Valneva SE (NASDAQ:VALN) Q3 2022 Earnings Call Transcript

Valneva SE (NASDAQ:VALN) Q3 2022 Earnings Call Transcript November 10, 2022

Operator: Good day, and thank you for standing by. Welcome to the Valneva Reports Nine-Month 2022 Results and Provides Corporate Updates Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Thomas Lingelbach, CEO. Please go ahead.

Thomas Lingelbach: Thank you. Very good day, everyone. Pleasure to welcome you to our nine-month result and update call. Yes, the nine months have again been marked with quite a potential number of key achievements. We stands today at the nine-month revenue level of about €250 million at a level of 3.5 times six compared to 2021. We have a very strong cash position with more than €260 million at the end of September, which excludes the proceeds from the recent global offering. Our chikungunya vaccine candidate progresses very nicely towards licensure. The rolling submission for BLA with U.S. FDA is ongoing and expected to complete by the end of 2022. On our Lyme disease candidate, again, great progress with the Phase 3 enrollment going to plan and expected to complete in the first half of next year.

COVID-19 vaccine and syringe sitting over blue financial graph background. Selective focus. Horizontal composition with copy space. COVID-19 Vaccine and Stock market and finance concept.

As we are moving our leading clinical assets, we are of course working hard on backfilling our pipeline. We are progressing some of our preclinical assets and we are trying to explore also options to inject other clinical stage assets into our pipeline. We have communicated in the past about our reshape strategy. Of course, reshape means for us, refocus on our key assets, winding down COVID, shifting focus away from COVID with a strong emphasis on our core assets, line check the commercial product, but also rebuilding the pipeline and it comes with also a resizing of the organization. This is a process that we have been planning for quite a while. We have been going through the necessary processes with workers council representatives and as we have seen, we are targeting a 20% to 25% reduction, which will in turn result in around €12 million operating cost savings on an annualized basis.

And Peter will develop those things more carefully and more in detail during the latter part of the presentation. If we look at the pipeline which is shown on Page 6 of the presentation, by way of reminder, chikungunya, as I said, our program right now on its way towards first licensure with BLA submission expected to be completed before the end of the year. The first company that will receive BLA approval might be eligible to a priority review voucher, which in turn we €“ of course expect to monetize, Lyme Phase 3 enrollment well underway, the way with the next milestone expected earlier next year partnered with Pfizer. And again, we are going to come back to those points in detail. You see here on the slide, also two assays that are marked in light blue.

Many people ask us about where we stand on those. C. diff, our candidate that we progressed all the way to the end of Phase 2, we put this asset on hold, when Sanofi’s data on C. diff came out and now we have following Pfizer’s data on C. diff, we have decided to explore partnering for this asset, meaning out licensing for this asset. On Zika, we conducted a Phase 1 study successfully. And now that Zika got on the footprint from WHO and the target product profile for this or prioritizes inactivated vaccines we are currently considering reactivating that program. Then we have here as an example, put forward two of our preclinical assets, which at this point in time are being prioritized by Valneva. One is hMPV, clearly an interesting candidate prefusion subunit based that will approach its preclinical proof of concept by the end of this year and might be also an interesting candidate in a combination with RSV and our EBV candidate still earlier in the preclinical pipeline, but clearly a very interesting indication that we have prioritized at this point in time.

And then at the bottom of the slide, you see our three commercial assets, IXIARO, our Japanese encephalitis vaccine. DUKORAL, our Cholera vaccine, and of course, our COVID vaccine BLA 2021, talking a little bit about Lyme, you are all well aware of the program, only one in clinical development against Lyme disease today. The Phase 3 followed three successful Phase 2 studies including in pediatrics. The program €“ is exclusively and worldwide partner with Pfizer based on a recombinant subunit approach with six serotypes. In order to ensure that the product can be used for people living or going to both sides of the Atlantic, it follows a well proven mode of action that was validated through placebo controlled field efficacy study back in the 90s.

And the program is under Fast Track designation. The Phase 3 that is currently ongoing again, illustrated on Page 8 of the presentation. Right now, we are conducting a randomized placebo controlled Phase 3 study called VALOR, around 6,000 participants. Everyone about five years of age, currently being enrolled in the study, of course, we are running this study in high risk areas both in the U.S. as well as in Europe, randomization U.S., Europe two to one, zero versus placebo, one to one. And basically the primary endpoint is the rate of confirmed Lyme disease cases after the second season. And the secondary endpoint includes the rate of confirmed Lyme disease cases after the first season. So we are testing in one study already the booster that is expected to be needed after the first primary serious and then of course, subject tool and pending successful completion of the Phase 3 study.

