Bavarian Nordic A/S

CSE:BAVA

Earnings Call Transcript 2023-Q2

[Operator]

Good day, and thank you for standing by. Welcome to Bavarian Nordic’s Half-Year Report Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [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, Rolf Sass Sorensen, Vice President Investor Relations. Please go ahead.

[Rolf Sass Sorensen, Vice President Investor Relations]

Yes. Thank you, operator, and welcome, everyone. Good afternoon and good morning to the rest of you. And welcome to our Q2 conference call. My name is Rolf Sass Sorensen, Vice President, Investor Relations. And with me here on this call, I have Paul Chapin, President and CEO; and JC May, Executive Vice President and Chief Commercial Officer; and Henrik Juuel, Executive Vice President and CFO.

We have, as many times before, have had a very, very busy, quarter behind us and to go through this, and we also have Q&A, of course, followed the presentation. Before we go through this, I just have to go through this brief disclaimer.

This presentation includes forward-looking statements that involve risks, uncertainties and other factors many of which are outside our control that could cause actual results to differ materially from the results discussed. Forward-looking statements include our short-term objectives and opportunities, financial expectations for the full-year, as well as statements concerning our plans, objectives, goals, future events, performance, and other information that is not historical information. We undertake no obligation to publicly update forward-looking statements to reflect subsequent events or circumstances after the date made, except as required by law.

And by this, I will hand the first presentation over to you, Paul.

[Paul Chaplin, President and Chief Executive Officer]

Thanks, Ralph, and welcome everyone to our half-year results. If you turn to slide five, I can walk you through some of the high-level results. Obviously, today, we are reporting record results, for Bavarian Nordic. More than DKK3.2 billion in revenue, which is almost 300% increase, compared to last year and this is across the board. We're seeing really strong growth in all our products and all our territories, but I'll leave the details to the other speakers to walk through.

That has obviously resulted in a very strong EBITDA of DKK1.2 billion, again, another record breaking performance for us. And obviously, that is generating an extremely strong cash position of DKK1.4 billion. So really strong performance driven by a very strong, growth in the markets, but also our brand performance. And as I said, I think, I will leave the details to JC and also Henrik to walk through, but we're extremely proud that we're coming out with these record numbers and it really shows that we have a very strong base business now, but also moving forward.

To go to the next slide, slide six, we've obviously had an extremely busy summer reporting a number of Phase 3 results, and I'll walk you through each one, and talk about the impact. So on RSV, unfortunately, despite the fact that we could show signs of efficacy in the Phase 3, that efficacy was lower than that of the competition. And for that reason, we are discontinuing the program. It's a disappointment, obviously, for everyone in the company that's worked so hard on this program over the years, but for various reasons, it is a setback, but the future of BN and the future growth story of BN didn't rely solely on RSV. So we acknowledge it's setback not only for the company, but for many of the investors. But at the end of the day, unfortunately, these things do happen in R&D and we need to desperate falls down and move on.

On COVID-19, we read out our Phase 3 in June and here, we had a successful, Phase 3, a positive readout in that we were able to show that ABNCoV2 was safe, but also was equal in terms of the efficacy in terms of the immune responses induced. As Comirnaty, which is the, I would say, the main RNA based vaccine that was used to control the pandemic. Now, obviously, this is a successful Phase 3 that we have pre-agreed with all the regulators unfortunately, the disease has progressed and also the regulatory hurdles for licensure have also moved since we started this trial. And it's probably while the endpoint is a successful one, it's more important to look at how immunogenic or efficacious ABNCoV2 is against some of the more distant variants that are currently circulating. And that is data that we're currently generating and hopefully we'll be able to communicate future path for this program in the coming weeks, maybe the coming months.

Before I move on, I just want to say a few things about COVID-19. So as the pandemic began, we [Indiscernible] the field for a vaccine candidate that we thought could go and play a role during the pandemic. And we identified this unproven platform as one that we thought was attractive one that we believe could go on to show to be safe and effective, and we licensed the technology from the [Indiscernible].

At that time, we were really looking for public funding. Just like every other company that has developed a COVID vaccine, we were looking for public funds simply, because it was very unclear what the market would be, what the market would grow into and what the regulatory challenges would be. So we were really looking for public funding and we were very fortunate that we secure funding from the Danish Ministry of Health, which has allowed us to bring the product all the way from the bench to now this conclusion of Phase 3.

And the purpose of that funding was really to show that this unproven platform could really demonstrate that it was safe and effective in people and was equal to the current vaccines that was already been approved. And that is what we've demonstrated. So although we don't know what the clear path is moving forward, right now, what we see this is a successful program and a successful partnership with Danish Ministry of Health, because we have now shown that ABNCoV2 or the [Indiscernible] platform technology that we licensed has utility in future pandemics. So safety, all the efficacy and all the manufacturing know-how, could be used in future pandemics. But as I said, we are eagerly awaiting the next step in terms of data and discussions with the regulators in the coming weeks.

