Valneva SE

PAR:VLA

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Valneva presents its First Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Joshua Drumm. Please go ahead.

[Joshua Drumm, executive]

Thank you, [ Sonia ]. Hello, and thank you for joining us to discuss Valneva's first quarter 2024 results and corporate update. It's my pleasure to welcome you today. In addition to our press release and analyst presentation, you can find our consolidated financial results for the 3 months ended March 31, 2024, which were published earlier today available within the Financial Reports section on our Investor website.I'm joined today by Valneva's CEO, Thomas Lingelbach; and CFO, Peter Buhler, who will provide an overview and update on our business as well as our key financial results for the first quarter. There will be an analyst Q&A session at the conclusion of the prepared remarks.Before we begin, I'd like to remind listeners that during this presentation, we will be making forward-looking statements, which are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed or implied by these forward-looking statements. You can find additional information about these risks and uncertainties in our periodic filings with the Securities and Exchange Commission and with the Financial Markets Authority, which are also listed on our company website. Please note that today's presentation includes information provided as of today, May 7, 2024, and Valneva undertakes no obligation to revise or update forward-looking statements except as required by applicable securities laws.With that, it's my pleasure to introduce Thomas to begin today's presentation.

[Thomas Lingelbach, executive]

Thank you so much, Josh. Good day, everyone, and welcome to this call on our first quarter key financial results and business updates. We had a solid start into 2024, and I'm pleased to present some of our key highlights. We made tremendous progress on the pipeline. Of course, chikungunya, we got the favorable ACIP recommendation, CDC adoption, and we see now first commercial revenues kicking in, and I will provide more updates on that. On Lyme disease, the Phase III study, VALOR, is progressing according to plan, and we expect the completion of all prior vaccinations very soon. We started, as anticipated, the Zika virus vaccine program, advanced the new second-generation candidate into Phase I, which is another key milestone on our R&D pipeline.With regards to the financials, Peter, of course, will give us an update on the full financial report. But of course, we got the PRV net proceeds in. We reported a quarter 1 net profit of close to EUR 60 million and more than EUR 175 million in cash. The product sales of EUR 32.1 million are in line with our internal plans. And hence, we have reiterated our full year guidance. We significantly extended the cash runway with the recent update to the debt financing agreement. And we have reiterated and are reiterating our strong midterm financial outlook. We believe that this company solidly funded with significantly lower expected cash burn going forward, especially since we expect to complete our payments to Pfizer very soon.Our operational business is considered sufficiently funded. Of course, as we said in the past, excluding debt repayment until the Lyme commercial revenues are expected to enable sustained profitability. By way of reminder, we discussed a lot about our strategy, but on Page 6 of the presentation, you see again the 3 silos, the pillars, how we call them, that underpin our strategy to become a globally recognized vaccine company. On the one hand side, driving commercial growth. Here, we're going to capitalize on our existing commercial business now augmented with our new vaccine, IXCHIQ, and we expect to unlock the value of this first and only chikungunya vaccine in the market by building awareness, building markets, expanding global reach, and all of that will enable the commercial business to turn cash flow-positive already from 2025 onwards.The second pillar, to capture R&D upside. We would like to continue investing in new vaccines that attract high unmet medical needs, leveraging our proven R&D engine and strategic partnerships and focus on vaccines that make a difference are the first only or best-in-class. Our key expectation is that we will have another asset ready to enter Phase III post successful Lyme readout of its Phase III.So overall, the third pillar marks the maximization of our integrated business model we believe in what some people call this hybrid model, building continuous value from R&D and commercial execution; support, of course, the timely Lyme approvals and achieve sustained profitability with potential Lyme commercial revenues from partner, Pfizer.When we look at chikungunya, we are very proud that we managed this third vaccine in the company's history from bench to a successful licensure. It's the world's first and only chikungunya vaccine right now. And it is clearly a differentiated vaccine. We expect to benefit by being first to market with a potentially best-in-class vaccine here. We believe we have a differentiated and competitive product characterized by a strong and durable immunological response following a single injection. And we see no difference in the immunogenicity profile between younger and older adults. The vaccine has been generally well-tolerated amongst more than 3,500 adults, more than 700 other lessons evaluated for safety thus far.Looking a little bit at the timeline on the launch activities right now shown on Page 9 of the presentation. We basically started by building HCP awareness and