Valneva SE (VALN) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Valneva presents its 9 months 2020 Financial Results. (Operator Instructions) I must advise you that this conference is being recorded today, Tuesday, the 3rd of November 2020.

And now I'd now like to hand the conference over to your first speaker today, Thomas Lingelbach, CEO of Valneva. Please go ahead, sir.

Good day, and welcome to today's call regarding 9 months financial results and other operational updates.

Well, I mean, the first 9 months of the year has been pretty exciting in many respects, but also pretty demanding. Our quarter 3 milestones have been really marked by excellent success and great achievements. We were able to turn the COVID pandemic into a product development opportunity and signed a major COVID-19 vaccine partnership with the U.K. government. And I'm glad to report that our activities are all on track according to what we have agreed upon.

We delivered very positive top line results for our Lyme Phase II studies, and I'm going to report more on that. We are now the first company to initiate a Phase III study for our chikungunya vaccine, and we received EMA PRIME designation. And we have been able to secure for the first time a 3-year, so 1 plus 2 option year contract with the U.S. military, the Department of Defense, for our IXIARO vaccine. And this contract becomes a very pivotal backbone to the long term or midterm sustainability of our commercial business, which, of course, and this should not be a surprise to all of you, were significantly affected by the ongoing pandemic. So we had, of course, limited product sales in quarter 3 with regards to our travel segment.

And due to the fact that our production lead times are long and production was started long before the pandemic hit, we see, of course, inventory write-off, we see manufacturing idle costs. And this all results in gross margin effects. The U.S. military contract is especially with regards to its anticipated supplies, more geared towards supplies in quarter 4, which has an effect on the quarter 3 numbers itself. And our finance colleagues will report more about this. Of course, we have been reacting to the steep decline of our commercial business by implementing cost savings in sales and marketing. And we have been able to now gradually transition the manufacturing staff, both in Scotland as well as in Sweden, towards the production of COVID-19 vaccine, and this is something that we're going to commence no later than very early next year.

Of course, we have taken a strategic decision to retain our commercial infrastructure because we expect that travel will come back. Travel vaccination will come back. And we have key products that are needed. And the commercial infrastructure that we have built over years is a significant strategic asset. In order to be able to sustain that, our objective is really to ensure breakeven for our commercial business until recovery.

Yes. And with that, I would like to move on with our R&D update and would like to start, first of all, with our Lyme disease vaccine candidate. You know that we were able to close an exclusive worldwide partnering deal with Pfizer for the late-stage development and future commercialization of our vaccine candidate, VLA15, and we are working very closely with our colleagues at Pfizer throughout the development of this product candidate. You may recall that we initiated 2 Phase II studies with the objective to determine after those 2 Phase II studies the optimal dose and optimal schedule for the vaccine in adults. And we have been able to report, in the meantime, now data from both trials. And before going into the data. The data has been conclusive, and this allows us to take a decision to further advancing the program based on a defined schedule, namely the 0-2-6-month schedule and an optimal dose that we're going to move forward.

We are in the process now with Pfizer to prepare for the next development steps, and this includes also the question, at which point in time we're going to start, for example, the development in children. Something that is super important going forward. And this may also allow us to accelerate some of those development activities.

Page 7 shows the study design of the most recent study, VLA15-202. This was a study in 246 subjects, aged 18 to 65 years of age, 213 subjects included in the PP population. And primary endpoint readout, we call it the interim analysis readout, 1 month after completion of the 3-dose primary immunization, looking at antibody titer measured by ELISA, but also for the first time, measuring functional antibodies or functionality of the antibodies as measured by Serum Bactericidal Assays and of course, flanked by the normal kind of safety surveillance.

The overall conclusions are summarized on Page 8 of the presentation. Like in the previous studies, VLA15 was safe across all doses and age group tested. And the tolerability profile, including fever rates, was comparable to other lipidated recombinant vaccines or lipid-containing formulations. No related serious adverse events were observed in any of the treatment groups.

Compared to the study VLA15-201, and this was a study where we tested also a 3-dose schedule but 0-1-2, immunogenicity was further enhanced with the 0-2-6 schedule, resulting in seroconversion rates that ranged from approximately 94% to approximately 99% depending on the serotype. So overall, a very balanced and high immunological response across all the different serotypes. This immunological response was particularly encouraging in older adults, which is one of the main target groups for a Lyme vaccine. I mentioned already that a Serum Bactericidal Assay, so-called SBA, was conducted for the first time and demonstrated functionality of antibodies against all OspA serotypes.

