Seth Lewis - VP, IR Paul Chaplin - President & CEO Ole Larsen - EVP & CFO

Chad Messer - Needham & Company Peter Welford - Jefferies

Good day ladies and gentlemen, and welcome to the Bavarian Nordic 2017 Annual Report. For your information, 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 today for the Bavarian Nordic 2017 year end results call. My name is Seth Lewis, Vice President of Investor Relations and Comms, and I'm joined this morning by Paul Chaplin, President and CEO; and Ole Larsen, Executive Vice President and CFO. Before we begin, I'd like to remind you 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 actual results to differ materially for the results discussed in the forward-looking statements. All such forward-looking statements are expressly qualified by cautionary statements and other cautionary statements which may accompany 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 will now turn the call over to Ole Larsen, CFO.

Thank you, Seth, and thank you all for listening in. On the upper right of Slide 4, we have shown the revenue breakdown of 2017. The revenue of IMVAMUNE of DKK874 million was primarily for production of the remaining bulk from the DKK233 million contracts we were awarded from the U.S. government in 2015 and 2016. We also revenue recognized the upfront payment of US$60 million or DKK399 million from the option and license agreement with Bristol-Myers, a payment that we already received in 2015. Our R&D contract income amounted DKK97 million, adding upto a total revenue for 2017 of DKK1.370 billion which is in line with our guidance. Also in line with the guidance was our results showing an EBIT of DKK353 million, and as you can see on the lower left side of Slide 4, it was our 6th year in a row with more than DKK1 billion in revenues and positive or breakeven result. As part of our license agreement with J&J that we entered in July, J&J made another equity investment in the company buying new shares for US$43 million. This also led to a further strengthening of our cash preparedness which grew to DKK2.6 billion. Moving onto Slide 5; here is a breakdown of the P&L. As we've already covered the revenues, I'll focus on the gross profit and the R&D costs. Our gross profit of DKK1.017 million in '17 equals a gross margin of 79%. If you adjust for the upfront payment from Bristol-Myers, the gross margin from the operations are 70%. In 2016, we also managed the gross margin of 70% but as in '17, we also in 2016 had one-time items as we received the last part of the whole pack [ph] from the U.S. government. Adjusting for this, the gross margin from operations in 2016 was 68%; so '17 was another year with improved operations margins. The R&D expenses grew to DKK580 million from DKK463 million in 2016. As part of our strategy, we have built a strong cash position enabling the company to continue to develop and diversify the pipeline, no matter of the outcome of the prospect study. In 2018, we expect the R&D cost to be DKK510 million, which is at the same level as the R&D spending over the last couple of years. This will of course have an impact on the results in a year with lower revenues. On Slide 6, we present our guidance for 2018. On the upper right, you see the breakdown of the guidance revenues. The revenues consist of DKK350 million from IMVAMUNE and reflects the bulk contract we received from U.S. government last year. As we announced back in September, the US$100 million, award would be evenly split between 2018 and 2019. We also expect DKK150 million in R&D contracts from our collaboration with the U.S. government and Janssen. With revenues being more than half and with R&D costs unchanged, this also means that we are guiding a loss in 2018. The loss is expected to be DKK385 million. As a production and release of the IMVAMUNE bulk takes place in second half of the year, the revenues are very backend loaded. We expect DKK400 million in revenues in second half of 2018. The cash preparedness would be DKK1.850 billion by the end of 2018. This increase is partly due to the result and partly due to our CapEx or investments in particular, our fill-finish facility. In 2018 we expect our investments to be in the DKK275 million level, and in 2019 it will be less than DKK250 million, and then it is expected to be back at the more normal level of approximately DKK50 million from 2020. The investment in our own fill-finish facility which will be online in 2021 is also the reason that the majority of the IMVAMUNE revenues from the new U.S. order are delayed. As soon as the fill-finish facility is ready, we can start the fill of the bulk stalled with an expected value of US$299 million. This concludes my part of our presentation, and with this, I would like to hand over to our CEO, Paul Chaplin.

