Now Valneva presents its half year 2021 financial results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your host today, CEO of Valneva, Thomas Lingelbach. Please go ahead.
Good day, everyone. Welcome to our report on H1 2021 financials and general business updates. Well, the first half of 2021 has been marked by tremendous success on our R&D side of the business. We have nicely delivered against our key major R&D objectives. Of course, the most recent news flow, probably at this moment in time the most important one, is related to our chikungunya vaccine. We are very proud to be the first company in the world that has successfully delivered a phase III for a chikungunya vaccine, which continues to be a significant unmet medical need. We made excellent progress on our other clinical assets. On Lyme, we successfully recruited the additional phase II study, called VLA15-221, which includes also now the full pediatric target group, which is a key prerequisite for having the entire target population taking part of the future field efficacy study.
For our COVID-19 vaccine, VLA2001, we have successfully completed the enrollment and are now proceeding with the serologic testing. Despite of our commercial travel vaccine still being heavily adversely affected by the ongoing pandemic, we have a strong financial position and platform. We successfully conducted our US IPO according to plan with net proceeds of more than $100 million. We have cash and cash equivalents today of more than EUR 300 million, and this is something that will be further detailed as part of the financial report. Let me first talk about chikungunya. The primary endpoint of our study, VLA1553-301, was to measure seroprotection. Seroprotection is the amount of study participants that showed protective neutralizing antibody titers. We have agreed on a surrogate of protection.
This surrogate of protection was developed together with the agencies and based on a passive transfer study in non-human primates and a few other supporting non-clinical experiments. We have shown 98.5% of subjects reaching those protective levels after a single shot. This has been even better than one could have hoped in this regard. It's really remarkable for such a type of vaccine. It is also important to note that we have seen a similar level of seroprotection in the elderly, not only in the younger adults, which again is a great result. It is also important to note on this slide, which is slide number six, that with 98.5%, we are well above the FDA non-acceptance margin, which was set at 70%. When you look at slide seven of the presentation, you see that our vaccine induces very high neutralizing antibody titers.
We see a fantastic immunologic profile across all age groups, including the elderly. Safety. With regards to safety, our vaccine shows a safety profile that is absolutely in line with what one would expect for such a type of vaccine. We evaluated safety in more than 3,000 participants who received the vaccine. We had an independent data safety monitoring board continuously monitoring the study, and they identified no safety concerns. The safety profile that we have seen in the phase III is consistent with what we have seen in the phase I. The majority of solicited adverse events were mild or moderate and resolved within three days. Around 1.6% reported severe solicited adverse events, most commonly fever. Approximately 50% of the study participants experienced solicited systemic adverse events, most commonly headache, fatigue, and myalgia. Approximately 15% of the participants experienced solicited local adverse events.
Overall, a good safety profile and also a very good safety profile in elderly. Of course, we need to follow the study subjects now for a further six months, and that's why the final analysis of the study will only be ready once this follow-up period has been completed. With regards to next steps, of course, we are working now towards the final analysis, which is expected within the next six months, as I just mentioned. You also know that we have in parallel a lot-to-lot consistency study running.
This study is fully recruited. The data is expected later in the year. The antibody persistence follow-up trial, VLA1553, is ongoing. They will be followed up annually for five years after a single immunization, because our hope is that with a single shot, this vaccine may protect for a long time, even up to five years, which, of course, would be tremendous. We are now in active discussions with the agencies, primarily the FDA, to bring VLA1553 to a potential licensure as soon as possible. Overall, very pleased with this outstanding result in an area not only of high unmet medical need, but also by way of reminder, a disease area that allows the first one to achieve BLA approval to access a priority review voucher, which is probably the single largest short-term commercial return for this product candidate. Talking about Lyme.
We are still the only company that has an active Lyme disease vaccine program in advanced clinical development worldwide. The program got FDA Fast Track designation granted. We reported good results from the phase II trials to determine dose and schedule. As I mentioned earlier, we have completed recruitment for the phase II study, VLA15-221, including the peds five and above. This marks then the total target population that we're going to include in the pivotal field efficacy trial, which is about to commence next year. The vaccine contains six serotypes to protect against the most common serotypes of Lyme borreliosis in the northern hemisphere and follows a proven mode of action for Lyme disease vaccines. As you know, we have an excellent partnership with Pfizer, with whom we are progressing this development forward. The details around the current state of play.
