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Executives

Ronald Scott - CEO

Donato Spota - Chief Financial Officer

Achim Kaufhold - Chief Medical Officer

Analysts

Sheela Sharma - Kepler Cheuvreux

Olav Zilian – Helvea

Basilea Pharmaceutica. (OTC:BPMUF) Q2 2014 Results Earnings Conference Call August 14, 2014 10:00 AM ET

Operator

Ladies and gentlemen, good afternoon. Welcome to the Basilea Pharmaceutica's Conference Call on the Half Year Results 2014. I’m Selena the Chorus Call Operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. After the presentation there will be a Q&A session. (Operator Instructions).The conference is not being recorded for publication or broadcast. At this time, it’s my pleasure to hand over to Mr. Ronald Scott, CEO. Please go ahead sir.

Ronald Scott

Thank you, welcome everyone, this is Ron Scott CEO of Basilea and I welcome you to our conference call to discuss Basilea’s 2014 half-year financials and update you on our operations.

Joining me on the call are Donato Spota, our Chief Financial Officer and Achim Kaufhold, our Chief Medical Officer. I would like to note that this call contains forward-looking statements. Basilea is among the few integrated companies dedicated to research, development and commercialization of new drugs to overcome resistance in the areas of anti-infectives in oncology.

In the first part of the year we made significant progress toward our goal of bringing two anti-infectives in the market within the next 18 months. At the beginning of the year, we indicated our major objectives in 2014 including the regulatory filing with isavuconazole, the launch of ceftobiprole, and the commencement of phase 2 development of our oncology compound.

I’m happy to report today that we are executing well against our guidance and milestone. We submitted a European marketing authorization application or MAA and our co-development partners Astellas submitted an U.S. New Drug Application NDA making use of isavuconazole approval for the treatment of invasive aspergillosis and mucormycosis.

In addition, we were able to swap with Astellas isavuconazole U.S. and Canadian co-promotion rights for full isavuconazole rights outside the United States and Canada. We made significant progress on Zevtera/Mabelio national pricing or reimbursement in key European markets, and completed an agreement with Quintiles for the commercial of ceftobiprole which will be commercialized under the brand name Zevtera/Mabelio depending on the country.

Finally based on encouraging phase 1 we initiate a phase 2a study with a cancer compound, BAL101553 at leading cancer centers. Donato will now update you on the financial highlights of the first half of this year and provide you financial guidance for the rest of this year.

Donato Spota

Thank you, Ron. In the first six months of 2014 contract revenue amounted to CHF 20.2 million compared to CHF 20.4 million for the first half year 2013. This includes CHF 18.5 million related to the global agreement of Stiefel for Toctino and CHF 1.7 million related to the license agreement of Astellas for isavuconazo.

Total operating income in the first half-year 2014 amounted to CHF 20.3 million compared to CHF 20.6 million for the respective period in 2013. Basilea continues to make focus investments in its key value driving assets. We invested CHF 27.5 million in our research and development activities compared to CHF 26.7 million in the first half year 2013.

G&A expenses amounted to CHF 12.3 million as compared to CHF 11.3 million in the first six months of 2013. This increase is primarily due to commercial pre-launch activities related to ceftobiprole.

In the first half-year of 2014, operating loss amounted to CHF 19.5 million, compared to CHF 17.4 million in the first six months of 2013. This change is mainly due to higher operating expenses in connection with pre-launch activities related to commercialization and launch material for ceftobiprole. The net loss amounted to CHF 19.4 million compared to CHF 17.3 million in the respective 2013 period.

The basic and diluted loss per share for the first six months of 2014 amounted to CHF 1.87 compared to CHF 1.80 for the first six months of 2013. Net cash used for operating activities in the first half year 2014 amounted to CHF 44.9 million compared to CHF 33.7 million in the first half year of 2013. This increase is mainly driven by changes in working capital related to increases in receivables for services provided to Astella and BARDA reimbursements as well as related to reductions and [accruals] and other current liability.

