Novavax Inc (NVAX) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Novavax third quarter earnings conference call. My name is Melanie and I will be your conference coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. [OPERATOR INSTRUCTIONS] On today's call, will be Gary Evans, Chairman of Novavax; Dr. Rahul Singhvi, President and CEO; Jeffrey Church, Vice President and CFO; and Rick Bright, Vice President of Global Influenza Program.

Statements relating to future financial or business performance, conditions, or strategies and other financial and business matters, including expectations regarding future revenues, operating expenses, and clinical developments are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Novavax cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties which change over time.

Factors that may cause actual results to differ materially from the results discussed in the failure by Novavax to secure and maintain relationships with collaborators, risks relating to the early stage of Novavax's product candidates under development, uncertainties relating to clinical trials, risks relating to commercialization of any of Novavax's proposed product candidates, dependence on the efforts of third parties, dependence on intellectual property, competition for clinical resources and patient enrollment from drug candidates in development by other companies with greater resources and visibility, and risks that we may lack the financial resources and access to capital to fund our operations.

Further information on the factors and risks that could affect Novavax's business, financial conditions, and results of operations, is contained in Novavax's filings with the U.S. Securities and Exchange Commission which are available at www.SEC.gov. These forward-looking statements speak only as of the date of this conference call and Novavax assumes no duty to update forward-looking statements.

I would now like to turn the call over to Dr. Gary Evans to begin the third quarter earnings conference call. Mr. Evans?

Thank you, Melanie, and thank you for promoting me to doctor today, but I am not. Thank all of you for dialing in and allowing the management team and the board to present to you our third quarter conference call. I would like to relay some facts to you that sometimes the press doesn't seem to report very readily. As of October 31, 2006, there have been 256 cases worldwide of the H5N1 virus, which is more commonly referred to as the bird flu. Of those 256 cases, 152 deaths have resulted in the infection.

This has been reported in 10 different countries. This is by no means a U.S. problem. It is a worldwide problem. And we're going to tell you today how Novavax is working tirelessly to try to resolve and come up with a cure for this infection. With me on the call today is Dr. Rahul Singhvi, our President and Chief Executive Officer. He is joined by Jeff Church, our Vice President and Chief Financial Officer, who just joined us a few months ago from GenVec. We are very happy to have Jeff on board. We also have us on the call today Dr. Penny Heaton who is our new Chief Medical Officer, and we are pleased that she has agreed to join us from Merck.

And then we have a new board member who is not on the call today but already has had tremendous influence on the Company, his name is Dr. Tom Monath, and he is a partner with the venture capital firm of Kleiner Perkins.

So we have significantly improved the management team and the board representation in the third quarter, as we will continue -- as we build an organization that we believe will be second to none in this business.

We had some great news during the third quarter, announcing some things that we are going to go into a lot greater detail on on this call today, but the highlights were that we made some experimental vaccines that target the clade 2 family of H5N1 endemic influenza viruses and we think that the fact that the CDC has agreed to work with us and evaluate these vaccine candidates says a lot.

We also have had an intranasal version of Novavax's seasonal influenza vaccine that has been developed and appears to generate what we think is a robust immune response in these early pre-clinical trials.

So we're going to go into a lot of this into much greater detail and I would like -- and we will also talk, obviously, about the financial results that we reported this morning, before the market opened, but I'm going to turn the call over to Rahul who will give us a general business overview and go into a little greater detail with our scientific accomplishments of the third quarter. Rahul?

Thanks, Gary. And welcome, everyone. Today, we will review our progress during the third quarter in executing the strategy we laid out earlier this year. As you know, our goal is to become a premiere vaccine company by leveraging our unique expertise in Virus Like Particle vaccine technology, and dovetailing it with our portable manufacturing to create novel, highly potent vaccines that are safer and more effective than current preventive options.

We believe our strategy is working as you will see with our recent accomplishments. In particular, since our last call, we have made substantial progress in developing our VLP based pandemic influenza vaccine and have reached the following important milestones. We have demonstrated our ability to respond rapidly to stay in step with the emerging nature of the avian influenza virus.

