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, 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.
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 and 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, Chief Financial Officer.
Thank you, Seth, and thank you all for listening in. On the upper right of slide four, we have shown the revenue breakdown of 2017. The revenue from IMVAMUNE of DKK 874 million was primarily for production of the remaining bulk from the $233 million contracts we were awarded from the U.S. government in 2015 and 2016. We also revenue recognized the upfront payment of $60 million, or DKK 399 million, from the option and license agreement with Bristol-Myers, a payment that we already received in 2015. Our R&D contract income amounted to DKK 97 million, adding up to a total revenue for 2017 of DKK 1.37 billion, which is in line with our guidance.
In line with the guidance was our results showing an EBIT of DKK 353 million. As you can see on the lower left side of slide four, it is the sixth year in a row with more than DKK 1 billion in revenues and positive or break-even 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 $43 million. This also led to a further strengthening of our cash preparedness, which grew to DKK 2.6 billion. Moving on to slide 5, here's a breakdown of the P&L. As we've already covered the revenues, I will focus on the gross profit and the R&D costs. A gross profit of DKK 1.07 billion in 2017 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 a gross margin of 70%, but as in 2017, we also in 2016 had one-time items, as we received the last part of a holdback from the U.S. government. Adjusting for this, the gross margin from operations in 2016 was 68%. 2017 was another year with improved operational margins. The R&D expenses grew to DKK 580 million from DKK 463 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 DKK 510 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 guided revenues. The revenues consist of DKK 350 million from IMVAMUNE and reflects the bulk contract we received from the U.S. government last year. As we announced back in September, the $100 million award would be evenly split between 2018 and 2019. We also expect DKK 150 million in R&D contracts from our collaboration with the U.S. government and Johnson & Johnson.
With revenues being more than halved and with R&D costs unchanged, this also means that we are guiding a loss in 2018. The loss is expected to be DKK 385 million. As the production and release of the IMVAMUNE bulk takes place in the second half of the year, the revenues are very back-end loaded. We expect DKK 400 million in revenues in second half of 2018. The cash preparedness will be DKK 1,850 million by the end of 2018. The decrease is partly due to the result and partly due to our CapEx, our investments, in particular, our fill-finish facility.
In 2018, we expect our investments to be in the DKK 275 million level, in 2019, it will be less than DKK 250 million, and then it is expected to be back at the more normal level of approximately DKK 50 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 stored with an expected value of $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 eight, despite the fact that last year we succeeded in adding a couple 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 III. 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'll have seen some of that recently in the last few weeks. We've diversified our pipeline, both in terms of immuno-oncology, but also with a balanced view in terms of infectious diseases.
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-and-finish, which I'll get to later, is really going to open up our ability to secure future revenues, both not only for IMVAMUNE, but also for other products in the future. On slide nine, if we look at our overall strategy and objectives in the next few years, we want to maintain our global leadership in our smallpox vaccine franchise. We were awarded more than half a $0.5 billion contract last year. We just announced, and I'll walk you through that, some really exciting efficacy data from our phase III.
The fact that we're investing in a fill-and-finish, and we're encouraged to do so by the U.S. government, I think is setting ourselves up 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 a prophylactic RSV vaccine. I'll walk you through some of the key developments in the next 12 months in the coming slides. While we expanded our partnership with Johnson & Johnson, we will expect to see both HIV and HPV vaccines entering the clinic later this year. We want to continue to establish a broad and deep cancer immunotherapy franchise. You've seen very recently, we've expanded our collaborations to CV301, and excitedly, brachyury will be entering phase II later this year.
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, sorry, 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. Of those more than 20 studies, actually, two are fully funded by BN, which shows the strength of that strategy and our ability to attract strong partnerships. However, this year, we expect six 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.
Slide 11 gives you a historical overview of what we've been doing with the U.S. government in terms of developing and supplying IMVAMUNE, our liquid frozen smallpox vaccine. This slide 11 shows you the overall objective of the U.S. government is to secure enough vaccine to 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 III trial, which being very positive, will allow us to file a BLA later this year.
As IMVAMUNE, and IMVAMUNE is eligible for a priority review voucher, we expect to see next year. If you go to the next slide 12, just to remind you of the phase III 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 vaccine were compared to the immune responses stimulated by subjects in group two that received a single vaccination with ACAM. One of the primary endpoints agreed with the FDA was to show non-inferiority of the neutralizing antibodies induced by the vaccine, as many, including the FDA, believe this is the correlate or the immune correlate of protection against smallpox.
