Bavarian Nordic A/S

CSE:BAVA

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and thank you for standing by. Welcome to third quarterly report conference call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would like to hand the conference over for our speaker today, Rolf Sass. Please go ahead, sir.

[Rolf Sass Sørensen]

Thank you, operator, and welcome all to our Q3 presentation. My name is Rolf Sørensen, Investor Relations here in Bavarian Nordic. And with me in the room, I have President and CEO, Paul Chaplin; and Executive Vice President, CFO, Henrik Juuel.Before we start our presentation, I will briefly run through this 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 materially from the results discussed. Forward-looking statements include statements regarding our short-term objectives, opportunities, financial expectations for the full year and financial preparedness as of year-end as well as statements concerning our plans, objectives, goals, future events, performance and 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. So by this, I will hand over the presentation, first of all, to Paul.

[Paul John Chaplin, CEO & President]

Thank you, Rolf, and welcome, everyone, to our Q3 update. If you turn to Slide 3, I'll just run through the highlights. Henrik Juuel will take you through the numbers later in the presentation. But we continue to see COVID headwinds regarding our sales of Rabipur and Encepur in the U.S. and in Europe. And they're impacted, as we reported in Q2 for slightly different reasons. Rabies in Europe is primarily travel, which, as you all know, is impacted by COVID. And TBE in Germany in Q2 was impacted due to the vaccinations of COVID being performed by GPs. However, I'm extremely happy to say that we stand by our guidance, which we came out with in March. The last quarter has been extremely successful regarding our pipeline. We've reported a number of different key data from our different programs. On COVID-19, we reported Phase I. And in the coming slides, I have an update on some of that data, which just further encourages us that we really have a highly promising COVID booster candidates. We also secured funding from the Danish government, which now derisks this program, allowing us to complete Phase II in the coming weeks and hopefully move into Phase III next year. On RSV, we reported a highly promising and exciting efficacy data, and we're continuing our discussions with the regulators, and hopefully, we'll make an announcement later this year on the path forward for our RSV program. So if you turn to -- actually, Slide 5, I'll talk a little bit about ABNCoV2, a highly promising COVID booster vaccine candidate. The vaccine is based on a viral-like particle which we licensed in last year from AdaptVac. The Phase I data that we've already reported shows that it has a favorable safety profile, typical of other viral-like particles that are already approved. Highly immunogenic, as I'll show you in the coming slides, and we are currently in Phase II. To move this program forward, we were seeking funding. And obviously, a few weeks ago, we reported that we secured funding from the Danish government to the tune of DKK 800 million. This will support our Phase III and manufacturing activities, allowing us to start filing for approval at the end of next year and hopefully selling vaccines already in '23. As I said, the Phase II, which I'll come to in the coming slides, is ongoing. We expect to report the initial data already later this year, so in the coming weeks. We have had very constructive discussions with the regulators on our plans for Phase III, which, if you remember, is to do a smaller noninferiority study to an approved vaccine. And as I said, the discussions with the regulators has been highly constructive. They're continuing, but hopefully, with positive Phase II data, we'll be able to start the Phase III next year. Go to the next slide. So this is some data that we've already published and has been updated with some additional dose groups. So this is a Phase I study that was performed through an EU consortium. We've previously reported the data up to the 25 microgram dose, where you see that we get very high neutralizing titers. This is if you look at the graph on the left-hand side of the slide compared to human convalescent sera, which is obviously the titers that you see in people who've recovered from COVID. The new data that we're reporting is the higher doses at 50 and 70 micrograms. And you see what we're now seeing is that in terms of the immune response, we've hit a plateau. So we're not seeing anything higher. This is typically what you see when you do a dose escalation study, you're actually looking for that plateau effect where you don't see an increase in immune response anymore. And just to remind you, this is 12x higher than human convalescent sera. This is probably the best immune response that anyone has ever reported. So we're extremely happy with this result. Just to remind you that in the middle, what we've already reported, these neutralizing titers are not only seen against