Thank you, Ole and welcome everyone to the call. If we go to Slide 8, despite the fact that last year we succeeded in adding a couple of more license agreements, we secured a new contract with the U.S. government and had many exciting developments and a very solid financial performance, I think 2017 is always going to be remembered by investors and also management alike for the failure of PROSTVAC in Phase 3. However, despite this setback in our ability to bring new treatments for cancer patients, we have positioned ourselves for growth. We've expanded both, our industry and public partnerships and you have seen some of that recently in the last few weeks. We've diversified our pipeline, both in terms of immune oncology but also with the balanced view in terms of infectious diseases and as Ole has just outlined, we have developed or built up a very strong cash preparedness which allows for significant investments in both R&D and also our infrastructure. And one of those of course is our investment in fill-finish which I'll get to later is really going to open up our ability to secure our future revenues, both not only for IMVAMUNE for also for other products in the future. So on Slide 9, if we look at our overall strategy and objectives in next few years, we want to maintain our global leadership in our smallpox vaccine franchise. We were awarded more than US$0.5 billion contracts last year, we just announced and I'll walk you through that; some really exciting efforts, efficacy data from our Phase 3 and the fact that we're investing in fill-finish and we're encouraged to do so about the U.S. government -- I think we set in ourselves out for future strong revenues in the years ahead. We want to rapidly advance our pipeline in infectious diseases, we are the leader in the development of the prophylactic RSV vaccine and I'll walk you through some of the key developments in the next 12 months in the coming slides, and while we expanded our partnership with Janssen, we will expect to see both HIV and HPV vaccines entering the clinic later this year. We want to continue to establish a broadened deep cancer immunotherapy franchise. You've seen very recently we have expanded our collaborations for CV301 and excitedly Brachyury will be entering Phase 2 later this year. And all of this is possible due to the strong cash position that we've built up through both, sales and also our partnerships over the years. On Slide 10; it gives you an overview of our ambitious pipeline. There are a number of different trials ongoing; more than 20 clinical studies are ongoing right now. A key factor of our strategy moving forward is to find partners and collaborators where we can and off those more than 20 studies -- actually two are fully funded by BM which shows the strength of that strategy and our ability to attract strong partnerships. However, this year we expect 6 new clinical studies to be initiated which will bring the total number of clinical programs ongoing to more than 30, and we're very excited about the future developments which I'll walk you through in the coming slides. So Slide 11 gives you historical overview of what we will be doing with the U.S. government in terms of developing and supplying IMVAMUNE, our liquid frozen smallpox vaccine. The Slide 11 shows you the overall objective of U.S. government is to secure enough vaccines, protect 66 million Americans, and that is 132 million doses. However since 2007, they have created an initial 20 million dose stockpile to which we have now delivered 28 million doses. Recently we just read out the second Phase 3 trial which being very positive will allow us to file a BLA later this year, and as IMVAMUNE is eligible for Priority Review Voucher we expect to see next year. So if we go to the next slide, Slide 12; just to remind you of the Phase 3 trial we just read out, it was an efficacy study where 440 military personnel were randomized into two arms; the first group received two vaccinations of IMVAMUNE separated by 28 days and the immune responses from this study were compared to the immune responses stimulated by subjects in group 2 that received a single vaccination with ACAM. One of the primary endpoints agreed with the FDA was to show normal CRRT [ph] of the neutralizing antibodies induced by the vaccine as many included in the FDA believe this is the carlet [ph] or the immune carlet [ph] of protection against smallpox. Another efficacy endpoint which is a co-primary endpoint was that in group 1 after the second vaccination of IMVAMUNE subjects were re-vaccinated with ACAM. This is because ACAM induces a local infection which leads to what is called a vaccine take which is essentially a pustule [ph] and people who were previously vaccinated or considered protected had an attenuated take, so if we could attenuate the take of a subsequent vaccination, this should be a solid marker of efficacy of IMVAMUNE. On Slide 13; it shows the immune responses that we announced a few weeks back. If you look at the graph on the left hand side, this is one of the first primary endpoint which was compared to peak immune responses in terms of the neutralizing antibodies induced by IMVAMUNE to ACAM; not only could we demonstrate normal CRRT but with two-fold higher immune response induced by IMVAMUNE, we could actually show statistical superiority in terms of immune response. If you look at the slide on the right hand side, this shows the immune responses at week 2 which is after single vaccination of IMVAMUNE compared obviously to single vaccination with ACAM. The reason I'm showing you this is that ACAM has the label claim that fully protected 7 to 10 days post single vaccination if a take is induced. Now as I said, most believe the neutralizing antibodies are the coronate [ph] and what I'm showing you here is that at week 2 which is the first time point we can detect immune responses. The immune responses by IMVAMUNE are non-inferior or identical to those induced by ACAM which is one week after a fully protective immune response induced. This means that it's likely a single vaccination of IMVAMUNE is inducing a very high level of efficacy and two shots obviously induces a superior immune response. Go to Slide 14; historically re-vaccination of individuals that resulted in attenuated take -- it was considered that these vaccinees or these people were protected from smallpox. If you look at the picture on the left hand side of the slide, this is what is referred to the full vaccine take which is leading to this pustule following ACAM. 93% of those who received ACAM had a so-called full vaccine take with 4% had