Valneva SE (VALN) 2020 Q2 法說會逐字稿

Thank you so much. Yes, welcome, good day, to our H1 financial results and operational updates call. As I mentioned during our short video clip that we did on -- and as part of the H1, the first half of 2020 has certainly been the most eventful in the company's history. We have quickly responded to the global pandemic. Its adverse impact on the travel industry and, subsequently, of course, our commercial business with product sales revenue down by more than 30% compared to last year. But at the same time, tremendous success across all other areas of the business.

And just to summarize, the first half of the year, clearly, started with an unprecedented partnering deal signed with Pfizer for our Lyme disease vaccine candidate. And we, as you know, very recently reported positive initial results for our first Phase II study of VLA15. We had a very successful end of Phase II meeting for chikungunya with U.S. FDA, and we are planning the Phase III initiation, of course, subject to COVID permitting us to start a trial and FDA conferring to that. And we have very recently been working very, very hard on our COVID vaccine. And the fact that we are supporting the world in finding a preventative solution against COVID-19 makes us proud. And we are happy and -- that we are able to reach an agreement in principle with U.K. government to supply up to 100 million doses of our future SARS-CoV-2 vaccine that we have in development right now and for which we aim to start clinical testing by the end of the year. We also got a first binding agreement for an initial funding for our manufacturing expansion in Scotland, and we're going to talk more about that.

We executed a marketing and distribution partnership with Bavarian Nordic, leveraging each party's commercial infrastructures to distribute our vaccines in the future once sales are hopefully up again post our successful COVID vaccine introductions across the globe.

And yes, all that gives us a very, very strong cash position with approximately EUR 200 million at the end of June. This includes our upfront payment of $130 million that we received as part of the Pfizer collaboration, and this includes also a $60 million loan, which is the portion of what we have drawn out of an $85 million facility that we executed with 2 leading U.S. health care funds. And I think the revenue and detailed financials will be presented to David and -- by David, sorry. And with that, I move on to the R&D update.

Yes, we are currently focusing our R&D operations on 3 major activities: our Lyme disease vaccine, VLA15; our chikungunya vaccine, VLA1553; and now also our vaccine candidate against COVID-19, which we call internally VLA2001.

Let's start with Lyme and an update on our program, VLA15. Just by way of recapping, we entered into an exclusive work by partnering deal with Pfizer for the late-stage development and future commercialization. We are working together and -- with Pfizer to develop this program going forward. We are now sitting in the driver's seat as part of the Phase II activities. The driver seat will be handed over to Pfizer once we transition into Phase III. And the collaboration thus far is marked by excellent progress and mutual respect, which is really something great in such a partnership. The cost split is 70-30, Pfizer-Valneva. And we are eligible to receive a total of a bit more than $300 million upfront in milestone payments. And later, we will receive royalties on sales starting at 19%. So these are the terms and the current summary about the collaboration itself.

The first results that we obtained for our first Phase II study, and please keep in mind, we are currently running 2 Phase II studies in parallel. One study is called VLA15-201. This study was the study -- is the study in which we are testing increased dose levels compared to Phase I in order to find the best dose for Phase III. The study, VLA15-202, is combining dose and schedule, so -- where we will also see which vaccination schedule gives us the best initial immune response, but also the best antibody persistence over time. The study, VLA15-201, met its endpoints. And we saw, compared to Phase I, that the higher doses elicit higher antibody responses against all 6 serotypes contained in this vaccine. We saw an encouraging immunogenicity profile again. And even we're very positively encouraged by the fact that also older adults, namely 50 to 65 year olds, which we had for the first time in the trial, responded with a very solid and very positive immunological response.

And the safety as in the Phase I was good. We had a general safety across all dose and age groups tested. So that means that the higher doses give us a better immune response, a better balanced immune response without paying a price on the safety profile of the vaccine. So now we are expecting further results from VLA15-202 in the few months. We -- as we guided earlier, we expect it probably in the earlier part of quarter 4.

