John Herrmann - Senior Vice President, General Counsel & Corporate Secretary Stan Erck - President and Chief Executive Officer Greg Glenn - President, Research and Development John Trizzino - Senior Vice President, Commercial Operations Chris Dunne - Vice President, Finance Lou Fries - Senior Vice President, Chief Medical Officer.

Joel Beatty - Citi Ted Tenthoff - Piper Jaffray Kevin DeGeeter - Ladenburg Thalmann.

Good day, ladies and gentlemen, and welcome to the Novavax Fourth Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Mr. John Herrmann, Senior Vice President and General Counsel of Novavax. Sir, you may begin..

Thank you. Good afternoon, everyone. This is John Herrmann, General Counsel at Novavax. I'd like to thank everyone for joining us on today's call to discuss our fourth quarter and full year 2017 clinical highlights and financial results.

A press release with additional information on our fourth quarter and full year 2017 clinical highlights and financial results is currently available on 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 are Novavax's President and CEO, Stan Erck; our President of Research and Development, Dr. Greg Glenn; our newly announced Chief Business Officer and Chief Financial Officer, John Trizzino; and our Vice President of Finance, Chris Dunne. Dr. Lou Fries, our Chief Medical Officer, is also available for responses to questions.

Before we begin, I need to remind you that today's call contains forward-looking statements. As much as I would love to read the full safe harbor statement found on Slide 2, I will resist that temptation and invite you to study it at your leisure. And with that, I'll turn the call over to Stan..

antigenic evolution and egg adaptation that happens in the manufacturing process that is used to grow viruses in chicken eggs. First, let's talk about the issue of antigenic evolution and drift.

A first principle is that, when we about a strain of influenza, we're not talking about 1 distinct virus, but a family of genetically distinct viruses that are related to each other. Viruses and in particular H3N2 viruses, are constantly changing and evolving.

The ones that end up abating the existing human immune responses are the ones that cause significant disease. An example of this happened in Australia, during their country's most recent flu season.

The H3N2 strain identified as A/Hong Kong was recommended for their vaccine As it turns out, the strain that drifted away from A/Hong Kong, called A/Singapore, was the predominant circulated strain last year and caused the most illness. As a result, vaccine effectiveness last year was estimated at only 10% in Australia.

So next slide shows the evolution of H3N2 over the last several years on what was called the phylogenetic tree. Each colored dot represents a number of mutations that each strain has acquired with an important epitopes.

The redder the color of the circle indicates how many mutations have occurred and how far the virus has evolved from the parent strain. If you start with A/Perth, on the lower left, it is the strain used in the vaccine in 2010. You can see how this strain evolved into A/Victoria, A/Texas, A/Switzerland and A/Hong Kong.

In the upper right-hand corner of the next slide, you see A/Singapore, which is the strain that I just mentioned and was prevalent circulated strain in Australia last year. This strain caused the most trouble, because the strain contained in the vaccine in contrast, was A/Hong Kong, not A/Singapore.

But as you can see from the red box on the next slide, there are many groups of H3N2-related viruses that are circulating in the U.S. this season. Ideally, a better flu vaccine could protect us against all of these circulating strains.

We'll come back to this slide after Greg's discussion, but as a preview, he's going to show you data that suggest our vaccine would be effective against all of 2017 circulating H3N2 strains.

The next slide brings us to the issue of egg adaptation, perhaps the biggest culprit in this season's poor vaccine efficacy and 87% of commercial flu vaccines in the U.S. are manufactured by growing flu viruses in eggs. It's essentially the same process that's been used for over 50 years.

The manufacturing process starts by identifying the viruses that are infecting humans and then growing them up in chicken eggs. The problem is that viruses successfully infect humans don't grow well in eggs and have to be modified, either intentionally or through changes made when passed genes viruses and eggs.

These viruses are passed many, many times until they find a virus with best growth characteristics. Then best growing virus is used to scale up the process to millions of eggs. These changes can result in a mismatch between the strain used in the manufacturing process, and the strain that is actually circulating in the wild.

