Bavarian Nordic A/S – Interim Report for the period 1 January to 30 June 2009

28 August 2009
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In the first half of 2009 Bavarian Nordic generated revenue of DKK 33 million and recorded a loss before tax of DKK 188 million. As of 30 June 2009 the Group's net free liquidity was DKK 489 million.

Bavarian Nordic's new prostate cancer vaccine - PROSTVAC™ has been further validated and show blockbuster potential. Bavarian Nordic is progressing the development and Phase III preparations of PROSTVAC™:

  • End of phase II meeting with the FDA in Q4, 2009 and expected initiation of Phase III in 2010
  • Five ongoing clinical Phase I and II studies in different patient populations
  • Preparing the production for Phase III studies
  • Scientific publication of data
  • Ongoing discussions with prospective licensing partners

The U.S. Food and Drug Administration (FDA) has performed a GMP inspection of the IMVAMUNE® manufacturing facilities. These GMP inspections occurred at both Bavarian Nordic's Kvistgaard facility and at IDT in May 2009. The management of Bavarian Nordic consider these inspections to be successfully completed, and the corrective actions triggered by the inspections will be implemented within short time, causing no further investments. Bavarian Nordic has an ongoing and positive dialogue with FDA which confirms the expectations to start deliveries of IMVAMUNE® under the RFP-3 contract following the satisfactory implementation of the corrective actions. On this background the company expects delivery of IMVAMUNE® to the US government to be initiated during the period between fourth quarter of 2009 and the end of second quarter 2010.

As the company is awaiting the exact timing of the FDA review and final acceptance the timing of the actual initiation of delivery is at present uncertain. In order to reflect this, the expectations for the financial result for the full year 2009 are at present indicated as a range. The expected revenue of DKK 375 million was based on the delivery of 2 million doses of IMVAMUNE® in 2009. Depending on the timing for initiation of delivery, the revenue is now expected to be in the range of DKK 100-300 million, based on a maximum delivery of 1.5 million doses. The result before tax is expected to be a loss between DKK 275-325 million (previously DKK 225 million). The net free liquidity at year-end is expected to be in the range between DKK 175-350 million (previously DKK 400 million). Bavarian Nordic maintains its long-term expectations to the net free liquidity to be around DKK 800 million by year-end 2012.

In order for the company to maintain a solid cash position, the company has implemented a number of operational activities, thus postponing certain costs and investments until deliveries under RFP-3 can begin.

Highlights from the period

PROSTVAC™ data presented at international cancer congresses
In May 2009 detailed PROSTVAC™ data were presented at the 2009 ASCO Annual Meeting in Orlando, Florida. The more detailed analysis supports the headline data that were reported in October 2008. In the Phase 2 double-blind, prospective randomized placebo-controlled study of 125 patients with advanced prostate cancer, patients in the PROSTVAC™ group had a significantly longer median overall survival by 8.5 months compared to the control group. PROSTVAC™ immunotherapy was well tolerated.

In February 2009, PROSTVAC™ was presented at the 2009 Genitourinary Cancers Symposium in Orlando, Florida. The data from three different studies once again confirm the excellent safety and efficacy results previously reported, and they support the further investigation of the vaccine in patients suffering from advanced prostate cancer. The data also indicates that PROSTVAC™ may be used in earlier disease settings and thus in a larger patient population.

Important events after the period

PROSTVAC™ abstract accepted for an oral presentation at the ECCO Congress
A PROSTVAC™ abstract has been accepted for an presentation at the European CanCer Organisation (ECCO), ECCO 15 - 34th ESMO Congress, taking place in Berlin September 20-24 2009.

Negotiations with the US authorities for the further development of IMVAMUNE®
The US authorities have initiated negotiations with Bavarian Nordic for a new contract to develop a freeze-dried version of the IMVAMUNE® smallpox vaccine. This potential new project will have no influence on the ongoing RFP-3 contract for the procurement of 20 million doses of IMVAMUNE® and the licensure of the current liquid-frozen formulation, but represents an additional business opportunity.



