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Edited Transcript of VLA.PA earnings conference call or presentation 31-Oct-19 1:00pm GMT

Nine Months 2019 Valneva SE Earnings Call

Lyon Nov 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Valneva SE earnings conference call or presentation Thursday, October 31, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Lawrence

Valneva SE - CFO & Member of Management Board

* Franck Grimaud

Valneva SE - President, Chief Business Officer & Member of Management Board

* Thomas Lingelbach

Valneva SE - Chairman of the Management Board, President & CEO

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Conference Call Participants

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* Max Stephen Herrmann

Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD

* Samir Devani

Rx Securities Limited, Research Division - Research Analyst

* Simon Scholes

First Berlin Equity Research GmbH - Senior Analyst of Technology, Biotech, Medtech, and Resource

* Suzanne van Voorthuizen

Kempen & Co. N.V., Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Valneva 9-Month 2019 Financial Results Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 31st of October 2019.

I would now like to hand the conference over to your speaker today, Thomas Lingelbach. Please go ahead, sir.

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [2]

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Thank you so much. Good day to everyone. It's a pleasure for us to present today our 9-month 2019 financial results and to give you some updates on our strong R&D execution and general business.

With that, let me draw your attention to Page #4 of the presentation. So first of all, of course, the biggest news of the day is that we have raised our 2019 full year product sales guidance following a strong 9-month result and, more importantly, even we have to report nice and significant R&D milestones and progression.

On our lead program in R&D, our Lyme vaccine, which is the only clinical-stage Lyme vaccine program in the world right now, we have been able to complete patient recruitment for the 2 Phase II studies on time and according to our plan. And hence, the product candidate remains fully on track towards first Phase II data mid-2020, as always, guided and announced. We received a very nice validation of our chikungunya vaccine candidate, VLA1553, through the award from CEPI, which is an award worth up to USD 23.4 million. And we're going to talk more about it.

I mentioned already the product sales guidance. Here, we have been able to increase our guidance, which is now confirmed at EUR 125 million to EUR 130 million. And David is going to develop the details around that. The overall revenues stay at the same level, but they are impacted by revenue recognition effects. And again, David will develop this further. So that's the picture look like for EBITDA as well. And hence, the EBITDA guidance stays in the range of our original guidance. Also, the underlying business performance is, of course, potentially better. And again, this will be developed by David further.

We -- this is also shown on the bottom of the slide, namely the product sales year-to-date at 22% growth at actual exchange rate and gross margin improvement to 65.2%, which underlines the strong performance not only from our commercial team but also from our manufacturing teams across the 2 manufacturing sites at Valneva. And again, EBITDA of $3 million by the end of the quarter, which would compare to a like-for-like adjusted, excluding revenue recognition effect of EUR 13.7 million. And this underpins what I said earlier, namely the underlying very strong business performance. Those financial results basically land into a cash position of 64 -- EUR 67.4 million at the end of the quarter.

With those highlights, I would like to continue with the R&D progression. So first of all, let me recap a little bit on our Lyme vaccine candidate, which is, as I said, during my introductory speech, the only vaccine candidate in clinical development today. It is a multivalent vaccine to protect children and adults on both sides of the Atlantic, so covering the most prevalent serotypes of Lyme borreliosis. The mode of action, it targets the OspA of Lyme Borrelia, preventing the spirochetes from migrating through the tick's midgut, which, as we've presented many times, an established and proven mode of action for a Lyme disease vaccine. Thus far, we have seen that the vaccine candidate is safe and immunogenic with an excellent boosterability. And as mentioned earlier, we are currently in Phase II with a clear development path for the U.S. and EU licensure. We received FDA Fast Track Designation and in very -- are in very close dialogue with the authorities. And of course, we have the industrialization side of things under control in order to address this very, very significant unmet medical need.

