Valneva SE (NASDAQ:VALN) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Good day and thank you for standing by. Welcome to the Valneva present its Q1 2023 Financial Results Conference Call. [Operator Instructions]. I would now like to hand the conference over to your host today, Joshua Drumm, Vice President of Global Investor Relations. Please go ahead.

Joshua Drumm: Thank you, Sharon. Hello and thank you for joining us to discuss Valneva’s first quarter 2023 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 quarter, which were published earlier today, available within the Financial Report section of our investor website. I’m joined 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 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 the 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 information about these risk and uncertainties in our periodic filings with the Securities and Exchange Commission and with the French market authority, which are listed on our company website. Please note that today’s presentation includes information provided as of today, May the 4th, 2023 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: Thank you so much, Josh and good day to everyone. Great pleasure to present couple of updates with regards to our quarter one and later Peter to present the financial report. Yeah, we have a very good momentum right now, driven on the one hand side by our strong sales performance, but also increasing clarity on our key catalyst. Our product sales in the first quarter nearly doubled year-over-year, was primarily driven by our proprietary product IXIARO and DUKORAL, both of which more than quadrupled from quarter one 2022. We maintain a position of financial strength with a cash position of more than $250 million at the end of quarter one and we have reiterated our guidance with regards to expected product sales reaching or exceeding pre-pandemic levels this year.

We have also a clear pathway towards our key transformative catalysts. Our chikungunya vaccine, which we expect to become the world’s first Chikungunya vaccine if approved, a stellar track for it’s PDUFA date confirmed after the mid-cycle review towards the end of 2023 — August 2023, sorry. And we expect to commence further additional ex U.S. regulatory processes in 2023. For Lyme, we have decided after careful evaluation of risk and benefits to keep the Phase 3 design and the endpoints as previously agreed with regulators and we will have additional enrollment for primary immunization to begin in the second quarter and will include the 2025 peak season, which in turn means that we are expecting to file in 2026. Pfizer will bear the current projected incremental cost due to the accrete additional enrollment and I will go into more detail during the R&D update.

Let us turn to Page 6 of the presentation, chikungunya. You know that our chikungunya vaccine is a live-attenuated vaccine candidate under FDA priority review, it is the first and only chikungunya vaccine candidate that reported positive Phase 3 data, was the first one to submit a biologics license application to the FDA for potential approval. And to remind everyone about the key benefits of a live-attenuated vaccine approach, it is targeting a very long-lasting protection. And thus far, we have seen excellent antibody persistence data over time. Overall, our results demonstrated not only long lasting, but on health zero response rate after a single shot. We are now preparing full steam for our launch of VLA1553, which perfectly fits within Valneva’s existing infrastructure.

In terms of target populations, we are looking at the non-anemic countries, travelers, military, but also outbreak preparedness in key countries. And then, of course, the endemic use in no medium-income countries where we have partnered with [indiscernible] Instituto Butantan, which includes also local manufacturing. To remind everyone about our key dates here in key KPIs, PDUFA date, as mentioned earlier, at this point in time confirmed for the end of August 2023 and then first company to achieve BLA approval will be eligible to a PRV and we are estimating that we could potentially sell this PRV if we got it at around $100 million. We have right now an adolescents trial ongoing because the initial approval will be in the above 18 years and older and we expect top line results mid of the year, which will then support also some of the regulatory filings.

And as I mentioned earlier, we expect to commence additional regulatory processes for Canada, EMA and U.K. this year. Overall, we are super excited about our chikungunya program and we are looking really forward to launch this product in an area of a very high unmet medical need. Talking about Lyme on Page 7 of the presentation, Lyme — our Lyme disease vaccine candidate, VLA15, the only one in clinical development today worldwide. It is a multivalent recombinant protein-based vaccine candidate, which has undergone a quite substantial number of Phase 1 group and two studies and we initiated a Phase 3 study as planned last year. And this is basically the — this was the status until we had to discontinue a substantial amount of study subjects that we have integrated in the study due to uncovering GCP violations by a third-party operator, CRO in this case.

