Valneva SE (VALN) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Intercell Q4 analyst conference call. At this time all participants are in a 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 your Chairperson, Thomas Lingelbach, please begin your meeting and I'll be standing.

Good morning to those of you in the United States, good afternoon for those of you joining from Europe and a very warm welcome to Intercell's quarter-four and preliminary full-year 2011 financial results call. I am here with my two colleagues from the Intercell Management Board, Staph Bakali, our Chief Business Officer and Reinhard Kandera, our Chief Financial Officer.

Well, let me introduce this call by summarizing briefly Intercell's key achievements in 2011. It is fair to say that after the setbacks the Company had to experience and the introduction of a renewal strategy mid 2011, the year 2011 has been marked by significant financial performance and full implementation of our renewal strategy.

All in all the headline could be that Intercell has delivered according to plan and to promise and to guidance, given mid 2011. We achieved JEV sales growth and with round about 70% on the higher end of our guidance, slightly lower collaboration revenues due to no new partnerships being concluded in the year 2011, but with solid foundation for potential new partnerships in 2012.

We successfully managed our cost reduction with a net loss going slightly below EUR30m, again, on the positive side of our guidance. And we achieved our organizational streamlining with a headcount reduction of almost 30% (sic - see presentation) compared to 2010. And we are very proud that we have been able to streamline the organization without jeopardizing the organizational spirit and the power and the energy and the commitment and dedication of our staff.

We have been prioritizing our R&D pipeline and all programs have delivered on the communicated milestones in 2011. The focus on the most promising and most advanced program has led to a total R&D expense reduction of round about 60%.

We have ongoing partnering discussions, be it in the area of new deals, be it in the area of further strategic options for the development on Intercell. And in this context we are also looking into additional funding opportunities for the Company and we expect those to be implemented by mid of 2012.

On page six we have summarized the key achievements from a research and development pipeline progression perspective. First of all, we have our program on JEV pediatric, the label extension for our existing product in the market, IXIARO/JESPECT. Here, we communicated positive results in the Phase II trials. We concluded the JEV India program with product manufactured at our partner, Biological E in Hyderabad, India, and, here, we obtained the product licensure.

We got clearance from EMA and regulatory clearance to progress with our pivotal Phase II/III trial in Pseudomonas and the study initiation is imminent. We have completed the enrolments on our Phase I study in the field of Pandemic Influenza. And we have seen first positive Phase I data from our Clostridium Difficile product candidate.

Tuberculosis still one of the key threats in infectious diseases worldwide. Here, we have supported a program, and we are supporting a program with our proprietary adjuvant IC31 and we can gladly report the entry of the first Phase II study. And last, but not least, we had communicated mid 2011 that we wanted to progress one pre-clinical candidate out of research towards clinical entry and we have identified Borrelia, Lyme borreliosis, as the lead pre-clinical candidate.

From a corporate structure point of view there are a couple of news I would like to announce as part of the introductory section to this call. As of January 1 Thomas Szucs has been elected Chairman of Intercell's Supervisory Board. He takes over this function from Michel Greco, who resigned from this role but still remains a Member of the Supervisory Board.

The new Chairman has served our Board since June 2011. He gained extensive experience in the pharmaceutical and healthcare sector through several previous positions in acknowledged organizations and companies.

We would like to take this opportunity to thank Michel Greco, who chaired Intercell's Supervisory Board for more than five years, for his dedication, commitment and great leadership. We are looking forward to working with the Supervisory Board under Thomas' leadership towards the future strategic development of the Company.

As we further announced, after six years with Intercell as a Member of the Supervisory Board and, more recently, as Chief Business Officer, Staph has expressed his intent to leave and to join the Clinton Health Access Initiative, as President and COO within a two-month transition period.

For those of you who know Staph's career history it will not come as a surprise that this is a great fit for him. Also we have said about his forthcoming departure -- I do understand his decision and wish him personally all the best for his future endeavor. For the time being we will not refill the position, as we continue to strive to operate with a lean organization.

We have established solid relationships with our global distribution partners and the US Military for our JEV vaccine and this will continue to be handled by an experienced marketing and sales team led by Jeff Hackman, President and CEO of Intercell's US subsidiary.

With this introductory part I would like to hand over to my colleague, Reinhard Kandera, to give us the financial report.

Thank you, Thomas. Good afternoon, ladies and gentlemen. I want to start my financial reporting and outlook on 2012 by giving you an overview on the solid fourth-quarter financial performance in 2011 that actually helped us to achieve all our financial goals for the full year.

