Valneva SE (VALN) 2011 Q1 法說會逐字稿

Good morning, good afternoon and good evening, ladies and gentlemen, and welcome to the Intercell analyst 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'd now like to hand over to your Chairperson, Gerd Zettlmeissl. Please begin your meeting and I'll be standing by.

Welcome, everybody to the Intercell call on the quarter one results. It's Gerd Zettlmeissl speaking. Please go to page three of your presentation. I'm here with our new CEO Thomas Lingelbach, our Chief Business Officer Staph Bakali and our Chief Financial Officer Reinhard Kandera and we will guide you through this call during the -- about next 30 minutes.

This is the last time that I'm opening an Intercell call. As you know, I decided to step back from my role as CEO and Management Board member last week after 10 years mostly very successful and satisfying time in supporting a small university biotech spin-off in Vienna to a fully integrated international biotech company. My step and decision was only possible because there is an excellent, experienced and highly complementary management team in place led by our new CEO Thomas Lingelbach. A team which I helped to build over the last couple of years and to which I hand over with the highest trust and confidence.

I would like to thank many of you participating in this call for their strong support and trust but also for challenging me and the Company when it was felt to be necessary. Please be so kind to join me in wishing Thomas, Staph and Reinhard and our second line management team, a management team which is very strong and very experienced, all the best in moving Intercell into its next step, and especially in wishing the team the piece of luck needed in developing highly innovative products. Luck which we did but always have during the last couple of months but I'm sure also will be part of the future of Intercell again.

With that, I would like to hand over to Thomas who will chair the rest of the call and would like to thank you again. All the best.

Thank you so much Gerd. Good morning to those in the US. Good afternoon to you who are here in Europe. Before we start with the quarterly update I would like to comment, just briefly, about today's handover. As many of you know, Gerd and I have worked as a team over many years in different capacities. He made outstanding contributions to the successful development of Intercell and I have learned a lot from him. Going forward, you can be sure I will lead the Company, drawing on my strength and the expertise I have gained over many years in this industry. I will be delighted to work with the experienced Management Board colleagues and our talented senior executives, striving to maximize the value of the Company.

Let me now turn to our quarter one business update starting on page five with our quarter one key highlights.

In general terms, one can say that our quarter one is delivering according to plan. Also, we all know that Staph aureus further development is still under evaluation and in a sort of a limbo.

The financial performance is according to plan and Reinhard will give you more details about our numbers with a good revenue growth of 19.7% year on year, strong quarter one JEV sales and our net loss reduced by 23.4% thanks to our successfully implemented restructuring activity.

Our pipeline and R&D programs are executed according to plan. As you know, we have agreed with Novartis to enter into a pivotal efficacy trial on Pseudomonas. We have initiated very nicely, delivering Phase I in the area of Clostridium difficile.

We very recently initiated a Phase I in PanFlu where we got to test our Vaccine Enhancement Patch together with an antigen delivered from GSK.

And we are still awaiting the risk/benefit analysis to be conducted by Merck on the ongoing Phase II/III trial in Staph aureus where the recruitment got temporarily suspended.

And, very recently, we also announced that, following the setback on the Travelers' Diarrhea, GSK and Intercell refocused and restrengthened its patch collaboration.

We don't need to talk more about the management changes as already indicated and announced. However, I would like to add two pieces of information. The first one that Alex von Gabain, our Co-founder and first CEO of Intercell, as well as Thomas Szucs, Chairman of BB Biotech and medical and health economics expert, are proposed as new Supervisory Board members, and that David Ebsworth will be leaving the Supervisory Board after eight years with Intercell.

In addition, we are planning, at or around the General Assembly, to update our strategic plan and to present a revised strategy to our analysts and shareholders.

And I think with these key highlights I would like to hand over to Staph Bakali who is going to give you an update on our Japanese Encephalitis area.

Thank you Thomas, and good morning and good afternoon everybody. We are on slide number eight, but before going into the details of the Q1 IXIARO performance, which, as we shall see later, has gotten off to a very good start indeed, I just wanted go over the reminder of the unmet medical need and market potential for Japanese Encephalitis.

I think we've mentioned before that Japanese Encephalitis is the most common vaccine-preventable cause of encephalitis in Asia and this, coupled with the increasing numbers of travelers to the regions, as stated by WTO, places Intercell in a unique position to respond to both the medical need and the significant market opportunity.

IXIARO is the only licensed Japanese Encephalitis Vaccine for travelers in the Western countries and, following the expiry of the old vaccine JE-Vax in the US military, we are now the only supplier to that customer.

