Interim Report as of 30 June, 2004
and other developments in the company
Bavarian Nordic announces today its interim results for the six-month period ending 30 June, 2004 and other developments in the company.
Key highlights during the reporting period (1 January – 30 June, 2004)
Revenue was DKK 114 million (as of 30 June, 2003: DKK 181.6 million)
Net income (before tax) was DKK 12.8 million (as of 30 June 2003: DKK 62.5 million)
As seen in 2003, the majority of revenue for 2004 is expected in the third and fourth quarters. Financial projections for 2004 of revenues of DKK 400 million and net income before tax of DKK 60-80 million are maintained.
Bavarian Nordic submitted its proposal on RFP-2 to the National Institute of Health (NIH) in February. The award announcement is expected in September 2004.
The US Food and Drug Administration (FDA) granted Bavarian Nordic an Investigational New Drug (IND) application for IMVAMUNE™ to enter further clinical trials. The first-ever trial with IMVAMUNE™ in persons with atopic disorders (ie. eczema) is underway.
Results from a Phase ll study showed that IMVAMUNE™ has an excellent safety profile at all three dose levels tested. All study volunteers sero-converted after 2 vaccinations at all doses.
Re-construction of the manufacturing facility in Kvistgård and development of the MVA-BN bulk manufacturing process are proceeding as planned.
Significant events after the reporting period (1 July – 25 August, 2004)
Global manufacturing and marketing collaboration with GlaxoSmithKline on IMVAMUNE™ established.
The US Patent and Trademark Office (PTO) issued a patent to Bavarian Nordic on MVA-BN®. The patent covers the MVA-BN® virus and derivatives thereof, including its use as a smallpox vaccine (IMVAMUNE™), and vector technology for development of recombinant vaccines for the prevention and treatment of other diseases.
The US Food and Drug Administration (FDA) granted “fast track” status for IMVAMUNE™ (the first and only smallpox vaccine candidate to receive this designation).
Bavarian Nordic’s overall capital preparedness increased from DKK 265 million at the end of the first quarter of 2004 to more than DKK 440 million as of 25 August, 2004.
A multicentre Phase ll study with the MVA nef vaccine against HIV has begun in Germany.
Report for the period 1 January - 30 June, 2004
Financial Review Revenue in the first-half of 2004 was DKK 114 million and was generated from smallpox vaccine sales to Germany, Greece and New Zealand.
Income in the second quarter was DKK 4.8 million and in line with expectations for the period.
Income from the RFP-1 contract in first half of 2004 was DKK 4.4 million. Income from the RFP-I contract in second quarter was DKK –0.2. million. This development is based on the company’s decision to conduct and therefore pay for some key activities under the RFP in order to maintain complete control of its intellectual property (IP) rights
As seen in 2003, the majority of revenue for 2004 is expected in the third and fourth quarters. Financial projections for the year of revenues of DKK 400 million and net income before tax of DKK 60-80 million are maintained.
Production During the period, Bavarian Nordic continued to intensify its activities to finalise development of an industrial manufacturing process for the production of MVA-BN® vaccines. The MVA-BN® manufacturing process has been optimized, up-scaled and standardised. In addition, at the Berlin site, the production of batches for use in clinical trials is underway. The manufacturing process is expected to ready for production of vaccines on a commercial scale in 2005.
Also during the reporting period, Bavarian Nordic’s contract producers manufactured 3 different types of recombinant vaccines for clinical trials, including amongst others against AIDS. These vaccines are expected to be released for clinical trials in 2004.
The basic design of Bavarian Nordic’s new production facility in Kvistgård was completed in April 2004. The detailed design phase, which describes the construction and corresponding interior of the facility, is now near completion. Most all contractor agreements are in place so that the projected construction phase can begin in September 2004. In addition, with the specification of required technology and equipment completed, purchases have begun. The environmental impact assessment of the site is proceeding as planned with the public hearing round recently completed.
As reported earlier, in-house quality control laboratories have been established at the Kvistgård site. The laboratories will conduct the analysis, validation and release of all vaccine products (at GMP standards) and will start analytical activities in September 2004.
Smallpox Vaccine Franchise In February, Bavarian Nordic submitted its proposal on RFP-2 to the NIH. RFP-2 calls for the production of 3 million doses of MVA using the final validated production process, further clinical development, and validation of animal models. The announcement of the RFP-2 award is expected in September 2004.