Contact
Anders Hedegaard, President & CEO. Phone +45 23 20 30 64

Conference call
A conference call will be held today at 10.30 a.m. (CEST). President and CEO, Anders Hedegaard will present the interim results followed by a Q&A session. Also attending are Ole Larsen, CFO. Dial-in numbers for the conference call are: Denmark: +45 3271 4611, UK: +44 (0)20 7162 0077. The accompanying presentation is available on the company's website: www.bavarian-nordic.com.



Management's review

Deliveries under the RFP-3 contract
In order to initiate the delivery of the 20 million doses of IMVAMUNE® to the US under the RFP-3 contract, Bavarian Nordic has to fulfil certain requirements set by the U.S. Food and Drug Administration (FDA) to potentially support the use of IMVAMUNE® following a declared emergency. These requirements include animal efficacy data, clinical safety data and the demonstration that the manufacturing of IMVAMUNE® is in accordance with industry standards associated with a marketed product.

Bavarian Nordic has successfully completed a number of data submissions to the FDA in this regard the latest in November 2008.

Bavarian Nordic's published timelines for initiating delivery in 2009 was based on an assumption of the timely review and acceptance of Bavarian Nordic's last summary data submission made in November 2008. This data submission triggered a USD 25 million milestone payment and represented the successful completion of a major milestone of the RFP-3 contract. The completion of the milestone from BARDA followed by an FDA review of the data was expected to be the last hurdle before deliveries under the RFP-3 contract could start. However, by the spring this year, the FDA responded to this submission with the notice that, as a final step before deliveries, they would perform a Good Manufacturing Practice (GMP) inspection of the IMVAMUNE® manufacturing facilities. These GMP inspections were carried out at both Bavarian Nordic's Kvistgaard facility and IDT (the company's contract filling partner, already GMP approved by the European authorities) in May 2009.

While the FDA did not raise any concerns regarding the facilities or the IMVAMUNE® validated manufacturing process, a number of observations were noted, requiring corrective actions. This is usual following an inspection by regulatory authorities. The company has already initiated its responses to these observations but the corrective actions and FDA review and acceptance will take additional months. Implementation of the corrective actions will cause no further investments.

While this represents a delay in the planned delivery of IMVAMUNE®, following review of the data, the FDA have not raised any concerns regarding the animal, clinical or manufacturing data that has been submitted to support the use of IMVAMUNE® in a declared emergency. Thus satisfactory implementation of the corrective actions following the FDA inspection should trigger the start of IMVAMUNE® delivery.

Therefore the company expects delivery of IMVAMUNE® to the US government to be initiated during the period between fourth quarter of 2009 and before the end of second quarter 2010. 

Pipeline

 

PIPELINE

Programme

Status

Next milestone

Biodefence

Smallpox (IMVAMUNE®)

Phase II

Initiate Phase III (2010)

Anthrax

Preclinical

Phase I (2010)

Cancer

PROSTVAC™

Phase II

Phase III (2010)

Breast Cancer (MVA-BN®-HER2)

Phase I/II

Initiate new Phase I/II study (2009)

Prostate Cancer (MVA-BN® PRO)

Phase I/II

Phase I/II data update (Q4,2009)

Infectious diseases

HIV multiantigen

Phase I/II

Final report (H2, 2009)

Measles and RSV

Phase I

Complete recruitment (H1, 2010)

 

Biodefence

IMVAMUNE® - third generation smallpox vaccine candidate
Following the completion of the Phase II clinical development of IMVAMUNE®, Bavarian Nordic held an end of Phase II meeting with the FDA in the beginning of 2009 to discuss the Phase III development. The animal efficacy models and phase III protocol were essentially agreed with the agency - outlining a clear path for licensure of IMVAMUNE®. Once all protocols have been agreed with the FDA, a Vaccines Related Biological Product Advisory Committee (VRBPAC) will be scheduled to ratify the license strategy. This exceptional review path means that Phase III studies will be initiated in 2010.