We have developed a clade 2 version of the pandemic influenza vaccine and have obtained genetic sequence information of several other versions of this virus identified by the World Health Organization as potential pandemic threats. I'm very proud to report that we have made expand on vaccines not only against the original clade 2, but also the additional subtypes identified by the WHO.

This achievement demonstrates once again that we are in a unique position because of our recombinant technology, to respond rapidly in our labs and create vaccines against this moving target. Consistent with what we said in the last conference call, we continue to execute our plan to front-load several aspects of development pertaining to the manufacturing of our VLP vaccines, our analytical testing readiness, and our scale-up feasibility of the process. This strategy will help us move quickly into later stages of development should our early clinical trials prove successful.

Our work in this quarter has demonstrated two things. First, this work is helping us in our goal to submit an investigational new drug application for our pandemic influenza vaccine. As we indicated in our last call, we are on track to begin human clinical trials with this vaccine during the first half of 2007.

Second, we now have a process that can be leveraged with minimal changes to manufacture other VLP vaccines. This is an important accomplishment because the generation of high quality materials is frequently the bottleneck for conducting good proof-of-concept studies for new product candidates.

During this quarter, we also made progress towards development of our second product which is a VLP vaccine against the seasonal flu. We produced VLP materials for all three strains of this vaccine, and that will be needed to ultimately formulate a seasonal influenza vaccine. Using the H3N2 strain of the vaccine we have demonstrated superior cross-reactivity compared to other flu antigens and have initiated a program to further improve this feature of the product.

We have demonstrated that it may be feasible for our vaccine to be given intranasally and achieve a robust immune response. This is important because intranasal delivery produces a mucosal immune response which is important for generating a long-lasting protection against a respiratory virus. In addition, in a pandemic situation, we can reach more people with an intranasal vaccine.

Lastly, we have embarked on a very disciplined and thorough process to add more products to our pipeline. We will share these developments with you once we have completed this process and have covered the intellectual property filings.

I will now turn to Dr. Rick Bright, our in-house influenza expert, and our VP of Global Influenza Programs, to describe our important pre-clinical studies, including a presentation just last week at the World Vaccine Congress in Montreal.

Thank you, Rahul. As Rahul mentioned, I just returned from the World Congress on vaccine immunology and immunotherapy in Montreal last week. We've also just submitted our data for publication in two peer review journals, so I would like to take this opportunity to highlight some of the data presented at the conference and submitted for publication.

We have mentioned before that we have successfully demonstrated robust immune responses to vaccines from both human seasonal and avian influenza viruses which are considered to be pandemic threats. One such bird flu vaccine created against the H9N2 influenza virus was tested in ferrets at the CDC and was able to produce a protective level of antibodies using as little as 1.5-micrograms of the HANR-VLP vaccine. This low dose of vaccine was able to significantly reduce the amount of virus in ferrets that were challenged with the live H9N2 virus in labs at the CDC.

In rat studies, the same bird flu vaccine was able to induce a protective level of antibodies after a single inoculation of as little as 600 nanograms of HA in the vaccine. This is 25 times less a traditional influenza vaccine dose of 15-micrograms. If this dose bearing effect carries forward into our human trials, our VLP vaccine would then have the potential to save many more lives by allowing many more doses to be made from a single batch of vaccine.

Using an H3N2 Fujian strain of vaccine, we have also demonstrated in mice an ability to produce a protective level of antibodies using as little as 25 nanograms of HA in our vaccine. At equivalent doses of 600 nanograms, we have shown a protective level of antibodies greater than seven times that raised against a recombinant soluble protein antigen and greater than two times a whole [unactivated Varian] vaccine, two of our competitors' approaches.

In the ferret model, we have not only shown a robust immune response against the Fujian strain of virus in our vaccine, but also against a number of drift variants or mutated viruses from later years in the vaccine formulation. For example, at a standard 15-microgram dose in ferrets, we tested vaccine made from a 2002 Fujian strain of virus that produced protective levels of antibodies against vaccine strains from 1999 all the way through last year's 2005 California strain.

