

[Operator Instructions] Our first question comes from Scott Henry with Oppenheimer.

Please go ahead with your question.

Thank you.

If I could get a little clarification on some of the upcoming events you guys have.

Do you have any thoughts on what sort of timeline we could have for an EU partner, I guess one, in terms of signing someone, and two, how much future clinical work would be needed, as well as any thoughts how long it could take to perhaps get a bottle or pump formulation in development?

Thank you, Scott, and good morning.

Scott, I would be glad to give you more specifics on a EU partnership if I had them.

I can tell you that we have engaged in discussion with a very serious partner.

It's an exciting opportunity.

We also have initiated regulatory review required for submission in a lead country in Europe.

But I, just at this point in time, do not have specifics that I can share with you about timing and regulatory approval in Europe.

Believe me, as soon as I do, I will be glad to share those with you.

And, I think it would be inappropriate to disclose who the partner is that we are currently talking to, and because we still have several other partners that we are in the process of contacting, and we would like to have at least, for a short period of time, some parallel discussions.

But I'm pleased with the progress.

That sounds fair enough.

I'm just curious, but it sounds like a filing, is mostly the paper work to get it through, and we wouldn't expect any additional clinical data necessary?

I actually -- I do not know the answer to that question.

We certainly are hopeful there will not be additional clinicals required.

If we find out that there are, I would remind the audience that the clinical programs for this technology are relatively quick compared to what we normally see in the pharmaceutical industry.

So, we're not talking about clinicals for periods of years.

It would be clinicals for months.

But, it's unclear whether or not they would accept the U.S. registration, or we would have to provide an additional clinical.

I will keep you in tune to it.

Thank you, Nelson.

You also asked a question, Scott, about a bottle?

Was that your second question?

Correct.

Just in terms of expectations.

I'll tell you where it is.

Dr. Singhvi is spearheading that project, with the help of many.

As you know, we do have the manufacturing equipment ready in the Philadelphia site.

We do have a bottle that we think will work.

The question that we ask ourselves at the moment, is it the optimal bottle?

We do think it will work, and we do think that we could have it ready for submission in the first quarter, or certainly early '05.

One of the, I think, biggest outstanding questions we still would have is, is it a prior approval requirement by the FDA?

Or will a CBE-30 suffice?

Certainly, if a CBE-30 suffices, you will see it before the third quarter, if a prior approval, then it probably be a six month approval time frame.

Which means it will be available in the latter part of '05.

I will tell you it is certainly in the top three priorities of this company to keep that program on track and make certain it's successful.

Scott, this is Denis O'Donnell.

You understand this, but for the benefit of some our shareholders who may not be as regulatory savvy, regarding a European, or outside the United States registration, whether the country accepts the U.S.

FDA, NDA approval, or requires us to do some additional, you know, minor work, that does not preclude entering into a licensing agreement with a partner,you know, well before that, so none of that would hold up the potential signing of a licensing agreement with a partner outside the U.S.

Thanks, Denis, very good point.

Thank you.

Thank you, gentlemen.

Our next audio question comes from Paul King with Morgan Stanley.

Good morning, gentlemen.

Congratulations on your progress in the quarter, and keep up the good work.

I couldn't be happier with the way you guys are executing.

My question, I think has very possibly already been answered, it was something that you referenced, Nelson, in your recent comments about alternative packaging solutions.

I presume that what you were referring to was the pump bottle?

Yes, it is, Paul.

Okay.

So, essentially you've answered that question?

Yeah.

The bottle -- we think it's important that we offer both the pack-ettes and the bottle.

The bottle is preferred by some for home use.

But there is still a significant demand for the pack-ettes for travel.

And some just appreciate the unit dose aspect of the pack-ettes.

The pack-ettes are also important for Ford and his team because it provides the sample vehicle for us.

So, a physician could supply a week's supply of the pack-ettes and give the patient time to go fill the prescription.

It's also important to a physician.

They want samples.

Thus far, our newest competitor, Solvay, with their EstroGel, does not have -- they do not have their product available in pack-ettes, and to our knowledge, are not sampling it.

Great.

I have one add on question, just in reference to the vaccine division, and I will hang up and listen to the answer on this.

Could you comment on any initiatives in that regard, and how -- if there is anything possibly out there in the bio-shield that initiated on the part of the government that can come our way.

