Valneva SE

Hello and thank you for joining us to discuss Valneva's first half 2023 results and corporate update. It's my pleasure to welcome you today. In addition to our press release and analyst presentation, you can find our consolidated financial results for the six months ended June 30th, 2023, which were published earlier today, available within the financial reports section on our investor website. As always, I'm joined today by Valneva CEO Thomas Lingelbach and CFO Peter Buehler, who will provide an overview and update of our business, as well as our key financial results for the first half of the year. There will be an analyst Q&A session at the conclusion of the prepared remarks. Before we begin, I'd like to remind listeners that during this presentation, we'll be making forward-looking statements, which are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed or implied by these forward-looking statements. You can find additional information about these risks and uncertainties in our periodic filings with the Securities and Exchange Commission and with the French Market Authority, which are listed on our company website. Please note that today's presentation includes information provided as of today, September 21st, 2023, and Valneva undertakes no obligation to revise or update forward-looking statements, except as required by applicable securities laws. With that, it's my pleasure to introduce Thomas to begin today's presentation.

Thank you so much, Jos. Very good day, everyone. Pleasure for me to report our half year one achievement. When we look at R&D, we made substantial progress towards the potential FDA approval of the world's first chikungunya vaccine. We have online now the cohort one of the phase three Valor study. completing its first tick season, and the core two is currently enrolling, and I will provide more details around that. We decided to reinitiate our Zika vaccine development with an expected clinical trial start early next year. Again, I will provide more details around this. When we look at the commercial business, we are very pleased with the commercial performance. Our product sales of almost 70 million euros have more than doubled as compared to prior year, excluding all the COVID sales, of course. And hence, we are on track to meet our 2023 sales guidance of 130 to 150 million euros. We had a strong cash position at the end of June with more than 200 million euros. And very recently, further strengthened it by an up to $100 million new supplementary debt facility. When we look at the business in detail, let me start with our chikungunya vaccine, which is a live attenuated vaccine candidate currently under FDA priority review. It is the first chikungunya vaccine candidate in the world that reported positive phase 3 data with all trial endpoint meds. It's the first chikungunya candidate that has an ongoing BLA application with potential approval and the filing accepted by Health Canada. By way of reminder, our live attenuated approach was chosen because we wanted to go for a single shot vaccine that was particularly well suited to target a long lasting protection compared to other chikungunya as it's currently being evaluated in clinical trials. Our results have demonstrated that our initial development hypothesis holds true and we have excellent data year to date on that vaccine, which I'm going to present a bit more in detail. From a strategic point of view, VLA 1553 fits perfectly within Valneva's existing commercial infrastructure, augmenting our existing travel vaccine portfolio. With regards to target population and geographical reach, you know that we have on the one hand side the travel business, but also an endemic need, a significant medical need in NMIC countries. where we have partnered with CIPI and Instituto Butantan, including certain local manufacturing activities. To remind everyone about the key features and timelines, current FDA PDUFA date, end of November, extended by one quarter due to ongoing discussions around phase four obligations. We have also the adolescent trial ongoing where we reported positive initial safety and immunogenicity data would come in November 2023. And we expect additional regulatory processes to commence, including the EMA later this year. Let me turn to page seven of the presentation. Since we got many questions about onset of immunity, we would like to present a little bit where we are on our vaccine today. You know, we have data that all got published in different journals, including the Lancet. We have the phase three data. We have also the phase one data. And we have done a number of post hoc analysis on the back of this data. What we can see here on this slide is that we have a very nice onset of immunity already at day 15. So you see the day 15 data shows data from our phase one cohort. And you see that even at a lower dose, which is not the phase three dose and the final dose, we are well, well above the zero response threshold. already on day 15, which means that in between