Bavarian Nordic

ANNUAL REPORT 2020 Spreading hope, pioneering vaccines MANAGEMENT COMMENTARY Introduction 4 From research to real-life value 6 Our vaccines 10 2020 achievements 12 Letter to the stakeholders 14 Group Key Figures 2016–2020 15 Outlook for 2021 18 Sales performance and market trends Our strategy and business 22 Our strategy 24 Built on science, driven by people 28 Developing innovative life-saving vaccines 34 Driven by commercial excellence 38 Best in class vaccine manufacturing Corporate information 42 The Bavarian Nordic share 44 Sustainability 46 Corporate governance 48 Risk management 52 Management of Bavarian Nordic 58 Financial review 2020 FINANCIAL STATEMENTS Consolidated financial statements 67 Consolidated Income Statements 67 Consolidated Statements of Comprehensive Income 68 Consolidated Statements of Cash Flow 69 Consolidated Statements of Financial Position – Assets 70 Consolidated Statements of Financial Position – Equity and Liabilities 71 Consolidated Statements of Changes in Equity 73 Notes Financial statements of the parent company 120 Income Statements 121 Statements of Financial Position – Assets 122 Statements of Financial Position – Equity and Liabilities 123 Statements of Changes in Equity 124 Notes 139 Statement by Management on the Annual Report 141 Independent Auditor’s Reports CONTENTS FROM RESEARCH TO REAL-LIFE VALUE DRIVEN BY COMMERCIAL EXCELLENCE PIONEERING RESEARCH AND DEVELOPMENT BEST IN CLASS VACCINE MANUFACTURING We have a strong heritage in vaccine development and with a proven technology, we continue to make innovations to help fight existing and emerging diseases. We are experts in live virus vaccine manufacturing and with the recent addition of fill and finish capabilities we have enabled end-to-end commercial-scale manufacturing. We have established a commercial infrastructure with presence in key markets in Europe and the USA to drive profitable growth of our expanding portfolio of vaccines. We are committed to developing and manufacturing life-saving vaccines Lowering the risk of infectious disease for the greater good of our global community Annual Report 2020 4 40% growth in employees since 20190 100 200 300 400 500 600 700 EMPLOYEES AT BAVARIAN NORDIC 740 EBITDA 2020 mDKK 1 ,852 REVENUE 2020 mDKK 700+ employees by end of 2020 Annual Report 2020 5 OUR VACCINES The ongoing COVID-19 pandemic is an unfortunate reminder of the vulnerability of our population, despite major scientific and medical advances over the past century. While new treatments have significantly improved our lives, the prevention of infectious diseases remains a complex matter in an ever more globalized society, particularly as the reservoir for these diseases are often animals, which we are poorly able to control, and mutations of the viruses present continuous challenges in our efforts to minimize the impact of emerging diseases. Annual Report 2020 6 Our vaccines are yet a small contribution to improving public health around the globe, but our commitment to saving and improving lives by unlocking the power of the immune system is strong, and our accomplishments in 2020 clearly demonstrate our ability to transform our knowledge, expertise and capabilities into life-saving vaccines. Rabies Left untreated, rabies is almost invariably fatal and causes nearly 60,000 deaths worldwide every year. While most of these incidents occur in developing countries, rabies remains a threat in the wildlife in Western countries and may be transmitted to humans via bites or scratches mainly from bats, raccoons, skunks, and foxes. Rabies is 100% preventable with post-exposure prophylaxis, i.e. wound care and vaccination as soon as possible after being bitten and before the onset of symptoms. It is estimated that every 10 minutes, a person in the US is vaccinated after potential exposure to rabies. Pre-ex- posure prophylaxis are often recommended for travelers visiting countries and regions with high incidence of rabies and to animal handlers in some Western countries. Tick-borne encephalitis Tick-borne encephalitis (TBE) is a viral infectious disease transmitted to humans by the bite of an infected tick. Although rare, TBE is a serious condition affecting the central nervous system that can lead to death or long-term neurological sequelae after recovery from infection. TBE is prevalent in central, eastern and northern Europe and the geographic range of the virus appears to have expanded to new areas, likely due to a complex combination of changes in diagnosis and surveillance, human activities and socioeconomic factors, and ecology and climate. TBE is a preventable disease and vaccination is recommended for people who live in TBE risk areas or who frequently visit forests and grasslands in TBE risk areas. Annual Report 2020 7 Smallpox / Monkeypox While smallpox was eradicated worldwide by 1980 as a result of an unprecedented global immunization campaign, it remains one of most dangerous infectious diseases in the history of mankind, having killed an estimated 300 million people in the 20th centu- ry. Smallpox has been investigated as a biological weapon and in combination with fears over the risk of reoccurrence of the disease, either via synthesis or natural mutations, the US, as well as other countries have prioritized countermeasures against the virus and maintain a stockpile of smallpox vaccines. Our vaccine has been de- veloped to mitigate the risks associated with the traditional, replicat- ing vaccines that were used during the eradication of smallpox, and which are not recommended for people with compromised immune systems. Monkeypox is a viral zoonosis (a virus transmitted to humans from animals) occurring in Central and West Africa with symptoms similar to those seen in the past in smallpox patients, although it is clini- cally less severe. With the eradication of smallpox and subsequent cessation of smallpox vaccination, it has emerged as the most important orthopoxvirus and is considered the deadliest existing orthopoxvirus in humans with a mortality rate estimated at up to 10%. The FDA approval of our smallpox vaccine in 2019 also in- cluded approval for monkeypox and offers a new opportunity for the protection of those at high risk for exposure to this emerging infectious disease. Ebola Ebola virus disease causes severe hemorrhagic fever in humans, often leading to death. In average, the mortality rate is around 50%, although mortality rates in historical outbreaks have ranged from 25% to 90%. The virus is transmitted to people from wild animals and then spreads in the human population through direct contact with the bodily fluids of infected people. Sporadic outbreaks have occurred in West Africa since the virus was discovered in the 1970’s, but it was not until the large outbreak in 2014-2016, which killed more than 11,000 people, that the development of an effective vaccine was expedited, leading to an unprecedented global effort by governments and the pharmaceutical industry. Bavarian Nor- dic’s MVA-BN-based Ebola vaccine candidate, which was originally developed in collaboration with the US government, was licensed by Janssen in 2014 for use in a prime-boost vaccine regimen together with their adenovirus–based vaccine candidate. Following an exten- sive development program, the vaccine regimen was approved by the European Commission in 2020. Annual Report 2020 8 Annual Report 2020 9 2020 ACHIEVEMENTS 2020 marked year one in the commercial transformation of Bavarian Nordic and the accomplishment of several important milestones during the year were pivotal in the continued journey to become one of the world’s largest pure play vaccines companies. COMMERCIAL INTEGRATION MOVING FORWARD Following the acquisition of Rabipur/RabAvert and Encepur from GSK, a full global commercial organization has been established to support the integration of the products. Local core sales and marketing teams have been organized in Europe and the US, ensuring comprehensive commercial presence and infra- structure. The transfer of marketing and distribution of the acquired products were completed in several countries, including key markets such as Germany and the US. Building on these important advances in the commercial transformation of Bavarian Nordic, the remaining markets will be taken over during 2021. Annual Report 2020 10 EXPANSION OF SMALLPOX VACCINE CONTRACT WITH THE US GOVERNMENT Our longstanding partnership with the US government was again confirmed with the award of a new smallpox vaccine contract. The USD 202 million contract not only covers the supply of up to 1.4 million doses of the FDA-approved liquid-frozen JYNNEOS, which will ensure the availability of the vaccine in the U.S. Strategic National Stockpile for potential use by first-line responders, but also the manufacturing of additional bulk vaccine for future supply of an improved, freeze-dried version of the vaccine. CONTINUED ADVANCES IN VACCINE MANUFACTURING SECOND MVA-BN-BASED VACCINE TO OBTAIN REGULATORY APPROVAL After successful completion of the construction of our new fill and finish facility, the comprehensive work with validation and qualification of the equipment has proceeded with the aim to commence commercial manufacturing later in 2021. In parallel, the expansion of our bulk manufacturing has been initiated to increase the capacity and flexibility of the facility to support the technology transfer of the acquired vaccines and other future products. This expansion will create a center of excellence for manufacturing of live virus vaccines. In July, the European Commission granted marketing authorization for MVABEA ® for the prevention of Ebola. The approval, which was the second EU approval of a product based on our MVA-BN platform technology, marks a significant advance in the fight against Ebola and an important milestone in our partnership with