Novavax Inc (NVAX) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen; welcome to the second-quarter 2006 Novavax financial results conference call.

My name is Enrique and I'll be the audio operator for today.

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

We'll be conducting a question-and-answer session towards the end of the conference. (OPERATOR INSTRUCTIONS).

I would now like to turn this presentation over to your host for today's call, Mr. Gary Evans, Chairman of the Board.

Please proceed, sir.

Thank you, Enrique.

Thank all of you for dialing in this morning; we had an announcement before the market opened about the Company's second-quarter financial results and we'll give you some detailed information about that today.

I'd like to introduce some of the participants that will be on the call today, our Company's President and CEO, Rahul Singhvi is here online;

Rick Bright who runs our vaccine division is online;

Ray Hage, our Chief Operating Officer;

Marianne Caprino who is our new head of Corporate Communications;

Patricia Hall who is our Chief Accounting Officer.

And I'm also proud to announce this morning that we have been in a search, as many of you know, for a Chief Financial Officer for over six months now.

We interviewed quite a number of candidates.

We took the time to find someone that we felt would fit into our organization quite well.

We have found that individual and we have executed an engagement of employment agreement with him and that will be announced in the next couple of days.

So he's been approved by our Board and we're very excited and I think you will be too when you find out who this candidate is.

So, we've plugged another hole that we felt like needed to be filled and to take this Company to the next level.

Just to kind of summarize a few of the milestones we announced this morning.

We announced that the Company's proprietary VLP technology to create what Novavax believes is our first vaccine candidate designed to protect against the H5N1 clade 2 strain of Avian influenza -- that was announced about a week ago and was a very important announcement for the Company.

We also have worked tirelessly with the Food and Drug Administration in preparation for an investigational new drug for an IND application for the filing of this H5N1 VLP vaccine.

We've generated critical preclinical data to support the IND filing that we anticipate.

And we've developed what we believe to be a very unique manufacturing process for VLP vaccines.

And we've demonstrated the ability to scale this up which is one of the most important things about manufacturing a vaccine in the area that we're going to need it for worldwide distribution.

We also successfully, during this quarter, licensed the Company's development stage testosterone product to treat female sexual dysfunctional to our partner Esprit Pharma who we also, if you'll recall last year, licensed ESTRASORB to.

Before I kind of get into the call I feel like I need to do the forward-looking statements;

I'm going to give you an abbreviated version of that so just hang with me here for a second.

Statements made in this press release that was announced this morning as well as this call today state Novavax's or management's intentions, hopes, beliefs, expectations or predictions of the future and they are deemed what we call forward-looking statements.

These also include, but are not limited to, statements regarding usage of cash, product sales, future product development and related clinical trials and future research and development including FDA approval.

Novavax's actual results could differ materially from these expressed in such forward-looking statements such forward-looking statements involve known and unknown risks and certainties and other factors which may cause the actual results, performance or achievements of the Company or industry results to be materially different from those expressed or implied by such forward-looking statements.

Statements that we will make today and that were made in this release this morning should be read in conjunction with our Company's annual quarterly reports that we file with the SEC.

You can get copies of these filings from our corporate headquarters currently in Malvern, Pennsylvania or the SEC directly.

Okay, now with the formalities over -- I think it's kind of important to in any business or even in your life stop and take a snapshot of where you've been and where you're going.

And Rahul and I have been appointed in our respective positions at Novavax now a little over a year by our Board.

When we took on these roles the Company was in a pure survival mode.

We were -- the balance sheet was completely upside down and there was little hope for our future.

And we made a -- collectively with our Board's blessing, a complete transformation; we made a strategic decision that the Company needed to move away from being just a one drug delivery ESTRASORB company which has been really the past of Novavax for almost 10 years now and where a lot of the Company's cash went with developing this drug.

As you well know, we attempted to do a commercial launch of that product and we were unsuccessful.

So we made a strategic decision to find a party that we felt like could properly market this drug and we did that.

And we also made a decision that we needed to diversify our product mix and we also felt like the vaccine division, which had been kind of a stepchild of the Company, really needed to be looked at hard.

And through the balance of the scientists that are at Novavax then, and the new ones that we've recruited since then, we have made a tremendous transformation of a one drug company to a company that's developing a world-class vaccine.

Something that will effect, we believe, everyone's lives on planet Earth.