As mentioned previously, the challenge is -- in the travel market is to build the market and therefore, increasing disease and brand awareness amongst travelers are key factors to maximizing the Japanese Encephalitis vaccine sales. And we believe that we have established a very strong global partnership to enable us to achieve our goals in the travelers and also to the endemic JE market.

If we switch to page nine, as you can see we achieved sales of EUR3.3m versus EUR0.4m for the same period last year which, given the traditional seasonal nature of this market, underpins the strong growth momentum for IXIARO.

We expect this growth to continue across all segments and the key drivers for these include continued increased sales in the key travelers' markets in the US and Europe, further planned rollouts both in Europe and in the private markets in Asia such as Hong Kong and Singapore, as mentioned, increased use in the US military and also benefiting from the broadening of national recommendations such as we've seen recently from ACIP with the booster recommendation per use.

On page 10, turning specifically to the US military business, we are seeing increasing adoption of IXIARO amongst the US military for a number of reasons. First of all, the stockpile of the old vaccine is exhausted and IXIARO is the sole product being supplied to the US military.

We also believe that the adoption is also being driven by the favorable safety profile of IXIARO. If you look at the graph on top of the map on the slide, this shows that the usage of JE-Vax progressively declined from 2000, but this trend appears to be reversing since the launch of IXIARO in 2009.

Finally, we have increased our marketing activities through the establishment of a dedicated account management team that is coordinating efforts with the US military both in the US and with bases in Asia.

In terms of -- if we go to page 11, the endemic markets, we are making very good progress towards making our vaccine available for this very important market opportunity. Following the successful technology transfer to Biological E, we have initiated our Phase II Phase III in a target population of pediatrics and we expect data still at the end of 2011 with a planned launch in 2012.

As mentioned before, with our partners, we have begun the process of rolling out IXIARO in the first private markets in Asia.

So in summary, we have seen strong Q1 sales driven by increasing private and military sales and this has provided a good start to 2011, underpinning the continued growth for this important product for us.

And now I'd like to hand over to Reinhard, who will take you through the financial review.

Thank you, Staph. And I want to start the presentation of our quarter one financials with a broad overview on the key figures on page 13 of your presentation.

You see that we could increase revenues by almost 20%, that we could significantly cut R&D expenses following the discontinuation of our Travelers' Diarrhea Vaccine program in Q4 2010 and you really see that we have managed to have a lean cost basis in R&D that puts us into a good position to drive our key programs forward on a lean basis.

As a result, our net loss decreased by more than 20% and actually, on an operating level, the decrease was more than 30%, showing that we are mainly on track to improve the financial performance of the Company and to reduce losses.

We have a cash position of EUR87.7m at the end of the quarter, which will allow us to drive our key development programs forward.

Switching to page 14, I want to briefly guide you through our P&L statement. For those who did not have the chance to look at it, our revenues were EUR5.7m, of which EUR3.3m were product sales of Japanese Encephalitis Vaccine, as Staph has mentioned.

Our cost of goods were EUR2.9m.

R&D expenses were EUR7.9m.

SG&A expenses EUR4.2m.

Other operating expenses were EUR0.7m which compares to EUR3.3m in Q1 2010. Remember that this operating income in the first quarter of 2010 was driven largely by currency effects that we did not see in this quarter and without this previous year effect the improvement in the net loss would have been even more pronounced.

Our financial expenses were EUR0.8m and this was driven mainly by financial expenses in connection with our convertible bond which was placed in the first quarter of 2011.

And we had tax expenses, which are largely non-cash and a one-off effect of approximately EUR0.5m, which led us to a net loss of EUR11.3m in the first quarter of 2011.

Coming to page 15, I can give you some more details on those figures. You can see that our revenues were, this quarter, mainly driven by product sales of Japanese Encephalitis vaccine other than in the comparable quarter of 2010 where it was largely driven by recognition of the deferred revenues from previous collaborations, So most of the revenues booked are now cash-effective in 2011.

Our cost of goods are EUR2.9m and we were able to show a positive gross margin on our Japanese Encephalitis product.

Our R&D expenses have come down significantly so we are well on track for the 40% reduction that we have previously announced.

Our SG&A expenses were largely flat with a small decrease in G&A and a moderate increase in selling expenses in line with increasing revenues.

I have already mentioned the financial result which was negative due to the convertible note, and you can expect higher interest expenses and lower interest income also going forward.