When compared to a recombinant HA soluble protein vaccine, antibodies raised against our VLP vaccine were over eight times higher against last year's California strain. This is from a vaccine that was recommended in a formulation from the WHO from three influenza seasons prior. This demonstrates great potential of a VLP vaccine to be able to produce broadly reactive immune responses against drifted or mutated variants of the flu virus.

We've been generating pre-clinical data from our H5N1 clade 2 vaccine with our collaborators. As with our other influenza vaccines, it is encouraging that we continue to produce protective levels of antibodies and in some cases after a single inoculation of vaccine.

It has been shown by others that it is often much harder to make an immune response to H5N1 vaccines. However, our preliminary data are slowing a robust immune response and are therefore encouraging and demonstrates a consistency and robustness of our VLP vaccines to make an immune response.

We recently announced a new contract with the CDC influenza division to test our pandemic influenza vaccine by inoculating ferrets that will then be challenged with a lethal dose of a live H5N1 virus. We expect to have these important data in the first half of next year. I want to emphasize again, however, that all of our vaccine data are generated from our VLP vaccines alone without the addition of any adjuvant.

In addition to these vaccines, Rahul has mentioned that we have once again responded to the WHO recommendation to produce vaccines from various clades and sub-clades of H5N1 viruses that are continuing to circulate and mutate throughout Asia. The WHO recently published three recommended vaccine strains for the H5N1 clade 2 family of viruses. We were proud to be the first company to announce having made a clade 2 vaccine from the Indonesia virus.

Since the WHO announcement, however, we started making the other two sub-clade vaccines, and those VLPs have now been produced. Not only do we have one of the first clade 2 vaccines, we now have made stops for all three sub-clade vaccines suggested by the WHO. This again demonstrates our ability to address the evolving nature of this deadly virus.

To summarize our data, we have demonstrated the ability to produce potent vaccines against a variety of human and avian subtypes of influenza, and they have been tested in numerous animal models at four different research institutions. In just a few short months, we have generated pre-clinical data necessary to drive our influenza program into manufacturing for toxicology and clinical studies. We have also demonstrated the power of our recombinant platform that allows us to be able to respond rapidly to continual mutations of this virus as they evolve. This will be extremely important in the event of a pandemic outbreak of influenza.

Before I close, I would like to extend a welcome to Dr. Penny Heaton to our team. Penny has an outstanding track record in vaccine development. Leading the clinical trial programs for Merck's rotavirus vaccine which is now registered in over 100 countries around the world. As we've demonstrated, our programs are on track, and we have the support and leadership we need to take our vaccine into the clinic. Penny will drive this program. She has the experience from Merck. I will now turn the call over to Jeff Church for a look at the Company's financials.

Thank you, Rick. I am pleased to report that the Company's financial condition is strong as evidenced by our $75 million in cash and short-term investments at the end of the third quarter. Our cash position was further enhanced in October with the receipt of $2.5 million from Esprit Pharma which was due on the first anniversary of the license and supply agreement for ESTRASORB. Our current cash position should be sufficient to fund our clinical development programs and operations into 2008.

During 2006, we raised $57 million through two equity financing transactions and stock option exercises. Our outstanding debt balance was further reduced from $29 million to $22 million during the first nine months of the year. Several holders of the Company's senior convertible notes voluntarily exercised their right to convert these notes into 1.3 million shares of Novavax common stock at a conversion price of $5.46 per share.

Our working capital on September 30 was $76.5 million, over double the balance at the beginning of the year. During the current quarter, we reported net loss of $5 million. Our cash burn during this same period was $3.5 million, or approximately $1.2 million per month. During the first nine months of 2006, the Company used approximately $12.4 million to fund its operations, $1.1 million for capital expenditures and $700,000 to service its outstanding debt obligations. This represents a cash burn of approximately $1.6 million per month over the first nine months of 2006.