We had also included in the study so-called seropositive study subjects, so people with previous Borrelia infection. But we did not see any indication that this prior exposure would have an impact on either safety or immunogenicity. So based on the data set from 201, so VLA15-201 and 202, we have decided to proceed with further development based on a 0-2-6 schedule and a 180-microgram per dose formulation.

So the chikungunya vaccine candidate, our vaccine candidate, VLA1553. As mentioned during my short introduction, we initiated the Phase III. And hence, we are currently the most advanced program in the field of chikungunya vaccine development. And just by way of reminder, the sponsor of the first chikungunya vaccine BLA to be approved in the U.S. will be eligible to receive a priority review voucher. And basically, we also got PRIME designation granted by the EMA in October 2020. And of course, the PRIME designation is primarily given to promising medicines that demonstrate the potential to address substantial unmet medical need based on the initial clinical data and gives us some advantages in the way we interact with the regulators, including respective reviews.

The study that is currently ongoing is a double-blinded, controlled, randomized study with the objective, of course, to show safety and immunogenicity. The endpoint and proof of efficacy will be based on immunological correlate. So the seroprotection rate at Day 29 will be determined. And this seroprotection threshold, which basically was developed through respective passive transfer studies in nonhuman primates, is currently under review and will be taken then as the endpoint for the study itself.

We will have healthy subjects aged 18 years and above randomized 3:1 to VLA1553 or control, a bit more than 4,000 people expected in the study. And the trial sites are focused on the United States, multicenter. And by way of reminder, this is a single-shot vaccine, so basically, one shot and then 29 days later, the readout. The expected duration of the study is currently estimated at 9 to 12 months. And of course, you will understand that we cannot be more definitive at this point in time because the duration may be impacted by different parameters, including adverse clinical operations implications due to the ongoing pandemic.

Yes. I think with that, we come to our vaccine candidate VLA2001, the only inactivated COVID-19 vaccine candidate in the U.S. and the United States. You know that there are inactivated, very advanced inactivated vaccine candidates currently being tested and basically even partially already applied in China. We have been able to work in a partnership with the U.K. government, supporting us in the development and manufacturing of this product candidate. We are very glad that the government decided to include our vaccine candidate in the portfolio of different COVID-19 vaccine candidates, and we see our vaccine candidate clearly complementing the world of other potential technologies. We are leveraging with this candidate our existing capabilities in the field of viral vaccines. We have been able to really set up the processes based on our existing platforms in a relatively short period of time. You may recall that especially when you work on a whole virus, you need to establish your facilities at BSL3 grade.

So this took a bit of time, but now we are nicely catching up. We are in the middle of our preclinical activities. We have already produced our clinical trial material that is needed to conduct the first clinical study. And basically, our vaccine candidate is inactivated and hence, based on a technological platform that is very well suited for all different kinds of study populations. We have difference to the Chinese candidates. For example, we have added T-cell adjuvants called CpG 1018 from Dynavax. And we expect that by adding this adjuvant, we will be able to further enhance the profile and especially the T-cell bias towards Th1 immune response. We expect our clinical trials to commence in December. And everything is currently up and running according to this time line. The vaccine is being manufactured at our facility in Scotland for drug substance. And for fill/finish, we will leverage our facilities in Sweden. And as I mentioned, everything is on track.

We have a base contract with the U.K. government, who have already purchased 60 million doses and who has secured options to purchase up to 130 million doses on top of that. And yes, so as I mentioned earlier, everything is on track. It's, of course, like everyone, we are working against tight time lines, but we are confident that we are able to deliver according to our promises.

Talking a little bit about the target product profile of VLA2001. As I mentioned already, inactivated and adjuvanted with the combination of Alum and CpG 1018, giving or expecting to shift the immune response towards Th1. Of course, for active immunization of at-risk persons and all the classical other primary indications. With regards to anticipated efficacy, we linked it to the WHO position paper. So 70%, at least 50% is desired. And of course, we expect in terms of safety profile, contraindications, co-vaccinations, a similar profile that you would expect for any other well-established and well-proven inactivated vaccine. We expect a prime boost. So 2 doses administered 3 weeks apart and then a booster after 12 months, so very classical system for inactivated vaccines.

And the presentation will be like for many of the other COVID vaccines under development and beginning at 10-dose vial. And since many people ask me about this all the time, it goes without saying that our vaccine is also in terms of logistics be handled like every other inactivated vaccine, so classical 2- to 8-degree supply chain, no particularity because we are talking about inactivated biological agents.

In terms of the trial design, what do we expect? So we expect to initiate a Phase I/II study that initially starts with a first cohort of about 150 subjects for initial safety and dose confirmation, age range 18 to 55 years, different dose levels, but the 3-week apart schedule, so Day 0, Day 21. Then based on the 36-day readout, we initiate automatically the transition into the Phase II once we have, of course, decided which dose to take forward. And as part of this Phase II, we will generate the necessary safety database that is required for licensure in those kind of vaccines. And we will test in parallel the immunogenicity that may give us then the possibility for a submission in support of an initial approval already next year.

