Valneva: Q3 Earnings, Vaccine Valiance, Outshining Moderna

Summary:

• Valneva’s Q3 financial results exceeded expectations, indicating a strong operational performance.
• The FDA approval of Valneva’s chikungunya vaccine, Ixchiq, adds substantial value to the company’s portfolio.
• Valneva’s ongoing collaboration with Pfizer on the VLA15 Lyme disease vaccine shows promising progress.
• We maintain our buy rating moving into 2024.

Q3 earnings update, maintaining a buy rating

Valneva’s (NASDAQ:VALN) 3Q23 financial results present a compelling case for maintaining a Buy rating on the stock. The company reported revenues and EPS that not only met but slightly exceeded our forecasts, underpinning a strong operational performance amidst challenging market conditions. Furthermore, we highlight that the significant upward revision in FY23 revenue and EPS estimates reflects a robust business trajectory and operational efficiency. The 3Q23 revenue of €38.1M and an EPS of (€0.25) are indicative of Valneva’s resilient business model, especially considering the absence of COVID-19 vaccine sales in this quarter. The decline in product sales compared to 3Q22 is offset by robust travel vaccine sales, demonstrating Valneva’s diversified revenue streams.

Another interesting information that the management shared was Valneva’s revised guidance for lower R&D expenses in 2023, primarily due to reduced COVID-19-related costs, indicating a strategic focus on cost management. Considering the tricky equity capital market environment moving into 2024 and the macroeconomic backdrop, we believe this should be positive news for many biotech investors. This efficiency, coupled with a strong cash position bolstered by recent financing agreements, positions the company well for future growth and development activities.

Ixchiq Vaccine approval

The FDA’s accelerated approval of Ixchiq, Valneva’s chikungunya vaccine, marks a significant milestone. Of note, this approval, backed by Fast Track and Breakthrough Therapy Designations, adds substantial value to the company’s portfolio. The expected sale of the Priority Review Voucher (PRV) for Ixchiq, potentially worth around $100-150M, further enhances Valneva’s revenue prospects. For example, bluebird bio (BLUE) sold their PRV for ~$100M recently.

We believe the market opportunity for Valneva’s Ixchiq, the first FDA-approved chikungunya vaccine, appears substantial and multifaceted. The global sales of the chikungunya vaccine are forecasted to reach $344 million by 2029, emphasizing its significant commercial potential. This projection aligns with the broader market expectations, where the global market for vaccines against chikungunya is estimated to exceed $500 million annually by 2032, underlining the growing demand and necessity for such vaccines.

Ixchiq’s market potential is further amplified by the increasing prevalence and geographical spread of the chikungunya virus. Over the past 15 years, there have been 5 million cases of chikungunya, with the virus now present in more than half of the world’s countries. This includes recent cases in European countries like Spain, Italy, and France​​. The high morbidity rate associated with the virus, where up to 97% of those infected show symptomatic disease, further underscores the need for an effective vaccine. The disease’s impact is not limited to the infection itself but extends to chronic conditions in patients, affecting their daily activities for months or even years​​.

Valneva’s strategic approach to commercializing Ixchiq in the U.S. early next year is poised to address the needs of over 60 million Americans who travel annually to countries where mosquito-borne diseases are endemic. This approach is supported by the existing commercial and industrial infrastructure of Valneva, which has been enhanced with the introduction of Ixchiq​​. The Advisory Committee on Immunization Practices’ (ACIP) upcoming decision on vaccine recommendations, expected in late February 2024, could further bolster Ixchiq’s market positioning and adoption​​.

Net net, we believe Ixchiq’s market opportunity is anchored in its status as the first FDA-approved chikungunya vaccine, the escalating global incidence of the virus, and Valneva’s strategic market entry and distribution plans. The growing global need for effective vaccines against mosquito-borne diseases, coupled with the expected increase in demand, positions Ixchiq favorably in the global vaccine market.

VLA15 Lyme Disease Vaccine, a key driver of VALN’s value

The ongoing collaboration with Pfizer on the VLA15 vaccine, targeting Lyme disease, shows promising progress. The successful completion of the VALOR Phase 3 clinical study will potentially lead to significant revenue generation upon approval and launch. The anticipated BLA submission to the FDA and the EMA by Pfizer in 2026 could further catalyze Valneva’s growth trajectory.

Travel Vaccines: Steady Growth Contributor

The continued recovery of travel vaccine markets, such as Ixiaro and Dukoral, is a positive sign for Valneva’s commercial vaccines segment. The new supply agreement with the U.S. Department of Defense for Ixiaro, worth a minimum of $32 million, exemplifies the company’s strong market position and growth potential in this segment.

Pipeline Development and Diversification: Zika Vaccine and Beyond

Valneva’s decision to re-enter clinical trials for its Zika vaccine candidate, VLA1601, along with the development of other preclinical vaccines like VLA1554 and VLA2112, showcases the company’s commitment to addressing unmet medical needs and diversifying the company’s future revenue streams. These developments could potentially add significant value to Valneva’s pipeline in the future.

Risks

1. Clinical and Regulatory Risks: The company faces clinical and regulatory risks due to its numerous ongoing clinical trials. Regulatory hurdles or clinical trial failures can significantly impact the company’s future prospects and stock performance​​.

2. Financial Stability Concerns: Valneva’s lack of positive cash flow poses a risk for future capital raises, which is crucial for the company’s ongoing research and development activities. Furthermore, with an expected decline in COVID-19-related revenue, the company may face challenges in maintaining financial stability​​.

3. Commercial and Competitive Risks: As Valneva awaits upcoming approvals for its products, it faces commercial and competitive risks. The ability to effectively commercialize its products in a competitive market is crucial for its long-term success. Failure to do so could significantly impact its market share and profitability​​.

Conclusion

In summary, Valneva’s strong financial performance, strategic R&D focus, significant milestones like the FDA approval of Ixchiq, promising pipeline developments, and the resilience of its travel vaccines business underpin our decision to maintain a Buy rating. The company is well-positioned to capitalize on its current successes and navigate future challenges, making it an attractive investment option in the biopharmaceutical sector.

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