Page nine summarizes important key figures from our Q4 financial results and it shows that we were able to grow our Japanese Encephalitis sales to more than EUR6m in the fourth quarter. The numbers confirm our tight cost control, especially in the R&D area, where we have significantly reduced and focused our spending. And as a result we were able to significantly reduce our net loss and to maintain a cash position of more than EUR50m at year-end 2011.

Moving to page 10 you can see not only the fourth-quarter details, but also our preliminary full-year 2011 results. Those numbers are still un-audited and we plan to publish final audited results with our annual report in April later this year. So let me briefly take you through these preliminary 2011 numbers.

Revenue growth was mainly driven by IXIARO/JESPECT sales growth. Overall revenue was slightly lower than in 2010, but please remember that especially the fourth quarter of 2010 included some revenue recognition effects that were not cash effective in 2010 as a result of discontinuation of our Travelers' Diarrhea program.

You see that for the cost of goods we were able to benefit from the fact that we have a single-purpose manufacturing unit, that we produce the product in-house, which has a significant level of fixed cost, but as we grow production volumes you can clearly see that the increase in cost of goods sold is much more moderate than the sales growth.

I've mentioned R&D expenses. It has been a great management focus to quickly reduce expenses in the R&D area, but also in the G&A area, to bring -- to adjust the standing of the Company to our strategic renewal plan that we implemented since the beginning of 2011.

You can obviously see that the reduction in net loss was obviously due to the fact that we did not have restructuring and impairment costs that were anywhere near the costs and expenses that we had to book end of 2010. And as a result you can see that our net loss is slightly below EUR30m and, thus, even is exceeding our own expectations that we had set at the beginning of the year, for a loss between EUR30m and EUR40m.

If you want to turn to page 11 in your presentations, please, to give you some further details on the key figures. We saw a slight decrease in revenues, as I already mentioned, but I would stress that with the significant growth of almost 70% of product sales the composition -- the quality of the composition and the sustainability of our revenues booked in 2011 has significantly improved.

I've already mentioned that we only had a moderate increase in cost of goods sold when we compare this to the significant increase in product sales. We've reduced R&D spending by 60%. We have reduced SG&A expenses by 20% and this includes even more reductions in the G&A part of this position, since our selling expenses have been slightly increasing as a result of increased revenues from product sales.

Our other operating expenses include currency effects and R&D tax credits. And under expenses and restructuring in the fourth quarter you find a small additional technology impairment and adjustment in the restructuring provisions that we had booked in late 2010 to reflect the actual cost situation in connection with the restructuring at year end. And as a result we ended the year with a loss of EUR22.3m (sic - see presentation) and a cash basis of EUR50.9m held in liquid reserves and in securities.

If you want to go to the next page, 12, in your presentation, I want to give you a brief outlook on the financial performance of 2012. We expect the positive sales trend for IXIARO/JESPECT to continue. We grew the product sales by more than EUR8m in 2011 and we again expect to grow product sales by EUR8m to EUR10m in 2012. In addition to that we expect upside from partnering and grant revenues.

I've mentioned that our gross margin can be expected to further improve with the higher capacity utilization. We will continue to be focused and cost effective in R&D and the measures that we have implemented during the year 2011 and that you have seen that have become effective in the third, in the fourth quarter, will be now effective as of January 1, 2012.

So we are operating for the full-year 2012 on a very lean basis, so expect costs to be rather below 2011 than higher, but we want to maintain a certain level of flexibility here. For the net loss, based on cost effectiveness and based on strong revenue growth, we expect a reduction in 2012 and we expect a full-year loss between EUR15m and EUR20m for 2012.

With that, I would like to hand over to Staph Bakali to give you an update on IXIARO/HESPECT sales.

Thank you, Reinhard. Good afternoon, everyone. As Thomas and Reinhard have both mentioned, we are pleased today to report a very strong set of results for IXIARO/JESPECT both for quarter four and for the full-year 2011.

Quarter-four sales of EUR6.1m represented a growth of some 70% (sic - see presentation) over the same period in 2010, thus, continuing the positive trend of posting strong sales growth over each respective quarter since launch. The strong quarter-four sales contributed to us meeting our full-year growth target for 2011. You will recall that we had a projected sales growth of 60% to 70% and we achieved total sales of EUR21.6m, which is an increase of about EUR8.8m, or 68.4% versus 2010, which is at the upper end of our growth forecast.