Janssen, who has licensed the commercial rights to the vaccine. In connection with the approval, Bavarian Nordic received a milestone payment of USD 10 million from Janssen. Annual Report 2020 11 While we have both seen some remarkable achievements during our tenures at Bavarian Nordic, 2020 was an exceptional year with many firsts and achievements that will set new standards for our company. At the beginning of the year we embarked on a commercial transition to generate a new portfolio of products, including two vaccines acquired from GSK. While this transition for a company with no historical commercial presence was seen as a challenge by some, we remained confident in our employees who also shared our vision to create one of the largest pure play vaccine companies by 2025. This transition has so far been a great success with the establishment of a highly experienced and talented international commercial organization. The transfer of marketing and distribution of Rabipur ® / RabAvert ® and Encepur ® from GSK has already been completed in several countries, including establishing our own sales force in key markets such as Germany and the US. At the time of publication of this SETTING A NEW COURSE – BUILDING A NEW COMPANY LETTER TO THE STAKEHOLDERS We successfully conducted a rights issue during the worldwide pandemic. report, we have already transferred 18 markets representing at least 90% of the revenues and the remaining markets will be completed during 2021. Despite the worldwide challenges for the travel vaccine sector during last year we have maintained or increased our market shares during our first year as a fully integrated commercial company. This sign of strong execution also supports our business model that a higher focus on supply and marketing will provide a better service for healthcare professionals and improve annual growth for both Rabipur/RabAvert and Encepur beyond historical levels while providing more life-saving vaccines to patients. To support our strategy, we successfully closed a share rights offering – the largest in Bavarian Nordic history. Despite difficult markets created by the first COVID-19 lockdown, investors bought into the new business case of an innovative, profitable vaccine company, with a more predictable revenue stream. Therefore a special thanks is extended to all new and existing shareholders for their support, which has created a new platform for future growth. We have also seen a solid progression of our pipeline assets with the second MVA-based vaccine approval in the EU, as part of our partnership with Janssen to develop a vaccine to protect against Ebola – a deadly disease that kills between 25-90% of infected people. Positive clinical readouts for both JYNNEOS ® and MVA-BN ® WEV, a vaccine against an emerging deadly disease spread by mosquitos, has seen these programs progress and again support the safety and broad potential application of our MVA vaccine platform. While we postponed Annual Report 2020 12 Gerard van Odijk Chairman of the Board of Directors if there was ever a need to change the dynamics, it would be now during a worldwide pandemic that has caught the world unprepared. Our own private-public partnership on JYNNEOS continues to grow from a position of strength with new orders securing millions of doses to protect the US population against smallpox. We continue to invest in one of our key capabilities for vaccine manufacturing and completed the construction of a state-of-the-art fill and finish facility, designed for the production of life-saving vaccines. We have also initiated a further expansion of our existing vaccine bulk facility that will together create a center of excellence for the simultaneous manufacturing of multiple vaccines. Our capabilities now go beyond our own products and could be used for the production of other life-saving vaccines, or as part of a larger manufacturing infrastructure preparing nations against future pandemics or bioterrorism events. These are extremely exciting times for the company, and we have created a platform for future growth and opportunities to supply vaccines to protect millions of people each year against some of the deadliest diseases. However, none of this would be possible without our amazing employees and key stakeholders who have joined us in this endeavor. So, a great thanks to all of you that have supported the remarkable achievements during 2020. Paul Chaplin President & CEO the initiation of the planned Phase 3 for our leading vaccine against RSV due to COVID-19, we have initiated a human challenge study with pivotal results expected later this year. The year however will probably always be remembered for COVID-19 and the devastating impact this worldwide pandemic has had on our lives. However, due to the resilience and high dedication of our employees the business impact was managed, and we were able to maintain our financial guidance and report improved EBITDA and cash position by year-end. To help in the fight against COVID-19 we licensed a vaccine candidate from AdaptVac, based on an exciting vaccine platform technology that holds the potential to create a durable and highly protective response against this disease, and which can rapidly be adapted to new potentially more deadly variants. With strong preclinical efficacy data, the program has entered Phase 1 in March 2021, supported under a Horizon 2020 EU grant. Based upon promising data and the belief that there will be a market for COVID-19 vaccines post the pandemic we have decided to kick-start the further development of the program by funding a larger regulatory Phase 1/2 study and scale-up of manufacturing to accommodate potential future clinical development to support licensure of the vaccine. Preparing a nation against the unthinkable requires vision, strength and sustained investments, all at a time before an emergency, such as a pandemic or bioterrorism event, has occurred. While the US government has led the way for years in establishing private-public partnerships in developing and stockpiling biological countermeasures, this model is lacking in other parts of the world. We hope that other governments will have learned from this pandemic and think that Annual Report 2020 13 Paul Chaplin Gerard van Odijk Annual Report 2020 14 Group Key Figures 2016–2020 DKK million 2020 2019 2018 2017 2016 Income statement Revenue 1,852.4 662.5 500.6 1,370.2 1,006.7 Production costs 1,195.1 354.8 255.1 290.6 297.8 Sales and distribution costs 285.8 53.5 33.7 39.9 38.6 Research and development costs 341.4 409.3 386.3 518.4 463.2 Administrative costs 278.1 173.4 180.0 168.0 174.2 Income before interest and tax (EBIT) 379.6 (328.4) (354.5) 353.2 33.0 Financial items, net (97.6) (16.3) (2.2) (50.9) 6.5 Income before company tax 282.0 (344.7) (356.6) 302.3 39.5 Net profit for the year 277.5 (346.8) (361.9) 181.3 30.6 Balance sheet Total non-current assets 6,378.0 6,392.2 552.7 382.2 541.1 Total current assets 2,381.0 654.9 2,508.3 2,770.5 2,282.6 Total assets 8,759.1 7,047.1 3,060.9 3,152.7 2,823.7 Equity 4,894.4 1,865.5 2,180.6 2,506.3 2,017.2 Non-current liabilities 2,912.4 3,134.4 397.6 399.8 54.7 Current liabilities 952.3 2,047.2 482.7 246.6 751.8 Cash Flow Statement Securities, cash and cash equivalents 1,669.6 472.4 2,317.2 2,583.7 1,899.9 Cash flow from operating activities 571.9 (275.9) (288.5) 216.1 267.6 Cash flow from investment activities (1,911.5) (809.9) 17.1 (1,345.2) (448.2) – Investment in intangible assets (501.9) (2,310.9) (10.2) (22.3) (43.7) – Investment in property, plant and equipment (204.8) (360.1) (201.8) (56.4) (47.8) – Net investment in securities (1,202.1) 1,861.1 229.2 (1,266.6) (358.3) Cash flow from financing activities 1,334.9 1,114.7 245.8 613.4 657.2 DKK million 2020 2019 2018 2017 2016 Financial Ratios 1) EBITDA 739.8 (271.4) (312.9) 390.7 78.4 Earnings (basic) per share of DKK 10 5.1 (10.7) (11.2) 5.7 1.0 Net asset value per share 83.7 57.6 67.5 77.7 64.3 Share price at year-end 187 171 127 224 249 Share price/Net asset value per share 2.2 3.0 1.9 2.9 3.9 Number of outstanding shares at year-end (thousand units) 58,450 32,389 32,311 32,245 31,354 Equity share 56% 26% 71% 79% 71% Number of employees, converted to full-time, at year-end 690 491 419 420 437 1) Earnings per share (EPS) is calculated in accordance with IAS 33 “Earning per share”. Other financial ratios have been calculated in accordance with the guidelines from the Danish Society of Financial Analysts. Reconciliation of EBITDA Income before interest and tax (EBIT) 379.6 (328.4) (354.5) 353.2 33.0 Depreciation and amortization (note 9) 344.1 57.0 41.6 37.5 45.4 Impairment losses (note 9) 16.1 - - - - EBITDA 739.8 (271.4) (312.9) 390.7 78.4 OUTLOOK 2021 Annual Report 2020 15 In 2021, Bavarian Nordic expects revenue between DKK 1,900 million and DKK 2,200 million and an EBITDA between DKK 100 million and DKK 250 million. Cash and cash equivalents at year-end are expected to between DKK 1,400 million and DKK 1,600 million. Revenue EBITDA Cash and cash equivalents Due to the uncertainty created by COVID-19, the outlook for 2021 will be less specific than usual and until there is more visibility in the market. Between 1,900 and 2,200 (mDKK) Between 100 and 250 (mDKK) Between 1,400 and 1,600 (mDKK) 16 Annual Report 2020 Mid- to long-term financial goals While the commercial market for JYNNEOS is still in the establishing phase, Rabipur/ RabAvert and Encepur are mature products with established markets, which, post the COVID-19 pandemic, are expected to deliver at least low- to mid- single-digit annual sales growth and mid- to high-single-digit annual sales growth, respectively. From 2025, Bavarian Nordic targets, on a normalized basis, to deliver strong cash generation and profitability in line with the relevant vaccine peer group average. OUTLOOK 2021 – KEY ASSUMPTIONS Revenue