Yes, then we talk a little bit about chikungunya. Chikungunya vaccine candidate, 1553. We had a positive end of Phase II meeting with U.S. FDA. This allowed us to progress into Phase III. Well, then the COVID pandemic hit and, of course, we had to put certain activities on hold. Today, it is still not clear to whether we can start a trial, but our current hypothesis is that we will commence the Phase III in the fourth quarter this year.

We also entered into an agreement with Butantan Institute in Brazil in order to make VLA1553 accessible to low- and middle-income countries. This is an agreement that falls also under the umbrella agreement that we have with CEPI. And we are happy that our Phase I data, which has really been very, very convincing and compelling, were published in the peer-reviewed medical journal, The Lancet Infectious Diseases.

Yes, then on SARS-CoV-2 vaccine, 2001, this is an inactivated whole virus adjuvant vaccine candidate that we are currently developing, a vaccine candidate that clearly will have its place in the portfolio of different technological approaches and might have an interesting target product profile in special target populations, on top of all the other vaccination response programs that are currently out there. We have agreed, in principle, to supply the U.K. government with up to 100 million doses of this vaccine, which we intend to manufacture at our facility in Livingston in Scotland. This is a facility that has a tremendous track record, both from our Japanese encephalitis vaccine, but also very recently in the manufacturing and setup of future commercial manufacturing for our chikungunya vaccine. And here, we are building now further capacity with the support of the government as part of the overall agreement.

This initial expansion is funded with over GBP 10 million, and this allows us to get going before we actually complete and conclude the final agreement with the government. And as mentioned during the short intro, this agreement is a recognition of the strong track record and capabilities that we had built over the past 15 years, both in the U.K. and beyond because we also plan to invest in Sweden and to expand our Finnish operations in Sweden for COVID-19-related activities. I mentioned already that it's our plan to enter the clinics before the end of 2020.

With this intro and R&D update, I will hand over to David to give us the financial report.

Thanks, Thomas, and good day to everyone. I'm going to take you through the company's half 1 results.

So if we move on to the next slide, which is our rondel and pie chart. So as Thomas has mentioned, and as all of you are aware, I'm sure, the COVID pandemic has impacted the travel industry, including, of course, our commercial business. U.S. military also deferred troop rotations for a period of time. And so as you look at this slide, the 16 million -- EUR 16.7 million of IXIARO revenue for U.S. military really came from the previous DoD contract. But what we would like to emphasize very much is that we're extremely confident that a new contract will be in place in the very near future, and that will provide certainty around this extremely important segment of our business.

So overall, our sales are down just over 1/3 when we compare the first 6 months of 2020 to the first 6 months of 2019. Our direct sales as a proportion of overall sales is just a fraction below 80%, which is a little down on the 2019 comparative, and that's really just driven by a little change in the mix of direct to indirect and the timing of distributor orders in our indirect markets. Gross margin was just below 60%, which is an excellent result when you consider that product sales declined by about 1/3, as I just said, H1 '20 over H1 2019. We'll come back to that in a little bit more later.

So next slide, please, and looking at the product sales breakdown a little more detail. We can see that DUKORAL showed a slightly lower level of decline partly driven by a strong Q1. And I think, as most of you know, we typically report our Q1, then 6 months, then 9 months, then 12 months because of the seasonality in our portfolio, including the timing of orders of U.S. military. So Q1 was relatively strong for DUKORAL because it's usually a strong Q4 and Q1. Third-party product sales stands out there, but that really just dropped due to the loss of a product from our portfolio between the comparative periods. And we expected that, and indeed, it accounts for a relatively small number in terms of overall value. The reduction in IXIARO sales is largely due to low sales in all markets, with both U.S. military and U.S. private, in particular, reporting low sales.

