Earnings Call Transcript - VALN Q1 2025

Operator, Operator

Thank you. Hello, and thank you for joining us to discuss Valneva's first quarter 2025 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 three months ended March 31, 2025, 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 CFO, Peter Bühler, who will provide an overview and update on our business as well as our key financial results for Q1 2025. 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, May 7, 2025, 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 and good day to all of you. Pleasure to provide the update during today's earnings call. The first quarter 2025 was a solid quarter with strong overall financial performance. Total revenues reached almost €50 million. The reduction in operating cash burn reflects our continuous focus on cash management, as shown in the cash position north of €150 million, excluding the recent proceeds from our April ATM transaction. In Q1, we also made progress on the regulatory front predominantly around IXCHIQ label extensions and further approvals. We received a new IXIARO contract awarded by the US Department of Defense. We responded to the French government's call for IXCHIQ to combat the chikungunya outbreaks in La Réunion and Mayotte. We responded to the cholera outbreak in Mayotte by supplying doses of DUKORAL, all in line with our mission to address unmatched medical needs. Regarding our key regulatory achievements, we obtained marketing authorization for IXCHIQ in the UK for individuals 18 years of age and older, and we submitted the respective adolescent label extension application. The IXCHIQ label extension in Europe for individuals 12 years of age and older was granted by the European Medicines Agency. The IXCHIQ marketing authorization in Brazil represents the first approval of the chikungunya vaccine in an endemic country. On clinical data and pipeline progress, we reported high sustained immune response in adolescents one year after IXCHIQ vaccination with a single dose, as reported in our Phase 3 studies. Additionally, we announced positive Phase 2 pediatric results for IXCHIQ, which allows us to define the dose for the planned Phase 3 study in the pediatric population. We initiated the first vaccination in the Phase 2 infant study in Africa for our tetravalent Shigella vaccine candidate, S4V2. Turning to Lyme disease, you are all aware of our Lyme program and the increasing medical need that Lyme disease represents globally. There is currently no vaccine available to prevent Lyme disease in humans, and the burden is growing with nearly 0.5 million confirmed cases reported in the United States and over 100,000 cases reported in Europe. Those numbers are severely affected by underreporting or lack of existing reporting systems in several countries. The clinical manifestations can be severe, impacting 2% to 30% of patients with serious outcomes. Therefore, we see a significant unmet medical need for a preventative solution and a corresponding commercial opportunity for Valneva, especially as we are talking about approximately 90 million people in the U.S. and over 200 million people in Europe living in endemic regions. We are currently in year three of the Phase 3 VALOR study, which includes over 9,000 participants at high risk for Lyme disease. We are measuring against a placebo control setting, and the primary endpoint is the rate of confirmed Lyme disease cases. We expect the first data by the end of this year, followed by secondary endpoints and potential filing with regulatory authorities next year, assuming positive results. Turning to IXCHIQ, our differentiated chikungunya vaccine has shown strong clinical data thus far. We are aware of recent changes to IXCHIQ recommendations due to reports of serious adverse events in frail elderly individuals. As a result, ACIP recommended precautions for use in individuals over 65, and EMA cautioned against its use in frail older adults, pending ongoing investigations. We are committed to safety standards and will continue to monitor all recorded adverse events closely while cooperating fully with health authorities. We have administered over 40,000 doses of IXCHIQ and continue to see a positive risk-benefit profile for the majority of people exposed to the disease. We remind you that IXCHIQ must not be given to individuals who are immunodeficient or immunosuppressed. Regarding further development of IXCHIQ, we are preparing for the post-marketing effectiveness Phase 4 program and an observational effectiveness study in Brazil. We are conducting randomized controlled studies and prospective safety cohort studies to ensure thorough monitoring and potential updates to the product indications. We have ongoing label extensions to expand access to the vaccine across all age groups and expect to initiate a Phase 3 study in children aged 1 to 11 years. Turning to Shigella, our program targeting shigellosis infections is the most advanced in the tetravalent bioconjugate vaccine space, partnered with LimmaTech. The program includes the four most common pathogenic Shigella serotypes. We launched a Phase 2 infant study this year, with expected data later this year. An ongoing Phase 2b study will optimize dosage and assess pilot efficacy, though pilot efficacy data has been slightly delayed to the first half of next year. For Zika, we anticipate Phase 1 results later this year on our second-generation optimized vaccine candidate against the Zika virus, leveraging our COVID-related technology. We hope to see positive data to further the development of a Zika vaccine. As there is currently no vaccine or effective treatment, we seek support from public institutions to assist. With that, I would like to hand over to Peter to provide the financial report.