Just basically, give us an update there and if there are some new developments that you can comment on.

Thank you, Paul.

Thanks for joining the call.

I've commented on the last couple of conference calls about some exciting work that's underway at our vaccine division, and as what I commit to do, is I commit to this audience to have Gale Smith join us for our third quarter conference call, so he can give you the explicit answers that you deserve.

As you know, I will regress just a little bit here, because, as you know, we had several NIH contracts that we're currently working on, two of which were HIV contracts and the NIH, as every organization does, re-looks, occassionally, at their total portfolio, and elected to downsize the portfolio as we all understand the financial pressures our government's under right now.

One of those HIV contracts was ours.

It was one that had just started, so it had no material affect on our cash flow at all.

But it actually, in the end, turned out to be, to actually be what we consider an advantage, in that, it would have consumed so many of our resources in the vaccine group that it's allowed us to focus our efforts over in vaccines on fewer projects that will bring greater value to Novavax.

The one most exciting project I cannot tell you about, because at this very moment we have patent attorneys surrounding that technology right now.

As soon as we feel like our intellectual property position is in place, I will certainly have Gale explain that to you, and, hopefully, that will be in the third quarter call.

Our technology over there are virus-like particle technologies.

We call them functional virus-like particles.

We are focused on a flu vaccine, which is a huge market.

We are focused on manufacturing initiatives that would bring great value to specific vaccine markets.

And we are excited about our opportunities and we think it also provides a significant opportunity for partnership.

I don't think we would have any intention of bringing a vaccine to the market without a partner.

I will commit to you to have Gale here on the next call.

Denis, can you add anything to that?

Denis O'Donnell?

No.

One of the things that Gale, who is heading up our vaccine division, and Gale is not only a world class scientist, but also has operational experience and has a business mind as well.

A number of the NIH grants that we were working on, and historically that's the way our vaccine group has functioned, we are really almost just a fee-for-service, where we were performing a vendor function, manufacturing products for the NIH.

Gale has committed to management and the board, that he would like to get our vaccine division working in parallel with more of the private sector.

So working with the large public vaccine pharmaceutical companies, to work in partnerships, there are some commercial opportunities for Novavax, and not just a government fee-for-service contract.

There are some very exciting technologies, potential products that are in our vaccine division.

We've never tauted the vaccine division.

It's always been the hidden gem.

Many of you know, I refer to it as our call option, or lottery ticket, in which for a division that runs at essentially cash neutral to minimum cost could potentially produce a block buster product at any time.

What Nelson has done with his group, in bringing in the expertise in the vaccine group, we're very excited about the potential of that division.

Our next question comes from Mark Mandell with Wachovia Securities.

Please go ahead with your question.

Good morning.

Good morning, Mark.

How are you?

Good.

I wanted to play a little bit of devil's advocate here.

The stock is now $3.70.

I can't expect you to have the answer as to why the stock is at $3.70, although, you feel that the stock price does not fully recognize the potential that Novavax has in many areas.

I see, within the last month, you raised money at $6.15 on a convertible?

Converts were 6.15 and the common were at 5.25.

Those are, obviously a premium to the stock prices.

Right.

And then individual investor almost $5 million, around $5.25, and then I see that Nelson and Ford bought stock two weeks ago?

I think around 4.50 or 4.55.

How come I don't see other management players stepping up to the plate and putting their money where their mouth is?

Is it that the window has been closed?

I guess, when you have discussions with King, you were prohibited from buying stock, and now that earnings are out, the window is closed.

I wondered, is there is any more participation by management here, you know, buying their own stock?

Good question, Mark.

First, I can tell you, we obviously are bullish on this company or we wouldn't be here.

But, it always helps an investor's decision when an investor sees management put their money where their mouth is.

I can actually tell you that since I joined the company, which would also include Ford, I can't think of a day that we had an open window, until the two day window was open here about two weeks ago.

Because, everything we are doing is so material to, of course, what we are as a small company.

We just --

So, are you saying in the last couple months there is only been a two day open window?

No.

I'm saying that since I have been here, like six or eight months.

And, so, the reason that you saw Ford and I buy -- Ford can speak for himself, but why I bought was simply because we've been locked out.

We were in the King discussion since November.

So, I mean, obviously a very material issue for the company.

So, would certainly block out an insider from trading.

