Seth Lewis - VP, IR Paul Chaplin - President & CEO

Peter Welford - Jefferies Boris Peaker - Cowen Group Chad Messer - Needham & Company

Good day. And welcome to the First Quarterly Report Q1 for the Three Months period ended the 31st of March, 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to your host today, Mr. Seth Lewis. Please go ahead, sir.

Thank you, operator. Welcome everyone to the Bavarian Nordic Q1, 2018 results call. My name is Seth Lewis, Vice President of Investor Relations and Communications. And I'm joined this morning by Paul Chaplin, President and CEO of Bavarian Nordic. Before we begin, I'd like to remind everyone that this presentation includes forward-looking statements that involve risks and uncertainties and other factors, many of which are outside of our control that could cause the actual results to differ materially from the results discussed in the forward-looking statements. All such forward-looking statements are expressly qualified and other cautionary statements which may accompany these forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect subsequent events or circumstances after the date made, except as required by law. With that, I will hand the call over to Dr. Chaplin.

Thanks Seth. And welcome everyone to our Q1 call. Q1 has been a very strong quarter of news flow, and we are seeing great progression not only in the announcement of very strong clinical results, expansion of partnerships but actually new R&D contracts. So on Slide 3, we just go through the recent highlights. We began the year with report of a very positive, very strongly positive Phase 3 trial for IMVAMUNE which is the last piece of clinical data the FDA requires for licensure. So we will be filing for licensure with the FDA later this year. And as I am sure you all are remember approval of IMVAMUNE is associated with the award of Priority Review Voucher which is going openly in the market for more than $100 million. RSV vaccine goes from strength to strength and last year we reported very strong Phase 2 clinical data, and that was updated with the announcement that we could detect protective antibodies in mucosa earlier this year. I'll come more to RSV in the coming slides. With CV301, we expanded our industry partnerships and we will be initiating four additional Phase 2 studies of combinations of various check point inhibitors with CV301. Brachyury has the Phase 1 progresses we've been given an orphan drug designation from the FDA for Chordoma and pivotal Chordoma Phase 2 trial will be initiated later this year. And we were awarded a new R&D with the US government with DOD, the Department of Defense which is again another highlight of the importance of our platform which is highly regarded with various agencies within the US government. So in the coming slides I want to talk about how some of these events impact our ongoing activities in our various programs. So on Slide 4, we are this year guiding a fairly significant loss and that's mainly due as you'll see on this slide that the revenues in 2018 are temporarily lower than we've previously been recorded of more than a DKK1 billion or more, and this year we're only guiding for revenues of DKK500 million primarily driven by our new IMVAMUNE order and I'll come back to how the revenue flow from that new contract will be seen in the coming years. But basically because of the dip in revenues and our intention to keep the foot very firmly on our R&D spend and maintaining that at the historical levels, we are going to be recording or reporting a loss this year. And the reason we have basically kept the R&D spend at the same is obviously our pipeline development is where the true value or we believe the true value or future value is in Bavarian Nordic. However, given the events of last year and the prospect failure, we haven't gone blindly ahead and we have modified our spent and try to reduce that risk profile in our various programs. So on Slide 5, you'll see the breakdown in our R&D spend in 2018. And you'll see that the vast majority of that spend is in infectious diseases primarily our RSV program, and also in our partnered R&D both with Janssen and also with the US government. However, we are still investing 26% of our R&D in immunoncology as we still believe there is very strong a scientific rationale to do so. However, we have modified the way we're spending and our strategy in this area. So I've already told you we plan to initiate four additional studies with CV301 in combination. However, two of these are basically paid for by others in investigator led studies and our main contribution is in supplying drug. You'll see in the coming slides we've also modified many of the trial designs in a two step process, where we are enrolling a much smaller number of patients looking for clear signal and efficacy. If we don't see that signal, we'll kill those studies. So while we've kept the activities in immunoncology essentially the same, we have significantly reduced our investment and risk. So going to Slide 6, just talk a little bit more about CV301, so we have an ongoing clinical study in non-small-cell lung cancer with CV301 in combination with KEYTRUDA. The Phase 1 safety running of that is almost complete, and we'll be initiating the Phase 2 component. We will be starting a bladder study with CV301 in combination with Roche TECENTRIQ. And although it says we will be enrolling 60 patients, we will only initially enroll 30 patients looking for an early signal of objective responses. And if we don't see those we will obviously cancel that study. And then there are two investigational studies in colorectal cancer with CV301 with TEVA which is AstraZeneca's checkpoint inhibitor or NIVO which is BMS checkpoint inhibitor which I have just said are investigator LED and a very small investment from outside. So the strategy for CV301 remains the same. We want to look at the efficacy of the combination approach CV301 with multiple checkpoint inhibitors either in indications like lung or bladder where these drugs are already approved, but also in other indications such as colorectal, where up to now checkpoint inhibitors as a monotherapy