Valneva SE (VALN) 2012 Q4 法說會逐字稿

Good day and welcome to the Intercell Q4 analyst call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Thomas Lingelbach, CEO of Intercell AG. Please go ahead.

Ladies and gentlemen, my colleague, Reinhard Kandera, and I would like to welcome you to Intercell's analyst call on quarter four results and general Company update. And, I would like to start with a few key highlights in these exciting times for Intercell.

You see on page four of the analyst presentation that we have come a long way on the Intercell avenue now leaning towards the contemplated merger with Vivalis to form Valneva.

The year 2012 has been marked by quite good results on the operational level. We have seen continuous growth of our Japanese encephalitis vaccine in the market field. We have continued to prioritize our R&D programs, but forwarding and clearly delivering on the development milestones expected. And it's quite remarkable that we achieved five clinical study milestones, so-called clinical stage-gate entries, in 2012.

We have also continued our operational efficiency improvement programs by operative consolidation, and here, most importantly, we have shut down our R&D operations in the US and Switzerland and consolidated those into Vienna.

We have redefined our strategy based on our key competencies and geared towards financial service sustainability, finally leading also to a successful completed debt and equity financing in summer of 2012.

And last, but not least, towards the end of the year, we basically set a clear signal in announcing the proposed merger in between Vivalis and Intercell to form Valneva. And we very recently, last week, got the approval by Intercell's shareholders.

Let me turn to Intercell's key revenue contributor, our vaccine against Japanese encephalitis called IXIARO or JESPECT respectively. We are seeing now constant year-on-year growth leading to EUR26.8m in product sales revenues 2012, a significant growth, more than 20%, compared to the prior year. The quarter -- the quarter four has been largely driven by a significant order by the US military and hence, representing a more than 40% quarter-to-quarter compared growth.

We are still seeing some volatility in our product sales revenues, especially when it comes to phasing and timing, and this is primarily driven by distributors' stock management and the stock dynamics because we, at Intercell, do not directly sell to the customer, with the exception of the US army. We sell to distributors who then themselves go straight into the marketplace.

We wanted to give you a bit more flavor on our Japanese encephalitis sales, and hence we have provided you with two charts shown on page number eight. The first one, on the left-hand side, clearly shows you the distribution of product sales by our key markets and territories. What you can see here is that obviously, the single largest customer base is the US military. Here we recognize 100% of the revenues. We sell direct to the US military, and we have seen more than 8m product sales to the US army and then followed by US and Canada to the left with 24%, basically representing the market with the highest price; not necessarily the largest quantity. Europe and the European travelers markets do represent around about 34% of the product revenues and the other markets, for 2012, mainly Australia, 11%.

So, talking about the product sales revenues through Intercell versus the in-market sales basically conducted by our distribution partners, we thought it would be necessary to give you also some idea about the in-market growth because this clearly shows that also we see phasing and also we see some timing effects in supplies with respect to revenues. The in-market sales growth, comparing 2011 to 2012, is more or less in line with what we see as a net product revenue sales growth for Intercell. So, we see in the top five European countries a 23% growth, in the US private sector a 24% growth and in the US military a 31% growth. So, overall what we show you here on the right-hand side of this slide represents above 80% of the total revenues generated to Intercell.

So, obviously, we have by far not reached the potential of this travel vaccine and hence, we are continuing to drive the product towards revenue growth. The key elements for driving this product towards its potential are to increase the penetration in the key travelers markets and here we are working collaboratively with our partners to expand respective selling resources. We are working with the US military on extending recommendations and subsequent uptake. And here, especially the pediatric approval that we expect for the United States very soon, is going to help in driving those key recommendations and the respective uptake.

We are working with our partner Biological E in India to leverage the opportunities in Asia where Indian manufactured product can be sold as well as evaluating potential markets in Asia for IXIARO, meaning products manufactured in Scotland.

We have seen significant results and significant achievements in the ongoing product development for Japanese encephalitis. We completed successfully the clinical studies in children. We got approval in Europe since early 2013 and we are expecting the approval in the US soon.