We anticipated that our use of cash will increase in the quarters ahead, as we complete toxicology studies and manufacturing activities necessary to file an investigational new drug application with the FDA during the first half of 2007. This will position us to initiate human clinical trials with our VLP-based influenza vaccine by mid-2007. Revenues were $1.2 million for the current quarter, up from the $800,000 in revenue reported in the second quarter of 2006, and down from the $1.9 million in revenue reported in the third quarter 2005. Revenues were $3.3 million for the nine months ended September 30, 2006, down from $5.1 million in the comparable prior year period.

Revenues last year included $400,000 of revenue in the third quarter, and $1.6 million for the nine months ended September 30, 2005, from products that were divested in September 2005. This decline reflects our corporate strategy of transitioning from a specialty pharma company that was focused on women's health to an innovative biopharmaceutical company that is now developing novel, highly potent vaccines.

Our net loss for the quarter ended September 30, was $5 million, or the equivalent of $0.08 per share, compared to a net loss of $2.7 million, or $0.06 per share in the comparable period last year. Our net loss for the nine months ended September 30, was $16.9 million, or $0.29 per share, compared to a net loss of $17.3 million, or $0.42 per share in the comparable prior year period.

This higher loss is consistent with our strategic goal of increasing research and development spending around our VLP-based pandemic influenza vaccine, as well as additional investment in our vaccine and business leadership teams. As mentioned in previous quarters, the Company implemented FAS 123R, which is the accounting for stock-based compensation effective January 1, 2006.

A non-cash charge of $261,000, and $1.5 million, were reported in the current quarter and the nine-month period ended September 30, 2006, respectively. There were no corresponding charges in the comparable prior year period. R&D expenses, excluding these non-cash stock-based compensation costs, increased by $1.7 million in the current quarter, and $4.1 million for the nine months ended September 30, 2006 when compared to prior year periods.

General administrative expenses, excluding these non-cash items, increased by $634,000 in the current quarter and $716,000 for the nine-month period.

Offsetting these higher costs were significantly lower selling and marketing costs in 2006 due to our change in strategic focus mentioned earlier. Our ability to direct and focus resources on our highest value product candidates has dramatically improved validating our promising pre-clinical results for our VLP-based influenza vaccine in the clinic in 2007 is our highest priority for the coming year.

I'd now like to turn the call back to Rahul for some summary comments.

Thanks, Jeff. In summary, we have sharpened the focus of our Company to develop vaccines against important life-threatening disease targets. We have made substantial progress with our pandemic influenza vaccine, and are on track to submit an IND in the first half of next year.

In addition, we have made progress on our seasonal flu vaccine and are in the process of adding a third program to our pipeline.

During the third quarter, we continue to build our foundation by putting people, infrastructure, processes, and systems in place. As you have seen from our financial results, we continue to demonstrate good financial discipline, with a bond rate of $1.2 million per month, which is largely directed to support R&D for our vaccines, where we believe the highest value creating opportunities for the Company lies.

We have begun to see early exciting results from our flu program that give us confidence that we are moving closer to our goal of creating the best in class pandemic influenza vaccine. We will continue on this path during the current quarter and will focus on generating the data that are necessary to enter the clinic.

In addition, we will continue to differentiate our products from the competition and protect our intellectual property. It is important to note that the vaccine platform and manufacturing process platforms that we are developing are not just applicable for vaccines against flu, but for other viral disease targets, as well.

We are committed to improving human health worldwide and to reach our full potential as a biopharmaceutical company. I believe we have the right team focused on the right strategy to achieve that goal. This concludes our prepared remarks. Before we open the call for questions, let me hand it over back to Gary for some additional comments. Gary?

Thanks, Rahul and Jeff, and Rick. Hopefully, the listeners are as excited as I am based on what the Company has been able to accomplish. We continue to make progress on all our initiatives and we're very excited about where this Company is going. I want to address something about me personally that's recently been raised.

