Valneva SE (VALN) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Intercell Q1 analyst call. At this time, all participants are in a listen-only mode until we conduct our 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 hand over to your Chairperson, Thomas Lingelbach. Please begin your meeting and I'll be standing by.

Ladies and gentlemen, good morning for those of you dialing in from the United States, good afternoon from those in Europe and welcome to Intercell's analyst call on quarter one results and general company update. I'm here with my colleague Reinhard Kandera, our Chief Financial Officer.

Intercell 2012 so far, following our restructuring, we present the Company in a leaner, more efficient way and we have been focusing on our strategic execution and so far delivering nicely according to our guidance and according to our expectations.

With regards to the financial performance, we see a solid continuation of our JEV sales growth and a further loss reduction driven by lean operation and increasing revenues.

On the R&D pipeline all of our key programs and activities are on track. We have initiated Pseudomonas Phase II/III trial according to plan. The JEV pediatric label extension is expected by the end of this year or early next year, we have initiated our Part Ib for our Clostridium Difficile candidate and we see nice progression in the field of Tuberculosis, where we support with our proprietary adjuvant IC31.

As promised, we have done the next step with regards to strategic development and we co-announced today the financing with BB Biotech acting as a strategic anchor with EUR25m financing and Reinhard will give you more details on this financing transaction.

It is important that we have always guided the markets that we wanted to find a solution that allows us a, to build flexible strategic options around the financing and around the strategic development of the Company towards financial self-sustainability; at the same time to find a solution that will not overly dilute the existing shareholders. We believe that with this structure, which will be presented in detail later, we have found what we have promised to do during the course of this year.

With this short introduction I would like to hand over to Reinhard who's going to give you our financial report.

Good afternoon, ladies and gentlemen. I'm happy to be able to report about the first quarter 2012 numbers, which again have confirmed a trend that you have seen now over a couple of quarters already, where we see solid growth of our Japanese Encephalitis Vaccine sales and where we see good progress in reduction of our net loss through revenue growth and through cost efficiency.

Page seven of your presentation gives you a brief overview about our key performance figures. We show revenues of almost EUR6m, of which EUR4.6m came from Japanese Encephalitis sales. The (inaudible) and licensing income, which is largely driven by non-cash revenue recognition effects, were smaller than last year.

If you look at R&D expenses, you can clearly see that we have managed the Company and that we are managing the Company at a very lean cost basis and that we are focused on our key programs and that we have made further progress in reducing our cost base to support our strategy towards financial self-sustainability. As a consequence of growing revenues and reduction in expenses, we once again could show a good year-on-year net loss reduction for more than EUR11m in the comparative quarter of 2011 to about EUR8m in Q1 2012.

Our cash position at the end of Q1 was EUR38.5m and we have been announcing and stating before that managing the cash position and improving the cash position is a key management delivery in the first quarter and in the first half of this year. We've been focusing on that in the last couple of months and we are very happy that today we could make an announcement that secures our funding over the next years.

With that let me go into a little more detail on our first quarter numbers on page eight of your presentation. As I already mentioned, we saw EUR6m in total revenues, which is a slight increase compared to 2011, but we saw a strong increase again of 36% on Japanese Encephalitis sales and Thomas will come to the JEV sales in more detail in a minute.

Our cost of goods were EUR3.2m. Again we could show a positive growth margin now in a quarter and we could show that our margin on the project is actually improving and moving in the right direction.

Our R&D expenses have been reduced by 28.3%, coming to EUR5.7m, which allows us to continue our commitment to pipeline investments, which is an important element to our strategy. But, at the same time, we do this in a very cost conscious and focused way and this is our commitment and we will continue to see our commitment. Also we have raised additional funding.

In terms of SG&A expenses, you can see that they are pretty flat. Our G&A expenses have been reduced year-on-year. However, driven by a growth in sales revenues, our selling expenses have increased and partly offset the decrease in G&A spending.

Other operating expenses and finance expenses are largely in line with what you have seen over the last couple of quarters and our net loss for the first quarter was EUR8.1m, which is a reduction of almost 30%.

