Seth Lewis - Vice President Investor Relations (US) Ole Larsen - Executive Vice President and Chief Financial Officer Paul Chaplin - President and Chief Executive Officer

Michael Novod - Nordea Markets Yan Li - Citigroup Boris Peaker - Cowen and Company

Good day and welcome to the Half-Year Report Q2 for the six-month period ended June 30, 2017 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Seth Lewis. Please go ahead, sir.

Thank you, operator, and thank you for joining us this morning for the Bavarian Nordic Q2 2017 interim results conference call. My name is Seth Lewis, Vice President of Investor Relations, and I’m joined this morning by both Paul Chaplin, President and CEO; and Ole Larsen, Executive Vice President and Chief Financial Officer. Before we begin, I’d like to remind you that this presentation includes forward-looking statements that involve risks, uncertainties and other factors, many of which are outside of our control that could cause actual results to differ materially from the results discussed in the 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’ll hand the call over to Ole Larsen, Chief Financial Officer.

Thank you, Seth, and thank you all for joining the call. If you go to Slide 3 in the presentation, there’s a brief highlight of the second quarter and what has happened since June and up-to-date. The first thing is the – we did the third and fourth license agreement with Janssen on HIV and hepatitis B. It was a $879 million deal, which amongst other included an equity investment of $33 million, which alludes to 1.63% of the BN share. The equity investment also brought up the J&J ownership in the range of 5.8%. In Q2, we also announced a positive RSV data, identifying a single shot solution for the future development. And in June, we also reported and the U.S. government reported a notification on a new RFP or tender that would be – that would come out as a sole source tender. And as the – as – and as there’s no selection process due to the fact that Bavarian orders is the only one answering this request for proposal. The negotiations is already underway. We also during Q2 updated the market on our PROSTVAC Phase 3 study PROSPECT with new timeline for the interim analysis to be scheduled in September, with full data by the end of the year. And least but not last, we also has strengthened the executive management by the hiring of Dr. Tommi Kainu, former partner from Boston Consulting Group who was hired in as a Chief Business Officer. Moving on to Slide 4, and the financial summary. If you look at our – on Slide 4 on the right-hand side of the pie graph, you can see that the DKK 595 in revenues for the first six months, primarily consisted of IMVAMUNE of DKK 553 million and R&D contracts with partners, such as BARDA and J&J of DKK 42 million. A further breakdown of the DKK 553 million of IMVAMUNE shows that DKK 522 is for the U.S. government and DKK 31 million is primarily for Canada and Sweden. As we have earlier guided the market, we will have approximately DKK 800 million in revenues for IMVAMUNE this year and the remaining DKK 250 million we expect to happen in Q3. The PROSTVAC upfront, as we have said early on, we expect it to happen in Q4, and that would be revenue recognized as we have PROSPECT results. As the numbers are very much in line with our expectations and budgets, you can also see that we have maintained our full-year revenue and EBIT guidance for the year. Whilst we have increased the cash preparedness in July when we entered into the new license agreement with Janssen, we increased the cash preparedness expectation from DKK 2.4 million to DKK 2.6 million, sorry, DKK 2.4 billion to DKK 2.6 billion. If you look at our cash position as for June 30, you will see it’s DKK 2.7 billion. And I would like to remind you that of the expected DKK 700 millions in revenues in second-half, only DKK 300 million is actually cash generating as the upfront payment of DKK 400 million in connection with PROSTVAC readout has already been paid as an upfront milestone. So we have received the money, but we’ll only revenue recognize it once the results are there. Moving on to Slide 5, the financial statement. With revenues of DKK 595 million for the first six months and production cost of DKK 177 million, we managed a gross profit of DKK 418 million, which equates to a gross margin of 70.3%. Compared to 2006, the first six months that was 66.2%, and for the full-year 2016, the margins were 70.4%. Bear in mind that the margins in 2016 was – included the holdback of DKK 81 million, which had a margin of 100%. If we look at the research and development cost, the six months DKK 212 million compared to almost DKK 200 million for the first six months in 2016, the research and development cost in the first months of – first six months in 2017, primarily derives from RSV and PROSTVAC and PROSTVAC transfer and validation, then we derived to an EBIT of positive result DKK 99 million compared to a negative or a loss of DKK 207 million in the first six months of 2016. If you look at the financial income and loss, you’ll see that we have reported a loss of DKK 47 million in 2017. I would like to remind you that we are hedging all our U.S. dollar exposure apart from one thing and that is an internal U.S. dollar loan that the parent company has granted to the U.S. subsidiary. Basically meaning that, when the U.S. dollar increases, we have a positive financial income on that loan and when the U.S. dollar decreases as towards Danish krona as we have seen in the second quarter of 2017, we have losses on that account. Net profit for the period of the first six months of 2017 shows a positive result of DKK 40 million. And with those remarks, I would like to hand over the presentation to our CEO, Paul Chaplin.

