Valneva SE (NASDAQ:VALN) Q4 2022 Earnings Call Transcript

Valneva SE (NASDAQ:VALN) Q4 2022 Earnings Call Transcript March 23, 2023

Operator: 0Good day, and thank you for standing by. Welcome to the Valneva Full-Year 2022 Financial Results Conference 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, Vice President of Global Investor Relations, Joshua Drumm. Please go ahead.

Joshua Drumm: Hello and thank you for joining us to discuss Valneva’s full-year 2022 consolidated financial results, which were published today and are available on our Web site. It’s my pleasure to welcome you today. I’m joined by Valneva’s CEO, Tomas Lingelbach; and CFO, Peter Buhler, who will provide a brief overview of our business and our financial results for the period, as well as updated financial guidance and a summary of anticipated upcoming milestones. 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 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 French Market Authority, which are also listed on our company Web site, www.valneva.com. Please note that today’s presentation includes information provided as of today, March 23, 2023, and Valneva undertakes no obligation to revise or update forward-looking statements except as required by applicable securities laws. And with that, it is my pleasure to introduce Thomas to begin today’s presentation.

Thomas Lingelbach: Thank you, Josh, and good afternoon, good day to all of you. Well, 2022 was a year marked by our ability to adapt to a changing environment, and showed our resilience. We achieved several key milestones that underpin our unique value proposition. We made continued progress across the R&D pipeline with our chikungunya vaccine now under BLA review. On Lyme disease, we started the Phase 3 pivotal efficacy study, VALOR, together with Pfizer. On COVID-19, we were the first company to achieve a full marketing authorization by EMA. However, given the changing environment around COVID and the prospect of that vaccine, we decided to not further invest in development and stop manufacturing the COVID. We accelerated our preclinical activities with the aim to build a new exciting R&D pipeline, up and beyond Lyme and chikungunya.

We have seen a significant rebound of the commercial business, and we clearly capitalized on the strong recovery in travel segment. And we complimented our commercial portfolio with additional third-party product sales. We have reported strong full-year 2022 revenues and cash position with reviews about €360 million, and product sales year-on-year increase well above 80%. Our cash position at the end of 2022 was close to €290 million. We also strengthened our shareholder base with a successful upsized follow-on offering which included now also our new major long-term shareholders and Pfizer. With that, let me go straight into our programs and into the business update, and I will start with chikungunya, page six of the presentation. By way of reminder, our chikungunya program is the most advanced chikungunya program in development worldwide.

It is a live-attenuated vaccine candidate targeting long-lasting high sero-response after a single shot. Basically, the Phase 3 study met all primary endpoints in terms of sero-response rate, but also in terms of lot-to-lot consistency. We reported positive 12-month antibody persistence data and the long-term persistence trial that will measure the sero-response rate over time, targeting at least five years. The adolescents’ trial is fully enrolled by now, and we expect first data mid 2023. We are under priority review for the BLA. A PDUFA action date has currently been assigned for end of August, 2023. And we expect to commence other regulatory processes in the second-half of this year, including EMA. The program got also granted FDA Fast Track and Breakthrough and EMA PRIME designations, as you know.

In terms of target population and overall geographic reach, we have explained before that we see, of course, the non-endemic countries, and here primarily travelers, military, but also the possibility outbreak preparedness and stockpiling. And on the other hand, the endemic use where we have a partnership agreement with CEPI and Instituto Butantan. From there, let me turn now over to the key data for chikungunya. Sero-response, 99% after a single vaccination; this immunogenicity profile has been sustained even after 12 months. And we have seen a similar sero-response rate in elderly, which is particularly encouraging. And, of course, on the basis of that high sero-response rate, we see also a 100% seroconversion. With regard to safety data, VLA1553 was generally well tolerated.

We had, of course, as expected for a vaccine of that class, solicited systemic adverse events, but the majority of solicited adverse events were mild or moderate. And only 2% of study participants reported severe solicited adverse events, most commonly fever. In terms of the future commercialization, as we repeatedly communicated, VLA1553 fits perfectly within our existing commercial infrastructure. And we have a high-caliber team with significant experience in the vaccine space. And we are currently adding a significant amount of talent and people as we are preparing for the commercial launch and market access for this brand new vaccine in a brand new indication. And we are all extremely excited about the prospect of being in a position to launch such a product.