The low end of the revenue range reflects a scenario where a lockdown due to COVID-19 continues beyond Q1 in key markets like the US and Germany. The higher end of the revenue range reflects a scenario where a gradual reopening will happen in key markets during Q2 and where travel starts picking up again in Q3 and Q4 of 2021. The smallpox and Ebola business are not expected to be impacted by COVID-19. Research and development costs Research and development costs of approximately DKK 750 million are expected for 2021 with the largest single project being RSV. Manufacturing of phase 3 material as well as cost for the announced Human Challenge Trial are included. For the COVID-19 program, up to approximately DKK 200 million are expected for a phase 2 trial and scale-up of manufacturing in preparation for a phase 3 trial. These costs are being capitalized and hence the research and development costs expensed through the P&L is expected to be approximately DKK 550 million. Cash position Expected payment of approximately DKK 375 million in milestones to GSK relating to the tech-transfer process for Rabipur/RabAvert and Encepur. Working capital changes of approximately DKK 300 million, primarily driven by increased inventory levels of Encepur and Rabipur/ RabAvert products.Investments of approximately DKK 650 million with the vast majority of the investment linked directly to the acquired vaccines Rabipur/RabAvert and Encepur and relates to the upgrade of the bulk facility and capitalized tech transfer costs. Draw-down of existing DKK 244 million loan facility with the European Investment Bank. Investments in COVID-19 program of up to approximately DKK 200 million (capitalized R&D costs). Net proceeds of approximately DKK 1,100 million from private placement included. Investments Approximately half of the total 2021 investments relate to the new facility. The design of the facility has been revised to achieve a higher degree of flexibility enabling parallel manufacturing of Bavarian Nordic developed products and allowing space for specific Encepur and Rabipur/RabAvert equipment. The re-designed facility will require a total expected investment of approximately DKK 650 million and the re-build is expected to be finalized in 2022. Capitalization of tech- transfer costs in 2021 is expected to reach approximately DKK 150-200 million. Beyond 2022 and with current plans,, annual investments are expected to decline to a level of DKK 50 - 100 million. The outlook is based on the following assumptions on currency exchange rates of DKK 6.10 per 1 USD and DKK 7.45 per 1 EUR. Annual Report 2020 17 300 250 200 150 100 50 0 2019 2020 Q1 Q2 Q3 Q4 SALES PERFORMANCE AND MARKET TRENDS Rabipur/RabAvert Encepur Smallpox vaccine Contract work Milestone, Janssen Rabipur/RabAvert Rabipur/RabAvert revenue amounted to DKK 628 million (DKK 960 million) for the full year. The 35% decrease versus prior year was caused by COVID-19 and an extraordinarily strong Q4 2019. The US rabies market declined by approximately 25% in 2020, however RabAvert compensated for a significant portion of the market decline by a significant mar- ket share gain. For the full year, the US market share was 77%, significantly above the level prior to COVID-19 and the competitive stockout situation. In Germany, the travel segment continued to be hit hard by COVID-19 during the quarter leading to a decline of nearly 95% in the rabies market vs prior year. For the fourth quarter revenue amounted to DKK 80 million (DKK 269 million), i.e. a 70% decline explained by COVID-19, return of competition and an extraordinarily strong Q4 2019. Revenue 2020 DKK million Sales figures from 2019 have been provided by GSK and are presented for comparison only. Rabipur/RabAvert sales by quarter mDKK 628 455 541 162 67 Annual Report 2020 18 300 200 150 100 50 0 2018 2019 2020 Q1 Q2 Q3 Q4 Encepur Encepur revenue amounted to DKK 455 million (DKK 527 million) for the full year, i.e. a decrease of 14% versus prior year. For the full year, the Encepur market share in key markets were largely unchanged and the year-over-year decline in sales was caused by inventory movements explained in the Q1 Interim Report and by COVID-19. This trend is in contrast to the historical market share loss that Encepur has suffered. For the fourth quarter, revenue amounted to DKK 49 million (DKK 44 million) corresponding to an increase of 12%. This quarterly growth is primarily driven by market share gain compared with the same period in prior year. The largest single market, Germany, showed a decline in the fourth quarter versus prior year of approximately 7% due to tightened COVID-19 measures. Jynneos Revenue from the sale of JYNNEOS for the full year was DKK 541 million (DKK 324 million) and DKK 60 million (DKK 193 million) for the fourth quarter. The revenue was all related to sales invoiced under the US government order awarded in April 2020. Other income Revenue from milestone payments for the full year was DKK 67 million (DKK 0 million), which was related to the award of the European marketing authorization of the Ebola vaccine in July 2020. This revenue was included in the Q3 2020 Interim Report. Revenue from contract work was DKK 162 million (DKK 338 million), mainly related to qualification and validation activities relating to the new fill-and-finish plant and the Phase 3 trial of the freeze-dried version of the smallpox vaccine, both under contracts with the US government. Contract work revenue for the fourth quarter amounted to DKK 39 million (DKK 97 million). The sale of a Priority Review Voucher was completed in first quarter 2020, generating DKK 628 million in other operating income. Sales figures from 2018 and 2019 have been provided by GSK and are presented for comparison only. Encepur sales by quarter mDKK Annual Report 2020 19 Q4 sales mDKK Q4 2020 Q4 2019 Growth Rabipur/RabAvert 80 269 1 -70% Encepur 49 44 1 12% JYNNEOS 60 193 -69% Milestone payments 0 0 Contract work 39 97 -59% Total 229 603 FY sales mDKK FY 2020 FY 2019 Growth Rabipur/RabAvert 628 960 1 -35% Encepur 455 527 1 -14% JYNNEOS 541 324 67% Milestone payments 67 - Contract work 162 338 -52% Total 1,852 662 1 2019 numbers provided by GSK for comparison only 10-YEAR CONTRACT 10-year contract framework with the US government As part of Bavarian Nordic’s contract framework with the US government, a freeze-dried version of the vaccine is under development. Due to an anticipated longer shelf life than the current liquid-frozen version, Bavarian Nordic believes that its freeze-dried formulation is well positioned to fulfil the US government's long-term stockpiling requirements for a smallpox vaccine to cover 66 million U.S. citizens. The initial contract for development of the freeze-dried version was awarded in 2009, and in 2017 Bavarian Nordic was awarded a USD 539 million order for the supply of freeze-dried MVA-BN to the SNS to replace the current stockpile of liquid-frozen vaccines, which has expired. The base contract of USD 100 million relates to the manufacturing of bulk vaccine, which was revenue recognized in 2018 and 2019, in addition to bulk vaccine worth USD 233 million manufactured under previous contracts. The contract further includes options of up to USD 140 million related to the clinical development, regulatory commitments and validation and subsequent approval of the fill and finish facilities. The remaining USD 299 million under the contract relates to the future supply of freeze- dried vaccine doses. The 10-year contract also contains agreed pricing for additional bulk and final doses of both liquid-frozen and freeze-dried formulation of the vaccine. SALES PERFORMANCE AND MARKET TRENDS Annual Report 2020 20 Annual Report 2020 21 OUR STRATEGY Bavarian Nordic’s fundamental mission is to save and improve lives by unlocking the power of the immune system and in the medium term we have established a bold vision and aspiration to become one of the largest pure play vaccine companies. A company driven by commercial excellence Best in class vaccine manufacturer Our vision is carried by three strategic pillars Develop innovative life- saving vaccines Annual Report 2020 22 Bavarian Nordic sees the continued progression of the devel- opment pipeline as of strategic importance with the aim to develop lifesaving vaccines. Key pipeline priorities are develop- ment and approval of the freeze-dried version of the smallpox vaccine, development and approval of an RSV vaccine, and to advance other infectious diseases and immunotherapy projects. Key strategic activities and milestones in 2021 • Initiate and complete a Phase 2 human challenge trial in RSV • Continue preparations for initiation of the Phase 3 trial of MVA-BN RSV in older adults in 2022 • Advance the development of the COVID-19 vaccine candidate, ABNCoV2 into Phase 2 and scale-up of manufacturing to phase 3 volume levels • Advance the development of smallpox MVA-BN freeze-dried formulation • Further explore intravenous administration of brachyury containing construct within immunotherapy. The mid- to long term goals are to: (i) secure approval of two vaccines: the freeze-dried version of the smallpox vaccine and the RSV vaccine, to be launched together with a partner, (ii) se- cure proof-of-concept of new immunotherapy approaches, (iii) introduction of at least one more infectious disease pipeline project, and (iv) preserve and grow the value of ABNCoV2 by building on the positive momentum in clinical development, despite not yet having secured third-party funding. During 2020, Bavarian Nordic established a full commercial infrastructure responsible for the commercialization of Rabipur/ RabAvert, Encepur and JYNNEOS. The work now continues to grow our sales and to establish Bavarian Nordic as the pre- ferred partner to health care professionals operating within our field. Key strategic activities