In the first quarter, Bavarian Nordic experienced a surge in demand for its travel health portfolio, notably rabies and tick-borne encephalitis (TBE) vaccines, and launched the Jynneos smallpox and mpox vaccine in the US market. The company reported a Q1 total revenue of DKK 831 million and is on track to meet its full-year revenue guidance of DKK 5 billion to DKK 5.3 billion.
Despite a slower quarter typically expected due to travel seasonality, the company's travel health business generated DKK 447 million. Gross profit for the quarter stood at DKK 265 million, affected by a lower gross margin due to product mix and increased production costs, including an incident of water damage at their manufacturing facility. Operating costs increased to DKK 394 million, attributed to higher research and development (R&D) and sales and distribution expenses. Nevertheless, Bavarian Nordic maintains a strong cash position with a positive cash flow from operating activities at DKK 435 million.
Key Takeaways
- Bavarian Nordic's Q1 revenue reached DKK 831 million, with travel health products contributing DKK 447 million.
- Gross profit for Q1 was DKK 265 million, with a lower gross margin due to a different product mix and higher production costs.
- The company reported positive EBITDA of DKK 22 million, a 3% margin, and maintains its full-year revenue and EBITDA guidance.
- A significant order for Jynneos from the rescEU fund and the launch in the US private market has gone well, with expectations of substantial growth.
- The company is in late-stage discussions with several governments for uncontracted orders and anticipates revenue from inventory buildup.
Company Outlook
- Bavarian Nordic projects to launch its chikungunya vaccine next year.
- The full-year revenue guidance remains between DKK 5 billion and DKK 5.3 billion, with EBITDA expectations between DKK 1.1 billion and DKK 1.35 billion.
- The company has a strong cash position at DKK 2.3 billion but faces payment obligations totaling DKK 2.5 billion within the next 12 months.
Bearish Highlights
- Q1 gross margin declined due to a different product mix and higher production costs, including water damage at a manufacturing facility.
- Operating costs rose to DKK 394 million because of increased R&D and sales and distribution expenses.
- Net cash flow for the period was negative at DKK 621 million, partly due to cash placement into securities.
Bullish Highlights
- Strong demand for travel health portfolio, particularly rabies and TBE vaccines.
- Positive cash flow from operating activities at DKK 435 million, driven by a reduction in accounts receivables.
- The US government's recognition of the ongoing smallpox threat and potential increase in the stockpile could benefit Bavarian Nordic.
Misses
- Despite a positive start, the company experienced a lower gross profit margin and a negative net cash flow for the period.
Q&A Highlights
- CEO Paul Chaplin emphasized the anticipation of orders for the smallpox/mpox vaccine, with inventory built up based on discussions with various governments.
- The US remains the largest customer, but multiple government contracts are expected to be secured.
- Revenue guidance for 2024 includes uncontracted sales, with confidence that these orders will materialize.
- While open to mergers and acquisitions, the company's current focus is on integrating assets and executing its growth strategy.
Full transcript - None (BVNKF) Q1 2024:
Operator: Good day, and thank you for standing by. Welcome to the Bavarian Nordic Q1 Presentation. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your first speaker today, Rolf Sorensen. Please go ahead.
Rolf Sorensen: Yes. Thank you, operator, and good afternoon to everyone. And welcome to the Nordic quarterly announcement. My name is Rolf Sorensen, VP, Investor Relations. And with me, I have the usual team, President and CEO, Paul Chaplin; and Executive Vice President, Chief Financial Officer, Henrik Juuel, that will walk through slides and answer questions as they come in afterwards. Before we start our presentation, I'll just walk through the disclaimer quickly. 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, sales, future events, performance and other information that is not historical information. We undertake no obligation to topically 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 over to the presentation to you, Paul.
