Valneva SE Q1 FY2022 Earnings Call

Good day, and welcome to our quarter one Financial Results and Corporate Update Call. It’s great to be with you again. During quarter one, we made significant advancements in our clinical programs. We have reported additional positive Phase II results for our Lyme vaccine candidates, including exciting initial pediatric data, marking a world first in Lyme vaccine development. Regarding COVID-19, our VLA2001 program received conditional marketing authorization from MHRA in April, and we also secured emergency use authorization, with the first vaccinations in Bahrain. The EMA rolling review process is ongoing, and while we hoped for a swift conclusion similar to MHRA, it is still in process. For chikungunya, we announced final positive pivotal Phase III data and initiated the presubmission process with the US FDA. I will discuss these details further. In terms of our topline performance and cash position, we recorded total revenues of EUR21.8 million in quarter one 2022, including initial sales from COVID shipments to Bahrain. We are observing positive trends in the travel vaccine market, which Peter will elaborate on later. Our cash position is robust at EUR311.3 million as of the end of March. Now, let’s delve into the specifics of our programs. For our Lyme vaccine, we are developing a multivalent candidate, which is the only advanced Lyme disease program under clinical development globally. It has received FDA fast track designation and is part of an exclusive global partnership with Pfizer. We have conducted several Phase I and Phase II trials to finalize the dose and schedule. We are now prepared to start our Phase III trial in the third quarter, which will use a three-dose schedule. The vaccine targets six different serotypes found in the Northern Hemisphere, providing protection against Lyme disease in both North America and Europe. Our pediatric Phase II study, VLA15-221, included participants aged five to 65, revealing a strong immunogenicity profile in both adults and pediatric populations. We expect to see a good level of immunogenicity after just two doses, reflecting the utility of the three-dose schedule in future vaccination recommendations. The Phase III study is set to begin in the third quarter so that participants can be fully vaccinated before the 2023 tick season, with clinical readout expected by the end of 2023. This study will activate a $25 million milestone payment from Pfizer to Valneva. Turning to chikungunya, our vaccine candidate VLA1553 is the most clinically advanced chikungunya vaccine program globally, with only one program having shown positive pivotal Phase III results. We are still in the follow-up phase, having reported topline data, and have initiated an adolescent Phase III trial as part of a post-marketing strategy. This study will focus on individuals 18 years and older, with plans to expand the label later on. We are collaborating with CEPI and Instituto Butantan to conduct dose studies and ultimately make the product available to low and middle-income countries. We hold several regulatory advantages, including breakthrough therapy and fast track designations. We are well-positioned for BLA approval, which could qualify us for a priority review voucher. Strategically, this vaccine aligns well with our commercial and manufacturing capabilities in a market projected to exceed EUR0.5 billion annually. Looking ahead, we have started the presubmission process with the FDA following the promising final Phase III data readout. We are also conducting an antibody persistence study, tracking participants for up to five years to assess long-term protection post-vaccination. We have already initiated the adolescent Phase III trial and are preparing for the BLA submission in the second half of this year. Regarding VLA2001, our COVID vaccine candidate remains the only inactivated cold virus COVID-19 program in clinical evaluation in Europe. It leverages our IXIARO manufacturing technology and incorporates a modern Toll-like agonist adjuvant to enhance the immune response. We have secured MHRA conditional marketing authorization and emergency use authorization in Bahrain. The EMA rolling review is still in progress, and we currently have a supply contract with the European Commission for up to 60 million doses, with less than half planned for delivery this year, contingent on product approval. The basis for our licensure hinges on demonstrating immunocomparability, with results showing superiority against AstraZeneca's vaccine and a better tolerability profile. We have also observed strong in vitro neutralization against variants such as Omicron and Delta. Our label expansion is expected after initial licensure, focusing first on primary immunization for ages 18 to 55, with plans to extend to older populations once data from our New Zealand elderly study is available. We also recently initiated a heterologous booster study to evaluate our vaccine in individuals previously immunized with different vaccines or natural infection. All adult and adolescent activities are underway, and while initial studies have begun, gathering data from children will take longer as we expand our participant base beyond Europe. Now, I will hand over to Peter for the financial report.

