Good day, ladies and gentlemen, and welcome to the Novavax Q1 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. John Herrmann, Vice President and General Counsel. Sir, you may begin.

Thank you. Good morning, everyone. I want to thank you for joining us on today's first quarter 2012 financial results conference call. Both the earnings release from this morning and an archive of this earnings call can be found on the company's website, which is novavax.com. On today's call, are Novavax's President and CEO, Stan Erck; our CMO, Greg Glen; and our CFO, Fred Driscoll. Before we begin our prepared remarks, let me remind you that during this call, we will be making forward-looking statements that include financial, clinical or commercial projections. Statements relating to our future performance, conditions or strategies and other financial and business matters including expectations regarding revenue, operating expenses, cash usage and clinical developments in milestones, are all forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Novavax cautions that these forward-looking statements are subjects to numerous assumptions, risks and uncertainties, which change over time. Further information on factors that could affect Novavax's business, its financial conditions and its results of operations are contained in Novavax's filings with the SEC, which are available at novavax.com and at sec.gov. Any forward-looking statements speak only as of the date of this call and Novavax assumes no duty to update such statements. With that said, I will now turn the call over to Stan.

Thanks, John. Good morning, everyone. I'm pleased to report to you that once again we had a very productive quarter. I'd like to take a few minutes to review our key accomplishments before Fred reviews our financial results. The most visible achievement in the first quarter was our launch of a Phase II dose ranging 500 subject clinical trial, with our trivalent and quadrivalent seasonal VLP influenza vaccine candidates. This is a key milestone for our seasonal flu vaccine program. We're conducting the trial in Australia because the flu season in the southern hemisphere hasn't started yet, which allows us to evaluate our flu vaccine without waiting for the end of the flu season, here in the northern hemisphere. In this trial, we're evaluating immunogenicity and safety of 3 dose levels of our quadrivalent vaccine in healthy adults between the ages of 18 and 64. The goals of the trial are to allow us to transition from a trivalent to a quadrivalent seasonal vaccine candidate and to determine the most effective and appropriate dose for later clinical evaluation. From a timing perspective, we are on plan and expect to report top line clinical data from this trial in the third quarter. As I mentioned, we initiated this Phase II trial in Australia under the company's trivalent IND with the FDA, rather than waiting to conduct the trial under new quadrivalent IND, which we plan to file later this year prior to the initiation of our next Phase IIb dose confirmation trial. From a financial reporting perspective, this decision means that we will record a revenue associated with these outside clinical trial costs when we submit the trial data under the new quadrivalent IND later this year and as reviewed by the FDA. This is a timing issue and Fred will discuss the details and impact to our financials later. This week, we also announced that we have launched the first of 2 Phase I clinical trials of our H5N1 pandemic influenza vaccine candidate, using an adjuvant in 333 adults, 18 to 49 years old. This randomized observer blind dose ranging placebo-controlled trial is also being conducted under our contract with BARDA. We continue to be on track to also launch the second Phase I clinical trial using the same clinical protocol design but with a second different adjuvant. At the conclusion of both Phase I trials, we will select one of the adjuvants and move in to the next stage of pandemic clinical development. Turning to our RSV program. In March, we presented the results from the Phase I trial of a recombinant nano particle vaccine candidate against RSV, respiratory syncytial virus, at the 14th International Symposium on viral infections. Short-term and 6-month safety and immunogenicity data from this study, suggest the vaccine has a potential to elicit protective immunity from RSV. You may recall that last October, we presented interim top line data from the trial at the Fifth Vaccine in ISV Annual Global Conference, which were consistent with preclinical studies and show that the vaccine was well tolerated and had no systemic side effects. We are very excited about the results and the future potential of this vaccine candidate as a prophylactic solution for RSV in both the pediatric and elderly populations. Our continuing analyses of the data confirms that our vaccine has the potential to uniquely stimulate antibodies at high levels, that mimic the activity of an improved monoclonal antibody therapy, known as Synagis, made by MedImmune for the potential of RSV in premature infants. We plan to advance our RSV vaccine candidate into 2 Phase II trials in both elderly adults and women of childbearing age. These separate trials will be conducted with and without an adjuvant, and will provide both safety and immunogenicity results in these different age of populations. As I've said before, RSV represents one of the biggest vaccine markets globally by our estimates, greater than $5 billion and this is a product that could be the first RSV vaccine brought to market. Switching topics to CPL Biologics, our joint venture in Canada, not Canada, in India, with Cadila Pharmaceuticals, CPLB has been making great progress in recent months with the development from new vaccines in its new fully complete vaccine manufacturing facility in India. CPLB is now preparing to begin clinical testing of a VLP-based influenza vaccine and a new rabies vaccine. Both of these vaccine candidates were initially developed at Novavax and transferred to CPLB for scale up and testing. CPLB is in the process of getting regulatory approvals for testing these vaccines in clinical trials in India. I remind you that we share in their success and can utilize CPLB's development work of vaccine candidates like rabies, to initiate similar efforts in other territories that would benefit from such a program. As we've mentioned, Novavax has worldwide rights outside of India to vaccines developed by CPLB. CPLB is a valuable long-term strategic partner and we congratulate them on their success in expanding our vaccine and development capability, and global manufacturing capacity. And as a final comment, I wish to acknowledge the appointments of Merv Hamer, as Vice President of Manufacturing; and the promotion of John Herrmann, as Vice President, General Counsel. They are both very talented executives and we're delighted to have them on our senior management team. I'll now turn the remarks over to Fred.

