Ladies and gentlemen, welcome to the Basilea Pharmaceutica's Full Year Results 2019 Conference Call and Live Webcast. I'm Alice, the ChorusCall operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to David Veitch, Chief Executive Officer. Please go ahead, sir.

Thank you. Hello. This is David Veitch, CEO of Basilea. I would like to welcome you all to our conference call and webcast, reviewing our financial results and key achievements for 2019 and discussing our upcoming milestones and financial guidance for 2020. I would like – also like to mention that this call contains forward-looking statements. Joining me today on the call are Adesh Kaul, our Chief Financial Officer; and Dr. Marc Engelhardt, our Chief Medical Officer. This morning, we issued a press release and financial report on the results of the financial year 2019. These documents are available on our website at basilea.com. For those on the call who are less familiar with Basilea, we focus on the research, development and commercialization of innovative medicines that address the medical challenges in the therapeutic areas of oncology and infectious diseases. We have proven track record of progressing brands from research through clinical development to the market. We have successfully brought two anti-infective brands to the market: our antifungal, Cresemba; and Zevtera, our broad-spectrum MRSA antibiotic. We have oncology assets in clinical development and we have a number of oncology and anti-infective assets in preclinical development. I would first like to provide a brief summary of our key achievements in 2019. We had a strong year in 2019, we achieved important financial goals and we continue to make great progress, launching our two marketed brands Cresemba and Zevtera around the world. During 2019 our commercial partners doubled the number of Cresemba launched countries. Cresemba is now marketed in more than 40 countries worldwide. Our total revenue increased to CHF 134.4 million. This includes a significant revenue increase from Cresemba and Zevtera by 39% year-on-year to CHF 114.3 million. This largely reflects the in-market sales growth we're seeing around the world. Due to the increasing revenues and management of our operating expenses, we improved our operating result for 2019 by 29% compared to 2018. As a result of increasing cash flow from our revenues and the management of our cost base, we continue to reduce our net cash consumption year-on-year, resulting in a solid yearend cash position of CHF 161 million. This provides us with the necessary flexibility to continue moving forward to our next potential value inflection milestones in 2020 and beyond. We also made significant progress in our clinical stage assets. For our FGFR kinase inhibitors derazantinib, we initiated a Phase 1/2 study in patients with urothelial cancer, both as monotherapy and in combination with immunotherapy, this study is called FIDES-02. Early in 2019, we reported positive interim results from the FIDES-01study, a potentially registrational Phase 2 study with derazantinib in patients with iCCA or intrahepatic cholangiocarcinoma and these tumor harbor FGFR2 gene fusions. We subsequently expanded FIDES-01 into iCCA patients with other FGFR2 genetic aberrations with the aim of further strengthening the differentiation of the compound. Our tumor checkpoint controller lisavanbulin based on data readouts from two early stage studies with the i.v. and all formulation in patients with glioblastoma, we decided to move into a targeted biomarker-driven Phase 2 study with the oral formulation of lisavanbulin in patients with recurrent glioblastoma. Finally, we reported positive top line results from our antibiotic ceftobiprole from our Phase 3 study in patients with complicated bacterial skin infections or ABSSSI. This is the first of two Phase 3 studies required for potentially gaining regulatory approval in the U.S. which is commercially the most important market for Ceftobiprole. Adesh is now going to give an update on our commercial progress and present more detailed financial highlights for the financial year 2019 as well as provide our financial guidance for 2020. And then Marc will provide you with more detailed information on the progress of our most advanced development programs. I will now handover to Adesh.

