Bavarian Nordic A/S

CSE:BAVA

Earnings Call Transcript 2021-Q1

[Operator]

Good day and thank you for standing by. Welcome to first quarterly report for the 3-month period ended 31st March 2021 conference call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would like to hand the conference over to first speaker today, Rolf Sørensen. Please go ahead, sir.

[Rolf Sass Sørensen]

Yes. Thank you, operator, and good morning to some and good afternoon to the rest. Before we start the presentation that will be conducted by President and CEO, Paul Chaplin, and Executive Vice President and CFO, Henrik Juuel, I would like to read the following statements in our disclaimer. This presentation includes forward-looking statements that involve risks, uncertainties and other factors, many of which are outside our control that could cause actual results to differ from the results discussed. Forward-looking statements include statements regarding our short-term objectives and opportunities, financial expectations for the full year and financial preparedness as of year-end as well as statements concerning plans, objectives, goals, future events, performance and/or other information that is not historical information. All such forward-looking statements are expressly qualified by these cautionary statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect subsequent events or circumstances after the date made except as required by law. And with this, I will hand it over to you, Paul.

[Paul Chaplin, CEO & President]

Yes. Thank you, Rolf, and welcome, everyone, to our Q1 update. So if you go to Slide 3. Bavarian Nordic is a fully integrated vaccine company. And the beginning of last year, we set ourselves a new vision to become one of the largest pure-play vaccine companies by '25. And within just 1 year, we have really made huge progress towards that vision and in the execution of our strategy. So we've greatly expanded in -- with the number of employees to more than 700 currently, and that's to help produce, distribute and sell our commercial portfolio of vaccines, where we have currently 4 products around the world. We have built up the commercial infrastructure in key markets, which allows us to sell and distribute these products. And importantly, we are continuing to expand and build on our expertise of commercial manufacturing here in Denmark. Added to that, we have a rather exciting R&D pipeline with 2 near-term assets. We have an RSV late-stage program that's currently in a human challenge study with data coming later this year. And we have a COVID-19 vaccine which we're developing as a universal boost to vaccine, hopefully providing a more durable and broader protection than the current first wave of vaccines. So really some exciting times and data points coming in the next few months. And added with all of that, we have our strong ambition to remain a profitable company and using those profits to develop more products in the pipeline, which will add later to our commercial portfolio. So if you'll turn to Slide 4. As I've just said, we have a vision to become one of the largest pure-play vaccine companies. But we also recognize the importance of protecting and taking care of the world around us and to act in a responsible way in all matters. Being a vaccine company, however, we're ideally positioned to play an important role in ESG. Vaccines have become extremely topical in the last few months due to COVID-19 with the rollout, and it's clear that vaccines are the really only hope we have of the world coming out of lockdowns and getting back to normal. However, vaccines have played an important role for more than the last 200 years and have really improved the world's health. And as you can see from the quote from Gavi, 14 of the 17 strategic goals can be achieved through vaccines. So as I said, we are very well positioned to play an important role. And obviously, our investors and stakeholders, hopefully, will join us in that journey. If you would like more information on our work on ESG, you can see that in the CSR report, which is available on our website. Turning to Slide 5. We've had an extremely busy and productive Q1. While we still face some rather strong headwinds for our rabies franchise due to COVID and the travel restrictions, and I'm sure Henrik will come to that in the coming slides, we are seeing some signs of stability on tick-borne encephalitis despite Covid. Similar to last year, our smallpox contracts both in -- with the U.S. but also with the new orders from EU countries have allowed us to record larger revenues in Q1. And that leaves us with the confidence that we maintain our full year guidance that we set a few weeks ago. You have heard the news this morning, and I'll come back to that in the coming slides, that we're expanding our portfolio of commercial products in Germany with a collaboration to market and distribute Dynavax's innovative hep B vaccine. And I'll come back to that in the later slides, but that is a very exciting development considering that we've only set up our commercial enterprise in Germany 9 months ago. If we look at some of the orders, as I said, it's interesting that we're starting to see an expansion of orders outside of the U.S. for JYNNEOS, our smallpox vaccine, both in Europe and also in Canada. And as I've said, that's allowed us to record slightly higher revenues in Q1, and Canada will probably be revenue recognized next year. The