Valneva SE (VALN) 2023 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Valneva Half Year 2023 Financial Results Call and Webcast. (Operator Instructions) Please note that today's conference is being recorded.

I would now like to turn the conference over to your speaker, Joshua Drumm, CP Global Investor Relations.

Thank you, Radia. Hello, and thank you for joining us to discuss Valneva first half 2023 results and corporate update. It's my pleasure to welcome you today. In addition to our press release and analyst presentation, you can find our consolidated financial results for the 6 months ended June 30, 2023, which were published earlier today available within the Financial Reports section on our Investor website. As always, I'm joined today by Valneva's CEO, Thomas Lingelbach; and CFO, Peter Buhler, who will provide an overview and update of our business as well as our key financial results for the first half of the year. There will be an analyst Q&A session at the conclusion of the prepared remarks.

Before we begin, I'd like to remind listeners that during this presentation, we'll be making forward-looking statements, which are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed or implied by these forward-looking statements. You can find additional information about these risks and uncertainties in our periodic filings with the Securities and Exchange Commission and with the French market authority, which are listed on our company website. Please note that today's presentation includes information provided as of today, September 21, 2023, and Valneva undertakes no obligation to revise or update forward-looking statements except as required by applicable securities laws.

With that, it's my pleasure to introduce Thomas to begin today's presentation.

Thank you so much, Josh. Very good day, everyone. Pleasure for me to report our half year 1 achievement. When we look at R&D, we made substantial progress towards the potential FDA approval of the world's first chikungunya vaccine. We have online now the Cohort 1 of the Phase III VALOR study, completing its first tick season and the cohort 2 is currently enrolling, and I will provide more details around that. We decided to reinitiate our Zika vaccine development with an expected clinical trial start early next year. Again, I will provide more details around this.

When we look at the commercial business, we are very pleased with the commercial performance. Our product sales of almost EUR 70 million have more than doubled as compared to prior year, excluding all the COVID sales, of course. And hence, we are on track to meet our 2023 sales guidance of EUR 130 million to EUR 150 million. We had a strong cash position at the end of June with more than EUR 200 million and very recently further strengthened it by an up to $100 million new supplementary debt facility.

When we look at the business in detail, let me start with our chikungunya vaccine, which is a life-attenuated vaccine carat currently under FDA priority review. It is the first chikungunya vaccine candidate in the world that reported positive Phase III data with all trial informed. It's the first chikungunya candidate that has an ongoing ELA application with potential approval and the filing accepted by Health Canada. By way of reminder, our life attenuated approach was chosen because we wanted to go for a single chart vaccine that was particularly well suited to target a long-lasting protection compared to other Chikungunya assets currently being evaluated in clinical trials. Our results have demonstrated that our initial development hypothesis holds true, and we have excellent data year-to-date on that vaccine, which I'm going to present a bit more in detail. And from a strategic point of view, VLA1553 fits perfectly within Valneva's existing commercial infrastructure, augmenting our existing travel vaccine portfolio.

With regards to target population and geographical reach, you know that we have on the one hand side, the travel business, but also an endemic need, significant medical need in LMIC countries, where we have partnered CEPI and Instituto Butantan, including certain local manufacturing activities. To remind everyone about the key features and time lines, current FDA PDUFA date, end of November. They got extended by 1 quarter due to ongoing discussions around Phase IV obligations. We have also the adolescent trial ongoing, where we reported positive initial safety and immunogenicity data will come in November 2023. And we expect additional regulatory processes to commence, including the EMA later this year.

Let me turn to Page 7 of the presentation. Since we got many questions about onset of immunity, we would like to present a little bit where we are on our vaccine today. We have data that all got published in different journals, including the land set. We have the Phase III data. We have also the Phase I data, and we have done a number of post analysis, on the back of this data. What we can see here on this slide is that we have a very nice onset of immunity already at day 15. So you see the day 15 data shows data from our Phase I Cohort. And you see that even at a lower dose, which is not the Phase III dose in the final dose, we are well, well above the 0 response threshold already on day 15, which means that in between day 8 and day 15, we will surpass the 0 response threshold, which is identified by PRNT50 greater or equal than 150. And hence, this tighter level is reasonably likely to predict protection.

