Interim results as of 30 June 2005 and update on company developments

• Revenue was DKK 142 million (as of 30 June 2004: DKK 118 million)
  
  
• Result before tax was a deficit of DKK 23 million (as of 30 June 2004: profit of DKK 13 million)
  
  
• Approximately DKK 417 million was generated in new capital from a fully-subscribed rights issue.
  
  
• Expectations for the financial result for the full year 2005 are maintained at revenues of DKK 450-500 million, which include sales of Elstree-BN smallpox vaccines, and a net result of DKK 0.
  
  
• According to plan, the Kvistgård facility moved into operation and the transfer of the MVA-BN® production process from IDT was completed. The company’s quality system and quality control laboratory at the facility have been approved by the Danish Medicines Agency.
  
  
• At the end of June, Bavarian Nordic had vaccinated more than 470 subjects (healthy volunteers and those with contra-indications to conventional smallpox vaccines) with MVA-BN®-based vaccines without any serious or unexpected adverse reactions.
  
  
• IMVAMUNE™ is expected to be effective in protecting against orthopox infection 3-4 days after vaccination with a single dose of IMVAMUNE™ in contrast to traditional smallpox vaccines that first protect 10-14 days after vaccination.
  
  
• Results from the MVA nef vaccine development programme as reported in the scientific publication Antiviral Therapy (ref. 2) demonstrated that MVA nef is safe and immunogenic in HIV-infected persons and has potential as a vaccine for the treatment of HIV infection and AIDS. A phase II trial in 75 HIV-infected subjects with more advanced stages of HIV infection is underway. Half of the subjects have received the vaccination in this trial.
  
  
• Results from a pre-clinical trial published in the Journal of Virology demonstrated that IMVAMUNE™ protects monkeys from a lethal challenge with monkeypox, a closely-related virus to smallpox. Ani-mal data is the only approved method to demonstrate efficacy of a smallpox vaccine against small-pox infection in humans. The monkey model developed by Bavarian Nordic is a major step forward towards company’s goal to register IMVAMUNE™. With these new results, IMVAMUNE™ is the only vaccine candidate in the RFP program with this critical efficacy data.
  

Events after close of reporting period (1 July – 21 August, 2005)

• On 19 August, Bavarian Nordic took steps to enforce its intellectual property rights by filing two legal actions against Acambis. Bavarian Nordic A/S filed a patent infringement action against Acambis plc’s MVA smallpox vaccine at the U.S. International Trade Commission and a misappropriation of trade secrets case against Acambis plc and Acambis Inc. at the US federal district court based in the state of Delaware.
  
  
• The US Government issued on 15 August their tender terms, or RFP-lll, for the purchase of up to 20 million doses of MVA-based smallpox vaccine. The terms include delivery of MVA smallpox vaccines at a fixed-dose price as well as deliveries based on a cost-plus principle. The contract will be award-ed to one or more companies. Proposals must be submitted to HHS by the 29 September 2005 and according to the US authorities, the decision will occur in February 2006.
  
  
• All 60 subjects in a trial that evaluated the safety and immunogenicity of IMVAMUNE™ in patients with atopic dermatitis or history of atopic dermatitis have received two vaccinations without any serious or unexpected adverse reactions. This is the first study with an MVA- based smallpox vaccine in this population, which is known to be at greater risk for serious side-effects from conventional smallpox vaccine.
  
  
• As scheduled, test-manufacturing of the industrial scale MVA-BN® manufacturing process at the Kvistgård site began. Commercial manufacturing of IMVAMUNE™ is expected to start as planned, in September.
  
  
• A patent issued to Bavarian Nordic on an MVA-based vaccinia virus from the United States Patent and Trademark Office (USPTO) further strengthened the company’s intellectual property position on MVA.
  
  
• Peter Wulff, President and CEO, Bavarian Nordic, said, "We are pleased that the US Government has issued RFP-lll and that the process for the procurement of an initial 20 million doses of MVA-based smallpox vac-cine has begun. We have reviewed the tender requirements and with pleasure noted, that the government has decided, that in addition to immune-compromised individuals, to procure MVA-based smallpox vaccine for the portion of the population who are not considered to be at high-risk to experience the side-effects as-sociated with traditional smallpox vaccines. This change of attitude on the usage of MVA smallpox vaccine indicates that a decision about replacing the entire existing smallpox vaccine stockpile with MVA-based smallpox vaccines could be on the way."
  

