Barclay A. Phillips - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer Stanley C. Erck - Chief Executive Officer, President, Director and Member of Finance Committee Gregory M. Glenn - Senior Vice President of Corporate Development.

William Tanner - FBR Capital Markets & Co., Research Division Edward A. Tenthoff - Piper Jaffray Companies, Research Division George B. Zavoico - MLV & Co LLC, Research Division Kevin DeGeeter - Ladenburg Thalmann & Co. Inc., Research Division.

Good day, ladies and gentlemen, and welcome to the Novavax Q2 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Mr. Buck Phillips. You may begin..

Good afternoon. This is Buck Phillips, Chief Financial Officer of Novavax, and I would like to thank everyone for joining today's call to discuss our second quarter 2014 financial results.

Today's earnings release currently available on our -- is currently available on our website at novavax.com, and an audio archive of this conference call will be available on our website later this evening. Joining me on today's call is Novavax President and CEO, Stan Erck; and Senior Vice President of Research and Development, Dr.

Greg Glenn; as well as other members of our executive team. Before we begin our prepared remarks, I need to remind you that we will be making forward-looking statements during this teleconference that could include financial, clinical or commercial projections.

Statements relating to future financial or business performance, conditions or strategy and other financial and business-related matters, including expectations regarding revenue, operating expenses, cash usage and clinical development and anticipated milestones are forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

Novavax cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, which will change over time. I will now turn the call over to Stan Erck, President and CEO..

Thanks, Buck. Good afternoon, everyone. So we're now 8 months into 2014, and I'm very pleased to tell you that the momentum we created in 2013 and in the first half of 2014 continues.

In the second quarter, we delivered on a number of important clinical and corporate achievements, including significantly strengthening our balance sheet and delivering data from 2 important clinical trials, using our RSV F vaccine candidate. These successes set the stage for several important milestones over the remainder of 2014 and into 2015.

One of our most important accomplishments this year was the April announcement of the top line data from the Phase II dose confirmation clinical trial of our respiratory syncytial virus or RSV vaccine in 720 women of childbearing age.

We discussed this data in detail on our last call, but Greg Glenn will provide a brief summary of these results as they support the maternal immunization trial that we will initiate in the next few months. Also in the quarter, we announced positive 1 year follow-up data from our Phase I study in elderly.

Greg will provide an overview of this data, as well as a brief overview of the next steps in our RSV development plan.

When Greg finishes, I will speak to the other corporate highlights and achievements during the quarter, as well as key anticipated events through the end of the year, before handing the call to Buck Phillips, who will go over the financials. We'll then open the line to take any questions you may have.

So Greg, let me turn the call over to you to discuss our RSV program..

Thanks, Stan, and good afternoon. On April 28, we announced top line data from our dose confirmatory Phase II clinical trial in women of childbearing age.

While we did discuss these trial results in our last call, I would like to reiterate key findings and how they relate to our upcoming maternal immunization study that we expect to start in the next few months.

The study was randomized, blinded, placebo-controlled trial designed to evaluate the immunogenicity and safety of multiple formulations of our RSV nanoparticle vaccine adjuvanted with aluminum phosphate.

The study enrolled 720 healthy women between the ages of 18 and 35, and they received either 1 or 2 IM injections with either 2 different dose levels of antigen in a range of doses of adjuvant.

The highlights of the data include the RSV vaccine candidate was well tolerated with no vaccine-related serious adverse events, and the safety profile was consistent with other studies.

A single 120-microgram antigen dose generated palivizumab-competing antibody levels of approximately 400 micrograms per ml, the highest level seen in any of our previous studies. There were clear increases in both the RSV-A and RSV-B neutralizing antibodies that were shown across all those formulations.

The vaccine-induced palivizumab-competing antibodies also demonstrated strong concordance with our anti-RSV F IgG antibody responses. This data was highly encouraging and served to inform the design of our upcoming trial of pregnant women, which we currently anticipate enrolling in the next few months.