There was a public announcement a couple weeks ago about a new job that I had taken as President, CEO of a public company that's in the ethanol business. Those of you that have known me, I was in the oil and gas business for 20 years and kind of a bit of an odd ball here as Chairman of Novavax, but I want to assure everyone that has followed me that I by no means am leaving the Company and giving up my role. In fact, I think I have probably been more active at Novavax over the last six months than I ever have been. I've been on this Company's board for over five years. So I believe in this Company. I've not sold any stock. In fact, I've been a net buyer over the last year of stock, and very much dedicated to this management team.

It's good to know, though, that we've been able to attract the kind of people that really take this Company to where it needs to be and I just want to give the listeners before we begin our Q&A session assurance. I've been getting a number of emails and calls about my dedication here, and it is unwavering. So with that, operator, let's turn the listeners over to their questions.

Yes, sir. [OPERATOR INSTRUCTIONS] And stand by for your first question. Our first question comes from the line of Navdeep Jaikaria with Rodman and Renshaw. Please proceed.

Actually, this is [Shawn] for Navdeep. He is committed somewhere else. I have a question regarding your seasonal flu vaccine program. You had generated all of the exciting data so what do you -- can you tell us how do you want to proceed from here?

Yes, sure, Shawn, thanks for the question. Our plan is to first continue our pre-clinical studies. What we've seen so far in ferrets, we will demonstrate that we can do the same in, you know, not only with antibodies but also with challenge studies, and once we have those data, we intend to go forward and file an IND, and move into clinics for the seasonal. So we see great potential with our vaccine with the cross-protection that we are seeing and we have all intentions to move that program into the clinic.

The seasonal space is filled with the competitors with egg-based technology, so how do you compare your cost of goods against theirs?

Certainly, we expect that our cost of goods are going to be equal or more favorable than the egg-based vaccines but again, Shawn, that as we work with this vaccine, we are going to be looking to biological differentiation, and this cross-reactivity that we are seeing, which addresses the ability of our vaccine to protect animals at least, against variants of the virus, is -- if it translates into humans is, going to result in an improvement in the [more] of vaccinology than what is currently available. So I think it will not only address the issue of supply, cost of goods but also will result in, hopefully, an improved vaccine from an efficacy standpoint.

So is it fair to say right now people have to prepare for two strains of vaccines each year, with your technology, with respect to you, only one strain for each year?

No, no, I just want to emphasize that the cross-reactivity that we are seeing is within a particular subtype. Just to correct, the current vaccine is a three variant vaccine, so the three are H3, N2, H1N1 and a B strain, so within H3N2, we are able to get broader immunity, but that doesn't mean that we can substitute our H3N2 vaccine for an H1 vaccine, so we still have a trivalent, but within each subtype we will have a broader immune response.

I see. I see. So, so far all your tests have been against H3N2, right?

That's correct. And that's the one that is the most lethal.

Thank you very much. That's all my questions.

Our next question comes from the line of Bernard [Vovala]. Please proceed.

Good morning, everyone. Congratulations on the continued progress. I actually have two questions. And they're kind of general but I hope you can provide some color on each area. I'm aware that Dr. Monath spoke recently in New England about potential military applications and the need for more effective vaccines that can be produced more quickly.

And the name Novavax came up more than once in his talk. So I'm wondering what might be the targets there if you can provide some color on that whole area?

And then number two, I've been doing some poking around with some of your collaborators on the HIV program, and I think it would be fair to say that there is some excitement in an area where for 20 years there hasn't been too much excitement on the approach that -- that your collaboration is taking. So I was kind of hoping there could be some color provided on that, as well? Thanks.

Let me first mention the first -- answer the first question, about new targets. As you will probably understand, that, you know, it is not appropriate for me to prematurely let you know, and everybody else, about the new targets, until we have secured the intellectual property. We are very excited with the targets that we're looking at and Dr. Monath is right that we have the right technology to address many of these targets, but before we go into the specifics, let us do the work of filing all of the intellectual property filings so we can capture the value that we will create.