So that's the clinical program as it can be foreseen for now. And of course, this is all subject to ongoing discussion with regulators and depending on the development of other vaccines by that time.

With this update on R&D, I would like to hand over to David, who will share today the financial report with Manfred.

Thank you, Thomas. Good.

So the first thing I'm going to say on Slide 15, this is maybe my last earnings call, and I want to thank everyone for the support over the past 2 years or so. Just before passing on to Manfred to go through the results, there are some very important points that I want to get across because these are not the easiest set of financials that we've had over my time with the company. As you likely know, and as Thomas has just said, 2020 has been a momentous year for the company. So back in quarter 1, we struck a new debt financing arrangement with Deerfield and OrbiMed. And that's a really important facility for Valneva. And at that time, we also switched out the legacy EIB debt deal.

So next up, we had the COVID pandemic, which started to impact the travel industry, including our own travel vaccine business, pretty much from the end of Q1. The pandemic also gave our research team and our Scientific Advisory Board plenty of thought in terms of how Valneva can contribute to a global solution, which Thomas has just talked to.

In parallel to that, we've been running a widely known partnering process for our Lyme vaccine, having bought the legacy GSK agreement in Q2 2019, so in the comparative quarter last year. That decision has been fully vindicated by the collaboration that we've struck with Pfizer. And the deal itself gave us significant upfront payment, which added to our balance sheet strength, augmenting the debt deal that we can continue to run.

Next after that, we completed a commercial sales and marketing deal with Bavarian Nordic. So then in Q3, we signed a fantastic new deal with the U.S. Department of Defense, which Thomas has just mentioned. Yes, I know it's a little bit later than originally planned due to the COVID pandemic impacting the troop rotation schedule and indeed the RFP process. Great news, though, although this has moved most of our second half 2020 U.S. military sales into Q4 rather than spread across Q3 and Q4.

So then we signed the COVID vaccine partnership with the U.K. government in mid-September, and that comes with funding support for our Livingston, Scotland plant and our U.K.-based clinical trials. And whilst we can't divulge any of the commercial terms, the collaboration ensures that the company will not have to lean on its shareholders for capital for the project.

We're investing in R&D directly ourselves, of course, as well as some capital investment into our Swedish facility to build fill/finish capacity. But we plan to be able to execute the project from existing reserves given the strength that we've built in our balance sheet this year already.

However, looking at the 9-month results, you can see the COVID deal also gives rise to detailed consideration such as the high receivables at the end of quarter 3. In turn, of course, the U.K. government settled those invoices related to that initial advance payment in October. And we expect to end the year with a cash balance higher than at the end of the Q3 with U.S. military sales in Q4 also contributing to this. And Manfred will touch on this further.

So as you know, we had a very busy year and indeed Manfred, along with the finance team and our auditors, are continuing to work on important accounting aspects, including revenue recognition for both the Lyme collaboration and indeed the U.K. government vaccine partnership. So the key message I want to get across before handing over to Manfred is therefore that, this has been and continues to be a momentous year for the company. At the same time, it means our results are not as straightforward as they were in 2019, for example. And so we're trying to make clear that our guidance is subject to volatility while trying to give the best lens we can. And it's too early to look into 2021. So we'll likely do that as usual with our cash and revenue results when we get there.

So thanks again for the support. Hope that gives you context for some of the complexity of our results. And I'm passing you on to Manfred, give him a hand.

Yes. Thanks very much, David.

So I would like to continue the finance section with providing an update of our cash position, which continues to strengthen. The total cash at the end of Q3 was EUR 156 million. I would like here to draw your attention as well to the balance sheet included in our financial statements, which shows a receivable position of more than EUR 100 million at the end of September, including the first supply agreement installment related to the partnership with the U.K. government for our VLA2001 COVID-19 vaccine. The first invoice was issued in September upon signing of the supply agreement, so it's reflected in our receivables. In October, this invoice was already fully paid. And so our October 31 cash position was, in fact, again, higher than the EUR 156 million, as reported by the end of September.

The U.K. partnership provides us with the necessary funding for the site capacity expansion plans in our Livingston manufacturing site, development and production materials as well as funds to run the VLA2001 U.K.-based clinical trial, which we expect to commence before the end of this year. We have not drawn any further funds during Q3 from the remaining available debt financing facility with Deerfield and OrbiMed. And we also do not plan any further drawdown before the end of 2020 given our already strong cash position. At the end of December, we expect our cash position to increase, to land within the range of EUR 180 million to EUR 200 million. So we continue operating our business on a very solid cash position and will proceed with investments into our COVID vaccine candidate, fully prefunded through the U.K. partnership.