So where are we in the terms of execution? I'm very pleased and proud of our team that has been able to execute this Lyme program, thus far, exactly according to plan and according to the plan that we developed more than 3 years ago. So the patient recruitment for both Phase II studies was completed in September 2019. And you have seen in our announcement that we have now kicked off the process to identify a partner for the late-stage development as well as the future commercialization of this desperately needed vaccine. And we have engaged a bank to help us in this process that we expect to gain pace now over the coming months.

As I mentioned earlier, the Phase II first data point, which marks the primary endpoint data, namely the immunogenicity and safety data, 1 month post-completion of the primary immunization is expected mid-2020. And on the back of this data, which will be followed by data giving us some idea about the longer schedule, which is the second Phase II trial, but also some follow-up time points, will then lead us towards an end-of-Phase II meeting early 2021. And that means that a Phase III could be initiated towards the end of 2021 in order to assess efficacy in the 2022 tick season.

We are currently anticipating that we will conduct 2 placebo-controlled Phase III efficacy studies, each roughly with around 8,000 volunteers. And of course, the final numbers will depend on estimates around Lyme incidence rates but also other parameters, which we still have to discuss with the regulators as we are getting closer to a potential Phase III pivotal field efficacy trial.

The second R&D program that we have in the clinics -- actively in the clinics, I should say, is our chikungunya vaccine candidate. You remember that difference to Lyme, we are not alone in the field of chikungunya. However, we are in possession of a very unique and highly differentiated single-shot vaccine candidate to treat and basically prevent, to be precise, a disease for which currently no preventative vaccine or effective antiviral treatment exists. We are building this vaccine candidate on a monovalent, single-dose, live-attenuated structure targeting chikungunya virus neutralization.

In the Phase I, we have seen excellent immunogenicity and safety data, and we got the first insight on efficacy. We aim to accelerate directly into pivotal trials next -- pivotal trial next year. This is all subject to respective clearance with the regulators. And as you know, the program is also under FDA Fast Track Designation, and the indication, chikungunya, is PRV-eligible. We have already established the full commercial manufacturing at one of our manufacturing sites, namely Scotland. And we expect that chikungunya will be a plug-in with a huge synergy both on the industrial side because we leverage existing infrastructure but also on the commercial side because it will very, very nicely complement our existing travel vaccine portfolio within the existing commercial infrastructure. And I mentioned already that we got a nice validation through the CEPI award to address this very significant market opportunity.

So where are we in detail? The further Phase I results for the single-shot chikungunya vaccine candidate were reported: day 28 safety and immunogenicity after single dose, excellent; viremia data at days 3, 7 and 14 post-vaccination; month 6 safety and immunogenicity data providing information on the antibody persistence; and we saw the month 7 revaccination safety and immunogenicity and viremia data as a very nice early indicator of efficacy.

As reported at our R&D Day, we are currently conducting a few supplementary nonclinical experiments to support our planned end-of-Phase II meeting with the FDA in the first quarter of 2020. This includes things like a mosquito transmission study, which has been completed. A nonhuman primate study addressing biodistribution, also this one has been completed. And we're currently working and we are almost complete here on passive transfer in order to establish a correlate of protection using the 2 human sera from our Phase I. All that aim to go for the so-called accelerated pathway into Phase III in the United States, of course, and just to say it again, subject to FDA approval.

And as mentioned earlier at different occasions, these are our 2 lead R&D assets. We invest more than 80% of our total R&D budgets into those 2 very, very promising, highly differentiated vaccine candidates, which present significant upside -- potential upside to our shareholders.

And with that, I would like to hand over to David to give us the financial report.

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David Lawrence, Valneva SE - CFO & Member of Management Board [3]

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Thank you, Thomas. If I can move on to Slide 11, please. Good morning or afternoon to all of you, all of the listeners. Thank you for taking the time to join our call.