The New England Journal of Medicine article co-authored by Dr.

Tony Fauci, Head of the National Institute for Allergy and Infectious Diseases, states that the fact that egg-propagated vaccine viruses acquire changes that altered antigenicity lends credibility to the hypothesis that egg adapted changes contribute to poor influenza vaccine effectiveness.

And the next slide highlights why our NanoFlu vaccine is different, and why it can be more effective against, both sources of mismatch. First, NanoFlu is recombinant and allows us to make a vaccine that from a genetic standpoint, exactly matches the virus sequence of the CDC's recommended flu strains.

It's not an egg-based manufacturing process it doesn't require adaptation growing eggs. Second, it is formulated with an adjuvant to further stimulate a protective immune response. In combination of our recombinant protein with an adjuvant stimulates a broader immune response and broader protection that addresses mismatch.

With that, I'll turn the call over to Greg to describe results from our Phase I/II interim analysis..

hypoxemia, as measured by a pulse oximetry reading showing oxygen saturation less than 95%; or tachypnea fast or fast breathing appropriate for the age of the infant. Moving on to Slide 24, we are currently enrolling in our fourth global year.

Participants are being recruited and vaccinated at global clinical sites based on the timing of each region's RSV season. Prepare's global footprint has grown to over 80 sites in 11 countries in 2018. We have now enrolled more than 4,000 participants worldwide and we are targeted to reach 4,600 in the second quarter of 2018.

On Slide 25, I'd like to move to the informational analysis and I'm pleased to point out that our Prepare trial was significantly de-risked by success in this analysis as we previously described. This analysis included approximately 1,307 infants and used a target threshold against the primary endpoint of 40% -- of greater than 40% efficacy.

Data from the analysis indicate an observed vaccine efficacy in the range between 45% and 100%, assuming the 2 to 1 randomization. Let me emphasize the importance of this point in time. We are nearing the opportunity to view the efficacy analysis of our Phase III program, the interim analysis, based on 4,600 infants.

We appear to be on target to see Phase III efficacy results in less than 12 months, based on the informational analysis, we believe we have de-risked this program and are now looking forward to similar event with confidence.

On Slide 26, we move through the analysis here based on success recruitment, it shows we are unscheduled to begin an interim analysis in approximately 4,600 infants by the second quarter of 2018.

If enrollment continues as planned, we expect to complete our interim analysis, which is conducted by the Data Safety Monitoring Board statistician in the first quarter of 2019, followed by a biological license application or BLA filing in the fourth quarter of 2019 or the first quarter of 2020.

So with that, I'll turn it over to John Trizzino, who will review the market opportunity for our maternal RSV vaccine..

Great. Thanks, Greg. Beginning with Slide 27, I want to take you through a few slides that address RSV disease burden and then the potential market for this vaccine. First, it's important to highlight that RSV in infants is a significant unmet medical need, with 70% of all infants being infected in the first year of life.

This slide highlights the addressable population in these 9 key markets, which is the population of pregnant women we would expect to vaccinate. As you can see in the U.S, EU 5 and Asian 3, the addressable population is approximately 8.4 million, and in the U.S., greater than 3.7 million pregnant women.

Moving on to Slide 28, we will look at the greater than $1.8 billion of annual direct cost burden associated with RSV in the first 6 months of life.

Again, looking at the 9 major markets, this $1.8 billion of direct cost burden is associated with doctor office visits, emergency room visits, hospitalizations and the most serious cases and it has a period in its day.

In addition, if we also included indirect costs, such things as lost earnings and potentially death, the result is over $5.6 billion of direct and indirect costs associated with RSV disease in these newborns. I'm now on Slide 29.

Based upon our analysis of published literature, the addressable market, economic disease burden and policy considerations, we have determined that global peak revenue has potential to be well in excess of $1.5 billion in major markets, before we even consider the potential in middle income markets and the benefit to low-income countries.