Next slide, please. So moving on to the P&L, there are a number of points that I'd like to pick out and make sure that we're clear around. Product sales, I've just talked about. And EUR 40.9 million overall is relatively close to consensus, which was just over EUR 41 million, actually, for the first half of the year. Now the other revenues line here, revenues from collaboration, licensing and services, key points here. Last year showed a negative number, and that charge of almost EUR 11 million is related to the termination of the legacy GSK strategic alliance agreement. And I think it's very notable, as Thomas pointed out here, that, that's paid off handsomely in the form of a fabulous deal with Pfizer that we struck earlier in 2020. So apart from the negative charge in 2019, we do have and continue to have ongoing service and technology revenues. And we began to report some limited R&D service revenue from the Lyme deal with Pfizer in the month of June, and we'll talk a little bit more about that when we come back to guidance later.

So going down here, I'll come back to gross margin cost of goods in a moment. R&D, you can see the well sign posted increase as our programs advance, and as Thomas talked about. So we've gone from EUR 14 million in the first half of last year to EUR 33 million in the first half of this year. Our full year guidance has been and remains about EUR 80 million -- up to EUR 80 million, so you can see that's going to more than double in H2, assuming, as Thomas said, that we start our chikungunya in the early part of quarter 4, chikungunya Phase III that is.

Marketing and distribution, yes, you can see a small reduction on the comparative period -- between the comparative periods. And that's really us starting to pare back some of the commercial expenditure and investment in light of the reduced commercial activities that are a result of the COVID-19 pandemic.

G&A is up. That's really a combination of 2 things, primarily. One is share option charges, where we recognize the increase in the share price, and a chunk of that goes into our G&A. And then secondly, we've undertaken a number of key corporate projects that we won't go into in detail, but those are the 2 drivers of the increase in G&A.

On the other lines, other income, again, just to be clear on what's happening here. We get 2 -- again, 2 primary drivers of that increase in other revenues -- sorry, other income. One is that the more we spend in R&D, the more we get in R&D tax credits. And then secondly, the -- we are now getting some income from the CEPI grant for chikungunya that we signed last year, and that also feeds into that line.

Finance costs are up reflecting the cost of the new debt facility and the transaction costs related to that. And all of that adds up to a negative EBITDA of EUR 17.2 million for the first half of 2020 compared to a positive result of EUR 2.4 million in the comparative period in 2019.

Next slide, please. So this is the table that we use to show gross margin and net operating margin, so no change with the presentation format that we're all used to know. So GM fell to just below 60% compared to around 66% for the full 2019 year. And if you consider the sales reduction and the impact on plant capacity, this shows that we've worked very hard on cost containment, including furloughs and state subsidies where available, and those are different. Those vary by -- country by country. We've adapted our supply schedule as quickly as we could in the light of COVID at both of our sites in Livingston and Solna.

So net operating margin suffered a decline to 12% or thereabouts based on the reduced level of sales. Of course, as I just commented, we've also pared back our commercial investment. And we've been continuing to take steps to contain costs in the commercial business, as you might imagine, with a view to maintaining profitability in this business segment until the travel industry starts to recover.

Next slide, please. Now Thomas talked about a number of highlights over the first half, and this slide is aimed to describe one of those highlights just before we move on to guidance. So we have a very strong cash position. We finished 2019 at just over EUR 64 million, and we're now reporting a fraction over EUR 200 million as at June 30, 2020, which is an increase of around EUR 136 million. So as you can see from this slide, the key contributors are the upfront of $130 million, just to be clear, dollars, from Pfizer for the Lyme deal; and the net change in debt, where we switched out the EUR 20 million from EIB for EUR 60 million from Deerfield and OrbiMed. The other movements, I think we've tried to highlight, but those are the big drivers. And so that hopefully helps explain how we get to EUR 200 million and the very strong balance sheet as at the end of H1 2020. And I do recollect that a number of people had questions early in the year about working capital inventory, so I hope this gives more color to that picture.