have had disappointing results. Slide 7 on Brachyury. We have a Phase 1 study that's ongoing. This is on the back of the previous Phase 1 study looking at the MVA Brachyury vaccine. This phase 1 study is now looking at the combination of the MVA plus the Fowlpox Booster both encoding Brachyury. The study began enrolling at beginning of the year four patients are enrolled; two interestingly are patients with Chordoma. We expect the full enrollment to be completed by June which is going to be necessary to initiate our own initiated study in Chordoma later this year. Slide 8 talks about a Phase 2 study with MVA, with our BN- Brachyury vaccine which is an NCI sponsored study. It's called QUEST, Quick Efficacy Seeking Trial. It's actually a very exciting design and it's a collaboration of four companies working together with the NCI. That's EMD Serono, Altor Biosciences, Incyte and BN. And this is in metastatic castration resistant prostate cancer. If you look at the Part A side, it will be initiated first with our vaccine together with a combined anti PDL1, anti TGF-beta product both of which is blocking some of the inhibitory mechanisms seen in tumors. If there is sufficient safety they will then add the IL-15 superagonist which is a potent stimulator of both T- cells and NK cells and could be the perfect adjuvant for cancer vaccine. Again based on our solid safety signal they'll then add Incyte, IDO inhibitor which blocks T-REx cells or the inhibitory environment that sometimes stimulated in the tumor. If any positive signals are seen in any of those arms, they'll go on in this two-step design into Part B and enroll an additional number of patients. Again this is an exciting study. It shows that there is great interest in the combination approach from across the industry and the basis of all the combinations is our BN- Brachyury vaccine and again our contribution here is a supply of drug, but we and we're very excited to see the results from this study in the future year ahead. On Slide 9, one study that BN will be initiating is a Phase 2 study in Chordoma. Chordoma is an ultra rare indication as I said we do have the orphan drug designation. It's a rare cancer of the spine and base of skull. We believe there is solid scientific evidence that the combination of a vaccine together with radiation therapy could be effective. And as I said it will be a two-stage design, we will initially only enroll 12 patients looking for objective responses. If we see two objective responses we will enroll an additional 13 patients with the overall objective of seeing an objective response rate of 20%, which we believe would lead to the products being approved. So this is a very small investment in an exciting area could lead to a very first approval immunoncology in a very short period of time. And as I said it's a great exciting study that will be initiated in the mid of this year. On Slide 10. Last week we announced some of the abstracts that have been accepted for ASCO. And I just want to talk about some of the data that will be presented in much more detail at the ASCO event. There is a podium presentation talking about the PROSTVAC Phase 3 which as I said unfortunately was stopped last year for futility. And while there are no surprises in terms of the data, in terms of the effective prospect I think the Phase 3 data is causing a great deal of interest within the community because we can illustrate the improvement in standard of care, which is 12 months grade in terms of the average overall survival compared to previous studies. However, there are some over early data which is quite exciting because not only from failure you can also learn a lot about the products, and how to proceed in other areas. So one study which will be published is a monotherapy of PROSTVAC in earlier stage disease. So this was in the patients who were scheduled to have surgery and were treated with PROSTVAC. What the data is showing which is shown in the two graphs at the base of the slide is there was a two-fold increase in the infiltrating T -cells in the tumor which is quite exciting to show that we can actually stimulate a T-cell effect. Interestingly, those T -cells are on the periphery of the tumor and didn't seem capable of infiltrating the tumor, which suggests there may be some inhibitory mechanisms preventing that T- cell infiltration. And that leads very nicely to another poster where we actually want to in the same setting look at the combination of PROSTVAC with NIVO to see whether we can enhance both the magnitude and also the infiltration of these TILs in this early disease setting. And the second poster we'll talk about the safety of the combination of nivo and PROSTVAC in later stage setting which now allows us to move into this earlier neoadjuvant stage setting in the coming months. So go to Slide 11 and changing gears from immunoncology to infectious diseases. 2018 is going to be an extremely exciting year for RSV vaccine. Last year, we reported very solid and strong Phase 2 immunogenicity data. If you remember our vaccine is completely differentiated from all other failed attempts at developing a prophylactic vaccine. We're essentially trying to mimic what a natural RSV infection does in terms of stimulating the protective response. So we want to see a broad T-cell response. We want to see an antibody response and importantly we want to see this specialized antibody in the nasal mucosa which is the site of infection. And as I said already, we've reported very solid data from our Phase 2. Moving forward this year, we're trying to develop a human challenge model. That does exist a human challenge model already; however, very few of the volunteers that are infected actually developed symptoms which make the existing model very difficult to measure the efficacy or the effectiveness of a vaccine. With coupled or partnered with a company called SGS where we believe we can develop the more virulent model, where the vast majority of the volunteers that are infected will have mild symptoms. That study will be initiated mid of this year and we will have results in Q3. If it's as positive as we believe, the next step