Valneva SE (VLA) Earnings Call Transcript

Good day, and thank you for standing by. Valneva presents its half year 2026 financial results. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joshua Drumm, VP of Investor Relations. Please go ahead.

Hello, and thank you for joining us to discuss Valneva's financial results for the first half 2026 and corporate update. It's my pleasure to welcome you today. In addition to our press release and analyst presentation, you can find our consolidated financial results for the 6 months ended June 30, 2026, which were published earlier today available within the Financial Reports section on our Investor website. I'm joined today by Valneva's CEO, Thomas Lingelbach; and our CFO, Peter Buhler, who will provide an overview and update on our business as well as our financial results. There will be an analyst Q&A session at the conclusion of the prepared remarks. Before we begin, I'd like to remind listeners that during this presentation, we will be making forward-looking statements, which are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. You can find information about these risks and uncertainties in our periodic filings with the Securities and Exchange Commission and with the French Market Authority, which are listed on our company website. Please note that today's presentation includes information provided as of today, August 13, 2026, and Valneva undertakes no obligation to revise or update forward-looking statements, except as required by applicable securities laws. With that, it's my pleasure to introduce Thomas to begin today's presentation.

Thank you so much, Josh. Good day, everyone. Let me start off with a couple of introductory remarks. The first half of 2026 has certainly been marked on our efforts to focus on enhancing our financial position, especially after the initial Lyme Phase III VALOR results and the resulting uncertainty. And we have been able to generate a strong cash position with more than EUR 120 million in cash. This is a result of our disciplined cash management and the proceeds from the recent offering. We also included a broad restructuring program, and we expect the positive P&L and cash flow impact in the second half of this year and, of course, beyond. This included a reduction in our workforce, a reprioritization of projects, activities and a focus on our core operational business. When we look at our general commercial business performance, we generated more than EUR 60 million in total product sales. We have reaffirmed the guidance because the half year sales performance is in line with our anticipated pacing of product sales throughout the year 2026. We have had a number of adverse EBIT impacts in the first half of the year. Peter will explain those in greater detail. Most of them are really one-off effects and are non-recurring. But the most important thing and the most exciting thing is that Pfizer continues to be very positive about the prospect of the Lyme disease vaccine, and they recently announced during their earnings that they expect regulatory decisions for the Lyme disease vaccine candidate in the next 12 months, which is really great news. Now turning to our general business update. And of course, I would like to start with Lyme. You know that the vaccine showed a very strong point efficacy, greater than 70%, a very good safety profile. And as we discussed multiple times, we had a miss on the lower bound of the 95% confidence interval. However, we have to note that we see here with this product candidate a very significant clinical meaningful efficacy. And we had also 95% confidence interval lower bound greater than 20% in the second pre-specified analysis. All of that in combination with the huge unmet medical need, the totality of clinical evidence and the fact that we really expect a positive health economical benefit for a potential prophylactic solution increases our confidence in the future prospects of a potential Lyme vaccine. There is a huge unmet medical need, we have discussed this many times in the past. The annual burden of disease is increasing. And we have been noting recently close to 500,000 cases in the United States. Europe, I mean, numbers are kind of still significantly underreported because not all countries have respective surveillance systems, but certainly north of 100,000 cases every year. Some of them come along with very severe manifestations in the order of 10% to 30%, carditis, neuroborreliosis, arthritis. And unfortunately, 5% to 10% of cases continue to have persistent symptoms even following treatment. As such, we really believe that LB6V, how it's called now, is a compelling opportunity in a highly underserved market. We could really leverage a first-mover advantage. The perception around a need for Lyme vaccination is high. We are the only Lyme disease vaccine candidate in late-stage clinical development. And it could become, if licensed, the first potential Lyme vaccine in nearly 30 years. The vaccine is based on a proven mode of action. We cover the six key serotypes prevalent in the Northern Hemisphere. And the technology is based on modern state-of-the-art recombinant protein technology. We have a broad addressable population. At this point in time, we showed in the study results for people above 5 years of age. I mentioned already that we see a growing disease burden. And of course, with global warming, the tick population across all the high-risk areas of Lyme disease are steadily increasing. We have a excellent partner, and there is a huge strategic fit with Pfizer's vaccine franchise. And hence, we anticipate a very attractive commercial prospects and dynamics. So all in all, we share Pfizer's positivity on the prospects of that vaccine, and we really hope that we can get this vaccine to licensure on both sides of the Atlantic. On IXCHIQ, as part of our overall restructuring process and also reprioritization of our key strategic focus areas, we shift more and more towards the IXCHIQ access in countries where there is highest risk for chikungunya infection, meaning primarily low and medium-income countries. And we are currently executing on a significant number of post-marketing activities, all supported by our great partner, CEPI. We have a Pilot Vaccination Campaign ongoing in Brazil. We have more than 50,000 people already vaccinated today. These are adults 18 to 59 years of age. We have a study ongoing to confirm effectiveness and optimize description of the safety profile, which, of course, over time, could potentially even lift the highly restrictive warnings, precautions and other indications we have right now in our label for travel. All of that, of course, to ensure greater access, and we are focusing a lot right now on expanding our network of manufacturing distribution partners in low and middle-income countries. And we hope that we will be able to even announce something towards the latter part of the year. The locally manufactured vaccine in Brazil by our partner Butantan has now been approved and is expected to be incorporated into Brazil's public health system in the near future. We in-licensed an interesting candidate against shigellosis. It's the most clinically advanced tetravalent Shigella vaccine candidate. Right now, we are running two studies, one in infants, the other one in adults. One is an immunogenicity and safety study. The other one is a controlled human infection model study, so pilot efficacy through human challenge. We expect for both studies, results in the coming months. And of course, based on the results, we will decide on the next development steps for that vaccine. Of course, there is still a significant market opportunity for shigellosis, especially given that it's the second leading cause of fatal diarrheal disease and estimated with 165 million cases and 600 deaths annually, mostly, of course, in children in LMIC countries. But there is also a very interesting opportunity to -- either in a stand-alone setting or in a combination vaccine setting to work towards a broader covering diarrheal vaccine for travelers. With this short update on our core R&D activities and general business development, I would like to hand over to Peter to provide you with the financial report.