Now Slide 8 shows you also a little bit where we are in 0 response, and the 0 response is sustained at highest levels up to month 12. At this point in time, we're going to read out month 24 in the not-too-distant future. And what is also important is the graph to the right where you basically see that there are absolutely comparable titles in younger and older adults. So basically, we see no difference across the different data points that we have clinically generated. And more importantly, we -- also our vaccine has a fast onset of immunity. And I think that's important to note, it will be further substantiated as part of further studies that we have planned or that are already ongoing.

We recently reported positive initial safety results in adolescents and pre-exposed participants. This study was conducted in partnership with Instituto Butantan is being conducted and funded by CEPI. We had more than 700 adolescents, randomized against placebo. And for the first time, we looked at the vaccine in participants with prior exposure to the chikungunya virus. Importantly, and this is a very meaningful finding. The vaccine continues to be generally well tolerated, including in individuals previously infected with chikungunya virus. The AE profile is consistent with adults and the initial data suggest that we see even a more favorable safety profile in positive patients or participants, which is in line with what we published around our Phase I data, where we basically described our so-called revaccination challenge where people were (over vaccinated) with the vaccine itself. And of course, as we have done for the entire study, the independent DSMB has not identified any safety concerns associated with this vaccine.

So now looking forward, the Phase IV alignment is, of course, currently the number 1 topic that we are dealing with. It is the reason for why we got a postponement on the PDUFA date in the first place. We are working very collaboratively with the FDA to align on post-approval Phase IV requirements. And this is not an easy endeavor for both parties because this Phase IV alignment and the design of the Phase IV activities is likely to set future standards for outbreak disease indications under FDA accelerated approval pathways. Nothing exists today in this regard, and therefore, we are breaking new ground here. We have additional studies ongoing antibody-resistant study.

You know that we are following the cohort here for 5 years because we want to show that after a single shot, there's long protection. We reported the 12-month data in December and the 24-month data, I expect it logically by the end of this year. Adolescent Phase III trial, I mentioned already that this trial is important to support potential label expansion in licensure in Brazil is funded by CEPI and also an important part of the data needs to be included and will be included in the AMR submission.

With regards to anticipated future trials, we are planning for co-vaccinations, pediatrics, special populations and then, of course, execution on the Phase IV program and Phase IV effectiveness in endemic setting. So when we look at the market, Page 11 of the presentation, I mentioned it briefly, we have the travelers from non-endemic regions, highly complementary with our existing travel portfolio, significant need as we see more and more outbreaks in -- including Europe and the Americas. We see a military opportunity here as well for 2 stations in areas with risk of chikungunya and of course, in areas where we need to prepare for potential outbreaks or get already responses during the situation.

We are working, as mentioned before, with CEPI and Instituto Butantan, very happy with this collaboration overall. So in a nutshell, we continue to be absolutely excited about this first chikungunya vaccine that hopefully is going to make it to market, and we are looking forward to our PDUFA date and the approval of this vaccine in the United States first and then in other countries thereafter. When we look at our Lyme disease program, our program, VLA15, is the only line disease program in advanced clinical development today. We had multiple Phase II studies as including first pediatric and adolescent data. We have currently the Phase III ongoing called Study VALOR. And we have partnered here with Pfizer. And this partnership with Pfizer is a very fruitful, very constructive partnership that has continued now for a number of years. And we have disclosed at multiple occasions, the terms under which this exclusive worldwide partnership with Pfizer operates.

By way of reminder, with regards to this vaccine, it's a recombinant protein vaccine candidate, multivalent targeting the 6 most prevalent serotypes causing Lyme disease in the United States in Europe because we wanted to make sure that we have a vaccine for people living and going to both sides of the Atlantic. It is targeting the outer surface protein A of Lyme borreliosis and hence, follows an established mechanism of action for a Lyme disease vaccine and therefore, has also a high degree of de-risking associated with that effect. The program operates under faster destination granted by the U.S. FDA in July 2017.