Now just before I talk to the results themselves, I'd just like to say that I've been with the company for over 2 years now. And I'm really pleased that we invariably meet or beat our financial targets. Now this year, 2019, is a transitional year for Valneva as we start to see the value of our key R&D assets inflect along the lines of what Thomas mentioned. And of course, 2020 could be a very significant year for the company if CHIK moves into Phase III and as we get -- start to get the Lyme Phase II data. And while we continue to execute on our core business and to report on that, it's important that we put appropriate emphasis on Lyme and chikungunya and put them center stage of our story in the future. So today, we've got to those programs first. I mean we're building in that example as we go forward. And that includes presenting very clearly on the business cases for those vaccines, including the market opportunities and the synergies with our existing businesses across manufacturing and commercial that Thomas spoke about.

So to the financial results on Slide 11. And as ever, we focus very much in the cumulative numbers for the year, which helps overcome the seasonality aspects of our business, including both ordering patterns of our largest customer, the U.S. Military, and of course, the seasonality of DUKORAL.

Those of you who listened in to the 9-month call last year might recollect that we reported a relatively soft quarter 3 but nevertheless confirming our full year revenue guidance. And that was given that we had U.S. Military orders in hand during October, i.e., in Q4 and not in Q3. And so by the time we did our 9-month earnings call last year, we were able to be very clear.

As you all know, DUKORAL tends to be very seasonal as our biggest market is Canada. The Canada travel market and the number of travelers tend to be highest in Q4. So with that reminder of the context, let's go into operational performance.

Product sales revenue for the first 9 months of 2019 were EUR 86.4 million. And that represents an 18% growth on a constant exchange rate basis, indeed a bit higher on an actual exchange rate basis. So this represents a great -- I mean, with a strong underlying commercial performance. The other KPIs on the right-hand side of the slide are also very positive. We again managed over 85% of our product sales through our own commercial infrastructure, which, of course, helps contribute to a very healthy gross margin of just over 65%. So we are very pleased with these numbers.

So Slide 12, please, next slide. So just walking through the revenue and the top line. So going into these numbers a bit more detail, and let's look at each product and with the 2018 9-month results as our comparison. So just over EUR 64 million, IXIARO is up 24% on a constant exchange rate basis year-on-year. And this means that IXIARO now makes up over 70% of our product sales and continues to grow much faster than DUKORAL. It's the higher-margin product of the 2 products. So of course, that also contributes to margin growth. And as per our plan and what we stated in previous earnings calls, the growth was primarily driven by the U.S. both in the private and military business in that market. As we've also said, due to pricing, this also feeds through into margin. So our U.S. private commercial infrastructure is delivering in line with the plan that we created 2 years or so ago and when we implemented our commercial infrastructure. And we foresee further growth in that market in particular.

DUKORAL is up 5% year-on-year, which is at the high end of the guidance range for the full year of 0% to 5%. And some of you may also recollect that we had some supply constraints in 2018 that we were working through. And this year, we've been better able to supply the market. However, we don't foresee much further growth because this is a mature product and penetration is already pretty high. And we also note that there is a competing product expected to be launched in Europe during 2020. Although we note that the product is -- that product is indicated for cholera only, whereas DUKORAL is also indicated for LT-ETEC in our key market, which is Canada.

Third-party products, a small part of this picture but nonetheless for completeness, where here, we see the impact that we previously reported of the competitor typhoid product coming back onto the market. This revenue line will likely become less and less important as we move forward. And clearly, the ongoing growth of IXIARO is uppermost in our minds.

So next slide, please. So this slide, we developed for the half year results. And we want to go through it once again because we appreciate that this is not entirely easy for everyone to understand. So we will include it once more for our full year results then drop it for 2020. So by way of reminder, we bought back full control of our R&D assets from GSK earlier this year. And that put us in a position where we fully control our destiny as regards what -- which vaccines we choose to develop and how best to commercialize those vaccines, whether that's via a partnership or via our own commercial infrastructure.

We made a onetime payment of EUR 9 million to GSK, which you can see on this slide. And we agreed to pay up to a further EUR 7 million depending on market approval of our Lyme vaccine. So under IFRS 15, we take negative revenue of EUR 15 million, but then we have an offset of just over EUR 4 million, which was erased from our balance sheet, which nets the negative revenue impact of just under EUR 11 million. So nothing has changed here since our last earnings call except that the conditional payment impact is much clearer. And the remaining EUR 1 million, which is the difference between the EUR 6 million you can see on this slide and the EUR 7 million as agreed with GSK, that will be released and reported over the next 4 to 5 years until we get the licensure as interest expense. So hopefully, that's clear, but feel free to call me later today or over the coming days if you want to have more detail.