and milestones in 2021 • Drive profitable growth for Rabipur/RabAvert and • Take over physical distribution for Rabipur/RabAvert and Encepur in remaining markets • Improve awareness and image of Bavarian Nordic with key stakeholders The mid- to long term goals are to: (i) drive profitable growth of the commercial business, (ii) establish JYNNEOS/IMVANEX/ IMVAMUNE as the global leader for the prevention of smallpox and for JYNNEOS also with respect to monkeypox, (iii) become a preferred partner to healthcare professionals for the pre- vention and treatment of rabies and prevention of tick-borne encephalitis, smallpox and monkeypox and (iv) further expand the portfolio of commercial stage products either organically or through acquisitions. Bavarian Nordic wants to further leverage its expertise within manufacturing of live virus vaccines. This involves completing the manufacturing footprint to encompass the full value chain from bulk manufacturing to fill and finish, as well as increasing bulk capacity and introducing the flexibility to manufacture different bulk vaccines in parallel. All of this with the strategic aim to be a best-in-class vaccine manufacturer. Key strategic activities and milestones in 2021 • Filling of first commercial vaccine doses in the newly built fill and finish facility • Completion of construction of new/amended drug substance facility • Progress the manufacturing technology transfer of Rabipur/ RabAvert and Encepur according to plan, including completing qualification of packaging performed at a selected contract manufacturer The mid- to long term goals are to: (i) establish Bavarian Nordic capabilities to fill and finish liquid and freeze-dried products, (ii) expand bulk manufacturing to introduce new technologies and manufacture multiple products in parallel, and (iii) to successfully complete the transfer of the manufacturing of Rabipur/RabAvert and Encepur from GSK, in order to deliver on the anticipated synergies of the transaction. BEST IN CLASS VACCINE MANUFACTURER A COMPANY DRIVEN BY COMMERCIAL EXCELLENCE DEVELOP INNOVATIVE LIFE-SAVING VACCINES Annual Report 2020 23 BUILT ON SCIENCE , DRIVEN BY PEOPLE INTERVIEW WITH ANU HELENA KERNS Annual Report 2020 24 Anu Helena Kerns joined Bavarian Nordic as Chief People Officer in No- vember 2020. Anu brings more than 15 years of leadership experience driving human resource and communication strategies. In the newly established role and as a part of the executive management team she will drive the organizational development through the ongoing com- mercial transformation of Bavarian Nordic. Anu: I am incredibly excited to be joining Bavarian Nordic at this transformative stage of its development. Throughout the organization, a strong purpose of delivering life-saving vaccines is present and I am thrilled to take part in this by shaping a people and organization agenda that will unfold Bavarian Nordic’s vision for the future. Since the acquisition of Encepur and Rabipur, Bavarian Nordic has had a laser-like focus on establishing a commercial structure with presence in new markets and expanding manufacturing capacity in anticipation of new vaccines. The organization has seen significant growth with a large number of new employees offering their competencies to the organization. Anu: We have transformed into a full-blown vaccine company in a very short time growing in size and scope. Now we must do the legwork and align people, processes and platforms to the new reality. This involves making our workflows simple and scalable, but more importantly to bring everyone along on the journey fostering collaboration and communication across functions and locations. This task has, naturally, been impacted by the COVID-19 pandemic. With around 300 new people in the organization, many have never had the chance to meet close colleagues face to face. Ultimately, these unprec- edented times have taught us that being out of sight does not mean being out of touch. Even under new and unanticipated pressures, we have succeeded, and important milestones have been achieved. We owe a big thanks to the Bavarian Nordic people who yet again demon- strated their flexibility and adaptability. Anu: Since joining Bavarian Nordic, the capability of our organization has repeatedly amazed me. I regard the strong knowledge base coupled with human factors like a widespread can-do attitude, willingness to go the extra mile and the ability to quickly adjust to changes and challenges as the true foundation of our success and something we should continue to nurture. Throughout the organization, a strong purpose of delivering life- saving vaccines is present Annual Report 2020 25 A future of flexible work and sustainable engagement Based on the learning we have from the COVID-19 lockdown period, Bavarian Nordic wants to offer more flexibility to our employees as we define our future way of working. This initiative is part of an overall objective to offer a healthy, safe and engaging working environment. Over the years, Bavarian Nordic has been able to achieve a steady re- duction in accidents, sick leave and turnover. The ambition is to monitor and keep these key figures at their current low levels. In the coming year, pulse surveys will be done to check the temperature of the moti- vation and commitment in the organization. Anu: I want to keep a good reading on the pulse of the organization to understand, how we fuel sustainable engagement going forward. I can only imagine that under the current circumstances there can be some fatigue in the organization, and if that is the case, I want all leaders to get involved in addressing it. So far, I have only experienced a very open, friendly and energetic workforce. As leaders we need to stay close and in tune with the people in the organization and make sure they feel seen, heard and developed. Innovation catalyzed by diversity and mobility Diversity and equal opportunity have entered the agenda of top management in Bavarian Nordic. More than half of all leader positions in the Company are female and there is female representation at all levels in the organization, including on the Board of Directors. Howev- er, diversity relates to more than gender - it also involves inclusion of different age groups and backgrounds. Driven out of a need to attract people with various backgrounds and specialty for manifold functions in different locations, the workforce in Bavarian Nordic quite naturally becomes diverse. As new CPO, Anu sees especially diversity as a catalyst for innovation: Anu: From my experience, having a diverse workforce works in our favor as a dynamic company dependent on innovation. We need people that bring along a fresh perspective and challenge the status quo. While we have a decent level of diversity in terms of gender, educational backgrounds and nationality, I personally believe we can benefit from engaging students, interns and fresh graduates who can offer new theory and different perspectives on technology and media. Anu: We all learn most from interacting with different people and getting out of our comfort zone. Bavarian Nordic has a unique opportunity to offer personal growth and development just by virtue of our continuous expansion. In my career, I have been fortunate to experience great jumps in my learning curve by changing role and location and working with people from different functions and cultures. I would like to see, how we can facilitate more internal mobility in Bavarian Nordic in the future We all learn most from interacting with different people and getting out of our comfort zone Annual Report 2020 26 Anu Helena Kerns Joined Bavarian Nordic in November 2020 from Novo Nordisk where she held various leadership roles with in- creasing responsibilities, including five years abroad where she was responsible for establishing a new regional or- ganizational structure and driving the HR development and communication strategy. Prior to Novo Nordisk she worked for 8 years in the financial sector with employer branding, reputation management and change communication. Annual Report 2020 27 DEVELOPING INNOVATIVE LIFE-SAVING VACCINES 28 Annual Report 2020 2021 FOCUS AREAS While Bavarian Nordic’s focus in 2020 has predominantly been on the commercial transformation, innovation remains a cornerstone for the Company. The development of a strong pipeline is an integral part of our growth ambitions, and not least our desire to deliver lifesaving promises to patients where there is a medical need. On the back of two recent product approvals; the liquid-frozen small- pox vaccine and the Ebola vaccine, we are working diligently towards securing additional approvals in the coming years. A key asset in the pipeline is MVA-BN RSV, an advanced, broad-spectrum vaccine can- didate for respiratory syncytial virus, which represents a blockbuster potential. While the planned Phase 3 program of the vaccine has been postponed until 2022, a human challenge trial will be conducted in 2021, providing important efficacy data later this year. We have also prioritized the development of ABNCoV2, our COVID-19 vaccine candidate in-licensed from AdaptVac, which we believe has potential as a next-generation vaccine that has potential to provide a broad and durable response, while also mitigating the challenges from new, and potentially more deadly variants of the virus. Another expected near-term approval is the freeze-dried smallpox vaccine, which has concluded Phase 3 development, and will be an important trigger for our future vaccine sales to the US government. We also remain committed to the development of novel therapies to fight cancer with a refocused strategy, involving more advanced vaccine constructs and new administration routes. RSV Initiate and complete a Phase 2 human challenge trial in RSV Continue preparations for initiation of the Phase 3 