BVNKF - Bavarian Nordic: Eyeing A Competitive Pure-Play Vaccine Global Status

Summary

• Bavarian Nordic will work to reach its guidance of between DKK 2.7 billion- DKK 2.9 billion ($359.8 million- $386.4 million) for the Fiscal Year 2022.
• I think that Bavarian Nordic's manufacturing expansion came as an afterthought as opposed to a proactive agenda that should have been considered pre-Covid.
• Investors should look forward to an expanded commercial portfolio as BVNKF is set to progress with robust marketing and distribution networks for its in-licensed products.

Bavarian Nordic (BVNKF) maintained strong guidance for 2022 in its Q2 2022 earnings report. The climax of the quarter saw the vaccine manufacturer announce an agreement with the Pan American Health Organization (PAHO) to facilitate equitable delivery of its monkeypox vaccine to Latin America and the Caribbean. However, investors will need adequate convincing as the stock has lost almost 40% in the past year and the company is yet to announce the value of the supply contract.

Thesis

In the lead to Q2 2022, Bavarian Nordic invested in its manufacturing infrastructure to not only expand its production unit but also allow the company to introduce rabies and TBE vaccines. The company is confident that after this investment it will be able to produce parallel smallpox, monkeypox, and other vaccines. However, it will be left to be seen if the company will leave up to its billing seeing it raised its revenue guidance to DKK2.7 billion for the year 2022.

The world is quickly gravitating towards a post-Covid19 era, and governments are taking cognizance of the need to embrace vaccine development programs. In this regard, the U.S. government announced its intention to avail up to $11 million to BVNKF, to help it package the Jynneos monkeypox vaccine in its Michigan facility. This initiative provides a win-win situation both for the U.S government and the Danish company as it will increase employment numbers and ramp up vaccine supplies.

Out of the 47,600 global monkeypox cases, about 17,000 are from the U.S. According to the CDC , the monkey virus type Clyde I has a fatality rate of about 10%. While the Clade IIb is less fatal, it will be dangerous to people with weak immunities, children under the age of 8 years, and people living with eczema. Into Q3 2022, approximately 97% of the doses administered by Bavarian Nordic were first doses. The Health and Human Service ((HHS)) department placed orders for 5 million vials of Jynneos in July 2022 meaning more vaccines will be ordered into the year since it is given in two doses, 4 weeks apart. It is worth mentioning that Jynneos is the only FDA-approved monkeypox vaccine alongside its smallpox counterpart Acam2000 by Sanofi ( SNY ). The U.S government is stockpiling these two vaccines to help it achieve a nationwide vaccination campaign at some point in time.

Big on Q2 Earnings Call

In its Q2 Earnings release, Bavarian Nordic gave revenue guidance of between DKK 2.7 billion- DKK 2.9 billion ($359.8 million- $386.4 million) for the Fiscal Year 2022. The upper range represents a 33.09% increase from the $290.4 million reported in the year ending on December 31, 2021. Investors may be worried if these numbers will materialize seeing annual revenues barely touched $300 million in 2020 and have been riding below $240 million since 2012.

BVNKF's net cash portfolio stood at DKK 2.361 billion ($315.68 million) in Q2 2021 up 30.3% from DKK 1.812 billion ($242.27 million) realized in Q2 2021. The company's equity increased due to private placements placed through December 2021 contributing to proceeds worth DKK 1.7 billion ($227.3 million).

Stockpiling of vaccines by the U.S government and the EU saw Bavarian Nordic secure 9 million orders for vaccine doses by Q2 2022 which runs into 2023. In fact, up to DKK 117 million ($15.58 million) was realized from the sale of smallpox and monkeypox vaccines (Jynneos/Imvanex/Imvamune) in the quarter. What's more important is that the company realized an increase of 50% in the sale of rabies and TBE (Rabipur/RabAvert) vaccines as compared to Q1 2021.

The 5.3% revenue decline in H1 2022 as compared to H1 2021 was attributed to the phasing of Jynneos and Mvabea in 2021 which dropped to DKK 30 million ($4 million) in H2 2022. In retrospect, Mvabea is only approved in the EU and is used as a vaccine against the Ebola virus- for use by adults and children aged one year and older. Further, unlike Jynneos which is given as a double dose, Mvabea is given as a single injection. The administration of Mvabea comes about 8 weeks after an individual is injected with Zabdeno - developed by Johnson & Johnson ( JNJ ) through its Janssen Division. However, the company is yet to declare if it will make this vaccine to be a standalone product instead of coupling it with Zabdeno (the main reason for its low revenues).