While we have done the same analysis for each of the 9 major markets, let me take you through the details related to the U.S. We know that there are about 3.9 million births per year in the U.S. and that about 95% of those infants are born after the mother is vaccinated between 28 and 36 weeks gestational age.

We now, based upon what we already understand about the pediatric vaccine, rates for ACIP recommended vaccines, that conservatively 80% to 90% of these pregnant women will be vaccinated. Lastly, if we consider roughly the range of temporary vaccine pricing of recently launched vaccines, we can estimate peak revenues in the U.S.

to be in excess of $750 million as part of global peak revenue of $1.5 billion. Now on to Slide 30. Policy and physician key opinion leadership report, our foundational pieces to our pre-commercialization activities.

Our RSV vaccine for infants via maternal immunization will be administered to pregnant women in their third trimester, and so the OBGYN physicians must understand the benefits of these vaccines for their patients.

Novavax is already working with ACOG, the American College of Obstetricians and Gynecologists, to support educational programs for RSV and maternal immunization.

Next, Novavax was instrumental in advancing legislation in the 21st Century Cures Act that now allows the vaccine into a compensation program to cover both mom and baby under its no-fault insurance program.

Next, the ACIP, the Advisory Committee on Immunization Practices, supported recommendation for the use of this vaccine is critical to its adoption. We have been working closely with the CDC and collaboratively sharing information about RSV and our program.

RSV working groups have already been informed that this is an important first step in this process. Lastly, Novavax is very active across the many RSV groups, and activities in support of gathering information about epidemiology, surveillance and economic burden.

Rescue, as noted, at the bottom of the slide is just one example of our active participation. I'll now turn the call over to Chris, our VP of Finance, who will discuss our fourth quarter and full year financial results..

Thank you, John. Today, we announced financial results for the fourth quarter and 12 months ended December 31, 2017. A summary of our financial statements can be found in today's press release. We recorded a net loss of $50.8 million or $0.16 per share for the fourth quarter of 2017.

This compares to a net loss of $57.1 million or $0.21 per share in the prior year period. Revenue for the fourth quarter of 2017 was $10.4 million compared to $5.4 million in the 2016 period. This increase of 93% was driven by higher revenue recorded under the Bill & Melinda Gates Foundation grant of $89 million.

As you know, the Gates Foundation 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 the Gates Foundation revenue in 2018 relative to 2017, which relates to the continued ramp in enrollment and increased level of activities, as the Prepare trial continues in its third global season of enrollment.

R&D expenses decreased 3% to $49.7 million in the quarter compared to $51.1 million in the same period in 2016. The decrease was primarily due to reduced development activities of our RSV F vaccine for older adults, partially offset by increased development activities of our RSV F vaccine for infants via maternal immunization.

G&A expenses were essentially flat at $8.5 million in the quarter compared to $8.3 million in the same period in 2016. As of December 31, 2017 the company had $157.3 million in cash, cash equivalents and marketable securities on the balance sheet. This includes approximately $17 million in net proceeds raised through the ATM during the quarter.

This compares to $235.5 million on the balance sheet at December 31, 2016. This concludes my financial review. I'll now turn the call back over to Stan..

Thanks, Chris, and thanks too to Greg and John. Now you can see why this is been such an important quarter in Novavax’s history. As I said earlier, we are committed to carry this momentum during the remainder of 2018 as we update you on our progress in both programs and continue to execute against all of our strategic objectives.

We will wrap up here and open up to Q&A, operator?.

Thank you. [Operator Instructions] In the first question will come from the line of Joel Beatty with Citi. Your line is now open..

Hi goods afternoon, thanks for taking the questions. The first one is on the flu vaccine.

Could you discuss what's typically required by FDA on for approval on the path you plan to take and compare that with the recent flu data you have, help give us a sense of what you've already established and compared to what FDA might expect and what still remains to be shown in the remaining Phase II and Phase III trial?.

That's a big question, but I’ll let Lou, handle that one..

There are -- there are several pathways available for the approval of flu vaccines, and they fall broadly into pathways that are dependent on immunogenicity data and pathways dependent on efficacy data.