Paul Chaplin: Yes. Thanks, Rolf, and welcome, everyone, to our Q1 presentation. If you turn to Slide 3. So Q1 is typically a slow quarter in terms of our commercial sales due to the seasonality of travel. And on public preparedness, typically, our orders are in the second half of the year due to the long lead times in terms of manufacturing and when we receive the orders. So our Q1 numbers reflect that today as well. However, having said that, we see very, very strong demand on travel health, and I'll get into more of that in the coming slides, but that bodes extremely well for the rest of the year as typically Q2 and Q3 are our strongest quarters. In terms of the operations, we've had an extremely busy first three months. We've launched Jynneos as an mpox vaccine in the US, and this is a whole new opportunity that I'll allude to in the coming slides. We've also received our third order from the rescEU fund, which is already filling up the order book for next year. And as I said on travel health, as well as strong demand for our commercial assets, we're making great progress on filing for our approval for our chikungunya vaccine, which we're on track really to launch next year. So if we go to the next slide, Slide 4. So as I said, we've seen very strong demand for all our vaccines in our travel health portfolio. And I'll go through the highlights on this slide. In rabies, we're almost a victim of our own success in that the demand that we've been seeing over the last 18 months is only increasing and is continuing. In the US, we saw the market grow by 17%. However, in Europe, despite this strong demand, we were unable to meet that demand, and we're in a temporary stockout situation. We knew that stockout situation going into the year, and it's primarily due to the manufacturing setup we have, while we're in this period of relying on GSK (LON:GSK) to supply. The reason that creates some uncertainty in terms of supply is that there's a long lead time in which we have to order product. So the products that we're selling today we've essentially ordered 1.5 years ago. And unfortunately, 1.5 years ago, we didn't accurately predict strong demand that we're seeing and the rebound in travel, which has occurred much faster than we and other people in this industry predicted. The good news there is that we're making extremely good progress on the tech transfer of our rabies manufacturing to be in. And in fact, we've already received the first regulatory approvals for the filling of our rabies products, which we expect to be completed in the coming months. And by year-end, we will have hopefully all the regulatory approvals for end-to-end production of rabies at BN, which means that we will have greater flexibility in the future to meet the market demand and turn up manufacturing or turn down manufacturing depending on that demand. On TBE, we've seen an extremely strong quarter with a 44% increase compared to this time last year, and that bodes well. As I said, typically, Q1 is a quieter quarter. We have to see whether this strong demand in Q1 translates into Q2 or moves into Q2, which is typically the stronger quarter, but it certainly bodes well for meeting the guidance on our Travel Health portfolio. Cholera and Typhoid assets that we acquired last year are performing according to plan. And so we're very happy with the overall performance of our Travel Health portfolio during Q1. Go to the next slide. On chikungunya, this year is all about moving forward and completing the regulatory filings both to the US, the FDA and also the European Union. And we're on track. So we have initiated the rolling submission to the FDA, and this will be completed in June. That allows us to start planning the launch already for next year. On the EMA side, the European Union, we have accelerated approval that was crafted in February, and we're on track to complete that submission in June later this year. Both of these submissions, as I said, will allow us to continue our preparations for the launch in '25, and we're extremely excited about this opportunity because we have clearly a differentiated product from the competition, both in terms of an improved safety, a faster onset of protection, which we think bodes well for the launch and providing this as an incredibly new opportunity in our Travel Health portfolio from next year and on. If we go to the next slide, on public preparedness, of course, if you look at the numbers in Q1 and compare it to last year, they are lower. But really, this is a business that you can't really compare quarter-to-quarter or year from year in each quarter because the business is lumpy in terms of when we receive the order. We typically don't have products on stock. And therefore, the order is placed into our manufacturing schedule, and that typically takes 12 to 15 months to complete. So typically, orders that we receive in one year are delivered more likely than not in the second half of the following year. So we remain on track for our guidance for '24. The events that have happened in Q1, as I said, excitingly, we've secured a large order from the rescEU fund, which is a new fund under the EU, which is a third order we've now received, in EUR65 million, which will be delivered next year. So it's great to see that we, with our broadening of our customer base, are securing orders already for next year. Swissmedic approved Jynneos earlier this year. That was a follow-on from orders that we received for mpox last year, but it just goes to show that it's yet another broadening of the customer base that we have for our mpox/smallpox business. And importantly, we've launched Jynneos in the US into the private market. This is really a whole new commercial opportunity, which will allow us to sell Jynneos through different channels, giving access to risk populations that really need access to this vaccine, while also in parallel, continuing the stockpiling orders that we had historically seen with BARDA. So with that, I will pass on the presentation to Henrik.