a partial, meaning that 97% of the people vaccinated had a full or partial take when given ACAM. The middle picture shows that the vast majority of people that were previously vaccinated with IMVAMUNE, there was absolutely no take measurable and 23% on the last -- on the right hand side figure, you can see had the so-called partial take which is a much smaller dryer pustule following ACAM, clearly indicating that not only are we getting superior immune responses, it looks as if IMVAMUNE is inducing a very solid efficacious response. So in Slide 15; this gives us an overview of the results I've already walked you through. Obviously, this is the second of two Phase 3 programs that was agreed with the FDA, the first which is already been reported and completed was the safety study in 4,000 subjects and now we've finished the non-inferiority study, we are moving ahead with our plans of fall for licensure in the second half of this year. And as I've said, if IMVAMUNE is approved which is likely going to be in the first half of '19, it is eligible for Priority Review Voucher. So if we go to the next slide, Slide 16, obviously this is built on a slide you've seen previously. So we've delivered 28 million doses of the liquid frozen formulation which we're moving ahead with licensure. However, this only has a 3-year shelf-life, everything we've delivered has already expired, meaning there is no longer a stockpile of IMVAMUNE for the U.S. government. Over the last few years, the government have ordered US$233 million worth of vaccine bulk and last year we received a new 10-year contract with an initial order for US$540 million; that included an additional US$100 million for vaccine bulk which will be revenue recognizing half this year and half next year, meaning that by the end of next year we'll have US$333 million worth of vaccine bulk but the vast majority of the US$540 million that is US$299 million associated with converting that bulk to individual free [indiscernible] and that is not possible until an investment in our fill-finish facility is up and running till '21. So as Ole highlighted in some of his earlier slides, the vast majority of the revenues associated with the contract that was awarded last year will only come in play once the facility is up and running. And as I've said, the investment in that facility is going to secure higher revenues than we've seen in the previous years. And as I've said, this is only the initial order of the 10-year contracts, within this contract the government can order more doses beyond the approximate 13 million doses we anticipate that's already been ordered. On Slide 17; this emphasis again the reason why some of the revenues of this contracts are delayed until '21 and beyond, it's that we have been encouraged by the U.S. government and agreed to the fact that we are going to invest US$5 million in our new fill-finish plant which will not only secure the future supply of IMVAMUNE but also allows to bring the in-house or future production of all our future vaccines. We go to Slide 18; and talk about the high successful collaboration we have with Janssen. So Janssen now have taken four licenses for combining MVA-BN with AdVac ordered immovized [ph] platform Ebola, HPV, HIV and HBV; and this is all associated with the fact that in Ebola we've shown the combination of the two platforms induces a very strong immune responses that are long lived. While we have received more than US$350 million in licensing payments and also supply of Ebola, there still remains US$1 billion in milestone payments in addition to royalties. So this is a highly valuable partnership moving forward, and as I already indicated, we anticipate the Phase 1 studies at HPV and HIV to be initiated in 2018. So on Slide 19, we're shifting gears and talking little bit about RSV. So RSV is a virus that causes flu-like symptoms. And in fact, as we now know from numerous publications, it unfortunately causes as many deaths as influenza each year, particularly in the elderly, and yet there is no prophylactic vaccine available. There have been unfortunately a number of high profile failures in developing a prophylactic vaccine but all of these failures have been associated with the same mode of action in that they've all been trying to stimulate only antibodies against only one of the surface proteins of RSV called diffusion or the F-protein. While all those attempts have failed, fortunately for us, that vaccine is clearly differentiated. We have designed a vaccine based on our MVA platform to try and mimic the immune responses that are stimulated by a natural RSV infection, and as you can see by the top left hand box, vaccine actually encodes five proteins of RSV; the S, diffusion protein, the glycoprotein, the nucleic acid in the N2, and what we've shown in animals and what we have already published from our clinical studies is that our vaccine induces a broad antibody and T-cell response which mimics what we've seen in animals what a natural RSV infection does. So if you look at the bottom left hand corner, this shows the induction of T-cells to all five encoded proteins from RSV and the whole RSV protein itself and this is from a single vaccination, given as a booster in subjects. And on the bottom right hand side, you can see that the single booster vaccination with our vaccine stimulates antibodies which fortunately are durable for an entire RSV season. So if we go to Slide 20; we have previously shown in the clinic that we were able to induce the specialized sub-type of antibodies called IgA in the blood, and we're quite excited about IgA because this all come to a lot of the literature around RSV shows that IgA which is normally found on mucosal sources such as in the nose and in the lung, is associated with protection against RSV. So this is a follow-up from the Phase 2 data; so on the left hand side this is one group that received a single shot of RSV and you can see that we can boost compared to the placebo, the IgA that is measured from nasal swabs. And to try and convince you that this is more meaningful, if you look on the right hand side; those subjects within that group who had a low starting titer of IgA, you can see the boost effect is much stronger which is the dark first column on the right hand side whereas within the same group, those who had a higher starting titer to boost effect is not really seen. And that's in line with what we're trying to do because the vaccine -- an RSV vaccine is supposed to be boosting immune responses in people who have a poor underlying immunity against RSV. So on Slide 21; I've shown you data