Valneva SE (VALN) 2017 Q2 法說會逐字稿

Good day, and welcome to the half year 2017 financial report. Today's conference is being recorded.

At this time, I would like to turn the conference over to Thomas Lingelbach, CEO. Please go ahead.

Thanks a lot. Good day, and welcome to our Quarter 2 H1 Financial Results Analyst Call.

Today is a very special call in many regards, first of all, of course, as you will hear later during the call, we're going to present a very solid first half of the year 2017, in terms of financial results and a very good first half of the year in terms of major R&D milestone progressions. And overall, of course, a half-year marked by delivering to our promises, which in our setting is maybe the most important value.

But there's another reason why today's analyst call is extremely important, it's an important milestone in the history of Valneva because we have expanded our management board. And I am extremely pleased and proud to have new very seasoned and very experienced colleagues on the management board.

It's a pleasure to welcome David Lawrence, our new CFO, who is really an experienced CFO with strategic and business development skills. And you can find in your -- in the presentation, not only a clear indication in terms of his age but also an indication in terms of his clear merits that he gained throughout a tremendous career in the biotech and life science and pharma industry.

I would also like to welcome Wolfgang, Wolfgang Bender, our Chief Medical Officer. Wolfgang has been working and advising Valneva for quite a while. He is a very international, senior expert in the field of scientific-medical affairs, drug development of vaccines and pharmaceutics, but Wolfgang has and is bringing a lot more, given his very broad and strong scientific background and foundation.

I don't want to go into all the nitty-gritties on newsflow for the first half. I mentioned already the most important aspect of H1, and we come back to all those newsflow items that are shown on Page 5 during the call of today's meeting here.

So with that, I would like to hand over to David.

Good. Thank you, Thomas.

The first thing I'd like to say is, many thanks to Manfred and the finance team of Valneva, for doing such an excellent job during this year, and I look forward to working with them. It's also great to join the management board. I look forward to working again with Thomas, because we've good experience in the past, but also with Franck and Wolfgang and Frédéric Jacotot, who comprise the management board. Also to my IR team, including Laetitia, and so this is a great opportunity for me and it's great to join Valneva at such an exciting time, and particularly, given that we've got excellent results and such a valuable RD pipeline. I also look forward to meeting with you, the analysts and the investors in this call. And in some of those cases, I'll be renewing acquaintances from previous roles.

Now on to the results. And here, I'm going to take a break from the traditional Valneva financial slides. So the way we'll do this is, I'm going to take us through the highlights. And then Manfred and I will handle Q&A at the end.

Here we have a nice pie chart with a picture. And what I want to do is basically show some of the key financial points regarding the business performance and also it'll give you a picture as to where we're investing in terms of one of the main R&D value drivers, namely Lyme, which highlights the future value of the company.

So on the pie, you can see our excellent sales performance. Total revenues for the first half of the year of over EUR 55 million. And in particular, that's driven by our 2 main products for Japanese encephalitis and for cholera/ETEC. These provide the bulk of our revenues and they continue to grow well.

I'm going to leave the details as to the really good reasons why we're seeing good sales performance for Franck in his presentation, but we're seeing good growth in the U.S., Canada and the U.K. in particular, and we are going to continue to invest further in direct sales, where we control the commercial activity, and that's really why in this slide you can see product sales of almost EUR 50 million for the first half of the year. That's a number we will continue to focus on. And the direct sales proportion is almost at 3/4 or almost 75%. And this is where we want to see further growth in the future.

And the margin at over 50% is excellent despite some write offs. And we anticipate the excellent work that's ongoing by our manufacturing teams in Livingston in Scotland and Solna in Sweden, can see this margin improve further over time. These points basically, of course, give us very good results for the half, including good EBITDA performance and cash of over EUR 60 million generated.

So if I can move to the next slide, please. And here, we're going to a little bit more detail. We don't pick off in every number, again, I'm going to focus mainly on the highlights and what makes a difference for Valneva.

