Bavarian Nordic A/S – Annual Results 2005

The Board of Directors of Bavarian Nordic A/S approved the company’s annual report for the period of 1 January to 31 December, 2005, at an ordinary board meeting held today.

Bavarian Nordic’s revenue for the year ended 31 December 2005, was DKK 247.6 million with a loss before interest and tax of DKK 119.8 million. Bavarian Nordic expects to be awarded an RFP-III contract for MVA-based smallpox vaccines in the first half of the year. Bavarian Nordic projects revenue to be DKK 800-900 million and profit before interest and tax of DKK 80-100 million in 2006. Bavarian Nordic intends to undertake a capital increase of up to 579,125 shares of stock at market price through a private placement.

MAJOR 2005 HIGHLIGHTS

• For the year ended 31 December 2005, revenue was DKK 247.6 million, loss before interest and tax of DKK 119.8 million.
  
  
• The Kvistgård manufacturing facility began test-production as planned in September. Bavarian Nordic was granted EU authorisation to perform quality control analyses and release of sterile vaccines.
  
  
• The Berlin production facility was granted manufacturing authorisation.
  
  
• One million doses of IMVAMUNE™ were produced at contract manufacturer, IDT.
  
  
• First clinical trial (Phase I/II) with IMVAMUNE™ in subjects with atopic dermatitis successfully completed.
  
  
• Clinical safety data on IMVAMUNE™ in HIV-infected patients and healthy volunteers confirmed.
  
  
• Regulatory approval process for three Phase II trials with IMVAMUNE™ initiated.
  
  
• After more than four years since vaccination with MVA nef, four out of 14 HIV-infected patients in a Phase I/II study, are still able to control their HIV infection and remain off HAART treatment.
  
  
• BN ImmunoTherapeutics expects to receive approval of an Investigational New Drug (IND) application in 2006 form the US Food and Drug Administration (FDA) and begin a clinical Phase I/II study with the MVA-BN®/Her-2/Neu vaccine against breast cancer.
  
  
• The company’s patent position on MVA-based vaccines was strengthened in 2005 with the issuance of two additional patents, one in Europe and one in the USA.
  

Peter Wulff, President and CEO of Bavarian Nordic said, “Over the past 12 months, we have made significant progress on many fronts that has allowed us to continue to strategically strengthen the company as well as bolster our clinical pipeline. In 2005, Bavarian Nordic became a fully-integrated biopharmaceutical company with the start-up of test-production in the Kvistgård manufacturing facility. We are pleased with the progress we have made and are now strongly positioned to gain from the investments and the new direction we have set for our business”.

Financial Development
In the year ended 31 December 2005, revenue was DKK 247.6 million (DKK 164.8 million). Loss before interest and tax was DKK 119.8 million (loss of DKK 82.3 million).

The increase in revenue was due to increased activity in the ongoing contracts with the US health authorities (RFP-I and RFP-II).

Investments in tangible non-current assets in 2005 totalled DKK 151.2 million, the majority of which were attributed to the investment programme in the Kvistgård manufacturing facility.

The Group’s net liquidity as of 31 December 2005 was DKK 269.0 million (DKK 56.6 million) whereof DKK 115 million (DKK 115 million) are pledged to Nordea Bank and Danske Bank. In addition, the company’s holding of securities with a maturity of more than three months, was DKK 113.5 million (DKK 112.6 million).

A fully-subscribed rights issue completed in June generated DKK 416.7 million in new capital.

Developments After the Close of the Fiscal Year:

• Immunotherapy development programme (IMVABOOST™)
  As a result of positive research results and the immune-stimulating effect of the MVA nef vaccine and IMVAMUNE vaccine in clinical Phase I/II and clinical Phase II trials, a programme with the goal of developing MVA-BN® as an immune-stimulating product for use in immune-compromised patients has been started. Bavarian Nordic is planning a number of clinical trials to include HIV-infected and cancer patients, including a Phase II/III study planned to start in late-2006, after eva-luation of results from the ongoing Phase II trial with the MVA nef and IMVAMUNE™ vaccines.
  
  
• MVA nef – Phase II/III trials planned for first-half of 2007
  On the background of the ongoing Phase II trial, Bavarian Nordic expects to initiate a pivotal Phase II/III study with MVA nef in the first-half of 2007. The company also plans to begin four Phase I/II studies with the MVA-BN® polytope vaccine in 2006.
  
