Valneva SE (VALN) Q3 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Valneva Reports Nine-Month 2022 Results and Provides Corporate Updates Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Thomas Lingelbach, CEO. Please go ahead.

Thank you. Very good day, everyone. Pleasure to welcome you to our nine-month result and update call. Yes, the nine months have again been marked with quite a potential number of key achievements. We stands today at the nine-month revenue level of about €250 million at a level of 3.5 times six compared to 2021. We have a very strong cash position with more than €260 million at the end of September, which excludes the proceeds from the recent global offering. Our chikungunya vaccine candidate progresses very nicely towards licensure. The rolling submission for BLA with U.S. FDA is ongoing and expected to complete by the end of 2022. On our Lyme disease candidate, again, great progress with the Phase 3 enrollment going to plan and expected to complete in the first half of next year. As we are moving our leading clinical assets, we are of course working hard on backfilling our pipeline. We are progressing some of our preclinical assets and we are trying to explore also options to inject other clinical stage assets into our pipeline. We have communicated in the past about our reshape strategy. Of course, reshape means for us, refocus on our key assets, winding down COVID, shifting focus away from COVID with a strong emphasis on our core assets, line check the commercial product, but also rebuilding the pipeline and it comes with also a resizing of the organization. This is a process that we have been planning for quite a while. We have been going through the necessary processes with workers council representatives and as we have seen, we are targeting a 20% to 25% reduction, which will in turn result in around €12 million operating cost savings on an annualized basis. And Peter will develop those things more carefully and more in detail during the latter part of the presentation. If we look at the pipeline which is shown on Page 6 of the presentation, by way of reminder, chikungunya, as I said, our program right now on its way towards first licensure with BLA submission expected to be completed before the end of the year. The first company that will receive BLA approval might be eligible to a priority review voucher, which in turn we – of course expect to monetize, Lyme Phase 3 enrollment well underway, the way with the next milestone expected earlier next year partnered with Pfizer. And again, we are going to come back to those points in detail. You see here on the slide, also two assays that are marked in light blue. Many people ask us about where we stand on those. C. diff, our candidate that we progressed all the way to the end of Phase 2, we put this asset on hold, when Sanofi's data on C. diff came out and now we have following Pfizer's data on C. diff, we have decided to explore partnering for this asset, meaning out licensing for this asset. On Zika, we conducted a Phase 1 study successfully. And now that Zika got on the footprint from WHO and the target product profile for this or prioritizes inactivated vaccines we are currently considering reactivating that program. Then we have here as an example, put forward two of our preclinical assets, which at this point in time are being prioritized by Valneva. One is hMPV, clearly an interesting candidate prefusion subunit based that will approach its preclinical proof of concept by the end of this year and might be also an interesting candidate in a combination with RSV and our EBV candidate still earlier in the preclinical pipeline, but clearly a very interesting indication that we have prioritized at this point in time. And then at the bottom of the slide, you see our three commercial assets, IXIARO, our Japanese encephalitis vaccine. DUKORAL, our Cholera vaccine, and of course, our COVID vaccine BLA 2021, talking a little bit about Lyme, you are all well aware of the program, only one in clinical development against Lyme disease today. The Phase 3 followed three successful Phase 2 studies including in pediatrics. The program – is exclusively and worldwide partner with Pfizer based on a recombinant subunit approach with six serotypes. In order to ensure that the product can be used for people living or going to both sides of the Atlantic, it follows a well proven mode of action that was validated through placebo controlled field efficacy study back in the 90s. And the program is under Fast Track designation. The Phase 3 that is currently ongoing again, illustrated on Page 8 of the presentation. Right now, we are conducting a randomized placebo controlled Phase 3 study called VALOR, around 6,000 participants. Everyone about five years of age, currently being enrolled in the study, of course, we are running this study in high risk areas both in the U.S. as well as in Europe, randomization U.S., Europe two to one, zero versus placebo, one to one. And basically the primary endpoint is the rate of confirmed Lyme disease cases after the second season. And the secondary endpoint includes the rate of confirmed Lyme disease cases after the first season. So we are testing in one study already the booster that is expected to be needed after the first primary serious and then of course, subject tool and pending successful completion of the Phase 3 study. Pfizer could potentially submit a biological license application to the FDA and the MAA application to the European agencies in 2025. When we look at check, our program is still the most advanced chikungunya vaccine program in the world. We are well into our rolling submission process following successful clinical – pivotal clinical studies that met all endpoints, the program has FDA’s breakthrough designation, Fast Track, EMA PRIME and I mentioned already the potential eligibility for the priority of review voucher. By way of reminder, it's a single shot life attenuated vaccine. So we expect that after a single shot, there will be a very long protection. We are currently studying at part of different antibody persistence studies for up to five years of duration. And we have also a partnership on this program through CEPI with Instituto Butantan where we are currently conducting an adolescent Phase 3. The data from those study I expected to extend the label, post-licensure and to add to further regulatory submissions for both adolescents and adults in other territories outside of the United States. We mentioned before that that it is our intention to commercialize this product ourselves because there's an excellent fit and the significant synergy within our commercial