So I think it's important that we -- sometimes we always look at the current situation without understanding where we come from.

We could not be more excited about where Novavax is today than we are now.

This company is well positioned financially to complete its initiatives that have been mandated by our Board to develop in our research and development efforts this new vaccine -- and "vaccines" I should say, in plural.

And you're going to hear today a really detailed report card.

We've made a decision that we would spend extra effort on this call to tell you where we stand on all the changes that have taken place at Novavax over the past year.

And so with that I proudly turn over the call to Rahul Singhvi, our CEO.

Thanks, Gary.

Good morning and thank you for joining us on this call.

We very much value your interest in Novavax and your continued support.

Today we are excited to review our progress over the past quarter and the steps we have taken to execute our strategy to create real long-term value.

As you know, the creation of sustainable value can only be accomplished by directing the Company on a path that leverages its assets and competencies on creating the most value for the investor dollar and then meeting meaningful objectives to achieve that goal.

Today I'm here to share with you our focused strategy to create differentiated important vaccine products and how we are putting the people and infrastructure in place to fully maximize our unique technologies.

During the second quarter of 2006 we made further progress on our mission to become a premier vaccine company to lead the fight against infectious diseases by creating novel highly potent vaccines that are safer and more effective than current preventive options.

We made substantial progress in developing our first target product, our VLP-based pandemic influenza vaccine, and put the foundations in place to leverage our unique vaccine and formulation technologies to create other unique differentiated vaccines against other different disease targets.

We met several important milestones during this quarter.

First, we strengthened our vaccine leadership team by attracting top-notch scientists and engineers from prominent institutions such as Merck, Sanofi-Aventis, Bristol-Myers Squibb and MedImmune.

In addition to our scientific team we also hired Marianne Caprino, our Head of Corporate Communications and Investor Relations.

Marianne joined us from Pfizer and is taking a very strategic view on our communications plan, both with the scientific community as well as the investor community.

She's planning to unveil a more updated user-friendly website in the next quarter.

And as you heard from Gary earlier, we've offered the CFO position to an outstanding finance professional and he has accepted the position.

We expect to announce his name in the next several days.

In addition to strengthening the management team, we have strengthened our Board of Directors.

We previously announced that we have added Dr. Jim Tananbaum from Prospect Venture Partners on our Board of Directors.

Jim has extensive experience in the biotech space and has broad networks in the industry.

In addition, we expect to announce the addition of a representative from the Kleiner Perkins Caufield & Byers on our Board in the next several weeks.

Both Kleiner Perkins and Prospect have been very helpful in sharing best practices and in reducing the risk of executing our strategy.

On the product development front we initiated a very productive dialog with the FDA on our H5N1 VLP vaccine candidate and received valuable regulatory guidance from the agency to define our product development path.

In addition, as described in our press releases in July, we continue to receive encouraging preclinical results on our VLP vaccine candidate.

These results indicate a higher probability of success of our candidate vaccine in human clinical trial.

We have used several of these data to file patent applications this quarter to strengthen our intellectual property position.

Based on the FDA guidance as well as our own assessment of the clinical risk of this product, we have made the strategic decision to frontload several aspects of our development pertaining to the manufacturing process of our bulk VLP vaccine, the analytical testing readiness and scale-up feasibility of our process.

This decision has been made to ensure that if the clinical trials are successful we do not delay the program by the need to reengineer the process for our pivotal clinical trials and ultimately delay the licensure of the product.

We have also decided to take the most relevant H5N1 strain, which is the Indonesian plague clade 2 strain, for toxicology studies in advance of our Phase I clinical trials.

As you may know, this strain of the H5N1 virus has spread throughout Europe, Asia and Africa and has caused the most death in humans.

Again, this decision is based on FDA guidance as well as our own assessment of using a strain that is most relevant from a medical standpoint.

If we are successful we hope to be the first company in the world to create a vaccine candidate against this pre pandemic strain.

We have adapted our vaccine development plan to accommodate the valuable feedback from the FDA and our own good preclinical results and the decision to put our vaccine against clade 2 strain of H5N1 in man.

We now expect to begin our Phase I/Phase II safety and immunogenicity clinical trials.

With this clade 2 VLP vaccine in the first half of 2007 in sufficient time for preliminary safety and immunogenicity data on this vaccine by the influenza season of 2007.