obviously is to challenge vaccinated subjects and actually gain some initial vaccine efficacy still by year-end. And in parallel to that of course we're gearing up to initiate a Phase 3 in terms of having a dialogue with the various stakeholders such as the FDA and that study is planned to start in 2020. On Slide 12, one other piece of exciting data that will be reported in the coming weeks is we re- enrolled some of the subjects from the Phase 2 data Phase study and we gave them an another booster at the end of last year. So this is essentially mimicking what we believe will be the approved product that it will be an annual booster vaccine. And we're very excited to see the immunogenicity data one year later. And as I said that data will be reported in the coming weeks. On Slide 13. We have a very strong partnership with Janssen. It all began with Ebola which unfortunately has turned around to becoming hot news again, but we also have license agreements for HPV, HIV and HPV and the therapeutic approaches for HPV and HIV will entering Phase 1 later this year. This has been a highly successful collaboration. We've received more than $700 million in upfront milestone payments and deliveries of our Ebola vaccine and yet there is still $1 billion in future milestones and royalties to come. On Slide 14. I'll talk a little bit about IMVAMUNE and a contract that was awarded last year. So this is a contract for the acquisition of a new formulation of IMVAMUNE called freeze- dried and it represents the single largest order we've ever received for IMVAMUNE. So of them $500 million plus, $400 million was to acquire approximately 30 million doses of freeze-dried. And that's broken up into a number of different components that I'll try to explain. So on the left hand side you'll see that in 2016 and 2017 we received revenues of $233 million as we manufactured bulk from previous orders. The initial order under the new contract is for an additional $100 million worth of bulk which we're manufacturing in 2018 and 2019. And half of that $100 million, the DKK 350 million is part of the revenues we're guiding in 2018. In part to manufacturing this bulk, we've initiated the expansion of our manufacturing facility to build our own fill/finish plant to the tune of a $75 million investment. This plant will come online in 2021, where we'll start converting that bulk into freeze-dried doses and this is the remaining part of the $299 million as part of that initial order. Now in addition to purchasing vaccine, the contract has an additional $140 million for clinical and regulatory activities and $37 million of that has already been awarded late last year to support the initiation of a Phase 3, which will start in the first quarter of 2019. And in addition to all this is a 10-year contract and this is the initial order. We also have agreed pricing for additional bulk and additional doses. And if you go back to 2017 when we also received --not 2017, 2007 when we received our first order that was also for $500 million. But at the end of the contract which was in 2017, the value of that contract has almost doubled to just under a $1 billion. So there is precedent to expect that additional doses either of bulk or of final doses will come from the US government. So there is great business in the short term and really great business in the long term. And we have been encouraged by the US government to build this fill/finish plant not for these initial orders, but for the future orders to come. On Slide 15 are the financial results for Q1. As I've said in several interviews today this is no drama events. The numbers are the numbers. Our burn rate is as expected and our revenues are as expected as we've already guided the vast majority of the guided revenues the DKK350 million for IMVAMUNE will only be invoiced primarily in Q4. And the other DKK150 million in revenues relates to R&D contracts, which you'll see being invoiced equally over the various quarters. So we remain completely on track for our guidance for 2018. Slide 16. We are very well funded for a company of our size. We have a very strong cash position. We have $3.2 billion in future in IMVAMUNE orders that are already signed and in the books. We have $200 million of R&D contracts and we have obviously other potential income from our Janssen collaboration and partnership and the sale of our Priority Review Voucher. So as we've said numerous times, there's absolutely no need and no plans for a capital raise in 2018. And the only way I could see that we would issue new shares in BN would be if there was an M&A opportunity or a partnering license opportunity as we've done in previous years. So our pipeline slide always looks extremely busy and always is scary at times because you imagine that we're investing a huge amount in R&D. A lot of these activities are funded by others even through our partnerships with Janssen or the NCI. However, we are planning to initiate six different studies this year. And we will be seeing some exciting results from the ongoing studies in RSV and CV301 later in the year. So on Slide 18. IMVAMUNE, a lot of activities. We've already reported very strong Phase 3 results. We'll be filing for BLA. We anticipate the approval of IMVAMUNE in the old formulation of liquid- frozen in 2019 with the issuance of a Priority Review Voucher and we'll be initiating the fully funded Phase 3 freeze-dried study in the first half of 2019. RSV is a new - is a very rich news flow in 2018. Some booster data which is really going to dictate whether this vaccine is an annual booster or not. And of course some potential very exciting and pivotal efficacy data from human challenge model. Janssen is moving their programs into Phase 1 for HPV and HIV. We will be initiating four additional studies in CV301 albeit those halves of those are fully funded by others. And with Brachyury, the Phase 1 study will be completed and will be initiating a pivotal Chordoma study which could be a very early proved product for us at Bavarian Nordic. So a great Q1 and an exciting year ahead. And with that I'll open up the call for Q&A. And so operator, I'll hand back to you. Thank you.

