Good day, ladies and gentlemen and welcome to Novavax Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to introduce your host for today's Ms. Andrea Flynn. You may begin.

Thank you and good afternoon. This is Andrea Flynn, Associate Director of Investor Relations at Novavax. I would like to thank everyone for joining today’s call to discuss our second quarter 2016 financial results. A press release of our earnings 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 is Novavax’s President and CEO, Stan Erck, together with our Senior Vice President of Commercial Operations, John Trizzino; President of Research and Development, Dr. Greg Glenn; and Chief Financial Officer, Buck Phillips. 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 strategies and other financial and business related matters, including expectations regarding revenue, operating expenses, cash usage and clinical developments 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 change over time. I will now turn the call over to Stan.

Thanks Andrea and good afternoon, everyone. I am very pleased to report that we are continuing all of the activities necessary for the commercialization of our first product. We remain on track to report data from our Phase 3 clinical trial for our RSV F Vaccine in older adults this quarter. Across the company, we are continuing work to assemble BLA for FDA submission in 2017. We will incorporate all of the support of safety, immunogenicity of efficacy data for RSV F Vaccine clinical trials as well as CMC and non-clinical data into the BLA. We have received fast track designation from the FDA and we will ask for priority review prior to our BLA submission. Regarding ex-U.S. regulatory activities, I want to provide investors that as Greg outlined in our last call we have met with two European national regulatory agencies, the Paul Ehrlich Institute in Germany and the Medicines and Healthcare Products Agency in U.K. In both meetings the older adults and the infants via maternal immunization programs were discussed. Overall, both agencies were supportive of each program, including clinical trial designs, trial endpoints and proposed clinical datasets to support future marketing authorization applications. Our goal is to file for marketing approval in Europe shortly after we file our BLA in the U.S. Our quality and manufacturing groups have been working toward validation of our processes and expanding production. In a very good milestone for our manufacturing quality groups next week we will start our process performance qualification runs, or PPQ, in advance of our first commercial production runs, which will start in 2017. Last quarter, we signed a lease on 150,000 square-foot existing building, about a mile away from our offices that we will customize as our commercial manufacturing site. Our plan is to launch our vaccine…

Thanks, Stan, and good afternoon everyone. As I outlined last quarter, well in advance of the product launch, there are a host of activities that need to take place to prepare the market for a new product. This is especially the case for the launch of the first vaccine for RSV. Therefore, we continue to be deeply and actively involved with policy initiatives, payor and pricing strategy, key opinion leader and healthcare provider advocacy, and mostly staying focused on delivering the significant health benefits of an RSV Vaccine to the older adult target population. This past May, we launched our disease state awareness campaign to educate health care providers about the burden of RSV disease in older adults highlighted by the launch of our websites discoverrsv.com. This website is the first online resource to educate health care providers about the symptoms and burden of disease for RSV in older adults that they should be looking for in their practice. In addition, we hosted a disease state awareness booth at both the American College of Physicians Internal Medicine Annual Meeting in D.C. in May and the International BIO Conference in San Francisco in June. At both events, interaction with and feedback from physicians highlighted that RSV is under-recognized in their practices. We plan to host the booth at other upcoming events, including the annual meeting of the American Academy of Family Physicians, September 20 through 24 in Orlando; ID Week, October 26 through 30 in New Orleans; and the 2016 GSA Annual Scientific Meeting in New Orleans, November 16 through 20. We will also be sponsoring disease state theaters on RSV disease burden in older adults at the Options for the Control of Influenza Conference August 24 through 28 in Chicago and at ID Week in New Orleans October 26 through…