Pfizer could potentially submit a biological license application to the FDA and the MAA application to the European agencies in 2025. When we look at check, our program is still the most advanced chikungunya vaccine program in the world. We are well into our rolling submission process following successful clinical €“ pivotal clinical studies that met all endpoints, the program has FDA’s breakthrough designation, Fast Track, EMA PRIME and I mentioned already the potential eligibility for the priority of review voucher. By way of reminder, it’s a single shot life attenuated vaccine. So we expect that after a single shot, there will be a very long protection. We are currently studying at part of different antibody persistence studies for up to five years of duration.

And we have also a partnership on this program through CEPI with Instituto Butantan where we are currently conducting an adolescent Phase 3. The data from those study I expected to extend the label, post-licensure and to add to further regulatory submissions for both adolescents and adults in other territories outside of the United States. We mentioned before that that it is our intention to commercialize this product ourselves because there’s an excellent fit and the significant synergy within our commercial and industrial footprint. And when talking about market size, and of course as we are going closer to launch this becomes of course a very important question. We have reiterated at this point in time that we estimate the market to exceed €500 million annually by 2032, which is the point where we expect a decent penetration of this vaccine.

The clinical data highlights again, summarized in this presentation. The key ones are really that we saw very high zero response rates that the basis for licensure is the so-called accelerated approval pathway. So there is an immunological surrogate to determine effectiveness of the vaccine. So this zero response rate shown to be at 98.9% after a single vaccination. The immunogenicity profile is maintained over time even at day 180, you see still 96.3%, interesting and very good across older adults, similar levels of zero response rates, neutralizing antibody titer as younger adults and then zero conversion, of course extremely high and 100% that isn’t possible. From a safety perspective, overall well tolerated and a profile in terms of safety and tolerability that you would expect for this class of vaccine.

What is also worth noting is we recently added a few data points to the study VLA1553, 301. And this had to do with additional data in elderly 65 years plus where we showed in the meantime also through an additional cohort €“ an additional readout that the zero response rates are at similar high levels. When we then come to the program progression towards FDA filing, we presented the program at the CDC’s October ACIP meeting. The rolling submission got initiated as I mentioned earlier. And you see here the next steps with the breakthrough therapy designation priority review, the completion of the BLA submission by the end of 2022 and of course, the eligibility of the PRV. We presented an overview of VLA1553 at the ACIP meeting, there is no CHIK vaccine has been previously licensed.

There are €“ therefore no existing ACIP recommendation existing at this point in time. The chikungunya working group provided a preliminary review and timetable plus ACIP recommendation decision and head of the anticipated February, 2024, ACIP vote, the working plans to present further on CHIK traveler epidemiology and disease burden, more comprehensive review of immunogenicity and safety data, as well as the so-called great assessment and longer term additional data in younger age groups. Yes, when we then look at the outlook what has still to come or what will still come on our program, VLA1553, the ongoing clinical trials that supports further regulatory submissions, of course, namely the antibody persistence study. I mentioned that this is a study that is of course a follow on from the previous studies that have already been initiated and we expect to follow respective volunteers for at least five years.

The 12 months data are expected later this year. The latest clinical study I mentioned already 750 volunteers, age 12 to 17 years of age 12 months follow up and data expected in the first half next year. And then we may add additional studies to support future commercialization of the product, including co-vaccination, special populations. And then of course, the Phase 4 observation and effectiveness study. When we look at our commercial product portfolio, you see, of course here that we have strong sales of our commercial products in the first nine months. The product sales outside of COVID grew by 11.2% built prior period. We see a significant recovery in the travel markets with Japanese encephalitis in the travel segment increased significantly.

We see product sales of cholera vaccine increased at similar well and the third-party products make significant contribution to our business. They increase to €18.4 million from €11.2 million in the comparable period in 2021. And this is of course related to one of our key distribution agreements, mainly with the Bavarian Nordic. Of course, we also sold COVID-19 vaccines as part of our EC APA. We generated €23.9 million in sales. All the deliveries to you member sales have been conducted. There’s still some supplies to operating outstanding but overall this is where we stand on COVID. That we are still planning to seek potential opportunities outside of Europe and outside of the current licensed areas. Talking about COVID, the only inactivated whole-virus COVID-19 vaccine approved in Europe, we were the first ones to get an ordinary marketing authorization in Europe for this vaccine that is based on a more traditional, conventional technology coupled with a modern adjuvant CpG 1018 that gives the bias to Th1.