Another efficacy endpoint, which was a co-primary endpoint, was that in group one, after the second vaccination with IMVAMUNE, subjects were revaccinated with ACAM. This is because ACAM induces a local infection, which leads to what is called a vaccine take, which is essentially a pustule, and people who were previously vaccinated or considered protected had an attenuated take. If we could attenuate the take of a subsequent vaccination, this would be a solid marker of efficacy of IMVAMUNE. On Slide 13 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 to compare the peak immune responses in terms of the neutralizing antibodies induced by IMVAMUNE to ACAM.
Not only could we demonstrate non-inferiority, but with a two-fold higher immune response induced by IMVAMUNE, we could actually show statistical superiority in terms of the immune response. If you look at the slide on the right-hand side, this shows you 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 a label claim that you're fully protected 7 days -10 days post a single vaccination if a take is induced.
As I said, most people believe these neutralizing antibodies are the correlates, 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 is 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, the revaccination 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 as a full vaccine take, which is leading to this pustule following ACAM. 93% of those who received ACAM had a so-called full vaccine take, whereas 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, drier 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.
On slide 15, just gives you an overview of the results I've already walked you through. Obviously, this was the second of two phase III programs that was agreed with the FDA. The first, which has already been reported and completed, was a safety study in 4,000 subjects, and now we've finished the non-inferiority study. We are moving ahead with our plan to file for licensure in the second half of this year. As I've said, if IMVAMUNE is approved, which is likely going to be in the first half of 2019, it is eligible for a priority review voucher. If we go to the next slide 16, obviously, this is a build on a slide you've seen previously. We've delivered 28 million doses of the liquid frozen formulation, which we're moving ahead with licensure.
As this only has a three-year shelf life, everything we've delivered has already expired, meaning there's no longer a stockpile of IMVAMUNE for the U.S. government. Over the last few years, the government have ordered $233 million worth of vaccine bulk. Last year we received a new 10-year contract with an initial order for $540 million. That included an additional $100 million for vaccine bulk, which we'll be revenue recognizing half this year and half next year, meaning that by the end of next year, we'll have $333 million worth of vaccine bulk. The vast majority of that $540 million, that is $299 million associated with converting that bulk to individual freeze-dried vials.
That is not possible until our investment in our fill finish facility is up and running till 2021. 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. As I said, the investment in that facility is gonna secure higher revenues than we've seen in the previous years. As I said, this is only the initial order of a 10-year contract. 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, just emphasizes again, the reason why some of the revenues of this contract are delayed until 2021 and beyond, is that we have been encouraged by the U.S. government and agree to the fact that we are gonna to invest $75 million in a new fill finish plant, which will not only secure the future supply of IMVAMUNE, but it will also allow us to bring in-house all future production of all our future vaccines. We go to slide 18, talk about the highly successful collaboration we have with Johnson & Johnson. Johnson & Johnson now have taken four licenses for combining MVA-BN with their AdVac or their adenovirus platform for Ebola, HPV, HIV, and HBV.
This is all associated with the fact that in Ebola, we've shown that the combination of the two platforms induces very strong immune responses that are long-lived. While we've received more than DKK 350 million in licensing payments and also supply of Ebola, there still remains DKK 1 billion in milestone payments in addition to royalties. This is a highly valuable partnership moving forward. As I already indicated, we anticipate the phase I studies for HPV and HIV to be initiated in 2018. On Slide 19, we're shifting gears and talking a little bit about RSV. RSV is a virus that causes flu-like symptoms.
In fact, as we now know from numerous publications, it unfortunately causes as many deaths as influenza each year, particularly in the elderly, yet there is no prophylactic vaccine available. There have been, unfortunately, a number of high-profile failures in developing a prophylactic vaccine, 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 fusion, or the F protein. While all those attempts have failed, fortunately for us, our 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.
As you can see by the top left-hand box, our vaccine actually encodes 5 proteins of RSV, the F, the fusion protein, the glycoprotein, the nucleocapsid, and the N2. 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. If you look at the bottom left-hand corner, this shows the induction of T cells to all 5 encoded proteins from RSV and the whole RSV protein itself, and this is from a single vaccination given as a booster in elderly subjects. On the bottom right-hand side, you can see that a single booster vaccination with our vaccine stimulates antibodies which fortunately are durable for an entire RSV season.
If we go to slide 20, we have previously shown in the clinic that we were able to induce this specialized subtype of antibodies called IgA in the blood. We're quite excited about IgA because as I'll come to, a lot of the literature around RSV shows that IgA, which is normally found on mucosal surfaces, such as in the nose and in the lung, is associated with protection against RSV. This is a follow-up from the phase II data. 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.