Wuhan, but against all the various variants of concern, but we still see extremely high neutralizing titers to all variants, including Delta, again, something that differentiates this candidate to other vaccines that are either in development or approved because there we see varying differences in their ability to neutralize all the different variants. And on safety, the good thing is, is that despite all the doses that we've investigated, we still saw the same favorable safety profile regardless of which dose we evaluated, really showing you that this is a highly safe and immunogenic vaccine platform that really looks a very, very promising candidate as a general booster. So if you go to the next slide, I'll talk a little bit about the Phase II. Of course, when you're in vaccine development, you have to take note of data and attach your plans as you go along. So our Phase II design initially was looking at 1 dose of 100 micrograms as a booster, so enrolling 90 people who have been previously vaccinated. And we had another group of seronegatives where they would also receive a 100-microgram dose as a prime boost regime. Having now seen all the Phase I data, we can see that it's potentially possible that a lower dose than 100 could be effective as a booster. So we've adapted the trial design to add an additional group where people that have previously vaccinated will now get a single boost of vaccination of 50 micrograms, which will complement the data that we'll be reporting in the coming weeks for 100 micrograms. Of course, what this means when all the data comes in, if we allow -- if we are able to reduce the dose, i.e. 50 is shown to be just as good at boosting neutralizing responses, of course, this will have a massive impact on the COGS and our production capacity. So we're looking forward to these results. The first group that have received 100 micrograms are fully enrolled, and this is the group and data that we expect to report in the coming weeks. The 50 micrograms group has been approved by the local ethics and is pending initiation in the coming weeks, and we will be reporting that data early next year. And as I said, what we're really looking to see is can ABNCoV2 boost the neutralizing responses in people who have been previously vaccinated is the first question we're asking. The second is are those neutralizing titers as in the Phase I strong and broad against all the variants of concern, as I said, for the first group, that's the data that we'll be reporting in the coming weeks. So let's get to Slide 9, and let's talk about our other late-stage pipeline asset RSV. So RSV, as I'm sure you remember, is -- has a high unmet medical need, causes a big disease burden, particularly in the elderly but also in the young. We've had an RSV candidate now in development for a number of years based on our highly attenuated MVA vaccine platform. It encodes 5 antigens of RSV, which is a differentiating factor compared to the competition. And as we sit here today, we have a comprehensive clinical data all the way through to the end of Phase II, where we've shown safety, the ability to generate broad immune responses to all being coded antigens. And as we reported a few weeks ago, strong efficacy challenge trial. If you go to the next slide, Slide 10. This is the data that we reported a few weeks ago, so a human challenge study. We enrolled volunteers vaccinated, either with our MVA RSV candidate or placebo. And then these subjects were challenged with a mild dose of RSV. The primary endpoint, the left-hand side of the graph is a reduction in viral loads by PCR, which was highly significant, meeting the primary endpoint of the study. And we reduced the symptoms typically seen with an RSV infection, which you can see on the right-hand side of the slide. And using a combination of detectable viral load and symptoms, we were able to show an almost 80% efficacy in the reduction of symptomatic RSV infections which is very highly competitive data set from a human challenge trial really now confirming that the excellent immune responses that we've seen in Phase I, Phase II is translating into efficacy against RSV. In terms of the immune responses, we saw exactly what we saw in Phase I and Phase II. Broad immune responses, great antibodies, good T cell responses and also mucosal immunity. And regarding safety, there were no real safety concerns, which is what we would expect from a vaccine using a highly attenuated MVA platform. So if we go to Slide 11. In summary, we have a unique vaccine design that is differentiated from the competition in coding 5 antigens against RSV designed and has shown to generate a broad and effective immune response, not only based on antibodies but also T cells. We've shown that this is highly immunogenic in the elderly population and highly efficacious in the human challenge study. And where we are right now is finalizing our discussions with regulators on the Phase III design, and we're committed to coming back and reporting on the next steps for RSV in -- by year-end. So with that, I'll hand over the presentation to Henrik Juuel.

