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

Half Year 2019 Valneva SE Earnings Call

Lyon Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Valneva SE earnings conference call or presentation Thursday, August 1, 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

* Thomas Lingelbach

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

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Conference Call Participants

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* Joseph Hedden

Rx Securities Limited, Research Division - Healthcare Analyst

* Max Stephen Herrmann

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

* Simon Scholes

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

* Thomas Guillot

Kepler Cheuvreux, Research Division - Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to this Valneva presents its HY 2019 financial results conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 1st of August, 2019.

Without any further delay, I would now like to hand the conference over to your first speaker today, Mr. Thomas Lingelbach, CEO of Valneva. 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. Yes, good morning to those of you dialing in from the U.S. Good afternoon to those from Europe, and a warm welcome to our H1 2019 update call.

On Page 4, we have summarized the key highlights for the H1, an H1 that has been marked by strong operational performance and major corporate progress. We're very pleased with our progression in the first half of 2019. And I would like to start with a high-level overview of our financial performance, which, of course, David is going to develop further as part of his financial report.

We have seen very strong product sales, 12% year-on-year growth; gross margin improving now at 66.1%; and EBITDA, which excluding accounting effects related to the GSK SAA termination that David will explain in detail, would have been at more than EUR 13 million. This is great given the ongoing development of this business, which is supposed to fund strategically our R&D programs and our focused R&D pipeline.

We have reported key R&D milestones in the first half of this year. First, on our very unique Lyme programs. We reported excellent booster data, confirming our development hypothesis. We concluded the so-called Phase II run-in phase, which enabled us to initiate the second part of Study 201, which is the study where we basically test the 2 lead doses for the future Phase III. And we initiated the second Phase II trial to test a potential alternative vaccination schedule.

And of course, our chikungunya program, VLA1553. Here, we reported excellent Phase I data, and I'm going to develop those further.

We took a decision to terminate the Strategic Alliance Agreement with GSK, a legacy agreement from the days of Intercell and Novartis Vaccines. Strategically, this allows us to have full control of our R&D assets. We can now decide when to partner, how to partner and to whom to partner. And this gives us a whole range of strategic flexibility.

Our chikungunya program got a very nice recognition by CEPI. We got awarded very recently, also not in H1 because it happened in July, a EUR 23.4 million grant for the late-stage development of our very, very differentiated single-dose chikungunya vaccine. And again, we have closed the half year on a very strong cash position, which David will explain in detail.

With that, I would like to hand over to David to provide you with the financial report for the first half of 2019.

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

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Many thanks, Thomas. Welcome to everyone in the call. I'd like to move on to Slide 6, please. So I'm extremely pleased to present another very strong set of results on behalf of the company. We'll go through our core numbers, and I'll make a particular effort to help everyone understand the impact of the accounting effects on -- of the GSK SAA termination that Thomas has mentioned.

But on Slide 6, I think, firstly, this slide highlights our strong operational performance on a number of fronts. First, the overall product sales revenue growth for the first half of the year compared to the first half of 2018 was 12%, and we will come onto more detail on that on the next slide.

And I think secondly, as we look at the KPIs that sit alongside this pie chart -- and this is -- this comes directly from our typical corporate presentation. I'd like to highlight that we manage over 88% of our product sales directly through our own commercial operations. And that compares in the 12 months for 2018 as a comparator, where it was just over 80%. So we're continuing to see that we are directly controlling and driving the vast majority of our sales and therefore, capturing most of the value chain, which, in turn, helps contribute to our gross margin and our profitability.

As Tom has mentioned a moment ago, our gross margin, as calculated on product

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% and we are very pleased with this overall performance.

So next slide, please. Slide 7. I'd just like to get into the product sales breakdown a little more. IXIARO, which is our Japanese encephalitis vaccine, we saw a 15% growth at constant exchange rates, H1 2019 compared to H1 2018, which is in line with our guidance of 15% to 20% growth year-on-year on a constant exchange rate basis. The main growth driver for this is the U.S., where we continue to see the benefit of establishing our own commercial infrastructure. You may recollect that we implemented our own commercial operations in January 2018. So that's bearing fruit as we continue to see better penetration of the Japanese encephalitis vaccine in the U.S. So when we then consider that U.S. pricing tends to be somewhat above average globally, then this contributes nicely to the gross margin and indeed, the net operating margin, which we'll also come on to.