In addition to our good preclinical results we are proud to announce that we have demonstrated our portable manufacturing system for the upstream part of our bulk vaccine at 100 liter [bag] scale.

By demonstrating the process at scale we have further reduced the risk of supplying this vaccine in quantities necessary during a pandemic.

Further, we expect that the manufacturing process will remain largely the same for other vaccine products based on the VLP technology.

So this is a platform that should help reduce cost and development timelines for other development products.

As you can see, we have made important strides in our labs.

This progress has energized our team and we are confident of the path ahead.

I will now turn to Rick Bright, our in-house influenza expert and our VP of vaccine development to describe the important preclinical results we have conducted over the past several months.

Rick?

Thank you, Rahul.

There are several major points of research and development progress from this quarter that I would like to highlight, some of which Rahul has already touched upon and I won't spend much time repeating them.

First, the important team of experts that we were able to recruit from many of the world's leading pharmaceutical companies speaks volumes to the quality of research that we are dedicated to doing at Novavax and to the confidence that these respected scientists have in our vaccine product.

With this team now in place we have made tremendous strides in our program and improvements in our vaccine that should not only make the regulatory pathway easier to navigate, but will also save us much time in the backside in getting our vaccine to market.

Next, our top tier research collaborators that we have assembled, including those like Ted Ross from the University of Pittsburgh School of Medicine, and Thomas Rowe from the Southern Research Institute, as well as our continued relationship with Terry Tumpe from the Influenza Division at the Centers for Disease Control ensure that we have the most experienced set of minds on the development and characterization of our influenza vaccine and data generated from various preclinical studies.

This truly is a dream team of institutions to work with on this important vaccine and we are in almost daily communication to make certain that we are all on track to meet our goals.

We've also been working to expand this team and we'll be making more important announcements in the future.

As you have seen in the press releases recently, our preclinical data is overwhelmingly positive and we are very encouraged by the consistently potent immune responses that we are making in our various animal models.

Importantly, we have demonstrated the ability to elicit protective levels of specific antibody titers using a single inoculation of our vaccine without the use of any added adjuvants or immunostimulants.

We have demonstrated this with several different influenza vaccines from both avian and human origin and both pandemic and seasonal influenza vaccine strains.

We have also demonstrated this in numerous animal models including mice and rats and, most importantly, in ferrets, the generally accepted gold standard animal model for influenza.

We are looking beyond general (indiscernible) antibody titers and we're comparing more important functional hemagglutanation inhibition antibody levels testing against live influenza viruses.

This is a more robust and stringent test of the potency of our vaccine.

We are observing superior immune responses raise to our VLP vaccines compared to competitive influenza vaccine technologies.

Of course it is important to note that our recombinant VLP vaccine platform does not rely on out data egg-based methods or major manufacturing infrastructure requirements.

In addition to using -- in addition, by using recombinant technology we have now proven that we are able to respond rapidly to emerging mutations among viruses circulating in the field.

As Rahul stated and was announced recently we believe that we are the first company to develop a vaccine for the clade 2 H5N1 viruses that are now predominately spreading among birds and infecting humans in parts of Asia, Europe and Africa.

This is a critical milestone that demonstrates the power and flexibility of our vaccine platform and our company's strategy to be the leader in responding to an influenza crisis.

Preclinical trials have already started with this timely vaccine and the clade 2 vaccine will be our candidate of choice to use in our first clinical trial.

In my opinion it makes the most sense to not use limited resources on developing a strain of vaccine that has already clearly been shown to be poorly immunogenicity and poorly cross-reactive to viruses currently infecting and killing humans even by adding or trying to add adjuvants or other proprietary stimulants.

To be a real leader against the real treat threat of pandemic influenza you must be able to respond precisely to what is happening in the field by adapting to current strains of viruses that are actually causing the greatest threat to global health.

You must also be willing to let go of something such as a virus strain, a technology platform or a strategy that is not working, so you can truly respond and truly have a chance to make a major impact on halting this deadly virus.

Our decision to switch gears to advance the H5N1 clade 2 vaccine into our clinical program; by doing this we are showing the world that we are serious about our mission to stop this virus from spreading.

Two final and important points that I want to mention are that we have recently demonstrated the robustness of our manufacturing process and our ability to scale-up manufacturing in our very first attempt to do so.

We owe much credit to our brilliant scientists who have joined our team and we will continue the scale-up process as we move toward the clinic.