[Henrik Juuel, CFO & Executive VP]

Yes. Thank you very much, Paul. So with the next slide, let's turn focus to the commercial part of the business and the financials. And this slide is really just to remind you all what has kept us busy within the commercial part of the business since we took over the products from GSK 1st of January 2020. Since then, we have really established a full commercial infrastructure in key markets. We have transferred all markets, established distribution networks, et cetera, and we have worked hard to increase the awareness of Bavarian Nordic amongst the health care professionals. But as you will see in the lower part of the slide here, we have also been hounded unfortunately by COVID-19 in particularly, our rabies business, the traveling segment of that business has been hit hard as people are not traveling to endemic areas. And unfortunately, the TBE market has, for the last 2 quarters, been impacted as well due to lack of access to physicians in a few key markets like Germany. What we have also learned is the positive effect of having a much more diversified business today as our, you can say, original smallpox and Ebola business have remained totally unaffected by the COVID-19 situation. So let's dig into the individual markets. On the next slide, we'll start with the rabies business. As you can see on the right-hand side of the slide here, we delivered total revenue from this part of the business of DKK 160 million for the third quarter, which was 15% below the level we saw in the prior year, primarily explained by the fact that we have quite as expected, lost some market share in the U.S. as our competitor came back after a stock out situation second half of last year. So we are now in the U.S., we have a market share of slightly below 70%, which is still around 7 to 8 percentage points higher than before the period when competition went out of stock. But of course, as planned, we did expect our competitors to come back and regain some position there.I think the developments from this quarter -- the third quarter this year compared to last year is also, to some extent, impacted by some inventory fluctuations. But if we look at how the market has developed, on the left-hand side of the slide here, then you can see in the U.S., we have actually for the last 2 quarters seen the market coming back gradually. In the third quarter, we saw a 5% market increase compared to the prior year, and we are actually now getting close to the pre-COVID level, only setting sort of 5% below the pre-COVID level. So some good signs in the U.S. And of course, and again, as I said or as planned, we have given some market shares back to competition, but we are sitting with close to 70% of this market, which is now growing. So that's good. If we then turn to the European market where we're using Germany as a proxy, this is, of course, a totally different picture as it is nearly all travel vaccine. We did see some growth in the third quarter compared to the previous quarter this year, but it's coming from an extremely low base. So where we in the second quarter this year, we're looking at a 90% year-over-year decline. We are now looking at 86%. So a small increase in the third quarter, but still a market level that is significantly below where it was pre-COVID.So let's turn to our TBE business on the next slide. And again, to the right, you see our performance, DKK 71 million in revenue in the third quarter of this year, which is 30% below the level from prior year, and this is primarily caused unfortunately by a continued market decline in Germany. Second quarter of this year, we saw a 26% decline versus prior year. And now in the third quarter, we are seeing a 13% drop. And it is not only Germany, we're also seeing it in a few other key markets like Switzerland in the third quarter of this year actually saw a market drop of 25% approximately. Then on top of the market drop here, I think we are also seeing some inventory movements, both at wholesaler but also at partner levels. I think typically, what you will see is that if the market in the couple of quarters have declines, wholesalers and other customers will reassess the outlook going forward, and will typically start reducing the inventory levels as well. So that is sort of the compounded effect you see here. I think the good part of the story here is that we have maintained our market share in Germany of around 31%. On the next slide, overview of our full profit and loss for the quarter and for the first 9 months. If you look at the combined first 9 months, revenue reached close to DKK 1.4 billion. And you can see to the right here, how that was -- what it was composed of. First of all, the largest part of the business was our smallpox business, DKK 550 million, primarily delivered the true supply of bulk to BARDA but also some of the first final vaccine doses, a liquid-frozen fill with our new fill-and-finish