Most of the 15% growth was driven by improvement in average selling price, notably in the U.S., but we also saw a nice growth in volume in the U.S., both in the private market in terms of penetration and also in U.S. military. And we expect to continue to see improvement in penetration in U.S. private in particular so it will continue to drive growth of IXIARO sales.

On DUKORAL, we saw a 7% increase in half 1 2019 compared to half 1 2018. This is a bit above our full year guidance of growth of up to 5%. Again, most of this growth is in average selling price rather than volume and again, driven by the fact that we're seeing enhanced performance in our better-priced markets. So again, we've seen a strong performance from our Canadian business. And our Canadian business now makes up 63% of DUKORAL sales. And DUKORAL, in the first half of 2018, were also a little lower due to supply constraints that we saw in the same period last year, and we reported those with the half 1 results last year.

Third-party products. The decline here is something that we flagged already in Q1 and previously. So we benefited in late 2017 and much of '18 from a competitor being off the market. And that competing typhoid vaccine is now back in the market, which is why you see a decline. So product sales growth of our own products, if we exclude third-party products, would be around 13%.

Next slide, please. Now Thomas mentioned and I mentioned that the -- first of all, we're very happy that we have regained full control of our key R&D assets. As we reported at the time of that termination, the key terms were a EUR 9 million termination fee and up to EUR 7 million of additional payments related to marketing authorizations. So this slide is very much aimed to make it absolutely clear how this plays through in our revenue, and you'll also see it in our P&L as we go through the presentation.

So firstly, more simply, you can see the EUR 9 million termination fee. Secondly, you can see that we're recognizing EUR 6 million of the EUR 7 million potential milestone payments. So whilst the industry benchmark for probability of success of a Phase II program such as Lyme is generally less than 50%, we have to recognize most of the potential cost under IFRS 15. So that leaves a balance of EUR 1 million, which will be recognized quarterly in installments until our licensure of the product, because the licensure of the product is what gives rise to the payment of the milestone -- the cash payment of the milestones. So that's EUR 9 million and then EUR 6 million. Now those 2 costs are somewhat offset by release of deferred revenue that was on our balance sheet. So this was the balance of the amount from the original deal struck between Novartis and Intercell, which would have been released over the next couple of years had we not terminated the agreement.

So in summary, that nets out to a negative charge of EUR 10.7 million in our other revenue line, which means that our total revenues for H1 were EUR 54.5 million. If we ignore the SAA termination effects, then total revenues would have been EUR 65.2 million.

I'll be happy to try and answer any other questions on this later. But hopefully, that makes it very clear. And I'd also like to just emphasize one small -- that means there's only EUR 1 million of potential liability in P&L terms left in our balance sheet.

So next slide, please, that's Slide 9. And here, we're just going to pick off some of the main financial KPIs. And again, you can see that we're trying to show this without the GSK SAA termination effect so that folks can see our underlying business performance clearly. So revenue, I've just talked about. And therefore, what I'd like to highlight is EBITDA and the net profit, net loss. So Thomas mentioned earlier that we would have been over EUR 13 million on an adjusted basis. And in fact, the fact that we were still positive with EBITDA at 2.4% with the SAA termination effect, again underlines how well we're managing our operational business.

We did have a small net loss of EUR 2.4 million, including the GSK termination effect, but we would have been a net profit of EUR 8.3 million on an underlying basis. And that compares with a marginal loss in H1 2018.

So cash, we do, indeed, have a very healthy position of almost EUR 70 million at the end of half 1, which is more than EUR 30 million higher than at the end of H1 2018. Now of course, the PIPE in September 2018 contributed to that, but we've also fully repaid the Pharmakon loan in January.

There are 3 points I'd just like to make specific to cash, to ensure that everyone is clear: The first one is that the EUR 9 million termination fee was not paid as of the end of June. Secondly, the recently announced EUR 10 million EIB drawdown was made in July and is, therefore, also not included in June. And the net effect of those 2, of course, is a EUR 1 million plus. And then thirdly, on the CEPI grant -- and we can come back to this later in questions. The CEPI grant is payable over the next 3 to 4 years in line with planned work. The $23 million, or about EUR 20 million, is not overall an upfront payment and it will be reported in other revenue commencing in the second half of 2019, probably right through 2022, subject to timing of work and payments. The cash phasing isn't entirely symmetrical with the revenue recognition, but there's no material difference there, and we can come back to this in Q&A if you'd like more detail.