Another point to consider is that revenue from the Rabies vaccine soared 85% in Q2 2022 (QoQ). This growth indicated a robust surge and a sign that the business may be gaining momentum to reach pre-Covid levels. The company noted that revenues in the German market had increased 38% in the quarter with strong growth, especially in in-licensed products. This growth was witnessed despite the Covid19 headwinds.

Investing in Manufacturing

Bavarian Nordic explained that it was scaling its bulk manufacturing site as well as the capacity of the fill/ finish line by increasing manpower. In my view, the manufacturing bit has been spearheaded by the U.S government's capital injection into Jynneos' product line. Arguably, it is an afterthought as opposed to a proactive agenda that should have been considered pre-Covid.

Earlier, this month, Bavarian Nordic contracted Grand River Aseptic Manufacturing to package the vaccine. The company will then transfer the fill/finish technology to the contract manufacturer to complement its filling capacity in Denmark. As stated, BVNKF was late in establishing this complementary mechanism since it was the key to expansion. Investors first heard of the U.S funding of the Jynneos production line in the US before the company could explain its growth agenda.

Another point of concern for investors is the lengthy 6-month bulk vaccine production period (keeping in mind that the original vaccine blueprint is available and approved). From a manufacturing perspective, the bulk vaccine (after production) has to be converted/ filled in the glass vials before packaging and quality tests are done. Bavarian Nordic was late in identifying the right third-party actors to help in scaling up production.

Additionally, BVNKF made it clear that the procedure for bulk vaccine production also includes 30 individual tests with each test taking 80 days to check the quality. This means that the bulk vaccine will take at least 6 years before rolling out. It explains the reason why the company has set the goal of becoming the largest pure-play vaccine entity by 2025.

Future Progress

Investors should look forward to an expanded commercial portfolio as BVNKF is set to progress with robust marketing and distribution networks for its in-licensed products. They include HEPLISAV-B (a Hepatitis-B vaccine) in-licensed from Dynavax-US Company for the German market. Already an undisclosed amount of revenue was said to have emanated from this vaccine in Q2 2022.

From Valneva (VLAN) known for its VLA2001- Covid19 vaccine, Bavarian in-licensed the DUKORAL (for Cholera) and IXIARO (vaccine for Japanese encephalitis). These two vaccines have been in-licensed for marketing and distribution in the German and Swiss markets. Like HEPLISAV-B, the company underscored good revenue performance in the first 6 months of 2022 but failed to disclose the exact figures supporting the claim.

Still, on Covid19, it appears the IXIARO vaccine is the precursor to Bavarian Nordic's comparator vaccine (ABNCoV2) that was set to initiate the Phase 3 trial by August 2022 (for the Omicron virus). While the first patient is yet to be screened, the company indicated that it had received all approvals and was proceeding with site activation. Investors should expect the Phase 3 data read-out to be released by end of 2022. In support of this ABNCoV2 Phase 3 clinical, the Danish Health Ministry was reported to have agreed milestone funding of up to DKK 800 million ($106.96 million) to BVNKF.

Risk Factors

Bavarian Nordic's Q2 2022 earnings call reported regulatory challenges for the potential filling of the Omicron-specific vaccine. These could affect its Phase 3 study enrolment and adversely impact the stock price.

Despite announcing strong H1 2022 revenues at DKK 857 million, Bavarian Nordic's production costs for the period stood at DKK 723 million ($96.67 million). This high cost was caused by the planned shutdown of the bulk facility. The company assured investors the bulk facility had reopened in August 2022 but it did not specify if had resumed its normal operations. Global inflation had also caused Bavarian Nordic's EBITDA to decrease by DKK 212 million ($28.35 million). EBITDA had decreased 2,750% from DKK 8 million recorded in H1 2021.

Bottom Line

Bavarian Nordic is expanding its manufacturing, innovation, and commercialization to become a top-class pure-play vaccine company. BVNKF has formed robust marketing and distribution networks in the U.S, Germany, and Switzerland through new vaccines mostly in-licensed to penetrate the market. The company needs to expedite its exploration of potential third-party collaborations to scale bulk and fill/ finish capacities. Bulk vaccine production is also slow with the entire production set to take as long as 6 years. However, it has a strong growth potential considering it has the only FDA-approved monkeypox vaccine. For these reasons, we propose a hold rating for the stock.

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