Thank you, David. In 2019, together with our partners, we continued to make significant progress in the commercialization of our two hospital anti-infective brands, Cresemba and Zevtera. The most current in-market sales numbers available for Cresemba show that in the 12 month period ending September, 2019 the global in-market sales of Cresemba grew by 32% year-on-year, approximately $190 million. In the U.S., our partner Astellas reported Cresemba sales for January to December, 2019 of $146 million which is a 28% growth year-on-year. The sales performance is not only driven by continued strong sales uptake in the U.S., but also by strong sales in markets outside of the U.S. The Cresemba sales in Europe were particularly positive, which was reflected by two sales milestones in the total amount of $12 million being triggered in 2019. The strong growth of Cresemba sales is expected to continue over the coming years as we expect our partners to launch Cresemba in more and more countries. At year end 2021, we anticipate that Cresemba will have been launched in about 60 countries. Partnerships continue to play an important role in the execution of our global commercialization strategy and provide a strong basis for future revenue growth. Our partners for Cresemba include Pfizer for most of Europe, China and Asia Pacific, and Astellas for the U.S. In addition, we have strong regional partners for Zevtera and Cresemba in other territories. All-in-all, our partnerships across Cresemba and Zevtera cover more than 100 countries worldwide. In 2019, new important Cresemba launch countries included Canada for instance and Singapore as the first country in the Asia Pacific region. Basilea participates in the commercial success of Cresemba and Zevtera through royalties or a transfer-price structure. In addition, we already received around $250 million in upfront and milestone payments and could realize up to an additional $1.1 billion in potential future regulatory and sales milestone payments from our partnerships. Moving on to financials, I will highlight some of the key financial figures that were published in today's press release and in more detail in the full-year report. I'd like to mention that all the figures that I will refer to are in Swiss francs. We are very pleased with our financial performance in 2019. We did beat our guidance both on revenues and operating results. Deferred and non-deferred revenue contributions from our two marketed brands Cresemba and Zevtera together increased at 39% to CHF 114.3 million in 2019. Most importantly, non-deferred revenue from Cresemba and Zevtera increased by 36% to CHF 68.8 million reflecting the strong in-market sales performance reported by our partners. Other revenue mainly consisting of R&D reimbursements from BARDA decreased CHF 6.7 million in-line with the lower expenses for the ceftobiprole development program as the first of two Phase 3 studies was successfully completed in 2019. We completed the Toctino related deferred revenue recognition in 2018, which is why there is no corresponding revenue contribution reported in 2019. In spite of the approximately CHF 30 million reduction of lower Toctino related revenue and other reimbursements, total revenue increased from CHF 132.6 million to CHF 134.4 million in 2019. For 2020, we anticipate that the non-deferred revenue contributions from Cresemba and Zevtera will continue to grow at a healthy double digit rate at CHF 77 million to CHF 87 million in line with the anticipated strong commercialization progress of our partners especially related to Cresemba. Deferred revenue contributions from Cresemba and Zevtera are expected to decrease to CHF 33 million as we complete in the course of 2020 the deferred revenue recognition of the Pfizer upfront payments and the Astellas upfront development under regulatory milestone payments received in previous years. In other words, our Cresemba and Zevtera related revenue mix is moving increasingly to its non-deferred revenues, which more directly correlate with the in-market sales and provides near term cash flows. Non-deferred revenues are expected to reach between 70% to 72% of total Cresemba and Zevtera related revenues in 2020. For the breakdown of the deferred revenue in 2020, about CHF 21 million are expected to be booked in product revenue and about CHF 12 million in contract revenue. We continue to carefully manage our expenses. This is reflected in our flat operating expenses, that means our R&D and SG&A expenses 2019 versus 2018. We expect to keep our R&D and SG&A expenses at a stable level also in 2020. Cost of product sold, are influenced by a number of factors. Generally it correlates with the volume of product that we deliver to our partners. However, as we are still in the launch phase and at the same time transitioning stepwise responsibility for supply to Pfizer for their territory, there are some one-off effects that impact our cost of product sold. Once the transfer is completed in 2020 or 2021 our Cresemba revenue mix is expected to move more towards royalties and milestones. This and increasing economies of scale will result in increasing gross profit margins, forward-looking. Summarizing our guidance for 2020, we anticipate a continued strong double digit growth of the non-deferred revenue contributions of Cresemba and Zevtera to CHF 77 million to CHF 87 million as a result of the expected strong in-market sales growth. The total deferred and non-deferred Cresemba and Zevtera related revenues are expected at CHF 110 million to CHF 120 million. As we continue to carefully manage our expenses, we expect to further reduce our net cash consumption and to report a strong cash position of CHF 100 million to CHF 110 million at the end of 2020. I will now hand over to Marc for the clinical development update.