Thank you, Stan. For the first quarter of 2012, we reported a net loss of $7.3 million or $0.06 per share, compared to a net loss of $7.5 million or $0.07 per share for the first quarter of 2011. The company had a higher revenue in the first quarter of 2012 of $4.6 million, as compared to $800,000 for the same period in 2011, due to the BARDA contract being in full effect in 2012. In conjunction with the increased BARDA revenue, the cost of contract revenue increased to $3.8 million in the first quarter of 2012, as compared to $300,000 for the same period in 2011. As Stan mentioned earlier on this call, revenue recognition for outside clinical trial costs for the Phase II seasonal influenza vaccine trial currently underway in Australia, will occur in the second half of this year. The total effect of this delay in revenue recognition and ultimate payment is based on this trial's outside clinical trial costs that are expected to total approximately $3.1 million of which approximately $1.7 million was incurred through March 31, 2012. These costs are recorded in our financial statements as cost of contract revenue. We will seek reimbursement from BARDA for these costs once the data from the trial have been submitted to the FDA and reviewed under the new quadrivalent IND and recognized the revenue at that time. Research and development expenses of $5.1 million in the first quarter of 2012 were flat, compared to the same period in 2011. General and administrative expenses increased to $3.2 million in the first quarter of 2012, as compared to $2.8 million for the same period in 2011, due primarily to non-cash related expenses associated with the new -- with the company's new office facility, as well as higher professional fees. As of March 31, 2012, the company had $20.7 million in cash, cash equivalents and short-term investments compared to $18.3 million as of December 31, 2011. As was mentioned in this morning's press release, the cash used in operating activities of the company decreased from $9 million in Q1 2011, to $4.2 million in Q1 2012, which represents a 53% reduction in our burden. This clearly amplifies the significance of the BARDA contract to our company. That concludes our prepared remarks and now operator, we'll ask for questions.

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

Maybe just a quick one, Fred, for you, as it relates to the company seeking the revenue reimbursements. So as -- and Stan you, I think, I don't know if there's my connection or -- when you mentioned earlier when the data would be available, just curious Fred, is this reimbursement will likely to occur in 2013? I mean it could, I think -- that began in -- go ahead.

The expectation right now is that we will file the IND in the second half of this year and at that time we will seek reimbursement from BARDA, at that time. So our expectation now is, at this point is that, it would be a second half event in 2012.

Okay that you would actually get reimbursed some money.

Yes, sir.

Okay and then, Stan, just on the RSV vaccine. When you're testing it in women of childbearing age, I wonder if you could elaborate a little bit on that, and is it -- the contemplation then, if the vaccine were commercial that women would become vaccinated perhaps prior to when they wanted to become pregnant and just take advantage, I guess of passage of the antibodies across the placenta, I just wanted to understand it a little bit better that process.

Yes, no, so we'll just -- we have -- we'll take 5 different indications for the RSV vaccine, and 2 of them are in kids, we expect 0- to 2-year-olds and then 2 to 5-year-old toddlers, both of whom are exposed to RSV; and the 0- to 2-year-olds RSV is the largest cause of hospitalization kids. So those are both of our targets and you -- and we'll -- as part of our global grand clinical development plan, we'll start approaching those targets after we've developed a safety base, the database in adults. The other 2 indications, one is for women of childbearing age, and the expectation is to vaccinate women in their third trimester, so that they build up a high antibody level that gets transferred to the newborns, and protecting the newborns in the first few months of life, maybe the first 3 to 6 months. And then finally, the elderly, we would target a single dose vaccine in the elderly possibly, in the annual vaccine that would be -- that would represent a -- just like the flu vaccine in the elderly on an annual basis and possibly as a combination vaccine with our flu vaccine, so that you would have, what would be known as a respiratory vaccine. An annual respiratory vaccine for flu and RSV. So those are our target markets.

