Valneva SE Q3 FY2023 Earnings Call

Good day and thank you for joining us. Welcome to the Valneva 9 Months 2023 Financial Results Call. I would now like to turn the call over to Joshua Drumm, VP of Investor Relations. Please proceed.

Thank you for joining us to discuss Valneva's 9 months 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 9 months ended September 30, 2023, which were published earlier today available within the Financial Reports section on our Investor website. As always, I'm joined by Valneva's CEO, Thomas Lingelbach; and CFO, Peter Buhler; who will provide an overview and update of our business as well as our key financial results for the first 9 months of the year. There will be an analyst Q&A session at the conclusion of the prepared remarks. Before we begin, I'd like to remind listeners quickly that during this presentation, we'll 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 listed on our company website. Please note that today's presentation includes information provided as of today, November 9, 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.

Thank you, Josh, and good day. Welcome to our financial report for the past nine months and the general business update. I will begin with our research and development highlights. We are making significant progress towards the possible licensure of the world's first chikungunya vaccine, with the PDUFA date expected at the end of this month. For Lyme disease, our Phase III study, VALOR, in collaboration with Pfizer is continuing; cohort 1 has completed its first tick season and cohort 2 is currently enrolling well. As previously mentioned, we have restarted the Zika vaccine development and expect clinical trials to begin early next year. In terms of the commercial side, we generated total product revenues exceeding EUR 100 million, nearly doubling our non-COVID sales compared to the same period last year. Consequently, we are on target to achieve our 2023 sales guidance of EUR 130 million to EUR 150 million. Our cash position remains robust, with EUR 171.3 million available at the end of September. Now, regarding chikungunya, our product candidate VLA1553 is a live-attenuated vaccine currently under FDA priority review. It is the first chikungunya vaccine to report positive Phase III data and meet all trial endpoints. We have submitted the biologics license application and have also filed with the European Medicines Agency and Health Canada. The vaccine has unique characteristics, showing long-lasting high seroresponse after just one dose, with 100% response observed after 14 days and a favorable safety profile, even in children with previous infections, as reported in studies conducted in Brazil. We are preparing for launch and are investing to ensure prompt product supply. VLA1553 is ideally suited for our existing commercial infrastructure, especially regarding travelers and industrial markets. We have different market segments, including travelers, military, and outbreak preparedness in non-endemic areas, and endemic use in low- and middle-income countries in collaboration with CEPI and Instituto Butantan. The potential award and sale of the Priority Review Voucher upon BLA approval could yield significant short-term revenue estimated at around $100 million. We have shared positive preliminary safety data from our ongoing study in adolescents in Brazil, and we expect to receive final immunogenicity and safety data for Part A by the end of this month. Regarding our development outlook, we are working closely with the FDA to finalize our post-approval Phase IV program, along with ongoing studies to examine antibody persistence for at least five years. The results for the two-year time point are anticipated later this year, and the adolescent trial data should facilitate label expansion and licensure in Brazil, as well as support the ongoing licensure processes with the European Medicines Agency. Future trials will also focus on co-vaccination in pediatric populations and Phase IV effectiveness. Turning to Lyme disease, our multivalent recombinant protein vaccine candidate addressing the condition is currently the only Lyme disease program in advanced clinical development. It is exclusively partnered with Pfizer, which is sponsoring the ongoing Phase III study, supported by positive results from three Phase II clinical studies, including data from pediatric populations. This hexavalent vaccine targets the most common serotypes responsible for Lyme disease in the Northern Hemisphere, aimed at individuals in high-risk areas on both sides of the Atlantic. This program follows established mechanisms of action for Lyme disease vaccines and has received fast track designation from the U.S. FDA. The Phase III efficacy study plans to involve 9,000 participants above the age of 5, randomized between the vaccine and a placebo, with two-thirds of the trial conducted in North America and one-third in Europe. The primary endpoint is to confirm Lyme disease after two seasons of exposure, while secondary endpoints will track cases following the first Lyme season. Enrollment for cohort 1 is complete, and participants are now anticipating their next booster shot before the 2024 season. Enrollment for cohort 2 is progressing well. If we stay on schedule, Pfizer aims to submit regulatory applications in the U.S. and Europe by 2026. Regarding trial updates, we have two studies in progress: the VALOR vaccine efficacy study and a concurrent safety study which finished enrollment in the summer this year, involving over 3,000 children, with completion expected by year-end. Moving to Zika, we have decided to restart the development of our Zika vaccine candidate, leveraging our experience in vector-borne diseases and those suitable for accelerated development pathways. Zika remains a significant unmet medical need. We believe that our technology, which includes proven and licensed platforms like IXIARO and the COVID vaccine VLA2001, can deliver an effective vaccine for Zika. We plan to resume Phase I trials early next year using new formulations. Looking overall at Valneva's pipeline, we are focusing on our two late-stage assets while reactivating Zika. We are also evaluating potential partnerships for our hMPV candidate, which has successfully completed preclinical proof of concept, and concentrating our preclinical efforts on targeting the Epstein-Barr virus. With that, I will now pass it over to Peter for further business updates, particularly in R&D.

