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Bavarian Nordic A/S – Interim Report for the period 1 January to 30 September 2010

In the first nine months of 2010 Bavarian Nordic generated revenue of DKK 219 million and recorded a loss before tax of DKK 386 million. Revenue is primarily derived from the deliveries of IMVAMUNE® to the U.S. Strategic National Stockpile under the RFP-3 contract. As of 30 September 2010 the Group's cash preparedness was DKK 400 million. The company maintains its full-year expectations with revenues in the level of DKK 325 million, and a pre-tax loss in the level of DKK 450 million. The cash preparedness at year-end is expected to be in the level of DKK 250 million.

 

 

Highlights from the period

 

  • Business divisions established

In September, Bavarian Nordic announced the reorganization of the company's primary business areas into two divisions; Cancer Vaccines and Infectious Diseases.

 

  • PROSTVACTM Phase III clinical trial protocol submitted to the Special Protocol Assessment process

As planned, Bavarian Nordic submitted in August the PROSTVACTM Phase III clinical trial protocol to the Special Protocol Assessment (SPA) process with the FDA.

 

  • Bavarian Nordic has received milestone payment of USD 25 million under the RFP-3 contract

The last milestone payment under the RFP-3 contract was received earlier than previously expected after completion of certain important milestones related to the development and deliveries of IMVAMUNE®.

 

 

Important events after the period

 

  • Advanced discussions with potential PROSTVACTM partners

Bavarian Nordic is currently in advanced discussions and due diligence with a number of companies, including some of the largest, on the Phase III development and commercialisation of PROSTVACTM.

 

  • Production of IMVAMUNE® resumed

After the successful implementation of a number of corrective actions, the production of IMVAMUNE® has now resumed with 2 batches per week. Although all these batches are still undergoing the standard release tests to ensure the quality of the product, all batches have currently passed the specifications. The plans to further increase the output to 3 batches per week in the beginning of 2011 and eventually 4 batches per week remain on track. The delivery of the remaining 18 million doses under the RFP-3 contract is still expected to take place in the period 2011-2013 and the exact delivery schedule is expected to be determined during 2011.

 

  • Bavarian Nordic's MVA-BN® patent stands in European validity challenge

In October, the company successfully defended its core patent in Europe covering the MVA-BN® technology as the Opposition Division at the European Patent Office rendered its decision to uphold the patent with certain amended claims, despite aggressive attempts from competitors to revoke the patent.

 

  • US Government exercises next part of freeze-dried IMVAMUNE® contract

Upon the successful completion of a number of development milestones, the next option under the freeze-dried RFP-contract with BARDA was triggered in October. The option provides next year's funding under the contract, totalling approx. USD 14 million.

 

 

  • US funding supports MVA-BN® preclinical study of a combination vaccine in Ebola and Marburg virus

In October, the company received funding from the U.S. National Institutes of Health (NIH) to advance its early research in the use of the MVA-BN® technology in the prevention of filoviruses (Ebola and Marburg virus).

 

  • Phase II data for IMVAMUNE® in atopic dermatitis patients submitted to the FDA

Bavarian Nordic has submitted the final study report for a large Phase II study of IMVAMUNE® in patients diagnosed with atopic dermatitis, who are currently contraindicated to the existing licensed smallpox vaccine. The data could potentially expand the use of IMVAMUNE® in the US to patients with atopic dermatitis.

 

 

Anders Hedegaard, President & CEO commented on the interim report: "Bavarian Nordic's development in third quarter progressed as planned. The deliveries of IMVAMUNE® to the U.S. Strategic National Stockpile continued and preliminary test results from the production indicate that our efforts to solve the technical issues were successful. We also completed a number of milestones in the development of a freeze-dried version of IMVAMUNE® which triggered the next option in the contract and furthermore we received funding from the US to advance our research in Ebola and Marburg viruses, which in time may complement our biodefence portfolio. In the cancer vaccine business, we made important progress in the PROSTVACTM programme with the submission to the SPA process with the FDA, with expected feedback in fourth quarter 2010."