As mentioned before, we have demonstrated strong immunogenicity results across 3 different Phase II studies, which included also pediatric data. Overall, we see very strong data here. And I think that's something, especially the strong anamnestic response strong booster response for a vaccine that might need a booster either annually or at a longer cadence remains a very important result, and this is another key step towards a potential vaccine solutions in this field of high unmet medical need. On the Phase III efficacy study itself, we are receiving many questions around the study. So therefore, let me repeat again the key cornerstones of this study. Around 9,000 participants create a 5 years of age.

So literally, we cover the vast majority of the target population. And we are including people at high risk of Lyme disease, by residence and/or occupational or recreational activities in the U.S., in Canada and in Europe, we are randomizing 1:1 against placebo and 2:1 U.S. versus non-U.S. With regards to the primary endpoint, primary endpoint is the rate of confirmed Lyme disease cases after 2 consecutive tick seasons, meaning after completion of the full primary series, meaning 3 doses plus the booster dose. And as part of the secondary endpoints, we of course, look at the efficacy after priming with 3 doses amongst other secondary endpoints as defined in the Phase III protocol.

Following the discontinuation last year, for one part of the study -- one cohort of the study that was run through a specific set of study centers. We have now split into 2 cohorts still under the roof of one study. You see the enrolled participants Cohort 1 in blue. Here, you see the 3 doses given at months 0, 2 and 6, and the booster after 18 months. So basically, this cohort has been completely enrolled. We are now completing the tick season 2023 and will be given the booster shot next year. And the Cohort 2 is rolling and you see 0, 2, 6 and then the booster and pick season 2025. Pfizer aims to submit the regulatory applications in the U.S. and Europe in 2026, subject to positive data, which we hope to see at the end of 2025 after the completion of the 2025 tick season.

Let me turn over to Zika. You know that Valneva has a Zika vaccine in its R&D portfolio for a number of years. We paused the development program when we focused our resources towards the COVID vaccine development. Now that the COVID development or co-vaccine development is behind us, we have reactivated our Zika program because we believe that there is a significant unmet medical need. And basically, what we see here is also a highly complementary potential assets when it comes to leveraging our existing inactivated whole virus platform that we initially developed for Japanese and Encephalitis and then further enhance and modified for our COVID vaccine BLA 2001. So it can be a very nice plug and play onto our existing platforms.

At the same time, this is a vaccine candidate that would also fall under an accelerated pool pathway for which we are now with the help of our CHIK development, generating a lot of expertise and capabilities. So that's the reason number 2. Reason number 3 is actually that we need the desire to target product profile as articulated by WHO, all of that led us to our decision to continue or restart with our Zika development with TriStar as early as the next year.

When you look at our portfolio, we are working on a number of things in the preclinical arena. I would like to point out HMPV for which we completed our preclinical proof-of-concept successfully given that the vaccine development environment is transitioning towards an RSV, HMPV combination vaccine. We have initiated partnering discussions, and those discussions are currently underway and partnering is under evaluation. Our lead candidate in the preclinical arena remains EBV, Epstein-Barr virus. We are currently in the final antigen identification phase and hope to have a final product candidate designed by the end of this year. Of course, we are working on a number of other things in the preclinical shop, but we are giving, of course, priority and focus. And I would like to remind you that our overall R&D portfolio management always strike towards delivering highly differentiated assets, first-in-class, best-in-class or only in class.

And with that, I would like to hand over to Peter to provide us the financial report and take us through the rest of the presentation.

Thank you, Thomas, and good morning and good afternoon to all of you. Now let's look at the financial review of the first half of fiscal year 2023. Product sales reached EUR 69.7 million and grew 109% over prior year. At constant currency, product sales grew 113.6%. The strong growth is driven by all product lines, with IXIARO growing at 150% at constant currency, DUKORAL at 213% and third-party product at 46.8%. This excellent sales performance is primarily driven by the recovery of the private travel market, but also by price increases across the board. In the first half year, we also still recorded residual COVID-19 vaccine sales related to a pre-existing contract with the Kingdom of Bahrain.