When we look into Intercell's product development candidate pipeline, besides of Japanese encephalitis and the respective pediatric development program which has been a quite substantial program for the Company and the key element for the future product development growth, we are conducting our single largest trial in the field of pseudomonas aeruginosa. And here we are approaching a very important binary end point by the second half of 2013. Especially here we expect the first interim data which will trigger a clear go/no go milestone for this vaccine. We are testing this vaccine in a whole variety of study sites in aiming to have 400 subjects enrolled for the interim analysis and we are making very good progress towards this end-point, which will be a hard piped efficacy end-point on the reduction in overall mortality.

C Diff, our next development program, also here we had successful transitioning from Phase IA in healthy adults into Phase IB in elderly. We are expecting the respective data set towards the end of the second quarter which will then allow us to determine the future of this very interesting and promising vaccine candidate.

We are seeing very interesting progression in the field of tuberculosis where we contribute with our adjuvant IC31. And we are currently in a multiple number of clinical evaluations and this is also complemented with evaluations in other areas of tuberculosis, primarily with our partner, Novartis.

We achieved a lot on the R&D side in 2012, as already mentioned briefly before, but just to recap on what the Company delivered on. We completed the studies of JEV. We received the licensure in Europe. The US licensure is imminent. Pseudomonas we continued the recruitment and we are on track for the interim analysis. C Diff, are on track for the decision, go/no go decision towards Phase II clinical trials, and tuberculosis, as already mentioned, our three ongoing trials where we support with our adjuvant IC31.

We are also glad to report that we are progressing one new product candidate towards clinical entry in the field of lyme borreliosis. We presented to you already a few meetings back that we selected this pre-clinical candidate. And we are starting the preparations towards clinical entry now, which is expected then for a potential clinical entry in 2014.

The next couple of pages just summarize once more, a general overview of the respective diseases and the respective product candidates. We're not going to go into those in any further detail. We have been presenting this a couple of times before.

But, I would like to close out with a very brief summary on our technology platforms, partnering efforts and respective research bases. We have IC31 as our Novel adjuvant with many highly promising properties and which has undergone multiple clinical and investigations to date. We have been able to deliver on multiple research collaborations and we have an ongoing approach to evaluate further partnering and licensing opportunities.

In the field of eMAB's our fully human anti-body platform, we took a decision to spin this platform out. We have created a non-legal entity. And this spin-off has the clear objective to attract respective venture capital for a complete different route of partnering and potential sale of the platform in a few years' time.

The Patch technology is a technology where we are not investing in any further. However, it is a technology that got nicely validated as part of multiple clinical trials. And at least from a delivery point of view, this technology is a robust, a consistent and a proven technology and hence, we are trying hard to find partners who have an interest in getting to a license agreement for such technology.

With that I would like to hand over to Reinhard to give us his financial reporting.

Thank you Thomas. Ladies and gentlemen in the next couple of minutes I want to guide you through our Q4 and full-year 2012 numbers. Before I do that I want to stress that 2012 numbers are still unaudited and these are still preliminary numbers that will be audited in the course of the next days and weeks. And we expect to publish final full-year information during the month of April.

Page 19 of your presentation summarizes a couple of key figures and their development over the last three years. As you all know, 2011, 2012 have been challenging years for the Company, but we do think that we have developed our key financial metrics in a very positive direction over that period if you compare it to where we come from in the year 2010.

We have been able to grow our revenues and very specifically we've more than doubled our Japanese encephalitis sales from 2010 if you compare it to the recent 2012 numbers. At the same time, we have been able to show a positive gross margin for the product for two consecutive years, in 2011 and 2012.

We've gone through a massive restructuring and refocusing of our R&D spending, which you can clearly see by the reduction of R&D costs when you compare 2010 to 2012. As a result of growing revenues and our cost cutting exercise, we've been able to reduce the net loss very consistently. And even more importantly, if you look at the operating cash flows you see that we very consistently reduced our operating cash outflow, including interest expense, and if you compare our operating cash outflow to year-end cash, you see that these ratios are much more favorable at the end of 2012 than they were at the end of 2010 and 2011.