Thank you, Thomas, and good morning or good afternoon to everyone. Let's go straight into the financial review of our first quarter of fiscal year 2022. Our total revenues reached EUR21.8 million, down EUR1.4 million or 5.9% versus the first quarter of 2021, while our total product sales are broadly in line with prior year. As previously communicated, we shipped the first doses of VLA2001, our whole virus inactivated vaccine against COVID-19 to the Kingdom of Bahrain in March. This accounted for almost 25% of our product sales in the first quarter. Moving on to slide 14, where you will see that the composition of our product sales has changed versus high yield. IXIARO sales are significantly down versus prior year, and this is purely driven by lower sales to US military. This decrease was anticipated according to the planned shipment schedule. As the footnote of the slide indicates, IXIARO/JESPECT sales outside of US military performed much better than one year ago and almost quadrupled. For DUKORAL, we can also report a significant recovery of our business with sales reaching EUR2.5 million compared to EUR100,000 one year ago or a total of EUR2.4 million for the full year of 2021. The increase in sales of IXIARO outside the US military and DUKORAL is a result of a recovering travel market, which presumably also includes some inventory replenishment in the distribution chain. Third-party products more than doubled versus prior year, reaching sales of EUR5.6 million. The main drivers for this increase are higher sales of the Bavarian Nordic products, Encepur and Rabipur, across primarily UK, France, and Austria, where we started to distribute these products at the end of fiscal year 2020. And finally, as already mentioned, we are able to report the first sale of our COVID-19 vaccine with the shipment to the Kingdom of Bahrain. Moving on to slide 15 and looking at the P&L. We already covered product sales. Other revenues decreased by 20% versus prior year to reach EUR5.6 million. This line primarily includes revenues from the Pfizer R&D collaboration for Lyme as well as manufacturing services provided to third-parties. Looking at our costs, you can see that each expense line is significantly down versus the prior year. Overall, this decrease is to a large extent attributed to the release of provisions for share-based compensation at the related social security cost. The cost of share programs for certain employees as well as the cost of social security on our equity plans on the development of Valneva's share price. In total, in Q1 of 2022, we recognized an income of EUR11.7 million that was offset against the different expense lines. This compares to a cost of EUR4.8 million in Q1 of 2021, so a year-over-year comparison, we had a positive delta of EUR16.5 million. Excluding that special effect, our Q1 cost would be broadly in line with prior year. Financial expense and income taxes reported EUR7.6 million compared to an income of EUR3.4 million in Q1 of 2021. The difference is due to foreign exchange gains reported in the prior year, while in this year's first quarter we had to report the foreign exchange loss. The total loss for the period of EUR26 million is EUR1.7 million lower than in the prior year, while EBITDA reached EUR13.3 million compared to EUR28.3 million in prior year. Here again, the main driver of the difference related to the provision release related to share-based compensation. Slide 16 provides a waterfall reconciliation of the operating loss of Q1 2021 to Q1 of 2022. This illustration shows clearly that the variance is by and large due to the release of provisions related to the share plans. Slide 17 shows our P&L for Q1 with the separation of the COVID business versus the rest of the group. Looking at our COVID business, cost of goods exceed sales, which is mainly driven by ramp-up costs as we start commercial manufacturing. We invested EUR21 million in R&D for COVID, following an R&D investment of EUR114 million for the full year of 2021. So as you can see, we continue to invest significantly into the development of our COVID vaccine. The R&D spend in the first quarter includes clinical trial costs, as well as costs related to tech transfer to our manufacturing partner. Again, all cost lines are positively impacted by the previously mentioned income derived from the share-based compensation, which essentially explains the positive R&D expense for our business, excluding COVID. Finally, before moving to the guidance, I would like to comment on our cash situation. As reported in this morning's press release, we closed the quarter with a total cash of EUR311 million, compared to EUR236 million one year ago and EUR347 million at the end of 2021. We've set a very strong cash position, we have the necessary financial resource to execute on our plans in 2022. The reported cash position at the end of March does, of course, not yet include the increased financing arrangement with Deerfield and OrbiMed. With this, let's move on to guidance on slide 19. We maintain our full year total revenue guidance in the range of EUR430 million to EUR590 million. The distribution of total revenues by category may, however, differ from the figures announced in February, given the uncertainty on the timing of product deliveries.