Moving on to the income statement. Total revenues reached EUR 73.7 million versus EUR 93.2 million in the first half year of 2022, a decrease of 20.9%. In the prior year, Valneva had recognized other revenues related to its COVID program, which explains this decrease. Looking at expense, we observed a significant decrease in cost of goods and services from EUR 171.5 million in the first half of 2022, to EUR 53.8 million in the current fiscal first half year. Prior year's cost of goods and services were heavily impacted by one-off items related to the wind down of our COVID-19 program. The gross margin of both IXIARO and DUKORAL is still below pre-COVID levels and is amongst others, adversely impacted by IXIARO batch write-offs in our Scottish manufacturing site and high sales volumes in indirect markets where our average selling price is lower than in direct markets. In the first half year, we also recognized initial cost of goods related to the launch preparation of our chikungunya vaccine candidate.

Research and development expense decreased from EUR 51.9 million in 2022 to EUR 26 million in the first half year of fiscal year 2023. That decrease is again driven by the lower spend on Valneva COVID vaccine programs. And at the same time, the costs related to the Zika vaccine candidate increased as the company has been working towards a re-initiation of our clinical development program. Marketing and distribution expense increased significantly year-over-year from EUR 7.8 million to EUR 20 million. The increase is related to higher prelaunch cost for our chikungunya vaccine candidate that more than tripled versus prior year. In addition, (inaudible) spend has had a positive impact related to our share employee share-based compensation. G&A expense increased from EUR 16 million in 2022 to EUR 22.9 million in 2023.

In the prior year, all expense lines had a favorable effect for a total of EUR 19.5 million related to employee share-based compensation due to the share price development. The increase in other income from EUR 3.6 million to EUR 14 million is mainly related to the recognition of a grant received from Scottish Enterprise. Overall, the company recorded an operating loss of negative EUR 35 million versus EUR 150.4 million in the prior year. Adjusted EBITDA improved from EUR 136 million to EUR 28 million negative. Finally, we reported a cash and cash equivalents at June 30, 2023, of EUR 204.4 million compared to EUR 289.4 million at the end of December 2022. This position, as mentioned, does not include the increased debt facility of $100 million, of which $50 million were drawn down in the third quarter of 2023.

Now moving to Slide 21 to review our guidance for the fiscal year. We reiterate our guidance for revenues and other income communicated earlier this year. We expect product sales to reach between EUR 130 million and EUR 150 million and other income to reach EUR 90 million to EUR 110 million. We also reiterate our guidance on R&D investment expected between EUR 70 million and EUR 90 million.

This concludes the final section of this call. And now let's move to Slide 23, looking at upcoming catalysts and news flow. On our VLA1553 program, we still anticipate the PDUFA action date and the potential BLA approval at the end of November. We also expect to release adolescent immunogenicity results in November 2023 and progress to its and submits actually EMA regulatory submission in Q4. Also in Q4, we'll report additional 24 months antibody-persistence data, and we expect the ACIP recommendation for Q1 in 2024. On BLA 15, we expect the trial execution to continue with the recruitment of the Cohort 2 in advance of the 2024 taken, as explained by Thomas earlier during this call.

Additional news flow, we expect imminently to announce a new DoD contract for IXIARO and then potential granting of an FDA priority review voucher as we obtain the VLA1553 BLA approval. Also, as already mentioned, we expect initiation of our Phase I clinical trial of Zika in our interview in the first quarter of 2024 and the advancement of selected preclinical programs mentioned just before by Thomas. With this, we really see Valneva poised for substantial growth, primarily led by new product launches. We see in the next 6 to 12 months, of course, VLA1553 reaching the market. And then longer term, VLA15 reaching the market and for Valneva to actually be able to record significant milestone revenues.