The net loss of EUR11.3m represents a decrease of more than 23%.

Our cash outflow in the first quarter on an operating level was still high, driven by a high level of trade payables and accruals that you see on our balance sheet at the end of 2010. So this cash outflow was largely driven by 2010 effect and is not representative of 2011.

In addition, we made the final payment to Cytos of EUR5m in connection with the acquisition of a monoclonal antibody technology also in 2010.

And at the end of the quarter we had EUR87.7m in cash and marketable securities.

Let me now come to the outlook and this is on page 16 of your presentation. We expect the positive sales trend for our Japanese Encephalitis vaccine to continue. And we do see the upside from milestone events and our partnerships and grant income for the rest of the year.

We expect our gross margin to further improve with higher capacity utilization and here really the second and the third quarter will be the more important quarters of the year for our product sales and this should further improve our margins.

For R&D expenses, we keep our estimate of a 40% cut compared to 2010 and we are -- we continue to be committed to drive our pipeline innovation in a focused way with this level of R&D spending.

On the SG&A side, we want to keep a tight cost control in G&A and you can also see the reduction of the size of our Management Board as a step here. And we expect this to be partly made up by increasing selling expenses as our Japanese Encephalitis revenue increased.

And, finally, we maintain our guidance for the expected 2011 net loss between EUR30m and EUR40m.

Thank you and, with this, I want to hand back to Thomas to report on our key pipeline programs.

Thank you Reinhard. I would like to give you a brief update on our key pipeline activities right now. You have all seen page number 18, the summary of our key pipeline, and I think it is important to note that also we have no Travelers' Diarrhea any more in this pipeline. There is still a very broad range of diversified product candidates to see here and a lot of opportunities in the next couple of years associated with those programs.

When it comes to Staph aureus, and I know that most of you are highly interested in hearing about Staph aureus, unfortunately, we cannot say more than what we have been saying over the last couple of weeks following the successful fertility analysis in terms of efficacy criteria. The Independent Drug Monitoring, or Data Monitoring Committee, has requested an advice to conduct a risk benefit analysis. As such, the trial got temporarily suspended in terms of its enrolment. This analysis is ongoing in Merck. Merck is the study sponsor here and we will hear from Merck once this analysis has been completed.

We cannot give a timely guidance on this at this stage. The only thing we can say is that we had numerous programs in-house where such an analysis was conducted by ourselves and it took us sometimes two to three months, sometimes even up to six months.

When it comes to the Pseudomonas program, I would like to turn to page number 21. Pseudomonas, we have been talking about it a couple times. Clearly very high unmet medical need and we have a very interesting product candidate based on a recombinant OMP F/I fusion protein and you all know that we saw very interesting data as part of the Phase II trial where a significantly reduced level of mortality could be shown.

This has led Intercell and Novartis to jointly enter into a next pivotal efficacy trial and this will be a double-blind randomized placebo-controlled study. The final design, and especially the nomenclature will still be subject to a clearance with the regulatory authorities and scientific advices are foreseen within the next couple of weeks.

The trial will be performed by Intercell based on and leveraging our expertise and strong capabilities we built up during the execution of the previous trial. And, as I said already, the cost will be shared in-between Intercell and Novartis. In total, round about 800 patients in this trial and primary study endpoint with a mortality on day 28.

And it goes without saying that, if successful, this can be and will be a real blockbuster in the field of vaccination and open a complete new paradigm in the field of nosocomial infections.

Talking about nosocomial infection, let me turn to page number 23, our C.diff program. Let me remind you that Clostridium difficile is the leading cause of nosocomial diarrhea and estimated to affect up to 3m cases annually in the United States, primarily in the elderly. And we have been starting this program out of our own research organization; have been developing it into clinical development in record time and are currently conducting a Phase I clinical trial. Also it is more a Phase I/ II setting because we are already showing dose escalation and the trial has two phases and two parts; one in the healthy adults below 65 years of age where we will see first data still this year. Subject to positive data, we will then immediately enter into the Part B. This obviously needs to be decided by the Data Safety Monitoring Board and the Part B will already be conducted in elderly B target population and first in the recurrent setting.

Page number 25, our Pandemic Influenza program. We have been talking about the Pandemic Influenza program in connection with our Vaccine Enhancement Patch a couple of times. Just to remind you, we had some good news and some bad news previously around the Vaccine Enhancement Patch in combination with the Pandemic Influenza vaccine antigen.

