Valneva SE (VALN) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Intercell Q3 analyst call. At this time, all participants are in listen-only mode until we conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions).

Just to remind you, this conference call is being recorded. I would now like to handover to the Chairperson, Thomas Lingelbach, CEO of Intercell. Please begin your meeting, and I will be standing by.

Thank you so much. And welcome to the quarter three results and Company update call of Intercell. A very good morning to those joining from the United States. Good afternoon from -- to those joining in from Europe. I'm here with my fellow Management Board colleagues; Staph Bakali, our Chief Business Officer, and Reinhard Kandera, our Chief Financial Officer.

In terms of key highlights, let me turn to page number 5 of our presentation. We are glad to report that the Company continues to execute on its objectives following the renewal process and strategy we have outlined now in the second quarter of 2011.

We presented at that time four key pillars of our renewal strategy. One, being revenue growth. Second, operational and financial discipline. Third, a capital efficient pipeline investment setting. And last but not least, number four, to leverage existing or future partnerships. Based on those four key pillars, we have guided the markets towards a strategy geared towards financial self-sustainability.

Where are we on the execution around those four key pillars? Our JEV sales has gone up 65.4% for the first nine months 2011 versus 2010. We have reconfirmed and are still reconfirming a sales growth of 60% to 70% for the full year compared to 2010. Our revenue growth of 22.7% in the first nine months of the year confirms a strong revenue growth projection of the Company.

We have paired this with a strong operational and financial discipline and we are very proud of having achieved major milestones in the financial cost cutting arena.

Our year-to-date operating losses got reduced by 63.3% compared to 2010. We have significantly cut our headcount down to 284 coming from more than 400 by the end -- or by the end of quarter three 2010, and we have been able to achieve that without losing key talent, without losing key capabilities and by keeping a very positive spirit in the organization.

We have transitioned our facility leases and the sale of equipment for our US side, and we are in the process of closing down our operations there with regards to research, development and manufacturing.

On the pipeline side, we have been able to show and to deliver against some key milestones in our R&D pipeline. We received first positive Phase I data for our Clostridium difficile vaccine candidate. We have progressed our JEV pediatric label extension studies according to plan, and we received positive scientific advice from EMA for our Pseudomonas pivotal Phase II/III study and we have now adapted the guidance so that the trial will commence and can commence already in the first quarter of 2012.

We made significant progress with our partner Biological E. to introduce a modern JE vaccine based on Intercell's technology into the Asian markets, and we have promising ongoing partnering discussions with regards to our -- to a very large extent un-partnered technologies, i.e., our eMAB technology, the Patch or IC31.

I think with these key highlights I would like to handover to our Chief Financial Officer, who is going to give you the financial reporting.

Thank you, Thomas. Ladies and gentlemen, I want to start my presentation of our financial numbers with a broad overview on page 7 of your presentations. Page 7 shows you the big picture of our financial results.

Steady growth of the revenues like in Q1, like in the second quarter of the year, we could again grow our revenue line mainly resulting from increasing sales of our Japanese Encephalitis vaccine.

On the cost side, we have made significant progress in reducing our cost base in setting up the Company in the most cost efficient way in R&D, which is the main driver of our spending, but also in general and administrative costs. As a result of growing revenues and cost efficiency, we have made very significant progress in reducing our net loss, as you can see in the chart.

And also as a consequence, we have made very good progress in reducing our cash outflow and in conserving a cash balance to support the execution of our strategy.

Let me now go into the details of our numbers on page 8. On the revenue side, we saw EUR7.5 million for the quarter compared to EUR6.7 million in the previous quarter. If you look at the nine months period, we could show revenues of EUR25.9 million compared to EUR21.1 million, which is an increase of 23%.

On the expense side, on the R&D expenses, we had EUR8.6 million expenses in Q3 and EUR19.7 million in the same quarter of the previous year, which is a reduction of more than 50%. Also again, if you look at the first nine months, reduction was more than 50%. Also in the G&A area, which is not in this chart, reduction was in the range of 20%.

As a result, our net loss has decreased significantly to EUR7.8 million for Q3 compared to EUR27.8 million in Q3 2010, which corresponds to a reduction of more than 70%. For the first nine months we could reduce losses from EUR50.9 million in 2010 to EUR20.6 million in 2011, a reduction of more than 60%.