Additional growth drivers, of course, the continuous recovery of the travel market that will be reflected in a substantial growth still in IXIARO and DUKORAL, as mentioned, the DoD contract with IXIARO and then potential label expansion for VLA1553 after the initial approval in adults. And then, of course, longer term, in licensing or acquisition of additional clinical candidates and then potential market launch, of course, of these in licensed programs.

So this concludes this part of the call. I would now like to hand back to Radia to open the Q&A session.

(Operator Instructions) And the questions come from the line of Maurice Raycroft from Jefferies.

I was going to ask one on chikungunya. What are your latest thoughts on what a potential Phase IV outbreak study might look like in terms of size, geographic areas or any other details? And I'm also wondering, is the outbreak study something that ACIP could potentially want to see for a recommendation? Or how do you view that study in the context of the ACIP?

Maurice, of course, will understand that given that we are in the middle of agreeing and aligning the Phase IV activities with the FDA, there's only very little I can say in public around that. What I can say, though, it is under the accelerated approval pathway, we need to show effectiveness in a real-life setting, meaning in endemic countries and ideally during an outbreak situation. And so therefore, you need to get prepared for that. And you need to have also different populations included, meaning adolescents as well as adults. Now, historically, ACIP have not been waiting final effectiveness data, which sometimes take many, many years to provide their vaccine recommendations. And at this point in time, we do not expect this to happen. So we have a strong database that we're going to present and have presented and will continue to present to ACIP. And that's basically a strong package.

More, I can. at this point in time, unfortunately, not say, but soon, we will, of course, be in a position to explain what we're going to do. And then I hope for your patience until then.

I was going to ask one other question about chikungunya. You've talked about the different revenue streams, including travel sales in the U.S. and EU military and potentially in potential stockpiling contracts and then endemic. Can you talk about the potential cadence of the launch in terms of these different revenue streams? How are you preparing currently for the launch? And have you thought of when you might give guidance on sales for some of these groups post launch?

So first of all, I mean, as you know, we have been prioritizing the travel and, let's say, outbreak preparedness in -- they're highly developed countries. So meaning we started with the U.S. where we see by far the single largest market opportunity in terms of revenue, then followed by Canada and EMA. So this is the cadence. So you know that the Canadian filing got accepted. We disclosed that. Next step is, of course, EMA. And then we will go immediately into Brazil.

And we are currently looking also into the next most important LMIC territory, which, of course, is Asia. So this is probably the cadence of how we're going to approach it from a regulatory and licensure perspective. With regards to outback prepare stockpiling, I mean there's not a dedicated regulatory process needed for that in the highly developed countries. Having said that, we have a quite significant number of initiatives ongoing to potentially attract a stockpiling business, that this is the part where we felt thus far not very comfortable providing any guidance on how big this opportunity might or might not be. But there is a lot going on, and we hope that we will also attract some business in this segment, too.

And the questions come from line of Samir Devani from Rx Securities.

Just a couple really on the numbers. Is this the loss of the COVID-19 vaccine orders that we're expecting? And on R&D, can you just maybe explain what would make you come in at the bottom or the top end of your guidance?

So on COVID-19, there is some small residual revenue expected still in the second half of the year, but we're mostly done with COVID-19 in terms of revenues. In terms of R&D, yes, great question. And I guess your question really targets towards the level of spend we see for the first half year compared to the guidance. Obviously, yes, we're tracking more towards the lower end of the guidance when you look at the first half year, of course. And that is -- so where we land ultimately is, I think, to a large extent, of course, driven by how much do we still spend on the ongoing trial, in particular, on chikungunya, but then also, of course, how quickly do we accelerate spend on Zika. So that's really the key drivers in the R&D spend.

And in addition to that, Samir, it's also related to when we're actually going to initiate some of the additional studies for CHIK. You have seen that we have quite a number of studies planned for chikungunya. Of course, we will and can only start some of the studies once we have gotten the approval of the vaccine. So that's why there are a couple of swing factors in there, which may affect the final spend, especially with regards to R&D expenses, which we call the direct R&D expenses, meaning external R&D costs with CROs, et cetera, in the fourth quarter of this year.