day 8 and day 15, we will surpass the zero response threshold, which is identified by PRNT 50 greater or equal than 150. And hence, this titer level is reasonably likely to predict protection. Now, slide 8 shows you also a little bit where we are on zero response. And the zero response is sustained at highest levels up to month 12. At this point in time, we're going to read out month 24 in the not too distant future. And what is also important is the graph to the right, where you basically see that there are absolutely comparable titles in younger and older adults. So basically we see no difference across the different data points that we have clinically generated. And more importantly, we also, our vaccine has fast onset of immunity. And I think that's important to note. It will be further substantiated as part of further studies that we have planned or that are already ongoing. We recently reported positive initial safety results in adolescents and pre-exposed participants. This study was conducted in partnership with Instituto Butantanua. It's being conducted and funded by CEPI. We had more than 700 adolescents randomized against placebo. And for the first time, we looked at the vaccine in participants with prior exposure to the Chikungunya virus. Importantly, and this is a very meaningful finding, the vaccine continues to be generally well tolerated, including in individuals previously infected with chikungunya virus. The AE profile is consistent with adults, and the initial data suggests that we see even a more favorable safety profile in seropositive patients or participants, which is in line with what we published around our phase one data, where we basically described our so-called revaccination challenge, where people were, in parentheses, over-vaccinated with the vaccine itself. And of course, as we have done for the entire study, the independent DSMB has not identified any safety concerns associated with this vaccine. So now looking forward, the phase four alignment is of course currently the number one topic that we are dealing with. It is the reason for why we got a postponement on the PDUFA date in the first place. We are working very collaboratively with the FDA to align on post-approval phase four requirements. And this is not an easy endeavor for both parties. because this phase four alignment and the design of the phase four activities is likely to set future standards for outbreak disease indications under FDA accelerated approval pathways. Nothing exists today in this regard, and therefore we are breaking new grounds here. We have additional studies ongoing, antibody persistence study. You know that we are following the cohort here for five years. because we want to show that after a single shot, there's long protection. We reported the 12-month data in December, and the 24-month data I expected logically by the end of this year. Adolescence phase three trial, I mentioned already that this trial is important to support potential label expansion and licensure in Brazil. It's funded by CIPI and also an important part of the data needs to be included and will be included in the AMR submission. With regards to anticipated future trials, we are planning for co-vaccination, pediatric special populations, and then, of course, execution on the Phase IV program and Phase IV effectiveness in endemic settings. So when we look at the market, page 11 of the presentation, I mentioned it briefly, we have the travelers from non-endemic regions. High complementary, highly complementary with our existing travel portfolio. Significant need as we see more and more outbreaks including Europe and the Americas. We see a military opportunity here as well for troops stationed in areas with risk of chikungunya and of course in areas where we need to prepare for potential outbreaks or get already responses during outbreak situations. We are working, as mentioned before, with CEPI and Instituto Butantan. I'm very happy with this collaboration overall. So, in a nutshell, we continue to be absolutely excited about this first chikungunya vaccine that hopefully is going to make it to market, and we are looking forward to our and the approval of this vaccine in the United States first, and then in other countries thereafter. Yeah, when we look at our Lyme disease program, our program VLA15 is the only Lyme disease program in advanced clinical development today. We had multiple, you know, phase two studies, as you know, including first pediatric and adolescent data, We have currently the phase three ongoing called Study Valor. And we have partnered here with Pfizer. And this partnership with Pfizer is a very fruitful, very constructive partnership that has continued now for a number of years. And we have disclosed at multiple occasions the terms under which this exclusive worldwide partnership with Pfizer operates. By way of reminder, with regards to this vaccine, it's a recombinant protein vaccine candidate, multivalent, targeting the six most prevalent serotypes causing Lyme