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Ladies and gentlemen, thank you for standing by, and welcome to the Valneva Q1 2020 Interim Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, the 7th of May 2020. I would now like to hand the conference over to our first speaker today, CEO, Thomas Lingelbach. Thank you, please go ahead.
Yes. Good day, everyone. And good day to Valneva's quarter 1 earnings call, which in these difficult times -- the COVID pandemic came as a big surprise to all of us, not so much to the vaccinologists, of course, who have been thinking about pandemics for a long time. But of course, it's affecting our lives, it's affecting our businesses. It's affecting global economy. We have -- we are being affected on our travelers segment as part of our commercial business. At the same time, we had the most important and strategically utmost important events in the first quarter of this year. So therefore, it's a mix of financials, financial expectations and great news on the R&D side. When we look at the quarter 1 specifically, we had a solid quarter 1, 2020 financial results with very limited COVID-19 impact because the real impact for travelers associated businesses and the economy as a whole is only being seen in the second quarter. And therefore, with product sales revenues of about EUR 32.7 million, we are almost exactly at the prior year's level. EBITDA of EUR 2.4 million, and of course, a strong cash position of EUR 80.8 million at the end of March, which includes a part of our debt. And David is going to give you more details around that. As I mentioned already during my short introductory speech, we have had strategic and utmost important R&D milestones in the first quarter. First of all, and foremost, an unprecedented partnering deal with Pfizer, which we signed for our Phase II Lyme vaccine candidate, VLA15, and I'm going to go more into the details of that deal in a moment. We have achieved a very positive end of Phase II meeting granted by the FDA for our CHIK candidate. And we know that only very, very few programs have ever achieved in the vaccine space to go straight from Phase I into Phase III. And as such, we are very, very glad about this achievement. And we're going to go into Phase III as soon as COVID permits us to do that. Of course, as a vaccine developer and as a specialized vaccine company, we have tried to think hard about what we can do in response of the global pandemic, and we have pulled our competencies and -- abilities and capacities and developed a SARS-CoV-2 vaccine development. And again, I'm going to present this in more detail. But let me talk about our collaboration with Pfizer to co-develop and commercialize our Lyme vaccine candidates, VLA15. This deal is super exciting. This deal very much ticks all our ambitions, our aspirations and expectations in terms of the partner, in terms of the structure of the transaction and in terms of the commercial terms. It has always been important for us to keep a skin in the game and to be able to jointly bring Lyme to market. And by doing so, also retain a meaningful share of the downstream economics. Pfizer has had a continued interest in Lyme disease, and this partnership validates the dedication to finding a solution for this devastating disease. Pfizer has a proven track record in late-stage development in new disease areas and subsequent global commercialization of big products. And this is really remarkable. And this partnership, of course, validates our R&D capabilities and capacities. And we can be very, very proud, and I would like to thank our entire team here at Valneva, who have really made this happen. Through the partnership discussions and the negotiations, we have already established a great chemistry with many of the folks at Pfizer. And we look forward to developing our relationship further, and I'm personally thrilled to be part of this journey to deliver this vaccine development to market. Yes. With that, I think we can go a little bit more into the terms of the transaction, Page #7, please. As I mentioned already, it's a collaboration to codevelop and commercialize the Lyme vaccine. Valneva is eligible to receive a total of $308 million milestone payments consisting out of $130 million upfront, $35 million in development and $143 million in early commercialization milestones. We will fund 30% of all development costs through completion of the development. And later, Pfizer will pay Valneva tiered royalties starting at 19%. In turn, Pfizer will fund 70% of all development costs to completion of the licensure, and Pfizer will lead the late-stage development and have sole control over the commercialization, user commercialization of the vaccine. So we have really combined the strength of 2 parties. And as I said, at the beginning, it is a fantastic partnership. It is a fantastic partner and it's a fantastic prospect to be able to bring this vaccine successfully -- hopefully, successfully to market. Yes. With that, I would like to continue with the general R&D update. Starting with Lyme again. Media attention again spiked in January 2020 before, of course, it was all overtaken by COVID. And we see really Lyme disease at a rise. There has been an interesting article in New Scientist talking about the fact that Lyme disease cases may rise 92% in the U.S. due to climate changes. And you see more and more evidence that surrounds this. So it is a real big issue. And prevention, it's really the measure of choice to tackle Lyme disease. You have seen Slide 10 many times. I don't want to repeat it again. However, just to make sure that I reconfirm that neither the partnership, nor