Bavarian Nordic A/S – Quarterly Report for the First Quarter of 2005

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

During the first quarter of 2005, Bavarian Nordic realised revenues of DKK 71 million and a net loss before tax of DKK 18 million. Expectations for the financial result for the full year 2005 are maintained at revenues of approximately DKK 450-500 million and a net result of DKK 0.


Key Developments

• The US Department of Health and Human Services (HHS) confirmed its intent to purchase a stock­pile of MVA-based smallpox vaccine in a public hearing before a Senate Appropriations sub-com­mittee on 28 April 2005 (1). The HHS stated that a preliminary RFP-lll would be sent for comment to potential suppliers within two weeks. Bavarian Nordic will respond with a formal reply to this pre-request for information. The issuance of the actual RFP-lll is expected in Q2-2005 and will likely outline the requirements for delivery of up to 60 million doses of an MVA-based smallpox vaccine to the US Government.
  
  
• Completion of the Kvistgård factory is proceeding according to plan. The start of pilot production runs is scheduled for July with a plan to receive final authorisation from the Danish Medicines Agency (Lægemiddelstyrelsen) in the beginning of Q4-2005. Bavarian Nordic’s quality system and quality control laboratory have already been approved by the Danish Medicines Agency.
  
  
• The global IMVAMUNE™ clinical development programme and completion of the validation of the MVA-BN® production process is proceeding as planned.
  
  
• The Berlin production facility has been granted approval by the German authorities to produce clinical materials for Bavarian Nordic’s global development programmes.
  
  
• The establishment of BN ImmunoTherapeutics Inc. in the USA is developing as planned.
  
  
• The Board of Directors have decided to strengthen the capital base of the company with an increase in the share capital of up to DKK 400 million (approximately USD 70 million) in a public rights offering, with pre-emptive rights for existing shareholders. The public rights offering is planned to be completed during early-summer of 2005.

Financial Results

• Revenue for the first quarter of 2005 was DKK 71 million (2004, Q1: DKK 114 million). The revenue includes income from ongoing contracts (RFP-l and RFP-ll) with the US government.
  
  
• The result before tax in the first quarter of 2005 was a loss of DKK 18 million (2004, Q1: DKK 53 million).
  
  
• Expectation for the financial results for year 2005 of revenues of approximately DKK 450-500 million and a net result of DKK 0 are maintained.
  
  
• The projected 2005 revenue is based upon two-thirds of the revenue coming from ongoing contracts (RFP-l and RFP-ll) with the US Government spread over the year, and the remaining one-third from sales of Elstree-BN smallpox vaccine. Negotiations for such sales are ongoing and expected to be completed in the second half of 2005.
  
  
• Investments in the Kvistgård facility are continuing as planned. The total non-current assets as of 31 March, 2005 were DKK 274 million (2004, Q1: DKK 78 million).
  
  
• Cash preparedness at the end of the first quarter of 2005 was DKK 189 million compared with DKK 165 million at year-end 2004.
  
  
• Bavarian Nordic A/S and Nordea Bank A/S have entered into an agreement where Nordea Bank has established a credit facility for Bavarian Nordic of DKK 100 million.

IMVAMUNE™ Smallpox Vaccine Development Programme

• The global IMVAMUNE™ development programme is continuing as planned. An overview of Bavarian Nordic’s clinical results with IMVAMUNE™ and MVA-based vaccines in more than 400 subjects was presented at the American Society for Microbiology’s (ASM) Biodefense meeting in March 2005.
  
  
• Bavarian Nordic reported that IMVAMUNE™ is expected to be effective in protecting against smallpox infection 3-4 days after only one vaccination compared to the traditional replicating vaccines that only show protection after 10-14 days. A completed Phase ll study in 2004 showed that a single injection with IMVAMUNE™ resulted in an immune response in 94% of persons vaccinated, which is comparable with historical data after vaccination with traditional smallpox vaccines.
  
  
• To-date, Bavarian Nordic has clinical results with IMVAMUNE™ and MVA-based vaccines in more than 400 subjects from the following studies, all of which apply under the US Government’s pro­gramme to develop MVA as a safe smallpox vaccine:
  
  Two completed clinical studies in Europe
  
  
  • Phase l study in 86 healthy volunteers and
  • Phase ll dose-finding study in 165 healthy volunteers
    
    
• Three ongoing studies with IMVAMUNE™, in which enrolment and vaccination have almost been completed in the first two:
  
  
  • Phase l trial comparing IMVAMUNE™ to DryVax®
  • Phase l study in persons with atopic disorders and
  • Phase ll study in HIV-infected persons
    
    
• An additional three Phase ll studies that will result in the vaccination of more than 2000 persons with IMVAMUNE™ will be started as soon as clinical materials from the fully-validated MVA-BN® produc­tion process is released.