This slide, again, so now I'm looking at Page #18. This slide, again, shows the major movements in our cash position compared to the end of 2019. Both the Pfizer milestone payments received in the second quarter and the net proceeds from the new loan agreement with Deerfield and OrbiMed being the main contributors alongside further cash inflows from U.K. government expected in Q4. These all contribute to managing the increased cash requirements from advancing our R&D pipeline and the lower cash generation from our travel vaccine business as reflected in the negative EBITDA we generated up to third quarter.

We continue on Slide #19. The other pie chart, many of you have seen previously, shows for this quarter a more balanced picture between the different products and channels over the first 9 months. Product sales has been very moderate overall in Q3 and amounted to about EUR 5 million. Main drivers were shipments to the U.S. military being rephased back into October and Q4, and very limited sales in travel markets for both IXIARO and DUKORAL as a consequence of the ongoing pandemic. Overall sales remain, however, 47% behind the first 9 months of 2019. And the lack of U.S. military sales also temporarily reduces the share of direct sales managed through Valneva's own sales organizations, now dropping from previous levels at around 80% towards the level of 74% for the first 9 months. Consequently, our gross margin has also been under pressure, dropping to 37.4%, but more about this on one of the later slides.

Next slide, we are going to provide the usual view on product sales versus previous year at constant exchange rates in a bit more detail. IXIARO has been impacted most severely declining by about 53% versus previous year, which again has mostly been driven by generating about EUR 15 million lower sales to date with the U.S. military, so roughly half of the gap is driven by this effect. With supplies into the recently signed contracts are commencing as of this month, we are positive about IXIARO sales for the fourth quarter. DUKORAL sales have so far been 34% lower than for the same period of 2019 with sales across all markets declining. And last but not least, our third-party business saw a recovery in Q3, driven by flu sales starting to pick up in the course of this quarter.

So continue on Slide #21. Here, we already like to provide a view on our full year sales outlook and expect total revenues now to end up at around EUR 120 million for full year 2020. So close to the lower end of our previous guidance we published together with the half year results back in August this year.

For product sales, we equally expect to hit the lower end of our previous guidance and deliver a product sales level of about EUR 70 million for full year 2020. This means that we expect fourth quarter sales to be significantly higher than Q3. Now estimate about EUR 24 million compared to EUR 5 million reported for the third quarter.

For other revenues, we expect to land at the lower end of previously released guidance and expect to arrive about EUR 50 million, which includes between EUR 35 million and EUR 40 million of revenues related to the Pfizer R&D collaboration for Lyme as well as additional revenues from technologies and services-related revenues making up the balance towards the EUR 50 million total of the revenue guidance.

Furthermore, it's important to note that we currently do not anticipate to recognize any revenues related to the U.K. COVID-19 partnership before the end of this year and have also to date not recorded any related revenues. We're currently in the process of assessing the correct IFRS accounting treatment of this very important transaction together with our external advisers and our audit partners.

Next slide. As previously mentioned, a few additional comments I would like to give about the low gross margin percentage that we had reported for the first 9 months of 2020. We experienced several knock-on effects from lower product sales. Most importantly, we've had very low shipments to U.S. military, which is typically a channel generating above-average margins. Across both IXIARO and DUKORAL, we have, in addition, been impacted by a write-off of commercial and also production inventories for which we expect a scrap risk given certain limitations on their shelf lives.

Total effects amounted in absolute terms to about EUR 7 million, which impacts the percentage-wise of both products roughly in the same way. In addition, both manufacturing sites had to react to declining demand and both sites had been exposed to idle capacity costs driven by a relatively high degree of fixed costs necessary to maintain the manufacturing infrastructure. This impact was larger for DUKORAL. The ramping up of COVID-specific activities in both manufacturing sites as well as the shelf life extension to 36 months announced for IXIARO in March of this year will contribute to mitigating those further negative bottom line consequences.

On the next slide, again, our usual view on the income statement, now updated for the first 9 months of 2020. Think about overall sales, I think we have sufficiently covered those already in previous slides. As a reminder and also as mentioned by David, in the other revenue line for 2019, we have included a onetime charge amounting to negative EUR 10.7 million related to the termination of the strategic alliance agreement with GSK. Adjusting 2019 for the GSK effect, non-product sales show an increase from EUR 5.7 million in 2019 to EUR 13 million in 2020, which also already includes about EUR 4 million related to the Pfizer Lyme collaboration and growth also being generated by CTM activities provided by our Swedish manufacturing site in Solna.