The key contributors to this growth have been, first of all, the US Military business. As of quarter[-two] 2011 you will recall Intercell became the sole supplier of Japanese Encephalitis to the US Military and we continue to work with this important customer, increasing the adoption rates among the four deployed personnel.

The second major area of growth has obviously come from the Travel market, where the selling efforts by Intercell and its global partners have yielded strong growth, especially in the key markets such as Germany, United Kingdom, Australia and the United States. Again, as Thomas and Reinhard mentioned, for the 2012 full year we are targeting to continue this sales growth momentum and expect a growth of somewhere between EUR8m and EUR10m versus 2011.

If you would please turn to page 15. In order to achieve this sales growth we will, together with our partners, continue to devote our activities and resources to areas of greatest potential.

In the Travel market our goal is to increase our penetration rates in markets with the largest sales potential, the United States, Germany, UK, France, Australia and the Nordics, by continued focus of promotional efforts on increased disease education and brand awareness amongst the key target customer groups of travelers, healthcare professions and corporations.

For the Military 2012 would witness our first full year as a sole supplier. Our goal is to continue to increase the vaccination rates, which suffered prior to the launch of IXIARO due to safety concerns over the old vaccine, through greater adoption of ACIP recommendation across all services and, thereby, expand usage and key bases in the Asian areas and also in Hawaii.

For the Endemic markets the focus this year is to achieve a successful launch in our first Endemic market, which is India, with our local partners, Biological E. The launch preparations are currently in progress and more details will be forthcoming at a later time. We are also evaluating potential selected entry into other markets with Novartis in the mid term.

Finally, on IXIARO I would like to just give you an update on the handling if IXIARO's first recall, which is progressing diligently and proactively. Just as a reminder, we are now proceeding towards closure of Article 20. We have identified the root cause and this has been verified. We are in the final process steps to complete the regulatory close-out requirements. And the preventative measures are under implementation to avoid future recurrence.

I would like to end on a personal note. As Thomas mentioned, after six years of deep involvement with the Company I intend to leave Intercell to join the Clinton Health Access Initiative. I do so at this time for two important reasons.

First, the strong results we have posted today show that the Company is in good hands. We have an experienced sales and marketing team and a well-established marketing and distributing network of global partners that will continue the growth of IXIARO and JESPECT. Secondly, I have been offered a rare opportunity to fulfill a long-term ambition of mine to give something back in a role and organization that marries my passions and experience for healthcare and developing countries.

Now I would like to hand back to Thomas who will give you an update on R&D.

Thank you, Staph. I would like to start with an update on page number 18. Page 18 summarizes our active development programs, still a diversified portfolio addressing areas of unmet medical need. I think the most important news here is that we have been progressing across all candidates according to plan.

There is one note I would like to give in connection with Hepatitis C. Here you will see that the planned collaboration with Romark testing this product candidate in a combination therapy has been discontinued for the absence of regulatory clearance. And we are evaluating new partnering opportunities at Intercell, but without any investment from an Intercell point of view.

Our lead program, Pseudomonas Aeruginosa, the number-one cause of ICU-related pneumonia, is proceeding towards initiation of our Phase II/III efficacy trial. Remember that we have successfully conducted a Phase I and a Phase II trial in more than 500 ventilated ICU patients and that, as part of the Phase II, we could find some real encouraging results, most predominantly, a significantly reduced mortality in vaccine groups.

And this basically led to the decision of Intercell and its partner, Novartis, to progress this program into the next stage, which is an efficacy trial. This efficacy trial will be conducted in round about 800 subjects and we will see an interim analysis after round about half of the subjects enrolled.

The trial will be performed by Intercell with a clear primary endpoint on day 28; mortality. And the trial will be co-financed by Novartis and Intercell, with an initiation expected very soon; interim data in 2013 and final data in 2014/2015.

Our Pandemic Flu and Vaccine Enhancement Patch program is pursuing to show, in a confirmatory fashion, the mode of action for an external adjuvantation. We are working for this trial with our partner, GlaxoSmithKline, and we could see in previous trials some promising results around external adjuvantation with a Vaccine Enhancement Patch, but also the potential for a single-application protection in combination with one of the most difficult to adjuvant antigens, namely, H5N1.

We have completed the enrolment of the current trial with round about 300 subjects and we are expecting data mid 2012. This means that subject to the outcome of the trial we have -- we will be offered with a multiple of opportunities in the field of external adjuvantation in general, but also in the field of Pandemic Influenza in particular.

