Valneva SE (VLA) Earnings Call Transcript & Summary

Hello and welcome to the Valneva 9 Months 2024 Financial Results Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand over to Joshua Drumm, VP, Global Investor Relations. Please go ahead.

Thank you, operator. Thank you and hello for joining us to discuss Valneva's financial results for the first 9 months of 2024 and a corporate update. It's my pleasure to welcome you today. In addition to our press release and analyst presentation, you can find our consolidated financial results for the 9 months ended September 30, 2024, which were published earlier today, available within the Financial Reports section of our investor website. I'm joined today by Valneva's CEO, Thomas Lingelbach; and our CFO, Peter Buhler, who will provide an overview and update on our business as well as our financial results. There will be an analyst Q&A session at the conclusion of the prepared remarks. Before we begin, I'd like to remind listeners that during this presentation, we will be making forward-looking statements, which are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed or implied by these forward-looking statements. You can find additional information about these risks and uncertainties in our periodic filings with the Securities and Exchange Commission and with the French Market Authority, which are listed on our company website. Please note that today's presentation includes information provided as of today, November 7, 2024 and Valneva undertakes no obligation to revise or update forward-looking statements, except as required by applicable securities laws. With that, it's my pleasure to introduce Thomas to begin today's presentation.

Thank you, Josh. It's my pleasure to welcome you all to today's call. Yes, what are the highlights for the first 9 months 2024? Overall, the company's performance is in line with our guidance. When we look at product sales, which landed at a bit more than EUR 110 million at the end of the 9-month period and given the slow uptake of IXCHIQ in the U.S. market, we have narrowed our guidance to EUR 160 million to EUR 170 million and Peter will provide more details on that. With a cash position of more than EUR 150 million, we consider the company well financed. And when we look at the R&D, we had a very strong R&D execution year-to-date. Of course, most importantly, with Lyme going 100% according to plan CHIK adolescents data that came in as expected and on time, pediatric and persistence data for CHIK as well. And we presented our long-term R&D strategy at the Investor Day in New York recently. We continue to perform strongly on our scientific positioning, but also on the partnering front, many very interesting publications in renowned journals like the Lancet, our partnership with CEPI supporting CHIK development and more recently, the partnership with LimmaTech on a very exciting Shigella program. Turning to Page 5 of the presentation and looking a little bit into the midterm of the company, it is fair to say, and Peter noted this in his quote of today's press release, that we are approaching next year really a turning point in Valneva's evolution. We are targeting sustained profitability from 2027 onwards, driven by success of the Lyme disease vaccine program, if successful and approved, of course. As mentioned, we are on track with regards to the Phase III study and regulatory filings in 2026 with first approvals and initial sales in 2027, which then would immediately trigger the development milestone payments and hopefully then later, the royalties and the sales milestones. Of course, in the short term, our focus is besides on R&D execution to focus on growing our commercial sales. Despite of the slow uptake of IXCHIQ in the U.S. market, we remain confident in the long-term IXCHIQ prospects. I believe it's a great product. And we, of course, will carefully review the uptake in the coming months, especially since we will see the developments in the U.S., but also in Canada, first European countries and we will have a better understanding about the demand from existing and expected future LMIC partners where chikungunya is endemic. We expect that our commercial business overall with improved margins will generate cash again from 2025 onwards. And this will be achieved by a combination of top line growth, but also efficiencies on the bottom line. And of course, we will continue building for the future by advancing an attractive and differentiated R&D pipeline. Just by way of reminder, what we discussed also at the R&D or at Investor Day, we have, on the one hand side, the mandatory R&D, primarily focused around CHIK development Phase IV and Phase III pediatric, which is financially supported through the CEPI grant, we would like to advance our programs around Shigella and Zika. Both programs are supported by risk-mitigated development strategies and thus allow an efficient capital allocation based on very defined progress data points. And as announced, we expect next clinical entries mainly from our own proprietary preclinical pipeline post Lyme licensure in 2027. All of that is reflected in our pipeline slide. We believe that we have, besides very, very unique commercial assets, a very interesting and very coherent pipeline all the way from preclinical to late-stage clinical development. All targets that you see here, all programs that you see here are very unique. In every single program, we are either most advanced, hence, first-in-class, best-in-class, or only in class at all. And this makes us proud to contribute to a world in which no one will die or suffer from a vaccine preventable disease. Turning over to Lyme. I think the most important thing to note is that we updated on Page 9, a little bit the, let's say, the medical need and related market opportunity. This is a slide that you saw as part of the Investor Day. By way of reminder, there's no vaccine currently available to prevent Lyme disease in humans. You see the annual burden of disease and these are the most recent numbers for the U.S. and Europe, acknowledging, of course, that the European numbers are probably significantly underreported. Equally true for the U.S., but probably not at the same scale. 10% to 30% of cases develop severe manifestations, be it carditis, neuroborreliosis, arthritis. And you have another 5% to 10% on the persistent symptoms. And those cases continue to have persistent symptoms following even treatment. And this then turns also in a commercial opportunity. If you think about the fact that more than 80 million U.S. citizens live in areas which are considered endemic. And according to CDC, those are areas with incidence rates above 0.5% of Lyme cases annually and in Europe, even more than 200 million people. So therefore, we are very confident in our estimation of more than [ $1 billion ] in terms of a potential vaccine market. I don't need to go again into all the features of our very unique and differentiated Lyme disease program. I think the key updates here are that, of course, we have fully recruited the Phase II when it comes to primary vaccination. We are still one last round of booster vaccinations ahead of the 2025 tick seasons to go before we can have the first readout at the end of next year. And we are absolutely on track for the Phase III trial conclusions. And of course, we mentioned already in prior calls, and Peter will reemphasize that, that we have completed our cost contributions to the development activities with our partner Pfizer in the first half of this year, which, of course, has a very positive effect on our cash burn. And we recently reported the 2-year antibody persistence and booster results in line with our expectations. Slide 11 shows the VALOR study design, close to 10,000 people, 1 to 1 randomized against placebo, 2 to 1 North America versus EU. Please remember, primary endpoint rate of confirmed Lyme disease cases after 2 consecutive tick seasons. And when you look at the charts below, you see the green syringes versus the black syringe. And the black syringe is exactly the last outstanding vaccination activity that is needed before then the primary efficacy readout is expected towards the tail end of 2025. So overall, as mentioned, very pleased with the collaboration, very pleased with the program and very confident in the program and its readout and basically everything on track for the end of next year. Turning to chikungunya, our famous product IXCHIQ, the world's first and only chikungunya vaccine today. It builds on key differentiators. It has shown a very strong and