U.S. government continues to honor its options of the order that was placed a few years ago with another $12 million exercise of an option. And on Ebola, we've seen some exciting news where, together with our partner, Janssen, we're going to manufacture additional doses, which will help be distributed and help with the current outbreak in Central and Western Africa. And we've also announced the news that our vaccine is [indiscernible] prequalified, which will allow an easy distribution of these vaccines in areas that are desperately needing an Ebola vaccine in the current outbreak. On R&D, and I'll come back to this in the coming slides, we've probably seen the best preclinical data of any COVID-19 vaccine candidate, and I'll walk you through that. The Phase I data from our partners with AdaptVac and Expres2ion and the EU consortium is confirming -- the early data is confirming that very strong preclinical data, and we're about to initiate a Phase II study, which I'll come back to. And on RSV, as I said, we're halfway through a human challenge study, where we'll be reporting data from that exciting study later this year. So if we turn to Slide 6. As said this morning, we made an important announcement that we've come to an agreement with Dynavax, where we will market and distribute their highly innovative 2-dose vaccine against hepatitis B, HEPLISAV B, and that will be launched in Germany later this year. This will break the current EU monopoly, which is currently valued at about EUR 27 million annually. And as you'll see on the right part of that slide, this next year, we'll add to a very strong portfolio of commercial assets that we'll have in the largest EU market. And as I said, if you just go back 9 months, we had no commercial presence in Germany. And within that 9-month period, we're very proud to announce that Dynavax has approached Bavarian Nordic as the ideal company to distribute and market their innovative vaccine, which has an advantage over the current vaccine in that it's a 2-shot vaccine, providing a very strong efficacy within 4 months -- within 1 month, sorry, compared to the 3-shot regime that's currently been around for a number of years that takes 6 months to complete. And as I said, this will add to a very strong portfolio we already have in the largest EU market. Turning to Slide 7. So COVID-19, and one of the questions I often get is, aren't you a little late? And why are you developing a COVID vaccine when most of the world, particularly in Europe and the U.S., is already vaccinated or will be shortly? Well, there's a couple of issues with the first-wave vaccines. Thank [indiscernible] (20:26) here, and we can all get protected from COVID-19. However, the durability and the breadth of protection that they provide is a little unclear. So we don't know how long they last or whether they truly protect against some of the more serious variants that are emerging. And I'll come back to that in the coming slides. It is unlikely, well, most people in the community believe that COVID-19 can be eliminated through vaccination. And it's likely, just like other infectious diseases, that we'll have to manage the burden of disease through vaccination and frequent or additional boosters are going to be required. Obviously, the bottlenecks that we've experienced in the last 6 months have highlighted the need that more vaccines are required -- more vaccine manufacturers are required to meet the current demand. And lastly, the first wave of vaccines, there's a lot of question marks whether they are really truly suitable as booster vaccines. Two of the first-wave vaccines are based on an adenoviral vaccine platform. It is known from the literature that they suffer from preexisting immunity generated to the viral vector itself, which may make frequent boosting difficult or impossible or certainly reduce their efficacy. And with RNA, there is now growing concerns that there are quite some grade 3 systemic adverse reactions that are increasing with additional boosters. So some data that Moderna had published, the grade 3 AEs or adverse reactions, systemic adverse reactions, were at 2.7% in the first vaccination, coming up to 9.7% after the second. And in their booster study which they've reported, it's almost 15%, nearly increasing shot after shot after shot. And that raises the question: is this platform really the ideal platform for regular boosters? So from our position, with everything I've just said, there is room and a need for improved vaccines both from a safety perspective, a durability perspective and a breadth of protection perspective. If we go to Slide 8. As I said, we've probably published some of the strongest preclinical data for any COVID-19 vaccine, and I will go through that in the next slide. Our platform, which is based on a VLP, or viral-like particle, platform is relatively easy to produce and/or adapt should there be a need to adapt the vaccine for new variants, should there be further mutations beyond what we're already seeing. And as I said, were -- our partners and the EU consortium are already in Phase I, where we're beginning to see some data confirming the preclinical data. And within a matter of weeks, we'll be starting a Phase II study while we're also, in parallel, gearing up production to potentially start a Phase III should we be able to secure funding in the coming weeks and months. So if we turn to Slide 9. I keep talking about the best