On the cost of goods line, yes, that has also largely been covered already. And again, 2020 includes about EUR 7 million related to inventory write-offs as well as roughly EUR 3 million related to idle capacity costs.

Research and development investments continue growing in line with expectation and progression of our 2 late-stage clinical candidates for Lyme and chikungunya to be specific, but also already includes EUR 5.2 million related to the COVID VLA2001 R&D program. Cost containment activities have contributed to a material reduction of our sales and marketing spend, which we see coming down by about EUR 3.3 million versus previous year, which we realized by a combination of reducing advertising and promotion spend by lower variable costs, but also by adjustments in the level of staffing across the commercial entities, which will only really start showing cost saving effects as of the fourth quarter.

G&A spend has increased materially, mainly driven by one-off and nonoperational items, including some noncash effects. More I want to share about this on a later slide. Improvement in the other income and expense line are partly a consequence of higher R&D spend, also positively impacting the level of R&D tax credits we can record. And also the income generated through the cooperation with CEPI related to our chikungunya R&D program, for which we can show an increase in grant income is also reported in the other income line, in line with previous practice. And then finally, the increase in finance-related expenses are a consequence of higher interest charges related to the debt financing agreement with OrbiMed and Deerfield as well as the increased exposure to foreign currency fluctuations as the company holds funds in non-euro currencies.

And finally, the EBITDA level shows a total loss of EUR 45.2 million compared to an EBITDA profit we had reported in the same period of 2019 amounting to EUR 3 million. And yes, the main changes, I'll also shortly explain on the sector slide.

Yes. I think the next slide. I think most of the details on this slide have already been explained during this presentation. In any case, we recognized that the decline in gross margin also had an impact on the profitability of our commercial business, which for the first 9 months of 2019 shows a loss-making situation. One point I would like to call out here is the increase in what we call commercial costs as defined for calculation of the net operating margin of our commercial business, which is mostly driven by higher allocated G&A spend, offsetting the cost reductions already realized in the marketing and sales organizations. We are continuing to take steps to improve the gross margin and net operating profit of our travel vaccine business going forward.

Yes. On the next slide, I want to show some further details on G&A. As previously mentioned, some of the key drivers of the increased level of G&A spend. So firstly, the valuation of our employee long-term incentive programs, including social charges, resulting in a EUR 3.5 million increase in cost versus last year. However, it needs to be noted that this P&L effect is a noncash effect and is mostly driven by the development of the Valneva share price, especially during the last 3 months with the end of September share price exceeding the level of EUR 7 per share.

In addition, we have especially during the last month seen an increased level of successful corporate projects being executed, which cost EUR 1.5 million higher costs than previous year, especially across the legal and finance functions, all being basically necessary to support both closure as well as assessment and accounting treatment of deals completed. Many of these deals have started showing the positive contributions for the company's performance, such as the Lyme collaboration with Pfizer and the U.K. COVID-19 partnership, justifying the increase in G&A costs to support these important projects. And lastly, all of the changes to MB, including retirement and recruitment costs, created some onetime P&L effects in G&A during the third quarter of 2020.

Next slide, my last slide, yes, basically to conclude the finance part. I again want to walk you through the main building blocks of our EBITDA changes compared to last year. The increased level of R&D investments, combined with effects on product sales, including knock-on effects, are the main contributors for the lower EBITDA. We also achieved a considerable part of the sales decline already to the second COVID-19 wave appearing in more and more markets, which already did have an effect on sales plans and the valuation of risks associated with commercial inventories across the markets, which we already included into our Q3 results. We mitigated the downside partly by additional contributions coming in from non-product sales generated through the Pfizer collaboration and our CTM business in Sweden. And also the cost containment actions across the sales and marketing organization have contributed positively.

Finally, the R&D tax credits and grants improved versus last year. And with the mentioned increase in G&A spend, we ultimately landed at an EBITDA loss of EUR 45.2 million for the 9 months 2020. I also want to underline that about EUR 15 million of the year-over-year decline are driven by noncash or nonoperational effects, such as the write-off of inventory and the effect of the employee long-term incentive programs on EBITDA. Overall, with the strong cash position combined with the prospects of 3 more major R&D programs progressing through the development phases leave us confident that we will also be able to handle the negative effects the pandemic has on our travel vaccine business in the near term.

And with this, I'm going to conclude the finance section and hand back to Thomas to summarize the full year 2020 guidance for us and to outline some of the upcoming news flow.

Many thanks, Manfred. Many thanks, David. Of course, I mean, you all understand and the length of the financial reporting section speaks for itself. It is very, very difficult. It's how we say here in Vienna, it's a melange of operating business performance, revenue recognition and noncash effects.