facility under the order to BARDA as well. And the next number 2 on the list is our rabies business with DKK 368 million. We saw Encepur with DKK 316 million and then Ebola DKK 81 million (sic) [ 89 million ] and DKK 31 million coming from contract work. Gross profit for the first 9 months reached DKK 413 million and was impacted by a relatively low utilization of our bulk facility as we have manufactured material for clinical use for RSV earlier this year. And we also here right after the summer, according to our plans, we closed down this facility as it is being connected to the building we are preparing for the 2 new products, Rabipur/RabAvert and Encepur. And finally, I think the production costs for the -- in particular, the third quarter has been impacted by some inventory write-downs caused by the COVID-19 and the lower sales of Encepur and Rabipur. That's also a net impact of approximately DKK 43 million is impacting the production cost in the third quarter '21 relating to write-downs. If you look at our R&D cost, DKK 294 million, so up from same period last year and primarily related to our investments in RSV. So that is again costs related to the manufacturing of clinical material but also the human challenge trial that we have been conducting. SG&A of DKK 361 million, so below the level we saw in the previous year and primarily explained by lower distribution costs. Of course, some of it is related to the lower sales level, but it is mainly actually related to taking over distribution from GSK and being able to do that service [ cheaper ] basically. Adding all of this up takes us to an EBITDA for the first 9 months, positive DKK 44 million, supported by the third quarter in isolation delivering DKK 52 million in EBITDA. Turning to the next slide. Cash flow and balance sheet. Our cash flow from operating activities was negative by DKK 247 million, of course, impacted by a negative earnings -- net earnings but also by some increases in trade receivables, reflecting the change in the setup we have with our new products where we have taken our distribution from GSK. Cash flow from investment activities comprises of both investments in securities, but also more than DKK 300 million investment in properties related to our ongoing facility expansion and then also investments in the tech transfer of the 2 products to Kvistgaard. Cash flow from financing activities was positive by nearly DKK 1.7 billion, and it's mainly driven by the accelerated book build we did earlier this year. So a net positive cash flow for the first 9 months of DKK 52 million. On the right-hand side of the slide here, just a few key figures from the balance sheet. And I will just here mention the net cash position of nearly DKK 1.8 billion. So that is all our liquid assets that after we deduct our debt to banks and institutions. If we look at in isolation only our cash available, it is DKK 2.2 billion approximately. So a good and strong cash position, enabling us to maintain our guidance also for the cash position for this year. So let's turn to the final slide here. As Paul said earlier in the presentation, we are again maintaining our guidance for the full year, expecting revenue of approximately DKK 1.9 billion and positive EBITDA of approximately DKK 100 million and a cash position of approximately DKK 1.4 billion. And of course, in that cash position, we are assuming continued investments in the facility expansion and the tech transfer activities from GSK. We are assuming further capitalization of costs related to our COVID-19 development project and continued milestone payments to GSK as well as expecting to make a drawdown of the outstanding DKK 30 million facility with the European investment banks. Where exactly we will end the cash position is, of course, very sensitive to the specific timing of this and whether we are actually making the drawdown of this facility this year or next year. Right-hand side of the slide, here, we are just, as usual, listing of the key events and key milestones that we have for this year. And I will only mention the most 2 important ones that we still have outstanding. The first one is on RSV, where we continue preparing ourselves for a potential start of Phase III next year. And as Paul says, we are anticipating to come out during this quarter here, communicate -- and communicating the immediate next steps on our RSV project.And then on COVID-19, we are anxiously awaiting, of course, the data from the ongoing Phase II study, which we anticipate to be able to report these initial data within the next few weeks here. And in parallel to that, we are working on scaling up manufacturing, enabling us to manufacture material for a Phase III trial next year and eventually for commercial manufacturing as well. So even though we are getting close to year-end, still a couple of very exciting triggers ahead of us. So with that, I will give the word back to you, Paul.