COVID has changed anything to our forthcoming value inflection points, which start with the Phase II primary endpoint data, which are the first data coming from the study 201 where we determine the final dose for future development. Those data are still expected mid-2020. It can be end June, early July, around this time frame. And fortunately, we have not been affected by the global pandemic because we had already everyone enrolled and the follow-up has been to a very large extent, already done. And then from that time point onwards, we're going to see additional data readout points, especially for later, from the study 202 because please keep in mind and remember, the objective is to determine the dose and the schedule for future development. So -- and hopefully, we will be able to get clear-cut answers out of those trials by the end of the year at the very, very latest. Good. Let me turn over to chikungunya. Page #11 of the presentation, you know that chikungunya is a growing enduring problem. It represents a major public health threat. And I mean, we unfortunately see right now what outbreak disease means, especially if they are so serious like SARS. And basically, there is no vaccine or any treatment option for chikungunya available. At the same time, it is a vaccine preventable disease. And we see, of course, a lot of outbreaks permanently in tropical or subtropical regions. And there is a global market including those endemic markets, there is a travelers vaccine market and you have read our partnership with Butantan. We are very pleased to have this partnership in place in order to have a good market access into the low-, medium-income countries. And here also, again, a big thanks to CEPI who are supporting this initiative. And the travelers market segment, where we expect the plug-and-play for -- into our industrial and commercial platform is expected to have a market potential of up to EUR 250 million alone. Yes. And when you look at our Slide 12, again, it's a slide that you have seen before. The most important point is we are ready. We are -- we have worked with the authorities. We have a few submissions that are currently ongoing in order to allow to press the button for Phase III. And it's hard to predict like everything is hard to predict in those days, right now. But we are currently assuming that we will be roughly a quarter late with the trial start. Originally, we had always planned end June, early July. And now we are considering a quarterly delay in order to start clinical trials again, in healthy adults in the United States. So basically, that's our plan. We are ready. This also means that we could start earlier. And this is -- everything has been done. And Slide 13 summarizes one more time that not only the clinical part successfully concluded, but also the supplementary nonclinical studies, which were requested by the FDA has been fully completed. So -- and with that, I come to our SARS-CoV-2 vaccine development program for COVID-19 and our collaboration with Dynavax. As I mentioned during my introduction, of course, we, as a vaccine developer, need to fulfill our duties here. We need to try and help in this battle, in the desperate battle against COVID. And we have worked hard to see how we can leverage our technical and platform capabilities to develop a vaccine. And we have decided to go for a quite conventional approach given the situation in which we have today around 100 vaccine development approaches in different stages from early research all the way up to already in the clinics. Most of them are novel approaches, which have never been validated in humans. Others are approaches that have already been validated and shown effectiveness and safety in humans. We believe that with our approach, we will be -- we can be fast, and we can apply certain parts of the process that we have already used for, for example, IXIARO or chikungunya. And of course, in order to do that, we had, first of all, to recommission our BSL 3 labs in France, in Austria and in Scotland. We have reallocated all of our preclinical resources in order to work full steam and really around the clock on this program. We are seeking grant funding for the clinical development and future manufacturing. And we have signed a quite exciting collaboration here with Dynavax in order to get access to an adjuvant that has already been approved in a vaccine, in the hep B vaccine of Dynavax. Our approach that we are following is an inactivated vaccine, as I mentioned before, we will try to have a special way of inactivation in order to preserve the so-called S proteins on the surface. And this inactivation is supposed to give a very high CH1 response needed from our perspective to address a couple of issues, but also challenges around the vaccine development against COVID. Yes. And our goal is to initiate clinical trials before the end of 2020. Of course, this is all subject to successful preclinical work. It is subject to funding and -- appropriate external funding and provided that all the boxes can be ticked, we will be able to produce first clinical trial materials, but later also, for example, catch up an emergency use materials in our FDA-approved plants in Livingston, where we have a dedicated facility, and we could potentially, in this existing facility already produce up to 30 million doses annually according to our current expectations. And of course, there are -- if the pandemic situation continues, if we need anyhow to pull globally all of our capacities in order to tackle this devastating COVID situation. Yes. With this update, I would like to hand over to David to give us the financial report.
