Valneva SE (VALN) 2018 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Valneva 2018 Full Year Results Conference Call. (Operator Instructions) I must remind you that this conference is being recorded today, Thursday, the 21st of February 2019. And I would now like to hand the conference over to your speaker today, Thomas Lingelbach, CEO. Please go ahead, sir.

Thank you. Good day. Welcome to our full year 2018 financial results analyst call, during which we would also provide you with some business update both with regards to our 2018 achievement but also how the year 2019 started thus far. We have had a terrific year 2018, marked by excellent, strong financial results, growth on product sales, solid development on our gross margins and EBITDA exceeding our previous guidance and for the first time in the company's history, a net profit result for the year 2018. Another record that we broke in 2018 is related to R&D milestones or benefit value inflection points on R&D. We had 9 very important, successfully achieved R&D milestones, and we're going to talk later more in detail about that.

And this is really the highest number in the company's history. We got a very important IXIARO supply contract from the U.S. government. We initially had anticipated this contract already towards the end of last year. It took a bit longer, but we were rewarded for it because the contract is now providing us with very high numbers of product supplies compared to prior years, and again, we're going to go into more detail.

And we have been able to raise EUR 50 million in an oversubscribed placement led by blue-chip U.S. health care investors. And we are very, very pleased with this development, very pleased with our new investors on board. And just to remind everyone, this is part of our overall capital formation strategy. And as part of this capital formation strategy, we also delisted from the Vienna Stock Exchange, or announced the delisting from the Vienna Stock Exchange, which is a preparatory step for the next move towards the United States, which we consider the most important capital market for Valneva.

With this short introduction, I would like to hand over to our CFO to provide you with the financial report.

Thanks, Thomas. So just on Slide 5, before we went to numbers, and good afternoon and good morning to the participants in the call. I'm extremely pleased to be in a position to report an excellent fourth quarter and therefore, a very strong set of results for the year 2018.

On the 9-month call, we indicated that Q3 might have looked a little soft but that we were confident that Q4 would take us up to our initial guidance on top line. And our Q4 results were, in fact, extremely strong, which has led to fantastic set of results for the year.

Our commercial manufacturing team has delivered to promise. So product sales performance was in line with our last guidance, while our EBITDA came in above guidance and was also delivered as a result. And as Thomas said, a positive annual net profit for the first time in Valneva's history. So we'll get into more details over the course of the call. I'd first like to present the overview and get into the revenue numbers.

So next slide please, that's Slide 6 for those of you who are following the slide numbers. So this is an overview slide that we use, and it helps us to illustrate the Valneva business model, whereby we operate a profitable commercial business and use those funds to pay for high-value R&D programs. And what you can see from the slide is IXIARO sales grew to almost EUR 70 million, and DUKORAL sales came in at just over EUR 30 million. And I'll show the bridge to overall revenues, including grants and R&D tax credits, et cetera, in the next slide, but the key highlight is our product sales revenue at EUR 103.5 million for the year of 2018, grew by 16% year-on-year. Our strategy to increase awareness and thereby penetration of our travel vaccines has continued to bear fruit. We successfully introduced our own commercial operations for U.S. private in 2018. And you can see in the deck in the middle there that our direct sales are up now by 70 -- sorry, 81%, which is up from 73% in 2017. And we expect positive returns on the strategy, and indeed, we're currently completing the business analysis [in a lot of this essential] market, being France, where we hope to repeat this success, and we're well into the planning process to set up our French commercial operation from early 2020.

So total revenue of EUR 113 million includes third-party product sales as well as income from technologies and services that excludes grants and R&D tax credits, which we'll come back on to in the next slide.

Gross margin, as Thomas mentioned, just over 60%, is in line with our targets and indeed in line with guidance. And the business generated over EUR 60 million in cash proceeds, and we'll come back to cash in the presentation later as well.

On the right hand side of the chart, you see just the pictures of the 2 key R&D assets where we put most of our R&D effort.

So next slide please, Slide 7. So this business slide, we've been using throughout the 2018 results reporting process, noting we want to try and keep everything as clean and transparent as possible following the reclassification of grants and R&D tax credits into the other income line in the P&L compared to 2017 previous year.