We have also been gathering data rapidly from each of our research collaborators at our own R&D labs.

And we've been actively strengthening our intellectual property portfolio.

Much of these data will be released in scientific forums, both oral and written, in the very near future.

So in summary, it was an incredible quarter for research development and preclinical progress.

Great people, great collaboration and, most importantly, some of the best influenza vaccine results that I have personally seen at this stage from any product that I have studied.

I'll turn it back to you, Rahul, thank you.

Thanks, Rick.

I will now turn that mic over to Patricia Hall who's going to now go over the financial results for the quarter.

Thank you, Rahul.

I think it can be said that our financial results are consistent with our strategic goal of increasing our spending on research and development.

We have increased R&D spending by $1.4 million over that of the last quarter and $2 million over the same quarter of a year ago.

This predominately is associated with the increased spending on the flu program.

As I mentioned during the last quarter's conference call, the Company has implemented FAS 123(R), which is the accounting for stock-based compensation, with the beginning of 2006.

Associated with this is a $400,000 non-cash charge for the second quarter and a $1.2 million non-cash charge for the six months ended June 30th.

There was no corresponding charges for this in 2005 as the Company had not yet implemented this accounting policy.

Our June 30, 2006 cash balance was $78.6 million, up from the $31.9 million as of December 31, 2005.

This was primarily due to the two equity financing transactions that occurred last quarter.

Our June 30th working capital was $80.5 million compared to $32.7 million at December 31.

Our convertible notes totaled $22 million at the end of June 30th compared to $29 million at December 31.

This decrease is due to the voluntary conversion during the first quarter of this year.

Stockholder's equity was slightly less than $104 million as of June 30th compared to approximately $50 million at the end of December.

Our outstanding shares were 61.5 million compared to 50 million at the end of December.

If we move onto the P&L statement for the quarter, revenues were $800,000 for the quarter, down from the $2.3 million from the same quarter a year ago.

This reflects our strategy of transitioning from a commercial business model to one focused on our core competency of new product development.

The net loss for the quarter was $6.4 million compared to $5.7 million for the last year's comparable quarter.

As I mentioned previously, the 2006 quarter includes $400,000 of non-cash stock-based compensation costs for which there were no comparable costs for 2005.

If you exclude these non-cash charges there was only about a $300,000 increase in net loss from a year ago.

But at the same time our R&D spending has increased by $2 million.

In 2005 our net loss included $1.8 million of sales and marketing costs that had been eliminated for 2006 with our change in strategic focus.

In summary, our monthly cash burn averaged $1.8 million for the quarter compared to $1.6 million for the previous quarter.

This was accomplished even though we increased our average monthly cash expenditures for the flu program by over $400,000.

This indicates the Company's efficiency in channeling its resources on what we believe our highest value products.

With that I think I'll turn it back to Rahul.

Thank you.

Thanks, Patricia.

So in summary, we have strengthened the strict strategic focus of our Company to create important vaccine to fight emerging infectious diseases.

During the second quarter we put several pieces of the foundation to achieve this goal by putting people, infrastructure, processes and systems in place.

As you noted from our financial results, our investments indicate we have directed resources to our (indiscernible) with our influenza vaccines which we believe are the highest value creating opportunities.

We have begun to see early exciting results from our flu program that give us the confidence that these results will ultimately put us closer to our goal of creating the best in class pandemic influenza vaccine.

We will continue on this path during the third quarter and will focus on generating the data that will allow us to go into (indiscernible).

In addition, we will continue to make efforts to differentiate our products from the competition and protect our products by getting appropriate intellectual property protection.

It is important to note that the vaccine platform and manufacturing process platform that we are developing are not just applicable for vaccines against flu but for other viral disease targets as well.

Thus we hope that we should be more efficient in developing vaccines for other disease targets once we have these platforms in place.

We will continue to seek government funding on pandemic influenza efforts.

As you know, we have submitted a response to the antigen sparing RSP.

We are awaiting a decision from the Health and Human Services on this RFP.

The exercise of putting this RFP together has increased our readiness to respond to future grant applications that are relevant and consistent with our strategic goal.

Lastly, we continue to monetize our noncore business areas and focus our resources on our core strategy.

We demonstrated this recently when we partnered with Esprit Pharma on our testosterone development product, ANDROSORB.

I want to end by reaffirming our commitment to ensure that Novavax achieved this potential both financially as well as in improving health worldwide.