stock distribution channels. This is something that we have been working on for a while. We then got the ACIP-approval and the CDC acceptance. We ensure now that the customers are building respective stock and we built payer coverage. Then, coming soon, we expect to activate the consumers and to engage with military.In terms of next steps, we are supporting our customers who are already actively protecting travelers. We activate consumers to seek travel health consults, and we ensure military officials understand the risk, impact and threat levels associated with chikungunya. We will, of course, continuously monitor outbreak and threat levels, given that we are talking about outbreak disease here. And we want to make sure that we are ready in case of outbreaks coming up and adjust our plans accordingly.In terms of regulatory approvals, Page 10 of the presentation, we started with the U.S. Canada and Europe are well on track. And we expect review completions and possibly positive opinions mid of 2024. The Brazil filing for IXCHIQ is ongoing, and this could be the first potential licensure in the chikungunya endemic country still this year. While in parallel, we are transferring the process in order to enable also a locally-produced product, which we call VLA1555 to get licensed in Brazil. We will then continue with additional LATAM and LMIC countries and also other markets where we target countries with established travelers or endemic markets.In terms of additional studies and additional activities, you all know that IXCHIQ is FDA-approved for adults under the accelerated approval pathway, but we have a very robust clinical program to support continued approvals, label extensions, and updated product profiles. We talked a lot about the post-marketing effectiveness Phase IV with the observational effectiveness study in participants above 12 years of age in Brazil and the pragmatic randomized controlled effectiveness and safety study in adults in an endemic country where we expect around 20,000 people to participate. This will start at the end of this year, very, very early next year. All preparation activities are well underway.In terms of labeling expansion, we have 2 very important studies ongoing. First of all, the study in adolescents, VLA1553-321, which is a randomized controlled study in adolescents 12 to below 18 years of age. We reported positive initial results. The 6 months follow-up data are imminent. The basis of that, we will file for label extension to allow this vaccine to be also then approved for everyone above 12 years of age. In parallel, we have initiated the study -- Phase II study in children 1 to 11 years of age, well underway, more than half of it recruited. And here, same thing, we will gradually over time expand and extend the profile.And then, of course, we are talking about a vaccine with a unique profile in terms of durability of protection. And hence, we will continue monitoring the antibody persistence, and we expect later this year, the 36-month time point. Just by way of reminder, we expect this vaccine after single shot to protect for at least 5 years, if not longer, and we will monitor for 5 years. And there is also a study in immunocompromised adults starting very soon. And as part of the Phase III profile, we will also address this famous topic about early onset of immunity.When we turn over to the Lyme vaccine, VLA15, partnered with Pfizer, I don't need to repeat again all the key features of this vaccine. But just by way of reminder, it is the world's leading vaccine candidate against Lyme disease. The only program in advanced clinical development. It is a multivalent recombinant protein-based vaccine targeting the 6 most prevalent serotypes in the Northern Hemisphere. And it's working based on an established mode of action.In terms of next steps, study VALOR, which is our Phase III efficacy study, we expect full completion of the primary vaccination series. So on Slide 14, this would mean both cohorts, Cohort 1 as well as Cohort 2, primary vaccination completed, then Cohort 1 booster completion, and then everything geared up for readout at the end of the peak season 2025, so towards the latter part of next year. So everything is working well, and we are very much excited about this program and the potential to really deliver on a vaccine solution that can make a change to people's life.Talking about Zika, Page 16 of the presentation. You remember that this is an optimized second-generation vaccine candidate is probably the only active one against Zika. And it is leveraging a platform that we originally developed for IXIARO then further optimized for VLA2001, the company's inactivated whole virus COVID candidate or COVID vaccine. And so it is designed for large volume, excellent tolerability safety profile, and potentially with dual-adjuvantation addressing also a very broad and durable protection profile.The -- we are currently looking at market opportunities, we are looking at funding opportunities, and we are watching and monitoring the epidemiological development in the world quite carefully, given that we see currently a lot of signs for Zika coming back. And we will decide, of course, on next development steps later this year or early next year as we are going into the respective data readout points. Of course, we have a very significant number of exciting preclinical things ongoing, and we expect, as we announced earlier, to provide more pipeline updates over the summer.And with this general update on our R&D and launch activities around IXCHIQ, I would like to hand over to Peter to provide us with the financial report.