 

 

Conference call

The company will host a conference call today, Tuesday, November 9 at 2 p. m. CET. President and CEO, Anders Hedegaard will present the interim results followed by a Q&A session. Also attending are Reiner Laus, Division President Cancer Vaccines, Paul Chaplin, Division President Infectious Diseases, Ole Larsen, Executive Vice President & CFO and Rolf Sass Sørensen, Vice President Investor Relations & Communications. Dial-in numbers for the conference call are: Denmark: +45 3271 4607, UK: +44 (0)20 7162 0077, US: +1 334 323 6201. The accompanying presentation is available on the company's website: www.bavarian-nordic.com.

 

 

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

 

 

Management's review

 

Establishment of business divisions and changes in management

Bavarian Nordic has reorganized its primary business areas into two divisions; Cancer Vaccines and Infectious Diseases each led by its own Division President reporting to the President & CEO of the Company.

 

The establishment of two divisions facilitates a stronger and more effective management structure and offers a number of benefits to the company, including:

 

  • Optimization of resource management and investments
  • Acceleration of development and in-licensing of new products within cancer and infectious diseases
  • Multiple funding options and separate strategic partnership opportunities

 

Reiner Laus, Executive Vice President and CEO of BN ImmunoTherapeutics, Inc., Bavarian Nordic's wholly-owned cancer research unit in California, USA has been appointed Division President Cancer Vaccines and Paul Chaplin, Executive Vice President and Chief Scientific Officer, has been appointed Division President Infectious Diseases.

 

In order to provide strong leadership and accountability within the new structure, the executive management has been consolidated. As a consequence, Executive Vice President Steen Vangsgaard & Executive Vice President Anders Gram have left Bavarian Nordic. Morten M. Rasmussen continues as Senior Vice President, Legal/IP. The new executive management team now consists of:

 

  • Anders Hedegaard, President & CEO
  • Paul Chaplin, Executive Vice President and Division President Infectious Diseases
  • Reiner Laus, Executive Vice President and Division President Cancer Vaccines
  • Ole Larsen, Executive Vice President and Chief Financial Officer

 

 

Pipeline

 

PIPELINE

Programme

Status

Next milestone

Cancer

PROSTVACTM

Phase II

Phase III (2011)

Breast Cancer  (MVA-BN®-HER2)

Phase I/II

Complete enrolment and initial immune data (2011)

Prostate Cancer (MVA-BN®PRO)

Phase I/II

Complete treatment period (2010), final data (2011)

Infectious diseases

Smallpox (IMVAMUNE®)

Phase II

Initiate Phase III (2011)

Anthrax

Preclinical

Phase I (2011)

HIV multiantigen

Phase I/II

Identify partner for full Phase II

Measles and RSV

Phase I

Phase I data (H2, 2010)

 

Cancer Vaccine Division

 

PROSTVACTM - prostate cancer vaccine candidate

 

In the development of PROSTVACTM, the company has made solid progress during 2010 with the regulatory process towards Phase III successfully on track. In March Bavarian Nordic concluded the Scientific Advice from the European Medicines Agency and the End of Phase II meeting with the FDA. In April, PROSTVACTM was granted Fast Track status by the FDA. In August, the company submitted a clinical trial protocol to the Special Protocol Assessment (SPA) process with the FDA with expected feedback during fourth quarter of 2010.

 

Preparations for the Phase III trial are ongoing. Clinical trial centres are now being selected with first patients expected to be enrolled following final regulatory approvals and product availability during 2011. Key regulatory elements such as the SPA are expected to be finalised during 2010 whereas the final release of clinical trial material for the Phase III study is expected to occur during 2011. The overall clinical trial and regulatory filing timeline remains unchanged.

 

The production process is established and transfer of production technology to the contract manufacturer is about to be finalised. The manufacturing will be based on the same technology used for production of clinical trial material for the Phase I and Phase II trials.

 

Partner for Phase III development and commercialisation

Bavarian Nordic is actively pursuing its strategy for partnering with a global pharmaceutical company for the Phase III development and commercialisation of PROSTVACTM, which has attracted significant interest. Bavarian Nordic is currently in advanced discussions with a number of companies, including some of the largest, with due diligence ongoing.

