Earnings Call Transcript - VALN Q4 2021

Operator, Operator

Good day, and thank you for standing by. Welcome to the Valneva audited Full Year 2021 Financial Results Conference Call. At this time, all participants are in 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'd now like to hand the conference over to our first speaker today, Thomas Lingelbach. Please go ahead.

Thomas Lingelbach, CEO

Welcome to our quarter one analyst call where we will discuss our full year 2021 results and provide a corporate update. Let's move to Slide 2 and acknowledge the disclaimer before proceeding to Slide 4 of the presentation. 2021 has been an exceptional year for Valneva, and we've made significant progress in all our clinical programs. For Lyme disease, we reported further positive Phase II results, including booster data, and finalized the Phase III dose and vaccination schedule. Regarding our COVID-19 vaccine, we shared positive Phase III results, received the first emergency youth authorization from Bahrain, and are undergoing rolling reviews for conditional approval with EMA and MHRA. For chikungunya, we reported final positive Phase III results and initiated adolescent Phase III activities. We also reported strong full year 2021 revenues and cash position. Our total revenues reached $348 million in 2021, a 216% increase from around $110 million in 2020. Our cash position is robust at $346.7 million as of the end of December. We take pride in having successfully completed a NASDAQ initial public offering, European placement, and follow-on offering. Now, let me take you through our clinical programs. VLA15, our multivalent Lyme disease vaccine candidate, is currently the only Lyme disease program in advanced clinical development worldwide. We received FDA fast track designation and have an exclusive worldwide partnership with Pfizer. We will provide more information about the Phase II data and booster response as well as the finalized Phase III schedule and dosage. We anticipate additional Phase II data in the second quarter of 2022. This multivalent vaccine candidate contains serotypes that target the most prevalent types in the Northern hemisphere and is based on a validated mode of action used in other Lyme disease vaccines that were available many years ago. We reported positive results from two initial studies, VLA-201 and VLA-202, and initiated study VLA15-221, recruiting 625 participants aged 5 to 65 years. We confirmed the three-dose schedule will be utilized for Phase III, and we reported these sub-analysis results in February of this year. We expect more data from the pediatric and adolescent population soon in the second quarter of 2022. We've observed strong top-line booster results from our study; VLA15 showed immunogenicity across all groups and produced high antibody responses across all serotypes one month post-primary vaccination. The booster dose prompted a strong anamnestic response one year after the six-month dose. Based on these findings, we plan to commence the pivotal efficacy trial in the third quarter of this year. The clinical readout is anticipated to align with the peak season of 2023, with an enhanced readout expected in early 2024. A $25 million milestone payment is due to Valneva upon trial initiation. VLA1553 is our single-shot chikungunya vaccine candidate, representing the most advanced chikungunya vaccine program globally and the only one with final positive pivotal Phase III results. We began the adolescent Phase III trial in January 2022 and have received FDA breakthrough therapy and EMA PRIME designations for this vaccine candidate. We plan to initiate the FDA pre-submission process in the second quarter of this year. To enhance accessibility in LMIC countries, we have partnered with CEPI and the Institute of [indiscernible]. CEPI has committed $23.4 million in support of this program. The chikungunya vaccine candidate is expected to align well with our current commercial and manufacturing capabilities. We expect the global market, including endemic regions, to exceed $0.5 billion annually by 2032. In terms of development outlook, we anticipate the FDA pre-submission process to begin in the next quarter. All Phase III immunogenicity and safety endpoints have been achieved, with data expected soon. The positive top-line lot-to-lot consistency trial reported earlier this year has confirmed the consistency of three manufactured lots, with final data anticipated in the second quarter of 2022. The antibody persistence follow-up trial is ongoing. The adolescent Phase III trial started in January 2022 to support potential label expansion after initial licensure in adults, funded by CEPI. VLA2001, our inactivated whole virus COVID-19 vaccine candidate, utilizes our Valneva IXIARO manufacturing technology paired with Dynavax CpG 1018 adjuvants. We secured an advanced purchase agreement for up to 60 million doses with the European Commission and for up to 1 million doses with Bavarian. The pivotal Phase III data demonstrated superiority against [indiscernible] bacteria and notably better tolerability. We also received positive top-line homologous booster data and showcased neutralization against Omicron and Delta variants in laboratory experiments. The ongoing clinical trials gradually expand the target product profile as well as the geographical reach. We are leveraging Valneva's manufacturing sites in Scotland and Sweden, with an installed capacity of more than 100 million doses. Coming back to the data stemming from our COV-COMPARE study, we met our co-primary endpoints showing superiority for neutralizing antibodies. The GMT ratio observed was 1.39, and we demonstrated non-inferiority in terms of seroconversion rates. In terms of safety and tolerability, VLA2001 was generally well tolerated, confirming what we have seen previously for inactivated vaccines. We saw COVID cases in this study, but the occurrence of cases was similar between treatment groups, with a complete absence of severe cases suggesting that both vaccines used in the study prevented severe COVID 19 caused by the circulating variant at that time. Moving on to our purchase agreements and grants, we have up to 60 million doses from the European Commission to be supplied in 2022 and 2023, with 24.3 million doses expected in the second and third quarters of 2022. There’s an option to increase the initial purchase, with the remainder delivered in 2023. Additionally, we received a grant from Scottish Enterprise to advance vaccine development totaling up to 20 million pounds expected over the next three years. Our total equity increased by roughly 100 million euros compared to December 31, 2020, driven by our US IPO and follow-on offering.