We had, on page number 26, a very good result of a first Phase I trial where we even met the FDA guidelines of above 70% protection rate for pandemic influenza vaccine with a single application, meaning a single shot of an H5N1 vaccine combined with a patch on top of the affected -- injection site.

We tried to repeat this result in a Phase II setting. And also we had some positive results out of this Phase II. The clear dose dependent response to the H5N1 antigen could not met and we had to basically enter into a major investigation. And also we have not found the final definitive root cause for those results in the Phase II. We got a lot of indicative factors that have led us, with our new partner, GlaxoSmithKline, in the patch arena to basically proceed with the clinical development.

And we are very pleased that we are now able to start a new trial, which was formally a Phase I trial because obviously with this new antigen from GSK, it's a new clinical development start. And in this trial, we will evaluate certain things that are basically presented on page 27.

The study design is slightly adapted compared to the previous trials. Two different vaccine antigen concentrations, with and without patch, two applications, one application in combination. In total, we have 300 people in this trial. And, for the first time in this pandemic influenza setting, we have a head-to-head comparator, based on GSK's approved pandemic influenza vaccine, based on 3.8 microgram HA and adjuvant with ASO3.

The primary study objective will be to evaluate the level of adjuvantation and when administered with two doses as well as one dose. And we are hopeful to see some good determining and definitive results out of this trial, and hopefully results that will further support the validity of the idea around external vaccine adjuvantation, meaning vaccine enhancement patch.

On page 28, just very briefly what else do we have in terms of ongoing development programs. First one, we have a Hepatitis C vaccine candidate. And we will shortly start a combination trial with Romark's antiviral NTZ. This is still planned for the second quarter in 2011. We are quite excited about the opportunity to evaluate this combination therapy.

We have our tuberculosis vaccine where we contribute with our IC31 where the start of a Phase II in endemic countries is still planned for this year. And our partner Novartis has just recently started a new trial with IC31, which is the first in-man trial, with an undisclosed material indication.

I think with this rough overview about our key pipeline programs and just focusing on the key essentials and key progress points, I would like to turn to page number 30. And we have been talking very recently over the last couple of days, about our plans to start with a new strategic setting. We would like to focus the Company going forward on clear sustainability. We know that we have to work around rebuilding of shareholder trust. And we have started some strategic evaluations and considerations and decided on a reshaped strategy, together with the Supervisory Board of Intercell.

We are currently in the process of fine-tuning this with the Management Board and our key executives in the Company. And as I said before, we intend to present a reset strategy at the General Assembly Meeting in June. And we are still working around the logistics how we are going to do that, but it will be either at that date or around the date. Thereafter, we will give us some time, but not more than a quarter, to implement and execute on those key strategic elements.

To many of you we have been saying over the last couple of days that we expect the reshaped strategy to be an evolution rather than a revolution. It is very clear that we will build on our key strengths and capabilities, that we will leverage on our expertise and competence in many areas, but that we will strive towards strong financial sustainability, that we will further focus on maximizing our value of JE (sic), and that we will manage our pipeline more in an opportunistic way basically with a strong risk/benefit approach. And that we will build on our strong partnerships, as we have recently shown with GSK, where we have been able -- that despite of a failure or a setback entity, we were able to reshape the collaboration in a very constructive and fruitful manner.

And last, but not least, it is important that Intercell still has a strong scientific foundation, as Reinhard said. Despite of all our cost cuts, we are able to maintain and to support our innovative approaches within the Company.

On page 31 you have the key forthcoming milestones summarized -- just as a summary in terms of the key programs and events. On JE, we will still expect Phase III data from children for travelers' markets. You know that we have a pediatric label extension program ongoing and we will see approvals in endemic countries, as we have seen, for example, already this year with IXIARO with Singapore.

We have been talking about Staph aureus. We will start the trial for Pseudomonas hopefully still this year.

We will basically see the combination study for Hepatitis C over the next couple of weeks. We are expecting further studies (inaudible) and further development steps and agreement on development steps on [pneumococcus]. And we talked about IC31.

And addition, it is fair to note that we have a whole variety of very interesting pre-clinical programs that we are advising and we are advancing at full pace and full energy.

And with this update, I would like to hand over to the operator to take your questions and answers.

Thank you. (Operator Instructions). The first question comes from the line of Guillaume van Renterghem. Please go ahead with your question and announce your company name.

Yes, hello, Guillaume from UBS. I have a few questions if you don't mind. The first one is on IXIARO. I know that you don't break up revenues between the US market and the travelers' market, but I was wondering whether you can tell us what of these two markets has benefited the most to Q1.