and industrial footprint. And when talking about market size, and of course as we are going closer to launch this becomes of course a very important question. We have reiterated at this point in time that we estimate the market to exceed €500 million annually by 2032, which is the point where we expect a decent penetration of this vaccine. The clinical data highlights again, summarized in this presentation. The key ones are really that we saw very high zero response rates that the basis for licensure is the so-called accelerated approval pathway. So there is an immunological surrogate to determine effectiveness of the vaccine. So this zero response rate shown to be at 98.9% after a single vaccination. The immunogenicity profile is maintained over time even at day 180, you see still 96.3%, interesting and very good across older adults, similar levels of zero response rates, neutralizing antibody titer as younger adults and then zero conversion, of course extremely high and 100% that isn’t possible. From a safety perspective, overall well tolerated and a profile in terms of safety and tolerability that you would expect for this class of vaccine. What is also worth noting is we recently added a few data points to the study VLA1553, 301. And this had to do with additional data in elderly 65 years plus where we showed in the meantime also through an additional cohort – an additional readout that the zero response rates are at similar high levels. When we then come to the program progression towards FDA filing, we presented the program at the CDC’s October ACIP meeting. The rolling submission got initiated as I mentioned earlier. And you see here the next steps with the breakthrough therapy designation priority review, the completion of the BLA submission by the end of 2022 and of course, the eligibility of the PRV. We presented an overview of VLA1553 at the ACIP meeting, there is no CHIK vaccine has been previously licensed. There are – therefore no existing ACIP recommendation existing at this point in time. The chikungunya working group provided a preliminary review and timetable plus ACIP recommendation decision and head of the anticipated February, 2024, ACIP vote, the working plans to present further on CHIK traveler epidemiology and disease burden, more comprehensive review of immunogenicity and safety data, as well as the so-called great assessment and longer term additional data in younger age groups. Yes, when we then look at the outlook what has still to come or what will still come on our program, VLA1553, the ongoing clinical trials that supports further regulatory submissions, of course, namely the antibody persistence study. I mentioned that this is a study that is of course a follow on from the previous studies that have already been initiated and we expect to follow respective volunteers for at least five years. The 12 months data are expected later this year. The latest clinical study I mentioned already 750 volunteers, age 12 to 17 years of age 12 months follow up and data expected in the first half next year. And then we may add additional studies to support future commercialization of the product, including co-vaccination, special populations. And then of course, the Phase 4 observation and effectiveness study. When we look at our commercial product portfolio, you see, of course here that we have strong sales of our commercial products in the first nine months. The product sales outside of COVID grew by 11.2% built prior period. We see a significant recovery in the travel markets with Japanese encephalitis in the travel segment increased significantly. We see product sales of cholera vaccine increased at similar well and the third-party products make significant contribution to our business. They increase to €18.4 million from €11.2 million in the comparable period in 2021. And this is of course related to one of our key distribution agreements, mainly with the Bavarian Nordic. Of course, we also sold COVID-19 vaccines as part of our EC APA. We generated €23.9 million in sales. All the deliveries to you member sales have been conducted. There's still some supplies to operating outstanding but overall this is where we stand on COVID. That we are still planning to seek potential opportunities outside of Europe and outside of the current licensed areas. Talking about COVID, the only inactivated whole-virus COVID-19 vaccine approved in Europe, we were the first ones to get an ordinary marketing authorization in Europe for this vaccine that is based on a more traditional, conventional technology coupled with a modern adjuvant CpG 1018 that gives the bias to Th1. We are still expecting few more data points on COVID, WHO may help us to sell the remaining inventory that we have specifically in international markets that we got already positive heterologous booster data following primary immunization with AstraZeneca’s vaccine. We will expect some data also from people who got either primed with mRNA and/or natural infection. All of that is expected to conclude by the end of this year. And as we are moving along with this program, we are also extending the shelf life and stability data become available. And right now we are at 18 months – yes, at 15 months submitting for 18 months. And of course, we’ll follow this through because inactivated vaccines have typically at least 24 months shelf life, if not longer. When we look at our resizing to reflect the evolution of the COVID-19 program, we’ve stated this at many different locations. In light of our reduced order volumes from the EU member states, we suspended our internal manufacturing as well as the external manufacturing. We entered into settlement agreement with our external partner IDT, for example. We retained our inventory for additional supplies. We are trying to deploy our inventory. We mentioned previously in between 8 million to 10 million doses. And yes, of course we ramped up the organization quite substantially in response to the anticipated COVID demand and specifically the significant COVID manufacturing quantities. So we are now reducing our workforce globally by approximately 20% to 25%, which still means that we will land at a level of 25% above headcount wise when compared to pre-COVID. And this is of course allowing us to retain talent and expertise that we build throughout the COVID period. And also to allow full focus on one of our key strategic pillars namely our R&D progression, not only our late stage programs, but also the earlier stage pipeline development and potentially even injection of additional pipeline programs. With this, I would like to hand over to Peter to cloud off with the financial report.