Yeah, so to remind everyone again, this program is partnered with Pfizer sponsor for the Phase 3 study and of course we have received a substantial number of milestones, including also mid equity investments that had in June 2022. And all the other features of this vaccine, we have presented many times multivalent, fixed valent because this covers the predominant serotypes in the Northern hemisphere established mode of action and we have mentioned already the fast-track designation that was granted for this program. Now you are all interested in how are we going forward with the Phase 3 study and Page 8 shows the current status of the Phase 3 efficacy study called VALOR. We plan to enroll around 9,000 participants, five years and older and at high risk of Lyme disease in U.S., Canada and Europe.

There will be a one-to-one randomization in between VLA15 and placebo and roughly a 2:1 randomization U.S. versus Europe. The primary endpoint is the rate of confirmed Lyme disease cases after two consecutive tick seasons and after completion of the three doses priming plus booster. And the secondary endpoint is linked to the Lyme confirmed Lyme disease cases after the first Lyme season, which means after three doses or after the so-called priming. And this is illustrated now with the two different cohort in the graph below. What you see on the other part of the graph is the current participants, which we call now the cohort 1. These are the ones that were enrolled last year, where unfortunately we could not enroll the full necessary cohort because of the GCP issue and this is cohort 1, which will now receive very soon and receive the first booster.

And then we have the cohort 2, which is — which are the incremental number of study subjects that will be recruited soon. In this cohort 2, we’ll then start with three doses priming and the 18-month booster as well. And therefore, as mentioned earlier, you have the tick season 2023 and 2024 literally for the first cohort 2024 and 2025 for the second cohort. And this is — this allows us to retain the initial protocol and the initial design. All of that means, that we are now aiming to submit regulatory applications in the U.S. and Europe in 2026 as compared to 2025 before we had and tie the experience the GCP issues. When we look at R&D as a whole and pipeline and what’s next, there are couple of quite interesting remarks to be made. Besides of chikungunya and Lyme, we are currently working on Zika.

We are evaluating it to potentially re-enter the clinic at the end of 2023, early 2024, given the overall status and medical need around Zika also given the fact that the WHO expressed a very clear preference in a position paper for an inactivated or virus approach given the potential target population, meaning women and child faring age or even pregnant women. We are working on hMPV and have concluded now the initial preclinical talk. And as we mentioned during the last call, the overall respiratory environment is moving towards a future RSV hMPV combo. And therefore, we see our asset as an interesting asset for potential partnering. And then we have the other three preclinical candidates with a clear priority on EBV where we expect to have our identification completed by the end of 2023 and Campylobacter and Parvo for both.

We are currently working on certain work packages in order to facilitate the respective gating reviews. And with that overview about primarily our R&D activities, I would like to hand over to Peter to provide you with the financial report.

Peter Buhler: Thank you, Thomas and good morning or good afternoon to all of you. Let’s discuss our first quarter 2023 financial. Total revenues reached EUR33.5 million, an increase of 53.4% compared to the first three months of 2022, while product sales increased by 98.6% to reach EUR32.1 million. This increase is driven by the continued recovery of the international travel market. Product sales, excluding the COVID-19 vaccine sales in the first quarter of last year increased by 159.7% over prior year. On the right side of the slide, you can see the composition of product sales with small sales to U.S. military in the first quarter of 2023. Discussions with the U.S. Department of Defense are ongoing and we expect to sign a new contract in the coming months.

Direct sales reached 71.6%, which is lower than usual. As a comparison for the full year of 2022, direct sales reached 91%. The decreased ratio of direct sales is a result of high sales to Bavarian Nordic for a distribution in the German market. Moving on to Slide 12 to look at the details of our product sales. Sales of IXIARO quadrupled versus prior year and the same is true for DUKORAL. Again, this reflects the strong recovery of the travel market that directly impacts the sales of our travel vaccines. We see a solid year-over-year growth across all markets and managed to increase prices for IXIARO and DUKORAL in most markets. Third party product sales decreased by almost 20% as a result of supply constraints of products sold under the distribution agreement with Bavarian Nordic.

Foreign currencies had no significant impact on the product sales performance versus prior year. Moving on to Slide 13 and looking at the P&L. We already covered the over 50% growth in total revenues. Cost of goods and services increased by 48% year-over-year and gross margin of commercial for us excluding COVID somewhat deteriorated to reach 48.4% compared to 68% in the first quarter of last year. However, the prior year gross margin was positively affected by one-off effects. Research and development costs reached EUR14.1 million compared to EUR20.7 million, a decrease of 32% as our chikungunya vaccine candidate progresses towards licensure. Also, in Q1 of prior year, we recorded more significant R&D expenses related to VLA2001, our COVID-19 vaccine.