Thank you, Adesh. Let me continue further with our antibiotic, ceftobiprole. In Europe and several markets outside of Europe, Ceftobiprole's approved for the treatment of community and hospital acquired pneumonia, as marketed in most countries under the brand name Zevtera. One of our key priorities for ceftobiprole is to gain access to the U.S. market, which is by far the most important country for the commercialization of branded hospital antibiotics, and is estimated account for up to 90% for anti-MRSA treatment such as [indiscernible]. Based on special protocol assessment agreements with the U.S. FDA two successful cross-supportive Phase 3 studies are necessary for registration in the U.S. Our Phase 3 program for ceftobiprole includes one study in acute bacterial skin and construction infection and one study in staphylococcus aureus bacteremia of bloodstream infections. The program is funded up to approximately 70% by BARDA. This allows us to advance the development of ceftobiprole for the U.S. market in a cost effective way. In 2019, we reported positive top line results from the first of the two studies; the so called targets study a Phase 3 study in patients with skin infections. The second Phase 3 study in staphylococcus aureus bacteremia is called ERADICATE. It is well on track and is expected to report topline results as planned in the second half of 2021. If the bacteremia study results are positive, Basilea planned to submit a new drug application to the U.S. FDA. As ceftobiprole is designated a qualified infectious disease product by the FDA for these indications, if approved, ceftobiprole will be eligible to receive 10 years of market exclusivity in the U.S. from the date of approval. TARGET was a randomized double-blind Phase 3 non-inferiority study and enrolled 679 patients. Patients received either ceftobiprole given intravenously 3 times daily or the comparator regimen of twice-daily intravenous vancomycin plus aztreonam. In summary, ceftobiprole was non-inferior to vancomycin plus aztreonam in this study and the key endpoints for the FDA and Europe were both met. Ceftobiprole met the prespecified primary endpoint of early clinical response at 48 to 72 hours after start of study drug administration in the intent-to-treat population, which the key endpoint according to the FDA guidance for the U.S. Ceftobiprole also met the prespecified secondary endpoints of investigator-assessed clinical success at the test-of-cure visit 15 day to 22 days after randomization. This is the key endpoint for the EMA in Europe. Now moving onto oncology. Our lead oncology drug candidate is derazantinib, which we in-licensed from ArQule, which now a wholly owned subsidiary of Merck. Derazantinib is a targeted orally available small-molecule inhibitor of the fibroblast growth factor receptor or FGFR family of kinases. FGFR genetic aberrations for example, gene fusions, mutations or amplification has been identified as potentially important therapeutic targets for various cancers including intrahepatic cholangiocarcinoma or iCCA, and you will see the gastric, breast and lung cancers. Derazantinib also inhibits the Colony-stimulating Factor 1 Receptor, or CSF1R and Vascular Endothelial Growth Factor Receptor 2 or VEGFR2 kinase. CSF1R is an important target in the modulation of the tumor immune microenvironment. The inhibition of CSF1R by derazantinib seems to be a unique feature for derazantinib compared to other FGFR inhibitors, which of our two is known as a therapeutic target in the anti-angiogenic treatment in multiple cancers including gastric cancer. Our development strategy focused on achieving differentiation over other VEGFR kinase inhibitor, are leveraging unique properties of derazantinib. Key differentiation factors for derazantinib included unique kinase inhibition profile and it’s clinical safety profile, but less clinical development program for the derazantinib currently comprises three studies. Two of them FIDES-01 and FIDES-02 are ongoing in iCCA and urothelial cancer. And we are planning to start the third study if it is three in gastric cancer in the third quarter of 2020. Crystal structures indicated that the improved CSF1R inhibition activity of derazantinib versus other FGFR kinase inhibitors can be explained by better fit of the derazantinib into the active side of CSF1R. Other FGFR kinase inhibitors such as the approved FGFR kinase inhibitor erdafitinib has different chemical structures and may not fit as well into the exercise. The CSF1R inhibition may be important in the treatment of urothelial cancer but may have a broader utility to support combination studies with immunotherapy and other cancer types. Preclinical data has shown that tumor macrophage modulation through CSF1R blockade may render tumors more responsive to T-cell checkpoint immunotherapy, including approaches targeting PD-L1 and PD-1. CSF1R kinase inhibition may thereby improve the susceptibility of tumors to immunotherapy. Experiments with mouse bone marrow derived macrophage support that derazantinib modulates CSF1R kinase activity had clinically achieved the concentrations in vivo. Basilea has entered into a clinical supply agreement with Roche for atezolizumab or Tecentriq, a PD-L1 checkpoint inhibitor to explore this immunotherapy combination in patients with urothelial cancer and gastric cancer. In urothelial cancer, patients FGFR genomic abnormalities sweetly show low PD-L1 expression, which has been associated with reduced responses to immunotherapy. Therefore, derazantinib as a single agent and combined with PD-L1 inhibitors may address several oncogenic mechanisms and provide a new therapeutic paradigm. Another pillar in our differentiation strategy of derazantinib to other FGFR kinase inhibitors is the safety profile, where derazantinib showed some of the FGFR kinase inhibitor class effects, but also clear differences with a low occurrence of retinal events, neurotoxicity and hand-foot syndrome stomatitis. Such differences are relevant for patients as these side effects may compromise the patient's quality of life and has been shown to result in treatment discontinuation. In January 2019 we reported encouraging interim results from the registration Phase 2 study called FIDES-01. In the second line treatment of FGFR2 fusion positive iCCA. Top-line results for this code are expected in the second half of 2020. In addition, we have expanded the FIDES-01 study in June 2019 with a new cohort of iCCA patients with FGFR2 gene mutations or amplifications in their tumors. Through this new cohort, we intend to further define the full therapeutic potential of derazantinib in patients with iCCA. Interim data from the second cohort are also expected in the second half of 2020. In the third quarter of 2019 we've started FIDES-02, a Phase 2 study with derazantinib as monotherapy and in combination with Roche’s FIDES-01 checkpoint inhibitor, atezolizumab. This is a biomarker driven multi-core clinical study in patients with advanced urothelial cancer expressing FGFR genetic aberrations and first interim resides are anticipated for the second half of 2020. In the third quarter of 2020 we are planning to start FIDES-03. This study will explore derazantinib in patients with gastric cancer and FGFR genetic aberrations, and we'll also include a cohort in which derazantinib is combined with atezolizumab. We’ve decided to investigate on derazantinib gastric cancer based on their derazantinib’s unique kinase inhibitor profile, convincing preclinical in vivo data and the high medical need in this indication. Moving to a tumor checkpoint controller lisavanbulin of BAL101553. We are focusing our clinical development activities with lisavanbulin on glioblastoma, the most common and aggressive form of primary malignant brain tumors and also an area of high unmet medical need with very few treatment options available. Glioblastoma is a novel microtubule targeting small molecules. It can be administered oral and IV, crosses the blood-brain barrier and has shown potent activity in brain tumor models in monotherapy and combination therapy. In line with our approach to involve biomarkers early in clinical development, we have been evaluating a panel of biomarkers. One of those is end-binding protein 1 or EB1, which was previously identified in preclinical models as a response predictive biomarker for glioblastoma. In our Phase 1, glioblastoma, clinical study with daily oral dosing of lisavanbulin, we have observed a profound and exceptional objective response in a glioblastoma patient whose tumor tissue was EB1 positive. This patient continues on treatments with lisavanbulin for more than 20 months now and shows more than 80% error reduction of the brain tumor. As non-responding patients did not show this pattern of strong EB1 expression and based on additional biomarker work where therefore assessing the potential utility of EB1 in a biomarker-driven clinical study in glioblastoma and are planning to start this Phase 2 study mid-2020. We also continue with our Phase 1 study in newly diagnosed glioblastoma patients of lisavanbulin in combination with standard radiotherapy in the U.S. which is conducted by the Adult Brain Tumor Consortium. I will now turn over to David.