Thank you, Thomas. Good day, everyone. Thanks for joining us on the call. So I'm going to run through the Q1 results, and then Thomas will talk a little about the key issues and topics that influence our thinking on the commercial business, which will set up a presentation at the end on our updated guidance. So if I may, to Slide 16, which is the large pie chart for those of you looking at it. So firstly on sales on the top line, the first quarter of 2020 was very similar to the quarter 1, 2019 overall. So you'll see on this chart with DUKORAL EUR 9.7 million. That's the typical strong quarter performance that we see in Q1 and Q4, noting the seasonality of travelers, particularly from the Canadian market. We also had a strong quarter for U.S. military sales as they worked through the prevailing contract. And as many of you might recall, this was our largest ever contract for U.S. military and they exercised the option over the full volume, and we have completed delivery of those orders in April. Our other KPIs on the right-hand side of the slide are very much in keeping with recent results. We continue to manage more than 80% of our sales through our own commercial operations, which in turn mean that we keep a major share of the value chain. So that drives down to a gross margin, which was very healthy at 69%, just over 69%, also driven by excellent performance in our manufacturing plants. Next slide, please. And to round out the picture on sales, third-party product sales fell following the determination of the Vivotif distribution contract, where we still had revenues in Q1 2019. And that's something we've previously communicated. So hopefully, no surprises there. So moving on to our income statement, please, which is the next slide, Slide 18. So having discussed sales and gross margin, then briefly, I'd like to highlight some key points on expenditure. And I know some of these were picked up in analyst commentary this morning. So R&D investments have increased substantially for the comparative period 2020 over 2019 and exactly according to plan. So we've been increasing the run rate in R&D as we ramped up Lyme Phase II, for example. And when you consider our guidance, which we'll come to later again, you can note that we plan to continue to ramp up R&D investment during 2020. There's an increase in G&A costs following a number of corporate projects that we had in Q1. And that run rate is not expected to continue to be at the same rate through 2020. Other income, there's a relatively substantial improvement in this line, and I just want to pick out why that is, there are 2 main drivers of that. One is an increase in R&D tax credits. And the rule of thumb there is that the more you spend in R&D, the greater the entitlement to R&D tax credits. So that's 1 reason. And then the second reason, and this touches on something that Thomas mentioned, we're starting to recognize some other income from the CEPI grant in this line. So overall, for quarter 1, we saw a positive EBITDA, despite the major increase in R&D investments and some other costs. So next slide, please. Just to talk a bit more about gross margin, net operating margin. So again, I'd like to emphasize what Thomas said, the COVID-19 pandemic crisis did not really affect our Q1 financial performance. You already know from what Thomas said the R&D was largely unaffected, including the Lyme Phase II being on track. And in addition, our plants were working pretty much at full-time for most of Q1, and we delivered a Q1 top line, it was consistent with Q1 2019. Therefore, our gross margin is slightly higher than the comparative period last year. And in net operating profit, we see the same dynamic roughly. Although our Q1 2020 costs in commercial were slightly up in the same period last year. Nonetheless, that means that our net operating profit margin again, beat the 35% target, and we'll come back to both of those KPIs during the guidance section of our presentation. However, just before that, I'd like to hand back to Thomas actually to see -- he's going to say a few words about the commercial environment for our travel vaccines before we move on to that very important guidance topic. Thomas?
