While vaccines can offer lower margins compared to other areas of drug development, they provide a steady stream of revenue to offset fluctuations elsewhere in a company's portfolio.
GSK is one of the big four vaccine manufacturers, alongside Pfizer, Sanofi and Merck & Co. Last year, the British drug giant recorded 5.9 billion pounds in sales from its vaccine business, reflecting a 16% increase year over year.
The growth was mostly due to its shingles vaccine, Shingrix, which gained U.S. approval in fall 2017 and had cornered 98% of the market by mid-2018. Demand has been so great, in fact, that GSK hasn't been able to make enough of it. By April of this year, GSK decided to inject $100 million into its Hamilton, Montana, manufacturing site to boost production of Shingrix and other vaccines.
Rabavert and Encepur, meanwhile, are much smaller brands for GSK. They were brought in through the $5.25 billion acquisition of Novartis' vaccine business in 2015, and haven't hit high enough sales to warrant a line item on GSK's annual reports.
The Bavarian Nordic deal will safeguard the supply of these two products while also allowing GSK to "commit greater resources to our key growth assets and to our R&D pipeline," according to Roger Connor, the big pharma's president of global vaccines.
Rabavert and Encepur are likely to be more significant to Bavarian Nordic's bottom line. According to its most recent annual report, the company recorded 501 million Danish krone in 2018 and expects to see 600 million Danish krone in 2019, roughly equivalent to $75 million and $90 million, respectively.
Bavarian Nordic already has one marketed vaccine, a modified form of the vaccinia virus sold as Imvanex in Europe and Jynneos in the U.S.
GSK estimates Rabavert and Encepur inventory levels will be worth 159 million euros by the time its new deal closes, which is slated to happen before the end of 2019. The company also said it won't transfer employees or manufacturing facilities as part of the deal.
Shares of Bavarian Nordic, which trade on the Copenhagen stock exchange, were down more than 9% Monday. GSK shares, conversely, were almost unchanged.