Henrik Juuel: Yes. Thank you, Paul. So let me take you through some of the financial results for the first quarter. So please turn to the commercial performance slide. So total revenue for the first quarter of this year ended at DKK831 million comprised of DKK344 million from our public preparedness business and DKK447 million from our travel health business. The public preparedness revenue was secured through some of the contracts that we have previously announced. So that is supplying vaccines to Canada. It is to the EU, under the rescEU set up, and it is the start of supplying some of the free strike doses to the US government. So DKK344 million in revenue from our public preparedness business for the first quarter. Travel Health business, DKK447 million, so that's up 20% compared to last year. And obviously driven by [indiscernible] that were not included last year as we only closed the transaction with Emergent mid of May '23. But it's also driven by, as Paul mentioned, a very significant growth from Encepur, our TBE vaccine. And here we saw the German market growing by 37%, and we have also lately increased our market share to now 27% of the market. As Paul also alluded to, I think the second quarter will be an interesting quarter to monitor here. But I think definitely, it bodes well for the full year expectations to our TBE vaccine. Our rabies business delivered close to the same level as last year, 3% down, delivering revenue of DKK235 million. Behind this number, there are very different market performances. We have seen extremely strong demand basically across all markets, but commercial performance has varied significantly depending on the availability of vaccines in the markets. So the US market grew by 17% in the first quarter, and we actually managed to increase our market share by 1 percentage point. So we now have 71% of the market. And our ex-factory sales of vaccines increased by more than 40% in the US, so very strong performance in the US. Unfortunately, we knew we were entering this year with limited supplies, given the extraordinarily high increase in demand we have seen in the last quarters, driven by increased travel again. And we have had a temporary stockout in the German market. That has now been resolved, but it did mean that the total market dropped by 27% in the first quarter. And we took a hit on our market share. We have gained most of that back again, and we are now sitting with a market share in the German market of 88%, and we have resolved the stockout issue in Germany and can supply the market again according to demand. I would just like before we turn to the next slide and say that the revenue level here is fully in line with our plans, and we are sticking to our guidance of DKK5 billion to DKK5.3 billion for the full year. So fully in line with the plans, the travel health business is a seasonal business, and the public preparedness business is just a lumpy business where you typically see large revenue associated with few orders. So let's turn to the next slide, where we look at the profit and loss for the quarter, DKK831 million revenue, we already talked about that. That has given us a gross profit of DKK265 million for the first quarter, a relatively low gross margin compared to previous quarters and explained by two things. Basically, number one, obviously, different product splits. If you compare it to first quarter '23, there is approximately DKK500 million revenue difference coming from the public preparedness business, which is a highly profitable business. And the second explanation is that our other production costs, which is typically where the costs associated with idle capacity and has been relatively high for the first quarter '24. One of the reasons has been that we unfortunately had an incident with the water damage in our manufacturing in Kvistgaard in Denmark, which meant that the facility was not operating for a couple of weeks, and that incurred some costs. Not real cost, I would say. That was very limited, but it means that we cannot absorb the indirect costs. The depreciations of the machinery and the buildings and the people working in the factory will hit your P&L rather than go to inventory for products manufacturing. We have also on production costs, remember, this time included the impact of taking over the manufacturing site in Bern. And as we have previously mentioned, this facility is not running at full