Thank you, Thomas. And good morning or good afternoon to all of you. Now let’s discuss our first nine months financials. Total revenues reached €249.9 million, an increase of 258% compared to the first nine months of 2021. This increase is largely driven by other revenues and I will comment on that later. Product sales reached €74.4 million, an increase of 64%, which is prior year. This increases to a large extent driven by shipments of VLA2001, our COVID vaccine to European member states. At the same time, it also reflects the continued recovery of the travel market that leads to an increased demand in travel vaccines. Shipments to the U.S. Department of Defense continue to remain low, and this was anticipated based on this year’s delivery schedule. The chart on the right side illustrates the composition of total revenues. The significant increase in revenues is to a large extent driven by other revenues that reached €175.5 million on a year-to-date basis. These other revenues comprise a release of refund liabilities that were previously reported on our balance sheet. Earlier in the year, we recognized €89.4 million other revenues related to payments from the UK government for our VLA2001 program. In Q3, we released €110.8 million advanced payments from European member states related to VLA2001 orders that were subsequently canceled. Other revenues also include negative revenues recognized in the second quarter related to price of contract revision. Moving onto Slide 19 to look at the details of our product sales. Sales of IXIARO decreased versus prior year, which is the result of the scheduled treatment to the U.S. Department of Defense. As indicated at the bottom of the table, IXIARO sales to the private market increased from €4.6 million in the first nine months of 2021 to €19.4 million in the current year, an increase of 270% at constant currency. DUKORAL sales reached €9.2 million in the nine months of 2022. A dramatic increase compared to the €500,000 reached in the prior year. Third-party product also had a solid performance and reached €18.4 million compared to €11.2 million in the first nine months of 2021. Finally, COVID-19 vaccine sales increased €3.8 million at the end of June to €23.9 million in September year-to-date, driven by shipments to European member states in Q3, as mentioned by Thomas earlier. Now moving on to Slide 20, looking at the P&L. We already covered revenues at the significant increase of €249.9 million. Cost of goods and services also increased significantly over the prior year and this is of course, mainly driven by VLA2001 related costs. As explained in our first half year financials, we recognized significant inventory write-down in the second quarter of the current fiscal year. Research and development expenses decreased from €117.2 million in the first nine months of last year to €75.4 million in the first half of 2022. This decrease is driven by lower spend on clinical trials as our chikungunya vaccine progresses to its licensure, combined with a reduced spend on our COVID-19 vaccine candidate VLA2001. Marketing and distribution expense, as well as general and administrative expenses decreased compared to prior year, which is largely driven by a release of provision for share-based compensation and the related social security costs. The costs of Phantom Share Programs for certain employees, as well as the cost of social security on our equity plans depend on the development of Valneva share price. In total, we had a release of €30.6 million in the first nine months of 2022 compared to cost of €13.7 million in the same period of last year, i.e., a difference of over €40 million that possibly affected all expense fund in our P&L and in particular, our G&A expenses. As outlined in this morning’s press release, the marketing and distribution line includes launch preparation cost for our chikungunya vaccine candidate of €4.3 million compared to €2.8 million in the prior year. Other income net of other expenses is reported at €7.5 million compared to €16 million in the first nine months of 2021. That decrease is primarily driven by lower R&D tax credit as a direct result of the lower R&D spend. Other expenses include a small increase in the provision of on the ongoing Vivalis/Intercell litigation proceedings. Operating loss for the first nine months is reported at €75.1 million compared to €237.6 million for the same period in 2021. Financial expense and income tax reached €42 million compared to an expense of €8.3 million in the prior year. The difference is primarily due to significant unrealized foreign exchange losses driven by U.S. dollar denominated liabilities. Interest expenses increased in line with the increased loan. The total loss for the period reaches €99.1 million versus €245.9 million in the first nine month of 2021. Next slide please. Looking at our COVID business, we see total revenues of €224.1 million and an operating loss of €14.2 million compared to an operating loss of nearly €200 million in the first nine months of 2021. The P&L outside of COVID business shows product sales of €50.6 million and negative other revenues. As previously explained, the negative revenues are driven by the Pfizer agreement revision in Q2 with an adjusted cost sharing. Cost of goods and services systematically improved compared to last year, driven by lower cost of services related to Pfizer and the CTM unit in Sweden. In addition, the 2021 numbers was impacted by inventory write-offs and idle capacity costs. The level of operating expenses is, as already mentioned, favorably impacted by an effect related to the company’s share plan. R&D costs are significantly lower than in prior year. This is a direct consequence of our chikungunya vaccine moving towards licensure. The costs related to our preclinical programs are naturally lower, but will increase as this move into the clinical stage. The adjusted EBITDA of our non-COVID business reported for the first nine months reached negative €38.6 million, which is comparable to last year. Before moving to guidance, let’s go to Slide 23 to look at our value proposition and how we expect to deliver on it. The first pillar talks about progression of our late stage clinical pipeline programs. We initiated the FDA submission of our chikungunya vaccine candidate and are preparing for the potential launch in the United States and later in Europe. At the same time, we continue our excellent collaboration with Pfizer on the Lyme program, and as mentioned by Thomas earlier, patient recruiting for Phase 3 trial is still ongoing. The second pillar is about progressing new vaccine candidates from preclinical to the clinical stage. This is clearly a priority as we are committed to refill our early stage clinical pipeline. For now, the focus is on HMPV program, as mentioned by Thomas earlier in this call. At the same time, we put in place a small dedicated team that is continuously screening the markets to look for potential in-licensing opportunities to complement our clinical pipeline. The third pillar is about maximizing our commercial products. We want to benefit from the recovering travel market and make sure our travel vaccines grow at least in line with the travel market. We are very encouraged by the growth we were able to realize with our distribution partnerships and the recently agreed deal with VBI is an illustration of our focus to complement our commercial proposition where it makes sense. Finally, as announced previously, we are aiming at selling additional doses of COVID-19 vaccines outside of Europe. This is an asset that will continue in 2023. Last column, we are in progress of resizing our operations. We initiated a program to reduce our workforce by 20% to 25% due to the discontinuation of our COVID program. The reduction in workforce is expected to result in annual savings of approximately €12 million and will be achieved through a combination of natural attrition and layoffs. These savings are to a launch extent expected in our manufacturing operations. The resizing of our organization will not impact our development projects as we are clearly committed to invest in what is required to bring forward our R&D pipeline. Before moving to guidance, let me briefly comment on our cash situation. Our balance sheet at September 30 released this morning shows total cash and cash equivalents of €261 billion. While this is still a high level of cash, we consumed a significant amount during the third quarter. As a company, we believe it is important to be sufficiently financed to invest in our clinical and pre-clinical pipeline. We therefore decided to proceed with an equity offering at the end of September, and in a difficult market managed to raise over €100 million. The proceeds of this offering are not yet reflected in the September accounts and further strengthen our cash position. With this, the company’s well positioned to deliver in our existing programs. Now, let’s move to the fiscal year 2022 guidance on Slide 24. We reiterate our total revenue guidance of €340 to €360 million, including €30 million to €40 million of COVID vaccine and €70 million to €80 million other vaccine sales. As a reminder, we have increased the guidance for other vaccine sales at half year. Other revenues are anticipated at approximately €240 million, mainly based on revenues recognized from EC and UK COVID-19 contracts, meaning that these revenues will have no additional cash impact in Q4. We expect R&D expenses to be between €95 million and €110 million quite a bit lower than previously announced. This decrease is related to some phasing of clinical trial expenses and the wind down of our VLA2001 activities. This concludes the finance section of this call, and I would like to hand back to Thomas for the upcoming catalyst.

