Valneva SE (VLA) Earnings Call Transcript & Summary

[Audio Gap] I would now like to give this over to Mr. Frederic Grimaud, Chairman of the Supervisory Board.

Good afternoon, everyone, and welcome to the second combined general meeting that we are holding remotely. We did the same thing last year. We are very happy to have you back with us. This is in extraordinary circumstances, the tail end of the COVID crisis. And who would have thought it, the COVID crisis has been an opportunity for us and we're going to be telling you all about that.

This is Frederic Jacotot, Legal Counsel for Valneva. And I would like to run down the composition of the bureau for this general meeting. This is being presided by the Chairman of the Supervisory Board, Frederic Grimaud. The Management Board has appointed as assessor, Mr. Franck Grimaud, General Manager for the group; and myself. The Bureau also needs to appoint a Secretary, and Mrs. [ Alice Landrain ], Senior Legal Advisor, can fill that position if the members of the bureau agree. We agree, so Mrs. [ Landrain ] is the Secretary for this meeting. And I'd like to give the floor to her for the quorum related matters.

Good afternoon, everyone. I can confirm that we have a legally compliant quorum for the combined general meeting in its ordinary and extraordinary components. We have more than 51% represented for the quorum, with a total of more than 2,000 shareholders with a total of 51,231,920 shares, representing 77,885,581 voting rights. This means we can now move on to the meat of our meeting.

Let me just give you a summary of what's going to happen. Franck is going to run down the group Valneva as a whole. We'll be looking at some recent highlights for the group, some of the important figures. We'll then move into the financial part of the presentation. We also have a written question to which we will answer, then we'll hear the report from the statutory auditors before moving on to the resolutions. And then we will wrap up this year's general meeting. Franck?