As I mentioned, we have a cash position of EUR38.5m that will be significantly strengthened in the second quarter by the cash from the financing that we have announced today and our first quarter results fully support the guidance that we have given for the full year 2012.

With our Japanese Encephalitis sales revenues we are on track to meet our EUR8m to EUR10m growth target for the full year and we are also on track to meet our EUR15m to EUR20m expected net loss for the full year.

With that I want to hand back to Thomas to guide you through IXIARO sales performance and update on other programs before I will come back and talk about our financing that was announced today.

Thank you so much, Reinhard. Let me turn to page 10, IXIARO. Our product sales revenues increased, as Reinhard said, by 36.4% to EUR4.6m in the first quarter and you can see on the right-hand side of your page the seasonality effect that we typically see for such a travel vaccine.

This growth in sales, driven by mainly growing adaptation in key European and US markets, continues the positive trend of increasing sales and confirms the potential of this product as a key driver of our growth strategy. It's even more important that we have seen, also we do not report it because it's not Intercell's sales revenues, that end-market sales were higher than expected during what is usually the weakest quarter of the year due to this travel seasonality.

So we are, and I think this is important, on track with our expected sales growth for the full year of 2012. And, just to recap, you're reminded that we have guided the market towards an increase in the same order of magnitude as we have seen it in 2011, which means EUR8m to EUR10m or roughly EUR30m to EUR31.6m.

The key growth drivers for IXIARO, and we have been talking about this a couple of times already, are basically the travel market, the military market and the endemic market. On the travel market, as I said, we see very nice increase in penetration in the key markets and there is further growth to be expected on countries with the largest sales potential. And obviously we will expand selling resources with our global partners to foster this growth.

On the military side we are, right now, in the process of leveraging our first full year as sole supplier to the US Military following the stock out of the previous product last year. We will increase the vaccination rate through adaptation of the respective recommendations and, thanks to our relationship that we have been able to build over the last couple of years, there will be a close coordination with the military bases and a strong growth to be expected in this important market segment.

On the endemic market, be reminded that we have got a very positive collaboration with our Indian partner, Biological E. Biological E got approval for a technically identical but regulatory-wise distinct product in India manufactured by Biological E and we will currently -- we are currently preparing the market launch for this product and we are preparing the entry in additional key markets where evaluations are right now ongoing.

We would like to close the JEV section by giving you a very brief update on the Article 20 procedure. Remember we had a very first product recall and we had reported previously that this recall has been done most diligently and proactively in terms of handling. We are now progressing towards closure. We received the positive CHMP opinion on the closeout of the respective Article 20 procedure and we expect the formal closeout by the European Commission still in the second quarter.

With this update on JEV I would like to move on to our R&D operations. Page number 14 summarizes again the development activities that Intercell and/or its partners are actually pursuing right now. It is a diversified portfolio; it's a focused portfolio that we have reprioritized last year as part of our overall Company restructuring and renewal program.

And on Japanese Encephalitis, which is the first one on this list, we are progressing towards pediatric licensure following positive data on this IXIARO pediatric indication program and we are working towards the regulatory steps needed for product licensure, which means in this case label extension.

Pseudomonas aeruginosa, our lead development program, it's a program right now in Phase II/III efficacy trials. We initiated this trial following positive scientific advice, according to plan and we are now nicely enrolling for this trial. It is a very interesting candidate and we will try with this trial to confirm the encouraging findings that were observed in the previous Phase II trial.

On the Pandemic Influenza and Vaccine Enhancement Patch program, which is shown on page number 16, just a reminder here we have been presenting those programs a couple of times to you. But just as a recap, we are combing an off-the-shelf a H5N1 vaccine with a patch put on top of the injection site and we will test the general mode of action of an external adjuvantation. And here the trial has been completed and we will still have our data analysis and data conclusion this year, most likely in the third quarter.

On Clostridium Difficile, which is the leading cause of nosocomial diarrhea, we initiated a Phase I program with a very interesting technical approach and we split the trial in two parts. One part is called Part A, healthy adults, then the Part B where we go straight into the target population, which means elderly. This Part B got initiated following positive results of the Part A and here we are also progressing towards data which we will see next year.