preclinical data. So let's talk about it. On the left-hand side is the neutralizing titers that are induced in primates following 2 shots of a nonadjuvanted ABNCoV2, which is our COVID-19 vaccine candidate. Now it's known from the literature that the level of neutralizing antibodies is predictive of the final efficacy that you may see in the clinic, and that is by comparing to convalescent human sera. And many publications are saying that your clinical efficacy should be greater than 80% if you have a ratio of 1 or greater to the human convalescent sera. You can see in primates we have a 50-fold higher neutralizing titers with our vaccination compared to the high convalescent sera, which bodes well to predicting a high efficacy in the clinic, which, of course, still needs to be tested. In these animals, there was complete protection following a challenge with SARS-CoV2 which, again, bodes well for strong efficacy in the clinic.On the right-hand side is some additional neutralizing data where we've looked at the sera from the primates and their ability to neutralize new variants, or some of them are quite old variants. So Wuhan is the main strain that obviously emerged from China and is equivalent to the data on the left-hand side of the graph. The middle is the British variant, which, as you know, was shown to be more infectious in the U.K. And on the far last column is the South African variant, which is causing issues around the world. And what we see is that we see exactly the same neutralizing titers, 50x higher than human convalescent sera, and no difference between the variants and the Wuhan strain. This is not the same data that others have published for current approved vaccines. For example, in the publication, the Pfizer BioNTech data shows that there's almost a threefold lower neutralizing titer against the South African variant. The Janssen vaccine actually reported 74%, if I'm correct, efficacy in the U.S., which is primarily, at that time, Wuhan, and only a 57% efficacy in South Africa. So again, a reduced efficacy probably associated with a low neutralizing titer. So these data really bode well that our vaccine, by generating such high neutralizing titers, is going to give a broader protection against the current circulating variants than the existing approved vaccines. Slide 10. So as I said, with a Phase I data -- Phase I trial ongoing sponsored by our partners and the EU consortium, they've already reported preliminary data showing that the vaccine is extremely well tolerated, particularly in its nonadjuvanted form and induces high levels of neutralizing antibodies, again supporting the preclinical data that I've just shown.In June, just a few weeks away, we'll be initiating a Phase II study, which is shown in the bottom half of this slide. It will be essentially 2 groups. One group will be seronegative, i.e., not previously vaccinated or infected, and they will be receiving a primary vaccination regime of 2 vaccinations 4 weeks apart. And group 2 will all be seropositive, so previously vaccinated, and these will receive a single booster with our ABNCoV2 candidate, which is how we believe we'll be developing the vaccine primarily in Europe and the U.S. And this will lead to data that we will be reporting mid of this year. Some changing tracks a little bit, moving to Slide 11, talking a little bit about RSV. As you are all probably aware, we announced at the end of last year we will be delayed in the initiation of a Phase III due to the low infection rates of RSV caused by the shutdowns and the social distancing and all the other measures associated with COVID-19. We are, however, doing a human challenge, which is currently being conducted, and we will be able to report the data from this study later this year. That will hopefully give us added confidence that we are truly looking at a highly efficacious vaccine. And that will, hopefully, allow us to initiate a Phase III study next year. So on Slide 12, we've been investing quite heavily in our manufacturing plant, adding a fill/finish capability, state-of-the-art fill/finish manufacturing, which is now complete. We are actually in the process of transferring a number of products to the line. The liquid-frozen formulation of JYNNEOS is very advanced, and we should be validating that process in the coming weeks. We've already initiated the first engineering runs also for the freeze-dried version of JYNNEOS. And I'm pleased to announce that we've also initiated the first engineering runs for Rabipur, really indicating that our tech transfer activity from GSK remain completely on track. In addition to that, we're expanding our bulk facility to allow us to produce the bulk of Rabipur and support. That is going extremely well, on track, on budget. And later this year, we will be shutting down our bulk facility as we start to reconnect both the expansion part that is ongoing right now with the existing Building 1, as we call it, where we've currently been manufacturing our smallpox vaccine. So as planned, there will be a shutdown of the bulk manufacturing. But as I said, that's all part of the plans. And when we finish all this work, we truly believe we're creating a center of excellence for vaccine manufacturing based on [indiscernible]. So as I said, a highly productive Q1, a lot happening, and there'll be a lot more news flow coming in the coming months. So with that, I will hand over the presentation to Henrik.