Thank you, Marc. So in summary, we are on track with the execution of our strategy in terms of both significantly increasing cash flows from our marketing brands Cresemba and Zevtera and advance in our R&D portfolio towards the next milestones. In particular, the clinical milestones in 2020 and beyond are as follows. We will progress the Phase 3 ceftobiprole study and staphylococcus aureus bacteremia with the aim of having topline results in the second half 2021 in order to file the important U.S. market at the end of 2021. In the first half of 2020, we anticipate the complete enrollment into the Phase 2 registrational study. There was answer they'd been iCCA patients, it is one. And expect then top line results for the cohort with FGFR2 fusions to be available in the second half of this year. In the second half of this year, we also expect interim data from the iCCA for this one cohort with other FGFR2 genetic aberrations. And finally on derazantinib, we also expect the first interim data from the FIDES-02 study in urothelial cancer in the second half of 2020. We have already amended the clinical supply agreement with Roche for that PD-L1 checkpoint inhibitors to centric and I plan to explore the combination with derazantinib as well as derazantinib as monotherapy in gastric cancer. And this gastric cancer Phase 1, 2 FIDES-03 study is anticipated to start in Q3 this year. For lisavanbulin, we are planning to start the biomarker driven Phase 2 study in glioblastoma mid-2020. And finally we expect completion of patient enrollment into the ongoing Phase 1 study release of anbulin in patients with newly diagnosed glioblastoma by mid-2020. We will now open the line for your questions.

Your first question comes from the line of Louise Chen with Cantor. Please go ahead.

Hi, thank for taking my questions here. So my three questions are as follows. First question is just curious if you could provide more color on your competitive advantage for derazantinib in urothelial cancer and gastric cancer? And then second question is what supports the use of derazantinib in gastric cancer? I know you talked a little bit about it on the call, but just maybe if you could elaborate more, that will be helpful. And then the last question I have for you is on lisavanbulin. Can you provide more color on your biomarker and the type of patients that can be best treated with your drug? Thank you.

Okay. Thank you, Louise. David here. Actually, they're probably best – all those questions are best answered by probably Marc. So Marc, why don't you kick off, and then Adesh, and I can jump in. But in terms of the competitive advantage of derazantinib in urothelial gastric and then the data supporting gastric cancer and why gastric cancer? And then the EB1 lisavanbulin.

Yes, Louise. Thanks a lot. So for the urothelial cancer, the key differentiation is, as we've outlined also in our presentation today, the activity of derazantinib against Colony-stimulating Factor 1 receptor, which was kinase on macrophages and is involved in the modulation of the tumor immune macro-environment. And we have done comparative kinase screen versus all competitors in clinical development. And that's a unique feature of derazantinib. And we believe that this might contribute to potential improved efficacy when combined with an immune checkpoint inhibitor. So I think this is clearly the differentiation we have. And we have done some more work into this. We have looked at the crystal structures, which explained why derazantinib for example, I'm not a fit in; it fits into the binding pocket of CSF1R. We've also done in vivo experiments now in extra macrophages to confirm that CSF1R inhibition really happens. So that's I think the key differentiator for you is accretive. In addition, I think for any combination it looks like that is differentiated by the safety profile, I mentioned here in the call. That this is related to retinal toxicity, nail, hand-foot syndrome is [indiscernible] may be easier to combine it. For gastric, I guess where we were coming from a large screen in patient-derived xenograft models, where we looked across a large number of tumors and different types to placebo, we have the most consistent efficacy and that was gastric. On a kind of biology perspective, we also have seen that in addition to the CSF1R, in addition, it does under – inhibits vast line and fewer code factor receptor two – there are compounds approved for this TARGET in gastric cancers. So this may contribute or may really be an underlying biologic rationale, but the primary kind of role for gastric cancer came from convincing the data in a series of non-clinical models.

Then the lease of lisavanbulin and the EB1, the type of patients?

So, for lisavanbulin, I think we would initially; the Phase 2 study that we're planning to start mid-of-this-year would be in a recurrent setting. This is where we've seen this exceptional responder in the study – in the UK with lisavanbulin. We have done a quite substantial non-clinical work and also looked into tissue banks and have a relatively good idea on how to do the biomarker selection. These data will be published later this year. I think it's premature to detail on them, but we, we basically have prevalence estimates and also have, I think, identified how to do the patient selection in that trial?

In order to start the study in Q3 this year, which is the – what we – I think we said during the presentation. Is that answer your questions, Louise?

Yes. Thank you very much.

Okay, thanks.

Next question comes from the line of Raghuram Selvaraju, H.C. Wainwright. Please go ahead.