So product sales, which we focus on a lot, are up over 17%. The drivers for this are severalfolds: DUKORAL in Canada has been a big driver, and that's partly because of the ETEC label situation in early 2016. At U.K., we've got good growth because the U.K. organizationally came on during the first half of 2016. But we're seeing very good results also in Germany. And in the U.S., we have good growth in the military sphere, and we expect to see growth in the private sector, in line with the phasing and the commercial strategy in that marketplace.

And to go into COGS a little bit because I talked about margin. The DUKORAL margin is improving. The margin for IXIARO in JEV is higher. And this result is very good for the company. And that's despite some write offs in Half 1. And those write offs, just to give context, were actually driven because we had significantly high yields in some of the production runs of Japanese encephalitis in Livingston at -- to the point where we overproduced. So the write offs are largely for positive reasons.

R&D costs. Again, I'll just go back to talking about where we're going to be investing for the future in Lyme, but not just Lyme, and Thomas will come on to talk about the key programs later. You can expect that with the very good progress, the major progress in R&D, the R&D costs will ramp up in Half 2. So although our H1 expenditure in R&D in 2017 is lower than 2016, you can expect to see that ramp up in Half 2. So there's not much of them important to report on the other expenses. It's safe to note that the increase in sales and marketing expenditure starts to reflect that we are beginning to invest more in our own sales and marketing infrastructure. And again, we're seeing positive results through to the top line.

Two final comments before I pass back to my colleagues. In terms of the other very big differences on the financials, the amortization and net loss year-on-year Half '17 to Half '16 is obviously due to the pseudomonas write off that took place in Half 1 of 2016. So the -- there's a fundamental change in the numbers driven by the onetime costs in the first half of 2016. We could also see, I think, that Half 1 cash flow is very encouraging. That positions us very well to continue to plan our balance sheet activities and that includes, for example, and we continue to repay the Pharmakon loan and drawing down from EIB loan. So we've now paid EUR 9.5 million of the Pharmakon loan back to date.

So to summarize, excellent results for the first half of the year. We do expect to see some changes in trend in the second half of the year. Thomas will talk to the guidance at the end later on. And I look forward to answering your questions with Manfred at the end. Thank you.

And back to Franck, who will take us through the commercial products.

Thank you, David.

Ladies and gentlemen, let me go through the commercial part of the presentation. First of all, I want to underline the commercial performance achieved in H1, with 17.5% growth in product sales and take this opportunity to thank both our manufacturing and commercial teams.

If you go to Slide 11, you will see that the revenue of our Japanese encephalitis to EUR 31.5 million in H1, benefiting from key -- 3 key elements: the extension of the U.S. Military recommendation to the Navy; the phasing of the U.S. Military order to accommodate infantry management requirement; and an increased penetration in key traveler markets, including Germany, U.K. and Canada, which are some of our key focus.

We will continue to increase awareness around both the JE disease and the vaccines, focusing on our key markets, which should result in higher vaccination rates. The rapid immunization schedule already approved in Europe will be expanded to the U.S. territory in H2, and we think that it could have (inaudible) wholesales going forward. We therefore confirm our full year outlook of around 10% growth in IXIARO revenues compared to 2016, with a EUR 60 million revenue target.

Now moving to our cholera/ETEC vaccines, DUKORAL on Slide 13. We recorded a substantial growth of 57% in the first half of the year compared to H1 2016, with revenues reaching EUR 15.4 million. Travel vaccines are very positive to product promotion, and the fact that we resumed full promotion both through consumer advertising and DTC campaigns in our main market, Canada, drove the sales growth in H1. And those elements of that growth were the inclusion in U.K. revenue of 6 full months of sales compared to only 3 in 2016, since we set up our commercial operation in that territory in April last year. We will continue to work with the SCPs to improve awareness on travelers and more specifically on cholera and diarrhea linked to ETEC. The cholera epidemic such as the devastating one currently taking place in Yemen, will still continue to drive ad hoc demand through international distributor.