Thank you so much, Peter. Yes, let me summarize what we have already mentioned different points in this presentation, what are the clear near-term catalyst for Valneva online. It is of course, extremely important that we complete the enrollment on time given the seasonality of Lyme disease and the respective progression of the trials – of the trial over two seasons. We are also expecting some follow-up data from existing studies, which we have not specifically mentioned here on the key catalysts. On chikungunya, very clearly the completion of the BLA submission before the end of the year, of course, also supportive data like the antibody persistence data later this year or the adolescent data then in the earlier part of next year, which will be important to compliment the label and support submissions in other territories. On COVID-19, we expect further data till the end of the year, as I mentioned this before. And of course, we are – as we have clearly articulated in the past, in touch with a few international markets, meaning countries in Middle East, Asia, for example, where we are trying to a, seek regulatory approval and b, potential sales of our existing COVID-19 vaccine VLA2001 in respected inventory, this all of course to maximize the value from the existing assets. These are the key catalysts that we see. So still, very, very important anticipated news flow in – news flows in the short-term. And with that, I would like to hand back to the operator to take your questions.

Thank you. [Operator Instructions] And our first question comes from the line of Maury Raycroft from Jefferies. Your line is open.

Hi. Congrats on the progress, and thanks for taking my questions. I’m going to start off with the preclinical assets. You mentioned that the VLA1554 and 2112 are currently being prioritized. Can you talk about how much investment do you plan on putting into these programs? And where will you report the preclinical 1554 proof of concept data by year end? And is there anything additional you can say about the timeline to moving these programs into the clinic?

Okay, good. So Maury, right now we have not split the R&D investments by program or by activities as you know. But we have gone back to pre-COVID investment levels in the non-clinical arena. So I think this is the only thing that I can say to that. With regards to HMPV pre-clinical talk, of course we are talking here about the classical pre-clinical talks that you would anticipate for a vaccine candidate, meaning in vivo and in vitro. And we are anticipating that this data will be published and we cannot say how long it will take to get those published. But we clearly will try everything to do this as quickly as possible. Then course, with regards to HMPV, the company will evaluate clearly the clinical entry for HMPV. We have started preparing respective plans. In parallel we will also look in potential combination settings that HMPV might be a very interesting asset for people working in RSV, Given that the RSV HMPV combo is expected to add significant value in terms of medical benefit addressing a huge unmet medical need and EBV will take a little bit longer for us to progress at this point in time.

Got it. Make sense. And just going to ask one other question on 1553 for the antibody persistence and adolescent studies. Can you remind what expectations are and what would be considered good or bad data? I guess for the antibody persistence data specifically, is there a certain threshold for antibody persistence that matters.

So well by the end of the day, the important thing Maury is that you still see effectiveness of the vaccine. So that we are working on this – on a surrogate marker that was derived through passive transfer in non-human primates accepted by the authorities. And basically then translated into a zero protection level, meaning percentage of people above the respective protective threshold. And that there is no regulatory requirement to say what is good or what is bad. I mean, of course you would expect above 80% being an excellent result in the world of vaccines in terms of long-term antibody persistence levels. That’s maybe as much as I can say to 1553.

Okay. That’s helpful. And I’ll stop there and hop back into queue. Thank you for doing my questions.

You’re welcome, Maury.

Thank you. One moment for our next question. Our next question comes from the line of Samir Devani from Rx Securities. Your line is open.

Hi, everyone, thanks for taking my questions. I’ve got a couple. First one’s on sort of VLA15 and your contribution to the Pfizer clinical trial costs. The press release talks about 40% over 2022 and 2023. I just wanted to clarify with you, are you not expecting to contribute to the end of the study? Because that’s obviously in 2025, so that’s the first question. And then the second questions just on the COVID-19 vaccine, you obviously had some good sales in the quarter. I think previously you told us that you had 8 million to 10 million doses in the inventory. Perhaps you could just update us with where the inventory stands? And whether you could just clarify whether you have any confirmed orders for 2023? Or should we be looking for new announcements for those orders? Thanks very much.

Hi, Samir. So let me start with the COVID question and then I will give the floor to Peter who can explain again, how we are – how our payment with regards to our lion share to the Phase 3 works following the last amendment that we did with Pfizer. So on the inventory, yes, you’re absolutely right. We previously confirmed 8 million to 10 million doses. This is absolutely correct. We have this inventory in our warehouses and we have at this point in time, no confirmed orders above and beyond EC and the existing Bahrain orders. But as I said, we are active right now in seeking regulatory approvals in territories where we feel that there is a demand and where we have ongoing discussions with regards to potentially deploying that inventory. And we will, of course, as something like that materializes immediately inform the markets. With that Peter, you may want to explain how our lion cost contributions work and why it’s 2022-2023.