Thank you so much, Peter. Yes. On page 21 of the presentation, you see a summary of the upcoming catalysts and our expected news flow in 2022. So very few changes compared to when we spoke last. Online, of course, the most important one is now that we have delivered on all our, I would say, clinical endpoints and expectations in the Phase II. We expect, of course, the Phase III trial initiation in the third quarter this year. On chikungunya, we expect the final lot-to-lot Phase III data following the follow-up period till this quarter. And then as I mentioned, the BLA submission in the second half of this year. On COVID, we of course, are still waiting for the regulatory approvals, specifically for the EMA. We have reported earlier that we have now responded again against the respective list of questions received. So we are still, at this point in time, confident that what we have submitted at this point in time, maybe being sufficient to grant conditional marketing authorization or positive CHMP opinion this quarter. And yes, we may see additional regulatory approvals, of course, in other jurisdictions and territories and we are working on further supply and potential purchase agreement. And we are working on the additional clinical studies. The one that we announced yesterday evening, for example, but also the others that I showed you on the slide that are designed to support the label extension post initial licensure. So a lot going on, a lot that we expect for this year. Many things that get us all excited. Of course, it is a lot of execution challenge around that, but we feel that there is significant news flow and upside coming in the rest of the year. With that, I would like to hand back to the operator to take your questions.

Thank you. We will now start the question-and-answer session. The first question comes from Samir Devani from Rx Securities. Please go ahead.

Hi, everyone. Thanks for taking my questions. I think I've got three. I guess, obviously, positive to see the first order come through from Bahrain, the shipments are left to fulfill the Bahrain order? Is that all expected this year? I guess that's question one. And then just a clarification on the guidance, I just wanted to make sure that your R&D previously guided at EUR160 million to EUR200 million. Is that range still applicable? And then the final question is just on the chikungunya trial in adolescents that was started in January. So, I was just wondering when is that due to report? And is that using an immunological endpoint? Thanks very much.

Hi, Samir. Thomas speaking. So yes, we are expecting a second shipment to Bahrain later this year. Then on chik, as you know, we have agreed with the FDA a surrogate marker. So this means that the correlate of protection in a way has been derived through passive transfer in nonhuman primates, so there is a logical threshold that determine in a way what we called in the old day zero protection and which, of course, is at this point in time now basically called zero response in the new regulatory language, but it is basically the indicator for efficacy. So yes, an immunological endpoint on the execution timeline and the readout, you have, of course, perfectly noted that we have not given guidance right now on the execution timeline of the study. And quite frankly speaking, we do not feel comfortable to do that at this point in time. As I said, we are not doing it directly ourselves. We are working through a partner, and we are at the beginning of the whole trial setting. We have not yet enough visibility to really say how long it will take. But we hope that we will get this visibility very soon, and then we will, of course, update our guidance accordingly. Let me hand over to Peter to take the financial questions.

Yes. Thank you, Thomas. Yeah. On the guidance on R&D, yes, we do maintain the guidance we gave early this year, it would be EUR160 million to EUR200 million, we maintain that one.

It's great. Thanks very much.

Thank you. Next question is from the line of Maury Raycroft from Jefferies. Please go ahead.

Hi. Good morning and thanks for taking my questions. I'm wondering if you can talk about the current timelines outlined in the COVID EC supply agreement, including the prior April 30 deadline and how these timelines are affected by current dialogue with EMA?

Certainly. Thank you for the question, Maury. As you know, we have indicated in our documentation that the European Commission and its member states have certain rights to terminate or reduce orders if we cannot achieve the necessary approvals by the specified date. Given the unexpected delays in the EMA approval process, we have started discussions with the member states. Our team is actively working with them. This process is ongoing, and we hope that the member states agree that there remains a need for such a vaccine. Even if the vaccine is delayed, its medical necessity is still vital. It offers significant benefits, such as encouraging people to get vaccinated and providing an additional booster solution for the upcoming fall and winter season. Therefore, we are optimistic about the ongoing dialogue.

