Novavax Inc (NVAX) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Novavax Second Quarter Financial Results Conference Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host, Ms. Andrea Flynn, Director of Investor Relations at Novavax.

Ma'am, the podium is yours.

Thank you, and good afternoon.

This is Andrea Flynn, Director of Investor Relations at Novavax.

I would like to thank everyone for joining today's call to discuss our second quarter 2017 financial results.

A press release of our earnings is currently available in our website at novavax.com and an audio archive of this conference call will be available on our website later today.

Joining me on today's call is Novavax's President and CEO, Stan Erck; together with our President -- our Vice President of Clinical Development, Dr. James Cummings; and Chief Financial Officer, Buck Phillips.

President of Research and Development, Dr. Greg Glenn; and Chief Medical Officer, Dr. Lou Fries, will be available for the Q&A portion of the call.

I'll now turn it over to Stan to begin today's call.

Thanks, Andrea, and thanks, everybody.

And welcome to our second quarter 2017 earnings call.

We'll switch to Slide 2 and I will invite you to study the safe harbor statement at your leisure and then we'll move on to Slide 4.

So this is our agenda for today's call.

Today's call will focus on our discussion on what I think is a major breakthrough for the company: a new flu vaccine candidate that has emerged from our decade-long seasonal and pandemic flu program.

Our RSV programs remain the clear priority -- clear high priority of the company, with a Phase III trial in progress for maternal immunization and a new Phase II efficacy trial in COPD subjects planned for 2018.

However, since we had a detailed conference call on these programs 2 weeks ago, I think that we are current in our disclosure.

I'm happy to answer any questions that you have regarding RSV in the Q&A segment.

On this call, as Andrea mentioned, you will hear from Buck Phillips, our CFO, regarding our financial update; Greg Glenn, our President of R&D; and Lou Fries, our Chief Medical Officer and Senior VP, are available for Q&A, but will not be presenting.

And I'd like to introduce you to Colonel James Cummings, retired and M.D., a specialist in infectious diseases, who is Vice President of Clinical Development and is head of our influenza and emerging viruses vaccine programs.

Dr. Cummings has been with the company for almost 2 years and comes to us from the Department of Defense where he was most recently Director of DoD's Global Emerging Infections Surveillance and Response System.

James took on the assignment as project lead for flu and reports to Lou Fries, our Chief Medical Officer.

Before we get into the program slides, let me turn the call over to our CFO, Buck Phillips, who will walk you through the second quarter earnings report.

Buck?

Thank you, Stan.

Today we announced financial results for the second quarter and 6 months ended June 30, 2017.

Summary of financial statements can be found in today's press release.

We recorded a net loss of $44.5 million, or $0.16 per share, for the second quarter of 2017.

This compares to a net loss of $79.4 million, or $0.29 per share, in the prior year period.

Revenue for the quarter was $6.7 million, compared to $2.5 million for the same period in 2016.

This 169% increase in revenue in the 2017 period over the 2016 period was driven by higher revenue recorded under the Bill & Melinda Gates grant of $89 million.

As discussed in our prior calls, the BMGF revenue is directly related to the operating activity in the Prepare trial, our Phase III trial of the RSV F vaccine, to protect infants via maternal immunization.

We continue to expect an increase in BMGF revenue in 2017 relative to 2016, which relates to the continued rampant enrollment and increased level of activities as the Prepare trial enters its third season of enrollment.

R&D expenses decreased 40% to $39.3 million in the quarter, compared to $64.9 million in the same period in 2016.

The decrease in R&D expenses was primarily due to the decrease in RSV vaccine clinical trial activity in the second quarter of 2017 relative to the second quarter of 2016, specifically the fully enrolled older adult Phase II and Phase III clinical trials in the second quarter of 2016.

We also experienced lower employee-related costs in the second quarter of 2017 relative to the second quarter of 2016.

G&A expenses decreased 37% to $8.9 million in the quarter, compared to $14.1 million in the same period in 2016.

This decrease is primarily due to lower professional fees for pre-commercialization activities and lower employee-related costs.

As of June 30, 2017, the company had $187.3 million in cash, cash equivalents and marketable securities on the balance sheet, which includes $8.3 million in proceeds raised through the ATM during the quarter.