[Operator Instructions] We have a question now from Peter Welford of Jefferies. Please go ahead. Your line is open.

Hi, thanks for taking my questions. Just a couple and I have been really and firstly just on the financials. Were any of the IMVAMUNE revenues in the first quarter, were they all from the US government or did they relate to shipments to rest of world contracts? And secondly then just on the IMVAMUNE filing with US FDA. Are there any more steps that need to be done after the completion of the second phase 3? Is there a data all in hand now and it's just a case of putting together the dossiers for the filing? And then thirdly just on Ebola, wondering whether there has been any requests you're aware of to J&J of the use of its stockpile that you've already provided for the current crisis in Africa? And whether or not there's been any yet suggestion from J&J or plans to either seeks emergency use authorization or alternatively to request from you additional manufacturing of your part that might it need? Thank you.

Thanks Peter. So a very minor part of the revenues in Q1 was related to a rest of world delivery of IMVAMUNE, but none to the US government. All the US government deliveries or invoicing will occur later in the year. In terms of the BLA, all the data is set and completed. We've already had discussions with the FDA last year in terms of some of the datasets and the like. And we're currently planning to have a couple more meetings with the FDA to clarify some of the CMC or manufacturing and some of the clinical issues. And so we don't hit any roadblocks when we file. But from our side everything is a green light and we will be filing in the second half of this year. And in terms of Ebola, you know we're in very close dialogue with Janssen and there has been obviously dialogue with the WHO. If you remember, we had submitted or I should say Johnson and Johnson had submitted a dossier to the WHO to support the emergency use of our combined vaccine and there is dialogue with the WHO on potentially using a combined vaccine for healthcare workers. There are doses already on stocks but again we'll have to see how the current situation develops. Whether that's going to affect anything in terms of our guidance or some of the other activities that we're doing.