The third program that we read out was Chikungunya. This was also a program that was part of the recent acquisition from Emergent BioSolutions. We identified this program as being or having the potential to have -- to be the best-in-class Chikungunya vaccine. And that is born out to be true, so two Phase 3s have read out, one in an elderly adult population and one in an adolescent and adult population, both showing that this candidate vaccine, also based on the viral like particle, is highly immunogenic and has a very good safety profile.

The reason we believe it's the best-in-class vaccine is not only is it highly immunogenic, if you extremely fast acting with the same seroconversion rates at week two and very, very high seroconversion rates at week one, which is a clear advantage over the competition and one that we believe now puts it as the best-in -class Chikungunya vaccine. We're currently completing the manufacturing validation in our new site in [Bern] (ph) and looking to file this chikungunya vaccine next year.

We go to the next slide, slide seven. Just to talk a little bit about the integration. So we completed this acquisition from Emergent BioSolutions that has now created the world's largest travel vaccine franchise. They had two commercial assets; Vivotif and Vaxchora, also the Chikungunya asset, but it also came with facilities and employees, both in terms of manufacturing in Bern and employees in R&D in San Diego. The integration we said would take 12-months. We would take it in stages. Currently, we've integrated the commercial activities, I'll leave to JC to talk about how excited he is about these two assets moving forward.

In terms of manufacturing, it was a standalone, highly successful facility. It's still a standalone, highly successful facility. We are currently, as I said, completing the manufacturing activities for chikungunya. In terms of R&D, we've begun the integration, we've reduced some of the operating costs there by about DKK50 million moving forward, and the integration is going according to plan and according to times. So everything is operating incredibly smoothly.

Before I hand over to JC, if you go to slide eight, I just wanted to talk a little bit about the strategy and the investment case moving forward, because we get a lot of questions obviously with the disappointment of RSV about where is Bavarian Nordic heading. And before I talk about where we're heading, I want to talk a little bit about where we've come from. So before 2020, we were an R&D-based company. We had a manufacturing footprint of producing one product, which is our smallpox vaccine and we sold directly to governments and frankly had maybe two customers. This was a highly profitable business. It allowed a breakeven result on most years. But the revenue was lumpy, it was unpredictable because it was based on government contracts. And it was difficult for analysts and investors to really understand the growth behind the commercial ambitions that we had given that we were selling directly to government.

At that point, we decided to change strategy and add a commercial arm to try and create a fully integrated vaccines company. We wanted to add to the top line with assets that have predictable revenues -- more predictable revenues, more predictable growth. But to do that, we had to build up a commercial organization from scratch. We had to build up a worldwide distribution network from scratch. We had to transfer the market authorizations for the two assets, for rabies and TBE in a record industry time.

And I remember in 2020 when we announced the deal, there was initial excitement, but a lot of concern about whether Bavarian Nordic could really deliver. Could you really build up a commercial organization, could you really transfer these market transfers on time, and could you execute on the strategy, which was, I believe, that in our hands, with our focus we could turn around these assets and show that we could do more with them than our predecessors. And, obviously, today we just announced the record results, in part due to the travel assets.

So we have demonstrated that we were able to build up a very effective commercial organization. We do have a worldwide distribution. We did transfer the market authorizations in a record industry time. And today, we have a platform which is really delivering, what numbers that we've reported, and allows us a simple plug-and-play. I know JC will go on to explain, because it's bit more complicated than that. But with the new assets that we brought in, they are also unloved, as I call it.

For various reasons, they have been neglected, Vivotif and Vaxchora. We believe that we have a proven track record now. You can plug them into our system and we will grow those assets and with chik coming on board as well, that's a huge opportunity to again plug into the system that we've built up. So just to remind everyone, where we've come and what we've established has been a great journey.

You turn my last slide, slide nine. Again the question comes, so what is next for Bavarian Nordic with the setback of RSV, and my initial reaction to that is, well, not much really, we're going to continue. We had a bold ambition before our RSV and we still do. RSV was a setback but we will never rely on RSV alone for the future. So we are a leading pure-play vaccine company, fully integrated with commercial operations in strategic markets. Our commercial portfolio has grown from one asset to five assets, in-house assets, covering six indications. They are established products and many of them have leading positions in their fields.

We have this attractive underlying growth, supported not only by our own products, but we've been able to attract products from others that are also growing extremely well. The focus on organic growth means that we believe we can grow these assets, but also bring in other assets like Chikungunya through the pipeline. And we're a highly profitable company today with a strong cash position and a strong EBITDA margin. Those EBITDA margins, we believe we can further grow by bringing more of the assets in-house.

