Bavarian Nordic A/S (BAVA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Bavarian Nordic 2022 Annual Report Conference Call. [Operator Instructions] Please note that today's conference may be recorded. I will now hand the conference over to your speaker host Sir Rolf Sørensen. Please go ahead.

Thank you, operator, and good afternoon, and good morning to the rest of you. Welcome to this small short recap of our annual reports 2022. Again, we've had a very busy, especially this last quarter where we just want to go through recent events. Before we start, I just want to go through the disclaimer. This presentation includes forward-looking statements that involve risks to many of which are outside our control that could cause actual results to differ materially from the results discussed. Forward-looking statements include statements regarding 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. All such forward-looking statements are expressly qualified by these cautionary statements. 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. And with us today, we have, as usual, CEO, President, Paul Chaplin; and Executive Vice President and CFO, Henrik Juuel. So I will hand the presentation over to you, Paul.

Yes. Thanks, Rolf, and welcome, everyone, to the call. If you go to Slide 2 of the presentation. Before I walk through the highlights of last year and some of the recent events, I just want to talk a little bit about the vision and the strategy of the Bavarian Nordic. So by '25, we aspire to be one of the largest pure play vaccine companies. And by that, we refer to revenues of more than USD 1 billion, a profitable company with EBITDA margins of at least 25%. The reason we've set that goal is because our mission is really to develop, distribute, and sell life-saving vaccines to improve people's lives. To achieve this goal, we have a number of strategic objectives. One is to bring life-saving vaccines through development through our pipeline as we're doing with RSV, which I'll come back to in the coming slides. Last year and this year, we're looking at investing approximately DKK 2 billion in R&D, demonstrating our commitment to this space. As we've set up a commercial infrastructure, particularly in key markets such as the U.S. and Germany; we're also looking to market and license other people's vaccines as we do currently for MVABEA and IMVANEX. Key part of the strategy moving forward is also to be on the lookout for strategic and selective M&A opportunities; like we've just accomplished with the travel vaccine franchise from Emergent that will expand our commercial portfolio. And by providing the best-in-class service to health care professionals, we want to bring these life-saving vaccines to improve into people's lives. So if you go to the next slide, a little about '22. So at the beginning of last year, we had an extremely hectic year plan. We had 2 products going into Phase III, our RSV vaccine and our COVID-19 booster vaccine. We had a number of products that we're currently transferring our rabies PEP and our freeze-dried smallpox vaccine. So we had an incredibly busy year ahead with a lot of challenging tasks. However, '22 will only be remembered for the monkey pox outbreak. So, in May when the first cases started to emerge, we essentially sold our entire small stock of JYNNEOS that we have. We quickly realized this is an unprecedented outbreak that we've never seen before. At that point, we had to completely change all our plans. We had to go into a different gear in terms of manufacturing and double our filling capacity. We had to change all our manufacturing ideas to move only to JYNNEOS IMVANEX -- and we're extremely proud of what we achieved because we actually distributed more than 4 million doses last year. We gave access to more than 70 countries around the world, and there is no doubt that the use of that vaccine around the globe has played a significant role in controlling the monkey pox outbreak. You'll see in the coming slides that we have a relatively full order book for this year and beyond. And this outbreak of monkey pox last year, I think certainly going into it, we had 2 main customers, the U.S. and Canada. I think coming out of the monkey pox outbreak will end up with many more customers who are now seeing the logic in stockpiling of vaccine, not only to protect against future monkey pox outbreaks, but also small pox. On RSV, we did indeed start the Phase III trial, and we completed the enrollment at the end of the year of the 20,000 subjects. We have FDA breakthrough, EMA Prime status, and we completed a license agreement with Nuance Pharma for China and certain Asian markets, and they will be initiating a Phase I and Phase III in the coming months. On the COVID-19, we also initiated despite the changing regulatory environment, the Phase III study enrollment is still ongoing, but we expect to have readout of both of those Phase III trials, RSV and COVID later this year. On the financials, I'll leave mainly that for Henrik later, but obviously, last year, was a fantastic opportunity. We were originally guiding for a significant loss but due to all our efforts in supplying the demand for monkey pox, we were able to turn that around to a profit. And this year, we're guiding for even higher profit and revenues. So an extremely challenging year last year, but one that everyone of Bavarian Nordic will look back with great pride. We've increased the profile of Bavarian Nordic. But most importantly, we saved an awful lot of lives with the distribution of our vaccine. Go to the next slide, Slide 4. So earlier this year, we announced an acquisition of the travel franchise from emerging buyer solutions, and this deal is still going through the mandatory closing conditions. This was obviously a no-brainer for our standpoint because the products that we're buying are fit beautifully into the portfolio that we already have and that would be Vivotif and Vaxchora. These are 2 excellent travel vaccines. Vivotif is a vaccine against typhoid fever. It's the second most common travel vaccine