If we come to the operating cash flow, you see that in Q3 our operating cash outflow was approximately EUR3 million and this compares to EUR22.7 million in 2010. If you look at the nine months period, we had an operating cash outflow of EUR31.9 million compared to EUR49.2 million in 2010.

If you look into the dynamics so far in the year 2011, you will see that the main part of our operating cash outflow occurred in the first quarter of the year, where spending and cash outflow was still driven by the last year's spending before implementation of our cost saving and restructuring programs.

In Q2, and especially now in Q3, we have made significant progress in reducing the cash outflow. As a result, we could conserve a cash balance of EUR68.8 million, almost EUR 70 million, at September 30th.

With that, I want to move into the outlook for the full year, on page 9 of your presentations. We did see a significant increase in revenues in Q1 to Q3 and we expect the positive sales trend for IXIARO/JESPECT, our Japanese Encephalitis vaccine, to continue. Let me point out that in every single quarter since the launch of the vaccine, we were able to show revenue growth on a year-on-year comparison; meaning, compared to the previous -- to the same quarter of the previous year.

On the cost of goods side, we showed a slightly negative gross margin this year, driven by higher inventory write-offs than in the pervious quarter. If you look at the nine months period, you see that we are able to show a positive gross margin and we expect 2011 full year to be our first year that the product produced is a positive gross margin.

On the R&D expense side, despite the cost cutting that we have implemented here we still remain committed to priced focused pipeline forward and to create value from that pipeline and from leveraging our technologies.

On the SG&A side, we are very cost conscious when it comes to general and administrative expenses. However, we have a growing line of sales expenses as our product increases, which partly sets off the savings in the G&A area.

For the net loss, given the good developments that we saw in the first three quarters of 2011, we are very confident that we are able to meet our expected net loss goals, which is between EUR30 million and EUR40 million net loss for the full year.

With that, I want to finish my presentation of the financial numbers and handover to our Chief Business Office Staph Bakali to give you more details on the developments of our Japanese Encephalitis vaccine.

Thank you, Reinhard, and good afternoon and good morning, everyone. With the sales of EUR5.1 million and taking into account the important factor, which is the seasonality of this product, quarter three represented another solid quarter for IXIARO sales and maintains the positive trend of posting strong sales growth over each respective quarter when compared to last year, and as Reinhard mentioned, indeed, each respective quarter in each year since launched.

The Q3 sales have been primarily driven by strong uptake in the military sector, strong growth in the key travel markets, especially Germany, the UK, Nordics, Australia and the United States. And for the first nine months of 2011, the sales revenues have exceeded EUR50 million, which represents a growth of 65% as compared to 2010.

Therefore, we are maintaining our previously stated expectation of a full year sales growth of between 60% to 70% when compared to 2010.

If we could go on to page 12. We have previously communicated our mid-term strategy for growing the Japanese Encephalitis vaccine sales, and while not wishing to go great details, it is worth restating the key elements of this strategy.

Intercell and its global distribution partners will continue to focus resources to increase penetration in the key travel markets and the military sector and expand into new customers targets such as large corporations and launching into new geographical territories. For example, approval was obtained in Honk Kong and we're expecting approval in Singapore in the next few months, and furthermore, the first submissions in the rest world, countries such as Latin America have been filed and other submissions are planned.

Turning to page 13, we are also very active in the life cycle management of IXIARO and the Japanese Encephalitis franchise. Key to this is the pediatric development program for the label extension for children traveling to endemic areas, and this is progressing towards Phase III results and regulatory submission is expected in early 2012.

We expect approval for this indication within 12 months; i.e., end of 2012, beginning of 2013. And finally, with regards to rolling out our endemic strategy, in September Intercell and its partner Biological E. announced the successful completion of a pediatric pivotal Phase II/III study in India. Analysis of the pivotal Phase III safety and immunogenicity data showed positive results and the study met its primary endpoint.

Through the rolling submission process available in India and which was initiated during the course of 2010, we expect the submissions to be completed and approval is expected in the near future. We of course are in the midst of launch preparations for this product and are on track to launch in the first half of 2012, as previously indicated.

Moving on to page 14, the Company is handing the follow-up actions resulting from IXIARO's first recall diligently and proactively, and as presented in the previously quarterly report that we have ongoing article 20 procedure, the update on this is that the procedure execution is progressing towards closure. The preliminary root cause is currently substantiated and towards the most probable root cause. The corrective actions should prevent future recurrence and we expect the procedure to be finalized by the end of 2011.