Yes. Thank you, Thomas. So first, looking at product sales. Product sales reached EUR 64 million compared to EUR 91 million in the first half of 2025. Sales, excluding third-party products, decreased by minus 18.3% versus prior year at constant currency. This decrease was primarily due to product-specific effects, which I will discuss shortly. IXIARO sales reached EUR 44 million compared to EUR 54.7 million in the prior year's first half. The year-over-year decrease primarily reflects the transition to a new distributor in Germany in January 2026 as well as product sales phasing, notably the timing of deliverables to the U.S. Department of Defense. Shipments to the U.S. Department of Defense in the first half of 2026 continued under the 1-year contract signed in January 2025. We expect to sign a new contract in the coming months and beginning to recording sales under this new contract in the second half of the current fiscal year. Foreign currency fluctuation also had an adverse impact of EUR 1.5 million on IXIARO sales during the first half of 2026. DUKORAL sales reached EUR 14.7 million compared to EUR 17.4 million in the first half of 2025. Prior year sales benefited from onetime sales associated with the supply of DUKORAL doses to Mayotte in response to a cholera outbreak. In addition, sales in the first half of 2026 were adversely affected by the distributor transition in Germany in January, 2026. Similar to the first quarter, existing inventory transferred from the previous distributor was sufficient to meet market demand during the period. Furthermore, there was a slight weakening of the travel market in certain geographies due to geopolitical factors. IXCHIQ sales reached EUR 4.4 million compared to EUR 7.5 million in the first half of 2025. While current year sales include the first shipment of drug substance to our Brazilian partner, Instituto Butantan, the prior year benefited from 40,000 doses sold to the French Island La Reunion in response to a major chikungunya outbreak as well as travel sales in the United States. In light of the slow product uptake in travel, the company is currently evaluating its future commercial strategy for IXCHIQ, including the potential focus on the endemic markets. Third-party products decreased substantially from EUR 11.4 million in the first half of 2025 to EUR 1 million in the first 6 months of 2026. This planned reduction is the result of the key third-party distribution agreements that ended in December 2025 without renewal. Moving on to the income statement on the next slide. Total revenues reached EUR 65.8 million versus EUR 97.6 million in the first half year of 2025. The decrease is mostly related to the lower product sales. Last year's other revenues also included a one-off upfront payment related to the licensing agreement with the Serum Institute of India for our single-shot chikungunya vaccines. Looking at expenses. Cost of goods and services for the first half of 2026 reached EUR 59.5 million compared to EUR 47.2 million during the same period last year. Cost of goods in the first half of 2026 were impacted by a number of non-recurring and exceptional effects. In particular, a provision of EUR 9.7 million in cancellation fees related to external manufacturing commitments for IXCHIQ and the EUR 4.5 million non-cash impairment of excess IXCHIQ inventory resulting from lower-than-anticipated sales. In addition, cost of goods were adversely impacted by changes in manufacturing schedule and volumes and related adverse variances as well as higher idle costs following the transfer of manufacturing to our Almeida facility. IXIARO's gross margin reached 56.4% compared to 65.5% in the prior year. The decrease is mainly related to lower volumes and an unfavorable change in the manufacturing schedule. Last year's IXIARO gross margin was exceptionally high due to high manufacturing volumes and related favorable overhead absorption. DUKORAL generated a gross margin of 24.7% compared to 52.9% in the first half of 2025. The gross margin of DUKORAL in the first half of 2026 was adversely impacted by higher than usual failed batch costs and inventory revaluation. In contrast, the prior year gross margin benefited from a favorable overhead absorption due to manufacturing timing and higher volumes. The IXCHIQ gross margin was negative due to the onetime cancellation fees provisioned in the second quarter as well as the inventory write-down mentioned previously, which importantly had no cash impact. Research and development expense decreased from EUR 32.4 million in the first half of 2025 to EUR 30.2 million in the first half of 2026. That increase -- that decrease is mainly a result of reprioritization and rescheduling of R&D activities. Marketing and distribution expenses decreased significantly from EUR 20.3 million in the prior year to EUR 13.5 million in the first half of 2026. The decrease is related to a planned reduction in advertising and promotion related to IXCHIQ as well as reduced personnel, warehousing and distribution costs. G&A expenses decreased to EUR 15.4 million compared to EUR 19 million in the first half of 2025. The reduction was a result of lower personnel costs and savings in advisery and professional fee services. The company implemented the restructuring program in June 2026, and operating expenses in the first half year included onetime cost of EUR 3.2 million related to that program. Savings are expected in the second half year and beyond. In the first half of 2026, Valneva reported an operating loss of EUR 49.9 million compared to EUR 16.8 million in the prior year. Adjusted EBITDA loss in the first half of 2026 reached EUR 40.1 million compared to EUR 6 million in the prior year. Before moving to the outlook and guidance, a word on cash. As mentioned by Thomas at the beginning of the call, cash at June 30th was EUR 121.5 million compared to EUR 109.6 million at the end of fiscal year 2025. Cash used in operations in the first half of 2026 was EUR 13.7 million compared to EUR 10.9 million in the first half of the prior year. Now moving to the next slide, moving to Slide 18. We confirm our financial guidance for the fiscal year 2026 with product sales of EUR 135 million to EUR 150 million and total revenues of EUR 145 million to EUR 160 million. We expect the signing of a new contract with the U.S. Department of Defense for the supply of IXIARO in the coming months. We expect our commercial business to continue generating positive cash flow and the restructuring program implemented in June will have a positive impact on the P&L and cash flow in the second half of the current fiscal year and beyond. We expect product-related gross margin to improve in the second half following the non-recurring effects in the first half of the year. We continue to see potential to become financially self-sustainable starting in 2026, pending successful regulatory approval of the Lyme disease vaccine and subsequent commercialization by Pfizer. With this, I hand the call back to Thomas.