The US FDA granted Bavarian Nordic an Investigational New Drug (IND) application for IMVAMUNE™ to enter further clinical trials. Accordingly, the company started for the first time ever a trial with an MVA vaccine in 60 individuals with atopic disorders in Europe. Persons with atopic disorders, such as eczema, are at risk of suffering potentially severe side effects after vaccination with first and second generation smallpox vaccines.
Earlier in the year, the company reported on a Phase ll study which showed an excellent safety profile for IMVAUMNE at all three doses levels. No serious adverse reactions were reported. These results will support the planned product registration of IMVAUMNE™.
A Phase l trial comparing IMVAMUNE™ with DryVax® (traditional smallpox vaccine) in 90 healthy volunteers is currently underway in the US. Under the auspices of the NIH, this trial will investigate whether the immune response against IMVAMUNE™ protects against a subsequent challenge with a DryVax® vaccination. Results are expected to be announced in 2005.
Later this year, another Phase l trial which will investigate the safety of IMVAMUNE™ in people with HIV will start in the USA. First results are expected in 2005.
Elstree-BN The active phase of a clinical safety study in 32 healthy volunteers with Bavarian Nordic’s second-generation smallpox vaccine, Elstree-BN, has been completed. The vaccine was reasonably well tolerated and resulted in 100% take rates (pustule, scab and scar), which traditionally is an indication of vaccination from first and second generation smallpox vaccines.. The analysis of the immune response is on-going, with results to be announced in 2005.
HIV Vaccine Franchise
MVA nef As previously reported, an initial Phase I study demonstrated the safety and immunogenicity of the MVA nef vaccine in 15 HIV infected patients. Following the interruption of anti-retroviral treatment there are still 5 patients that remain off antiretroviral therapy for 23-27 months, and whom are still able to control the replication of HIV. Moreover, a second Phase I study has also generated data that demonstrates the safety and immunogenicity of the MVA nef vaccine in healthy subjects. Data from these studies was presented at the International AIDS Conference in July 2004. (description of the results found later in this release under “Events after the reporting period”).
As originally planned, a multi-center Phase ll trial was started in Germany in July to further investigate MVA nef in 50 HIV-infected individuals with a more advanced disease state (CD4 counts > 250). The study will compare the safety profile with a control arm of 25 HIV patients receiving MVA-BN®. Another purpose of the study is to provide additional safety data on MVA-BN® (IMVAMUNE™) in HIV infected patients, and to provide an insight into whether the beneficial effect of increasing the CD4+ T cell counts, observed in the MVA nef Phase I study, is due to the MVA-BN® (IMVAMUNE™) vector. The results are expected during 2005.
MVA-BN® polytope The joint collaborative programme with Epimmune Inc. is progressing as planned. The vaccine, an MVA-BN® vaccine which includes an encoding of 21 and 18 genetically stabile HIV killer and helper T cell epitopes, has been manufactured. Bavarian Nordic has received in 2004 permission to perform 2 Phase I studies in Europe. The first study will be started in the fourth quarter of 2004 in Germany and will evaluate the safety and immunogenicity of the MVA-BN® polytope vaccine in 36 healthy subjects. The second Phase I study, also to be performed in Germany, will investigate the safety and immunogenicity of the MVA-BN® polytope vaccine in 30 HIV infected patients. Interim results from both studies are expected in 2005.
MVA-BN® multiantigen The design and construction of the recombinant vaccine will be completed during 2004. The MVA-BN® vaccine is based on 8 regulatory and structural genes from HIV-1 that have been shown to contain genetically stabile gene sequences and recognised by T cells in HIV infected patients. A Phase I clinical trial is planned for 2005.
At the International AIDS Conference in July, data presented by an external investigator on two trials reconfirmed the potential of MVA nef as a both a therapeutic as well as prophylactic vaccine against HIV. The MVA nef vaccine induced an HIV specific immune response against the Nef antigen in a Phase l trial with persons with HIV and a trial with healthy volunteers.
The first study was a follow-up of a Phase I/II trial with MVA nef in HIV infected individuals. The scope of the trial was to investigate if an MVA nef vaccination might control HIV replication after interruption of antiretroviral therapy. Previous results showed that 5 out of 14 subjects could control the HIV virus 18 months after treatment interruption, so that re-initiation of therapy was not necessary. The new data confirmed that all of these 5 subjects further remained off antiretroviral therapy 23-27 months after interruption of antiviral treatment.