So second question is that you mentioned that you have reshaped your GSK collaboration. Could you provide more detail on what has changed on the projects that exclude GD and do we need to understand that you have reduced your financial interest in the patch technology?

Maybe a third one, if you don't mind, on the timing of pseudomonas aeruginosa. Could you provide an update on when you may expect a Phase III result? And I'm just wondering as well, why do you say that most clinical centers will mostly in Europe instead of the US? Any reason for that? Thanks.

Okay. So we will start and the first question will be answered by Staph.

Yes Guillaume, it's Staph here. Thanks for your question. You're right. We don't give the specific breakdown of IXIARO sales between the US military and the travelers'. But I can tell you that the Q1 sales, although we've seen growth in both areas, is still mostly the travelers' market that the sales come from.

Okay. So next point, Guillaume, this is Thomas speaking, reshaped GSK strategy. We have announced very recently with the start of our -- initiation of our Phase I trial in the area of pandemic influenza that obviously we have terminated the parts around the previously foreseen marketing and distribution of travelers' diarrhea. This gives us also an interesting opportunity obviously to have all rights back around LT and possible things we might or might not do with LT. We have also basically terminated the commercial parts that have to do with other potential programs close to commercialization, and focus on the delivery technology. As we have said, that is governed on the so-called vaccine patch collaboration and licensing agreement where we will try to leverage the patch delivery device as a novel and breakthrough system for existing or new antigens and/or adjuvants. And this is how we have reshaped the setting around GSK.

You had one more question around the financial interest and if we have reduced financial interest in patch technology. Reinhard, do you want to say something?

I'll just say obviously our standing on patch programs, given that we no longer run a Phase III, is much more moderate.

On the GSK collaboration, in our aim to convert GSK vaccines into patch delivered vaccines, those programs are funded by GSK. And we get reimbursement for our work done in connection with that. And we are eligible to receive up to EUR40m in milestone payments to our program and mid single digit royalties. That's unchanged.

Thank you. Then we had -- the last question Guillaume was around pseudomonas and timelines. So right now it is -- we are a bit careful in giving the guidance around the timing on pseudomonas. Why? Because we did not have the scientific advices yet, so we still need a couple of weeks. But we are assuming that we will see first data in a sort of an interim analysis, which will be designed as a fertility analysis already in the year 2012, towards the end of 2012. But again, this is still subject to clearance with the regulatory authorities. But we really intend to have a fertility analysis into also mitigate risk versus benefit at the right point in time.

And so we assume that this interim data analysis will be after a certain number of events, meaning --

It will not be an event driven. We are -- since we have a mortality endpoint here, what we will do is we will start this, or conduct this facility analysis after around about 50% of the subjects enrolled, provided that all the assumptions around incidents are similar to what we have seen in the Phase I and Phase II trials before.

The last part of your question was study in US versus Europe. This has something to do with the centers we have been working with. Why do we primarily conduct the study in Europe? Because we have well established centers coming from our previous Phase II trial and we have to leverage this infrastructure because, as you can imagine, it took us a long time and a lot of effort to set up a trial execution infrastructure in the setting of ICU patients on mechanical ventilation. That's the only reason. And we believe that wherever we're going to conduct the trial, if the efficacy data will be good and convincing in terms of reduction mortality, any authorities in the world will accept those data as pivotal whether the trial got primarily recruited in one or the other regulatory jurisdiction.

Okay. And sorry, because to follow-on on this one and then I'll stay back, what infection rate did you see in the Phase I and Phase II?

Well we were obviously seeing a pseudomonas case rate that was not very definitive because, as we had reported before, we had -- this was highly variable. And that's due to the limited -- to the low number of infections around pseudomonas. We were basically not seeing any major differences, as we had reported before. That's why we were positively surprised about the mortality results and the reduced number of mortality. However, in order to see the respective mortality, we have assumed that there is a baseline mortality in the hospitals, in the ICU setting. And this is what basically drives then the distinction in between the power and the number of subjects.

And can you share with us the assumption? Is it 20%, 25%?

Around about this number yes.

Thank you.

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

Good afternoon. I'm Brigitte de Lima from Bank of America Merrill Lynch. I think I've got four questions. The first one is when you talk about the IXIARO sales to the US military you say that sales should increase due to higher vaccination rates. Is there something that -- is this your assumption or has the US military actually confirmed that they intend to increase the vaccination rates as soon as this year? I'm just wondering if you can clarify that.