This is relative to $235.5 million on the balance sheet on December 31, 2016.

Cash burn over the first 6 months of 2017, which we define as net cash used in operating activities plus capital expenditures, was $71.7 million, compared to $142.9 million in the same period in 2016.

Looking into the second half of 2017, we expect a slight increase in cash burn in the third and fourth quarter of 2017 as the Prepare trial initiates its third season of enrollment in the northern hemisphere and as we conduct a Phase 1/2 clinical trial of our new nanoparticle seasonal influenza vaccine.

Based on our continued efforts to identify efficiencies and operating cost savings, I would like to update our calendar year 2017 cash burn guidance, which we define as net cash used in operating activities plus cash used in capital expenditures.

We now expect our 2017 cash burn to be $105 million to $115 million less than the 2016 cash burn, which was $274 million.

This represents additional savings related to my prior guidance on this subject.

This concludes my financial review.

I'll now turn the call back over to Stan.

Thanks, Buck.

And before I start, let me point out that this is a webcast and we typically don't webcast our earnings calls.

And in this webcast, we chose to webcast because James will be presenting a presentation on our flu data and there are data slides involved in that.

And so hopefully you can be part of the webcast.

If you can't, the slides will be found on our website and so you can either follow during the presentation or follow it after the presentation.

And I will be referring to certain slides throughout the presentation, as will James.

So to start, today's presentation is primarily about progress in our flu program.

So this is -- the first slide is our only RSV slide.

But let me use it to remind you of what we presented 2 weeks ago on our RSV program review.

Our program to protect infants via maternal immunization is expanding now into 80 sites across 11 countries.

We've just entered into our third global season, and we've been ramping up to this level all year.

We have been intensively studying the science around our RSV vaccine and have been reviewing all of our clinical data, including from our Phase III trial in the older adult population and from our recently unblinded Phase II trial in the same population.

Our findings tell us a few things.

We've identified that the structure of our vaccine is a prefusogenic RSV F antigen, one that induces very potent antibodies that are responsible for the demonstrated efficacy in multiple clinical trials, including in our Phase III trial.

We've taken the vaccine that was used in previous trials and shown in a nearly unblinded Phase II trial that we can make the vaccine even better by adding an adjuvant to the antigen and changing the dose regimen.

In addition, we've identified a profound vaccine effect in COPD subjects with a 61% reduction in COPD exacerbation hospitalizations.

We found this effect both in our Phase III trial and in our Phase II efficacy trial in the previous RSV season.

Based on this, we have a near-term opportunity to show efficacy in the Phase II trials starting in 2018.

The healthcare burden in COPD patients is enormous and there is little available to the healthcare community to prevent these serious exacerbations.

So as we move to Slide 7, we'll move on to flu.

And flu, of course, remains a very large global market with significant market opportunity.

Our flu program has transitioned from a virus-like particle flu vaccine, or VLP, that we are developing over most for the last decade into a recombinant nanoparticle vaccine that is made without the core protein used in the VLP.

This nanoparticle vaccine, to which we refer informally as NanoFlu, uses the same platform the we have used for RSV, Ebola and MERS.

In our current flu program, we combine this nanoparticle with our very effective adjuvant, Matrix-M, that has been used in human trials with several different vaccine antigens.

You will see how well this works in the following presentation.

Developing a new vaccine for flu has a benefit of exploring well-established immunogenicity models and allows the use to surrogate markers that are reasonably likely to predict clinical benefit.

Based on these established models and markers, our NanoFlu vaccine candidate has demonstrated in the industry standard ferret model a superior and differentiated immunogenicity and efficacy profile in a head-to-head comparison of our vaccine with the #1 vaccine in the older adult population, Sanofi's Fluzone High-Dose.

Following up on this data, we plan on initiating a Phase 1/2 trial in 330 people next month.

Data from this trial should be available in the fourth quarter of this year, giving us another near-term product milestone.

These data should lead to partner discussions, both with commercial partners and with agencies like BARDA.

And these data could lead to an end-of-Phase 2 meeting -- FDA meeting in the first quarter and to a near-term pivotal trial.

Slide 8. We've shown this slide over the years because we wanted to illustrate that there is a very large RSV market with a large healthcare burden very similar to flu.