The recruitment for the study VLA15-221, which was recently completed, included 625 participants, 5-65 years of age. The trial triggered a milestone payment from Pfizer of about $10 million. The top-line results are expected in first half of 2022. We will also investigate a booster dose administered one year following the six-month dose. We expect the phase III pivotal efficacy trial to commence, of course pending positive readout from the phase II study in 2022. The clinical readout based on one tick season is projected by the end of 2023. This will then allow for an initial submission for regulatory approval anticipated in H2 2024, assuming, of course, positive data. Let's move on to our COVID vaccine, VLA2001, which is the only inactivated vaccine in clinical development in Europe today. You know that we have a partnership with the U.K. government.
The U.K. government has ordered approximately 100 million of the vaccine doses. The government is supporting us with development and manufacturing funding. We continue to have an ongoing dialogue with the European Commission for European supplies. The program acceleration enabled us basically to go based on our platform that we have established in Scotland with our IXIARO vaccine. The commercial manufacturing commenced in January 2021. Our vaccine differentiates from other inactivated COVID vaccines in development, for example, those in China or India, because we combined our vaccine with a modern adjuvant, Dynavax's CpG 1018, which is a Toll-like agonist, supposed to increase T-cell immunity by shifting the immune response towards Th1. We have reported good phase I/II clinical results and are now in the middle of our phase III. As I mentioned, recruitment completed of our study COV-COMPARE. Now in clinical serology testing.
The regulatory submission to MHRA is still planned in the autumn, so in the last quarter of this year. Subject to data approvals and so on, we will be able to commence deliveries thereafter. The current study, called COV-COMPARE, VLA2001-301, is a randomized, observer-blind, controlled comparative immunogenicity trial in over 4,000 adults. We are the only company that targets to show effectiveness of the vaccine by immunological comparison against a licensed vaccine, and this approach is expected to reasonably predict the vaccine efficacy. We do this by way of testing superiority of VLA2001 in a two-dose immunization schedule, day zero, 28. We measure the GMT ratios in between the active comparator and our vaccine at two weeks after the second vaccination.
The study is conducted in the U.K., supported by DHSC, NIHR, with testing being conducted at PHE. The protocol has been agreed with MHRA, we have advanced discussions with other regulatory bodies on a similar approach. Top-line data are expected early in the fourth quarter, we expect to commence rolling submission with the MHRA in the coming weeks. Subject to the phase III data, we believe that the initial approval may be granted by the end of the year. We are also participating in the world's first COVID-19 vaccine booster trial in the U.K., where our vaccine is being used to booster people with a third dose who have been primed with other vaccines. This could become a very interesting target product profile for our vaccine going forward. Additional studies are also planned, including reduced booster dose, but also studies, for example, in elderly.
We are also studying other variants in order to be in a position to manufacture variant-based vaccines, because you may know that especially for whole virus inactivated platforms, there are a lot of examples how strain or variant shifts can be addressed, e.g., in the world of influenza. With this update on our R&D activities, I would like to hand over to David.
Thank you, Thomas. Just to move on to slide 15 for those of you who are searching. Good morning to those of you in the U.S., and good afternoon to those of you in Europe. Just before I hand over to Manfred to go through the financial results, as is usual this year, I'd like to say a few words regarding the broader business dynamics and indeed, future guidance. First of all, I'm at our Livingston site today. Many of you will know that the team here is working hard to produce our inactivated COVID vaccine and working around the clock to complete the new plant, which is just across the road from where I'm sitting right now.
We've strengthened our teams globally. In the context of today's call, I'd also like to mention that Josh Drumm recently joined us as VP of Investor Relations. Thomas and I will introduce Josh to many of you in the coming weeks and months, including hopefully, some of those meetings in person. While today is very much about our chikungunya data, we have several strings to our bow, as you all know. We're reconfirming our core guidance, which is testament to the ongoing excellent execution and control of our R&D programs, combined with mitigating the effects of COVID on our travel vaccine business. We've always been clear that we plan to invest fully in our unique and valuable R&D assets. The level of R&D investment is consistent with that aim.
