Valneva SE (VALN) 2010 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Intercell conference call. At this time, all participants are in listen-only mode until we conduct a question and answer session, and instructions will be given at that time. (Operator Instructions). Just to remind you, this conference call is being recorded.

I would now like to hand over to the Chairperson, Gerd Zettlmeissl, CEO of Intercell. Please begin your meeting, and I will be standing by.

Hello, everybody, and welcome to the Intercell call. It's Gerd Zettlmeissl speaking. I'm here with my colleagues from the management team; Thomas Lingelbach, our Chief Operating Officer, Reinhard Kandera, our Chief Financial Officer.

And I would like to do a special welcome to our new Chief Business Officer, Staph Bakali, who joined the Company beginning of October. We are very happy to have Staph on board, because he will definitely strengthen our commercial capabilities in Intercell and also helping us in continuing our strategy moving forward.

Staph brings really additional know-how to our management team as he has been working in a couple of marketing and sales organizations in the past by leading organizations within GSK and Chiron Vaccine, but also has quite a strong exposure in the field of biotech by having worked with PowderJect and ID Biomedical, and recently with Genocea as a CEO. So welcome, Staph, on board.

And you will hear Staph talking in a minute about our Japanese Encephalitis vaccine. We later on will have a focus in this call on nosocomial vaccines, where we will present more data on the Pseudomonas vaccine, where we have published headline data recently. In addition, we will give you an update on our key development program, obviously giving a focus here on travelers' diarrhea and where we stand there. And last, but not least, Reinhard will do a financial update, and also give you the outlook of the major events going forward.

If you please would move to page four, where I would like to give a couple of general strategic remarks, before we move into the detailed programs.

I would like to start with a comment that Intercell obviously is in the field of biotech vaccine; a company with a leading portfolio. And we have been focusing, especially in the last two years since we acquired IMI, really on elevation and in bringing new products forward because we feel this is our strength, and as a young biotech company also our obligation, to create innovation and to create new products.

We have been in these years, and also in this year, heavily investing in R&D. And we feel that this is absolutely justified, as long as the data gives us the right to do so, insofar of data we've got giving us the right to do so.

We have also tried over the last couple of years really to follow one general rule in our programs; namely, the rule that we try to become leaders in the respective fields where we are working on. And we have been very successful in doing that by having, with our Japanese Encephalitis program, the leading product in this segment in the market.

We lead the field of travelers' diarrhea vaccines by the only very advanced program, Phase III program, in the industry.

We have a nosocomial franchise, and we will come back to that again later on; nosocomial franchise for vaccines, which is unique. And as I said before, we will today have a special focus on our Pseudomonas data, which gave us very exciting results, as we have said already before.

In addition, it is a pleasure to announce today that we have started a very important and attractive new program in order to strengthen this franchise even further; namely, Clostridium difficile vaccine, where we still plan to do a Phase I study this year.

Having said that, we build on our technologies. We build also on our partnerships. And it's, for us, very important that we have strong partners helping us moving programs forward, like, for example, in the field of Pseudomonas and Pneumococcus with Novartis; like Merck in the Staph aureus area. This strengthens our Company, and strengthens also our opportunities for success.

After these general remarks and introduction, I would like to hand over to Staph Bakali, who will give you an update on where we stand with our Japanese Encephalitis vaccine. Staph, please.

Thank you, Gerd. And good afternoon, everybody. Before going into the sales performance of IXIARO and JESPECT, I think it is important to review the travel market in terms of size and growth trajectories.

Today, the market for travel vaccines is estimated around $1 billion, and this has taken over 10 years to develop. Unlike other vaccine segments, particularly pediatrics and adolescent products, which tend to experience more rapid market uptake and ramp up, driven primarily by national health recommendations and reimbursements, travel vaccines tend to take somewhat longer to reach their full peak potential sales. The major reasons for this include that travel markets are predominantly private markets, driven by individual choice. They are not reimbursed. There's a need, therefore, to invest in creating disease awareness amongst both healthcare providers and the travelers.

If you look at major products, such as HAVRIX, Twinrix, and Typhoid, and I was involved in my previous life in launching some of these products in the travel market, these products were actually launched over ten years ago. And my experience is that initially the ramp up needed a lot of work and investment in creating market awareness and disease awareness.

Now, turning specifically to the Japanese encephalitis market, there is a clear need to develop the market and to create disease awareness because until the launch of IXIARO and JESPECT, there was relatively little activity in this space. For example, there was no licensed product in the European market, and there was relatively little promotional effort for the old mouse-brain derived vaccines, so we have a lot of work to do to create the market.

In terms of market potential, we still believe that the typhoid market continues to be a very good proxy for our products and provides us with a very good guide in terms of market potential.

Now, turning to IXIARO and JESPECT sales performance, what we can see is that we are seeing very strong growth versus last year. Please remember, as previously reported, that the Q2 sales were impacted by phasing from Q1.

But the underlying growth over last year is there, and it's largely due to the following factors; number one, the increased market and brand awareness following investment by us and our partner, Novartis, in sales and marketing efforts; and also increased market penetration in the key markets and in the US military. We expect this growth momentum to continue and increase in 2011.

Turning to the military market, we believe that our efforts are beginning to pay off. We are starting to see increased usage, translating into orders, and we expect this trend to increase in 2011, with the expectation of the current stockpile of the old vaccine, JE-Vax, to be exhausted by the end of the first half of next year.

With regard to the overall strategy for our products, I think you can categorize these into three growth stages. Clearly, 2009 and 2010 is the launch phase, focused on the travel and military. Here we've been predominantly focused on investment in creating the market and creating disease awareness and launching in the initial markets following approvals in Australia, Europe, and the United States.