I now show you the same slide to remind you of the market for flu.

In both markets, there are over 2 million annual infections in the U.S. and significant hospitalizations and deaths.

Mortality for both diseases in the U.S. are similar in the range of 15,000 per year.

Slide 9 shows that there is already a significant part of the older adult population that recognizes the need for flu vaccine.

About 2/3 of that population currently gets vaccinated, and the CDC is trying to move that number up to 90%.

That's a large market, and as the slide shows, it is an existing market for a product that could work a lot better.

If you look at vaccine efficacy over the last 7 years in the older adult population, it ranges from 0 efficacy to a high of a little over 40%, with an average effectiveness of about 35%.

This market needs a better vaccine, and we believe that our platform can produce a product better than what's out there.

Slide 10.

While the U.S. market is the largest, representing around 59% of the major market sales, the top 5 European countries also have a vaccine rate of over 50% in older adults.

The global market for flu vaccine is now above $3 billion and is expected to grow to over $4 billion in the next few years.

This is a market currently characterized by very competitive pricing with little product differentiation.

Our goal is to change that.

Slide 11.

This slide is merely to illustrate that the issue of producing a better vaccine is one that is widely reported from season to season.

To elaborate, each year the flu vaccine industry collaborates with the CDC to attempt to predict what strains may circulate in the coming year.

The vaccine is thus made in advance, and as investors themselves may appreciate, there are pitfalls in predicting the future.

As good as the CDC is, it remains an imperfect procedure and there are many examples where the vaccine strain selected based on these predictions and circulating strains do not match, leading to vaccines that may be less protective and to these types of headlines.

If a vaccine can be created that is less affected by strain changes, we could expect a truly better vaccine.

And even with years with a circulating flu strain is a good match with the vaccine strain, a more effective vaccine is still our goal.

Our vaccine holds promise to fulfill both of these objectives.

Moving to Slide 12.

The target product profile reflects our strategy for introducing our flu vaccine into the market.

As we've shown, it's a growing global market.

I would characterize it as one with several competitors that has had products with little differentiation and commodity-type pricing.

One product that breaks that mold is Sanofi's Fluzone High-Dose that targets the older adult market.

Its product distinction is that it has fourfold the amount of antigen as other flu vaccines and is priced about 3x that for other flu vaccines.

It's been very successful and gained market share in the older adult population.

Our strategy is to bring a vaccine to market that is clearly differentiated from the market leader.

We don't want to bring out a vaccine that is seen as a new me-too product and try to compete with the established flu vaccine companies.

We want to change the game.

Commercially, we plan to compete head to head with Sanofi's High-Dose vaccine initially in the older market and then broaden our label to the general population.

Our plan is also to develop a product that addresses BARDA's top priorities, and I'll talk about that a little bit later.

In the data set that will be presented by Dr. Cummings you'll see how our product candidate meets that goal.

In our ferret challenge model, we compare our vaccine against Fluzone High-Dose and demonstrated significant improvements by every measure.

In our commercial product profile, we expect to have an overall profile that is better than the current market leader.

Better but can be shown through measures such as HAI titers and microneutralization titers and better protection against strains that are matched in the vaccine year but that have been drifted over the years.

In parallel, we must have a vaccine that has high yields, high purity and is produced in a recombinant [A3] manufacturing system.

Over the past year or 2, we have made a breakthrough in our process since we switched from virus-like particles to our current nanoparticle flu vaccine.

Yields have increased tenfold with very high levels of purity.

Once we have a license from the FDA, I'm confident that we have a commercial process that supports a market launch.

We are excited to be sharing breakthrough data with you today.

And with that, I'll turn the call over to James Cummings.

Thanks, Stan.

Today, I'll provide you with an overview of our NanoFlu vaccine program.

Our nanoparticle influenza vaccine is based on the hemagglutinin antigen, or HA, which is found on the surface of the flu virus.

In the figure on the right, the globular head region, featured in red, contains the receptor-binding region of HA.

This sits above the stem domain, seen in gray, which supports the head domain and anchors the HA structure to the viral envelope.

The receptor-binding region or globular head domain on the HA protein is the target for antibodies that prevent flu virus from binding to cells.

These antibodies are highly strength-specific and dominate the immune response to conventional, inactivated influenza vaccines.

