Bavarian Nordic A/S

CSE:BAVA

Earnings Call Analysis

Strong Performance Drives Bavarian Nordic's Q3 Growth and Promising Future Guidance

Bavarian Nordic reported a successful Q3 with revenues reaching DKK 3.6 billion, up 21% from last year, largely driven by strong demand in its Travel Health portfolio, notably rabies vaccines. The company is preparing for the upcoming launch of its chikungunya vaccine, expected to be approved in early 2025. They have secured solid orders for their mpox vaccine, projecting DKK 2.4 billion in revenues for Public Preparedness next year. The updated guidance anticipates total revenues between DKK 5.4 billion and DKK 5.8 billion, with EBITDA between DKK 1.45 billion and DKK 1.7 billion, reflecting confidence in market demand and strategic positioning.

Strong Year Amidst Health Crises

Bavarian Nordic has reported a successful year so far, particularly in its Travel Health segment, which saw a growth of 21% in Q3 compared to the previous year. The company also dealt with the ongoing mpox crisis, boosting public preparedness efforts and maintaining robust sales aligned with their strategic plans. They've reported DKK 1.4 billion in revenue for the quarter and DKK 3.6 billion over nine months, demonstrating resilience despite challenging benchmarks from 2023.

Travel Health Portfolio Thrives

The Travel Health segment is currently the star performer for Bavarian Nordic, with rabies vaccines capturing 79% of the U.S. market and 95% in Germany. The company successfully completed a technical transfer for their rabies vaccine from GSK, leading to improved gross margins expected by 2027. Meanwhile, the performance of Vaxchora is strong as well, thanks to new market opportunities, particularly during outbreaks. However, the Vivotif product faced setbacks, reporting negative growth due to market conditions post-COVID.

Public Preparedness Sector Gains Momentum

In Public Preparedness, Bavarian Nordic recorded about DKK 0.5 billion in revenue for the quarter, totaling approximately DKK 1.5 billion for the nine-month period. The company anticipates a busy fourth quarter, with guidance for full-year revenue in this segment projected between DKK 3 billion and DKK 3.4 billion. This represents a significant contribution to overall revenue, especially in light of strong orders related to the mpox vaccine and international efforts, including a UNICEF order for 1 million doses.

Positive Cash Flow and Financial Stability

Bavarian Nordic reported a positive cash flow of nearly DKK 1 billion from operating activities, which reflects both net profit and a strategic reduction in receivables. As of the end of September, the company maintains a robust cash position of DKK 1.9 billion, ensuring it has adequate liquidity to meet future obligations, including DKK 1.7 billion in milestone payments to GSK and Emergent BioSolutions in the coming quarters.

Expanded Guidance Signals Confidence

The company revised its guidance upward, now expecting total revenue for 2024 to fall between DKK 5.4 billion and DKK 5.8 billion, with EBITDA estimated between DKK 1.45 billion and DKK 1.7 billion. The Travel Health business revenue projection increased from DKK 2.1 billion to DKK 2.2 billion, reflective of strong performance trends. Furthermore, Bavarian Nordic anticipates a robust order book for 2025, already valued at DKK 2.4 billion.

Strategic Developments and Future Plans

Looking ahead, Bavarian Nordic is gearing up for the imminent launch of its Chikungunya vaccine, which is currently under accelerated review by regulatory bodies in the U.S. and Europe, with an expected approval date of February 14, 2025. This vaccine launch represents a pivotal opportunity for growth and will necessitate further investments in market expansion activities in new regions, including the U.K., Canada, and France.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Bavarian Nordic third quarterly report for the 9-month period ended 30th of September 2024 conference call and webcast. [Operator Instructions]

Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Rolf Sorensen, Vice President and Investor Relations. Please go ahead.

[Rolf Sorensen, executive]

Yes. Thank you, operator, and welcome, everyone, to this Q3 update from Bavarian Nordic. Yes, my name is Rolf Sorensen, Head of Investor Relations. Aren't quite a dramatic day for the company. Today, here, as usual, we have our President and CEO, Paul Chaplin, and our CFO Henrik Juuel, to provide comments and presentation on our Q3 and 9-month period presentation.