Yes, of course. Thanks. Samir, well, basically the way the Pfizer amendment works is that we pay 40% of the total cost, but our 40% are front loaded. So essentially almost all the – all our contribution will be paid during 2022 and 2023. There might be a small residual amount kicking in later, but basically after the end of 2023 it will be Pfizer covering their 60% of the total cost, and we will not have any further cash out. So that’s how it works. And I just also take advantage to remind you that what we pay to Pfizer is basically going against our balance sheet so it goes against our contract liability and not through the P&L.

Okay. That’s very helpful. And maybe just on clarification, the EC contract and the Bahrain contract, do they have – is there any sales anticipated from either of those contracts in 2023?

There might be small amount related to the Bahrain contract but not to the EC contract.

Okay. That’s very helpful. Thanks very much.

Thank you. One moment for our next question. Our next question comes from the line of Evan Wang from Guggenheim Partners. Your line is open.

Hi. Thanks for taking my question. Can you help – first question I have is on 1553. Can you help understand some of the additional trials or analysis that could open additional opportunities, I guess in settings like military, pediatrics, stock time opportunities. Are there additional trials needed to kind of conduct and any kind of timelines or expectations we can think there? And then I have a follow up.

Okay, good. So yes, so let me remind you about the overall development program for chikungunya. So conducted two pivotal Phase 3 trials, one the Phase 3 immunogenicity trial to determine safety and effectiveness of the vaccine in adults above 18 years of age and alongside with that clinical lot to lot consistency study also needed for licensure. So with these two studies, we expect the vaccine to be approved in the United States for everyone above 18 years of age. There is no additional study required to support the – let’s say, the market launch in all the segments that you have mentioned from a U.S. perspective. Of course, we want this vaccine to be available for everyone about probably two years of age. So which means we will and are conducting studies in additional younger age groups. And this is – and one of the very important studies is the study that we are currently conducting in Brazil through our partner Butantan. And this data is expected to complement and change or just the label from a U.S. perspective. We also expect that this data that we generate in Brazil will be filed together with the existing package so that we may have broader labels right from the start in terms of age group. All the other studies that I mentioned on the slide, for example, co-vaccination studies, all and the like are voluntary studies. So these are studies that are not required from a regulatory perspective, but may provide us with additional data to potentially further differentiate and further increase potential uptake on the vaccine in the future. And those are, for example, co-vaccination studies. Then of course you have for every vaccine, we have the typical post-licensure Phase 4 commitments in our case an infield effectiveness study that is of course a regulatory requirement post-licensure, which will be conducted.

Great. And then can you talk about some of the competitive dynamics in the market? I think there are other trials ongoing I think that expected first half next year. I guess in terms of the 2024 HCIP, are you expecting multiple vaccines to be discussed at this point? And can you talk about how you’re thinking about kind of competitive dynamics? Thanks.

Very good question. So let me start with the latter part first. We do not expect that at the FDA pre-meeting other chikungunya vaccines will be ready for discussion. So at this point in time as you know, there is only one additional program in Phase 3 in the “western world”. And this program is in two Phase 3 studies, to our knowledge one study that for which, enrollment completion was just recently announced and another study to complement the upper age range for which to our knowledge recruitment is still ongoing. So we expect with regards to competition, with regards to licensure to be well ahead of any competition.

Great. Thanks, guys.

Thank you. One moment for our next question. Our next question will come from the line of Max Herrmann from Stifel. Your line is open.

Hi. It’s Max Herrmann here from Stifel. Thanks very much for taking my questions. A few of them may. Firstly, just wanted to understand a little bit about comment about completion of recruitment of the VLA15 study, the VALOR study in Q2. If you are recruiting or completing recruitment at that stage, will that enable you to recruit all the patients in time for the – season for the 2023 Lyme disease season? That’s my first question.

Yes. So basically Max, first of all, hi, and very good question. You know, that the season starts in March, April and goes all the way until September, depending on the area – September, October. So of course and the second quarter is long, right? So it’s not – it doesn’t necessarily say that we are recruiting till the end of the second quarter. But basically of course, we are anticipating that we are doing the enrollment as quickly as possible so that we can get the 100% of the anticipated people into the first season.

Because obviously you’ve got a six month period vaccination period to get the three doses in and so even if you start in April, you’ll only just be finishing that those patients that will finally in April, in October timeframe.