where we can induce the broad T-cell response, I've shown you data where we can induce antibodies which are durable in the blood and I've now shown you data that we can induce IgA in nasal swabs. So what is the importance of all the clinical data that we've been generating; apart from the fact that this differentiates us from any of a candidate vaccine is going to the clinic. While from the literature we know that nasal IgA correlate strongly with protection from people in RSV challenged models. It's also been published that CD8 T-cells emerging in peripheral blood and lung tissue are very important in clearing of RSV once someone becomes infected. And interestingly, another publication has shown the main difference between elderly and the young people, elderly being more susceptible to RSV is the T-cell response which is deficient whereas the neutralizing antibodies in the blood are the same; all inclined that T-cells are important for clearance and mucosal responses to all protection. And as I've shown you, our antibody is able to do both. On Slide 22; gives you a design of the Phase 2 study we've already reported. At the end of last year we enrolled 43 subjects from two different groups and they were given a booster vaccination before this year's RSV season. This will allow two things; one, we will get one year follow-up in terms of what the immune response is after single vaccination without vaccine. And we'll also see what a booster vaccination does, we'll be recording that immune data in mid of this year and that will allow us to decide whether this is a seasonal booster as we believe it is or whether we get more durable responses. On Slide 23; so this year we'll be discussing with the authorities our thoughts on the design of the Phase 3. And while we're doing that and to helping those discussions, we're also hoping to develop an RSV challenge model and potentially generate efficacy data for our vaccine. Now as I've mentioned several times, there are number of publications and there is an existing RSV challenge model; however, the rates on infection in terms of induction of symptoms is variable and often very low, meaning that the existing model will have little value to help predict the efficacy of a vaccine. We're working with a CRO called SGS which previously develops a more virulent flu challenged model, to develop a more virulent RSV challenge. So by Q3 this year we will have -- we will know and we'll be able to decide whether we've been able to develop an RSV challenged model which is inducing more robust and high numbers of symptoms. If that is the case, we will be challenging MVA-RSV vaccinated subjects and obtaining efficacy data by year end. That will not only raise the confidence that the immune responses that were encouraged by are efficacious, that will also help in new design of the Phase 3. Slide 24 talks a little bit about our CV301 strategy. CV301 is a vaccine using the MVA smallpox [ph] platform encoding CA [ph]. And as these two antigens are overexpressed in the majority of solid tumors, our strategy going forward is to see whether CV301 in combination with the checkpoint inhibitor can enhance the efficacy that it's seeing with the checkpoint inhibitor alone. The first study that we initiated was in lung cancer which is ongoing, which is looking at the combination of CV301 with KEYTRUDA, we'll be initiating the Phase 2 component of that study in the next couple of months. Last year we also announced the collaboration with Roche where we will be combining CV301 with TECENTRIQ in bladder; we'll be initiating that study in mid of this year. And in the last couple of weeks we've announced two other collaborations; one with AstraZeneca where we will be combining CV301 with OPDIVO in a colorectal pancreatic cancer setting; and the other, or the fourth collaboration is with BMS where there we'll also combine CV301 with NIVO [ph] again in a colorectal cancer setting. So this strategy will allow us to define within the next 12 to 18 months whether CV301 in combination with checkpoint inhibitor can enhance the efficacy in indications where checkpoint inhibitors are already approved and have shown efficacy, but also in other indications where checkpoint inhibitors of loan have shown poor efficacy on their own. Slide 25 talks about Brachyury. Brachyury is a transcription factor that's involved in a process called EMT, which is basically the process which is how cancers spread or metastasize around the body. As the two graphs show, brachyury expression increases with the grade of tumor both in breast and also lung, variety of other tumors, so soon as the cancer begins to spread and becomes more serious, brachyury expression increases. Many people believe that brachyury was an undruggable target because it's expressed in the nucleus but what we've already shown and have published is that an MVA brachyury vaccine was able to induce strong T-cell responses against brachyury in the Phase 1 study. And if you go to Slide 26; an additional Phase 1 study is ongoing where we're looking at the combination of an MVA prime at smallpox boost approach both of which are obviously encoding brachyury; and the safety from this study will allow us to then initiate the Phase 2 study in people with advanced metastatic chordoma. This is an alter-rare indication and will be used in combination with radiation, it's a two-step design and that will initially enroll 12 patients looking for at least two objective responses. If that occurs, we'll enroll an additional 13 patients and with a 20% overall response rate, we believe this could lead to a breakthrough designation. So on Slide 27; I'll walk you some of the key anticipated highlights to come. We'll be filing for IMVAMUNE to BLA in the second half which could ultimately lead in the Award of Priority Review Voucher in 2019. RSV will begin to boost results bit of this year allows us to decide whether this a seasonal booster and we'll be having some exciting data in terms of developing the model, human challenge model and potentially also coming up with some efficacy data for RSV itself. The CV301 will be initiating three further Phase 2 studies in a variety of different indications with different checkpoint inhibitors and we'll be reporting some early objective response rate data from the ongoing study in lung cancer. Brachyury; we will be reporting the data from the Phase 1 initiating the chordoma study in prospect, we do still have data anticipated to be coming through the combination of NIVO with PROS [ph]. So with that, I can open up to questions. Please operator, if you could open up for Q&A.