Thank you and we'll be happy to take questions.

Thank you, Rahul, and thank you, Rick and Tricia, for your comments.

Before we go into the Q&A session I'd like to make just a few comments regarding the stock price.

As most shareholders know, we've been on a bit of a roller coaster ride here over the past year.

And what we as management must do is concentrate on the business and executing our game plan which is what we're doing.

Obviously stock price is an important factor for all of us because we're all significant shareholders including our two largest institutions who are very much involved in the day to day operations of the Company by introducing management to people that can help move our vaccine initiative forward.

We recognize that the sector has been up and down over the last six months and has been in a bit of a down mode.

It's also important to recognize that we are not in the flu season; therefore there are other significant world events that have taken front stage other than the bird flu.

So we are, as you know, headed toward the flu season and we have no doubt in our minds based on our communications with scientists around the world that this will be another extremely active season and that's why we're working tirelessly to try to get the science to a level that we can actually produce a vaccine.

So there are a lot of retail shareholders in our stock, that has been one of the reasons the stock has been so volatile.

We have been working to begin getting more institutional ownership which will add stability.

The best thing for the Company and the shareholders today is that we have no need to go to market to raise any capital.

We have fortunately raised a lot of capital to fuel our business and our programs based on activities last year and early this year and therefore the best thing that we can do for the stock price is execute.

And we've been relatively quiet over the last four or five months for a reason.

We're trying to protect the long-term value of this company and that is by filing patents on our technology to protect our intellectual property.

So we are in this business for the long-term, not the short-term.

And we have no doubt that if we can continue executing on the path that we're on the stock price will take care of itself.

So with that, operator, we'd like to turn over this call to the first individual who has a question.

(OPERATOR INSTRUCTIONS).

Navdeep Jaikaria, Rodman Renshaw.

Good morning and congratulations.

Rahul, can you talk a little bit about the manufacturing scale-up?

When can we -- when will we hear more about that and what are the next steps on the manufacturing front?

Sure, thanks, Navdeep.

We, as I said in the call, have demonstrated the upstream process at the 100 liter scale which is very close to ultimately the full-scale manufacturing.

And as Rick said, we did this in the first attempt which is remarkable based on my experience in scale-up that with this flexible portable technology we've been able to do this in such a short period of time with such few resources.

What our plan is that in this next six months we want to be able to get to our final process, final analytical tests and final formulation so that we can go into our toxicology study with as close to the final pieces of the CMC, or the chemistry manufacturing control, that are necessary for obtaining life insurer.

We want to minimize the changes to any of these things during the clinical development so that we can prevent any bridging studies necessary pertaining to process changes.

That's our game plan in the next few months; we expect to have data from essentially full-scale, 500 liter manufacturing.

Okay.

And when can we see some of this data that you outlined as being created in this quarter?

We will be presenting in appropriate scientific forums in the next six months.

So you can look forward to that as well as publications that will come out of this.

And as far as other indications go, what other indications are you looking at or have you initiated any efforts on those fronts?

Yes, well, one of the indications that we've announced is seasonal influenza and the other ones we have not announced yet, but we will -- as we get more comfortable with them we will be announcing them to the world.

And finally a very quick question on the R&D spend.

Can we -- clearly there was an increase in spend quarter-over-quarter.

Going forward is there any guidance that you would like to give us?

Should we take this quarter as a base or how should we model R&D going forward?

We expect that the R&D spending will continue to increase as we go into the clinic.

Okay.

Thank you, I'll get back in the queue.

Scott Henry, Oppenheimer.

Thank you.

Gentlemen, I just had a few questions on a couple different areas.

First, with regards to ESTRASORB, are you aware -- is Esprit doing anything to turn the course with script trends there?

Because they're not really going anywhere.

I'm just wondering at what point can one start covering the marginal cost for that product.

Okay, I'm going to have Ray Hage take a crack at that one.

Scott, your question was is Esprit doing anything to change the trend?

I don't want to speak about some of the specifics, but Esprit has put significant resources on ESTRASORB starting in March of this year.

And they do have a sizable sales force.

They do have an excellent marketing program.

They do manage ESTRASORB with a few other products.

So it's difficult for me to tell you exactly what level of efforts in terms of policy nor detail order.

But they're confident and I've talked to them recently, they're confident that they're doing the things that they need to do to drive the script growth higher.