Thank you, Thomas, and good morning and good afternoon to all of you. Now let's look at the financial review for the third quarter of fiscal year 2023. Product sales reached EUR 106.1 million and grew 42.6% over the same period in the prior year. At constant currency, product sales grew 45.8%. The strong growth was driven by all product lines, with IXIARO growing at 119.4% over prior year or 126.7% at constant currency. DUKORAL at 142.7% at constant currency and third-party products at 61.1%. This excellent sales performance is primarily driven by the recovery of the private travel market but also by price increases across the board. COVID-19 vaccine sales at the end of September are unchanged from the end of June and relate to a pre-existing contract with the Kingdom of Bahrain. Moving onto the income statement. Total revenues reached EUR 111.8 million versus EUR 249.9 million in the first 9 months of 2022. In the prior year, Valneva recognized significant other revenues derived from its COVID program, which explains this decrease. Looking at expenses, we observed a significant decrease in cost of goods and services from over EUR 200 million in the 9 months of 2022 to EUR 74.8 million at the end of September 2023. Prior year costs of goods and services were heavily impacted by one-off items related to the wind down of our COVID-19 program. The gross margin of both IXIARO and DUKORAL is still below pre-COVID levels but improved versus the first half year. Cost of goods are adversely impacted by IXIARO batch write-offs in our Scottish manufacturing site and high sales volumes in indirect markets where our average selling price is lower than in direct markets. In addition, cost of goods include a total of EUR 9.3 million related to the launch preparation of the company's chikungunya vaccine candidate. Research and development expense decreased from EUR 75.4 million in the first 9 months of 2022 to EUR 42.2 million in the current year. That decrease is exclusively driven by the lower spend on Valneva's COVID vaccine program. At the same time, the costs related to the Zika vaccine candidate increased as the company has been working towards reinitiation of the clinical development program. Marketing and distribution expense increased significantly year-over-year from EUR 13.1 million to EUR 33.9 million. The increase is mainly related to higher prelaunch costs for our chikungunya vaccine candidate that more than tripled versus prior year. In addition, prior year spend had a positive impact related to employee share-based compensation. G&A expense increased from EUR 23.3 million in 2022 to EUR 35.1 million in 2023. In the prior year, all expense lines had a favorable effect for a total of EUR 30.5 million related to employee share-based compensation driven by the share price development. The increase in other income from EUR 7.5 million to EUR 17 million is mainly related to the recognition of a grant received from Scottish Enterprise. The company's operating loss is stable versus last year at negative EUR 57 million. Net finance and tax income expense is reported at negative EUR 1.1 million versus negative EUR 42 million in the prior year. The lower cost is related to high unrealized exchange losses in the first 9 months of the prior year. Total loss for the year reached negative EUR 69 million, EUR 30 million less than in the prior year. Finally, we reported cash and cash equivalents at September 30, 2023, of EUR 171 million compared to EUR 289 million at the end of December 2022. This position includes an additional $50 million drawdown on the existing credit facility with Deerfield and OrbiMed and takes into account significant payments made to Pfizer in relation to the Phase III Lyme study VALOR. Now moving onto Slide 17, to review our guidance for the fiscal year. We reiterate our guidance for revenues and other income communicated earlier this year. We expect product sales to reach between EUR 130 million and EUR 150 million and other income to reach between EUR 90 million and EUR 110 million, assuming a sale of the chikungunya PRV in the fiscal year 2023. We reduce our guidance on R&D investments to EUR 60 million to EUR 70 million versus EUR 70 million to EUR 90 million previously. This concludes the finance section of this call. Now I would like to hand back to Thomas for the upcoming catalysts.