[Operator Instructions] And we will take our opening question from Chad Messer of Needham & Company. Please go ahead.

Congrats on all the progress with the pipeline. Just wondering if you could quantify for us how you think the new finish -- fill-finish facility will sort of impact revenues? What can it contribute to margins?

Yes, sure. So first of all, obviously bringing in the fill-finish in-house should by and large make the cost of goods cheaper than relying in a third-party. I'm not really going to be drawn in on margins other than we're saying that we anticipate the historical margins to be maintained. The real important part is we'll have better control over the whole process which I think will also add to efficiencies but in terms of the future revenues, obviously completing the fill-finish unlocks the US$299 million under the initial award to convert the bulk to free straight [ph] doses. There is also another reason I believe that the U.S. government was strongly encouraging us to build the filling plants. And that they don't want to be reliant on a single contract manufacturer who currently is the only one who can really fill this product and that to review future orders. So I think the plant in itself should give us credit control, reduce that cost of goods but also put us in a position, a much stronger position to secure future orders.

Maybe just one on RSV; how gating is being able to come up with a workable human challenge study for that program -- let's say you aren't able to come up with something acceptable, do you think you will have enough information to design the Phase 3 and move forward?

I mean, human challenged data would be nice in many ways because obviously, as I said, it would raise the confidence that the -- what we believe the great immune response is are meaningful in terms of inducing efficacy. It would also allow us to be able to design the Phase 3 because it would obviously have a better idea of what range of efficacy you're anticipating. Having said all of that, it is not critical for us to move into Phase 3, this is a parallel track where if we're successful with the model, it could make life easier in terms of design in the Phase 3 and that we could get away with maybe a smaller study. If we're unsuccessful, it means that we will go into the Phase 3 making certain assumptions which may be highly conservative, meaning that we may have to have a larger Phase 3. All things being equal, everything is in parallel; so we're moving ahead designing the Phase 3 and having those discussions with the FDA with the assumption that we have no better knowledge of the efficacy than we do today. If that changes as we do generate efficacy data then of course that will allow us to redesign the Phase 3.

We will take our next question from [indiscernible]. Please go ahead.