Over the next couple of years, we will focus on market development, consolidating this growth and increasing disease awareness, both in the travel and military markets. And we aim to do that by increasing penetration and sales in the key travel markets by new launches, for example, in the Benelux countries expected in the first half of next year, the Benelux countries represent the fifth largest travel market, and also some other launches in Asian territories and Latin America. And as I said, we also expect to take advantage of the expiry of JE-Vax in the military.

From 2013 onwards, we will start to see the growth really being driven not only by the key markets, but also accessing the following target groups; the endemic markets in Asia, which represent a major opportunity; travel segments in certain key Asian markets also will be a stool in our strategy; and the pediatric approval for travelers will help drive the growth sales; as well as routine pediatric immunization in endemic countries.

I'll pass on to Thomas now, who will take you through our nosocomial vaccine portfolio. Thank you.

Thank you so much, Staph. Good afternoon, ladies and gentlemen, and good morning for those in the States. It's a pleasure to give you an update today on our leading franchise around nosocomial vaccine candidates. And as you know, the hospital-acquired infections, and I've turned to page 11, do represent a major threat for global health.

The key bacteria involved do include Staphylococcus aureus, Pseudomonas, and others, e.g., the mentioned Clostridium difficile, and we are very glad to say that Intercell's R&D vaccine programs are targeting all those relevant indications. They do target a medical need with a severe and significant economic impact. And there are very limited treatment opportunities today, primarily caused by the increasing antibiotic resistance, hence, a strong need for prophylactic treatment with vaccines.

Let's start with our first leading program, Staphylococcus aureus, right now within an adaptive Phase II/III trial with our partner, Merck. It is the leading cause of hospital-acquired infections, and the vaccine candidate is a recombinant protein of iron surface determinant factor B, called IsdB, and it has been identified through Intercell's proprietary Antigen Identification Platform.

We have been showing the key selected clinical data, as outlined on page 13, a couple of times. But let me remind you one more time that the key feature, and the key finding to date, can be summarized in the rapid onset of immunity that's sustained over at least 84 days and the long-lasting IsdB-specific immune response.

The current clinical status of this Staph aureus vaccine candidate can be summarized by those two clinical trials, as outlined on page 14. There is, number one, the efficacy-powered cardiothoracic surgery patient trial, where we will measure the prevention of serious Staph aureus infection for 90 days following such a cardiothoracic surgery, and data on efficacy are expected in 2011.

There is a second trial ongoing, which is an immunogenicity trial, and we are eager to look forward to seeing the results of this trial. It is an immunogenicity trial in patients with end-stage kidney disease and hemodialysis threat, and we expect the data still this year. Why is it important? It is important because we are talking here about immuno-compromised people and we will, hopefully, be able to see the function and the long-term immunogenicity profile of this vaccine candidate in this very important target population.

Let me turn to page 15, our Pseudomonas candidate. Again, summarizing the key facts on the first slide, for our investigational vaccine, recombinant fusion protein, produced in E.coli, which we have injected on day zero and seven in a randomized placebo-controlled Phase II study, comprising 400 ICU patients on mechanical ventilation.

On page 17, we have summarized the primary end points on immunogenicity, which has been entirely met as part of this trial. We could see very interesting and very good immune response measured by GMTs; a four-fold increase versus day zero base line on day 14. And nicely to be seen here are dose-dependent immune response. Likewise, very good zero conversion rates on day 14; again, nicely dependent also on the dose used in this investigational setting.

So let's turn to page 18, and let's talk briefly about the clinical result that has been most important as part of this trial, and which is really exciting and has encouraged us to further look also into the field of additional nosocomial vaccine candidates. And what is more important in such a setting than the reduction in mortality? And what you can see on this slide is essentially the clinical outcome; mortality in -- or survival rates in the vaccine groups compared to placebo.

Let me remind you that we have vaccinated on day zero and day seven, and we have measured on day 14 and day 28. Statistically significant reduction of mortality has been shown for all groups. But statistically significant for the vaccine groups was 100 microgram without alum on day 28. I think this is a very encouraging finding, and really drives and justifies further investigation of this potential vaccine.

What is the conclusion around infection rates? And I think the most important one is the trial conduct has been meeting our expectations. We saw the right level of infections; however, we could not see a significant difference of the infection rates in between the vaccine and the placebo group.

However, we had a couple of findings throughout this study and the most important one is a mismatch between the infection incidents and the induction of immune response. And this race in between antibodies being developed and infection coming up has potentially impacted also the potential read-out of this study that was clearly not powered for efficacy and, hence, limits our analysis of vaccine-induced differences in infection rates.

What are the other conclusions and next steps with regards to this Phase II candidate? It's fair to say all end points on immunogenicity and safety have clearly been met. We observed lower mortality rates in all vaccine groups versus placebo with, as I mentioned before, statistical significance for at least one vaccine group at day 28. Larger sufficiently powered studies would be required to validate and verify vaccine effects on mortality, as well as infection rates.

In terms of next steps, we will obviously conduct a couple of complementary data analysis and tests to identify the potential modes of action which are clearly still the missing link in between the interesting and encouraging finding on mortality rates, as well as on the missing signal on reduced infections in the trial. This data evaluation will be conducted with Novartis, our partner, under our strategic alliance agreement to define potential next development.

The encouraging results on Pseudomonas and the really exciting conduct of the Staph aureus trial by our partner, Merck, has led us to a decision to move one of our pre-clinical candidates into clinical development. And we have decided to privatize this candidate in the nosocomial arena to further strengthen our unique strategic position in the field of nosocomial vaccines.

It is Clostridium difficile. Clostridium difficile is the leading cause of nosocomial diarrhea, and up to 60% of healthy neonates and infants are already colonized, obviously without the clinical symptom, which will come quite late in the human's life. Our investigational vaccine is a recombinant fusion protein of relevant parts of the toxins A and B. It is alum adjuvanted, and it is being investigated through three injections on days zero, seven, and 21.