So next slide, please, to the profit and loss. And here, we're looking at actual exchange rate information. Again, for clarity and full transparency, we're showing the figures with and without the effect of the SAA termination. So the points I'd like to bring out here are as follows: On cost of goods and services, you'll see that those are slightly lower in H1 this year compared to H1 2018 despite higher product sales revenue. And that, of course, is one of the drivers of the improving gross margin.

On R&D costs, you can see that they are increasing. You will understand that we guided R&D for the full year of EUR 35 million to EUR 40 million. So we do expect a significant ramp-up in the second half of the year in line with that guidance.

As Thomas is going to go and explain, Lyme Phase II is ongoing. And indeed, patient recruitment for VLA15-201 and VLA15-202 is underway and on track. And clearly, our costs will ramp up with that activity.

On marketing and distribution cost, we see a modest increase as we've added some new key account managers in the U.S. and Canada compared to last year. And this run rate in marketing and distribution cost will pick up a bit more in half 2 now that the recruitment is complete.

And another key item on this slide. Just to highlight the -- on other income, the increase up to EUR 3 million from EUR 1.6 million last year is mainly driven by higher R&D tax credits and an energy tax refund in Sweden.

Slide 11, please, next slide. And just to be clear on the margin growth, you can see that -- and we obviously report margin on our own product sales revenue. So we've gone up from 60% for H1 2018 to over 66% in H1 2019. We're extremely pleased with this. Our internal targets were to break the 65% barrier, and this has been driven by a mix of improving average selling price, as I mentioned earlier, so that's U.S. for IXIARO, Canada for DUKORAL, as well as operational efficiency in marketing -- sorry, manufacturing, excuse me.

On Slide 12. So the other KPI that we introduced earlier this year was -- when we provided guidance was around net operating margin. So I think I outlined that this was the target that we're -- that we set for our commercial team and that they operate under when looking at their business segment. Clearly, we expect some markets to contribute more strongly than others, but we also use this to help balance the level of investment into new sales and marketing initiatives and to give us the right return for our commercial business. And what I'd like to highlight here is that we've had a very strong 2019 so far, partly driven by the gross margin that we mentioned. But at 34.2% for a net operating margin, that compares very favorably and is at the top end of our guidance range of 25% to 30%.

So I'd like to hand back to Thomas and I will come back to guidance later, and I look forward to picking up any questions that you have later in the call. Thank you. Thomas?

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

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Thanks so much, David. Yes, let's talk a little bit about R&D. And of course, as you know, we use the proceeds from our very nicely performing commercial business to fund a focused R&D pipeline. Our current focus is on our 2 very unique programs: Number one, our Lyme vaccine candidate, VLA15, the only one in clinical development today worldwide; and VLA1553, our chikungunya program, the only real single-shot vaccine currently in clinical development.

So on Lyme, just by way of reminder, you know that we have a very unique program based on a well-understood mode of action. It is a program that has gone through a very, very comprehensive preclinical development phase. It is designed to protect children and adults on both sides of the Atlantic, covering all the different strains of Lyme borreliosis, which are prevalent in the Northern Hemisphere today. It is fast-tracked by the FDA. It has thus far been developed with, I would say, synchronized and parallel guidance from both European as well as U.S. regulators. And it is, of course, addressing a huge unmet medical need.

Page 15 of the presentation summarizes a little bit where we are. I mentioned already at the beginning, our progression is exactly on track and according to guidance that we have given already on the key milestones I think early last year. We completed Phase I, including end of Phase I, and even including the -- in the additional first booster data, which we generated as part of an amendment to the initial Phase I protocols, all in line, all done.

Phase II, you may recall that our -- one of the hypotheses that we do have as part of our development is that Phase I immunogenicity across the 6 different serotypes was good, but not great. And this is why we said there is room for further optimization of the immune response. And this is why we increased the dose as part of the Phase II program. Of course, since those higher doses had not been in human beings before, we had to go through a so-called run-in phase reviewed closely by an independent Data Safety Monitoring Board. They cleared the 2 higher doses, which we are now testing in the main study phase. And ultimately, the objective is that out of this trial, we're going to determine 1 out of the 2 doses, which we're going to take forward into the final pivotal efficacy trial.