[Paul John Chaplin, CEO & President]

Yes. Thank you. Can we open up the call for Q&A, please?

[Operator]

[Operator Instructions] And sir, your first question comes from the line of Peter Verdult from Citi.

[Peter Verdult, Managing Director]

Peter Verdult from Citi. Two questions for Paul related to RSV. Obviously, you have 3 competitors that have got their Phase III trials underway that you're going to update on shortly. What is the more optimistic time line you're working to getting first patient into that Phase III study? And then secondly, is there anything that you can say incrementally to the commentary you gave over the summer about partnership interest and whether we should be thinking that you'll be embarking on Phase III with a partner on board? Or is that still work in progress?

[Paul John Chaplin, CEO & President]

Yes. Thank you. I'll take the partner one first and get back to first patient in. So we've said that ideally, we would like a commercial partner for RSV. That hasn't changed. And discussions are ongoing. The issue is that a partnering deal for an asset like this we're not going to do that overnight. It's going to take some time. And while we've been in discussions with different partners back and forth for some time. Of course, a lot of the discussions were on hold until the efficacy data became available, which obviously happened a few weeks ago. So we are in discussions. Things are moving, but it will take time. So that's one of the considerations on our side is, do we wait for a partner? Do we look for ways of starting the Phase III while the discussions continue. So that's one of the things that we're working on. In terms of Phase III itself, I think given all the regulatory steps and the things that we have to do, we're probably looking if we were to go into Phase III as quickly as we could. That would be probably towards the end of Q1, we would start enrolling next year.

[Operator]

And sir your next question comes from the line of Jesper Ilsoe from Carnegie.

[Jesper Ilsoe, Research Analyst]

It's Jesper Ilsoe from Carnegie. So 2 questions on COVID-19. First one on the Phase II study. So given what you've seen so far with the full Phase I/II results, so again, can you just touch upon your confidence into these results. So it looks really solid. So what is really the risk? And also, can you help us say preview or prepare what is the benchmarks that you want to beat with other booster vaccine studies. So basically, what you would see at say, final results and what you would see as a very good or best-in-class results in this Phase II? And then I have a follow-up afterwards.

[Paul John Chaplin, CEO & President]

Yes, so I mean, frankly speaking, the Phase I results are excellent. I mean, you couldn't really have asked for anything stronger than what we have received, basically. So you see a dose response, which is exactly what you want to see. You can see that we're increasing doses up to 25, 50 micrograms. We get an increase in the neutralizing titers. At that peak, the 50 micrograms, you've seen that 12-fold higher in human convalescent sera. Human convalescent sera, there's numerous publications out there that the level of human convalescent sera should give you at least an 80% efficacy against COVID with 12x higher than those levels. So it's exceptional. As I said, also on the safety, we really saw no safety differences between the lowest dose and the highest dose, which again is highly encouraging that it's likely that we're going to have a highly favorable safety profile when we complete. The other thing that's encouraging, and I need to remind you all what we're looking at in the Phase I are people who have not seen SARS before. So they're seronegative and they with 2 shots, we see this immune response. How we're going to be developing ABNCoV2 now as a booster. So we're really going into people already vaccinated and primed. And we're really, I would say, as a booster the hurdle is a lot lower because people are already effectively primed. You're trying to restimulate those B cells and in some cases, the T cells to give you that boost response. So I need to be careful what I'd say with data coming in a few weeks, but we remain excited about the opportunity and everything that we've generated with this vaccine has not disappointed but is really pointed in the direction that we have a very good candidate. So I'm really looking forward to the Phase II results. The second part of your question -- benchmark, what would we like to see. That's a difficult answer, and I'm going to do a bit of a downside with you. So it really depends on what the starting titers are. So there's a number of publications that have come out looking at a variety of different vaccines as boosters. And you can see anywhere between a fourfold up to even twentyfold increase in neutralizing titers, but it all depends on what the starting titer is, when these subjects are enrolled. And we're enrolling people. Of course, it will vary, but we're enrolling people who -- their last vaccination was as early as 3 months ago. So we're expecting different results, and we'll have to basically stratify the subjects based on their starting titer. But as I said, the benchmark has been set by other studies, and we need to be as good as those benchmarks. But as I said, I'm not going to give you a fold increase because it really will depend on the starting titers of the subjects that we enroll.