You will have a number of patients that you will only catch toward the end of the season.

Okay. My next questions are more financial. So I’ll put them on. In terms of COVID inventory, I know you say you have 8 million to 10 million doses on hand. I was wondering if you could give us a bit of a view of what portion of your inventory levels are represented by that actual COVID stock. Second question is just the margin. In the fourth quarter, you obviously – the gross margin that is, you obviously had a relatively low margin in the third quarter. I assume primarily related to the collaboration and license revenue, which I guess is margin without margin. Just trying to understand how we should view the margin development going forward. And then just in terms of R&D, very interesting comment about – and I wasn't aware that the Pfizer R&D spend or the balance spend that you make will go against the balance sheet. So just giving us feel, do you expect R&D in 2023, therefore to be lower than you expect it to be in 2022? Thank you.

Peter?

Yes. Sorry, I was muted. So first question, Max, on COVID inventory. So we have not given in the Q3 the details of inventories but you can assume that actually there is a fair portion of inventories that we reported in our balance sheet related to COVID. And it is safe to assume that it's approximately half of it. Most of it, of course, finished product or semi-finish and finished product. And as we said, these are the doses that we are aiming at selling in markets outside of Europe. Gross margin in Q4, again, here we have not given guidance on gross margin, so over time, so I wouldn't specifically comment maybe about on Q4. I think overall speaking, we clearly look at our gross margin on our travel vaccines improving significantly as we increase volumes. And we do expect that in 2023, we'll probably be close to where we used to be pre- COVID. And remember we were at top of my head, 64%, I believe roughly. So that's clearly objective to get into this range as far as cost of goods on travel vaccine is concerned. And you're absolutely right. Of course, the margin does get diluted a bit depending on what contracts we have with the parties in our CTM facility in Sweden. And then finally, your question on R&D. So yes, whatever we pay to Pfizer goes against our liabilities. The spend that we have on VLA15 goes into R&D spend. It's primarily people cost of course, but that goes into R&D spend. And we have not yet provided guidance for 2023, I think questions on 2023, right. So we have not provided R&D guidance on that yet. But we'll do that of course once we do publish our full year results.

So maybe just pushing back a little bit on the R&D guidance for 2023, I mean, it wasn't – I wasn't really – I was just trying to get understand. I mean, next year the Pfizer trial costs are going to be the big significant part that's not going through your R&D spend and you're not spending on the COVID vaccine anymore and the chikungunya vaccine, most of the registration studies have been completed then that would suggest quite a significant reduction in R&D spend for next year…

Yes, that's correct…

Is the right way to think about it?

Well, yes, our R&D spend will for sure go down. It will of course, include some post-marketing commitments for our chikungunya vaccine and of course, progressing our preclinical pipeline, but is absolutely fair to assume that our R&D cost in 2023 will be significantly lower than in 2022.

Right. Thank you very much.

Thank you. And one moment for next question. Our next question comes from the line of Arsene Guekam from Kepler Cheuvreux. Your line is open.

Thank you for taking my question. First of all, the follow up question on R&D expenses. R&D costs are likely to go back from pre-COVID level, but do you expect any additional cost related to COVID-19 vaccine in 2023? The second question is on your manufacturing site, you stopped the manufacturing site of VLA201, but are there some additional cost related to the maintenance of this site and the left one is on chikungunya vaccine. How are you going to commercialize this vaccine by your own or are you looking for a partnership? Because there is no real synergy with the travel vaccine and you will need to build your own sales force.

So let me probably start by your last question and your last comment. So please keep in mind that chikungunya. Chikungunya is targeting for segments. One is travel. So between there are people traveling to tropical subtropical areas people who live in North America, in Europe, in Australia. And here we have a huge synergy with our existing commercial infrastructure. So we are covering with our existing commercial infrastructure, which includes teams in North America, meaning U.S., Canada, in Europe we have – the UK we have France, we have Austria, we have the Nordics. And with that we cover 80 plus percent of the necessary travel markets with the existing teams and the existing infrastructure. The second part is related to stockpiling and potential outbreak preparedness. Also here, of course, we will need to add resources, but we expect that overall we are well-positioned within our existing infrastructure. Then we have of course, a potential segment in institutions like military. And again, here we have existing and well established channels and infrastructure. When it comes to endemic countries, yes, of course for endemic countries, we have a partnership, an existing partnership with Instituto Butantan who have the right to endemic LMIC countries, so low medium income countries. And this is a partnership that we entered into and we announce already, so we will not commercialize the product ourselves in LMIC territories. And then maybe, the maintenance, yes, of course, we have a dedicated factory in Scotland for COVID-19. At this point in time, we have not decided what we are going to do with this factory. And hence, we will keep the factory in a so-called warm stage. And this warm stage comes at a cost and which we have not disclosed and cannot disclosed at this point in time, but it's not – as I said, a keeping warm cost base. So probably not material in the overall setting. With that, I give the floor to Peter for the other financial questions of COVID.