And with this, I would like to hand back to Thomas to give the R&D progress update.

Thank you so much. Let me turn to page number 16. What you see on page 16 is just a refresher to what we presented previously. Following our renewal strategy, we have been able to build and maintain a very diversified development portfolio focused on novel vaccines and addressing different areas of unmet medical needs.

A couple of features need to be noted with regards to the overall pipeline. You see that more or less 50% of the ongoing clinical development programs are being carried out by external partners, and even compared to the overall portfolio, more than 50% of the development costs are carried by partners. And the four key in-house programs we are currently developing are all based on different phases of development and different technologies within our diversified field of R&D operations.

Staph mentioned already the progress around Japanese Encephalitis, where the Company is still investing a vast majority of its expenses in the R&D arena. On Pseudomonas, page number 17, we presented already previously that there is quite a substantial high unmet medical need in the field of Pseudomonas aeruginosa infections and we are targeting a very important target population here, patients on mechanical ventilation in intensive care units.

We conducted Phase I and Phase II trials successfully in more than 500 ventilated ICU patients, and you know that we revealed encouraging clinical findings during the previous clinical development phases.

We saw a strong immunogenicity in the target population and a significantly reduced mortality in the ventilated patients and even more predominantly reduced morality in vaccinated patients who had even an infection.

These findings encouraged us and our partner Novartis to go ahead into a confirmatory efficacy trial, and we are glad to report that following a certificate wise procedure, the Company has obtained green light to proceed into a Phase II/III placebo controlled pivotal efficacy study in more than 800 or 800 subjects with a similar setting but one-to-one randomized, where we're going to use in 50% of the target population our vaccine candidate and compare it head-to-head against placebo.

For the first time we are presenting now publicly, on page number 19, the trial design, and as you can see, it will be a confirmatory, double-blind, randomized, multi-center, placebo-controlled pivotal efficacy trial. The trial will be conducted by Intercell, and as previously stated, we plan to start in the first quarter of 2012. The costs will be shared between Intercell and Novartis.

On page 20, we have summarized the study endpoints, and as previously communicated, the primary endpoint of this trial will be day 28 all cause mortality in patients receiving the vaccine candidate compared to placebo.

We have a whole variety of efficacy endpoints that are all meaningful into -- in this target population and in the respective clinical setting, as well as immunogenicity and safety endpoints. And I don't want to present those in detail, but we have them here for the sake of completeness.

Once more, we are glad that we will be able to explore our vaccine candidate in this significant area and we are looking forward to the trial initiation. And just as a reminder, we have been able to design the trial in a way that we will have a meaningful fertility analysis after 50% of the patient population enroll, and hence this trial execution represents an excellent example for capital efficient R&D progression.

On page 21, you can find a summary of our trial, where we test our vaccine enhancement patch in combination with an H5N1 antigen. And this will confirm the mode of action for external adjuvantation, on the one hand side, but on the other hand, also the protection against pandemic influenza and specifically here the H5N1 antigen.

If (inaudible) show even potential single application protection, but since we had some inconclusive results in different trial settings before, we designed a trial that is now nearing its completion from a study enrollment perspective. And this trial will give us an answer on (a) that we can adjuvant the H5N1 antigen with an external patch delivered antigen, and hence we hope to see a very good adjuvantation effect. But maybe also here a very clear protection after a single application, meaning, one injection combined with the patch put on top of the injection side. We are encouraged by the positive trial execution and we expect data in the first half or around mid 2012.

On [CD], another program in the field of nosocomial infection. And just as a reminder, Clostridium difficile is the leading cause of nosocomial diarrhea, becoming also more and more a problem in elderly homes. For example, we are testing a very interesting approach based on recombinant fusion protein of the relevant parts of the respective toxins.

Here we conducted a very successful pre-clinical study and we decided to enter a clinical evaluation and investigation also based on an approach that is already in clinical or has been already in clinical investigation by Sanofi. We initiated the Phase I back in quarter four, 2010. We tested the vaccine, first of all, in healthy adults from 18 to 65 years of age -- we call this the Part A -- and we have just concluded this Part A and we saw very encouraging data here.