Next slide, please, which is I move on to the financial outlook. So if we move on to the next slide, which is guidance. So our half 1 guidance update for product sales revenue is now EUR 70 million to EUR 80 million for the full year for product sales revenues. In turn, we have other revenues where we now include EUR 40 million to EUR 50 million from the Pfizer Lyme deal in terms of revenue recognition, which means other revenues total EUR 50 million to EUR 60 million, and that means that our total revenue guidance is now EUR 120 million to EUR 140 million, which means that we may, in reality, achieve close to our original 2020 revenue guidance, albeit with a different mix of components.

R&D investments. We originally started the year with EUR 85 million, and we did update that guidance to EUR 80 million, so we maintain that guidance of up to EUR 80 million to continue to fund our R&D assets and the ongoing progression and value build of those.

Our gross margin, I've talked about. So we do reflect some impact of COVID on capacity and margin in a small reduction in our gross margin guidance.

And then our net operating margin, we expect to come in at about 15%. And so to be profitable for the year, and in terms of where we are at 12% for the first half, we do anticipate this U.S. military contract coming in very imminently, and that will contribute to the outcome that's higher than the half 1 performance.

So with the combination of all of these factors, and notwithstanding that, of course, we have our own crystal ball, but there are many others out there. We now expect EBITDA of between 0 and minus EUR 10 million, which compares very favorably to our original guidance for 2020 of up to minus EUR 35 million.

And with that, I'm handing back to Thomas and look forward to answering your questions thereafter. Thank you.

Many thanks, David, and also a big thanks to our entire finance team who has worked very hard to get this complicated revenue recognition things under good shape now.

So let's talk a little bit about the upcoming news flow. We expect that we're going to have a very material and great news flow ahead of us. David mentioned already the new IXIARO contract with the U.S. Department of Defense. You know that we expect for the first time,a longer visibility. So we expect a 3-year contract, which in reality is the so-called 1-plus-2 year, so which gives us really a 3-year visibility on the demand that the U.S. military is anticipating and, hence, allows us also to optimize and plan our respective business.

Online, following the positive first data from the first Phase II trial, we expect the second tranche from the Phase II trial VLA15-202. With these 2 data sets in hand, we will work with Pfizer to finalize the Phase III strategy, and this is something that we expect to work on in the last quarter of the year.

Then for chikungunya, VLA1553, I mentioned this already during the R&D update. As a next step, we expect to enter Phase III, and we hope that we can do this in the fourth quarter. We have definitely everything ready on our side, but we will see if the overall conditions do permit that. And of course, subsequently, the regulators do permit it.

Yes. And then the COVID vaccine candidate, a couple of things that we have already mentioned during the presentation. We expect to sign a contract with the U.K. government. And on the development side, we expect to start clinical testing before the end of the year, yes, and with that, exciting news flow ahead of us.

We are now ready to take your questions. Operator?

(Operator Instructions) We will now take our first question and this comes from the line of Jean-Jacques Le Fur.

Jean-Jacques Le Fur from Bryan Garnier. Three, if I may. The first one is looking at -- if my math are good, your COGS during Q2 were higher than the Q2 sales, and we may understand why. Since you are expecting a decent gross margin for the full year, does that mean we have to expect reduction in cost or some savings at the manufacturing sites? Or do you intend to maintain such COGS level for the future vaccines, like COVID, Lyme and CHIK and all the others? That's question one.

The second is, clearly, for David, just to understand how we will have to take -- how we will take into account the remaining of the Pfizer upfront payment next year in our P&L. Do we have to take the remaining of the roughly $130 million in the P&L, like the $50 million this year?

And the third question is more a strategic question -- global strategic question. Now you have signed an agreement with Pfizer. You signed an agreement for COVID vaccines with the U.K. You had positive Phase II for Lyme. So frankly, you have a very strong momentum. Don't you think it's a good timing and a good window for Valneva to accelerate in a business development to replenish, if I may say so, the pipeline, therefore, to raise some funds and, once again, to benefit from the strong momentum for Valneva, especially since sales could be more difficult in the next few quarters, even if it will be a recovery?