  
• Capital Increase
  To finance research and development activities, on 22 March, 2006, the Board of Directors have decided to strengthen the company’s liquidity through an increase in the company’s share capital with up to 579,125 shares of new stock of DKK 10, corresponding to approximately 9.99% of the company’s total share capital at the market price, without pre-emptive rights for the company’s existing shareholders. The capital increase is expected to be carried out 22 and 23 March, 2006, as a private placement with share’s being offered for subscription to Danish and international financial investors via the bookbuilding method. The subscription will be carried out by Nordea Bank and UBS Investment Bank as joint bookrunners.
  
  
• Enforcement of Intellectual Property Rights
  Bavarian Nordic filed a patent infringement action against Acambis plc and Acambis Inc. at the Commercial Court in Austria, the country where Acambis’ MVA-based smallpox vaccine (MVA3000) is manufactured. The legal action, filed 16 February 2006, was initiated to enforce Bavarian Nordic’s patent recently granted by the European Patent Office (EPO) which covers the company’s MVA-BN® technology.

2005 MILESTONES

Production
The Kvistgård manufacturing plant, the world’s only dedicated industrial manufacturing facility for MVA vaccines, began test-production in September. The facility’s manufacturing capacity is 40 million doses of IMVAMUNE™ per year which, without significant investment, can be increased to 60 million doses.

The Berlin production facility was granted EU manufacturing authorisation. Bavarian Nordic was granted EU GMP authorisation to perform quality control analyses and release of sterile vaccines.

Development programmes

IMVAMUNE™ smallpox vaccine
The first clinical study (Phase I/II) with IMVAMUNE™ in subjects with a history of and/or active mild atopic dermatitis was completed without any significant or unexpected adverse effects after vaccination with IMVAMUNE™.

Additional clinical safety data on IMVAMUNE™ in both HIV-infected and healthy individuals was confirmed from Phase I and Phase II trials.

The regulatory approval process for three Phase II trials with IMVAMUNE™ was initiated.

The protective effect of IMVAMUNE™ against the smallpox virus was further documented in animals. An animal model demonstrated that a single vaccination with IMVAMUNE™ induced an immune response that protected animals against a lethal infection of mousepox. Another animal model demonstrated that a single vaccination with IMVAMUNE™ gave protection against orthopox infection after 3-4 days. In comparison, traditional smallpox vaccines first protect against smallpox after 10-14 days.

HIV programme

MVA nef
After more than four years since vaccination with MVA nef, four out of 14 HIV-infected patients in a Phase I/II study are still able to control their HIV infection and remain off HAART treatment. To demonstrate “proof of concept”, a Phase II trial was initiated in 2005. At the end of the year, 13 of the 75 HIV-infected patients had interrupted their HAART treatment, and as planned T-cell activity and virus concentration will now be monitored.

MVA-BN® polytope
MVA-BN® polytope vaccine clinical trial materials were produced and will be released according to plans in the second quarter of 2006. A total of four clinical trials are planned to commence thereafter.

Breast cancer vaccine
The MVA-BN®/Her-2/Neu vaccine has been cloned. Clinical trial materials, produced at the Berlin facility, are expected to be released in the second quarter of 2006. BN ImmunoTherapeutics is expected to submit an Investigational New Drug (IND) application in 2006 and a Phase I/II trial will start thereafter.

Dengue and JEV programmes
To expedite the development of vaccines against Japanese encephalitis and Dengue fever infections, Bavarian Nordic is investigating opportunities to establish an affiliated Bavarian Nordic company in Southeast Asia.

Intellectual Property Rights

Patents
The Company’s patent position on MVA-based vaccines, including MVA-BN®, was further strengthened by the issuance of two additional patents, one in Europe and one in the USA.

Litigation
To enforce its intellectual property rights, Bavarian Nordic filed two legal actions against Acambis Inc. and Acambis plc’s MVA-based smallpox vaccine products. Bavarian Nordic filed a patent infringement action against Acambis plc’s MVA-based smallpox vaccine products at the U.S. International Trade Commission (ITC) based in Washington DC and filed a misappropriation of trade secrets action against Acambis plc and Acambis Inc. in the U.S. Federal District Court based in the state of Delaware.

Organisational development
Bavarian Nordic incorporated Bavarian Nordic Inc. and BN ImmunoTherapeutics Inc. in the USA. Dr. Reiner Laus was hired as President and CEO of BN ImmunoTherapeutics Inc.