Having said that, we are trying our best to still provide financial guidance. And as you can see, the most important thing is really that despite of this impact on the commercial business, which is clearly understandable in a situation where no one is traveling. We have been able to retain a business that is high performing. We expect until the end of the year or by the end of the year, a cash position between EUR 180 million to EUR 200 million, which is extremely strong.

Of course, product sales are lower than expected pre-COVID, but other revenues go up. So when you compare this really head-to-head, you see that despite of the adverse impact that we have on the travel vaccine business itself, The EBITDA expected at minus EUR 40 million to minus EUR 50 million, it's not so much different from what we had initially guided pre-COVID. Of course, you have all observed the very negative market reaction today, and I'm not going to report on that one and talk about that. But one thing is clear. We have, on our R&D programs, which we still consider the main value drivers and upside for Valneva delivered at the best possible level both from a Lyme acceleration point of view Pfizer deal, but also the chikungunya vaccine where we have really been able to bypass competitors who had been more advanced than we are, and we are now with our 2 lead R&D assets, either best or best and first-in-class.

And we have been able to turn this COVID pandemic into a COVID opportunity for Valneva by contributing with potential differentiated vaccine approach. As such, I would like to conclude with the upcoming news flow, which I mentioned already. Of course, we will work with Pfizer now on the development plan going forward, including the question whether we may even accelerate the pediatric development for the vaccine to have the full target population included. We expect the Phase III recruitment completion for chikungunya by the end of the year and the initiation of the Phase I/II trial for our COVID-19 vaccine.

With that, I would like to hand back to the operator to take your questions.

(Operator Instructions) Your first question comes from Jean-Jacques Le Fur from Bryan Garnier.

First of all, congrats to David for a very great job it did in the past, and I hope Manfred, I'm sure Manfred will certainly do the same Terrific job.

3 questions, if I may. The first one is regarding the line calendar clinical trial trying to understand when you expect to start the Phase III? Could it be in 2021, probably? And with the schedule 0-2-6 and the seasonality of the Lyme infection or the tick borne, sorry, peak season. When could we expect to sort of readout or end of Phase III for Lyme? The second question is regarding COVID vaccines. I don't know if it's a naive or not question, but it's regarding the booster.

If we assume this COVID virus to become sort of seasonal like flu, what will happen to this booster? Will it be needed? And if we don't use a booster, will the vaccination will have lower efficacy? How will it work? And lastly, a financial one for Manfred or David, which part of the G&A extra costs during this Q3 will not be repeated in 2021. So could we assume a sort of a flat G&A or lower G&A in 2021?

All right. So very interesting questions, very good questions. Let me try to start with the R&D part, and then I let Manfred comment on the G&A. So first of all, online, this is, of course, not a decision that we, as Valneva will take a loan. It's a partnership that we do have with Pfizer. And we are currently discussing different clinical settings for the Phase III. You know that Valneva's original plan was to conduct the Phase III only in adults and do the pediatric label extension, for example, post marketing. This is currently under discussion. So it might well be that we bring pediatric forward, which would come potentially at a price of starting Phase III a bit later. But then having the full target population already included in the label at final point of licensure.

This is a discussion that is ongoing. And we will, of course, present the final development strategy once agreed with Pfizer. And once, I would say, approved or consented to by the regulators, I -- we are currently anticipating that the Phase III will start in 2022. But that's something that, as I said, needs confirmation.

And on the schedule 0-2-6, of course, you need to vaccinate people in -- or have them vaccinated in September in order to be protected for the following peak season. And this will be reflected, of course, in the Phase III execution timeline. When it comes to this COVID Brian Boost, We are talking about an inactivated vaccine, so an all inactivated vaccines work with a classical prime boost tide of immunological profile. So this means we have a primary immunization like in our case, 2 doses. And then you need a booster which needs a single shot after approximately 1 year. And then people are typically protected for a long time. And most of the inactivated vaccines require a second booster only after approximately 10 years. This is, for example, the case for our IXIARO vaccine, and we expect a similar profile for our COVID vaccine.

Manfred on G&A.

Yes. On your G&A question. It's an excellent question. And I think exactly the reason why we also wanted to carve out the drivers behind the increase we've seen throughout the third quarter, as shown on Slide 25. So I think most of those items are actually onetime in nature. Obviously, the effects driven by the long-term incentive and share option programs are, I mean, massively driven by the increase in share price. We don't expect these costs to repeat. And in contrast, you may see here even a reduction of costs should we see a less favorable share price development going forward.