Yes, so there was about R&D expense expected in 2023. So there will be some residual R&D expense related to COVID as we are continuing or finalizing the last clinical trials that are running right now. And it will still continue into 2023, but it will of course be much, much lower than what we spent in 2022 or 2021.

All right. Thank you.

One moment for our next question. Our next question comes from the line of Olga Smolentseva from Bryan Garnier. Your line is open.

Good afternoon. Congratulations on the progress, and thank you for taking my question. My first one on the recent ACIP meeting seems that vaccine efficacy in specifically adult population was sort of – was importance. So could you maybe reiterate that data in this age group, which is about 100 participants currently would be sufficient. And especially in the light, that Emergent study is reporting about 400 participants of this age group. And maybe the second question, is it basically asked what group to more clearly define at risk populations. So I'm just curious if you have any insights on how these more specific risk based groups could look like. Thank you.

Hi, Olga, are you referring on your second question to Zika or to Lyme?

On Zike.

So good so then – so first of all, let me start with your first question. Yes, you have seen that at the ACIP meeting we presented additional data, additional readout from our elderly cohort. We consider based on all interactions that we had to-date, hat our database with about 100 people in the above 65 years of age combined with the fact that we do not see any age dependence on our zero protection level levels to be sufficient for the full label. This is our current hypothesis, and this is based on all interactions to-date, as I said driven by two aspects, namely number one, that we have not seen an age dependence on our serological and immunological profile for the vaccine. And that we have 100 people with some being really, really old in this cohort. So second, when we target risk, this is of course, I mean this is an excellent question. And so on the one hand side, we consider of course people who are going to areas where there is a high risk exposure to chikungunya infection. These are areas where you have either already existing outbreaks or a high risk for outbreaks. And these are primarily the tropical, subtropical areas. And this will be as part of the health economics analysis, this is of course will be further detailed and characterized and precise as part of the ACIP process.

That's great. Thank you.

You're more than welcome, Olga.

Thank you. One moment for next question. Our next question comes from the line of Nick Hallatt from Goldman Sachs. Your line is open.

Hi, there, it's Nick on for Keyur. Thank you for taking my questions. Just a couple more on chikungunya. What's your updated thoughts on potential PRV monetization there? And if you could give us an idea of pricing and potential benchmarks we should be thinking about. And then if I may have financial question, your €12 million annual savings from the restructuring, where should we be thinking about their impact on the P&L and would that be largely on SG&A? Thank you.

Okay, so do you want to start?

Yes, I can start on the savings out of the resizing of the organization. So Nick essentially, I would say the vast majority of the reduction is going to be in the manufacturing space, but because that's where we clearly see the significant – most significant reduction in workload as we stop COVID-19. So that's where I think most of it will go.

So of course, on the PRV coming back to your question around the PRV, there was a process around the PRV was a respective application that we will do as part of the completion of the submission for the BLA. And then once we have the confirmed eligibility we will get the PRV with the BLA approval, and of course, the company will start marketing this PRV as soon as we are getting closer to the PRV. Many or most companies in the past have had their PRV deals in the pocket before they actually got the PRV. And this is of course something that we will do and we try to do in a similar way, provided that everything goes according to plan and that we have set under the Fast Track and provided it all Fast Track conditions are being confirmed. We expect the PDUFA date in the second half next year. So, which will tell you a little bit also the timeline of potential PRV.

That's great. Thank you. And do you have that pricing?

Yes, you mentioned pricing. I mean, as I told you already when we met we are currently not – we are in the middle of the process around health, economic, then analysis, pricing, et cetera. So we do not want to interfere with this process and therefore, we are currently not in a position to comment on pricing.

Okay. Sounds good. Thank you very much.

You're welcome.

Thank you. And I'm not showing any further questions in the queue. I'll turn the call back over to Thomas for any closing remarks.

Thank you so much for your time today. Excellent questions as usual. Thanks for following up Valneva for supporting us and we are looking forward to keep you updated on the exciting process and exciting progresses that we have ahead of us. Thank you so much. Have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.