As of June 30, 2014 our combined cash and short-term investments amounted to CHF 245.9 million. Regarding our outlook for this year we confirm our previous guidance. Average operating expenses for 2014 are estimated at CHF 8 million to CHF 9 million per month. Basilea’s average operating loss in 2014 is estimated at CHF 4 million to CHF 5 million per month.

I will now turn the time over to Achim who will update you on our development programs.

Achim Kaufhold

Thank you, Donato. We are excited about the advancements of our clinical pipeline in the first half of the year, especially with the successful regulatory milestones achieved of our antifungal isavuconazole. Serious fungal infections are on the rise due to the increasing number of immuno suppressed patients such as cancer patients undergoing chemotherapy or bone marrow transplantation.

Isavuconazole could offer new option for the treatment of invasive potentially life threatening fungal infection. In the randomized comparative study in invasive aspergillosis, isavuconazole demonstrated non inferiority to [buy] isavuconazole in terms of efficacy. Treatment emerged at adverse events for isavuconazole were statistically fewer relative to isavuconazole in liver, skin and eye disorders.

We hired Isavuconazole European MAA and Astellas has hired a U.S. NDA for the treatment of invasive aspergillosis and mucormycosis. In the first half of this year, isavuconazole was granted European orphan drug designations for the treatment of invasive aspergillosis and mucormycosis.

In addition, isavuconazole has been granted three U.S. FDA Qualified Infectious Disease Product or QIDP designations for the treatment of mucormycosis and invasive candidiasis in addition to the designation for the treatment of invasive aspergillosis granted last year.

The QIDP designation are granted to anti bacterial or anti fungal drugs which are intended to treat serious or life threatening infections that has the potential to pose serious threat to public health.

Our third phase 3 isavuconazole study for the treatment of invasive candidiasis infection is anticipated to complete enrollment in 2015. Data from that study are anticipated to be submitted as a supplement to NDA in the U.S. and as a variation in…

Moving onto ceftobiprole. Pneumonia patients were quite effective, fast acting and well – to treatment. Appropriate initial therapy is very important to decrease mortality, mobility and length of hospital stay. Ceftobiprole active against the broad spectrum of pathogens including MSRA and Pseudomonas species which are frequent pathogens causing hospital-acquired pneumonia.

Post talk analysis of the phase 3 pneumonia studies demonstrated more record clinical responses in MSRA patients and fewer days in the hospital to our European patients treated with ceftobiprole than with the comparator regimen including a combination of two antibiotics.

For our antibiotic BAL30072 for the potential treatment of multidrug-resistant Gram-negative pathogens we initiated a phase 1 study in June assessing the safety and tolerability of BAL30072 alone and in combination with meropenem. BAL30072 in combination with meropenem provides the necessary or added discoverage to the post activity against the broad range of clinically relevant multidrug-resistant Gram-negative from negative pathogens, such as Acinetobacter and Pseudomonas causing serious infections but current antibiotics increasing the sale.

We anticipate completion of this phase 1 combination study by the end of this year with data available in the first half of next year. Switching to our oncology programs, anti cancer drugs – against the microtubule such as taxanes and vinca-alkaloids are the best bone of many chemotherapy regimen. These drugs have however significant limitations including drug resistance. But BAL101553 is an IV and/or small-molecule drug candidate targeting the microtubule – collection. Its distinctive effect on microtubule and anti vascular activity as well as the total activity across numerous refractory tumor models differentiate BAL101553 from microtubule targeting agents marketed today.

Following successful completion of phase 1 in which the maximum tolerated dose was established and sickness of efficacy was seen, we initiated in July a phase 2a study including patients with solid tumor refractory to current therapy. We anticipate completion of this open label phase 2a study in the first half of 2015.

Ronald Scott

Thank you, Achim. Let me briefly outline our reposition strategy for Zevtera Mabelio. As mentioned, we recently entered into an agreement with Quintiles to commercialize this product in Europe and quickly bring it under the market while retaining operational flexibility and maximizing economic upside.