Peter Bühler, CFO

Thank you, Thomas, and good morning and good afternoon to all of you. Now, let's look at the financial report for the first quarter of fiscal year 2025. Product sales reached €48.6 million, an increase of 51.2% versus the first quarter of the prior year. IXIARO sales reached €27.5 million, representing a 65.5% increase from last year. This growth is driven by a strong increase in sales to the US military and travel channels, while the first quarter included higher sales related to stock replenishment in indirect markets. As you may recall, the first quarter of 2024 was adversely impacted by supply constraints. DUKORAL sales grew by 9.4%, reaching €12.3 million, primarily driven by shipments totaling €1.1 million to the French island of Mayotte. IXCHIQ sales reached €3 million in the first quarter of 2025, compared to €200,000 in the first quarter of last year, driven by the ongoing ramp-up of sales in the United States and the launch in additional territories, mainly in France and Canada. In Q1, we received an order for 40,000 doses of IXCHIQ to respond to the chikungunya outbreak in La Réunion. The majority of these doses were shipped in early April, so sales will be recorded in Q2. Third-party product sales increased by 41% to €5.8 million, compared to €4.1 million in the first quarter of last year. As previously mentioned, we expect third-party product sales to decline over time, but this year's increase is primarily due to supply constraints faced by our third-party partners in Q1 of last year. Moving on to the income statement, total revenues reached €49.2 million, up from €32.8 million in the first three months of 2024. Cost of goods and services increased marginally versus the previous year despite the significant rise in sales, with the gross margin on commercial products, excluding IXCHIQ, amounting to 62.7% compared to 43.9% in the first quarter of 2024. The improvement in gross margin stems from better manufacturing performance with fewer batch failures and inventory adjustments. IXIARO's gross margin reached 72.6%, significantly better than last year's 62%, even exceeding pre-COVID levels. DUKORAL's gross margin reached 52.2%, compared to below 40% in the first quarter of last year. Research and development expenses increased by around €2 million to €15 million due to costs related to our new Shigella program following our collaboration with LimmaTech Biologics last year. Marketing and distribution expenses for the first quarter reached €10.4 million, down from €11.3 million in the prior year, primarily due to reduced advertising and promotion expenses. General and administrative costs decreased to €9 million compared to €11.7 million in the previous year due to lower recruiting costs, insurance costs, and savings in professional services. The operating loss for the first quarter of 2025 is reported at €6 million, compared to an operating profit of €68.2 million in the first quarter of the prior year, which was due to a non-recurring revenue of €90.8 million from the sale of the Priority Review Voucher obtained upon approval of the IXCHIQ vaccine in the United States. Net finance and income tax expense was reported at €3.3 million, down from €9.3 million in the prior year, mainly related to a foreign exchange gain of €3.7 million due to the U.S. dollar's performance against the euro and related balance sheet revaluation. Consequently, the loss for the first quarter of fiscal 2025 reached €9.2 million, compared to a profit of €58.9 million in the prior year. EBITDA is slightly negative, whereas last year it was positive due to the sale of the Priority Review Voucher. As we move to our guidance, total cash and cash equivalents at the end of March were €153 million compared to €168 million at the end of the prior fiscal year. In Q1 2025, we significantly reduced operating cash usage compared to the previous year, from €28.4 million to €8.1 million, mainly due to higher sales and effective cost control. We also issued new shares for a value of €14.2 million through our At-The-Market program based on a reverse inquiry from Novo Holdings. Now, on guidance for fiscal year 2025, we maintain our product sales guidance of €170 million to €180 million and total revenues of €180 million to €190 million. We expect total R&D expenses to be between €90 million and €100 million, partially offset by grant funding and R&D tax credits. We're on track to reduce operational cash burn by 50% on a full-year basis, aiming to reach key inflection points with existing cash. In the midterm, we continue to focus on gross margin and foresee a path to sustained profitability from 2027 based on successful Lyme disease vaccine approval and commercialization.

Thomas Lingelbach, CEO

Thank you so much, Peter, for this comprehensive financial report. Turning to our expected growth drivers for 2025 and beyond, it's primarily about Lyme disease for now. We look forward to the results of VLA15 and its potential success, which has the capability of achieving sustained profitability upon approval and commercialization, driven by substantial milestones and royalties expected in 2027. In our commercial business, we have shown our ability to optimize and grow, expecting continued growth for our existing brands like IXIARO and DUKORAL, alongside IXCHIQ gaining further traction. As for our future pipeline, we anticipate value creation through new and ongoing programs, including Shigella and Zika. We aim to have our next Phase 3 program ready following the successful introduction of the Lyme vaccine. Overall, we are optimistic about our business prospects, anticipating key growth drivers around Lyme, along with significant contributions from our commercial business and existing clinical and pre-clinical R&D assets. We would like to conclude our presentation and hand back to the operator to take your questions.