trial of MVA-BN RSV in the elderly in 2022 COVID-19 Advance the development of the COVID-19 vaccine candidate, ABNCoV2 into Phase 2 and scale-up of manufacturing to phase 3 volume levels Smallpox Advance the development of smallpox MVA-BN freeze-dried formulation Immuno-oncology Further explore intravenous administration of brachyury containing construct within immunotherapy Innovation remains a cornerstone for Bavarian Nordic Lastly, we are exploring other vaccine platforms in our efforts to expand the infectious disease pipeline over the next years. Annual Report 2020 29 Laurence De Moerlooze Joined Bavarian Nordic in April 2020 from Takeda Vaccines, where she served as Vice President and Global Program Lead for vaccines against Zika virus and Norovirus. Prior to Takeda she worked at GSK for 17 years, holding vari- ous leading roles in regulatory affairs, medical affairs and vaccine development working with numerous life-saving vaccines including Rabipur/RabAvert and Encepur. Two regulatory approvals over the past two years have demonstrated the success of Bavarian Nordic’s research and development team and its efforts to transform science into new, life-saving vaccines. How- ever, the successful completion of several pipeline projects combined with a shift in the immune-oncology focus has left room in the clinical pipeline for new projects. To refuel the growth, Bavarian Nordic ap- pointed Laurence De Moerlooze as Chief Medical Officer in 2020. With a strong background in the vaccine industry, Laurence brings a wealth of knowledge and will add important and valuable R&D and commercial experience to the Company. While an important focus for her is to expand and advance the clinical pipeline, she is equally mindful about the increased responsibilities that comes along having expanded the portfolio of marketed vaccines. Laurence: My objective as Chief Medical Officer is twofold: first to expand and advance a portfolio of pipeline projects and second to build a Medical Affairs, Pharmacovigilance and Regulatory organization fit to support our commercial vaccines within a governance framework aligned with industry standards. These three functions are key for Bavarian Nordic’s commercial transformation journey and success. MORE THAN A PIPELINE TO BUILD Annual Report 2020 30 New technologies, new opportunities Bavarian Nordic is recognized for its work on the MVA technology, and the Company’s endeavors in the field has led to regulatory approvals of vaccines against smallpox and Ebola, highlighting the strength and versatility of proprietary MVA-BN technology on which both vaccines are based. In addition, to the wealth of experience with MVA-BN, Bavarian Nordic has a strong expertise with several other platforms being tested with model antigens in non-clinical studies. Furthermore, the Company has licensed a COVID-19 vaccine candidate based on a unique virus-like particle display technology that offers alternative features to be added to the list of potential platforms for future vaccines. Laurence: Based on the data obtained with these various platforms in pre-clinical and clinical studies, we are committed to select the right platform to advance at least one vaccine candidate with a high medical need in our future development pipeline of infectious diseases. Immuno-oncology remains a priority While the successes made in infectious diseases have yet to be demon- strated in the immuno-oncology space, Bavarian Nordic has continued to make advances in its research, which not only is a matter of picking the right candidate, but also how it is being administered to the pa- tients. Intravenous administration of the cancer vaccines is a promising approach designed to utilize broader aspects of the immune response, which is being further explored in 2021. Bavarian Nordic has licensed a COVID-19 vaccine candidate based on a unique virus-like particle display technology Laurence: We have recently initiated a clinical study with TAEK-VAC, a fully in-house developed candidate generated from the MVA-BN platform to target HER2- and brachyury expressing cancers. This improved vaccine candidate leverages our extensive experience in immuno-oncology and as a new feature, utilizes intravenous administration which may enhance its efficacy. At the forefront of RSV development On a global scale, COVID-19 has become a top priority for vaccine development, also for Bavarian Nordic. However, RSV remains an equally important target, as no vaccines are available against the virus, which causes equally as many deaths worldwide, as influenza. RSV is a key focus for Bavarian Nordic and the Company has one of the most advanced vaccine candidates. Laurence: RSV remains a high priority in our vaccine devel- opment and we are confident that our multivalent candidate is a serious player in the competitive RSV vaccine development landscape. Therefore, in order not to lose momentum, we are planning to conduct a human RSV challenge trial in 2021. Data from this trial is expected already during the second half of 2021 and will provide the first insights into the protective efficacy of the vaccine candidate and further de-risk the Phase 3 efficacy trial that should commence in 2022. Annual Report 2020 31 Respiratory Syncytial Virus (RSV) Bavarian Nordic remains at the forefront of the development of a vaccine against RSV, and has generated highly promising Phase 2 results with its candidate, MVA-BN RSV, confirming a broad immune response that persists at least 6 months and can be boosted, without significant safety findings, in the older-adult target population. The broad immune response elicited by the vaccine suggests that it may activate various adaptive immune responses against RSV, which are expected to contribute to different pathways of protection. A Phase 3 program for the vaccine has been developed and was originally planned to start in 2021. Due to the impact of COVID-19 measures taken globally, the prevalence of other res- piratory viruses, including RSV, has been reduced. The planned efficacy study could be adversely affected by the uncertainties associated with potentially low rates of RSV incidence in the 2021/22 season. To maintain the momentum of the program despite the challenges faced by COVID-19, Bavarian Nordic plans to conduct a Phase 2 human challenge trial in 2021, while also postponing the recruitment into the Phase 3 study until 2022. The human challenge trial will generate the first efficacy data against RSV during 2021 and potentially further de-risk the Phase 3 efficacy trial. OUR R&D PROGRAMS COVID-19 In July 2020, Bavarian Nordic licensed a capsid virus like particle (cVLP) COVID-19 vaccine candidate from AdaptVac. The vaccine candidate, ABNCoV2 has shown to be highly immunogenic in relevant pre-clinical models inducing durable responses equivalent to high convalescent sera from patients that have recovered from COVID-19. These responses have led to the demonstration of a durable and highly protective response from a COVID-19 challenge. Coupled with the ease of production and the ability to rapidly adapt the vaccine platform to new potentially more deadly variants, ABNCoV2 looks like a highly promising candidate. Supported by a Horizon 2020 EU grant, AdaptVac has initiated the first-in-human study of the vaccine candidate in March 2021, and Bavarian Nordic has decided to move the ABNCoV2 project forward by investing in a phase 1/2 clinical trial and to scale up manufacturing to phase 3 volume levels in preparation for further clinical development towards licensure. The Phase 1/2 study will investigate the ability of ABNCoV2 to boost existing immunity through prior infection or vaccination, to create a more durable immune response that could protect against the current circulating variants of COVID-19. In parallel the Company will continue to seek funding to further progress the candidate towards licensure. Smallpox As part of Bavarian Nordic’s contract framework with the U.S. Government on the development and supply of a non-replicating smallpox vaccine, an improved, freeze-dried formulation of the MVA-BN ® smallpox vaccine is being developed. During 2020, positive topline results from a Phase 3 lot-consist- ency trial of the freeze-dried formulation of MVA-BN were re- ported. A prior Phase 2 study showed equivalence between the freeze-dried and liquid-frozen formulations of MVA-BN, and the lot-consistency trial was agreed with the FDA as the only Phase 3 study required to support licensure of the freeze-dried formu- lation. The Phase 3 study evaluated the immunogenicity and safety of three consecutive vaccine lots in 1,129 vaccinia-naïve persons. The three lots induced equivalent antibody responses, meeting the primary endpoint of the study, while the favorable safety profile was in line with the cumulative safety experience of the approved liquid-frozen formulation. Upon successful com- pletion of the current study, expected in 2021, the Company plans to submit a supplement to the BLA to extend the approv- al for both formulations of MVA-BN, anticipated in 2022. Equine encephalitis Under a contract with the U.S. Government, awarded in 2018, Bavarian Nordic has developed MVA-BN WEV, a vaccine against equine encephalitis virus, an emerging mosquito-borne virus which can result in the rare condition of encephalitis and death. In June 2020, topline results from the first-in-human trial of MVA-BN WEV were reported. The study enrolled 45 healthy adults in three treatment groups receiving different doses of the vaccine. All subjects were revaccinated after four weeks. Annual Report 2020 32 A detailed description of the programs, including results from clinical trials, are disclosed in company announcements and in the pipeline section on the Company’s website: www.bavarian-nordic.com. PIPELINE Vaccine Indication Phase 1 Phase 2 Phase 3 Status / milestone