You will see a margin improvement. We're always looking for improving production and efficiency, and while we haven't talked about it wildly, we are moving our manufacturing of our JYNNEOS monkeypox vaccine from [Indiscernible] to cell line, which will greatly improve our margins and our profitability moving forward. So we see an extremely exciting future ahead, a very strong investment case and every one at Bavarian Nordic is excited for the future.

So with that, I will hand over to JC May, our Chief Commercial Officer.

[Jean-Christophe May]

Thank you, Paul, and good morning, good afternoon, everyone. Very happy to join today to present the performance and outlook of our commercial portfolio. I think as Paul just reminded everyone, when Bavarian Nordic embarked on this commercial journey in 2020, there was some questions raised on the ability of the company to perform in the commercial space.

So if you go to slide 11, I just thought that I would put here some very specific facts that show how BN has successfully turned these products around in less than three years, despite the COVID outbreak in the middle of it. And that performance has been at levels never achieved before. At the end of last year, we already mentioned that in 2022 we were able to sell the highest number of RabAvert doses ever in the United States. And that momentum has continued very strongly in 2023. If we look at the second quarter of 2023, this is the highest number of Encepur doses sold in the quarter since January 2019. So even before the COVID outbreak. Huge performance, driven by mostly the German market, but I'll come back to that.

Then if you look at the total first semester of 2023, this is the highest number of Rabipur/RabAvert doses sold ever in one semester. So another record-breaking number with these two vaccines. And of course, JYNNEOS has never been sold so much outside of the U.S. than in the first semester of 2023. So a series of key facts showing that with the commercial organization in place, we've been able in Bavarian Nordic to turn this product around.

If you move to slide number 12, we can look in a bit more details on the performance of the different products in the quarter and in the first-half. 270% growth in the second quarter, 278% for the first-half. I mean this is really impressive growth. And as Paul mentioned, we see that growth coming from all the different assets and all the different geographies we are selling our products in. So very strong growth in this quarter, in the first half. Across the portfolio and across the geographies.

If we move to the slide number 13 and look at the rabies market, a few key messages here. One is whether it's the U.S. or the German market, we are back to or above levels that were the levels pre COVID in the second quarter of this year. So an impressive growth, and obviously that growth is extremely strong versus the same quarter of last year. 20% growth in the US and 93% growth in the German market. Bavarian Nordic being the market leader on the rabies market, is driving in part this growth by the different activities that we put in place, and of course, benefiting from the growth of the whole market as the market leader.

If we look on slide 14, our sales performance quarter-by-quarter and we see here continued growth quarter-after-quarter driven by, as I said, the whole market growth but also market share gain, especially in the United States, where we have put in place some very good contracting relationships with large GPOs, making RabAvert the vaccines of choice across a wide network of purchasing facility. So we really positioned Bavarian Nordic and RabAvert as a key partner with key customers in the US.

We managed to get to a 70% market share in the US. And as a reminder, pre-COVID, in 2019, under the previous ownership of these assets, the market share was 65%. So we've been able to gain share in a growing market. And in the United States -- in Germany, sorry, we have been able to defend a 94% market share in that market. And obviously, there when the market is growing it's because Rabipur is growing.

Now if we move to the other key assets in this portfolio on slide 15, the tick-borne encephalitis market. It's been a journey as a way to see a recovery for that market, and we are very pleased to see that in the second quarter of 2023, we are back or slightly above even the level of 2019, which is the reference that we use as the pre-COVID situation. So 7% growth versus 2019 and a very good 35% growth versus the Q2 of last year. So very strong rebound and coming from more demand for vaccination and a regain of interest and awareness on the tick-borne encephalitis disease.

If we look at slide 16, 47% growth of revenues for Encepur versus last year. We have 26%. So overall, a very strong growth for the first half of 40%. So great momentum there. And as you may remember, we had some stock-out situation at the end of last year in Q4, leading to a market share erosion at that time. And what we see here is month after month in our key market, being Germany, we regain the share that we've lost in Q4 and we end up now at 28%. So very strong performance. I think I'm very proud of what the team has achieved here. And reflecting also on what we just described on the journey, if we move to the slide 17.

The way we can explain how we've been able to deliver such a strong performance is that from the very beginning, we had a very clear strategy focusing on our critical markets, United States and Germany, in particular, but we have also been able to have commercial operations in all the markets, representing more than 90% of our business. We also there was -- we're very clear that we would be looking for partners for the other markets and very clearly and rapidly been able to find the right partners for these different markets.

We also had a lean go-to-market model where we wanted to align with the specificity and the market characteristics of our customers in the different territories. We have a business-to-business type of approach in some places, we have business-to-consumer approach in some others. We have also business-to-government approach with some of our assets. And we have a sales force-based or an account-based model. So very adapted approach of the market needs and the assets.