Thank you so much, Peter. Yes. So this brings me to the point of summarizing really what we have to expect over the course of the next coming months. On chikungunya, first of all and most importantly, the PDUFA action date, with the potential BLA approval by the end of this month, still on track for that. The adolescence, immunogenicity, and final safety data for Part A, also still this month. Then the additional 2-year antibody persistence data. Please be reminded that we reported the 1-year follow-up data and persistence data last December. So, therefore, we expect also data on the 2-year time point in December. And then the ACIP recommendation that is still planned for February 2024, which, of course, is critical for the future potential commercial success of chikungunya, especially in travelers and U.S. travelers. On Lyme, continued trial execution, it's very critical that we have the enrollment completed for cohort 2 so that we have all necessary subjects in the study ahead of the 2024 tick season. And then the next real catalyst for Lyme will come at the end of the tick season 2025, with the readout of the primary endpoint and maybe 1 of the 2, of the first secondary endpoint. Additional revenue flows include the potential granting and sale of the FDA priority review voucher upon approval of VLA1553. The initiation of our Zika vaccine development with the new tick season, 1 part early next year and further advancement and acceleration of selected preclinical programs. With that, we are concluding that part of the presentation. When we look at the future strategic development of the company we see really very substantial strategic growth opportunity for Valneva. This includes, on the one hand side, maximizing the existing travel vaccines, leveraging continued recovery of travel to pre-COVID levels and beyond from a volume perspective. Then, of course, the potential label expansion for VLA1553, our chikungunya vaccine candidate after initial approval in adults and approvals in all the necessary markets. And as we have said multiple times, we are also looking into opportunities to potentially in-license, partner, or acquire additional clinical-stage assets to leverage our proven and excellent R&D capability. And with that, I would like to conclude our presentation and hand back to the operator to take your questions.

Our first question comes from the line of Maury Raycroft of Jefferies.

Congrats on the progress. I was going to ask one about chikungunya. So at the recent October ACIP meeting, the chikungunya committee draft recommended vaccination to adults traveling to outbreak areas. However, they expressed some concern over the size of the safety population to detect rare adverse events as well as the use of immunogenicity as the endpoint. The post-marketing outbreak study should address both of these points. But I'm wondering if the size of the safety population is also something being discussed with FDA heading into the PDUFA and separately, will the outbreak study being in the works be sufficient ahead of that February ACIP vote or will ACIP want additional progress or evidence before they make that vote?

So Maury, that's a great question. First of all, the safety database is supporting our ability to obtain licensure, and without it, we wouldn't be at this point. The program will be licensed through the accelerated approval pathway, which inherently relies on surrogate endpoints. Therefore, there’s nothing that can be done regarding immunogenicity data. However, we will demonstrate real-world effectiveness as part of the Phase IV study. Additionally, there will be focused studies or safety follow-ups once the product is administered to larger groups. This is all part of our ongoing discussions and processes with the FDA and will serve as the foundation for the expected licensure. It is essential to agree on the Phase IV protocol and conceptual design for licensure. Consequently, the specific design will also be shared with ACIP, clarifying what they can anticipate in the coming years regarding chikungunya VLA1553.

Got it. That makes sense. So having the study design for ACIP should be sufficient for them ahead of the road.

This is our current working hypothesis. Yes.

Okay. Makes sense. And then is there any other perspective you can share on interactions with FDA and frequency of interactions ahead of the approval as it relates to the outbreak study and potential label discussions? I just wanted to check if you're saying anything on that.

No, I cannot comment on ongoing interactions with the agency. It is fair to say that we have frequent interactions with the agency as we work jointly to conclude this entire process on time.

Got it. Makes sense. And maybe last question for me. Just for Lyme cohort 2. It sounds like enrollment is going well there. When should you have the cohort fully enrolled in order to get the required initial doses for tick season 1 for that cohort? I guess is there any perspective on timing that you can share on that.

So basically, there is not necessarily a hard drop date on all of that. But I think, as you know, we aim to have people fully immunized and having ideally peak titers optimized against the peak of the tick season. This gives you a little bit of a perspective given the schedule and the fact that we see antibody titers at highest level around month 7, this gives you a little bit of a prospect. Given that the tick season has not peaked but there is also less than right, that gives you a little bit of flexibility around that. So into early next year, I would say.

Our next question comes from the line of Ed White of H.C. Wainwright.

So just on the travel market, maybe I can ask a big picture question and you continue to say you're seeing recovery in the travel market. Can you give us a good comparison on your thoughts for 2024 versus pre-COVID levels? And then also just on IXIARO, with the $32 million DoD contract, were any sales recorded in this quarter, if you could break that out for us? And also how we should be thinking about the cadence of that contract should it be fulfilled by the end of this year? Or should we see the impact going into next year as well?