HIV Vaccine Development Programmes

MVA nef

• Results from the MVA nef vaccine development programme as reported in the scientific publication Antiviral Therapy (2) demonstrated that MVA nef is safe and immunogenic in HIV-infected persons and has potential as a therapeutic vaccine for the treatment of HIV infection and AIDS.

As reported in the publication, in 11 out of 14 HIV-infected persons vaccinated, an immune response to the Nef antigen was generated by the MVA nef vaccine. No serious or unexpected adverse re­actions were observed. The MVA vector was shown to be safe and immunogenic in HIV-infected persons in doses up to five times higher than the doses used for IMVAMUNE™ as a smallpox vaccine. 92% of the subjects (13 out of 14) seroconverted after the first vaccination and the remain­ing patient seroconverted after the second dose. These published findings confirm the potential of the MVA nef vaccine as a therapeutic HIV vaccine and further supports the safety data of IMVAMUNE™ as a smallpox vaccine for HIV-infected persons.

• A Phase ll study with MVA nef vaccine in 75 HIV-infected persons is underway. Patients included in the study are those with CD4 counts down to 250 (including patients with AIDS disease). Fifty subjects will receive the MVA nef vaccine and 25 subjects, as a control arm for the study, will receive the IMVAMUNE™ smallpox vaccine. All subjects are expected to have been vaccinated in Q3-2005.

MVA-BN® polytope and MVA-BN® multiantigen vaccine programmes

• The MVA-BN® polytope and MVA-BN® multiantigen development programmes are continuing as planned.

Production

• Transfer of the MVA-BN® production process from Bavarian Nordic’s contract manufacturing partner IDT to the Kvistgård facility has begun. During the period, 50 development and optimisation tests at full production scale and 25 production test-runs at full scale were completed.
  
  
• Upon completion, the Kvistgård site will be the world’s first and only MVA vaccine production facility at industrial scale size.
  
  
• All production equipment for operations at the manufacturing facility has been installed and is in the process of being put into operation. The start of pilot production runs is scheduled for July with the plan of receiving the Danish Medicine Agency’s (Lægemiddelstyrelsen) final approval in Q4-2005.
  
  
• Training of new employees in the production area has begun.
  
  
• Initial production capacity at the Kvistgård site will be approximately 40 million doses of IMVAMUNE™ per year. The capacity can be immediately adjusted to approximately 60 million doses of IMVAMUNE™ per year and be further expanded to 180 million doses of IMVAMUNE™ per year.
  
  
• The Berlin production facility has been granted approval by the German authorities to produce clinical materials for Bavarian Nordic’s global development programmes.

Establishment of US Operations

• Bavarian Nordic established two affiliates in the USA during the first quarter of 2005. Bavarian Nordic Inc is the holding company for the operating company BN ImmunoTherapeutics Inc.
  
  
• Dr. Reiner Laus has been hired as President of BN ImmunoTherapeutics Inc. which will conduct research and development activities in vaccines against breast and prostate cancers. Offices for the new affiliate have been found.
  
  
• BN ImmunoTherapeutics Inc’s first project will be to start the clinical development of an MVA-BN®-based vaccine against breast cancer based on the Her-2/Neu antigen.
  
  
• BN ImmunoTherapeutics Inc. has in-licensed the global rights to a Her-2/Neu antigen (developed by the Danish biotech firm, Pharmexa A/S) for the use in an MVA-based vaccine. The antigen has been developed with the goal of breaking tolerance to the self-antigen and for safety reasons, and the pro-onkogenic sequences of the Her-2/Neu gene has been removed.
  
  
• Bavarian Nordic has cloned the MVA-BN®-based Her-2/Neu vaccine and BN ImmunoTherapeutics Inc. expects to file an Investigational New Drug (IND) application in 2006 and thereafter initiate its first clinical studies.