This next study, which we refer to as M203 will enroll 50 women in their third trimester of pregnancy. It will be a randomized, blinded, placebo-controlled trial with the primary endpoint of safety for both the mothers and infants.

Other endpoints will include immunogenicity and the transfer of the anti-RSV antibodies induced by the vaccine from the mother to the infant through the placenta. Additionally, we will estimate the antibody half-life in the infants. The data generated from this coming trial should provide a basis for moving the program into efficacy studies.

M203 will be a very important study for the program and the company, and we expect to initiate this trial to be started in the next several months.

Now moving onto the 1-year follow-up data from the Phase I study of our RSV vaccine candidate in elderly subjects, that data which we announced in May, this was a dose ranging, placebo-controlled Phase I clinical trial in 220 elderly subjects, 60 years of age and with a mean age of 68.

Subjects received a single injection of either 60 or 90 micrograms of the RSV F vaccine, with or without aluminum phosphate as adjuvant. And again, the positive top line interim safety immunogenicity previously released by Novavax in July of 2013 described antibody responses at day 28 and 56.

In the 1 year follow-up data, the group received a 90-microgram dose without adjuvants. The anti-F IgG levels and the palivizumab-competing antibody level were significantly elevated over baseline at day 1 18, with geometric mean of 130 microgram per ml and a day 180 with geometric mean of 114-microgram per ml.

For this same group, day 180 anti-RSV-A, neutralizing antibodies were a log2 8.8 and RSV-B neutralized antibodies were a log2 9.0, both considered protective levels and seroepidemiology studies.

Since the RSV seasons lasts for 4 to 5 months, it was important to see this follow-up data, which supports our vaccine, supports the concept that our vaccine could be protective across the full RSV season. But our data also suggests that these protective levels are diminished by day 365, annual boosts of our vaccine may be warranted.

Overall, these very encouraging results support continuing development of the seasonal elderly vaccine. We expect to initiate a larger Phase II clinical trial in the elderly population in the next several months. The outcome of this next clinical trial will determine the next step, which may include moving directly into a Phase III trial.

We expect to start the study in the fourth quarter of this year. In addition to the maternal immunization study and elderly study, we also plan to initiate our first clinical trial of the RSV vaccine candidate in the pediatric population.

This will be the first clinical study of the vaccine in pediatric population where the endpoints will focus on safety immunogenicity in a RSV seropositive population. And finally, I'd like to point out that there are 2 preclinical data sets that will be presented at the upcoming ICAAC conference to be held at Washington, D.C. between September 5 to 9.

The first one is titled, an oral presentation -- it's an oral presentation, excuse me.

And the title is, "Immunization of Pregnant Baboons with the RSV Nanoparticle Vaccine Protects Infant Baboons Challenged with Respiratory Syncytial Virus in a Comparable Manner to Infants Prophylaxed with Palivizumab." This will be presented at the maternal immunization session.

And finally, the post -- we'll also be presenting on the "Development and Characterization of Recombinant RSV Nanoparticle Vaccine Induced Monoclonal Antibody." And with that, let me turn the call back to Stan. Thank you..

Thanks, Greg. As I'm sure you can all tell from Greg's presentation, we remain excited about the data and the future of our RSV program. So let me reiterate. Over the next 6 to 8 months, we plan to initiate 4 different clinical trials in RSV. We plan to initiate our first RSV trial in pregnant women to demonstrate transfer of antibodies to newborns.

We will start our first RSV trial with the pediatric population in an effort to develop a vaccine to protect kids from 6 months to 6 years. A third trial will be an RSV Phase II trial in elderly patients.

And finally, for our combination RSV and seasonal flu product candidate, which we refer to as a pentavalent respiratory vaccine, we plan to initiate a Phase I clinical trial in early 2015. We also plan to initiate a Phase II trial with our quadrivalent seasonal flu influenza vaccine, a candidate in the fourth quarter.