that is prescribed. It's a great addition to the portfolio. Vaxchora is an oral vaccine against cholera, which is very fast vaccine and is the only cholera vaccine approved in the U.S. So immediately, these 2 products will expand the number of products that we sell in the U.S. significantly. It also comes with our Phase III assets against Chikungunya. Chikungunya is a mosquito-transmitted disease that can cause a severe joint pain. That is quite a large percentage of the people that are infected can become chronic. There's currently no treatment, and we believe that this candidate could really go on to be the best-in-class Chikungunya vaccine. It wasn't only assets that we've taken over. We're actually expanding our capabilities, both in terms of manufacturing and in R&D and in sales through the acquisition both of facilities, but also 280 skilled employees that are coming over together as part of this transaction. The R&D facility in San Diego in the U.S. will continue to be primarily focused on the development of the Chikungunya vaccine. Manufacturing facility in Bern has historically been extremely successful in producing Vivotif and Vaxchora, and they will continue to do so. But it gives me a lot more optionality in terms of manufacturing capacity to look at maybe potentially bring in other products that we currently outsource back in-house. In terms of the sales force that will be coming over, this will allow us to expand our operations in the U.S., which is the largest vaccine market in the world. It will also allow us to look at other territories in Europe where we're currently not active to expand. So an absolute fantastic opportunity and one that we're really looking forward to closing in the coming months. To go to the next slide, on Slide 5. So what is the opportunity? So it's estimated by others that the typhoid vaccine marketing could grow to USD 250 million by 2028, with an annual growth of about 9%. And likewise, with cholera, this will grow to USD 75 million, again, with an annual growth rate of around about 8%. The Chikungunya market is estimated by others to be in the region of USD 500 million. So altogether, this is a significant market opportunity with the assets that we're purchasing. Due to COVID, Emergent basically closed down the sales of Vivotif and Vaxchora, and Vivotif was relaunched last year as we're coming through the COVID headwinds and Vaxchora as I said, is the only approved vaccine in the U.S. And together, we believe we can grow these new assets to more than USD 100 million annually in the coming years. And with the CHIKV VLP, the Phase II data is exceptional. It really has a fast onset of protection much faster than the competition, has a very good safety profile, and we believe we've read out later this year as the Phase III, this could become the best-in-class Chikungunya vaccine in the coming years. Go to Slide 6. As with every acquisition, it's all about integration and taking over the assets. And the way we look at this, this is very different to the tasks that we were faced when we bought the assets for rabies and TBE from GSK in 2020. The main reason for that is there's no major tech transfer activities. There's no risk in production. We're taking over the skilled staff and the facility so that will be completely uninterrupted in terms of the manufacturing and we'll take over manufacturing from day one. To ensure that the momentum of the CHIKV program continues, we will be running that program as a stand-alone project from the new employees coming over from San Diego. And in terms of sales and marketing, that will be integrated from day one with the sales force that will be joining us. So, we really see that this is going to be a relatively straightforward integration project. Still a lot of work. But in terms of the risks of manufacturing commercialization, I think there's significant derisk with the purchase of the facility and the skilled staff. On Slide 7, I'll talk a little bit about the pipeline and the coming news flow. But before other do that, I just want to talk a little bit about JYNNEOS and the future. Obviously, last year and this year, we're booking significant revenues for our monkey pox, small pox vaccine due to the outbreak of monkey pox last year. However, I just want to remind everyone that on the call, we have USD 500 million of future sales beyond this year to just 2 customers, the U.S. and Canada. These are options. These are in the books, and we anticipate those orders will materialize. For the U.S. order of USD 300 million for freeze-dried to materialize, the U.S. will also have to buy additional bulk vaccine to replace the bulk that they used for the monkey pox order, and that brings the future order book beyond this year to more like USD 900 million, and that's just talking about 2 customers. It doesn't talk about additional customers that we're in active dialogue with for further orders or stockpile. So we see an extremely bright future ahead for our JYNNEOS/IMVANEX franchise. Likewise, with Rabies, we saw a rebound last year. We're back to pre-COVID levels. We anticipate future growth moving forward, and we expect them to support tick-borne encephalitis vaccine sales to recover. We talk about the pipeline, RSV can be a very exciting '23; RSV, which has shown great efficacy in the tumor challenge study, great immune responses in Phase II that will read out later this year. And despite the fact that there are already 3 positive readouts and most likely 3 approved vaccines, this is an extremely large market, estimated to be more than USD 5 billion by '25. And we think it will be a very exciting opportunity for us moving forward. For the COVID Vaccine, ABNCoV 2 will also read out later this year, and we have a new program for Equine encephalitis that we received funding for from DOD last year. So an exciting year ahead in terms of our pipeline development, but also in terms of our commercial sales and takeover of the travel franchise from emergence. An exciting year again for '23. With that, I'll hand over the presentation to Henrik Juuel.