Got it. Okay. So just to clarify, I guess, is there an extension to the deadline then? Or nothing has been finalized at this point?

It's not finalized at this point, but discussions are ongoing.

Okay. Okay. And then, I also just wanted to ask for the CHMP recommendation. Is it possible to put any more of a finer point on when that could happen in potentially May versus June, I guess, any other thoughts on that?

It's a challenging situation for Valneva to provide guidance or predict regulatory timelines. We initially hoped for a positive CHMP opinion in April based on what we understood was required. However, we received another set of questions and responded to them to the best of our ability. This naturally triggers another process. In our recent press release, we indicated that we expect a positive CHMP opinion in the second quarter, but we haven't specified if that will be in May or June. Ultimately, we believe that the timing may not significantly impact the vaccine's use or the processes we need to navigate with the EC. Therefore, we will not provide any expectations regarding the timing at this moment.

Okay. Okay. That makes sense. Thanks for taking my questions. I'll hop back in the queue.

Thank you. Next question comes from the line of Max Herrmann from Stifel. Please go ahead.

Hi, thanks very much for taking my questions. Actually, most have been asked. But one question just on VLA1553. Could you give us a little bit of detail what the pre-submission areas of discussion are with the FDA or give us a bit more clarity in terms of what that process entails? Thank you.

Hi, Max. It’s great to hear from you. So, to address your question, there are a couple of important points. First, there's the submission procedure agreement, specifically regarding rolling versus non-rolling submissions. Secondly, we need to consider the timeline and the schedule for submitting the various modules. As you know, regulatory authorities are currently very busy with COVID-related activities, which are still being prioritized. Therefore, aligning our timelines for what will be submitted and when is critical, and that’s where we currently stand. We're focused more on the "how" than the "what."

So how much clarity do you have in terms of your ability to file in the second half of this year for chikungunya?

We have a very high degree of visibility. Otherwise, we would not give this guidance.

Thank you. Next question comes from the line of Seamus Fernandez from Guggenheim Securities. Please go ahead.

Hi. This is Evan Wang standing in for Seamus. I wanted to follow up on the recent discussions. Are you still confident in the purchase of the full 24 million doses in 2022 and up to 60 million in 2023? As a second question, regarding the heterologous booster study, could you explain the rationale behind the study design, particularly the choice of a single arm without a comparator? Additionally, which regions do you think the study, along with your other booster studies, could support for approval? Thanks.

Yes, let me address the second part of your question first. Conducting booster studies that provide meaningful results is challenging at this time. We need to find individuals who have been vaccinated or naturally infected and are in need of a boost from an immunological perspective. This requires a specific time frame, as without it, the results can be difficult to interpret, much like the results we observed a year ago in the COV-Boost study. Therefore, we adopted such a design. Additionally, we wanted to reflect real-life scenarios where some individuals have been vaccinated and then naturally infected. For instance, if this happened six months ago, it would be a relevant scenario for considering a booster. Furthermore, we do not see any added benefit in comparing the booster to an active comparator because we are not trying to demonstrate the booster’s effectiveness against it. Our goal is to generate an immune response in a heterologous setting and ensure that this immune response level surpasses what we achieved after the initial vaccination, which proved to be sufficient in terms of protection and safety. Regarding your first question, we currently have no reason to doubt our confidence in the agreements we’ve made with the European Commission. As I mentioned earlier, discussions have commenced, and we are in the process, but we do not have any further insights at this time.

Got it. Thank you.

Thank you. Next question comes from Jean-Jacques Le Fur from Bryan Garnier. Please go ahead.

Good morning. Thank you for taking my questions. I have two. The first one is about the potential label for your COVID vaccine. Without mentioning any efficacy percentage, like we saw with an RNA, for example, the 70% or 90%, how do you think the label could look for your vaccine? Do you think it would be more challenging to promote your vaccine without this simple figure? This is my first question. The second one is, when can we expect the next shipments of IXIARO for the US military for the remainder of the year? Thank you.