In a second trial, data on MVA nef in healthy subjects showed that a high dose of MVA nef is safe and immunogenic in healthy volunteers. Induction of HIV-1 specific CD8+ and /or CD4+ T-cells was detected in 8 out of 14 vaccinees. This result demonstrated for the first time that MVA nef is also immunogenic as a prophylactic vaccine in healthy individuals who never been exposed to the HIV Nef antigen. In addition to the HIV specific immune response, the MVA nef vaccine induced in all subjects a humoral and T-cellular immune response against the MVA vector itself. More importantly, the trial results showed that the strong immune response seen against the MVA-BN®-vector itself did not interfere with the response against Nef.
Pipeline Update
Japanese Encephalitis Preclinical investigations to prepare for a Phase I clinical trial are being finalised and a clinical batch of the vaccine will be manufactured in 2004. A Phase I trial is planned for the first quarter of 2005.
Dengue Fever Preclinical investigations are progressing and will continue the remainder of 2004.
MVA-BN® vector technology and Pharmexa The vaccine has been constructed and a Phase l clinical study is planned to start in 2005.
Neo-Natal Immunology Bavarian Nordic’s research group in Munich will be expanded in 2004 to include a group that will investigate the vaccination of neonatal (newborn) animals. A manuscript describing some initial research findings was published in May 2004 in the Journal of Immunology (Franchini et al 2004. J Immunology. 15; 6304). This published data demonstrated that vaccination of 1-day-old animals with MVA-BN® was not only safe, but that the vaccination also had positive effects on their immune system. For example, a high level of protection was seen against an unrelated virus (Herpes Simplex Virus). Bavarian Nordic views the vaccination of newborn children as a strategically important area in the prevention of infectious diseases. The data indicates that MVA-BN® has potential in the development of vaccines for children. Bavarian Nordic has, on the basis of these results, established a new research group in this area.
Organisational Development During the reporting period the organisation was strengthened with new positions in Technical Operations, Quality, Research and Development, Finance and other administrative functions. As of 30 June 2004, 104 persons were employed by the company, as compared to 87 persons at year-end 2003. The company expects to continue its organisational growth during the remainder of the year. The majority of new positions will be employed in the Technical Operations department in conjunction with plans to start production. Other new positions are planned in the research group to support the new focus area of neo-natal immunology.
Other Administrative Matters Bavarian Nordic has awarded warrants to a newly-employed member of corporate management that gives the right to subscribe to a maximum of 7,500 shares of a nominal value of DKK 10 per share at a share rate of DKK 498 per share. The subscription rate is based on the stock exchange rate effective as 18 May 2004 with an additional transaction premium. The exercise period for this award of warrants runs from 18 April to 2 May, 2007. The value of each warrant equals DKK 99 and is calculated on the Black-Scholes model with a risk-free interest rate of 3.5% and on the historical volatility of the shares. The calculation is based on a market value of the share of DKK 463 per share (as of 30 June, 2004). All manufacturing and administrative functions have been consolidated at the Kvistgård site, which is also now Bavarian Nordic’s headquarters.
Outlook for the Remainder of 2004 Bavarian Nordic maintains its 2004 guidance of revenue of approximately DKK 400 million and earnings before tax of DKK 60-80 million.
Events after the reporting period (1 July – 25 August, 2004)
Global Manufacturing and Marketing On 15 July 2004, Bavarian Nordic announced an international collaboration with GlaxoSmithKline (GSK) on the production and marketing of IMVAMUNE™ (Bavarian Nordic’s smallpox vaccine). GSK will manufacture and market IMVAMUNE™ to most international markets, including North and South America, Japan, as well as a number of EU markets including Great Britain and France. Bavarian Nordic will continue to manufacture and market IMVAMUNE™ to all German-speaking countries, the Nordic countries, the Baltic States, China, the Middle East and Southeast Asia.
In the United States, Bavarian Nordic will continue to take the lead in the development of IMVAMUNE™ under the NIH programme. Aside from this activity, the two companies will closely collaborate and act as commercial partners in future government programmes, including the forthcoming Request for Proposal 3 (RFP-3) expected to outline the US government’s purchase of up to 60 million doses of MVA smallpox vaccine. Bavarian Nordic will produce these 60 million doses of smallpox vaccine.
Patents On 19 July 2004, Bavarian Nordic announced that it had received a patent from the US Patent Office (USPTO) on the company’s proprietary core technology MVA-BN®. The patent covers the MVA-BN® virus and derivatives thereof with similar properties, the use of MVA-BN as a smallpox vaccine (IMVAMUNE™ – Bavarian Nordic’s smallpox vaccine) and the use of MVA-BN® as a vector technology for developing recombinant vaccines against infectious diseases such as HIV, Dengue Fever, Japanese Encephalitis, etc.