We would have been pleased to provide guidance on our COVID program, but that's still difficult for a couple of reasons that I'll just explain just now. Firstly, and as Thomas has alluded to, our phase III trial recruited on time, and the execution of that trial itself has been managed extremely well. We're just waiting for the output of the serological testing and the subsequent data analysis. Clearly that data forms part of the rolling submission to the MHRA that Thomas also mentioned. We've said before that the phasing of the 60-million dose order to the U.K. government will move across also into 2022. What we want to be able to do is to give meaningful guidance. We've also got ongoing discussions with the EC, as most of you will know, and therefore for now, we're not giving guidance that includes COVID.
Rest assured we'll do that as soon as we have sufficiently robust information, and we hope that's not too far away. I think what's most important regarding COVID, and indeed the other programs that are executing very well, is the fantastic work that many people are still doing to provide solutions to the ongoing challenges that COVID-19 presents us with. That includes the execution of non-COVID R&D programs. Valneva will contribute to the COVID challenge, and we'll give you more economic insight into that as soon as we can. With that, I'd like to hand back to Manfred. Thank you.
Thanks a lot, David. I want to continue the finance section with providing more details on the product sales generated during the first six months of 2021, which in total amounted to EUR 31.8 million. Sales of third-party products further gained momentum and driven by both Encepur and Rabipur, contributed a total of EUR 5.9 million to our H1 product sales. IXIARO sales to the U.S. military were still related to the base year of the contract signed back in September 2020 and delivered about EUR 22.3 million of sales during the first half of 2021. As we continue seeing the travel industry being impacted by COVID-19 related restrictions, sales of DUKORAL and IXIARO were during the first six months still quite compressed and in combination added about EUR 3.5 million to our H1 top line.
As you can see on the right slide, on slide 16, the overall product sales were quarter-over-quarter down by about 19% at constant exchange rates, and almost all of our sales were delivered through our own commercial infrastructure. Our gross margins on product sales ended up at 39.2%, impacted by compressed product sales, some higher capacity costs, and also continued need for write-offs of aging inventories. Next slide, please.
On the next slide, I want to walk you through the H1 profit and loss statement. Here, I would first want to draw your attention to the total revenues, which remains only 1% below the first six months of 2020, with the reduction in product sales almost completely offset by our other revenues, which more than doubled from about EUR 7 million in H1 2020 to about EUR 15.7 million in the first six months of 2021, which is mainly a consequence of revenues added from the Pfizer collaboration for Lyme, higher revenues in the CTM unit in Sweden, and some incremental revenues related to the chikungunya program for LMIC countries together with the Instituto Butantan. Overall, COGS increased from previous year as a result of idle capacity costs as well as inventory write-offs, while cost of services increased in line with the increase in our other revenues.
Our R&D investments continued growing significantly and again more than doubled during the first six months of 2021, in line with our R&D portfolio progressing into late-stage clinical development. Primarily impacted by incremental COVID-19 related R&D spend amounting to EUR 46 million during the first six months of 2021. Marketing and distribution expenses declined moderately compared to the first six months of 2020. Investment into launch preparation and market access related to our nicely progressing chikungunya program, have added EUR 2 million of incremental sales and marketing spend in 2021. Excluding these additional expenses for chikungunya, our marketing and distribution spend reduced by about 25%.
G&A spend continued increasing materially, mainly driven by non-operational costs, mostly related to corporate projects such as the U.S. IPO preparation, combined with investments in support of our COVID program, as well as included some non-cash effects related to the company's stock option program. A few more words around the finance results, including taxes. This continued being positively impacted by foreign currency valuation gains, primarily related to the GBP denominated cash and balance sheet positions, which almost offset the increased interest charges related to our debt financing agreement with OrbiMed and Deerfield, as well as other interest charges related to our refund liabilities. EBITDA shows a total loss of EUR 80.1 million, mostly driven by strongly increased R&D investments in the first half. Next slide.