[Jesper Ilsoe, Research Analyst]

Okay. Makes sense. Just the final one on the Phase I/II results. So efficacy looks this good, safety as well, but can you just highlight how -- you did that previously in other calls, but highlight how safety results compares versus, say, the Pfizer booster results. So just how your safety adverse event profile looks versus these other available vaccines?

[Paul John Chaplin, CEO & President]

Yes. So with RNA-based vaccines, primarily more Moderna than Pfizer, but with the RNA-based vaccines, they are seeing Grade 3 systemic adverse reactions. So Grade 3, systemic. Grade 3 is the worst, of course, and systemic reactions relate to fever, bone pain, joint pain and the like. And they actually see the Grade 3 adverse reactions increase on repeated vaccinations. So going from 5% to 10% to 15% of the subjects vaccinated on the first, second and third vaccination. We are actually in the smaller Phase I that we've conducted or I should say that [ vaccine EU consult team ] conducted, we haven't seen any Grade 3. However, we have to be fair here, there's a lot more safety data for the RNA vaccines than we currently have. But as I said, the VLP technology is already out there as a proved vaccine and has a different safety profile to what has been reported for RNA vaccines. So we would anticipate that we would have a safer profile than RNA.

[Operator]

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

[Boris Peaker, MD & Senior Research Analyst]

My first question is on the COVID-19 vaccine. Just curious, what are you going to estimate the earliest time of approval that you can have this or the early time of launch? And how are you thinking about the potential commercial opportunity here, peak sales or total sales that you could generate any way you want to kind of think about it?

[Paul John Chaplin, CEO & President]

Yes. Thanks, Boris. So we're aiming at a rolling submission at the end of next year. We have an approval in the first half of '23. Like others have, we will be anticipating advanced purchase orders already before approval. The true commercial opportunity, we haven't really -- we talked about or we haven't really talked about publicly. The reason for that is COVID is changing almost on a daily basis. And probably the only thing I can say is whatever number I give you is probably going to be wrong. So we're gearing up with a certain volume in mind, and we'll have to see how the COVID market develops. But you saw already this week with a new candidate that's not even approved from Valneva, they got an EU advance purchase option at least for around that 60 million dose order. So you can see that in the EU, and we'll probably the same in the U.S., new vaccines, there is a significant commercial opportunity already in '22, '23.

[Boris Peaker, MD & Senior Research Analyst]

Got you. And my second question is on JYNNEOS, you really didn't talk much about it. But what do you see as the outlook of kind of going forward? What are the dynamics going on in the JYNNEOS purchasing market?

[Paul John Chaplin, CEO & President]

Yes. So JYNNEOS, right now where we are, we have tech-transferred the liquid frozen process. We are currently manufacturing an existing order of just over 1 million doses. So that's all baked into the revenues that we have for this year. We're also tech transferring the freeze-dried process to our new line, which will be completed next year, and that should unlock the option that we already have for $299 million, which is to convert all the bulk that we have manufactured over the last 2 years into 11.5 million doses freeze-dried. So that is really going to be driving the revenues from '23, '24. What we anticipate is that the U.S. government really hasn't changed its requirements for a safer smallpox vaccine, saying that they need 20 million doses prior to approval. Of course, our product is already approved as a liquid and enough vaccine to protect 66 million Americans post approval. So we are anticipating additional orders on and above what we have as options. And I think what you've seen pretty much over the last few years is we've been securing revenues in the region of about USD 100 million annually, give or take. And I think that is the sort of level that you should anticipate as we get new orders to build up the stockpile in the U.S.

[Operator]

[Operator Instructions] And we got another question comes from the line of Gil Blum from Needham & Company.

[Unknown Analyst]

This is [indiscernible]. I'm on for Gil Blum. My question is on similar lines for like smallpox vaccine. What can you tell us about the outlook of the vaccine in -- like outside U.S., like mainly Canada and Europe? Do you see more sales opportunity from there? And the second one, like, are you seeing any headway into the monkeypox sales?