Looking at the full year, we confirm DUKORAL revenue growth of approximately 10% compared to 2016 with the Canadian and U.K. market as key driver of that growth. We will continue to fulfill on geographic expansion activity to unlock future growth in Europe and the rest of the world.

Now let's move on the technology and service. So Slide 14, as underlined by Thomas at the beginning of the presentation, we have granted an exclusive worldwide license to the U.S. company, Emergent BioSolutions, for our Zika vaccine's technology. Under the terms of the agreement, we will share all costs until Phase I completion, opt-in availability of Phase I data. Emergent then has an option to take the program over in exchange for an initial EUR 5 million milestone payment, potential additional milestone of up to EUR 44 million and future royalties on annual net sales. The agreement also include a technology transfer of Emergent-based human factoring facility in the U.S. for Phase II, Phase III and any future commercial manufacturing.

And of note, we retain the right of first negotiation for potential product commercialization in Europe, which will be a nice add on to our travel portfolio. We aim to initiate Phase I in U.S. at the end of 2017 or early 2018 and anticipate Phase I data within 6 months after trial initiation, but Thomas will go back to that.

Moving to EB66, we have signed an important deal with the Danish company, Bavarian Nordic, in H1, which will allow Bavarian to develop and commercialize multiple poxvirus-based vaccines in -- on EB66's cell line. And most importantly, the deal include the possibility of Bavarian to transfer, upon regulatory approval, some of its existing product candidates produced on chicken embryonic fibroblast on to Valneva EB66 technology, which could potentially set a precedent and obviously impact our also licensee because it will accelerate the transfer between the CEF and EB66.

So those were the 2 main focus on the technology and service segments, and now I hand over to Thomas for the rest of the presentation.

Thank you so much.

Yes, so besides the different explanations given by my fellow colleagues around our commercial business performance resulting in an excellent financial performance, it's important that we don't forget that we see ourselves as a commercial stage vaccine biotech company, and hence, we see the biotech upside coming from our R&D programs and the successful progression of those programs towards either partnering or licensure.

Next up, with a short update on C. diff. As you know, we developed C. diff under the strategic alliance agreement with Novartis all the way up to end of Phase II. It was a prioritized program by Novartis with the -- as it exchange and just the move from the Novartis' exit operations into GSK, this program got deprioritized at the partner level, and they decided to opt out. Since that time, we have tried to find a partner. We continue to seek a partner for this program in, obviously, a challenging and difficult environment. We have ongoing discussions. We have ongoing processes of potential partners evaluating this program. But as I mentioned a couple of times in the past, I want to manage expectations because this is a program that demands north of EUR 150 million investment for the pivotal Phase III phase. And hence, the number of potential partners are, by definition, limits. Nevertheless, we know that our program candidate is good. We know that our program candidate has a comparable immunological profile to the other CDI clinical stage programs targeting primary prevention of CDI. And as such, we do not give up, and we continue working around at potential partnering for C. diff.

We are investing right now significantly in Lyme. We have -- this was already mentioned by my colleagues, I think Lyme awareness, Lyme incidence, Lyme in public perception is steadily increasing, undoubtedly. There are many, many factors driving the very, very strong growth of epidemiology, hence, threat and lastly, of course, medical need. We have the only program in the world that is in active clinical development. We received very good news around the program in the first half of the year. First of all, we were able to complete the enrollment of our Phase I trial without any stopping for safety or whatsoever. So this means, it is very important that this box for the Phase I is already ticked. And we have worked on the acceleration into Phase II. As such, we do expect top line data from the Phase I on immunogenicity and safety clearance very early next year and the transition into Phase II rightly thereafter.

And talking about acceleration, we are very proud that we received FDA Fast Track Designation, which also indicates and marks how important it is to bring such a desperately needed vaccine to people on both sides of the Atlantic. We did also, in the meantime, a very thorough review on potential market opportunities. This has been supported by external independent studies. At a certain point in time, partly with the disclosure of the Phase I data, we will present to you more in detail those commercial assumptions driven by, of course, respective medical assumptions, and I think Wolfgang will be perfectly positioned to present this to you in a dedicated call.