Partnerships, we are also very proud that when Dynavax was looking for a partner to launch their vaccine in Europe, they picked Bavarian Nordic, allowing to an expansion of our commercial portfolio and making good synergies with the investment we've made in some of our territories. And, on the other end, as I said, also having portfolio and geographical synergy with partners like Valneva. We've been also very diligently working on pricing strategy, making sure we had a good balance between market access and optimization of the revenues. So we've been working on competitive price points and being able to bring the prices more in line with the competition in some markets, adjusting also to the cost of living increases and balancing then the revenues and the volume trade-offs for these different assets.

And last but not least I think we also are very strongly focused on bringing value to our customers. We have, as I mentioned, put contracts in place with some key customers, establishing long-term relationship with them. We've been very active working on scientific meetings and supporting scientific communities. We do have day on -- day in, day out contact with our key customers in our key markets and we monitor how this is impacting the perception and the reputation of Bavarian Nordic with this HCP population.

And we have surveys showing that quarter after quarter we see an improvement of the awareness about Bavarian Nordic as a company, which as a reminder, by Q1 2020 was completely unknown. Now it's known, and it's known and with a good reputation which is better than the peer group with which we compare ourselves.

So a lot of good stuff and a good, very strong base that we have put in place, which give us the confidence that with the extended travel portfolio that we've just acquired, we will be able to repeat this success story that we've just been able to demonstrate on Encepur and Rabipur. So Vivotif, only orally administered typhoid vaccine, really a lot of opportunity there. We are approved in more than 25 countries. This product has been re-launched in the US. We already took some actions there since we took over mid-May to grow this asset in the US and make the most of this $250 million market opportunity that is in front of us.

Vaxchora, also very well differentiated asset, single dose, orally the only cholera vaccine approved in the United States. And there again, we can leverage the partnerships we have, the connections we have with the key customers in these key markets on travel vaccines to grow Vaxchora.

And chikungunya, absolute jewel that we now have coming in our portfolio. We're very, very confident that is a very well-differentiated asset. We can definitely launch this in a very differentiated way. Of course, there is work to be done on disease awareness and building that differentiation versus the competition. But with the $500 million estimated chik vaccines market, we see this as a fantastic growth opportunity for our portfolio and for Bavarian Nordic.

So a lot of excitement, not only in what has been delivered but also in what's coming, and looking forward to share more good news in the following calls -- quarterly calls in the future.

With that, I hand over to Henrik Juuel.

[Henrik Juuel]

Great. Thank you very much, JC. So let's turn to slide number 20, where I will take you through the financial results. And both Paul and JC already mentioned that this is a record-breaking second quarter and first-half year that we are looking at, which, of course, is also translating into the financial numbers here.

We already talked a lot about the numbers, close to DKK2 billion in revenue for the quarter and DKK3.2 billion for the first six months. We are looking at growth rates getting close to 300% compared to last year, obviously, to a large extent driven by the large mpox/smallpox revenue, but also driven by very, very healthy growth rates coming from the rest of our commercial business, as just explained by JC. These results deliver gross profit margins of 66%, both for the quarter and for the half year. So strong good gross margins as well.

If we look at the total operating costs for the quarter, DKK757 million. It is significantly above last year and obviously explained by R&D, where we have spent a lot on RSV, obviously. We have also included some on the chikungunya. All the numbers from the acquisition from Emergent BioSolutions have now been consolidated into these numbers here.

SG&A costs also up compared to last year, driven by a couple of factors. First of all, the high activity level, higher revenue means higher distribution costs. But it's also impacted by costs associated with the acquisition from Emergent BioSolutions. So deducting the total operating cost gives us an EBIT of DKK546 million for the six months and DKK916 million for the first-half.

If we turn to EBITDA, which is the parameter we are guiding on, we are delivering an EBITDA of DKK690 million for the second quarter compared to a loss of DKK118 million in the prior year. And for the first-half year, we are talking about close to DKK1.2 billion in EBITDA, corresponding to a very healthy EBITDA margin of 36%. So very, very strong results that we are obviously pleased with.

On slide 21, you will see the cash flow and a few selected balance sheet numbers. First of all, highlighted here the cash flow from operating activities, positive by DKK228 million. This is despite the planned and continued inventory build-up associated with the tech transfer of the product from GSK, and obviously, driven by the positive net profit of more than DKK900 million for the period.

Cash flow from investment activities is negative by DKK702 million and impacted by the acquisition. Remember, we paid the upfront payments for Emergent BioSolutions close to $300 million in this period here. And that was partly offset by us selling securities, where we kept our cash position in these securities and we sold some of those to partly finance the upfront payments for Emergent.