The questions come from the line of Simon Scholes, First Berlin.

First of all, I was wondering on the commercial vaccine business. If you could tell us how much direct sales was in Q2. I think the figure for Q1 was 71.6%. And I was also wondering if you could quantify the batch write-off on CRO in Q2.

Let's start with the second question on batch write-off, while we're looking for the number on direct sales. So you will understand that this is something we are not publishing. I mean we did have -- the reason why we mentioned it is because it was a higher amount than what we would usually see, which is really related to the fact that we're basically restarting full steam commercial manufacturing post COVID. But again, we're not disclosing the actual write-off.

In terms of the proportion of direct sales?

It was 65% in Q2.

And would you expect the number to stay around that level?

No, clearly not. I think this was an unusual high in both Q1 and Q2, and we would expect for the remainder of the year to go with more towards ratios like we saw in the past.

Especially military kicking in, remember that.

And the questions come from the line of Damien Choplain from ODDO BHF.

First on the (inaudible). So why do you need to conduct a new Phase I? Why don't you directly move into Phase II trial? First question. And what would be the market potential for this vaccine?

So let me start to explain a little bit what we're going to do. So basically, in the Phase I study, we saw very nice immunogenicity data. We saw a very good safety data, but we did not reach immunological plateau. So which means we have not yet with the formulation that we used in the Phase I study maximize the potential of the vaccine. So hence, what we're going to do here is we're going to update the formulation of the vaccine. We also going to bring it on to the platform that we further enhanced for BLA 2001 because we want to have the platform advantage. And by the end of the day, we want to have a highly differentiated vaccine.

We want to have an inactivated vaccine that is going to be best-in-class. And therefore, we could have done a kind of a hybrid Phase I/II thing, but we decided that it's better to go for a new Phase I protocol, which in reality is acquired in large Phase I protocol, but technically, it's a Phase I protocol. With regard to market size, it is very difficult to quantify at this point in time. And this is also the reason for why we clearly articulated in our H1 report that we're going to have another review time point on Zika at the end of the next clinical study.

There is clearly a huge unmet medical need, and we see again emerging outbreaks around Zika, but for outbreak diseases, it is not trivial to really quantify the market potential, and we need to understand 3 things: number 1, we need to understand, will we be able to deliver a best-in-class vaccine. And you remember that our inactivated approach here follows really WHO guidance, we clearly ruled out certain other technologies for a vaccine that will target vaccination of women in childbearing age and/or pregnant women in an outbreak situation. And the second part is really we need to understand what is the potential under a normal kind of travel view. And thirdly, is there a possibility to enter into respective partnerships which could help improving the overall financials around it, as we did for Chikungunya with our partnership with CEPI. All that will be further evaluated as we go along.

For the time being, as I said, we see a huge unmet medical need. We see the opportunity that Valneva could provide a best-in-class vaccine solution and as a vaccine solution that complies fully with the expectations of the medical and scientific community. More we have to see when we need to decide whether on the basis of data, whether we will proceed that or not.

Maybe just a quick one on your guidance. Can you just confirm that it still includes the sale of the potential PRV in 2023 despite the fact that the approval of the CHIK vaccine has been delayed?

Yes, indeed, it still includes the other income we expect -- expected proceeds from the PRV despite the fact that the PDUFA date is now a bit later.

We are now going to proceed with our next question. And the questions come from the line of Evan Wang from Guggenheim Securities.

2 for me. First, online, just with update the ongoing trial. I know it's in the hands of Pfizer, but interested to hear what the companies are seeing in terms of incident rate of cases and line serotypes, both in the Europe and U.S. Is it kind of consistent with what you guys are expecting? And second, on chikungunya, how you see some of the durability data showed -- or the earlier time point data showed. Just wondering if there's thoughts on including maybe a subset of patients in either the Phase IV or other studies to maybe evaluate an earlier time point tighter in a larger patient population.