This additional slide shows the impact of the COVID-19 activities on the company's income statement, also showing that a considerable part of the EBITDA of the first six months is attributable to the COVID-19 related investment in R&D. From the total EBITDA of EUR 80.1 million, about EUR 53 million related to the COVID-19 business, leaving about EUR 27 million attributable to the company's core business excluding COVID. Also the core business shows significant R&D spend of around EUR 32.6 million, mainly driven by investment into the phase III of our chikungunya program. Also important to note that still no COVID revenue has been recognized for the period ending June 30.
Finally, on the next slide, as last quarter, we thought it would also be helpful to again give a few comments on the balance sheet statement for June 30, given some material movements continue impacting our balance sheet. Firstly, we see our fixed assets taking a step up and meanwhile amounts to almost EUR 75 million, which you can see on the property, plant, and equipment line. Inventories keep on increasing. Meanwhile, we hold about EUR 125 million of inventories, which largely are COVID-specific. As expected, we saw our cash position further increase, driven by both the proceeds generated through the global offering of new shares, as well as further prepayments received from the U.K. government. Our cash position further increased and amounted to almost EUR 330 million by the end of June 30, 2021.
On the liability side, I again want to highlight the continued increase in the contract liabilities, which related to further cash considerations received from the U.K. government during the second quarter related to the COVID supply agreement. If we start supplying COVID vaccines to the U.K. government, we will gradually see the contract liabilities moving into the P&L. With this, I want to conclude the finance section and hand back to Thomas to give us an update on the expected news flow. Thank you very much.
Yeah. Thank you, David. Thank you, Manfred, for the comprehensive financial report. Page 21 of the presentation summarizes the key upcoming catalysts and potential value inflection points that we see ahead of us. For chikungunya, the final phase III trial results, which includes the six-month follow-up period, including the lot-to-lot consistency Phase III study that we expect later this year. Those two studies form the basis for licensure. These are the pivotal studies and are part of the submission that we expect to do with the agencies. Of course for the Lyme disease vaccine candidate, VLA15, we continue, of course, execution on the study VLA15-221, and we expect some minor follow-up readouts of the phase II studies, which are primarily follow-up time points that will come over the course of the next month.
On COVID, of course, this is the next very important readout that we are expecting. Here, the clinical results on our study 301, the COV-COMPARE study, but also the study that is being conducted in Southampton, where we are part of the different booster strategies called COV-BOOST. Later in the year, the first initial potential licensure. We expect to initiate and execute additional clinical activities on COVID, as mentioned earlier, to complement the U.K. trials, primarily to increase label over time, not necessarily for initial licensure. These are the key points, and I think with that, I would like to hand back to the operator to take your questions.
Thank you. As a reminder, if you would like to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel that request, please press the hash key. Once again, to ask a question, please press star and one on your telephone keypad. The first question comes from the line of Maury Raycroft at Jefferies. Please go ahead. Your line is now open.
Hi, good afternoon. Good morning, everyone. Thanks for taking my questions. Congrats on the chikungunya phase III results. First question on chikungunya. Just wondering if you can provide any more specifics on what the regulatory timeline could look like, and is there anything you're going to be looking for in the longer-term safety follow-up?
Maury, hi. First of all, the six-month safety follow-up is a prerequisite for licensure, I mean, in the non-COVID vaccine world, I would say. We are basically reviewing the same that we have been reviewing already during the ongoing phase III study, and there will be no additional readouts. We will measure the same parameters and continue to watch the same parameters as we did for the ongoing study and the top-line results. We do not expect any changes to this profile overall. With regards to the submission, of course, we are preparing our different pieces here according to the regulatory dossier, different modules, CMC, clinical, non-clinical. As soon as we have our clinical lot-to-lot consistency data and the six-month follow-up data, we will start the submission process.
Right now, I would say, to predict timelines with regards to submission to approval for non-COVID-related vaccine development activities is difficult. Authorities are allowed and give priority to COVID-related vaccine development. Hence, we are careful in providing any further detailed guidance on potential approval at this point in time.
Okay. That makes sense, and it's helpful. For the second COVID phase III, looking at the 2101 in variants, what could timelines look like for that one? Is there anything else you can say on how 2101 will fit into your strategy?