Thanks John, and good afternoon, everyone. As Stan indicated, I will begin with a brief statement about our RSV F program older adults. I want to reiterate what Stan said earlier that we are on track to announce data from our Resolve trial this quarter. Surveillance from this trial was completed on May 1 for the trial protocol and we are in the process of completing sample testing and populating and cleaning the database, ultimately leading to database lock and unwinding. As I have in the past, I'll briefly review the trial design. Resolve is a randomized observer-blinded placebo controlled trials that enrolled 11,850 adults 60 years of age and older at 60 sites in the U.S. The primary efficacy objective of the trial is the prevention of moderate-severe RSV-associated lower respiratory tract disease, as defined by the presence of multiple lower respiratory tract symptoms and science. The secondary objective is prevention of all acute symptomatic RSV respiratory disease. Based on continued execution of the trial, we provide topline efficacy results from the similar trial in the third quarter this year in line with our prior guidance. We expect pivotal efficacy results will support the filing of our U.S. BLA 2017 as well as other global marketing applications. In addition to Resolve, we also have an ongoing Phase 2 rollover clinical trial of our RSV F Vaccine in older adults. We expect the safety and immunogenicity data from this trial will support discussions with regulatory agencies, advisory committees like ACIP and the payer community as we seek a recommendation for an annual seasonal vaccine in the older adult population. This trial is a randomized observer-blind placebo controlled trial which enrolled the same adults 60 years of age and older who participated in the prior Phase 2 trial known as E201.…

Thank you, Greg, and good afternoon, everyone. Today we announced the financial results for the second quarter ended June 30, 2016. Summary financial statements can be found in today's earnings press release. For the second quarter of 2016, we recorded a net loss of $79.4 million, or $0.29 per share. This compares to a net loss of $20.6 million, or $0.08 per share in the prior year period. The increase in net loss in the quarter is primarily the result of increased R&D expenses related to the clinical trials and development activities of our RSV F Vaccine candidate relative to the same period last year. Revenue for the quarter was $2.5 million compared to $14 million in the same period in 2015. This 82% decrease in revenue in the 2016 period over the 2015 period was driven by three primary factors: the first is the one-time recognition of $7.7 million in revenue in the second quarter of 2015, resulting from the settlement of indirect rates under the HHS BARDA contract for the years of 2011 and 2012; second, a higher level of BARDA-related activities in the second quarter of 2015 relative to 2016, specifically the Phase 2 quadrivalent seasonal influenza vaccine trial, which was completed in 2015; and last, the recent advances the company has made in its seasonal influenza nanoparticle program, which have resulted in the wind-down of VLP influenza activities under the BARDA contract. The decline in BARDA revenue in the second quarter of 2016 is partially offset by $1.7 million in revenue recorded under the Bill & Melinda Gates Foundation grant of $89 million. The BMGF revenue is directly related to the Prepare clinical trial. And as we've previously discussed, we should expect an increase in that BMGF revenue in 2016, which will correlate to the underlying…

Thanks Buck. We're incredibly excited about the coming months. Positive data from Resolve will take us one step closer to bringing this important vaccine to licensure in years ahead of other RSV Vaccine development efforts. Before I open up the call to questions, I would like to reiterate that our upcoming Phase 3 data readout in older adults on track to be announced this quarter will be a topline data announcement. We expect to provide data on our primary and secondary endpoints. There are a number of immunogenicity data points that we are working on and we will report those results over the remainder of the year. At the risk of being repetitive, we remain blinded for the time being and look forward to announcing unblinded data later this quarter. Finally, I'd like to announce that we will be hosting our annual Investor and Analyst Day on October 11 in New York City, so mark your calendar. Additional details will be forthcoming shortly. And we'll wrap up here and open it up to Q&A. Operator, Q&A?

Yes, sir. [Operator Instructions] And the first question comes from Bill Tanner of Guggenheim Securities. Sir, your line is now open.

Hi, thanks for the questions. Stan, I had a question for you related to the manufacturing. I think that you said that the existing plant could meet the U.S. or I think you didn't say that -- that's actually going to do my question. What -- to what extent of the U.S. demand do you think you could actually meet with that plant or peak demand I guess, or what kind of market demand do you think you could meet assuming a reasonable uptake?

Yeah, I think -- so the plant is actually we're going to start making product in 2017, freezing both product and so we'll have enough product for 2017 -- production in 2018 production to satisfy the demand for 2018 launch in the U.S. What we're expecting is, obviously, there will be expansion in the U.S. in 2019 and then initiation of trials -- not trials, sales in 2019 in Europe. That plant plus the beginning production of our new plant will be able to supply the worldwide production. We expect we'll be able to supply worldwide production sales demand during at least the first four or five years which will give us time to decide when we talk with our partner how we're going to satisfy demand beyond 2023 or 2024.