The -- for, to use immunogenicity as a pathway to approval, one has to have a product that offers a significant benefit in dealing with an important public health need, and we believe that our product has that. That's being illustrated this year by the difficulties in limited efficacy and effectiveness of the current flu vaccines.

We believe that we can demonstrate superiority to the existing vaccines on a number -- our immunogenicity against a number of strains, including most importantly, the significant H3N2 viruses, certainly, the H1N1s viruses as well. And we can be at least competitive with regard to B virus responses.

We would note again the breadth of the responses that we're showing against H3N2 viruses, such that we could potentially touch all of those 5 or 6 different genetic groups that are currently circulating in the U.S. population.

And so our goal would be to show superiority against those, and against the H1N1s viruses, and at least equivalents against the b viruses in terms of responses.

So that's the immunogenicity pathway, and it's the one we hope to propose to FDA, which would give us access to accelerated approval by contrast with Fluzone HD, which is a licensed comparator with efficacy data.

There is a potential that the FDA will want efficacy data and the second room is traditional approval via a direct progress to an efficacy trial, which we would project also going into in 2019 if we need to go that route..

Okay, great. And then another question on the RSV program.

Could you discuss the possible scenarios for the interim analysis in early 2019? And I guess, on those scenarios, I'd be particularly interested to hear about, what will happen if the data just misses the lower bound of 40%? Is there a scenario where you could still see that data even though it's interim analysis or you can potentially file that data?.

Okay Stan, I'll take it. So, we are able to look at it will be completely unblinded for the first 90 days to show whether we meet our primary endpoints. If we do that, scenario A is we do, and the lower bounds of about 40%, we're done.

We are very busy putting together BLA, but we’ve met our endpoints and we go forward, and the goal would be this better BLA sometime in 2019 would be an aggressive goal.

But I’d say 40%, 30%, I'm sorry, correct me, the lower bound is at 30%, not 40%, you're asking whether we would meet the primary endpoint, 39% or 40% or of efficacy, but I answered a different question. So scenario A is as we open up the envelope, we -- lower bounds of about 30% and we finished the trial and finish claiming the data and filing BLA.

The second scenario would be is, we don't make the lower bound of 30%, but everything that we see points to and including the informational analysis, points to our having good vaccine and we have -- we have option B, which is simply to unblind the trial completely. And then see what we got.

And if we have a vaccine that's efficacious with lower bound is above 0% and some are between 0% to 30%, I think it's likely that we would look at it and file a BLA at that point. So remember, that the lower bounds above 0, that's adequate for a European filing, an EMA filings, so we're we feel very confident that's going to happen.

I don't know if any data that would come along that would convince us to do otherwise..

Thanks and then one last question, if I could and it’s on -- could you provide any information on what midpoint you would expect, would be needed to support having a lower bound above what’s necessarily, and is the event rate on track to support about you, if it goes into those assumptions? Thanks.

To answer the second question is the endpoint analysis, I think is -- is going into where we wanted to be. If the vaccine midpoint efficacy is in the range of 58%, your lower bound is going to be above 30%..

Thanks..

Thank you. And the next question will come from the line of Jessica Fye with JPMorgan. Your line is now open..

Hi, this is [indiscrenible] on the call for Jessica. Thank you for taking my questions. Could you speak to the next Phase II trial design for NanoFlu program? And specifically what are your current thoughts on the duration size and efficacy metrics of that estimate study? And what will be the comparator in that trial? Thank you..

This is Stan again. So, we did a trial of this year with the trivalent vaccine, because the comparator was a trivalent high-dose Fluzone. So, we're expecting that to shift to a quadrivalent, and before we want to go into Phase III, we want to show that formulating our vaccine with a quadrivalent is and compare it to Fluzone's quadrivalent vaccine.

So that's the main reason, but there is also we want to make sure that in the last trial, we did not show the adjuvant effect against Nova adjuvant and we want to show the difference between an adjuvant. So, we got a couple of things to look at in the Phase II.