Our second lead program, Chikungunya. Chikungunya, an emerging tropical disease. You have seen, especially the Europeans on this call, that we see outbreaks in Europe right now, Southern France, for example, very recently. It is clearly a virus that is heavily spreading. For a long time, people believe that the Chikungunya will cause flu-like symptoms and that's it, with very, very low rates of mortality. That is true. We talk about roughly 1 out of 1,000. However, people who are infected with Chikungunya has -- are experiencing, many times, long-term joint pain, and hence, it is a very, very important vaccine. Many people are working on Chikungunya vaccines. But our vaccine is supposed to be highly differentiated. We have used a very special live-attenuation approach. We basically eliminated, for the technically guys around the call, who are (inaudible) from a certain portion of the replicating episodes. And so that's basically how we designed the vaccine. By doing so, we believe that we don't have any potential viremia coming up with reinfection with bio-type virus. But at the same time, we have a strong enough immune system and immune response to provide a very long, if not life-long protection against Chikungunya, which would be a major, major differentiator compared to other programs right now in development. As such, we are pleased to announce that we will initiate Phase I in the U.S., either very late this year, so we are talking December or very, very early next year. I would say, we are currently targeting to still initiate the trial in 2017. It will be a Phase I to evaluate safety and immunogenicity in approximately 120 subjects. And we will also include the monitoring for antibody persistence because this will be a first indicator on the potential differentiation of the product candidate. The target population is very similar to Japanese encephalitis. People living or traveling to -- in endemic areas, but also stockpilings, militaries and so on and so forth.

Franck mentioned already Zika. It's impressive what the Valneva team has really done around Zika. And I think it's worth saying the worth also in this context here. I want to thank you to all people who have really contributed to the Zika candidate in a very short period of time. We have developed a vaccine candidate on the back of the IXIARO technology. It is -- we have, in the meantime, produced full GMP materials, products that can be tested in clinical trials. We have been able to produce this product in-house in our facility in Scotland. And we see that the products even produced at scale and in full GMP environment, showed a very identical chemical, physical and biological profile to the approved IXIARO. As such, this preclinical data set, alongside with the supportive talks data, has not only convinced partners to enter into a very interesting deal, as Franck described it. But also, I would say, key opinion leaders in the United States and southern part of America, who are strongly advocating for a purified, inactivated vaccine compared to any other novel approach because it is clearly the only technological approach that has a long track record and a huge safety basis even in pregnant women, which is something all other approaches do not show today. As such, we are very, very hopeful that we will be able to progress, together with Emergent, this product to market. And since we expect this business to be largely, I would say, an either stockpiling preparedness, pandemic preparedness, and so on and so forth, type of business, we see no better partner than Emergent in this field.

With that, I would like to move on to the financial outlook. We have basically decided not to change guidance because as David mentioned already, we have seasonality not only in sales but also in costs. We have preclinical trials, either nearing completion deadline or initiating, like Chik or Zika towards the latter part of the year, hence we will see higher R&D costs. And you see the little asterisks on the R&D expenditure on Page 22, we slightly adjusted the R&D costs upwards for those of you keeping the record, so we increased R&D -- expected R&D expenditure by EUR 2 million on the guidance without of course changing guidance on EBITDA. This indicates to you that we expect overall business profitability better than initially guided. We keep revenues and product sales in the order of magnitude, but it's fair to assume that we can probably land at the high end of our guidance.

To summarize the newsflow, I think it has already been mentioned, we expect continuous double-digit growth on product sales. We expect major inflection points over the next 6 months: Lyme Phase I data acceleration into Phase II; Zika, Chikungunya, Phase I start; and, of course, also I have not explicitly mentioned it, we are continuing to invest in early preclinical works in order to generate new innovative vaccines in areas of unmet medical needs.