On page 22 we have outlined our development plan towards primary prevention. So, the first one is that we will start to focus on the recurrent infections. This is a very precisely defined target population, and a very precisely defined incidence, and that's why we have decided to start the clinical development path in this target population and on this disease target. From there, we will then change over to primary prevention, which obviously presents the more important commercial market opportunity, and obviously also medical need.

Where are we today? We have been able to generate excellent protection data in a hamster challenge model. We have the process for production of Phase I material established; we have a tox study successfully completed; and, as Gerd mentioned before, we are planning to initiate a clinical Phase I still this year.

On page 23 you can see the Phase I design that will allow a rapid and quick access into the target group, which are obviously elderly. In total, 160 subjects; open label study, randomized, and dose-escalating. We will start with healthy adults in the age range 18 to 65. And upon positive review of the drug safety monitoring board, we will directly move into the target population in elderly above 65; in total 100 subjects in the so-called part B. And we are very excited, based on excellent pre-clinical data, to see first clinical results of this trial.

With this, I would like to leave the field of nosocomial vaccines and will give you a couple of more information with regards an update with regards to our additional and other key pipeline programs.

First of all, let's talk about the Japanese Encephalitis and the progress towards pediatric licensure for endemic countries. As Staph mentioned before, endemic countries do represent a major commercial opportunity. We have partnered in the endemic countries with Biological E and the product trade name is called JEEV.

We started back in 2007 with technology set up. Last year, and this year, due to changes in the regulatory environment, Biological E had to do a confirmatory Phase I trial to support the safety data base for Indian regulatory pathways. And this has been all successfully concluded, confirming the same favorable safety and immunogenicity profile we have been seeing with our marketed products, IXIARO and JESPECT.

We expect now the adaptive Phase II/III in 500 children still to start by the end of this year, or very early next year, with an Indian licensure planned for first half in 2012, and subsequently, a year later, WHO pre-qualification. Product manufactured ex-Biological E will be marketed by Biological E in the Indian sub-Continent and by Novartis in the other endemic territories.

On page 26 we have outlined the progress towards pediatric licensure for travelers. So label extension for traveling children, another key element for our commercial success, as outlined by Staph before. Here we have completed the dose confirmation trials and the enabling trials, and we are in the middle of the Phase III. That includes non-endemic children -- or children living in non-endemic countries, as well as children in endemic countries; in total, 2,000 children in between two months of age and 18 years of age.

We have right now roughly 80% of the trial enrolled and the interim read-out confirm the favorable safety and immunogenicity profile, and confirm the half days -- half dose to be given to children below three years of age. Going forward, we will see Phase III in non-endemic with regards to long-term immunity, follow-up and booster, and we expect the label extension to take place towards the end of 2012/early 2013.

Page 27; where are we with our Travelers' Diarrhea vaccine, our front-running clinical development program to date? We are heading towards Phase III data.

Let me remind you that we have enrolled in total approximately 2,000 subjects in two trials. One pivotal Phase III efficacy trial that started back in October 2009 was travelers to Mexico and Guatemala. And we have obviously completed the recruitment and have started with the data collection and data validation, and we expect the data to be released towards the latter part of this year, or very early next year.

In parallel, we have been conducting a pilot efficacy trial in India just to test this investigational vaccination candidate in a different epidemiological setting. Also here, the recruitment has been completed and we expect data still this year because it's obviously a smaller database and, hence, we will be able to get it already -- certainly done this year.

Let me remind you that in an earlier Phase II field trial, the vaccine had already shown immunogenicity, but also reduced the risk of clinically significant diarrheal episodes. And this is what we try to see in this major Phase II/III clinical development program.

Page 28; update on our Vaccine Enhancement Patch and our pan flu program. Remember, we had initially a very successfully Phase I trial. We repeated the Phase I setting in -- under a Phase II protocol. Unfortunately, when we tested this investigational vaccine, so a classical, off-the-shelf H5N1 vaccine candidate, adjuvanted externally with our Vaccine Enhancement Patch put on top of the injection site, we could not see a dose-dependent response to the H5N1 antigen when adjuvanted.

However, we have done and we have updated you on our investigation in connection with this trial outcome. And we decided, with our new partner, GSK, as well as with HHS, to start a new clinical study investigating GSK's egg-based H5N1 vaccine in combination with our Vaccine Enhancement Patch with some improvements with regards to clinical setting and conduct. And we are very pleased to report that we will be able to get our first subject in towards the end of this year, or very early next year.

Let me turn now, last, but not least, to HTV, a program that you have been following for many years, a program Intercell has been working on for many years, and let me start by summarizing a little bit the competitive environment.

Where are we today in the field of hepatitis C? The current products interferon/ribavirin still show limited efficacy, severe side effects, and do represent very expensive treatments. There are new treatment approaches emergent; the so-called next generation treatments that will show better efficacy, but will still depend on interferon and ribavirin and might still have additional side effects.

So, we decided to basically partner with an approach that allows a combination of our potential therapeutic vaccine, with a clear antiviral drug. And we are happy that, with Romark, we have an FDA-approved antiviral that has shown excellent data in Phase II, in combination with interferon.

We will be able to investigate the combination. And the combination, essentially, will provide a potential hepatitis C therapy without interferon or ribavirin; hence, we could expect a low side effect profile. And this is based on our clinical experience with both IC41, as well as NTZ, in earlier treatments and better compliance. So, it could really open up the paradigm for a new generation and an exciting new generation of hepatitis C treatment.

With this update on our development activities, I would like to hand over to Reinhard Kandera, our CFO, who will give you an update on our financial performance and the outlook for the rest of the year.

Good afternoon, ladies and gentlemen. I'm happy to give you an overview on our financial performance in the third quarter, and to provide some background information to our financial figures and our outlook for the full-year 2010.