Thank you so much, Peter. The 2026, we mean 2027, of course, also it would be nice to be already in 2026 financially self-sustainable. Yes, let me close by giving a little bit prospect on how we see the future of Valneva, of course, provided and subject to Lyme success. Going forward, we would really like to leverage the company's core strengths in vaccine development to deliver greater long-term value. We would like to build scale in the R&D pipeline once Lyme has been out of pipeline and hopefully successfully brought to market. We see here a clear opportunity for strategic in-licensing to augment our clinical stage pipeline. And what we would like to do is really to create a risk balanced portfolio of innovative specialty life cycle and high-value vaccine assets, which are attractive and go very much beyond our prior focus on vector-borne diseases. We are working with the team to target new assets based on defined criteria and new targeted disease areas. In parallel, we are advancing our internal earlier-stage candidates such as EBV or ETEC/a broader enteric disease covering candidate program. And we would like to put also emphasis on focusing on reducing antimicrobial resistance targets. All of that will be flanked by further optimizing our integrated operations. We have kicked off a number of initiatives already as part of our restructuring program this year. And this mainly focuses on adapting and adjusting our value chain, changes of custody, make versus buy external manufacturing partners, but also a continuous focus on optimizing our commercial models, all of that with one clear objective, namely to maximize cash from our integrated operations and commercial business in particular. So all in all, we see a very nice prospect for Valneva going forward. But for now, we -- it's all about Lyme, and we have to wait until we hopefully see further positive development on the Lyme vaccine candidate, while executing thoroughly on our base business and continue our focus on strong cash management and disciplined cash management. With that, I would like to conclude the presentation and hand back to the operator to take your questions.