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. Within the same group, those who had a higher starting titer, the boost effect is not really seen. 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. On slide 21. I've shown you data where we can induce a broad T cell response. I've shown you data where we can induce antibodies, which are durable in the blood.
I've now shown you antibi— data that we can induce, IgA in nasal swabs. What is the importance of all the clinical data that we've been generating, apart from the fact that this differentiates us from any other candidate vaccine that's gone into the clinic? From the literature, we know that nasal IgA correlates 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 a virus once someone becomes infected. 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 implying that T cells are important for clearance, and mucosal responses are important for protection. As I've shown you, our antibody is able to do both. On slide 22, gives you a design of the phase II 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 a single vaccination with our vaccine, and we'll also see what a booster vaccination does. We'll be reporting that immune data 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, this year we will be discussing with the authorities our thoughts on the design of the phase III. While we're doing that, and to help in 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 a number of publications, there is an existing RSV challenge model. The rates of 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 are working with a CRO called SGS, who has previously developed a more virulent flu challenge model to develop a more virulent RSV challenge.
By Q3 this year, we will know and we'll be able to decide whether we've been able to develop an RSV challenge 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 we're encouraged by are efficacious, it will also help in the design of the phase III. Slide 24 talks a little bit about our CV301 strategy. CV301 is a vaccine using the MVA Fowlpox platform encoding CEA and MUC1.
As these two antigens are overexpressed in the majority of solid tumors, our strategy going forward is to see whether CV301, in combination with a checkpoint inhibitor, can enhance the efficacy that is seen 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 II component of that study in the next couple of months. Last year, we also announced the collaboration with Roche, where we'll be combining CV301 with Tecentriq in bladder. We'll be initiating that study mid of this year. In the last couple of weeks, we've announced two other collaborations. One with AstraZeneca, where we will be combining CV301 with Durvalumab in a colorectal pancreatic cancer setting.
The other, or the fourth collaboration, is with BMS, where we'll also combining CV301 with Nivolumab, again in a colorectal cancer setting. This strategy will allow us to define within the next 12 months to 18 months, whether CV301 in combination with a 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 alone 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, but a variety of other tumors.
As 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. 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 a phase I study. If you go to slide 26, an additional phase I study is ongoing, where we're looking at the combination of an MVA prime, Fowlpox boost, approach, both of which are obviously encoding brachyury. The safety from this study will allow us to then initiate a phase II study in people with advanced metastatic chordoma. This is an ultra-rare indication and will be used in combination with radiation.
It's a two-step design, in that we'll initially enroll 12 patients, looking for at least 2 objective responses. If that occurs, we'll enroll an additional 13 patients, with a 20% overall response rate, we believe this could lead to a breakthrough designation. On slide 27, I'll walk you from the key highlights, the anticipated highlights to come. We'll be filing for IMVAMUNE, the BLA in the second half, which could ultimately lead to an award for Priority Review Voucher in 2019. RSV will be getting the booster results mid of this year, allowing us to decide whether this is a seasonal booster. We'll be having some exciting data in terms of developing a model, a human challenge model, and potentially also coming up with some efficacy data for RSV itself.
The CV301 will be initiating three further phase II 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 I, initiating the chordoma study, and in PROSPECT, we do still have data anticipated to be coming through of the combination of Nivolumab with PROSPECT. With that, I can open up to questions. Please, operator, could you open up for Q&A?
Thank you. If you would like to ask a question at this time, please press the star or asterisk key, followed by the digit one on your telephone. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find your question has already been answered, you may remove yourself from the queue by pressing star two. Once again, that's star one, signal for a question. We will take an opening question from Chad Messer of Needham & Company. Please go ahead.
Well, great. Thanks for taking my question, congrats on all the progress with the pipeline. Just wondering if you could quantify for us how you think the new finish, fill-and-finish facility will sort of impact revenues? You know, how what can it contribute to margins?
Sure. I thought you were gonna have a follow-up question there, but that's fine. Yeah, sure. First of all, obviously, bringing in the fill-finish in-house, should, by and large, make the cost of goods cheaper than relying on a third party. I'm not really gonna be drawn in on margins other than we're saying that we anticipate the historical margins to be maintained. The really important part is we'll have better control over the whole process, which I think will also add to efficiencies. In terms of the future revenues, obviously, completing the fill-finish unlocks the DKK 299 million under the initial award to convert the bulk to freeze-dried doses.