Operator, Operator

Thank you. Now we're going to take our first question, which comes from Maury Raycroft from Jefferies. Your line is open, please ask your question.

Maury Raycroft, Analyst

Hi. Congrats on the progress and thanks for taking my questions. I'll ask a quick one on IXCHIQ first and then one on Lyme. I guess for IXCHIQ, just wondering what are the next steps regarding the label? Have you heard back from the FDA concerning the label extension application for adolescents submitted a couple of months ago? And then what are the next steps regarding the potential need to add new language?

Thomas Lingelbach, CEO

Thanks for your question, Maury. I will start with the last one first. The FDA review is still ongoing, and we are waiting for their reply regarding the adoption of the label to include individuals aged 12 and above. The current situation and next steps include the changes to the recommendations. We are committed to maintaining high safety standards, and the investigations are ongoing. We understand that the issues have arisen primarily in frail older individuals, and we have recommended that healthcare providers exercise individualized clinical judgment in determining the appropriateness of IXCHIQ for elderly frail patients. We will support regulatory authorities as they evaluate those cases and review any additional precautions or contraindications for specific population groups that may be warranted.

Maury Raycroft, Analyst

Got it. Okay. That makes sense. And then for the Phase 3 Lyme study, can you remind me what the p-value threshold is for the primary endpoint of confirmed Lyme cases? When considering GMT from historical studies, how are you setting expectations for the bar and what antibody titer will be required for sufficient protection?

Thomas Lingelbach, CEO

Unfortunately, I can't disclose the p-value for the Phase 3 study, but it is sufficiently powered according to expectations and epidemiological evaluations. We reference a joint publication by Pfizer and Valneva that hypothesizes a potential protective immunological threshold. However, it is difficult to define a specific immunological correlate for Lyme disease due to varying assays. We can send you the link to the respective publication.

Maury Raycroft, Analyst

Okay. That sounds good, and that would be helpful. Thanks for taking my questions. I'll hop back in the queue.

Operator, Operator

Thank you. Now, we're going to take our next question from Rajan Sharma from Goldman Sachs. Your line is open, please ask your question.

Rajan Sharma, Analyst

Hi, thanks for taking my question. I have one question on Lyme; I believe you have a $143 million initial milestone from Pfizer. I was wondering if that part of it is contingent upon a positive Phase 3 result, or is it specifically tied to approvals in the U.S. or elsewhere? Also, regarding tariffs, could you comment on the potential impact on Valneva?

Thomas Lingelbach, CEO

Peter, would you like to take that?

Peter Bühler, CFO

Yes, hey Rajan, it's Peter. Thanks for the questions. Yes, you're correct. The $143 million milestone from Pfizer would be triggered by first commercialization, rather than being tied to the Phase 3 outcome. The milestone has three parts: first sales in the U.S., first sales in Europe, and the ACIP opinion, all expected to happen in 2027. Regarding tariffs, we are closely monitoring the situation. At this time, it's challenging to express a perspective since nothing has been defined in terms of tariffs. We are looking into potential mitigation strategies related to our manufacturing footprint. Our vaccines are all manufactured in Europe; drug substance for IXCHIQ is produced in Scotland, while filling and finishing occur in Germany. DUKORAL is produced in Sweden.

Rajan Sharma, Analyst

Okay. Thank you.

Operator, Operator

Thank you. Now we're going to take our next question from Vamil Divan from Guggenheim Securities. Your line is open. Please ask your question.

Vamil Divan, Analyst

Great. Thanks for taking my question. I have a couple on the financial side. First, the sales this quarter were significantly higher than consensus. How do you plan to maintain your full-year guidance? Considering the DoD sales in Q1, is that a reason to be cautious about the rest of the year? Also, is there some IXCHIQ conservatism due to the label updates? Regarding gross margin, you've mentioned getting back to pre-pandemic levels; do you feel confident in reaching pre-pandemic levels even if the product mix shifts?