So, once we completed the King transaction, we had a two-day window before the window had to shut again for the pre-announcement of this quarter's earnings.

So, I bought, and Ford bought, and we are executive officers of the company, and all of the rest of the VPs who are not executive officers of the company, that are new with the company, also acquired stock.

So, you are saying other upper management individuals did buy stock during those two days?

That is correct.

It's just that, unless you are an executive officer of a public corporation, it's not a reportable event.

So, Ford and I were the only reportable events.

But Ray Hage, Howard Miller, Al Lichtenstein, Gale Smith, Rahul Singhvi, all of the new team acquired stock.

I won't speak to the quantity because, frankly, I don't know what it is.

Okay.

Well, that makes me feel less worse.

So Mark, you had 5 Vice Presidents, who were newly appointed, who, on their two day window, acquired stock in the company, but they're not a SEC reporting.

The only 2 that would require that would be Ford and Nelson.

They reported it and it was listed in a form 4 filing with the SEC.

Okay.

And I would imagine, after a certain number of days, after this earnings report, the window would open again?

I would assume that.

Thank you.

I just wanted to play devil's advocate.

I have faith in the company.

With the stock at 3 and change, it's a little disturbing down here.

Thank you very much.

Thank you.

Thank you sir.

Our next question comes from Ken Trbovich with RBC Capital.

Please go ahead with your question.

Good morning, gentlemen.

Good morning.

I guess I want to start off with an accounting question, actually for Dennis Genge.

In terms of the inventory numbers, when you qualify something as finished goods, does that mean it's packaged, or can it be in the bulk state?

Bulk state would be raw material.

I apologize, when I mean bulk, I'm talking after blending but before packaging.

Yes.

It would actually be, technically, more whip even the raw materials.

We were moving that so quickly from bulk to packaging that our whip number is just very small.

That's why I'm asking.

I'm a little surprised, obviously, the raw material number is down, and the whip is almost nonexistent.

I was wondering if somebody would like to comment on the pattern.

I know Nelson made the comment about the shipment to wholesalers around June 22.

Could you talk about the order pattern, and what the dating of the product is, in terms of are we at 18 months shelf life, or what sort of dating are these folks seeing when they're getting this product on wholesale.

Ken, it's Ford.

There's 24 month dating on the product we put out on the wholesale market, and we put out about 1.5 million.

Okay.

And in terms of -- when you have say 1.5 million, are you talking about daily doses or monthly therapy?

$1.5 million worth of inventory.

Figure that is now in the wholesale chain and in about 30% of the retail stores.

And I guess that's kind of where I'm going with this.

It doesn't seem as though there is a tremendous amount of inventory in the channel, and I wanted to know how comfortable you guys are with the ability of manufacturing to back fill, if you will, as you continue to ship out.

That's a good question.

There's enough inventory in there right now, but we've shipped into the chain, the wholesale chain, specifically, all we've got.

We've got a small amount of inventory, but we've got the process down now.

As you know, it was the packaging that was giving us some concern in the past, but we think we've got a good rope around it now, and, in fact, we're going to move, eventually, to the larger machine.

And that's sort of slated for later this year, third quarter of this year?

Yes, it is.

Probably fourth quarter.

Fourth quarter.

Okay.

But, we have all three stability lots that we finished on this large [Klocner] machine.

So, the progress is excellent.

And they ran it extremely efficiently.

The yield was excellent.

And I guess, Ford, just to go back and if somebody else wants to jump in I certainly would appreciate it, you went through the discussion of the prenatal side fairly quickly.

And I guess I wanted to make sure I understood where you are going with this.

You talked about two things, and the one part that I got was the idea of monitoring inventory levels in the channel.

And having somebody who is responsible for doing that.

Is that somebody inside the organization?

Or is that a consultant that you're using?

No.

This is someone we have brought on full time.

This is a long going problem, not only with the smaller companies but the larger ones as well.

So now we've got a full time person in here.

We've got some stringent protocols in place.

We'll know the inventories of the three major chains, and we will monitor their purchasing to make sure the channel doesn't get stuffed.

Okay.

And Dennis, a question for you, you made the comment that sales level you would expect to be lower in the third and fourth quarter of this year, compared to the same period of last year for those products.

I looked back at last year and the revenue number for those two products it looked like, or for that whole category of products, looked like about 4.1 million.