a very persistent immune response with only 1 dose. And here is where this product differentiates, including the fact that we have also shown very strong immunogenicity in elderly, which just by way of reminder, is a main target population for this vaccine according to the ACIP recommendation. And that's basically the status on the product profile. When we look a little bit into all the milestones that we have achieved, everything is focused on expanding access to IXCHIQ globally. Our Phase III adolescent trial showed strong safety and immunogenicity profile up to 6 months. Those submissions for label extensions have either been already done or are close to be done. We have published long-term antibody persistence results up to 24 months already. And please remember, this study is going on for up to 10 years. So our objective is to monitor antibody persistence to up to 10 years. We have achieved also already first sales in Canada where we had very recently a very nice launch and we are preparing to launch in France as the first European country. Other upcoming and near-term catalysts include the expected approval for IXCHIQ in Brazil and the U.K. I mentioned already the label extension activities for which we are really expecting then labels to be updated next year. We are very close to report the 3-year antibody persistence results, hopefully, still this side of Christmas, but could come also very early next year, depending on how fast we're going to be on all the readouts. And then the Phase II pediatric trial top line results, same thing, either very late this year or very early next year. And we are still working on getting into a partnership for Asia and to augment our existing LMIC partner network that currently consists out of Butantan for Latin America primarily with a strong partner for Asia. And there are, of course, major upcoming and future opportunities to capture and drive greater penetration. This is -- the first point is focused on the U.S. So we are still waiting for the MMWR publication and we expect this to drive primarily retail growth in the U.S. It's one of the key expected growth drivers to get to an acceptable and promising growth trajectory for the United States. And then, of course, with the launches in Europe and the expansions in Canada, we expect major growth drivers for next year. We also expect additional ACIP and European recommendations. There are already some countries in Europe that have base recommendations, Austria being one example. We further expect travel software protocol updates. I mentioned already the label updates for IXCHIQ, which include always antibody persistence, but also the age range, the LMIC approvals, the additional partnerships and our continuous discussions with the U.S. Department of Defense. All those key opportunities will drive access and penetration and hence, sales growth. When we look at the Shigella program, as mentioned at the beginning, it is the world's most clinically advanced tetravalent Shigella vaccine today. And we have exclusively partnered this program with LimmaTech Biologics. It's a tetravalent bioconjugate vaccine with the potential to cover up to 85% of the shigellosis infections. And that's a very important one, given that Shigella is really a life-threatening disease. The global market is expected to exceed EUR 0.5 billion annually. And this number has been substantiated through an independent market assessment conducted by L.E.K. with key segments, including travelers and military, but also endemic countries. And I think that's a very important segment for this vaccine, especially children in LMIC countries where shigellosis is the second leading cause of fatal diarrhea. And we see up to estimated 165 million cases and more than 600,000 deaths annually. Therefore, Shigella has also been identified as a priority vaccine by WHO. When we look at the development, execution and the upcoming milestones, they're very close to initiate the Phase II CHIM study alongside with the pediatric study under Phase II protocol. Those 2 studies will be conducted by LimmaTech and initiation is still expected this side of Christmas. And Valneva is already in the transition to assume full accountability and responsibility, be it on the R&D, CMC, regulatory side of things. So we are working hand-in-hand with LimmaTech right now. And we are very grateful to our colleagues at LimmaTech for the very smooth and very constructive collaboration and transition. We reported recently that this program achieved FDA's Fast Track designation. When we look a little bit into the development plan for this program and I mentioned a couple of times that this is a very interesting risk-mitigated clinical development strategy supported by multiple catalysts and decision points on the way towards licensure. This Phase II first CHIM study that I mentioned is a CHIM study where we challenge against S. sonnei is about to start imminently. Then it would be followed by a second Phase II study where we're going to challenge with flex 2a in this case. And those 2 controlled human infection models would give us a very interesting prospect on the expected potential efficacy of this vaccine, while at the same time, we run immunogenicity studies in children in LMIC. And you see the bar here that shows Phase II global health, which is the immunogenicity study in children that I was talking about earlier, which will then be followed by a small bridging study in European or U.S. children before we go into a large-scale Phase III study in LMICs for children. And on the adult side, you see in red that we expect licensure by challenge, meaning controlled human infection models flanked with a safety and immunogenicity study to ensure the necessary safety database. And all of that, if successful and if executed on time and according to plan, first approvals could be expected in the 2030, '31 horizon. A couple of key results from the L.E.K. study when it comes to the total vaccine market for a potential Shigella vaccine. And here, you see the 3 segments that I mentioned before. We have looked at recommendation, acceptance and vaccination. And you see the typical waterfall model that we apply for other travel vaccines. And here you see that we see a very substantial segment also only about 23% of the total estimated market probably in that area. Then children in endemic and representing around 76% and then military, a certain portion. And that's the current hypothesis that we have when it comes to the market opportunity for this vaccine. And again, pointing to the travel opportunity. Here, we estimate that the market is dominated by the United States with EUR 80 million to EUR 85 million coming from the U.S. alone. Yes. With that, I would like to draw your attention on our Zika virus vaccine candidate. You may recall that this is a candidate, we call it internally VLA1601, which is an optimized second-generation vaccine candidate against the Zika virus. And we are well in the Phase I and we are currently executing this study according to plan. This is a very interesting candidate because we fully comply with one of the desired target product profiles that were published by WHO. It leverages an existing platform that we have, namely a platform that we originally developed for IXIARO, but then substantially enhanced and scaled up for our COVID vaccine development. So it's a like-for-like process that we apply here. So therefore, it is also suited for large-scale manufacturing. And Zika is coming back is maybe the simple message here. And we all remember that Zika infections, especially in pregnancy, can have very devastating effects. And there are no vaccines or specific treatments available. To our knowledge, we are currently probably the only company with an active clinical development program at this stage. The Zika vaccine development or the disease area is PRV-eligible. And we know that there are currently many public institutions looking into potential funding mechanisms. We expect in the first half next year to have Phase I results, but also a better insight with regards to market opportunities, potential access strategies, but also some decisions on potential external and non-dilutive funding. So in a nutshell, overall, we are very confident in not only our commercial business, but also -- and its prospects, but also and most importantly, on our R&D pipeline and its prospects and its major catalysts, specifically Lyme at the end of next year. And with this business update, I would like to hand over to Peter to provide you with the financial report.

