Valneva SE (VALN) 2012 Q3 法說會逐字稿

Good day and welcome to the Intercell Q3 analyst conference call. At this time I would like to turn the conference over to Mr. Thomas Lingelbach, CEO of Intercell AG. Please go ahead, sir.

Good afternoon or good morning for those of you dialing in from the US. Welcome to Intercell's quarterly call with the announcement of our Q3 results and an operational update on where Intercell stands today.

Fair to say that we are progressing with our execution according to our announced strategic plan. And we have shown a summary on page four of your analyst presentation. As far as the financial performance is concerned, you know that we had an ad hoc release on October 16 announcing that our product sales were lower than expected for the third quarter. However, we see the product growth trend significantly continuing with a 17.4% year-to-date growth. And our cash position at the end of quarter three shows progress in the reduction of our operating cash outflow.

As far as our R&D pipeline is concerned, we see further development of our vaccine against Japanese encephalitis, with successful delivery of key achievements which we're going to update you on later. Our R&D pipeline rationalization process continues and the programs we are focusing on are proceeding to the next stages according to plan.

On the strategic side, we are continuously focusing on our technology partnering efforts and we are also reviewing other strategic options.

With this short introduction I would like to hand over to my colleague Reinhard Kandera who is going to give you our quarter three financial report.

Good afternoon, ladies and gentlemen. I want to start my report about the Q3 financials with an overview which is shown on page six of your presentation.

As you can see we had a significant decrease in revenues. However, we could make up this decrease in revenues by cost savings. And, as a result, our net loss for the quarter is broadly in line with the prior year, 2011.

As you can also see, we have a solid cash position of almost EUR60m. And if you look into more detail in our cash flow statements you can see that despite the loss of EUR7m, our operating cash outflow for this quarter was less than EUR1m. So we do feel that we continue to make progress in order to manage our financials in a sustainable way, based on the solid cash position.

Let me come to the numbers in more detail. Revenues for the third quarter were EUR4.4m as compared to EUR7.5m in 2011. Year to date, for the nine months ended September 30, we had revenues of EUR25.6m which compares to EUR25.9m in the previous year.

On the R&D expense side we had EUR4.7m in Q3 compared to EUR8.6m in 2011, so we continue to make significant progress in our pipeline rationalization and cost cutting strategy in order to progress towards financial self-sustainability which is a key financial goal for the Company.

As I said, our net loss is broadly in line with the prior year with EUR7.5m for the nine months ended September 30. We had a loss of EUR14.6m which compares to EUR20.6m in 2011, evidencing the progress that we are making.

We had an operating cash outflow of EUR900,000 in the third quarter compared to EUR3m in 2011. And if you look at the nine months figures for net operating cash outflow, you see that we are actually making significant progress, EUR10m operating cash outflow for the nine months compared to EUR32m operating cash outflow that we had in the same period of 2011.

In addition, as you know, we could strengthen our financial position through a combined debt and equity financing in the second quarter of this year so that we could conserve almost EUR60m in cash at the end of the third quarter.

Let me give you some more color on the key financial drivers of our business. If you want to go to page eight you see some of the financial details and our outlook for the full year.

Thomas will explain our IXIARO/JESPECT product sales development in more detail but there was for the first time a year-on-year decrease in the third quarter of about 30%.

Also for our collaboration and licensing revenues we saw a decrease and this is a result of the development in our underlying business in research and development. Our recognition effect from upfront payments that we received in previous accounting periods is decreasing over time; that's one factor. Second factor, as a result of reduced spending, some of which is also due to timing, we saw a lower cost reimbursement from partners as compared to the third quarter in 2011.

Our cost of goods sold were EUR3.3m for the manufacturing of Japanese encephalitis. This shows again a positive margin on the product, despite the quite low level of sales in the third quarter.

On the R&D cost side we are making good progress. We are focusing on our key value-creating project. We have a commitment to progress this project and make investments into our pipeline. However, we are very cost conscious and focused and, as a result, you can see that the financial ratios of our analyzing business continue to improve, even in a quarter with lower sales.

The same is true for the sales, general and administration costs. With the generally growing product, our sales costs are slightly increasing. However, we are making progress in cutting also G&A costs. And as a result we saw a significant decrease in the third quarter.

