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Bavarian Nordic A/S – Interim Report for the period 1 January to 30 September 2008

In the first nine months of 2008 Bavarian Nordic generated revenue of DKK 45 million and recorded a loss before tax of DKK 195 million. The expectations for the financial result for the full year 2008 are maintained at revenues in the level of DKK 180 million, and a pre-tax loss in the level of DKK 225 million. The main part of the revenue comprises of a milestone payment under the RFP-3 contract, which is expected in the fourth quarter of 2008. As of 30 September 2008 the Group's net free liquidity was DKK 782 million.
Significant progress was reported in Bavarian Nordic's pipeline during the first 9 months of 2008. Two new projects have entered the pipeline; Anthrax in preclinical development and PROSTVACTM in late Phase II development. With both the HIV multiantigen and the MVA-BN® prostate cancer programme entering Phase I/II trials earlier this year, the number of projects in clinical development has doubled since the beginning of the year. Our most advanced new product, PROSTVACTM -a late stage prostate cancer vaccine candidate, was acquired as part of a newly established partnership with the National Cancer Institute. PROSTVACTM, which in clinical studies has shown to extend lives with up to 8.5 months in patients with metastatic prostate cancer, has potential to fulfil an unmet medical need and offers a potential breakthrough and real hope for patients suffering from advanced prostate cancer. Bavarian Nordic is now preparing for Phase III studies with the vaccine, planned for first half 2010.
These recent events have bolstered the Company's strategy to reinforce the cancer business area as announced earlier in 2008.
Key highlights from the period

  • In August, Bavarian Nordic announced a scientific partnership with National Cancer Institute in the US. As part of this collaboration, PROSTVACTM - a candidate in late phase II clinical development was obtained.
  • More than 2,200 individuals have now been vaccinated with IMVAMUNE® - including more than 750 immune-compromised subjects.

 

Events after the period

  • In October, Bavarian Nordic announced positive Phase II results with PROSTVACTM. The results from the Phase II prospective randomized placebo-controlled study of 125 patients with advanced prostate cancer after 4 years of follow-up show that patients receiving PROSTVACTM had a statistically significantly longer median overall survival by 8.5 months (p=0.015) compared to the control group. Currently the only approved treatment for advanced prostate cancer extends median overall survival by an average of approximately 2 months. In addition, PROSTVACTM also had a favourable safety and tolerability profile.

Anders Hedegaard, CEO and President of Bavarian Nordic, commented on the development: "We are successfully on track to complete our primary objectives for 2008 that were established when we announced our updated strategy earlier this year. Our recent acquisition of PROSTVACTM and the exciting Phase II results that were recently reported have created an even stronger and well-balanced platform for Bavarian Nordic's future development. Our pipeline is strengthened in our strategic focus areas and we will now concentrate on taking our most advanced projects, IMVAMUNE® and PROSTVACTM into Phase III within the next couple of years. This will take Bavarian Nordic to a new level and it offers exciting opportunities to the company. The company still expects to initiate delivery of the 20 million doses of IMVAMUNE® under the RFP-3 contract in 2009."
Webcast In connection with the release of the interim report, a recorded webcast presentation with CEO, Anders Hedegaard will be available on the company' website from Tuesday, November 4th at 09:00 am. The webcast can be accessed from www.bavarian-nordic.com/investor/webcast.

Management Report Bavarian Nordic's pipeline currently comprises of seven products in development, of which two products are in late-stage Phase II clinical development with expected Phase III initiation in 2009 and 2010.

PIPELINE

Programme

Status

Next milestone

Biodefense

Smallpox (IMVAMUNE®)

Phase II

Initiate Phase III (2009)

Anthrax

Preclinical

Phase I

Cancer

PROSTVACTM

Phase II

Phase III (H1, 2010)

Breast Cancer (MVA-BN®-HER2)

Phase I/II

Final data (2008/2009)

Prostate Cancer (MVA-BN® PRO)

Phase I/II

Preliminary data (H2, 2009)

Infectious diseases

HIV multiantigen

Phase I/II

Initial immunogenicity data (H1, 2009)