MVA-BN (freeze-dried) Smallpox Phase 3 – lot-consistency study ongoing with anticipated completion in 2021 MVA-BN RSV RSV Human challenge study planned for 2021, followed by Phase 3 in 2022 ABNCoV2 SARS-CoV-2 Phase 1/2 study ongoing TAEK-VAC Cancer Phase 1/2 study ongoing MVA-BN WEV Equine encephalitis Phase 1 dose finding study completed Data from the study showed that the vaccine was well tolerated and immunogenic across all dose groups. Neutralizing antibody responses were observed in all dose groups, with peak levels reached after the second vaccination. Responses were detected as early as 2 weeks after the first vaccination in the highest dose group, in which 100% seroconversion was observed for all subjects after the second vaccination. The most common vaccine-related adverse event was injection site pain. These clinically meaningful Phase 1 data warrant further clinical investigation, and Bavarian Nordic is seeking additional funding for the further clinical advancement of the vaccine candidate Immuno-oncology Results from a Phase 2 clinical study of BN-Brachyury in chordoma were reported during 2020. While the study failed to meet its primary endpoint, it provided signs of clinical activity, supporting brachyury as a potentially important immunotherapy target, particularly for chordoma. These intriguing signs of clinical efficacy are also supported by results in chordoma patients following the intravenous administration of BN-Brachyury in a separate trial. A tumor antibody enhanced therapeutic vaccine (TAEK-VAC) targeting HER2 and brachyury has been generated from the MVA-BN platform. A Phase 1/2 open label trial of intravenous administration of the vaccine, was initiated in early 2021 in pa- tients with advanced HER2- and brachyury-expressing cancers. Annual Report 2020 33 DRIVEN BY COMMERCIAL EXCELLENCE Annual Report 2020 34 2020 represented year one in the commercial transformation of Bavarian Nordic, and a key priority for the Company was the establishment of a full commercial infrastructure to support the new business. Adding this completely new discipline to the Company’s list of key competencies was a huge task that we have managed to implement according to plan. Based in the new Global Commercial Headquarter set up in Zug, Switzerland, the commercial leadership team was established from the beginning of the year, and quickly expanded to include core sales and marketing teams in Europe and the US to cover the key markets. We have built a dedicated sales force in our priority markets as this is one of the key levers to drive market share gain and sales growth. The primary objective for the new organization is to secure profitable growth of the commercial business which will be driven by a continued focus on retaining and gaining market shares for the established products, Rabipur/RabAvert and Encepur, while also working to establish JYNNEOS/IMVANEX/IMVAMUNE as the global leader for the prevention of smallpox and for JYNNEOS also with respect to the monkeypox indication. We wish to be recognized for our commercial excellence and aim to become a preferred partner to healthcare professionals, initially for the prevention and treatment of rabies and prevention of tick-borne encephalitis, smallpox and monkeypox. A key success factor to achieve this will be to improve the awareness and image of Bavarian Nordic among key stakeholders. To achieve our long-term ambition to become one of the largest pure play vaccine companies, we continue to explore opportunities to further expand our portfolio of commercial stage products either organically or through acquisitions. Complete market takeovers Take over physical distribution for Rabipur/ RabAvert and Encepur in remaining markets. Increase awareness Improve awareness and image of Bavarian Nordic with key stakeholders. Profitability Drive profitable growth for Rabipur/ RabAvert and Encepur. Annual Report 2020 35 2021 FOCUS AREAS 2020 2021 2022 2023 2024 Strong execution continues into 2021 with the commercial infrastructure successfully and timely in place in 2020, the transfer of marketing and distribution of Rabipur/RabAvert and Encepur from GSK was completed during the year in several countries, including key markets, such as U.S. and Germany. By year- end, more than 80% of the expected product revenue was covered by Bavarian Nordic’s own distribution or by its partner Valneva, who will manage the marketing and distribution of Bavarian Nordic’s products in selected European markets and Canada as part of a commercial partnership, entered in 2020. Under the partnership with Valneva, Bavarian Nordic will leverage its own commercial infrastructure in the marketing and distribution of Valneva’s vaccines for Japanese Encephalitis and cholera in Germany and Switzerland. This is expected to happen at the beginning of 2022. By March 2021, marketing and distribution in a total of 18 countries were transferred, corresponding to more than 90% of the total product revenue from Rabipur/RabAvert and Encepur, and the Company remains on track to complete the market transfers in 2021. The five-year transition of Rabipur/RabAvert and Encepur is a process involving all parts of Bavarian Nordic’s organization, gradually transferring the responsibilities for the different tasks from GSK to Bavarian Nordic while also gradually improving the profitability of these products for Bavarian Nordic. In 2020, a full commercial infrastructure was established and by 2021, the Company will have assumed marketing and distribution of the products in all markets. Transfer of manufacturing will occur stepwise with initial take-over of packing in 2021, fill and finish of vaccines in 2023 and production of the drug substance in 2024. To enable the latter, construction work to expand Bavarian Nordic’s facility was initiated in 2020. The five-year transition of Rabipur/RabAvert and Encepur Manufacturing Distribution Commercial infrastructure Annual Report 2020 36 Driving awareness for future success While the recent establishment of the commercial organization and the infrastructure to support the new business has been a success, the commercial presence is still in its very early days for Bavarian Nordic. Although diverse and sound industry experience and deep market knowledge are common denominators for the strong sales and market- ing teams that have been hired, the recognition of the Bavarian Nordic brand among relevant stakeholders is still low, as expected. Having established products like Rabipur/RabAvert and Encepur in the portfolio is an important driver for improving the awareness. In addition, the Company has focused its efforts on activities to support this goal when- ever new markets have been taken over, and improvements have been observed over the year. Future growth drivers While brand awareness, a dedicated salesforce, product availability and commercial excellence are important factors in securing continued profitable growth of the current commercial portfolio, the long-term ambition to become one of the largest pure play vaccine companies will require a broader portfolio of vaccines. The successful track history of bringing our own products to the market is expected to continue, but also the opportunity to expand our portfolio through acquisitions is being explored. Annual Report 2020 37 BEST IN CLASS VACCINE MANUFACTURING Annual Report 2020 38 2021 FOCUS AREAS BEST IN CLASS VACCINE MANUFACTURING One of the important features that provides Bavarian Nordic with a unique profile is the strong in-house vaccine manufacturing capabil- ities and capacity built over many years. We want to strengthen this expertise and are currently expanding our manufacturing footprint to encompass the full value chain from bulk manufacturing to fill and fin- ish of both liquid and freeze-dried vaccines, as well as increasing bulk capacity and introducing the flexibility to manufacture different bulk vaccines in parallel. The aim is to be a best-in-class vaccine manufac- turer with flexibility to support both current and future requirements. Despite COVID-19, the existing bulk manufacturing continued its operations uninterrupted during 2020 with production of bulk vaccine for several customers according to plan. Likewise, all activities to support commissioning of the new fill and finish facility continued successfully to enable commercial manufacturing of the first product in 2021. Additionally, the work to expand the bulk facility to support the transfer of the manufacturing of Rabipur/RabAvert and Encepur has progressed according to plan. Kvistgaard site – a center of excellence for vaccine manufacturing Our manufacturing site in Kvistgaard, north of Copenhagen, has always been an important asset for the Company and has played a pivotal role in reaching our strategic goals. The site has been operating for more than a decade, manufacturing bulk vaccine for the Company’s smallpox vaccine contracts with the U.S. Fill and finish Filling of first commercial vaccine doses in the newly built fill and finish facility Facility expansion Completion of construction of new/ amended drug substance facility Tech transfer of Rabipur/ RabAvert and Encepur Progress the manufacturing technology transfer of Rabipur/RabAvert and Encepur according to plan, including completing qualification of packaging performed at a selected contract manufacturer Government. To fulfil other manufacturing needs, the site has been expanded over time, most recently with the addition of a commercial- scale fill and finish facility, which is being put into operations in 2021. Together with the existing manufacturing capabilities, this will enable Bavarian Nordic to control the entire value chain of the manufacturing process from raw materials to final product and distribution. Annual Report 2020 39 Fill and finish commencing in 2021 The fill and finish facility