Hello, this is Edward Marks on for Ram. I appreciate you guys taking the questions. I have two financial questions and one clinical question. Just a little clarification; I was wondering how you plan to get to the projected year end 2020 cash flows or cash position of CHF 100 million, CHF 110 million. If you had CHF 161 million at the end of 2019 and the operating loss is only projected to be CHF 20 million to CHF 30 million. I was wondering if there are some non-operating items contributing to this cash decrease?

Adesh, you want to take that?

Yes. Sure. Thanks for the question. So after I've seen probably now guidance, we are looking at CHF 30 million non-deferred to deferred revenue contribution to the top line, that these are non-cash items. This is non-cash revenue. And hence, that's sort of the difference. They're also non-cash items with regard to expenses, but in essence we need the big difference comes from deferred revenues, which are all non-cash relevance.

Okay. That's right.

Did that answered your question?

Yes. Yes, absolutely. And then when my profitability or maybe at least cash flow break even be attainable by the end of next year?

Yes, that's a good question. The way we would answer that is the, obviously clearly our model in the past has been to we, we, we take compounds to the end of Phase 2 and then we partner the Phase 3 like we did – we were doing currently with ceftobiprole with BARDA, and we did with Astellas with isavuconazole. The caveat, I would say is that, assuming that we would partner one or both of the compounds in development in Phase 2, which release of ambulin and there was antonyms. So if we partner either of those compounds during the course of 2021, then and we keep on maintaining our stable cost base that Adesh talks about and our cash generation revenues keep going in the direction they're going in. And we could foresee the possibility risk breaking even in 2021.

Excellent. That's good to know. And then finally on the clinical side, just when you outlined a lot of your timelines there, which really appreciate but looking at top line data, I was just wondering when we might see the top line data for the Phase 2 study of lisavanbulin in glioblastoma and would the Phase 1 study the newly diagnosed patients yield data before the end of this year?

Yes, so we expect for the Phase 2 study in recurrent glioblastoma that we'll define market driven to have data available that are meaningful in the first half of 2021. And for the – I think you asked for the Phase 1 study in the U.S. with [indiscernible]. This is basically from a readout perspective requires survivor data because it's a newly diagnosed GBM study. So these patients, by definition they do not respond. They are kind of followed proper progression-free and overall survival. So these data we would expect somewhat later, more towards 2022 readout.

Okay. Thank you. I appreciate all the details.

Thank you. Your next question comes from the line of Victor Floc'h, Bryan Garnier. Please go ahead. Victor Floc'h: All right, thanks for taking my question. I have a couple of questions regarding derazantinib. So first one, I just wanted to understand why did you prefer to start a study in gastric cancer rather than in the breast? So I understand that you have great confidence about derazantinib in gastric concern, but in the meantime the frequency of FGFR duration seems to be quite high in graph, so just wanted to operation, what drove you to our guest street? And my second question is about the computation from the antibody, monoclonal antibody targeting in FGFR, such as atezolizumab and [indiscernible] just something through your views about those two assets in terms of competition? Thank a lot.

Marc, you probably best place to comment on, why – why gastric rather than breast?

Well, we’ve done from a quite comprehensive screen through barriers and models. And gastric just was the gastric cancer monitor quite consistently responding to derazantinib. So that was our main rational and I also mentioned before that biologically, we've seen in the FGFR2 activity of derazantinib and that for gastric cancer population maybe really indicate utility. We – I think from a differentiation perspective, this to us just seem the best move. And also the – it is the gastric cancer is not really explored. I other FGFR – small molecule FGFR inhibitors and a high medical need would probably also allow a quite rapid access to market if the interim results turn out to be positive. Victor Floc'h: And then the comment about the antibodies in development, how do we see those in vis-a-vis, derazantinib, the antibodies with – TARGET with FGFR1?

I think this is to be seen as in other areas, FGFR inhibitors, I think there is utility for antibodies, but there's also utility for small molecules. And the – I think the difference – the differentiation we have with derazantinib really is that we have profiled this molecule in terms of its kind – inhibition profile and it affects more than just the FGFR1, 2, 3 kinase. It also inhibits CSF1R, which is – provides the differentiation or combining derazantinib with immunotherapy, FGHR2 maybe another differentiator for our approach in gastric cancer via the antibodies, they will just work against one very specific target. Victor Floc'h: Thanks, I guess that makes a lot.

Thanks for the question.

Your next question comes from the line of Brian White with Cantor. Please go ahead.

Yes. Good afternoon. Thanks for taking my questions. I'm going to ask actually another variant on a question that's just been asked actually on derazantinib. And just thinking about the comprehensive preclinical model experience. And I just wondered, did actually derazantinib show activity in other cancer settings in addition to gastric? Or was it only gastric? And then secondly, thinking about the combination with Tecentriq, and I guess the differentiation and the mechanism behind why it might work well with that checkpoint inhibition. And I wondered if you thought about other classes, for example, the path inhibitors or DNA damage repair pathways in particular? And then just thinking about more generally on oncology assets and bringing some of these programs into Basilea, I guess that these could be quite expensive if they were in late-stage oncology assets, and there will be a reasonable degree of competition for these programs also. But I wondered if there were – if you thought about core development structures that could perhaps facility Basilea's involvement, while still preserving cash for these programs? Thank you.

Yes. Okay. We will come back – thanks for the questions, Brian. We'll come back to the in-licensing and the – but the – in terms of the derazantinib questions, Marc, again, any color on that?