Antibodies to this receptor binding site can be detected by hemagglutination inhibition, or HAI, which is an established surrogate marker of protection from influenza.

This surrogate marker of protection is recognized by the FDA and other regulatory agencies and can be used as a basis for licensure.

On Slide 16, we see a label figure, as well as an actual cross-sectional image of our influenza nanoparticle.

As you can see, there are multiple hemagglutinin antigens self-assembling around the nanoparticle core.

This results in a very stable HA nanoparticle, which, as I'll show you in the next few slides, is highly immunogenic.

The preclinical goals for our NanoFlu program were straightforward: to evaluate our HA-based nanoparticle influenza vaccine adjuvanted with Matrix-M in the ferret model, which is the gold standard for preclinical influenza vaccine testing, to assess the vaccine's immunogenicity and its protective efficacy.

We compared our NanoFlu vaccine with 2 leading commercial influenza vaccines from the 2016-17 season, Fluzone and Fluzone HD, which are both produced by the more historic egg-based approach.

In addition to immunogenicity, we evaluated protective efficacy, using an intranasal challenge with a recent H3N2 strain that was matched to the current vaccines, as well as a drifted historical H3N2 strain, which is unmatched in the current vaccines.

For the study design, we used our NanoFlu vaccine as well as the 2 commercially-approved vaccines and a placebo to immunize groups of ferrets on day 0 and day 21, with blood draws on day 21 before the second immunization and day 42.

All the ferrets were challenged intranasally on day 49 with either the matched H3N2 strain represented in the vaccines or an unmatched or drifted H3N2 strain that was not represented in the vaccines.

On Slide 19, we've provided a table that describes the vaccine compositions.

The Novavax NanoFlu vaccine contains the recommended strains for the upcoming 2017-18 year and reflects the composition of the vaccine to be used in our upcoming Phase 1/2 clinical trial.

As you can see, there was a small difference in the H1N1 strains among the vaccines, with NanoFlu having an A/Michigan strain from the 2017-18 recommendations and Fluzone and Fluzone HD having A/California as their H1N1 strain from the 2016-17 recommendations.

All vaccines had the same H3N2 strain, A/Hong Kong, as well as the same B/Victorian strain, B/Brisbane.

Slide 20 depicts the HAIs induced at day 42 against our selected flu strains.

The x-axis of each graph depicts the type of test article, either placebo, NanoFlu with Matrix-M, featured in red, or Fluzone HD or Fluzone.

The y-axis represents the HAI titers demonstrated.

So the higher the value, the better the HAI, which is a recognized surrogate for protection.

As you can clearly see, NanoFlu vaccine produced superior hemagglutination inhibition responses across all strains that were represented in any of the vaccines.

The NanoFlu-produced antibodies demonstrated superior HAI responses for A/Michigan, A/California, A/Hong Kong, and B/Brisbane.

On Slide 21, even in the case of H1N1, which was slightly mismatched between the vaccines, we see that NanoFlu, represented in red, produces significantly superior HAIs in both the A/Michigan, which is represented in NanoFlu, and not in the Fluzone and Fluzone HD products, but also in A/California, which is not represented in NanoFlu but is found in Fluzone and Fluzone HD.

Looking at the numeric data, featured in the boxes below the graphs, the NanoFlu provided a statistically significant increase in HAIs over the responses obtained with the commercially available vaccines.

These data are evidence to the broadening of protection that is found with our NanoFlu vaccine adjuvanted with Matrix-M.

Influenza immunogenicity can be evaluated through microneutralization testing where the antibody stops the virus from growing in cells.

This functional assessment of vaccine immunity is generally more sensitive in measuring humoral immunity in influenza.

Microneutralization is routinely used at the CDC, the World Health Organization and many labs around the world.

For A/Michigan, on the upper left-hand side of the table, we see NanoFlu, in red, producing a titer of over 5,000, with Fluzone HD, in blue, yielding a titer of about 32.

For A/California, NanoFlu produces a titer of over 4,000, with Fluzone HD producing a titer of about 40.

For A/Hong Kong, NanoFlu produces a titer of approximately 1,200, with Fluzone HD yielding a titer of about 80.