disease in the United States and Europe, because we wanted to make sure that we have a vaccine for people living and going to both sides of the Atlantic. It is targeting the altered surface protein A of Lyme borreliosis and hence follows an established mechanism of action for Lyme disease vaccine and therefore has also a high degree of de-risking associated with that effect. The program operates under fast vaccination granted by the US FDA in July 2017. As mentioned before, we have demonstrated strong immunogenicity results across three different phase two studies, which included also pediatric data. Overall, we see very strong data here. And I think that's something, especially the strong anamnestic response and strong booster response for a vaccine that might need a booster either annually or at a longer cadence remains a very important result. And this is another key step towards a potential vaccine solution in this field of high, high unmet medical need. On the phase three efficacy study itself, We are receiving many questions around the study, so therefore let me repeat again the key cornerstones of this study. Around 9,000 participants create at five years of age, so literally we cover the vast majority of the target population, and we are including people at high risk of Lyme disease by residents and or occupational or recreational activities in the US, in Canada, and in Europe. We are randomizing one-to-one against placebo and two-to-one US versus non-US. With regards to the primary endpoint, primary endpoint is the rate of confirmed Lyme disease cases after two consecutive tick seasons, meaning after completion of the full primary season, primary series, sorry, meaning three doses plus the booster dose. And as part of the secondary endpoints, we of course look at the efficacy after priming with three doses amongst other secondary endpoints as defined in the phase three protocol. Following the discontinuation last year for one, part of the study, one cohort of the study that was run through a specific set of study centers. We have now split into two cohorts still under the roof of one study. You see the enrolled participant cohort one in blue. Here you see the three doses given at month zero, two, and six. the booster in uh after 18 months so basically this cohort has been completely enrolled um we are now completing the tick season uh 2023 and uh and will be given the booster shot uh next year um and the core two is rolling um and you see um zero two six and then the booster in tick season 2025. Pfizer aims to submit the regulatory applications in the US and Europe in 2026, subject to positive data, which we hope to see at the end of 2025 after the completion of the 2025 tick season. Let me turn over to Zika. You know that Valneva has a Zika vaccine in its R&D portfolio for a number of years. We paused the development program when we refocused our resources towards the COVID vaccine development. Now that the COVID development or COVID vaccine development is behind us, we have reactivated our Zika program because we believe that there is a significant unmet medical need. And basically what we see here is also a highly complementary potential asset when it comes to leveraging our existing inactivated whole virus platform that we initially developed for Japanese encephalitis and then further enhanced and modified for our COVID vaccine BLA 2001. So it can be a very nice plug and play onto our existing platforms. At the same time, this is a vaccine candidate that would also fall under an accelerated approval pathway for which we are now with the help of our CHIC development generating a lot of expertise and capabilities. So that's the reason number two. Reason number three is actually that we meet the desired target product profile as articulated by WHO. All of that led us to our decision to continue or restart with our Zika development with TriStart as early as probably next year. When you look at our portfolio, we are working on a number of things in the preclinical arena. I would like to point out HMPV, for which we completed our preclinical proof of concept successfully, given that the vaccine development environment is transitioning towards an RSV-HMPV combination vaccine. We have initiated partnering discussions, and those discussions are currently underway, and partnering is under evaluation. Our lead candidate in the preclinic arena remains EBV, Epstein-Barr virus. We are currently in the final antigen identification phase and hope to have a final product candidate designed by the end of this year. Of course, we are working on a number of other things in the preclinical shop, but we are giving, of course, priority and focus. And I would like to remind you that our overall R&D portfolio management always strikes towards delivering highly differentiated assets, first in class, best in class or only in class. And with that, I would like to hand over to Peter to provide us the financial report and take us through the rest of the presentation. Thank you.