And then as it relates to the kids that are 0 to 2, I'm wondering if you could just remind me what the expectation would be for the vaccine to be appropriately immunogenic in kids of that age?

I think, I'll turn that over to our Chief Medical Officer.

This is Greg Glenn. So the disease in that population and the burden on hospitals, or hospital in the outpatient care is mostly ER visits and outpatient visits. So we would be looking to a reduced in what we call a medically attended respiratory illness to the vaccinations. As Stan mentioned, the current trial, women of childbearing age, allows us to create a safety database, which would be necessary going to pediatric population. So in the level of immunity that we are expecting to the qualitative measures that we make, for example, the neutralization measures we make are the type of immune responses that would be expected to be protective -- and we saw those quite robustly in our Phase I trial.

Okay and then maybe just one last question then maybe it's for you then Greg. On the quadrivalent versus the trivalent, maybe if you could just speak to the expectation for perhaps the difference in the protection of the quad versus the tri?

Well the reason that the health authorities of the WHO and CDC have recommended to add a second B strains through the surveillance in the past decade or so. There's been an observation that the vaccine matched for the B strains has been off and on, and so this would increase coverage for the second B strain that we're seeing now in the surveillance settings and the rest of the world. So this is the recommendation that's been taken up by all the major manufacturers to make the quadrivalent, and this increases the coverage. There's 2 lineages of these and we've -- by doing the second B strains we're able to cover both of these lineages.

Our next question comes from Ted Tenthoff from Piper Jaffray.

All right I appreciate the update and for taking the question. Maybe you can give a little bit more information about the strategy to go into -- to go down under first, with the Phase II study and the trivalent vaccine as I understand it, I get the time benefit, but if ultimately the goal is to get the quad approved, what additional data are you, can be generating from this Phase II study?

Well, first of all, this is Stan. And we will -- as a comparative study, we're looking -- at one arm of the study we'll have a trivalent vaccine and we'll compare it to the arms that have a quadrivalent vaccine. So we're trying to -- we'll do that comparison to show that we don't lose immunogenicity of the strains by adding a fourth strain, and then what we want to do is also, do a dose ranging trials so that we can pick a final dose for dose -- Phase II dose confirmation study that will start later this year. All of this was planned in time, so that we can begin Phase III trials next year.

I got it. I think I missed that. It was a -- kind of comparative study on that same point. So when should we get data from that Phase II study then?

Well we publicly state third quarter. So it's early third quarter.

Our next question comes from George Zavoico from MLV.

A couple questions. I looked at the clinicaltrials.gov and it said that the Australian trial was active but not recruiting, does that mean that it's fully enrolled now, 500 patients that's quite -- not too long a time to get that big of an enrollment, if that's the case.

That's a great question. One I'd love to answer. We enrolled all 500 in 2 weeks.

Wow, Okay.

Execution.

Congratulations. The next question is regarding, the reason for the delay in the reimbursement, was a pandemic. I'm sorry, with the Australian trials. I mean the pandemic flu trials here in the U.S. are reimbursed as they occur, but in Australia there's apparently going to be this 1 or 2 quarter, maybe longer delay. Is there -- what's the reason for that?

Yes, and actually it doesn't have anything to do with Australia. It's a technicality that we have to -- that we had to address is the Australian trial. So we originally designed this trial as a trivalent, so it was going to be 205a, followed by a quadrivalent 205b. There were delays in the manufacturing last year that we got over, but we didn't want to delay the results from the trial and face in any delays for Phase III, so we combined the trial into this trivalent, quadrivalent. So now we have to file a quadrivalent IND, which we will do later this summer and these data will be reviewed under that and BARDA is prohibited technically, from paying for the data unless it's under that IND. So it's a timing issue.

Oh, so you chose to start the trial to coincide with the flu season, before you were able to file the IND up here, basically is the...

That's right.

Oh, Okay. Great. I love those technicalities. The -- and last question, the LG, is that on schedule. They are building a manufacturing plant there, correct?

Yes. We're a weekly basis of doing tech transfer with them, so we -- and they're -- they use that, the information from our process that is being locked down, will be used to -- in their plant design. So that collaboration is going just fine.