Are you willing to give us a ballpark figure?

I was a little surprised with the weak revenue level, given that prescriptions really aren't down all that much in the last three months.

I guess my first answer would be, no, I'm not ready to give a number yet.

Because, we are seeing the same thing you're seeing, Ken, which is a little confusing.

We are still seeing the prescription going through, but we're not seeing the wholesalers ordering.

So we've got a lot more people and efforts going on than we've ever had on this before, including the new person we have in trade relations, and some of the work we're having with wholesalers.

But, we don't anticipate it will hit those levels of the third and fourth quarter of last year, because those levels kind of with a little hindsight, now appear to be fairly high.

We didn't do any promotion.

We didn't have any discounts, but for some reason, the wholesalers seemed to order above normal patterns in the third and fourth quarter last year.

And in terms of new brands, I know obviously one of the strategies in this marketplace, you are constantly having to coming out with a slightly altered formulation in order to stay ahead of the generics, and, obviously, the generics appear to be moving into market that much faster.

I was, sort of, pleasantly surprised to see that Novastart does not appear to have a generic at this time.

I was curious as to how long it might be before we see new brands in that category.

That's a dilemma.

We had not anticipated Novanatal going generic as fast as it did.

Heretofore, people didn't pick off your primary brand until it was $4 million or $5 million.

Novanatal was only in the $2 million range.

There is not an exact answer, but it will be a lot sooner than we would have hoped with the Nova stock.

But right now we are going to push more of our vitamin promotion, which, recall, is only 10% of our effort out there versus Estrasorb.

We're going to push it toward the Nova stock.

And, Ken, Denis O'Donnell, as Nelson mentioned earlier ,with this new group in place, we're also looking at ways to, with our technologies, to make this somewhat of a proprietary so you never -- not never, but it's years before you worry about any generic competition.

To kind of bring something that almost is nonexistent in the prenatal vitamin business and that's a proprietary product.

And I'm curious to that front.

Are these vitamins ethenol soluble?

Some are, and some are not.

Micellar technology is not the only one we're looking at.

We're really looking at more standard technology.

We've got a couple of universities.

One's helping us with formulation and one's helping us with the nutritional aspect.

The ones we are looking at right now are not Micellar technology.

Our next question comes from Scott Henry with Oppenheimer.

Hey, Ford, it's Jimmie.

I got a quick question for you on the sales initiative.

Can you talk a little bit about what you are looking to do to jump start sales?

You mentioned you could do a little better on that.

Any thoughts how you plan on attacking that?

Yeah.

I think -- first of all, a couple of quick thoughts.

We got a very formidable competitor out there with Solvay.

You've got two well-established products in the OBG community with Prometrium and [Estratests].

So, they're doing a good job in bringing the jell along.

Now, on the positive side here, is we expect two competitors, Solvay and Novavax, to grow the total transdermal or topical market.

So, I think the markets going to expand, and we will take advantage of that.

On the competitive side, everything we learn from the patients and the doctors, is we have a very good story to tell.

We've got a product with significant advantages over other transdermals, and we think that is starting to resonate more and more on the marketplace as we get the King force integrated to bring us up to parity, number-wise at least, with some of our competitors.

One big thing that the marketplace tells us over and over again that will be a significant advantage is our ability to sample.

This is an extremely sample sensitive-type of market when you're talking about something that's cosmetic aesthetic or something that is a drying product.

So, the samples are going to bring us, in the long term, a good advantage to help, use your words, jump start us.

Right now, in the short term though, heavy sampling can result in prescription lag at the pharmacy level.

So, we think a lot of our samples will turn into prescriptions in the not too distant future.

That, and the fact that King will be fully integrated and under our management team, which we are right in the process of bringing on three new district managers, and in the interim we have two consultant managers to help us with the seamless transition.

So, we think we're gonna get the team, meaning King, up faster.

And we think that our samples are gonna jump start the process.

Does that help?

That does.

Could you -- what kind of time frame you thinking for these samples to work their way through for the scripts to start turning up then?

We put out, with the initial phase of our Cascade launch, we put out free goods to 1000 top Ob-gyn's, and enough for three months, because, one thing we could never have happen is not on the market and we've got people started.

So, we gave them more than we would have liked to, to ensure that there were no hiccups if we had a manufacturing snafu.