Thank you, Ole, and welcome, everyone, to the call. As Ole has just mentioned, we’ve had a very strong performance in the last three months and that follows a very strong performance for the whole of 2017 to-date. Before I go through some of the key highlights of our various programs, I would like to take a step back on Slide 6, and just talk a little bit about what we’re trying to achieve here in Bavarian Nordic. So we have a very strong vaccine platform, which we’re trying to use to develop vaccines against both infectious diseases and cancer, with the aim of addressing large unmet medical needs. And that in itself will improve the quality of life for both children and adults. So if you look at PROSTVAC, obviously, which we’ll come to talk about, we’re trying to improve the survival of men in late-stage prostate cancer. In our collaboration on HPV with Janssen, we’re trying to prevent cancer in clinically infected people. And we’re adding to our program with a recent collaboration, in that, we’re seeking a functional cure for HIV and HPV. So very lofty ambitions. But one, as you’ll see, we’re beginning to address in more and more programs one are entering to the pipeline and are progressing towards approval. So on Slide 7, I can talk a little bit about Janssen and how we have expanded that collaboration. So back in 2014, as I’m sure, you will remember, it all started with a license agreement on Ebola. And while we can all debate the commercial opportunities for Ebola, what that has done is really booked two companies very close together both at the management and at the operational level. We’ve generated clinical data, which is probably some of the best clinical data I’ve seen in terms of the strength and a longevity of the immune response by combining the two platforms. And since we saw that data, we became very optimistic that the additional targets that we were collaborating on would come through as additional licenses. The first was HPV back in 2015, and obviously, a few weeks ago, we announced the expansion for both HIV and HPV. The collaboration we have with Janssen is very strong and it’s built on success. We continue to deliver and Janssen is showing a lot of confidence not only in our platform, but also in the company. You’ll see that there are quite large milestone payments. And if you look at the collaboration we have with Janssen and also at BMS, we’re looking at almost $2 billion in future of revenues in terms of clinical, regulatory, and sales milestones not to mention the future royalties on the sales. Turning to Slide 8, obviously, we can’t have an update without talking about PROSTVAC. As I’m sure, you’re all very aware, we do have a pivotal readout of the ongoing Phase 3 study. We have announced that we will be publishing the outcome of the third interim in September. As I have discussed before, we believe the bar remains extremely high for a successful outcome, and we anticipate we’ll have to go to the final readout, which still looks like it will be late – later this year. Slide 9, shows you the landscape of a prostate cancer in men from the left-hand side from diagnosis to unfortunately the right-hand side when men progresses to death. You can see where Phase 3 trial is in the metastatic setting. But you can see, we have 11 ongoing studies, including the Phase 3 span in the whole disease course, both as a monotherapy, but also in combination with drugs that are already approved, such as enzalutamide and docetaxel and obviously other drugs that are looking to enter this space, such as checkpoint inhibitors with BMS. This slide actually excites me a lot about the future opportunities of PROSTVAC, because the market alone, where we are in Phase 3 is more than DKK 4 billion. So this has a potential to be a blockbuster upon approval. But in fact, it can go beyond where most of the current drugs are approved, in that, it could potentially based on these other studies move early in the disease setting and increase our market share of the space. Going to Slide 10 and changing gears and talk a little bit about RSV, obviously, there has been a few failures of RSV, both as vaccines and as therapeutics in the last few years, and that just goes to show that RSV is a difficult target. It doesn’t mean, it’s an impossible target. It means, it’s a difficult target. And we could debate and discuss all day why these failures have occurred. But one area that is pretty clear is that, antibodies alone don’t seem to really cut it, or generate strong efficacy. Our approach for our RSV vaccine is completely differentiated. In that, we’re not targeting a single protein of RSV, we’re targeting five different proteins of RSV to generate a broad of antibody and T-cell response. And importantly, because we’re using live oral vector MVA, we’re able to stimulate because of responses, despite the fact we give it in a standard subcutaneous injection. On the Slide 11, just summarizes, we reported the excellent Phase 2 results earlier this year, which mimics basically what we saw in a smaller Phase 1 study. In that, vaccine stimulated a broad antibody T-cell response to all five proteins included in the vaccine and importantly stimulated mucosal responses. It’s not often you see clinical data mimicking exactly what your drug or vaccine design to do, and we’re extremely excited about the opportunity, especially given that we’ve now demonstrated that a single vaccination seems to be sufficient to provide this booster effect. Six months follow-up data is still being generated and we reported in the coming months. And if you go to the next slide, Slide 12, we will be initiating a booster study from two groups that were unrolled in the original Phase 2. So if you look at the bottom of the Slide 12, 40 subjects are basically half