We are still expecting few more data points on COVID, WHO may help us to sell the remaining inventory that we have specifically in international markets that we got already positive heterologous booster data following primary immunization with AstraZeneca’s vaccine. We will expect some data also from people who got either primed with mRNA and/or natural infection. All of that is expected to conclude by the end of this year. And as we are moving along with this program, we are also extending the shelf life and stability data become available. And right now we are at 18 months €“ yes, at 15 months submitting for 18 months. And of course, we’ll follow this through because inactivated vaccines have typically at least 24 months shelf life, if not longer.

When we look at our resizing to reflect the evolution of the COVID-19 program, we’ve stated this at many different locations. In light of our reduced order volumes from the EU member states, we suspended our internal manufacturing as well as the external manufacturing. We entered into settlement agreement with our external partner IDT, for example. We retained our inventory for additional supplies. We are trying to deploy our inventory. We mentioned previously in between 8 million to 10 million doses. And yes, of course we ramped up the organization quite substantially in response to the anticipated COVID demand and specifically the significant COVID manufacturing quantities. So we are now reducing our workforce globally by approximately 20% to 25%, which still means that we will land at a level of 25% above headcount wise when compared to pre-COVID.

And this is of course allowing us to retain talent and expertise that we build throughout the COVID period. And also to allow full focus on one of our key strategic pillars namely our R&D progression, not only our late stage programs, but also the earlier stage pipeline development and potentially even injection of additional pipeline programs. With this, I would like to hand over to Peter to cloud off with the financial report.

Peter Buhler: Thank you, Thomas. And good morning or good afternoon to all of you. Now let’s discuss our first nine months financials. Total revenues reached €249.9 million, an increase of 258% compared to the first nine months of 2021. This increase is largely driven by other revenues and I will comment on that later. Product sales reached €74.4 million, an increase of 64%, which is prior year. This increases to a large extent driven by shipments of VLA2001, our COVID vaccine to European member states. At the same time, it also reflects the continued recovery of the travel market that leads to an increased demand in travel vaccines. Shipments to the U.S. Department of Defense continue to remain low, and this was anticipated based on this year’s delivery schedule.

The chart on the right side illustrates the composition of total revenues. The significant increase in revenues is to a large extent driven by other revenues that reached €175.5 million on a year-to-date basis. These other revenues comprise a release of refund liabilities that were previously reported on our balance sheet. Earlier in the year, we recognized €89.4 million other revenues related to payments from the UK government for our VLA2001 program. In Q3, we released €110.8 million advanced payments from European member states related to VLA2001 orders that were subsequently canceled. Other revenues also include negative revenues recognized in the second quarter related to price of contract revision. Moving onto Slide 19 to look at the details of our product sales.

Sales of IXIARO decreased versus prior year, which is the result of the scheduled treatment to the U.S. Department of Defense. As indicated at the bottom of the table, IXIARO sales to the private market increased from €4.6 million in the first nine months of 2021 to €19.4 million in the current year, an increase of 270% at constant currency. DUKORAL sales reached €9.2 million in the nine months of 2022. A dramatic increase compared to the €500,000 reached in the prior year. Third-party product also had a solid performance and reached €18.4 million compared to €11.2 million in the first nine months of 2021. Finally, COVID-19 vaccine sales increased €3.8 million at the end of June to €23.9 million in September year-to-date, driven by shipments to European member states in Q3, as mentioned by Thomas earlier.

Now moving on to Slide 20, looking at the P&L. We already covered revenues at the significant increase of €249.9 million. Cost of goods and services also increased significantly over the prior year and this is of course, mainly driven by VLA2001 related costs. As explained in our first half year financials, we recognized significant inventory write-down in the second quarter of the current fiscal year. Research and development expenses decreased from €117.2 million in the first nine months of last year to €75.4 million in the first half of 2022. This decrease is driven by lower spend on clinical trials as our chikungunya vaccine progresses to its licensure, combined with a reduced spend on our COVID-19 vaccine candidate VLA2001. Marketing and distribution expense, as well as general and administrative expenses decreased compared to prior year, which is largely driven by a release of provision for share-based compensation and the related social security costs.

The costs of Phantom Share Programs for certain employees, as well as the cost of social security on our equity plans depend on the development of Valneva share price. In total, we had a release of €30.6 million in the first nine months of 2022 compared to cost of €13.7 million in the same period of last year, i.e., a difference of over €40 million that possibly affected all expense fund in our P&L and in particular, our G&A expenses. As outlined in this morning’s press release, the marketing and distribution line includes launch preparation cost for our chikungunya vaccine candidate of €4.3 million compared to €2.8 million in the prior year. Other income net of other expenses is reported at €7.5 million compared to €16 million in the first nine months of 2021.