Thank you very much, Paul, and good morning, good afternoon to all the listeners here. So let's turn to the financials for '22. And here, I think there are absolutely no surprises. We are today coming out with numbers in line with the preliminary numbers that we announced on January 16. So a top line of DKK 3.151 billion, strongly supported by our small pox monkey pox business that brought in approximately DKK 1.7 billion with more than 4 million doses delivered last year. We also saw the rabies business perform extremely well, and I'll come back to that in one of the next slides, delivering nearly DKK 900 million in revenue. Encepur doing not as good as the rabies business. I'll come back to that as well for some reasons, but it was close to DKK 300 million contribution from Encepur. Production costs of close to DKK 1.5 billion, giving us a gross profit of DKK 1.7 billion, a good gross margin, most of the 50%, driven by a very favorable product mix in '22. If you look, further down the profit and loss, research and development costs of close to DKK 1.2 billion. This is excluding the cost capitalized to ABNCoV 2, which is nearly DKK 600 million. So here, we are talking about approximately DKK 1.8 billion invested in R&D. So a significant increase compared to '21 and obviously driven by the expensive Phase III trials that we initiated in '22. The SG&A costs also went up from '21, driven by the significant increase in activity level. Some of that directly related to distribution costs driven by the higher revenue, but also generally speaking, a much higher activity levels, driven by the top line, but also by 2 Phase III trials. So that gives the total operating cost of close to DKK 1.8 billion, up approximately DKK 1 billion compared to '21. If we look further down the P&L, we see net financial items minus of DKK 261 million, which includes, unfortunately, approximately DKK 190 million of unrealized losses in security papers, given the financial turmoil that we were facing in '22. On the tax side, we are last year paying DKK 16 million in tax that is in our subsidiaries in Germany and in the U.S. And if we turn to the EBITDA, which is the level of profitability that we guide on, we delivered DKK 328 million, so significantly better than our original guidance that predicted more than DKK 1 billion in loss. Finally, in terms of our cash position by the end of '22, we had a cash and cash equivalent position of approximately DKK 1.7 billion. And this was even without any bank debt as we paid back the remaining debt we have to the European Investment Bank during the fourth quarter. So again, significant overall performance. Originally, we guided a cash position of around DKK 1 billion by the end of '22, including DKK 600 million in debt. So I think it's very clear that the whole Mpox situation has significantly improved our cash position and has been a key reason that we have actually been able to execute the transaction from buying the travel vaccine brands from Emergent BioSolutions. So if we turn to the next slide, let's spend a little more time looking into the Rabies business. And if we start to the right, we can see how our most important markets have developed during '22. If we start with Germany, we can see very, very significant market growth. The German market was, of course, heavily impacted by the COVID-19 pandemic as it is a poor traveler's vaccine in Germany. We saw in the fourth quarter close to 190% growth. And for the full year, it was actually close to 300% growth, of course, coming from an extremely low level but a growth that has an impact even in our numbers given the high market share we have in the German market of around 95%. The U.S. market also performed extremely well. It was significantly more resilient to the COVID-19 pandemic, and therefore, did not reach the same low level as in Europe. But even with that, I think we saw a market growing by 30% in the fourth quarter and by more than 30% looking at the full year '22. And that actually meant that we ended '22 with a market size that is even higher than the pre-COVID level, which we partly subscribe to our leadership position in the U.S. and our