And assuming a successful trial, this should lead to a Phase III efficacy trial by the end of 2015. All told, we will have -- we will initiate 5 separate clinical trials over the next 6 months with the expectation that we will release data from each of those trials throughout 2015.

Switching to our pandemic influenza program, as discussed on our last call, our Phase I/II clinical trial of our H7N9 avian influenza VLP vaccine candidate and our Matrix-M adjuvant technology remains ongoing. This trial enrolled 610 healthy subjects to evaluate safety and immunogenicity responses to the vaccine with adjuvant.

The trial is also evaluating 3 different dose levels of the antigen and 2 dose levels of the Matrix-M adjuvant. We continue to expect the top line safety and immunogenicity data will be reported later in this quarter.

We believe this trial will lead to a dose-confirmation trial of healthy and elderly adults, followed by a Phase III immunogenicity trial. I'll turn to the corporate milestones. We closed a public offering in the second quarter, which raised $108 million in net proceeds.

And I'd also like to announce our 2014 Analyst and Investor Meeting, which we'll hold on September 23 in New York City. That meeting will be accessible via webcast to all investors. And we'll provide more information on the agenda and topics over the next few weeks.

And with that, I'll turn the call over to Buck to review our second quarter 2014 financial results..

Thank you, Stan. For the second quarter of 2014, we reported a net loss of $17.9 million or $0.08 per share. This compares to a net loss of $12.6 million or $0.08 per share in the prior year period. Revenue in the quarter increased to $8.3 million compared to $5.3 million for the same period in 2013.

The increase in revenue is primarily due to a higher level of activity under our contract with HHS BARDA, specifically relating to the ongoing U.S.

Phase I/II clinical trial of our H7N9 vaccine candidate with Matrix-M, as well as other preliminary manufacturing and preparatory work for our planned Phase II seasonal influenza trial, which we expect to start later this year.

In addition, we recorded revenues during the quarter under our PATH contract relating to our recently completed Phase II clinical trial of our RSV vaccine candidate in women of childbearing age. Cost of government contracts increased to $5.1 million in the quarter from $1.6 million in the same period in 2013.

The increase is directly related to the factors that led to the increased revenue under the contract with BARDA that I've previously discussed. R&D expenses increased to $15.2 million in the quarter compared to $10.8 million from the same period in 2013.

The increase in R&D expense is primarily due to continued growth in support of the RSV program, the influenza program and others, as well as the inclusion of $1.6 million in Novavax AB R&D expenses in the 2014 quarter, which did not exist in the 2013 quarter.

G&A expenses increased to $5.8 million in the quarter compared to $4 million for the same period in 2013. The increase is primarily due to higher noncash stock compensation expense of approximately $0.9 million and the inclusion of Novavax AB G&A expenses of approximately $0.6 million.

As of June 30, 2014, the company had $208.8 million in cash, cash equivalents and investments, compared to $133.1 million as of December 31, 2013. During the quarter, as Stan mentioned earlier, we significantly strengthened our balance sheet by raising net proceeds of $108 million in an underwritten public offering.

As we discussed at the time, the new capital would enable the clinical development of the RSV vaccine candidate in the elderly indication, in parallel with our maternal vaccination and pediatric indications.

In addition, the new capital will be used for general corporate purposes, which include capital equipment investments necessary to meet the manufacturing demand of our planned and future clinical trials. With that, I will close my comments and turn the call back over to Stan..

Thanks. We'll turn it over to the operator for Q&A session now..

[Operator Instructions] Our first question comes from Bill Tanner of FBR..

You had a couple of -- one of the -- I guess as we talk to investors about the story, one of the questions that comes up a lot is as it relates to the maternal vaccination, simple question is why would women want to participate in the study that are pregnant? It's an experimental vaccine, obviously.