Just two smaller questions. One is to say specific CapEx guidance; maybe you can try to provide a bit more light into the US$75 million, how they're going to be split over the coming three years just to get a better feeling of your cash burn in general. And then to the IMVAMUNE contract, also the follow-up there; so it's a 10-year contract as you stressed. We also know that you need to start ramping up with option -- with earlier than say you need to start delivering; so how is this going to be structured in terms of -- you need to get the facility done of course, but will you be ramping up bulk production and will you then be able to book some revenues for that bulk adoption, you deliver that to the U.S. government because it actually [indiscernible] on par with what you've done in the past couple of years. Maybe just to get a feeling of how these '21, '22, '23 revenue stream is going to look like?

Regarding the CapEx, as I mentioned, when I went through the numbers we expect approximately $275 million in CapEx this year and we expect approximately $250 million in CapEx in 2019. This is -- not all of this is fill-finish, we do also have some maintenance investments but the majority of that is of course related to the fill-finish. We also had fill-finish investments already in '17, as we had the award from the U.S. government, we jump started some of the investments in order to be ready with the facility as soon as possible. So it's primarily '17, '18 and '19 you will see the investments from the fill-finish.

And on the contract; so currently part [ph] funded annually, but might change but currently they are funded annually. And we from a manufacturing point of view normally need 12 months' notice to make sure we have all the raw materials in place. So we keep saying that the facility should come online in 2021 for us to be able to start manufacturing something in 2021 we would anticipate some sort of an award in a year before. And so I think -- I can't give you more clarity on that but you should start seeing awards for the production at least 12 months or so before we actually start manufacturing. In terms of bulk, I can only just reiterate, currently under the initial award there is US$100 million for bulk which is split between now and this year '18 and '19. But obviously there is a gap there from '19 onwards to '21; so we'll have to see what happens with other works [ph].

[Operator Instructions] We will take our next question from Peter Welford of Jefferies. Please go ahead.

Firstly, just on the [indiscernible] challenge styled timelines there. I am all right in saying you punched a feasibility assessment at the moment and then the plan would be to actually then conduct a challenge study during the latter part of this year with results. So I guess what I'm trying to understand is, what is it at the moment that you're trying to do in this feasibility assessment at the moment? Is it still the exact stream that needs to be chosen? Is it the virulence of that spend that's unclear or actually just to clarify a little bit what is going on at the moment with sort of investigations you're going on into that challenged trial? And then a couple of financial ones; firstly, the payment to the NCI on the Bristol upfront that was recognized -- where did that go through the P&L this 10% or so that you have to pay away to them? And also then for the freeze dried IMVAMUNE Phase 3; the R&D associated with that, should we anticipate that to be capitalized and then amortized again as the part Phase 3 or will the freeze dry Phase 3 trial that you're doing be expensed as it concurred? And then just finally on IMVAMUNE fill-finish; I'm just trying to understand have you secured use of a third-party fill-finish facility up until at least 2021, is that -- is there a contract already placed in place for that? Or I guess I'm just trying to understand what the risk is here that you cease to have a third-party available to you given they know obviously you're planning to move in-house between now and the 2021 timeframe? Thank you.

I'll take the technical ones and then Ole can jump in, while I still remember your question. The first question was about what is going on between now and the feasibility. So a primary license has already been identified by SGS, what we're currently doing is we're growing up GMP batches of that virus; we will then be conducted some preclinical testing using the [indiscernible] to demonstrate that in that model it's more virulent. In parallel to that, there is ongoing discussions with the authorities, the regulatory authorities on the design feasibility study and the subsequent potential challenged study in vaccinated subject. So we'll start the human feasibility study mid-year to start post mid-year, so we should get the result in Q3. In parallel, we will be vaccinating subjects with our vaccine with a view that if the results are positive from the feasibility study, we will then challenge those vaccinated subjects. So to make sure that we get the data as fast as possible to help design the Phase 3, we are moving in parallel tracks. Your other question related to IMVAMUNE, and do we still have a contract both with the third-party for production. So we have a very long history with the contract manufacturer that we've used. We don't only use them for production of IMVAMUNE but other things. So we don't have a specific contracts in place for freeze dried but we have a relationship for the continued production of liquid frozen. That answers your question and then Ole, if you…

The NCI part of the upfront, the US$6 million was actually written down in Q3 and hit the P&L as a write down. We made a write down on prospect of as far as I remember DKK48 million, and a part of those DKK48 million was US$6 million that NCI received. They were capitalized as prospect assets but when the prospect study was stopped for fertility, we did a write down of these assets and therefore the US$6 million was put under PP&L in Q3.