[Paul John Chaplin, CEO & President]

Yes. So with Canada, we have an order already in place that we announced earlier this year. Canada has probably been the second largest purchaser of JYNNEOS outside of the U.S., and I think that is going to continue. So yes, we anticipate additional orders from Canada in the coming years. If we talk about other territories, of course, we've seen some sales this year in the EU. And we would anticipate additional sales moving forward. However, I think it's clear and our guidance has always been clear, the biggest customer of JYNNEOS is likely to always remain to be the U.S., so that's where the bulk of our sales will come. But we are working and continue to believe there will be additional sales in Europe, but also, particularly, as I just said in Canada. In terms of monkeypox, we have not really launched that indication simply because in the territories where we would launch, it's a traveler's vaccine, which is obviously significantly impacted by COVID. We have seen some travelers returning from Nigeria with monkeypox both in the U.S. this year, but also in the U.K. So it is a growing concern. We know in a recent meeting at the WHO that there is a growing concern of this as an emerging disease. And currently, we're the only vaccine with an indication for monkeypox. So I think it's something for the future. But again, we have to get over COVID really, I think, before we can really exploit that opportunity as we had originally planned.

[Operator]

[Operator Instructions] And your next question comes from the line of Michael Novod from Nordea.

[Michael Novod]

It's Michael from Nordea. So two, the regulatory interactions you're having, can you confirm it's both with the EMA and the FDA? And is it fair to assume also given that we've seen the EU order the vaccine for Valneva that they are pretty sure to sign off on the -- this trial design, which I guess is resembling very much what Valneva has done with vaccine? And then secondly, and I know it's early days still, but just thinking about the capacity. If you do get advanced procurement orders, what kind of capacity do you actually have in place? And what kind of orders will you be able to service initially? Any comments on that would be highly appreciated. Yes. And then I have a follow-up question.

[Paul John Chaplin, CEO & President]

Yes. Michael, so we've had a number of interactions with a number of different agencies. EMA is definitely one, national agencies as well. Currently, we have not had feedback from the FDA. They're a little slower in their feedback, but that's in the works. As I said, it's very constructive feedback that we've received. We're not really changing our guidance on our Phase III design. I wouldn't say that we have an agreement on a design, but the principles of noninferiority in comparison to a comparator certainly are still what we're standing by based on the discussions that we've had. Based -- the other question you had was on capacity. That's a difficult one to answer really because we're kind of building the road as we're going along. So of course, we have a process that we've used to manufacture both the Phase I/II and III, but we're scaling that up now for commercial. So it's very difficult to say what our capacity actually is when we haven't [ build ] on the process. But so I think on that, I'll reserve judgment until we have a process in place.

[Michael Novod]

Okay. And then just a follow-up. Is there any sort of correlation between early government interest and the increase in infection rates we're seeing now or are governments more focused on hospitalization rates? Just to get a feeling whether there's sort of already now beginning dialogue and interest for making potential orders later in 2022?

[Paul John Chaplin, CEO & President]

Well, unfortunately, you know what's happening around the world, right? So as anticipated, rates are increasing everywhere. I think it's just bringing home again the message that COVID isn't going anywhere. We're going to have to learn to live with it. I think the notion that we need to be vaccinated every 6 months is not one that is sustainable. So I think there is going to be a need for vaccines in '23 and beyond. And you can see we've -- and you mentioned it yourself with the Valneva option. They're very, very open to new vaccines coming through. I think, again, if we take the example of what we've just seen, they're not likely to place an option until Phase III data is reported. But I would say there's a window to start discussions sooner or rather than later. And then on the basis of a positive Phase III, I would actually anticipate to see some advanced purchase orders, yes.

[Operator]

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

[Paul John Chaplin, CEO & President]

Okay. Well, thanks, everyone. Thanks for your time and for the questions and interest, and have a great day. Thanks.

[Operator]

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