If you turn to page 32, for those who have not had a chance to look at our numbers, let me briefly summarize the key figures. We showed revenues of EUR6.7 million in the third quarter and EUR21.1 million in the first nine months of the year.

We had R&D expenses of EUR19.7 million in the third quarter and of EUR54.6 million in the first nine months of 2010.

Our net loss was EUR27.8 million in the third quarter and I could report, for the second quarter, that we had some help from non-cash currency effects. Now, in the third quarter, given the developments in the euro/dollar exchange rate, this has reverted so our loss has been increased by negative non-cash currency effects resulting in this EUR27.8 million, summing up to EUR50.9 million in the first nine months of the year.

Our operating cash outflow was EUR22.7 million and EUR49.2 million for the first nine months.

Our cash position is EUR107 million roughly, and this compares to approximately EUR140 million at the end of September of 2009 and EUR180 million at the beginning of 2010.

With this, let me turn to the next page, 33, in your presentation, showing you the big picture of our financial development compared quarter by quarter. You see that again in the third quarter of 2010 we did not show any milestone events or significant revenues from collaboration and licensing. These types of revenues are highly volatile, as you can see very well if you look at the last couple of quarters. We expect an exciting fourth quarter of 2010 in terms of revenue potential from milestones, but in the third quarter there was no such event.

Our R&D spending continues to be high, and continues to be driven by late-stage programs, mainly our Travelers' Diarrhea Patch Vaccine. As a result of the higher R&D spending, the absence of significant milestone income, and the negative currency effects that I have mentioned, we showed a significant loss in the third quarter and our cash balance has come down. But also here we expect some significant potential cash-generating events in the fourth quarter.

With this, let me give you some further details, summarized on page 34, and let me continue with the outlook for the full-year. As I said, our revenues were EUR6.7 million, which is a decrease from the EUR9.2 million that we saw in the third quarter of 2009.

In the absence of milestone events, and also on declining recognition of deferred revenues, revenues that we have booked from deals that have been closed in the past where we got upfront payments, which, in terms of recognition in our P&L, have been deferred, this comes mainly from our Novartis partnership from 2007 and there is a declining trend. Some of it also comes from our GSK partnership from the end of 2009.

In addition to that, grant funding is also somewhat lower in this third quarter. Given that in the main grant-funded projects, and this is pandemic flu and this is Pneumococcus, we did not have any clinical studies ongoing.

Staph has already commented on our quarterly revenues from IXIARO/JESPECT; sales of EUR3.8 million. We expect further year-on-year increase in the fourth quarter.

And it's mainly worthwhile mentioning that for the first time we saw a positive gross margin on a product-basis, meaning our product sales exceeded our manufacturing costs. In total, the product is not yet cash flow positive. We still incur significant spending from both marketing licensure obligations, which are capitalized as intangible assets.

R&D expenses were close to EUR20 million, mainly driven by late-stage projects. These R&D expenses are currently plateauing. We think that with finishing the Phase II in Pseudomonas there will be some relief on the R&D side, while for the Travelers' Diarrhea Patch program it will still be significant spending in the next couple of quarters.

SG&A expenses were roughly in line with previous quarters.

Net other operating expenses were EUR7.4 million, mainly resulting from non-cash currency effects.

And I have mentioned the numbers for our net loss figure. For the full-year 2010, we expect approximately EUR40 million net loss, and this assumes positive outcome of our upcoming milestone events in the fourth quarter.

With this, let me come to the last page of our presentation, summarizing upcoming milestone events. For our Japanese Encephalitis vaccine, we intend to grow the market and the regional reach of the program by conducting Phase III studies for children of travelers, and by starting Phase III in children in endemic countries, and we expect the next step thereafter first approvals in endemic countries.

For our Travelers' Diarrhea vaccine, Phase II data from our ongoing Indian studies still expected in the fourth quarter. And late in the fourth quarter or early in 2011, we expect Phase III data from our study in Mexico and Guatemala.

On the Staph aureus program, we expect Phase II/III efficacy data in 2011. On Pseudomonas, we are currently evaluating the next development options with our partner, Novartis, and when this process has been finished we expect to announce the result. And we expect further clinical studies in our Pneumococcus program in the target population, meaning children predominantly.

In other vaccine projects and other biotechnologies there is also potential for news flow; for example, initiation of the next study for pandemic flu using GSK's H5N1 vaccine. We expect data points, initiation of new studies in Tuberculosis, for example, and we expect the start of the combination study in hepatitis C.

Out of our technology basis, we see further potential for out-licensing and for moving products out of these technologies in the pre-clinical development space.

With this summary on financials and on our programs, we want to finish our presentation. And I hand back to the operator, and management is now happy to answer your questions.

Thank you, sir. (Operator Instructions). The first question comes from the line of Guillaume van Renterghem. Please go ahead with your question.

Yes, hello. My first question is with regard to the TD vaccine. Now that you have access to the data, or you are analyzing the data, I'm just wondering whether you noticed a drop-out rate higher than expected, and whether you have checked what the CROs have done, and whether you have found any worrying activities in the CROs.

In terms of IXIARO US military markets, I think I remember that you guided for roughly $30 million of sales per year at peak sales, I'm just wondering whether you still believe that is a realistic number. Thank you.

Okay, so I will be answering your first question with regard to the study conduct in connection with the Travelers' Diarrhea program.

Obviously, this is not an easy answer to your question because this is for the very first time since a vaccine trial has been conducted in such a setting where a whole stool collection infrastructure is required where patches need to be worn for a certain period of time. Have we seen right now any alarming signals in terms of drop-out rates that are above and beyond what we had seen in previous trials; no. However, we have not yet completed the entire clearance, and this is still subject to further analysis and evaluation.

Coming on to the second part of your question, Gerd speaking, and namely the US military (inaudible), yes, we still are strongly convinced that we can make the $30 million in this market in the future.