utilization. There are lots of opportunities to improve that over time, but that does also impact the production cost for the first quarter of this year. If you look at the total operating costs, DKK394 million. Obviously, R&D is impacted by a lower activity level within our clinical operations. Sales and distribution costs have increased as we are now launching Jynneos into the private market in the US. And we have also taken over to support the Travel Health business, a few people from Emergent going into the sales organization. Admin cost for the period is up compared to first quarter of last year, but that is all explained by the inclusion of the acquisition we did and some integration costs we are still incurring during the integration of the acquisition. If you look down the P&L, you can see we're ending up with a positive EBITDA of DKK22 million, equivalent to 3% EBITDA margin. But on this one here, I would also say that we are sticking to our full year guidance, and I will come back to that on one of the next slides here. So all, again, fully in line with plans. Obviously, water damage was not planned, in our plans, but these are things that we can handle, and we can definitely compensate with other means financially. So let's turn to the next slide and have a quick look at the balance sheet and our cash flow for the period. So cash flow from operating activities was positive by DKK435 million, and that was primarily driven by a very significant reduction in accounts receivables. Remember, we had a very busy fourth quarter last year and in particular in December. We have revenue recognized a lot, and we have basically been collecting the money during the first quarter for that revenue. So that has contributed quite significantly to an improvement in working capital. Cash flow from investment activities, minus of DKK1.045 billion. That is simply just a placement of our surplus cash into securities until we need them. And then all of this turns into net cash flow for the period. That's negative by DKK621 million. But remember here, again, that's only due to the placement of cash into securities. To the right, you can see we continue to have a very solid cash position close to DKK2.3 billion in net cash. But again, here, I would like to remind you that we have an obligation to pay the consideration both to GSK and to Emergent BioSolutions. That is approximately DKK2.5 billion. And I think by now, we can soon say that it has to happen within the next 12 months. We are anticipating to pay the last milestones to these two companies at the latest during the second quarter of next year. So a strong cash position, putting us in a good position to honor our commitments to both GSK and Emergent BioSolutions over the next 12 months. Next slide. As I already said, I think we stand fully by our financial guidance for the full year, guiding revenue of DKK5 billion to DKK5.3 billion and an EBITDA of DKK1.1 billion to DKK1.350 billion. The results from the first quarter, I think, is fully in line with plans. And if you break it down, you can see public preparedness. We are guiding still between DKK2.7 billion and DKK3 billion. No change there. And on the Travel Health, we are still guiding DKK2.1 billion for the full year. So with that, I will actually give the word back to the operator and open up for questions.
Operator: [Operator Instructions]. We will take our first question and it comes from the line of Michael Novod from Nordea.
Michael Novod: Michael from Nordea. A few questions. Maybe we start with Jynneos and so we're trying to cut through the noise on timing of orders and then look at the part that is unsecured, so you have DKK1.6 billion secured. That means you have sort of DKK1.1 billion that is unsecured. How confident are you on exact timing of that? And is it related to one, two, three larger orders? Maybe you can elaborate a bit on that. And then secondly, also on Jynneos, maybe you can give a bit of early signs. I know it's very early, but on the private launch in the US, how are you tracking? What are the progress? What steps have been taken to secure the right commercial access? And then, lastly, on overall travel demand, you said around TBE, you've had a solid start. You need to show they can continue into Q2. What are you seeing because the TBE season has been very strong. So isn't that a leading indicator for how this is going to develop in the coming quarters?