Thanks, David. Yes. Well, I mean, the -- providing guidance for a commercial business that is largely, to a very large part, dependent on the travelers vaccine business, alongside, of course, with the business around the U.S. military, which is not affected at the same level, is very, very difficult. So -- and in reality, one could plan and play scenarios on a daily basis. And ultimately, by the end of the day, no one will be right or wrong. However, we have decided to really take the approach and -- especially now that a couple of points come together, to take our based assumptions, best educated guesses, I would call them. And we would like to take you a little bit through our thinking so that you see why we come to certain assumptions in terms of -- which are then later reflected in the guidance. Let's first look at the macro environment. So we see now on a country-by-country basis, an easing of social distancing measures. I live in Austria. So we are out of lockdown since last Monday. Other countries may follow. And this is all subject to may the second -- or will the second wave come or not? And of course, it might well be that a second wave will put us back to the drawing board and back to square one. But right now, this is the situation. We are expecting a slow recovery of international air travel due to border closures and recession. And here, we try to link very closely to very comprehensive reports, for example, from IATA that kind of do their surveys around travel as a whole. And we expect a higher impact in Europe versus North America. The survey that was done and published by IATA show that approximately 60% of travelers would be ready to fly, either domestic or international, within 2 months of the end of the COVID-19 pandemic whenever, of course, again, this pandemic is declared over. The economic recovery supported -- is supported through government stimulus packages. And I think this is also an important thing to consider, of course, when we translate this and try to translate this into forecasting our assumptions for product sales. When we look at the Traveler segment because our commercial business has, in reality, 2 segments, namely travel and U.S. military. And you all know the importance of the U.S. military business as part of our overall commercial business. We see a significant reduction in quarter 2 travel linked to the global shutdown, very close to 0. Then we have a reopening of travel clinics and travel services in phase with reestablished demand. We see this coming. Then a phased restart of the Traveler segment assumed then later towards the fourth quarter. And on the positive side, and every single epidemic, not necessarily pandemic, but pandemic also, but every single epidemic in the past has shown that in those post -- in them again post-pandemic situations, there is an increased awareness, and especially in our case, an increased awareness around not only vaccinations, but travel health. And hence, there is a higher likelihood for people to consult before traveling, which will, in turn, increase the compliance rate of people who travel that will ultimately take our travelers vaccines. From a U.S. military point of view, there has been a slight delay on certain things that you have read that possibly that the deployment of U.S. troops and dependents, has gone into a sort of a holding pattern. But it's expected to resume over summer. So still, it's a mandatory vaccine for forward-deployed troops. But of course, the rotation factor is important and then last, but not least, we -- the military issued a new RFP, which is very much in line with our expectations. We have responded to this RFP, and we expect the award of a new JE supply contract, either in quarter 2 or quarter 3, which is our current best educated guess. And these are the key assumptions that we take. So in a nutshell, one more time in alignment with what we see in the travelers sector analysis being done in traveler related businesses overall, and our own networks and expectations, very low quarter 2 and quarter 3. Towards the latter part of quarter 3, ramping up into quarter 4, then quarter 4 kind of moderate. But again, a good business. And of course, military in the summer, again, going on rotation. And all of that will then land into a forecasted figure that is now being presented by David.
Thanks again, Thomas. So with those thoughts in mind and noting what we went through earlier in the presentation, I'd like to talk you through our updated guidance. So that's Slide 23, please. And just to be absolutely clear, we believe it's our responsibility to support understanding of the recent Lyme deal, for example, even while we work out the fine detail with our advisers and auditors on revenue recognition. And to that end, the first thing I'd like to say is that the $130 million upfront payment will not be recognized as revenue in its entirety in 2020. And I think we'd like to ensure the analyst community has a shared understanding at this point, for example. So on product sales, original guidance was EUR 125 million to EUR 135 million. And in March when COVID started to hit hard, we said we believed that there could be a negative effect of EUR 20 million to EUR 40 million on that guidance. And today, we're updating our product sales guidance to EUR 75 million to EUR 95 million, which is negative EUR 40 million to EUR 50 million compared to original guidance. At the same time, we're updating total revenue guidance by plus EUR 10 million to plus EUR 30 million based on the recent Lyme deal. And the Lyme revenue recognition is something that we'll update more deeply at our H1 results when we've got full agreement with our auditors. The principles that are being used are under IFRS 15, whereby we have to consider the full contract, its performance conditions, and indeed, costs as well as receipts. And therefore, you understand that this is a relatively complex accounting matter. And as you've likely read, the collaboration lasts until product licensure. And at that time, we'll be eligible to receive certain milestones related to early commercial activities and royalties starting at 19% as reported last week and confirmed earlier in this presentation by Thomas. So therefore, with the original guidance of EUR 10 million for other revenue, we now predict EUR 20 million to EUR 40 million of other revenue. So when you combine that with the product sales guidance, that means total revenue of EUR 95 million to EUR 135 million. On R&D investments, we mentioned in the March update, a small reduction since the original guidance of about EUR 5 million based on the expected delay to the CHIK Phase III initiation further to the COVID setting. We expect the gross margin will fall slightly as production volumes drop in line with the reduced sales projections for the year. And net operating profit will also drop as we've got ongoing costs in commercial operations, both centrally and in the markets. We are continuing, however, as stated in the PR this morning to implement cost-containment measures across the business. So bottom line, in terms of EBITDA, with these various movements and changes is that we now expect an improvement in EBITDA compared to original guidance to between negative EUR 10 million and negative EUR 30 million. And finally, just a word on cash, which Thomas mentioned earlier, we paid off the EIB loan and we've part drawn down some of the $85 million facility. And at the end of Q1, that part drawing was $45 million. So based on the current projections and taking into account the upfront from the Lyme deal along with 1 near-term milestone that we expect to receive in 2020, we estimate that we should have cash over EUR 150 million at the end of 2020. Now clearly, that projection, like others mentioned, depends in detail on operational performance. But we believe that this underlines the company's strength. And with that, I'd like to move on to the news flow and hand back to Thomas before Q&A.