Let’s go to Lyme. It is again, following our pipeline differentiation around first-only or best-in-class, the only Lyme disease vaccine in advanced clinical development today. It is a multivalent recombinant protein-based vaccine covering the six main serotypes of Lyme borreliosis prevalent in the northern hemisphere. We initiated the Phase 3 study on the back of positive results for three Phase 2 studies, including a pediatric population. You know that as part of the ongoing Phase 3 study, there were GCP issues observed that led the study sponsor and our partner, Pfizer, to actually stop a significant part of the study subjects that were included in the study. Given the seasonality around Lyme development, we have currently a review of the trial design and the associated timeline ongoing.

And this is, of course, a process that will still take a bit of time. I think by way of reminder with regards to the data that have always been extremely strong for Lyme, and of course also the GCP issues that we have been facing now as part of the Phase 3 conduct do not change the picture on the underlying science and value of this program. All three Phase 2 studies showed strong immunogenicity. The product has been in more than a thousand people, and as I said, including pediatric population. And we have seen as part of the booster studies, a very strong anamnestic response which is of utmost importance for a product that is expected to be boostered over time. When we look at our pipeline, you basically see that we are currently reviewing most of our or some of our preclinical and previous clinical candidates with regards to next clinical entry.

We have Zika candidate for which we conducted a Phase 1 study. We did not progress it further because of the work that we commenced on COVID. However, we are currently evaluating a potential clinical re-entry at the end of this year or very, very early next year. Given that we could leverage one of our existing platforms, and given that WHO made a clear recommendation for Zika vaccines to be based on inactivated whole-virus technologies. hMPV, human metapneumovirus, is a program that we developed throughout the preclinical phase. It has reached the end of the preclinical phase, with the initial preclinical proof of concept being completed. But given that the market is shifting in the development arena towards combination vaccines, RSV hMPV, we’ve decided to evaluate a potential partnering before taking it potentially into a first trial in humans.

Our lead program in our preclinical shop today is Epstein-Barr virus. And we target the completion of the antigen identification for such a quite complex development in an area of very high unmet medical need by the end of 2023. The two other programs that we have in early R&D are Campylobacter and parvovirus. And we are still evaluating whether we put them into the preclinical R&D and development as of now or not. But, this is something that we will decide over the course of this summer. With that, I would like to handover to Peter to provide us the financial reports.

Peter Buhler: Thank you, Thomas, and good morning or good afternoon to all of you. Let’s look at the financial review of our fiscal year 2022. Total revenue grew by 3.8%, which is fiscal year 2021 driven by a strong product sales growth. Total product sales reached €114.8 million, an increase of 82.3% versus prior year or 66.7% in constant currency. 2022 product sales include €29.6 million of VLA2001, our COVID-19 vaccine. Product sales excluding our VLA2001 sales reached €85.2 million exceeding our guidance of €70 million to €80 million. Moving on to slide 14 looking at product sales details, IXIARO sales reached €41.3 million, a decrease of minus 8.4% versus prior year as a result of fewer shipments for U.S. military.

A decrease in sales to U.S. military was partially offset by significant increase of sales in the travel market of 300%. DUKORAL sales reached €17.3 million compared to €2.4 million in 2022, an increase of more than 600% once again driven by the recovery of the travel market. Third part product sales increased by 72% to reach €26.5 million for the fiscal year 2022, this represents a record level of this product segment as Valneva managed to increase third party product sales consistently over the last two years. The very positive sales performance in our travel vaccine is as already mentioned related to travel market recovery faster than expected. Finally, as already mentioned we shipped COVID-19 vaccine for an amount of €29.6 million to certain member states of the European Union as well as to the Kingdom of Bahrain.

Moving on to slide 15, looking at the P&L. We already covered product sales. Other revenues reached €246.5 million. And primarily consist of one-off revenues derived from the advanced purchase agreements with European Commission and the United Kingdom. The cash related with these revenues were received in 2021 and early 2022. Also included in the other revenue line is the added impact related to the amendment of the VLA15 agreement with Pfizer and updated cost sharing. Further details will be included in our universal registration document in 20-F that we plan to publish next week. Total revenues reached €361.3 million slightly exceeding our guidance of €340 million to €360 million. Looking at expenses, we observed a significant increase in cost of goods.