[Peter Buhler, executive]

Thank you, Thomas. And good morning and good afternoon to all of you. Now let's look at the financial review for the first quarter of fiscal year 2024. Product sales reached EUR 32.1 million and remained stable compared to the first quarter of the prior year. IXIARO sales reached EUR 16.6 million, 4% below last year. The downside was related to supply constraints that are now resolved. DUKORAL sales grew double-digits and reached EUR 11.3 million compared to EUR 10.2 million in the first quarter of last year. The increase in DUKORAL sales was primarily driven by the continued recovery in the private travel market. IXCHIQ sales in the United States reached EUR 200,000. And as a reminder, at the beginning of March, the U.S. Center of Disease Control and Prevention, CDC, accepted the ACIP recommendation for IXCHIQ.Third-party products decreased by 8.9% to EUR 4.1 million compared to EUR 4.5 million in the first quarter of last year. The decrease is a result of anticipated supply constraints of one of our commercial partners. As mentioned during our full-year 2023 earnings call, we expect third-party product sales to decrease over time with a positive impact on the company's gross margin. Foreign currency effect had no impact on the year-over-year sales performance.Now moving on to the income statement. Total revenues reached EUR 32.8 million versus EUR 33.5 million in the first 3 months of 2023. The small decrease in other revenues is related to lower revenues recognized on R&D collaborations. Looking at expenses, we observed an increase in cost of goods and services versus prior year of around EUR 1.7 million, or 8%. The increase in cost of goods is primarily driven by a write-off of failed IXIARO batches. With this write-off, IXIARO's gross margin reached 52% compared to 58.7% in the prior-year first quarter. DUKORAL gross margin is broadly in line with prior year.Research and development expenses decreased by EUR 1 million to EUR 13.1 million in the first quarter of fiscal year 2024. In the first quarter of last year, we reported higher R&D costs related to our COVID-19 vaccine. Also, IXCHIQ-related R&D costs decreased following the U.S. license during the fourth quarter of 2023. These savings were, to some extent, offset by expenses related to the ongoing tax transfer to our new Almeida manufacturing unit in Scotland.Marketing and distribution expenses in the first quarter reached EUR 11.3 million compared to EUR 9 million in the first year of last year -- in the first quarter of last year. This increase is due to higher spend in our U.S. commercial organization and particularly to the launch of our chikungunya vaccine, IXCHIQ. G&A costs increased by EUR 1.6 million to reach EUR 11.7 million in the first quarter of 2024. The increase is driven by higher recruiting costs, increased costs for share-based compensation and expenses related to digitalization and automation.In the first quarter of 2024, we sold the priority review voucher obtained upon approval of our chikungunya vaccine, IXCHIQ, the United States. This resulted in a net revenue of EUR 90.8 million after deduction of all transaction costs and amounts owed to third parties. The operating results of the first quarter is reported at EUR 67.2 million compared to an operating loss of minus EUR 16.6 million in the first quarter of the prior year. The significant improvement of our operating result is, of course, driven by the sale of the PRV.Net finance and income tax expense is reported at minus EUR 9.3 million compared to expense of EUR 1.6 million in the prior year. The higher cost is related to foreign exchange losses of EUR 2.5 million, while in the prior year, we recorded an FX profit of EUR 3.2 million. Interest expenses increased by roughly EUR 2 million, driven by the increased demand of the loan facility. With this, profit for the first quarter of fiscal year 2024 reached EUR 57.9 million compared to a loss of EUR 18.1 million in the prior year.Now moving to Slide 20 to review our guidance for the fiscal year. We reiterate our product sales guidance of EUR 160 million to EUR 180 million for the fiscal year 2024 with a target to double this level of sales by 2026, '27.Other elements of our guidance as illustrated on Slide 21, include total revenues of EUR 170 million to EUR 190 million and other income of EUR 100 million to EUR 110 million, driven by the sale of the PRV reported in the first quarter. We also reiterate our midterm guidance issued during the full year 2023 earnings call. In particular, we expect IXCHIQ sales to exceed EUR 100 million in year 3 of launch.This concludes the finance section of this call, and I would like to hand back to Thomas for the upcoming catalysts.