Sales and marketing expense increased from EUR2 million in Q1 of 2022 to EUR9 million in Q1 of the current fiscal year. Costs related to the prelaunch activities of our chikungunya vaccine, including related staff increase is a major driver of the increase in sales and marketing costs. Sales and marketing costs in Q2 of last year were particularly low due to an impact of our share-based compensation. G&A costs in the first quarter increased significantly over prior year and reached EUR10 million. In the first quarter of 2022, all expense lines were favorably impacted by an adjustment of EUR11.7 million related to the impact of the company’s share price development of the employee share-based compensation. Without that favorable impact in the first quarter of last year, G&A costs would be roughly flat.

Other income net of other expenses is reported at EUR3.5 million compared to EUR2.1 million in the first three months of 2022. This increase is driven by the revenue recognition of a grant in Scotland. Operating loss for the first quarter reached negative EUR16.6 million versus negative EUR18.4 million one year ago, while adjusted EBITDA reached negative EUR12.3 million versus EUR13.3 million one year ago. Before we move on to the guidance, a word about cash. Total cash and cash equivalents amounted to EUR254.5 million at the end of March compared to EUR289.4 million at the end of December. Now moving on to the next slide on guidance. We reconfirm the guidance for the total fiscal year of 2023 with EUR130 million to EUR150 million in product sales, EUR90 million to EUR110 million in other income, representing the PRV mentioned by Thomas at the beginning of the call and R&D investments are still expected to be between EUR70 million and EUR90 million.

With this, I would like to give the call back to Thomas.

Thomas Lingelbach: Thank you so much, Peter. Yeah, to summarize where we see our key upcoming catalysts and newsflows for the remainder of the year. Chikungunya, as mentioned, first adolescent study result expected mid-2023, the potential BLA approval and first launch of the product in the United States alongside with the potential PRV sales immediately after the granting of the BLA. Then as mentioned earlier, three additional submissions plans, namely Canada for this year, Canada, EMA and the U.K. and those will happen this year. Then on Lyme disease, VLA15, of course, it is critical that we get the enrollment price and that the enrollment for the additional now new second cohort for primary immunization begins in the latter part of the second quarter.

And then we will see as part of our general program to review Antibody Persistence also some further data in the second half of this year. When it comes to newsflow outside of chikungunya in line, and of course, a potential DoD contract for IXIARO in the coming months, this is certainly something that we should expect here. And we have talked in the past about the fact that we would partly evaluating, implementing the clinical pipeline through a program acquisition or partnering, in order to have more clinical and early clinical stage assets that could provide substantial catalysts in the future, while we are kind of accelerating our pre-clinical programs towards clinical entry. And with that, I would like to go to the Page 18 of the presentation to conclude.

Here, you see the slide that we have shown in the past a couple of times. This is just illustrating to you how we see the growth over the coming years with today main value driven by IXIARO, DUKORAL and third-party products, adding chikungunya to our commercial part and then later coming up with VLA15 and the first monetization around the Lyme program in our partnership with Pfizer. So all in all, Valneva is poised for the potential growth in the years to come. And with that, I would like to hand back to the operator to take your questions.

Q&A Session

Operator: [Operator Instructions]. We will now go to your first question and your first question comes from the line of Mauri Raycroft from Jefferies.

Operator: We will now go to our next question and your next question comes from the line of Max Herrmann from Stifel.

Operator: We will now go to our next question and your next question comes from the line of Ed White from H.C. Wainwright.

Operator: So now go to our next question and your next question comes from the line of Evan Wang Guggenheim Securities.

Operator: We’ll will now go to our next question and your next question comes from the line of Rajan Sharma from Goldman Sachs.

Operator: [Operator Instructions]. We will now take your next question and your next questions comes from the line of Samir Devani, Rx Securities.

Operator: We’ll now go to our next question and your next question comes from the line of Simon Scholes, First Berlin.

Operator: There are currently no further questions. I will hand the call back to you.

Thomas Lingelbach: I think with that, we would like to thank you for your participation today. Thank you for your support and for following Valneva. It’s been pleasure to provide you today’s update, it’s good to remain the rest of the day. Bye-bye.

Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.