No. Let me address the travel market question first. This is indeed a good question. As we've mentioned before, and as Peter also reported, when we analyze volume alongside price increases, we need to compare this to pre-COVID levels. In some countries where IXIARO is sold, we are already at pre-COVID volume levels. In other countries, we're surpassing those levels, while in some, we haven't reached pre-COVID volumes yet. This varies significantly based on travel behavior. Generally, there's an increasing awareness trend, but it's challenging to model precisely. We hope to see volumes return to or exceed pre-COVID levels in the majority of countries next year. That's our outlook. Regarding military contracts, I’ll let Peter discuss the sales numbers recognized in military. The contract with the Department of Defense is a one-year supply contract, which means the supply schedule spans a year, not necessarily aligning with a fiscal year. We have already completed the first shipment, and this supply plan may be subject to changes based on the DoD's requests. Peter, what are the numbers?

Yes, we had the first shipment to the U.S. military in the third quarter. We have not disclosed the number for this quarter. As Thomas mentioned, we are aligning with the U.S. military on the supply schedule for the remainder of the contract, and we may disclose numbers in the fourth quarter. However, we haven't done so yet.

Our next question comes from the line of Evan Wang of Guggenheim Securities.

I am pleased to see the draft recommendation at ACIP. This is encouraging to us, especially considering the risk base and exposure risk that seems to be favorable for the product. I am eager to hear your perspectives on the draft recommendation and how you envision it will be presented internationally.

What you are asking is a bit like predicting the future. On a positive note, as you mentioned, ACIP has recommended vaccination, which is already outlined in their draft recommendations. This is encouraging news. They have included some conditions in the draft that clarify what it means for people at risk of chikungunya. However, please remember that these are still draft recommendations. This is an ongoing and independent process in which we are not directly involved. We provide information, science, and data. Overall, we believe this is headed in the right direction. Regarding other regulatory and recommendation bodies, it's important to note that each authority interprets data differently. As a result, the basis for potential recommendations may vary by geography. From my experience of over 30 years in the vaccine industry, I've learned that different recommendation bodies also take various approaches. Therefore, it's challenging to predict how other regulatory bodies, whether in Canada, Europe, or other regions, will approach chikungunya. We continue to believe that chikungunya represents a significant unmet medical need, and we see value in developing a vaccine solution.

Great. And as a follow-up in terms of the hMPV asset. I know you guys are seeking a partner there. We're seeing a pretty robust initial launch in RSV. So it seems like hMPV could be a very interesting program. Can you help us think about how you're thinking about partnering discussions and what's the scope and type of agreements you're looking at?

Yes, that's a very good question. As you noted, the market for RSV is expected to shift towards a combination of RSV and hMPV for vaccination strategies and solutions. For this reason, we have chosen not to pursue hMPV as an independent clinical asset. Currently, we are exploring various partnership opportunities, which could range from straightforward licensing to other forms of joint development agreements. However, it's still too early to specify what direction this will take. We have multiple parties under confidentiality agreements and are actively looking into these opportunities.

Our next question comes from the line of Simon Scholes of First Berlin.

Congratulations on the strong numbers. I was just wondering if you could let me know which of your planned future chikungunya trials will generate 15-day onset of immunity data for inclusion on the label subject to approval and how soon you might be able to get that data onto the label?

So right now, I mean, as you know, when we started the development of chikungunya we had agreed on a standard endpoint, meaning 1 month after vaccination. Of course, we already published data that show an early onset. However, this data was generated from earlier studies. As soon as we're going to start the next study, which is probably going to be a study in immunocompromised patients, we will include earlier immunological endpoints to verify what we found in prior studies, namely, that we got to have an immunogenicity level above the anticipated protective threshold, somewhere in between day 8 and day 14. We will include that, so we can use the data from a well-controlled Phase III study to amend the label as soon as possible.

Our next question comes from the line of Samir Devani from Rx Securities.

Congrats on a good quarter. And congrats on the ACIP draft recommendation. I've got a few questions. I'll probably kick off on that first. One of the bullet highlights is that it's recommended for somebody traveling to a territory where there is a chikungunya outbreak. I'm just wondering, as we see today, which territory would you say is the most important that's currently exhibiting a chikungunya outbreak?