Okay. That's helpful. And then just a quick question on Zika. I am wondering if you could speak to how you see the commercial opportunity being similar or different from what Novavax has done in the past with some of the pandemic things like Ebola or H7 and 9. And then just a lot of activity obviously in the industry trying to develop a Zika vaccine, maybe give us some color as to where you see Novavax stacking up relative to the competition.

Yeah, it's a great question. I wish I had a crystal ball, but I don't. So, we're starting on this because I think it’s a -- we think it's a problem that can be solved with our platform. And so we're doing the early stage preclinical work to show that we've got a vaccine that could hold up under an animal challenge. And we're going to watch closely where it goes. I think the entire industry is wondering whether there is either going to be government support for this or whether there is actually a commercial market for this. I don't think there is an answer to that yet. So, don't know yet.

Okay. Thank you.

Our next question comes from Jessica Fye of JPMorgan. Ma'am, your line is now open.

Hey, guys. This is Ryan on for Jess. Appreciate to taking our questions. I guess on the -- the shift to nanoparticles approach for seasonal flu, is there any potential for a new BARDA contract with that technology?

Yes, there is. In fact, we are very -- we have been and continue to be on very good terms with BARDA. When we found that the work that we were doing brought us out of the scope of the contract that we've been working on, they have asked us to -- when we get our clinical data -- is to come back and propose to them what would be a next-generation vaccine.

Okay. And may be we could dig a little bit more into the program. Given the number of options that you have in terms of running it just as a flu program or in combination with RSV, how quickly could you start a combination study with those two vaccines?

So, we are planning on doing that in the first half of next year. And I think that we're targeting this combination vaccine to what is probably the largest market. It would be a combination of flu and RSV Vaccine probably with our Matrix adjuvant and for the older adult population for flu, that will be the first target. I think the trial -- we're going to get a lot of really useful data from this trial because we're going to look at a vaccine for -- commercial seasonal vaccine for flu with and without RSV and both of those with and without Matrix. And we'll get some really good data of that, and that will direct us to where the Phase 2 trial will be.

Great. Thanks for taking the questions.

Okay.

And our next question comes from Ted Tenthoff of Piper Jaffray. Sir, your line is now open.

Thanks very much. Looking forward to the data coming up soon. I just wanted to get a sense from the meeting with ACIP this summer. Did you get any concrete directive sort of coming out of that in terms of what might be required either for premium pricing or is this really a matter of -- if it gets approved, they are going to pay for it? What was your sense coming out of the conference?

So, this is John Trizzino. We were extraordinarily excited by, first, the formation of the RSV working group. This is a strong indication that they are now pursuing a review of RSV burden that they are preparing themselves for our licensure and therefore, wants license presentation to ACIP for their recommendation in addition to the vaccination schedule. And so having their activity two years ahead of when we would expect to launch is a very strong signal. The ACIP, since there is no existing vaccine for RSV, the pricing of review is just one element of what they look at and mostly from a pharmacoeconomic analysis perspective, and their mission is to look at safety and efficacy of the vaccine to the burden and then recommending it for the schedule. So, everything is aligned exactly as we hoped it would be. The presentations that were made in the June meeting fully supported the modeling that we've done so far on burden of disease. And there is more work to be done, but we're very well-positioned, as I mentioned in my remarks, to have a very good working relationship with the CDC and with the ACIP working group.

Excellent. Thank you very much.

You are welcome.

And our next question comes from Heather Behanna of Wedbush Securities. Ma'am, your line is now open.

Hello. Thank you for taking my questions. This is Edwin on the line for Heather. I know you can't talk about any of the data, but just curious if you can provide any color on enrollment percentages of adults over 75 or also color on secondary endpoints we will get after the topline data readout. Thank you.

Yeah. Hi, this is Greg here. So you may recall in our protocol, we prespecified around 25% of the subjects would be 75 or older, and we achieved something like 24.8%. So we have that go through in the trial. And our secondary endpoint would be acute respiratory disease and RSV positive. So that's how the trial is structured.

Okay. Thank you.