I think as an overall guidance in reference, I would use, I would say, moderate growth rate of around something like 3% to 5% on the underlying run rate, excluding those onetime effects. I think that would be, I would say, a safe indication on how we would expect our G&A costs to trend going forward.

Just one additional comment for me. If we do end up taking share option charges, I think that's something our shareholders would be happy with us as a result of share price increase.

Okay. Additional questions?

Your next question comes from the line of Samir Devani from Rx Securities.

Let me also add my best with to David, and congrats on a good job. My question is really just in regards to the U.K. government contract. And clearly, from the receivables, there's a significant upfront payment from that contract. I'm just wondering how we should be thinking about future payments and potentially how much more could you potentially be receiving before supplying the vaccine.

So thanks, Samir. I'm going to take that one. I think I was the one closest to the details on this June, August and September. So the first thing I'm going to say is, obviously, we will not disclose any sensitive information that wouldn't be appropriate for either us or the U.K. government in terms of other interactions that we have. And I think what we tried to do was that the tailor of the deal to the program that we have and the facilities that we have and also with the U.K. taxpayer very much in the heart of U.K. government's considerations.

So I mean, like any of these kind of deals, there tends to be an upfront. And of course, there tends to be a repayment that's the back end as well upon final delivery. And I think you can guess that there will be something in between. So I think the only guidance we can really give you is that the installment that we've had this year in September, is the only installment specific to the supply agreement, and therefore, the balance of the EUR 470 million would come in next year.

Having said that, I think as you know, we also have specific funding support for the cattle expansion in Livingston and in the U.K., which our neighbors are matching up to in terms of investment in Sweden. And then the U.K. clinical trials, when we come along, obviously, on the commencement in December, we've also got significant support from the U.K. government. That's the best we can do, I'm afraid, Samir, in terms of guidance. And I think the easy part of that is no more supply agreement income this year.

Yes. And Samir as -- go ahead, Samir, please.

I was just going to say, can I just clarify. Just in terms of the funding agreement with Livingston, Is that exclusive of that EUR 470 million. So that's, i.e. on top of the EUR 470 million.

Yes. So if you were to pull up the press release going back to September, mid-September, so the EUR 470 million is the total value of the 60 million dose order. And the U.K. government will receive a discount from that EUR 470 million of CapEx or clinical trial support that provides that risk on the way along. So it's a question of when the timing comes on and where the risk quotient is in there.

Correct. And by way of reminder, Samir -- Samir, we have said in the past, and you should all think about the U.K. deal in a way that at no given point in time in its own rights. The U.K. deal including all the investments and expenditures that we have well in its own right, be cash flow negative.

Next question comes from the line of Christian Glennie from Stifel.

First one relates to Lyme diseases. Just thinking about the potential implications, if any, of the 0-2-6 dosing regimen over the 0-1-2. The obvious pull-through of that is obviously quite an early need to vaccinate quite early in the process that may be fine for endemic regions, for people in there, but maybe less convenient for travelers to get involved in that vaccination program 6 months ahead of making those travels. And then related to that, what data do you have maybe from earlier trials in terms of the potential duration of benefit in this population? And the vaccine, is it a potential that you would -- the expectation you'd need to re-dose every sort of autumn ahead of the following season or maybe there's a longer benefit, you don't need to dose every year?

So with regards to, so good questions on Lyme. So essentially, there were many other vaccines that have a 3-dose primary regime that is in the region of 0-2-6. So we do not expect that this regime has any adverse impact on compliance or uptake of the vaccine. At least this is not what has been shown with other indications. Lyme represents a very severe medical need. And as such, the vaccination is, of course, targeting primarily people living in endemic regions. The component of travel is minimal because it's a vaccine that is particularly designed for people living on both sides of the Atlantic. And that's the primary focus. We are currently anticipating that we will need one booster shot after approximately 1 year to be protected for the second season. And then thereafter, probably only another shot after 3 years. But this needs to be shown as part of the respective clinical programs.

Okay. That's helpful and clear. Secondly, on COVID vaccine. A couple of things on that. Obviously, you talk about the initial immunogenicity readout, but what is your focus here going to be on antibody titers or T cell activation levels or both? But what -- and then related to how do you think the initial approvals that may be coming from the other earlier players in the space, maybe is it still going to be focused on antibody or maybe a gradual switch to T-cell activation.

Yes. So this is another excellent question. So I would say right now, this is a little bit crystal reading because the, I would say, the regulatory environment is evolving. And of course, we are trying to protect ourselves now into mid-next year. Our current focus is that we're going to measure immunological end points, be it on antibody titers, be it on T cells. We believe that both are equally important, and this is also why we have designed our vaccine in the way we have designed it. And so we're certainly going to measure that. Will we then get the conditional approval based on our immunological data is a discussion that we're going to have with the respective authorities at the time. But clearly, we will prepare all the necessary, I would say, data needed for that. And as I mentioned earlier, 0 compromise on safety. So we will absolutely ensure that we get the full safety profile.