As most of you know, we very much focus on product sales revenue and growth. And I'm pleased to report IXIARO grew by 19% in the year 2018. And that's based on something that some of you will remember in terms of us achieving additional accelerated immunization schedules for IXIARO in both the U.S. and Canada. And well, we also launched, as I said before, our own commercial operations for U.S. private. So the sales growth stems from the successful execution of our overall sales strategy.

DUKORAL growth at 12% was better than we expected at the time of our half year and 6 months results because at that time we had experienced some supply constraints in our Swedish manufacturing plant. Attending effectively to that issue followed by excellent sales in key markets, such as Canada in quarter 4 and also in the U.K., led to this excellent outcome of double-digit growth for DUKORAL. I also want to be clear on here, the majority of our growth has historically been volume driven. Our global average selling price in 2018 has improved and based on the geographic mix. So the U.S. private market, for example, is comparatively well priced in case of IXIARO. And we also saw some ASP improvement in the case of DUKORAL due to allocating supplies to our most important markets. And that's -- in the case of DUKORAL, we're also now in a position to focus on quality of revenue, which means we don't actually need to continue to participate in tender business that could erode our corporate gross margin or other corporate KPIs, and we'll come back to that a little bit later.

And just looking forward a little bit, we anticipate some cost-driven pricing growth as we pass on the costs associated to the serialization, which is a regulatory requirement being implemented for the benefit of consumers in many markets, and that we mentioned during 2018.

And also Brexit, where we plan for the worst and hope for the best. Obviously, the Brexit-associated costs will only be passed on to U.K. suppliers as the costs result from the decisions taken in the U.K., and the result process is being managed by the U.K. government. And we'll be pleased if the U.K. changed its mind regarding Brexit. As this would obviate the need for, first, implementing steps that we are already having to implement. And Brexit continues to be a major distraction of management time, so we do understand why some companies increasingly find the U.K. a less attractive place for a base of business.

Third-party product sales saw a small decline due to the ton of competitor products, that being a typhoid vaccine during 2018, notably in Canada. And we did previously reported 2017 was a comparatively strong year for third-party product sales because we didn't have competition from that product in that year.

And other revenues also saw a decline as the legacy deal with J&J in Solna in Sweden drew to a close. But in December, we announced the deal with HOOKIPA, whereby that facility will now gear up to supply clinical trial material for HOOKIPA, and this will result in a steady midterm revenue for that's starting already in 2019. In due course, of course, we may review our noncore businesses to ensure that we keep focused on our main value drivers. The only comment I'd like to make on R&D tax credits and grants is that the R&D tax credit line will grow as we invest more in R&D and we do continue to work on grant funding opportunities, but that's all upside from our perspective in terms of capital planning.

So that's the revenue breakdown and analysis. And we'll come back to guidance a little bit later. So next slide please, which is Slide 8. And this is an important slide because here you can see the geographical mix of our product sales revenues. Looking first at IXIARO information on the left-hand side. During 2018, we signaled that the U.S. private market slice of IXIARO sales, which is shown in orange on this slide, would grow. And this pie chart shows that we are delivering on that promise.

In 2017, U.S. private made up only 9% of the -- to overall IXIARO top line, and that proportion is growing to 17% in 2018. So the U.S. now makes up almost 60% of our IXIARO sales, with Germany, U.K., Nordics and Canada also providing significant contributions to the top line.

Noting the new U.S. Military contract that we announced last month and further growth expected in U.S. private, we anticipate that IXIARO will grow by more than 15% in 2019. We'll provide update during the year on that as we clarify the logistics of the U.S. Military contract, which spans both 2019 and 2020.

On the right-hand side of this slide, you can see that Canada continues to be the major driver of DUKORAL product sales revenues. Our Canadian team continues to do an outstanding job in ensuring that the take-up of the vaccine is high in Canada. And just as I mentioned before, as we started to hit capacity levels in our plant in Solna, Sweden, we've taken the decision to invest in further capacity. And that will be the first capital expenditure in Solna for many years, so our team up there is very excited about that.

In the meantime, we do still expect to achieve some growth of up to 5% in product sales revenues of DUKORAL in 2019, with continued focus on key markets and trading up from some lower-priced kind of business, as I mentioned.