Bavarian Nordic established a representative office in Singapore to strengthen the company’s marketing activities in the Southeast Asia region.

Morten Max Rasmussen was promoted to Executive Vice President, Transactions, Legal and IPR Depart-ment and joined the Corporate Management group.

OUTLOOK 2006

Financial projections
Bavarian Nordic expects to be awarded an RFP-III contract for MVA-based smallpox vaccines in the first half of the year. This award will have an important influence on Bavarian Nordic’s financial results for 2006 and in the future. The timing of the award of the contract will have the most impact on the company’s operations in the second-half of 2006.

With the assumption that Bavarian Nordic will be awarded an RFP-III contract in the first-half of the year, the company projects revenue to be DKK 800-900 million in 2006, of which approximately DKK 270 million are forecasted to come from the ongoing RFP-I and RFP-II contracts. Based on these conditions, the company expects a profit before interest and tax to be a profit of DKK 80-100 million. There are a number of other commercial opportunities in sales and out-licensing that are not included in the revenue and year-end financial result projections.

In addition to the award of an RFP-III contract, the financial result for the year is also dependent upon the progress of the development programmes. The Group’s costs are expected to be significantly increased due to the planned development activities, particularly in the HIV and cancer programmes, as well as in the immunotherapy area. Costs related to the development of IMVAMUNE™ in Phase III trials are expected to be covered within the scope of the RFP-III contract.

Production
After receiving manufacturing authorisation in the second quarter of 2006. Bavarian Nordic expects to begin routine manufacturing of IMVAMUNE™ at the Kvistgård facility. The company expects to start to establish an inventory of IMVAMUNE™ which will be released according to customer demand. The company will also further investigate the potential to manufacture MVA-BN® -based products for other companies not operating in its core focus areas.

Research and Development Programmes

• IMVAMUNE™ – regulatory approval process
  The Company expects to initiate a pivotal Phase II/III trial with IMVAMUNE™ in 2006. Bavarian Nordic also expects to have accumulated enough data by the end the year to submit an Emer-gency Use Authorization application to the FDA in 2007.
  
  
• HIV development programme
  On the background of the ongoing Phase II trial, Bavarian Nordic expects to initiate a pivotal Phase II/III study with the MVA nef vaccine in the first-half of 2007. The company also plans to begin four Phase I/II studies with the MVA-BN® polytope vaccine in 2006.
  
  
• Immunotherapy development programme (IMVABOOST™)
  As a result of positive research results and the immune-stimulating effect of the MVA nef vaccine and IMVAMUNE vaccine in clinical Phase I/II and clinical Phase II trials, a programme with the goal of developing MVA-BN® as an immune-stimulating product for use in immune-compromised patients has been started. Bavarian Nordic is planning a number of clinical trials to include HIV-infected and cancer patients, including a Phase II/III study planned to start in late-2006, after evaluation of results from the ongoing Phase II trial with MVA nef and IMVAMUNE™ vaccines.
  
  
• Clinical Phase I/II trial against breast cancer
  Bavarian Nordic expects before the end of the year, that BN ImmunoTherapeutics will receive approval of an IND from the FDA and initiate a clinical Phase I/II trial to evaluate the MVA-BN®/Her-2/Neu vaccine against breast cancer.
  
  
• 6 vaccines to move into clinical trials
  During 2006, Bavarian Nordic expects to produce and/or release clinical trial batches of MVA/BN®-based vaccines for its HIV, breast cancer, measles, prostate cancer, and RSV development programmes.

• Plan for Traveller’s Vaccine Programme
  Bavarian Nordic expects to reach a decision in the first-half of 2006 on the possible establishment of an affiliated Bavarian Nordic company for the further development of programmes for traveller vaccines (MVA-BN® JEV and MVA-BN® Dengue vaccine projects).
  
  
• Strategic Alliances
  Bavarian Nordic expects to report on its progress to strengthen its development portfolio and market position during the first-half of 2006. The company continues to hold ongoing discussions with potential collaboration partners.

Enclosed with this announcement are:

• Group Key Figures 2001-2005
• Management Report for 2005
• Financial Review for 2005
• Accounting Policies for 2005
• Income statements (1 January to 31 December 2005)
• Balance Sheet as of 31 December 2005 – Assets
• Balance Sheet as of 31 December 2005 – Liabilities
• Cash Flow Statements
• Statement of Changes in Equity