Thomas Lingelbach, CEO

Thank you for the question. Yes, our first quarter revenues have exceeded expectations but aligned with our anticipation, given robust growth, particularly in IXIARO from both travel and DoD. We are experiencing a different phasing compared to prior years, which is why our guidance remains unchanged. We anticipate strong overall growth, particularly in IXIARO, even with the Department of Defense contracts expected to ramp up; we've signed new contracts and our supply remains on track. On gross margin, IXCHIQ is projected to yield a better gross margin over time, and while Q1 gross margin was strong, we have not defined a 2025 gross margin guidance yet. However, we are pleased with our Q1 performance.

Vamil Divan, Analyst

Okay. Thank you.

Operator, Operator

Thank you. Now we're going to take our next question from Samir Devani from Rx Securities. Your line is open, please ask your question.

Samir Devani, Analyst

Hi, thanks for taking my questions and congrats on a good quarter. Have you fulfilled the Mayotte order in this quarter?

Thomas Lingelbach, CEO

Yes, we fulfilled the Mayotte order with DUKORAL in the first quarter.

Samir Devani, Analyst

Okay, fine. Just on the La Réunion order. Can you help us think through modeling IXCHIQ? Will it lead to a spike next quarter and then a decline?

Peter Bühler, CFO

Yes, we supplied a small number of doses at the end of Q1, and the remaining will be supplied in Q2.

Samir Devani, Analyst

Okay. Finally, regarding IXCHIQ and its being live attenuated, have you reconsidered the dosage for pediatric studies due to the potential adverse events seen in the elderly?

Thomas Lingelbach, CEO

We have not seen any unexpected safety profile in younger adults or adolescents, so we've not reconsidered the dosage for the Phase 3 infant study.

Operator, Operator

Thank you. Now we will proceed with our next question from Suzanne Van Voorthuizen from Van Lanschot Kempen. Your line is open, please ask your question.

Unidentified Analyst, Analyst

Hello, this is Samuel on for Suzanne. For the Lyme Phase III program, can you provide some color on the infection rate in the study and whether this is in line with expectations? Also, is the first cohort receiving a second booster this season, and will you report data on this at the year-end readout? Additionally, could you comment on the latest news from vaccine policymakers and any potential impact on your vaccine business?

Thomas Lingelbach, CEO

We are monitoring Lyme cases throughout the study and have seen a consistent profile in terms of the number of cases. We are not too concerned at this moment. Regarding the cohorts, the first cohort will receive a second booster, and we will report data by year-end. As for the political dynamics affecting our business, it is too early to predict any impact. There are many unknowns, and we will have to wait until specific requirements or policies are established.

Operator, Operator

Thank you. Next question comes from Oscar Haffen Lamm from Bryan, Garnier & Co. Please ask your question.

Oscar Haffen Lamm, Analyst

Thank you for taking my questions. On IXIARO, relative to Q4 last year, sales are roughly similar. Were there any seasonality effects in this first quarter? How do you forecast growth for the asset for the remainder of the year?

Peter Bühler, CFO

While I wouldn't attribute any specific seasonality impacts in Q1, some indirect markets experienced a stocking effect. Overall, we expect IXIARO to continue to grow at a double-digit CAGR and for this year, we anticipate double-digit growth.

Oscar Haffen Lamm, Analyst

Thanks. On IXCHIQ, following the updated recommendation from the French HAS, could there be potential impacts on the order book of vaccines ordered for the La Réunion outbreak?

Thomas Lingelbach, CEO

We have confirmed the 40,000 dose order for the La Réunion outbreak, and we have delivered those doses.

Operator, Operator

Thank you. And the last question comes from Simon Scholes from First Berlin. Your line is open, please ask your question.

Simon Scholes, Analyst

Yes. Good afternoon. I have three questions. First, could you provide color on your idle capacity costs and efforts to reduce them? Secondly, IXIARO's gross margin was 73% in Q1; do you think that is sustainable? Regarding DUKORAL's gross margin, can you expect it to approach 60% over time?

Peter Bühler, CFO

On gross margin, we believe Q1 levels may not represent what we will see for the entire year, and we anticipate an improvement compared to last year. I don't foresee IXIARO's gross margin remaining above 70% for the full year. For DUKORAL, we haven't guided on gross margin yet, but Q1 levels are likely to be representative. Regarding idle costs, they were around €2 million for Q1, primarily due to our large capacity and the ongoing transition of production to our new manufacturing site in Scotland. We expect to see a reduction in idle costs over time.

Operator, Operator

Thank you. There are no further questions today. I would now like to hand the conference back to the management team for any closing remarks.

Thomas Lingelbach, CEO

Thank you for your attention today, and we look forward to staying closely in touch while we focus on our execution this year to build strategic value for the future. Thank you.