You are referring to which study, Maury?
This is the study in COVID variants.
You talk about the study that is on ClinicalTrials.gov, 304?
That sounds right. I think it's the 304. We can follow up offline.
Yeah. No, I can answer the question. It's not a problem at all. I just want to make sure since we have a lot of COVID studies ongoing or in the plan, I thought it's important that we align. We are planning a further study called VLA2001-304. This study will include elderly, and it's a study that is designed to allow for a potential variant bridge. The study is about to commence. This is also why you find already the study description on clinicaltrials.gov.
Got it. Okay. For that one, is there any more specifics on how that could fit into a launch strategy for COVID?
We do not expect that this study will be needed for initial licensure, but it is a study that is expected to support broader age range claims. Of course, as I mentioned, it's also expected to provide a platform that we can use for a potential clinical bridge into new variants. I think you will see a respective announcement upon initiation of the study, and it's fair to say that this is imminent.
Got it. Okay, that's helpful. Last question is if you think the COVID discussion with the EC will materialize or get finalized after the phase III COVID results are disclosed, or how should we think about timing for an EC decision?
Well, I would say we hope to be earlier, but we are in active discussions with EC for a long time. This is all we can say at this point in time.
Understood. Okay. Thank you for taking my question.
You're more than welcome, Maury .
Thank you. Your next question comes from the line of Seamus Fernandez at Guggenheim. Please go ahead. Your line is now open.
Great. Thanks for the question. Just a couple of quick ones. Just wanted to get a sense of the timing of the initial sort of COVID trial dataset. I believe that you had announced that patient enrollment had completed towards the beginning of 2021. I guess the structural sort of timeline would be six weeks plus, from the timing. Could you just give us a sense of the timing updates and if additional data points are actually required to measure the sustainability of the antibody boost benefit? Is it requiring kind of evaluation of multiple time points just to see the durability of effect? Is it just structural to the trial, from a timeline perspective?
In terms of the evolution from a manufacturing perspective towards the variants capabilities, what would it take to kind of move towards an inactivated variant vaccine that's, let's say, oriented either towards Delta or Beta? How quickly can that be incorporated into your existing process should the initial ancestral effort be successful? Thanks.
Good question. Let me start with the timelines, to repeat the timelines on our current study, 301. Right? We have the 301 study is the COV-COMPARE study. This study compares our vaccine head-to-head against the AstraZeneca vaccine. AstraZeneca is an active arm in this. AstraZeneca vaccinated people represent an active arm in the study. We have completed the enrollment. This means that people got then the two shots, and thereafter, serological testing starts, and our primary endpoint is two weeks after completion of the primary immunization series. As we announced, we expect this top-line data early fourth quarter. We are not entirely in control of our own destiny here. We collaborate with the U.K. government. The serological testing is being done at Public Health England, as we mentioned at one of our previous calls already.
From there, we expect that this primary endpoint data will form the basis for the initial licensure. We will in parallel, continue follow-up time points to observe antibody persistence. This is currently not expected to be the basis for the initial conditional licensure. That will be part of the, I would say, the ordinary, if I may say so, process later on. The same is true for the COV-BOOST study. Here, of course, it is also a primary endpoint that will be measured and at a later point in time, there will be follow-up time points to observe antibody persistence. When it comes to the manufacturing part of your question. Whole viruses require, of course, that you isolate the virus, and then you create a respective virus clone that you can use to generate a viral seed bank.
From the initial, we call it research virus seed bank, to the master virus seed bank that you can then plug into production, you need to assume roughly 8- 10 weeks. This is a timeline that is well-known from the world of influenza. That will allow then to commence manufacturing, and it is expected that the manufacturing process will be identical. No change to manufacturing process overall. However, again, as per influenza, there are existing guidelines in the meanwhile also published, that will apply for COVID variant vaccines or potential COVID variant vaccines, which are also based on immuno comparability. These are not big studies, but a few hundreds of people where you need to show in a head-to-head comparison against a surrogate which will be neutralizing antibody titers.