[Henrik Juuel, CFO & Executive VP]

Thank you very much, Paul. So on Slide 13, we will start the presentation of the financial results. But before we move into the hardcore financial numbers, let's have a look at the performance and the market development for our 2 vaccines, the rabies or Rabipur/RabAvert and our TBE vaccine, Encepur. In these markets, and on Slide 13, it's all about our rabies business. As we have preached many times now, I think when we look at the rabies market, I think we have to distinguish between the U.S. market and the German market as they are very different markets. And if we start with the German market, which is at the bottom of the slide to the left, you will see that the German market has, since first quarter of 2020, declined by more than 90%. This is due to the fact that the German market is nearly 100% a pre-exposure market, meaning a traveler's market. Rabies is not endemic in Germany, so the market here is really a traveler's market where people vaccinate when they go to all the relevant countries. So the situation is that there is nearly nothing left in the German market at the moment. And we are, of course, awaiting travel patterns returning to normality, and then we expect the market to come back full force again. And I think what's worth mentioning here is that when we are comparing to the first quarter 2020, we are comparing to a period just before the COVID-19 situation really started last year. So 91% down at the German market and which is a good proxy for other European rabies markets, unfortunately. If you look at the U.S. market, this is a very different story as the U.S. market consists of both post-exposure and the pre-exposure market as rabies is endemic in the U.S. market, which makes it a much more resilient market to the COVID-19 situation. However, that said, we are still seeing a decline in the U.S. with the market being down 21% first quarter this year compared to prior year. So how have we performed under these conditions? We can see that to the right side of the slide here, we delivered total revenue of DKK 80 million for the first quarter against DKK 218 million last year, so a decline of 63% explained primarily by the COVID-19 impact but also by the fact that last year, the first quarter, before COVID broke out, we had an extremely strong first quarter as we also faced a situation with our competitors being out of stock and, adding to that also, wholesalers stocking up to ensure that safety is delivered into the market. So we are comparing against a very strong first quarter, but we're also feeling the impact of the pre-exposure segment. Both U.S. and Europe have been significantly down. I think the good -- key message to take away here is that our market share is still performing well. We have in the U.S. today approximately 73% of the market. We did lose some percentage points as our competitor came back in the fourth quarter last year, but that was fully expected naturally. But we are happy to say today that even today, we are 5 to 6 percentage points higher than the average share in '19 before we took over the responsibility of this rabies business. So a strong position, and we are well positioned to grab the market when it comes back and travel resumes again. On Slide 14, let's have a look at the TBE, tick-borne encephalitis, market, which is a pure European business. And here, we have shown the German market as an example for how things are looking in Europe. We do not yet have the full consolidated market days for all of Europe. But the indications we get, that the total market in Europe is down in the first quarter compared to last year due to COVID but actually with Germany being the exception. We have seen in the first quarter of '21 an 8% -- nearly an 8% growth compared to the same quarter last year, which is a good sign that things are returning to some more normal situations in the German market. The TBE -- demand for TBE vaccines as such should not at all be impacted by the COVID-19 situation. But of course, the access to your physicians, et cetera, has to impact the total market. But with an 8% growth right now, I think that is a good sign for the current vaccination season. If we look to the right, you will see our numbers. We delivered revenue of DKK 98 million for the first quarter against DKK 103 million last year, so 5% down. This is caused by the total combined European market being somewhat down, Germany being the exception, of course. And then it is also due to some inventory movements at the wholesalers. And again, key good takeaway here is that we have actually, since we took over, gained market share with our TBE business. In Germany, I think we have gained year-to-date this year 0.3 percentage point market share. So again, very well positioned to grab the market when it comes back in Europe. And hopefully, I think what we're seeing in the first quarter is Germany leading the way. Next slide, 15, shows our profit and loss for the first quarter where we delivered a strong top line with DKK 535 million of revenue driven by strong smallpox revenue. DKK 336 million was coming out of the smallpox business, as you can see, the donut chart to the right. DKK 246 million of that was revenue from product BDS batches delivered to BARDA as part of the $202 million order that we got last year. And the other part, DKK 90 million, is related to the 3 European countries to whom we have supplied smallpox vaccines as well. This is a little more than the EUR 11 million that we announced previously and simply due to kind of somewhat better pricing terms. You can see the 2 products we already talked about: Encepur coming in, the DKK 98 million in revenue; and Rabipur, DKK 80 million in revenue; and finally, a small piece of contract work coming from BARDA funding of our Phase III study and qualification of some of the work going on with our fill and finish facility. Production costs came in at DKK 377 million, which gave us gross profit of DKK 158 million. R&D added up to DKK 122 million, nearly twice as high as the level we saw in first quarter of 2020 and driven by RSV in the first quarter here. We had during the first quarter manufactured all the materials that we will need for a planned Phase III trial for RSV, and we have also started the human challenge one. So quite a lot of money have actually been spent on the RSV projects. The -- this RSV manufacturing has actually also impacted our production cost for the first quarter as we are using our commercial facilities also to produce clinical material. And of course, we allocate costs to those R&D projects, and a lot of that has gone into the R&D