In connection to the previous question, why did we choose gastric, what have we seen?

It wasn't the question, sorry. The question was, did – I get why you chose gastric. Was there any activity in any of cancers or is that it?

I think, I know, answer that this implied, that, yes, we have – as we have across a large range of different tumor types, and we have seen signals beyond iCCA urothelial and gastric cancer. It's, I think, as said – we've explained why we said gastric, I think the data we've seen and the signals we're seeing in the other countertypes, they will need some further consolidation. It's too early at this point in time to make this close to making firm statement about our plans for additional clinical studies in cancer types beyond, I should say, urothelial cancer and gastric cancer. But there's clearly potential there. And I guess, it's – somehow we've considered as derazantinib in this context where we have the ability to expand into various indications And the first three we have disclosed. We may move on to additional indications once we've consolidated present signals? And the other question, I think, was about the combination. And currently, I think we're focusing on combination with immunotherapy. But we are also looking at combination approaches with other compounds, including chemotherapy, anti androgenic treatments, a number of other combination partners, which could also include path inhibitors. But I think from a – realizing this clinically, we – I mean, we are there with the atezolizumab combination of PD-L1 combination. And we will be disclosing in the first half of 2020 or later in 2020 our detailed combination approach in the gastric cancer study, which is atezolizumab, and also we'll include other combination approaches.

Okay. Thank you.

And then the in-licensing strategy in terms of...

Yes. And then co-development, in general. And I think we have proven that we are – we can do all kind of different structures around collaborations. So with regard to development, we have the clinical supply agreement, for instance, the [indiscernible] for Tecentriq, for the gastric study and for the urothelial cancer study that has, of course, implications with regard to the cost, as you were mentioning costs or reducing costs for running combination trials. Historically, we have had co-development agreements as we did with Astellas, for instance, on a global basis or more on a regional basis or local pieces as we have with [indiscernible]. So they are all kind of different structures. And the question really is, what are we trying to get out of it? Is it that we need to have – or that we like to get access to an asset as such? Or do we want to have a financial, let's say, participation. And we're exploring all kinds of different partnerships.

Okay.

And just to build on that, one additional point for myself would be the fact that, clearly, our sweet spot in terms of in-licensing compounds per se, obviously, is the sort of – and this is what we've showed is from sort of preclinical, pre I&D, just sort of early clinical Phase 1/2, but obviously, not any later than that with our structure, with our financial means. That is the sort of sweet spot for us. And then the concept being that we add value through our development and our science that we can apply to it, and then we can partner or in the future, maybe keep some ourselves, but that's the sort of concept in terms of in-licensing that we apply. And we also are very clear. We have cleared our head. We haven't disclosed this fully, but the sort of the types of target assets we're looking at in oncology, and we're clear where we want to play and where we don't want to play.

Okay. Thank you.

The next question comes from the line of Christopher Redhead, goetzpartners. Please go ahead.

Hi gentlemen. Yes, just a quick question on lisavanbulin, is given the indication and given the high met – high unmet medical need and the nature of the patients there, do you see there's a strong possibility for getting some kind of accelerated approval, going straight from a Phase 1 into a Phase 2 pivotal is there a possibility, do you think it will or not?

Certainly, this depends on the observed result. If it turns out – I mean, we will be really looking for patients clinical benefit, which includes response but also durability of responding data are convincing, then GBM is one of the indication that where there is an avenue on accelerated approval.

Yes. So there's a possibility that it could move faster than the other products in the end, right. You could be seeing within a relatively short-period of time with that product. If you get the results that product moving faster than the other products, is that fair to say, if you get the right results?

That's fair to say and its data driven, but also for the data, the way the studies are designed and the size of individual cohorts also allow, if we see really promising activity in these studies to probably move them onto the track, that may not require necessarily in all cases, full on Phase 3 development, so it's true for lisavanbulin but it may also be true for derazantinib.

Okay, that's great to know. Thanks a lot.

Next question comes from the line of Paul Verbraeken, Research Partners. Please go ahead.

Yes. Good afternoon. I also have three questions. The first one is my recurring question about progress of Cresemba in Japan and China. Is there any update there on the clinical and regulatory path? The second one is on derazantinib with ArQule being acquired by Merck, do you notice any impact or do you think that might change your collaboration on this compound? And my last one is financial. I noticed that in your 2020 guidance you expect an increase in cost of goods, which I've find very surprising as Pfizer will take over the manufacturing in Europe of Cresemba, so I was actually expecting a decline. So can you maybe give some color on the development? Thanks.

Okay, thank you, Paul. So I'll answer the first one, Japan and China. And then Adesh will pickup the next two questions. In terms of the Japan and China, there's not much of an update probably from what we would have said previously. In terms of – apart from saying that as you're aware with Japan, and by the way you are clearly asking the question because these are two very important markets for Cresemba. In Japan, there is the ongoing Phase 3 study which is still on track, ongoing. We anticipate that the projection is that top line results of the study would be in the second half of 2021 and then an approval subsequent to that. So that's obviously pending the data being positive. So that, our partner Asahi Kasei is on track with the Phase 3, that is an example where we did need to do Phase 3 and it’s ongoing. With China, we don't yet know, if we have to do a study our partner there is Pfizer and all I would say there is that, we're anticipating definitely this year to hear the news about whether or not we need to do studies or not, whether we've got a waiver or not. We don't know the answer to that question just yet, but obviously as soon as we do I'm sure you would see that, because we would almost definitely issue a press release, the news about the China submission and timings and strategy. So that's the status with China and Japan. Adesh, do you want to comment on the Merck deal with ArQule and the cost of goods?