Our next question comes from Joel Beatty of Citibank. Sir, your line is now open.

Hi. Thanks for taking the questions. I am not sure if I missed it on the last question, but would you be able to provide secondary endpoints that you plan to announce this quarter?

The topline result will be acute respiratory disease RSV positive. Preventional. So [indiscernible] and the comps as you know, we have agreed with the FDA 25% more than comfortable [ph] will provide the vaccine estimate pharmaceutical for acute respiratory disease RSV positive.

Okay. I guess regarding the 25%, I think I remember it may have been 30 at one point. Is there a distinction there or has that changed?

No. The primary is prevention of moderate severe RSV illness and they are lower bound of 95% constant of 30%. For the secondary…

Yes, got it.

… with acute respiratory disease, we rule out the lower bound were 25%.

Okay. The last question, can you just discuss the delay in the timing for the Phase 2 immunization trial from Q3 to sometime by year-end? And also, are results from the trial something that potential partners would want to see before our partnership?

Yeah, I will talk about timing. Stan, it's a timing question.

202.

Yeah, 202, he's talking about the rollover trial. We're on track to analyze that. I think with guidance and I think they will probably be very interested in that data. So we are -- it's roughly the same timeframe as 301 and we're doing the same thing, the analysis walk in the database into smaller trials that's 1,330 subjects. So, I think the timing of the guidance we provide has been the second half of 2016, right?

Right.

Great. Thank you.

Okay.

Our next question comes from the Kevin DeGeeter from Ladenburg. Sir, your line is now open.

Hi. Great. Good afternoon. Just two maybe short simple questions for me. As we think about potential business development transactions for the RSV program, given I guess the limited number of transactions and partnerships in the vaccine space, are there any jump on that you would point to, are comparable or instructive to help us think about what potential economic metrics might look like?

That's a question -- I must have that way looked it. We've looked at all of the partnering deals that have done, and you're right. There are not many precedent vaccine partnerships, but there are a number of the larger deals done on drugs that may have some relevance.

I think Kevin, just to support Stan on this. We have done an in-depth analysis on what we recognize to be most of the Phase 3 or late stage development programs that we have been partner for the last several years. And while there are not any vaccines specific that we can point to as precedent deals, we do see a lot of deals, but what we would call novel therapeutic opportunities that are opening new market opportunities. So, they are novel, they are differentiated, they are greenfield opportunities. And we kind of see those as many the playbook that we use as we go forward. So, the team has been very diligent on reviewing this data set and using that to help guide us in these conversations as we go forward.

Okay. Great. And then maybe one more for me and then I'll hop back in the queue. I am kind of staying on the business development theme. Do you think it would be appropriate to include the influence and nanoparticle in upcoming partnering discussions given the potential inclusion of that in the combination vaccine, or do you think it is appropriate given the stage development to keep that separate and wholly owned by Novavax at this time?

I think that's a really good question. I think it represents a nice market opportunity for us in flu, and putting them together, of course, represents -- although, we think RSV alone represents the biggest market opportunity for vaccine. Putting it together, just amplifies that. And I think any partner that we have, of course, they are selling to the same customer would be interested in talking about both those problems. So some sort of optionality will be in those discussions today.

All right. Great. Thanks so much.

Our next question comes from George Zavoico at JonesTrading. Sir, your line is now open.

Hi. Thanks for taking my question. Hi, everyone.

Hey, George.

First question, let me address Zika for a second. Because previously for the other emerging virus vaccines, you have been very, very quick in developing a vaccine that you can take to human trials. The Zika genome was known earlier this spring, and so it's a little bit past your prior record timing to have a vaccine out. Is that probably because -- does that have to do with the vaccine, be a little bit more difficult to get immunization against it or because most of your purpose is on the RSV and the nanoparticle.

I think it bolstered our focus on RSV vaccine. As you can imagine, we got two Phase 3 trials. In some respects, it targets a different group within our company, because it's really the early-stage discovery group that is working on this, but they are always busy. But as usual, as I am glad you pointed out, remember that we have had great successes on these other emerging viruses and -- but Zika is now at a point where I think the pace of animal work and where we go from there is accelerating.