And after that, it will be followed by Q&A as usual. Before we start, I just want quickly to go through the forward-looking statements. Forward-looking statements involve risks, uncertainties and other factors, many of which are outside our control, but could cause actual results to differ materially from the results discussed. Forward-looking statements include statements concerning our plans, objectives, goals, future events, performance and other information that is not historical information. We undertake no obligation to publicly update or revise forward-looking statements to reflect subsequent events or circumstances after the date made, except as required by law.

With these notes, I will hand it over to you, Paul for the presentation.

[Paul Chaplin, executive]

Thanks, Rolf, and welcome, everyone, to our quarterly update. If you turn to Slide 3, I'll just run through the key highlights and we're having an extremely successful year. And the Q3 was as planned, if not better than planned in terms of the numbers. We've seen Travel Health portfolio grow more than anticipated. So our Travel Health portfolio has grown significantly compared to this time last year. And in fact, we beat the consensus in terms of our revenues for Travel Health.

In Public Preparedness, we're dealing with another, yet another public health crisis in mpox and we recorded very strong sales in line with our plans, and we stick to our overall guidance by year-end. We're gearing up also for our launch of our new vaccine for chikungunya. And that vaccine is currently being reviewed by the regulators in both the U.S. and in Europe with a planned approval for next year and a launch. To prepare for that launch, we're expanding our commercial presence, which I'll go into more slides.

That's both to take over some of the markets that we had originally given to Valneva but also to prepare for Chikungunya. The good news is that as we have stepped up once again in terms of our mpox vaccine, in terms of supplying both to Europe and also for Africa, we have secured very strong orders for next year and have already DKK 2.4 billion in revenues for our Public Preparedness business for next year. So a great first 9 months and plan to end according to the guidance at year-end.

If we go to Slide 4, as I said, our Travel Health business has really gone from strength to strength, yet again, very strong growth compared to this time last year. On rabies, we've seen strong growth in both the U.S. and in Germany. We have completed the tech transfer for our rabies from GSK. And I want to say just a couple of words on that as this was a [ 4-year ] program, which many people ever thought was very long or within the industry thought was going to be very, very difficult to achieve.

Rabies is an incredibly difficult vaccine to produce and to test and release. And I'm extremely proud to say that we have completed the tech transfer and all the regulatory approvals are in for this difficult vaccine, and we've achieved this on time and on budget. And this will lead to an improvement in the gross margin and impact of which we show the full impact by '27.

On TBE, we have also seen strong sales in Germany. And here, the tech transfer is progressing according to plan and will be completed next year. In terms of cholera and typhoid, these are 2 assets that we're relaunching. That relaunch is still moving forward, and we still believe we can return these 2 assets to an overall combined revenue of $100 million in the coming years. So really a very strong performance in our Travel Health portfolio.

If we go to the next slide. Obviously, '24 will be remembered for yet another public health emergency due to mpox and the growing cases that we see in Africa. This has led to higher orders than anticipated for this year, which is the reason we revised our guidance recently. We've seen strong orders from the U.S. government from HERA and also other EU nations and also from UNICEF, which is extremely important as these doses are destinated for Africa. We've also seen some regulatory approvals, expanding the label to include adolescents. Importantly, the WHO have awarded a prequalification for our vaccine, allowing the distribution into Africa, and we've seen other approvals around the world.

If we go to Slide 7, continuing the discussion on mpox, we continue to work with all the key stakeholders. And here I must recognize the great work that the African CDC are doing in terms of combating this public health emergency. We, together with many other governments have now donated and are made available up to 3 million doses. That includes the UNICEF's order for 1 million doses from Bavarian Nordic. These doses are now being rolled out to the various different African nations. And hopefully, it will be the start of bringing the number of cases down.