That decrease is primarily driven by lower R&D tax credit as a direct result of the lower R&D spend. Other expenses include a small increase in the provision of on the ongoing Vivalis/Intercell litigation proceedings. Operating loss for the first nine months is reported at €75.1 million compared to €237.6 million for the same period in 2021. Financial expense and income tax reached €42 million compared to an expense of €8.3 million in the prior year. The difference is primarily due to significant unrealized foreign exchange losses driven by U.S. dollar denominated liabilities. Interest expenses increased in line with the increased loan. The total loss for the period reaches €99.1 million versus €245.9 million in the first nine month of 2021.

Next slide please. Looking at our COVID business, we see total revenues of €224.1 million and an operating loss of €14.2 million compared to an operating loss of nearly €200 million in the first nine months of 2021. The P&L outside of COVID business shows product sales of €50.6 million and negative other revenues. As previously explained, the negative revenues are driven by the Pfizer agreement revision in Q2 with an adjusted cost sharing. Cost of goods and services systematically improved compared to last year, driven by lower cost of services related to Pfizer and the CTM unit in Sweden. In addition, the 2021 numbers was impacted by inventory write-offs and idle capacity costs. The level of operating expenses is, as already mentioned, favorably impacted by an effect related to the company’s share plan.

R&D costs are significantly lower than in prior year. This is a direct consequence of our chikungunya vaccine moving towards licensure. The costs related to our preclinical programs are naturally lower, but will increase as this move into the clinical stage. The adjusted EBITDA of our non-COVID business reported for the first nine months reached negative €38.6 million, which is comparable to last year. Before moving to guidance, let’s go to Slide 23 to look at our value proposition and how we expect to deliver on it. The first pillar talks about progression of our late stage clinical pipeline programs. We initiated the FDA submission of our chikungunya vaccine candidate and are preparing for the potential launch in the United States and later in Europe.

At the same time, we continue our excellent collaboration with Pfizer on the Lyme program, and as mentioned by Thomas earlier, patient recruiting for Phase 3 trial is still ongoing. The second pillar is about progressing new vaccine candidates from preclinical to the clinical stage. This is clearly a priority as we are committed to refill our early stage clinical pipeline. For now, the focus is on HMPV program, as mentioned by Thomas earlier in this call. At the same time, we put in place a small dedicated team that is continuously screening the markets to look for potential in-licensing opportunities to complement our clinical pipeline. The third pillar is about maximizing our commercial products. We want to benefit from the recovering travel market and make sure our travel vaccines grow at least in line with the travel market.

We are very encouraged by the growth we were able to realize with our distribution partnerships and the recently agreed deal with VBI is an illustration of our focus to complement our commercial proposition where it makes sense. Finally, as announced previously, we are aiming at selling additional doses of COVID-19 vaccines outside of Europe. This is an asset that will continue in 2023. Last column, we are in progress of resizing our operations. We initiated a program to reduce our workforce by 20% to 25% due to the discontinuation of our COVID program. The reduction in workforce is expected to result in annual savings of approximately €12 million and will be achieved through a combination of natural attrition and layoffs. These savings are to a launch extent expected in our manufacturing operations.

The resizing of our organization will not impact our development projects as we are clearly committed to invest in what is required to bring forward our R&D pipeline. Before moving to guidance, let me briefly comment on our cash situation. Our balance sheet at September 30 released this morning shows total cash and cash equivalents of €261 billion. While this is still a high level of cash, we consumed a significant amount during the third quarter. As a company, we believe it is important to be sufficiently financed to invest in our clinical and pre-clinical pipeline. We therefore decided to proceed with an equity offering at the end of September, and in a difficult market managed to raise over €100 million. The proceeds of this offering are not yet reflected in the September accounts and further strengthen our cash position.

With this, the company’s well positioned to deliver in our existing programs. Now, let’s move to the fiscal year 2022 guidance on Slide 24. We reiterate our total revenue guidance of €340 to €360 million, including €30 million to €40 million of COVID vaccine and €70 million to €80 million other vaccine sales. As a reminder, we have increased the guidance for other vaccine sales at half year. Other revenues are anticipated at approximately €240 million, mainly based on revenues recognized from EC and UK COVID-19 contracts, meaning that these revenues will have no additional cash impact in Q4. We expect R&D expenses to be between €95 million and €110 million quite a bit lower than previously announced. This decrease is related to some phasing of clinical trial expenses and the wind down of our VLA2001 activities.