Bavarian Nordic in negotiations with the US authorities for the further development of IMVAMUNE®
The US authorities have initiated negotiations with Bavarian Nordic for a new contract to develop a freeze-dried version of the IMVAMUNE® smallpox vaccine. This potential new project will have no influence on the ongoing RFP-3 contract for the procurement of 20 million doses of IMVAMUNE® and the licensure of the current liquid-frozen formulation, but represents an additional business opportunity.

Earlier this year BARDA published a Broad Agency Announcement (BAA) soliciting proposals for the advanced development of medical countermeasures against chemical, biological, radiological and nuclear (CBERN) threats. In June, Bavarian Nordic submitted a proposal for the development of a freeze-dried formulation of the MVA-based smallpox vaccine, IMVAMUNE®. The proposal included the validation of the production process and the preclinical and clinical development to support the use of the new freeze-dried formulation of IMVAMUNE® following a declared emergency.

A freeze-dried formulation of IMVAMUNE® offers various new advantages in terms of increased shelf-life and improved stability of the vaccine compared to the current liquid-frozen formulation. Additionally, this will improve the cold-chain shipping logistics and storage. These are all important criteria for governments around the world that prioritise their bio terror preparedness.

The new technology for freeze-drying the vaccine will also be applicable for other MVA-BN® based vaccines.

Preliminary immunogenicity data from large Phase II study indicate comparable antibody responses in HIV infected and healthy subjects
The Phase II study compared the safety and immunogenicity of IMVAMUNE® in HIV infected subjects (CD4 200 to 750 ul) with healthy subjects. The safety report including data from over 300 HIV infected and 86 healthy vaccinia-naïve subjects was submitted to the FDA as part of the "socalled EUA data package" in November 2008. Present data indicate the antibody responses induced by IMVAMUNE® were comparable in HIV infected subjects, even those with the lowest CD4 T cell counts (200-350 ul) compared to the healthy subjects. The analysis is continuing, with a final report expected to be reported in first half of 2010.

Ongoing studies
Bavarian Nordic has a number of ongoing clinical studies, all of which are funded under the ongoing RFP-2 contract with the US government. These include:

  • A Phase II study of patients diagnosed with atopic dermatitis (AD)
  • A Phase II study to demonstrate the effect of IMVAMUNE® when administered as a booster dose
  • A Phase I study in subjects between 56 and 80 years to generate data on safety and immunogenicity of IMVAMUNE® in an elderly population

The Phase II study to evaluate IMVAMUNE® in subjects with mild to moderate AD is still ongoing. Recruitment was completed in March 2009 and reached enrolment of the targeted 560 subjects, of which more than 300 are individuals diagnosed with AD. Use of IMVAMUNE® in this population has so far been shown to be safe and well tolerated, confirming the results of a previously performed Phase I study. The final report from this trial, including a 6 month follow-up for safety and the complete immunogenicity data set is expected in second half of 2010.

As planned, Bavarian Nordic has initiated a randomized, double-blind, placebo-controlled Phase II study to generate data on safety and immunogenicity of IMVAMUNE® in an elderly population (56-80 year old subjects). Enrolment was recently initiated in the US and is expected to be completed by end of 2009. The clinical study report is planned to be available in second half of 2010.

IMVAMUNE® in scientific publications
Through various publications, Bavarian Nordic continues to build the scientific profile of MVA-BN® and IMVAMUNE®. In June an article on the efficacy of IMVAMUNE® in animal models - "Evaluation of the efficacy of modified vaccinia Ankara (MVA)/IMVAMUNE® against aerosolized rabbitpox virus in a rabbit model" - was published in the peer-reviewed journal Vaccine.

Another article published in Vaccine concerns the positive characteristics of MVA-BN® compared to other versions of the MVA. The article supports the characteristics that are key to the strong patent position of the company.