team that have really helped drive the awareness of rabies and vaccines available to protect you against rabies. Our own sales on the Rabies business, because of this significant market growth and our performance in the market, we managed to deliver 74% growth in revenue for the full year, 38% for the quarter. So very, very significant growth rate from the Rabies business delivering close to DKK 900 million in revenue for '22. Next slide, we're looking at the tick-borne encephalitis business where we are competing with Encepur. On the market side, we are obviously look at Germany as the proxy for how the European market is doing. We have seen a positive growth for the full year in '22 of 9%, but it has not been a consistent growth quarter-by-quarter. For instance, we see that the fourth quarter, we actually see a small dip of 1% compared to same quarter of '21. So some signs of recovery, but it has not been a consistent performance. Our sales, unfortunately, despite the annual growth rate, we saw a decline of 18%, primarily explained by a temporary stock-up situation we faced during the second half of the year and which has now been resolved. We do expect the TBE market to return back to the level we saw pre-COVID but we are not there yet, but I expect that, that is happening within this or next year. The next slide. So what's ahead of us for '23. I think one thing that is clear is that we had a very exciting '22. We delivered on a lot of significant objectives, and we delivered record high financial numbers, but it's also clear that '23 is going to be another exciting year for Bavarian Nordic. On the Mpox side, Paul already talked about the significant order book we have secured for '23. In our guidance for '23, we have included DKK 4.4 billion in already confirmed orders. We have not included any speculated in any additional orders that will come on top of the current guidance. But we also hope that we will come out during the year and announce outcome of our continued dialogue with governments around additional orders and stockpiling. Then, of course, we have on the clinical front; we have significant milestones ahead of us. First of all, RSV, where we finished the recruitment into the Phase III trial end of last year, and we are now expecting the top line results mid of this year. We're also expecting our partner for China and other selected Asian markets to progress the development in China into Phase I relatively soon and later this year into Phase III, which will trigger combined milestones of around DKK 195 million. That's included in our current guidance. On COVID, we are very close to finalizing the recruitment. After that, we expect to have results from the Phase III trials mid of this year as well, and we also do expect to have 12 months durability data from our Phase II study available around the same time. With the acquisition of the travel health brands from Emergent, we also now have the Chikungunya running in Phase III and are expecting top line results in the second half of this year. That is, of course, still pending the final closing, but that is only awaiting some customary typical antitrust approvals. So another very exciting year has started for Bavarian Nordic. To the right, you see our guidance. As we have already announced previously, we expect revenue of approximately DKK 6 billion. Again, I just want to make sure everyone understands under the monkey pox small pox side, we have only included already secured orders amounting to approximately DKK 4.4 billion. We expect an EBITDA of approximately DKK 2.2 billion. And then to the right, we have shown the expected financial impact of the acquisition from Emergent BioSolutions, depending, of course, on exactly when we close and how many months of this year that we will own the business, we will expect to add additional revenue of approximately DKK 200 million. And we are expecting to add a loss on EBITDA of approximately DKK 400 million, primarily caused by the continued investment in the Chikungunya development. So finally, a very exciting year ahead of us still. And with that, I will turn the word back to the operator and open for questions.