Thank you so much, David, for providing us the insight to the guidance. And I would like to wrap up before we come to Q&A and reiterate our news flow. So we expect Lyme data as of mid this year, expected at very late June, early July. Phase III initiation, pending COVID-19 situation and of course, the related FDA confirmation. Current estimates, early quarter 4 this year. We could start earlier if the situation permits. I think this is important to know because please keep in mind there is a race also against the PRV. The first company who get BLA approvals for a CHIK vaccine is eligible to a PRV. And we believe that we are very much in the front group. We have -- we're expecting the new IXIARO contract with the U.S. Department of Defense for IXIARO. And as we announced already earlier, we expect that this will be giving us more midterm visibility, so not just a year, but probably 3 years in terms of clear visibility and solid business projections. And as I mentioned, overall, we are dedicating our preclinical resources, everything that is not working on -- everyone who's not working on Lyme or CHIK has been put on the COVID vaccine project. And we expect to be able to enter clinical trials before the end of the year, provided, of course, that things go well. And all the other caveats and the disclaimers I mentioned earlier during the presentation. And yes, I think it's a very interesting time, challenging on -- from a macro environment, challenging for our commercial business, but at the same time, more exciting than ever on the R&D side. And with that, I would like to hand back to the operator to take your questions.
[Operator Instructions] Our first question comes from the line of Jean-Jacques Le Fur.
Jean-Jacques Le Fur from Bryan Garnier. First of all, congratulations for your deal with Pfizer. And staying on this deal, why did you sign such an agreement before the Phase II results when you could have had a better economics after potential positive Phase II results. The second question is regarding your statement that it may take some years for travel business to return, which of your vaccines could be the most affected? I mean IXIARO or DUKORAL and IXIARO, excluding U.S. military, obviously? And my last question, did I well understand that regarding the existing or previous contracts with the U.S. military, you delivered 100% of it, and we should not expect any additional sales from this contract for the rest of the year?
Okay. So let me try to work step by step. So first of all, why did we sign right now? Well, it's great, right, that we entered into a partnership ahead of even Phase II data being available. And what does it tell us? It tells us that both partners are absolutely convinced and bought into the success of this program and in the likelihood that this program is going to see positive Phase II data. Your work on better economics, I seriously question, right? I am 30 years in vaccines. I can tell you, this is an unprecedented deal for a vaccine R&D asset at Phase II. And as such, we have not -- we are quite glad about the situation because it also allows us to start working together in determining the future development path and not lose time before getting really into the nits and grits of a joint development plan. On the vaccine projections and long-term impact, it's a good point that you're making, right? I mean -- and it's a little bit -- everyone talks about the crystal ball. Who has the crystal ball? No one has a crystal ball. You hear this word about the crystal ball and travelers businesses from all airlines, for example. I mean there is -- I mean, we are -- so it is clear that most of our travelers in the IXIARO sector are business travelers. And so we expect that those come first. We expect that probably the other travelers will come a bit later. And overall, yes, we expect that it will take a couple of years to take travelers businesses back to where they used to be. And if you take the analogy to airlines, for example, they are talking about 2 to 3 years to get back to prior year levels. And there will be an impact, but how big will it be? Hard to say, very hard to predict. At the same time, we should not underestimate the -- those situations like the one that we are currently experiencing and have personally experienced a few things, including flu pandemics, where you really see that the -- that vaccination and vaccination rates have gone up substantially because of a general better acceptance of vaccinations. So that's the way we look at it. And what was your third question again?