And then we initiated Study 202, which is the study that is going to evaluate an alternative schedule. We -- our target product profile is assuming that we're going to need 3 doses for primary immunization. And we are testing head-to-head either 0, month 1 and month 2 or 0, month 2 and month 6. And this will -- and of course, the outcome will then also determine which schedule we got to use for the pivotal efficacy trials.

Everything is on track. Studies are progressing very, very nicely. We initiated the Study 15-202 even slightly ahead of our own plan. So everything's fine. We expect the data points on those 2 studies around mid-2020. Of course, they will come a few weeks apart from each other, but nevertheless, it will be around the mid-2020 horizon. And the initial data will be the day 85 after the short schedule and then a bit later, the ones from the long schedule. We will also add booster studies with additional 12-month follow-up, and this means that Phase II, Phase III could be initiated 2021 or 2022.

This is basically all subject to development progress and regulatory concurrences [that start in the fall]. But this is the plan as presented already many times, and we are very glad to say that everything is progressing to plan. And we presented details in our program at our very recent R&D Day in New York. And I think we got a very -- we saw a very nice level of excitement around this very, very unique program covering one of the most emerging infectious diseases in the Northern Hemisphere.

When we talk about chikungunya, Slide 16, our program is highly differentiated. It covers this major public health threat, major outbreak disease for which no vaccines or any effective antiviral treatment exists. We have -- we are using a live attenuated program and technology here and -- where the infectious clone was attenuated by deleting a large part of the gene coding, so-called alphavirus nsP3 replicate. And we see with this candidate -- we saw in this candidate already excellent safety and efficacy data in nonhuman primates, and we got -- we saw very, very nice immunogenicity and safety data at different time points. And we reported last time that, of course, we had -- we vaccinated people with the vaccine itself, looked for viremia, and got through this kind of observation an indirect hint on efficacy. So everything is great here. Data were as good as they could have been. And we are now thinking about different ways to accelerate this program straight into pivotal trials.

We are in active dialogue with the FDA. This program is, thus far, only developed in the United States. And basically, we are working with the FDA on this potential acceleration. And now we got to start also the dialogue with the Europeans and slowly move into the European part as well.

It is fair to say that this -- for this program, we have already established our final commercial full-scale manufacturing process in our manufacturing facility in Livingston, where we have our Viral Center of Excellence. And this is also something that, of course, it's important for a vaccine that we consider to be included in our own commercialization portfolio when it comes to traveler vaccines and then, of course, this own commercialization infrastructures and partnering structures for endemic countries or in outbreak situations.

When we look at the Page 17, summarizing one more time what we have achieved thus far and where we are on track with the different activities. I mentioned already the Phase I results. As I said, safety and immunogenicity, both really excellent safety awards. And I would really like to thank CEPI here for their trust and confidence in Valneva, in our program, in our team because this is a great recognition for our work. And we will do everything to deliver according to our promise and their expectations here. And this will really also help us to give access to this vaccine for the lower and middle-income countries, which I think is terrific, especially given the fact that chikungunya is a big issue in those countries.

Talking a little bit about this acceleration approach. We are doing a couple of additional experimental or preclinical work packages, which are needed in order to support a potential acceleration. One is the mosquito transmission study, the human-to-human transmission via a mosquito from a vaccinated human to a nonvaccinated human. Those studies are ongoing -- have been completed, sorry. Everything is clean and on track. We do nonhuman primate studies addressing biodistribution. Those are ongoing and will shortly be cleared.

And then, of course, since we are expecting to have a pivotal efficacy trial based on immunogenicity, so it will be a pivotal immunogenicity trial rather than a field efficacy, we need a correlate. It is a correlate of protection, and we are developing this correlate of protection by way of passive transfer using -- in human primates using human sera from our Phase I.

Based on this data package, we will ask for the approval by FDA for the so-called accelerated approval procedure, which is then going to allow us to move straight into a Phase [for it]. Provided there's regulatory concurrence, this means that we could start -- we could be in Phase III in the first half of next year, which, of course, would be terrific. With this, I -- the -- I give back to David, I think, for the financial guidance.