I would say two to three months, so, I would say August you'd see these coming, all the samples are out.

September, August/September.

Okay.

And just one last question, is King picking up any of the marketing costs?

Or is that all been washed out?

They picked up in the deal.

They are no longer picking up any marketing costs.

That was part of the transaction.

They forwarded to us -- Dennis, give me the exact numbers.

It was like 3.2 million for the cost of the sales organization, and 5 million for the cost of marketing.

Their obligation through the end of 2004, based on the marketing budget, they paid us.

We will still -- even though we received the cash, we'll see the increased expense on our P&L.

Okay.

Thank you very much.

Thank you sir.

Our next question comes from Trey Niver with Stifel Nicolaus.

Great quarter, gentlemen.

Congratulations, a lot of successes.

Looking at this transaction with King, if I understand correctly, you bought half of the domestic and all of the worldwide rights for Estrasorb, for a total of $22 million?

Is that correct?

Actually, it's a little more complicated than that.

We issued them shares and then the net payout to King was actually 14 million.

Net of the sales and marketing expenses that were paid to us.

That's why we consider the net cash 14.

And then, in return, you got half the domestic and the worldwide rights, which you now can turn around and franchise back out to some other company for Europe and South America and the Orient.

That's correct.

And in addition, remember, we surrendered $40 million of King notes for that sum of money, and we did reissue 35 million of new notes.

But in that whole transaction we reduced our debt 5 million, extended the term, and certainly more favorable note terms.

Next time I want to negotiate something, I think I'm going to come to you guys for help.

-- need international rights? [LAUGHTER]

From here, the International rights could conceivably bring back some cash on the front end plus a royalty stream, is that correct?

That's the hope.

I mean, there is a number of different directions it could take.

Essentially, we'd like to have coverage in Asia, South America and Europe.

Some partners also want to play in the U.S. market.

So, there are a lot of alternatives, and a lot of different directions that these negotiations could take, and I think we are trying to stay flexible at this point in time, and try to strike a deal that's the most favorable, obviously, for the Novavax shareholders.

Right.

And, then, do I also understand that the market outside of the United States for Estrogen, is larger than the market inside the United States?

No.

We need to take more specific look at the estrogen-only market.

But, generally, as a rule the U.S. market represents somewhere between 40 and 60% of the global pharmaceutical market.

The opportunity to sell units is obviously much, much greater Internationally than it is in the U.S.

By the time you factor in ability to pay, the U.S. market always wins.

The usage of estrogen per capita, in Europe, is actually greater than it is in the U.S.

We were excited from that stand-point.

In Europe, it's also more of a transdermal market than it is in the U.S.

So, another reason to be bullish for Estrasorb.

On the other hand, as you are well aware, the European countries are all socialized medicine and so the pricing isn't as good quite as good as it is in the U.S. but the volume should be fine.

I think there is a great International opportunity.

We have people calling us, and vice versa.

So I'm certain that we'll be able to strike a deal with a very competitive International partner, and it could be one or more.

I mean, we're gonna try to look at who's the best partner for a specific geography.

This is Denis O'Donnell.

It amazes us internally, with management in this company, that the marketplace really didn't appreciate the deal that Nelson and his team were able to execute with King, our former partners.

When you start looking at the numbers, as you just -- the pertinent questions that you asked, this is a very, very favorable deal.

King was a good partner.

What a lot people failed to realize is, is that the bulk of the money that King put into this company, and the initial licensing deal for Estrasorb, as well as the other women's health care products in Micellar Nanoparticles, was consummated in January of 2001 when we didn't have a single patient's data from Phase 3.

It was based on Phase 1 and Phase 2 data.

So, you could really term King's involvement in Novavax as a venture deal, in which they put in money very early stage into the company.

And, when King publicly announced they were going to be, for general corporate reasons, known only to them, that they decided they were gonna exit the women's health arena, we saw that as a tremendous opportunity, and we think that management really executed a phenomenal deal for the shareholders of Novavax, which we just pointed out to you, was really a net $14 million to buy back all of our rights, and that 14 million, some or all of it , may be offset by licensing deals, ex-U.S.

We're astounded at this, and we kept referring to it, as well as our bankers and consultants, that this was a major transformational event for Novavax.

We can't think of an event that was more positive for the company and the shareholders.