Cash flow from financing activities was impacted by the capital increase we did earlier in the period. It's also positively impacted by the funding from the Danish Ministry of Health through the ABNCoV2, our COVID 19 project, and also impacted by Bavarian Nordic paying back the repo position that we had in the past. Altogether, a net cash flow positive for the period of DKK260 million, leaving us with a very healthy cash position that you will see on the right side of this slide of close to DKK1.4 billion, which also means that we have absolutely no need, nor any plans to raise capital with the current plans and projects in place here.

On slide 22, just want to remind you about our guidance. On August 13, we came out and revised our guidance. We increased our expectations to revenue to DKK6.9 billion for the full-year and EBITDA we increased by DKK100 million to DKK2.3 billion. What's included in here the new BARDA order we got of $120 million, primarily to secure replenishment of the bulk inventory that BARDA partly and largely consumed last year in connection with the mpox orders we delivered to them.

$100 million of those will help us this year, the rest in the coming years. We also included several other smaller mpox orders, a handful of orders, not large enough to be announced on their own but contributing to the overall increase in guidance here. And then we have also included now the Emergent acquisition, or the acquisition from Emergent BioSolutions.

Remember, we closed the transaction on May 15. So we have included one and a half months from that business. And in our outlook, we have included DKK165 million of revenue and a negative EBITDA of DKK375 million. It's negative due to the further development of the chikungunya vaccine but also as we are only ramping up the revenue from Vivotif and Vaxchora.

We have also had a close look at the RSV program when we came out with this guidance here, and in the guidance we have included what we label net savings from the termination of the RSV program. We do have commitments we need to honor but we are also expecting significant savings this year from the termination of this program, and combining the two it will be a net saving we're looking at. And that of course will also be needed to compensate for the loss of the anticipated milestone from our RSV partner Nuance Pharma, where we had in the original guidance included DKK195 million.

A little more detail on the RSV impacts. I mentioned a couple of them already. We do not get the milestone we originally anticipated, of course. And of course, it will leave a revenue gap from when we expected the launch of the RSV vaccine in late '25. It will give us net savings this year and it will give us significant savings already in '24 of more than DKK500 million as we are not continuing the development program and it will improve our cash position in the period '23 to '25.

So with that, I would just like to end our presentation with this slide that Paul already took you through. I won't repeat what everything Paul said, but this is really our investment story. The company you're looking at right now is already a leading pure-play vaccine company. We are the world's largest travel vaccine manufacturer. We are operating with products and end markets with an underlying healthy growth. We have a strong focus on organic growth. Strong financial performance, even with some improvement opportunities, and we are in a very strong cash position, and no need to raise capital.

So with that, I will ask the operator to open up for question and answers.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Thomas Bowers from Danske Bank. Please go ahead.

[Thomas Bowers, Danske Bank]

Great, thank you very much. A couple of questions from my side here. So just kicking off with Rabipur and Encepur, and I appreciate the color -- additional color in the presentation. So, I'm just wondering, are you seeing any sort of fundamental changes in the market? I mean, we have COVID behind us now and you have, of course, higher market shares. But is there any changes you see to the underlying market growth that we -- that maybe should make us think a little bit differently about the possible peak market potential for both our Rabipur and Encepur?

And then just on JYNNEOS, you have talked couple of times about ex-U.S. government changes to stockpiling strategy. So, I'm just wondering if you could just give us a little bit of color on how you see the thoughts are among different governments on looking at the well, to for example, we saw that -- the BARDA reports some years ago highlighted that it should protect all immunocompromised citizens of 60 million lives. Are we in that area, and also maybe add a little bit of color on where the stock -- sorry, split dosing is still also in -- on the table in regards to stockpiling?

And then my final question, just on the mpox. We have only seen a few flare-ups in Europe, U.S. during the summer here, but now we can see that China is sort of a different story. So I'm just wondering if you could give any color on how you see near-term potential in those regions, Southeast Asia, if there is any potential for the -- also for the near term. Thank you.

[Paul Chaplin, President and Chief Executive Officer]

Thanks, Thomas. Let me take the JYNNEOS and mpox questions, and then I'll hand over to JC to answer the Rabipur and TBE. So yes, JYNNEOS, there is a mix of questions there. So ex-U.S., I think the only one that we can keep talking about, because it's public in France. And there they have said, they recommend considering it. It's replacing the entire stockpile with MVA. Those discussions are continuing, and those sort of discussions with governments are anticipated to take some time, but we are seeing a shift with some governments that they are seriously considering creating stockpiles.

On the US side, I would say, there is momentum on two fronts. One, the private market for mpox potentially, ACIP -- mpox is again on the agenda for the ACIP meeting, I believe, in October. And what we really need there is for a recommendation in a non-outbreak scenario. And if they do come with that and there is a potential for a private market, that is certainly what the U.S. government are encouraging Bavarian Nordic to support. They would like us to support the mpox private market, if ACIP make the recommendation, and for the government to focus on the smallpox stockpiling.