In the UNICEF tender, they talk about the requirement or need for up to 10 million and Africa CDC themselves talk about 15 million dose requirements and due to that, we continue to manufacture at the full scale and are looking at to potentially increase our capacity as we do anticipate more orders to come in the coming months and going into next year. To ensure the continued equitable access of our vaccine, we are also looking at expanding that capacity by also discussing the tech transfer of the fill finish of our vaccine into Africa. And here, we're progressing quite nicely, again, working in collaboration with the African CDC, but really, we need to see what the demand forecast will really be in the coming years to justify the costs of expanding our manufacturing into Africa.

Go to the next slide. As I said, in terms of mpox, we've seen a lot of activities in terms of regulatory approvals. We've increased the label to include adolescents, both in Europe and also as part of the WHO prequalification. This is important as a lot of the cases in Africa are in adolescents as well.

Together with CEPI, we're also starting a pediatric study hopefully supporting the use into younger children. We're also together with CEPI supporting studies to expand access into other areas such as pregnant and younger children. So all in all, we're doing everything we can, together with the various stakeholders to expand the label to allow more access to all age groups and the entire population to hopefully improve the situation with the current outbreak.

Go to the next slide. Our Chikungunya asset is currently being reviewed by both the FDA and the EMA for approvals in the U.S. and Europe. We have a Chikungunya asset that is shown to be -- to induce good levels of protection based on [ immunological ] endpoint and also a very favorable safety profile. Under both reviews, they are under accelerated review. And that is only possible if you're meeting an unmet medical need despite the fact that it's already the Chikungunya vaccine approved.

And that's because we believe we have a differentiated product that has an improved safety profile and is also addressing an adolescent population. We expect the approval on the 14th of February from the FDA and the EMA in the first half. And as I said, we're gearing up to launch this asset during the first half of next year. And to do that, we are expanding our commercial presence in some new entities such as the U.K., Canada and France. So it's a really exciting asset, and it will be an exciting year next year when we launch Chikungunya.

And with that, I'll hand over the presentation to Henrik Juuel.

[Henrik Juuel, executive]

Yes. Thank you very much, Paul. So let's turn to the next slide, where we start with an overview of the revenue for the quarter and for the 9 months of '24. So if we started the quarter, approximately DKK 1.4 billion, around the same level as we saw in the third quarter of '23. But behind these numbers, we see very strong performance by our Travel Health business, 21% up largely driven by a very strong performance by our rabies and our TBE business, where we both see strong market growth, but also very strong brand performance in the markets.

So after 9 months of '24, we now have 79% of the market in the U.S. on rabies, and we have a back to 95% market share in Germany as well. And on Encepur, we have 29% of the market, so strong. Brand performance, combined by very strong market development as well. We would see Vaxchora that were recently added to our portfolio with the acquisition from Emergent. We have seen Vaxchora perform very nicely, impacted also by us taking an opportunity to supply the vaccine into an outbreak situation.

On Vivotif, we see negative growth, unfortunately, and here I think we are facing a situation where these 2 products, the markets have basically not recovered since COVID. Remember, Emergent before we took over, had basically pulled them out of the market. They did not support them with any resources and the market for Vivotif as an example, I think, is September today, at index 70 approximately compared to 2019, which is, of course, a challenge for us not being the market leader, but being the smaller player in this segment here.

So what we saw in the third quarter was that during the start of the relaunch in '23, we have probably supply Vivotif a little too wide into a market that was not growing as we expected. And therefore, we have seen some returns of products coming back in this quarter this year, and therefore, the negative growth that you see here. But overall, fantastic performance, I would say, from the Travel Health business that goes from strength to strength, double-digit growth, 21% for the quarter and 18% for the first 9 months.

On the Public Preparedness side of the business, DKK 0.5 billion in revenue approximately for the quarter and DKK 1.5 billion for the 9 months. Remember, when we compare to '23, that was really the record year where we executed on all the orders that we got during the 2022 outbreak and where we supplied significant number of vaccines typically to European customers, U.S. customers, et cetera.

So it's a very -- it's a tough benchmark against last year. But we are taking, of course, to our guidance for the full year. So that is on the Public Preparedness side, DKK 3 million to DKK 3.4 billion. So you can argue we are not even halfway through that order book, and we will have a very busy fourth quarter on the Public Preparedness side. So after 9 months, DKK 3.6 billion in revenue, and I will come back and talk about the guidance in a bit more detail on one of the next slides.

