Bavarian Nordic A/S – Third quarterly report as of 30 September 2005

• The US Government issued on 15 August a Request for Proposal (RFP-lll), for the purchase of up to 20 million doses of MVA-based smallpox vaccine. According to US Government authorities, the award of contract(s) is expected in February 2006.
  
  
• As scheduled, in September full-scale manufacturing of IMVAMUNE™ began at Bavarian Nordic’s new Kvistgård production facility, the world’s only dedicated industrial scale MVA vaccine production facility . Validation activities began in parallel and are continuing as planned.
  
  
• In the MVA nef therapeutic vaccine development programme against HIV, 4 out of 14 patients in a Phase l study continue to be able control their HIV disease and remain off anti-retroviral therapy more than three years after vaccination with MVA nef. The purpose of the Phase I study, which began in 2002, was to investigate the MVA nef vaccine’s safety and therapeutic potential in patients who at the time of vaccination were undergoing anti-retroviral therapy.
  
  
• In an ongoing Phase ll clinical study comparing different doses of the MVA nef vaccine with IMVAMUNE™, more than 50 of the planned 75 HIV-infected patients have been vaccinated. Initial immunological data is expected before year-end.
  
  
• 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. Bavarian Nordic A/S filed a patent infringement action against Acambis plc’s MVA-based smallpox vaccine at the U.S. International Trade Commission (ITC) 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. On 21 September, the ITC instituted its investigation of the complaint filed by Bavarian Nordic.
  
  
• A second patent was issued to Bavarian Nordic from the United States Patent and Trademark Office (USPTO) strengthening the company’s position on MVA.

• In accordance with the authorities’ revised deadline, Bavarian Nordic A/S submitted on 3 October its proposal to the U.S. Department of Health and Human Services (HHS) to manufacture and supply 20 million doses of its IMVAMUNE™ smallpox vaccine to the strategic national stockpile (SNS).
  According to US Government authorities, a decision on contract award(s) is expected in February 2006.
  
  
• The Danish Medicines Agency (Lægemiddelstyrelsen) has begun inspection of Bavarian Nordic’s Kvistgård plant.
  
  
• Bavarian Nordic has decided to actively enter into the consolidation process currently underway in the international vaccine industry. The goal is, fully or partially, to acquire a vaccine company if the product range and technology can strengthen Bavarian Nordic’s position in the market, or enter into a strategic alliance with a globally-based pharmaceutical corporation that can strengthen and boost Bavarian Nordic’s development and commercial foundation. The consolidation plan is expected to be finalised in the first-half of 2006.

Report for the period (1 January – 30 September, 2005, un-audited)

Financial Review

• Revenues for the period were DKK 206 million (as of 30 September 2004: DKK 132 million in 2004). These were mainly derived from the ongoing contracts with the US Government health authorities (RFP-I and RFP-II).
  
  
• Result before tax was a loss of DKK 33 million (as of 30 September 2004: loss of DKK 33 million).
  
  
• The cost base increased in the first nine months 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. Total investments in the first nine months of 2005 were DKK 139 million, which were attributed to the ongoing investment programme in the Kvistgård facility.
  
  
• The Group’s capital preparedness as of 30 September was DKK 373 million. Capital preparedness is expected to be in the range of DKK 280 million at the end of 2005.
  
  
• Expectations for the full year 2005 are revised to revenues of DKK 280-300 million and a loss before tax at a level of DKK 125 million. The revision is due to the lack of sales of Elstree-BN smallpox vaccines and a write-off of the inventory of Elstree-BN vaccines.

US Government programme for purchase of MVA smallpox vaccine (RFP-lll)
The US Government (Department of Health and Human Services- HHS) issued on 15 August a Request for Proposal (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. The original deadline for submission of 29 September 2005 was extended to 3 October 2005 due to an additional request from the health authorities for a Phase lV post-marketing plan. According to US authorities, the award of contract(s) is expected in February 2006.

RFP-lll also 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, where the goal was to develop MVA as a safe smallpox vaccine that could be given to 25% of the population at significant risk of side-effects from traditional replicating smallpox vaccines, the primary 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, paramedics, police, etc) who might be exposed to a known or suspected release of the smallpox virus.

This change in focus for the usage of an MVA-based smallpox vaccine suggests that the existing stockpile of traditional smallpox vaccines is no longer considered to be recommended for vaccination of the portion of the population that normally is not considered to be 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, will replace the current traditional smallpox vaccines with a safe MVA-based smallpox vaccine.

Bavarian Nordic expects that the decision by the US Government to acquire an MVA-based smallpox vaccine will have a resulting effect in other countries in the Western world. The decision to acquire a safe MVA-based smallpox vaccine for the "first-line responder" group for use in the event of an outbreak is expected to inspire other Western governments to do the same.