The timing of that is probably the same time we did last year, we’d vaccinate the groups in August or September, it shows data, we draw the blood 21 days later, and with the analysis we expect to complete sometime in the December, January time frame..

Thank you..

Thank you. And the next question will come from the line of with Ted Tenthoff with Piper Jaffray. Your line is now open..

Great, thank you very much.

Can you hear me, okay?.

We can, hi Ted..

Great, hi guys, congrats on all the progress, very exciting. Want to go back to the maternal RSV program, definitely looking forward to that data later this year. What do we need to see to get -- what is the primary -- what's the goal on the primary endpoint that we need to see it to be statistically significant, just remind us? Thanks..

Well, I think if you see efficacy -- a point estimate of efficacy above the standard that we -- the threshold we set in the information analysis, which is 40%, you've got a vaccine, I think.

And I think from a commercial point of view, that there's a lot of reasons to think that would be very successful and particularly given that there is no vaccine or adequate treatment for RSV. So, our expectations are that will above 40%.

And right now, as Greg mentioned, these analysis, the probability statements somewhere between 45% and 100%, all of those numbers are good vaccines..

And then, obviously, safety is very important here, but are the secondary endpoints you will be focused on?.

John, well you want to answer..

Sure. As you know, as Greg is outlined, our primary endpoint involves RSV lower respiratory tract infection associated with either hypoxemia or rapid breathing tachypnea. We're looking at a number of secondary endpoints that are really important for the health care system.

One of them is to simply -- and the leading one is to look at lower respiratory tract infection associated with RSV that is associated with a slightly lower threshold of rapid breathing, the threshold for rapid breathing that’s designated by the WHO as meaning the child has significant illness.

And so that would be one of our first secondary endpoints, because those are children that absorb a lot of medical care, even if they're not hospitalized. Our secondary endpoint will be hospitalization associated with RSV lower respiratory tract illness. We will then look at....

Severe..

Yes, severe hypoxemia or children with oxygen saturations less than 92%. And finally, we'll look at the impact of RSV on episodes of wheezing over the course of the first year of life.

Independently of that, we're also going to look for the impact of RSV -- of the RSV F vaccine on symptomatic RSV infections in the mothers, and there are several reasons to be concerned about that. One, mothers can pass RSV to their infants.

Two, RSV infections in mothers are being increasingly recognized as a potential source of morbidity late in pregnancy. And last, but not least, there's even a suggestion in 1 or 2 papers that RSV can be transmitted vertically from mothers to infants transplacentally. And so for all those reasons, preventing illness in mothers may also be important.

So, we have a series of important secondary endpoints to look at..

Thank you. Very, very helpful, I appreciate you going through that..

Thank you. And the next question will come from the line of Kevin DeGeeter with Ladenburg Thalmann. Your line is now open..

Thanks for taking my questions.

A few for me, is there a reason we would expect that the publication for a flu data would be out prior to the presentation April 4th?.

Hi, Kevin. We can't predict that right now. It's being reviewed and predicting publication data is really hard..

Sure, fair enough. And just a clarification on a prior question, and I apologize if I missed the answer.

But the comparator for the Phase II quadrivalent flu vaccine, what's the best comparator for that study?.

It will be the Fluzone High-Dose..

Same..

Quadrivalent formulation..

I think that -- they have 70% market share, it’s a good one to compare to right now..

Terrific.

And then just, I really appreciate the additional perspective with regard to, the development challenges and opportunities for influenza vaccine, and specifically in the context of egg adaptation mismatch, perhaps you can just raise a little bit more context here as to sort of what's new in thinking and appreciation of the impact of that mismatch in clinical care.

I mean, we were making vaccine from egg for a long time, but it seems that the mismatch has become, if anything, more pronounced in recent years.

What's -- how much of this is evolving appreciation from a vaccine development standpoint of the limitation of egg, and how much of this is sort of -- somewhat more legacy technical issues that Novavax has unique perspective on?.

