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Edited Transcript of BSLN.S earnings conference call or presentation 20-Feb-17 3:00pm GMT

Thomson Reuters StreetEvents

Full Year 2016 Basilea Pharmaceutica AG Earnings Call

Basel Feb 20, 2017 (Thomson StreetEvents) -- Edited Transcript of Basilea Pharmaceutica AG earnings conference call or presentation Monday, February 20, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ronald Scott

Basilea Pharmaceutica AG - CEO

* Achim Kaufhold

Basilea Pharmaceutica AG - Chief Medical Officer

* Donato Spota

Basilea Pharmaceutica AG - CFO

* David Veitch

Basilea Pharmaceutica AG - Chief Commercial Officer

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Conference Call Participants

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* Bob Pooler

valuationLAB - Analyst

* Susie Jana

Edison Investment Research - Analyst

* Bruno Bulic

Baader Helvea - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good morning or good afternoon. Welcome to the Basilea Pharmaceutica's conference call on the full-year results 2016. I'm Selena, the Chorus Call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Ronald Scott, Chief Executive Officer. Please go ahead, sir.

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Ronald Scott, Basilea Pharmaceutica AG - CEO [2]

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Thank you and hello. This is Ron Scott, Basilea's CEO. I welcome you to our conference call to discuss Basilea's 2016 full-year financials and update you on our operations. Joining me on this conference call are Achim Kaufhold, our Chief Medical Officer; David Veitch, our Chief Commercial Officer; and Donato Spota, our Chief Financial Officer.

I would like to mention that this call contains forward-looking statements. Basilea is one of the few companies focused on new medicines to overcome resistance in the areas of both infectious diseases and oncology, our two strategic pillars in the hospital sector.

I'm happy to report that we had a solid financial performance and achieved significant milestones operationally in 2016. We exceeded our financial goals. As we were progressing through the launch phase of our approved products, we increased total operating income by 25% and to CHF66 million and reduced our operating loss to CHF44 million.

We've launched our antifungal isavuconazole under the trade name of Cresemba in the first major European markets. We are commercializing now Cresemba together our antibiotic ceftobiprole, which sold under the trade name Zevtera/Mabelio.

Product sales for both drugs in Europe amounted to CHF7.1 million, exceeding our guidance. In addition, we recorded royalties of more than CHF7 million based on the sales of Cresemba in the United States.

In order to make our drugs available to patients outside the US and our core European markets, we signed distribution agreements for the Middle East and North Africa, Latin America, and the Nordics. And we also entered into a license agreement with Asahi Kasei Pharma for isavuconazole in Japan, bringing in CHF19 million in upfront payments for all these agreements in 2016.

The United States is the most important market in value for new branded hospital antibiotics. In order to support a future potential marketing authorization for ceftobiprole in the US, we entered into a contract with BARDA in the United States, which allows us to proceed with the clinical Phase 3 development of ceftobiprole.

BARDA's providing initial development funding of approximately $20 million. The total value of the contract could reach $100 million if predefined milestones are met.

We also advanced our anticancer drug candidates. We started a new Phase 1/2a study with continuous intravenous administration of our small-molecule tumor checkpoint controller BAL101553 and added a separate study arm for brain cancer patients to the ongoing Phase 1/2a study. For our panRAF/SRC kinase inhibitor BAL3833, dose escalations ongoing in the Phase 1 study with solid tumors to determine the maximum tolerated dose.

Achim will now provide you with further information on the progress of our development programs, after which David will give you more insight into our commercial activities. And Donato will provide you with the financial highlights for 2016 and our guidance for 2017.

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Achim Kaufhold, Basilea Pharmaceutica AG - Chief Medical Officer [3]

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Thank you, Ron. We aim to bring ceftobiprole to the commercially important US market. Under the BARDA agreement, we initially intend to conduct two cross-supported Phase 3 studies, one in acute bacterial skin and skin structure infections, also known as ABSSSI, and one in Staphylococcus aureus bacteremia.

Bacteremia is among the bacterial infections with the highest unmet medical need associated with high morbidity and mortality. Preclinical and clinical data indicate that ceftobiprole is rapidly bactericidal and may therefore be particularly beneficial for Staphylococcus aureus bacteremia patients.

We submitted the clinical study protocols for ABSSSI and Staphylococcus aureus bacteremia to the US FDA and plan to initiate the Phase 3 development program mid-2017 after the FDA special protocol assessment process is completed.

We intend to also use these studies to potentially support the supplemental marketing authorization application for ceftobiprole in Europe and other territories.

