Good day, ladies and gentlemen, and welcome to the Novavax Second Quarter 2018 Financial Results Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'd now like to introduce your host for today's conference, Erika Trahan, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone. I would like to thank everyone for joining today's call to discuss second quarter 2018 operational highlights and financial results. The related press release 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 Stan Erck; Novavaxs' President and CEO; with -- and John Trizzino, our Chief Business Officer and Chief Financial Officer; Dr. Lou Fries, our Chief Medical Officer; and Amy Fix, our senior VP of Regulatory Affairs will also be available for the Q&A portion of the call. 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-related and business related matters, including expectations regarding revenue, operating expenses, cash, cash usage in 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 it over to Stan to begin today's call.

Thanks, Erika. Welcome to our second quarter 2018 earnings call. It will come as no surprise that we're looking forward to seeing data from our prepared Phase III trial and our NanoFlu Phase II clinical trial, both of which put us on a path towards BLA submissions over the next 2 years. In addition, discussing our clinical progress and plans, I'd also like to talk about our activities related to regularly updates, manufacturing progress and then pre-commercialization efforts. So my agenda will be first, I'll remind you of the recent clinical data around ResVax our RSV vaccine for infants via maternal immunization and NanoFlu or influence of vaccine in older adults. Next, I'll talk about what to expect from clinical trial execution for both programs over the next 6 months. Following that, we'll talk about our recent regulatory interactions, which are increasingly important as we approach the finish line for both of these programs. I will then touch on some of these parallel activities I mentioned that are critical to address in advance of product launches. And finally, I will remind you of the market opportunities for ResVax and NanoFlu. So let's start with clinical data. There's nothing that we haven't already reported, but I think that the data are so significant that they are worth repeating. In the 60-plus years that the vaccine industry has been working on an RSV vaccine, there have never been positive efficacy data in a Phase III efficacy trial. Earlier this year, we reported that following consultation with the FDA, we were allowed to conduct an informational analysis, whereby, our independent analysts indicated that we had exceeded a predetermined efficacy threshold in roughly the first third of the prepared trial participants. We were then, and remain still, blinded to the Prepare trial data. This…

2018. Therefore, I will focus on our key results for the quarter, but the 6-month financial results can be found in today's press release. For the quarter, we recorded a net loss of $44.5 million or $0.12 per share compared to a net loss of $44.5 million or $0.16 per share in the second quarter of 2017. Revenue in the quarter increased year-over-year 60% to $10.8 million compared to $6.7 million for the same period in 2017. This increase was driven by higher revenue recorded under the Bill & Melinda Gates Foundation grant, as a result of increased enrollment in the Prepare trial and increased activities of Novavax AB, our wholly-owned subsidiary. And as you know, the BMGF revenue is directly related to the operating activity in the Prepare trial. We expect a slight increase in BMGF revenue in 2018 relative to 2017, as a result of the increased level of activities in the Prepare trial. Related to our net loss for the quarter, R&D expenses increased 13% to $44.5 million in the quarter, due to the increased development activities of ResVax. G&A expenses decreased 8% to $8.2 million in the quarter, primarily due to lower employee-related costs. As of June 30, 2018, Novavax has $178.2 million in cash, cash equivalents, marketable securities and a restricted cash on the balance sheet and includes net proceeds of $54 million raised through the pay-for-public offering. The completed, underwritten public offering was 38.4 million shares of common stock, including 4.5 million shares pursuant to the underwriters option to purchase additional shares. Net cash used in operating activities for the second quarter of 2018 was $40 million compared to $12.4 million for the same period in 2017. This increase in cash usage was primarily due to the receipt of a $25 million payment under the BMGF grant in the second quarter of 2017, whereas no payment was received in the same period of 2018. However, we expect to receive a $15 million payment in the third quarter of 2018. This concludes my financial review. I will now turn the call back over to Stan.

Thanks, John. As you can see, we're excited about our recent accomplishments in our ResVax and NanoFlu programs as well as the near-term prospects for the remainder of 2018 and beyond. Particularly with regards to our significant, upcoming milestones for our leading programs. To quickly summarize some of the near-term milestones I mentioned earlier, for our RSV program, results of the Prepare trial, final efficacy analysis for ResVax are expected in the first quarter of 2019. Assuming successful results, we'd expect to file a BLA with the FDA, and an MBA -- MAA with the EMA by the first quarter of 2020. For our NanoFlu program, we've recently met with the FDA to discuss the design of our Phase II clinical, which we plan to initiate in the third quarter of this year with top line data and end of Phase II meeting with the FDA expected in the first quarter 2019. So we look forward to updating you on our progress as we continue to execute against our clinical milestones and strategic objectives. We'll wrap it up here and open it up to Q&A. Operator?