And then you talked about milestone payments this year. I was just wondering if there was any other major milestone that we should expect from any of your partnerships other than the potential milestone associated with the Staph aureus vaccine.

On the management changes, you talked about maximizing the value of JEV. I'm just wondering if you can be a little bit more precise on that. Could that potentially include Intercell setting up its own sales force in some of the Novartis regions to increase the marketing effort behind the vaccine?

And then lastly, on the antibody platform that you bought from Cytos, are you actually doing anything with it at the moment or is it just on standstill while you sort through the restructuring and prioritize other programs? Thank you.

It's Staph. And the question you asked on the US military increasing uptake, whether that's our assumption or we've been told by the military. I think I pointed to the chart I showed earlier, where we clearly saw since 2000, a reduction in vaccination rates. This is based on the numbers that come from the US military, largely, I think, due to the safety concerns of the old vaccine. And as you can see from the graph, since the launch of IXIARO amongst the US military, we have been seeing these vaccination rates go up.

The other thing to mention is yes, we are in close connection with the US military, both in the United States and obviously out in the Asian markets. And our assumptions are based on those discussions with them, as well as the fact that we're seeing the curve turnaround.

Regarding your question on milestone income, obviously the most significant milestone would be associated with the Staph aureus program where the trial is currently suspended. So the main driver of our revenues is certainly Japanese Encephalitis sales. But as you know, we have a couple of partnerships and a strong technology base that could generate smaller milestone payments which will contribute to our revenue growth in 2011.

With regard to maximizing the value of JEV applicator, yes we are considering obviously also here all options. In support of any strategy going forward, we need to make sure that we maximize the top line around JEV, but also the profitability and turn the product into its profitability area very, very soon. And I think when it comes to top line, we are quite encouraged, as Staph has reported, about major progress in some key territories. We have started to support, in some territories, even with own key account management teams and there could be opportunities should this concept be successful to expand it also into other arenas.

When it comes to the antibody platform, we have acquired the antibody platform from Cytos. Since that time we have been working on some key targets with a quite limited number of resources in this area. However, we have focused on two, three candidates, which we have not disclosed yet at this point in time and we will try to enter into respective partnering or commercialization discussions around those first results, which are quite encouraging at this stage. And we believe there is still a lot of value in this antibody technology, both from a screening, as well as from a product identification perspective.

Sorry, can I just go back to the question I had on maximizing JEV? I'm not sure I understood whether you are actually considering maybe setting up a sales force. Is that an option at all or not necessarily?

It is an option, yes.

Okay, thanks.

The next question comes from the line of Vincent Meunier. Please go ahead and announce your company name.

Hello gentlemen. Thank you for taking my questions. The first one is a follow-up question on the pseudomonas vaccine. Can you tell us if the trial is filable everywhere in the US and in Europe? And very simple, why isn't it called Phase III? Why don't you call it Phase III? In other words, would you need to conduct another trial in the case this one is positive before filing?

And the second question is on the strategic restructuring. Can you tell us, just to clarify, if a sale of the Company is an option, as it has been suggested recently in the press articles? Thank you.

So I will take your questions. So first of all, pseudomonas, so first of all, we are basically presenting the trial protocol as the final design to the authorities, as part of the regulated scientific advice process. So we will present different options and also in terms of scalability and sizeability of the trial, an amendment of the protocol should be possible.

As part of this discussion with the respective regulators, we will discuss the protocol under which this trial will be conducted. This is not a straightforward one and this is why we have not given this trial a name yet. And I'm sure you have all recognized that we have not given it any other name but pivotal efficacy trial. And whether it's going to be a Phase IIB, a Phase II/III or a Phase III, we -- it will be discussed with the authorities and basically concluded thereafter. We are pretty certain that obviously the trial can be a pivotal trial and will be a pivotal trial, so data in support of licensure and I think this is the most important factor.

When it comes to the statement around selling/not selling, whatever, we have been asked, and have been asked specifically over the last couple of days, many times about what are all the strategic options or what is it about that the Board has given to the management team in terms of clear new mandates. And I have said, and stated many times, that we are essentially evaluating all options and the options we have, have to include also to potentially evaluate a sale of the Company. However, this is not our preferred strategic scenario. But we, as a management team, have to evaluate different options as part of our strategic evaluation process.

And let me remind you one more time that we have a very solid foundation here at Intercell and we believe that there is a lot of value to gain within its current setting without playing the exit game.