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

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Yes. Thanks, Thomas. So Slide 19, I do want to highlight a couple of things here, please. So I think the first thing to say is that we are confirming our financial guidance for the year irrespective of the GSK SAA termination. So what we outlined was that we've seen for product sales, our half year results were almost EUR 62 million. We expect to see further growth from IXIARO, in particular. And as you know, DUKORAL is seasonal so we tend to have higher Q1s and Q4s driven by our Canadian business. So we would expect to see continued growth, which means that we're expecting product sales revenues to deliver nicely in that range.

We had also hoped to have much more detail regarding the U.S. military phasing. So you'll recollect that the contract that we got at the end of January goes through 2019 and up until April 2020. And clearly, understanding the split across the quarters and the split between 2019 and 2020 is very important in order to give more detailed guidance. We're continuing to work with the U.S. military, but we are not in a position today to give any more granularity. And therefore, we are going to keep the guidance. And in turn, that means we're also going to hold our total revenue guidance, which is EUR 125 million to EUR 135 million.

R&D investments. Again, we're going to hold those and we can talk more about CEPI in Q&A because I expect there'll be 1 or 2 questions on that. But Thomas has just explained that the R&D activity is ramping up and it's going to continue to ramp up. So we are maintaining our guidance in R&D investments.

On gross margin and net operating margin. I do want to highlight here, when we gave the 2018 numbers and we gave the guidance, we wanted to make sure that with our half year results, we're talking about gross margin guidance on net product sales and not on total revenue. So we were 60% for last year, and we're currently running at 66%, which is great. So we're overperforming there. And in the net operating margin, we are at the higher end of that range for the first half of the year to date.

And in terms of EBITDA, given the overall performance of the business, given the sales growth, given the way that we're getting good operational efficiency and margins irrespective of the GSK SAA termination, we are maintaining our guidance on our EBITDA of EUR 5 million to EUR 10 million.

So I'd like to wrap up -- sorry, I beg your pardon, we've got one more slide. Just to finish off, an upcoming news flow, Slide 20. Many of you, I know, either attended or listened to the R&D Investor Day transcript. We had a very successful day in New York on July 9. We had a phenomenal attendance of about 45 people there in the room and about 70 on the webcast, plus people following up afterwards. So we very much achieved our objectives there to inform the markets much more clearly about progress with Lyme and chikungunya.

The CEPI agreement, we've talked about a couple of times, that's clearly an important award for us, very helpful in terms of strengthening our financial position and outlook as we look forward. We've also just announced the establishment of a standing Scientific Advisory Board earlier this week, which is part of our overall evolution and governance structure.

We believe we're on track to deliver the 15% to 20% constant exchange rate product sales growth that we expect this year. Thomas has just highlighted that we are executing Phase II on track for initial Phase II data middle of 2020. And Thomas also mentioned that we are progressing chikungunya as fast as we can towards a potential accelerated development strategy, and he's outlined the key steps that need to take place in order for that to happen.

So we believe that we're delivering a very healthy news flow, proactive communication to the market and that we have a nice value inflection news flow to come this year and next year.

And with that, on behalf of Thomas and I and the company, I hand back to the operator to handle the Q&A. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Joseph Hedden from Rx Securities.

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Joseph Hedden, Rx Securities Limited, Research Division - Healthcare Analyst [2]

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The first one on gross margin. I appreciate, David, you spoke [with us all] about hitting that 65% on the product gross margin already. Your adjusted gross margin for GSK was better than we were expecting, and guidance is maintained above 60%. But I was just wondering if you're expecting maybe a lower margin in the second half.

And then just moving on to the chikungunya program, you spoke about a 4,000-patient study at the R&D Day if you get the green light for the pivotal trial. Just wondering on the costings of that. And associated with that, the CEPI deal, how can we think that, that financing -- how is that going to be coming in to you? And how are you going to book it?

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [3]

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David, do you want to take the question?