[Thomas Lingelbach, executive]

Thank you so much, Peter. Yes, so I think we go straight into the reiterated midterm outlook that Peter mentioned earlier. So with regards to total product sales, revenues, other income and the fact that we really expect sales to double over the coming years and basically drive the company on the back of line for sustained profitability.When we look at our catalysts and key news flow coming up in the short term, chikungunya vaccine activities that I mentioned earlier, include the upcoming approvals with the European Medicines Agency, Health Canada, and Anvisa, all of that expected this year. Then the initiation of the Phase III in immunocompromised individuals that we expect also to start in the first half this year. I mentioned the 6 months safety follow-up period on the adolescent study. And right after the -- therefore, the submission for label extension activities and the Phase IV clinical program to start at the end of this year, very early next year. On Lyme, we have a whole bunch of key execution milestones coming up, and they all relate to the VALOR study. But also important, we expect the 2-year antibody persistence data and booster results. It would be very interesting set of data because it will show how the immune profile will look like after the first booster, so as to whether a vaccination against Lyme disease may be needed on an annual basis or whether there could be a longer vaccination schedule following initial booster. Additional news flows include, of course, new U.S. Department of Defense supply contract or a contract for IXIARO in the second half of this year and a further advancement of our R&D pipeline.With that, I would like to conclude this presentation and hand back to the operator to take your questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Maury Raycroft from Jefferies. There appears to be an issue with the line of Maury Raycroft. Are you happy to take the next question?

[Joshua Drumm, executive]

Please go ahead.

[Operator]

The next question comes from the line of Max Herrmann from Stifel.

[Max Herrmann, analyst]

3, if I may. So firstly, just on IXCHIQ and the launch metrics that you're measuring. Obviously, the first quarter, sales were kind of not really expected to be significant. But I just wonder, if you are seeing -- or, what you're seeing in terms of maybe responsiveness from both clinicians and also from potentially what wholesalers might be taking in inventory and how that might work?Second question is obviously on IXIARO and the batch issues that you had. Obviously, I don't remember this being commented on in your full-year results. So I'm just kind of wondering when it happened? Has it led to any customers or clinics not being able to receive IXIARO? So I wonder where it is in the supply chain, how has it impacted the supply chain, whether there's a catch-up period available?And then finally just in terms of future pipeline, I think you talked about bringing a further Phase III program in once the VLA15 program completed. I know you talked previously about an R&D Day perhaps at the end of this year to go through. I wonder what your thoughts were with that in mind and your MPV program with what you're seeing with AstraZeneca and Icosavax with an RSV and hMPV program. So those are the 3 questions.