• Revenue was DKK 142 million compared to DKK 118 million in 2004. A large majority of the revenue is derived from the ongoing contracts with the US Government’s health authorities (RFP-I and RFP-II).
  
  
• Result before tax was a deficit of DKK 23 million (as of 30 June 2004: profit of DKK 13 million).
  
  
• The company generated approximately DKK 417 million in new capital from a fully-subscribed rights issue completed in June.
  
  
• The cost base increased in the first-half of 2005, compared with the same period in 2004, due to a higher level of activity associated with the start-up of the Kvistgård production facility and the planned increase in costs for the clinical development of IMVAMUNE™.
  
  
• Total investments in the first six months of 2005 were DKK 117 million, which were attributed to the ongoing investment programme in the Kvistgård facility.
  
  
• Cash preparedness amounted to DKK 443 million at the end of the period, which is an improvement of DKK 278 million compared to the end of 2004.
  
  
• Expectations for the financial result for the full year 2005 are maintained at revenues of DKK 450-500 million, which include sales of Elstree-BN smallpox vaccines, and a net result of DKK 0. Cash preparedness at the end of 2005 is expected to be approximately DKK 190 million.
  

• At the end of June, the Kvistgård facility - the world’s first and only dedicated industrial scale MVA vaccine production facility´- was put into operation. As planned, full-scale test-production of MVA-BN® will start in July.
  
  
• Transfer of the MVA-BN® production process from Bavarian Nordic’s contract manufacturing partner IDT to the Kvistgård facility was completed during the period.
  
  
• The Danish Medicines Agency granted approval in April for the Kvistgård site to perform quality testing and the release of sterile vaccines.
  
  
• The plant’s manufacturing capacity is 40 million doses of IMVAMUNE™ per year which can, if necessary, be substantially expanded.
  
  
• This amount is more than sufficient to meet the US Government’s demand for an MVA-based small-pox vaccine. However, to respond to the expected global demand for IMVAMUNE™, Bavarian Nordic has established a partnership with GlaxoSmithKline (GSK) for the production of IMVAMUNE™.
  
  
• Approval was also received during the period from German authorities for the Berlin facility to produce clinical trial materials for Bavarian Nordic’s global development programmes.
  

• 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. This finding together with preclinical data showing that IMVAMUNE™ is expected to be effective in protecting against orthopox infection 3-4 days after vaccination with a single dose of IMVAMUNE™ in contrast to traditional smallpox vaccines which first protect 10-14 days after vaccination.
  
  
• The Phase II study comparing IMVAMUNE™ to a recombinant MVA HIV vaccine encoding the Nef gene (MVA-nef) is proceeding on schedule with more than half of the patients enrolled and vaccinated.

• The efficacy of IMVAMUNE™ in a non-human primate model was recently published in the Journal of Virology (ref. 1). This was the first study ever to demonstrate that an MVA candidate vaccine could protect monkeys from a lethal challenge of monkey pox (similar to smallpox) into the lungs which is the natural route of infection. These results add to the comprehensive data the company has already generated on the efficacy of IMVAMUNE in mice.
  
  
• Bavarian Nordic reported data from a mouse model demonstrating that IMVAMUNE™ is expected to be effective in protecting against orthopox infection 3-4 days after only one vaccination compared to the traditional replicating vaccines that only show protection after 10-14 days.

• Results from the MVA nef vaccine development programme as reported in the scientific publication Antiviral Therapy (ref. 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 (2). As reported in the publication, in 11 out of 14 HIV-infected persons vaccinated (78%), 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. With regard to smallpox specific immunity 92% of the subjects (13 out of 14) showed an antibody response after the first vaccination and the remaining patient seroconverted after the second dose. At present, more than three years after vaccination, 4 out of 14 patients are able to control their HIV without other treatment.
  
  
• A Phase ll study with MVA nef vaccine in 75 HIV-infected persons is underway and expected to be completed at the end of the year. 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 group for the study, will receive the IMVAMUNE™ smallpox vaccine.
  

• There has been a delay in the release of the MVA-BN® polytope vaccine for clinical trials. The development of an MVA-BN® multiantigen vaccine is proceeding as planned.
  

• BN ImmunoTherapeutics Inc., the company’s US affiliate to conduct research and development on vaccines against breast and prostate cancers was established in early-2005. Dr. Reiner Laus, President of BN ImmunoTherapeutics has started company operations which are located in Mountain View, California.
  