In all of these graphs, we see confirmation of the HAI data that the NanoFlu vaccine, depicted in red, provides superior influenza microneutralization across all strains from 8- to 100-fold higher than the commercially available seasonal influenza vaccines.

Again, using influenza microneutralization, we look back across more than 15 years of H3N2 strains.

The data speak for themselves.

The NanoFlu vaccine, depicted in red on our figure, provides significantly superior microneutralization of H3N2 strains across more than 15 years of drift, on the left-hand of the slide, from 2014 H3N2 Hong Kong strain down to the 1999 H3N2 Panama strain on the far right of the table.

In the A/Perth 2009 strain, for example, NanoFlu has a microneutralizing titer of 768 versus Fluzone HD's, producing a level of 6. These data illustrate a broadening of functional immune responses against drifted strains.

This is an important advantage of the NanoFlu vaccine.

The importance of the drifted strain coverage can be illustrated by the following scenario.

During the recent 2014-15 influenza season in the northern hemisphere and several times in the last few decades, an H3N2 mismatch between the recommended annual vaccine strain and the circulating A(H3N2) viruses caused by antigenic drift resulted in a significant increase in influenza cases and bad outcomes, especially in our elderly population.

This was due largely for the lack of cross-protection against drifted strains in the currently-approved vaccines.

The NanoFlu vaccine preclinical data addresses this very significant challenge for influenza vaccines and could lead to a better influenza vaccine.

On Slide 24, we show influenza challenge data, which is generated from ferrets infected with flu by placing live virus into their nose and followed over about a week to see if the vaccine reduces the presence of virus in the nasal passage.

For these challenge graphs on Slide 24, the x-axis depicts the days post challenge and the y-axis represents the nasal wash virus titers, thus the lower the line, the smaller the area under the curve and the better the protection.

On the left-hand side of the slide and looking at the challenge with ferrets with the matched H3N2 strain, that's the H3N2 strain represented in all of the vaccines.

NanoFlu, seen as the green line, delivered significantly superior protection compared to the commercially available strains.

Turning toward the right-hand portion of the slide and the data from the challenge with the unmatched or drifted strain of H3N2 from 2007, NanoFlu, seen as the green line, again demonstrates significantly superior protection compared to commercially available vaccines, Fluzone HD, Fluzone and to placebo.

In summary, our nanoparticle influenza vaccine demonstrated greater protection in the preclinical ferret model, both in matched and in drifted flu virus, when compared to the market leader in older adults, Fluzone HD.

Additionally, NanoFlu can be manufactured with very high yields, excellent purity and high levels of potency.

The NanoFlu vaccine, with the features I've described, has been scaled up and manufactured in GMP process in preparation for clinical testing.

These data may signal a major improvement in seasonal influenza vaccines.

They also provide the basis for us to proceed into a Phase 1/2 clinical trial later this year to confirm in humans the preclinical findings we've discussed today.

As Stan will discuss, good immunogenicity from our upcoming Phase 1/2 clinical trial may lead to a near-term pathway to a pivotal Phase III study and licensure.

Back to you, Stan.

Thanks, James.

So I think maybe you can hear -- or you can't see, but you can hear in our voices, we're pumped about our new product.

I'm well aware that our demonstration of immunogenicity and efficacy is in an animal challenge study, but this is the industry standard model that's used in advance of all clinical trials.

However, we plan for success and are now ready to move into an important Phase 1/2 trial in 330 older adults.

This trial is designed to be large enough to demonstrate that our product can be differentiated in a head-to-head trial with Fluzone High-Dose.

Success in this trial will lead us to request an end-of-Phase 2 meeting with the FDA.

If we're successful in receiving accelerated approval, we will move to a Phase III trial that could be finished in time to have pivotal data by the end of 2018.

That trial would be based on measuring immune responses to our vaccine.

So this next slide gives us some highlights of near-term milestones and steps back up to the broader company perspective.

So with maternal immunization, we expect to continue enrollments such that we have sufficient enrollment by mid-2018 to initiate an interim analysis.

One measure of success would be that we would have sufficient protection in infants to stop trial recruitment and begin preparation of our BLA in 2018.

In our older adult RSV program, in 2018, we are targeting the initiation of an efficacy trial in the COPD population.