On Tuberculosis, and you all know that tuberculosis is still to be seen as a major global threat to our health, especially obviously in the developing countries. And here we work in a consortium with SSI and Sanofi, partially under the AERAS Foundation but also under different grant funding structures, and we are working here with different vaccine candidates. All are supported with Intercell's proprietary adjuvant IC31 and we are one -- we are part of one of the few programs that are already in clinical Phase II.

The page 19 summarizes our key achievements on the development pipeline. Just to remind you, JEV pediatric we did our submission according to plan, we will see the approval end 2012/beginning 2013 and mentioned already that JEV India we are preparing for the product launch this summer. On pseudomonas we initiated the trial as we will see first interim data as part of what we call the fertility analysis mid-2013.

We have completed the enrollment for the Phase I in the pandemic influenza trial and we expect final data mid or late 2012, it depends a little bit on the resource availability. And then the clostridium difficile Phase I candidate, we initiated the second part with the data mid-2013. And tuberculosis I mentioned that the second Phase II study is expected to be initiated by mid-2012.

We presented at the last quarterly, for the very first time, that we identified a lead candidate out of our pre-clinical R&D, which will progress towards clinical entry. It's Borrelia, Lyme Borreliosis, and we are nicely heading right now towards pre-clinical proof of concept. So, all in all, on the clinical pipeline progression according to plan and guidance.

With regards to our technology platforms, you know that we have a proprietary platform around adjuvant IC31. We have been able to generate good alliances and partnerships around IC31 and we are looking into further indications and have certain partnering discussions and evaluations.

For eMAB, our fully human antibody platform, we are currently investigating licensing as well as service business opportunities and we are progressing those discussions diligently.

On the patch technology, which is the technology that we had used in the Phase III trials, we have cast this technology platform out, transferred this technology platform to Vienna. And we are currently, in our research lab, evaluating where the patch technology, which also the trial that failed got nicely validated in terms of delivery technology, could find a home in terms of potential businesses and business opportunities.

The page number 21 summarizes basically on one page the upcoming news flow or, how we say, the value inflection points on the existing development programs. I mentioned them all but this is just a summary that shows you when certain events around the R&D pipeline are to be expected.

I think with this operational update I would like to hand back to Reinhard, who's going to give you an update on the financing transaction and especially the BB Biotech investment.

Yes, ladies and gentlemen, we were very happy that last night we could sign and announce an agreement with BB Biotech, one of the leading dedicating biotech and healthcare investors for an investment of EUR25m. The investment is a combined debt and equity financing, it consists of a secured term loan and it consists of a EUR5m equity investment.

Coming to the term loan, it's a six-year loan of which the first three years will be interest only, meaning that only in year four, five and six we will repay the loan in quarterly installments. So this gives us additional liquidity that has to be paid only between 2015 and 2018. The loan is secured by IXIARO/JESPECT assets, consisting essentially of our manufacturing assets and IP connected to the product.

We pay an interest that is EURIBOR plus 6.5%, but in no case less than 10.85%. In addition to that, we have committed to pay a 5% royalty on our IXIARO/JESPECT sales on the first EUR50m of annual sales and 1.5% for sales in excess of EUR50m annually. There is a buyout right that caps the interest and royalty costs for the Company.

In addition to that secured loan, BB Biotech has committed to invest EUR5m in equity, which is approximately 2m shares that they have committed to purchase at yesterday's closing share price, which was EUR2.55 per share. We are in discussions with other investors to join BB Biotech in this private placement of shares and our goal is to raise an additional EUR10m to EUR15m from this effort.

As a summary, we see this financing as a very important step on delivering on the renewal of the Company. In many discussions with shareholders and investors and potential investors over the last couple of months, we have received credit for the restructuring efforts that we have put in place, for the revenue growth, for the cost efficiency strategy and for our aim to develop the Company towards financial self-sustainability and profitability.

