Earnings Transcript for BAVA.CO - Q4 Fiscal Year 2023

Operator: Good day, and thank you for standing by. Welcome to the Bavarian Nordic 2023 Annual Report Conference Call. [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 Sorensen. Please go ahead.

Rolf Sorensen: Yes. Thank you operator and welcome to Bavarian Nordic's full year presentation, which was an extraordinary strong results. My name is Rolf Sorensen, VP Investor Relations. And to go through the results, I have President and CEO, Paul Chaplin; and Executive Vice President and CFO, Henrik Juuel. Before we start the presentation, I just want to quickly run through the forward-looking statements. This presentation includes forward-looking statements that involve risks, uncertainties and other factors that are outside our control that could cause actual results to differ 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. So with this, I will hand over the first part of the presentation to you Paul.

Paul Chaplin: Yes. Thank you, Rolf, and welcome everyone to the call today. Just turn to Slide 5. As Rolf said in the introduction, we've announced the annual results for last year and it was a tremendous year in terms of our financial performance and it's a record year in the history of Bavarian Nordic. So we've recorded more than DKK7 billion in revenue, which is approximately US$1 billion. That is due – that is a performance that is due to the flawless execution of our commercial strategy, strong brand performance and a resurgence in travel – in our travel health portfolio and record sales in our public preparedness, primarily due to strong performance in the base business but also a surge in orders following the unprecedented outbreak of mpox or monkeypox, which started in 2022. So record revenues and record profits of DKK2.6 billion, which represents a 37% EBITDA margin. So as I said an outstanding result and really due to a very strong commercial performance across the portfolio. If you look on the right-hand side, we – before 2020, we really only had one product for two indications that was JYNNEOS, that's our smallpox and mpox business. It's a profitable business but was primarily government sales to two customers, the US government and Canada. And if you look at the graph that shows you in 2019, we were a sub DKK1 billion revenue company with this one product. We took the decision in 2019 to commercialize the business and add more commercial assets. And that started in 2020 with the acquisition of the rabies and TBE from GSK. And at that time, we thought that in our hands we could grow these assets and we could make them perform better than in the previous owner's hands because we would have a stronger focus on these assets. As you can see in 2021, despite the fact that we had headwinds due to the COVID pandemic, which obviously devastated international travel, we still add it to the revenue, generating a company with a DKK2 billion top line. And what we've seen in 2022 and 2023 is a resurgence in travel coming out of the pandemic. And in fact this year or last year we sold more doses of rabies and TBE than anyone else before, which is really a strong endorsement of that initial strategy that we could take over assets that were not receiving the focus that they required and in our hands could turn them around and actually grow the market share and grow more those -- sell more doses than anyone else before. We added to this portfolio last year in 2023 with the acquisition of the cholera and typhoid vaccine and this now caught together with third-party sales, represents the largest travel vaccine portfolio in the globe. You can also see in the public preparedness that there's been steady growth in 2021, but particularly in 2022 and 2023 and this is primarily due to a surge in orders due to the as I said unprecedented mpox outbreak that started in 2022. We've actually supplied in 2022, 2023 more than 15 million doses to more than 70 countries worldwide no country that's asked for doses was turned away. And -- but this of course has led to record sales in 2023 which Henrik will address in more detail with approximately DKK5 billion in sales in 2023. This essentially was not going to be sustainable as obviously the number of cases of mpox is declining in part due to the high efficacy associated with the use of JYNNEOS. However, coming out and what we've guided for 2024 is now between DKK5 billion and DKK5.3 billion in revenue and that in part is because we now have more customers in public preparedness. And our new base business, we have a new solid base business that I'll get to in the coming slides that is really projecting us together with our travel health as a DKK5 billion revenue company with ambition to have an EBITDA margin between 25% and 30% moving forward. So if we go to the next slide, slide 6. So where are we going from here? We've obviously come a long way in our commercial journey, but moving forward we want to build on our position, and become a pioneer in force in vaccines and we want to expand our reach and impact by getting more access to our lifesaving vaccines. To achieve this, we have two strategic tracks one is to deliver continued growth. One is to expand and drive our travel health business, which I'll come to. The other is as I said, we have a new base business in public preparedness, but we believe there are numerous opportunities to continue to grow that business and see additional orders from other governments. In addition to this organic growth, which I'll talk to in the coming slides we -- M&A will remain a key part of the strategy moving forward. It has successfully allowed to transform the company with two acquisitions since 2020. And it will be a key part moving forward to really grow the business and have bolt-on acquisitions that will allow us to increase the top line and the profitability moving forward. The other strategic track is to bring innovative solutions to two main areas