Let me now move to isavuconazole. You are aware that isavuconazole has gained marketing authorization for the treatment of invasive aspergillosis and mucormycosis, both in Europe and in the US. In addition, we have filed for regulatory approval in Switzerland and expect that the regulatory authority Swissmedic will complete its review this year.

In our second therapeutic area, oncology, also addressing resistance, I'm pleased to report that we have further advanced our two oncology drug candidates. In 2016, with our tumor checkpoint controller BAL101553, we continue to make progress in the dose escalation phase of our oral Phase 1/2a study in solid tumor patients and initiated an additional Phase 1/2a study with continuous infusion. We expect to report Phase 1 results in the first half of next year.

In addition, we extended the ongoing Phase 1/2a with the oral formulation to include adult patients with glioblastoma. Glioblastoma is one of the most common and aggressive types of brain cancer in adults and is often associated with poor prognosis. Preclinical evidence shows that BAL101553 efficiently distributes to tumors and to the brain with potent anticancer activity in glioblastoma brain cancer models. We expect to complete patient recruitment into the glioblastoma Phase 1 arm this year.

Our second oncology compound BAL3833 is currently explored in a Phase 1 clinical study with adult patients with advanced solid tumors, including metastatic melanoma, to determine the maximum tolerated dose.

Preclinical data indicate that this novel oral kinase inhibitor has anticancer activity via inhibition of RAF and SRC kinases. The data also show that BAL3833 may be active in melanoma as well as KRAS-mutant cancers, such as lung or colorectal cancer, potentially providing a new therapeutic option for these patients.

David will now provide you with information on our commercial activities.

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David Veitch, Basilea Pharmaceutica AG - Chief Commercial Officer [4]

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Thank you, Achim. We have made significant progress in the past 12 months in the commercialization of our two hospital anti-infective brands Cresemba and Zevtera. Cresemba is an azole antifungal for oral and intravenous administration, which has a broad spectrum of activity and is indicated in the European Union for the treatment of adults with invasive aspergillosis and in adults with mucormycosis, for whom amphotericin B is not appropriate.

We are currently marketing Cresemba and Zevtera in Germany, Italy, the UK, France, and Austria. Zevtera is also marketed in Switzerland. I'm very pleased that we have achieved CHF7.1 million of product sales from both drugs in 2016, the first full year that both brands have been available.

The strong dynamics during the launch phase is underscored by the sales performance in the second half of the year in which sales increased significantly as compared to the first half year. Cresemba is also approved in the United States, where it is marketed by a license partner Astellas.

In 2016, Astellas achieved Cresemba US sales of $46 million, resulting in royalties for Basilea of CHF7.3 million. For their full financial year from April 2016 to March 2017, Astellas has guided for sales of $56 million.

In December 2016, the European Conference on Infections in Leukemia, or ECIL, updated their treatment guidelines and have recommended Cresemba as the first-line treatment of invasive aspergillosis in leukemia and transplant patients.

The guideline states that isavuconazole is as effective as voriconazole with a better safety profile. This recommendation by one of the most relevant guidelines in Europe is very encouraging and underscores the potentially important role of Cresemba in the treatment of patients with these life-threatening infections.

Turning now to our antibiotic Zevtera, the drug has a wide range of activity against both gram-positive bacteria, including MRSA, and many gram-negative bacteria. The drug is bactericidal, which means it kills bacteria instead of just slowing their growth.

Zevtera has been shown in clinical Phase 3 studies that, as a single agent, it is as effective in the treatment of hospital-acquired pneumonia as a standard two-drug combination treatment. It has been shown to work rapidly and is also very well tolerated.

In 2016, we have entered into distribution agreements with Grupo Biotoscana for 19 Latin American countries and with Unimedic Pharma for the Nordic countries. In addition, Hikma Pharmaceuticals extended its existing distribution agreement for the Middle East and North Africa region to now include Cresemba in addition to Zevtera. Furthermore, we concluded a license agreement with Asahi Kasei Pharma for the development and commercialization of isavuconazole in Japan.

Our partnerships now cover more than 40 countries around the world in addition to those countries that Basilea is directly serving. They play an important role in the execution of our global commercialization strategy and provide a solid basis for the future uptake of our brands. We anticipate seeing initial sales contributions this year from our current distributors.

In line with our global commercialization strategy to continue to optimize the value of Cresemba and Zevtera, we're also working towards further agreements with potential partners to cover other important geographies. These include key markets in regions such as Asia-Pacific, Russia and CIS, as well as additional European countries.