And they're competent even as of last week.

So that's really what I can tell you right now.

Ray, you might mention how many sales personnel they have dedicated to this effort.

They have 175.

Thank you.

I guess we'll just keep watching those scripts then.

The second question just on the vaccine business --it looks like at least in the past there's been a lot on the calendar for the back half of '06.

Specifically I believe we're looking for the dosing study to start on the pandemic vaccine, the lot validation study as well in Q4 '06 and as well perhaps a Phase I on the seasonal vaccine.

Could you just confirm that those timelines are still on track?

So the decisions that we may based on the FDA guidance as well as from our own decision to go with the clade 2 vaccine have pushed those timelines into the first half of next year, Scott.

Thank you.

We believe that by making those decisions we'll ultimately be more -- reduce the risk of failure and increase that probability of success.

So hopefully come out ahead at that end.

Yes, if I could comment on that a little bit as well.

Those of you that have been around for a while you know we kind of stumbled with ESTRASORB and ate up about one year to a year and a half of getting that product launched and we do not went to make that same mistake.

By having these meetings with the FDA and getting some specific guidance on how we should go about filing these INDs, we have made a strategic decision to be sure that we've crossed every "t" and dotted every "i" so we don't stumble.

Thank you.

And just for the final question, which I guess is a little more qualitative.

The pandemic vaccine market, its kind of tough to get your arms around.

I'm curious who you view as your main competitors and in terms of timing where you fit within that competitive landscape?

Scott, the big competitors obviously are the big vaccine companies like GSK and Sanofi because they are closer to market.

They already have a vaccine -- an influenza vaccine that they sell and what they're doing is just changing the formulation to the newer strain and then, as GSK announced recently, add an adjuvant to reduce the dose requirement.

We believe that those are the biggest competitors.

However, I think that in terms of affectedness of the vaccine, they still require a two dose regiment and that's not particularly desirable in the case of a pandemic.

And our strategy to compete against companies like GSK and Sanofi would be to offer a product that is based on a single dose vaccine ideally.

And without the use of unknown chemical stimulants like the adjuvants.

So, pure vaccine, single dose is our strategy.

And in terms of timing, I think we are going to be very close in terms of launch to these companies if we continue to execute as per our plan.

Thank you for taking the questions.

Ken Trbovich, RBC Capital Markets.

Thanks for taking my question.

I guess I just wanted to follow up on Scott's earlier question about the manufacturing issue.

I guess we're all kind of looking for some guidance as to what the level of sales would need to be in order to eliminate the excess inventory and negative manufacturing margin.

And then along with that, are there any strategic alternatives related to that manufacturing overhead that might eliminate that issue going forward?

Right, Ken, just to kind of clarify that you're speaking about ESTRASORB?

That's correct.

Okay.

Very good question and very appropriate as well because you're right that the manufacturing overhead is currently not being absorbed by the current volumes of ESTRASORB that we're selling.

And we are looking at a number of different strategic alternatives to reduce our cash burn in that area while maintaining our supply agreement with Esprit.

Suffice it to say that this is an area of great focus for us in addition to our vaccine business to stop the burn on this area.

So you should hear from us in the next several months in terms of what we're doing about this.

But we are actively seeking a way to reduce that cost.

Okay.

And in the interim, what sort of sales level would need to be hit on on ESTRASORB by Esprit in order to sort of neutralize that?

It's going to be in the 15 to $20 million a year to completely neutralize it, which obviously we're not anywhere close to yet.

Okay.

And then just with regard to the clade 2, I was hoping you could clarify -- I know -- I'd spoke to Marianne about this before and I know Rick is probably in the best position to know.

But with regard to clade 2, could you help us understand what the reference was in the New England Journal article?

And then give us an update with regard to international opportunities.

I look out there and I see for example that Indonesia is working with Baxter and that they expect to have a vaccine available by November.

And I'm just trying to put this into context with regard to the comment that you expect to begin your human clinical studies in the first half of next year.

Rick, do you want to take that one?

Yes.

I'm not quite sure which New England Journal you're referring to other than the Sanofi trial that was published recently using the clade 1 H5N1 vaccine that was shown to be poorly immunogenic in the clinical trial.

Is that the one you're referring to?

No, there was mention of a clade 2 vaccine that was supposedly out there, but there was no reference.

And so I just don't know what the source of that was.