[Thomas Lingelbach, executive]

I counted 4, by the way. Let me start off. Maybe I'll start off with IXIARO. We had last year quite a bumpy restart of IXIARO manufacturing. I mean, team has not produced IXIARO almost 2 years. We switched back from COVID manufacturing into IXIARO. And so we had quite a, I would say, a number of batches that basically did not successfully complete. Some of them, we are recognized accounting-wise in the full year financials, some drag down into the quarter 1. We had a reported shortage. So there were some markets not still receiving the anticipated and the demand -- the full demand. No product that was ever in the market was affected by any issues.Now we are back on full supply. So -- and we have enough product successfully manufactured and in the supply chain so that we have been able to reiterate our guidance for the full year. So everything that we are seeing on total product sales now for the first quarter is in line with our internal planning. And therefore, we are very confident that everything will work out.When it comes to IXCHIQ, yes, well, I mean, we got CDC adoption a bit more than 6 weeks ago. So of course, the first quarter is not a representative quarter in terms of what's going to happen. But what we are tracking in terms of launch performance is a combination metrics that help us insight and understanding as to launch success. And there were a couple of points that include that we monitor. We include, of course, the wholesaler and the distributor stocking. So we have a set of wholesalers and distributors with whom we are working on IXIARO for a long time. And right now, we know that 100% of our wholesalers and distributors are stocked. Of course, then we are looking also stocking at our most important customer accounts. And we have -- like everyone, we have Tier 1, Tier 2 accounts and so on. And here, we are close to 100% stocked.Then the next metric that we are currently monitoring is the reordering, right? So product basically being used and then reordered. And actually, for us, the medical part is equally important, and this means coverage. It's all about awareness. This is a brand-new disease. It's a brand-new product. So we need to make sure there's enough coverage for IXCHIQ. And we have seen that this is drastically increasing right now. And we are very pleased with our U.S. commercial team and medical teams that they are really building on all of that. And so that -- these are the key parameters that we are monitoring. And yes, we hope that the -- with the next earnings, we will be able to report already a little bit about real consumption in the market and what's going to happen in terms of people actually getting IXCHIQ in their arms.When we talk a little bit about the pipeline, yes, so basically, you mentioned a couple of points. Nothing has changed on the company's R&D pipeline strategy. Just to recap, we have a very significant number of promising candidates in our preclinical pipeline. However, we have stated in the past that we are looking to augment the pipeline with a clinical stage asset, either alone or in co-development. And we have said that this is an objective that we have given ourselves for the first half of this year. So now I would say, over the summer, we still hope that we will be able to augment the pipeline while at the same time, accelerating some of the activities that we are doing in preclinical. All of that will exactly lead to what you mentioned earlier, Max, namely a program to enter Phase III by the time, hopefully, Lyme will have successfully completed Phase II.On hMPV, specifically, we have stated already last year that we don't see an advantage of moving hMPV stand-alone into the clinic. Also, it would be ready for it. We have put these assets into the market. There is a very, very limited number of parties that could benefit from an RSV-hMPV combo. And we are still in the process of actually marketing this asset, but it's too early to talk about here a potential opportunity.And I hope with that, I have been able to address your questions.

[Max Herrmann, analyst]

Yes. Maybe just a quick follow-up on IXIARO. I think there was a mention of movement in Scotland from the manufacturing. I mean, I don't know whether that was to the new facility that you have constructed. So just whether any of the batch issues related to what's been going on, maybe you could describe a little bit better what's been going on in terms of the facility there.

[Thomas Lingelbach, executive]

Yes. So basically, we announced that we would use the new facility for -- in the future for IXCHIQ and IXIARO. But it's -- the tech transfer into the new facility is something that will happen during this year. Nothing that you have seen with regards to the batch ride of last year or very early this year. It had to do with these activities because this is something that we will do quietly over the course of this year and then consolidate all activities on site, which will have a very interesting and favorable impact on cost of goods.

[Operator]

The next question comes from the line of Rajan Sharma from Goldman Sachs.