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David Lawrence, Valneva SE - CFO & Member of Management Board [4]

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Yes. So thanks, Joe. So I'll deal with 1 and 3, and then I'll let you go back to Thomas to talk a little bit more about the pivotal study design for chikungunya. So just regarding the gross margin. Yes, I mean, basically, the guidance we gave was over 60%. And clearly, that's what we're delivering. We don't plan a reduction in the gross margin for the second half of the year, but it's important to recognize and remember that we're in the business of producing biologic material. And in that business, therefore, we have some volatility that we manage extremely well as regards manufacturing and potential write-offs. And some of you may remember that in the first half of last year and indeed the year before, we were probably higher than budget and higher than planned in terms of write-offs. So we certainly don't plan for that margin to reduce. We very much look to maintain it as long as we continue to drive the business in the direction that we are, with improving average selling price through U.S. for IXIARO and DUKORAL in Canada, then we would expect to -- and plan to keep that margin above 65%. So hopefully, that gives you the clarity on the first part.

Now regarding CEPI, yes, I think this is a very fair question. So we do have some outline, and what I'd like to do is give the following information regarding CEPI. So broadly, we're talking about EUR 20 million or so, and I'm going to talk in euros now rather than the $23.4 million. There is a component of the grant that relates to certain performance milestones and conditions, but we believe that we are going to see something like EUR 16 million coming in starting this year and over the next 3 to 4 years of the order of EUR 3 million this year, EUR 6 million in 2020, EUR 6 million in '21 and EUR 1 million in 2022. Now that's our best guess as of today.

I did mention that there's not complete symmetry between cash and revenue recognition, and I'll just give you a little bit of color on that. So some of the cash will be pre-paid per quarter, but then there are true-ups and true-downs according to over or underspend and over/underperformance. In essence, that means that if we say EUR 3 million, EUR 6 million, EUR 6 million, EUR 1 million, so 2019, 2020, 2021, 2022, the cash will vary somewhat from that, but it will not be materially different and certainly not in terms of our balance sheet, where we're looking at EUR 70 million at the end of half 1. So I think that's the best information we can give you just now. Clearly, if we have an update on that, we will deliver that in due course in another results call. And maybe, Thomas, I'll let you comment on the way that the pivotal trial is shaping up on CHIKV.

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [5]

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Okay. Yes, thanks, David. To your point, Joe, the point -- so we -- you are right. Our current hypothesis is an immunogenicity trial or basically, 2 trials that's going to make the basis for licensure. One, the pivotal immunogenicity trial in roughly 4,000 people. And then we need a small lot-to-lot consistency trial for the final commercial launch material. So that's the plan. As I said, it's now -- we are in the process of clearing that with the regulators, seeing whether we can really move already in first half of next year into Phase III.

We are making, however, all preparatory works right now. So we are planning for success. We have -- basically the clinical trial material at [crotoxic] level are already produced, for example, and we do all other preparatory activities that are needed.

We expect the Phase III -- overall Phase III costs in the order of around EUR 50 million. And then, of course, there will be additional costs related to other activities like pediatric development, which we're going to do in certain countries and so on and so forth. But all that needs to be further detailed and outlined with the regulators. Thus far, we believe that we are nicely in a position to progress as soon as we have all clearances. Your point will be taken up. How do we finance the entire chikungunya program until licensure, which today -- which, from today all the way up to licensure, will probably be in the range of EUR 100 million. But this is something that we are working on, we have different scenarios. And we believe that this will be done and communicated as soon as we have clearance around this program.

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Joseph Hedden, Rx Securities Limited, Research Division - Healthcare Analyst [6]

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Okay. That's very helpful. And sorry, if I could have one follow-up on the CEPI funding, David. Are you going to be booking that on the top line? Or is that coming in as other income?

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David Lawrence, Valneva SE - CFO & Member of Management Board [7]

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Yes. So no, good question. So other income -- sorry, other revenues, so it will be part of total revenue.

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Operator [8]

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And we will now be taking our next question that comes from the line of Simon Scholes from First Berlin.

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Simon Scholes, First Berlin Equity Research GmbH - Senior Analyst of Technology, Biotech, Medtech, and Resource [9]

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Yes. Thanks very much for taking this question, but it was already just answered very comprehensively as well on CEPI.

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Operator [10]

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And your next question comes from the line of Max Herrmann from Stifel.

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Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [11]

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I have 4 questions. Just firstly on DUKORAL, you talk about competition in 2020 in Canada. Obviously, that's a critical market for DUKORAL, but you highlight the strong brand. I wondered, is that the Vaxchora product that you are anticipating being launched?