Thank you very much.

The next question comes from the line of Gunnar Romer. Please go ahead and announce your company name.

Yes, good afternoon, everyone, it's Gunnar Romer from Deutsche Bank. My first question goes again to the JE vaccine. If I remember correctly, you haven't confirmed your guidance for 2011. But on the other hand, you seem to be very encouraged about Q1 performance and also prospective performance in the upcoming quarters, also based on the uptake of the military sales. I was just wondering, given your current indications, whether you would see rather -- or whether you feel more comfortable or in fact do see upside to your guidance for this year.

And then second question goes to the PanFlu program. Could you remind us of the funding structure here, i.e. if I remember correctly, you are funding the program, the direct trial cost, but you are still in negotiations with HHS on potential funding. An update here would be appreciated.

And then lastly, on your financial guidance, the EUR30m, EUR40m seems to include significant milestone payments, probably around EUR20m, based on my calculations, where the largest part probably should come from Staph aureus, i.e. could you shed some more light on where the other potential milestones could come from, where -- how we should think about that here? Thank you.

Gunnar, it's Staph. Coming back to your question on the JEV and the guidance, you are right; we are very encouraged by the Q1 sales. But we would prefer, at the moment, to maintain our guidance of the growth of 60% to 70%.

Okay. So when it comes to the PanFlu program Gunnar, the structure is such that since we repeat basically here a new setting that we have been conducting in similar ways before, we will conduct the trial at our expense right now. And subject to data, we will be working with HHS on a potential funding structure.

And on the net loss guidance, I have to say that we intentionally guide for a range of the net loss and we do not guide for these specific components of the net loss in terms of revenues. So we are committed and I think we are well on track to meet our net loss guidance.

We have shown, I think, with our Q1 results, that we are capable of adjusting our cost base and our financial base quickly, depending on the outcome of events that are not easy to predict in our industry. And we do currently still have a situation of uncertainty, but we are very much committed to this bottom line guidance. And hopefully it will be supported by a good lever in revenues. But we certainly have the flexibility to make adjustments to meet it in any case.

Thank you. Maybe one follow-up. You were very successful in cutting R&D, mainly because lower activity in the pipeline. Thinking in terms of R&D, of the upcoming quarters, should we expect an increase in R&D sequentially? And also, relative to your current cash position and the potential increase in R&D, given progress in your pipeline also probably next year, how comfortable do you feel at this stage with your current cash position?

Coming to the first part of your question, R&D expenses, we also maintain our guidance of a reduction of about 40% compared to 2010. So this means that in the next couple of quarters, we may see R&D expenses that are higher than we saw in the first quarter. And in terms of the cash position, we feel that we have sufficient cash position to support our programs. However, we are doing a strategic evaluation, as Thomas has mentioned. And we certainly will also look at the issue of our cash position and present a strategic update in a couple of weeks.

Okay. Thank you very much.

The next question comes from the line of Peter Welford. Please go ahead and announce your company name.

Hi. It's Peter Welford at Jefferies. Just a couple of questions I think left please. Firstly, on the strategic review that's ongoing, I guess I was intrigued by your comments that you're trying to manage the pipeline in a more opportunistic way. Should we read from this that you're going to look to out-license a greater number of potential either technology platforms or vaccines? Or should we read this as you're potential going to renegotiate the collaboration with Novartis, because I guess I'm just curious, given a lot of the vaccines in development are currently already under a Novartis agreement, and hence you have to pay from the trials until Phase II before Novartis could potentially exercise an option. So to some extent, your strategic options available to you from many of those vaccines I would have thought are somewhat limited unless you go back to Novartis and consider a new agreement.

And then the second question is just on the Staph vaccine again and the update we have on that. Will you get an update, or are you getting updates from Merck at all until the final outcome, or do you have to wait until Merck announces a final result as well to potentially find out the conclusion of that? Thank you.

Okay. So Peter, this is Thomas speaking. So the first one is when we said -- or when I said opportunistic, opportunistic can mean different things. And we have intentionally used the word opportunistic because all the things that you have alluded to are obviously currently being evaluated by us. We do not need to necessarily develop everything to the extent you described. We do not necessarily stick to existing terms and conditions, as we have previously shown with our pseudomonas setting with Novartis.

And last, but not least, there are a couple of other things that we can do, for example, also get programs in at different stages of the development.

When it comes to the situation around Merck, yes, with Merck it is exactly as you described. Please keep in mind this is still a blinded trial and therefore only a very defined group of people is seeing the underlying data and the group is formally unblinded. And we will only hear anything from Merck once they have come to a final conclusion.