Measles and RSV

Phase I

Initiate Phase I in children (H1, 2009)

 

Biodefense
IMVAMUNE® - third generation smallpox vaccine To date, more than 2,200 subjects have been vaccinated with IMVAMUNE® in 11 completed and ongoing Phase I and Phase II clinical trials. A large proportion of these study subjects (more than 750) are immune-compromised, i.e. HIV infected or diagnosed with Atopic Dermatitis (AD).
The company still expects to initiate delivery of the 20 million doses of IMVAMUNE® under the RFP-3 contract in 2009.
Bavarian Nordic is currently finalizing the completion of the Phase II smallpox data package in HIV patients that includes the interim safety data set from a Phase II study in over 300 HIV infected subjects who had no prior smallpox vaccination. Recruitment in this study was completed in the second quarter of 2008. The interim safety report of this study represents an essential part of the data package that will be submitted to the U.S. Health Authorities for evaluating whether the collective data can support the use of IMVAMUNE® as a smallpox vaccine in a declared emergency. Submission of this data to the U.S. authorities will fulfil the requirements of a milestone payment of USD 25 million under the RFP-3 contract by end of 2008.
The complete data set from this trial is expected to be reported in the second half of 2009. The final report will include data on immunogenicity as well as long-term (6-month) safety information and will contain data from subjects enrolled in an additional study arm funded by the NIH under RFP-2 (HIV infected subjects with a history of previous exposure to a conventional smallpox vaccine).
An end of Phase II meeting has been requested with the FDA in order to discuss the Phase III study design and data requirements for a biologic licence application (BLA) with the FDA. The meeting is expected to take place early in 2009.
Recruitment of the Phase II study in patients diagnosed with AD funded under RFP-2 is continuing. Together with a previous Phase I study, the use of IMVAMUNE® in this population has so far been shown to be safe and well tolerated in more than 200 subjects diagnosed with AD; another population excluded from vaccination with traditional smallpox vaccines. The active study phase is planned to be completed in the first quarter of 2009, due to a slight delay in the recruiting of this difficult population, although this has no effect on the planned completion of the study, during the second half of 2009.
As planned, Bavarian Nordic has initiated a Phase II study to demonstrate the effect of IMVAMUNE® when administered as a booster dose (re-vaccination) two years after primary vaccination with IMVAMUNE®. Recruitment is currently ongoing and expected to be completed by the end of 2008.
The planned initiation of a study in subjects between 56 and 80 years of age to generate safety and immunogenicity data in an elderly population has been postponed until the first half of 2009.
Cancer immunotherapy Bavarian Nordic has reported significant progress within its cancer business area over the past months, thus fulfilling the Company's objective to enhance this strategically important area. In short time, Bavarian Nordic has advanced the pipeline with two MVA-BN® based cancer product candidates successfully entering clinical trials. The cancer business area was even further boosted with the recent announced scientific partnership with National Cancer Institute (NCI) in the US and the acquisition of PROSTVACTM.
Bavarian Nordic now has two projects in prostate cancer and one in breast cancer - two of the leading types of cancer. Prostate cancer is the most common form of cancer with more than 500,000 new diagnosed patients globally per year and only limited treatment options. With estimated more than 140,000 related deaths annually, prostate cancer is the third leading cause of cancer related deaths in men. Limited treatment options in metastatic prostate cancer clearly establish a need for new, improved therapies. The recently announced Phase II results show that PROSTVACTM has the potential to fulfil an unmet medical need and offers a potential breakthrough and real hope for patients suffering from advanced prostate cancer.
PROSTVACTM - promising Phase II results leads to Phase III in 2010 In October, after evaluating new data from a prospectively randomized, placebo-controlled study, Bavarian Nordic reported the resulting positive mature Phase II data with PROSTVACTMthat showed statistically significant improved overall survival.
The results from this study of 125 patients with metastatic prostate cancer after 4 years of follow-up show that patients receiving PROSTVACTM had a statistically significantly longer median overall survival by 8.5 months (p=0.015) compared to the control group. Currently the only approved treatment for advanced prostate cancer extends median overall survival by an average of approximately 2 months. In addition, PROSTVACTM also had a favourable safety and tolerability profile.
The study results will be published in full over the coming period.