Our next program, Clostridium Difficile, which is representing the leading cause of nosocomial diarrhea, is progressing nicely within its first clinical Phase I. And we presented to you last time that the trial is split in two parts. We call it Part A and Part B. The Part a successfully got completed showing good safety and immunogenicity and indicating functionality of induced antibodies.

This led us to the decision to progress into the target population, mainly elderly subjects above 65 years of age. We will slightly adapt the trial conduct in terms of vaccine concentrations to confirm the vaccine dose and necessity of adjuvantation.  And we will evaluate different vaccination schedules as part of this Part B trial.  We expect final data in 2013 and then, thereafter, decide on the next phases of this encouraging vaccine candidate.

Tuberculosis is representing a major global threat to our health economics and it is still the most common infectious disease in the developing countries, and caused up to 1.7 million deaths per year. We are working in a consortium with the Statens Serum Institute and Sanofi, supported by AERAS, but also supported by other, for example, European grant organizations. And we are very pleased that we can contribute to this -- to those major efforts with our proprietary adjuvants, called IC31, and this one got progress now in the very first Phase II trial in the field of Tuberculosis.

We are actively looking on further partnering in connection with our technology platforms, as show on page number 26, and there are three areas of potential partnering. And Reinhard mentioned about the upside we are planning from a financial point of view, from a revenue point of view, in the year 2012.

And this can come from either IC31, our adjuvant platform, where we have further indications and partnering under evaluation, but also from our fully-human antibody platform with very distinct advantages, where licensing and service business opportunities are currently in advanced discussions.

The patch technology -- despite of our failed Travelers' Diarrhea patch-based program we, thus, represent an innovative and validated system for transcutaneous delivery. Here also, licensing and service business opportunities are right now under discussion and we are confident that with this basket of potential partnering technologies we will be able to get the expected additional revenue stream in for the year 2012.

With that I would like to conclude, summarizing the outlook for the year 2012. So, first of all, think our renewal strategy is ongoing, which means the Company is progressing towards its next stage of development.

Reinhard has already articulated that we have given ourselves again very clear financial performance objectives. Just to summarize again; JEV growth EUR8m to EUR10m; additional revenue from existing, but also new partnering deals; and continuous efforts towards capital-efficient and lean operations, reducing our loss to around about EUR15m to EUR20m.

It is our aim to progress our R&D pipeline and our key programs according to the milestones just indicated, to deliver on the key inflection points and next-stage entries for those programs and to focus on research and innovation and deliver the next development candidate.

Last, but not least, we will continue to focus on the strategic development of the Company; entering into new revenue-generating technology partnering and partnerships; additional cash to provide secure funding into financial self-sustainability; and we are looking into various options to generate additional financial income for the Company, a financial cash coffer. We will continue to be opportunistic in exploring strategic business opportunities, for example, M&As.

With those three measures in combination we believe that we can generate value for Intercell's share- and stakeholders. And the last page, 29, just summarizes the news flow expected for 2012 to 2014. I'm not going to go into the details here, because I have mentioned all the key expected milestones as part of the R&D update.

And, with this, I would like to thank you for your attention so far and I would like to open it up now for your questions.

Thank you. (Operator Instructions). There will be a short silence whilst participants register for questions. Our first question comes from the line of Vladimira Urbankova. Please go ahead with your question.

Yes, hello, good afternoon. I would have just two very brief questions. The first would be related to Japanese Encephalitis vaccine sales. Could you give us maybe more idea of how was the actual territorial split in 2011? How big sales were achieved in the Military segment?

And maybe if you still -- how do you value the potential for the product? Because if I'm looking at the incremental growth planned for the next year it will be already fourth year since the product was launched? We are still far away from the earlier-indicated peak sales.

And then the second theme would be the strategic development, especially if you say that you want to secure funding. What would be the preferred scenario, sir? What are the options, in your opinion, and which one you would prefer? Thank you.

Okay, I will take the questions on the JEV. And to your first question about the split, as I think we've mentioned before, we don't give specific disclosure on the sales split. But it's fair to say that the growth in 2011 came from strong growth in the Military, where we have seen the increase in adoption of vaccination, having introduced IXIARO.

And, as I mentioned, the growth is also coming from the markets we want them to come from, which is the key travelers' markets. We saw particularly strong growth in Australia, with our partner CSL there who's doing a marvelous job, we think, given that they have a broad range of Travel portfolio and also the close proximity to the endemic region.

We saw strong growth in Germany. We are beginning to see some good growth in the United States. So whilst not giving you the split we had very specific, positive performances both in the Military and the key Travel markets.