 

Infectious Disease Division

 

IMVAMUNE® - smallpox vaccine candidate

 

Production of IMVAMUNE® resumed

To meet the demand of the order for 20 million doses of IMVAMUNE® by the US government, Bavarian Nordic has planned a stepwise scale up of the manufacturing to go from 1 to eventually 4 batches per week. During 2010 production was temporarily stopped, because technical issues were encountered during the initial scale up from 1 to 2 batches of vaccine per week. However, a number of corrective actions have successfully been implemented and production has now resumed with 2 batches per week. Although all these batches are still undergoing the standard release tests to ensure the quality of the product, all batches have currently passed the specifications. The plans to further increase the output to 3 batches per week in the beginning of 2011 and eventually 4 batches per week remain on track. The delivery of the remaining 18 million doses under the RFP-3 contract is still expected to take place in the period 2011-2013 and the exact delivery schedule is expected to be determined during 2011.

 

As of today, more than 1.7 million doses of IMVAMUNE® have been delivered and invoiced under the RFP-3 contract, of which payments have been received for more than 1.4 million doses.

 

Performance-based milestone payment of USD 25 million received

The last milestone payment under the RFP-3 contract was received earlier than previously expected after completion of certain important milestones related to the development and deliveries of IMVAMUNE®. The payment will be recognised as revenue in the financial statements upon completion of the contract.

Submission of Phase II clinical data of IMVAMUNE® in patients diagnosed with atopic dermatitis to the FDA

Bavarian Nordic has submitted the final study report for a large Phase II study investigating the safety and immunogenicity of IMVAMUNE® in patients diagnosed with AD, a population that is currently contraindicated to the current licensed smallpox vaccine. The study was designed to fulfil the FDA requirements to potentially support the use of IMVAMUNE® in people with AD following a declared emergency. As such the data could potentially expand the current planned use of IMVAMUNE® in the US. The US government have published the need for a safer smallpox vaccine to protect 66 million people in the US, including 30 million people diagnosed with AD.

 

A two dose vaccination schedule with IMVAMUNE® was shown to be well tolerated in all 632 subjects enrolled into the study, including the 350 people diagnosed with AD. As with earlier studies there was no difference in the safety profile of IMVAMUNE® in healthy people or people diagnosed with AD. Moreover, the immune responses induced by IMVAMUNE® in healthy subjects and people diagnosed with AD was shown to be non-inferior, indicating that IMVAMUNE® was safe and immunogenic in this important population.

 

Phase III protocols submitted to the FDA awaiting review

Based on the successful end of Phase II meeting for IMVAMUNE®, Bavarian Nordic submitted the final clinical and preclinical protocols for Phase III to the FDA. Bavarian Nordic is currently waiting for the FDA to schedule a Vaccines Related Biological Product Advisory Committee (VRBPAC) to discuss the licensing strategy for IMVAMUNE® under the Animal Rule. Following the successful completion of this meeting the Phase III studies will commence.

 

Milestones in development of freeze-dried IMVAMUNE®completed. Next option triggered

BARDA (Biomedical Advanced Research and Development Authority) has exercised the next option under the contract for the development of a freeze-dried version of Bavarian Nordic's IMVAMUNE® smallpox vaccine.  The option, which was triggered by the successful completion of certain development milestones, provides next year's funding under the contract, totalling approx. USD 14 million. The total prospective value of the five-year contract, awarded in 2009, is USD 40 million.

 

MVA-BN® Anthrax

The development of an MVA-BN® based anthrax vaccine is proceeding satisfactorily with Phase I studies expected to commence in 2011.

 

Animal studies in Ebola and Marburg funded by NIH

Bavarian Nordic has received funding from the U.S. National Institutes of Health (NIH) to advance its early research in the prevention of filoviruses (Ebola and Marburg virus).

 

The company is investigating the potential use of its core vaccine technology, MVA‑BN® as a combined vaccine encoding genes for both the Ebola and Marburg strains. The funding from NIH will support an animal efficacy study performed in primates.

 

Upon evaluation of the initial data from this study, which are expected in 2011, Bavarian Nordic will determine the future of this project.

 

Other issues

 

Patents stand in European validity challenge

 

Core MVA-BN® patent upheld

In October, the company successfully defended its core patent covering the MVA-BN® technology despite aggressive attempts from competitors to revoke the patent in Europe.

 

The patent was granted in December 2005. Seven companies opposed the patent during the nine month opposition period in which any third party can file an opposition against any patent granted in a European jurisdiction. The opposition proceeding has been pending at the European Patent Office for several years.