Franck mentioned that we have been able to cut good deals around EB66. We are continuing to scout for those deals and to enter into respective business development negotiations. And we talked already about the deal with Emergent, next milestone will be -- hopefully, we opt in upon successful Phase I. We expect, by the way, Phase I data for Zika, roughly 6 months after trial initiations. And we will continue, in support of our strategic growth objectives, to look for any potential expansion of our commercial portfolio, be it by adding commercial stage vaccines in terms of marketing and distribution agreements, be it by way of product acquisitions. But whatever we do will be targeted, and it will be focused, and it will be only pursued if financially attractive and lucrative from a share and stakeholder point of view.

With that, I would like to conclude the presentation and turn back to the operator to take your questions.

(Operator Instructions) We will now take our first question. It comes from Samir Devani from RX Securities.

I've just got a couple of housekeeping questions, really. Just firstly on the tax, so maybe if you can perhaps give us a little bit of guidance on what you expect for the full year? And then just -- I was interested obviously by the write-offs due to the very high yields. And I'm just wondering, is there any reason why -- why can you -- the sustainability of the shelf life of the product, I suppose I'm a little bit surprised that if you're producing a very high yield that you can't simply just make more product and keep it stored?

So -- Samir, this is Thomas. I will answer your second question first. And then hand over to Manfred for your first question. The -- you probably know that we produce bulk, so dried products in Scotland. This dried product has a 6-month shelf life in order to be filled. And then finished products has a surety of 6 months shelf life from the point of filling. We keep a 1-year safety stock as part of our working capital, which is split roughly 50-50 in between bulk and finished products. And we have contracts with our customers that require a roundabout 18 months residual shelf life when they buy the product as a minimum requirement. If you take all these pieces into consideration, it's relatively easy to find out why if we produce in excess or if the yields are extraordinary high, we have a situation that, of course, we have to write off certain products because it's not sellable anymore. There's nothing wrong with this product, but it is not sellable within the requirement. And right now, the way we calculate our cost of goods based on a standard pricing approach, it means that it goes from inventory, meaning working capital, into the write off piece. So I hope that this answers the second question that you had. And I hand to -- over to Manfred for your first question. Manfred?

Yes. A brief explanation on the taxes. So maybe first starting with looking at our year-to-date position for the first half. So overall, we have seen an increase tax charge, which you essentially can see in our total finance results. Increase, when you compare H1 2017 to H1 2016 is about EUR 800,000. And going forward, we would expect, as a company, to see an increased tax -- yes, tax burden on the company as we are getting more profitable as a group overall. However, at the same time, we are able to still benefit from available tax loss carryforwards, which is especially going to help our overall tax charges for everything which is related to IXIARO, which is going to help us to pay a relatively low effective tax rate in the Austin entity. And again, the main driver for the increased tax charge is the fact that we're simply showing an improved profitability as a company, which has obviously had an immediate impact on the tax charges.

We'll now take our next question from

Suzanne van Voorthuizen from Kempen.

I have a few questions. First one, maybe can you give us some insights on the quarterly seasonality that you typically see in the product sales for IXIARO and DUKORAL and also on the accompanied quarterly fluctuations in the gross margin? And then on the Phase I readout of Lyme, what would you like to see in the immunogenicity profile, for example, in the level of your conversion? And then as a follow-up on that as well, now with the fast track designation, you have interactions with the FDA of course, and accelerating to Phase II. But based on those interactions, do you expect the program to follow 2 different clinical paths for Europe and U.S.? Or 1 harmonized?