So next slide please, and let's move on to the P&L. So I just talked about sales and therefore, I will start in here by talking about gross margin and COGS. I think the first thing I'd like to mention is that COGS in euros, in millions of euros, was lower in 2018 than in 2017. And that's -- that represents an excellent performance by the teams in both Scotland and Sweden. And to give you some examples, their write-offs were lower in 2018 than 2017. And DUKORAL is now operating with a gross margin of over 50% based on the high-capacity utilization and ongoing sales growth, notably in Canada, where our selling price is a bit above global average.

Looking forward, I have a few comments to make just out of transparency. Firstly, we did have a little bit of reclass of COGS looking forward into 2019. So -- and we'll be talking about that later starting with the Q1 results. And we're also going to be, as I said, investing in our -- in capacity in the Swedish plant for the first time as well as evaluating building capacity for our chikungunya vaccine. Despite the impact of those items and the ongoing cost of Brexit and serialization, which we absorb until we can pass them on, we expect our gross margin to remain above 60%.

R&D expenses grew to over 2015 -- sorry, EUR 25 million in 2018, in line with the updated guidance that we provided. We did originally expect to invest more in 2018, but efficient use of internal resources and phasing of activities meant that we were able to achieve all of our R&D targets for 2018 at this level of expenditure. 9 inflection points and PRF delivered in 2018, just to remind you of what Thomas said.

As communicated, we have commenced Phase II of our Lyme program in late 2018. And therefore, we fully expect to invest more than EUR 35 million in R&D in 2019. And we currently expect that, that expenditure will be phased relatively evenly across the year.

Our marketing and distribution expenses were almost EUR 21 million in 2018, which is in line with our strategy of carefully investing and building our own commercial operations in key markets. 2018 saw the establishment of our own operation to serve the IXIARO and U.S. private market. And I've spoken about the contribution that, that business is making already.

We're also increasing commercial capacity in a couple of other markets, and we do plan to invest and to generate further returns from those marketing and distribution investments in 2019 and beyond. Just a quick word on G&A cost. G&A cost rose to almost EUR 17 million in 2018. Much of that growth was driven by the cost of the company's new share option scheme that was implemented at the end of 2017, with a full year effect in 2018.

Amortization and impairments. Looking at that, you can see clearly a drop, and just to explain what that is. So we had no impairments during 2018. And the expense line was also influenced by the extension to the lifetime of IXIARO patents that was granted in early 2018. So the extended lifetime of that patent with a consequent reduction in the annual amortization charge was clearly beneficial to us. And in 2017, again, if you think about the like-for-like here, there was a onetime impairment charge relating to our C. difficile vaccine candidate.

We've also done a nice job on financing expenses and tax, much reduced compared to 2017 as a result of paying down the Pharmakon loan and also as a result of some foreign exposure -- foreign exchange exposure and volatility in the market and our own litigation strategies we adopted from the end of 2017. And to put it in context, as things stand today, our interest expense, having just paid down the Pharmakon loan, would be around EUR 2 million on a like-for-like basis compared to EUR 3 million in 2018.

That assumes, of course, that we keep our debt possession -- debt position as it stands now. And then in terms of the key profit lines, we're reporting an operating profit of over EUR 6 million compared to a loss of EUR 4 million in 2017, a positive annual net profit for the first time of EUR 3.3 million compared to a loss of EUR 11 million or so in 2017 and EBITDA of just over EUR 13 million.

So we are delighted, as Thomas said, with those results. And we believe this stands us in very good stead to prepare for the next growth phase of the company as we look at 2019 and beyond.

So next slide please, now to cash and debt. So at the end of December, we had over EUR 80 million of cash and cash equivalents. Clearly, the fundraise was -- that we completed at the end of September was the main driver of that. But we materially reduced the level of noncurrent borrowings, whilst we initiated and undertook the quarterly repayments to Pharmakon, which moved the balance from noncurrent, i.e., more than 1 year, to current, less than 1 year, and then paying that down. We have completed the full repayment of that Pharmakon facility in early January of 2019. And at the same time in 2017, we drew down EUR 10 million of the EUR 25 million EIB debt facility, but we didn't draw down on that further during 2018, basically, because we've done the fundraising end of September, and EIB was very constructive with us and has agreed to extend the drawdown period into the middle of this year.