Thank you, Thomas, and good morning and good afternoon to all of you. Now let's look at the financial review of the first half of fiscal year 2023. Product sales reached 69.7 million euros and grew 109% over prior year. At constant currency, product sales grew 113.6%. The strong growth is driven by all product lines, with Ixiara growing at 150% at constant currency, Ducoral at 213% and third-party product at 46.8%. This excellent sales performance is primarily driven by the recovery of the private travel market, but also by price increases across the board. In the first half year, we also still recorded residual COVID-19 vaccine sales, related to a pre-existing contract with the Kingdom of Bahrain. Moving on to the income statement. Total revenues reached 73.7 million euros versus 93.2 million euros in the first half year of 2022, a decrease of 20.9%. In the prior year, Balnevo had recognized other revenues related to its COVID program, which explains this decrease. Looking at expense, we observe a significant decrease in cost of goods and services from €171.5 million in the first half of 2022 to €53.8 million in the current fiscal first half year. Prior years' cost of goods and services were heavily impacted by one-off items related to the wind-down of our COVID-19 program. The gross margin of both Dixiaro and Doucoural is still below pre-COVID levels and is amongst others adversely impacted by Ixiaro batch write-offs in our Scottish manufacturing site and high sales volumes in indirect markets where our average selling price is lower than indirect markets. In the first half year, we also recognized initial cost of goods related to the launch preparation of our chikungunya vaccine candidate. Research and development expense decreased from 51.9 million euros in 2022 to 26 million euros in the first half year of fiscal year 2023. That decrease is again driven by the lower spend on Valneva COVID vaccine programs and at the same time the cost related to the Zika vaccine candidate increased as the company has been working towards a re-initiation of our clinical development program. Marketing and distribution expense increased significantly year over year from 7.8 million euros to 20 million euros. The increase is related to higher pre-launch costs for our chikungunya vaccine candidates that more than tripled versus prior year. In addition, PIEC spend has had a positive impact related to our employee share-based compensation. G&A expense increased from 16 million euros in 2022 to 22.9 million euros in 2023. In the prior year, all expense lines had a favorable effect for a total of 19.5 million euros related to employee share-based compensation due to the share price development. The increase in other income from 3.6 million euros to 14 million euros is mainly related to the recognition of a grant received from Scottish Enterprise. Overall, the company records an operating loss of negative 35 million euros versus 150.4 million euros in the prior year. Adjusted EBITDA improved from 136 million euros to 28 million euros negative. Finally, we reported a cash and cash equivalent at June 30th, 2023 of 204.4 million euros compared to 289.4 million euros at the end of December 2022. This position, as mentioned, does not include the increased debt facility of 100 million dollars, of which 50 million dollars were drawn down in the third quarter of 2023. Now moving to slide 21 to review our guidance for the fiscal year. We reiterate our guidance for revenues and other income communicated earlier this year. We expect product sales to reach between 130 and 150 million euros and other income to reach 90 to 110 million euros. We also reiterate our guidance on R&D investment expected between 70 and 90 million euros. This concludes the finance section of this call. And now let's move to slide 23, looking at upcoming catalysts and news flow. On our VLA 1553 program, we still anticipate the PDUFA action date and the potential VLA approval at the end of November. We also expect to release adolescent immunogenicity results in November 2023 and progress to it and submit actually email regulatory submission in Q4. Also in Q4, we'll report additional 24-month antibody persistence data, and we expect the ASIP recommendation for Q1 in 2024. On VLA15, we expect the trial execution to continue with the recruitment of the cohort 2 in advance of the 2024 tick seasons, as explained by Thomas earlier during this call. Additional news flow, we expect imminently to announce a new DOD contract for ICSIARO, and then potential granting of an FDI priority review voucher as we obtain the BLA 1553 BLA approval. Also, as already mentioned, we expect initiation of our phase one clinical trial of Zika in our in-queue in the first quarter of 2024, and the advancement of selected preclinical programs mentioned just before by Thomas. With this, we really see Valneva poised for substantial growth, primarily led by new product launches. We see in the next six to 12 months, of course, VLA 1553 reaching the market, and then longer-term VLA 15 reaching the market, and for Valneva to actually be able to record significant milestones and revenues. Additional growth drivers, Of course, the continuous recovery of the travel market that will be reflected in substantial growth still in ICSIARO and Ducoral. As mentioned, the DoD contract for ICSIARO and then potential label expansion for VLA 15153 after the initial approval in adults. And then, of course, longer term in licensing or acquisition of additional clinical candidates and then potential market launch, of course, of these in licensed programs. So this concludes this part of the call. I would now like to hand back to Razia to open the Q&A session.