Thank you, Thomas and good morning and good afternoon to all of you. So moving to the financials of the first 9 months of 2024. Product sales reached EUR 112.5 million and on a comparable basis grew 12% over prior year. Including last year's sales of the COVID-19 vaccine, sales increased by 6%. The impact of currency fluctuation on a year-on-year basis is neglectable. Total IXIARO sales reached EUR 66 million and increased 31% over prior year. The strong year-over-year growth was driven by double-digit year-over-year growth rates in both the travel segment and U.S. military. DUKORAL sales increased year-over-year by 6% and reached EUR 22.3 million in the first 9 months of 2024. In the third quarter DUKORAL sales grew by 85%. As discussed in our half-year results release, we had limited DUKORAL related marketing investments at the beginning of the year as we anticipated supply constraints in our manufacturing facility in Sweden due to regulatory inspections. In terms of our ongoing launch of our new chikungunya vaccine IXCHIQ, we report sales of EUR 1.8 million by September 30 in the United States. The ACIP recommendation for IXCHIQ was adopted by the CDC in March this year. And as Thomas mentioned, we are still awaiting the MMWR publication. In line with our expectations, third-party products declined by minus 23% year-over-year to reach EUR 29.1 million, primarily as a result of supply constraints. Moving on to the income statement. Total revenues reached EUR 116.6 million versus EUR 111.8 million in the first 9 months of 2023. Looking at expense, we observed a decrease in cost of goods and services from EUR 74.8 million in the first 9 months of 2023 to EUR 71.3 million in the current year. IXIARO gross margin reached 58.8% of IXIARO product sales compared to 47.2% 1 year ago. DUKORAL generated a gross margin of 34.8%, while third-party products yielded a gross margin of 32%. The total gross margin, excluding IXCHIQ, reached 48.6% compared to 43.7% in the first 9 months of 2023 and 47.7% at the end of June. It is important to note that the total gross margin is also adversely affected by IXCHIQ-related overhead cost as well as idle costs related to our new manufacturing sites. Research and development expense increased from EUR 42.2 million in the first 9 months of 2023 to EUR 48.6 million in the current fiscal year. That increase mainly relates to tech transfer costs for the transfer of our IXIARO and IXCHIQ manufacturing operations to our new Almeida site in Scotland. In addition, our preclinical spend marginally increased over the prior year. Marketing and distribution expense increased year-over-year by approximately 5% to reach EUR 35.7 million. The increase is related to the launch costs related to our IXCHIQ vaccine that also include higher people costs as we expanded our commercial team. G&A expense decreased by 7% year-over-year to reach EUR 32.6 million. The sale of the PRV generated an income of EUR 90.8 million, while other income reached EUR 14.9 million versus EUR 17 million in the prior year. Other income primarily consists of grant income and R&D tax credit. Operating profit is reported at EUR 34.2 million versus an operating loss of minus EUR 57.2 million in the prior year. Adjusted EBITDA improved from minus EUR 46 million to positive EBITDA of EUR 48.6 million. As mentioned at the beginning of the presentation, our cash position at September 30 is reported at EUR 156.3 million and it is worth highlighting that our cash used in operating activities decreased significantly from EUR 136 million in the first 9 months of 2023 to EUR 76.7 million in the current fiscal year. Now moving to Slide 26. During our Investor Day in New York, we provided a view on travelers data traveling to Japanese encephalitis or chikungunya endemic regions. The information on this slide is based on IATA data from August 2024. As the graph illustrates, we see the number of travelers to chikungunya endemic countries in 2024 is anticipated to be above the pre-COVID period, while travelers to JE endemic countries are still slightly lower. More importantly, the forecast data shows the number of travelers are expected to grow significantly over the coming years with an anticipated growth of 22% for travelers to CHIK endemic countries by 2030 and nearly 30% for JE endemic countries. With this, let's move to Slide 27 to look at our guidance for the current fiscal year and the outlook beyond. For the current fiscal year, we narrow our product sales guidance to EUR 160 million to EUR 170 million and total revenue guidance to EUR 170 million to EUR 180 million. Other income, including the proceeds from the PRV is expected to reach between EUR 100 million and EUR 110 million and the R&D expense are expected between EUR 65 million and EUR 75 million. In the midterm, we continue to expect growth from IXIARO and DUKORAL. As for the IXCHIQ sales expectations, we will review our midterm guidance in the coming months, taking into account the sales trend in the United States and early signals from the sales ramp-up in Canada and first EU countries. With this, I hand back -- the call back to Thomas for the news flow.