So on Slide 15, I beg your...

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [4]

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14.

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David Lawrence, Valneva SE - CFO & Member of Management Board [5]

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Slide 14, I beg your pardon. You can see here that the evolution of our underlying business continues to progress and evolve positively. So when you look at this slide -- and again, it's trying to make clear what the underlying performance is with the impact of the GSK SAA termination. Cash stood at EUR 67.4 million at the end of September, which is around EUR 34 million higher than this time last year. Now the delta is very much explained by the PIPE that we completed in early October 2018, which had gross proceeds of EUR 50 million, then ongoing cash generation from the operating business and the repayment of the Pharmakon debt facility in -- earlier this year in January. And then finally, we had 2 movements in Q3, which were almost offsetting, those being the EUR 9 million payment to GSK and the EUR 10 million EIB drawdown. So we're in a very healthy cash position. And as you can see, those metrics all are very healthy for the underlying business.

So on the next slide, Slide 15. What I'd like to do here is to pick out the line items that I've not mentioned already. So non-product sales revenue, just looking at the position, net of the GSK impact, we reported EUR 5.7 million of revenues. And while that's down year-on-year, it's become a much less important part of our business. And in fact, the management team has commenced a review of this business segment so that we consider the best options for the future. We will present a breakdown of this line item at our full year results and also to give 2020 guidance because both the HOOKIPA clinical trial manufacturing deal income and the CEPI grant income will be reported within this line going forward. And that means that the 2020 outlook, at an aggregate level, will be much higher than 2019. But we'll give you clarity and detail on that when we do the full year results and give the 2020 guidance.

Cost of goods. I mean we have -- I have mentioned already gross margin. But the key point here is that the growth of the cost of goods is lower than the growth of product sales. And therefore, gross margin improved year-on-year.

R&D expenses have grown as expected and as our preclinical-stage assets progress. And based on what Thomas said earlier, you will appreciate that, that model will continue to evolve. And while we spent over 80% of our R&D budget this year on Lyme and CHIK, that percentage will also continue to grow as the products progress. So we expect to see a significant step-up in R&D investment in Q4 because as you'll see later, we're confirming our guidance for R&D cost of EUR 35 million to EUR 40 million of R&D investment for the year. And that means that the Q4 R&D cost is going to come in somewhere between EUR 12 million and EUR 16 million.

So our full year investment, I think, for last year was -- sorry, our 9-month investment was EUR 23.2 million, which is EUR 5 million higher than the EUR 18 million last year. So all the signals we're giving and that Thomas is referring to are that we are investing as heavily as we can in these very valuable assets that we have.

So marketing and distribution expenses have grown by 14% year-on-year as we continue to build our U.S. commercial infrastructure and to get our new French commercial operations set up. That growth of 14% is less than the 18% growth in product sales. And we'll come back to net operating margin for this business segment in a second.

G&A costs at EUR 13 million, very similar to EUR 12.6 million for the same period last year. And this means we would have had an operating profit for the -- from the 9 months of several million, excluding this year -- sorry, for the 9 months, excluding GSK impact of EUR 7.5 million. And we believe that that's an excellent underlying performance. EBITDA excluding GSK would have been EUR 13.7 million and indeed was still positive at EUR 3 million taking into account the GSK impact.

So slide -- next slide, please, just on gross margin to underline the position there. A year ago, for the 9 months, we were just under 60%. And our guidance, as you'll see again in a second, was that EBITDA would be above 60% for this year. And we're clearly tracking very nicely for that, having improved to 65.2% for the 9 months of 2019 to date.