But there was often one thing of concern raised and that was the cash status and the mid-term funding of the Company to get us into that profitability. It has therefore been a key management goal to remove this funding overhang, which we think with this financing we have achieved, and we are therefore very happy to present this financing and we expect it to take us into our financial self-sustainability.

With that let me hand back to Thomas before we go into Q&A.

Thank you, Reinhard, basically Reinhard's mentioned that Intercell is delivering on its renewal strategy and I think the key message that one can take from this quarter one is that we have promised certain things as part of our renewal strategy.

First of all, the financial performance, be it on JEV growth, be it also on, besides the top line, the bottom line and it's fair to say that now, for the fourth quarter, since we basically gave for the very first time this revised guidance, we have been delivering according to plan. We reiterated our guidance towards a net loss of EUR15m to EUR20m for the full year of 2012.

You have seen that the R&D pipeline activities are progressing according to plan and that, despite of the restructuring, we are able to focus on research and innovation and that we have even been able to deliver, or almost deliver, the next development candidate out of our research organization.

On the strategic development, Reinhard mentioned this financing with BB Biotech. We are very pleased that BB Biotech, as a strategic investor, has decided to invest in Intercell. It's an honor and a very great support shown by an investor like BB Biotech to believe in Intercell and in Intercell's key strengths and capabilities and we do hope that the discussions for the additional EUR10m to EUR15m equity private placement will be successful as well.

Where will this take Intercell moving forward? We have prepared a summary page on page 26. We will obviously strategically continue to maximize our value from JEV. There is a lot of work still to be done to focus on the product and disease awareness and to unlock the enormous potential of this travel vaccine. We will continue the marketing efforts, both in-house but also with our partners in order to allow that and we will continue to improve our product profitability by lean and efficient manufacturing operations.

We will build on our R&D capabilities and progress on the one-hand side our pipeline programs. We will look for opportunities to strengthen the pipeline wherever possible and we will leverage on our capabilities that have been proven from bench to commercialization.

And, last but not least, we will continue to grow this Company strategically, based on our solid financial performance, we will maximize opportunities for a new partnership wherever possible and we will explore complementing business opportunities whenever they come up. Because we believe by these key strategic pillars we will be able to create value for both share as well as stakeholders.

And I think with that I would like to hand back to the operator to take your questions.

(Operator Instructions). Our first question comes from the line of Vladimira Urbankova. Please go ahead with your question announcing your company name.

Hello, good afternoon, Vladimira Urbankova, Erste Bank. I want to ask two very brief questions. First of all, in your presentation you don't mention anything about the proposals for the upcoming AGM that means that you still will ask shareholders for approval to give you right to approve the capital increase and issuance of new convertible bonds. I just wanted to double-check if this is still planned after this financial transaction.

Then I wanted to check also with you this private placement parameter, so what is the targeted price per share and if you have maybe any word from your existing major shareholders that they are going to participate in the transaction?

Thank you, Vladimira. So let me comment on your first question. We have proposed to the upcoming Annual General Meeting on May 25 besides the usual standard resolutions two other resolutions on capital measures that are also not unusual for companies. So we are asking the AGM to renew an authorization that we have been holding for a couple of years to issue shares to the extent of EUR15m. That's something we have in place.

On the basis of this authorization we are able to do the placements that we have announced today and we had this authorization for a couple of years and we simply ask our shareholders to extend that authorization to give management the flexibility that is necessary in the biotech business. And the same is true for the second resolution. We had for many years an authorization to issue convertible bonds. We do not intend to issue any new bonds on top of what we have.

The resolution would only enable us to issue notes for another five-year period to the extent that old notes are repaid or exercised and that is -- that's also a resolution that we had in place for many years that we had for the first time used last year and as the standard it gives us flexibility. So we are asking for these two approvals, which have nothing to do with the financing that we have presented today.

Coming to this financing, in the private placement we are offering to a couple of specialized investors to participate in the equity private placement in which BB Biotech will invest with EUR5m with the price of EUR2.55. So that means that this is also the price at which we expect the additional investors to invest and Thomas may want to comment on your question regarding Novartis participation.