Our commercial aim for 2017 is to continue to grow the sales of Cresemba and Zevtera and to maximize the opportunity for both our brands through additional partnerships for the benefit of patients of Basilea.

I will now turn over to Donato, who will update you on our financials.

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Donato Spota, Basilea Pharmaceutica AG - CFO [5]

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Thank you, David. I would like to mention that all figures I will refer to are in Swiss francs. Full-year product sales amounted to CHF7.1 million in 2016. And contract revenue in 2016 amounted to CHF57.7 million compared to CHF51.2 million for 2015.

Total operating income in 2016 amounted to CHF66 million, an increase of 25% as compared to 2015. This increase is mainly driven by our product sales and royalties.

We continued to make focused investments in our key value-driving assets. In 2016, research and development expenses amounted to CHF48.8 million compared to CHF60.1 million in 2015. These expenses were mainly related to activities for our oncology drug candidates, expenses for the ceftobiprole pediatric program, and activities related to isavuconazole.

SG&A expenses in 2016 amounted to CHF56.1 million compared to CHF54.2 million in 2015 and were mainly related to the commercialization of Cresemba and Zevtera in European countries.

In 2016, operating loss was reduced by 29% to CHF43.9 million compared to CHF61.5 million in 2015. And net loss was reduced to CHF51.3 million, resulting in a lower basic and diluted loss per share of CHF5.07 in 2016.

Net cash used for operating activities in 2016 amounted to CHF75 million. And our combined cash and financial investments amounted to CHF289 million as of December 31st, 2016.

Regarding our guidance for 2017, we anticipate to double our total annual product sales to approximately CHF15 million. In addition, we anticipate to receive royalties on US sales of approximately CHF14 million. Total operating expenses after anticipated BARDA reimbursements are estimated at approximately CHF10 million on average per month. And we expect to further reduce the operating loss in 2017 to approximately CHF3 million on average per month.

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Ronald Scott, Basilea Pharmaceutica AG - CEO [6]

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Thank you, Donato. To summarize our milestones for 2017, we will continue to grow the sales from our marketed products Cresemba and Zevtera and anticipate the sales will double in 2017.

We intend to increase market access and formulary adoption of Cresemba and Zevtera in Europe and plan to conclude further license and distribution agreements for both drugs to fully leverage their commercial potential.

We intend to finalize the special protocol assessment process with the FDA and subsequently initiate the ceftobiprole Phase 3 program under the BARDA contract around midyear.

Furthermore, we intend to complete dose escalation for both our clinical phase oncology drug candidates and also expect to complete patient recruitment in the glioblastoma arm of our BAL101553 oral Phase 1 study.

As in the past, we will continue our prudent management of our expenses and cash. And we remain focused on generating revenue from our two commercialized anti-infective drugs.

We look forward now to answering your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Bob Pooler, valuationLAB.

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Bob Pooler, valuationLAB - Analyst [2]

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Thank you. Good afternoon, gentlemen. Congratulations on the 2016 results, including your guidance. So, that's setting a mark for the next year. Just three questions then on Zevtera. Could you give a little bit more flavor on the status of the SPA in the US? So, how are the talks with the FDA progressing? And actually, what is needed to get the SPA?

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Achim Kaufhold, Basilea Pharmaceutica AG - Chief Medical Officer [3]

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Yes, hello. This is Achim. The SPA process for both trial protocols, the ABSSSI as well as the Staphylococcus aureus bacteremia protocol, is going well. We are progressing well. And we hope to conclude the SPA prior to initiation of the trial midyear.

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Bob Pooler, valuationLAB - Analyst [4]

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Okay. Then just second question then on the cost estimates of the two US trials, could you give a rough ball figure of what you expect to spend for those trials?

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Donato Spota, Basilea Pharmaceutica AG - CFO [5]

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Yes, sure. Hi, Bob. This is Donato speaking.

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Bob Pooler, valuationLAB - Analyst [6]

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Hi, Donato.

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Donato Spota, Basilea Pharmaceutica AG - CFO [7]

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As indicated in the past, we expect that the first study, the cost will be around CHF40 million to CHF50 million, of which a substantial part is going to be covered by BARDA under the agreement that we have in place with them.

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Bob Pooler, valuationLAB - Analyst [8]

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Okay. And just coming to BARDA to conclude, those remaining predefined development milestone payments, will they be sort of evenly spread over the next four years, or are they more backend loaded?