As we always said, this will come only step-wise. The next big step for the next two years is that we come back to really vaccination rates as we have seen them in the past, historically, with the mouse-brain derived (inaudible) vac, which would mean roughly 100,000 subjects per year, translating in roughly 20 million. This is a target for the next two years to be reached. Thereafter, we see obviously opportunities that we can increase that to roughly 150,000; maybe even more. But this will be then the target for the next three to five years.

Okay, thank you.

The next question comes from the line of Brigitte de Lima. Please go ahead with your question.

Good afternoon. I've got about a handful of questions, I would say. The first one, on the Pseudomonas vaccine, I was just wondering if you've got a good explanation as to why the non-adjuvant vaccine appears to be more efficacious than the adjuvant one, or if you think it's just a statistical fluke because it's a small Phase II study.

The second question is on the Novartis [ops], and I was just wondering if there's actually a hard deadline for Novartis to decide, or is it pretty open to them when they wish to make the decision? Also, could you give any guideline on when you expect them to make a decision, and then, based on that, when you expect Phase III to start, and whether that's when we should expect the first milestone associated with that program?

And then a third and more general question, I was just wondering if you could compare the relative risk profiles you see for the Staph vaccine versus Pseudomonas and C. difficile; whether you actually think it's possible to get efficacious vaccines for indications when you only vaccinate patients as and when they come into the hospital, and then you have to race -- there's this race going on between the immune system and the replication of the pathogen. Do you think it's actually realistic to get anything to work in that setting?

And then on the Travelers' Diarrhea Patch, I've got two questions. The first one is do you have any data showing that the patch is active both against EPEC strains commonly seen in Latin America and Asia, or whether there are any major differences that we need to be aware of, just to figure out what sort of success rates we should attach to the two trials that are ongoing?

And then lastly, could you make any quick comments in terms of how you would break out the market opportunity for the patch between travelers going to Asia, Africa, and Latin America? Thank you.

Okay, Brigitte, hi, this is Thomas speaking. I will start off with the Pseudomonas explanation. Well, clearly, we do not have the full picture yet on the mode of action in connection with Pseudomonas. We know, as we reported, we have a couple of findings. You mentioned already the race in between rapid onset and also the antigen being developed.

With regards to infection rate and also the other point with regard to other groups, non-adjuvanted versus adjuvanted groups, well, we have a very small sample size here, and to speculate why the signal for the non-adjuvanted group has been better than for the adjuvanted group is something that would not be statistically sound at this stage. Obviously, there are potential underlying mechanisms, and we are investigating those right now as we speak, but this, again, would be speculation at this point.

I will continue with your question number four. Do we have data on patches, do we have data indicating that LT toxin-neutralizing antibodies do protect in different epidemiological settings with bacteria in either India or South America; well, limited. In India, obviously, nothing is available right now. No one has ever done comprehensive studies investigating different bacteria in India in the area of travelers' diarrhea. For Latin America, as you know, we have data from previous trials, particularly the trial 2006 that was published in the Lancet; that gives some indication, but not more than that.

Your last question with regard to the market opportunity for a Travelers' Diarrhea vaccine, again, we have been discussing this before, it will heavily depend on the efficacy data, which will determine then the label claim as to whether we're going to see protection against LT-positive EPEC only and/or broad protection against all causes of diarrhea. And we expect a market potential, and this is something we have been disclosed before, 60 million travelers in total; 30 million to Asia. And I think this is roughly why we have guided previously that the market potential for such a vaccine could be in the reach of [500 million].

Brigitte, coming to your questions around Pseudomonas and the Novartis opt-in, what's happening there at the moment is that we, as we said before, obviously look at the very interesting and exciting data with Novartis. And the process we have in place for the opt-in is essentially a process which can take up to six months. It has very defined steps, including certain due diligence steps Novartis can still do, and we are at the moment not yet, as we are just in the data discussion phase, in a position really to say how long it will really take.

Concerning the question on Phase III, this is very similar; as we are having a process now to define further strategy, this is also a part of this analysis. And we hope that over the next couple of months, when we have done this analysis, we will be more precise on this topic.

Coming to your question around the speed of immunization in hospital-acquired infections, it's very interesting because we have seen in our Staphylococcus vaccine that we can do with one single vaccination a very speedy and fast immune response. It's linked to the fact that there is a memory response in essentially all human beings on Staph aureus.

It seems that we see very similar behavior also, not in this extent, but really part of it in Pseudomonas, where we also see that the immune response starts to really come up quickly after the second vaccination on day seven. It seems when we look at mortality that there seems to be maybe even an influence on the immune response coming up when you compare the mortality [curse], and we have to see how this translates in the future. But there is certainly a point where we get immune response in a point where it could still be meaningful.

Okay.

The next question comes from the line of Gunnar Romer. Please go ahead with your question.

Yes, hello, everyone. Gunnar Romer from Deutsche Bank. I have a couple of questions. Firstly, on your guidance and the adjustment towards the lower end, could you remind us of the exact reasons for this down grade?

And then secondly, could you indicate what you recorded in terms of negative FX effects in the third quarter, and what you assume for the fourth quarter, and whether this is already included in the guidance?

And then secondly, if I calculate correctly, you're assuming something like north of EUR30 million in milestones in the fourth quarter to achieve the EUR40 million net loss for the full year; could you give us an indication where these milestones come from, and, in particular, whether these include milestones for the TD Patch already? Thank you.

Yes, thank you for the questions. So, obviously, currency effect is one reason. So if you look at seven/eight hit that we took in the third quarter, it is obvious that we would have been closer to the mid of our previous range if this had not occurred.

Obviously, in giving guidance, we assume stable currencies, which is currently the case; compared to the end of the third quarter, we are approximately in the same range. So our guidance does not include any positive or negative currency effects, which are, to be honest, very difficult to predict at this stage.