And second question is just on U.S. IXIARO revenues. You highlight this EUR 11 million option in the DoD contract. The question I have is, from the ordering patterns that you see today, do you anticipate that the current supplies may require that option to be exercised before the end of the year? I think just in terms of guidance, I think, obviously, this CEPI contract, now you have just answered that question from Joe, and that it's going to be in the revenue line rather than in the grant income line, which is below revenues, might get you there, but I think you talked about EUR 3 million this year from that. So I still don't see you're on track to achieve the guidance for total revenues given the negative revenue impact from the GSK settlement. And then my final question, if I may, but carry on, maybe I'll ask you afterwards.

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Thomas Lingelbach, Valneva SE - Chairman of the Management Board, President & CEO [12]

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Okay. So -- sorry, Max, I didn't want to interrupt. Excuse me. Maybe [let's first try to answer] a couple of points that you mentioned. So basically, let's start with DUKORAL. Yes, Vaxchora is a product that is licensed in the United States. And Emergent, now owning the PaxVax business, has filed for approval of Vaxchora in Europe and Canada. That is what is known.

We do not expect a significant impact for our major markets given that we have, of course, a different label proposition in Canada for DUKORAL than, for example, in Europe. But that's all we want to comment around Vaxchora, and we do not want to make any statements of when and how they're going to launch. And you will certainly understand that. On the IXIARO revenue...

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Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [13]

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So that's the ETEC indication that you have. Obviously, theirs is not going to have that.

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

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Yes. We have the lead indication. That's correct. Yes. So basically, when we talk about IXIARO and the military, yes, it is not an easy one. We have typically in between 4 to 6 deliveries per year with the DoD. So only based on the delivery pattern, we can see how the product is basically consumed. We have not a great level of visibility about inventories at DoD, which, of course, have -- they have different stocks at different depots in different countries. So we have -- our best guess is that we're going to deliver this year the -- not the entire contract, [but more] the cost. Because remember, the contract award goes into the first quarter of next year. And this includes this additional kind of, you call it, the EUR 11 million. It's basically quantified by a number -- certain number of doses. We are assuming that we are not even going all the way up to this 400,000 doses. So we will probably stay at around 380,000, 385,000 for this year, which would then kind of be nicely in the range of the 15% to 20% guidance -- growth guidance we have given for IXIARO for this year.

So -- but again, we have no, as David mentioned in his financial report, we do not know more right now. We are just now in the process of discussing the delivery for the basically last 4, 5 months of the year. So we will probably need another couple of weeks until we're going to know more and have more visibility about the overall setup. And I think that, that's the important part. So you wanted to ask an additional question, Max?

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Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [15]

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Yes. So just in terms of partnering, obviously, you have now resolved the collaboration with GSK, which they no longer have an option on VLA15. What are your sort of next partnering plans time lines? What makes sense? I think you wanted to try and partner it before the end of Phase II so that a partner would have input into the Phase III trial design.

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

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Yes. Excellent question. So basically, one of the things that we have put on our key objective list for 2019 was to have a partner in clarity. And clarity for us primarily was either a full commitment with a partner like GSK or a kind of exit and be clear and have different options. What is clear is that we have always communicated we want to have a partner to co-develop and commercialize this product going forward and this is still our Plan A hypothesis. When the right timing is to basically have such a deal is currently under evaluation. You know that there is the -- you made a good point about a partner having potential input on the Phase III design. This has always been our kind of ground hypothesis. However, given the very, very detailed and advanced discussions with both agencies, there is very little, if not null, flexibility in what we can even change in terms of Phase III design.

So basically, we have to see when we're actually going to partner. We have not decided yet. We have not kicked off any partnering progress process to date and so we are still evaluating our options [out of it].

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Operator [17]

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And your next question comes from the line of Thomas Guillot from Kepler Cheuvreux.

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Thomas Guillot, Kepler Cheuvreux, Research Division - Equity Research Analyst [18]

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Okay. Thank you. My question were already asked. Thank you for that.

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Operator [19]

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And there are no further question at this time. Please continue, sir.

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

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Thank you so much. So again, thanks a lot for your attendance today. Thanks a lot for your excellent questions and for the good continuous dialogue and open dialogue we have. We are very, very pleased by our performance to date and the prospects that our business is showing with our very unique R&D opportunity. And we feel great about it and we are thrilled about it. And with that, on this note, I wish you all a wonderful rest of remaining day. Thank you. All the best. Good-bye.

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Operator [21]

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