Bavarian Nordic A/S – Interim Report as of 31 March 2006

• Bavarian Nordic completed a capital increase generating proceeds of DKK 237.4 million. The proceeds will be used to progress Bavarian Nordic’s pipeline and finance working capital in connection with an RFP-III contract.
  

Smallpox

• Bavarian Nordic has started a double-blinded randomized and placebo-controlled clinical Phase II study with IMVAMUNE® in 800 healthy subjects. Results of the study are expected in the second quarter of 2007.
  
  
• The US Food and Drug Administration (FDA) authorised clinical protocols for pivotal clinical Phase II studies with IMVAMUNE® in subjects with atopic dermatitis and HIV. Trials expected to start in June 2006.
  
  
• In the US Government MVA-based smallpox vaccine programme, Bavarian Nordic produced and in timely process of delivering 500,000 doses of IMVAMUNE® according to the RFP-II contract and as agreed with the National Institutes of Health (NIH).
  
  
• The decision on the award of the RFP-III contract for the supply of IMVAMUNE® is expected at the end of the second quarter of 2006.
  
  
• Enrolment of 150 subjects into a clinical Phase II study with IMVAMUNE® in HIV-infected subjects has been completed. Results are expected at the end of the fourth quarter 2006.
  
  
• As the first and only company to-date having generated clinical results with an MVA-based smallpox vaccine in subjects who are contra-indicated to traditional smallpox vaccines, such as DryVax®. Bavarian Nordic presented new data at scientific meetings in February and March 2006.

HIV

• In a clinical Phase II study with MVA nef in 77 HIV-infected subjects on HAART therapy, all subjects have completed the full vaccination schedule of three vaccinations. To-date 31 subjects have interrupted their HAART therapy.

IMVABOOST™

• Bavarian Nordic is working further on the start of clinical Phase II/III studies in the IMVABOOST™ programme with the goal of developing MVA-BN® as an immune-stimulating product for use by immune-compromised patients before end of 2006.

Enforcement of IP

• On 16 February 2006, Bavarian Nordic filed a patent infringement action against Acambis plc and Acambis Inc. at the Commercial Court in Austria, where Acambis’ MVA-based smallpox vaccine (MVA3000) is manufactured.
  
  
• On 8 May, the ITC (US International Trade Commission) began a hearing on the patent infringement case Bavarian Nordic filed against Acambis plc’s MVA-based smallpox vaccine (MVA3000).

Peter Wulff, President and CEO of Bavarian Nordic commented, “During the first quarter we made progress in our clinical Phase II programme with IMVAMUNE® and reported scientific results that confirm IMVAMUNE® as the vaccine candidate most advanced in the registration of a safe smallpox vaccine. In our programme to develop MVA nef as a therapeutic HIV vaccine, almost half of the HIV-infected subjects have interrupted their HAART therapy. We are also working further on the start of clinical studies in our IMVABOOST™ programme with the goal of developing MVA-BN® as an immune-stimulating product for use by immune-compromised patients. The potential of MVA-BN® as safe smallpox vaccine and immune-stimulating vaccine for immune-compromised patients as well as a vaccine vector has been further supported”.

Report for the period (1 January – 31 March, 2006, un-audited)

Financial Review
Revenue for the first quarter of 2006 was DKK 35.3 million (2005: DKK 70.7 million). The majority of revenue was derived from the ongoing contracts with the US government health authorities.

Result before interest and tax was a loss of DKK 56.6 million (2005: loss of DKK 17.2 million).

The loss is attributed to lower revenue, and increased costs for legal fees in relation to the current law suits, as well as costs for the Kvistgård production facility, and establishment of the representative office in Singapore.

Bavarian Nordic A/S completed a capital increase generating proceeds of DKK 237.4 million of nominally DKK 5,791,250 (579,125 shares of DKK 10). The capital increase was subscribed at a price of DKK 410 per share of DKK 10 by Danish and international financial investors using the book-building method. At the subscription price the capital increase was subscribed almost twice. The new shares were admitted to trading on the Copenhagen Stock Exchange under the interim code ISIN DK0060034437 on 28 March 2006.

Cash flow for investments totalled DKK 407.0 million, of which DKK 14.2 million were tangible non-current assets. The remaining funds for investment were net proceeds of DKK 231.2 million generated from the capital increase. These funds have been invested in securities. Expired securities have been converted from securities with a maturity of less than 3 months to securities with a maturity of more than 3 months.

Net cash and securities totalled DKK 534.5 which is an increase of DKK 152.0 million since the start of the fiscal year. Of this amount, DKK 115 million has been pledged to financial institutions. The increase in liquidity is a result of increase in the company’s share capital.