Okay. So for the acquisition of ArQule by Merck, for the time being there is not an immediate impact, the transaction only closed four weeks ago. And this is not the core development as such, we are developing the drug. So from our perspective nothing has immediately changed. I suppose Merck also has to do really step into the program and have to understand the full program and the concept behind the derazantinib. I think generally speaking, we could say it's probably not a disadvantage to have a partner like Merck on the oncology side. So we'll see how this will evolve, but for the time being, no immediate impact. With regards to our cost of products sold, you're right about the hand over to Pfizer, which is actually still happening step-by-step, it’s not completed. So in 2020, we are still supplying certain material to Pfizer, this may have even extended to 2021. But just generally speaking, I would say that if you look at our guidance, our product sales are actually going up. So in spite of Pfizer eventually taking over the supply for their own territories, we also have our distribution partners that are selling more, the actual amount of products being sold increases. The way that you could look at COGS is however or cost of product sold is, they're currently probably around 30% give or take, if you look at the 2018[ph] and 2019 numbers and 2020 numbers and put them into relation to a non-deferred revenues, they add up to about 30%. I think it is fair to say that in 2020 – let's say 2021 and going forward, you would expect that margin to improve, because more of our revenues will be coming from royalties and milestones which flow straight to the bottom line. And then the other thing is that we expect to realize economies of scale. So currently I think cost of product sold about give or take 30% of non-preferred revenues depending on whether you're at the lower or that part a higher-end of our guidance for non-deferred revenues forward looking that will improve.

Okay. Thanks a lot. Thanks a lot.

Next question comes from Bob Pooler, valuationLAB. Please go ahead.

Good afternoon gentlemen. Two questions if I may. First, if you look at spreads as infectious disease has been quite prominent in the news lately, certainly wondering the threat of coronavirus, but also November, excuse me, there's also a CDC report highlighting anthrax threats in the U.S., so very, very important threats here. Do you expect with all the momentum behind infectious disease that we will finally see some triggers increasing action into infectious diseases and what is needed to make antibiotics attractive again?

Yes, Hi, Bob. It's a good question. I mean, obviously I'll try and keep you brief. But in essence, I guess unfortunately, news such as the coronavirus and also with bacterial outbreaks and things that are resistant, this actually – our belief is that there's only how sort of spiked interest and raise awareness of the issues, including AMR. And actually, we've seen during the course of the last 12 months, particularly in the U.S changes to – for example, reimbursement of antibiotics in the U.S. market, which are helping to provide the so-called sort of pull incentives, which is bit really lacking at the moment. I think there are a lot of incentives and obviously we benefit from that through the barter funding, through the QIDP designation. So we have a series of benefits in the sort of push incentive area that we benefit from very significantly, but our view is that on the – in the so-called pull incentive area, where that hasn't been too many meaningful commercial incentives in place. We've seen signs that things are getting better. I think the external environment is only increasing in the news. And so our belief is just a matter of time before real pull incentives are in place. I mean there's a couple of initiatives again in the U.S. disarm and revamp which we've talked about, but haven't become law yet. But I believe strongly at some point, there will be more meaningful pull incentives and then that would change the whole NPV of an antibiotic in the future versus what it is today. And so we don't know when, but we firmly believe that it has to get better.

Okay. Thank you. And then just a small question on Zevtera, you have the positive results in skin infections. Is there any potential that you'll file for this indication in Europe?

Actually what we are currently doing with regard to the, yes – just to build on your question side is that – obviously for the U.S. we need both, so we can't file the skin infection in the U.S., then subsequently file the bacteria, and we have to actually wait for both to file the two together because they cost supportive of each other. In terms of the usefulness, the utility of the skin infection study around the globe. I mean clearly from a medical affairs point of view and obviously we're planning on publishing in a scientific meeting, the detailed results of the skin infection study this year. We can do that and we're planning to do that and that would be then disseminated through our commercial partners so they could utilize from a medical affairs perspective in their respective organizations. In terms of the utility in the label, in other parts of the world, my understanding is that once we've shared the data, we would then have to find out if we can use it, if we can get any label enhancements in terms of indications, but currently we are going through that process with our partners around the world to see whether or not we can actually file for the indication, but immediately that doesn't stop us from a medical affairs point of view using the data in that arena.

Okay. So basically once the data is published and then there could be some potential off-label use, next to lung infection.

Exactly. But as I said, you'll probably be aware of this actually active politics, Marc, you could comment, but antibiotics are used pretty much routinely off-label anyway, obviously companies promote off-label but they're used off-label. So I'm sure a lot of Zevtera usage probably already now is used in things other half-and-half. But we are positive that, would not do any proactive activities there, but it is just, I mean its data out from the, from years ago on the activity in skin infections, this will confirm that this is an active component in skin infection and we know that a test of by-product is used outside of pneumonia, so I agree with David's taking, but it doesn't give us any, unless we really file it to get into the SMBC, we're not going to be able to actually promote it.