In terms of split dosing, in all the discussions that we've had with BARDA in terms of the recent 120 million dose order bulk, it is all about replacing the stockpile with a view that one vial is one dose. So the future for smallpox, at least in the discussions that we're having with BARDA is not around each vial, it is five doses, and we'll give intradermally. So I think that was on JYNNEOS.

And on a mpox, you mentioned there are some flare-ups, you mentioned correctly. I think even just today we saw that there's a flare-up in Barcelona, in Spain and other areas in Asia. And that Henrik mentioned, we've seen repeat orders already this year for that. And in China, yes, it looks like there are around about 500 official cases in China. We have been approached by the authorities in China and we are in dialog with China. The path forward in China remains completely unclear, but we have -- the authorities have reached out to us and we are in dialogue.

And with that, I think JC if you'd like to answer the first question about the Rabipur and TB.

[Jean-Christophe May]

Yes, Thomas, thanks for the question. So on TBE first, clearly what we see, it's a disease that is endemic in Europe and we see an overall increase on Europe. So the disease is spreading. There is an expansion in different countries. We've seen it going north, going east as well. So what does that mean? It means that more and more people living in these countries will be exposed to the risk of TBE. And therefore, expanding the number of people that would be eligible for TBE vaccination.

Combined with an overarching element around the value of vaccines and vaccination following COVID, I think people really now understand and see the value of being protected and being vaccinated, whatever the disease is. So there is definitely a positive trend in the TBE market.

On the rabies front, clearly there is a combined element. So for example, in the United States, there is more and more awareness for what it is and there is also -- we hear stories about wildlife animals coming closer and closer to cities or urban areas and therefore, more people being also exposed to these wildlife animals and the risk of rabies. That's for the kind of endemic post-exposure market.

With regards to the pre-exposure for the travelers, first of all, we see a complete rebound of the international travel numbers faster than what we anticipated. So now it's planned or it's forecasted to have the number of international travel back to the pre-COVID numbers in 2024, if not end of '23. Then there is more and more awareness around the risk that rabies represent when people travel to some territories. There is more consultation again to understand what are the risks, and what are the -- so there is a global trend of more awareness.

The other element that is also driving is there was a shift from a three-dose to a two-dose, which means that it's much more accessible for individuals to get their rabies pre-exposure vaccination scheme done before they travel and of course, it's also less expensive. So, allowing more people to get the rabies vaccination. So -- and on top of that there are some initiatives we take to make people that risk like, for example, we do a program with veterinarian technicians who would handle animals in the U.S. and supporting projects, where they would also get the vaccination. So it's a number of elements all pointing in the same direction of more growth coming in these two markets.

[Thomas Bowers, Danske Bank]

Very helpful, thank you very much.

[Operator]

Thank you. We'll now move on to our next question. Our next question comes from the line of Peter Verdult from Citigroup. Please go ahead.

[Peter Verdult, Citigroup]

Sorry for that. Thanks. It's Peter Verdult here from Citi. Just a few. Henrik, just following up from the last question, just the general -- or JC -- the outlook for your travel vaccines portfolio, strong growth indeed, but the comps were easy because of COVID. But I'm not trying to sort of disparage that, but I want to make sure I have a good understanding about what you see as the volume outlook, ballpark, but also to discuss how travel vaccine pricing trends have tracked this year and last year and what level of pricing power you think you have on a longer-term view.

That leads into my second question. Henrik, just now we all know that R&D is going to quickly go back to pre-COVID levels, probably from next year if not the year after. Could you give us some ballpark sense of the margin uplift you expect once that tech transfer completes from GSK. I'm just trying to kick the tires and explore the upside potential to the 30% mid-term margin target you provided. I know we're not going to get RSV revenues but we're not going to spend either and there are upside drivers to your margin from R&D outlook and the tech transfer. So anything you're willing to say at this point there?

And then lastly, Paul, just returning to a frequent theme, the idea that JYNNEOS is more durable and a bigger revenue stream longer term. You touched upon this in some of your remarks about a potential private market emerging in the U.S. for mpox. What about the smallpox stockpile and whether there's any motivation or willingness from the U.S. government to perhaps replace that with JYNNEOS? Is there anything that does give you increased confidence, or is that still just a sort of blue sky -- a potential scenario longer term? Thank you.

[Paul Chaplin, President and Chief Executive Officer]

Yes, thanks Peter. Let me take the JYNNEOS one and then Henrik, you take those two questions. That way I can remember the question.

[Peter Verdult, Citigroup]

Sorry, guys, sorry.