Okay, that's great. Thank you.

The next question comes from the line of Peter Duellmann. Please go ahead and announce your company name.

Yes, that's Peter Duellmann, Macquarie. A quick question on the sales performance of IXIARO in the quarter. Going back into last year, we have seen that some of the orders needed to be postponed into the second quarter. Was there a kind of inventory building in the first quarter this year, or is this, as far as you can see it, the in-market performance mirrored by the sales you have so that we do not need to expect a burden for the sales performance in the second quarter?

Peter, thank you. It's Staph. You're quite right that last year -- I think it was due to some delayed releases -- some of the sales were pushed from Q1 to Q2. But even when you look at that, we're actually seeing -- and you adjust for that, we are seeing significant growth over the same quarter last year with the sales numbers we've posted this quarter. And they reflect that increase in sales and not necessarily a stocking up in the market of inventory that would impact Q2.

Thank you very much.

Next question comes from the line of Mark Pospisilik. Please go ahead and announce your company name.

Good afternoon. This is Mark from Kempen. Just a couple of questions. Actually, going back to slide 10 and this graph of the utilization rates for the US DoD, I was wondering if you could give any indication of the units that the graph uses or reflects even going back to the starting point, the 2000 bar column, representing year 2000?

Also, maybe a question for Thomas. Aside from any strategic review that's ongoing now, do you see an opportunity to put your own personal style either on Company communications or management of expectations going forward?

And just maybe two more quick ones. You mentioned the financial sustainability. I was wondering if reaching profitability or breakeven will now take a higher priority in perhaps deliberations about the strategic review, etc.

And then maybe one last question on the Vetmedica Boehringer Ingelheim, if you could maybe just provide a comment, sort of status update of where that collaboration is. Thanks.

Shall we get started, Staph, with some of the DoD numbers?

Yes, Mark, you're right, we don't usually give out units per segments that we sell to. Maybe what I can say to help you here is that if you actually look, the available vaccinations in the military in 2000, that represented somewhere over 50%, whereas, you know down to 2008, that was somewhere between 20% and 30%. It's as much as I can tell you right now. I think the important thing is to see the upswing that's occurring there and therefore, the opportunity that existed before and also in the future, we're very optimistic about.

Maybe just to clarify. So those utilization rates represent the amount of vaccine on the market that was bought up by the US DoD.

It's actually the utilization of vaccines by the DoD, yes.

Okay. Thank you.

I will start with your second part of your question first. You asked about potential profitability based on financial sustainability. The answer is yes, we will put a stronger focus on the financial sustainability and the leverage of resources. It is part of our strategic evaluation. Will we be able to tell you today by when the Company would like to achieve profitability? No, not yet. But what we can say today is that we will be striving towards reducing our losses constantly, over the next periods to come.

When it comes to Company communication and the way we basically interact together, I hope that I will be able to give certain things my personal style. Also I believe that in many areas we have been communicating very nicely with our analysts. But nevertheless, yes, I intend to give it a personal flavor, if you wish.

Thanks. And maybe just add the one question, maybe a quick comment on Boehringer Ingelheim Vetmedica collaboration.

Yes, it is a research collaboration in the area of particular vaccines for veterinarian use and it is progressing well. But at the same time, as you know, early stage research.

Okay, great. Thanks.

(Operator Instructions). And we have a follow-up question from the line of Gunnar Romer. Please go ahead.

Yes, hi. One more follow-up on pseudomonas if I may. Could you remind us of the cost involved for the trial and up to which stage exactly you're factoring costs in your own assumptions currently?

The total trial costs, again, are currently in -- we have reported that the total trial costs will be in the order of magnitude EUR20m to EUR30m. We believe, as things stand today, even at the lower end of this range and the fertility analysis will be after around about 50% of the subjects enrolled. This does not reflect 50% of the cost because, as you can imagine, the costs are more front-loaded than back-loaded. And we are assuming that until the end of the trial, there will be a co-development and a co-funding with Novartis. And this is the current assumption in terms of our business modeling.

Okay. And as this is probably a pivotal trial, as you mentioned earlier, does this also include costs for filing?

No.

Okay.

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

Good. Thank you so much for all your interesting and challenging questions. And we look forward to talking to you again, latest at the quarter two call and in-between, hopefully, as part of many interpersonal interactions. Thanks so much. Have a good day. Bye-bye.