of the group size, and the Phase 2 will be reenrolled at the end of this year, provided a single booster. These are the subjects who previously received the two doses illustrated in the table, that just got a single shot. The reason we’re doing this is, we want to see the longevity of the response of the immune response after a year. We want to see wherever a – what a booster shot does after a one year vaccination, prior vaccination and to see how that is affected over the next RSV season. This data will allow or supports how the vaccine will be used, whether it’s an annual booster or slightly longer and obviously, we’ll assist us in our discussions with the FDA next year in terms of the Phase 3 design. So moving to CV301 and I’ll actually jump straight to Slide 14. CV301 is a same vaccine platform that we’re utilizing for PROSTVAC, however, the vaccine encodes CEA and MUC1. You can see from the table at the bottom of the Slide 14, these two tumor antigens are overexpressed in the majority of solid tumors. Meaning that this vaccine is being specifically designed by the National Cancer Institute to potentially target all the different cancer types. A lot of good clinical data has already been generated as a monotherapy in breast and colorectal cancer. However, we believe the future of cancer treatment is in combinations. CV301 is a good induction of T-cells, these killer T-cells that can kill the tumor. And we believe by combining that with other drugs, we can make that T-cell much more effective. So on Slide 15, shows a strategy that we’re trying to pursue. We have a lung cancer study ongoing and I’ll come back to that in the next slide, where we’re looking at the combination of CV301 with a checkpoint inhibitor. We plan to initiate a bladder cancer study combining CV301 with Roche’s atezolizumab in bladder later this year, and we’re still exploring a third indication, most likely colorectal, which will be initiated next year. So on Slide 16, obviously, when we initiated a long trial, we were in the second line. And that made sense, because BMS’s OPDIVO was approved for second line, and we obviously had a collaboration agreement with BMS. Since then, of course, the sands have shifted in terms of the treatment paradigm in lung cancer and KEYTRUDA is now approved initially for – in the first line for patients whose tumors express high levels of PD-L1. And as I’m showing you on Slide 16, based on this data, which has been published in New England Journal of Medicine and updated at the recent ASCO Conference, KEYTRUDA is now also approved in first line in combination with chemotherapy. Based on this change in the treatment paradigm, it made little sense, but continue with the original study design in the second line. And if you go to Slide 17, we’ve now decided and have agreed with the authorities to change the Phase 2 design to now move to first line treatment, and there will be two cohorts. So if you look on the left-hand slide of – left-hand side of the slide, you can see the first cohort will be standard of care, which is KEYTRUDA alone in patients with high-level PD-L1 and also in comparison to KEYTRUDA plus CV301. And the second cohort will be standard of care in first line, which is KEYTRUDA plus chemo in comparison to that standard of care with CV301. The Phase 1 component of the study, which is looking at the safety of both CV301 and CV301 in combination with checkpoint inhibitors is ongoing, and we still plan to initiate the Phase 2 part of this trial later this year. Slide 18 gives you a summary of where we are right now in our discussions on a new freeze-dried contract with the U.S. government. At the beginning of the year, I said I was confident that we would get a contract awarded later this year for a new freeze-dried acquisition, and we seem to be on track for that to happen. So in June, the U.S. government issued their intent to award a sole source contract to Bavarian Nordic, indicating that the base contract would have a $100 million award. The RFP was actually issued in July and we’ve responded and are currently in negotiations. And so we are well on course for an award to be announced this year. If you go to the next slide, just to remind you where we have a Capital Markets Day coming up September 21st in New York. You’ll hear from some of our internal scientists about emerging preclinical opportunities, which believe me are really exciting to hear. You’ll also hear from Chris Heery on a pipeline update and a clinical overview. But if we go to the next slide, we actually already have three speakers lined up: Dr. Gulley, Dr. Madan, and Dr. McNeel that will give you insightful overview of the treatment landscape in immunotherapy currently, their view – their independent view, I should say, on PROSTVAC Phase 3 trial and CV301 and the ongoing PROSTVAC studies both as monotherapy and also in combination. So if you go to the last slide, Slide 22, to some of the anticipated milestones coming up. As I just said, we anticipate a new acquisition contract for freeze-dried IMVAMUNE. We still expect the Phase 3 readouts later this year, which is positive which we, of course, we anticipate will lead to filing of BLA next year, and when awarded, we will be awarded a Priority Review voucher. RSV, you’ll see six months follow-up from the Phase 2 data in the coming months plus we’ll be initiating the booster study, which will help us in our discussions with the FDA on the next steps in terms of Phase 3. PROSTVAC, of course, the big one is coming in terms of the readout, but it’s not the only trigger that we have with CV301, obviously, we’ll be moving into the Phase 2 with KEYTRUDA in lung initiating the bladder study and initiate hopefully a third study next year. So with that, I will hand over to questions.