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Donato Spota, Basilea Pharmaceutica AG - CFO [9]

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Well, we've not disclosed in detail what these milestones are, but generally, you can assume that these are typical development and regulatory milestones throughout the development phase.

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Bob Pooler, valuationLAB - Analyst [10]

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Okay. Thank you.

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Operator [11]

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Susie Jana, Edison Investment Research.

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Susie Jana, Edison Investment Research - Analyst [12]

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Good afternoon, gentlemen. It's good to see the ramp up in the second half of last year on product sales. I'm just wondering whether you can sort of talk us through what's happening on the ground in the countries that you've launched and in hospitals, especially with regards to formulary, etc.

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David Veitch, Basilea Pharmaceutica AG - Chief Commercial Officer [13]

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Yes, hi. It's David here. So, yes, essentially, obviously, 2016 was the year when we really launched Cresemba. So, we -- in the prior year, 2015, we launched Zevtera/Mabelio across different points in 2015 in our direct markets. Then in 2016, we launched earlier in the year in UK, in Germany, and in Austria, middle of the year in Italy, and then with full reimbursement in France right at the end of the year.

So, it was a sort of staggered launch, which is largely as a result of the price -- the national pricing reimbursement process. So, a major focus of last year was on the Cresemba national pricing reimbursement process.

And then when that was achieved, and that was achieved, then we moved onto the more subnational processes, which are varied and different across the different countries. But, we have to go through, for example, in Italy, the regional access situation, whereas in other countries, it's more around hospital formulary access. So, for example, the UK, it's a lot around hospital formulary access.

And so, yes, it varies. Part of your answer is it varies country by country on the specifics. But, it was really a year around launching and getting access for Cresemba through 2016 and then continuing to complete the access and build the sales for Zevtera. That were the -- they were the two prongs really commercially that we were focused on during 2016.

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Susie Jana, Edison Investment Research - Analyst [14]

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Okay. Does that mean there are any bottlenecks in any countries left, or are you quite confident now, and really, it's just more a matter of prescribing rather than any kind of reimbursement or uptake issues?

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David Veitch, Basilea Pharmaceutica AG - Chief Commercial Officer [15]

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Yes, no, I wouldn't say there's any bottlenecks. There's just the usual European country-by-country access. So, for example, in Germany, once you achieve certain access in 2016, you have to also go through the same process in 2017. But, no, we haven't come across any bottlenecks. I think I'd describe it as typical for introducing a hospital specialty care product in the European countries. So, yes.

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Susie Jana, Edison Investment Research - Analyst [16]

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Thank you very much.

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Operator [17]

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Bruno Bulic, Baader Helvea.

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Bruno Bulic, Baader Helvea - Analyst [18]

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Hello, good afternoon. I would have two questions, the first one on the guidance for 2017. Does that maybe include potential milestone payments related to isavuconazole in the US?

And the second question about BAL3833. It is listed with an estimated completion date for December 2016. Could you please provide a little bit of color in the current status of this trial? 69 patients I think were targeted at full enrollment. Where does it stand today? Thanks.

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Donato Spota, Basilea Pharmaceutica AG - CFO [19]

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Hi, Bruno. This is Donato speaking. I'll take the first part of the question, and then Achim is going to address the second part. So, with regard to potential milestone payments, neither -- obviously, neither our own product revenue guidance nor the royalty guidance that we've given includes any milestone payments. So, if we would hit a milestone, then that would come in addition.

Achim?

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Achim Kaufhold, Basilea Pharmaceutica AG - Chief Medical Officer [20]

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Yes, in terms of your questions regarding BAL3833 --

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Bruno Bulic, Baader Helvea - Analyst [21]

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Correct, yes.

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Achim Kaufhold, Basilea Pharmaceutica AG - Chief Medical Officer [22]

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-- We are currently in a typical dose escalation phase. And we expect to have the dose escalation completed this year.

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Bruno Bulic, Baader Helvea - Analyst [23]

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Okay. Where does the deviation from the information listed on the national trial registry come from?

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Achim Kaufhold, Basilea Pharmaceutica AG - Chief Medical Officer [24]

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Sorry, you were talking about the 69 patients. That -- the 69 patients, this includes also the Phase 2a portion of the trial. I'm now talking only about the Phase 1 portion, which is the dose escalation --

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Bruno Bulic, Baader Helvea - Analyst [25]

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Okay.

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Achim Kaufhold, Basilea Pharmaceutica AG - Chief Medical Officer [26]

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-- Order to determine the maximum tolerated dose. And we have not reached the maximum tolerated dose. This will happen later this year.