And my final one, please, is on COVID then. You've obviously got the U.K. contract in place. I think you mentioned in your release, other discussions ongoing. Anything is to comment there about other government or other contracts that may be in the pipeline for your COVID vaccine?

So I would say, you will certainly understand that we cannot comment on ongoing discussions. However, I would say we see that more and more governments see the potential value in adding a complementary, well-established and well-proven technology in their COVID vaccine portfolio.

(Operator Instructions) Your next question comes from the line of Christoph Boehringer from CD-Venture.

This is Christoph Boehringer. I'm having the following question regarding the structure you mentioned. As I recall, you put this debt structure in place in Q1, Q2. So that might not have been the best time. Right now, your company is in a very strong position. Are the terms in your view, still favorable? Or would it make sense with this strong cash position to maybe set that up in a new and better form.

So first of all, Christoph, thanks for your question. So I would say, of course, the debt financing was put in place under different circumstances than today. However, we believe that we have found 2 partners who are supporting the company right now and who will also support the company going forward. One of the debt providers is also already an existing shareholder, and we expect them to support us on that side of the equation as well going forward.

Right now, any reconsideration of the debt is not on the radar screen mainly because of also cost that would incur. But as I said, for us, most importantly, we have really 2 very, very strong supporters of the business here.

Our next question comes from the line of Ross Blair from Rx Securities.

Just actually one today. I just want to ask, you mentioned you may be exploring a pediatric trial for your Lyme vaccine. Just wondering if you could comment on what you anticipate the vaccination schedule might be for in a pediatric trial?

Yes. So this is a -- it's a very good question. And I would say it's a little bit too early to speak about the details. I mean what is clear, and let me try to reiterate what I said earlier. When -- before we entered into the partnership with Pfizer, our working hypothesis has always been to, first of all, develop the program for adults get this license and then do the label extension towards the younger age groups, including pediatric post licensure, which is, I would say, an approach that you take with many different vaccine developments. And we do right now the same for our chikungunya vaccine.

However, for Lyme, in particular, the younger age groups and when we talk about children in between 5 to 12 or even 5 to 17 are a main, main target group of this vaccine because you see very high incidence rates in this regard. And this brought, of course, given the very good database that we have now, the excellent safety profile that our vaccine has brought the conversation forward as to whether we should potentially consider conducting one big efficacy trial where we include all the age groups, which, of course, would have a substantial benefit of for -- of the market access or for market access and based on a strong recommendation by the respective vaccination bodies, This is a discussion that is ongoing. We cannot say more than that. We do not anticipate a different vaccination schedule or a different dose in the key age groups there. But this is too early to tell, but we are in the process of evaluating that.

Our next question comes from line of Christian Glennie from Stifel.

Just a couple more then. Just on the COVID trial again in terms of where is the initial Phase I part, at least where the trough sites are likely to be geographically?

And then just on, coming back to your travel vaccine business, your 2023 sort of target for when you expect the market overall to recover and be back to the 2019 levels? Just any more details, any more how you come about with that sort of target as that other market research driving that or your internal researching estimates?

Yes. So first of all, on the COVID, the Phase I/II trial will be conducted in the U.K. And we are partnering up with NIH. And so that's clear for now. With regard to this, when is the travel vaccine business going to come back. I mean you know well that this is all a bit crystal ball reading, right? I mean, We are anticipating and basing our assumptions and hypotheses on all different pieces of market research including all the work that is being done for the airlines, for example, and other industry sectors that are dependent on travel. And we have taken, I would say, a rather conservative approach. There are other businesses, I mean, outside of pharma that take a more aggressive approach. So -- but I would say we try to do our best to build another case, and we know that there are some companies more aggressive than others, but this is, at this point in time, how we think about it.

There are currently no further questions.

Okay. So I think we are already 8 minutes past the hour. I would like to thank you for your support. I would like to thank you for joining today's call.

And also, as David said, it's going to be maybe his last quarterly. I would take this opportunity to thank David for his great contributions to the company and its strategic development over the past 3 years. You know that he has played a pivotal role in building and executing the company's capital formation strategy, and most recently, in our Global COVID-19 efforts, including, in particular, the partnership with U.K. government. So also, I'm not sure whether he will really retire so soon, but we will wish him all the very best in his planned retirement.

With that, I would like to wish you all a good remaining rest of the day and all the best. Bye-bye.

Thank you. That does conclude our conference for today. Thank you for participating. You may now all disconnect.