I mentioned already that the loss is broadly in line with the prior year and that we are making good progress in reducing our operating cash outflow and managing the business towards financial self-sustainability.

Our full-year 2012 outlook has been updated. We now expect IXIARO/JESPECT product sales between EUR26.5m and EUR28.5m, which represents a growth of EUR5m to EUR7m compared to 2011. We expect a net loss between EUR20m and EUR24m. And the main swing factors here are IXIARO sales, manufacturing costs, currency effect and R&D costs.

With that financial analysis, I want to hand it back to Thomas to give you a more detailed insight into our JV sales development and operations. Thank you.

Thank you so much, Reinhard. Please turn to page 10 where we show you the IXIARO/JESPECT net sales revenue development. And on the graph you see that there is a constant total year-on-year growth since the product got launched. The quarter-three sales analysis has shown that, yes, the market sales were lower, but significantly higher than 2011. The reason why our net sales revenues, which do not directly represent in market sales, were lower was due to higher stock levels at the customers and delay and shift in orders.

For the quarter four we expect sales in the order of magnitude EUR8.5m to EUR10.5m on net sales revenues for Intercell compared to EUR6.1m we had in quarter four in 2011. And, obviously subject to product release and supply, we are confident that sales will be within this frame.

We received already our ever single largest IXIARO order from the US military with more than 50,000 doses.

Basically this year 2012, if one analyzed it further and looked a little bit into the growth potential of the product, it's really marked by continuous in-market sales growth on a month-to-month basis in our travel market. Obviously, on top of that, we do see temporary effects from the military, because military order, typically, three times per year on average.

So what does it all mean and is there any reason to believe or not to believe this in the potential this travel vaccine has. And I would like to start, before talking about 2013 and beyond, a little bit about the travel vaccines market and the product positioning as such. And this is something that we have already explained a couple of times, but we believe it's important to reflect on that. The travel vaccine market has grown substantially, over to more than EUR1b in the last 10 years. Established travel vaccines have reached penetration rates in between, for example, 7% for typhoid and 11% for Hepatitis A.

Well, where do we see our vaccine, where do we see JE today and in the future? We are right now, in the respective travel markets, on average above 1% penetration rates and in some selective markets already above 5% penetration rates. And we believe that 5% is an achievable objective to reach, on average, in the travel market, given where JE stands in this context of all the other established travel vaccines. This 5% would basically correspond to the total travel market potential of north than EUR150m.

In terms of revenues we believe that at least achieving 50% of the peak penetration in the travel markets in the midterm -- and we define mid-term as you know three to four years -- is within reach based on the positive growth momentum and the increasing markets awareness of JE. In the military we believe that the adaptation of our vaccine will continue to increase and based on the uptake we have been experiencing. There exists also a growth opportunity above and beyond in the military-associated population such as the dependents.

Where would it -- does it mean in terms of operational plans? For 2013 and beyond we expand our selling resources with our global partners in order to further increase the penetration in those key travel markets. We work with the military to expand respective recommendations and, subsequently, uptake. We will leverage our pediatric approval for travelers and the military personnel. And we will leverage the Asian opportunities through Biological E. as well -- and this is new -- also in potential IXIARO segments in Asia. Hence we believe that this product has and has always had a solid basis for continuous product growth.

We have developed a product with our partner Biological E. in India. It's called JEEV and this product is based on Intercell technology. It got licensure in India. Biological E. hired its own sales force. And now, for the first time, this next generation vaccine is available in an endemic country. The target segments here are clearly the prime-pricing private sectors and we target pediatricians and general practitioners. The next steps here are to get WHO pre-qualification allowing this product to be sold also outside of India. And the first deliveries are basically happening these days in India.

Obviously we do also support this product growth by lifecycle management and here we are progressing in our territory expansion and global reach. For example, the vaccine got, this year, approval and is available in Hong Kong and Singapore. We very recently got approval and registration of JESPECT in New Zealand. And we are evaluating, as I mentioned already, the endemic market opportunities also for IXIARO.