 

After an oral hearing in the first instance the Opposition Division rendered its decision to uphold the patent with certain amended claims.

 

MVA patent in neonates also stands

Furthermore, in addition to the above, two companies had filed oppositions against the company's European Patent disclosing the use of MVA derived viruses for inducing a general immune stimulation for protection against e.g. smallpox in neonates, i.e. young children with an immature immune system. This opposition proceeding has also been pending at the European Patent Office for several years.

After an oral hearing in the first instance on October 7, 2010, the Opposition Division rendered its decision to uphold the patent with claims directed to MVA-BN® and its derivatives.

Financial statement for the period (1 January - 30 September 2010, un-audited)

The comparison figures for the same period 2009 are stated in parenthesis.

 

Revenue in the period totalled DKK 219 million (DKK 53 million). The revenue derives mainly from the sale of IMVAMUNE® under the RFP-3 contract, DKK 146 million; reimbursement of security costs under RFP-3, DKK 33 million; revenue from the RFP-2 contract, DKK 33 million and revenue from the IMVAMUNE® freeze-dried contract, DKK 8 million.

 

The production costs totalled DKK 360 million (DKK 126 million). The production costs are higher due to cost of goods sold, DKK 94 million (DKK 0 million); costs due to contract work, DKK 52 million (DKK 37 million) and other production costs of DKK 213 million (DKK 90 million).

 

The Group's research and development costs totalled DKK 142 million (DKK 114 million) excluding development costs from the RFP-2 and freeze-dried contracts of DKK 43 million which are part of the contract and classified under production costs.

 

Distribution costs totalled DKK 21 million (DKK 14 million) and administrative costs totalled DKK 70 million (DKK 69 million).

 

Income before tax is a deficit of DKK 386 million (deficit of DKK 261 million).

 

Net result for the period is a deficit of DKK 312 million (deficit DKK 212 million).

 

The IMVAMUNE® inventory totalled DKK 122 million (DKK 183 million). The write down of inventory as of 30 September 2010 is higher than compared to same period last year. The bulk vaccine produced during the initial scale previously this year did not meet all the predefined specifications. As the vaccine does not qualify for delivery to the U.S. Strategic National Stockpile, the company has made a write down. Compared to year end 2009 the IMVAMUNE®inventory is reduced by DKK 124 million. This is mainly due to sales of goods, DKK 94 million and part of 2009 production output discarded in 2010, DKK 54 million.

 

As of 30 September 2010 the Group's cash preparedness is DKK 400 million (DKK 324 million). Cash flow from operations is negative with DKK 124 million (DKK -416 million). Cash flow from investment activities is negative with DKK 37 million (DKK -1 million) and cash flow from financing activities is DKK 278 million (DKK‑11 million). The net change in cash and cash equivalents is positive with DKK 117 million (DKK -428 million).

 

The Group's equity as of 30 September 2010 is DKK 695 million (DKK 793 million). The right issue in first quarter 2010 increased the equity by DKK 302 million net after related costs.

 

Financial expectations

Bavarian Nordic maintains its expectations announced in the Interim Report for the period 1 January to 30 June 2010. Management expects revenue at the level of DKK 325 million, and a pre-tax loss at the level of DKK 450 million.

 

Revenue will primarily be generated from the delivery of 2 million doses of IMVAMUNE® to the United States under the RFP-3 contract and billing of the continuation of the RFP-2 contract and the RFP contract for freeze-dried IMVAMUNE®. The company still expects to deliver the remaining 18 million doses under the RFP-3 contract in the period 2011-2013. The exact delivery schedule is expected to be determined during 2011.

 

The cash preparedness at year-end is expected to be at a level of DKK 250 million including a credit facility of DKK 100 million. Thus the net free liquidity at year-end is expected to be approx. DKK 150 million.

 

 

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 September 2010.

 

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 September 2010 and the results of the group's activities and cash flows for the period 1 January to 30 September 2010.

 

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, 9 November 2010

 

 

 

Corporate Management:

 

 

 

Anders Hedegaard

President and CEO

 

 

 

Board of Directors:

 

 

 

Asger Aamund                                     Claus Bræstrup                                    Erling Johansen

Chaiman of the Board

 

 

 

 

Gerard van Odijk                                  Anders Gersel Pedersen                        Erik G. Hansen