So has it broken ground yet? Or is it still in the architectural rendering stage?

It's an -- I can't say the word. It's a planning stage.

[Operator Instructions] Our next question comes from Kevin DeGeeter from Ladenburg.

Hey, I want to have my congratulations to all the progress. And Stan/Greg, maybe you could talk a little bit about, how we should think about pricing and perhaps economics of quadrivalent influenza vaccines. We do have a few that have been launched into the market this year. Do you think there's some pricing elasticity around a quadrivalent and what is this? Sort of, incrementally deal with COGS, I think directionally, potentially it raises COGS, but just any feel you can have for that from what we're seeing today commercially in the market, would be helpful.

Yes I -- so I don't have insight into what the plan, the pricing model is from the large Pharma quadrivalent. So we'll have the benefit of knowing what that is by the time we get to the marketplace and designing our pricing policy around that. So I can't -- I can imagine that it's going to be a higher price, the cost of course will not go up 33%, they'll go up a portion of that because it's only the raw material -- it's only the active ingredient. So they'll go up somewhere in the 10% to 20% range I would guess. And I am sure the price will at least cover that but it's not clear to me at this time, what the pharmaceutical pricing would be doing.

Okay, fair enough and maybe on a somewhat related issue, I mean, companies have made tremendous amount of progress over the last really 2 to 3 years, in terms of manufacturing scale up influenza, generally. Does the transition here to really pushing forward with the quadrivalent as the most likely lead vaccine for the influenza, resulted in any more meaningful changes or improvements to process development that the company will need to undertake or were those larger already factored into a lot of the work that's been done over the last several years?

Yes I -- so I'm glad you pointed out that there's been progress in process development. It's been one of the most important efforts internally in the company, is to develop and improve the process both for product quality and for yields. And we've just brought on some people who are the best in the world at process development and medical development and manufacturing. They've made a huge difference in, just in the last 12 months, our yields have gone up dramatically. And the product purity and quality has been dramatically improved as well. We're very happy with the way that that's gone. We think we're in a stage right now where we can lockdown the process for flu. It's a similar process that we use for RSV and other products as well, and so we've just built up a knowledge base that it will allow us to make a competitively cost -- a cost competitive flu vaccine, so.

And maybe just one last one, if I can slip this in is, with regard to the 2 adjuvant programs that you'll be evaluating in Phase I. Assuming we get an interesting profile in the readout, should we think of the adjuvant technologies the company is working on is a potential sources of a partnering or an out-licensing opportunities in addition to the working combination with the potentially in pandemic. Just, how do we think about the economic model generally around the adjuvant that the company has developed?

So we're working on in-licensed adjuvants. And so that doesn't -- it doesn't represent a separate opportunity for us. I don't think. I think our adjuvanted pandemic vaccine, our adjuvanted -- well, I guess that's what we're working with on the in-licensed product. So it's not a economic opportunity.

Our next question is a follow-up from Bill Tanner from Lazard.

Fred just quickly on the numbers. So the increase in the cost of contract revenue year-over-year, so $1.7 million of the delta over first quarter of last year was attributable to doing the trials in Australia, and the balance of it, can you tell me what that was related to then?

Yes, it's -- well, the first thing, Bill, it's -- remember we started the contract on March 1 of last year, so we really didn't get into full steam until the second quarter. So we really have first, I think the most important is the full year effect of really having -- today we have 116 employees in the company. When we did the contract, we had, I think the number was 79 employees. So we've dramatically added to the work base, which is a big part of the increase in the cost year-over-year in the billings department and labor, and overhead, and related materials to build the product. And of course, the -- as you say, the effect of the $205 million study of course is in -- a portion of that is in the first quarter. So that's another reason why that cost of contract revenue was higher.

So then, we should be looking at this color, $1.5 million or so per quarter as sort of the x $205 million cost of contract?

Yes, we would be -- yes, that's right. We'll -- as we move forward is, as we said in our prepared remarks, and if the total cost of this is $3.1 million, so you're right, yes, it'll be an additional slug of cost to come in for the $205 million study in the second quarter and beyond. And I would add that the expectation clearly is, as we move throughout this year with what's Stan took you through and the number of trials that we'll be running, we do expect the revenue line to continue to increase throughout the year and the cost of contract revenue.

I show no further questions in the queue and we'd like to turn the conference back to Mr. Stanley Erck for our closing remarks.

Yes, I'd just like to thank everybody for calling in and paying attention, good questions and we look forward to talking to you over the next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect at this time.