Thank you [Operator Instructions] Our first question comes from Joel Beatty with Citi. Your line is now open.

Hi. Thanks for taking the questions, The first one is on the RSV Phase III trial that is ongoing and now wrapping up. Could you discuss how the number of events have been tracking over time? And then also have you made any changes during the course of the trial to try to increase the number of events collected?

Okay. This is Lou Fries. The number of events over the course of the trial has actually been tracking fairly steadily as a proportion of the subjects and has been pretty closely congruent with what we projected to be the incidence rate of the primary endpoint, as when we adjust the calculations for the range of efficacies indicated by the informational analysis. We have, in fact, made some adjustments to enhance our capture of those events, and we've done that based on observations that we've made during the trial. So we've made -- we made at least one protocol amendment in which we determine that subjects that initially present in the clinic should come back after 2 or 3 days. We found that significant number of infants who were becoming significantly worse after their initial presentation to the clinic. And so we introduced a second visit to make sure that we capture those infants at the peak of their illness. In addition, we have encouraged the investigators to pursue infants who were ill in the hospital and to make observations in the hospital with the study technology and diagnostic tests. And both of those maneuvers have paid off in terms of capturing additional primary endpoints.

Yes, let me make one more comment Joel is that it is the consistency of our endpoint collection throughout the trial. The -- and it's a -- the fact that it's consistent with what we the -- saw as an attack rate, both in our plan and in the first 1,300 women during the informational analysis. It gives a lot of confidence that we're -- we've got the right number. So that's why we went to the FDA and said, we want to make this a final analysis. So we wanted to get -- we wanted to wait till we got to this point where we could basically see, virtually, all of the trial to get there.

Got it. And now that this will be the final analysis. Could you give a sense of what the midpoint would we need to be? And the achievement as far as the reduction of events in -- or vaccine efficacy in order to have the lower bound [indiscernible] above the target goal?

We've said all along, I think, that something in the 50s would give us a lower bound, above 30 and anything above our informational analysis would keep us in the -- well into the high 20s. So we're confident that we're going to be in good shape.

Terrific. And then one last question if I could on the flu program. Now that it looks like you have an agreement with the FDA on the accelerated-approval pathway that could be applied for the flu vaccine. Could you discuss a little bit more about the details of what is assessed as far as what are the primary endpoints? And whether it needs to be superior in any regard or noninferior? Where the typical cut off starts? The general [indiscernible] design features?

Okay. The -- in typical noninferiority trial which allows you to access accelerated approval, one, immunizes subjects both with a licensed comparator, which is subject to -- which has traditional approval, which is to say shown efficacy. And one, compares the immune responses to your vaccines. Those immune responses compared using the classical hemagglutination inhibition assay and typically, noninferiority is shown on the basis of ratio of geometric mean titers not less than 0.67 and a difference in 0 conversion rate not less than -- or rather not greater than 10%. So those are the usual criteria for noninferiority in such a trial. To access accelerated approval one would not need to show superiority. One would merely need to show noninferiority to a licensed competitor.

Great. Thank you

Thank you. Our next question comes from George Zavoico with B. Riley. Your line is now open.

Hi, good afternoon everyone. Thanks for the update. I'm following up on the last question on NanoFlu. You've made a -- and I think it's a big deal that you have efficacy or at least immunogenicity against the forward looking and historic strains. But as far as the approval is concerned that really is just frosting on the cake, right? I mean the approval is going to be based on the 4 strains in the quadrivalent that's recommended by the CDC and WHO? Is that correct?

That's correct.

Okay. But on the other hand, the FDA has also said that they would like to see a universal flu vaccine. So what are you doing in the background toward getting that sort of recognition by the regulators?

Yes, universal -- so well, we've described it as a vaccine that in it's -- at an extreme as a universal vaccine is that you get to go across all strains. But you can't tell that from this trial. And so we would have to test more, and we have to see what other strains we want to put in the vaccine. So it's on the way to what people think of as a universal vaccine. But we couldn't call it a universal vaccine, at this point. So it's -- you're seeing the adjuvant. You're seeing -- which presumably expands immune response to conserve regions can get you more broadly responsive immune responses.

Well, okay. And so there's obviously considerable amount of work to do than that.

The universal vaccine -- you have to show it for some long period of time that works against a variety of strains. And it's -- what we're showing is that it works against drifted strains and the ultimate universal vaccine is not only against -- it's against far drifted strains in one respect.

Right. Well I think also there's recognizable value in a vaccine which is an improvement on the current products. And the ability to extend protection to drifted strains, which can be shown -- which is shown classically by looking at protection against past strains, but with the technology available to us can also be projected out to show protective responses against the most recent and most evolved strains that have -- that are currently isolated is something we can look at with the searer [ph] in this trial. And that's the first step to showing broader protection which allows expanded coverage both forward and backward and indeed allows you to extend an umbrella over the multiple variant strains which circulate in each year, even within a given subtypes.