So let's start with the P&L on the next slide here. As I said, after 9 months, DKK 3.6 billion in revenue, 43% gross margin, total operating costs of DKK 1.3 billion, R&D costs obviously impacted by the development of the Chikungunya vaccine that we are anticipating to launch next year and SG&A costs impacted by, first of all, the acquisition from Emergent, where we took over some sales and marketing activities, but also expansion into a few new markets, as Paul alluded to, where we are establishing ourselves this year in France and in the U.K. and Canada, we have done as well, both to take back the business we partner with Valneva but also to prepare us for the Chikungunya launch next year.

EBITDA comes at DKK 692 million for the first 9 months. And in our production cost, I should say, the first 9 months here, we have included approximately DKK 45 million of manufacturing costs related to Chikungunya. It is related to commercial grade batches that we anticipate to sell upon approval. We cannot capitalize these and put them on inventory on the balance sheet until the product is approved. So at approval, this expense will be reversed.

If we then go to the next slide, just a few comments to our cash flow and balance sheet. So 9 months, close to DKK 1 billion in positive cash flow from operating activities, obviously, positively impacted by positive net profit for the period, negatively impacted by the planned inventory buildup that we have already put in as an assumption when we guided for the full year and then positively impacted by a reduction in receivables.

Remember, fourth quarter of '23, was very busy. We had a lot of revenue in that quarter and ended the year with a high level of receivables that we have cashed in to us [ DKK 0.06 ]. Cash flow from investment activities, this is primarily placing cash into securities, but it also includes recognition of milestone payments to GSK and Emergent BioSolutions amounting to close to DKK 1 billion.

On the right side of this slide here, selected balance sheet numbers. I will just focus on the securities, cash and cash equivalents, which stands at close to DKK 1.9 billion by the end of September, which we find is an adequate cash position considering the milestone payments we have to pay to GSK and Emergent during the next 3 quarters. This amounts to approximately DKK 1.7 billion. And on top of our cash position at the moment, we also still have our sustainability linked loan of DKK 1 billion, still ongoing.

Next slide, a little about the guidance. On this slide here, you will see our latest guidance, which was upgraded in connection with the order we got from UNICEF. So right now, it stands at a revenue of DKK 5.4 billion to DKK 5.8 billion and an EBITDA of DKK 1.450 million and DKK 1.7 billion. When we did the upgrade of the guidance, we upgraded the Travel Health business from DKK 2.1 billion to DKK 2.2 billion, given the strong performance we have seen this year. And we also upgraded, of course, the Public Preparedness business, where we are now anticipating between DKK 3 billion and DKK 3.4 billion in revenue.

You could argue that this is quite a wide range to have this late in the year. That's a good reason for that said. This range is all linked to uncertainty related to the logistics surrounding the supplies that we are planning on the mpox business in the fourth quarter of this year. We have orders that adds up to the high end of this guidance. So that is DKK 3.4 billion for Public Preparedness and DKK 5.8 billion for the total business.

Now it's all about execution. And there are a lot of things that needs to fall in place to make everything happen. Some of that is in our control, and there, we are doing everything we can, of course, but some of this is also out of our control. And it is things like allocating the doses to the African nations, making sure we have the right permits to import the vaccines, getting the shift to addresses. It's really the logistical details that we need to make this happen. Good thing is that if we don't deliver all of the DKK 3.4 billion, then it is not lost revenue, it will basically add to our order book for next year.

And speaking about the order book for next year, we have also in connection with this report here, we are announcing our current order book for '25, which stands at DKK 2.4 billion. Remember, we have previously said that the base business that we're looking at within Public Preparedness is between DKK 1.5 billion to DKK 2 billion in a normal year, already this time of '24. We are now looking at an order book worth DKK 2.4 billion. And as I said, anything that we are not delivering in '24 will just add to this order book for next year. So quite a strong position already secured for '25.

And with that, I will give the word back to the operator and ask to open for questions.