Our pediatric development, a major cornerstone in the development of this product, is on track. We have applied for approval and submitted the respective documents to EMA and FDA. And we expect the label to be extended early 2013.

The IXIARO pediatric vaccine was granted Orphan Drug Status in the United States. And we obtained in the meanwhile also positive Phase III results from a booster trial of JE vaccine in children.

The FDA granted a 24 month shelf-life extension for IXIARO. As such, it is now aligned with all the other regulatory jurisdictions, which by the way was also a reason why the military postponed part of its order from quarter three into the quarter four and bundled it into one order in the quarter four.

On the R&D side, I would like to reiterate that, following our restructuring and subsequent renewal strategy, we have focused our R&D activities on some selected programs and activities. On the one hand side we have JE and the ongoing JE development, especially here the pediatric development. And we expect the approval, as already mentioned, early 2013.

Our most advanced clinical program in the field of pseudomonas aeruginosa is currently undergoing a pivotal Phase II/III efficacy trial. And our enrollment is progressing towards the interim analysis, which is going to be a fertility analysis, to be conducted after 50% of the entire subjects, meaning 400 subjects. And we expect this interim data in the second half of 2013. And, just a reminder, this interim data will trigger a go/no-go point for the second part of the trial. And, obviously upon successful interim data, this program will see itself with a significantly increased probability of success.

For C. difficile, a program which we have in Phase I, the second part of the Phase I clinical trial in the target population, meaning elderly, is ongoing and we expect results mid-2013.

Our proprietary adjuvant IC31 is part of many different clinical investigations to date. And, especially in the field of tuberculosis, we have two Phase II studies ongoing, -- two Phase I studies and two Phase II studies.

We decided to prioritize our pre-clinical activities and we focused on a program that we have very nicely advanced over the last 18 months predominantly, a program targeting lyme borreliosis. And this lead pre-clinical vaccine candidate will complete its pre-clinical approval of concept very soon and hence will be further developed in 2013 towards clinical entry.

On page 16 you can see once more a summary of the programs that we are progressing at Intercell, but also programs which are being executed by our partners. And remember that, on our in-house executed programs, Pseudomonas aeruginosa is at a level of 50% financed by our partner Novartis.

Page 17, 18 and 19 do show again a summary of the targets, product profile and the indications for our three clinical programs. We have presented those already many times and I don't want to go back into those details.

However, I would like to draw your attention on page 20. Here you will find again a summary of the three technology platforms that Intercell is still actively pursuing.

And when I mentioned, during my introduction, that we are focusing on evaluating further partnering opportunities, we do so in the area of IC31 which is our novel vaccine adjuvant with highly promising properties. And, as already mentioned, this adjuvant is already in different clinical investigations through existing partnerships. We have additional research collaborations; many are also in fields like cancer. And we have continuous indications and partnering evaluations ongoing.

eMAB, our fully human antibody platform with some very distinct advantages, had delivered on its first candidate in influenza M2 antibody, ready for partnering. And we are progressing other infectious disease targets, but also started to evaluate the technology in the field of inflammation and oncology. We have ongoing discussions around licensing and service business opportunities and we hope that some of those will materialize over the course of the next few months.

The Patch technology, we announced that, following the pan flu data that we obtained together with our partner GSK, we did not invest further into the research and development of the Patch technology. However, given the data set in hand, we see value in this innovative, validated delivery system -- this can be used transcutaneously -- and hence have started to actively pitch this technology as a delivery system to different partners. And again we are hoping to get some technology deal over the next few months.

On page 21 you can see a summary of the news flow in connection with the respective value inflection points for our existing development programs. As you can see, for 2012 we have already ticked all boxes. So everything that we had announced at the beginning of the year we delivered in terms of value inflection points; some with good results, some with more ambivalent results. For 2013 and 2014 you see the respective value inflection points and milestones according to the programs in our pipeline.

In summary, we will continue on our strategic road and maximize the value from our first commercial product, the vaccine against Japanese encephalitis, with a strong focus on product and disease awareness, with a strong focus on continued marketing efforts by Intercell and its partners and with a strong focus on improving the product profitability. We will continue to build on our R&D capabilities, which have been nicely validated by not only our very first product but also by the many clinical programs that we have nicely progressed throughout the value chain. We will progress our own pipeline programs, we will continue to look for strengthening the pipeline opportunistically and we will leverage on our industrialization capabilities from bench to commercialization.