Thank you. We now move to our next question from Boris Peaker of Cowen. Please go ahead.

Great. First I just want -- my first question is on IMVAMUNE. I am just curious how would the formal approval of IMVAMUNE impact the future government contracts?

So the way we're going for approval is we're also going for initially approval of the liquid- frozen formulation. And currently the US government has made it very clear that their intent for stockpiling will be the freeze-dried version. However, in an emergency setting of the freeze-dried version takes much longer to manufacture and they would be requesting the liquid -frozen. So it's at the encouragement of the US government that they're asking us to go ahead and get and approve the liquid -frozen. So in the sense of how will it impact of future contracts, the contract we already have where we have an initial order for this 30 million doses of freeze-dried includes additional bulk, it includes additional freeze-dried doses and in fact it includes additional liquid -frozen doses as well. So I think it's going to give many more options for the US government in terms of how they'll purchasing IMVAMUNE. And of course an approved product will give a great deal more confidence in purchasing larger doses than they have or larger volumes than they have in the past.

And what is your estimated timeline for getting the freeze-dried approvement?

So we'll be initiating the Phase 3 block consistency study in the first half of 2019. We believe we'll be in a position to add a supplement to hopefully the approval for liquid- frozen in 2021, 2020-2021.

Okay, 2021. And then for the RSV program. I just want to clarify are you still planning to find a partner for the Phase 3 program? Or are you starting to think of doing it on your own?

Well, I think what we've always said along the road is that we need a partner to commercialize the product. And that is still very much the case and there are discussions ongoing with various potential partners. Whether a partner comes onboard before a Phase 3 during a Phase 3 remains to be seen. And again there are many elements in that how big are a Phase 3? What's the investment --all of which is currently unknown? However, what I will say is that we will not over expose Bavarian Nordic to any one single asset. So again if the study is very large and going to be very expensive, we will obviously need a partner.

Our next question from Chad Messer of Needham. Please go ahead.

Great, good morning and thanks for taking my questions. A couple if I may on the RSV program starting with this booster data that's upcoming. Can you maybe frame for us what you're hoping to see? What a good result would look for? Are there sort of quantitative cut-offs for the long- term durability that you're hoping to see? And then you know also for the amount of boosting of activity that you hope to see to make this a two-dose product?

Yes. So I guess there are two things that we're really looking for. One using a viral vector like MBA. There is theoretical concern at least that immunity to the vector could prevent multiple vaccinations using the same viral vector. So what I would like to see is a similar boost effect as what as we saw in the original Phase 2 studies. We already know from the longevity of the response is six months that the responses are declining albeit they still remain elevated from their pre-vaccination status. And while I have not seen any data I would anticipate that at one year out those responses have dropped down to what you could call baseline pre- vaccination levels. So what I'm hoping to see is a strong boost response similar to how we've already reported the data last year. I think that would be seen as a very successful outcome to the booster study.

Actually that's very helpful in framing what to look for. And then just on the challenge study you are hoping to determine the feasibility. I know we've talked in the past a couple times about the inadequacy of existing challenge models. When you say you're going to decide the feasibility you know again is that just a number of patients that get infected or the level to which they're showing responses? Are they quantitative cut-offs? Who's kind of deciding feasibility? Is that you guys looking at the data? Are you going to bring in any experts? You're going to talk to any regulatory people just wondering how you going to determine whether that model are adequate.

I mean who's going to determine it will ultimately be us, but we've done all of the above that you just said. So we've had discussions with regulatory authorities and obviously key opinion leaders in this space. And I think the current consensus and of course it's always best to set what the threshold is before you get the data, but the current consensus is that we want to see at least 70% of the volunteers that get challenge actually show mild symptoms. We think at that level you would have sufficient power hopefully show some sort of efficacy with the vaccine with a moderate size in terms of the challenge.

Thank you. And we have no further questions. I'd like to hand the call back over to you Paul for any additional or closing remarks. Thank you.

Well, thanks everyone for taking time and thanks for the question and the inputs. And have a great day.

Thank you, sir. Ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now disconnect.