And although, that's not going to be needed for approval, you're going to do those studies anyway just as like you said it's the first step in the former foundation?

Oh, absolutely.

Yes, we'll do that.

Okay. And then with regard to the RSV, you've already stopped enrolling patients -- enrolling pregnant women. Is that correct? So I mean -- and the fact even without the FDA's acceptance if you were having this -- the final analysis, you've essentially done that by stopping enrollment. Isn't that correct? So what does this actually really gain you?

So the protocol call for a interim analysis after 4,600 women and then after 6,600 women and after -- and then final analysis after 8,600. It has always been our option after an interim analysis of stopping the trial and then doing a final analysis. So there's -- we didn't want any ambiguity when we got to the point where we unblinded the 4,600 that this would be for a protocol, an interim, that we would somehow have to turn it into a final. So when we stopped the 46 -- when we stopped recruiting the 4,600, [indiscernible] well I think likely indicated earlier, we did that always with the option of restarting, accruing more if we thought something was happening unusual in the RSV seasons in this year. And we have concluded that we -- and as we stated before, everything seems to be in line with our original hypothesis. We went to the FDA to make sure that there was no ambiguity about whether this was going to be an interim followed by a final or a final. FDA completely agreed with our strategy and then the fact that this is -- so I think it's a big deal to have -- the FDA has been working with us since we've started this trial to get the -- they helped us determine the inclusion and exclusion criteria -- day 1 when we started the trial. So that the trial would, hopefully, work. And they've been working with us all through out. And so this was to yet another indication of the FDA's willingness to work with us to have a successful trial.

Maybe if you didn't have the informational analysis, which obviously strengthens and supports your confidence in the outcome, would you have still done this?

The informational analysis gave us a lot of enthusiasm for making it to final.

Okay. All right.

Our next question comes from Kevin DeGeeter with Ladenburg. Your line is now open.

Hey. Good afternoon, guys. Stan, what's a really negating factor to ultimately being able to file with BLA, is it just a completion of the rather large analysis project for to complete the BLA? Or there are other manufacturing stability or other nonclinical factors that are really beginning -- determined to when you file the BLA?

I let you talk to the Amy for the first time. Amy?

So as you know we've got a follow the subjects for 180 days for efficacy, but we've got to follow for a full year for safety. So that's one of the things. The second thing, we will be conducting a lot consistency studies. So we need to show that through (inaudible) of our clinical trial materials 2 -- 3 unique (inaudible) have the same immune response. So that study will be ongoing, will have to be integrated into the BLA. And then finally, we are doing a process-performance qualification in terms of manufacturing. So those are the 3 things that are really driving the submission date for the BLA.

Great. That's helpful. And then when you -- as you think about potential business development and partnering. Stan, just your current thoughts as to preference for regional versus global partners for digging specifically for RSV? And then given where we are sort of in the calendar cycle here, is there a logic to driving towards business development prior to data at this point?

Well, it's -- there is a logic depending on how negotiations go and how aggressive our potential partners want to be about pre versus post data. And so that's always a bit out of my control. But the issue about whether we do global or regional, is always -- has always been not so much whether Novavax itself would do something ex U.S., it's how we share the U.S. market. And that's always a negotiation. And we just have to leave it at that. We have John Trizzino, who sitting next to me, who's our Chief Business Officer, who has a lot of experience in sales and marketing of vaccines, and we've got a core team as I mentioned in the -- in my text that has been doing for 2 years now or 3 years. The leg work that you have to do to get the market itself ready for an RSV vaccine, and so we'll be involved in any case in the U.S. in commercializing this product, but the question is to what degree and how much does the partner get?

Just one thing Kevin, I think the capability exists within the organization to launch and to be us -- have a successful launch. The goal also is how we can accelerate the launch in multiple countries and multiple territories and how quickly we can get to peak revenue. So certainly, a ex U.S. partner could help with the acceleration of that revenue, with the filing in the various territories. And so you look at the economics of that benefit. You won a bigger, a much bigger pie, a faster pathway to revenue and faster pathway to launch in multiple territories. And that's the benefit you would love to see if, in fact, we had an interested partner.

Our next question comes from Ted Tenthoff with Piper Jaffray.

I appreciate the update, a lots of exciting data coming up near term. Sorry, I have to ask you to repeat this, but I'm on a train. What was the $15 million payment that you said you would be receiving in the third quarter? And also can you give just kind of the range of what needs to be seen with respect to the quad Phase II flu study to warrant moving forward?