We saw a very good safety and immunogenicity and we saw even a first indication of functionality induced by the respective antibodies, and I think this is something that is really showing our position in the field of vaccine development. And we aim to transition this program into the so-called Part B, the target population, which means elderly, above 65 years of age.

We are still in the planning process when we are going to actually transition now into the Part B, but we expect the final data in still in year 2012 provided that we will be able to transition shortly into the next part of this trial.

In summary -- and I would like to conclude here with the summary and the outlook presented on page 26. The Company has been able to show significant progress on the execution of its renewal strategy. Our JEV revenue growth and the life cycle management underpin the value of our first product, and I've been stating many times, that this product, of having a product in the market is a pretty unique part of our value proposition that differentiates us from many other biotech companies in the field.

We saw excellent and good progress in the development of our program pipeline and our cost reductions and the restructuring measures have been resulting in significantly improved financial performance -- and our capital efficient R&D operation, without jeopardizing possible pipeline upsides. And just to recap here, there is still unlocked potential in our pipeline, especially when it comes to our technologies such as the antibody, our patches and the IC31, our proprietary adjuvant.

In terms of outlook, we are well on track to meet our net loss expectation of EUR30 million to EUR40 million for the full year, as mentioned by Reinhard before. We expect further growth in revenues and reduced net loss for the next year.

We are in the process of compiling our budget for 2012 and hence we are not able to give you a precise expectation in terms of net loss today. But it will, obviously, and this goes without saying, be significantly reduced and absolutely in line with the mid-term projection we gave to you when we presented our renewal strategy, where we clearly guided you towards the Company's financial self-sustainability in three to four years from now.

There's a strong commitment to further execute on our renewal strategy geared towards the mentioned financial self-sustainability by the Management Board and the entire management team and staff in Intercell, and we will continue to focus to leverage the partnership upsides, as mentioned before. With that, I would like to thank you for your attention and return back to the operator to take your questions.

(Operator Instructions). Brigitte de Lima.

Brigitte de Lima from Bank of America-Merrill Lynch. I just have two very short questions on IXIARO. The first one is one the guidance. The third-quarter number was a little bit weak, I thought. So basically, for you to be within that range, you need to see that the fourth quarter is sort of in line or slightly better perhaps than the third.

But in the last two years the fourth quarter is always slightly weaker than the third quarter. So could you just clarify what makes you optimistic on now the fourth quarter will be potentially better than the third?

And then just on the write-downs. Do you anticipate further write-downs and what exactly these relate? You took a whole set of write-downs last year, and I was under the impression they were sort of coming to an end. So just some clarification once more about these write-downs are about and how much we should expect? Thanks.

Okay, Brigitte. Hi, it's Staph here. Thanks for your question. I think it's important to remind people a couple of things that we've been very consistent about, and that is our guidance of 60% to 70% growth since the start of the year. And I think we're very much on track on that. And the second thing is to remind everybody of the strong seasonality of this product, and that's why we see different quarters yielding different results.

In terms of Q4 we will maintain that 60% to 70%, and what gives us confidence is the visibility we have in November as to what we're likely to do. I can't divulge the specifics, but to say that we're very much on track to do that.

Brigitte, when it comes to write-off, here, we, as a manufacturing team, have really to take the blame because we have manufactured in excess to demand. Why? Because, obviously, we have been manufacturing more than we actually sold. We wanted to have respective inventory buffers. And that's one reason. The second reason is obviously that we had a couple of in vivo tests not passing. Unfortunately, this is the nature of the beast.

We have not every single lot passes. We had -- we were glad in the last quarter where we had not a single product write-off due to final animal testing. But sometimes this can happen, and the combination of the two things has unfortunately resulted in quite significant write-off number for the third quarter.

Can I just dig a little bit into that. And so the recalls we've had, is the problem still -- is still a problem in the way it is manufactured or is there is problem in the quality control? I guess it's not really clear to me whether these -- the recalls were caused by some one-off event or whether there's some underlying issue with the way the lots are manufactured that still hasn't been corrected. Do you mind clarifying that?

Yes. So we can -- we are still, as Staph reported, in the middle of the Article 20 procedure and we are concluding right now our investigation. But it's fair to say that as things stand today, we -- you hear us very confident that our product has no systemic or systematic problem, that this was an isolated event caused by a certain setting of a certain product competition.