This concludes the finance section of this call, and I would like to hand back to Thomas for the upcoming catalyst.

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Thomas Lingelbach: Thank you so much, Peter. Yes, let me summarize what we have already mentioned different points in this presentation, what are the clear near-term catalyst for Valneva online. It is of course, extremely important that we complete the enrollment on time given the seasonality of Lyme disease and the respective progression of the trials €“ of the trial over two seasons. We are also expecting some follow-up data from existing studies, which we have not specifically mentioned here on the key catalysts. On chikungunya, very clearly the completion of the BLA submission before the end of the year, of course, also supportive data like the antibody persistence data later this year or the adolescent data then in the earlier part of next year, which will be important to compliment the label and support submissions in other territories.

On COVID-19, we expect further data till the end of the year, as I mentioned this before. And of course, we are €“ as we have clearly articulated in the past, in touch with a few international markets, meaning countries in Middle East, Asia, for example, where we are trying to a, seek regulatory approval and b, potential sales of our existing COVID-19 vaccine VLA2001 in respected inventory, this all of course to maximize the value from the existing assets. These are the key catalysts that we see. So still, very, very important anticipated news flow in €“ news flows in the short-term. And with that, I would like to hand back to the operator to take your questions.

Q&A Session

Operator: Thank you. And our first question comes from the line of Maury Raycroft from Jefferies. Your line is open.

Maury Raycroft: Hi. Congrats on the progress, and thanks for taking my questions. I’m going to start off with the preclinical assets. You mentioned that the VLA1554 and 2112 are currently being prioritized. Can you talk about how much investment do you plan on putting into these programs? And where will you report the preclinical 1554 proof of concept data by year end? And is there anything additional you can say about the timeline to moving these programs into the clinic?

Peter Buhler: Okay, good. So Maury, right now we have not split the R&D investments by program or by activities as you know. But we have gone back to pre-COVID investment levels in the non-clinical arena. So I think this is the only thing that I can say to that. With regards to HMPV pre-clinical talk, of course we are talking here about the classical pre-clinical talks that you would anticipate for a vaccine candidate, meaning in vivo and in vitro. And we are anticipating that this data will be published and we cannot say how long it will take to get those published. But we clearly will try everything to do this as quickly as possible. Then course, with regards to HMPV, the company will evaluate clearly the clinical entry for HMPV.

We have started preparing respective plans. In parallel we will also look in potential combination settings that HMPV might be a very interesting asset for people working in RSV, Given that the RSV HMPV combo is expected to add significant value in terms of medical benefit addressing a huge unmet medical need and EBV will take a little bit longer for us to progress at this point in time.

Maury Raycroft: Got it. Make sense. And just going to ask one other question on 1553 for the antibody persistence and adolescent studies. Can you remind what expectations are and what would be considered good or bad data? I guess for the antibody persistence data specifically, is there a certain threshold for antibody persistence that matters.

Thomas Lingelbach: So well by the end of the day, the important thing Maury is that you still see effectiveness of the vaccine. So that we are working on this €“ on a surrogate marker that was derived through passive transfer in non-human primates accepted by the authorities. And basically then translated into a zero protection level, meaning percentage of people above the respective protective threshold. And that there is no regulatory requirement to say what is good or what is bad. I mean, of course you would expect above 80% being an excellent result in the world of vaccines in terms of long-term antibody persistence levels. That’s maybe as much as I can say to 1553.

Maury Raycroft: Okay. That’s helpful. And I’ll stop there and hop back into queue. Thank you for doing my questions.

Peter Buhler: You’re welcome, Maury.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Samir Devani from Rx Securities. Your line is open.

Samir Devani: Hi, everyone, thanks for taking my questions. I’ve got a couple. First one’s on sort of VLA15 and your contribution to the Pfizer clinical trial costs. The press release talks about 40% over 2022 and 2023. I just wanted to clarify with you, are you not expecting to contribute to the end of the study? Because that’s obviously in 2025, so that’s the first question. And then the second questions just on the COVID-19 vaccine, you obviously had some good sales in the quarter. I think previously you told us that you had 8 million to 10 million doses in the inventory. Perhaps you could just update us with where the inventory stands? And whether you could just clarify whether you have any confirmed orders for 2023? Or should we be looking for new announcements for those orders? Thanks very much.