Peter Buhler, CFO

Thank you, Thomas, and good morning or good afternoon, everyone. As Thomas mentioned, this is my first earning call as Valneva CFO. In the three months that I have been with the company, I met with numerous colleagues to familiarize myself with the organization and its processes, as well as several investors and external partners. I am excited to join Valneva and contribute to its journey to become a highly valued, internationally known specialty vaccine company. The year 2021 was exceptional for Valneva. We invested more than ever in the company's history in our development programs and infrastructure. The impact of the global pandemic on the travel industry adversely influenced our top line over the last two years. However, we leveraged our expertise to develop the only inactivated whole virus COVID 19 vaccine in Europe, generating substantial cash flows from contracts with the UK Government and the European Union. During this call, I will elaborate on how our investments impacted our financials. Total revenues for the year reached €348.1 million, an increase from €110.3 million in the prior year, representing a growth of 215.5%. This growth was mainly driven by other revenues, especially from COVID-19 supply and clinical trial agreements with the UK Government. In 2021, we recognized €253 million from these contracts. Revenues from technologies and services also doubled from the previous year, totaling €28.5 million. However, product sales saw a slight decline to €63 million due to ongoing weak travel market conditions. You can see the breakdown of our product sales, with a significant portion generating more than 70% of total sales. IXIARO sales to the US Military amounted to €38 million, supported by a new supply contract signed last September. The majority of our sales in 2021 were achieved through direct sales channels. Moving on to our income statement, cost of goods and services increased significantly compared to 2020, reaching €187.9 million. The main driver of this increase was the cost of goods related to our COVID 19 vaccine candidate, including inventory write-offs and manufacturing costs. Investments in R&D more than doubled, reaching €173.3 million, reflecting our significant investment in our clinical pipeline, especially for the COVID 19 vaccine. Marketing and selling costs rose as we invested in pre-launch activities for our chikungunya program. General and administrative costs increased by €20 million to reach €47.6 million, mainly due to costs from our US IPO and share-based compensation. Our overall employee-related expenses increased by more than 50%, reflecting increased staffing and ramp-up of manufacturing capacity. Other income increased from €19.1 million to €23 million, driven by an increase in R&D tax credits due to our heavy investment in the COVID vaccine program. Conversely, revenues related to grants decreased from €7.7 million in 2020 to €1.7 million in 2021. Overall, we recorded a loss of €73.4 million for the fiscal year 2021, compared to a loss of €64.4 million in the previous year. The EBITDA of negative €47.1 million slightly deteriorated versus the year 2020. Total liabilities significantly increased mainly due to contract and refund liabilities from agreements. Our total equity increased by roughly €100 million compared to December 31, 2020, driven by our US IPO and follow-on offerings. Moving to our guidance for the financial year 2022, we expect total revenues to be between €430 million and €590 million, with €350 million to €500 million expected from our COVID 19 vaccine and €60 to €70 million from other vaccines.

Thomas Lingelbach, CEO

Thank you, Peter. Let me conclude by summarizing the key upcoming catalysts and news flow. For Lyme disease, we expect the first pediatric data next quarter and Phase III initiation thereafter expected in the third quarter of 2022. For chikungunya, we anticipate starting the pre-submission process with the FDA in the next quarter. For our COVID 19 vaccine candidate VLA2001, we hope for regulatory approvals in Europe through EMA and MHRA, followed by supplies and further purchase agreements. We expect further clinical trials and data. With that, let me open it up for your questions.

