Earnings Call Transcript - VALN Q3 2024

Operator, Operator

Thank you for joining us to discuss Valneva’s Financial Results for the First Nine Months of 2024 and a 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 nine months ended September 30th, 2024, which were published earlier today, available within the financial reports section of our investor website. I'm joined today by Valneva’s CEO, Thomas Lingelbach; and our CFO, Peter Buehler, who will provide an overview and update on our business as well as our financial results. 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 the 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 7th, 2024, 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, CEO

Thank you, Josh. It's a pleasure to welcome you all to today's call. What are the highlights for the first nine months, 2024? Overall, the company's performance is in line with our guidance. When we look at product sales, which landed at a bit more than €110 million at the end of the nine-month period, and given the slow uptake of IXCHIQ in the US market, we have narrowed our guidance to €160 million to €170 million, and Peter will provide more details on that. With a cash position of more than €150 million, we consider the company well-financed. And when we look at the R&D, we had a very strong R&D execution year-to-date. Of course, most importantly, with Lyme going 100% according to plan, Chik adolescents data that came in as expected and on time, pediatric and persistence data for Chik as well, and we presented our long-term R&D strategy at the Investor Day in New York recently. We continue to perform strongly on our scientific positioning, but also on the partnering front. Many very interesting publications in renowned journals like The Lancet, our partnership with CEPI supporting Chik development, and more recently, the partnership with LimmaTech on a very exciting Shigella program. Turning to Page 5 of the presentation and looking a little bit into the midterm of the company, it is fair to say, and Peter noted this in his quote of today's press release, that we are approaching next year really a turning point in Valneva's evolution. We are targeting sustained profitability from 2027 onwards, driven by the success of the Lyme disease vaccine program, if successful and approved, of course. As mentioned, we are on track with regards to the Phase III study and regulatory filings in 2026, with first approvals in initial Phase in 2027, which then would immediately trigger the development milestone payments, and hopefully then later, the royalties and the sales milestones. Of course, in the short term, our focus is besides on R&D execution to focus on growing our commercial sales. Despite of the slow uptake of IXCHIQ in the US market, we remain confident in the long-term IXCHIQ prospect. I believe it's a great product, and we, of course, will carefully review the uptake in the coming months, especially since we will see the developments in the US, but also in Canada, first European countries, and we will have a better understanding about the demand from existing and expected future LMIC partners where chikungunya is endemic...

Peter Buehler, CFO

Thank you, Thomas, and good morning and good afternoon, to all of you. So, moving to the financials of the first nine months of 2024. Product sales reached €112.5 million, and on a comparable basis grew 12% over the prior year. Including last year's sales of the COVID-19 vaccine, sales increased by 6%. The impact of currency fluctuation on a year-on-year basis is negligible. Total IXIARO sales reached €66 million and increased 31% over the prior year. The strong year-over-year growth was driven by a double-digit year-over-year growth rate in both the travel segment and US military. DUKORAL sales increased year-over-year by 6% and reached €22.3 million in the first nine months of 2024. In the third quarter, DUKORAL sales grew by 85%. As discussed in our half-year results release, we had limited DUKORAL related marketing investment at the beginning of the year as we anticipated supply constraints in our manufacturing facility in Sweden due to regulatory inspections. In terms of our ongoing launch of our new chikungunya vaccine, IXCHIQ, we report sales of €1.8 million by September 30th in the United States. The ACIP recommendation for IXCHIQ was adopted by the CDC in March this year, and as Thomas mentioned, we are still awaiting the MMWR publication. In line with our expectations, third-party products declined by minus 23% year-over-year to reach €29.1 million, primarily as a result of supply constraints. Moving on to the income statement, total revenues reached €116.6 million versus €111.8 million in the first nine months of 2023. Looking at expense, we observe a decrease in cost of goods and services from €74.8 million in the first nine months of 2023 to €71.3 million in the current year. IXIARO gross margin reached 58.8% of IXIARO product sales compared to 47.2% one year ago. DUKORAL generated a gross margin of 34.8%, while third-party products yielded a gross margin of 32%. The total gross margin excluding IXCHIQ reached 48.6% compared to 43.7% in the first nine months of 2023 and 47.7% at the end of June...