Second, regarding the question about the HIV program, we have made an important breakthrough with the expression of the AnlO protein of HIV on the VLP that we create. Previously, the problem had been that there was not enough expression of the gp120 or the AnlO protein on the surface of the VLP, but we have been able to engineer using some creative molecular biology, and thanks to Gail Smith who has been able to do that, but now we have a particle that expresses a much higher amount of gp120, and that's the excitement. Now, it is premature for us to know whether that improvement is going to lead to better vaccines, but certainly our collaborators are optimistic, and so are we, and we are looking forward to the results in animals.

If I would maybe just make one other comment here, probably one of the biggest issues that our management team and board have to deal with here is that the Company has such tremendous good news, that we would like to tell the public, but we also have a fiduciary responsibility to protect our shareholders on intellectual property.

So we're always walking a fine line of what we can and what we feel comfortable releasing to the public domain, versus what we think we have to protect with our legal patent rights.

So please understand you will at times hear things from other third parties about us, and we're not trying to in any stretch of the imagination keep our public shareholders from knowing what we're doing, but we're also trying to protect them so that when we do eventually get to a final product, it is sufficiently protected.

Thank you, both.

Our next question comes from the line of Ken Trbovich of RBC Capital Markets. Please proceed.

Thanks for taking my questions. And congratulations on the early data. I've got a couple of quick questions. I was hoping you could update us on the manufacturing and the scale of process, and then specifically addressing what came out of the Pandemic Planning Update III yesterday that was published. There was mention of stockpiling of clade 2.

Was curious as to whether you believe there is a chance for you folks to be selected since were you the first to produce a clade 2 vaccine, whether or not you would be a part of that process? It sounded like that was something they planned to do next year. And then finally, if you could give us an update on the antigen sparing contract and let us know whether or not you've been informed as to whether you're included in the competitive range on that contract, we would appreciate it?

Thanks, Ken. First of all, regarding the manufacturing and scale-up, we have now been able to produce multiple batches at a seriously large scale of 100-liters and I believe one of the biggest uncertainty and risks that was identified earlier was whether or not our INSIC cell bacular virus expression technology is going to be scalable.

And I have to tell you that with this portable manufacturing technology, not only have we been able to scale up and reproducibly produce product in multiple batches but the scale-up process has been relatively straightforward in the disposable system. So we are particularly pleased with the work that has been done now in terms of making large quantities of this material. There is obviously much work left to improve the process and get our yields higher.

But we are at a place where we can at least make material for our initial studies, both toxicology and Phase I, and as we move towards our pivotal trials, we will have enough time to further improve the process. I also want to mention that not only is the manufacturing process important, but the analytical characterization of the product is critical for the comfort of the FDA, and we have made great strides in measuring the potency of our product in a reliable manner and in characterizing our product so we can give assurance to the FDA that we have control over the material that we produce, both from the standpoint of what is in each batch, and that each batch is consistent from -- with each other. So that is the update on the process and scalability.

And I'm sorry, in terms it of the 100-liters, is that the final commercial scale or that's just what you need to produce in order to get into human clinical trials?

For the time being, that's all we need. There are companies that are making their final product at 100 liters, but I think we have confidence that we can go up to 1,000 liters scale in a disposable technology. So my goal is to continue to do the scale-up from 100 to 1,000-liters which we will do over the next 12 months, but even with the 100-liters, we are in already good shape.

Okay. Thanks.

Second question you asked me was about the preparedness and stockpiling of clade 2. I, again, I'm a bit unsure of that, right now, and I have to say that we will be -- we will look into that. I'm not prepared to answer that question. And similarly, for the antigen sparing contract, I am unsure of answering that question at this moment because this is a government decision, and the government has not made any official announcement regarding any funding award as far as I know.

And you know, we are not supposed to make any announcements on behalf of the government. I want to emphasize to you as well as to our shareholders that we have the financial foundation in place to move this Company in the clinic, with our strong balance sheet and strong team to validate the product in the clinic, and that will be our focus in 2007.

Okay. But do you get a sense in your discussions with them that they're stalling on issuing a contract? It seemed that they were very specific in this document about actually indicating dates, for example, on expanding egg-based vaccine, and even trying to get a contract out there for a rapid diagnostic, and yet they don't seem to make a specific comment with regard to the antigen sparing. Is that a delay from your perspective, or do you see this as just a normal process in which the government is working through the bidding?