is designed to support concurrent aseptic manufacturing of up to three different products in the formulation and filling area at the same time within separated closed systems, so that one drug substance can be formulated while a second is filled and a third is being freeze-dried. The facility construction was completed in 2019, and during 2020, vali- dation and qualification activities were completed in order to bring the first commercial product on the line in 2021, which will be JYNNEOS/ IMVANEX/IMVAMUNE smallpox vaccine in the liquid-frozen formulation. The freeze-dried formulation will be transferred to the line, once the process has been validated and approved by the US in connection with the FDA approval of this improved formulation. Expanding the facility to support acquired and future products The significant investment in the two vaccines from GSK also entails additional investments in the manufacturing infrastructure to increase the capacity and flexibility of the current facility. Therefore, in 2020, we initiated the expansion of our drug substance manufacturing unit, which will enable us to run two different products (viruses) at the same time. This will allow us to transfer the manufac- turing of Rabipur/RabAvert and Encepur into a dedicated production unit, while also offering the potential to bring in new technologies for new products. Rabipur/RabAvert and Encepur are currently manufactured by GSK and the basis of the technology transfer to Bavarian Nordic is an as-is transfer of the current manufacturing process. This transfer will be a staged process, starting with packaging then filling and ending with the transfer of bulk manufacturing. The tight regulation of pharmaceutical technology transfers together with Bavarian Nordic and GSK’s com- mitment to ensure supply to the market makes it a five-year process before final completion. During this time, GSK will continue to manufac- ture and supply Rabipur/RabAvert and Encepur. While the current expansion of the facility is expected to be able to ful- ly cover Bavarian Nordic’s manufacturing needs in a foreseeable future, the Company last year acquired an adjacent property, securing land for potential future expansions of its the manufacturing footprint. Annual Report 2020 40 Facility expansion provides a number of strategic advantages With the expansion of our drug substance facility and the comple- tion of the fill and finish facility we will: • Gain more control of our manufacturing value chain • Increase our overall capacity and enable manufacturing of multi- ple products at the same time • Establish a dedicated production unit for Rabipur/RabAvert and Encepur that will ensure sufficient capacity and stable supply to the market • Enable ourselves to bring in new products and technologies to the site A future-proof asset Chief Operating Officer Henrik Birk has been with Bavarian Nordic since 2008, a period where the Company’s manufacturing infrastructure has significantly expanded to fulfil the increasing demands for vaccines. “Our manufacturing journey continues as we in 2021 will put our new fill and finish facility into operations and have also begun the construction to expand our bulk manufacturing capacity to meet the future requirements in our vaccine production.” Annual Report 2020 41 THE BAVARIAN NORDIC SHARE Bavarian Nordic is listed on the Nasdaq Copenhagen exchange under the symbol BAVA. The Company’s share capital was DKK 584,501,120 by year-end 2020, comprising 58,450,112 shares with a nominal value of DKK 10 each. Each share carries one vote. In March 2020, Bavarian Nordic performed a rights issue with pre- emptive rights for its existing shareholders. 25,911,252 new shares with a nominal value of DKK 10 each were subscribed for, raising gross proceeds to of DKK 2,824 million. In addition, 149,795 new shares were issued as a result of warrant exercise by employees during the year. By December 31, 2020, there were 3,392,989 outstanding warrants, which entitle warrant holders to subscribe for 3,392,989 shares of DKK 10 each. Thus, the fully diluted share capital amounted to DKK 618,431,010 at year-end. In March 2021, Bavarian Nordic completed a private placement 5,150,000 new shares with a nominal value of DKK 10 each, raising gross proceeds of DKK 1,148 million. At the time of publication of the annual report, the new share capital had not yet been registered with the Danish Business Authority. Ownership As of December 31, 2020, Bavarian Nordic had 69,640 registered shareholders owning 54,555,418 shares. The following shareholders had publicly informed Bavarian Nordic that they own five per cent or more of the Company’s shares: ATP Group, Hillerød, Denmark, 10.11% Invesco Ltd., Atlanta, GA, USA, 5% (as of November 13, 2020) Bavarian Nordic held 107,646 own shares as treasury shares, corresponding to 0.18% of the share capital. The shares have been repurchased to hedge obligations under incentive schemes for the Company's Board and Executive Management. See note 30 in the consolidated financial statements. 170 150 130 110 90 70 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Share price development compared to indices Bavarian Nordic OMX Copenhagen C25 NASDAQ BIOTECH Dec Annual Report 2020 42 Contact Our investor relations team can be contacted on [email protected]. American Depositary Receipts (ADR) Bavarian Nordic has established a sponsored Level 1 American De- positary Receipt (ADR) program with Deutsche Bank Trust Company Americas. An ADR is a receipt issued by a depositary bank representing ownership of a company’s underlying shares. ADR programs are created to enable U.S. investors to hold shares in non-U.S. companies and trade them in the same way as U.S. securities. Bavarian Nordic ADRs are available for trading in the US over-the-counter (OTC) market, where three ADRs represent one Bavarian Nordic share. Annual General Meeting The annual general meeting will be held on Tuesday, April 20, 2021. Additional information will become available at: www.bavarian-nordic. com/agm no later than 3 weeks before the annual general meeting. Shareholders who have requested so will receive a notification via e-mail. Investor relations Bavarian Nordic maintains an active dialogue with shareholders, analysts, prospective investors and other stakeholders by providing relevant, timely and correct communication about relevant strategic, economic, financial, operational and scientific affairs of the Company. Management and Investor Relations are widely available to existing as well as potential shareholders via participation in investor conferences, roadshows, investor meetings and conference calls. A list of the current analysts covering Bavarian Nordic can be found at our website along with financial reports, company announcements, investor presentations, and more: www.bavarian-nordic.com/investor. Are you a shareholder? Registered shareholders are offered a range of electronic information services through the shareholder portal, which can be accessed from the Company’s website. The portal also offers the opportunity to request admission cards and/or vote by proxy for the general meetings. Shareholders are encouraged to have their shares registered with the Company; registration must be through the holder’s custodian bank. Shareholders are also encouraged to sign-up for receiving company announcements via e-mail from the Company: www.bavarian-nordic.com/investor. Financial calendar 2021 April 20, 2021 Annual General Meeting May 27, 2021 Three-month interim report (Q1) August 25, 2021 Half-year interim report (Q2) November 12, 2021 Nine-month interim report (Q3) Denmark North America Europe Non-registered Distribution of share capital 67% 14% 7% 13% Annual Report 2020 43 SUSTAINABILITY Our impact on global health No other health intervention touches so many lives as vaccines. The development of new vaccines and increased vaccination efforts, par- ticularly in developing countries, have helped to significantly reduce the incidence of major communicable, life-threatening diseases. It is estimated that vaccines have reduced these diseases by more than 90% over the past three centuries 1 . Vaccines work, and they contribute to the U.N. sustainable develop- ment goal 2 (SDG) number 3, “Good health and well-being” all around the world. However, according to Gavi 3 , immunization positively impacts, directly or indirectly, 14 of the 17 SDGs that support the 2030 Agenda for Sustainable Development. Our contribution, as a vaccine company, may seem small in the global perspective, but we are here to help achieve the goal for securing good health and well-being of all humans. Growing responsibly While pursuing our vision to become one of the largest pure play vaccines companies, improving and saving lives by excelling in R&D 1 www.who.int/immunization/monitoring_surveillance/data/gs_gloprofile.pdf 2 www.un.org/sustainabledevelopment/sustainable-development-goals/ 3 www.gavi.org/about/ghd/sdg/ SDG 3 Ensure healthy lives and promote well-being for all at all ages SDG 5 Achieve gender equality and empower all women and girls SDG 12 Ensure sustainable consumption and production patterns SDG 16 Promote peaceful and inclusive societies for sustainable development, provide access to SDG 4 Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all SDG 8 Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all SDG 13 Take urgent action to combat climate change and its impact justice for all and build effective, accountable and inclusive institutions at all levels Annual Report 2020 44 innovation, manufacturing and commercialization, we recognize the importance of protecting and taking care of the world around us, act responsibly in all matters, particularly focusing on minimizing the environmental impact from our production, but also on the safety and well-being of our employees, as