Okay, thanks. Just maybe one clarification on the partnering front for your oncology assets, it's true that at the end of Phase 2, that's when you would be the ideal time to partner?

Yes. I mean obviously it's a little bit of – it's a sort of moving fish depending on the discussions you have, the ongoing discussions you have with partners and the sort of the offers you get at different points in time. So I'm just saying generally we were saying and if you look at a history it's sort of, that's the time at which we usually look to partner, that usually makes sense. But it doesn't mean every single time, so it will be exactly at the end of Phase 2. It depends on the ongoing discussions that we're having with a partner at particular points in time.

Okay. Perfect. Thank you.

[Operator Instructions] The next question comes from the line of Olav Zilian with Mirabaud. Please go ahead.

Thank you for taking my question. I keep it very brief. First question about Cresemba sales into United States, so a sales report for the past quarter, that sales accelerated once more reaching almost 40% year-on-year, while in previous quarter it was in the range of some 20%, what is the particular reasons for that, like change in the use pattern, prescription pattern in the U.S.? And second question would be about EB1. So it's obviously a strong predictive biomarker for patients responding to lisavanbulin. So what is the frequency we should expect for this biomarker to express in other solid tumors? Is it in the range of low percentage range, so requiring like a tissue agnostic path to approval, tissue agnostic studies or would you need to conduct studies in a very dedicated way like tissue-by-tissue, like breast cancer, EB1 is also relevant. Thank you.

Okay, thanks.

I can take the Cresemba, question. We are of very course pleased with the performance. So it's not that we're complaining, but probably it is fair to say that for Cresemba, you have to look at more or less a rolling 12 months performance to really get a feel for where our trends going, because of what you call – what you shouldn't forget is that what is being reported is at the end of the day net sales and that they're all accounting impacts and so on. Generally speaking, I think what we can say is, there is healthy double-digit growth, the sales are guided for 20% growth on year-on-year within their fiscal year and they're well on track on achieving that. And that's basically all we can say at this point in time. We look forward to further growth, so our guidance implies that there is continued double-digit growth of in-market sales across the world.

Thank you.

Marc, the EB1 question?

We cannot say everything we know about it, but I’ll try to put it, at least give some indication on where this is going. So we have looked into the prevalence of EB1 in glioblastoma. We've used several independent tissue micro arrays, these are arrays where there are a couple of hundreds tissues from hundreds of patients mounted onto several arrays they can be stained and then looked at in a very short time. And what we can say, I think that EB1 positive is infrequent, but the prevalence are high enough to allow for tissue screening on a reasonable scale to conduct clinical trials, that's what I think I can say now. And we will be publishing the prevalence data later this year. To other content types, I know that there are some publications from a couple of years ago from Chinese scientists for example, if we want in breast, it was I think 30%, we believe that it really is quite assay dependent and from what we have seen so far we believe that this is probably, we don't expect, for example, if we did a breast cancer prevalence, that we will find that extent. We believe that the published number maybe due to different assays. And the question whether then beyond GBM, whether this goes to a concept type-by-concept type or an agnostic approach, it's a little too early, I think it really depends on the biology and also the frequency from just a strategy perspective. If we found that in a relatively large indication we have 3% to 5% in [indiscernible], an example that for itself would justify going into that indication. I think from a clinical trial efficiency perspective to go agnostic if we actually had a significant or by relatively low proportion, large tumor type is probably not the best approach. So this is really to be seen.

Okay. So maybe a follow up question, if I may, on derazantinib, can we then assume that should you have compelling data at the Phase 2 stage of your program, be it in bladder cancer and then late in gastric cancer? You would be in the position to submit the data for an accelerator, the conditional approval?

That's what we would be trying. It's really purely data driven. These are both high medical need indications and I mean if you look at the erdafitinib FGFR inhibitor from [indiscernible], they received an accelerated approval based on 87 patients. So from a patient number perspective, non-controlled study, from a patient numbers perspective, if the medical need is really high and unmet, I don't think that necessarily large studies are required, but it will be really data driven. And the design of the study is put in a way that we have the option to expand certain cohorts if we want to. And then we would have to expect the regulators, what they expect to see.

And maybe just to finish, so the trigger that would allow you to disclose interim data, is that completion of the Phase 1 stage or a number of patients treated or the number of events you have observed? Could it give some save on this please?

So the – I mean the – for the usage has the study, for example, we've just presented – we designed and posted on the ASCO and you have several things, it's about the optimal dose for the combination of derazantinib and atezolizumab. And then most of our cohorts are conducted in a so called Simon two-stage design. So you start, let's say with a cohort, let's say you have 70 patients in the cohort just for example purpose, then you start 25% come up with 25 patients with looking at the end point, if it’s just as response rate, there is a minimum that has to be achieved and then this study moves on to enroll another 45. And then at the end there has to be a number of responses to say this looks promising. So this stage approach and the open-label nature of the study allows us to communicate interim data that we are painting, anyways to defined and know this kind of moving from one stage to the next.

Okay. Brilliant. Thank you so much.

Gentlemen, there are no more questions at this time.

Thank you everyone for your questions and your interest in Basilea.

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