All right. Suzanne, this is -- so let me start with your third question first, and then we can -- I think Franck can talk a little bit about seasonality better. And so essentially, the answer is for Phase I, it's clear. We want to see very good immune response. We, hopefully, want to see differences in immune response in between the different groups because you know that we have different formulations, different antigen concentrations in the different subject groups. So hopefully, we will see a certain level of spread in between those so that we don't need to go into the Phase II with all formulations but can probably drop the one or the other, which will make Phase II more efficient and faster. We want to see 0 conversion rates, that's very clear. We have not specified a certain number. We don't have a success [budgetary] defined. But of course, you want to see things that go above 80%, and that's the, I would say, that's the expectation. But again, there's no hard coded sort of requirement around that. And talking about the interactions, yes, we are now in the process of doing a few kind of steps with the authorities. It's too early to say whether or not this may lead to a split in the development pathway. Until today, we have planned that there will be a combined Phase III because both authorities have not -- have agreed that we don't need to show efficacy against individual serotypes. So this means, we will show efficacy against Lyme for its uses whether it's caused by a serotype A or B, it doesn't really matter. It's the grouped efficacy. As such, we have always assumed that we would do a combined trial with study sites in the U.S. as well as in Europe. The situation around fast track may change that. And we may indeed be in a position to accelerate time-to-market in the U.S. compared to Europe. If this will come out, as part of those interactions, and I would say realistically, we will be in a position to take a decision around that towards the end of Quarter 1 next year. We may indeed decide to go for 2 pivotal Phase III trials, one in the U.S. and one in Europe. I think with -- yes, sorry?

Yes, no. Maybe a follow-up on that. So if you would have some clarity on that and let's say the Phase II would be a U.S. trial only, will you then go only for U.S. first? Or will you plan to do another Phase II in Europe in parallel?

No. We will definitely do our Phase II that allows Phase III progression into both territories. So that's a given. That's a given. The only thing, the only question is, we may -- and I don't want to overpromise at this point in time, but we may find a way to do -- to have a faster way in the U.S. than the classical 2-season Phase III field efficacy. And this may result in a sort of splitting the 2 development paths. But it's too early to say that because it's discussions, it's ideas, it's not yet something that you can, as a serious company, disclose or try to raise expectations about.

Yes. Okay. Now that's understood.

So regarding the seasonality on IXIARO, one of the key drivers is the U.S. Military. Usually, what we have seen in the last year is that the H1 was higher than the H2 because -- and especially in Q3, the U.S. Military focused on food supply. And on the private markets, it's sellable in terms of quarterly, which may be a bit higher ahead of the summer. On DUKORAL, the impact is Canada, where you know that we sell 50% of our revenue for DUKORAL, with a strong Q1 and Q4, where -- when the Canadians are going to [carry]. So that's the most important impact in terms of seasonality.

(Operator Instructions) Our next question comes from Thomas Guillot from Kepler.

Three, if I may. Just -- I haven't got exactly the guidance because -- or regarding the seasonality on IXIARO. So for the first half, you had a growth of 6%, and so you expect a significant improvement of growth for the second half of more than 15%. But if you look at the first half year last year in the second half, the sales where more or less equal. My second question is on DUKORAL. DUKORAL, you had an announcement or outstanding growth on the first half, but you haven't increased your guidance. So do you expect a decrease of DUKORAL sales in the second half where knowing that the seasonality, I think, is for Q4 and the Q1? Second question in terms of EB66 sales, when do you expect a recovery on this part of the business after several quarter of a decrease? And my last question is on M&A. Regarding business development, could you elaborate a bit about your advancement on the topic? When do you expect to add the products? I understand that the targets are clear -- but are scarce, but do you -- can you elaborate a bit on the timing of acquisition?

