First Berlin – Valneva SE Research Update (04/10/2018)

First Berlin Equity Research has published a research update on Valneva SE (ISIN: FR0004056851). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from EUR 5.80 to EUR 5.40.

Valneva has raised a gross €50m through a private placement. Around 81% of the placement was allocated to US investors, including several high profile healthcare funds. Valneva's end-June cash position was €37.7m. We forecast an aggregate free cash outflow of €18.6m until the end of 2020. Valneva's medium term clinical development programme (phase I trials in Chikungunya and Zika and the imminent start of a phase II trial in Lyme disease) are thus amply financed. We had previously assumed that the costs of the phase III trial in Lyme disease, which we expect to start during 2021, would be fully borne by a partner. However, following discussions with management, we now expect Valneva to share the cost within the framework of a co-development agreement. We note that Glaxo Smith Kline (GSK), has an option to partner on the trial. However, even if the costs are split 50-50, Valneva's share might amount to ca. USD175m. Besides strengthening Valneva's financial position, the US-led placement should prove useful in developing relationships which may be helpful in funding the Lyme phase III trial. We have adjusted our model to reflect the dilution arising from the just completed issue and an assumed USD100m capital raise towards the end of 2020. Given our expectation that Valneva will be co-financing the phase III Lyme Disease trial, we also raise our PACME (profit after costs and marketing expenses) margin forecast from 12% to 50%. We now see fair value for the stock at €5.40 (previously: €5.80). We maintain our Buy recommendation.