Thank you, sir. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, you can please press star 1 and 1 again. Once again, please press star 1 and 1 for any question and wait for your name to be announced. To withdraw your question, you can please press star 1 and 1 again. Please stand by while we compile the Q&A roster. This will take a few moments. Thank you. We are now going to proceed with our first question. And the questions come from the line of Maureen Raycroft from Jefferies. Please ask your question.

Hi, thanks for taking my questions. I was going to ask one on chikungunya. What are your latest thoughts on what a potential phase four outbreak study might look like in terms of size, geographic areas, or any other details? And I'm also wondering, is the outbreak study something that ACIP could potentially want to see for a recommendation, or how do you view that study in the context of ACIP?

Hi, Maury. You, of course, will understand that given that we are in the middle of agreeing and aligning the Phase 4 activities with the FDA, there's only very little I can say in public around that. What I can say, so it is under the accelerated approval pathway, we need to show effectiveness in a real-life setting, meaning in endemic countries, and ideally during an outbreak situation. And so therefore, you know, you need to get prepared for that and you need to have also different populations included, meaning adolescents as well as adults. Now, historically, ACRP have not been waiting, you know, for waiting final effectiveness data, which sometimes take many, many years to provide their vaccine recommendations. And at this point in time, we do not expect this to happen. So we have a strong database that we're going to present and have presented and will continue to present to ACIP. And that's basically um, a strong, um, package. Um, more I can at this point in time, unfortunately not say, but soon we will of course, uh, be in a position to explain what we're going to do. Um, and, um, and then, you know, I, I hope for your patience until then.

Okay. Yeah. It makes sense. And, uh, I was going to ask one other question about Chikungunya. You've talked about the different revenue streams, including travel sales in the U.S. and EU, military and potential stockpiling contracts, and then endemic. Can you talk about the potential cadence of the launch in terms of these different revenue streams? How are you preparing currently for the launch? And have you thought of when you might give guidance on sales for some of these groups post-launch? That's an excellent question, Maury.

So first of all, I mean, as you know, we have been prioritizing the travel and, let's say, outbreak preparedness in the highly developed countries. So meaning... We started with the US where we see by far the single largest market opportunity in terms of revenue. Then followed by Canada and EMA. So this is the cadence. So you know that the Canadian filing got accepted. We just closed that. Next step is of course EMA. And then we will go immediately into Brazil. And we are currently looking also into the next most important LMIC territory, which of course is Asia. So this is probably the cadence of how we're going to approach it from a regulatory and licensure perspective. With regards to outbreak preparedness stockpiling, I mean, there's not a dedicated regulatory process needed for that in the highly developed countries. Having said that, we have a quite significant number of initiatives ongoing to potentially attract a stockpiling business. You know that this is the part where we felt so far not very comfortable providing any guidance on how big this opportunity might or might not be. But there is a lot going on, and we hope that we will also attract some business in this segment, too.

Got it. Thanks for taking my questions.

We are now going to proceed with our next question. And the questions come from the line of Samir Devani from RX Securities. You can ask your question.

Hi, guys. Thanks for taking my questions. Just a couple really on the numbers. Is this the last of the COVID-19 vaccine orders that we're expecting? And on R&D, can you just maybe explain what would make you come in at the bottom or the top end of your guidance? Thanks very much.

Thanks, Samir, for the questions. So on COVID-19, there is some small residual revenue expected still in the second half of the year, but we're mostly done with COVID-19 in terms of revenues. In terms of R&D, yeah, great question. And I guess your question really targets to its you know, the level of spend we see for the first half year compared to the guidance. Obviously, yes, so we do, we, you know, we're tracking more towards the lower end of the guidance when you look at the first half year, of course. And that is, so where we land ultimately is, I think, to a large extent, of course, driven by, you know, how much do we still spend on the ongoing trials, in particular on chikungunya, but then also, of course, how quickly do we accelerate spend on Zika? So that's really the key drivers on the R&D spend.

And in addition to that, Samir, it's also related to when we actually going to initiate some of the additional studies for chik. You have seen that we have quite a number of studies planned for chikungunya. Of course, we will and can only start some of the studies once we have gotten the approval of the vaccine. So that's why there is a couple of swing factors in there, which may affect the final spend, especially with regards to R&D expenses, which we call the direct R&D expenses, meaning external R&D costs with CROs, et cetera, in the fourth quarter of this year. Great.

Thanks very much.

We are now going to proceed with our next question. And the questions come from the line of Simon Schultz from FISE Berlin. Please ask your question.

Yes, hello. Thanks for taking my questions. I've got two. First of all, I was wondering on the commercial vaccine business, if you could tell us how much direct sales was in Q2. I think the figure for Q1 was 71.6%. And I was also wondering if you could quantify the batch write-off on Xero in Q2. Thanks.