Let me begin with the first question, then I'll pass it to Franck for the second question since I'm not certain about the timing of the next military shipment. I assume you receive an annual flu shot. Have you considered the effectiveness percentage shown on the flu shot label? I don't believe many do. With over 30 years of experience in the vaccine industry, I don’t think a percentage of effectiveness against a non-circulating strain from a specific trial adds any promotional value. Ultimately, it’s up to regulatory authorities to determine a product's efficacy and safety, and that's what they conclude, which is how we will position our vaccine. Franck, do you have any information regarding the timing of the next shipment for the US military?

Yes. So it is planned for end Q3.

Okay. Thank you, Franck.

Thank you. Crystal clear answers as usual. Thank you very much.

You're more than welcome.

Thank you. Next question comes from the line of Max Herrmann from Stifel. Please go ahead.

Thank you for taking my follow-up question. Following the MHRA approval of VLA2001, has that changed the negotiations with other potential vaccine purchasers since the approval?

It has certainly encouraged more discussions, and we are progressing in conversations following the initial approval by the Western regulatory agency. Additionally, as we mentioned previously, we will also leverage this as a foundation for the WHO prequalification process, which will subsequently initiate discussions with more parties from Europe.

And just as a follow-up, do you have a timing on the WHO approval?

We have not provided guidance yet because we do not have clarity on the timeline. At this moment, we still lack that clarity, but I believe we will have it soon from the market.

Thank you. Next question comes from the line of Sebastiaan van der Schoot from Kempen. Please go ahead.

Hi, guys. Thank you for taking my questions. Two from our side. The first one is on the type of questions that we're seeing at PR actually. The PR mentioned that the EMA did not consider the submission sufficient, wasn't based on the efficacy data set? Or is that something else or CMC? And then regarding the new trial, the heterologous boosting trial, how does that exactly differ from the trial that you did with the UK, the UK boost trial? Is there anything different in the regimen? And what will be the primary endpoint in that study? Thank you.

Very good question, Sebastiaan. As we've mentioned before, we have pre-approved a pivotal Phase III study for COVID, and we have established the endpoints with both regulatory agencies, the MHRA and the EMA. We have successfully met all endpoints in the study, including the primary, secondary, and tertiary endpoints. This confirms the pivotal nature and the results of the study, which supports its eligibility to demonstrate effectiveness through immuno comparability. Without this, the MHRA would not have approved the vaccine. The essence of our request, as conveyed in our regulatory update, involves additional analyses and subsets of immunological data. We have measured both binding and neutralizing antibodies in many areas and data sets, both of which have shown a strong correlation. Some agencies want both measures, while others are satisfied with just one. Additionally, we are responding to other requests, such as on P&C. We addressed all questions within six working days and hope that our submissions will be sufficient for the EMA to evaluate this product candidate positively. Regarding the booster, you raise a valid point, and it's a frequent inquiry since our announcement last night. Yes, there are potential differences. Let's recall the COV-Boost study, which was conducted in the UK when individuals were primed about three months prior to receiving the booster. This study aimed to inform the JCVI in the UK regarding vaccine selection for winter 2021-2022, at which time participants had high antibody titers. The cohort included individuals over the age of 70. In contrast, our current study is set in a more realistic scenario where individuals will require a booster about six months after their last vaccination or natural infection. Additionally, we aim to include a broader age range to observe potential age-related differences. These are the main distinctions between the COV-Boost study and our current approach. Specifically, we are addressing the hematological need for a booster and age variation, as well as including individuals with a history of natural infection, which was not part of the COV-Boost study.

Okay. Great. Thank you very much.

Thank you. There are no more questions at this time. I would like to hand back over to the speakers for final remarks.

For further remarks, thanks a lot. Again, thanks a lot for following us so closely. We look to continuing our close dialogues here and we'll update you as soon as we can, especially on the process and progress in connection with VLA2001. With that, again, many thanks, and have a good remainder of the day. Bye-bye.