line. But we are not allocating this on 100% basis, meaning there is some infrastructure costs, et cetera, which is not being absorbed by commercial products when you manufacture for R&D. So there is also a negative impact on production costs for the first quarter due to the manufacturing of the RSV material. SG&A costs came in at DKK 124 million, more or less at the same level as we saw in the first quarter of 2020 but with several moving parts on the [ lease ], that we have seen, for instance, on distribution, a significant saving as we had moved away from the GSK distribution network and now have started this on our own. On the other hand, we also have a, particularly on admin, relatively low level of admin cost in first quarter of 2020 as we were only starting up or ramping up the integration project for the Encepur/Rabipur products' integrations. But all in all, adding that together, SG&A costs slightly below the level we saw in prior year. All of this together gives us an EBIT for the first quarter of the minus DKK 88 million. And deducting depreciation, amortization or adding leaseback gives us an EBITDA for the quarter of DKK 1 million. And I think with this situation, again strong revenue driven by our smallpox business this time. We had gross profit and OpEx impacted by the RSV and manufacturing of Phase III material in particular. We still have a positive EBITDA. And with this, I think we are in a position where we can maintain our revenue and EBITDA targets. Turning to Slide 16, quick update on our cash flow and balance sheet. If we look at the cash flow, table to the left then, we delivered a net cash flow for the period of minus DKK 43 million. This was, of course, driven by our negative net profit for the period and -- but strongly supported by the proceeds from the private placement that we did, raising approximately DKK 1.1 billion. And then cash flow from investment activities reduced our core -- cash flow for the period by nearly DKK 1.1 billion. Most of that was really related to placing of the liquidity in securities, but also some of it, approximately DKK 100 million, was related to the continued investments in our property and continued investments in our tech transfer plans. To the right, just a few selected balance sheet figures. I would just mention the equity here. We have seen an increase to now nearly DKK 6 billion and, of course, positively impacted by the recent private placement we did. And then I think after the quarter and after this private placement, we had a very, very strong cash position of nearly DKK 2.6 billion, allowing us the flexibility to move ahead with our strategy and honor our obligations to GSK during the next periods. So with this numbers -- or this slide here, happy to say again that we can also maintain our cash guidance for the full year. On the next slide, to the left, we have an overview of our 2021 financial outlook and guidance. And as I said, we are maintaining this guidance on all aspects, both on the top line, where we are guiding a level of DKK 1.9 billion to DKK 2.2 billion and EBITDA of DKK 100 million to DKK 250 million and a cash position of between DKK 1.4 billion and DKK 1.6 billion. We are still seeing some uncertainties in the market, and we haven't seen the reopening as we had hoped for earlier this year. So therefore, we still stick to this way of guiding, well, using intervals. But of course, we do hope that we get some more clarity on the market situation for the rest of this year, during the next quarter here, so that we can come out with hopefully a more precise guidance in connection with our Q2 report later. And as we have said previously, I think, of course, the low end of the guidance really reflects a delayed reopening, whereas the upper end really reflects that we should see the reopening happening now basically and with an effect that could mean already some traveling starting to occur later this year. We've also previously said that the smallpox and Ebola business are not expected to be impacted by COVID-19. That's still the case. But as you will have seen, we did announce the addition of an Ebola order, USD 28 million. Recently, we announced that and we stated that there would be no impact on our guidance from this as we had to agree with our customers to defer delivery of some of their products into next year. Finally, on the right-hand side of this slide here, just a brief overview of what are the key activities and priorities for the remaining part of '21. Within R&D, I think it is, of course -- we have some very exciting period ahead of us in terms of the human challenge trial, where we expect to have readout in September. We will continue to prepare ourselves for an initiation of a Phase III trial next year on RSV but of course also continue to be monitoring the market to see what is the prevalence of RSV and how feasible do we assess that it is to conduct such a Phase III given the COVID situation. And then, of course, also, a lot of resources are put behind our COVID-19 vaccine candidate, which we are -- as Paul said, we are accelerating into Phase II within a couple of weeks. And in parallel to that, we are working to scale up manufacturing so that we can produce volumes at Phase III levels. And then I think finally on R&D, I can mention also that we are continuing to work with our new construct takeback. Intravenous administration of brachyury will continue throughout this year. And then on the commercial side, of course this is still to continue to drive the profitable growth. And the key activity will be to take over the remaining countries in terms of marketing authorizations and distribution. We are nearly there, and I actually expect that by the end of June, we have taken over all markets. One activity that we can now add to the list on commercial is, of course, now we know we have HEPLISAV on board from Dynavax, and a key activity will be to launch -- have a successful launch for this product in the fourth quarter this year. On the manufacturing side, the fill and finish facility is up and running, construction complete, qualification nearly complete. This year, we will pass a very important milestone as we will fill the first commercial vaccine on the line. And then, of course, on manufacturing, I think it's all about staying on the right path and complete the construction that we need, the amendments we need to the bulk facility to transfer manufacturing of the rabies and TBE products, and then, of course, continue to stay on plan on the tech transfer of these products as well. So with that, I will give the word back to the operator for question and answers, please.