In flu, we have several meaningful milestones over the next 18 months that could push this program into pre-BLA status by the end of 2018.

Finishing up with highlights, I think we can see that we have many product opportunities and important markets, the basis for our flu and RSV programs as a platform that gives us highly differentiated products.

Ultimately, to bring these products to commercialization, we need to generate additional cash resources.

We've done this successfully in the past and expect to continue to do so.

Our preference and expectation, of course, is that we can do this in the least dilutive way that we can.

We expect to continue -- we have strong financial support from the Gates Foundation and expect to continue drawing on that support.

We've had strong financial support from BARDA on our flu program.

And with the profound new data that we have both in immunogenicity and protection and in our manufacturing advances, I believe that we can get them to reengage in a significant new contract.

Our vaccine has the potential to address all 4 areas that they focus on.

First, licensure of our seasonal influenza vaccine is the pathway to pandemic vaccines, founding criteria in BARDA.

They are also interested in a pre-pandemic vaccine, as well as a seasonal vaccine that has cross-protection against drifted strains, and ultimately, as a universal flu vaccine.

On top of the very compelling commercial opportunities for a vaccine, we have optimism that they will support our program in these related areas.

All of the programs that we've mentioned have significant commercial appeal.

All the large pharma companies that have an interest in vaccines know us very well and our targets are already in discussions in the near term.

Partnerships is one of the -- one or more of the programs -- in one or more of the programs can give us the ability to take those programs to licensure and will give us the opportunity to progress our other programs in parallel.

We have a bright future with major milestones coming up over the next 12 to 18 months.

And with that, I will now turn the call over to the operator for questions.

(Operator Instructions) Our first question comes from the line of Ted Tenthoff from Piper Jaffray.

Thanks for the update both with RSV recently and with the additional programs.

So I wanted to kind of get a higher-level view of sort of how you guys are looking at competition now, not just in RSV, but also in Zika.

I know that's a much earlier program.

But how do you see sort of the Zika threat playing out in the U.S.?

There is actually a lot less noise from it this year than I was expecting.

So how do you guys kind of see Zika continuing to be a bio threat and an emerging viral threat in the United States?

I'll let James take that.

Thanks, Stan.

So for the upcoming data calls from CDC, we see that the rates of Zika have continued to increase both in the United States continentally, as well as the U.S. territories.

We see in the Southern and Central American areas somewhat slower reporting of increase of data, and we think that, that -- the Zika infection continues to be an issue.

And how do you see sort of competitive efforts either at therapeutics or vaccines for Zika?

Yes, I think -- this is Stan.

So I think the competitive efforts are there.

When this was first announced, I think there was some very robust number, like 26 vaccines being developed.

I think many of those have fallen away.

Ours is not.

We're using the same platform that we've used for Ebola and for MERS, for Zika, for RSV, for flu.

The strategy works for all the reasons that we just talked about with flu.

I can't impress upon you enough about how every single aspect of our flu vaccine hit the mark, with immunogenicity and being able to produce it, in protection.

And our expectation is, is that we can do the same with the Zika vaccine.

We're now in nonhuman primates.

We've now vaccinated the primates with the 2 doses out of a 3-dose regimen.

And based upon those data, we will vaccinate a third time and then go into human trials sometime in the early part of next year with a vaccine that's based upon our nanoparticle.

We think we're making the right kind of vaccine.

So on all of the other programs, I think that -- I just can't -- I can't comment.

I think ours will be successful.

I'm worried more about what the direction of the market is.

I think that my discussions with KOLs in this area stimulate the suggestion that there will be a certainly a southern hemisphere market, South American market and probably up into the southern part of the United States.

I have no idea what the governmental position will be on purchasing.

So I don't know.

It's a different market from both sides.

There's I think ...

Yes, I agree.

I agree with your assessment.

I don't think that this is over by any means.

And how do you think sort of the time back to Phase II has changed the competitive landscape for RSV for you guys?

Yes, I'll be happy to address that question.

So let's take the 2 major markets that we're talking, the older adult market and the maternal market.

There is -- we had 2 other competitors that were in clinical trials of significance, and one was MedImmune.

And they ran their 1,900-person older adult program last year and canceled it based upon the failure of the vaccine to work.

We looked at it.

We saw a couple of things that we noted.