Go ahead..

Yes Kevin, Greg here. So, I think that, that what seems to be in play are both the factors that Stan, described at beginning of the call, egg adaptation, again remember these viruses that are first isolated from humans, which are mammals, and then they are selected for their ability to grow in eggs, which is avian.

And the -- especially at the receptor binding domain this year, we know there have been point mutations that have profound effects on the ability for antibodies to block this receptor binding activities.

So, as you put in eggs, adapt to birds, becomes a bird virus, you immunize people with this virus, and you get antibodies that may or may not protect humans against the receptor binding domain found on the human circulating viruses, it's a big problem, and it's become more and more evident, and clearly in some cases, it’s driving poor vaccine efficacy.

We don't know yet this year. The other thing, of course, is in play, and I think it's well illustrated by the CDC phylogenetic tree is how rapidly the H3N2 viruses are evolving, you could see it’s explosive. In fact, if you listen to some of the CDC webcast, every time there's a replication cycle of the virus, there are mutations.

So these mutations are drifting away, as Stan mentioned, in a way such that the human immune responses are no longer recognized and they become completely immune to the past immunity or vaccine immunity. So those -- both of those factors are in play, and clearly, having a recombinant vaccine allows us to address the egg adaptation.

So, we have a precise match between what’s in our vaccine and what the CDC has selected through their surveillance mechanisms as the relevant strain for vaccines.

The other maybe more solid message, and really I think quite a dramatic finding, is by using an adjuvant and using a nanoparticle, we are broadening the immune response to epitopes that are on the HAI that allow you to have much broader neutralization of viruses away from the strain to have actually in the vaccine.

We demonstrated that in our preclinical paper last fall. And now, we replicated at that in humans, in older adults in particular, which as you appreciate, are very challenging in terms of their poor levels of immune responses. So this is a dramatic finding.

The breadth of response we think its driven by having the nanoparticle and having an adjuvant, and it's clearly providing immune responses that are broadening both backward, that would be strains that different just historically from what is in the vaccine.

And then I think maybe even more significantly, what happens in a forward drift with the virus evolves. And we have this unique opportunity this year where there was A/Hong Kong sequence in the vaccine, the virus had evolved, you can see, as we illustrated in that phylogenetic tree, the A/Singapore there is a forward drift future strain.

And theoretically, our vaccine would recover that certainly in a way that we suggest, we are better than Fluzone High-Dose. So, the forward drift is addressed by the broadening of immune response based on a nanoparticle and use of adjuvant..

I think it's important to recognize that over the course of egg manufacture of flu vaccines, there have been seasons in which vaccine efficacy has not been what would be expected, based on the "apparent match" of the vaccine to the virus.

But now, we have the technical ability really over the past decade or so, to analyze the sequences of the viruses that are grown in eggs and compare them to the sequences of the viruses that are circulating.

And we know for sure, over the last, say, 6 years, that there have been 2 instances in which egg adaption, egg adaptation changes in the vaccine virus sequence have had significant impacts on the immune response of those viruses, such that the antibodies that they induce were not optimal to interact with the strains that were circulating in humans.

So, it may not be entirely a new problem, but it's one that we have the technical ability to detect now..

Great, thanks for the feedback its very helpful..

Thanks Kevin..

Thank you. Ladies and gentlemen, this does concludes our question-and-answer session today. I would now like to turn the conference back over to Mr. Stan Erck, for further remarks..

Okay, so I think we covered a lot of ground today. We have 2 programs, 2 lead programs for which we have great data in clinical trials, and we're advancing the RSV is just as a major breakthrough. And that we're advanced toward the ability to file a BLA, it’s huge.

And so there's no other product anywhere near us, and we're looking forward to having the first RSV vaccine.

And flu, as you can see, the flu season was nothing better than great indication that we need on it egg-based vaccine like ours, and I think the -- we will have no trouble getting people in the health care system CDC and FDA to agree with your approach. So with that, we'll let everybody go, and thanks for listening. Bye..

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