Thank you so much, Peter. Yes, wrapping up with the summary of our key upcoming catalysts and news flow. On chikungunya, we have the upcoming potential approvals by ANVISA for Brazil and MHRA for the U.K. As mentioned, the 36-month antibody persistence data for IXCHIQ and the initiation of the Phase IV clinical program for which we have now broad alignment on its final detailed design and execution considerations. For the Lyme disease vaccine, the final booster dosing, as mentioned earlier, mid-2025 latest to be completed in line with the Lyme seasonality. Then, of course, we have the continuous monitoring for Lyme disease cases and we will conclude on all of that towards the end of 2025, which then will enable submissions to the regulatory agencies in 2026, of course, subject to positive Phase III data. The initiation of the 2 Phase II studies for Shigella vaccine still this side of Christmas and the report of the Phase I data for our second-generation Zika vaccine in the first half of next year. And one thing that we didn't talk about, but I would like to reemphasize here, is we continue to see very good uptake of IXIARO in the DoD. We expect the RFP to -- for the next contract to be issued imminently and with that, of course, a new contract with the DoD in the next 6 months, I would say. And with that, let me draw your attention on also the near and midterm value drivers. I think the most important one is certainly VLA15, our Lyme disease. It's the major catalyst for Valneva. It is probably the most important or likely the most important upside that we see for Valneva in the short to midterm. And on the back of Lyme, we expect this company to really transition into sustained profitability initially coming from the early milestones that we expect in 2027 and then followed by the royalties. And of course, with that, the entire value proposition of Valneva is expected to change. In the near term, the commercial revenue growth with a strong focus, not only on our existing brands, but also on IXCHIQ, where I would like to reiterate that despite of a slow uptake in the U.S. this year, we [Audio Gap] prospects for this vaccine across all the different markets, mainly North America, Europe and LMIC countries. And we are absolutely excited and thrilled about the potential of our future pipeline programs, including Shigella, but also Zika and the programs that we have currently in preclinical development that are expected to enter the clinic upon successful Lyme execution and approval in 2027. And with that, I would like to conclude our report and hand back to the operator to take your questions.