During the product launch phase, the agreement with Quintiles allows us to scale up and optimize our resources while reimbursement and pricing discussions are concluded on a country-by-country basis. We anticipate launching Zevtera in Germany in the second half of this year and following issuance of national marketing observations and conclusion of pricing reimbursement discussions we plan to launch an additional key European market in 2015.

In the event either isavuconazole also received its regulatory approval [Basilea] and could have two hospital anti-infectives with European market authorization by the end of 2015. This would afford our company significant commercialization synergies providing an opportunity to achieve profitability faster than with just one product.

Regarding potential future payments from our partnerships BPMUF filing acceptance and upon approval of these will come from the U.S. Basilea and titles to receive milestone payments from Astellas. We also are eligible for sales milestones with total milestone payments of upto CHF 374 million.

In addition we received royalties from sales in the United States and Canada. Basilea is also eligible for a milestone payments of approximately GBP 45 million related to a potentially U.S. launch of Toctino, filing is anticipated in the fourth quarter of this year. Basilea also has certain patient and potential future given sales for the product.

As we move forward, we are focused on achieving our key goals and milestones including successfully completing Zevtera pricing or reimbursement discussions in key U.S. markets, launching our antibiotic Zevtera in Germany later this year followed by additional key European markets next year working closely with Astellas, our partner and with regulatory authorities to efficiently support and advance these with a couple of MAA and NDA review with an anticipated completion of the U.S. NDA review by the second quarter of 2015 and completion of the European review by the fourth quarter of next year.

We will work to move forward with our innovative Gram-negative antibiotic and cancer compounds and we will continue our careful and prudent cost management.

We will look forward to now answering any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Sheela Sharma from Kepler Cheuvreux. Please go ahead.

Sheela Sharma - Kepler Cheuvreux

Hello, good afternoon. I have three questions for you, regarding the agreement with Quintiles for the commercialization of Zevtera, can you give us a little more detail on that contract and tell us how many sales you are planning to contract? And following the second half launch of Zevtera in Germany, which are the countries and in which order will they follow in 2015? And thirdly, on the 30072 what is the timeline for the development of this product and when do you expect to file? Thank you.

Ronald Scott

Thank you, Sheela. Perhaps I can take the first two questions. This is Ron speaking. Relative to Quintiles and the contract details this is a standard contract sales organization type of an agreement where we have a term whereby we could take over a sales force -- you asked about the number of CAMs for the major five European countries we’re talking about a sales force of between 60 to 70 account managers. There are additional personnel that we are looking at for market access and also for the medical [translators] on functions.

But the camp function is as I indicated between 50 to 70 CAMs we’re looking at for the major five countries. The order of the countries we indicated you know Germany would be first, then I expect that probably that – and this depends somewhat on the pricing and reimbursement negotiates going on, but we expect the second country would likely be France followed by the U.K. and also Italy. Spain takes a little bit longer as I think you may have seen for most compounds or product in Europe so we are still work with Hispanics, and if we hope to be able to have Spain though we’ll have to see how long that would take for it the next year.

And related to your question on 30072 and the – I think that the question was related to timelines there, I will turn to Achim to provide you additional information.

Achim Kaufhold

Right. We are coupled in a phase 1 study in which the combination of 30072 plus meropenem is tested subsequent to this we would test the drug alone and in combination in special population group such as renally impaired patient, hepatic appeared patient, lung penetration studies, what has to be done. And thereafter there are actually two development path, one is testing the drug in a classically indications such hospital acquired pneumonia. or which is now a new pathway pathogen focus development path and depending on which option we decide and we will not decide this alone, but in consultation with regulatory agencies and this meetings will be towards -- how these consultations we need to have and this clearly determines also the length of the developments program. But overall, I see a development program between four and six years depending on which half we go.

Sheela Sharma - Kepler Cheuvreux

Thank you very much.

Operator

(Operator Instructions) The next question comes from [indiscernible] Erik Securities. Please go ahead.

Unidentified Analyst

Afternoon everyone, just a quick question on pricing you mentioned in press release that you made good progress on that front, so could you provide us a bit more details?