In terms of the incremental growth I think it's important that we remind ourselves here that we set ourselves a goal of 5% penetration in the travelers' market over the long term. In the mid term, in other words, to 2015 we said we wanted to get to 2.5% penetration. And I would disagree with you a little bit in saying that we are well on the way to achieving that. I think if you look at the growth we've had in 2011 versus 2010 and with that continued growth in 2012 we will be on our way to achieving that stated target.

Coming to our financial strategy, Vladimira, I want to stress that 2011 was certainly a very difficult year for the Company. And I think when we reported now our numbers it shows very clearly where the Company stands; that we have reduced the cost base significantly, adjusted the spending according to our new strategic setting. We've also shown a very clear, strong trend in IXIARO sales growth. So I think from an investor's perspective it is much clearer now than it was in the mid of 2011, where [we spanned] financially.

We think in order to achieve our goal to become sales sustainable as a Company, on the basis of future cash generation from the Japanese Encephalitis product, it would be good to strengthen the cash position of the Company. In parallel to adjusting the revenue and the cost base we have looked at various options and we still want to keep all those options, so we will not express any preference. But this reaches from dilutive to non-dilutive, or mixed structures and we have been working very diligently and we are today confident that a good solution can be implemented until mid 2012.

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

Yes, good afternoon, everyone. It's Gunnar Romer from Deutsche Bank. I have a couple of questions, firstly, on your guidance. If you could help us understand and run us through your assumptions behind that guidance, in particular with regard to revenue, as I was wondering whether you could give us an indication of where you see income from collaboration licensing and grants for the current year, so for 2012? I think for 2011 we were at EUR11m. Is that a level that you think is reasonable also for 2012, or do you tend to achieve -- over-achieve that level, even?

Then secondly, on cost, and let me start with IXIARO first. I think you've now had a 17% gross margin for 2011. I was wondering whether you could give us an idea of where you see the gross margin developing in 2012 and also maybe on an operating level.

Then also if you could share some thoughts with us on your R&D budget.

And the last question would be on SG&A. Do you think Q4 is a reasonable run rate for the coming quarters? Thank you.

Thank you, Gunnar. So you are asking very concrete questions and I will probably disappoint you by giving not-so concrete answers. So where we see clearly a good trend is Japanese Encephalitis sales and this is why we have given the very concrete guidance, like in 2011. Where we still want to maintain and need to maintain some level of flexibility is how to achieve the EUR15m to EUR20m net loss target.

Obviously, as we have stressed, we aim for generating collaboration and licensing income, and the year 2011 is probably not a bad comparator for that. A part of this revenue is almost secured from existing collaborations, for example, the contributions from Novartis to our Pseudomonas program. But we aim to generate additional money also from new partnerships and some smaller existing partnerships.

And we intend to manage our R&D budget accordingly. Obviously, we will focus on the most advanced clinical programs, but when it comes to spending in the technology area we want to maintain some flexibility. And it will certainly depend on our ability to generate new partnerships on how much we will ultimately commit in spending for R&D.

And finally, coming to SG&A, yes, you can roughly expect Q4 to be representative, with a trend of slightly growing selling expenses as our product sales go up, and with a trend of reduced G&A spending. And you have heard today that we will reduce the size of the Management Board, for example, for the time being, so this will also contribute to an even leaner organizational structure and very strict cost control also in that area.

That's helpful, thank you. And at least you provided some detail here. I was still wondering whether you could share some thoughts with us on IXIARO profitability, please.

Yes. You were specifically asking for gross margin and we are also intentionally not guiding for a specific gross margin; we are guiding for a trend. And I think this is also very clear when you look at the 2011 numbers that, given the fixed cost structure of our manufacturing side, it can be expected that the gross margin will increase with increasing sales volume, but sorry that we are not able to be more concrete on that topic.

Maybe, then, let me ask that question in a different way. I think previously you were guiding to an operating margin at peak of north of 50% at your end, on the revenues that you are recording. Assuming you go to some EUR50m by 2014/2015, would you be able to post an operating margin north of 50% here?

Yes. The 50% order of magnitude is something that we have put out and that is still valid. And obviously until we reach that level of sales we will gradually improve our gross margin.

Gunnar, I would like to add one point. That because following your analyst report -- and you mentioned it now again, EUR50m at peak. This is not our peak. This has nothing to do with the peak. We have been expressing very clearly that we expect a mid-term guidance of 2.5% penetration rate, which represents EUR100m in market sales and roughly EUR50m net sales revenue to Intercell.