And I cannot be more precise, because we are under a regulatory process here and obviously this all is subject to regulatory clearance. But we have -- we are very confident that there is no manufacturing issue related to IXIARO and hence we maintain our confidence in this product and its quality.

[Thank you] very much.

Tara Raveendran, Jefferies & Co.

It's Tara from Jefferies with just two questions really. One around the Hep C program that you have partnered with Romark. I was just wondering if you could give us any more color to the reasons for the delay with getting the regulatory approval for staring that Phase II?

And then, secondly, you also talked about leveraging partnerships and promising ongoing discussions. Can you give us any more granularity around that? Thanks.

Okay, thanks. So let's start with HCV and Romark. Just to remind everyone the history of our HCV program, Intercell for many years was active in the field of hepatitis C vaccine development. Intercell was the only company that ever showed a meaningful long-lasting reduction in virus loads in a therapeutic vaccine investigational setting. However, today the Company put this asset on the shelf in the third quarter in time, because there was for standalone setting no forward development strategy.

We decided when Romark approached us to allow here a combination trial to happen. However, the field of hepatitis C therapeutics is quite crowded and there are many, many new developments and there are a lot of developments that are basically causing the regulatory authorities and especially the ethical committee to evaluate and investigate carefully every single new investigation and approach from a risk benefit perspective.

This is why the clearance process with the ethical committee takes a certain while. And we have given it for time to conclude till this year, and as mentioned in our quarterly report, we're either going to transition this into an investigational setting fully conducted and paid by Romark still this year or we're not going to give green light to go ahead.

This is with regards to Romark, with regard to the un-partnered technology. And why are we optimistic with regards to those discussions?. We have initiated as part of our renewal strategy and active pitching of our un-partnered technologies, primarily our antibody platform.

We are -- since the acquisition of the Cytos technology, we invested quite a significant amount of effort and time, and we have now seen first interesting preclinical results and data, as we all know, the prerequisite for partnering and we have now a dataset that allows us to approach interesting parties.

And the feedback we are getting, not only on antibodies, but also on the patches, where we returned certain rights from GSK, is positive. And also, we are not yet at a point where we can disclose the yield or partnering setting. We have an increased level of confidence that in the near future we will be able to set something up.

Would you like to take the next question?

Hello, we cannot hear you.

Would you like to go to the next question?

Yes, please go ahead.

Yes, please.

Xiaofei Zhang, Kempen & Co.

This is Xiaofei from Kempen & Co. I have two questions. The first one is since JEV is approaching approval or launching in India, can you give us any indication of pricing or marketing strategy?

And the second question is can you remind us of the agreement with Novartis on the Pseudomonas, at which point can Intercell opt to receive milestones and royalties rather than share cost 50/50? Thanks.

Okay. It's Staph here. In terms of the rollout in India, as you can imagine, we are right in the middle of the border launch planning and market assessment. And unfortunately, I'm not in a position to divulge that work in progress because obviously a lot of it has been done by our partner, Biological E.

But we see India to be a significant opportunity given the number of --and target population of pediatrics and the fact that we will be coming with a pretty differentiated product both for the private and the public markets. But as those plans get more cemented, we will be able to be a little bit more specific on those.

Okay. On the Pseudomonas, this is a program under the strategic alliance agreement with Novartis. We decided to co-finance the Phase II/III pivotal efficacy trial. The -- once data will be available following the trial completion, Novartis and us will take a decision on opting in by Novartis and/or co-development.

And obviously, the opt-in will then trigger milestones and royalty payments, as presented and outlined before, and the co-development would mean that the co-financing and later profit split in between the parties would be implemented.

So you mean if Intercell is going to opt in, that will be after the Phase II/III data available, right?

Yes. So this will not Intercell being opting in, Novartis will opt-in.

Okay.

Novartis will opt-in after the -- or may opt-in after the phase II/III data.

Thanks.

(Operator Instructions). Tara Raveendran.

Thanks for taking my second question. I was just going to follow-up on IXIARO. Can you give us an update on where we are with the German and French authorities in terms of getting the recommendation?

I think those -- there's nothing new to report. Those recommendations are in progress and we are as anxious as you to get those moving forward.

Okay. Thanks.

We appear to have no more questions at this time. I'll hand the conference back to you.

Okay. So thanks so much for following Intercell. Thanks so much for attending our quarter three call on results and general updates, and we wish you still a very good day or evening. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect your line. Thank you and goodbye.