Yeah, thanks. Let's start with the second question on batch write-off whilst we're looking for the number on direct sales. So, you know, you will understand that this is something we are not publishing. I mean, we did have, the reason why we mentioned it is because it was in a higher amount than what we would usually see, which is really related to the fact that we're basically, you know, restarting full steam commercial manufacturing post COVID. But again, we're not disclosing the actual write-off. In terms of the proportion of direct sales, let me just look at this. It was 65% in Q2.

Okay. And would you expect the number to stay around that level? No.

No, clearly not. I think this was an unusual high in both Q1 and Q2. We would expect for the remainder of the year to go more towards ratios like we saw in the past.

Especially military kicking in. Remember that, yeah?

Okay, yeah. Okay, thanks very much.

We are now going to proceed with our next question. And the questions come from the line of Damien Choplin from UdoBHS. Please ask your question. Hello, Damien, can you, your line is open. Please ask your question. The next questions come from the line of Damien Choplin from UdoBHS. Please ask your question.

Yes, hello, can you hear me? No, I can hear. Yeah, yeah, thank you for taking my questions. First on Zika, please. So why do you need to conduct a new phase one? Why don't you directly move into phase two trial? First question. And what would be the market potential for this vaccine?

Yeah, so let me start to explain a little bit what we're going to do. So basically what we In the phase one study, we saw very nice immunogenicity data. We saw very good safety data, but we did not reach immunological plateau. So which means we have not yet with the formulation that we used in the phase one study maximize the potential of the vaccine. So hence, what we're going to do here is we're going to update the formulation of the vaccine. We also gonna bring it onto the platform that we further enhanced for VLA 2001, because we want to have the platform advantage. And by the end of the day, we want to have a highly differentiated vaccine. We want to have an inactivated vaccine that is gonna be best in class. And therefore we decided We could have done a kind of a hybrid phase one, two thing, but we decided that it's better to go for a new phase one protocol, which in reality is a quite enlarged phase one protocol, but technically it's a phase one protocol. With regards to market size, it is very difficult to quantify at this point in time. And this is also the reason for why we clearly articulated in our H1 report that we're gonna have another review time point on Zika at the end of the next clinical study. There is clearly a huge unmet medical need and we see, again, emerging outbreaks around Zika, but for outbreak diseases, it is not trivial to really quantify the market potential. And we need to understand three things. Number one, we need to understand, will we be able to deliver a best-in-class vaccine? And you remember that our inactivated approach here follows really WHO guidance, who clearly ruled out certain other technologies for a vaccine that will target vaccination of women in childbearing age and or pregnant women in an outbreak situation. And the second part is really we need to understand what is the potential under a normal, you know, kind of travel view. And certainly, you know, is there a possibility to enter into respective partnerships, which could help improving the overall financials around it, as we did for Chikungunya with our partnership with CEPI. All that will be further evaluated as we go along. For the time being, as I said, we see a huge unmet medical need. We see the opportunity that Valneva could provide a best-in-class vaccine solution and as a vaccine solution that complies fully with the expectations of the medical and scientific community. More we have to see when we need to decide, you know, whether on the basis of data, whether we will proceed then or not.

Maybe just a quick one on your guidance. Can you just confirm that it still includes the sale of the potential PRV in 2023? despite the fact that the approval of the CHIC vaccine has been delayed?

Yes, Damien, thanks for the question. Yes, indeed, it still includes the other income we expect, the expected proceeds from the PRV, despite the fact that the PDUFA date is now a bit later.

We are now going to proceed with our next question. And the questions come from the line of Evan Wang from Guggenheim Securities. Please ask your question.

Hi, guys. Thanks for taking the question. Two from me. First, on Lyme, just with the ongoing trial, I know it's in the hands of Pfizer, but, you know, interested to hear, you know, what the companies are seeing in terms of, you know, incidence rate of cases and, you know, Lyme serotypes, both in Europe and U.S. Is it kind of consistent with what you guys are expecting? And second, on chikungunya, you know, have you seen some of the durability data showed or the earlier time point data showed? Just wondering if there's thoughts on including maybe a subset of patients in either the phase four or other studies to maybe evaluate an earlier time point titer in a larger patient population. Thanks.