I would just -- sorry, David, if you...
Yes. So let me add it. So the answer to your -- the third question, Thomas, is around the timing of U.S. military sales. So we made the final shipments in April, so there will be some U.S. military revenue from the old contract in Q2.
And it is the same timing of it. It was the timing of it. Okay?
And congrats again for Pfizer.
Thank you.
And our next question comes from the line of Samir Devani from Rx Securities.
Congrats on a good quarter and obviously, a very good deal with Pfizer. I've just got a, I guess, a few questions on the Pfizer deal. You're sort of guiding to recognition over the period to licensure. But just, I guess, maybe you can help us on what dictates, whether it's EUR 10 million or EUR 30 million recognized this year? And just on the deal, your contribution to R&D, is that 30% capped? And then I've got a couple of other questions as well on top of that?
David, you want to take those questions first?
Let me start. So Samir, the answer to the, why have we stated a range is, that there's a split between what's called the license component and then the service component. And that splits influences how much you recognize per year. And then we've got this point that I made earlier about performance obligations and transfer of beneficial ownership. So at this stage -- and we've had significant discussions, as you might imagine already, with people who are advising us and with the auditors, despite the fact that the ink only dried at the end of last week. So that's why we issued a range at this stage. So in terms of cap, yes, there is a cap. And then secondly, there's -- that cap consists of a duration cap up to the point of licensure. As well as an overall budget cap. But neither of those are being disclosed.
That's great. And then just maybe a couple of others for you, David. Just in terms -- you mentioned about the CEPI recognition, how much did you recognize in the quarter?
So the -- I'm actually -- I'm looking at my colleague, Manfred, who's in Vienna, and he's just going to wander around to make fun. I think the CEPI revenue recognition is a component of that EUR 2.2 million. And I may just -- given we're in a virtual setting because we're all split up, Manfred, would you be so kind as to provide us that specific number?
Maybe while he's looking for that, I can just ask you just -- you also talked about the financial position, which is obviously going to be very strong post the Pfizer receipt. Does this mean that you won't now need to draw down any further money from your $85 million facility?
Yes. So on the $85 million facility, there -- we haven't gone through too many of the details in the past. There's -- the important things for us with that debt facility were that we had some optionality and that we could arrange the timing in terms with our needs. And when we struck it, we weren't very far down to final negotiations with the Lyme deal. And you may recollect that we never set out to get a meaningful upfront. We'd always oft said our broad ambition was a co-development cost share and then a profit share further down the track. And to give us some -- to give us a lane within which to work, we talked about 50-50. So the debt deal is split into a couple of components. One was a component to bring in relatively early so that we could clear up the EIB because those debt providers, as you can imagine, wanted ranking. So at the end of Q1, we've drawn down $45 million. We will, in Q2, draw down a further $15 million of that facility. The remaining $25 million are at our option, and we have that option running through into the first half of next year. So we have optionality over $25 million. And that's something we'll come back to think about when we look at our long-range plan in the summer. And Manfred's kindly just reminded what the number was because we do have it in the prep, but just didn't have it in front of me. The CETI revenue recognition in Q1 was EUR 0.8 million.
And our next question comes from the line of Simon Scholes from First Berlin.
The first one is on the NASDAQ listing that you talked about possibly -- in the past, possibly for 2021. And presumably now that your financial condition is so strong. I mean there's only going to be a very limited need to raise, if any need to raise fresh equity in conjunction with the NASDAQ listing? And then the second question I have is on the upfront component of the Pfizer deal. Am I right in assuming that cash flow and revenue recognition on the upfront components are more or less identical?
Let me pick up the second point first. So Simon, they are absolutely not identical. So the reason that we're guiding EUR 10 million to EUR 30 million from -- in terms of other revenue from the Lyme deal is specifically to separate any notion that we're going to be recognizing $130 million of revenue this year.
Okay. But how much cash will you actually receive this year?
So the cash...
We actually get the EUR 430 million then this year? So we'll...
Correct. So we received $130 million, and we will receive 1 near-term development milestone, which we have not publicly stated except that it's part of the component of near-term development milestones.