Well simply, the quad Phase II trial is to repeat what we did in the Phase I trial, which is to show that we're equal to or better than the comparative vaccine, and we want to show a couple other things which is: one, is to show that there is, in fact, an adjuvant effect, in other words, in the adjuvanted arm there's a more potent immune response than without the adjuvant, because you have to show benefit by adding that adjuvant; secondly, we want to show that as we add a fourth strain to our trivalent vaccine that there's no ill effect of adding 4 strains versus 3. And so both of those effects we take a low risk study points. And we just want to repeat in a larger trial our advantage over Fluzone HD. So that would get us into -- that would take us to an end of Phase II meeting, which would then take us to a Phase III meeting. Again, the expectation is as we repeat the same trial in larger numbers, in a head-to-head comparison starting in September is draw a day -- vaccine in day 0, drop load on day 21 and then analyze the results, and you've got your pivotal Phase III data by the end of next year. The $15 million payment, John?

So thanks, Ted. The $15 million payment is -- would be the next expected payment coming from BMG assets. As I mentioned in my prepared remarks, we received $25 million payment in the second quarter of last year. Interestingly, with BMGF, they advance us funding for the program and then we recognize that -- or what we recall recognize that revenue for the cash received, as its earned against the spend for the trial. So that $15 million would be the next tranche of funding against the total $89 million grant, which we would expect to recognize upon the completion of the trial.

Got it. So it's not all in the third quarter, but it will be recognized as you kind of spend it. Is this the final piece of the...

Hold on. It'll come in. The whole $15 million will come in to our bank account. It'll show as cash and then will be recognized as revenue as over...

Over time?

Time, yes.

Got it. And is that the final tranche from Bill & Melinda Gates? I've lost track on the number.

No. There's about another $6 million left of cash to be advanced. We've -- the revenue recognition as [Theon] said and the cash received, the timing is a little bit different. But there's the $15 million and then about another $6 million that gets us to the total of $89 million.

Our next question comes from Vernon Bernardino with Seaport Global.

Can you guys me hear me, okay?

We can.

So my first question is regarding the change to the interim data as the final analysis. Can you walk us through or at least describe as far as the effects of that as far as statistical power is concerned? But -- and as an extension to that, in the informational analysis, was that assuming results at the original final analysis? Or do they also apply these to still get the same results? Do you think if you -- probably not done it with the interim analysis?

That -- okay. The informational analysis result per se is independent of any assumptions regarding the final result. The informational analysis does carry a cost with it of Type 1 error but we are in some final negotiations with FDA right now that should bring us to a Type 1 error rate for the final analysis that's basically the same as the Type 1 error rate that would have been applied to it if it were an interim analysis. So I don't think we're going to recognize any significant statistical hit, on this maneuver.

Okay. Perfect. And then you mentioned that you will be filing simultaneously in Europe and U.S., how much of a change is that as far as to what you're considering as far as the timing of filing between -- in the past and the -- what your expectation is this time?

I think the question is we haven't changed our expectations. We've always been working with both sides -- on both sides of the oceans with regulators in parallel. Our expectation is all of the data that we've generated from this trial and filed with the FDA will be the same data that we will file in Europe.

Oh, I meant will the timing always going to be simultaneously? I think that was a change, right?

I don't know if it was a change, but we've recently contracted with the European CRO that's going to help us due the "conversion in terms of the common technical documents of the specific requirements for Europe." So we've realized that we can actually do these submissions very near each other.

Okay. I had expected at least like a 6 months or 4 to 6 months unchanged, and you know the difference. Regarding BMGF...

So Vernon -- so therefore, you can change your model and move it up 6 months.

Yes, right. And then regarding BMGF -- and I'm sorry, that I don't remember this. After let's go all the way, RSV is approved. What does BMGF get, if anything, once the vaccine is approved?

Well, we haven't worked beyond that. It's their going -- their interest, their mission is childhood mortality and infant mortality. And RSV is the second-leading cause of infant mortality globally. Their interest has always been is to get it introduced into low-income countries as quickly as possible. Their role will be to influence payers like Gavi to help get it into these country's and get distribution channel set up so they will take that lead role in helping to establish the structure in low-income countries for this type of vaccination.

As far as transfer of cost. Do they buy the vaccine from you? Or they just help you with the your relationship and sell directly?

No. They help with the relationship with Gavi, G-A-V-I, its global vaccines, and what's the a? alliance for vaccines, and it's actually a group that has been responsible for paying for low-income country vaccines for a long time and Gates is one of the primary funders of that organization. So we will not sell directly to low-income countries, we'll sell to Gavi.

And since I show no further questions in queue I would like to turn it back to Mr. Erck for closing remarks.

Thanks, everybody. We're -- as you can see, we're anxious to get to the end of a long road in this trial, but it's has been exciting and we'll keep you posted over the coming months as to how we're doing.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.