Yeah, both excellent questions. Let me start with the second one first. because it's one of the questions that for reasons that you perfectly understand, we are getting all the time onset of immunity. I mean, as I said, we were the first ones to develop the vaccine. We agreed at the time with the authorities on the readout at day 29. Of course, we have a bunch of data sets as we presented today that clearly indicate that the vaccine has a full onset above the zero response level very early on. We will, and I mentioned this during my presentation, include those earlier time points as part of studies that we are initiating, be it under phase three or under phase four protocol for sure. And there is absolutely no reason for us not to do this. And there's absolutely no reason to believe that we should not have a fantastic onset of immunity above zero response level early on. So on Lyme itself, Pfizer conducted an AP study in Europe and the US before the phase three study got even initiated. There have been partial disclosures around the results from this AP study at different congresses. Overall, this EPI study confirmed the distribution of the different serotypes on both sides of the Atlantic that we presented at different locations and that can be found in literature within reason, I would say, and within variabilities. But overall, no surprises on that front. with regards to the overall case count that is, of course, being monitored at this point in time. There's nothing we can say, but also the EPI studies confirmed the overall incidence rates that have been used to also power the study. So, so far, so good. I would say everything is working as expected. And Pfizer has no issues in attracting and recruiting the respective target population into the study.

Thanks, guys.

As a reminder, once again, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, you can please press star 1 and 1 again. Once again, please press star 1 and 1 for any questions or comments. Thank you. We are now going to proceed with our next question. And the questions come from the line of Susan Van Voltuusen from VLK. Please go ahead with your question.

Hi there. Good afternoon, team. A couple of questions from my side to start off with the product sales that are growing quite nicely again. Can you remind us what the seasonality is that we should keep in mind for Ixiaro and Ducaral, which quarters are typically stronger given the travel patterns and what to expect for Chikungunya over time? And then I have a follow-up.

Excellent question. So I would say basically if you look at prior years, You typically see a dip during the summertime. You see higher uptake earlier in the year and later in the year. This has to do with the travel pattern to Southeast Asia. You see a seasonality pattern also for Ducoral, given that the single largest market for Ducoral is Canada, and you see typically a strong, strong demand early on in the year. So at the end of the year, early on in the year, Canadians like to travel to warmer regions when it's cold in Canada. So basically, this is something that we have seen in prior years. It is extremely difficult to model it precisely because we have seen, I would say, variabilities across the years. But overall, there is a model that we have in place that kind of mimics the seasonality and which, of course, we also use when we prepare our year-end projections and latest estimates. But as I said, that's the reason for why we have said we stick entirely to guidance. With regards to chikungunya and your question about seasonality, chikungunya, that's an excellent one, too. I would say we have slightly different, I would say, territories for chikungunya as compared to Japanese encephalitis. Some are the same, some are very different. And so there are, our current hypothesis is that they probably kind of balance each other out. So we are currently not necessarily modeling yet a strong seasonality profile around chikungunya. But of course, when you are pioneering in a brand new indication with brand new vaccine, you learn along the way. But that's our current hypothesis.

Got it. Okay. That's very helpful. And then maybe continuing on the tick vaccine, you started to invest a little bit in preparation for the launch. Can you remind us what gross margin you believe is feasible on this product and how we should look at your sales and marketing expenses for the launch and the long-term run rate?

Yes. Maybe let me start first of all with a more qualitative statement while Peter is thinking about the quantitative part. So I would say basically we are not only investing a little bit, we are investing a lot. I mean, you can see this on our sales and marketing expense line and you will continue seeing this on our sales and marketing expense line. So we are investing in um launch and more importantly market access there is a lot of work that needs to be done to educate the world around chikungunya and making sure that people understand the medical need people understand the disease so disease awareness and all of that there's a lot that we are doing right now in parallel we are also ramping up our commercial infrastructure primarily in the US, but not limited to the US. So these are significant investments that go into this vaccine. And of course, the whole topic around margin is a difficult one. And as I said, I let Peter develop this further because we have a brand new chain of custody for Chicken Gunja. You know that Chicken Gunja is a live attenuated and hence lyophilized vaccine. So which means that we are doing part of the manufacturing in-house, part of the manufacturing with third party and there are significant economy of scale effects. Peter, please.