About PROSTVACTM PROSTVACTM (Vaccinia-PSA-TRICOM and Fowlpox-PSA-TRICOM) is a therapeutic vaccine moving into late stage clinical development that has the potential to extend the lives of people with advanced prostate cancer. The vaccine induces a specific, targeted immune response that attacks metastatic cells in the prostate. Conventional chemotherapy currently used to treat prostate cancer has limited survival rates and is often associated with numerous side effects. In contrast, PROSTVACTM has the potential to extend survival with improved quality of life.
In clinical trials to date PROSTVACTM has been investigated in 464 patients.
Preparing for Phase III Based on the promising results, Bavarian Nordic expects to initiate confirmatory Phase III studies for PROSTVACTMtogether with NCI in the first half of 2010 when the clinical product is ready. This will form the basis of approval for this therapy.
The Company expects to be able to leverage existing production facilities in the clinical and launch production of PROSTVACTM. This will require limited investments. Currently, the transfer and validation of the production process is ongoing, and if successful it is expected that the clinical product will be ready for the planned initiation of Phase III trials in the first half of 2010.
MVA-BN®-HER2 (breast cancer) Earlier this year Bavarian Nordic reported interim data from its Phase I/II studies with the therapeutic breast cancer vaccine candidate, MVA-BN®-HER2, with expected final Phase I/II data around the turn of the year 2008/2009.
MVA-BN®PRO (prostate cancer) The Company's MVA-BN® based prostate cancer vaccine candidate entered clinical trials earlier this year and preliminary data from a study in 18 male patients with non-metastatic hormone-insensitive prostate cancer is expected during second half year 2009.
Infectious diseases
MVA-BN®HIVmultiantigen Enrolment has now been completed in the Phase I/II safety and immunogenicity study in 15 HIV-infected patients (CD4 counts > 350 ul/ml) that was initiated in the United States earlier this year. The vaccine candidate has been well tolerated and no serious adverse events have been reported, further confirming the excellent safety profile of MVA-BN® based vaccines in this immune compromised population. Initial immunogenicity data will be available during the first half of 2009.
Childhood vaccines (measles and RSV)
Bavarian Nordic is currently planning to conduct a Phase I study in six month to six years old children. This will be the first trial evaluating the safety and immunogenicity of an MVA-BN® based vaccine in children and represents a major milestone in the Company's plans to develop childhood vaccines based on the MVA-BN® technology. Ethics approval has been granted for the initiation of the study, although minor delays in the final government approval means the trial will now be initiated in early 2009.
Incentive programmes
New warrant programme In October, the Board of Directors in Bavarian Nordic A/S awarded warrants to management, certain members of management in subsidiaries and the Board of Directors. Furthermore an incentive programme for all employees was introduced.
A total of 175,000 warrants are awarded for subscription of up to 175,000 shares of a nominal value of DKK 10 at an exercise price of DKK 156 per share. Under this program the Board of Directors will receive a total of 20,000 warrants, CEO & President 20,000 warrants, members of executive management 75,000 warrants and Managerial Staff a total of 60,000 warrants.
The value of each warrant equals DKK 49 and is calculated on the Black-Scholes model with a risk-free interest rate of 4.5 per cent and on the historical volatility of the shares. The calculation is based on a market value of the share of DKK 156 per share.
New incentive programme With effect from 1 November 2008, a three year incentive programme is introduced for all employees in the company, Bavarian Nordic GmbH and Bavarian Nordic Inc. The programme is a cash bonus programme based on so-called phantom shares (bonus programme based on the company's shares). This means that each employee in the program will be entitled to exercise a number of phantom shares when the programme expires in 2011 and, thus, receive a cash bonus calculated from the increase in the company's share price. Exercise of phantom shares is subject to the company's share price exceeding the exercise price by at least 10 per cent at the time of exercise in 2011.
Every month each employee is awarded up to three phantom shares per month of employment until November 2011. The exercise price has been established to be DKK 156, on the basis of the same terms that apply to the abovementioned warrants.
Based on the current number of employees in the company, Bavarian Nordic GmbH and Bavarian Nordic Inc this 3 year incentive program will comprise up to 28,296 phantom shares. The average value of each phantom share equals DKK 30 for existing employees in the company. The value is calculated on the basis of the Black-Scholes model subject to the same conditions that applies to the warrants.
The number of outstanding warrants in the company amount to (as of 4 November 2008):