In terms of other factors, it's obviously mainly in the milestone and collaboration revenue arena, where as the year end approaches we have refined our planning, and we think that some of the revenue opportunities have shifted, so become to the high end in our current guidance.

You are right, guiding for EUR40 million loss implicitly means that we need a profitable fourth quarter. And as I said previously, we have multiple milestone events, mainly from our Travelers' Diarrhea program, where under our GSK deals we expect a significant milestone payment. But we are also working on other revenue-generation opportunities where we think we have good reason to believe that additional revenues will come in, in the fourth quarter.

Okay, just one follow-up, with regard to the expected TD milestones, this does not include a Phase II milestone? Or does it already include a Phase III?

This does not include the Phase III milestone. So we may get Phase III data still in 2010, but the conditions that will trigger the milestone will not be [revealed] in 2010, even if we can report the top line results.

Okay, thank you.

The next question comes from the line of Vladimira Urbankova. Please go ahead with your question.

Good afternoon. Vladimira Urbankova, Erste Bank. A few complementary questions to the previous ones. Maybe on Japanese Encephalitis vaccine program, if you can confirm what is the expected peak sales and when you are expecting to achieve them.

And then the cost of goods sold, you said that for the first time you managed that the product created positive gross margin; is this something what we should expect going forward? Were there any write-offs in the period, or not exceptionally this time?

And then, Clostridium difficile program, if you can maybe shed more light on the timeline for the program because you just started and we just do not know much about your overall program expectations. So, that's it.

Okay, thank you very much, Vladimira. Gerd speaking. Yes, we still are very confident that we can reach peak sales expectations in the different market segments.

Different market segments, as you know, are the traveler market; are the military market we discussed before; and, last but not least, the Asian endemic market. These markets come in different timelines and in different aspects together. But as Staph said before when he made his proxy to Typhoid, this is a range we still see for the traveler market, and this was the range we discussed before.

The military market, we discussed. And for Asia, obviously, this is the market where we are still most unsecure situation because we are still working on this market and have not registered a product, but here we had said before that it was in the range of opportunity from 50 million to 100 million just for the Asian endemic.

Coming back to the gross margin situation --

Yes, maybe the peak sales, when do you think these peak sales can be reached?

Yes, we always said it will take some time, so it's obviously very difficult to say that. Maybe Staph can comment a little bit on it.

I think -- Vladimira, it's Staph Bakali here. As I alluded to in my presentation, I think one thing we have to understand about the travel market is that the ramp up does take time because it's a private market essentially and you do have to invest a lot in creating disease awareness and creating brand awareness. I think especially in the Japanese encephalitis market, where there hasn't been really much activity in the past few years.

As I said, I personally have launched hepatitis A and Twinrix in other markets. And if you look at Twinrix today, everybody would say it's a wonderful success, but I can assure you at the beginning creating the market needed a lot of work and investment. So I think we will get there. I think one has to understand the characteristics of this ramp up and the factors outlined by Gerd in terms of, first, maximizing the travel and military, and then the endemic markets will add significantly to achieving those peak sales.

Yes, I just simply notice that you are more and more talking about developing the market, creating the market. This is (inaudible) compared to the previous presentation as I've followed the Company for a while, so I just wanted to know if you have any kind of expected period, or it's just now kind of undefined.

Vladimira, we have to be also very honest here; we don't have the visibility for the next year so it's very difficult to talk about very long time frames. I think we have to work on the growth rates, and this is about what Staph has described in good detail. But I think we are not in a position today to give you a number of x years, where we say we will be there.

Okay. As I say, you previously were kind of guiding into certain direction; I just wanted to confirm that now it's seen as more difficult to guide through this. Okay, that's fair enough.

Vladimira, coming to your second part of the question on the gross margin, yes, we expect that gross margins will be positive in the future, going forward, because we will see obviously increasing sales. Also in 2011, significantly what we said before. And having said that, the write-off in the third quarter were below EUR0.5 million.

Okay, thank you.

Okay. So, Vladimira, this is Thomas speaking with regards to your question around potential timelines on C. diff. Obviously, I don't need to tell you that this is hard to predict at this stage because it will be pretty much data driven.

However, we expect, since we are talking here about toxin [immediate] immunity, which is a well known paradigm in the vaccine field, we believe that we will be able to have quite a straightforward development plan and so we expect round about five to seven years to licensure. And I think this is something that is quite -- this is -- maybe it might sound a bit conservative at this stage, but nevertheless I think it is in reach of what others in similar indications have been presenting.

If we are faster, we would be very glad. But we don't want to guide at this stage in the absence of any data and clear confirmation by regulatory expert advices towards faster timelines.

Thank you. Thank you.

The next question comes from the line of Peter Welford. Please go ahead with your question.

Yes, thank you. I have three, hopefully, brief questions. Firstly, on the financials, with regards to deferred revenues, can I just have an explanation, please, as to why exactly the deferred revenues decreased? Is this due to a revised timeline for those agreements? Or is it just that some of those revenues have now been fully recorded?

And can I just have clarity as well; am I right in saying that the fourth quarter includes a Phase II TD milestone for the India trial, but not a milestone for the Phase III trial that is going on in Guatemala and Mexico?

The second question then on the Staph vaccine, can we just confirm what's happened exactly with regards to the end stage renal disease trial? Previously, you've highlighted this data may not be available from Merck and now it sounds as though you expect them to be presented this year, so what's changed there?

And the preliminary analysis we're going to see of the Phase III trial, could that just be a stop-go analysis? Or is that actually -- will we necessarily get some data out of that? Or could it be just Merck deciding to continue the trial?

And then finally on the Pseudomonas vaccine, am I right in saying by the way you're talking that it's possible between -- that by making the vaccinations closer together you think you could get a more rapid immune response and, therefore, protection? Or did I misunderstand your comments on the vaccinations at day zero and day seven? Thank you.