Henrik Juuel : Thank you very much, Paul. So, as Paul already said, 2023 was in financial terms a record year, delivering results never seen in the history of Bavarian Nordic before, obviously, driven by extremely strong revenue performance. So why not start there on Slide 11. We delivered more than DKK 7 billion in revenue DKK 7,062 million to be precise. And that was of course driven by a very strong sales performance in the fourth quarter. We knew we were going to have a busy fourth quarter when we reported the nine months numbers in order for us to deliver on the guidance that we had put forward to the market. And we are very, very happy that we delivered nearly DKK 2.5 billion in revenue for the fourth quarter alone and that was driven by continued strong performance within our travel health business, but of course also by the execution on the mpox/smallpox orders we got related to the mpox outbreak that started back in 2022. So, very strong revenue and sales numbers. And if you look at the column to the right you will see that the growth has been significant across the entire portfolio. Our rabies business grew by 32%, our TBE business by 40%, and our Public Preparedness business by 190% driven by the surge in orders from the mpox outbreak. So very, very strong revenue performance in 2023 and in particular in the fourth quarter of last year. On the next page, let's spend a little time looking into some of the important parts of the business. If we start with the rabies business first. Again, a record year with numbers exceeding any prior owners' results a testimony to the fact that our strategy has worked providing dedication and focus to these products has really made a difference. We have seen the rabies business grow by 32%, as I showed on the previous slide and that has been driven by a mix of strong brand performance. But also very strong market growth, we saw 25% market growth in the U.S., and 87% market growth in Germany where the product is a pure traveler's vaccine and has been significantly impacted by the rebound of traveling. And if you look at these markets after the tremendous growth we saw in 2023, we can see that actually in the U.S., the market size is already more than 40% larger than pre-COVID. So, a significant market growth, a market that is much larger than what we saw previous COVID and when we took over the vaccine. Same goes for Germany, not to the same extent though, but we do see a market that is now today 6% larger than what we saw in 2019 pre-COVID. Strong brand performance demonstrated by a 70% market share in the U.S. and 93% in Germany. As you will see on the graph, we saw a 9% dip in revenue in the fourth quarter 2023 compared to prior year. But overall the year grew by 32% and I think this dip, I think, is simply due to some of the let's say variability between the seasons across the year. So, very, very strong growth on a full year basis. On Slide 13, our TBE sales, we delivered a very, very good 40% growth in revenue on a full year basis, driven by steady growth quarter-by-quarter basically and a strong market growth in our key market Germany, 33% growth, again demonstrating that right now the market is larger than pre-COVID with 12% growth compared to 2019 levels. So, strong market growth. On a market share basis, we are gradually gaining back the share that we lost in 2022 due to a temporary stock-up situation. So, in a strong position and with an ambition to continue to gain additional market share in a growing market. On Slide 14, you will see the impact of the significant revenue growth we saw. So a full year basis DKK7,062 million in revenue. We are looking at operating costs of little more than DKK3 billion impacted by the write-down of the COVID-19 assets, that's DKK558 million approximately. And then also impacted by the closure of the RSV project. It's impacted by increased commercial activity, and of course, by the recent acquisition that basically impacts both R&D, but also our SG&A costs to some extent. It's a strong EBITDA. You see DKK2.6 billion corresponding to an EBITDA margin of 37%. Please bear in mind here that the COVID-19 write-down is not impacting our EBITDA number here. If you look further down at the P&L, we also have a very positive EBIT DKK1.5 billion and even at a net profit level, we are close to DKK1.5 billion, which is up from a loss of DKK347 million in 2022. So, truly record numbers never seen in the past for Bavarian Nordic. On Slide 15, just a quick look on our cash flow and some selected balance sheet numbers. And if we start to the left, cash flow from operating activities was positive by DKK1.1 billion. Of course very positively impacted by the strong earnings during the year, which actually managed to more than compensate for a higher level of net working capital, driven by the planned inventory increases and the very, very high level of accounts receivable we saw at