Okay. Thanks a lot for your question. David, do you want to ask -- or you want to answer the first 2 questions? And I'll talk a little bit about the strategy going forward.

Yes. Let's -- so let me do that within the kind of bounds of what I can report. So as I said earlier, we had to adapt our supply schedule to reflect the change in demand driven by the COVID pandemic. We also had to look very carefully about our inventories and our provisions as related to those in the light of reduced demand. So the COGS in Q2 do contain some provisions and write-offs that we wouldn't normally have expected without the COVID situation. The second combining factor within there is that if you consider that we shipped the remaining orders in H1 from the old U.S. military contract, then we had a defabrication schedule, including a delay in the new contract. And the average selling price of IXIARO fell somewhat. And those -- there are a combination of dynamics there that drive -- that lead to a lower margin. Nonetheless, actually, to deliver a margin of 60% at the end of H1 is something that we're very pleased with.

As regards Pfizer, we -- this is a very complicated, technically challenging accounting deal. And the best way for me to describe it is as follows. We have 2 drivers in the top line. One is that we get some R&D service revenue, so where we're undertaking services to get charged into the collaboration because, as you know, we pick up 30% of costs but Pfizer pick up 70%. And then secondly, there's a key driver around what's called the transfer of beneficial ownership, which is equivalent to a license fee. So it's not linked specifically to the upfront or any milestone. It's a very complex launch and set of calculations across the lifetime of the deal, okay?

And so while we have both top -- so, in terms of the top line, the EUR 40 million to EUR 50 million is exactly what we're guiding for this year. It's unlikely to be as much as that next year in terms of top line, but we also have charges within R&D. And therefore, it's difficult to give you all of the net impacts from the different parts of the P&L. What we are trying to be clear on here is what is the revenue recognition. In turn, that revenue recognition doesn't all fall straight through to the bottom line. It's more of the order of, I would say, 70%. When we're in a position to give guidance for the future years, we will do that. And that's not something we've been able to do at this stage, Jean-Jacques. So apologies that I can't give you more detail, except to say that '21 is unlikely to be the same level of revenue recognition but there will be a different mix. And when we're in a position to give guidance on 2021, we'll do that.

Good. So then let's come to your more strategic question. I think it's a question that we are being asked almost on a daily basis right now. And let me try to reflect a little bit on what we have said in terms of the strategic ambition that we do have with and for Valneva. Our strategy is to become the leading specialty vaccine player. We want to continue balancing, on the one hand side, commercial business that we are building. Also, it is, in the short term, affected by COVID, but this will go away. And people will start traveling again. And we will have vaccine successes. We will have different dynamics around COVID. And vaccination will always be stronger postpandemic compared to prepandemic because the awareness around vaccination in general is certainly there.

Do we believe that we have room and also a justification to build more on the R&D side and build more potential upside to our shareholders? Yes, we do. I think we have proven that we have nicely delivered on our R&D over the past year since we incorporated Valneva. And as we have repeatedly stated, one of our strategic objectives is to proceed towards a U.S. listing. And the -- for us, the next corporate step would certainly be this one before thinking further about business development and M&A or something like that because we believe that right now, we are very, very busy. We believe that there is still a substantial upside in Valneva, and we believe that by going into the best capital market in the world, as my CFO always tells me, is certainly the right move to do. And this is where we see the strategy at least in the next 2, 3 years going forward.

And Thomas, sorry, one -- just one final comment because I wanted to check. So Jean-Jacques, the other nuance just in cost -- there's cost of goods and cost of services, and just one point. Cost of services did step up quite a lot in quarter 2, which is around the timing of the clinical trial material business in Solna, so we would expect that to pay back in -- or to give us the return in H2 compared to H1. So that's one other small point in the cost of goods or the cost of services and the gross margin. Apologies for interruption.

And we will now take the next question, and this comes from the line of Martial Descoutures.