Hi, George. It's Greg here. I mean we also really reengineered the flu nanoparticle program and we have really good results to present in South Africa. So, I think it's been fit in amongst our strategy, but really focused on executing and getting high quality data from the RSV Phase 3 programs has been by and large, not thus far out.

So a little more detail, the Zika vaccine via BLT or nanoparticle?

Yeah, I think we're again capitalizing on our experience with RSV, with flu nanoparticles Ebola. The Ebola vaccine, which was extremely effective, I think as a demonstration of the technology it's really very, very good. So, these novel viruses often come with vaccine challenges. I think as you pointed out Zika I believe is going to be relatively easy from a vaccinology standpoint, because historically the fly virus serves the proteins been hard to make. And we I think have solved the difficult technical problem and expect the vaccinology should be straightforward. Many of the other approaches are genomic-based or at a vector base. I see a lot of limitations without having a purified nanoparticle vaccine having a major asset in our pocket. And with the Ebola vaccine, we are able to get a zero 28-day immunization and we have very good -- very high antibodies, neutralize the antibodies and persistent immune responses.

Great adjuvant.

It's a very good adjuvant. And it is a clinical arena where we have a lot of comfort. This is I see as a major public health problem. We have a particular expertise working with the context of women who might be considering being pregnant and/or pregnant, we've done lot of work in this area. So, from an understanding of how to proceed in the clinical trial setting, I think we could really be seen as rivaling anybody. So, quite interested. I think we all believe that it's a big unmet need. There is likely to be persistent I think we can meet the challenge. And so I think update -- we're looking forward to presenting some preclinical data at a scientific form in the near future and making more progress.

Okay. That's reassuring. With regard to the BARDA contract, the one that's expiring at September, do you expect anymore revenue from that in 3Q, it’s winding down in September? And what do you expect to be that total of -- that you will have received from them, because the initial -- I think the initial amount was 196 and it was downsized about 179. Am I remembering it correctly?

Yeah, I think the total contract size that you mentioned is approximate. To date, over the history of the contract, we recognized $115 million in revenue under that contract. So George, as we look forward into Q3, I think your expectation should be that we will not recognize any revenue. We might have very de minimis revenue just for contract administrative level work that we do, but your expectations should be that we will have no revenue from that contract in the third quarter.

Okay. And finally -- thanks for that Buck. And finally, regarding the combo vaccine, I mentioned there is multiple tracks you can take as everybody pointed out, you know, vaccine by itself over the combination. But you're basically starting with nanoparticles vaccine back at Phase 1, whereas with the BLT vaccine for your approaching a Phase 3 efficacy vaccine. So, in terms of getting the flu vaccine to market, there is now going to be a little bit of a gap from when we expected the vaccine to hit market and now with the nanoparticle vaccine to hit market. So, can you just provide sort of back of the envelope kind of analysis of when we might expect the progression from Phase 1 to Phase 2? And I imagine with the new nanoparticle vaccine, you also need to do a Phase 3 efficacy vaccine just what you're doing with the RSV.

Yeah, I think that's right. I think that we will proceed. We're going to get a lot of data out of this Phase 1-2 programs that we're going to start next year. And from that data that just depends whether we have to do a -- what kind of dose -- confirmation study we have to do before we go into a Phase 3. We will know a lot about the types of antibodies that we want to generate and we'll be able to assay them. And the other half of the program, of course, we're going to be doing it with a product that has Phase 3 data and will soon be licensed with the RSV F Vaccine as part of the vaccine will be an approved product. So, that will shorten the timetable for getting to licensure of the combination vaccine. I don't have a specific timetable until I know the data from the next study.

So -- and then in addition to plus or minus the RSV Vaccine plus or minus the Matrix-M, you're also going to be doing multiple doses of the nanoparticle--?

Every one of your larger Phase 1-2 trials, yes. But we're going to get a lot of data out of it.

And do you expect that to be Northern Hemisphere or Southern Hemisphere or both? Because I mean, it sounds like you're having a pretty big trial with so many different arms.

Yeah, I think I mean, to be out of season, so we could evaluate the immunogenicity without the interference.

Okay.

We have that option to be Northern or Southern.