the end of 2023 due to the high Q4 sales. Cash flow from investment activities minus of DKK946 million. It's driven by the acquisition we did from Emergent BioSolutions that we closed in May 2023 and additional milestones that we have paid as well to GSK and then partly offset by divestments of securities that we have done during the year. Cash flow from financing is impacted by the capital increase we did in connection with the acquisition. It's impacted by the COVID-19 funding and then a repayment of a repo position that do no longer exist. Adding all of that up actually shows a positive net cash flow for the period of close to DKK1.909 billion, so a strong cash flow for 2023. And if you look to the right that brings us in a solid position with nearly DKK1.9 billion in securities cash and cash equivalents. We have no real debt at the moment. We have DKK17 million as a mortgage loan that's all. We do have a revolving credit facility with our banks of DKK1 billion, but we have not drawn anything down on that facility yet. So very strong cash position. On the next slide, I just wanted to enter the guidance for the year. So guidance for 2024 as we have communicated revenue between DKK5 billion and DKK5.3 billion consisting of approximately DKK2.1 billion from our travel health business that corresponds to an anticipated 12% growth over 2023, and then in our public preparedness business, we are guiding between DKK2.7 billion and DKK3 billion above our base business as Paul alluded to. We are taking a different approach in terms of our guidance within the public preparedness business this time. In the past we used to guide only on revenue secured by contracts. As we only have one or two customers at that time, we now today we have a much broader customer portfolio, which enabled us to go out and estimate the range of revenue we could anticipate for the full year. We have to-date as we speak here we have secured DKK1.6 billion approximately out of the DKK2.7 billion to DKK3 billion that we are guiding for the full year. We are anticipating to spend approximately DKK850 million in R&D in 2024 and nearly half of that goes towards the development of chikungunya where we still anticipate to file for license both in Europe and in US this first half year of 2024. One thing I need to mention here is that our guided numbers we are including manufacturing chikungunya vaccines that eventually will -- could be sold once we have an approved vaccine. The value of those corresponds to approximately DKK240 million and they are expensed in our guidance. Pending approval of the vaccine that expenditure will be reversed and it has an impact of five percentage point approximately. So if we adjust for that then the implicit EBITDA margin that we are guiding here is actually between 27% and 30% for 2024. So if we look to the right, we are looking a little further ahead and talking about our ambitions from 2024 and up until 2027. Here we are guiding that we are expecting continued double-digit growth within our travel health business 10% to 12%. And as Paul alluded to we are expecting that our -- the value of our base business, which consists of our you can say repeat customers, the larger customers with the commitments beyond one year, we are expecting revenue to be between DKK1.5 billion to DKK2 billion. So that is excluding any potential spikes driven by new outbreaks, or it could also be the ought government placing orders to replenish their stocks over time. So that is just the base that we will expect from the public preparedness side of the business. We have an ambition to deliver an EBITDA margin of 25% to 30% and that has to be seen in light of the public preparedness based business that we are talking about here. It is clear that if there is an outbreak or a spike whatever, business on top of this that will have a relatively larger impact on our EBITDA margin. And that is also one of the reasons that we saw a 37% EBITDA margin in 2023. Capital allocation, I think, short-term I think we will focus on our commitments to pay back milestones to GSK and Emergent BioSolutions. We still owe them approximately DKK 2.6 billion. But by mid of 2025 that's not far from here and that will all be behind us. So we have to pay this DKK 2.6 billion within the next -- now it's less than 1.5 year it's five quarters basically left to pay those milestones. So that's our priority number one. Then of course we will continue to invest to grow our current business and our pipeline. And eventually this will lead to increased cash flow generation. It will give us expanded financial flexibility. For instance, getting access to better debt financing which eventually will allow us to you can say be a bit more aggressive on synergistic M&A and eventually consider returning money back to the shareholders as well. So with that I will give the word back to the operator and open up for questions.