Expectation to the full year result remains unchanged in that Bavarian Nordic expects to be awarded a contract for the delivery of MVA-based smallpox vaccine to the US Government. 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.

Clinical Development Programmes

IMVAMUNE®Smallpox Vaccine Programme

US Government’s Contracts
Following discussions with the US government, Bavarian Nordic expects the award of an RFP-III contract for the purchase of IMVAMUNE® (MVA-based smallpox vaccine) at the end of the second quarter. Bavarian Nordic has produced 500,000 doses of IMVAMUNE® and is in the process of delivering to the US Government according to the RFP-II contract and as agreed with the NIH.

Clinical Development
Bavarian Nordic has started a double-blinded randomized and placebo-controlled clinical Phase II study with IMVAMUNE® in 800 healthy subjects Results of the study are expected in the second quarter of 2007.

The FDA has authorised clinical protocols for pivotal clinical Phase II studies with IMVAMUNE® in subjects with atopic dermatitis and HIV. Trials expected to start in June 2006.

Enrolment of 150 subjects into a clinical Phase II study with IMVAMUNE® in HIV-infected subjects with CD4 counts >350/µl has been completed. No unexpected or serious side effects were observed in the HIV-infected population. A report of the study is expected in the fourth quarter of 2006.

• As the first and only company to-date having generated clinical results with an MVA-based smallpox vaccine in subjects who are contra-indicated to traditional smallpox vaccines, such as DryVax®, Bavarian Nordic presented new data at scientific meetings in February and March 2006.
  
  
• A favourable study addressing the safety and immunogenicity of IMVAMUNE® in 60 subjects, including persons with atopic dermatitis who are contraindicated to vaccination with DryVax®, was presented at the ASM Biodefense Conference in Washington, DC in February 2006.
  
  
• Bavarian Nordic presented data with IMVAMUNE™ in subjects that are contraindicated to DryVax® at the International Conference of Emerging Infectious Diseases in Atlanta, Georgia in March 2006. Results showed that IMVAMUNE™ was well-tolerated in the subjects with HIV-infection or atopic dermatitis, with no reported serious or unexpected adverse reactions. Mild to moderate systemic reactions and/or reactions at the injection site observed among these subjects were comparable to those in healthy subjects. Among the HIV-infected subjects, MVA-based vaccines were safely administered in doses up to 5 times higher than the dose intended as smallpox vaccine.
  
  
• A scientific paper entitled “Safety and immunogenicity of IMVAMUNE™, a promising candidate as a third generation smallpox vaccine” was published in Vaccine 24 (2006) 2065–2070 on 15 March, 2006

HIV Vaccine Programme

MVA nef Vaccine
Results of a clinical Phase I study with MVA nef in a prophylactic setting in healthy subjects were presented at the 13th Conference on Retroviruses and Opportunistic Infections in Denver, Colorado in February 2006. The published results were from a study which provided the proof-of-concept that an MVA-vectored vaccine may induce potent immune responses in healthy subjects, with the majority of volunteers eliciting an immune response to the recombinant Nef gene.

In a clinical Phase II study with MVA nef in 77 HIV-infected subjects on HAART therapy, all subjects have completed the full vaccination schedule of three vaccinations. To-date 31 subjects have interrupted their HAART therapy.Initial results of the study are planned to be presented at the Aids Vaccine Conference in Amsterdam, 29 August – 1 September 2006.

MVA-BN® polytope Vaccine
Approval for a clinical Phase I study with the MVA-BN® polytope vaccine in healthy subjects has been received from the relevant ethical committees. The study will be conducted in Germany and enrolment is expected to start during the second quarter 2006 as soon as the IMPD (Investigational Medicinal Product Dossier) has been approved by the regulatory authorities. An additional study investigating the use of the MVA-BN® polytope vaccine as a therapeutic vaccine in HIV-infected subjects is expected to start in the third quarter of 2006.

Breast Cancer Vaccine
BN ImmunoTherapeutics’ expects to submit a pre-Investigational New Drug (IND) data package to the FDA in the second quarter of 2006. A clinical Phase I study with MVA-BN®/Her-2/Neu is expected to start in the second-half of 2006.

Immunotherapy Programme - IMVABOOST™
Bavarian Nordic is working further on the start of clinical Phase II/III studies in the IMVABOOST™ programme with the goal of developing MVA-BN® as an immune-stimulating product for use by immune-compromised patients The company is planning a number of clinical trials with IMVABOOST™ (commercial name for MVA-BN® with an immune-simulating profile) in HIV-infected and cancer patients.

Production
As planned, the company is continuing the validation of the MVA-BN® production process at the Kvistgård facility. This activity, as well as manufacturing authorisation from authorities to produce pharmaceutical products at the facility, are as previously reported, expected in the second quarter of 2006.