Let me start with the second one first because it's one of the questions that for reasons that you perfectly understand. We are getting all the time onset of immunity. I mean, as I said, we were the first ones to develop the vaccine. We agreed at the time with the authorities on the readout at day 29. Of course, we have a bunch of data sets as we presented today that clearly indicates that the vaccine has a full onset above the 0 response level very early on. We will -- and I mentioned this during my presentation, includes those earlier time points as part of studies that we are initiating, be it under Phase III or under Phase IV, protocol for sure. And there is absolutely no reason for us not to do this, and there's absolutely no reason to believe that we should not have a fantastic onset of immunity above 0 response level early on.

So online itself, Pfizer conducted an epi study in Europe and the U.S. before the Phase III study got even initiated. There have been partial disclosures around the results from this epi study at different conferences. Overall, the study confirmed the distribution of the different serotypes on both sides of the Atlantic that we presented at different locations and that can be found in literature within reason, I would say, and within variabilities. But overall, no surprises on that front. With regards to the overall case count that is, of course, being monitored at this point in time, there's nothing we can say but also the epi studies confirmed the overall incidence rates that have been used to also power the study. So, so far, so good. I would say everything is working as expected. And Pfizer has no issues in attracting and precluding the respective target population into the study.

(Operator Instructions) The questions come from the line of Suzanne van Voorthuizen from VLK.

A couple of questions from my side to start off with the product sales that are growing quite nicely again. Can you remind us what the seasonality is that we should keep in mind for IXIARO and DUKORAL, which quarters are typically stronger given the travel patterns and what do you expect for Chikungunya over time?

So I would say, basically, if you look at prior years, you typically see a dip during the summertime. You see higher uptake earlier in the year and later in the year. This has to do with the travel pattern to Southeast Asia. You see a seasonality pattern also for DUKORAL, given that the single largest market for DUKORAL is Canada, and you see typically a strong, strong demand early on in the year. So at the end of the year, early on in the year, Canadians like to travel to warmer regions when it's cold Canada. So basically, this is something that we have seen in prior years. It is extremely difficult to model it precisely because we have seen I would say, variabilities across the years. But overall, there is a model that we have in place that kind of mimics the seasonality and which, of course, we also use when we prepare our year-end and projections and latest estimates. But as I said, that's the reason for why we have said we stick entirely to guidance.

With regards to chikungunya and your question about seasonality, chikungunya, that's an excellent one, too. So I would say we have slightly different, I would say, territories for chikungunya as compared to Japanese and Encephalitis. Some are the same. Some are very different. And so there are -- our current hypothesis is that they probably kind of balance each other out. So we are currently not necessarily modeling yet a strong seasonality profile around chikungunya. But of course, when you are pioneering in a brand-new indication with brand-new vaccine, you learn along the way, but that's our current support.

And then maybe continuing on the CHIK vaccine, you started to invest a little bit in preparation for the launch. Can you remind us what gross margin you believe is feasible on this product? And how we should look at your sales and marketing expenses for the launch and the long-term run rate?

Maybe let me start, first of all, with a more qualitative statement while Peter is thinking about the quantitative part. So I would say, basically, we are not only investing a little bit. We are investing a lot. I mean, you can see this on our sales and marketing expense line, and we will continue seeing this on our sales and marketing expense line. So we are investing in launch and, more importantly, market access. There is a lot of work that needs to be done to educate the world around chikungunya and making sure that people understand the medical need, people understand the disease. So disease awareness and all of that, there's a lot that we are doing right now.

In parallel, we are also ramping up our commercial infrastructure, primarily in the U.S., but not limited to the U.S. So these are significant investments that go into this vaccine. And of course, the whole topic around margins is a difficult one. And as I said, I'll let Peter develop this further because we have a brand-new chain of custody for chikungunya. You know that chikungunya is a live attenuated and hence lyophilized vaccine. So which means that we are doing part of the manufacturing in-house, part of the manufacturing with third party, and there are significant economy of scale effect.