[Operator Instructions] First question comes from Maury Raycroft at Jefferies.

Congrats on the progress. Maybe first one, I'll just start with IXIARO. You mentioned expectations for new orders in 2025 and you're seeing good uptake with DoD. Is there anything more you can say about that, including where the orders could be coming from and what the amounts could look like for next year?

So basically on IXIARO, Maury, you know that when we exclude the 1 year where the military built additional stock, which was, I think, 2019, all the other years with the DoD have been pretty stable. And when you calculate -- in some years we gave details on the military, in other years, we did not. But you know that overall there has -- you can calculate the demand of, let's say, give or take, 200,000 doses. And then it depends a little bit on the supply-demand pattern because sometimes they keep higher stocks and lower stocks. And I think at this point in time, noting, of course, that a new government may have different views in terms of military personnel stationed in Southeast Asia, but at this point in time and given that it is a mandatory vaccine for those parts of the troop, we expect this overall demand to be pretty stable at that level. And we expect that the RFP that will be for the next kind of request will also point in this direction. So that's our expectation right now on IXIARO and the DoD. And of course, we are in very active dialogue with the DoD on chikungunya as well. So you've seen that they issued a preliminary recommendation for IXCHIQ, but we are not yet at the point where they have decided whom to vaccinate, when to vaccinate and that's something that we certainly expect to come next year.

Got it. That's helpful. And maybe a question related to IXCHIQ. Just wondering if you have a better sense of when the MMWR publication update could occur. And if you can remind how the publication will be leveraged with payers and stakeholders and how that could translate for the opportunity.

Yes. So we expect -- the MMWR release is something where I think, timing-wise, we don't feel comfortable making any promises. We had hoped to see this already months ago. There is -- when you look historically for other vaccines, how long it took, sometimes it was very fast, sometimes it took a long time. We certainly expect the MMWR release to be the major driver to allow us accessing the retail channel in the U.S. And we expect -- and this is one of the big -- one of the big -- the big learnings probably for us. We certainly see that retail becomes more and more important in the U.S. and especially given the very high cost that someone would need to pay through other channels. And therefore, this is one of the identified key drivers amongst, of course, a few others that we have identified.

Got it. And is that something you think could happen in 2025, the publication coming out?