[Paul Chaplin, President and Chief Executive Officer]

No, no, it's fine. So I think on JYNNEOS, so, yes, the private market, let's take that one first. So there are two things that are ongoing currently. So we're doing a pilot exercise in Germany right now, where we are distributing Imvanex in Germany as a pilot to see whether we could develop the private market in Europe. In Germany, we are one step ahead, in that the authorities have already made the recommendation that people at risk should be vaccinated with Imvanex. So we're trying that pilot this year and we'll see what comes out of that.

In the U.S., there has been a lot of discussions with the authorities in the U.S. where they really would like to encourage Bavarian Nordic to open up a private market. Now in the U.S., it's very different. We can't open up the private market unless there is an ACIP recommendation. ACIP is gradually going through, making recommendations in an outbreak scenario for adults and children. And this October, we're on the agenda for them to discuss on a non-outbreak point of view. Whether they make a final recommendation in October or it takes more meetings, we don't know, but on the basis of a recommendation in a non-outbreak, we are encouraged and we've obliged that we would definitely look at a private market for mpox in the United States.

In terms of replacing the whole stockpile with MVA, I don't think we're there yet. So, certainly, all the discussions that I'm having with BARDA are very, very positive. Obviously, we just secured that DKK120 million order for bulk that only goes a small way into replacing the bulk that they have used for mpox, there's a lot more to come. But in all the discussions we're talking about, there is a desire to build up to the requirement.

And Thomas mentioned this before, the 66 million Americans. Whether it's still 66 million Americans, I don't know. But there's larger MVA requirement and they are moving and talking about how they can fulfill that initial stockpile. So very encouraged by all the discussions, all the developments. Really a bright future I think for JYNNEOS/Imvanex going forward.

And with that, I'll pass -- I'll hand over to you, Henrik.

[Henrik Juuel]

Yes. Thanks, Paul and thanks Peter for the question here. So first of all, on the travel vaccine outlook, it's difficult for us to become much more specific than what JC already alluded to here. I think, what we're seeing both for the direct and the TBE market is that they are actually already at a level higher than pre-pandemic, driven by with what JC said, it's the endemic expansion, particularly for TBE, is the high awareness on both products. It's specific initiatives that we are launching, and then of course, it's the travel perhaps picking up again.

Specifically for TBE, we only have a few data points, where this is the situation. TBE, we saw actually coming back to previous [Technical Difficulty] levels relatively late. A couple of quarters there, but I think -- generally, I think we do see today a much, much higher awareness of the importance of being vaccinated, and this we expect to prevail and continue and we expect that to drive the continued growth in these markets. And I'm afraid we can't be more specific about the exact outlook. We will do that later for '24, of course, when we come back and guide.

With regards to the pricing power in the market, I think we should remember that these are competitive markets when we talk about rabies and TBE. We are up against the big pharma companies, Sanofi, Pfizer. So we can't set the prices as we want. It's a competitive market. There's typically room for, you can say, the annual lease scenario adjustments. And I think we -- JC also alluded to, there has been opportunities to adjust prices a little as we felt in some markets they were not adapted correctly to the market situation and the competitive situation. So that's what we can say about the pricing power here.

With regards to the R&D level, you're absolutely right that the R&D spend will go significantly down, now that we -- first of all, we don't have RSV any longer. And you can say the chikungunya has read out positively. Of course, there are still costs associated, but that will fade out over the next couple of years. So we will be trending down towards the historical R&D spend level. The only difference really will be that we will have more assets to maintain and keep licensure on, which also drives some R&D spend, of course, but we will definitely be trending down towards the historical spend level with the current portfolio we are looking at.

The tech transfer project, moving manufacturing from GSK to Bavarian Nordic, does not directly impact our R&D spend. This is capitalized until we finish that project, and then it will be amortized as we sell. The tech transfer itself, project is going well and we actually anticipate to be able to finalize that in the second half of next year. I hope that answered your questions, Peter.

[Peter Verdult, Citigroup]

Thank you.

[Operator]

Thank you. We'll now move on to our next question. Our next question comes from the line of Boris Peaker from TD Cowen. Please go ahead.

[Boris Peaker, TD Cowen]

Great. Thank you. I have got several questions. Maybe first on chikungunya. Obviously Valneva's PDUFA date is coming up. How do you think your drug will compete with Valneva, specifically how you think it will be differentiated? And second question on rescEU, something you mentioned in your press release. Is that associated with HERA, is there any specific biodefense budget maybe associated with this, or with Europe in general?

Just want to kind of better understand the dollar or the euros associated with biodefense spending in Europe. And I guess lastly, you just said we're talking about the potential change in the JYNNEOS market, based on ACIP requirements. If they do make a positive recommendation, how do you see this become available? I guess what does it mean for it to be a commercial product?