Decision on the Increase of Share Capital

• Bavarian Nordic has decided to strengthen the company’s capital base with a public rights offering of up to DKK 400 million (approximately USD 70 million). The new capital will be used to finance the production start of IMVAMUNE™ this year, which is expected to bind a significant amount of working capital in inventory and receivables. In addition, the new capital will be used to finance the planned vaccine filling and packing line, and to strengthen research and development activities, particularly within the HIV and cancer programme areas.
  
  
• In conjunction with Bavarian Nordic’s expectation to supply IMVAMUNE™ smallpox vaccine to the US Government in 2006 (under the forthcoming RFP-lll tender), a portion of the funds from the public rights offering will be used to finance the necessary build-up of inventory of raw materials and finished vaccines for sale and delivery expected to occur next year. Bavarian Nordic expects that the income from this order over the delivery period will generate a significant and increasing liquidity surplus.
  
  
• Bavarian Nordic plans to invest in its own vaccine filling and packing line in order to reduce the costs and time for producing of IMVAMUNE™, and to ensure the security of supply of product to its govern­mental customers. This investment is expected to amount approximately DKK 115 million. The decision on how the investment will be financed is expected to be made at the time when the invest­ment is undertaken and may be fully or partially financed with bank loans.
  
  
• A portion of the funds from the public rights offering will also be used to strengthen product develop­ment activities, specifically the HIV, measles and cancer programmes and build-up of the BN ImmunoTherapeutics Inc. organisation.
  
  
• Furthermore, Bavarian Nordic believes it appropriate to strengthen the company’s overall capital preparedness so that the company can react to international investment and collaboration opportu­nities that may arise within the group’s strategic business areas.

Events after the close of the reporting period

US Government confirms intent to acquire MVA-based smallpox vaccine
The US Department of Health and Human Services (HHS) confirmed its intent to purchase a stockpile of MVA-based smallpox vaccine in a public hearing before a Senate Appropriations sub-committee on 28 April 2005 (1). The HHS stated that a preliminary request for comment would be issued within the following 2 weeks to potential suppliers. This provides the opportunity for interested companies to provide an update on their programme and other related matters to US government officials so that the forthcoming Request for Proposal reflects the Government’s product requirement and the company’s ability to fulfil eventual contractual obligations. Bavarian Nordic will respond to this preliminary request for information during the 7-day response period. The issuance of the actual RFP-lll is expected in Q2-2005 and will likely outline the requirements for delivery of up to 60 million doses of an MVA-based smallpox vaccine to the US Government.

Bavarian Nordic’s quality systems and quality control laboratory approved
In April, Bavarian Nordic announced that its Quality Control laboratory at the Kvistgård site had been granted EU authorisation from the Danish Medicines Agency (Lægemiddelstyrelsen) to perform its own analyses and release of production batches of IMVAMUNE™ smallpox vaccine and MVA-BN® products. The authorisation is an important milestone in the start-up of the Kvistgård facility and its final approval.

Results from Annual General Meeting
Bavarian Nordic held its Annual General Meeting on 26 April, 2005. The Chairman of the Board’s report and financial statements for 2004 were adopted by the general assembly. The Board of Directors’ proposal that the 2004 annual result be transferred to 2005 was also adopted. The general assembly also approved the Board of Directors’ proposal to increase the company’s share capital and authorised the Board of Directors to purchase the company’s own shares up to no more than 10% of the share capital, and that payment must not differ more than 10% from the value of the purchase. Furthermore, the general assembly approved the issuance of a warrants programme for employees and the Board of Directors.

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 ‘ quarterly report for the period 1 January - 31 March, 2005.

The quarterly report, which is unaudited, is prepared in accordance with the measurement and recognition of the International Finance Reporting Standards (IFRS) and the additional Danish requirements for submission of accounts for companies listed on the Copenhagen Stock Exchange.

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



Kvistgård, 10 May 2005

Corporate Management



Peter S. Wulff
President and CEO

Board of Directors

(1) BioShield: HHS Biodefense Preparedness Efforts; Statement of Stewart Simonson, J.D., Assistant Secretary, Office of Public Health Emergency Preparedness, U.S. Department of Health and Human Services, Testimony before the Committee on Appropriations, Subcommittee on Homeland Security, United States Senate, 28 April 2005.

(2) “Therapeutic Vaccination of HIV-1-infected patients on HAART with a recombinant HIV-1 nef-expressing MVA: safety, immunogencity and influence on viral load during treatment interruption”, E. Harrer et. al., Antiviral Therapy, 10(2):285-300, 2005