[Operator Instructions] This question comes from Tara Bancroft from TD Cowen.

I was hoping maybe you could give us a little -- any more detail or thoughts or feelings that you have on a regulatory update? I know Pfizer still sounds optimistic about it and a decision in the near to midterm over the next 12 months. But is there anything else that you can add to the discourse that you've had with Pfizer and our regulators? That would be really appreciated.

Pfizer are making very good progress with the regulatory agencies. And we hope that we will be able to announce next steps soon. That's all we can say at this moment in time specific.

I see. Okay. So then maybe -- totally understood on that kind of commentary. So maybe then I can ask a little bit more detail about some of the scenarios that could possibly come up. One in particular that might be really helpful to get your thoughts on is the potential for you and Pfizer to maybe run another Phase III program or even a post-marketing surveillance study. What I'm hoping you can help us understand is maybe the economics of those avenues, like what you would be responsible for? And how does that factor into your capital allocation plans?

Yes. It's a good question, Tara. So the existing agreement with Pfizer included or includes that Valneva has -- is sharing development costs to licensure. Everything that comes beyond licensure is currently not part of the contractual agreement with Pfizer. Whether or not, we will further invest in Lyme on the points you mentioned, is something that may be discussed at a later point in time, but definitely not before we see the product being licensed -- hopefully being licensed in the respective jurisdictions.

We are now going to take our next question, and this one comes from Maury Raycroft from Jefferies.

Congrats on the progress. I was going to ask one on Shigella. So wondering if you can provide more color on what is gating the update? Is it operational related to the clinical study or data analysis? Or are you awaiting additional regulatory clarity on the potential development path? And then when the data are disclosed, should we also expect clarity on the path forward? And what are the latest scenarios that you're considering there?

Yes. Thanks for your question, Maury. So yes, let me -- so first of all, we have had a few delays on the program. You know that the studies are still conducted by LimmaTech. LimmaTech recently got acquired by Lilly. So there are a couple of key cleanup steps right now, but we are in the last and final steps on data validation and putting the conclusions together, final analysis, et cetera. So this is not going to take a long time until we will be able to disclose. Now, what do we expect? I mean, please remember what we said at the very beginning, we like the fact that we run a controlled human infection model, meaning a human challenge. And the human challenge will give us a very clear understanding about the efficacy of the vaccine. Of course, it cannot be decisive or conclusive, but it's highly indicative. And it will also provide us with a view on what is the immunological threshold that we need to achieve to see a level of protection and to which level -- at which level of protection. The flanking immunogenicity study in children will clearly provide us, a, with safety, which is very important. And it would also give us a first feel for how is the immunological profile in children as compared to adults. And of course, also it's not a direct head-to-head comparison possible, but it will also provide us with a good indication. We will take those two data packages together. And then we will see whether this is already good enough to proceed to the next development stage or if there is a need to optimize. And this could be an optimization on dose, schedule, formulation. But our objective is to announce the next development steps either with the data or very shortly thereafter. I hope this answered your question.

Yes. Do you need some regulatory feedback to do that then or...

Say it again?

Do you need some regulatory feedback to...

Yes. We have a group of regulatory advisers with whom we are working. We are currently not expecting to seek a direct regulatory advise from the relevant regulatory bodies because we had prior discussions. And I think for us, it's pretty clear what the potential expectations would look like.

Got it. Okay. Maybe just one quick one for Lyme. I know you can't say a whole lot about where Pfizer is at with the process. But I'm just wondering for the U.S. regulatory path versus the European regulatory path, can you say if those are both moving in parallel? Or is it more sequential where you want some clarity from the U.S. before you can do an update for European status?

I think both activities are progressing very nicely. These are two independent processes. And there is -- at this moment in time, I would assume that Europe probably goes first. And -- but Pfizer is working closely with the FDA in support of its planned BLA submission for the Lyme disease vaccine candidate.