Q - Thomas Bowers: Yes. Thank you very much. Just one question from my side here. Just on the margin guidance. So you are saying that you have about five percentage point negative impact from Chikungunya this year. I'm just wondering why would we expect margins from 2025 until 2027 to actually be lower than this year if you remove the impact from Chikungunya? Is that the mix impact from expected lower impacts revenue? And then of course you should have some tailwinds from Travel Health. So maybe help me understand how you get to the low end of that long- term guidance?

Henrik Juuel: I think the main reason Thomas -- and first of all thanks for the question here. I think that is remember what we are guiding for 2024 is beyond our base business within public preparedness. We are guiding DKK 2.7 billion to DKK 3 billion. So you can say in the upper end of that it's actually more than DKK 1 billion more than our base business. That will have a positive impact on the EBITDA margin of course. And if we then adjust for the Chikungunya that also brings us to the upper end of the guidance 27% to 30% of the EBITDA margin for 2024. So I think it's very important when we look at the EBITDA margin. It's extremely sensitive, of course, to the revenue and in particularly to the potential spike business opportunities within public health preparedness as the orders typically come without necessarily putting a lot of the sales marketing promotional efforts behind it. It's a few people working with governments basically. So that part of the business is extremely impactful on our EBITDA margin. So I hope I answered your question, Thomas?

Thomas Bowers: Yes. Thank you. And then just a follow-up just sort of a reminder here. So on the -- on the freeze-dried BLA it's been somewhat the data. I know there is some dialogue with BARDA. Can you maybe just update us on where we are here also in regards to how much you, sort of, dig into the full year 2024 numbers for that for the initial milestones from the $299 million contract with the freeze-dried in that milestone? Thank you.

Paul Chaplin: Yeah. So Thomas. So as you said, the current freeze-dried order is $299 million. And I just got to get my years right I think in 2022, the BARDA issued $120 million of that for manufacturing the initial doses for freeze-dried, that essentially is part of the revenue guidance that we've included in 2024 this year. So the remainder of the $299 million is hopefully coming from BARDA in the coming years. In terms of the regulatory path, we are filing for the supplemental BLA later this year, meaning the approval should occur next year. That is not conditional on the remainder of that $299 million, because that's all going to happen or a lot of the manufacturing will occur before the approval is actually awarded.

Thomas Bowers: Okay. So I guess given that you actually are about to file this year, it does mean that you also have sort of a framework for how we should see orders coming in in the sort of longer term? I guess, of course, you wanted to be reassured that it wouldn't be a sort of a blow to your future P&L, if you were actually to advance into the freeze-dried?

Paul Chaplin: So exactly, so we have one order $299 million and that will be spread over partly part of our guidance in 2024, we'll see the remainder in 2025 and 2026. And then hopefully, we will be seeing post approval, additional orders on top obviously from BARDA yeah.

Thomas Bowers: Okay. But we don't have any idea on sort of the level of number of doses that could be in the future stockpile? So you just have sort of reassurance that it's definitely going to be a higher number than what you have seen historically?

Paul Chaplin: Well, yeah, so I mean the two numbers that are out there publicly 20 million doses prior to approval and 133 million doses post approval. So those are the two numbers that are out there. Of course, as I've said several times, I think we shouldn't anticipate one big large order that's not how it's going to work most likely. So we will see incremental orders annually leading up to the stockpile that they want. But as I said, the only public numbers that are out there are those two. So 20 million or in excess of 100 million doses.

Thomas Bowers: Okay. Okay. Great. Thank you very much.

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

Paul Chaplin: Yeah. Thanks everyone. Thanks for the time joining the call and for the questions. Have a great day. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.