This, coming back to Maury's question earlier, therefore, we have also created the platform around our study VLA2001-304, where we have designed the protocol in a way that we can add whenever we have a potential variant vaccine ready and add this comparability arm to an ongoing study.
Thank you.
Welcome.
Thank you. Your next question comes from the line of Samir Devani at Rx Securities. Please go ahead.
Hi, everyone. Thanks for taking my question. Just let me add my congrats on the chikungunya data. Very pleasing to see that. Just on COV-BOOST, Thomas, I'm just wondering, is it your expectation that you need to do a company-sponsored study to get the booster label added, or do you think the data from that study will be sufficient?
Well, this is a good question, Samir. Basically, by the end of the day, the decision around boostering is a JCVI decision in the U.K. Whether the data that we generate there will be sufficient or not is a discussion that we got to have with the MHRA once we have the data at hand, right? There are certainly multiple possibilities, including that we don't need an additional study. Nevertheless, we have, as you may recall, already announced during the last analyst call that we amended the current protocol for phase I, II to add a booster arm, just to also include company-sponsored booster data in case we're going to need it. The same will be true, by the way, for study 301, where we'll also add on a booster arm.
That's great. Just, can you remind me, I know the COV-BOOST is looking at a full dose and a half dose, 2001 boosting. In your additional arms in your studies, are you using the full dose or half dose?
Full dose.
Okay. That's great. Thanks very much.
Thank you. Your next question comes from the line of Jacob Mekhael at Kempen. Please go ahead. Your line is open.
Hi there. Thanks for taking my question. My question is regarding the upcoming read out for the COVID-19 vaccine. I am just curious if there are any factors that would give comfort for the expected read out.
Basically, we are measuring GMT ratio, neutralizing antibody titers against AZD1222. The level of comfort that we do have, and this is the reason why we entered positively into this endeavor, is, of course, that there are reported neutralizing antibody titers from the AZD1222 vaccine in the U.K. from their phase I/II study and from our phase I/II study. Those neutralizing antibody titers were generated at the same labs with the same assays by the same people. Those numbers are published, both ours as well as theirs. This ratio, if I may say so, or the order of magnitude of those neutralizing antibody titers, give us the level of confidence that we have right now.
We are in the world of vaccine development, and by the end of the day, we are in the world of biology and only the study readout itself will tell.
Okay, thank you. Makes sense.
Thank you. There are currently no further questions, apologies. As a further reminder, if you would like to ask a question, please press star one on your telephone keypad to ask a question. I do have another question on the line. It comes from the line of Simon Scholes at First Berlin. Please go ahead. Your line is open.
Yes, good afternoon. I just have one question. I was just wondering if the slightly later timing of the expected release of the phase III results is going to have any impact, or you expect it to have any impact on the availability of your results from COV-BOOST.
We are not the sponsor of COV-BOOST. There are, from our perspective, no interlinks to that that we are currently investigating. We are indeed just a few weeks behind the original expectation, probably two to three . As I said earlier, we are not entirely mastering the process here within the partnership that we have with the U.K. government, but it is not expected to have a knock on effect on COV-BOOST, no.
Okay, thanks very much. That's very helpful.
You're more than welcome.
I do have a follow-up question from the line of Samir Devani at Rx Securities. Please go ahead. Your line is open.
Thanks for taking my follow-up. It is really just a question for David and Manfred. I appreciate you don't want to give too much COVID-related guidance, but I am just wondering in light of the R&D spending Q2, is that a reasonable run rate to assume going into Q3 as well? Thanks.
Let me take the question. This is Manfred speaking. I think so where we are sitting today, I think this would be a reasonable assumption to assume continuation of the same level.
That's great. Thanks very much.
There are currently no further questions on the lines. Please continue.
Right. Many thanks for your time today. Many thanks for your excellent questions. Many thanks also for sharing our level of excitement around chikungunya and this really unprecedented achievement in the middle of a COVID pandemic, which is not to be underestimated. Of course, we are looking forward to talking again once we hopefully going to report good COVID data. Have a nice day. Bye-bye.
That does conclude today's conference. Thank you for participating. You may all disconnect. Speakers, please stand by.