We expect the peak -- also a Travel vaccine has, by definition, no peak. But we expect the plateauing of the sales still at the level of 5% penetration rate, which is in the order of magnitude EUR200m, just for clarification to you and the others on the call.

Also very helpful, thank you. So that would be EUR100m roughly at your end? And I was wondering -- you are not putting any timeline behind this target. You are now talking about the 2.5% penetration rate in two or three years from now. Your intention is to go to 5% in the long term, whatever that means, but you are not giving any kind of timeline behind that?

That's right, Gunnar.

All right.

It's Staph. I think we've presented before the trajectory of travelers' vaccines and given some proxies as to what the peak penetration rates can be. They take time. The Travel market took over 10 years to develop. At least that's my experience in working for some of the larger vaccine companies. So -- but we could be more specific about our mid-term goals.

Thank you very much. I would have more questions, but I am happy to jump back in the queue now.

(Operator Instructions). Our next question comes from the line of Philippa Gardner. Please go ahead with your question.

(Inaudible) of questions, if I could. Firstly, coming back to the questions on guidance and the income from partnering and grants -- sorry, just to be very clear, does your current guidance assume, therefore, that you have -- that you will be getting new partnerships or deals at some point this year? And if you don't manage to sign any, what does that mean for your net loss outlook for 2012?

And then my second question is just referring to your other income, where I think you did just above EUR6m in 2011. How should we think about this for 2012? I know some of it was from FX, but there were some R&D tax credits in there, so how should we be thinking about this for the (multiple speakers)?

Now I have Miss. Philippa Gardner's question.

Thank you.

Yes, so this is Reinhard. Let me answer your second question first. Other income excludes largely two elements. One is R&D tax credits and this is a certain percentage of our R&D spending, so assume about 50% of the 2011 number to come from that. And this is an order of magnitude that you can also expect going forward in 2012. And the rest would be from currency fluctuation and this is certainly not under our control.

When it comes to partnering revenues, you've heard us say that we are committed to generate revenues also from new partnerships in the technology area. And we are working on some opportunities here. And it's clear for a biotech company that you have to generate money not only from products on the market, but also from products that are still in development. And this will be a key focus for 2012 and even beyond.

If it doesn't happen it's also clear that the level of spending on those technological areas would not be sustainable. But let me stress again we are confident and we are making progress in generating money also from new partnerships.

Thank you.

(Operator Instructions). Our next question comes from the line of Gunnar Romer. Please go ahead with your question.

Yes, hello, thanks for taking the follow up. I was wondering whether you could help us understand how you plan your R&D for the current year and what you see as a minimum level, or, to put it the other way round, where your flexibility would be to further cut R&D from, let's say, a Q4 level of EUR6.5m?

Gunnar, this is Thomas speaking. So I think we have -- we had R&D expenditure for 2011 in the other of magnitude of EUR30m. In this part we had still expenditure included in connection with discontinued programs as part of the patch technology, so, hence, one can expect slightly lower R&D expenses on baseline, obviously, for the year 2012.

So now when it comes to flexibility, obviously, we have a significant level of flexibility on our pre-clinical R&D which makes a substantial amount of the total R&D. And this is something that Reinhard mentioned before. This is a direct function of the technology partnering effort. So with partnering effort successful then costs will be there, partnering efforts not successful the costs won't be there.

And we can adapt the efforts in this area by a further streamlining and accommodating accordingly. In addition, we have some programs ongoing where we may or may not proceed and if push comes to shuffle we can always streamline the R&D portfolio further. So this is basically how we can and we will manage the R&D.

Thank you. And then my last question would be on your strategic initiative around funding and the opportunities you are currently assessing. You were speaking of dilutive and non-dilutive measures. I was just wondering how a non-dilutive measure would look like, given that banks are very restrictive in terms of providing credit. Yes, just against that background, and maybe with that regard, if you could address whether you are in discussions already with potential M&A targets or partners?

We would not comment on the M&A discussions. In terms of your question what could non-dilutive be, this could be tests, this could be partnering and this could be royalties.

And we have progressed discussions, otherwise, we would not be confident that by mid of the year we have implemented one of these possibilities and, again, we still want to keep all options open at this stage.

Okay, thank you.

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

What the (expletive)?

Okay, thank you so much for attending the Intercell call. Thank you so much for following the story and for the good questions in connection with this call. And we are looking forward to our personal interactions and the forthcoming call on Q1. Thank you so much. Have a -- still a good day or afternoon in Europe. Goodbye.

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