Yet, whether it was because it was the middle of July and people were on vacation, or the markets, or whatever, people really have not focused on the value of this deal which was an extraordinary deal, and I can tell you, the board couldn't have been any happier or any more proud of Nelson and his management team for the execution of this deal.

It was really terrific.

It's a tremendous deal.

On a time frame, when would you expect to anticipate that you might be able to get at least the first phase of this completed, as far as licensing?

I would hope that we have a European partner by the end of the year.

I tell you that cautiously, however, having been in business development for a couple of assignments in my previous life with Eli Lilly, sometimes those discussions with European partners can go slower than you would like.

They do a very good job of their due diligence.

They are good negotiators, and they are thorough in their work.

We will certainly let it move as fast as possible from the Novavax perspective, but we are only half of the equation.

Congratulations.

This is just a really, really, really exciting development.

Thank you, thank you for your calling in today.

Thank you sir.

Our next question comes from Marvin Gruber with Glen Allen Financials.

Please go ahead with your question.

Can you comment on your plans for Androsorb.

I'd be glad to do that.

Actually, as we have announced before, we have completed Phase 1.

We have submitted a trial to enter a protocol to the FDA to enter our Phase 2 trial with Androsorb with the indication of female sexual dysfunction.

The specific about the King agreement, which we'll further exacerbate what a great deal this was for us, they had the same rights for Androsorb as they did for Estrasorb, but along the way, they negotiated that they didn't have to put up any of the R&D money.

So, in other words, it was a program, as we looked forward, where Novavax would bear the burden of all of the Phase 2 and Phase 3 and registration costs, yet, once we came to market, everything was split 50/50, manufacturing and marketing, and they, of course, walked away, King did, with half of the profits.

The approval process for a new indication for an existing molecule is much more lengthy and expensive than that process that we completed for Estrasorb.

So in essence, a long way of telling you, we slowed down the Androsorb program because of the cost to Novavax.

Now that we have negotiated our way out of the King agreement, it's certainly opened a new horizon for us for what we think is a very exciting product opportunity.

For those that are close to the testosterone market, P&G, Procter & Gamble is leading the way with a testosterone patch that they have just completed Phase 3 clinicals on, for female sexual dysfunction, and they're quite bullish about their opportunity to get approved at the FDA.

That leaves us with one of two strategies.

We can move ahead and invest significant R&D dollars, to gain approval for this new indication in a similar manner that P&G has, or an alternative is to wait for them to get approved and then run Estrasorb, excuse me, Androsorb through the same regulatory and clinical track that we did with Estrasorb, which would be a faster, much less expensive route.

So, we are, now looking at the two alternatives, and, of course, you have to include the cost of that decision along with the rest of your portfolio decisions.

So, we will make, again, a decision that we think is in the best interest of the Novavax shareholders, so that we can build a portfolio that offers the most shots on goal or new product opportunities.

But certainly Androsorb we were excited about today.

Have you approached Procter & Gamble about partnering with them on it?

Actually, we have not.

Might be a good idea.

We have not.

Might be a good idea.

Marvin, Denis O'Donnell, one of the clinical aspects from Androsorb that made it very difficult from just an FDA standpoint.

When we were developing Estrasorb, the FDA gave us a very clear blueprint as to the type of patients, what the inclusion/exclusion criteria, what blood levels you wanted to look for, what the clinical end point was.

It was very, very detailed and specific.

The same is true for developing testosterone in men.

What has been very ambiguous has been how to develop testosterone in women.

And FDA has not promulgated a clear set of what they refer to as points to consider as to how to develop that in women.

Procter & Gamble has gone out there and executed a clinical program with what P&G thinks is an acceptable program to FDA.

The proof, obviously, will be in, does FDA accept their NDA, and will they review it and find that their clinical end points are fine.

So, one of our strategies is for you golfers out there, we've been reading the putt of P&G, seeing where they going, because, a company like Novavax, frankly, can not go out there, enter into a Phase 2 or 3 program that would be clinically acceptable for FDA to do it from a safety standpoint, but may not be leading towards an approvable application.

So, we think P&G might be able to do two things.

One, delineate a clear course of what's required at FDA.

And, two, begin to open up that marketplace.

And what our market research has shown us from day one with women, the P&G product is a patch, as you know, Marvin.

But our market research has shown us that women overwhelmingly prefer our cosmetic-like lotion to a patch.