Thank you, Frederic. Good afternoon, everyone. This is Slide #7. As you know, Valneva is a company that is specialized in the development and commercialization of prophylactic vaccines, especially against infectious diseases. Today, we have the skill set from research all the way to commercialization with clinical development and production in between. And this has enabled us to react very quickly to the need to develop a COVID vaccine. As regards our advanced portfolio, we are currently coming up to a very important time for the group. Beyond our 2 commercial vaccines for cholera and Japanese encephalitis, we also have 3 vaccines that are in Phase III trials, the chikungunya and the COVID vaccine as well as a Phase II trial for the Lyme disease vaccine. We are partnered with Pfizer on that one. So let me give you a rundown of our main research programs on the next slide. For Lyme disease. We are now the only company to be in clinical trials for a Lyme disease vaccine. We are working on 6 serotypes that cover most of the serotypes present in Europe and the U.S. Last year, we announced an exclusive agreement with Pfizer. And this was to share development of the Phase III clinical trials with Pfizer that is going to be selling the vaccine worldwide. As part of that agreement, we will, if the vaccine is a success, receive more than $300 million in payments. We've already received $140 million at this point. And we are also expecting 19% and beyond in royalties for sales. We already announced 2 Phase II trials on adults, and we also have a Phase II trial that is ongoing for pediatric subjects. We are hoping that the Phase III trials will be able to kick off in 2022. And if development continues to plan, we are expecting a -- to market in 2025. Moving on to the COVID-19 vaccine now. We announced the development that began in April 2020. Back in September, we announced a significant agreement that had been signed with the U.K. government up to EUR 1.4 billion, and that was for delivery of up to 194 million doses by 2025. This includes funding for the building of a new production plant in Scotland, and also funding for a large part of our clinical trials. We've decided to use a deactivated type vaccine for these trials. And we've also included an adjuvant from the American company, Dynavax. Progress on these programs is as follows. We've already announced results for Phases I and II, which show that there's good tolerance for the vaccine, similar to other inactivated vaccines which have innocuity levels that are quite low. We've also been able to show throughout the Phase I and II trials that the immunological profile is good. We have a good rate of seroconversion for the largest dose, which is 100%. And we've also seen and been able to prove that the number of antibodies generated are similar to what is already on the market with an expected effectiveness of more than 90%. We also recently announced the launch of a Phase III trial in the U.K. This will be an immunological comparative study, and we have already announced the recruitment of the 4,000 adults who will be participating in the Phase III trial. We hope to be able to announce the top line results next September for that Phase III trial. We've also announced our enrollment in the first worldwide study for booster vaccines in the U.K. Our vaccine is going to be tested for a high dose and a lower dose. On top of that, we also have some follow-up studies on the booster programs. And we have announced that the virus banks with the alpha variant in the U.K. and the beta variant, which were initially called the South Africa variants, have been produced. The aim of this is to give us the ability to produce vaccines against these variants. So as you can see, there is a plethora of ongoing clinical trials and a lot of results that are going to be expected in 2021 and running into 2022. Finally, the research into the chikungunya vaccine. This is the only one that is currently in Phase III clinical trials. This is a single dose vaccine. We are expecting the results in 2021 -- mid-2021. You may already know that in the U.S., the program for the chikungunya vaccines can be the object of what is known as a priority review voucher. This can be given to the company that gets the license, the first on a vaccine and seeing as we don't have -- there are no other companies that are in Phase III trials for these vaccines, we hope to get that accelerated approval pathway, which has value and can be resold as well. If the results are positive this year, we will move to certification shortly after, and that will be with a view to go to market with the vaccine in 2023. This is a very important vaccine for us that has a $250 million potential market. That's on the travel segment. So people who are traveling from the EU or the U.S. to the endemic countries. In our plant in Scotland, we expect to produce this vaccine and then we're going to deploy it with our existing sales force in North America and in Europe because this is a travel vaccine, which will be added to our existing portfolio. So the Japanese encephalitis vaccine and the cholera vaccine and this one will join them, and it's highly synergistic with the rest of our portfolio. Let me give you a quick update on recent events and some highlights. But let's jump all the way to Slide 18 for that so I don't end up repeating myself. Let's talk about the first half of 2021. There was a lot going on during the first half beyond the clinical trial side of things. As you know, we listed the company on the NASDAQ. We closed at about $108 million global offering. We were also listed on the SBF 120 and the CAC Mid 60 for Euronext. And seeing as the programs are getting bigger and bigger, we added 2 important skill profiles with Perry as our Interim COO; and David Lawrence, who accepted to be an acting CFO during a transition period. Next, we have the important points for other matters. You may know that the U.K., after a first order of 60 million doses, has moved to purchase another 40 million. So as you know, we have also opened negotiations with the European Commission during the first financial half. On Slide 19, some of the important recent announcements. Again, 2021 was an important year for us with the final results of all of the Phase II studies that we were expecting. For COVID-19, the initial results for Phase III are coming in. We also had the announcement of the -- well, we've started to see the first steps towards registration for the vaccine in Europe, and we're expecting results on the booster trials as well. This is going to be especially important for this vaccine and how we position ourselves on the market going forward. We also hope to see and expect to see the announcement of more suppliers for the vaccine. And then the chikungunya vaccine, we got the final -- we will get the final results for Phase III in the second half of 2021. Let's talk about the financials now. I'm going to try and give a kind of overview of the key figures for last year. We have an important point, which is, of course, the agreement with Pfizer, with the U.K. government and the funding agreements. And all of these have been significant throughout last year and had a significant impact on our cash position. On Slide 22, you can see a breakdown of our cash position at the end of 2020. We have never had this much cash available, EUR 204.4 million, which includes the collaboration with Pfizer, which includes the initial payments from the U.K. government as well for the development of the vaccine. The design and construction of a new production plant in Scotland and also funding in early 2020 from 2 American funds, Deerfield and OrbiMed. So the cash position at the end of 2020 will get even stronger going into 2021, thanks to payments that will continue to come in from the U.K. government. That's nearly $108 million that were generated for -- through the listing on the NASDAQ. For revenue, 2020 was heavily impacted through COVID. This time, it was a negative impact though. Although the development of the COVID-19 vaccine and the first agreements are an important source of revenue for the group, unfortunately, elsewhere, the rest of the travel business was significantly impacted in 2020, and that's likely to continue into 2021. We hope to see a bounce back as we move forward. In 2019, a reminder, we had EUR 130.5 million that have been generated by our 2 main commercial products and also the sale of vaccines for third parties. And as you can see, we've dropped down to EUR 66 million, so an almost 50% drop because that business basically ground to a halt. And that just shows the relevance of the agreement with the American military because that's helped us keep up some sales figures. Slide 24, we have the profit and loss statement, the key items in addition to the decline in revenues, that was really just temporary and offset through the generation of revenues from collaboration licensing, in particular, the deal with Pfizer on Lyme disease. The impact was limited, EUR 110 million in revenues versus EUR 126 million in 2019. And the items that impacted were important. It was the change in R&D spending because there was an increase of under EUR 50 million between 2019 and 2020, owing to the shift and funding of Lyme in Phase II, of chikungunya in Phase III and the initial R&D spend for the COVID vaccine that we'll detail in the next slide. Obviously, a decline in sales and marketing cost to adapt to the new travel equation, less revenue, an increase of EUR 50 million of R&D, and EBITDA declined proportionately minus EUR 45.2 million. Slide 25. We detailed the COVID impact, and you can see that generally, R&D incorporates over the EUR 84 million of R&D, we have just under EUR 20 million devoted to COVID. You need to note that the integration of COVID revenues will arrive once we start delivering shipping the first doses, that's the principle. I hope that this overview wasn't too lengthy. Over to Frederic Jacotot.