This is I believe a very proprietary and very confidential process that I'm not at liberty to discuss on this call.

Ken, I just think that we're shooting ourselves in the foot if we even try to go there. Our conversations are monitored closely by the government, and we just don't want to do anything that would hurt us in any way.

Sure. But this isn't like a canvassing situation where you're to the stage at which you would have been notified that you're not included in the final round?

We cannot comment on that question, Ken.

Again, we're just -- we don't feel comfortable responding one way or the other.

Okay. Thanks.

Our next question comes from the line of Scott Henry with Oppenheimer. Please proceed.

Thank you. Just to start out, on more of a macro picture, you know, I generally think of the bird flu kind of season as from September through March, and certainly non-scientifically, it does not appear that we've heard as much about the bird flu this year as perhaps we would have last year at this point in time. I was hoping you could comment, one, whether do the facts support that, or just any kind of qualitative thoughts on the level in reporting of cases this year versus last year.

Let me make a quick comment and we will turn it over to Rick because he is probably been on the forefront of what is going on globally. There is no question that the press, for whatever reason, has chosen, you know, not to concentrate on the bird flu epidemic like they did this time last year.

And I think if my memory is correct, through July, or August, there were more cases reported of this influenza in humans worldwide through that eight, nine-month period than there was the entire year of last year. So by no means has it gone anywhere and continues to be an issue in over 10 countries. But for whatever reason, there has been other news topics that the media has concentrated on. I will let Rick speak to this.

Thank you, Gary. And thank you, Scott. Bird flu is certainly not a seasonal issue. Bird flu is very different from a seasonal influenza outbreak or epidemic that you would experience in your normal influenza viruses. Historically, if you look at any of the past pandemics, they come in a number of waves and many of those times the waves have started in late spring or throughout the summer. The first wave is a new introduction of a subtype that causes a great amount of death and seems to go away for a while and then comes back with a vengeance.

There has been no pattern of seasonal, winter from September to March, for a pandemic outbreak, so we don't expect that to happen for a bird flu outbreak or an avian influenza outbreak if there is to be another one causing another pandemic. And you know, influenza gets a lot more attention during the winter months because that's when we experience it in North America, or the northern hemisphere, but around the world, the influenza seasons vary, some are in the summer, some are in the rainy season, without a winter month issue.

So it is certainly not correct to think of a bird flu outbreak as a seasonal approach. And, in fact, more cases have been identified this year in humans than any year in the past, and more deaths have been identified and confirmed this year than anywhere in the past, and in more countries this year than any time in the past caused by the H5N1 virus.

The H5N1 viruses are continuing to mutate, continuing to break off into additional clades and sub-clades, and the surveillance is increasing around the world so we can identify these new clades and new mutations as they emerge, and WHO is staying on top of this, and we are staying in close contact with the WHO and a number of collaborators around the world. So we know and we are, hopefully, one of the first to know of new mutations and new isolates identified that are no longer reacting against current vaccine strains, so we can use our rapid response, recombinant technology to make a candidate vaccine for these newly emerging viruses.

Thank you. And perhaps shifting over to the clinical time lines, I know 2007 will be a busy year. When we start to think about longer term planning, I know when we've looked at the pandemic vaccine, as well as the seasonal vaccine, it appears that filings were roughly in the time frame of first half '09 for a pandemic vaccine, and perhaps mid-2010 for a seasonal vaccine. I was hoping you could comment if those seem reasonable, or in any direction, any sort of color around those time lines?

Scott, I believe that the filings will depend on the amount of data that we can generate and I think if you go with the minimalistic file, I think 2009 is feasible for pandemic, and again for the seasonal, it will again depend on what kind of studies we can go into the initial files.

And if we -- again, the strategy of what exactly we want to have in the initial file is not completely vetted out because we are still looking at competition and what is going to be on the market in 2010, and based on that, what kind of label we will need to have to be competitive.