So I just wondered if you could address that maybe and then also perhaps, if you anticipate there being any enrollment challenges in the Phase I pediatric. And then, not to pin you down, just kind of a rough timeframe when we might see some, at least, top line data from both of the studies..

Thanks, Bill. It's Greg, good questions. So operationally, we put a great deal of effort into the execution on maternal immunization trial. We're working with a number of academic centers. The groups that are conducting the trial are typically obstetric, gynecologist. So they understand the importance of those conversations.

And we're, of course, very careful in how we represent the vaccine. Because at this point, we do not have any benefit -- any known benefit of the vaccine to the patients. So that conversation in an informed consent study is a very cautious conversation. However, our investigators are experienced with this.

I think I've mentioned before that because of the pertussis and influenza vaccine being given as maternal immunization, there's been a great deal of work that's gone on in this arena. And we are able to take advantage of much of that work that's created the clinical structure that would allow us to do our trial.

So we're optimistic that we can recruit and -- but we're very aware of the challenges. We spend a lot of time working on how to execute in this program. So I think with the pediatric trials, the same type of conversation. So again, these vaccines are very carefully evaluated.

We get a lot of good advice both from regulatory authorities as well as investigators. So we're very careful in those conversations. I think that data would be -- we're not really giving any guidance. But typically, these trials would have to take about 1 year.

And I think beyond that, we haven't really provided any guidance on the RSV pediatric programs in terms of results..

And just one last other question on the pediatrics. It's a Phase I. And I -- obviously, one of the goals would be to assess the safety.

But I'm assuming that there could be some antigenicity data -- useful data that would come from that as well?.

Exactly. It will be a safety and immunogenicity trial. We'll evaluate a limited number of dose formulations. So we'll look at safety of the vaccine and immunogenicity of the vaccine. And this -- I should mention in this population, it will be an RSV seropositive patient.

So we would be prescreening to ensure they have some level of antibody to the RSV virus in advance. That would reflect the kind of population we've been working with in healthy adults..

Our next question comes from Ed Tenthoff of Piper Jaffray..

So I just had a question with respect to the BARDA contract and how that's developing and how the revenues are being recognized. We saw an increase in revenues in the quarter through the various funding sources.

What should we be expecting from BARDA in terms of helping to pay for the ongoing pandemic studies through data and then even going in to the seasonal studies? What expectations should we have there?.

Yes, Ed. This is Stan. So the expectation is that, as I think we've mentioned, the BARDA contract is run on a cost-plus fixed fee. So there's a profit margin and covers all of our costs associated with the flu development program. So you see it go up. That's a function of running a clinical trial of Phase I/II clinical trial of H7N9.

I think your expectations should be that the revenue numbers are going to continually go up. It will be bumpy because it ties to costs when we have clinical trials, but we're going to be starting a fairly large Phase II trial in the fourth quarter of this year that will continue in to the first and second quarter of next year.

And if that leads, presumably, that leads into production of Phase III material in the middle of next year, which will lead to a Phase III clinical trial which will further increase the revenue number fairly dramatically..

Okay, all right.

So we should consider continued involvement from BARDA for the funding of that program?.

That's what our expectation is..

[Operator Instructions] Our next question comes from George Zavoico of MLV & Company..

A question -- Buck, you mentioned something about manufacturing expansion from capital investments that need to be made. Because you’re -- in preparation for all these trials, you're going to be making a lot of vaccines and a lot of different vaccines.

So what capacity do you have now, and what capacity do you need to add for the clinical trials? And then, will you need to add more for commercialization?.

Yes, thanks for the question. I think it should be recognized that we're actually manufacturing a lot of products right now. As Stan said, we're starting a bunch of clinical trials here over the next number of months through the end of the year. So manufacturing is ramping up dramatically.

We have great expectations for these programs, and we're looking forward into 2015. And I think as was mentioned once or twice in our commentary today, we have a number of Phase II trials that could potentially position this company for Phase IIIs in late '15.