And this is mainly result of one-off items related to the wind down of our COVID-19 program following reduced market demand. Research and development expense decreased to €173 million in 2021 to €104.9 million in the fiscal year 2022 and stayed well within the revised guidance of €95 million to €110 million communicated during our nine-month result release. The decrease compared to prior year is mainly driven by lower spend on our VLA2001 program but also by decreased spend on clinical trials of our chikungunya vaccine as the program advances to its licenses. Marketing and distribution trends remain stable compared to prior year at €23.5 million and contained €7.3 million of cost for our chikungunya vaccine candidate twice the amount spent a year ago as we plan for potential loans.

G&A expense decreased significantly from €47.6 million in 2021 to €34.1 million in 2022. All expense lines benefited from substantial long cash adjustments related to the positive effect of the cost related to the company’s share-based compensation due to the share price performance in 2022. Overall, an upside of €25 million resulted in ’22 compared to total €37 million in 2021. Other income of €12.2 million mainly consists of R&D tax credits and other expenses related to the provision for the ongoing Vivalis/Intercell litigation procedures. Total other income decreased compared to prior year due to the lower R&D spend at the relative decrease of R&D tax credits. In 2022, Valneva generated an operating loss of €113.4 million compared to €61.4 million in prior year and an adjusted EBITDA of negative €69.2 million versus minus €47.1 million in the prior year.

Next slide, please. Looking at our COVID business segments, we see total revenues of €309.6 million with a total cost of goods and services of €267.1 million. COVID Cost of Goods includes significant costs related to the write down of the COVID program. The company recognized major costs related to a write down of all COVID-related inventories and agreements in particular to discontinuation of a third-party manufacturing contract. The operating loss for the COVID segments in 2022 reached minus €42.8 million. The business outside COVID generated total revenues of €51.7 million. As already mentioned, the negative other revenues were driven by the revised line agreement. Cost of goods and services reached €57.3 million and sales of €9.2 million cost of technologies and services, €3.3 million for vaccine candidate and €41.8 million of commercialized product.

Gross margin of product sales reached 45.5% compared to 36.5% in 2021. Cost of goods of commercialized products also includes an impairment charges related to DUKORAL. Total operating loss for the business outside COVID was €70.6 million compared to an operating loss of €65.3 million in 2021. The increased operating loss is driven by the negative revenues related to the Pfizer agreement. Moving on to slide 17 and looking at our balance sheet, total assets decreased to €817 million at the end of 2021 to €621 million at December 31 2022. The main decrease in assets relates to a sharp decrease in inventories primarily related to the full write down of all COVID-19-related inventory. Cash and cash equivalents at the end of 2022 were at €289.4 million compared to €346.7 million at the end of the prior year.

Next slide, Valneva equity was strengthened in 2022, through a global offering of €102 million at the end of the third quarter, as well as private investment in Valneva shares for a total value of €90 million. At the same time, total liabilities decreased by €245 million, in particular driven by a decrease of contract and refund liabilities driven by the revenue recognition of deferred revenues related to the COVID-19 agreements. Borrowings and other non-current liabilities remain stable. While total borrowings, the increase to an increase due to an increase in Deerfield & OrbiMed loan, these liabilities decreased due to amortization and the foreign exchange impact. Provisions decreased due to lower cost of share-based compensation, driven by the decrease in Valneva share price.

Overall, Valneva significantly improved the debt-to-equity ratio in 2022. Now moving on to the financial outlook on slide 20, we expect product sales to reach €130 million to €150 million. But this includes marginal remaining VLA2001 sales under the supply agreement. Further €90 million to €100 million of other income are expected in relation to the sale of the PRV expected upon potential approval on chikungunya vaccine candidates. Investments into research and development are anticipated to reach between €70 million and €80 million. This concludes the finance section of this call. And I would like to have back to Thomas for the news.