[Operator]

[Operator Instructions] Sir, your first question comes from the line of Michael Novod from Nordea Equities.

[Michael Novod]

It's Michael from Nordea in Copenhagen. So 3 questions, please. First of all, the preliminary data you've seen out of the first phase -- Phase I trial with ABNCoV2, can you probably detail a bit more on that? Is it for the low-dose cohorts? I would assume it is. And just maybe try to explain what you're actually seeing in terms of neutralizing antibodies. And then secondly, I know it's very difficult to comment on these sort of funding discussions. But is it still the belief that the most likely funding will -- should come from government funding? Or do you also still pursue other avenues regarding funding for ABNCoV2? And then lastly on the manufacturing temporary shutdown you're doing according to plan. Maybe if you could just talk a bit about sort of the structure of this, whether it will have any implications, whether you are sort of manufacturing in advance to meet demand, et cetera, just to get a bit more light on the potential impact from this.

[Paul Chaplin, CEO & President]

Yes. Thanks, Michael. So yes, the preliminary data from the Phase 1 is -- we're using the lower doses. So -- and if you'll remember, our partners are looking at both nonadjuvanted and adjuvanted vaccine. The main conclusions from the study, apart from the fact it's well tolerated, is that the tolerability is better with nonadjuvanted, which is exactly what you'd expect, not that it's bad with the adjuvant, but it has improved without the adjuvant. And lastly, in terms of the immune response, it's kind of in line with what we're seeing from preclinical. So we're seeing superior titers compared to human convalescence sera even at the very low doses. And the dose that we're going to move forward with is much higher, so they're now moving to the slightly higher doses in that trial. So really, really encouraging. I mean it looks pretty good. In terms of funding I think at this stage, it's safe to say that we are following a number of different tracks still. So of course, there is the -- what's out there in public in terms of the open discussions that we were having in parallel with the Danish government. That's public, so I can mention that. We're also looking at our funding, CEPI and whatever, but that's more early stages. So I think nothing has really changed since the last time we talked. We're talking to governments, and we're looking for funding from the usual sources. And in terms of manufacturing, our main goal right now is to scale up and manufacture to supply Phase III. We are, however, beginning to prepare for commercial production. But again, as we've said before, the commercial production piece really requires additional funding also for the Phase III. So of course, we're not sitting on our hands doing nothing until we get funding, but the bulk of that activity really needs to wait for funding.

[Henrik Juuel, CFO & Executive VP]

Yes. And then Michael, I think you had a question on the announced manufacturing shutdown as well. Maybe I can take that one.

[Michael Novod]

Yes. Exactly.

[Henrik Juuel, CFO & Executive VP]

This is a planned shutdown, but something we wanted to highlight here as well because, of course, it has implications. But as it is long planned, I think we have also planned the manufacturing schedules around it. For instance, we now manufacture all the Ebola assets that we need to deliver under the latest order through Janssen. We managed to get all the RSV material, Phase III material, manufactured before we do this plant shutdown. So it's simply a necessary thing to do to connect the 2 new buildings or the new building to the old one once the new one has been constructed. But of course, it is something that you don't want to drag on for too long. It does impact your flexibility to manufacture bulk on -- in this facility, and it does impact your financials when you're not manufacturing commercial products in this facility. But as I said, it's all planned and it's factored into our guidance for this year, so there's no additional impact. But -- and I think one thing that will help us offset a negative impact of having sort of idle capacity in some quarters will be that we are actually -- for the first time this year, we are going to use our fill and finish facility for commercial manufacturing. So you can see there we start having the opposite situation for the first time actually, using one of our facilities for commercial use.

[Operator]

Sir, your next question comes from the line of Boris Peaker from Cowen.

[Boris Peaker, MD & Senior Research Analyst]

Great. My first question is on the COVID vaccine. What's the development time line from today until approval? I'm just curious, what data do you need to see in order to decide to make a Phase III investment?

[Paul Chaplin, CEO & President]

Yes. So as I said, Phase III starts in a few weeks, initial data readout in August. Again, if we just ignore the whole funding piece we've been talking about, we would be in a position to start Phase III for the end of this year. And again, if the regulators are still supporting accelerated reviews, we could see an approval mid of next year.

[Boris Peaker, MD & Senior Research Analyst]

Got you. And maybe my second question is on the RSV. I'm just curious if we could set expectations for the human challenge study specifically in terms of data that you need to see in order to move forward. And also, you outlined a time line starting an RSV study in 2022. I'm just curious, with probably a lot of people still working from home and wearing masks, I mean, what do you need to see socially from social interaction to decide that 2022 is a good year to do an RSV study?

[Paul Chaplin, CEO & President]

Yes. So first of all, the challenge component. So in the challenge study, we're obviously treating or vaccinating subjects either with our vaccine or with placebo, and then they will be challenged with RSV. And there'll be tracks for a number of -- for a period post challenge. And we're really looking for a significant reduction in the viral load in the blood. As you know, these are healthy individuals. And even in the placebo group, they will eventually clear the RSV. So you're really looking for a delta or a difference between the vaccinated arm and the placebo arm. We haven't publicly said what the threshold is that we're looking for, but I have publicly said before if we don't see an effect, then obviously the program is not going to move forward. In terms of the trigger to start a Phase III, it's a very good question. We are tracking the incident rates of RSV, and they remain extremely low. I don't know whether you saw GSK has announced they're initiating a Phase III, and they updated their protocol from 18,000 subjects. I think it's to 25,000 subjects just last week. My speculation on that is probably, that's due to low rates of RSV. So I think our decision not to move ahead this year has been endorsed as being far too risky, but we are monitoring it. But it's a bit like -- exactly the same situation last year. We were monitoring it, but at some point, we had to make a decision: are we going or not going? But we'd certainly need to see the rates of RSV rise to more normal levels that we saw before the pandemic.