So our net cash position was therefore EUR 35 million at the end of 2018 compared to a net debt position of EUR 22 million end of 2017. And with that, I've run through the financials, and I'd like to pass back to Thomas, who is going give out some highlights of the R&D pipeline before we get -- come back to guidance.

Thank you so much, David, for providing this very comprehensive financial report on an excellent year. Just a way of reminder, you know that Valneva's strategy is clearly to use the proceeds from our commercial business to invest in innovative vaccine candidates in areas of high unmet medical needs.

And you know that right now, we are focusing on Lyme and chikungunya, both very, very interesting and very unique targets and programs, alongside with our activities that we are currently completing around Zika and an asset that we are still having available for potential partnering in the field of C. diff.

Moving to Slide 13 of the presentation is the summary of our key R&D progress reported in 2018 and early 2019. So we started back in February 2018 and going from bottom to top. We initiated our Phase I study around Zika. In March, we reported positive Phase I interim results for Lyme, and we initiated our Phase I on our chikungunya candidate. In July, we successfully completed the end of Phase I process with the FDA and the Phase II strategy alignment with the agencies.

In October, we lined up with the EMA on the further development for our exciting Lyme vaccine candidate, and we initiated the second stage of the Phase I study for our chikungunya candidate. We reported Phase I data for Zika in November, and we initiated the Phase II for Lyme disease, as planned, by the end of 2018, alongside with a very positive achievement that the FDA granted us, essentially Fast Track Designation for our chikungunya candidate.

And yes, the year started off quite nicely, especially around our Lyme candidate and our chikungunya, and I will come back to those specific data points in more detail.

Turning over to Lyme. You know that we feel absolutely excited and thrilled about our Lyme disease vaccine program. It is the only program in clinical development worldwide today. It is designed to basically cover the prevention of Lyme disease on both sides of the Atlantic. This is why it is a hexavalent vaccine candidate covering the most prevalent serotypes of Lyme borreliosis.

In the Northern Hemisphere, we operate under FDA Fast Track Designation, and we are now well into Phase II.

Talking about the Phase II, on Slide 15, we have outlined our current Phase II study called VLA15-201, which is an observer-blind, randomized, placebo-controlled, multicenter study. This study has the objective to evaluate the final dose for Phase III. In order to do that, we operate through a run-in phase during which we test higher doses compared to the Phase I. And out of this run-in phase, we will then go ahead with the 2 best and safe doses into the final part of this Phase II study.

Why did we do that? We basically had a very encouraging immune response against all 6 serotypes in the Phase I, but it wasn't excellent. There was room for improvement in terms of overall antibody response, and we saw this also as part of the booster study, and I'll come back to that in a minute. And therefore, we decided, together with the agency, to go for higher doses in the Phase II, but not only higher doses. We have also seen by looking at the antibody kinetics that there might be a further room for improvement in terms of vaccination schedule. You know that the current Phase I and also Phase II right now runs with the primary immunization schedule of 0, 1, 2 months. And not only us, but others working on 3 dose primary immunization vaccine developments have seen that sometimes, it's better to have a better and more prolonged schedule. And in our case, we're going to test 0 to 6. And in order to optimize the clinical development, we're going to test the alternative schedule in a parallel Phase II trial. And this parallel Phase II trial is going to call -- will be called VLA15-202. And this trial will commence as soon as we have completed our run-in phase. And that's the Phase II development strategy. At the end of this Phase II development strategy, we aim to have the final dose and the final schedule to be assessed and tested in Phase III.

Talking a little bit about the booster. We got very excited about the booster data that we saw early this year. On the one hand side, we saw, of course, in the follow up period of the Phase I data that the antibody titer declined rapidly, and this was as expected because we had seen that the seroconversion rates were good, but not optimal, which is again why we are testing higher doses. But at the same time, we saw with the booster that we got a multiple fold increase. So there was a terrific memory effect. And the OspA antibody titers, IgG antibodies, were substantially higher than at the starting point after the 3-dose primary immunization. And this has given us a lot of confidence in our target product profile, which is 3 plus 1, 3 doses primary immunization, 1 booster 12 months after completion of the primary immunization and then hopefully, a booster refresher, or whatever you want to call it, in about 2, 3 years thereafter to be determined by clinical development, of course.