Program

2006

2007

2007

2008

Exercise price (DKK)

542

549

505

156

Exercise period

2 weeks in Q4-2009

and/or Q2-2010

2 weeks in Q4-2010 and/or Q2-2011

2 weeks in Q4-2010

and/or Q2-2011

2 weeks inQ3-2011

and/orQ2 2012

and/orQ3 2012

and/orQ2 2013

Number of warrants:

       

Board of Directors

15,837

15,000

-

20,000

CEO & President

-

30,000

-

20,000

Group Management

47,515

30,000

10,000

75,000

Other Employees

51,731

57,000

-

60,000

Retired Employees

28,507

23,000

-

-

Total

143,590

155,000

10,000

175,000

 

Financial statement for the period (1 January - 30 September 2008, un-audited) The comparison figures for the same period 2007 are stated in parenthesis.
The revenue totalled DKK 22 million (DKK 23 million) in the third quarter. Year to date revenue is DKK 45 million (DKK 64 million). The revenue derives from sale under the RFP-2 contract with the U.S. health authorities. The activity of this development contract is lower compared to the same period last year due to fewer clinical trials completed in 2008 compared to 2007. Four clinical trials incurred significant costs in first half 2007 and only two clinical trials incurred significant costs in the third quarter of 2008.
Production costs totalled DKK 62 million (DKK 27 million) in the third quarter. Year to date production costs is DKK 101 million (DKK 49 million). The production costs are higher due to the start-up of routine production at the Kvistgård facility which proceeds according to schedule.
The Group's research and development costs totalled DKK 26 million (DKK 50 million) in the third quarter excluding development costs from the RFP-3 contract of DKK 13 million, which are capitalised as intangible assets under construction. Year to date research and development costs are DKK 98 million (DKK 175 million) excluding development costs from the RFP-3 contract of DKK 31 million, which are capitalised as intangible assets under construction.
Sales and administrative costs totalled DKK 23 million (DKK 26 million) in the third quarter. Year to date costs for sales and administration are DKK 70 million (DKK 67 million).
Income before tax is a deficit of DKK 76 million (deficit of DKK 76 million) in the third quarter. Year to date Income before tax is a deficit of DKK 195 million (deficit of DKK 219 million).
Net result in the third quarter was a deficit of DKK 60 million (deficit of DKK 62 million). Year to date the result is a deficit of DKK 155 million (deficit of DKK 190 million).
As of 30 September 2008 the Group's net free liquidity was DKK 782 million (DKK 492 million). Year to date cash flow from operations is negative with DKK -66 million (DKK -204 million). Cash flow from investment activities is DKK -55 million (DKK -101 million) and cash flow from financing activities is DKK -11 million (DKK +445 million). The net changes in cash and cash equivalents is negative with DKK -133 million (DKK +140 million) year to date.
As stated in the interim report for the period 1 January to 30 June 2008 the management has in August decided to realise the fair value of DKK 153 million on the USD 200 million forward exchange contracts to improve the company's cash position. The first part has expired and has contributed to the cash position with additional DKK 19 million. As stated earlier this transaction does only impact the cash position of the company and has no impact on the Income Statement or the Equity until the fair value from the hedge accounting is recognised together with USD revenue under the RFP-3 contract.
Financial expectations The 2008 guidance for the financial result is unchanged with revenue in the level of DKK 180 million, and a pre-tax deficit in the level of DKK -225 million. The main part of the revenue comprises of a milestone payment under the RFP-3 contract, which is expected in the last quarter of 2008. The net free liquidity at year-end 2008 is approx. DKK 620 million (unchanged).
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 2008.
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 2008 and the results of the group's activities and cash flows for the period 1 January to 30 September 2008.
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, 4 November 2008

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