[Rajan Sharma, analyst]

A couple. So firstly, just on IXIARO. So now that you're back at full supply capacity and following the weakness in Q1, do you expect kind of a catch-up in revenues in Q2 now that you have capacity back online? And then on IXCHIQ just, could you just help us understand kind of the steps in the process to the military engagements? And do you think that there's a potential that you could close a deal or potentially at least engage with military customers before your competitor is potentially approved in the first half of next year?And then second one on IXCHIQ was just kind of, if you could discuss the strategy to activate consumers that you've talked about. Is this an area that there could be a potential DTC campaign, or does the commercial opportunity not justify that?

[Thomas Lingelbach, executive]

Yes, Rajan. So let me start off with IXIARO. We believe that IXIARO will -- IXIARO all sales will substantially grow as compared to last year. And this will include also a sort of catch-up as you called it. Of course, lost travelers are lost travelers, but we expect a significant growth as compared to last year in terms of total product sales for IXIARO this year. As such, there will be certainly a very significant uptake to be seen for IXIARO later in quarter 2, 3 and 4.Yes, we managed military engagement for IXCHIQ. And we are in very active discussions with military. And we hope that we will be able to get IXCHIQ in a way in -- on to the radar screen. And for the Department of Defense, there is significant need for it. We have also seen some small outbreaks that could be of relevance for DoD. And as such, we are positive about DoD's engagement with this regards.And DTC is, yes, we -- it may well be, but only with defined media. And we are currently working on that. I hope this helps clarifying your questions.

[Rajan Sharma, analyst]

That's very helpful.

[Operator]

The next question comes from the line of Evan Wang from Guggenheim Securities.

[Evan Wang, analyst]

I guess with IXCHIQ, can you provide any kind of details in terms of some of the launch stocking dynamics that we're seeing? I know you said the wholesale industry are kind of 100% stocked now. So any color there would be helpful.And then second, with Lyme, so you're expecting to report some of the 2-year antibody positions. What are you looking for there? And I guess, how important is your position to, I guess, how you're thinking about the market opportunity?

[Thomas Lingelbach, executive]

So the line was not great, but I will try to focus -- I'll start with the latter part of your question first. I think you were talking about antibody consistent for chikungunya, correct? Am I right?

[Evan Wang, analyst]

Can you hear me better now?

[Peter Buhler, executive]

Yes. So you were talking antibody persistence for chikungunya, correct?

[Evan Wang, analyst]

No, for the Lyme program that you're [Indiscernible] 3Q.

[Thomas Lingelbach, executive]

Okay. Good. So, sorry for that. Yes. So basically, remember the antibody persistence for the Lyme program, we have a cohort from the original Phase II study. This cohort got the 3 doses priming. It's a core from the study 221 of Lyme disease. They got basically then the booster shot after 1 year. This booster shot resulted in a very, very good anamnestic response. So basically, the immune response was by a factor of 3 to 4 higher than the one after priming. Now we are monitoring this cohort 1 year later. So basically, we're going to see how does it compare against the immune response we got after priming originally. And this may result in a situation where we say, well, probably after 2 years, you don't need a booster. But this is something that we need to take a closer look at and need to see what we actually can interpret out of the results to come. But certainly, very interesting data package to come later this year.Yes, when it comes to IXCHIQ, we cannot currently report on a number of doses or what we have really put into the channel that would not be appropriate at this stage. But what we can say is that all of our key wholesalers and distributors do have IXCHIQ available for sale. And this is the most important thing right now.

[Operator]

The next question comes from the line of Samir Devani from Rx Securities.

[Samir Devani, analyst]

Just got a couple, I think. Just in terms of Brazil, if you get licensure there this year, can you just explain -- will that mean that you will supply product from here, or will you wait for the tech transfer to complete before product is supplied? I guess that's question one.And then maybe just another question on COGS for Peter. Just trying to understand, I think you booked things like EUR 2.4 million COGS or services that services was only EUR 600,000 in revenue and also idle capacity costs of EUR 1 million. Can you just explain why that hasn't been allocated to one of the products?