Thank you. [Operator Instructions] And we can now take our first question from Michael Novod from Nordea. Please go ahead.

Yes. Hello, it’s Michael Novod from Nordea in Copenhagen. A few questions. First of all, Paul, could you try to provide a bit more color on the HIV collaboration with Janssen, especially also on the milestones, obviously, on media that you might be able to receive the first milestones in 2019, assuming and 2018 initiation. So is that based on potential Phase 2 data, or how should we see the milestone split going into this collaboration? And then secondly, on the timelines for KEYTRUDA and the combo trial with CV301, we did anticipate potentially that we could have had some OPDIVO data in 2018. So maybe just to give a brief update on how you see the timelines spend out for this. Also on KEYTRUDA funding, because you have done deals on clinical research contracting in terms of OPDIVO and TECENTRIQ. So are you issuing the same deal with Merck on this, and how should we assume that you will be funding these trials in terms of clinical material? And then lastly, on Brachyury. We have seen some talk around combining Brachyury with novel checkpoint inhibitors. Could you give an update on that and whether we will see the initial trial start with combinations with novel checkpoint inhibitors?

Okay. Thank you, Michael. The first question was related to a little bit more clarity on the milestones for the recent deal with Janssen. Unfortunately, I can’t really go into too many details of what we’ve already said. There are clinical milestones included and obviously regulatory and sales. But we can’t, at this point, give you any more clarity in terms of the breakdown of what that will be.

Okay.

Your next question was related to the timelines for CV301 in lung and moving now to first line, what would that do? It will shift out the timelines for some of the data, but not as much as maybe you would think. So we anticipated some early data readouts next year. We still think that that is possible, but it will be later next year than we had originally anticipated. So we’re probably looking at about a four to six months delay in terms of those initial readouts. But again that depends on how quickly recruitment goes, and we actually think recruitment will be faster moving into the first line than it would have been in the second line. And lastly, your question related to funding…

Funding on this in terms of, say, adding KEYTRUDA to CV301?

So KEYTRUDA is now standard of care and it’s reimbursed in the United States. So in fact, we believe, in fact, we know, we can perform the study and the standard of care will be reimbursed. So we have no costs associated with that. Having said that, it may be easy logistical if we did have an agreement with Merck. But we’ve made no announcement on that. So obviously, we don’t and we will be proceeding as planned and the KEYTRUDA component will be reimbursed as standard of care in the U.S. Brachyury, yes, NCI has been talking about initiating the Brachyury study in combination with some novel, as you say it, checkpoint inhibitors. I think, you may hear more about that at the Capital Markets Day. We do plan to initiate some Brachyury studies this year. But there’s the one you’re referring to maybe there’ll be an update from NCI at the Capital Markets Day.

Super, exciting. Thanks.

[Operator Instructions] We can now take our next question Yan Li from Citi. Please go ahead.