After that, let me come to Q4 and 2012 key figures more specifically, which are summarized on page 20. Our revenues for the fourth quarter were EUR10.1m and for the full year 2012 they were EUR35.7m. R&D expenses were EUR5.5m in the three months ended December 31 and they were EUR19.8m for the full-year 2012. Our net loss, as already mentioned, was EUR10.8m in the fourth quarter and EUR25.3m in the full-year 2012.

I mentioned our operating cash outflow which was EUR11.4m in the fourth quarter and EUR21.7m for the full year. And our cash and short-term marketable securities were almost EUR45m at the end of 2012.

Let me now give you some more insights and background into those Q4 and full-year 2012 preliminary numbers, and turn to page 21. As Thomas has already explained, we saw a good increase of IXIARO/JESPECT product sales by more than 40% in the fourth quarter compared to the fourth quarter of 2011, resulting in approximately 25% year-on-year growth.

Our revenues from collaboration and licensing increased in the fourth quarter, but overall decreased by 21.5% for the full-year 2012, which is essentially a result of our reduction of R&D expenses. Obviously, when you reduce R&D spending, grants and collaboration income on R&D projects will also decrease.

For the cost of goods sold, we saw a negative impact from write-offs in the fourth quarter resulting in EUR3.4m write-offs of both finished and unfinished inventory. As a result, our gross margin was flat at 17% year-on-year. Obviously, in absolute numbers we could improve our gross margin to EUR4.6m in the year 2012.

Our R&D expenses were further reduced by almost 34% for the full year, and we continue to prioritize and to focus on our most promising R&D programs.

SG&A expenses were flat year on year. However, there are some underlying improvements. If you consider that Q4 has been impacted by merger preparation costs for our Valneva merger project, and if you consider that sales expenses have increased as a result of growing product sales, and this all has been made up by reductions in the G&A area, so that overall we ended SG&A expenses flat on a year-on-year comparison.

Finance expenses have increased substantially as a result of our financing transaction that we completed in May 2012. Our net financial expenses were EUR5.2m for the full-year 2012 and this includes EUR2.1m interest on our convertible debt and EUR2.3m interest on the EUR20m loan that was provided by BB Biotech. The rest is leasing expenses and subsidized loans.

This EUR5.2m net financial expense however includes EUR1.1m non-cash interest expense resulting to IFRS accounting treatments and such non-cash components are included in both in the convertible debt interest that we book and also in the BB Biotech loan that we have taken.

We've already mentioned our net loss at EUR25.3m for the full year, which was slightly higher than we had expected in October due to a couple of factors, including the Valneva merger costs working against us in the fourth quarter. However, this still represents a reduction of 13.4% compared to 2011. And very importantly, we have significantly reduced our operating cash outflow. As already mentioned, we end the year with EUR44.9m in cash and securities.

Ladies and gentlemen, as you all know, our corporate setting is about to change, as we progress our merger with Vivalis to create Valneva, and I want to give you a short update on where we stand in this progress, which is -- this progress which is progressing very well.

As you know, we have announced the merger, at the end of last year. In December, we were able to prepare and make legal documentation available to Intercell and Vivalis shareholders and we could hold the Intercell shareholder meeting on February 27 where 97.4% of the represented share capital voted in favor of the merger. At the meeting, there was about one-third of our shareholder base represented, so if you take the 2.6% that voted against the merger, against our entire issued share capital, you see that this is less than 1%, which we consider in this important process for the Company.

The next step now is the Vivalis shareholder meeting, which will take place on March 7. We have already secured a positive vote by irrevocable undertakings from holders of 68.5% of the voting rights, where a two-thirds majority is required in the Vivalis shareholding to approve the merger.

We expect completion of the merger in May 2013. And, after that, the new Valneva shares will start trading on Euronext, Paris and on the Vienna Stock Exchange. After completion of the merger, as we have announced, we expect to launch a rights offering of EUR40m, which has been already secured.

With that, a summary of our merger process and upcoming next steps I want to hand back to Thomas.

Thanks Reinhard. In summary, it is fair to say that the year 2012 from an operational point of view for Intercell has been broadly in line with our objectives with a slight variance and a slight volatility seen on the JEV sales.