We see this as, Vladimira, this is relatively short and straightforward. As of yesterday we are looking for additional investors, obviously, and it's clear that we are in discussions with our single largest shareholder, Novartis, about the possible participation and we will know in the next couple of days.

Okay, thank you.

(Operator Instructions). Our next question comes from the line of Mark Pospisilik. Please go ahead with your question announcing your company name.

Hi, good afternoon, this is Mark from Kempen & Co, just a couple of questions. One on IXIARO, now that the India approval is in hand, I was wondering if there was any other feedback that you've had from other countries in endemic regions as to likelihood or speed of regulatory processes, willingness to accept a product manufactured in India, etc, along those lines?

And then one question on the Vaccine Enhancement Patch for the Pandemic Influenza, if you could just remind me what -- as I understand it, if I remember correctly, this is Phase I but it's a fairly large Phase I, it's more akin to a Phase II. So if you could just remind what the endpoints are there and what kind of data we could expect in mid or late 2012?

Okay, Mark, let me start -- first of all, thanks for your questions, let me start with the Indian situation. As you know, countries outside of India are a field where one key preventative needs to be ticked and this is the WHO pre-qualification for Biological E and the manufacturing there. This is a process that is ongoing, we have always said that the entry into additional markets cannot start before that and you need roughly a year in between the local Indian licensure and the time you get the WHO pre-qualifications though, which is expected towards the end of this year.

In parallel we are right now conducting a very extensive evaluation around possible entries. There are discussions with a few countries, one example the Philippines, where we are in very detailed regulatory evaluations. We are working here together with Novartis on the one hand side, who would have the rights to market and distribute the products into those territories as well as with Biological E, and we hope that by the next quarter we will already be in a position to present some Indian licensure plan or regulatory product entry plans for Asian territories outside of India.

When it comes obviously to your second question, on the Vaccine Enhancement Patch, we have -- the primary endpoint of this trial is to see basically the external adjuvantation effect. So we had to have non-adjuvant versus adjuvant arms and what we want to see is an enhancement, meaning a twofold rise in HI titers, which have the relevant parameters in the area of flu. And then there are a whole bunch of secondary endpoints, but this is the primary point.

Okay, thank you.

(Operator Instructions). We have a follow-up question from the line of Mark Pospisilik. Please go ahead with your question, announcing your company name.

Hi, it's me again; I thought I'd take advantage of the opportunity to ask another one. On the revenues and from collaborations in licensing I was wondering just because there's a decrease here and yet for the outlook for 2012 we talk about additional revenues from existing and new partnering deals. I was just wondering if you could give a little more color there on maybe which programs are responsible for the revenues to date and which ones are the most likely ones to generate the revenues or partnership in the rest of the year?

Yes, Mark, I'm happy to do that. So, essentially our Q1 revenues come from recognition of deferred revenue from upfront payments that were received in the past couple of years. Some of those, for example the Novartis Strategic Alliance, have given us significant upfront and we are still working on projects that fall under this Strategic Alliance, for example Pseudomonas, Clostridium Difficile and others in pre-clinical stage.

So, we have to recognize that it's revenue accordingly and it has been deferred. However. as time moves on this revenue recognition effect becomes smaller and smaller and this is really what you see in Q1 that it has become smaller but it has been substituted by cash relevant product sales and this is also what you saw throughout the year 2011 and that trend should obviously continue.

In terms of revenues from corroboration and licensing going forwards, we expect revenues from existing partnership, for example from Novartis co-funding of our Pseudomonas clinical trial. But we are also expecting some revenues from potential new partnerships where we are having discussions in the unpartnered areas and this is mainly monoclonal antibodies, this is the patch technology to a certain extent, this is IC31 to a certain extent. And obviously we are managing our investments in those areas according to our progress and success in partnering. So our spending is driven by the level of partnership revenues that we can obtain.

Great, thanks.

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

Okay, thank you so much, it has been a pleasure to take your questions and thank you so much for following Intercell and we wish you all still a good afternoon or a good day. Thank you so much.

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