Cancer

PROSTVAC™ - therapeutic prostate cancer vaccine candidate
Bavarian Nordic's new prostate cancer vaccine - PROSTVAC™ has been further validated and show blockbuster potential.

Bavarian Nordic expects that an end of phase II meeting with the FDA will take place during fourth quarter of 2009 in order to agree on the study design of Phase III.

The company is currently in preparations for initiating the Phase III trials with PROSTVAC™. Transfer and validation of the PROSTVAC™ production process to Bavarian Nordic's manufacturing facility in Berlin is ongoing in order to produce vaccines for the clinical trials.

Throughout the first half of 2009, additional detailed data on PROSTVAC™ were presented at several international cancer conferences. Furthermore, PROSTVAC™ abstracts and reviews have been accepted for publication in a number of scientific journals.

  • In February 2009 PROSTVAC™ data were presented at the 2009 Genitourinary Cancers Symposium in Orlando, Florida.

    The data, collected from three different studies confirm the excellent safety and efficacy results previously reported, and they support the further investigation in patients suffering from advanced prostate cancer. Also, the data indicate that PROSTVAC™ can be used in earlier disease settings and thus in a larger patient population.
  • In May 2009 detailed PROSTVAC™ data were presented at the 2009 ASCO Annual Meeting in Orlando, Florida. The presentation was made by Philip Kantoff MD, Professor of Medicine, Harvard Medical School, and the Dana-Farber Cancer Institute who is also the principal investigator of the study.

    The more detailed analysis supports the headline data that were reported in October 2008. In the Phase 2 double-blind, prospective randomized placebo-controlled study of 125 patients with metastatic prostate cancer, patients in the PROSTVAC™ group had a significantly longer median overall survival by 8.5 months compared to the control group. The hazard ratio estimate for overall survival from the study is 0.56 (95% CI 0.37-0.85).

    The statistical significance in the final data set is (p=0.006). These data were improved compared to the headline data presented in the fall in connection with the first announcement.

    PROSTVAC™ immunotherapy was well tolerated, with some patients having injection site reactions (40-60%), and brief systemic symptoms of fatigue, fevers, and chills (10-30%) reported.
  • In July 2009, a review on PROSTVAC™ from key investigators from the National Cancer Institute (NCI) was published in the publication "Expert Opinion on Investigational Drugs", Volume 18, Issue 7 2009. This is the most comprehensive and updated review on PROSTVAC™ so far.

    Quote from the article: "Preliminary clinical trials have indicated negligible toxicity, and Phase II trials have suggested a survival benefit after treatment with PROSTVAC™, especially in patients with indolent disease characteristics."
  • A PROSTVAC™ abstract has been accepted for an oral presentation at the European CanCer Organisation (ECCO), ECCO 15 - 34th ESMO Congress, taking place in Berlin September 20-24 2009.

Ongoing PROSTVAC™ studies
There are a number of ongoing clinical studies with PROSTVAC™ in both early and late stage prostate cancer, all of which are funded and conducted by NCI under the ongoing collaboration with Bavarian Nordic.

Ongoing studies with active patient enrolling:

  • Phase II study comparing the radioactive drug, samarium with or without PROSTVAC™ therapy in men with metastatic prostate cancer
  • Phase II study comparing antihormone therapy (flutamide) with or without PROSTVAC™ therapy in men with non-metastatic prostate cancer

Ongoing studies with enrolment completed:

 

  • Phase II study investigating PROSTVAC™ in men with PSA progress after local therapy (surgery and/or radiation)
  • Phase I dose-escalation, combination study with PROSTVAC™ and MDX-010 (CTL4-antibody) in men with metastatic prostate cancer
  • Phase I study investigating PROSTVAC™ by intraprostatic injection in patients with progressive or locally recurrent prostate cancer

 

About PROSTVAC™
PROSTVAC™ is a therapeutic vaccine moving into Phase III clinical development that has the potential to extend the lives of people with advanced prostate cancer. Administered subcutaneously, it induces a specific, targeted immune response that attacks prostate cancer cells. Conventional chemotherapy currently used to treat prostate cancer has limited survival rates and is often associated with numerous side effects. In contrast, PROSTVAC™ has the potential to extend survival with improved quality of life. PROSTVAC™ is being developed in collaboration with the National Cancer Institute under a Cooperative Research and Development Agreement with Bavarian Nordic's U.S.-based subsidiary, BN ImmunoTherapeutics. In clinical trials to date PROSTVAC™ and related PSA containing poxviral vaccines have been investigated in more than 500 patients for 10 years.