Talking about the milestones and translating this all into news flow. On Page 16, you basically see that we have already ticked 2 boxes since we last spoke, the Phase II initiation, the Phase I final data and initial booster data. Now we expect the run-in phase to be completed. Alongside with the completion of the run-in phase and the determination of the doses to be further evaluated, we will initiate the second Phase II trial. We will see then primary Phase II data mid-2020, which will enable us to initiate a Phase III pivotal field efficacy trial in quarter 4 2021. And hopefully then, Phase III data if the pivotal trial, efficacy trial, will be sufficient over 1 tick season a year thereafter, which could lead us to a first possible VLA submission of this desperately needed vaccine by the end of 2023.

The outlook in terms of how we currently see the Phase III development is basically unchanged and is summarized on Page 17 of the presentation. I'm not going to go into the details of that because we have presented it before. Same hypothesis, field efficacy trial, placebo-controlled in endemic areas or countries, in the relevant age groups and a size of plus/minus 16,000 subjects currently envisaged with a pediatric study development in parallel.

With that update on Lyme, let me go to chikungunya. Different to Lyme, we are alone in the world of chikungunya vaccine development, but we are differentiated. Our vaccine is targeting a single-shot protection against the very severe and quite growing infectious disease threat.

In terms of target product profile, this vaccine fits very, very nicely with our existing travel vaccine portfolio and is almost an analogy to Japanese encephalitis because we see travelers in need of this vaccine going to countries where disease is endemic, but we have also local endemic countries that are in need of such a vaccine. Our vaccine is a monovalent, single-shot, live attenuated vaccine. And we aim for a very, very long-lasting protection, at least 5 years. And also already another chik vaccine in development, got Fast Track Designation. We got Fast Track Designation as well, which tells you something about how others validate our differentiation hypothesis.

And the Phase I data that we have presented early this year, which are still in a crude fashion. And when you look at Slide 19 of the presentation, you see basically the Phase I study design showed 100% seroconversion, so which in reality means across all these 3 groups, which in reality means that by definition, every single group seroconverted to 100%, and the safety profile is very, very acceptable for this stage of development. And this is an important point in this development of our chikungunya vaccine candidates.

What are the next steps? You may recall that we do a sort of an intrinsic viral challenge [less hint] on efficacy by vaccinating the study subjects with the additional shot of the highest dose chikungunya vaccine. And the first group got already vaccinated, and we will have results for the uncooked data as well as the result from this, let's say, first group that has undergone a revaccination by mid of the year. And this is going to be a very, very important data point for us because it may trigger an acceleration scenario for this product candidate towards licensure.

Of course, this requires an extensive dialogue with the authorities, data driven, and this is something that we expect over the course of the next coming months. We are very, very excited about this program as well. And with our 2 clinical programs, Lyme and chikungunya, we have what we believe, 2 very, very unique high-value assets in hand.

With this short update on R&D, I would like to hand back to David to provide us with the guidance for 2019.

Thanks again, Thomas. So first, on revenues, I spoke earlier a little bit about the outlook for IXIARO and DUKORAL. We basically project that we're going to have product sales revenues between EUR 150 million and EUR 125 million. So this will represent once again double-digit growth. It's too early in the year to be more specific in the mix of U.S. Military and other IXIARO business and again, noting that we've got a DoD contract that spans both 2019 and the first part of 2020. And we will commit to giving updates to the guidance during the year as the picture takes more shape.

Secondly, and as Thomas said, we've stated that we'll make every commitment to advance Lyme and chikungunya to market as quickly as possible in consultation with the regulatory authorities. There's a growing unmet medical need for these vaccines, and we know that we've got investor support for our strategy to get those products to markets as quickly as possible whilst taking a material share of the value.

Therefore, we anticipate spending between -- investing between EUR 35 million and EUR 40 million into R&D in 2019, largely on Lyme and chikungunya. And there are some important stage gates during 2019 that Thomas has mentioned, and we'll provide R&D updates as we -- as they happen.