So, Peter, starting with your financial questions, deferred revenue from our 2007 Novartis partnership is declining as we fulfill our obligations and continue to be fulfilling obligations that we have assumed in terms of developing programs forward under this agreement.

And in Q3 we showed Phase II data from Pseudomonas, which was one of the most important of these obligations. And as a consequence of having finished this, we are now reducing the recognition of that part of revenue that has been allocated to different programs. Obviously, other programs continue so you will see over many, many years still recognition of revenues as we develop those programs, but they are declining.

Second question, milestones; you are right to assume that there is a milestone linked to the Indian Phase II. It's not the only one that we expect in the fourth quarter. And we do not expect, as I said already, the Phase III milestone in the fourth quarter.

Peter, coming to your question on Staph aureus, on the dialysis study, Merck has been doing quite good job, it looks like, in doing the final data analysis. So we have been informed that they are progressing very well and that we can expect that this data will be available still this year in the final validated format. So we are very happy to see that happening, because it's an important study in terms of opening maybe another pathway for the vaccine in a specific patient and difficult patient population.

Number two of your question on Staph aureus, about the Phase III interim analysis, yes, it's a stop-go analysis, meaning if we would see at this point of the interim analysis that the data would be statistically significant as to the end point definition, this would allow us to stop the trial if data are pointing into a direction that on further recruitment and broader recruitment data will come to the end point analysis, and statistics that the trial can also be further recruited.

This is the nature of this adaptive design. And Merck is doing at this point in time a really great job in further recruiting in this trial globally, and we are happy to see the progress there.

I think your last question was around the Pseudomonas schedule of vaccination. Yes, there is an indication that if we would do faster vaccinations in terms of closer being together for the first and second vaccination then we could see faster ramp up of the immune response, and this could certainly help in many indications for this vaccine. This is, for example, one of the questions we are looking at, at this point in time, in our data discussion and way forward discussion with Novartis.

Great, thank you.

The next question comes from the line of Romain Zana. Please go ahead with your question.

Yes, good afternoon, gentlemen. Thanks for taking my question. Actually, most of my questions have already been answered, but maybe a follow-up question on IXIARO.

I understand that you highlight the long run (inaudible) needed to make the commercialization of Travelers' vaccine successful, but given you stick to your initial market expectation on IXIARO, I was wondering if you would have any idea of the potential gap there is with Novartis' initial expectation, which could explain their recent write-off of EUR75 million that they reported in Q3?

Yes, you're absolutely right. We think that we will have a very good chance to reach our market expectation for IXIARO and JESPECT, as we discussed before. There are many parameters underlying this assumption. We have said that this can be reached depending on the acceptability of the vaccine and the activities which are done in the different markets, fast or slow, which is obviously in this market not 100% to be predicted.

I'm not aware that anything related to, and this is the second part of your question, IXIARO has something to do with any numbers which Novartis was presenting on potential write-offs.

Okay. And maybe a follow-up question on the US military orders, because an uptake has been more or less guided for most [couple of] quarter. Do you have a clear visibility at the moment on the level of inventories that the US Army got on the old version from Sanofi?

Yes, it's Staph here. Yes, we are obviously communicating very closely with the US military, and as we guided before, and continue to guide, we expect this stock to expire by the end of the first half of next year.

And as I mentioned on page eight of the presentation, we are seeing an uptake in frequency of reordering from facilities. And, in fact, if you actually look outside of the United States for the military facilities, they are now only using our IXIARO vaccine. So, yes, we expect the inventory to expire within the first half of next year.

And you don't bear any -- do you bear any, I don't know, budgetary constraint on the US military which could improve looking forward?

No, we have not heard of any budgetary constraints.

Okay, thank you very much.

The next question is a follow-up question from the line of Guillaume van Renterghem. Please go ahead with your question.

Yes, hi. Actually, two questions. On your slide 12, you state that Staph aureus results in $14.5 billion in excess charges; I'm a bit surprised because the [CDC] states clearly that MRSA, I'm talking only MRSA, costs roughly $5 billion, so I'm just wondering what your $14.5 billion refers to. Is it Staphylococcus aureus in general, even actually outside hospitals? Or is it totally MRSA?

And on the Pseudomonas aeruginosa, should you have -- do you think it's possible that you may have to do an additional Phase II before moving into Phase III? And should you have to do that, who would pay for it? Would it be Novartis or yourself? Thanks.

On your question Staph aureus, very good one. Your MRSA number looks to be okay. But MRSA, as you know, is only part of the Staph aureus problem; it's only the antibiotic resistant or methicillin resistant strains which make round about 50%/60% of the problem. And if you double, we are coming closer to the numbers. Obviously, these numbers from different sources are a bit different, but we are coming close if you would add the whole Staph aureus.

Coming back on the Pseudomonas question, this is really a question we have a hard time to answer at this point in time because this is a bit premature, also the discussions which we have with Novartis.

We obviously have also to respect the next steps our partner would like to take here in the scenario and the collaboration we have here, so it's really difficult to say what kind of trial this time we have to do. In the future, we would like to comment on that when we had had a chance to really talk in-depth with our partner.

That's it. Thank you.

The next question is a follow-up question from Brigitte de Lima. Please go ahead with your question.

I've just got two very quick ones. The first is just on IXIARO. You mentioned that you expect sales to grow year on year, which is not very difficult because the last year's sales were 2.2, so I was wondering if you can comment on quarter on quarter increase as well? Do you expect an increase in sales, given that we're heading into the Christmas holiday time?

And then second, on the financials as well, any guidance you can give us on R&D? I know you mentioned that you're reaching a plateau in R&D, but given that you're completing several trials round the end of year next year, I was wondering if you would expect R&D to go down. Or do you expect to keep the same spend and just put it into different projects? Thank you.