Thomas Lingelbach, CEO

Thank you so much, Peter. Yeah, wrapping up with the summary of our key upcoming catalysts and news flow. On chikungunya, we have the upcoming potential approvals by Anvisa for Brazil and MHRA for the UK. As mentioned, the 36-month antibody persistence data for IXCHIQ and the initiation of the Phase IV clinical program, for which we have now poor alignment on its final detailed design and execution considerations. For the Lyme disease vaccine, the final booster dosing, as mentioned earlier, mid-2025, latest to be completed in line with the Lyme seasonality. Then, of course, we have the continuous monitoring for Lyme disease cases, and we will conclude on all of that towards the end of 2025, which then will enable submission to the regulatory agencies in 2026. Of course, subject to positive Phase III data, the initiation of the two Phase II studies for Shigella vaccine, still this side of Christmas, and the report of the Phase I data for our second generation Zika vaccine in the first half of next year. And one thing that we didn't talk about, but I would like to reemphasize here is we continue to see a very good uptake of IXIARO in the DOD. We expect the RFP for the next contract to be issued imminently. And with that, of course, a new contract with the DOD in the next six months. And with that, let me draw your attention on also the near and midterm value drivers. I think the most important one is certainly VLA15, our Lyme disease. It's the major catalyst for Valneva. It is probably the most important or likely the most important upside that we see for Valneva in the short to midterm. And on the back of Lyme, we expect this company to really transition into sustained profitability initially coming from the early milestones that we expect in 2027, and then followed by the royalties...

Operator, Operator

Thank you. The first question comes from Maury Raycroft at Jefferies. Your line is open. Please go ahead.

Maury Raycroft, Analyst

Hi, good morning. Congrats on the pilots and thanks for taking my questions. Maybe first one, I'll just start with IXIARO. You mentioned expectations for new orders in 2025 and you're seeing good uptake with DOD. Is there anything more you can say about that, including where the orders could be coming from and what the amounts could look like for next year?

Thomas Lingelbach, CEO

So basically, on IXIARO, Maury, you know that when we exclude the one year where the military built additional stocks, which was, I think, 2019, all the other years with the DOD have been pretty stable. And when you calculate, in some years we gave details of the military and other years we did not. But you know that overall, you can calculate the demand of give or take 200,000 doses. And then it depends a little bit on the supply-demand pattern because sometimes they keep higher stocks and lower stocks. And I think at this point in time, noting, of course, that a new government may have different views in terms of military personnel stationed in Southeast Asia. But at this point in time, and given that it is a mandatory vaccine for those parts of the troop, we expect this overall demand to be pretty stable at that level. And we expect that the RFP that will be for the next kind of request will also point in this direction. So that's our expectation right now on IXIARO and the DOD...

Maury Raycroft, Analyst

Got it. That's helpful. And maybe a question related to IXCHIQ. I'm just wondering if you have a better sense of when the MMWR publication update could occur. And if you can remind how the publication will be leveraged with payers and stakeholders and how that could translate for the opportunity?

Thomas Lingelbach, CEO

Yeah. So we expect the MMWR release is something where I think timing-wise, we don't feel comfortable making any promises. We had hoped to see this already months ago. You know, there is, when you look historically for other vaccines, how long it took, sometimes it was very fast, sometimes it took a long time. We certainly expect the MMWR release to be the major driver to allow us accessing the retail channel in the US. And we expect, and this is one of the big learnings probably for us. We certainly see that retail becomes more and more important in the US...

Maury Raycroft, Analyst

Got it. And is that something you think could happen in 2025, the publication coming out?

Thomas Lingelbach, CEO

Yeah, yeah. So I think, I mean, we said earlier in one of the prior calls, and if I recall correctly, even in New York, we said that we expect it by year end. But as I said, it's a little bit out of our control. There is nothing we can do about it. But it's certainly one of the pieces, let's say one of the missing pieces that we are still looking for.

Operator, Operator

Please stand by for your next question. The next question comes from Suzanne Van Voorthuizen at Van Lanschot Kempen. Your line is open. Please go ahead.

Chiara Montironi, Analyst

Hello, this is Chiara Montigoni on behalf of Susan. Thanks a lot for taking my question and congratulations for the update. I had one question on IXCHIQ. I was wondering if you could give me more color on why the sales have not grown in Q3 compared to Q2. And what could explain that after reporting positive trends on other commercial metrics?