We are not concerned about following P&G.

In fact, we think that may be the acceptable course to, one, find out what is required to get this approved by FDA.

And then, two, if they develop a transdermal market, then our approach would be, if you like the patch, you'll love the lotion.

Thanks, Marvin.

[Operator Instructions] Our next question is a follow-up from Mark Mandel with Wachovia Securities.

Thank you for letting me in again.

I just wanted to kick around the question, two questions ago, about worldwide rights.

Whether you slice and dice it, you know, the Asian market, southern hemisphere, European, I'm trying to get a sense of value.

I don't mean to be pulling teeth here to try to get a sense of value.

But, I do mean to pull some teeth here.

I guess it could be structured front end or heavy licensing, less front end.

Couldn't this potentially be worth $50 million or $150 million?

I'm trying to get a sense of where we are here.

Mark, I hope you are right.

But I need a few more meetings with these potential partners, before I would potentially mislead our listeners.

I'm conservative by nature.

I would not want to mislead anyone.

But what I see here, though, is a market cap right now of under $200 million.

When I do the math, I see potentially more value here.

And I'm trying to get a sense if my math is wrong.

Let me tell you our approach.

I'm not going to give you a number but I'm going to tell you our approach.

Let's take Europe as an example.

We're going to look at the major markets country by country.

We will take each estrogen market.

We will understand the competitive dynamics.

We will have to make assumptions, obviously, for pricing and market share uptake.

We will create a net present value for Estrasorb in each one of those countries, add them up and that's certainly a place to start in negotiations.

I think is what I would look for is an upfront, a very significant upfront payment for commitment by a new partner.

I would ask for milestones upon regulatory approval and other potential marketing milestones.

And then, obviously, a sharing of the profits, whether it's an actual true sharing of the profits or royalty.

But that is the approach.

I think you can think of upfront, milestones, royalties.

And then, we just have to do our homework and the math for each particular market we are in discussions for.

Certainly, the people on the other side of the table will do it so we have to get as smart as they are.

I'm almost embarrassed to sit here and tell you we don't have all the answers to that right now.

But we are not a team that is sitting in the same amount of resources that we did in our former life.

We are a small team and we have to pick and choose our battles.

Up until the completion of the King deal, we had way too many battles and to tackle a market analysis that we were, at the time, even unsure was a possibility.

What I was getting the sense for, King was willing to put up 40 million before we had a product for half the potential profits in the U.S.

Now we have a product, it works.

It looks like they gave it away.

It's what they did.

One thing, we love the accolades and it was a great negotiation.

We also have to be clear, we were dealing with a partner that truly wanted to exit women's health.

They had --

Okay, that's true.

That's true.

They had other products --

Well, they also had other problems.

And other products that were not doing as well as they would have liked in the marketplace.

They are good products, but weren't doing as well as they'd liked, and they looked at the overhead of their women's health, and they had to weigh that against, do I continue to invest there or am I better served in other markets, which they had a good position in, and it just so happens they chose other markets, which happened to be a home run for us.

Okay -- Go ahead.

I was just going to say, we took advantage of a good thing.

Okay.

I can understand you can't throw a number out there.

To me, we should be using the greater than sign than the less than sign on the potential transaction.

I couldn't agree with you more.

I can assure you we will negotiate the best deal we can.

If it's as good as the King deal was, you will be proud of us.

Can you comment on the Gregory ownership and their friends, [Stansville] agreement, my greatest fear is that more things continue to go right, and potentially we lose this company at $7 a share.

What prevents somebody from coming in, accumulating stock and making a low ball offer and it's game over?

One of our Chief Financial Officer's current assignment is to relook at the policies we have in place to prevent an unfriendly takeover.

We have a poison pill in place, Mark.

Obviously, we will try to do everything we can.

I can tell you that we have two gentlemen whose last name is Gregory, that own a significant share of our company.

And, so far, I couldn't say any more -- I couldn't have any more positive comments about Joe Gregory, and his brother John, than I do.

They are extremely loyal shareholders.

There is hardly a week goes by that John and I don't talk.

He is very, very supportive and very bullish on Novavax.

Okay.

That's a good sign.

And, obviously, that Joe came in to help us finance the King transaction, certainly would indicate that, here is an individual who's very close to our technology, and has a good view of the value of this technology, and he put a significant sum of his own money into this company.