Business Development

Influenza Vaccine Production
Over the past 12 months, Bavarian Nordic has evaluated various vaccine production business opportunities for the Kvistgård site beyond the manufacture of IMVAMUNE®smallpox vaccine. One opportunity is to expand the facility for the production of influenza vaccines. Based on the company’s expertise in establishing and putting into operation a vaccine manufacturing facility in record time, Bavarian Nordic estimates that an annual capacity of approximately 50 million doses of influenza vaccine can be established at the Kvistgård facility for approximately DKK 400 million within 1-1-½ years. Bavarian Nordic has made public this opportunity at a time where governmental officials in the Nordic region are discussing options for the establishment of a shared Nordic manufacturing facility for the production of influenza vaccines.

Bavarian Nordic continues to evaluate the possibilities to enter into a strategic alliance with an international vaccine manufacturer. The company is in discussions with potential collaboration partners and aims to give a status on this activity before end of the first-half of 2006.

Legal Matters

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.

Developments After the Close of the Fiscal Period (1 April – 15 May, 2006)

IMVAMUNE® Study Results Presented
Results of a clinical Phase I comparison study, performed in collaboration with the NIH, were presented at the 9th Annual Conference on Vaccine Research, Baltimore, on May 8-10, 2006. The study demonstrated that IMVAMUNE® induced in subjects a strong immune response and was generally better-tolerated than DryVax®. The study also demonstrated that vaccination of subjects with IMVAMUNE® prior to DryVax®, as expected, resulted in a weakened DryVax® virus replication at the site of vaccination and a faster time of healing.

Patent Litigation
On 8 May, the ITC (US International Trade Commission) began a hearing on the patent infringement case Bavarian Nordic filed against Acambis plc’s MVA-based smallpox vaccine (MVA3000). The ITC has set a preliminary finding for August 2006 and final decision in November 2006.

Annual General Meeting results
The Annual General Meeting was held on 26 April 2006. The Chairman of the Board’s Report and Financial Statements for 2005 and the Board of Directors’ proposal to transfer the Company’s 2005 result to 2006 were adopted.

Asger J. Aamund, Eigil Bjerl Nielsen and Erling Johansen were re-elected to the Board of Directors. Flemming Pedersen, President and CEO of Neurosearch A/S, was elected a new member of the Board of Directors. At their own request, Jørgen Buus Lassen and Ulrik Bülow were not re-elected Deloitte was re-elected as auditors.

The Board of Directors were given authorisation to purchase its own shares of company stock in the period up to the next Annual General Meeting.

The Board of Directors’ proposal to amend § 5a of the Articles of Association (authorisation for increase of the company’s share capital) and § 21 of the Articles of Association (adoption of the IFRS Regulation (EC)), respectively, were adopted. The proposals, however, could not be finally approved since less than half of the total share capital was represented at the General Meeting. Both proposals have been re-submitted for adoption at an extraordinary General Meeting, to be held 24 May, 2006 at the Company’s registered office at Bøgeskovvej 9, DK–3490 Kvistgård, Denmark.

Shares Merged
The new shares from the capital increased were merged with the existing primary code 0015998017 (BAVA) on 3 April 2006.

Green Account 2005
Bavarian Nordic submitted on 10 May, 2006 its first Green Account on the Kvistgård facility, as required by Danish law. The report provides information on the site and the company’s management of environmental matters and can be viewed on the company’s website, www.bavarian-nordic.com under “Manufacturing > Environment”.

Key Financial Figures in Euro
As a service to international stakeholders, Bavarian Nordic will publish key financial figures in Euro (Income statements - 1 January to 31 March 2006, Balance Sheets as of 31 March 2006 – Assets/Liabilities, Cash Flow Statements – Consolidated Financial statements, and Equity) after the results are released. The figures can be downloaded at the Bavarian Nordic website, www.bavarian-nordic.com

Statement from the Board of Directors and Corporate Management
The Board of Directors and Corporate Management have, as of today, reviewed and approved Bavarian Nordic A/S’ first quarterly report for the period 1 January – 31 March, 2006.

The interim report, which is un-audited, is prepared in accordance with the provisions on recognition and agreement set aside in the International Finance Reporting Standards (IFRS) as approved by the EU, and the additional Danish requirements for submission of interim reports for companies listed on the Copenhagen Stock Exchange.

We consider that the chosen accounting policies applied are appropriate. It is our opinion, that the first quarterly report gives a true and fair view of the group’s assets, liabilities, financial position, results, and cash flow.



Kvistgård, 16 May 2006

Corporate Management

Peter S. Wulff
President and CEO

Board of Directors:

Asger Aamund, Chairman
Eigil Bjerl Nielsen
Erling Johansen
Flemming Pedersen