“Fast Track” Status for IMVAMUNE™ On 21 July 2004, Bavarian Nordic announced that the USFDA granted fast track status for the development of IMVAMUNE™ as a safe smallpox vaccine, the first and only smallpox vaccine candidate to receive this designation. Fast track status gives priority review status to a registration application and allows for filing portions of the registration application ahead of others. Fast track status is intended to facilitate the development and expedite the review of new therapies that are targeted at treating serious and life-threatening conditions.
Continued Momentum in the USA With the signing of the Project Bioshield Authorization Legislation on 21 July, President Bush secured USD 5.6 billion over the next 10 years for the purchase of next generation countermeasures against smallpox, anthrax, s well as other chemical, biological, radiological and nuclear agents.
At present there are two funding structures in the US for the development and/or acquisition of MVA smallpox vaccines. The first is the ongoing MVA smallpox vaccine research and development programme which is administered by the National Institute of Health (NIH) and the Department of Health and Human Services (DHHS) through a series of Request for Proposals (RFP).
The second funding source is an “advanced procurement” mechanism under Bioshield which allows for the purchase of unlicensed agents and/or products for the purposes described under Bioshield. It is at the government’s discretion as to how these funds will be used; however, at present approximately USD 890 million exists for such purchases in the approved fiscal year 2004 budget, which ends September 30, 2004. With the start of the US government’s 2005 fiscal year in October 2004, an additional USD 3.4 billion has been allocated for this purpose through the end of fiscal year 2008. The remainder of the Bioshield appropriation will occur during the period 2009 to 2013.
While exact figures allocated for the purchase of MVA smallpox vaccines under Bioshield are not known, it is likely that funding for the DHHS’ RFP-3 (purchase of up to 60 million doses of MVA smallpox vaccine), expected to be issued in 2004, will come from Bioshield.
In addition to the signing of Bioshield, the US government has made considerable efforts to expedite projects under the scope of Bioshield and coordinate governmental programmes to fight bioterror. Since the start of 2004, the following US government bodies/agencies have acted on Bavarian Nordic’s MVA-BN® smallpox vaccine development programme:
NIH – acceptance to review Bavarian Nordic’s proposal under RFP-2 (award announcement expected in September)
NIH – initiation of Phase l trial comparing IMVAMUNE™ with DryVax®
FDA – approval of IND to conduct further clinical studies with IMVAMUNE™
PTO – granting of patent on MVA-BN®
FDA – granting of “fast track” status on IMVAMUNE™
Financial Developments Bavarian Nordic’s overall capital preparedness increased from DKK 265 million at the end of the first quarter of 2004 to more than DKK 440 million as of 25 August 2004. The company has entered into a comprehensive financing package from the Danish banks, Nordea and Danske Bank on the Kvistgård production facility. Significant debt financing was secured based on Bavarian Nordic’s transformation into an integrated R&D and manufacturing company. The company’s long-term goal is to ensure that production facilities are funded with 40%--60% debt in order to achieve an optimal long-term capital structure.
Facility Relocations and Related Matters As planned the Munich, Germany offices relocated in July to larger facilities within the same area of Munich. The offices in Amager, Denmark were vacated with the preclinical department having moved to Munich. Bavarian Nordic has recently purchased property adjacent to the Kvistgård facility.
Merger of subsidiaries Bavarian Nordic A/S has initiated a merger of the company’s two German subsidiaries. The merger is expected to be finalised and registered with the German authorities at the beginning of September 2004. The merger has been undertaken in order to reduce administrative costs for the two subsidiaries and to make administrative procedures easier. The merger does not have any impact on employees working at the two German sites. Once the merger is finalised, Bavarian Nordic A/S’ subsidiary in Germany will continue under the name “Bavarian Nordic GmbH”, with its registered office in Munich and with a department in Berlin.
Decisions from the Board of Director’s Meeting At the Board Meeting held on 25 August 2004, the Board of Directors decided to implement the transfer of the company’s share premium account “Share Premiums from Issues of Shares” of DKK 396,167,000 to the company’s free reserves.
The decision was made in accordance with the decision made by the General Assembly at the Ordinary General Meeting held on 30 April, 2004. In accordance with the Danish Companies Act (Aktieselskabsloven) Art. 111, subsection 3, no. 3, Bavarian Nordic advertised the decision in the Official Gazette (Statstidende) on 12 May, 2004. At the end of the allotted 3-month notice period, no notices were made by the company’s creditors.