Martial Descoutures from ODDO BHF. Could you come back on your partnership with Bavarian Nordic, maybe it'd be possible to have more details. I don't know, but how will it be factored in your P&L? And what do you expect in terms of ramp-up, timing of the launch, margin and control?

My second question is linked with your previous answer, to be honest. It was really clear, but can we believe that this first partnership with Bavarian is the first step to find new marketing and distribution partnership to improve your top line and margin?

And then my last question concern your cash position. So you have a cash position of EUR 200 million at the end of June. At this step, what do you expect in terms of cash burn due to the launch of 2 Phase III and new partnerships as SARS-CoV-2 and so on, it would be really helpful to hear your view.

Excellent questions, not easy to answer. Let me let David think about the cash answer. I will talk a little bit about the relationship with Bavarian Nordic. So yes, indeed, I mean, we are -- there are not many, I would say, specialty vaccine companies and to find ways to leverage and cross-leverage commercial infrastructure makes an awful lot of sense. And so the portfolios typically in those companies are subscale. And so by creating scale, it's -- you have certainly a clear justification for a collaboration.

Now typically, those collaborations work with a classical marketing and distribution arrangement. So this means that the -- you have a transfer price by each party. And typically, those transfer prices are around 60%, I would say. Sometimes a bit less, sometimes a bit more. But this is the order of magnitude that you typically see in this kind of setup. What we have done is we have basically said, okay, let's try to find a good balance so that both companies have an add-on on their respective top lines that is material. We are not yet in a position to really give a guidance on this incremental top line because, I mean, it was already difficult when we started. It's now more difficult with COVID and the fact that it's very hard to predict. But for us, I would say, anything that we would call material has to be solid double digits because otherwise we would not call it material.

And we have exchanged countries, right? And we have said, okay, we have a -- we partner with Bavarian Nordic, for example, in Germany, which is a very important market, and we will -- where we will continue to work with GSK until end of '21, but then thereafter, hand over to Bavarian Nordic. We take countries over where we have a strong infrastructure today, even those countries might be small like Austria, to use another example. And by the end of the day, both companies will add a material top line to their -- to the P&L with a positive contribution because all of that market gives a positive contribution as evidenced, for example, by our current German business.

And this is -- now, how fast do we ramp up? We now start with the first countries that we will gradually set up. It's a transition over basically a period until the end of 2021. And we will -- we would get -- we would give more clarity and more guidance around the expected sales there as soon as we have a bit more transparency on the market developments going forward. We hope, however, that at least that the both products that we've got to take over by Bavarian Nordic are not heavily travel-impacted or -- especially TBE is not a travel vaccine and rabies, only to a certain extent because it's, in many respects, also a nontravel-related business. So again, my apologies that we cannot be clearer here, but this is all we can say at this moment in time. And we will certainly give more guidance and clarity. But for us, it's a great first step, and we hope that we can do more of that kind. And I think with that, I hand over to David to give you the answers on the cash.

Okay. Thanks, Thomas. Yes. So the question here is about the cash burn and the outlook related to the Phase III programs and so on. So a very fair question. So what we've disclosed and reported is that the obligations under the Lyme management with Pfizer are that we contribute 30% and Pfizer contributes 70%. And if you think about that over the lifetime of the project, and even if you considered, for example, that the full budget was as much as EUR 500 million -- or dollars, actually, because Pfizer tends to work in dollars, then that would tell us that our 30% was $150 million, and that's over a number of years. So that gives you the best insight we can give you as to the potential spread of the program. Pfizer starts to pick up as Phase II progresses, and they will be fully in charge when we get to Phase III and then into commercialization. So there's a transition. That transition is driven by time. It's going to be driven by the regulator. But our contribution to the overall development cost is capped.