[Thomas Lingelbach, executive]

Samir, I'll take the first one on -- yes, it means exactly what you just said, namely we would supply product manufactured in Europe to Brazil, most likely into the private market, but possibly also by way of public business, and we will certainly also use our product in a vaccination campaign that will address. Also the -- what the -- some of the Phase IV requirement.With that, I would like to hand over to Peter. Peter, do you want to take the COGS question, please?

[Peter Buhler, executive]

Yes. Thanks, Thomas, and Samir. So on the COGS of services, the cost of services, so this is basically the -- our contribution -- our people contribute to the Lyme trial, we report this at the cost of services. We received a contribution, of course, from Pfizer, which we don't recognize as revenues right now. We put it on the balance sheet, and we expect to recognize this revenue later down the road.On the idle capacity, that's basically the -- related to the Almeida site as we said earlier on. So we are in the process of tech transferring products over there, but we don't produce yet, which is why we don't allocate it on the product.

[Samir Devani, analyst]

Okay. And maybe just then to follow up on that. Does that mean those idle capacity costs will -- we should expect them to recur over the coming quarters?

[Peter Buhler, executive]

Yes.

[Samir Devani, analyst]

And also on the -- yes, okay. And then in terms of Brazil, how does that work in relation to the Instituto Butantan deal? Will you still be just receiving a royalty on sales to Brazil, or is that -- would that be separate until they are manufacturing product themselves?

[Thomas Lingelbach, executive]

Peter?

[Peter Buhler, executive]

So on Brazil, I mean, if it's products that are sold by Butantan, we would get a royalty irrespective of who manufactures. So we would...

[Samir Devani, analyst]

Right. Okay. Understood.

[Operator]

The next question comes from the line of Ed White from H.C. Wainright.

[Edward White, analyst]

Just a follow-up to a prior question on COGS. There are so many moving parts here. As you mentioned, the new facility in Scotland and the lowering of the third-party sales. You had said in the presentation that in the midterm outlook, you expect gross margin improvement. Can you discuss what you expect to see in 2024?

[Peter Buhler, executive]

Yes. Ed, so this is -- yes, thanks for the question. And I agree with you, there are a lot of moving parts. We -- as we said, we expect costs to improve in the midterm. We actually do think we will see an improvement in 2024, but we have not guided on cost of goods or specific expense items, which is why also, of course, I cannot give you a concrete number today, but we do expect to see an improvement here clearly.

[Operator]

The next question comes from the line of Suzanne van Voorthuizen from Van Lanschot Kempen.

[Suzanne van Voorthuizen, analyst]

This is Suzanne from Kempen. I have one on your midterm outlook, which was reiterated. Can you clarify whether the cash flow-positivity from 2025, whether that's purely on IXIARO, DUKORAL and IXCHIQ, and maybe some third-party sales? Or should we also consider other potential income streams in there, such as potential milestones from Pfizer on Lyme?And my second question is for the Phase I Zika program. Can you remind us what the difference between the first and second generation candidate was? And help us understand at what you'd like to see in the Phase I data immunogenicity-wise, whether this is a vaccine where you would also expect over 90% sero conversion or whether the target is lower, any considerations?