Thomas Lingelbach, CEO

It's a good question. Part of it relates to our current inventory in the channel and the products we have actually shipped and sold to distributors. Additionally, we haven't observed the expected growth at the end of the third quarter. However, as of the end of November, the situation has clearly improved, and we are now confident that we are moving towards a stronger growth trajectory.

Chiara Montironi, Analyst

Okay, thank you so much. So basically, you will give guidance, let's say, in six months or more.

Thomas Lingelbach, CEO

Yeah. I think, yeah. So basically, in other words, we have said, we have given a midterm outlook of anticipated €100 million product sales for IXCHIQ three years after launch. We have the pre-launch period right now, or the initial launch period ongoing in Canada. We expect to launch in France. And we will gain very good understanding about the LMIC demand in the first quarter next year...

Ed White, Analyst

Hi, thanks for taking my question. I didn't hear any update on VLA2112 for Epstein-Barr Virus. I was just wondering if you can give us an update of where you are in development there and your thoughts moving forward.

Thomas Lingelbach, CEO

Yeah, so good question. I mean, we provided an update on our EBV activities at the Investor Day in New York. It's our leading program in preclinical today. We are currently evaluating in vivo, in vitro different antigen composition. And we are expecting to conclude on the, say, the lead vaccine design next year based on all those experiments with the objective to really build what we call a differentiated EBV vaccine...

Peter Buehler, CFO

Yeah, this will still continue into 2025, and then basically end early 2026. So we will first transfer the IXIARO vaccine over to Almeda, and then followed by IXCHIQ.

Rajan Sharma, Analyst

Hi, thanks for taking my question. I've got a couple on margins and one on IXCHIQ. Just on IXCHIQ, I know you've kind of discussed it a little bit on the call, but could you just kind of help us understand what's changed from the Capital Markets Day in October when you sort of reiterated that midterm guidance? Has there anything kind of materially changed since then, or is it just kind of your latest view on trends, particularly in the US?

Thomas Lingelbach, CEO

So let me start with the first question on the IXCHIQ prospect. I would say at this point in time, we are, as I reported, or as Dipal also presented at the Investor Day, we are monitoring month to month certain performance indicators that could be predictive for uptake. And this includes order, this includes reorder. But we were expecting, I would say, a deeper uptake towards the latter part of the year as compared to what we are seeing right now. And that's probably, and this is indicative, this is not definitive. And therefore, we have kind of said at this point in time, the uptake is slower than anticipated. And that's why we have to continue monitoring the situation throughout the first half of next year...

Peter Buehler, CFO

So, to your question on gross margin, Rajan, so first on the IXIARO gross margin. So, when you look at our half-year result and you look at our Q3 result now, our year-over-year, our full-year gross margin for IXIARO improved by more than one percentage point, which shows you the direction this goes into. So, we gradually improved the margin every quarter, and we expect this trend to continue...

Thomas Lingelbach, CEO

Yes. To build on what Peter mentioned earlier, we anticipate that all transfer and transition activities will proceed smoothly throughout 2025.

Samir Devani, Analyst

Hi, guys. Thanks for taking my questions. I think I've just got a couple on the numbers. I think you mentioned that you're hoping that the commercial business will be cash generative next year. And I guess I'm trying to understand how much of your G&A spend is attributable to the commercial business. Maybe if you can give us a bit of on that. And then the second question is just on you've outlined the plan for the Shigella development and Phase III starting in 2027...

Peter Buehler, CFO

So, let me take the question on commercial business cash generative and then the G&A cost. So, we try to keep it relatively simple. And the way we look at our G&A cost is we allocate about 40% on to commercial...

Thomas Lingelbach, CEO

Certainly. Our current working hypothesis is that we will conduct two Phase III CHIM studies, focusing on both immunogenicity and safety, as well as a Phase III field efficacy study in infants.

Operator, Operator

There are no further questions, so I'll hand back for closing remarks.

Thomas Lingelbach, CEO

Thank you so much for your great questions, as usual. Thank you for your time. Thank you for following us. And we wish you all a wonderful remainder of the day. Bye.