Secondly, regarding COVID. I think we've tried to be pretty clear that our -- the speed at which we go on COVID, that includes both development and manufacturing expansion, is going to be dependent on funding. And as Thomas mentioned earlier, we are in a very good position with the U.K. government. We have a very strong collaboration going, where we've been able to display and establish our credentials in manufacturing in the U.K., which clearly is of importance to the U.K. They understand that we've got great experience and expertise in manufacturing, that we are leveraging the IXIARO production platform here in Livingston, which derisks one aspect of the development and the manufacturing and the scale-up. And therefore, we are looking forward to moving towards a final supply agreement with the U.K. government in the coming weeks.

And it's not appropriate to go into the details of what that might look like because, clearly, we are in discussions with the U.K. government and others. And it's important that we go forward quickly and in partnership with them, and we all want to solve the COVID crisis, but we would expect that they will continue to support the investment in support -- their initial investment into the manufacturing expansion and, indeed, for the clinical development of the program. So that would heavily mitigate the burn on Valneva's cash resources.

And we will now take our next question, and this comes from the line of from Samir Devani.

Since we have no response from Samir, let's move to our next question. And this comes from the line of Christian Glennie.

It's Christian Glennie from Stifel. First question, just thinking about your product sales guidance for the full year and what you have in terms of expectation, particularly obviously for the fourth quarter, typically is a strong quarter for you guys. And so what your assumptions are there in terms of travel? And how maybe what you seem to be implying an imminent DoD contract in the U.S. may be part of that number? Just trying to understand some of the moving parts in that full year guidance.

Yes. Well, I mean, of course, this is a very good question. And I think David mentioned earlier about the crystal ball. I would say the -- you know where our sales were at the end of quarter 1. We told you that we expect a new military contract with deliverable -- delivery, sorry, already this year. So the -- I would say, the lower end of the product guidance that we are giving is a very, very conservative number. It is a number that does not include any material travel and travel-related vaccination because we have -- we are watching the situation very, very closely. But let's not forget that the majority of our travel vaccine business comes from Canadians going into the warm Southern American regions or comes from our European or U.S. travelers going to Asia. And so we expect that this -- with all the little second waves we see here and there, that this will take time. And probably, it will take time up to the point where -- the people feel substantially derisked through vaccination or we see a different progression of the pandemic as a whole and the reduction in overall virus distribution. So that's our key assumptions around those guidance numbers.

That's helpful clarification. Second question, thinking about R&D, and that swings back -- or getting an idea of that sort of chikungunya Phase III swing factor. Is it okay or too simplistic to think? Obviously, EUR 33 million in the first half run rate, if you were to double that on the current sort of basis, you get to sort of EUR 66 million. And so the extra EUR 14 million, EUR 15 million to get to EUR 80 million would be effectively a sort of kicking off the Phase III chikungunya? Is that the way to think about it or not?

Yes. That's -- Christian, it's David here. Yes. So I think that's a neat way to simplify the planning. Clearly, there's ongoing work and prep that we've been doing for CHIK. But yes, yes, we would -- clearly, the CRO activity and the kick in of those costs would be the major driver of that additional run rate, yes.

Okay. And then finally, just thinking about your COVID-19 vaccine and what's been reported so far, obviously, from your peers and the data we've had. So far some controversy, maybe that's too strong a word, around the antibody response and the durability of these antibodies and maybe that actually it's more important to -- or could be significant have more of at T cell-based response as part of the -- getting sustained response if the antibodies don't stick around. Just some observations, comments maybe on that and how you see your vaccine backing up in that context.

Well, so I mean, we have reportedly stated that we are basing our vaccine development on unconventional technology, namely inactivated whole virus based on our semi-standardized platform. And we have seen that with the Japanese encephalitis, with CHIK, with Zika, we get very highly purified vaccine candidates.