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Bruno Bulic, Baader Helvea - Analyst [27]

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Okay. Very clear. Thank you.

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Operator [28]

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(Operator Instructions). Bob Pooler, valuationLAB.

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Bob Pooler, valuationLAB - Analyst [29]

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Good afternoon. If I may, another question just on Cresemba. And you stated that you now have also that in the [ECIL's] guideline, where Cresemba's as effective as voriconazole with a better safety profile. Do you see any uptake there on the European sales? And so you see any implications for US guidelines with such a positive mentioning of Cresemba?

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Achim Kaufhold, Basilea Pharmaceutica AG - Chief Medical Officer [30]

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Yes, this is Achim. Let me start. Yes, we have a very positive guideline recommendation. In the ECIL 6 guidelines, they recommend isavuconazole is as effective as voriconazole, but with a better safety profile, and in addition without the need of drug monitoring. And this recommendation is actually the highest level -- shows the highest level of evidence, which is then called an A1 recommendation. So, we are very pleased with this recommendation.

And now, for the --

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David Veitch, Basilea Pharmaceutica AG - Chief Commercial Officer [31]

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Yes, from a -- when you mentioned sales -- obviously, it's David here -- obviously, having a strong guideline recommendation from one of the leading medical bodies in Europe is very helpful because it only identifies two products with an A1 rating that Achim talks about, which is voriconazole and isavuconazole. But, it actually does also highlight the difference between the products in terms of the better safety profile of isavuconazole and also that there's no need for drug monitoring with isavuconazole, unlike voriconazole.

So, from my perspective commercially, to have a leading guideline committee come out with this recommendation obviously can't hinder us in our progress and with this sort of key customer support endorsement of the product.

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Bob Pooler, valuationLAB - Analyst [32]

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And any implications maybe for US for guidelines there?

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David Veitch, Basilea Pharmaceutica AG - Chief Commercial Officer [33]

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Actually, I believe it was last year the equivalent -- the Europe -- the US guidelines, which are produced by a group called the IDSA guidelines, they came out after Cresemba was launched, isavuconazole was launched. And actually, they have -- they already recommend isavuconazole along with liposomal amphotericin B and voriconazole as the treatment recommendations in invasive aspergillosis. So, in a way, they preceded the ECIL guidelines. So, there's already a recommendation in the US for isavuconazole for invasive aspergillosis.

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Bob Pooler, valuationLAB - Analyst [34]

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Okay. Thank you for that clarification. And then just one final on the oncology projects. When do you expect partner agreements after the Phase 2b -- after the Phase 2a's proof of concept, because looking at the oncology field with a lot of moving parts, I think, yes, probably that would be a time to look at a partner because you have to do multiple trials in multiple indications.

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Ronald Scott, Basilea Pharmaceutica AG - CEO [35]

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Hi, Bob. This is Ron speaking. I think you're right about the current marketplace as far as what partners are looking for. They typically like to see the Phase 2 results. We're, of course, in discussion with potential partners ongoing and all the time for our compounds. And so, we -- the feedback that we get is, of course, they'd be interested for the -- our lead compound 101553 and seeing the Phase 2 data. So, as we start having that both from the 2a and then later the Phase 2, we'll be sharing that with potential partners.

As we speak with them and as there's a collaboration that would be meaningful, then of course, we are free to move as quickly as possible there, depending on the types of offers that we get. But, they are looking for data related to the tumor-specific information for advanced compounds.

Related to 3833, there, we need to establish the maximum tolerated dose and [need] to gain some tumor-specific data, which again would typically be in Phase 2a. So, that's what we're currently focused on.

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Bob Pooler, valuationLAB - Analyst [36]

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Okay. Thank you. Thank you for answering the questions.

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Operator [37]

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(Operator Instructions). There are no more questions at this time.

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Ronald Scott, Basilea Pharmaceutica AG - CEO [38]

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So, I'd like to thank you, all, for joining the call and for your interest in Basilea. We're very pleased that we were able to meet and exceed our expectations financially last year. This was driven, of course, by the successful launch of Cresemba in addition to our antibiotic that was already on the market.

We look forward to moving with our sales for these -- and focusing on these sales in 2017 and being able to double our sales and our revenue coming in from our -- these two compounds, at the same time, being able to move forward our R&D portfolio.

So, appreciate your interest and look forward to keeping you abreast of our progress as we look forward to solidifying our position in the marketplace in 2017.

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Operator [39]

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Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.