Paul Chaplin: Yes. Thanks, Michael. So on the Jynneos orders and the unsecured orders, so I would say the unsecured orders are a mixture. So we've already received smaller orders already during Q1, and we anticipate those smaller orders to still come through. But I think it's clear that the majority of the unsecured orders would be two or three larger orders that we're anticipating. We are very confident that they will come through. The issue with government is always on timing and the exact timing of when they've all materialized. So of course, one of the questions that I'm sure will come, when in the year is it too late to receive an order because then you can't deliver? On that, I would say typically, that would be true. But as we are confident in these orders, we're actually building up the inventory. So one of our customers orders bulk, as you know. And we're building up bulk inventory. So bulk orders could come extremely late in the year and will be high. In terms of drug product, that's a slightly different -- slightly more tricky answer, because to build up inventory of final fill vials is tricky because if the order doesn't materialize, you've then got vials with an expiring shelf life and then you're trying to sell inventory with a reduced shelf life, which is tricky. The good thing for us is that we have orders for next year for final doses, which allows us now to build up an inventory of final doses so that if those orders or when those orders materialize, we can also secure them. So I think the answer to your question is we're very, very confident that we can stick to the guidance. Yes, we still need some orders to come through. We're working on them. We think they will materialize in time for us to deliver and revenue recognized. The other question related to the launch and where are we. It is too early to say how many doses are actually -- we know how many doses that we're supplying into the various tracks, but it's a bit too early to say how many doses are actually being sold. However, things have gone extremely well. I think to go from a recommendation late last year to a launch by April 1 is very fast. And I have to congratulate all my employees who were involved in that. There are a number of things logistically that we had to put in place because part of it will be contracting. The pharmacy chains will be one source of access for the population, and they are now in place. The other logistical exercise that we had to manage was the US government has been supplying health clinics in various states with three doses from the stockpile. And we've had to work hand-in-hand with the US government on that transition. That transition is now over in the sense that the only doses that are being supplied into the US market is now through the very Nordic channels. So everything has gone according to plan. It's been a tremendous amount of work, but we think the groundwork is now in place. Of course, a big part of the success of this launch will be disease awareness, which, of course, we're working on in parallel. The third question. Do you want to take that, Henrik?
Henrik Juuel: Yes, I can take that. Then Michael, you had a question regarding the growth we have seen in the TBE market and to what extent that's an indicator for the rest of the year. We do see the significant growth that we have seen in the first quarter, 37% in the German market, probably driven by a mix of, first of all, an earlier peak season this year. And then you can argue, will that eat into the second quarter, which is normally the high quarter? Yes, probably to some extent. But we also see that's an effect from continued endemic expansion. So generally higher demand. So therefore, I don't think we can take the full growth here and yet say that this is the kind of growth you will see in the next following quarters. But for the full year, we are definitely anticipating a material significant growth in the TBE market driven by an overall increased demand.
Operator: Now we are going to take our next question, and the question comes from the line of Peter Verdult from Citi.
Peter Verdult: It's Peter from Citi. I think Mike touched on the most pertinent questions. Paul, just sorry to labor the point, just I think the key issue here is to get the comfort on the uncontracted revenues. So just to be clear, it's all the difference between your earlier comments about long lead times. That all relates to the Travel Vaccines business and the fact that you're still not producing yourself. So just to be clear, you've built up the inventory. Could I push you on the uncontracted? Are you basically saying that should the US come in and replenish bulk, is that you done and dusted? Or are you reliant on other key contracts?
Paul Chaplin: Yes. Thanks, Peter. So it's true. Typically, we don't have inventory for mpox/smallpox. And when we receive orders, we then place that order into the manufacturing system, and that can take 15 months before doses start coming out of the factory, and we can deliver. That's the normal process. Then there is the anticipation of orders because we are in very close dialogue with a number of different customers. And there, we start building up inventory because quite frankly, to put it frankly, most governments don't really care when they place an order, if they're placing an order for a stockpile. If they get those doses at the end of the year, the beginning of the year or even going into next year. That's not the longest concerns because those doses are going to be in the stockpile for eight years. So in those situations where we're in late-stage discussions and we are confident that those orders are going to be placed, we will build up inventory. That is true for this year. It is not only the US. I don't have to say it is the US, but the US is our biggest customer. That's true. But it's not one order that is the difference. It is several orders from obviously different governments, but it's no more than three or four. And we're still extremely confident that we will secure those orders.
Peter Verdult: And Paul, if I may, just last one from me. If we get to Q2 results in August, and there's still no contracts signed, is that when you start to get less confident? Or how long can you lead to still make these revenues?