MVA-BN®-HER2 - breast cancer
In February 2009, Bavarian Nordic reported data from its clinical Phase I/II studies with its breast cancer vaccine, MVA-BN®-HER2, in development as therapy of metastatic breast cancer patients. The study met its primary endpoint with regards to safety and by showing an immune response.

Additionally Bavarian Nordic has completed preclinical studies with an improved version of the MVA-BN®-HER2 vaccine. In those studies, the new vaccine induced up to 20-fold higher T-cell immune response as compared to the original version. Furthermore, it proved to be efficacious in additional tumour immunotherapy models in HER2 transgenic mice. The immunological situation regarding HER2 in those mice strongly resembles the situation in humans.

Based on those encouraging data from both clinical and preclinical studies Bavarian Nordic decided to advance the clinical development of MVA-BN®-HER2 in further clinical studies with the new and improved vaccine. Specifically, a new, single-site Phase I/II study in the US will be initiated by 2009 and evaluate 24 patients in both metastatic breast cancer as well as in an adjuvant therapy of breast cancer setting.

Infectious diseases

MVA-BN® HIV multiantigen
Preliminary immune data from the Phase I/II trial indicate that MVA-BN®-HIV multiantigen induces a broad T cell response in HIV infected subjects

The first Phase I trial for this MVA-BN®-based prophylactic and therapeutic HIV vaccine candidate vaccine completed enrolment in 2008. MVA-BN® HIV multiantigen candidate expresses eight whole or truncated antigens from HIV and was administered to 15 HIV infected individuals. As previously reported the vaccine was well tolerated and no serious adverse events were reported. Preliminary immunogenicity data are just becoming available and indicate that the HIV vaccine candidate was able to induce a broad T-cell response (to multiple HIV proteins). A final study report is expected in the second half of 2009.

MVA-BN® Measles

 

The first paediatric clinical trial evaluating the safety and immunogenicity of MVA-BN® Measles was initiated as planned in the second quarter of 2009. Ninety children between the ages on 6 months to 6 years will be vaccinated in this Phase I study performed in South Africa. The first children have been vaccinated, without any reported safety concerns.

Legal matters

Patent infringement suit against Oxford BioMedica
The patent infringement suit filed by Bavarian Nordic against Oxford BioMedica in the United States in 2008 continues. Instead of denying infringement, Oxford Biomedica had made a second attempt to dismiss the suit arguing that it was premature because TroVax® was still evaluated in clinical trials. However, in May 2009, the court ruled against Oxford Biomedica and the case will thus continue, based on the substance of the patents. Oxford BioMedica made yet another unsuccessful attempt to get the case dismissed that was struck down by the court in June 2008.

Bavarian Nordic owns several United States patents relating to an attenuated strain of the company's core technology, MVA-BN®, which is the basis for its smallpox vaccine, IMVAMUNE®. MVA-BN® also holds promise as a vector for delivering recombinant vaccines. Bavarian Nordic has asserted four US patents as a basis for its infringement action. The claim in this case is that Oxford BioMedica has infringed Bavarian Nordic's patents by commercializing the patented technology in ways that have yielded large payments from Sanofi-Aventis under the agreement between them for the development and commercialization of TroVax®.

Financial statement for the period (1 January - 30 June 2009, un-audited)
The comparison figures for the same period 2008 are stated in parenthesis.

The revenue totalled DKK 33 million (DKK 23 million). The revenue derives from sale under the RFP-2 contract with the U.S. health authorities.