There's also another reason I believe that the U.S. government was strongly encouraging us to build a filling plant, in that they don't wanna be reliant on a single contract manufacturer who currently is the only one who can really fill this product, and that's with a view of future orders. I think the plant in itself should give us greater control, reduce our cost of goods, but also put us in a position, a much stronger position to secure future orders.
Okay, great. Thanks. Maybe just one on RSV. How gating is being able to come up with a workable human challenge study for that program? You know, let's say you aren't able to come up with something acceptable, do you think you'll have enough, you know, enough information to design the phase III and move forward?
I mean, human challenge data would be nice, in many ways, because obviously, as I said, it would raise the confidence that what we believe are the great immune responses are meaningful in terms of inducing efficacy. It would also allow us to be able to design the phase III, because you 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 III. This is a parallel track where if we're successful with the model, it could make life easier in terms of designing the phase III, in that we could get away with maybe a smaller study.
If we're unsuccessful, it means that we would go into the phase III, making certain assumptions, which may be highly conservative, meaning that we may have to have a larger phase III. All things being equal, everything's in parallel. We're moving ahead, designing the phase III 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, because we do generate efficacy data, of course, that will allow us to redesign the phase III.
Great. Thanks.
We will take our next question from Michael Novod of Nordea. Please go ahead.
Yes, just two smaller questions. One is to say specific CapEx guidance. Maybe you can try to provide a bit more light into the DKK 75 million, how they're gonna be split over the coming three years, just to get a better feeling of your cash burn in general. Then to the Immuno contract, also a follow-up there. It's a 10-year contract, as you stressed. We also know that you need to start ramping up production a bit earlier than say you need to start delivering.
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 production, i.e., deliver that to the U.S. government before it's actually freeze-dried on par with what you've done in the past couple of years? Maybe just to get a feeling of how these, say, 2021, 2022, 2023 revenue streams are gonna look like.
Yeah. Hi, Michael. Regarding to the CapEx, as I mentioned, when I went through the numbers, we expect approximately DKK 275 million in CapEx this year, and we expect approximately DKK 250 million in CapEx in 2019. This is not all of this is fill-finish. We do also have some maintenance investments, the majority of that is, of course, related to the fill-finish. We also had fill-finish investments already in 2017. 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. It's primarily 2017, 2018, and 2019, you will see the investments from the fill-finish.
Okay.
Yeah, on the contract. Currently BARDA are funded annually. That may change, but currently they're funded annually. We, from a manufacturing point of view, normally need 12 months notice to make sure we have all the raw materials in place. 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. 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 DKK 100 million for bulk, which is split between now, this year, 2018 and 2019.
Obviously there's a gap there from 2019 onwards to 2021. We'll have to see what happens with other awards.
Okay. Okay, thanks.
As a reminder, that's star one to signal for an audio question. We will take our next question from Peter Welford at Jefferies. Please go ahead.
Hi. Yes, thanks. I've got a couple. Firstly, just on the human challenge trial, timelines there. Am I right in saying then you planned 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? I guess what I'm trying to understand, what is it at the moment you're planning to do in this feasibility assessment at the moment? Is it still the exact strain that needs to be chosen? Is it the virulence of that strain that's unclear? Or perhaps you could just sort of clarify a little bit what is going on at the moment with the sort of investigation you're going on into that challenge trial. 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, the 10% or so that you had to pay away to them? also then for the freeze-dried IMVAMUNE phase III, the R&D associated with that, should we anticipate that to be capitalized and then amortized again as the prior phase III, or will the freeze-dried phase III trial that you're doing be expensed as it's incurred? just finally, on IMVAMUNE fill finish. just trying to understand, have you secured use of a third-party fill finish facility up until, you know, at least 2021? Is that, you know, is there a contract already placed for, in place for that?
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 20 2 5 time frame. Thank you.
Okay. 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. A primary isolate 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 conducting some preclinical testing using the cotton rats to demonstrate that in that model, it's more relevant. In parallel to that, there is ongoing discussions with the authorities, the regulatory authorities, on the design of the feasibility study and the subsequent potential challenge study in vaccinated subjects. We'll start the human feasibility study mid-year, just up post mid-year, 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. To make sure that we get the data as fast as possible to help in the design of the phase III, we are moving in parallel tracks. Your other question related to IMVAMUNE, do we still have a contract for with a third party for production? 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. We don't have a specific contract in place for freeze-dried, but we have a relationship for the continued production of liquid-frozen. That answers your question. Ole, if you...
Yeah, that's great. Thanks.