Thank you, Franck. So we received 1 written question prior to this shareholders' meeting asking us why the interest rate grant to OrbiMed and Deerfield as part of our contract is so high, 9.95% to Deerfield and OrbiMed? To answer this question, we need to place ourselves in the situation the company was in at the end of 2019. The company needed to finance its R&D activities, notably for Lyme disease and chikungunya, but the situation of the company at that time was markedly different to what it is today, in particular, because its share price was not as high as the current share price that made it difficult for us to raise funds on the financial markets. At that time, we had not yet materialized the partnership agreement to develop the lyme vaccine and you may recall that the COVID-19 pandemic had not yet been fully proven. And so we had no prospects linked to a possible COVID-19 vaccine. Furthermore, the amount of funding that we needed represented a high amount compared to the sales of company products and the overall profitability of the company. So if we can obtain low interest rate from traditional commercial banks, it's in context of risk aversion that at the time was incompatible with our profile, owing to that situation also because we needed to ensure from that point in time, the funding of our R&D activities. We contacted U.S. funds because they accept a higher level of risk in exchange for a higher rate of interest. Since the end of 2019, early 2020, the situation of the company has changed, and we've been able to limit our drawings as part of that loan agreement to $60 million out of a total of the theoretical $85 million debt facility. So that's in response to the written question. Back to [ Alice Landrain ] for the auditor's report.