Yes. Yes. So I think -- I mean, we said earlier in one of the prior calls and if I recall correctly, even in New York, we said that we expect it by year-end. But as I said it's a little bit out of our control. There is nothing we can do about it. And -- but it's certainly one of the pieces, let's say, one of the missing pieces that we are still looking for.

The next question comes from Suzanne van Voorthuizen at Van Lanschot Kempen.

This is Chiara Montironi. I'm on behalf of Suzanne. Congratulations for the update. I had one question on IXCHIQ. I was wondering if you could give me more color on why the sales have not grown in Q3 compared to Q2? And what could explain that after reporting positive trends on other commercial metrics?

Yes, it's a good question. So basically, partially, it has to do with what we have in the channel right now. And so what is actually the product that we have really shipped and sold to distributors. And this is one component to it. The second part is that we are really not seeing at this moment in time, let's say, the uptake that we -- let's say that we didn't see the uptake at the end of the third quarter. I think we are now at the end of November. The situation has certainly improved. And so we are confident that we are now going into a better growth trajectory. But there are many elements that we are -- that we need to monitor very, very carefully. And it's -- as I said a couple of times, it's a bit too early at this point in time to really draw conclusions on all of that. So we have given ourselves until the mid of the year in order to ensure that we get to the right level of understanding.

Okay. So basically, you will give guidance, let's say, in 6 months or more?

Yes. I think, yes. So basically what I -- what -- in other words, we have said we have given a midterm outlook of anticipated EUR 100 million product sales for IXCHIQ 3 years after launch. We have the pre-launch period right now, the initial launch period ongoing in Canada. We expect to launch in France and we have -- we will gain very good understanding about the LMIC demand in the first quarter next year. So this will help us to better understand the, let's say, the midterm prospect of this vaccine and whether our hypothesis on the S-curve and you may recall that we discussed the S-curve and that all travel vaccine sales uptakes in the history have followed a certain S-curve. But we have, of course, taken certain base assumptions on this S-curve progression, whether they hold still true or whether we need to update our midterm guidance. At the same time, it is very clear that we continue to see the -- and see no reason to update or change the long-term prospect of the product.

The next question comes from Ed White at H.C. Wainwright.

I didn't hear any update on VLA2112 for Epstein-Barr virus. I was just wondering if you can give us an update of where you are in development there and your thoughts moving forward.

Yes. So, good question. I mean, we provided an update on our EBV activities at the Investor Day in New York. It's our leading program in preclinical today. We are currently evaluating in vivo, in vitro different antigen compositions. And we are expecting to conclude on the, let's say, the lead vaccine design next year based on all those experiments with the objective to really build what we call a differentiated EBV vaccine. We hope to learn also from others because there are a couple of data readouts expected from other companies working on EBV with either a more traditional gp350 approach, but also an approach that includes another antigen. And so all of that is working according to plan and going according to plan with our expected clinical entry as we suggested or as we presented in 2027. Of course, there's always a point for us to accelerate clinical entry. So we would like to be ready for clinical entry probably towards the latter part of 2026, mid- to end 2026 and then decide, subject to capital capacity at the time, when actually to start the clinical entry.

Okay. And perhaps a question for Peter. You had mentioned that R&D expenses were up due to the transfer costs to Scotland. I'm just wondering if these transfer costs will continue into the fourth quarter and into 2025 or if they're behind us now.

Yes. This will still continue into 2025 and then basically end early '26. So we will first transfer the IXIARO vaccine over to Almeida and then followed by IXCHIQ.

The next question comes from Rajan Sharma at Goldman Sachs.

I've got a couple, one on margins and one on IXCHIQ. Just on IXCHIQ, I know you've kind of discussed it a little bit on the call, but could you just kind of help us understand what's changed from the Capital Markets Day in October when you sort of reiterated that midterm guidance? Has there anything kind of materially changed since then? Or is it just kind of your latest view on trends, particularly in the U.S.? And then maybe one for Peter on gross margins. Could you just discuss those idle costs that you highlighted and how that evolves through this year and into next year and to what extent that kind of continues to be a factor on margins? And then I think you said around 59% gross margin on IXIARO. Do you think that remains stable from here? So let me start with the first question on the IXCHIQ prospects. I would say, at this point in time, we are -- as I reported or as Dipal also presented at the Investor Day, we have -- we are monitoring month-to-month the -- certain performance indicators that could be predictive for uptake. And this includes order, this includes reorder. But we were expecting, I would say, a steeper uptake towards the latter part of the year as compared to what we are seeing right now. And that's probably -- and this is indicative. This is not definitive. And therefore, we have kind of said at this point in time, the uptake is slower than anticipated. And that's why we have to continue monitoring the situation throughout the first half of next year. And then only then we will have an informed basis and can take an informed decision as to whether our midterm expectation from this product is still right at about EUR 100 million or not. And as I mentioned during the call earlier, we have the Canada launch that very, very recently started. We have Europe getting on stream with France as the identified and prioritized first country. And we should not underestimate the significant demand that we are expecting from LMIC countries for which we have, at this point in time, some visibility, but still rather limited visibility. And all of that is expected to help us taking an informed decision on midterm guidance for the product around mid next year.