So the next slide, which is Slide 17. Again, this is a KPI that we introduced earlier this year for 2019. We guided 25% to 35% for this KPI that we call net operating margin. And what we do here is give this as a target for use in our commercial business so that they can balance and manage their investments and their targeted returns. So in the 9 months in 2018, we were just under 20%. And we're very pleased to report that we're well within our target range for the 9 months of the year and the year-to-date at 32.4%. I think we need to congratulate our commercial team for this excellent performance. They've delivered in terms of net operating margin contribution EUR 28 million compared to EUR 14 million for the same period last year. So that's 100% growth in net operating margin.

So if I move on, if I may, to Slide '19 just to go through the guidance specifically. So first of all, as Thomas mentioned right upfront, we are very pleased to be able to update and increase our product sales guidance to EUR 125 million to EUR 130 million driven by the strong operating performance of the business. So we are confirming our total revenue is EUR 125 million to EUR 135 million. And clearly, we would have moved this up had it not been for the impact of the GSK settlement. We are confirming the R&D investment level at EUR 35 million to EUR 40 million.

And in gross margin, we've delivered this target so far. So we're -- as I said, we're at -- we're right around 65%. And so clearly, we're going to maintain our guidance of over 60% for gross margin. And then net operating margin, as I just showed you, we're delivering at just over 32%. So we're very happy to restate our guidance of 25% to 35% there.

And EBITDA. And again, just to reiterate, this -- had it not been for the GSK settlement, we would have moved this up by about EUR 10 million. So we are going to restate this at EUR 5 million to EUR 10 million, which shows that we're funding the negative impact of the GSK settlement from our strong underlying business performance.

That summarizes the financial results. And I'll just take a moment to cut through the news flow, and then we will stop for Q&A. And most of this news flow, just to go back to what I said and what Thomas was talking earlier, this relates to our R&D assets and the evolution of the biotech side of our business.

So first of all, very important to note that we have forthcoming VRBPAC meeting in the U.S., which relates to chikungunya. That's on November 8. So that's an important step as we move forward with chikungunya. That should inform the Phase III outlook for all chikungunya vaccines in fact. Thomas mentioned Lyme partnering, so we will obviously be working hard on that process. Phase II execution is on track for that, the data mid-2020, and we've consistently said first data mid-2020. So you can take from that, that we're continuing to execute exactly as we've promised and that the R&D team are working hard and doing everything they can to make sure we hold -- continue to hold that time line.

And the chikungunya, yes, we -- what we're hoping for is to get towards an end-of-Phase II meeting as early as we can with the agency in Q1 in order to get into that accelerated approval development strategy so that we can potentially start that Phase III for chikungunya in quarter 2 next year.

And then finally, not to forget the core business and indeed our biggest customer, we would expect -- we're expecting a new contract with the U.S. Department of Defense in the first half of 2020. So some pretty meaningful news flow in addition to the ongoing business performance that I hope we've presented nicely to you today.

And with that, I'd like to stop and hand back to the controller to take the Q&A. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from the line of Samir Devani.

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Samir Devani, Rx Securities Limited, Research Division - Research Analyst [2]

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I've just got a couple on IXIARO. In the statement, you talked about having to deliver -- or you're going to deliver 375,000 doses from the contract this year. Now I appreciate that's at the upper end of the range that you've previously given. So I just wanted to check whether that's the full order or whether there's still more on top of that, that will come in early next year.

And then the second question is just on private IXIARO sales. And perhaps you could just give us the like-for-like sales growth that we're seeing in the first 9 months on that.

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David Lawrence, Valneva SE - CFO & Member of Management Board [3]

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So let me take the first question for me, and then maybe I could ask Franck to comment on the U.S. private performance. So yes, so it's a good question because as I think we've said and hopefully folks remember, the contract that we have with the U.S. DoD spans 2 financial years and 2 calendar years, for that matter, from basically February 2019 into April 2020. So just to be absolutely clear, the 375,000 is not the whole contract, and we do expect orders in the first part of next year before the new contract. So that would be in addition to the 375,000 doses.