[Paul Chaplin, President and Chief Executive Officer]

Yes, sorry, I was on mute. So let me take the generics question and then let's see who is best qualified for the EU question. So on Valneva, so Valneva's data that they have reported for their chik, they see very high seroconversion rates, [Technical Difficulty] in the Phase 2 studies, they didn't see much before day 29. I think our understanding at least that in their Phase 3, they didn't even look. What we see is similar seroconversion rates at day 22, but the same seroconversion rates at day 15. So much, much faster onset of protection. And as I said, about 50% of the subjects in Phase 3 also seroconverted by day seven.

So we see much earlier onset of protection with a single vaccination compared to Valneva, and that I think is a strong, strong competitive edge for travel vaccine. Most people leave it till the last minute, most people don't have a month to wait before they travel. So I think that's one differentiating factor. How will we compete? Well, I think, today JC has just talked about the setup that we have in the U.S. and in Germany which will be the two key markets where we're extremely successful with rabies TBE, and therefore, I think we will be equally well set up for success. And I believe we have the best-in-class vaccine. So I think we'll compete very strongly.

On JYNNEOS, you talked about the private market. So if we just focus on the U.S., yes, we would need a recommendation from ACIP that how would it look. So, we're in discussions with a number of parties. But one way of distributing the product would be through pharmacies, which is a lot like the HIV PrEP drugs, are also distributed in the same way with great success. So that could be one path. But we're still in discussions with a lot of parties in very early stage, because without the ACIP recommendation there is really nothing that we can do. So we're really waiting for that recommendation first.

And on the EU funding, I don't know, Henrik, do you want to take that or...

[Henrik Juuel]

Sure, I can do that. Definitely. So, yes, the contract we announced with -- under the rescEU program, [EUR10 million] (ph) rescEU is sort of a new body under the European Union with [Technical Difficulty] EU's ability really to respond to biological threats in the future. So it's a little like BARDA, small scale, but you can say, a new initiative by the EU Commission. So it's very well coordinated and aligned with HERA, obviously. But this rescEU, it's much more than vaccines, it covers a lot of the things you need to respond to emergency situations.

And the way it works is that the member states sign up for participation in this program and then they can stockpile -- they choose to stockpile the vaccines in their countries. But for potential European use, should there be a need in a -- attack situation or in a situation where there is an unintentional release of smallpox. So this rescEU is not directly meant to deal with, for instance, mpox. It is more for emergency use, obviously. The European [Technical Difficulty] they can use it also for mpox if there should be a larger outbreak again.

So that is sort of the situation with the rescEU. I think over the last couple of years, we have seen the EU develop both HERA and rescEU to be able to respond to situations like this. And it is something in progress. We've seen in the past as well that like, for instance, HERA does not have its own bucket in the past. We expect it to move in that direction. So they will also be able to purchase on their own. So far, it has been based on volunteering member state countries signing up for participation in procurement programs. So it's not directly part of the HERA but it's well coordinated. And we have good contacts to those rescEU now and HERA as well.

[Boris Peaker, TD Cowen]

Great. Thank you very much for taking my questions.

[Operator]

Thank you. We'll now move on to our next question. Our next question comes from the line of Gil Blum from Needham and Company. Please go ahead.

[Gil Blum, Needham and Company]

Good morning and good afternoon and congratulations on a strong first-half. Just a quick one from us. Just to give us maybe an idea of a leading indicator here, how bad of a tick year was it in Europe this year given the elevated temperatures? Thank you.

[Paul Chaplin, President and Chief Executive Officer]

Yes, Jean, do you want to take that?

[Jean-Christophe May]

Yes. I think we don't have yet all the epidemiological data for this year. So this is definitely something that is tracked, but there is always a bit of a lag time. But you're right, I mean, the whole change in temperature and, I mean, global warming, in general, are definitely seen as elements that would be kind of driving the increase of the TBE epidemic.

[Gil Blum, Needham and Company]

Yes. That makes sense. I mean, I know it's anecdotal, but in the U.S., it's been a very bad year for ticks.

[Paul Chaplin, President and Chief Executive Officer]

Yes. We can ask here from Denmark, where we were fishing yesterday. I think we have seen it expand in Denmark. And there's been a lot of writing in the press about the prevalence of TBE now in several places in Denmark as well.

[Jean-Christophe May]

And there is two elements. One is, if it's warmer, also more people go outside and work and do outdoor activities, so are more exposed, as well as more ticks being around.

[Gil Blum, Needham and Company]

Thank you.

[Operator]

Thank you. There are no further questions at this time. So I'll hand the call back to Paul for closing remarks.

[Paul Chaplin, President and Chief Executive Officer]

Thank you. Thanks everyone for attending and for all your interesting questions. Have a great day. Thank you. Bye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please standby.