Yeah, thanks Thomas. So in terms of the launch cost and overall sales and marketing expense, how we think about Chikungunya. So, as you rightly said, Thomas also said, we significantly invest in the pre-launch activities. I think you will continue to see high sales and marketing investment into Chikungunya as we start commercializing the product next year. And then over time, the way we think in our long-range plan, I think we expect our overall sales and marketing spend in percentage of sales to go back into the regions where it was pre-COVID, but we're probably talking here range 26, 27. Before that, there will be some over-investments, of course, because of the market education, et cetera. In terms of cross-margin, similarly here, I think in the first years and as sales ramp up, we expect some higher costs of goods than what you would have seen in the legacy business before COVID. And then, you know, once we get to scale, and as Thomas said, there's a significant economies of scale as we ramp up the volumes, I think we expect to see at least similar cross-marches that what we would have seen with XCR and Ducoral. And I think over time, I think we would even see higher cross-marches. Yes.

Got it. All right. Thank you. And then maybe just a last one from my side about the LIME program. Now that the dust has settled on the timelines and you're giving your current cash position and the recent additional 100 million loan facilities, Can you elaborate on how we should think about your cash burn and run rate from here? And that's it from my side.

Yeah, thanks, Suzanne. So we will still have significant payments to make on the line program. And I mean, you can see to some extent, of course, on the liability side of our balance sheet, what is expected there. I think overall, after the 2022 equity offering we said we were sufficiently financed at least until the end of the fiscal year 2024 that of course still holds true but we have not provided at this stage an updated guidance on cash burn rate something to consider in the future but right now we have not given the further guidance but we're you know for the foreseeable future of course we're sufficiently financed and then as we said we still have appetite to potentially in license R&D programs. And if we were to do that, that might then require additional and dedicated financing, which could also be non-valuative, of course.

Got it.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Max Harmon from Stifel. Please ask your question.

Great. Thanks very much for taking my questions, three if I may. Firstly, just on XCRO and Ducrol, I know last year you had some capacity constraints. You've obviously highlighted a batch failure in the XCRO in the first half of this year, and I wondered where you are with capacity compared with demand for both those products. So that's the first question.

Okay, so Max, overall we are right now managing supply-demand quite well. We have here and there still some minor shortages, but overall on an 80-20 basis we are fine. um the um the effects that we were talking about about higher write-offs leading to higher higher cost of goods at uh where typical i would i would say restart issues after the team had not done xero manufacturing for more than 22 years um so but we are back on you know track uh with regards to the manufacturing performance here too uh so we are not expecting any further significant issues with supply demand from a supply perspective, unless, of course, we see further positive surprises on the demand side. We are seeing in some countries an enormous uptake and increase of travel vaccines in general. So we have to see how this is all going to play out going forward, but Thus far, everything's fine.

Great. And the next couple of questions, one just, sorry if I've missed it, the DOD contract, you've talked about that being imminently signed. I just wondered what the sort of structure of that is. Obviously, you did a more multi-year kind of contract in the past, recent past, and then previously it was more an annual event. So that was kind of, that question and then finally just in terms of I know you've just said that recruitment into the Lyme disease program is no issues. I wondered if you could be more specific a bit on the pediatric element of that recruitment whether you know this is in some ways the fact that you're doing over two seasons now has maybe been helpful because I know that was one of the areas that was hardest to recruit into. Thank you.

Yeah, well, I mean, on the contract itself, I mean, you rightly pointed out, historically, we have done single-year contracts. And that has been the standard with DOD. We had one exception, which was the 2020 base year plus option year contract. It wasn't an exception. It never materialized in reality because it unfortunately coincided with the global pandemic, as you know. And this gives you the answer what we are expecting. So on the recruitment front itself, we continue with a certain percentage of pediatrics within the study, which is absolutely in line with how we have designed the protocol and how we have set also the respective analysis and powering. So there are no issues in the recruitment of any of the target populations that we need within the study at this point in time.

Great. Thank you very much.

We have no further questions at this time. I'll hand back to you for closing remarks. Thank you.

Yeah, I think that concludes today's call on our half year 2023 results and general corporate and business updates. We would like to thank you again for your time today, for your good questions and for following us so closely and diligently and would look forward to catching up in the coming months. Thank you so much and have a great day.