  
• 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. The vaccine has been cloned and an Investigational New Drug (IND) application is expected to be filed in 2006.
  

• On 19 August, Bavarian Nordic took steps to enforce its intellectual property rights by filing two legal actions against Acambis and Acambis plc’s MVA-based smallpox vaccine.
  
  
• A patent infringement action was filed by Bavarian Nordic A/S against Acambis plc’s MVA smallpox vaccine products at the U.S. International Trade Commission based in Washington DC. If success-ful, Bavarian Nordic will be in a position to either stop Acambis from engaging in the importation of any infringing MVA smallpox vaccine products into the USA, or seek a royalty for each infringing dose of MVA smallpox vaccine imported to the USA.
  
  
• The other action filed by Bavarian Nordic was a misappropriation of trade secrets case against Acambis plc and Acambis Inc. in the U.S. federal district court based in the state of Delaware. According to the complaint, without permission from Bavarian Nordic, Acambis received a Bavarian Nordic proprietary MVA-strain and dosing information, and used them to develop a competing MVA smallpox vaccine product. Bavarian Nordic is seeking unspecified monetary damages and injunctive relief.
  
  
• In other intellectual property matters, Bavarian Nordic was issued in July a patent from the United States Patent Office (USPTO) that further strengthened its intellectual property position on MVA. The patent ("Modified vaccinia ankara virus variant" - US Patent No. 6,913,752) grants claims that are directed to an MVA-based vaccinia virus having specific improved properties, such as, that it does not replicate in human cells, compared to other MVA strains which may replicate in certain human cells. The company also announced that it had entered into its second commercial agree-ment on the out-licensing of a strain of MVA to Oxxon Therapeutics Ltd.
  

• The US Government (Department of Health and Human Services- HHS) issued on 15 August their tender terms, or RFP-lll, for the purchase of up to 20 million doses of MVA-based smallpox vaccine. The terms include the delivery of MVA-based smallpox vaccines at a fixed-dose price as well as deliveries based on a cost-plus principle. Awards are expected to be made to one or two companies. Proposals must be submitted to HHS by the 29 September 2005 and according to the US authorities, the decision will occur in February 2006.
  
  
• RFP-lll includes an option for the US Government to acquire an additional 60 million doses of MVA-based smallpox vaccine. The decision to award the option will depend on the safety and efficacy of the MVA-based smallpox vaccine in further clinical testing over the next two years.
  
  In contrast to RFP-I and RFP-II, which was to develop MVA as a smallpox vaccine that could be safely given to 25% of the population who are at significant risk for side-effects from traditional replicating smallpox vaccines, the initial intent of RFP-lll is to acquire 20 million doses of the MVA smallpox vaccine for healthy individuals (“first-line responders” such as, hospital personnel, police, etc) who might be exposed to a known or suspected release of the smallpox virus.
  
  This change in direction for the usage of an MVA-based smallpox vaccine indicates that the current stockpile of traditional smallpox vaccines are no longer considered to be recommended for vaccination of the portion of the population who are not normally seen as being at high-risk for vaccination with traditional smallpox vaccines. This shift in attitude also indicates that the US Government plans to re-evaluate the composition of the smallpox vaccine stockpile, and with time, replace the current smallpox vaccines with a safe MVA-based smallpox vaccine.
  
  
• Bavarian Nordic expects that the decision by the US Government to acquire an MVA-based small-pox vaccine will have a resulting effect on other countries in the Western world. The decision to acquire MVA-smallpox vaccine for the "first-responder" group for use in the event of an outbreak, places an ethical responsibility on other Western governments to do the same.
  

• A second Phase II study to further evaluate the safety and immunogenicity of IMVAMUNE™ in 150 patients with HIV has been started in the USA. Results are expected in the end of 2006. This trial is expected to generate important data to support the filing of an Emergency Use Authorization of IMVAMUNE™.
  
  
• Enrolment in the Phase I clinical study in people with atopic dermatitis has been completed with the first review of immune data expected later this year. No serious or unexpected adverse reactions were reported in the 60 subjects following two vaccinations with IMVAMUNE™. This is the first and only study to have shown that an MVA candidate vaccine is safe in a population contraindicated to conventional smallpox vaccines.
  
  
• Enrolment in the other ongoing Phase I study comparing the safety and immunogenicity of IMVAMUNE™ to Dryvax® in healthy people has also been completed. Initial immune data will be available before year-end.