Samir, excellent question. So I think, first of all, I mean, the question is, is it an area where there has been an outbreak? Or is it an area where there is an actual outbreak? Or is it an area where there might be an outbreak coming up very soon? It is not 100% clear from what has been drafted thus far. Today, as you know, we have seen an outbreak in every single country in South America. However, we have also seen geographically distinct outbreaks in the southern part of Europe. We have seen it in France, Italy, and Spain. I think this whole definition around, let's say, outbreak, outbreak risk, I think there is a need for refinement and precision. We hope this will come as part of the further ACIP process, leading to a vote in February, hopefully.

Is there a resource where a traveler can go online and know if they're going somewhere there's a chikungunya outbreak?

In terms of actual outbreaks, the only information I have is from the WHO's general reporting on outbreaks, but I'm not aware of a standardized information platform. I will take this as a follow-up action and find out more for you.

Okay, that's great. And then maybe a couple of questions for Peter. There's a significant reduction in the refund liabilities on the balance sheet. A significant payment was made in the quarter. I'm assuming it looks like there's going to be a similar payment made for Q4. Just correct me if I'm wrong on that. And then once that payment has been made, how far are you away from being capped out in terms of your liability to Pfizer?

Yes, Samir, a great question, obviously. As we said, when I talked about cash, I did mention that this cash situation at the end of September takes into account the significant payment to Pfizer. Now you see how the refund liability in our balance sheet is reduced. How much we pay in Q4 and thereafter, we have not guided. I cannot disclose it, of course, in this call. We will be done paying for Lyme in the first half year of 2024.

Okay. Great. And then for the final question regarding the finance expense, Peter, in Q3, that increased quite a bit. Is that related to the non-euro cash assets you mentioned? Is it just a translation effect in Q3?

Yes, that's absolutely correct. It's a translation effect between U.S. dollar and euros.

Our next question comes from the line of Max Herrmann of Stifel.

Firstly, regarding the chikungunya program, how would you manage the logistics of conducting an outbreak study given the infrequent nature of the disease and the uncertainty surrounding the specific regions affected? My second question is about the booster dose for the Lyme disease vaccine VLA15. Do you have any data suggesting whether this would need to be a seasonal booster, and if so, how frequently? Although the trial design does require boosters in the second year, do you believe that's the best approach? Lastly, concerning the Zika program, what kind of commercial evaluation led to its reinstatement? What metrics did you use to determine that there is a significant commercial opportunity there?

So a number of good questions, Max. Let me start with chikungunya. I mean, of course, as you rightly pointed out, effectiveness means that you need to provide the vaccine in a country where there is either an actual outbreak or where the virus is really prevalent and you see a high chance of an outbreak. This is why we are partnering with Instituto Butantan and CEPI because we believe that the best feasibility for all of that will be Brazil. This is part of the protocol and it takes into consideration that you have a certain setup ready and that you then go into a real outbreak-like situation with the study. On your question around booster, of course, this is a very important question. You know that the booster vaccination, as shown in the follow-up studies from Phase II generates a very high anamnestic response with immunogenicity levels significantly above. Whether we will need a booster every year or every other year or every third year or what it's really going to mean, this question can only be answered post-efficacy study and once we see, hopefully, a correlation between immunogenicity and efficacy. That's why we continue doing the antibody persistence studies with primarily the Phase II cohorts to inform us about this situation. Regarding Zika, I would like to remind everyone, we have decided to reinitiate that for 2 main reasons. First, we see an emerging extended ecological development around Zika. We see cases significantly on the rise in India. And also here and there, spot rises in Zika virus prevalence in other countries. The WHO issued a blueprint and white paper around post-Zika vaccines, recommending inactivated whole virus and/or recombinant protein-based vaccines given the tolerability profile for vaccines of that class. That's the reason we said let us go into that. We've built certain commercial models but need to refine those models. We will continue clinical development post-initial Phase I only if there is a continuous development on the medical need side and thereafter a favorable commercial opportunity.

Great. Just in terms of the field study, just to understand a little bit more and I know you obviously have been having lots of detailed discussions with the FDA about this, but are you thinking about choosing a region where there have been recurrent chikungunya infections and then setting up a program there and kind of waiting for an outbreak or are you looking at some sort of a quick response to an outbreak where you can vaccinate the population there?

In reality, you can think about it, it's almost a combination of the 2 things that you have just said. This is the way you can think about it, yes.

There are no further questions. Speakers, please continue.

Well, that concludes our presentation today. Thank you all for your participation. Just note that there will be an archived version of the webcast available on our website later today. Thank you, everybody.