It's hard for us, and it continues to be hard for us, to exactly predict the sales forecast because it's largely depending by -- and on our distributors which is also why we have decided not to give a financial number guidance for 2013 other than that we expect to see a continuous substantial growth in the market very much comparing to what we have seen in the last year.

And obviously, the most important thing for us is that we all took a decision to basically move Intercell into a new value proposition to form Valneva. And we have been presenting the Valneva strategy and objectives at many different occasions. And we will have a very interesting value proposition profile for the Company that enables us not only to progress our ongoing operations in a more consolidated, efficient and larger scaled manner, but also to allow future growth in the form of strategic growth.

Basically, we have outlined the strategy in three key areas. One is to become a sustainable, independent and growing business with multiple sources of revenue, leveraging cost synergies based on a strong balance sheet and a de-risked path to profitability.

Second, a very clear focus and commitment on developing vaccines with the aim to get an additional commercial product in to the company and to enhance the progression of our partnered programs alongside with a coherent development of an own proprietary vaccines development portfolio.

And thirdly, to ensure a state of the art discovery engine for internal and partnered development programs both in the field of novel antibodies but also in vaccines to further monetize the technology value that exists and will even exist much more in Valneva than it used to be at Intercell.

And clearly to become the partner of choice when it comes also to a service business model that is nicely established at Vivalis today and will be a source of revenue and a source of interesting projects at Valneva in the future. With this new value proposition we clearly expect to be able to create significant and sustainable value for our shareholders.

When it then comes to the upcoming news flow that are the news flow points, Intercell will deliver into the future Valneva setting. It's not yet the Valneva value inflection point summary. You see the different milestones for 2013 as well as 2014 on page 27.

And with this summary, I would like to close the management presentation and we are looking forward to your questions. Thank you so much.

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

Hello. Good afternoon. My first question would be related to Japanese encephalitis vaccine sales. You mentioned that the product has a high potential. Could you give us an update how do you see the potential of the product? Where do you see sales, let's say in five years' time?

Also on the Biological E do you have any more information how your partner is progressing in India and maybe when also you will receive some contribution from your partner to your revenues?

And then in media interview it was mentioned that up to now the costs associated with prepared merger were some EUR2m. But I wasn't sure was it like until now including 2013 or was it all that in 2012? So maybe if you can share with us something more about what are the expected costs and what were the costs in 2012 linked to this issue. Thank you for now.

Okay, Vladimira, I will start with the first part and we will be sticking a bit more closer in the meanwhile into the merger costs and what has been stated so far.

So first of all, with JE, obviously, as things progress in the market and as things progress in -- with -- even with things like the merger [done as a force] we are continuously reviewing the expectations for IXIARO.

We are alone in the market field, so, which means sales are a direct function of marketing effort and investments. And we will continue to be alone for the next five years in the key travel markets since no company has up to now started a clinical development program for either Europe or the US.

We continue to believe that the right potential for this program -- for this product is roughly 5% vaccination rate of the so-called unique travelers. And this means a potential of north EUR150m in total sales.

This is something that we have been explaining in detail last year already, and we have a lot of contributing factors showing that there was no change to that.

Now the question is the typical one that we have been discussing many times, how fast can we get the wrap-up from let's say today a bit more than EUR40m in market sales to where it's got to be.

We have said mid-term and we have always said in the 2014/15 region we should be at a level where we are going to see 2.5% penetration rate in the travel market. And we continue to believe that this number in 2015 is the right assumption. And this corresponds then to the number that we have been presenting in detail last year.

When it comes to India the -- our Indian friends have essentially started to sell products. The first roughly 100,000 doses have left the factory. And they -- and are in the respective supply chain, basically currently being sold in the private segment of healthcare professionals as well as physicians in India.

Here, we do not see at this point in time any revenue for Intercell because we have a profit sharing model in place with Biological E, and so far obviously, with 100,000 doses sold, no profit has been made yet. We expect that first contribution from India will come towards the later part of this year. And it is too early to say because there has never been a vaccine in the private segment Japanese, a modern Japanese encephalitis vaccine in those countries. But we expect that by mid of this year we will have a first idea on how well the product is perceived and what it means really in the forecast and in numbers.