[Operator]

[Operator Instructions] Our first questions come from the line of Lucy Codrington from Jefferies.

[Lucy-Emma Codrington-Bartlett, analyst]

Just regarding, sorry I may have missed it, or misunderstood when you were talking about the capacity for fill finish in order to invest in that within Africa itself. Could you just -- so I got the impression that basically you're having discussions about it, but before you make that investment, you need to get better visibility on orders over the next few years.

So when will you get that visibility to, I guess, justify that cost? And given that this is an endemic outbreak, does that not suggest that there will always be an element of demand necessary. Because I suspect it would take a long time to curb it. Yes, -- that's my first question.

[Paul Chaplin, executive]

Yes. Thank you. So yes, just to clarify. So we are open to doing the tech transfer. We've run a technical assessment supported by the African CDC, working with a number of different companies in Africa. We've identified quite a few companies that could actually, from a technical standpoint before the manufacturing. But those companies and also ourselves need to get the clarity on what is the future demand going to be enable to justify that work and that cash outlay in terms of doing the tech transfer. And we are talking about '26, '27 and beyond.

So we are in dialogue with the various stakeholders on what that sort of demand could look like. But we would need assurances on what that demand will be and as I said, the companies themselves in Africa are also looking for those assurances before we would actually engage in the tech transfer.

[Lucy-Emma Codrington-Bartlett, analyst]

Got it. And any idea on when you might get that visibility, I guess?

[Paul Chaplin, executive]

Well, as I said, we're in dialogue with stakeholders. So let's see, hopefully, soon.

[Lucy-Emma Codrington-Bartlett, analyst]

And then just a more broad question, just after the outbreak in 2022, why didn't WHO offered -- grant either pre-qualification status or qualification status. At that time, why the delay given we've already had an outbreak. And then just regarding, I guess, the [ Pede ] element of this. Was there a reason that these studies haven't been conducted already and completed already? What was the delay there?

[Paul Chaplin, executive]

So just on the pediatric studies. So obviously, performing clinical studies in children, you always have to carefully consider the risk profile of testing vaccines. And in the non-outbreak scenario, it was deemed both by us, but also the regulators that you couldn't really justify testing vaccine, albeit one that we anticipate it has a good safety profile in children when there wasn't really any benefit as there wasn't an outbreak.

So the outbreak scenario has really opened up the opportunity to improve that risk profile in that, there's definitely a benefit in testing the vaccine against mpox in the current outbreak. So that's the real reason we really had to wait for a situation where it was feasible and ethical to test the vaccine in children.

In terms of the prequalification, I think that's a question really for the WHO. I mean, we filed what we thought was needed back in, I believe it was '23. I guess it's just -- it's just a reality of the priorities at the time, which obviously changed with the new situation.

[Operator]

[Operator Instructions] We just have a follow-up questions coming from the line of Lucy Codrington from Jefferies.

[Lucy-Emma Codrington-Bartlett, analyst]

Sorry, just one more then, I guess, it's difficult to know today the reaction just based on as you say, I think the sales themselves should have been considered to be potentially lumpy, so not necessarily a financing. But obviously, there is a lot of focus on the Trump appointment of RFK Junior for Health sector in his kind of wide reach, view his stance on vaccines. So I just I guess our thinking potentially his [indiscernible] more to kind of childhood immunization schedules. But any thoughts from your end about potential risk to vaccine plays based on that appointment?

[Paul Chaplin, executive]

Yes, thanks. Well, the first thing I would say is that during the first turn, that Trump was President, it was -- we saw the Biodefense business being heavily supported. So I look forward again to working with the new administration -- look forward to working with the new administration. But our anticipation is that, as usual, we will only see to buy a preparedness business going from strength to strength. And regarding vaccines in general, I mean we need to deal with that. So I think it's better to just wait and see what really happens with the appointment and what the policies will be.

[Operator]

We have no further questions for the time being. So I'll hand back to you for closing remarks. Thank you.

[Paul Chaplin, executive]

Yes. Thank you. Thank you, everyone, for attending the call and taking the time. Have a great weekend. Thanks. Bye.

[Operator]

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a great day.