But we will also look into growing the Company more strategically. We will build any development on a solid financial performance. We will continue to seek opportunities for new partnerships and we will continue to explore complementary business opportunities. With this model we believe that Intercell can create value for its share and stakeholders.

Thank you so much and I would like now to hand back to the operator and we are happy to take your questions.

Thank you. (Operator Instructions). We will now take our first question from Vladimira Urbankova from Erste Bank. Please go ahead.

Hello, good afternoon. Thank you for a nice update. And I would like mainly to remind you on some other commitments, which were rather going through press. Nevertheless I wanted to check if you still stick to the targets of a breakeven by 2014/'15?

And then secondly, as we have seen quite a marked drop in R&D expenses, what is the outlook for the R&D expenses development, maybe until the end of this year? And if you can share with us what you expect next year, how much they will accelerate possibly, or if they will still decrease? I don't know. So thank you for now.

Thank you for your question Vladimira. First, the answer to your first question is we clearly stick to our target of financial self-sustainability by 2014/2015. With the recent revision of guidance for product sales, we've also decided to be very cautious on the spending side.

And this probably answers your second question; the financial self-sustainability is a very important target for us. And we are, as a Company that has a growing product and that has cash flows from a product that is growing in market sales, so this gives us this possibility to reach the self-sustainability. And this also gives us the possibility to manage our spending according to the sales situation, especially of the Japanese encephalitis product. And this means, for the near term, that we will remain very cautious; that we will remain very focused on our key value drivers that Thomas has just described, which will translate in, probably, somewhat cost-savings as we go forward.

May I ask you what does it mean in financial terms; how big R&D spending we should then (inaudible) for this year and next year maybe?

We've not given guidance on R&D spending. What I can say is that for fourth quarter the spending levels should be somewhat higher than what we've seen in the third quarter, which year on year still means a significant decrease in R&D. And, as we go forward into the year 2013, expect R&D expenses to be lower than this year and not higher. Just this one example, we've still run a Phase I study for H16 in pandemic flu. This study is finished and will not be replaced by an additional product, at least in 2013. So this gives us some savings potential. And also in our other programs, pseudomonas, that's not clostridium difficile. We remain very cautious to kick-off additional spending until we see significant cash generation from the JV product.

Thank you very much.

We will now take our next question from Gary Waanders from Nomura Code Securities. Please go ahead.

Hi gentlemen. Thanks for taking my questions. Just on the IXIARO and JESPECT, sorry, you mentioned in the presentation that you believe a 5% market penetration is achievable and that you already have attained that level in some markets. So I just wonder if you could give us any more detail as to where you've achieved that sort of penetration and what the difference might be between that market and markets where you currently have lower penetration rates.

Hi, Gary, this is Thomas speaking. So, a very good question. Obviously there are the top travel vaccine markets and those are markets like the Nordics, like the UK, like Germany. And in those markets we have seen already a very nice development and we are already in this order of magnitude or even above.

And the reason why those markets are already well established has different perspectives to it. So one obviously is that those markets are historically well-developed travel vaccine markets in terms of general awareness and uptake, but, at the same time, these are markets where there is a strong sales and marketing infrastructure. Whereas other markets, you know, are markets where the sales and marketing infrastructure and respective efforts are just -- or still in development and where the entry levels in terms of general uptake, general awareness for travel vaccines are harder to achieve, which doesn't mean that they are not able to be achieved, but it takes a bit longer and it takes a bit more effort.

Okay. And then just on the JEEV launch, do you have any information that you can share with us on the pricing of that product?

We expect that the product will be sold in India in between $15 and $20 per dose.

Okay, that's great. Thank you very much.

You're welcome.

(Operator Instructions). At this time there are no further questions in the queue.

Okay. If there are no further questions, then I would like to close this quarterly call by thanking you all for listening to our presentation, for thanking you to be part of the Intercell follow up. And thank you so much and I wish you a very remaining good day. Bye, bye.

That will conclude today's conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.