One was, is that they showed that they had the same attack rate that we did.

So it's a low attack rate year and they confirmed that.

But then we worried about what can -- is there a vaccine indicative of not being able to vaccine in the older adult market, and I think not.

It's a very different vaccine from ours.

And so that's why we're pushing forward.

That's why we did a study, this 205 study.

That's why we looked at potentially adjuvanting and doing the change in dose regimen.

So they've dropped out of the market.

So we're in it.

And you look at -- then you look at GSK.

They have a vaccine that's -- they have an interest in the maternal market, and I think they've got an early-stage elderly product.

We have to be 3 to 5 years ahead of them on both of these programs.

And so we have remained -- we've always been ahead.

We've always been a few years ahead, not just around the corner, and we think we're still there.

(Operator Instructions) Our next question comes from the line of George Zavoico from JonesTrading.

Thanks everyone at Novavax for the update and for the really interesting and exciting data for the flu vaccine.

Couple of questions on that.

First, in the figure, you showed the nanoparticle core.

Is that part of the actual RSV antigen nanoparticle?

And that's where it self-assembles or is that a separate entity?

I believe it's the former.

I just want to make sure.

George, this is Greg.

So that core is PS80, which is a detergent and it's a hydrophobic.

It allows a hydrophobic tail of our constructs.

And that's part of our platform technologies to form a nanoparticle using a detergent micelle.

So that's common.

That approach is common for flu, as well as for RSV.

Okay.

And with regard to the table you had comparing the different vaccines, one of them, I think it was the high dose.

Was it the high dose one that had -- with quadrivalent with the B/Phuket.

Did you look at that strain with your NanoFlu?

This is James.

No.

Actually the high dose is a trivalent vaccine, just as our vaccine is trivalent.

The B/Phuket strain is in the quadrivalent lower dose Fluzone vaccine.

So we did not test against B/Phuket.

Do you know -- and you demonstrated cross-reactivity across the different A strains, H1 and H3.

Do you think you have the same cross-reactivity across the different B/Victoria strains?

This is Greg again.

There -- typically, cross-reactivity between those 2 lineages is generally quite low.

Now going forward into our program, we expect to develop quadrivalent vaccine.

We will evaluate in our Phase I trial, whether there might be more cross-reactivity based on the fact that everyone has been sensitized.

We're expecting to develop a quadrivalent vaccine.

But for this trial, for this evaluation, we are comparing to the trivalent Fluzone High-Dose.

Okay.

And what about across different -- I mean, the H1 and H3, you see cross-reactivity between those as well or just within the H3 place?

(inaudible)

So those are much more diverse.

So no.

Right now it would only make sense for us to look across H1N1s or H3N2s.

Okay.

All right.

And finally, last question regarding BARDA.

It would be terrific if you could reengage them, of course, because you had a really good relationship with them.

However, last time you submitted a proposal to BARDA, the wait time for a response was inordinately long.

How long can you wait for a BARDA response, if you need to go that way to move forward on what they would like to see you guys do?

Yes, so we're at a point right now where we -- this is so compelling to BARDA.

This is right down the alley to what they want.

In fact I remember, if I've told you, that a couple of years ago at one of our quarterly meetings, they told me as we're walking down the hallway, they said, "We like your VLP flu program.

But you guys seem to be focusing on nanoparticles and the other programs and, yes, they seem to have some advantages, why don't you start switching this program over." And we did.

And so this was actually at their suggestion, and they would happily have been funding this program except as a nanoparticle flu vaccine, it was out of scope of their VLP flu vaccine.

And so we -- just because of government funding procedures, you had to redo the contract.

We're now back in a place where exactly -- where we are exactly where they want to be in.

And we're scheduled to talk with all of the BARDA people next week, all the high-level people.

And so we have a lot of visibility into that area.

And I don't know how fast the funding could do, but it's not going to be years.

It's going to be months.

But I'm pretty sure the fund is going to be in.

And this hits all of their hot buttons.

It hits all of their hot buttons for everything they've been trying to work on.

Okay.

So basically you've got the right proposals, right?

We do.

We do, but that's not terribly long.

We can do that pretty quickly.

Okay.

And then finally, 1 quick short question.

The Fluzone, is that 1 or 2 doses, 3 weeks apart?