[Operator]

Sir, your next question comes from the line of Peter Welford from Jefferies.

[Peter James Welford]

I've got a few. Firstly, just sticking on COVID-19. I'm curious there. When you say for the Phase II study that you're planning that's the roughly -- I think part of them the seronegative and part of them the seropositive. Are the seronegative subjects, subjects who have had a vaccine or an infection and test negative at a certain time post that event and, therefore, due to an underlying condition, I guess, or due to time? Or are they actually patients who have not yet been infected or not yet been vaccinated? And then also, if you can just outline what the endpoint is, please, for the Phase II study that you're looking at. Secondly then, just with regards to Japanese Encephalitis and cholera. Appreciate you've yet to transfer them into you, but I wondered if you could give us some idea of what you think the German market opportunity is currently for those [ FPAs ] from Valneva. And then finally, just on J&J. I'm just curious if you can give us any update at all on the status of any of the J&J collaboration vaccines, whether or not there's any news we can expect on those or any other progress you can report.

[Paul Chaplin, CEO & President]

Yes. Thanks, Peter. So on the COVID Phase II, the seronegative arm currently is planned to be truly seronegative. So previously not vaccinated or infected. So that's the group we're going for. And on the seropositive, obviously people who have a proven vaccination and the fact that they actually have antibodies. And clearly, timing is important here. I kind of get the question. That's why we're starting in a few weeks. And we'll be conducting that study in both the Netherlands and Germany, and we believe it is doable to identify those subjects.

[Peter James Welford]

And so, just to be clear, when you -- presumably, you'll test some of these patients for antibodies at the start? Because obviously, there's going to be some potentially asymptomatic, and I guess I'm just thinking it's going to be increasingly difficult to necessarily know as well who's had a prior infection.

[Paul Chaplin, CEO & President]

They will be screened and tested, yes. But I guess it's only those people who had a nonsymptomatic infection and wouldn't know that they're being infected. But as I said, there are quite actually a few of those. So yes, they will be screened and they need to be negative serologically for SARS-CoV2. Okay, is there any questions?

[Peter James Welford]

Great. I'm sorry, the endpoint?

[Paul Chaplin, CEO & President]

Oh. Yes, sorry. So obviously, safety is an important endpoint always, but the other endpoint is really looking for a significant increase in the neutralizing antibody titers.

[Peter James Welford]

That's great. And then, yes, Japanese Encephalitis, cholera and J&J, please?

[Paul Chaplin, CEO & President]

I'll take J&J first. So on J&J, unfortunately, the other collaborative programs that we have, they have been impacted by COVID. So the trials are either put on hold or have been delayed in their initiation simply because it's just too difficult to recruit right now. So on the other programs, we're not expecting any news flow in the near term.

[Henrik Juuel, CFO & Executive VP]

Yes. On the 2 other products, Japanese Encephalitis and the cholera product, I think we haven't guided any specific things relating to our expectations for these products. But I think what we can say is that we are taking over these products in our markets from 1st of January '22. And obviously, I think they are, to a large extent, traveler's vaccines. So that means they are negatively impacted as we speak here. So hopefully, you can say we can put COVID-19 behind us and the market is back from next year when we actually take over the marketing and distribution responsibility in Germany for these products. But as we get closer to that, I think we will come back and -- to make sure that the -- you're better equipped for the expectations on these products as well.

[Peter James Welford]

Sorry, is it reasonable to assume presumably -- should we think of these products and HEPLISAV as largely being a way to cover the cost of your sales force rather than perhaps look at them as being a profit generator, so to speak, if that makes sense?

[Henrik Juuel, CFO & Executive VP]

No. I think definitely, I think we'll be adding these 3 products now to our existing infrastructure, and we're really leveraging the investments we have done there. So it's not something that will turn our P&L upside down, clearly not, but it is going to help us to cover that cost, and it will also make positive contributions to our bottom line for these products. So I think it's good way of leveraging, you can say, some untapped synergies that we are sitting on with a full commercial infrastructure and only 2 products in the back so far in Germany.

[Operator]

[Operator Instructions] And we got another question. It comes from the line of Jesper Ilsoe from Carnegie.

[Jesper Ilsoe, Research Analyst]

A question on the COVID-19 vaccine development as well. So you have Phase I/II and Phase II data coming up. So besides safety data, what will you look at when you see -- can you hear me?