Okay. So Thomas, I -- those were a lot of questions. I hope that we have been able to capture them all, collectively. So let me try to start with what's -- with what I believe is probably a misunderstanding. Because you'd said about we are expecting, we -- that we have guided for the second quarter -- for the second half of the year to expect a JES growth of more than 15%. Just to make the math right, right? We have -- we had phased off EUR 31.5 million for JES in the first half of the year. And as you can see on Page 22 of the presentation, we are expecting EUR 62 million on the upper end of the guidance for the full year on IXIARO. So this means, we have indeed the almost the 50% (sic) [15%] in first half, second half. The seasonality is not necessarily the seasonality of -- meaning, we have higher phase, lower phase. It is where we have the phase and where they come. And this has a major impact on the bottom line contributions. So U.S. sales have a 3x higher net margin than Europe sales. So this means that if we see seasonality in the U.S. Military, and we have more military sales in the first half, and we have more private sales in the second half, the impact on the bottom line is substantially -- is substantial. And as such, the positive EBIT that we generate, even with a similar top line is not generating the same EBITDA. I think it's very important that this is -- that we talked about around seasonality in the context of our EBITDA, EBITDA and positive cash generation for JES. I think for DUKORAL, again talking about seasonality, DUKORAL has strong -- 2 strong quarters. And we have seen those 2 strong quarters over the past 2 years since we owned the product. And those 2 quarters have been shown to be the 2 strong quarters for the last 10 years since this product exists. And those are Quarter 4 and Quarter 1. And it is -- and since -- and it has historically shifted whether the Quarter 4 was the strongest quarter or the Quarter 1 was the stronger quarter. And this is depending on how the stockpile and the channels to work in the different distributions. Because we are talking about year-end, and it is -- and this is, I would say, the biggest swing factor that we still have. And it's still the biggest unknown that we do have in the, let's say, in the pattern around this -- the DUKORAL situation. Now before I leave the EB66 question to Franck, but before we -- I hand over to him, I would like to make a few statements on the M&A. We have disclosed very clearly that we have a midterm strategy targeting to go on the revenue side to around EUR 250 million. And we know that we cannot do this solely organically, even assuming a very, very nice performance, continuous performance of our commercial products, will not yield to more than, let's say, EUR 150 million based on our existing business. So this means we need to complement it strategically. And we have a structured process to seek those product opportunities. And we have a continued discussions around that. We have a dedicated team in the company that is focusing on it, that is working on it. But as I said, for us it's important that this is good quality revenue, meaning that we bring in a business that is not requiring huge and very long restructuring and investments before it can contribute. As such, we have also not given a guidance on -- by when we expect that. But as I mentioned, we believe it's very realistic to assume that in the next 2 years, we will be able to complement our portfolio with the one or the other additional commercial asset. I think with that, I would like to hand over to Franck on EB66.

Yes. On EB66, so the current driver of the -- impacting our sales is the fact that last year, we had the first stockpiling revenue of flu, pandemic flu in Japan. And due to the fact that the facility has been impacted by the earthquake south of Japan at the end of last year, they were not able to produce the stockpile this year. And hence, impacting the royalties' revenue. It will resume next year. And the -- onward, we will receive these royalties. Then the, I would say, the 2 key driver impacting the EB66 revenue in the midterm will be the seasonal flu. Success, hopefully, first in Japan. And the next driver will be if indeed a company like Bavarian Nordic, for instance, is able to switch clinical candidates, clinical stage candidate from X to EB66, and so which -- its success will may be an important driver. So that's -- would be the 2 driver impacting the inflection point, I would say, on EB66 revenue.

Okay. Just one last question on DUKORAL. Why is the gross margin has slightly decreased for the first semester compared to last year?

It's very -- it's the -- it's again, it's more a -- it's a question of product mix. So the -- we have sold the product into countries with lower sales prices. We have a fluctuation. Depending on the country, sales price varies by 20%, 25%. And so also we have over increased volume compared to revenue, and this is why the gross margin is a little bit lower in the first half of the year. This might be recouped in the second half of the year.

Okay. But you maintain your guidance of 55% of gross margin by 2020, right?

Yes.

There are no further questions from the phone. (Operator Instructions) If there are no further questions, I'll now turn the call back to your hosts for any additional or closing remarks.

Yes. Thanks a lot. Thanks again for your attendance. Thanks a lot for your good questions. And we are looking forward to following up and seeing and hearing you in the next future. Thank you, and have a good day.

That will conclude today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.