The only reference I've seen with another clade 2 vaccine was then corrected I think at a later time point.

To the best of my knowledge there's no other clade 2 H5N1 vaccine in any clinical trial or gearing into a clinical trial.

So this Baxter program with Indonesia you don't think is with the Indonesian strain?

It very well could be, but I haven't seen a public announcement of that.

But most of the vaccine manufacturers are working with the clade 1 strain from Vietnam, either 1194 or a 1203 strain from 2003 or 2004.

Okay.

And then specifically as it relates to working with other governments.

I know obviously here in the U.S. there's a contracting process.

I suspect that in these other countries the process is less formalized.

Could you give us a sense for where you folks are at in discussions with governments from other countries?

Sure.

We've announced we've been in discussions with the government of India.

We have three or four other countries that we are in discussions with.

But we are not in a position today to announce that, but we will be.

Okay, thank you.

Terry [Naber], Stifel Nicolaus.

Good morning.

My first question had to do with where you just left off.

Six months ago you announced that you had an agreement with India.

Has that been put on hold for some reason?

No.

We're actively working with a private company in India.

It was described as a strategic alliance at the time.

Yes, that is the case.

And what's the status of that strategic alliance at this point?

We have several points of collaboration and we are actively moving forward with executing those areas of collaboration.

As we get closer to something more concrete we'll announce it.

Do you have a budget for this strategic alliance?

The budget is very simple.

The costs associated with things that are going on in India are covered by the Indian company.

So it's handled by them or subsidized by the Indian government.

And at this point can you tell me whether it's seven figure budget or is it less than that on an annualized basis?

It is what it takes to do the work which involves both manufacturing and clinical trials.

Okay.

Then number two, HIV has been discussed for now several years.

What's the status of those studies that are being done by the various universities?

Sure.

We have had some really excellent results on HIV in terms of making the VLP.

As you know our role in those collaborations with the universities is to create the product.

And we've had decent breakthroughs in creating VLP's for HIV.

That again we will be describing in scientific publications.

We believe that that is an important step forward in creating a VLP-based vaccine.

There are several studies that still have to go on to confirm what we are seeing so far.

So all I can say is that we've had some good results recently and as we get more data we will publish them in scientific publications.

What's the timeline on that?

Six months.

Six months, good.

And then you also were working on I think it was E-selectin stroke vaccine or someone was?

Yes.

What's the status on that at this point?

So we are working with Dr. Hallenbeck at the National Stroke Institute at the NIH on that.

And we have -- we are doing preclinical studies with Dr. Hallenbeck to prepare for an IND ultimately to go into humans.

So we are helping Dr. Hallenbeck in doing those preclinical studies.

And is there any timeline for any progress there?

I hesitate to say much about the timing move because the timing is controlled by the NIH and it's really not in our control.

Okay.

And then finally, if we go back a year ago there was a tremendous amount of discussion about the various possibilities involving your nano particle technology and you were in discussions with a number of entities and now you have the ESTRASORB and certainly the new agreement with Esprit.

Are there any other categories or areas that are promising that you might move those forward anytime soon?

Yes.

The answer is yes.

We have several irons in the fire there.

And we expect that we will close some of them -- as you know, there are a lot of moving parts in these types of agreements.

And we have learned the hard lesson that we cannot hold our breath on these.

But we do remain cautiously optimistic that we will be able to close one or two of those agreements in the next several months.

Fantastic.

Congratulations and thank you very much.

Have a good quarter.

Navdeep Jaikaria, Rodman & Renshaw.

Rahul, did you disclose the terms of the ANDROSORB agreement?

What are the economics there?

No, we did not, Navdeep; we have not disclosed that.

That was at the request of the other party.

And it was pretty adamant that they did not want us to disclose that.

So we have not.

Okay, just a round about question.

Do you get any upfront payments or is it all backended?

There are milestone payments.

It's similar in scope to what we did with ESTRASORB from the standpoint of timing of payments.

It's similar in terms of net present value but it is back ended.

Okay, great.

Thank you.

Okay, I think we've been on the call almost an hour now.

Let's wrap up and thank all of you for dialing in and we look for to continuing to report our progress on that Company's different initiatives.

And feel free to call the corporate offices or Head of Communications if you have any further questions.

Thank you for listening in today.

Ladies and gentlemen, thanks you for your participation to this conference.

This concludes the presentation.

You may now disconnect.

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