[Operator Instructions] Our first question coming from the line of Boris Peaker with Cowen.

This is Nick on for Boris. So just on JYNNEOS, I know in 2022 and like the second half of 2022, you mentioned that you were able to produce about 2 batches per week. Has this increased to the 4 batches that you guys were guiding for the end of 2022? And if so, is that enough to meet the current contracts for JYNNEOS in 2023 and still have additional capacity for 2023 additional contracts.

Yes. Thanks for the question. So yes, so last year, on the bulk, we were producing at 2 batches a week, and we're now currently at 4 batches a week, which is what we plan to do for the rest of the year. There is their capacity or I should say there is excess capacity with that scale of 4 batches a week, but not much. So there is room for additional orders should we receive them. Again, there are 2 types of orders that we will likely receive from the U.S. government. We couldn't just receive bulk orders. And from other customers, it's most likely finished product and it's the finished product that's a bit tight because it obviously needs more time to produce the bulk and fill, and release. But there is additional capacity this year for both bulk and final product orders.

Great. And then for those, is that just for JYNNEOS. So like with the deal with EBS, if this does end up going through, you'll also be acquiring the Bern, Switzerland facility, which is where they primarily developed Vaxchora and Vivotif. Will you be planning to only do both of those there? Will you move like rabies or TBE there as well? Because I know that's where they mentioned before that, that was their primary travel vaccine location?

Yes. So there's no plans on moving maybe on rabies and TBE. I mean we've just invested EUR 100 million in expanding the facility in Denmark to produce those 2 products. So they will most certainly remain in Denmark. I think, however, if we go back to last year, when the monkey pox situation arose, we were really scrambling for capacity, and we outsourced our RSV vaccine manufacturing to free up capacity this year. I think with the acquisition of Bern, it gives us more flexibility to look at internal solutions. And I just mentioned RSV, we could potentially be looking to bring that back at some point. Now whether that's in Denmark or in Bern needs to -- remains to be decided, but it certainly gives us more flexibility and capacity moving forward.

Great. Thank you very much. It's very helpful.

And our next question coming from the line of Gil Blum with Needham & Company.

Maybe a quick one on the advisory committees that we had the last couple of days for the RSV vaccine. Particularly the kind of questions that came around safety that were posed to Pfizer. How do you view the various efforts in RSV is differentiated?

Yes. Thanks, Gil. So I mean the safety issue that was discussed about Pfizer was a rare autoimmune disease. We would already know if there were cases of that because that would be a serious adverse event and currently, we don't have any of those cases. So, that in itself looks good. I mean, while there's a lot of discussion on the rare events, there was also a discussion on the reactogenistic profile of this vaccine, particularly in combination with flu. We know both vaccines are quite reactogenic. So we have to wait until all our data is in and everyone else's data is fully in, but there could be a differentiating factor in terms of the safety profile of our vaccine.

That's very helpful. And a question on the 2 new acquired travel vaccines. So you're getting the entire production facility as well as the salespeople. Do you plan on investing in sales for those vaccines or kind of go in with what you currently have?

Yes. Thanks again. I mean, there may be some small investments, integration costs and the like, but that's not huge investments.

I am showing no further questions at this time. I will now turn the call back over to Mr. Rolf Sørensen for any closing remarks.

Okay. Thank you, everyone, and thank you for your time and participation in today's call, and welcome back to next time. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.