[Thomas Lingelbach, executive]

Hi, Suzanne, this is Tom. I suggest that I'll let Peter answer the midterm outlook financial question. But I'll start with Zika first. So what is difference between first and second generation. Our first generation was basically the Zika candidate that we just put on the IXIARO process, which is a small-scale single-adjuvanted cell culture-based inactivated whole virus process. We then changed this process to allow for large volume production for COVID. So still cell culture-based but large-scale production at low cost of goods or lower cost of goods. And we introduced double-adjuvantation, so which means not only the antigen adsorb to aluminum hydroxide but also combined with an additional T-cell adjuvants. This has given us in COVID superiority against even vectors. And we believe that longevity of the immune response, which has shown to be challenge for Zika vaccines in the past, will be addressed. And secondly, we will hopefully reach immunological plateau, which we did not achieve, or not see in the first Phase I study pre-COVID.And so basically, that's what we want to do with the Zika candidate. Yes, I mean, zero conversion, definitely above 90% would for us be an important feature.With that, I hand over to Peter to answer your question on the cash flow positivity.

[Peter Buhler, executive]

Yes, Suzanne. So yes, regarding the cash flow positivity from 2025, it's really on our commercial business, including IXCHIQ. So what we're seeing is basically our full commercial business will be cash flow-positive from 2025. And that excludes Lyme. We do not expect any revenue flows in 2025 from Lyme. The next revenue flows we expect from Pfizer is actually upon first commercial sales of Lyme, which would be in early 2027.

[Operator]

The next question comes from the line of Maury Raycroft from Jefferies.

[Maurice Raycroft, analyst]

Can you hear me now?

[Thomas Lingelbach, executive]

Yes, loud and clear, Maury.

[Maurice Raycroft, analyst]

Okay. Apologies for the technical difficulty earlier. I'll just ask 2 quick ones. For IXCHIQ, for customers already actively protecting travelers, can you talk about how many touch points do you have in the United States? And how many of those sites will there be in the EU for IXCHIQ once you're approved there? And can you talk about EU launch plans and rollout?

[Thomas Lingelbach, executive]

So basically, I will see whether we can find out how many touch points we really have because I don't know it out of the top of my head. So -- but for the EU, it is very clear that we expect the product licensure ideally now in the summer with a positive CHMP opinion then following -- followed by EC adoption. And then of course, we have the whole [ OLCL ] activities that will need to take place, which is why we originally, as you may recall, Maury, guided that our anticipated launch date would be January 1 for the key. And you have in Europe, the top 5 travel market with -- for chikungunya, a particular situation with regards to France, given that the French history with [Indiscernible] means that the disease awareness around chikungunya in Europe is probably highest in France. And that's why we may basically consider prioritizing front. Whether we will be able to accelerate launch ahead of January 1, 2025, in Europe, we have to see. Of course, if license timelines do support it and regulatory activities do support it, we will do it. We are ready. We have a team that is very excited to get this vaccine to people as soon as possible. And that's all I can say at this point. And I will provide you with the number of touch points in the U.S. as soon as I get it from the U.S. team or from the commercial people.

[Maurice Raycroft, analyst]

Yes. Okay. That's helpful. And then a quick follow-up on the U.S. DoD potential for chikungunya. Just wondering, have they committed to running a formal request for proposal there, or is that part of the ongoing conversation? And when could we learn more about just the conversations with the U.S. DoD for IXCHIQ?

[Thomas Lingelbach, executive]

It will definitely follow a different process, Maury. And so basically, we do not expect the 2 that they will launch, let's say, formal RFP. But the discussions are still ongoing. And I just got the -- I just got from our team that there are more than 200 basically touch points at this stage in what we call the Tier 1 and Tier 2 accounts. And that's -- but we will provide you with more details around that as soon as we get it. Yes. Okay. That sounds good.

[Operator]

Thank you. This concludes today's question-and-answer session.I would now like to hand over to Thomas Lingelbach, for closing remarks.

[Thomas Lingelbach, executive]

Thank you so much. Yes, thanks a lot for your active participation today. Thanks a lot for your great questions. Thanks for following us for your continued trust, confidence in our work. We are excited about where we are. As I said, solid start of the year and clear prospects for this year and clear midterm, exciting outlook.With that, I wish you all a wonderful rest of the day, and talk soon. Bye.

[Operator]

This concludes today's conference call. You may now disconnect. Speakers, please stand by.