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Franck Grimaud, Valneva SE - President, Chief Business Officer & Member of Management Board [4]

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Regarding the private segment, so what we can say is that the U.S. private segment have grown by 25% year-over-year. And we expect, in the year to come, still significant growth in U.S., and other private market in Canada and in Europe are growing at a strong 2-digit percent overall.

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Operator [5]

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Next question comes from the line of Max Herrmann.

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Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [6]

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Three if I may. Firstly, just on the VLA15, the decision to appoint a bank or adviser to help with partnering of that program. Slightly surprised by that given the narrow field in terms of the players there and why there was a need for an adviser.

Secondly, just on DUKORAL. Obviously, you had a weak comparator. I understand it's not the significant product, and obviously, there are changes in the market in future years. But I just was a little surprised, I guess, on the growth given the weak comparator in the prior period.

And then finally, maybe just a little bit more of an outlook on longer term for IXIARO in terms of how big a product could this be. Clearly, you got the U.S. Military. Are there other military opportunity -- contract opportunities there? How big a product could this be when it reaches maturity?

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [7]

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Okay. Good. So let us -- let me first answer the piece that you were referring to around advisers. This is the single largest R&D asset line. It's the single largest R&D asset we have in the company. There are multiple potential structures for a potential partnering, be it a co-development structure, be it milestone royalty structures, be it partial or full commercialization. And we wanted to make sure to run a process that is as professional as possible that allows really a good head-to-head comparison and to define the best possible option. And we believe that we do not have the enough capacity to run those processes alone. So -- and hence, we are very pleased that we have found someone who is going to support us on that.

And so then a little bit about IXIARO and the point we were making about the long-term horizon of IXIARO. We are -- we have just celebrated this year 10 years of IXIARO. This is a traveler's vaccine, which has now in many, many countries reached a nice penetration. And hence, we will see, in markets with high penetration, after 10 years a flattening out of the growth, which is identical to any travel vaccine in the marketplace today. But there are still other countries where we are far away from a high penetration. And Franck just mentioned the U.S. private. And of course, we will not see going forward year-on-year 20%-plus growth as we have seen in this year. But we will, of course, basically see further growth for this vaccine. I would probably say maybe high single digit, maybe double digit, but it is -- it's going to be planned, and it's going to be very focused on some key markets.

The advantage of travel vaccines, as you know, Max, is that the -- it's a safe bet at a certain point in time. So even very mature travel vaccines, and let's take hepatitis A as an example, are still vaccines that continue to moderately grow even 20, 30 years after their introduction. So you don't have peak sales profiles. You have very established usage based on recommendations. And that's a good thing.

On military, we are selling through our different distributors to smaller militaries in the world already. This is part of -- we don't include it specifically in our base numbers because of course, this is going through the countries, and it's a minor portion. When it comes to the U.S. Military, I mean the U.S. Military took major steps to increase their vaccination requirements, which is also why we have seen this huge increase in not only supply but also consumption at the U.S. Military. And it is a mandatory vaccine for everyone forward deployed. And we see this, of course, at a very high level going forward. Will it be at the same level that we have seen this year? I don't think so. We don't think so. Because this has been the combination of 2 things, namely, increasing -- substantially increasing consumption; and then the second -- and on the second side, building also a safety stock that the U.S. Military never had historically.

So it's hard to predict really at which level the U.S. Military will stay. As I said, we should -- you should assume lower than 375,000 doses we have this year supplied but still substantial and higher than what we have seen, for example, in the year 2018, yes? So this is just to give you a little bit of the point. I'm not sure if I'm 100% understood to your point around DUKORAL. But just before we -- but just in general, okay? So go ahead.

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David Lawrence, Valneva SE - CFO & Member of Management Board [8]

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So if I could take off that point just for a sec. So Max, sorry if I am -- if I kind of didn't make it clear. The Q3 was softer for IXIARO in 2018, not for DUKORAL. So IXIARO, we had a couple of orders that were literally in the first week of October last year in 2018, which meant that when we did the 9-month results, we reported what looked like a soft quarter for IXIARO. But we maintained the guidance, and I reported that we had those orders in hand.