But this is all a question of what kind of claims you want, and how many clinical trials you want to have done prior to going into the VLA, or the CDD filings. So I will just leave it at that. But again, the goal is to create value by making differentiated product and every clinical trial that we will do is going to go in that direction.

Thank you. For taking the questions.

Our final question comes from the line of Jerry [Niver] with Stifel Nicolaus & Company. Please proceed.

Congratulations, gentlemen. There have been little discussion on this call about the MNP efforts to license and so on. Is that currently a dead issue? Or are conversations ongoing? And is anything forthcoming there?

Yes, actually, it is alive and well. I would say that we don't talk much about it because it is not the front burner issue for us. But as we have indicated in the past, the MNP technology remains very viable for several targets and it is potentially a revenue earner for us.

In fact, one of the recent things that has happened, which I'm happy to tell you, is that a small company has collaborated with us to develop a formulation of a very promising drug with our MNP technology and they have signed a proof-of-concept service agreement with us. So this technology remains very viable. And it is a very low-cost proposition for us. Just the technology part, not the manufacturing. But just the technology. And so far, as we can leverage it, we will continue to do so.

A brief reminder, you know, $2.5 million of our cash that just recently came in came from, you know, this sector of our business. And one reason the Company is sitting on the cash that we are sitting on today has to do with the transaction that we accomplished last year with Esprit Pharma. So there is other discussions with other companies going on. We just don't, you know -- it is not a primary focus of the Company. It is an asset that we try our best to recognize and realize the value from. But we are so focused on the vaccine area in what we believe we've got, and this section of the Company just sort of overwhelms this older part of the Company.

Which leads me into the second question that I had, if I may, in 1918, there were about 600,000 Americans died, and that's 10 times more than died in World War I. This is a very important thing. Do you guys feel that you've done an adequate job of communicating to the American public about your technology and, you know, perhaps in the context of what could happen in a worst case situation? And thereby getting, you know, additional cooperation, you know, between yourselves and the administration?

Well, remember, you know, we're working directly with the Centers for Disease Control. That is, obviously, a governmental agency. Rick Bright has just spoke over the last week at two significant organizations. And we continue to have a lobbying effort working with Congressmen about our initiatives. We make applications for government funds.

We spend, in fact, a lot of money trying to educate the government as to what we're doing. And like any business, the more you can prove yourself out, the more attention you get. So time is definitely working in our favor. Fortunately, our results have continued to be better than we had even hoped. And so we are getting the attention of -- would we love to get $100 million grant from the government tomorrow? Yes.

But, you know, these things don't come easily. We are dealing with a bureaucratic organization that runs our country, so I think we're doing as good a job as we possibly can in educating the governmental officials about what we're doing, because they are taking notice, and we are getting some special treatment in some areas, so we just got to keep doing that.

And again, it is a fine line of how much you tell and how much you show until you have it completely patented and you have it properly tested. So I think we're doing as good as we can there. But I -- we are always asking that question to ourselves, is there more we should do.

And you've done a tremendous job of assembling a research team and a management team, as well. One final question. I note the $75 million in interest rates are now in the 4% to 5% range, which should be generating on the order of about $800,000 per quarter of interest. That doesn't seem to be showing up on any income statement. Is there a reason for that?

Jeff, you want to address that?

We essentially have taken the excess cash and have put it into -- with an investment management company that services a lot of the biotechs, and that has occurred over the course of the third quarter. And what we want to do is to make sure that we have reasonable returns without putting our principal at risk. I think as we re-position the investment portfolio, we should see returns in that, you know, 4.5% to 5% range moving forward.

It is funny ask you that question because we have actually been exploring some other alternatives to maximize the value of that cash. And operator, I think it has been about an hour now, so why don't we wrap up. We want to thank all of you listeners for dialing in today and hearing about our third quarter financial results, and our operating update. And feel free to go on our website, or contact our Investor Relations coordinator and VP, Marianne Caprino, if you need any additional information. Thank you for dialing in today.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's call. You may now disconnect.