Operator, Operator

The first question comes from the line of Maury Raycroft from Jeffries. Please ask your question.

Maury Raycroft, Analyst

Hi, congrats on the progress and thanks for taking my questions. I wanted to check on the potential EMA and MHRA regulatory approvals and see if there's anything additional that's gating for those approvals, besides what's mentioned in the press release. And can you talk more about specific next steps for label expansions?

Thomas Lingelbach, CEO

I'm happy to take your question. We are undergoing review processes, having responded to questions from both EMA and MHRA. Valneva anticipates receiving a positive CHMP recommendation for conditional approval of VLA2001 for prime immunization in adults, 18 to 55, in April, leading to deliveries into European countries in the second quarter. Regarding label extensions, we conducted a study for the elderly in New Zealand and are experiencing a backlog in testing for binding neutralizing antibodies, so we'll update once we have a precise timeline. We’re initiating a study for homologous booster data and face challenges recruiting for the adolescent children activities, leading us to extend trials into different geographies.

Maury Raycroft, Analyst

Got it. That’s really helpful perspective. I also had a question on COVID manufacturing. You said you're targeting greater than a 100 million annual dose manufacturing capacity. Can you say where you're at currently and when you could reach that capacity goal?

Thomas Lingelbach, CEO

Currently, we're probably operating at half of our targeted capacity. We expect our new manufacturing facility in Scotland to be ready for commercial production in the fourth quarter, following validation during the summer. Our existing facility in Livingston is actively manufacturing, and we are working with our partner IDT in Germany.

Operator, Operator

The next question comes from the line of Seamus Fernandez from Guggenheim Securities. Please ask your question.

Seamus Fernandez, Analyst

Thanks very much for the question. Can you contextualize recent updates on the mRNA vaccines in the pediatric patient population?

Thomas Lingelbach, CEO

We see VLA2001 as a perfectly suited vaccine for children due to its inactivated technology, characterized by a good safety and tolerability profile. We are progressing studies quickly, even with difficulties related to ongoing vaccinations.

Seamus Fernandez, Analyst

As we consider the evolution of your vaccination series and the need for variants, when might we see more information related to manufacturing updates?

Thomas Lingelbach, CEO

We are currently preparing research viral seeds for variants of concern and can initiate large-scale manufacturing relatively soon. However, we have not yet concluded on the need for second-generation vaccine development.

Seamus Fernandez, Analyst

Just one final question on the Lyme disease vaccine's Phase III preparations. Can you elaborate on the timeline adjustments?

Thomas Lingelbach, CEO

To show efficacy for a placebo-controlled study, we need to vaccinate prior to the peak season. We expect to commence the Phase III in the third quarter of this year, with final data likely available early 2024.

Operator, Operator

The next question comes from the line of Samir Devani from Rx Securities. Please ask your question.

Samir Devani, Analyst

One on guidance regarding the chikungunya vaccine submission process - when do you expect to complete it?

Thomas Lingelbach, CEO

We are currently assessing whether we will take a rolling review process or a full standard review. We anticipate completing submissions this year.

Samir Devani, Analyst

Regarding the guidance, does it include the $25 million Pfizer milestone upon Phase III initiation?

Peter Buhler, CFO

Yes, we expect to receive the $25 million milestone. However, it will not impact our revenues as it will go straight to our balance sheet.

Samir Devani, Analyst

As for CapEx guidance, how much is expected for this year?

Peter Buhler, CFO

We have not provided specific guidance on CapEx; however, it will be significantly lower than in 2021.

Operator, Operator

The next question comes from the line of Max Herrmann from Stifel. Please ask your question.

Max Herrmann, Analyst

Thanks for taking the questions and congratulations on progress made in the last 12 months. Regarding profit margins and COGS for 2022, can you provide guidance on how it might fluctuate from last year?

Peter Buhler, CFO

While we haven't given specific guidance, it is fair to expect an improvement in margin, possibly in the 40% to 50% range.

Max Herrmann, Analyst

What are your views on the potential longer-term combination of flu and COVID vaccines?

Thomas Lingelbach, CEO

There is an evolving consensus that an annual COVID vaccination may be necessary, needing modified vaccines. A combination vaccine is technically feasible with our platform, but we are still assessing if it makes sense from a medical and business standpoint.

Operator, Operator

Dear speakers, there are no further questions at this time.

Thomas Lingelbach, CEO

Thank you so much. This concludes today's analyst call, and we look forward to following up with many of you. Have a good day. Bye-bye.

Operator, Operator

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.