I think with DUKORAL, yes, the first part of the year in 2018 was a little bit weaker because of supply. But we've -- we guided 0% to 5%, and we've done the 5% at the end of Q3. And if you think about what last -- what the full year for last year was, at EUR 30 million or thereabouts, if we're going to do 0% to 5% on that, then clearly, Q4 will be pretty big. It will be 10 plus. So sorry if I wasn't as clear on that as I could have been earlier.

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Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [9]

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No, but I think there was still -- I guess maybe it's just the product's growth trajectory has slowed significantly. But I think in the third quarter, you had EUR 4.5 million. It was then down on the third -- in the third quarter last year. I don't know, it's hard because you also have volatility in the quarters. But again, it was up a little bit in the third quarter this year but very similar to where it was 2 years ago.

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David Lawrence, Valneva SE - CFO & Member of Management Board [10]

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Yes. So I think your key point is on growth trajectory. And we've been setting the expectation that, that growth trajectory actually has slowed down significantly compared to where we used to be. And that's down to the level of penetration in key markets that we've achieved. So we -- our commercial team and indeed our business would be delighted if we beat the 5%, the top end of the growth range for the product for the year. And we appreciate where the product's at. It's been very valuable for us, and it continues to be very valuable for us. But we're really driving the growth out of IXIARO at this stage.

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [11]

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Yes. And we should not forget one thing, Max. And this is that we acquired -- DUKORAL is a vaccine in the marketplace for 20-plus years, okay? The product was already at the sales levels that we see today many, many years ago because it has reached basically the penetration according to its recommendations in the different countries. We took the product over at a level of roughly EUR 20-plus/minus million in terms of sales. And we have been able to bring it back to a solid and good penetration. But this is a penetrated market. And so essentially, you will see some level of growth. You will see some level of growth from both volume and price. But literally, this is not -- this cannot be a double-digit growth market based on its current recommendations and the fact that it's penetrated across the marketplace. And this is the point that we have reached.

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Operator [12]

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Next question comes from the line of Suzanne van Voorthuizen.

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Suzanne van Voorthuizen, Kempen & Co. N.V., Research Division - Analyst [13]

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I have 2 questions. Maybe first, regarding the numbers, can you help us understand -- you upped your product sales guidance for the full year, but although the top line should end up higher, you're not changing the guidance on total revenues and operating expense and EBITDA. So I'm just wondering how we should reconcile this and where are the extra sales revenues going.

And my second question is regarding Lyme with the process of partnering. It's becoming a big focus now. You already mentioned potential deal structures and trying to optimize that. But can you indicate what are the key things you look for in a partner?

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [14]

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Yes. So maybe I give a try on paraphrasing what my CFO said earlier, and let me try to explain. So basically, the -- we have normally around EUR 10 million other revenues outside of product sales. And those have been, call it, entirely eaten up by revenue recognition effect. So this means we are recognizing less. So this is why the product sales line is almost equally now the total revenue line, yes? So that's point number one.

And I think David explained this in the slide deck very nicely, how this revenue recognition effect goes through. The revenue recognition effect has also an impact on the bottom line. And this impact is roughly, again, the EUR 10 million that you see. So this is why David mentioned earlier that excluding this revenue recognition effect, which is purely driven by IFRS rules, we would have seen an EBITDA of 13 -- roughly EUR 13 million instead of EUR 3 million at the end of the quarter. And this is why despite of -- this is why the EBITDA guidance in terms of full year, again, according to IFRS, is by chance in the same range than the initial guidance. And it can only be there because the underlying business performance is great. And that's maybe my way to put it in a non-CFO language, beg your pardon. And I think that's -- and that's basically the point here.