Production

• As scheduled, in September full-scale manufacturing of IMVAMUNE™ began at Bavarian Nordic’s new Kvistgård production facility, the world’s only dedicated industrial scale MVA vaccine production facility. Validation activities began in parallel and are continuing as planned.
  
  
• The Kvistgård plant’s manufacturing capacity is 40 million doses of IMVAMUNE™ per year. Capacity can be significantly expanded if necessary.
  
  
• Bavarian Nordic’s Berlin pilot production facility has started manufacturing of clinical trial batches of test vaccines. Clinical batches of the MVA-BN® polytope HIV vaccine, MVA-Her-2/Neu breast cancer vaccine, and MVA-BN® measles vaccines are expected to be released for clinical trials in the first quarter of 2006.
  
  
• Bavarian Nordic has experienced delays in the release of MVA-based recombinant vaccines for clinical trials because of production problems at some of the company’s smaller contract producers along with a “bottle-neck” on the completion of a number of necessary release tests. Therefore, Bavarian Nordic has decided in the future to place the production of its recombinant vaccines for clinical trials in the company’s facility in Berlin where production is now satisfactorily in control. In addition, Bavarian Nordic will whenever possible in the future, conduct its own critical release tests as well as enter into cooperative agreements with large contract laboratories.

Smallpox Vaccine Franchise

IMVAMUNE™ clinical development programme
Bavarian Nordic has now vaccinated more than 500 subjects with MVA-BN®-based vaccines. This is the largest clinical database with a safe MVA-based smallpox vaccine and demonstrates the safety of IMVAMUNE™ in the two largest risk populations (atopic dermatitis and HIV-infected patients) known to contra-indicated to traditional smallpox vaccines.

• A Phase II study to further evaluate the safety and immunogenicity of IMVAMUNE™ in 150 HIV-infected patients has commenced in the USA. This trial is expected to generate important data in the filing of an Emergency Use Authorization for IMVAMUNE™.
  
  
• Enrolment and vaccination of 60 patients with atopic dermatitis in a Phase I clinical study has been completed with the first review of immune data expected before the end of 2005. No serious or unexpected adverse reactions were reported in the 60 patients after two vaccinations with IMVAMUNE™. This is the first and only study to have shown that an MVA smallpox vaccine is safe in a population contra-indicated to conventional smallpox vaccines.
  
  
• Enrolment in the other ongoing Phase I study comparing the safety and immunogenicity of IMVAMUNE™ to Dryax® in 90 healthy subjects, has also been completed. Initial immune data will be available before year-end.
  
  
• The company’s pre-clinical program in smallpox has been further enhanced with the development of a second mouse model which demonstrates that a single vaccination of IMVAMUNE™ induces an equivalent immune response as Dryvax® and protects mice against a lethal infection of mouse pox (Ectromelia virus).

• Results from a Phase I study in 14 healthy subjects in the MVA nef development programme were presented on 7 September at the AIDS Vaccine 2005 Conference in Montreal, Canada. An HIV-specific immune response was induced in 71% of the subjects despite considerable anti-vector immunity. These results confirm again the capability of MVA to be used repeatedly in homologous prime boost vaccination schedules.
  
  
• After more than three years since vaccination with MVA nef, four HIV-infected subjects continue to remain off antiretroviral therapy. The purpose of the Phase I study, which began in 2002 in 14 HIV-infected subjects on antiretroviral therapy, was to evaluate the effect of MVA nef as a therapeutic vaccine.
  
  
• In the ongoing Phase II study comparing different doses of the MVA nef vaccine with IMVAMUNE™, more than 50 of the scheduled 75 HIV-infected subjects have been vaccinated. Notably, no serious or unexpected reactions were seen in the group (15 subjects) who received a dose of the MVA-based vaccine which was 5 times higher than the dose intended for IMVAMUNE™ as a smallpox vaccine. This clinical trial includes patients with CD4 counts at a level of 200 which are seriously immune-compromised patients. The results confirm again the excellent safety profile of MVA as a smallpox vaccine in populations at high risk to experience serious side-effects from conventional smallpox vaccines, such as Dryvax®. Initial immune data is expected before year-end.

• A patent infringement action was filed by Bavarian Nordic A/S against Acambis plc’s MVA-based smallpox vaccine products at the U.S. International Trade Commission (ITC) based in Washington DC. After a 30-day review period of the complaint filed, the ITC instituted on 21 September 2005 its investigation. Bavarian Nordic is requesting the ITC to issue a permanent cease and desist order which would prohibit Acambis from importing, selling, or offering for sale in the United States its MVA-based smallpox vaccine or other products that infringe Bavarian Nordic’s patents.
  
  
• 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.