And so to your question on gross margin, Rajan, so first on the IXIARO gross margin. So when you look at our half year results and you look at our Q3 result now, our year-over-year -- our full year gross margin for IXIARO improved by more than 1 percentage point, which shows you the direction this goes into. So we gradually improved the margin every quarter and we continue this trend to -- we expect this trend to continue. As you know, we experienced some issues with -- in manufacturing and we lost a batch in Q1. And so this is now behind us. And what we also see is actually yield is increasing compared to what we saw in prior years. When we go to idle cost, you know we have our new beautiful manufacturing site in Scotland where, as we just said before, we're gradually transferring over now manufacturing first of IXIARO and then followed by IXCHIQ. And so we do see idle costs going down over the time, of course, as we transfer over to the new site.

Yes. And maybe to add on and complement what Peter just said, we are -- and this goes back to a question that Ed raised earlier. So we expect all those transfer activities and transition activities to continue well over the course of 2025. And then when we come into 2026, we will have a situation where everything will be in our brand-new large-scale manufacturing facility. And basically, the old facility will not be needed anymore at that point in time. And that's a unique opportunity for us because then we have -- we are really set also from a manufacturing standpoint for the long-term future and in a setting that allows even the gross margin to further improve.

Okay. And maybe, Peter, if I could just follow up on the one point on IXIARO. So it sounds like you expect kind of continued gross margin increase from here. Is that fair? And in that case, is it likely to be linear?

Well, it will increase. Whether it will be totally linear, I can't comment, of course. But like we said in the past, we expect IXIARO margin to continue to improve and over time to get back to where we were pre-COVID.

The next question comes from Samir Devani at Rx Securities.

I think I just got a couple on the numbers. I think you mentioned that you're hoping that the commercial business will be cash generative next year. And I guess I'm trying to understand how much of your G&A spend is attributable to the commercial business. So maybe if you can give us a bit of color on that. And then the second question is just on you've outlined a plan for the Shigella development and Phase III starting in 2027. I was just wondering if you could let us know how much is the cost of that Phase III development program.

Yes. So let me take the question on commercial business cash generative and then the G&A cost. So we try to keep it relatively simple. And the way we look at our G&A cost is we allocate about 40% on to commercial. And that's how we determine the profitability then. And then second question, Thomas?

You asked a question about -- if I understood you correctly, you are talking about the entire Phase III program for Shigella, correct?

That's right.

So both -- all the Phase III programs and trials together. Is this what you had in mind?

That's right, Thomas. I guess I'm asking in the context of you've indicated sustainable profitability from 2027.

Yes.

So in light of that, I guess.

Absolutely. Absolutely. So now if we look at the -- so what is our current working hypothesis? Our current working hypothesis is that we will have the 2 Phase III -- Phase III CHIM study, a Phase III immunogenicity and safety study and we will have a Phase III field efficacy study in infants. So whether they will be initiated all 3 in parallel, whether there will be a sequence, whether there will be a staggered approach, it all will depend on the, I would say, the situation coming out of the Phase II CHIM studies. The further assumption that we are currently taking is that the Phase III study in -- the field efficacy study in infants will be fully funded by a public institution and -- so that we will, as Valneva, pay for the respective Phase III studies. We have, at this point in time, a rough, rough ballpark estimate. But since we have not agreed the detailed trial design with the authorities, I do not feel comfortable giving a number at this point in time. What I can assure you is, we will manage and stagger all of those activities in a way that we are fully committing and reconfirming that in the success state of Lyme, this company will be sustainably profitable from 2027 onwards.

There are no further questions. So I'll hand back for closing remarks.

Thank you so much for your great questions, as usual. Thank you for your time. Thank you for following us and we wish you all a wonderful remainder of the day. Bye.

That concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.