BioWorld International Correspondent

Bavarian Nordic A/S is set to raise gross proceeds of DKK465 million (US$82 million) from a fully underwritten rights issue directed at current shareholders.

The Kvistgaard, Denmark-based company is issuing 1.28 million new shares, priced at DKK365 per share. Existing shareholders are entitled to subscribe for one new share for every five shares they currently hold.

The underwriters, FIH Erhvervsbank A/S and Nordea Bank Danmark A/S, both of Copenhagen, Denmark, are underwriting the offering in full and already obtained advance binding commitments from three of the company's largest shareholders, who have agreed to take up their full allocation of shares. That corresponds to slightly more than one-quarter of the total offering.

The new shares are expected to be listed on the OMX Copenhagen Stock Exchange March 29, following a subscription period that runs March 10 through March 23.

Bavarian plans to use part of the cash as working capital to fund the early portion of its anticipated U.S. government contract to supply 20 million doses of its next-generation safe smallpox vaccine Imvamune, which is based on the modified Vaccinia ankara (MVA) vector. Unlike existing smallpox vaccines, it can be administered to pregnant women and to people with HIV infection.

The company appears set to win the U.S. contract - known as RFP-3 - following news late last year from the Department of Health and Human Services, which said it was no longer considering a rival bid from Cambridge, UK-based Acambis plc. (See BioWorld International, Nov. 15, 2006.)

"We took a 24-month view of the company and said 'this is going to finance us until we are very certain we have continuous revenue flow from the RFP-3,'" Bavarian Nordic CEO Peter Wulff told BioWorld International.

"What is interesting is that they are doing it now, ahead of the RFP-3," analyst Carsten Lønborg Madsen at Dankse Equities in Copenhagen told BioWorld International. "They don't have the option to wait."

The company held DKK238 million in cash as of Dec. 31, 2006, but anticipates that it will have a total funding requirement of DKK750 million between now and the end of 2008. It will net about DKK443 million from the rights issue. Debt, advance payments arising from the U.S. contract and the exercise of an employee warrant program will cover the rest of its cash needs.

Eventually, the company expects to book up to DKK3 billion in revenues from supplying 20 million doses under the RFP-3, although the agreement also gives the U.S. government an option to order another 40 million doses.

The company expects the contract to be awarded before July. By mid-2008, it anticipates that it will obtain emergency use authorization for the vaccine from the FDA. It will start to book revenues at about that point. "Final approval we expect to get in 2009," Wulff said.

The tendering process has been far more protracted than originally anticipated. Wulff said DHHS is taking "a more conservative approach" to awarding the tender than was the case with the $877.5 million contract it awarded to Brisbane, Calif.-based VaxGen Inc. two years ago.

That agreement was terminated late last year, following VaxGen's failure to commence a second Phase II clinical trial.

"We are much more advanced. We have a manufacturing process; we have a manufacturing facility. We have a lot more clinical data," Wulff said.

Predicting the outcome of the tendering process has been very difficult, Madsen said, because of the scarcity of information. "I'm still confident that the order will be placed, but I'm annoyed that it's constantly being delayed," he said.

Bavarian Nordic also will use some of the proceeds from the rights offering to fund its other vaccine development programs in HIV, measles and cancer. The company plans to unveil proof-of-concept data from a Phase II clinical trial of its MVA HIV nef therapeutic HIV vaccine at the 14th annual Conference on Retroviruses and Opportunistic Infections in Los Angeles next week.

Seventy-seven HIV patients undergoing highly active antiretroviral therapy (HAART) were involved in the study, which was completed almost one year ago. Four of 14 participants in an earlier Phase I/II clinical trial, which finished five years ago, have yet to resume HAART therapy following vaccination.

"That's the obvious partnering candidate in their pipeline," Madsen said.

Bavarian Nordic's share price dropped to a low of DKK565 during trading Tuesday, down DKK35 from Monday's close. It recovered most of those losses, however, to reach DKK583 by late afternoon.