And then so the freeze dried Phase 3 for IMVAMUNE; is that going to be capitalized or that be expensed both incurred?

That's going to be expensed.

We will take our next question from [indiscernible]. Please go ahead.

I just have one question on CV301; I don't know what's your plans are for next fiscal but you mentioned during the quarter that in non-small cell lung cancer you planned the Phase 2 but when you shared the Phase 2 in the next couple of phones that maybe can you give us more color about the Phase 1 and the Phase 1b, especially on the dose and the safety time beings. And I also want the rank for Phase 2 because patients had baseline will have [indiscernible] to accomplish response or stably. I was just wondering if you plan the pre-specified analysis based on your role -- sorry, based on the patient state you said designed [ph]? Thank you.

Yes. So the study, the way it's designed and you've mentioned that there is a Phase 1, Phase 1b component and then based on favorable safety, we'll roll into the Phase 2 and randomize in the two different arms. Obviously, it's the Phase 1, it's still ongoing, I don't want to say too much but today it looks as if the safety profile is certainly favorable and no one expected safety but as I said, the study is still on running. So under the assumption we don't get any nasty surprises. We do anticipate role into the Phase 2. You're right in what you say, we're in the maintenance settings with some people coming in who have already had a response and they are still allowed to be enrolled as long as I fit the criteria. So we are truly evaluating the vaccine in the maintenance setting after they've already had the primary treatment with [indiscernible].

[Operator Instructions] We will take our next question from Boris [ph] of Cowen. Please go ahead.

This is John Scott [ph] on for Boris. And my question relates to IMVAMUNE and transitioning from the part of budget to perhaps the CDC budget with FDA approval and I'm wondering if that's the conversation that's going to happen in 2019 after approval or perhaps to wait for the completion of the fill-finishers only. Thank you.

So on freeze dried, the good thing is that we've already had the end of Phase 2 meeting and the FDA often clearing that the two formulations, freeze dried and liquid frozen are essentially equivalent. In that meeting they also said they still wanted to see a lot of consistency safety study which is the Phase 3 study that was awarded, is part of the award of the new contract and the proportion of the money, the US$33 million was awarded last year. So the study once start enrolling until early next year, so we're probably not in a position to even go to file a supplement for the freeze dried until '21. So actually the two are coinciding really in that but the Phase 3 clinical study for freeze dried is going to overlap in the period where the facility is up and running and we've validated the process. So we don't anticipate filing the supplement for the freeze dried to what we hope will be the license for the liquid until '21.

Okay. And so just to confirm, all part agreement as we're going to be under the barn of budget, all point like one. Is that correct?

Yes. So the current award is with BARDA and even if liquid -- when liquid is approved, I should say it doesn't impact the acquisition contract as freeze dried will still be a non-approved product until it obviously is approved. So the potential moving to funding to CDC will not be impacted in terms of the initial order that we've received but you may also be aware BARDA is pushing for -- in the new legislation that should happen this year that they take over control of the SNS [ph]; in which case the funding for unapproved and also approved biological [indiscernible] will remain with BARDA but of course that needs the law to be passed.

We will take our next question from Nick [ph] of Citi. Please go ahead.

Just a quick question on your Janssen collaboration. There is nothing in your guidance in 2018 for the start of the Phase 1 studies. I was wondering if you could maybe guide us as to when they might expect those [indiscernible]? Thank you.

So we've said all along -- well, we haven't said along; we have actually indicated that the next milestones of diverse indication are for initiating Phase 2. So obviously, we need to get the Phase 1s out of the way and again, I guess it's more upto Janssen to talk about that -- their timelines for clinical development, so we can sort now openly that the Phase 1s will be initiated this year because Janssen has communicated that but I can't communicate really even if we anticipate those additional milestones to come but it is on initiation of Phase 2.

And if you could maybe talk about the split between sales milestones and R&D milestones?

Yes, again that varies from the various different licenses and the different products. But -- yes, we haven't come out, we haven't really come out yet publicly with that split.

As we have no further questions in the queue, I would like to turn the call back to Paul Chaplin for any additional or closing remarks.

I just like to thank everyone for joining the call and for your interest in asking the questions. And thank you very much and until next time, goodbye.

Thank you. That will conclude today's conference call. Thank you for participation, ladies and gentlemen. You may now disconnect.