Paul Chaplin: Well, as I said, the fact that we're building up inventory, we can definitely go beyond or we can get -- so the difference in the uncontracted sales will come from the inventory we're building up over the course of this year. So as I said, in terms of some customers, it can almost come in December, and we're still going to be fine. I really don't want to get that close, to be honest. But that's the reason we're building up inventory because if we didn't, we would basically need those orders already. We're confident.
Peter Verdult: I'll go back in the line. Thanks a lot.
Operator: Now we are going to take our next question, and the question comes from the line of Suzanne van Voorthuizen from Van Lanschot Kempen.
Unidentified Analyst: It's [indiscernible] on behalf of Susanne. Again, on the public preparedness, so the part of your revenue guidance for 2024 is based on this, on those contributions. So I was wondering if you see any risk there for further reduction of those contributions?
Paul Chaplin: Yes. So we have, probably for the first time, really included uncontracted styles in our public preparedness business in our guidance. And that is simply because we were confident when we set the guidance that there were a number of orders that would come through and materialize this year. We are still on track for that to happen. We stick by the guidance because our confidence hasn't waned, and we believe those orders will come through. As I said, as we're building up inventory, those offers can actually come quite late in the year. And so we're on track to meet guidance.
Operator: Now we are going to take our next question, and the question comes from the line of Peter Welford from Jefferies.
Peter Welford: Two slightly longer-term questions, please, if I can, Paul. Firstly, just with regards to confidence in the US government potentially longer term, establishing a larger stockpile of the smallpox/mpox vaccine. Any change at all in your thinking in regards to the likelihood of whether or not a transition could or could not occur? And I guess any signs from the US government as far as change in this? Or do you think it's likely to be more of a step-by-step process as we got to see with the orders recently? And then secondly, just your appetite to potentially look to bringing in more products. You've obviously just completed a deal integrating that at the moment. You still got a lot of milestones to be paid out during the course of this year and next. Are you now in an integration phase? Or should we think that you're still opportunistic to potentially bring in other opportunities still if those could arise?
Paul Chaplin: Yes. Thanks, Peter. I'm just trying to think of what is the best way of answering your long-term question. So there's a couple of things that have happened over the last -- actually, during Q1. So last year, the US government asked the Academy of Science to set up the team to look at smallpox, whether there was sufficient funding, whether it's still an area that needed additional acquisitions of either antivirals or vaccines. And it was a program that we were invited as all smallpox companies were invited to present. The conclusions came out, I believe, in March, which was really that smallpox remains one of the highest threats to the US population. And that they encourage the US government to purchase more safer, smallpox vaccines. So that was a very, very positive outcome from that independent think tank that was commissioned by the government to look into smallpox. In addition to that, what's happened very recently is that Emergent BioSolutions has announced that their long-term contract is basically been half for the future acquisition of [indiscernible]. So you have a think tank telling the government that they should purchase more smallpox vaccines, particularly the safer version. You have the US government reducing the contracts with Emergent BioSolutions. I think both of those things are pushing in the one direction that they do need to increase their stockpile, but that their focus is really changing toward Jynneos. And again, as everything with the US government, it will take time. But those discussions, we have very fruitful discussions with the US government in terms of the order beyond what we currently have, which is for the freeze-dried 13 million doses. I think on M&A, I think the two things to be said on that. Yes, we are extremely busy still on integrating our assets and ensuring that we execute our growth strategy in terms of our commercial assets. And if we were to be able to pick and choose the time, we will be not looking to do any further acquisitions for the foreseeable future. But everything in M&A happens when the least you expect or when you at least want it. I think we have a growth strategy. And if opportunities arise, we would seriously have to have a look. But as I think Henrik pointed out very nicely, despite the fact that we have a very strong cash position right now, that cash is accounted for. So we have to live within our means as well. So that's a bit of a mixed answer. Yes, we would like to do things, but we have to live within our means. And right now, our focus is really on execution.
Operator: [Operator Instructions]. There are no further questions. I would now like to hand the conference over to the management team for any closing remarks.
Paul Chaplin: Yes. Thank you. Thanks, everyone, for your time and for the questions. Have a great day. Thank you. Bye.
Operator: That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.
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