Production costs totalled DKK 96 million (DKK 39 million). The production costs are higher due to higher batch production at the Kvistgaard facility.

The Group's research and development costs totalled DKK 75 million (DKK 72 million) excluding development costs from the RFP-3 contract of DKK 23 million, of which DKK 18 million are capitalised as intangible assets under construction.

Sales costs totalled DKK 9 million (DKK 10 million).

Administrative costs totalled DKK 48 million (DKK 37 million).

Income before tax is a deficit of DKK 188 million (deficit of DKK 119 million).

Net result was a deficit of DKK 149 million (deficit of DKK 96 million).

As of 30 June 2009 the Group's net free liquidity was DKK 489 million (DKK 882 million). Cash flow from operations is negative with DKK -262 million (DKK 12 million). Cash flow from investment activities is DKK 28 million (DKK -33 million) and cash flow from financing activities is DKK -7 million (DKK -8 million). The net change in cash and cash equivalents is negative with DKK -242 million (DKK 28 million).

The outstanding foreign exchange contracts have during second quarter been reduced. The reduction has been executed in order to eliminate the adverse effect on the liquidity a rise in USD will have. The transaction itself has not Income Statement impact and the accumulated loss is according to the company's accounting policy recognised directly in equity.

The Group's equity as of 30 June 2009 was DKK 848 million (DKK 1,150 million). The decrease flows from retained earnings.

Financial expectations
As the company is awaiting the exact timing of the FDA review and final acceptance, the timing of the actual initiation of delivery is at present uncertain. In order to reflect this, the expectations for the financial result for the full year 2009 are at present indicated as a range.

The expected revenue of DKK 375 million was based on the delivery of 2 million doses of IMVAMUNE® in 2009. Depending on the timing for initiation of delivery, the revenue is now expected to be in the range of DKK 100-300 million, based on a maximum delivery of 1.5 million doses. The difference of approx. DKK 200 million contain the postponed delivery of doses to the US government under the RFP-3 contract, a pro rata revenue recognition of the up front payment of USD 50 million received in 2007 currently booked in the balance sheet as pre-payment from customer and reimbursable costs related to the first delivery.

The result before tax is expected to be a loss between DKK 275-325 million. The difference of approx. DKK 50 million contain the Cost of Goods Sold related to the postponed delivery partly reduced by some of the write downs on Inventory made in 2008. The net free liquidity at year-end is expected to be in the range between DKK 175-350 million.

This change in the outlook for 2009 will have no impact on the company's long term expectations to the net free liquidity to be around DKK 800 million by year-end 2012.

In order for the company to maintain a solid cash position, the company has implemented a number of operational activities, thus postponing certain costs and investments until deliveries under RFP-3 can begin.

Statement from the Board of Directors and Corporate Management
The Board of Directors and Corporate Management have, today reviewed and approved Bavarian Nordic A/S' interim report for the period 1 January to 30 June 2009.

The interim report has been prepared in accordance with IAS 34 "Presentation of interim reports" as adopted by the EU and additional Danish disclosure requirements for interim reports of listed companies, including those of NASDAQ OMX Copenhagen. The interim report has not been audited or reviewed by the Company's auditors.

In our opinion, the interim report gives a true and fair view of the group's assets and liabilities and financial position as of 30 June 2009 and the results of the group's activities and cash flows for the period 1 January to 30 June 2009.

In our opinion, the management's review provides a true and fair description of the development in the group's activities and financial affair, the results for the period and the group's financial position as a whole as well as a description of the most important risks and uncertainty factors faced by the group.


Kvistgård, 28 August 2009


Corporate Management:

Anders Hedegaard
President and CEO


Board of Directors:

Asger Aamund
Chaiman of the Board

Claus Bræstrup
Erling Johansen
Gerard van Odijk
Flemming Pedersen

 

Contact:

Anders Hedegaard, President & CEO.
Phone: +45 23 20 30 64