Yes, I think, Brigitte, in terms of growth of the product, we are seeing some underlying growth. In fact, when I look at penetration rates in the various key markets, they are going up and we expect this trend to continue year on year and quarter by quarter.

On R&D spending, Brigitte, for the fourth quarter, we expect something similar than in the third quarter. Going forward, after having finished our Phase III efficacy study, which you know is, in terms of study conduct, a very difficult one sending travelers to endemic regions, this is the most costly part of the Phase III program to license. So, once we have finished that, we expect R&D costs to go down since Travelers' Diarrhea program is a main driver of R&D expenses.

Sorry, so should I read into that, that next year's expenses should go down a little bit? Or will they still be the same next year, and then we should look at a decline in 2012?

You should look at a decline.

Okay, thanks.

The next question comes from the line of Mark Pospisilik. Please go ahead with your question.

Hello. Good afternoon. Thanks for taking my questions. Just a few. One clarification on the guidance, because there seems to be a bit of a qualification included in that assumption of the positive outcome of the milestones. So just so -- am I -- that I just understand it correctly, that the guidance for EUR40 million loss for the year is in fact the guidance, and the Company is confident that it will achieve it?

And then two questions on Japanese Encephalitis. The comments now, that the ramp up will take time, takes investment to develop the market, am I correct in assuming that the way that Intercell's agreements are structured with its partners, Novartis, and CSL, and Biological E, that the investments will be primarily the responsibility of Intercell's partners in order to develop those markets and develop the ramp up?

And then on Q4 sales for Japanese Encephalitis, I was wondering if, since we're halfway through the quarter, and I'm assuming that the sales in Q4 will be driven primarily by military sales, you can give us any indication of what we can expect for Q4, at least relative to the Q3.

And then perhaps one final question, very general. In light of the comments about the difficulty in visibility going forward on the various programs, I was wondering if you could comment on when the earliest point we can expect Intercell to achieve sustainable profitability. Thanks.

Mark, yes, coming to your first question, Q4 milestone revenues, obviously, we are taking of milestone events and we will only see revenues if those events are positive, meaning we meet the defined milestone success criteria.

Having said that, these are not only binary things, like clinical study results. This is obviously a part, but there are other parts that are more operational and we think we can expect a positive outcome here. We could not do it, but we want to be clear on this; obviously if we would see a failure, then this would also have an impact on our financials.

On your JE ramp up question, I would like to come back very explicitly again to really avoid misunderstanding. We always have said, and there is no change in that, that it will take time that we ramp up the market. We were speaking about five to seven years in the past. We have no indication that this is not possible at this point in time. We obviously cannot say on the year, but -- in such a product because it's a product which has its certain dynamics. But we have not changed here what we have said before; I want to be very explicit on that one.

If it comes to the market, which needs to be built, it's also something we have said all the time, the money for that and the obligations for that, to pay for that is indeed in the hands of our partners; namely, Novartis, CSL, and if the product will be approved in the Indian sub-Continent, also of Biological E.

When it comes to the fourth quarter sales as compared to Q3, I think we can anticipate that we will be in the reach, or even slightly above that. But again it will depend on some military uptake we will see in the fourth quarter, which we are still working on, and this might make a difference here when it comes to probably a bit better than Q3.

Okay, thank you. And then any comment on earliest point we could reach sustainable profitability?

Biology will tell us. So we have very -- as you know, we have a lot of upcoming data, and obviously both our spending and our revenue line will depend on this point so we think we cannot comment on this stage.

Okay, thank you very much.

The next question is a follow-up question from the line of Guillaume van Renterghem. Please go ahead with your question.

Yes, sorry for this third follow-up. Just a quick one on the Phase III for the Travelers' Diarrhea in the US. Where do you stand on the second Phase III? When do you expect to start it, how much is it going to cost, when could it read out, and so on? Thanks.

Okay, so obviously the second Phase III trial in the US, if at all needed, right, will be subject to regulatory advice and clearance. In the US, there is a very precise process defined with the so-called end of Phase II meeting. We have not yet had the end of Phase II meeting for the United States, because we have not completed all the Phase II trials and data that are necessary to get guidance from the FDA.

As part of this end of Phase II meeting, we will also present the Phase III data -- or we intend to present the Phase III data from our current trial having European travelers into Mexico and Guatemala. And then we will determine, with the FDA, and agree with the FDA, a, the size of the trial, the number of subjects, but also the geographical setting of this trial. And this will then drive obviously the costs and, therefore, we are not able to give any guidance on timing or costs.

One thing we can say so is that the majority of these costs, and the key trial events will not happen in next year. They will be towards the very late part of next year, given just the timing of the close out.

So shall we assume that, should you be requested by the FDA to do a trial, we can't expect filing before 2013?

Yes, we will -- it depends again on the size of the trial. And as you know, the filing for the US is one regulatory pathway; the regulatory filing in Europe is another one. But it's possible that filing for the US cannot happen before 2013.

Thank you.

The next question is a follow-up question from the line of Gunnar Romer. Please go ahead with your question.

Yes, hello. Just one follow-up question on your R&D budget for next year. Would it be fair to assume something like 2009 levels? Or do you expect R&D even below? Thank you.

The trend should be lower; lower spending, since the most expensive part of our Phase III program, with the large trial for European travelers to Mexico and Guatemala, is now finished. This was the main driver.

However, we have to look at data that we expect in the next couple of weeks, and obviously this will put us in a much better position to give a more precise guidance on what we expect for the next year. So expect that we are prepared to answer these type of questions when we, hopefully soon, talk about the results of those trials, and also when we present Q4 numbers.

Thank you.

We appear to have no further questions at this time. I'll hand the conference back to you.

Yes, thank you very much. And thank you very much for all your very detailed and very, very good questions. Thanks for being on our call, and we are looking forward to speak to you soon at the next occasion. Thank you very much and enjoy your day. Bye bye.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect your lines. Thank you.