The second one that you are referring to, Suzanne, on the partnering. Yes, of course, I mean we have said when we announced the termination of the agreement that we had with GSK that this gives us the possibility to decide how to partner, when to partner, with whom to partner. And for us, this is a partnering to cover Phase III and beyond. We have clearly articulated in the past that the ideal -- call it, ideal partnering could be something like, for example, the co-development for Phase III and then a commercialization by a strong partner and return to, for example, a profit share mechanism towards the end. But again, we -- one of the reasons why we set up the process -- we have set it up is because we would like to have a range of options, we would like to see what is best in support of Valneva's strategy and what is best in terms of our long-term vision for the company. And clearly, I mean we have time to do that. And we will do it very thoroughly, and we will do it very diligently.

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Suzanne van Voorthuizen, Kempen & Co. N.V., Research Division - Analyst [15]

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All right, got it. And then maybe one follow-up question regarding chikungunya. With the Phase I data now in hand, what are the next plans?

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [16]

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So the -- on chikungunya, so first of all, you may recall that our Phase I data could be characterized as very, very appealing and convincing. We have ticked -- we have a single dose vaccine, so there is no need for dose finding anymore. And we have said no need for schedule finding. We have a clear dose ranging in terms of safety profile. So we have -- or on the back of that, we could pick the optimal dose. So we have found the optimal dose. We have found the optimal schedule. By definition, it's a one-dose schedule. We have even seen some intrinsic hints on efficacy through our indirect human challenge, so which means with this data, we will try to go the so-called accelerated regulatory pathway. This means going straight into pivotal or, in other words, go straight into the Phase III trial.

So now David mentioned the VRBPAC meeting. This is public. It's in the public domain. The VRBPAC will decide on the route of determining the effectiveness of the vaccine in the pivotal setting. And the question here is correlate of protection, meaning immunological correlates, meaning from 0 conversion to 0 protection levels. This is important because we consider -- the industry considers field efficacy trials for such a disease, which under normal circumstances comes at low incidence rates but has outbreak situations, not possible. And the VRBPAC has to formally decide on the endpoint for the Phase III. This is, as David mentioned, going to take place on the 8th of November, will, of course, be applicable for all chikungunya programs or chikungunya vaccine programs currently in development. Subject to the outcome, we will then ask for an end-of-Phase II meeting. Also, we have never done a formal end-of-Phase II, but still, you have to do an end-of-Phase II meeting for regulatory purposes, and aim to proceed into Phase III already in -- towards the latter part of the second quarter next year. This is the ideal scenario. Of course, there are still the 2, 3 caveats on the regulatory side, and this is all subject to regulatory clearance. But this is our accelerated route, and we feel very excited about the opportunity to be in a position to have 2 very advanced late-stage vaccine candidates next year.

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Operator [17]

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There are no more questions at this time. Please continue.

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [18]

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Okay. If there are no more questions, then I would like to thank you for your -- today's attendance. And as usual, feel free to contact us for any follow-up questions. And we are looking forward to seeing many of you in the not-too-distant future and, of course, at our next analyst call. Wishing you a nice day and rest of the day, and goodbye.

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Operator [19]

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Apologies, Thomas, there is one more question if that's okay?

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [20]

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Okay. So then you pack my farewell speech for later. Okay?

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Operator [21]

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It comes from the line of Simon Scholes.

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Simon Scholes, First Berlin Equity Research GmbH - Senior Analyst of Technology, Biotech, Medtech, and Resource [22]

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Sorry for pressing the button late. Just one follow-up question on IXIARO. You were talking about the U.S. Military building up safety stocks. I was wondering how long it is between acquisition of the product and expiry.

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [23]

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So we have -- our product currently has a 24-month shelf life. And basically, typically, you see, in those circumstances, rolling stocks, of course. So it is -- we have -- we don't know which amount they really keep as a safety buffer. So it depends. The -- and this is not really disclosed. It might be anything. Maybe in between 3 to 6 months is our guesstimate. But again, this is not -- cannot be solidified by real data, just an estimate right now.

Okay. So then pull back my farewell speech. So thanks again, and have a good day. Bye-bye.

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Operator [24]

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That does conclude our conference for today. Thank you for participating. You may all disconnect.