Thanks, Thomas. So in terms of the launch cost and overall sales and marketing expense, how we think about chikungunya. So as you rightly said, Thomas also said, we significantly invest in the prelaunch activities. I think you will continue to see high sales and marketing investments into chikungunya as we start commercializing the product next year. And then over time, the way we think in our long-range plan, I think we expect our overall sales and marketing spend in percentage of sales to go back into the regions where it was pre-COVID, but we're probably talking here range 26, 27. But before that, there will be some overinvestments of course, because of the market education, et cetera.

In terms of gross margin, similarly here, I think in the first year and as sales ramp up, we expect some higher cost of goods than what you would have seen in the legacy business before COVID. And then once we get to scale and as to said, there's significant economies of scale as we ramp up the volumes, I think we expect to see at least similar gross margins than what we would have seen with IXIARO and DUKORAL. And I think over time, I think we would even see higher gross margins.

And then maybe just a last one from my side about the Lyme program. Now that dust has settled on the time lines and you're given your current cash position and the recent additional EUR 100 million loan facility. Can you elaborate on how we should think about your cash burn and run rate from here?

Thanks, Suzanne. So we will still have significant payments to make on the Lyme program. And I mean you can see, to some extent, of course, on the liability side of our balance sheet, what is expected to be there. I think overall, after the 2022 equity offering, we said we were sufficiently financed at least until the end of the fiscal year 2024. That, of course, still holds true, but we have not provided at this stage an updated guidance on cash burn rate is something to consider in the future. But right now, we have not given further guidance. But for the foreseeable future, of course, we're sufficiently financed. And then as we said, we still have appetite to potentially in-license R&D programs. And if we were to do that, that might then require additional dedicated financing, which could also be non-dilutive, of course.

And the questions come from the line of Max Herrmann from Stifel.

Firstly, just on IXIARO and DUKORAL. I know last year, you had some capacity constraints. You've obviously highlighted a batch failure in the IXIARO in the first half of this year. And I wondered where you are with capacity compared with demand for both those products.

Overall, we are right now managing supply/demand quite well. We have here and there still some minor shortages. But overall, on an 820 basis we are fine. The effect that we were talking about, about higher write-offs leading to higher cost of goods at where typical, I would say, restart issues after the team had not done IXIARO manufacturing for more than 2 years. But we are back on track with regards to the manufacturing performance here, too. So we are not expecting any further significant issues with supply demand from a supply perspective, unless, of course, we see further positive surprises on demand side. We are seeing in some countries, an enormous uptake and increase of travel vaccines in general. So we have to see how this is all going to play out going forward. But thus far, everything fine.

The DoD contract, you've talked about that being imminently signed. I just wondered what the sort of structure of that is, obviously, you did a more multiyear kind of contract in the past, recent past and then previously, it was more an annual event. So that was kind of that question. And then finally, just in terms of -- I know you just said that recruitment into the Lyme disease program is no issues. I wondered if you could be more specific a bit on the pediatric element of that recruitment, whether this is, in some ways, the fact that you're doing over 2 seasons now has maybe been helpful because I know that was one of the areas that was hardest to recruit into.

Well, on the contract itself, I mean, you rightly pointed out, historically, we have done single year contracts. And that has been the standard with DoD. We had one exception, which was the based here plus option contracts. It wasn't an exception. It never materialized in reality because it unfortunately coincided with the global pandemic, as you know, and this gives you the answer what we are expecting. So on the recruitment front itself, we continue with a certain percentage of pediatrics within the study, which is absolutely in line with how we have designed the protocol and how we have set also the respective analysis at powering. So there are no issues in the recruitment of any of the target populations that we need within the study at this point in time.

We have no further questions at this time. I hand back to you for closing remarks. Thank you.

I think that concludes today's call on our half year 2023 results and general corporate and business updates. We would like to thank you again for your time today, for your good questions and for following us so closely and diligently and we look forward to catching up in the coming months. Thank you so much, and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.