That said, our manufacturing and scale have to be positioned to actually handle those trials and to be positioned for, as you know, the regulatory packages that would need to go along with those trials. So you should expect us to invest accordingly in order to keep an accelerated development path for the products that we've talked about today..

And in that regard, I mean, if you do start the trials, assuming everything goes well as I hope it will, in late 2015, as these trials typically aren't necessarily all that long, let's just speculate that you do start a couple of these trials in 2015. You're probably done with them in 2016, you might be able to file an NDA.

So conceivably, in the best-case scenario, you may be able to launch something in late 2017 or early 2018.

If that's the case, are you beginning to plan for commercialization activities, starting to plan to build out a sales force with the intent that you're going to do it on your own, or is there a possibility of partnering as well?.

George, Stan. Yes, so actually, I announced at the last quarter that we added to our staff a Senior Vice President of Commercial Development, John Trizzino. He's a fellow with a lot of experience in launching and running sales forces for both vaccines and for RSV, for that matter, for....

I know John well. Yes, that's right..

So that's in anticipation of having a commercial product. And so the answer is we'll be prepared to market it ourselves. But clearly, if we're going to be a global product company, we'll have partners who will help us market it in far-away territories..

And a final question, obviously, a lot of the focus is mainly in RSV, but you've got operations going on in Cadila in India. And you've developed some MERS stuff.

Could you just briefly say if there's anything particularly newsworthy in any of these other programs of yours?.

Yes. I think progress in India continues to be made. It's a -- they're moving through clinical trials in both fluid rabies as we've disclosed. Data looks good. We'll be disclosing that -- those data later this year or early next year.

I think that the question about MERS, if you recall and I'm sure you do, that we have an active program for paying attention to emerging viruses, emerging diseases and making vaccines for them.

Last year, I think we had a watershed event when we were able to produce an H7N9 Vaccine from date of gene sequence becoming available to first in humans in 91 days.

At the same time, as we were doing that, we were developing a MERS vaccine candidate and collaborating with researchers at the University of Maryland to show, to demonstrate that in an animal model, the challenge model that we can stimulate high levels of neutralizing antibodies to MERS and that -- those data were published in April.

And I believe, at least to our knowledge, this is the only data on a MERS vaccine that has been published..

Our next question comes from Kevin DeGeeter of Ladenburg..

Most of my questions have been answered. Just maybe one more, and I apologize, maybe I missed this. Are you guys going to be presenting any data at the RSV meeting in November? Just generally, maybe could you give us your updated thoughts on the competitive landscape..

Yes. I think that as Greg mentioned, we'll be presenting data at the ICAAC meeting in October. There are a couple -- in September, sorry. In October, there are a couple of other vaccine meetings that we'll be presenting data at.

And as you can imagine at the RSV meeting in November in Cape Town, South Africa, I expect that we will be very prominently represented there with data from elderly and women of childbearing age, presumably the start of enrollment of pregnant women trial, the start of the pediatric trial around that time period.

A lot of preclinical data that Greg and his team have generated will be at that -- we'll be presented at that meeting -- we'll be very prominent there. That's -- we're the leader in RSV, and I think that will remain evident through that meeting.

Regarding our status, we feel as we felt for the past 2 or 3 years that we maintain a fairly clear lead in terms of competitive edge on all of our 3 programs, as you hear from this presentation. We're not doing these programs in sequence. We're doing them in parallel because we have high confidence that our vaccine is going to work.

And we're willing to make the investment, and we have the ability to do that to make sure that we're the first in all 3 areas..

[Operator Instructions] I'm currently not showing any questions. I'd like to turn the call back over to Novavax for any further remarks..

Okay. Once again, I thank everybody who participated, and I hope we'll be able to talk to you all in September at our investor conference, and again, 3 months from now at our next quarterly call. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day..