Thomas Lingelbach: Thank you so much, Peter. Yes, so we see for the year 2023 quite significant number of catalysts and interesting news flow. As mentioned earlier on chikungunya is of course the adolescent study results that would come mid of the year. Please keep in mind that that we expect to extend the label in the United States Post licensure and probably include the data directly for the initial filing in other markets. Of course, then it’s all about our launch here, so the potential BLA approval and the launch, and upon successful approval the PRV and the potential PRV sale that Peter mentioned earlier. And we try to accelerate bringing this novel and unique vaccine to many markets as quickly as we can. And hence, you should expect additional ex-U.S. regulatory submissions in the second-half of this year.

On Lyme, of course, we all understand that it is important that we get clarity on our Phase 3 clinical study plans. We need to have this as quickly as we can so that we can restart enrolling people in time. And, of course, as we are running the antibody persistence studies on an ongoing way, we will also expect additional antibody persistence results in the second-half of this year. Then on IXIARO and military, we expect a potential new DoD contract, still towards the later part of H1, the progression of the selected preclinical programs towards clinical entry, so we will take a clear decision which one, and by when. And as we reported earlier, we are reviewing and evaluating to potentially augmenting our clinical pipeline through a program acquisition or partnering in the R&D environment.

When you look at our strategy and how we see the company evolving over time, we prepared slide 23. And you see that our value proposition will gradually be extended. The additional potential growth drivers include the continued recovery of the travel market to pre-COVID levels, and beyond; new U.S. DoD contract for IXIARO; further expansion of our third-party distribution segment; and potential in-licensing or acquisition of additional clinical and/or commercial-stage products. With that, we conclude our presentation, and we hand back to the operator to take your questions.

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Q&A Session

Operator: Thank you. We will now take the first question; it comes from the line of Maury Raycroft from Jefferies. Please go ahead, your line is open.

Maury Raycroft: Hi. Congrats on the progress, and thanks for taking my questions. I was going to ask one about the Lyme disease program. So, for the Phase 3 Lyme proposed protocol modifications that would allow Pfizer and Valneva to remain on track for a 2025 filing, I’m guessing you can’t provide too much into exact interactions with FDA. But can you talk about some of the scenarios or moving parts involved with being able to maintain that, the timelines?

Thomas Lingelbach: So, Maury, hi, good day. It’s of course an excellent question. You would certainly understand that, as you rightly pointed out, there is very little we can say at this point in time. And we don’t want to disturb this ongoing process. It is very clear that, as we discussed previously, of course we did lose a significant number of people in the season 2023. Of course, given the seasonality, you have only a certain window where you can recruit people. And of course one scenario is just to add another season. And this is the obvious one that you already figured out yourself, and just restarting again this summer or the next tick season, 2024. And there are other, what I would call, more creative scenarios that may potentially allow still a filing, but those are in the make right now or in the discussions, and we can’t comment on those.

Maury Raycroft: Got it, understood. And for CHIKV, I’m wondering if there’s been any new correspondence with FDA related to potential foreign advisory committee meeting? And, in looking ahead, how are you preparing for the February 2024 ACIP vote and maybe talk about how outcomes from that vote could impact your launch strategy?

Thomas Lingelbach: An excellent question, so, first of all, we are making progress in the ongoing review process. At this point in time, there is nothing that has come up in an unexpected way. Otherwise, of course, we would have reported it. As far as the (ph) is concerned, no decision has been taken yet as to whether a dedicated work pack for this program will be needed or not. It goes without saying that we are preparing at full speed, at full steam for such a work pack. Our teams are well-prepared, and we are putting everything together to enable a very positive work pack, should it be required. With regards to the ACIP, I mean you know that the ACIP process has been very clearly outlined. We had already a number of presentations on the program. We will continue following the path as we are being invited to present. And, of course, we do hope and do assume a positive vote as part of our launch plans for the United States.

Maury Raycroft: Got it. Okay, thanks so much for taking my questions.

Operator: Thank you. We will now take the next question. It comes from the line of Evan Wang from Guggenheim Securities. Please go ahead, your line is open.

Evan Wang: Hey, guys, thanks for taking the question. Following up on Lyme, just as you guys are having these discussions, just wondering have you seen this kind of situation before? Have FDA or EMA provided any kind of commentary or is there any precedent that gives confidence that a modification could be reached? And then I have a follow-up after.