Okay.

One last question I promise I will leave you alone, and it's going to be addressed to Ford.

Ford, I have seen the script data.

We've had one down tick and all the rest were up-ticks.

I know we couldn't really control the start of the launch which was late June.

Here we are July, holiday month, here we are August, holiday month.

We are the only people working right now.

Can you comment, perhaps, on the seasonality of introducing this product?

To me, most women probably are not making an Ob-gyn appointment, or they are on vacation or it's something they will do in September, October, plus you did the sampling, which gets the women, let's just say, quote-unquote hooked on it, do you get that sense too, that July and August are quote-unquote, funny months, in that, some greater momentum perhaps occurs in September, October?

Good question.

In general, this vasomotor symptom marketplace is not at all seasonal, like antibiotics or even the anti-depressants.

People get hot flashes, they go to the doctor.

Many of the Ob-gyn appointments are scheduled months in advance.

This is not seasonally sensitive as some of the markets you think about, Mark.

Okay, you mentioned about the heavy sampling out there that could potentially turn into prescriptions.

Can you give us a sense of what's out there.

There is -- as I mentioned or alluded to earlier, there is 1,000 top physicians that have got enough for 5 to 7 patients for two to three months each.

Then there is sampling we make 8 to 10 calls a day, most of these are group practices.

We've made it a point to put a lot of samples out there, because we believe this is one of our competitive advantages.

It's significant.

Okay.

And the physicians tell us that they appreciate it.

And we still have markets that haven't been penetrated yet by the sales force.

I know you have 130 -- there are 50 states and that's 2.1 reps per state.

They've got a lot of territory to cover, don't they?

Yeah, but this market predominates on the east and west coast, Texas, Miami, Atlanta.

We are positioned pretty much where our major competitors are.

The piece that's important is that we integrate the 50 King people quickly.

That's where our efforts have got to be.

We've got to get them managed and moved into our culture, and marching to the beat of the same drum.

They're knocking doors already, aren't they?

They're knocking doors, but everybody can get better.

Okay.

Thank you very much.

And thank you for the execution that your team has done in the last six months.

It's been wonderful.

Thanks for your support, Mark.

Thank you.

Our final question will come from Ken Trbovich with RBC Capital.

Please go ahead with your question.

Ford, I was wondering if you could go into a little more detail on the switching data.

I know you mentioned that you continue to see switching from oil, as well as transdermals, and back at the time you acquired the rights back from King, I know you went into some detail, could you go into a little more detail for us today?

We get weekly data from Varispan, that deals with the switching.

It's interesting, it's coming from a wide variety, virtually all of the main players, the ones that predominate are the two patch leaders, and they're about equal, Estradiol and Premarin are the two pill leaders.

The rest, Ken, suprisingly to us, spread over everything.

I'd say, of the switches, even 10 to 15% are coming from vaginal products like, Premarin creams.

Some are coming from the generic patches, like Estraderm, but predominately, they're coming evenly split from the Climera and [Viadel] family, and Premarin and generic Estradiol.

Okay.

And one final question.

How much of a push, I know you guys made a fairly significant push at ACOG back in May, how much of a push do you plan for NAMS in the fall?

It's gonna be, it's gonna be very similar.

We're gonna work on a symposia there.

No, actually, we have two booths, as we did at ACOG, we will have a significant presence in terms of materials, ads, that campaign, we're gonna do more with NAMS on the nursing front, then with ACOG, which has, historically, has been more physicians.

A lot of nurse practitioners are associated with NAMS.

We've got some [inaudible] programs aimed at them.

All in all, we've got good relationships with NAMS from our experiences in women's health with other companies, as I know you are aware, and so our contacts have got us in with some large booths, and some large opportunities.

Okay.

Great.

Thank you.

Thank you sir.

Gentlemen, at this time if you have any concluding remarks, please, go ahead, at this time.

We look forward to continue the implementation, I think I outlined, some milestones that you can measure us by in the next quarter.

We are a very focused team, and we plan to succeed.

So, we thank all of those that attended this conference call, and those that have invested in us, we appreciate your support, and our mission is to drive shareholder value up.

Thank you.

Thank you gentlemen.

Ladies and gentlemen, at this time we will conclude today's teleconference presentation for the Novavax second quarter conference call.

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At this time we will conclude, and you may now disconnect.