Let me say a few words about strategy, right? Because you mentioned NASDAQ, you mentioned capital formation. As David pointed out, I think we have delivered an excellent deal here. Our ambition to codevelop the vaccine in order to have a skin in the game and the later upside for our shareholders and a stake from the commercialization of this vaccine has been achieved. We have chikungunya acceleration. We have -- but we have also a COVID situation, and we have a potential COVID vaccine development. We have a couple of other things, which we need to consider inside of the company, then we need to consider a macro environment. We don't know what the COVID impact really is going to look like. Everyone talking about recession, which recession is it that we are really referring to. And basically, that all leads us and will lead us to a review of our U.S. IPO strategy. And it's more a strategy focused on the when, rather than the, if. Because I believe that -- and we continue to believe that the U.S. capital market is the best capital market for businesses like ours. And is there a need to do this without having the world back into normal, and I'm not now talking about the new normal, possibly not. Is it our ambition and strategy, why not? And it's certainly something that we're going to review towards the latter part of this year.
[Operator Instructions] And our next question comes from the line of Max Herrmann from Stifel.
Congratulations on a great deal with Pfizer. A couple of clarifications. One on R&D spend in the guidance, you talked about R&D of, I guess, up to EUR 80 million spend for the year. And that's unchanged on the guidance you gave in March. Given that Pfizer is now co-funding or funding the majority of the Lyme disease program, I'm surprised that, that hasn't reduced. I wondered, whether that's a timing when does Pfizer start to co-fund Lyme development? And then second question regarding the SARS-CoV-2 vaccine development. Obviously, you're looking for funding for that. Given the current environment, I'm assuming that should be fairly forthcoming. I wondered what your thoughts were on that? And then finally, back to the Pfizer deal, have you had any data in the interim from the Phase II study? What have you been able to -- what was Pfizer able to DD during their licensing process?
Okay. This is a lot of very interesting questions. So let's start with the latest first. Of course, Pfizer has seen everything that has been publicly disclosed. And Pfizer has seen supplementary work that has been done on -- in different parts of the program, and -- but in terms of materiality, of course, there is no data that we should have disclosed and have not disclosed, of course, not, right? But of course, the deeper you are into the science of the project and program, and the better you can sharpen your assessment on probability of success, especially given the situation that we are talking here about a product for which the mechanism of action is well understood and validated from previous field efficacy trials. And so one can take a lot of analogies in -- when looking into very close details on the program composition and data details. And then with your first point, I would say you are spot on, yes. I think the -- we have the majority of the Lyme cost -- so the majority of our R&D costs this year are linked to CHIK, and the major, major upfront payments that you need to do when setting up a trial and starting a Phase III, which come very early on and this is unchanged. We have -- there's a whole CMC part for the manufacturing of clinical trial material and so on and so forth. And of course, on the Lyme transaction, we have our 2 ongoing Phase II trials, and those will be an hour on our payroll. And this is basically the major reason for why you see not more in that. This is all subject to final revenue recognition and final accounting treatment and we may see the one or the other change to that. But this is, as I mentioned earlier and we mentioned it, it's our best educated guess at this point in time.
Yes. So -- and Max, just to close out what Thomas said, the -- so expenses are expenses in the R&D investment line, where as revenue goes into the revenue line.
Understood. Yes. No. I wondered whether there was any of the ongoing Phase II costs that would have been borne by Pfizer now, but clearly, that remains with you as a responsibility?
Yes.
And then just the final question was on the SARS-CoV-2 funding environment?
Yes. So the SARS-CoV. I mean, of course, I mean, Max, you know that there are -- I don't know how many, but many, many different funding mechanisms in place. We are putting together those Grant funding and mechanisms and submissions as we speak. We want to have a substantiated case with a clear understanding about time lines and potential costs and all that. And as we said earlier, we will enter the clinic provided funding is there. And that's important for us. And we are positive about the prospect of being recognized in this regard.
Thank you. There are no further questions at this time. Please continue. Thank you.
No further questions? No further questions?
No. No further questions at this time.
Okay. If there are no further questions, then I would like to -- we would like to thank you for taking the time today. We wish you all well, stay safe, and we follow-up closely in due course. All the best. Bye-bye.
Thank you, speakers. That does conclude our conference for today. Thank you for participating. You may all disconnect.