So thank you. The auditors have delegated to us the task of reading their conclusions for their report. On the consolidated financial statements, parent company accounts, and also on related party agreements, we'll give you a brief summary of those put to approval. As regards to the consolidated financial statements, reports can certify that the statements give a true and fair view of the assets and liabilities, financial position of the group and of the results and its operations for the year. In the consolidated group of Valneva, for the parent company financial statements, the auditors indicate that they give a true and fair view of the assets and liabilities, financial position of the company in 2020 at the end of fiscal year 2020. Perhaps a brief reminders to the related party agreements that were submitted to the approval of shareholders, on the new agreements authorized during FY 2020, there are 4. We have the first agreement that, in fact, a termination agreement with Mr. Bender, who was Medical Director, member of the Management Board. Part of the retirement of Mr. Bender terminates the management agreement concluded previously with the company and sets the termination conditions, the date of entry into force expected at October 31, 2020. The other new agreements concern amendments to the collaboration and research license agreement and amendment to the premises and equipment provision agreement executed with Vital Meat SAS and what concluded in 2018, initially perhaps just to return to the tenor of these agreements. These 2 agreements were aimed at assessing the possibility of using the Avian cell lines for Vital Meat to produce substances similar to meat, but of nonanimal origin. It was a nonexclusive license for 2 years using the Valneva platform and to allow the assessment of that process. And the second agreement concerns the making available of equipment and premises on the Saint-Herblain facility. So the various amendments authorized during the course of FY 2020. In fact, extended the duration of the collaboration and research license. So first time, December 31, 2020; the second time, March 31, 2020, when the amendment on the making available of premises extended the surface area of the premises leased by Valneva to Vital Meat SAS. Perhaps a brief reminder of related party agreements already approved by the AGM and continue during FY 2020, the set of management agreements with Mr. Franck Grimaud and Mr. Frederic Jacotot. These are agreements aimed at providing for compensation benefits of corporate offices and lead to commitments of the company for the payment of indemnities or provision of benefits in the event of termination or change in the functions of corporate. As I mentioned, there was 1 for Mr. Bender when he retired and the others in addition to the agreement with Vital Meat. That's all. That's it. You've done the auditor's job well. We're going to move to the vote. In fact, the vote's already taken place. Maybe you can give us the results of the vote. We're going to go through the resolutions and the results of the associated -- the first resolution. So was the approval of the parent company financial statements for FY, Valneva with a loss of EUR 14 million and the result on resolution has been approved by 99.98% of the vote. Resolution #2 concern the approval of the consolidated financial statements for FY 2020 with a loss of EUR 64 million, adopted by 99.98% of the vote. Resolution #3 concerns the appropriation of earnings for FY 2020 that was adopted by 99.99% of the vote. Resolution 4 concerns the approval of related party agreements that [ Alice ] summarized a moment ago, adopted by 98.98% of the vote. Resolution 5 concerns the approval of the remuneration policy for corporate officers, approved 97.37% of the vote. Resolution 6 concerns the approval of the information of quantified items concerning compensation of corporate officers. There are 11 different items from the French Commercial Code. It was also approved by 97.3% of the votes. Resolution 7 concerns the approval of items of compensation and benefits of any kind, paid or granted, in respect of FY 2020 to Mr. Lingelbach, Chairman of the Management Board, was approved 89.77% of the vote. Resolution 8 concerns the approval of items of compensation and benefits of any kind, paid or granted, for FY 2020 to the Management Board members, other than the Chair of Management Board, also approved 89.77% of the vote. Resolution 9 concerns the approval of components of remuneration and benefits paid or granted in respect of FY 2020 to Mr. Frederic Grimaud, President, Chairman of the Supervisory Board. That resolution approved by 99.9% of the vote. Resolution 10 concerns authorization and powers to be given to the Management Board for the purpose of allowing the company to trade in its own shares. Resolution approved by 99.93% of the vote. Resolution 11 concerns various amendments of the company's articles of association, essentially to update versus recent tax and to extend the possibilities to have recourse to electronic voting. This resolution has also been approved by 99.98% of the vote. Resolution 12, that follows up on Resolution 10, aims at authorizing the Management Board to cancel treasury shares. Resolution approved by 99.33% of the vote. Resolution 13 grants authority to the Management Board to increase the share capital by issuing shares while maintaining the preferential subscription right, resolution approved also, 97.15%. Resolution 14 also grants authority to the Management Board to increase the capital by issuing shares to the public, canceling preferential subscription rights of shareholders through including a priority period, adopted 98.19%. Resolution 15 grants authority to the Management Board to increase the share capital by issuing shares and/or securities through what was previously known as a private placement and is now a public offering referred to in Article L411-2 of the French Monetary and Financial Code, resolution approved 89.86% of the vote. Resolution 16, also grants authority to the Management Board of an additional discount in the price for a public offering without preferential subscription rights up to a limit of 10% of the share capital, that's approved 89.21% of the vote. Resolution 17 grants authority to the Management Board to increase the share capital by issuing shares for the benefit of certain categories of persons meeting specified characteristics. It's a resolution similar to the one in December that was used for the listing of the company on NASDAQ, adopted 88.8% of the vote. Resolution 18 grants authority to increase the number of shares to be issued in the case of a capital increase when there's oversubscription, approved, 88.7%. Resolution 19 concerns the possibility of increasing the share capital through capitalization of reserves, earnings and premium, approved 99.9% of the vote. Resolution 20 concerns the possibility of increasing the share capital with cancelation of preferential subscription rights in consideration for contributions in kind, resolution approved, 96.48% of the vote. Resolution 21 concerns the maximum aggregate amount of capital increases. The par value of EUR 5,175,000 million, that's 34 million shares, approved 99.59%. Resolution 22 is on the issue of equity warrants. The resolution is adopted with 87.16% of the vote. Resolution 23 is related to Resolution 22, and is on the cancelation of preferential subscription rights for the benefit of selected categories of persons. So this is for the equity warrants. In this case, for the members and former members of the Supervisory Board. This is also adopted, 87.23%. Resolution 24 pertains to the issue of free shares. So this is for the corporate officers and employees of the company, adopted 88.1%. Resolution #25 is on the grant of authority to the Management Board to increase the capital reserve for employees. The Management Board recommended this resolution be rejected because of other incentive programs that exist for the employees such as the stock options plan. This resolution was rejected with 82.43% of the vote against. And Resolution 26 is powers for formalities. That is adopted, 99.94% of the vote. There we go. That is all of the items we had for today. Thank you for your support in that. I didn't see any resolutions with less than 80% approval. So thank you very much for following us on that. As you've seen, the company is changing quickly, is remaining agile. And we've also been consistent in executing our strategy that really is our guiding light, especially given the current tumultuous situations. We'll see you all again next year for the next part of our industrial adventure, and we'll see you soon. Thank you for joining us for today's conference. You can now disconnect. [Statements in English on this transcript were spoken by an interpreter present on the live call.]