Ronald Scott

Certainly, we have for example in Germany under the Germans, we have exemption therefore we are able to move forward quickly there. We have made significant progress in additional countries for example in France, we are in ongoing discussions also with Italy and we would expect in Italy that we have to follow as is normal with the territories or regions in Italy and to be able to launch in Italy. In the U.K., we were able to launch there, we will do that as we also are rolling out with the other major countries.

In Spain, we have the national authorization there, but the pricing and reimbursement we’ve submitted to FDA, but they – it takes some time to review that, so we are waiting for their response to the dossier that we have submitted in Spain and it can take up to a year or more for the Spanish to typically to respond.

Unidentified Analyst

And then outside the top five in Europe, what activities are going on in terms of distribution deals outside their territories?

Ronald Scott

Well, besides the top five of course, we can expand our organizations into additional key countries in Europe and then we have the ability to have distribution agreements outside of the larger countries. We are in negotiations now with countries and term sheet negotiations in the Middle East, in Central and South America and in Asia. So we will be -- I think probably in next year be announcing depends how it takes to negotiate contracts, but I would say next year we would be announcing also distribution agreements in additional territories around the world and these are usually groups of countries depending upon the company with which we’re speaking with depending on their respective abilities to commercialize in different regions, so they usually have regional organizations and we’re talking to companies with these regional organizations in different parts of the world.

Unidentified Analyst

Great. Thanks, Ron.

Ronald Scott

Thank you.

Operator

(Operator Instructions) Ladies and gentlemen that was the last question. We have a last minutes registration. This is from Mr. Olav Zilian from Helvea. Please go ahead.

Olav Zilian – Helvea

Hi, guys. Thank you for taking my question. And concerning the cancer compound and which type of data would you need that you could [indiscernible]?

Achim Kaufhold

Well Olav, this is Achim. We are testing the compound currently in advanced solid tumors, which has current standard therapy. We are testing this in several tumor types and this is really driven by the level of efficacy we see in this different tumor types. So we are accruing the data now and depending on the level of efficacy that we see. We will be ready to pass the drug. But usually the big companies want to see convincing signal of efficacy before they would spend embark on a partnership and then move the drug forward in randomized controlled phase 2 and phase 3 data studies.

Olav Zilian – Helvea

Okay. So in other words you are confident that you would reach that signal from this type of let’s say phase 2a study and a formal phase 2b study would not be required at this point?

Achim Kaufhold

First we need to see signals of efficacy that means small partial response, small stable diseases in those tumor types that we have careful selected. So we’re testing the drug in colorectal cancer, gastric cancer, lung cancer, ovarian cancer, pancreatic cancer and breast cancer. These were selected and because we saw either signals of efficacy during our phase I study or where we have biomarkers available and that suggest that these are the right tumors to test where we could expect to see signals of efficacy.

Olav Zilian – Helvea

So give me the importance of the biomarker data, would you then also embark on establishing a formal biomarker test so that in future patients to be enrolled can be certified for the presence of the marker?

Achim Kaufhold

Sure. Yes. The answer is yes. First we have to see which of the biomarkers that we have – that had been identified during the pre-clinical development which would really – so that they are useful for the application of the clinical trial once we have identified these biomarkers they will be certainly develop in order to [certify] patients for further development, yes.

Olav Zilian – Helvea

And which type of biomarkers are currently evaluating?

Achim Kaufhold

We have not disclosed the biomarkers that we are evaluating. I think we have disclosed and they have published literature available for number of biomarker, one of them is called [indiscernible] but we are testing a full range of biomarkers.

Olav Zilian – Helvea

Okay. That’s all that I have. Thank you.

Operator

Ladies and gentlemen that was the last question.

Ronald Scott

This is Ron Scott speaking. Again, I’d like to thank you for joining us on our call. We are pleased that we have been able to achieve our major milestones for the first half of this year on time. And we continue to focus on achieving our additional milestones such as launching ceftobiprole and Zevtera in Europe and obtaining regulatory approval for isavuconazole. Thank you very much.

Operator

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. Good bye.

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