Yes, hi. Thank you for the questions. I have on CV301 and also quick one on Brachyury, please. So first on CV301, just wanted to confirm given the change in trial [indiscernible] for MAGNI-lung-01. Can we still expect CV301 to be combined with OPDIVO going forward either in lung cancer, or any other kind of the indications, given your existing relationship with Bristol-Myers? And those sounds CV301 just thinking about the combination with TECENTRIQ in bladder, that’s the recent announcement of overall survival miss by TECENTRIQ change the way you think about the trial design. Could we see initiation of KEYTRUDA CV301 combination in bladder cancer anytime, given KEYTRUDA did manage to show an overall survival benefit there? And on Brachyury now that you’ve completed Phase 1 and time to initiate Phase 2 this year. Could you just provide some insight on whether the trial would be designed to look at specific kind of the indications, or they would be more like a basket study way that allows kind of this markers for patients selection? Thank you.

Great. Thanks, Li. So the first question was, we’re likely to see CV301 being used in combination with OPDIVO. There are still ongoing discussions with BMS on that. Obviously, we had to – we had the discussion that we were moving away from second line to first. And there are ongoing discussions, but nothing to communicate right now. In terms of the bladder trial and you’re right. In terms of the failed Phase 3 follow-up with TECENTRIQ, obviously, we’re looking at that just as we did with the shifting sands, as we said, in the lung treatment. However, we’ve had good discussions with Roche. We believe that the Phase 3 was an anomaly and that there will be more positive data coming through. However, as I said, we need to keep an eye on how the treatment paradigm is changing in all the indications that we’re in. I think, the beauty of CV301, as I’m sure you know is that, we are not tied to a specific drug. And so we may move you don’t know, I don’t know right now. But we may move. This is the right thing to do in terms of recruitment, or we believe that’s the right thing to do in terms of generating positive data.

Yes.

The last one was Brachyury. Again, we’ve been a bit crazy on Brachyury, because we haven’t made any firm decisions in terms of what we’re going to announce publicly. But what I can say is that, the Phase 2 designs will be in specific cancer indications. We do plan to go into different cancer indications, but it will definitely be in a specific cancer indication.

Got it. Thank you

And we can now take our next question from Boris Peaker from Cowen. Please go ahead. Hello, Boris, can you please unmute your line. Thank you.

Sorry, I apologize. My first question is on the RFP. What are some of the key elements of the government is focusing on in the negotiation?

So the RFP, what I can say is really only what is my publicly available. There’s 100 million as the base and then there are a variety of options covering all possibilities. So we are creating a stockpile of bulk. Part of that bulk would be converted to freeze-dried single dose use vials. But as we’ve indicated, the bulk that we currently have does not constitute a complete replacement of the 20 million doses of the liquid that is expiring. So the components that they’re looking at, obviously, is additional bulk converting to freeze-dried, converting to freeze-dried, converting the bulk to actual – the existing bulk to freeze-dried. There’s also some R&D components. We have to do under the Phase 3 for freeze-dried, which was agreed with the FDA, so there’ll be options including that. In terms of what the government is focusing on, I mean, of course, it’s always the same thing. It’s cost, budget, timelines and the like and also securing supply just like every other customer, but particularly more for the U.S. government for this particularly sensitive product. Assurance of supply is important to them. And there are lots of discussions going on around that how we can ensure the production capacity in the future supply.

Gotcha. So maybe then one question on the PROSTVAC study. I’m just curious how has patient enrollment evolved over time in the study? And do you think that can have any kind of an impact?

So we previously published the enrollment figures, so it’s like any enrollment curve that you would normally see, it’s back-end loaded. So, obviously, as we opened up more sites in more countries, we got more patients. So a lot of patients were enrolled in that last third of the timeframe. So what that actually means is interestingly is that, there is still quite a lot of immature data being generated. Meaning that not all of those patients moved to a point where they can maybe would be reliable data. In terms of, do we think that will affect the event rate, there are swings and roundabouts and discussions whether it will or it won’t, all I can say is that event right has remained pretty stable during the course of the year, since we announced that it had slowed down towards the end of last year.

Gotcha. Okay. Well, thank you very much for taking my questions.

There are no further questions on the line at this time. [Operator Instructions] Okay. So there are no further questions on the line. I would now like to turn the call back to the host.

Okay, thank you. Thank you, everyone, for taking the time to join the call, and I hope to see you all at the Capital Markets Day in New York. Thank you. Enjoy the weekend.

Thank you. That concludes today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.