Yeah. Hi, Peter, it's Ole. The NCI, part of the upfront, the $6 million was actually written down in Q3, and hit the P&L as a write-down. We made a write-down on PROSTVAC of, as far as I remember, DKK 48 million. A part of those DKK 48 million was the $6 million that NCI received. They were capitalized as a PROSTVAC assets, but when the PROSTVAC PROSPECT study was stopped for fertility, we did a write-down of these assets. Therefore, the $6 million was put on the P&L in Q3.
Got it. Then, sorry, the freeze-dried phase III for IMVAMUNE, is that going to be capitalized, or will that be expensed as incurred?
That's going to be expensed.
That's great. Okay. Thank you.
We will take our next question from Frédéric Gomez of Pharmium Securities . Please go ahead.
Thank you, and congrats for the recent development with the pipe. I just have one question on CV301. I don't know what your plans are for next ASCO, but you mentioned during the call that in non-small cell lung cancer, you plan to initiate a phase II in the next couple of months. Maybe can you give us more color about the phase I and the phase Ib, especially on the dose and the safety findings? I was also wondering for the phase II, because patients at baseline will have, for some of them, a complete response or stable disease. I was just wondering if you plan a prespecified analysis based on your role survival, based on the patient status at baseline. Thank you.
The study, the way it's designed, and you've mentioned that there's a phase I, phase Ib component, and then based on favorable safety, we'll roll into the phase II and randomize into two different arms. As the phase I is still ongoing, I don't wanna say too much, but to date, it looks as if the safety profile is certainly favorable and there's no unexpected safety. As I said, the study is still on running. Under the assumption we don't get any nasty surprises, we do anticipate to roll into the phase II. You're right in that what you say, we're in the maintenance setting, some people coming in will have already had a response, and they are still allowed to be enrolled as long as they fit the other criteria.
We are truly evaluating the vaccine in the maintenance setting after they've already had the primary treatment with KEYTRUDA.
Okay, thanks.
As a further reminder, that's star one signal for an audio question. We will take our next question from Boris Peaker of Cowen. Please go ahead.
Good morning. This is John Coates on for Boris. My question relates to IMVAMUNE and transitioning from the BARDA budget to perhaps the CDC budget with FDA approval. I'm wondering if that's a conversation that can happen in 2019 after approval, or if that has to wait for the completion of the fill/finish facility. Thank you.
Yeah. On freeze-dried, the good thing is that we've already had the end of phase II meeting, and the FDA are concurring 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 consistency, safety study, which is the phase III study that was awarded, as part of the award of the new contract, and the proportion of that money, the DKK 33 million, was awarded last year. The study won't start enrolling until early next year. We're probably not in a position to even go to file a supplement for the freeze-dried until 2021.
Actually the two are coinciding really in that the clinical, phase III clinical study for freeze-dried is gonna overlap in the period where the facility is up and running, and we've validated the process. We don't anticipate filing the supplement for the freeze-dried to what we hope will be the license for the liquid until 2021.
Okay. Just to confirm, all procurement is going to be under the BARDA budget until 2021. Is that correct?
Yeah. The current award was with BARDA. Even if liquid, not even, when liquid is approved, I should say, it doesn't impact the acquisition contract, 'cause freeze-dried will still be a non-approved product until it obviously is approved. The potential moving to funding to CDC will not be impacted in terms of the initial order that we've received. 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, in which case, the funding, both for unapproved and also approved biological countermeasures, will remain with BARDA. Of course, that needs the new law to be passed.
Okay, thank you very much.
We will take our next question from Nick Nieland of Citi. Please go ahead.
Hi, it's Nick Nieland at Citi here. Just a quick question on your Johnson & Johnson collaboration. There's nothing in your guidance for milestones in 2018 for the start of the phase I studies. I was wondering if you could maybe guide us as to when we might expect to see those milestones. Thank you.
Yeah, hi. We've said all along... Well, we haven't said all along. We have actually indicated that the next milestones for the various indications are for initiating phase II. Obviously we need to get the phase Is out of the way. Again, I guess it's more up to Johnson & Johnson to talk about their timelines for clinical development. We can talk now openly that the phase Is will be initiated this year because Johnson & Johnson have communicated that. Yeah, I can't communicate really when we anticipate those additional milestones to come, but it is on initiation of phase II.
Could you maybe talk about, the split between sales milestones and R&D milestones, maybe?
Again, that varies from the various different licenses and the different products. We haven't come out, we haven't really come out yet publicly with that split.
Okay, thank you.
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'd just like to thank everyone for joining the call and for your interest in asking the questions. Thank you very much. Until next time.