We are currently working on the WHO pre-qualification, a major prerequisite to enter into other Asian markets with this product outside of India. And we expect that those entry processes will commence towards the later part of this year.

I think with this I hand over -- I am handing over to Reinhard to give you some flavor on the merger costs.

Yes, so the -- about EUR2m that we have incurred so far I would say EUR1.5m are included in the 2012 financial statements and the rest has been incurred since the start of the year.

Thank you. And do you expect some more costs still this year to be incurred related to the merger?

Yes, yes. So we still expect some significant cost, so overall the cost should be between EUR4m and EUR5m.

Thank you.

Our next question comes from Beatrice Muzard of Natixis. Please go ahead.

Hi. Good afternoon gentlemen. I have three questions. First could you tell us what are the charges associated with your eMAB platform that you are going to spin-off in 2013?

Secondly, can we anticipate further inventory write-downs in this year? And also how could your relationship with Novartis evolve? Could you be in a position to buy back their shares on the distribution agreement you signed a long time ago with Novartis after the merger with Vivalis?

Okay Beatrice, very good questions. So let's start with the -- I am not 100% sure what you meant with your first question but I will try to answer this -- give you a bit more flavor on the spin-out.

So the idea with the spin-out is that we are creating our own legal entity. We've put basically 100% of the Intercell assets, people IP and equipment into this legal entity. This entity is already registered so far 100% subsidiary to Intercell AG. We expect then this entity to be financed through respective VC capital. And this will obviously then significantly reduce the state of Intercell or on future Valneva in this company subject to what this financing is going to be.

We will not contribute anything to this in terms of cash post-mid-2013. And the Company's objective is to develop two product candidates in the field of antiviral monoclonal antibodies up to the point of first trial in humans for partnering and the respective exit strategy.

And, as you know, we took this decision also in light of the merger because we have with Vivascreen in future a platform that is nicely positioned that we don't need a second one. And since they are working on two dedicated projects which are not jeopardizing the business model of Vivascreen because they will not go into the service business, it will -- it is a nice way to still leverage this value, also in part for Valneva in the future.

When it comes to the inventory situation it's indeed also for us a very difficult and tricky one because obviously we are producing a product here that has a very long production lead time. From the initiation of a lot until the final release of a manufacturing lot it takes almost four months and this is obviously from a production planning point of view not an easy undertaking.

And we have seen we are supplying product to customers who then -- to distributors who then supply it to customers, which means we have at two levels stock management and we have at two levels sales management. And this so far has not been overly successful on our side to be very open and frank.

But we have always tended to progress it with the clear objective to never end up in supply constraint because there is nothing worse for a product that is still in the -- in this growth phase and it's a market development phase to have to face an out of stock situation.

But obviously we are now trying to be a bit more cautious on the manufacturing side to avoid the substantial overhang in inventory. We have put measures in place and we expect that we will see significantly reduced write-offs for 2013 compared to 2012.

Okay.

When it comes to the relationship with Novartis obviously Novartis is our marketing and distribution partner for IXIARO. We are in constant dialogue with Novartis to basically, and we have also shown this and indicated this on one of the slides when we talk about the growth drivers for IXIARO.

Obviously, we are in discussions to expand selling resources, because, as I mentioned before, the marketing and sales team's investments are direct drivers for the product growth to unlock the potential. As such, we entered with Novartis into an agreement to co-promote the product in the United States.

We are evaluating similar models for other territories and this may also include to take certain territories over ourselves. But this is all subject to discussion and ongoing evaluations.

Okay, thank you.

(Operator Instructions). As there are no further questions in the queue I would like to turn the call back over to Mr. Lingelbach for any additional or closing remarks.

Okay. Ladies and gentlemen, thank you so much for following this analyst call today. We are looking forward to the exciting prospect of Valneva and we hope that you will continue to follow Valneva. And with that I would like to thank you for today's attendance. All the best.

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