So, as you know, we've got multiple times in Australia just for that very reason because of the seasonality of our vaccines themselves. We're very familiar with that process.

Okay. Great. Thank you very much. Look forward to the Resolve's results.

Okay. Yeah, we do too.

Our next question comes from Vernon Bernardino [FBR & Company]. Sir, your line is now open.

Thank you. So, I usually off to say [ph]. Thanks for taking my question. The nanoparticle -- the next-gen flu vaccine is definitely intriguing to me. Can you just say again what kind of differentiation or efficacy you might expect from that versus the current flu vaccines?

Yeah, I think -- hi, Vernon, Greg here.

Hey, Greg.

I think we have learned a lot from the RSV F Vaccine, the Palivizumab competing antibody that being broadly neutralizing antibodies in some of the other sites. So all the -- I think tremendous learning we have had from making a purified surface like a protein has informed us for Ebola and for flu. And so we've done some of the work, as we've mentioned, and we presented this data at the Keystone Symposia, where we can induce these broadly neutralizing antibodies. So essentially, we can have a number of normally identified like Palivizumab in terms of their type of activity. For example, at the conference, we showed we induced broadly neutralizing antibodies against the H3N2, and that include -- what we do is we take the antibodies we've made -- the monoclonal antibodies we've made, ensure that we can neutralize viruses for multiple decades. And there we show I think from 1968, 1982, 1997, 2000s, about 10 different historical strains that this antibody can neutralize that virus. It's derived from our vaccine in animal immunization protocol. So the same -- we see the same sort of pattern in our RSV vaccine. And so how does it affect our flu profile? So the flu vaccine could be a vaccine that covers some of the problems we have currently with our current paradigm. That is, we have to make a choice. The public health institution has to make a choice based on the surveillance in the year before the strains that are included in the manufacturing formats for the coming year. It's possible to miss that. In other words, the strain between that year may change enough. There's little or no vaccine efficacy into the strain. Another hazard is that the vaccine is made of eggs. The virus is isolated and…

Thanks. That would definitely be a highly differentiated vaccine, creating a new paradigm for sure. One follow-up, if I may, and maybe this is a question for Stan. So the RSV program is definitely you something to hold onto oneself and certainly a new – again, echoing Greg's paradigm as far as treatment is concerned. Now the combination with the flu vaccine is definitely intriguing, but have you considered partnering the RSV Vaccine in combination with somebody else's flu vaccine as far as an opportunity is concerned?

Yes, we have, and we have those types of discussions going on in parallel. So the options are open to us. We have thought about that.

Okay. Maybe we can learn some more in the future. Okay. Thank you very much for taking my question.

Yes, all right.

I'm definitely excited and looking forward to the data later this quarter.

Yes. Okay, Vern.

And our last question comes from Bill Tanner of Guggenheim Securities. Sir, your line is now open.

Yeah, thanks. I had a follow-up maybe for you, Buck. If you could give us a sense of the CapEx requirements for – I guess, the existing facility might need some modification, but then, obviously, the new one. Just some kind of a ballpark investment there. And Stan, as it relates to the partnerships, I'm assuming since this is Novavax's technology, you're probably not really looking for a partner to provide much there.

Yes. So I'll take that. So, yes, so as part of this whole global discussion about RSV partnering, we're not at the point where we've decided whether we're going to just expand our own capacity or whether we're going to take our partners' capacity to do that. The cost of capital, to answer part of Buck's question, it's unanswerable right now because the cost of capital of outfitting that larger facility will be part of the discussions on our partnering. So I think that it's fair to say that both in terms of capital cost and operating cost of future clinical trials and milestone payments, that certainly is going to make a fairly dramatic – our expectations will make a dramatic change in the rate of burn that we have for this program. And so that is being well considered in these discussions.

And as you're thinking about the partners' facilities, I'm assuming that you're thinking about retrofitting them...

Yes, they'd all have to be retrofitted because we use this single-use technology, but it's not so dramatically different that it can't be retrofitted into one of their facilities. So it's not that different from traditional manufacturing.

Got it. Okay, thank you.

Okay. Thanks, everybody.

Sir, I'm not showing any more questions.

Great. Okay, thanks. We'll talk soon.