[Paul Chaplin, CEO & President]

Yes, we can hear you.

[Jesper Ilsoe, Research Analyst]

Okay. There was some disturbance on the line. So what will you look at in a Phase I/II data as we read across into your own Phase II data, also considering that you would do Phase II with a higher dose versus the Phase I/II and the limitation you see in that Phase I/II study? And how certain is it that your vaccine can be a one-shot, also considering the much better neutralizing antibody titers preclinically with 2 shots versus one shot? And then tied to that, what is the most important factor in the datasets when thinking about Phase III funding discussions, possibilities? I.e., what are these, say, organizations, governments really looking at to make your vaccine stand out? And perhaps you can also touch upon the data you saw from Medicago and GSK as you read across into your own vaccine and how you see the VLP-based competition in COVID-19.

[Paul Chaplin, CEO & President]

Yes. Let me see if I remember all those questions, and there's a few there. So this ongoing Phase I/II study is important because our collaborators are really looking at a range of doses starting low, which is the data I've indicated that we have now, but they're also looking to adjuvanted and nonadjuvanted. Based on the preclinical data, it really looks as if we didn't need an adjuvant. And that's kind of the assumption that we have made already to go into Phase II. The encouraging thing is, is that already, with the low-dose data that we have now seen, the 2 things that we're looking for is safety. Are there any signals that would be of a concern? And so far, albeit with a low number of subjects, it looks very promising from a tolerability point of view. And the other thing we really wanted to confirm was, do we need an adjuvant or not? AdaptVac, most of the data that they've generated preclinically have always used an adjuvant. So we had little data to suggest -- to support our assumption that we didn't need it. So the initial data that we've seen has clearly shown that the adjuvant isn't really adding anything in terms of the immunogenicity of our ABNCoV2. So actually, as I sit here now, I think I already have the data I need to proceed into Phase II, which is exactly what we're going to do. As I said, what we're looking for in Phase II is a confirmation in a large number of subjects of safety, but we also want to make sure, to your point, that the single-shot booster in people previously vaccinated is sufficient to generate this strong, broad immune response. We are encouraged by the preclinical data where the second shot really makes a big difference in animals that were already primed. So we believe that in people previously vaccinated, primed either with the adenoviral platform or the RNA platform or any other platform, that we will be able to boost those responses very strong with this candidate because it is clearly highly immunogenic and really generating strong immune responses. I'm just trying to remember some of your other questions. Oh, the Medicago data, yes. Obviously, always encouraged to see positive data coming out. It's a VLP technology. But interestingly, it is adjuvanted. So the data that they're seeing requires an adjuvant. And again, I think what that points to me at least is that the platform we have, yes, it's a VLP, but it's a superior VLP in my view because we have a much denser expression or array of the RBD on the VLP, and we don't need an adjuvant. And as I've said, that's confirmed now in Phase I but also in preclinical. So not having an adjuvant will reduce the COGS, reduce the reactogenicity that you'll see when you get vaccinated and make our platform extremely competitive. But again, it's really encouraging to see that a VLP platform is generating very positive data.

[Jesper Ilsoe, Research Analyst]

Perfect. Perhaps you can also touch upon what the most important factors are when taking discussion with, say, CEPI and the like when they see your data. So what's the most important factors there to make your vaccines stand out versus the competition?

[Paul Chaplin, CEO & President]

Yes. So on that, CEPI specifically has got a number of applications out there. One is specifically on new candidate vaccines generating a broader protection. And as I said, I keep saying it, I think we have the best preclinical data that anyone has. No one has shown the same neutralizing titers, particularly against the South African variant, as ourselves. So that is putting us in a pretty strong position. The other application that CEPI is looking at is really for new candidate vaccines that can address the developing world. And again, I think there, it was the ease of production, and we feel confident that we can even address that mainly through partnerships with others, but we can address that as well. I think when it comes to government or governments, it's really about hedging their bets. They're used on a big deal. Obviously, on the RNA vaccines, there's a lot of people raising concerns that maybe -- are we putting all our eggs into one basket? And as I said, there is now increasing data coming through where there is quite some alarming adverse reactions -- systemic adverse reactions on repeated vaccinations. It is also known on the RNA platform that you're really not getting the same sort of strong protection or immunity, I should say, against the different variants. So I think we're well positioned in our discussions. But on the data that we have, and it's growing day by day, that we have a rather unique candidate that is addressing a lot of the concerns that exist right now both from funding agencies like CEPI but also governments around the world.

[Operator]

[Operator Instructions] Sir, no more question at this moment. Please continue.

[Paul Chaplin, CEO & President]

Okay. Thank you. Thank you, everyone, for attending the call and for your questions. So have a great day, and we'll catch up next time.

[Operator]

This concludes our conference for today. Thank you for participating. You may now all disconnect.