Bavarian Nordic A/S – Annual Results 2007

Today Bavarian Nordic published the company's Annual Report 2007. The report is available on the company's website. Below is an extract of the most significant matters in the report as well as events after the balance sheet date.

Bavarian Nordic's revenue for the year 2007 was DKK 332.1 million with a loss before tax of of DKK 50.5 million, which was in line with the Company's latest guidance. For 2008, Bavarian Nordic expects revenue in the region of DKK 180 million, and a pre-tax loss in the region of DKK 225 million as the first deliveries of vaccines for the US government under the RFP-3 contract are not expected to take place before 2009.

In spring 2008, the Company completed a strategy process, resulting in a strategy plan, which contains a number of new initiatives and prioritising of existing activities. Conclusions from the process and derived initiatives will be implemented during 2008.

2007 outline
The year 2007 was a busy and eventful year, but also a very successful year. With the award of the RFP-3 contract from the US authorities Bavarian Nordic fulfilled the most important milestone in the history of the Company. The contract was awarded after prolonged negotiations in which the Company succeeded, as the first in the world, in obtaining advance and milestone payments under Project BioShield. In addition to the base contract of USD 500 million for the delivery of 20 million doses of the company's third-generation smallpox vaccine, IMVAMUNE®, the contract includes an option contract of USD 1.1 billion for the delivery of an additional 60 million doses.

After the RFP-3 contract was signed, Bavarian Nordic successfully fulfilled all the requirements relating to the development of physical safety, IT security, validation of production and test processes, etc. underlying the advance payment of USD 50 million and the two milestone payments of USD 25 million each. These payments helped make the current financial position the best ever in the Company's history.

In our pipeline, we have presented important data on IMVAMUNE®. Three out of five Phase II studies have been completed and show very promising results. When the HIV Phase II-data package is available – expected late in 2008 – and has been accepted by the US health authorities, Bavarian Nordic can begin delivering the vaccine to the US national stockpile and thus begin invoicing.

In 2007, Bavarian Nordic refocused its HIV strategy. Against a backdrop of recommendations from international scientific committees, data from the nef programme has been incorporated into the multiantigen programme, which thus continues to be our future HIV project.
Important progress has also been achieved in our cancer research as Phase I/II studies of the breast cancer vaccine candidate were commenced.

Financial Review 2007
Unless otherwise stated, the financial review is based on the consolidated financial information for the year ended 31 December 2007 as included in the Annual Report 2007 with comparative figures for 2006 in brackets. The accounting policies are unchanged from the Annual Report for 2006.

A pre-tax loss of DKK 50.5 million (DKK 204.8 million) was recorded for the year, which was in line with our guidance in the nine-month interim report published on 6 November 2007.

The increase in revenue and earnings in 2007 was achieved as the Group completed two milestones of USD 25 million each as part of the RFP-3 contract awarded in June 2007.

The Group's free net liquidity was strengthened in 2007 and stood at DKK 833.6 million at the end of the year (DKK 217.7 million). The improvement was attributable to a rights issue made in March 2007 (net proceeds of DKK 443.5 million), the exercise of warrants by employees and management (net proceeds of DKK 47.7 million), and advance and milestone payments received under the RFP-3 contract (USD 100 million). By end of February 2008 the free net liquidity had increased to DKK 902 million.

Equity was DKK 1,217.7 million at 31 December 2007 (DKK 691.4 million).

Outlook for 2008
For 2008, Bavarian Nordic expects revenue in the region of DKK 180 million, and a pre-tax loss in the region of DKK 225 million.

Revenue is expected to consist of the third milestone payment under the RFP-3 contract and invoicing in continuation of the RFP-2 contract. Except for the contract with an Asian country for the delivery of IMVAMUNE® as mentioned below, contracts with other countries for smallpox vaccines are not included in the guidance for 2008, as this would still be too uncertain due to the long-term process involved in obtaining each contract.

Research and development costs in 2008 are expected to be approximately DKK 280 million, including the further development of IMVAMUNE® under the RFP-3 contract, of which DKK 70 million expectedly are capitalised in the balance sheet under intangible assets.

In 2008, the Company's cash resources will be extraordinarily affected by increased production costs in connection with the upscaling of production, build-up of vaccine stockpiles under the RFP-3 and increased costs for Phase II studies of IMVAMUNE®. Thus the liquidity drain in 2008 will be around DKK 400 million. At the end of 2008 the Company's net free liquidity is expected to amount to around DKK 500 million.

The forecast above assumes that, as part of the RFP-3 contract, Bavarian Nordic in late 2008 files the necessary data to the FDA that has the potential to support the use of IMVAMUNE® in a declared emergency. Acceptance by the US authorities of this data will be the trigger to initiate delivery of vaccines to the United States. Since approval by the authorities is outside the control of the Company, the budget assumes that approval is not received in time to begin delivery of IMVAMUNE® in 2008. Bavarian Nordic expects that the 20 million doses of IMVAMUNE® under the RFP-3 contract will be delivered in 2009 – 2011.

Furthermore, the net profit forecast assumes that Bavarian Nordic obtains the necessary approvals to continue its preclinical and clinical trials.

Events after the balance sheet date

Bavarian Nordic has signed contract with Asian country for the delivery of IMVAMUNE®
Bavarian Nordic has signed a three-year contract with the government of an Asian country for the delivery of a small order of IMVAMUNE® for the country's biodefense programme.

This contract, which is considered as an initial order, is Bavarian Nordic's first outside USA for delivery of IMVAMUNE®. The extent and value of the contract are undisclosed.

Bavarian Nordic will manufacture and deliver IMVAMUNE® smallpox vaccines for this country before initiating the delivery of the 20 million doses of IMVAMUNE® for the U.S. government.

Strategy update
Since the autumn of 2007, when Anders Hedegaard joined Bavarian Nordic as the new President and CEO, the Company has undergone a strategy process which was completed in spring 2008. Conclusions from the process and derived initiatives will be implemented continuously. In the meantime, the Company is focusing strongly on streamlining its organisation and on value-generating elements that can cement the position of Bavarian Nordic as an innovative, globally leading supplier of vaccines. In the short term, this means that the key focus will be on:

• Fulfilling the RFP-3 contract 
• Changed prioritising and optimisation of pipeline 
• Building up market demand for IMVAMUNE®

• Completion of Phase II studies in HIV and people diagnosed with Atopic Dermatitis (2008) 
• Commencement of Phase III studies (2009) 
• Start-up of inventory production of vaccine (2008) 
• Start-up of actual delivery of vaccine for the US strategic national stockpile (2009)