We have also communicated that we want to couple this vaccine candidate with a modern adjuvant, a T-cell adjuvant that gives us Th1 response because we believe that the Th1 response is very important. At the same time, we have seen with other vaccine candidates, including, for example, the one from Sinovac in China, that inactivated vaccines do provide high levels of antibody titers and good virus neutralization. So that's why we believe that our vaccine candidate has a high chance of success. It takes longer, clear. It's not a rapid-response platform, but we believe it has a high chance of success. And we believe that we are able to generate a vaccine candidate that could also be used for special target populations because of its well-known and well-proven profile. Of course, this is all subject to clinical testing and to confirmation. And there might also be a positive about not being first in the line, and this might well be that we will have solid clinical data from others by the time we will be in the clinics. And this gives -- will give us a very, very good head-to-head comparison.

And we will now take our next question, and this comes from the line of from Samir Devani.

Can you hear me? Can you hear me?

Yes.

Yes, we can, Samir.

Great. Just a couple, actually. On the COVID vaccine, I was wondering, you talked about entering the clinic this year, but I was wondering whether we would see any preclinical data anytime soon. So that's question one. And then the second question is just on the Lyme 202 study. Just thinking about the sort of seroconversion data you've seen already, when will we see the longer-term durability data? Because I guess you're not going to see much better data with the new dosing regime than you've seen with 201.

So Samir, as usual, excellent questions. Let me start with the Lyme first. So first of all, the -- to your question about the 6-month follow-up data, remember, the 6-month time point is the most relevant one for Lyme because you want to protect people throughout the Lyme season. So this is why people look specifically at the antibody persistence over the initial 6 months period because the first season is important. We, anyhow, believe that we need a booster for the second season, and we have seen already in the Phase I that the anaphylactic responses are very, very high. And this is why we assume that after the first booster shot, we may have an antibody persistence and then a protection duration for much more than a single season.

So this -- just so to recap a little bit of background. Then our data from 201 follow-up, 6 months time point, will be early next year. And the same is true. And we will try to align timing a little bit because we have prioritized and reprioritized certain activities around the same time frame.

And to your point about -- and we will see also -- and this is an important point. Remember, Valneva for -- in collaboration with the authorities, for the first time in the history of Lyme vaccine development has developed a Serum Bactericidal Antibody assay in order to determine not only the absolute number of antibodies, but also the quality and the functionality of antibodies and their ability to really kill the serotypes. And so we will also see SBA data for the 2 trials very soon.

And to your point about what we may or may not expect with the long schedule. Yes, we are already good on the immunological profile after primary immunization. When we compare it to other lipidated protein-based vaccine, without naming them here specifically, there are publications where similar schedules have been tested, 012 against 026. Where even on the 026, the primary immunization went up by almost a factor of 1.5. But this is -- but our primary objective is, of course, to see antibody persistence, and as I said, early next year.

Second question, COVID. And the -- yes, preclinical data -- and the preclinical data. So we are running a few experiments already, and we expect to do more. To which extent we're going to disclose it, we have to see how material those results really are. Currently, we have not specifically planned for it, but we may consider it, yes.

And then perhaps just one follow-up. On the GBP 10 million government funding, U.K. government funding, is that all due in this year? And I guess, David, the question just then on how that's going to be booked.

Yes. So I think I said earlier, I'm going to repeat. Where we are right now, having done a heads of terms and equipment letter with U.K. government and aiming to get a full final supply agreement in place within the coming weeks means that we're not going to comment on any detail. That would be entirely inappropriate in the spirit of the collaboration that we're in with them. What I can say is that any and all deals with U.K., whether it's investment into manufacturing or 60 million dose orders or whatever it may be, those will have to go through a full review with our auditors and our advisers to get the revenue recognition accounting right. So I wouldn't take anything into account regards to COVID revenue or funding into our P&L at this stage, Samir.

And no further questions are queuing through at this time. Please continue.

So thanks a lot for your questions. Thanks a lot for following up in this exciting time for the company. We have clearly stated that we believe that our tremendous corporate progress clearly outweighs the adverse impact that we have on our commercial business and product base, and we are looking forward to a lot of exciting news flow ahead. Thanks again and have a good day.