Gross margin, as mentioned, that will remain above 60%. And we have got -- on a like-for-like basis, we are improving, and I think what we'll do is start reporting a bit more detail on gross margin and indeed, net operating margin, which we have added as a KPI.

That line, the net operating margin line, represents a target that applies across our commercial business, and what we're doing is setting a quality threshold for any revenue-generating business that we undertake, whether that be in a new country, a commercial operation or a third-party product or indeed any technology and service income. And by setting that KPI in place, we mitigate any potential dilution of our cost of gross margin, and we ensure that we're generating high-quality income to reinvest into R&D.

So starting with the 2019 Q1 results, we'll report that and then explain the methodology in our Q1 call. On EBITDA, we anticipate that when we add the mix of top line growth, healthy market -- healthy margin and increased investments, notably in R&D, that we'll deliver a positive EBITDA of EUR 5 million to EUR 10 million in 2019. And we understand that most of you should appreciate that our business model is not an EBITDA growth model. Rather, we invest in advanced key R&D assets to maximize long-term shareholder value. So we have a clear picture for 2019, and we envisage that we need to increase the level of R&D investment further and indeed, substantially as Lyme, for example, moves to -- into Phase III trials. That's why we did the fundraise in September 2018, with a very strong focus on attracting investors who support our strategy and who can support us further in the future. And it's also why we continued what Thomas note, to repeat the message about focusing in the best capital markets.

And to conclude, our healthy balance sheet and track record of delivery position Valneva extremely well for 2019 and beyond.

So just quickly on news flow on Slide 23. We will give updates with our quarterly results, on the product sales growth that we're proposing and indeed, any key updates on the U.S. Military supply. And we have a number of major confirmatory and supporting data points coming into [us] for Lyme. And as Thomas also highlighted, we're going to look very carefully at the development acceleration opportunities for the chikungunya vaccine candidates. And then, as above, we continue to look for a partner in business development opportunities to build scale, to diversify revenue base and to continue to build the company as we go forward. So we're expecting plenty of news flow again this year.

And on that point, I'd like to pause and take us into the Q&A. Thank you.

(Operator Instructions) And our first question comes from the line of Samir Devani from Rx Securities.

I think I've got 3 questions. I just want to confirm that the new currency you're issuing is now at constant exchange rates. And just want to confirm that if rates stay at current levels, that would equate to you reporting better numbers than you're currently indicating. So that's the first question. The second question, on IXIARO. David, you mentioned that it was 9% of the U.S. private paid last year going to 17% this year. So I think that equates to something like 5 to 12 -- EUR 5 million going to EUR 12 million. I just want to understand, is that on a like-for-like basis? Because, obviously, the model of selling has changed last year. So perhaps you can just give a few more details on that. And I just wanted, Thomas, on VLA15, I think this slide is indicating a sort of up to 18 months gap between Phase II ending and Phase III starting. So I thought -- that seems a bit longer than I would have thought, so perhaps you could just give a bit more detail on that, too.

So let me go first. Thanks, Samir. So -- yes, so we are very much talking about CR in our numbers and in the way that we gave. So that's what we're doing to do. And clearly, we take steps to mitigate exposure and to manage currency risk internally. So we don't take any risk, but we mitigate the potential impact on our top line and on our P&L. On the IXIARO point, yes, that's a very fair question. So you're actually -- 27 -- the proportion of total IXIARO sales was higher in 2018 than it had been in 2017, and we expect it to grow further. You're also right in that when you sell to a distributor, which we did in the past, (inaudible), you basically recognize that the transfer price that you sell to distribute that, whereas we're now selling at full price to the market. So some of the growth is revenue recognition, yes.