It's 1 dose and it's a standard commercial.

We wanted to go -- as I think we've said, maybe mentioned it 2 or 3x throughout this, we just think we want to go and we want to beat the best.

And so that's the best out there.

So they've been very successful in the older adult market because their 60-microgram dose, which is 4x the normal, has shown the -- they did a nice study and showed that it was more effective than their low dose.

But that's the only trick, it's got a higher dose.

And we beat that higher dose in ferrets with a 15-microgram dose, so.

You're going with 2 doses though?

No, we're not.

No, we're comparing -- what we're going to do is compare 2 different arms.

We're going to do a 15-microgram Matrix adjuvanted dose, a 60-microgram Matrix adjuvanted dose, going against their 60-microgram egg-based vaccine.

Okay.

I guess I was confused by the table because it looks like you are doing a dose of 0 in 21 days.

No, no, just 1 dose.

Oh, okay.

This is Lou Fries.

Yes, the -- we used 2 doses in ferrets because they are profoundly naive, but you don't need to do that in humans.

Oh, okay.

I get it now.

Yes.

Our next question comes from the line of Kevin DeGeeter from Ladenburg.

Stan and Glen, can you just talk a little bit more about just how one thinks about moving forward the potential combination of the nanoparticle with an adjuvant for flu where we haven't used adjuvants widely in the past.

Just how you think about that from a commercial positioning standpoint.

Yes, well, if you're talking about adjuvants in flu vaccine, we now have a flu adjuvanted -- an approved flu adjuvanted vaccine in the United States.

We just -- that fear has gone by the wayside.

And our vaccine, our adjuvant, has shown spectacular results in at least half a dozen different trials.

It's in a product with Genocea where it's in Phase II trials.

It's in a HSV vaccine.

I think the adjuvant has been very powerful in showing their ability to get efficacy in their trial.

It's been all the way from our H7N9 pandemic flu vaccine to an Ebola vaccine, which we consider to be the best Ebola vaccine on the planet.

It's been in a malaria vaccine.

It's been in, what am I missing, our own RSV vaccine.

So it's widely used.

I think we're in over 1,000 people.

So the issue and it's shown to be safe in all those settings, so.

And when one thinks about potential cost of goods and pricing, do you think you can get commercially attractive margins, pricing imperative, or do you think the profile you demonstrated would justify a premium and probably margins?

So way for our strategy.

So I think you're talking flu now.

And flu now, all we have to do, we're going against high dose flu vaccine.

That vaccine is triple the price of the standard vaccine.

There is lots of room for good margin there with the manufacturing.

These manufacturing advances we've made in the last 12 to 24 months are stunning.

They have made and they have turned the product into what would be we'd be worried about cost all day long to one where cost of goods sold is not the issue here.

And even with the Matrix adjuvant, the Matrix adjuvant is not a substantial cost product.

Kevin, when we look at this -- It's Buck.

I second with Stan saying the yield improvements here are fantastic on the antigen side.

And don't forget that the Matrix is, in effect, a small molecule, so we can make that, particularly at volumes, very cost effectively.

And then just one more question on the similar line, if I may.

I apologize if I missed this earlier.

But when you think about potential scale up of this product, it seems like it should be relatively more straightforward than perhaps some traditional flu vaccine products.

But can you just kind of remind us where you are with regard to a movement towards commercial scale and what do you think that might entail that line?

Yes.

So we were saying that we could launch where we are right now in Firstfield Road in Gaithersburg with a couple of thousand-liter bioreactors, and then ultimately move into multiple 2000-liter bioreactors.

With tenfold of yields in product, we can launch product and probably cover years' worth of production as we gain market share.

But this is a very significant improvement in the manufacturing.

So we can launch.

We have launch-able facilities for both maternal and for flu.

And of course, as we get closer to launching both those products, we'll decide whether we have to add capacity to that, and we have options.

And I'm currently showing no further questions.

And now I would like to turn the call back to Stan Erck, President and CEO, for closing remarks.

Okay.

Once again, thanks for the calls, guys.

We've -- I think we've made a pretty major advance here and we look forward to showing the data over the rest of the fall.

Thanks a lot.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes today's program, and you may all disconnect.

Everyone, have a great day.