Okay. Samir, the -- talking about the Lyme progression into Phase III. Yes, I mean, the point is you're right. It looked long, from mid-2020 till the end of 2021. However, there are 2 things that you need to take into consideration. The first one is the primary endpoint data will form the basis for the end of Phase II meeting with the FDA. This process will last, including all considerations that they may or may not give into the Phase III protocol, let's say, roughly 6 months. And then you are too late for the season because we need -- this is a pivotal field efficacy trial, placebo-controlled, so which means you need to go into the tick season and you need to start early enough in order to have the necessary level of protection for the tick season. And this is why it is basically quarter 4 2021. I mean, is there a possible scenario to accelerate? Maybe and of course, we're going to work on it and we will do everything possible to accelerate if we see a possibility to accelerate. But let's see how the Phase II is going. And as we progress with the Phase we'll, of course, review potential acceleration scenarios. I hope this answers the question from you.

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

First question on the royalty rate payments, you owed it previously to Pharmakon. Should we still have some payment in 2019? Or is that over? My second question in terms of design of VLA15-202, how many patients will you enroll into this trial? I haven't exactly understood how does that split with the 201 trial. And my third question would be, is there a one-off that's exceptional with which we should be aware in the Q4 in term of expenses for the R&D costs, for the SG&A or for the other -- for the COGS, if I understand it.

Okay. Let me try. So first of all, on the royalty point, given that Pharmakon's paid down as of early January, that's -- all payments have been made. So all the bullets, all the final royalty payments, all the interest payments, that's done and dusted as of January. And it's not going to be an ongoing line item. So that's one of the reasons why our finance costs are going to be lower year-on-year. And we're obviously pleased that the Pharmakon facility worked very well for us, and it was the right thing for us to do at the time we did it, but we're also very pleased now to be looking at a much reduced cost of capital. So that's the first point. Just before I go back to Thomas, can you maybe just clarify the question on the SG&A, please?

Yes. Sure. You have a pretty low SG&A level in the Q4. Just wanted to be sure that this level of SG&A cost will be the same in the first 9 months of 2019 -- '18, sorry, than for 2019?

Okay. So yes, we -- as I said earlier, we're continuing to invest in marketing and distribution. So we do plan to add some A&Ps, so advertising and promotions. We do plan to add on a very selective basis some additional key account managers because we don't have typical sales reps. And we are starting the planning process to get the French operations set up. It does start to incur costs as of now actually. So -- and I think the best thing I can say is you can anticipate further growth and -- further growth in an annualized basis for the commercial business of anything up to 15% or so, in line with the kind of top line growth. So we are going to continue to invest in that one. Does that cover it?

Okay. Yes. Thomas, let me answer your question around Lyme. So why are we splitting the Phase II in 2 parallel trials? Because we have 2 variables to study. We have on the one hand side, the -- to define the optimal dose. And on the other hand, we have to define the optimal schedule. And from an operational point of view, you could put this all into 1 trial, but it would take longer. And this is why we decided to split it in 2 trials and to run the 2 trials in parallel. What it will practically do is in the VLA15-201, we have the run-in phase. Out of the run-in phase, we will select the 2 best doses, which will continue to be studied in the Study 201, as shown on the slide. In parallel, we will start the Study 202, where we will have 100 people each in the 2 -- in the groups in order to study the additional schedule. So overall, the overall Phase II will be a bit more than 800 people. And this is a size that will give us the opportunity to really be going to Phase III on the back of this data set.

The next question comes from the line of Ingrid Gafanhao from Kempen.

I just want to -- I was wondering, can you maybe explain what is behind the EUR 1.1 million profit from your investment in BliNK Biomedical? And is there a just a one-off payment? Or can we expect such profits in the coming years as well?

So yes, it is a nice question, and we haven't had this before, so that's why I do understand why you're asking it. So basically, Valneva has a stake in BliNK and has had for some time, and the business reengineered itself in 2018. And it's got a different risk profile, and it managed to get a couple of deals done. So what we're doing there is recognizing our proportion of the value in BliNK. And will that continue? Yes, we believe it will. If it was a one-off, we may well not recognize that at all in our accounts actually. So we do expect some income to continue from there but certainly not at any major levels that are going to impact our corporate performance.

Thank you. We currently have no other questions. (Operator Instructions)

Okay. I think if there are no further questions, it brings us to the close of this meeting. Thanks a lot for your attendance today. We are looking forward to reporting more and exciting stuff in this year to come, and have still a wonderful afternoon. Thank you, and goodbye.

Thank you. This does conclude the conference for today. Thank you for participating. You may disconnect.