well as other areas of relevance to our business. We seek to communicate openly and transparently about our CSR efforts in our annual CSR report which constitutes an independent part of the annual report and covers sections 99a, 99b and 107d of the Danish Financial Statements Act. Download the full CSR report at www.bavarian-nordic.com/csr ESG key figures Key figures for selected environmental social and governance areas are provided in accordance with the recommendations set out in “ESG key figures in the annual report”, June 2019 (revised December 2020) from the Danish Finance Society / CFA Society Denmark, FSR – Danish Auditors, and Nasdaq Copenhagen. For the sections regarding environ- mental and social data in the table below, the data has been subject to an independent auditor’s review in the form of limited assurance. The Independent Auditor’s Assurance Report can be found in our CSR-report. Unit 2020 2019 2018 2017 2016 Environmental data 1 CO 2 e, scope 1 Metric tons 1,381 909 964 992 1,135 CO 2 e, scope 2 Metric tons 1,175 1,178 1,398 1,686 1,519 Energy Consumption GJ 45,110 34,137 32,527 32,099 34,567 Water Consumption m 3 19,170 14,770 11,610 10,877 12,479 Social data 1 Full-Time Workforce FTE 607 465 421 439 446 Gender Diversity 2 % 61 N/A N/A N/A N/A Gender Diversity, Management % 56 51 50 49 52 Employee Turnover Ratio % 9 10 13 18 15 Sickness Absence 3 Days per FTE 6 6 6 8 8 Governance data 4 Gender Diversity, Board % 28 28 14 14 0 Board Meeting Attendance Rate 5 % 97 98 97 N/A N/A CEO Pay Ratio Times 15 N/A N/A N/A N/A 1 Data derived from the Company’s CSR reports 2016-2020. 2 Data not collected before 2020. 3 Sickness absence does not include offices in the USA. 4 Data derived from the Company’s annual reports 2016-2020, except for CEO pay ratio, which is presented in the 2020 remuneration report. 5 Data not collected before 2018. Annual Report 2020 45 CORPORATE GOVERNANCE Bavarian Nordic remains focused on good corporate governance, having implemented the recommendations from the Committee of Corporate Governance (Komitéen for god selskabsledelse) for companies listed on the Nasdaq Copenhagen exchange. Management believes that the Company is operated in compliance with guidelines and recommendations that support the Company’s business model and can create value for Bavarian Nordic’s stakeholders. Regularly and at least once a year, Management monitors adherence to the recom- mendations on corporate governance in order to ensure the best possible utilization of and compliance with the recommendations and legislation. In accordance with Section 107 b of the Danish Financial Statements Act, Bavarian Nordic has published a statutory report on Corporate Governance for the financial year 2020 on the Company’s website: www.bavarian-nordic.com/corporategovernance. The Board of Directors The Board of Directors (“the Board”) is responsible for the overall stra- tegic management and the financial and managerial supervision of Bavarian Nordic, as well as for regular evaluation of the work of the Corporate Management. In addition, the Board supervises the Company in a general sense and ensures that it is managed in an adequate man- ner and in accordance with applicable law and the Company’s articles of association. The Board discharges its duties in accordance with the rules of procedure of the Board, which are reviewed and updated by all members of the Board.. Diversity in the Board The Board of Directors currently has a representation of two female members elected by the shareholders, corresponding to 28%, which is above the current target of 15%. The target is being reassessed in 2021. Evaluation of the Board The Board and its subcommittees conduct every year a self-evaluation of the Board's and subcommittee’s work, accomplishments and com- position. The Chairman heads the annual evaluation, which is conduct- ed at least every third year by an external consultant. The process, whether it is facilitated internally or by external consultants, evaluates Annual Report 2020 46 topics such as board dynamics, board agenda, quality of the materi- al that is submitted to the Board, discussions at the Board meetings, the chairman’s leadership of the Board, strategy, Board composition and Board competencies. Typically, the process is further facilitated by each Board member filling out a detailed questionnaire, and the Board members are asked to score to which extent they agree to the indi- vidual questions. The results of the questionnaire are then discussed at a subsequent Board meeting, and the individual comments submitted are used in the planning and handling of future Board meetings. The 2020 self-evaluation was facilitated by an external consultant and, in general, key conclusions were positive with a continued satisfaction with the Board’s work as well as the work in the committees. Organiza- tional development and continued optimization of Board efficiency will also be a focus area in 2021. For more details on the work and composition of the Board and its committees, reference is made to the statutory report on Corporate Governance on the Company’s website: www.bavarian-nordic.com/ corporategovernance. Tax policy A tax policy describing our governing principles by which we manage our tax affairs was approved by the Board in November 2020 and is available on the Company’s website: www.bavarian-nordic.com/ about/corporate-governance/tax-policy.aspx. Remuneration policy and report The remuneration of the Board and the Executive Management is governed by the Company’s remuneration policy which was updated in 2020 and subsequently approved by the shareholders at the annual general meeting in June 2020. In accordance with section 139 b in the Danish Companies Act, Bavarian Nordic has prepared a report on the remuneration of the individual members of the Board and Executive Management in 2020, The report is available on the Company’s website: www.bavarian- nordic.com/corporategovernance. Annual Report 2020 47 At Bavarian Nordic risk management is an integrated part of the Company’s operations. A formal process ensures both bottom-up and top-down identification and handling of risks. In this process key risks are first identified through a bottom-up process including description of the risks and mitigating actions taken to reduce either the likelihood of occurrence or the potential impact. Residual risk after agreed mitigat- ing actions is further mitigated by insurance where this is relevant and possible. Risk area Risks Mitigating actions Development The development of a product can be delayed or even abandoned. The process involves pre-clinical and clinical tests as well as regulatory approval and even approval of manufacturing facilities in some cases. All steps through development are associated with risks and can fail. Competitors can develop more promising product candidates, potentially reducing the value of Bavarian Nordic’s pipeline and products. Some development projects require funding from third parties and if this is not available it can result in delays or even termination of the project. • Close dialogue with authorities (e.g. FDA) to secure optimal path to approval and compliance with GMP etc. • Strong quality system in place to ensure compliance with standards agreed with and required by authorities. • Use of adaptive trial designs to minimize financial risk and impact of failure. • Maintain good dialogue and relations with key existing or potential sponsors of development (see partnering further below). On a quarterly basis major risks are reported to the Finance, Risk & Audit Committee (FRAC) and discussed at these meetings. During the year specific risks are selected for more in-depth discussions with FRAC involving the operational owner of the specific risk. The Board of Directors receives regular risk updates from FRAC which then form part of the Board’s overall decisions about the Company’s strategy. The table below summarizes some of the key risks that are important to Bavarian Nordic’s business including examples of mitigating actions. → RISK MANAGEMENT Annual Report 2020 48 Risk area Risks Mitigating actions Laws and regulations Not complying with laws and regulations could damage the Company’s reputation, result in significant fines and impede the Company’s ability to operate. • Internal legal resources available. • Monitor development in relevant laws and regulations. • Allocation of internal resources to secure adaptation of new rules and regulations. • Establish internal compliance structure and governance related to commercial operations. Financing Lack of funds could eventually make it difficult for the company to pursue the strategy involving among others investments in development and manufacturing facilities. • Ensure good financial visibility by forecasting. • Secure optimal timing of income from partner agreements. • Maintain working capital at appropriate levels to free liquidity. • Keep spending and investment level at appropriate levels to stretch liquidity runway. • Secure constant knowledge about financing options available in the market. • Secure access to bank financing if/when needed. Cybersecurity Disruptions to IT systems, e.g. caused by a virus attack or hacking, may happen and could have significant impact on the company’s ability to operate effectively. • Internal procedures and resources for continuous security monitoring and vulnerability assessment. • Continuous development of preventative measures. • Continuous internal IT security training to build awareness. • Involvement of a third-party cyber security specialist to ensure a constant overview of threats and preventative measures available. • Perform annual security penetration tests and audits by third party. Annual Report 2020 49 Risk area Risks Mitigating actions Supply and manufacturing Disruptions to the supply chain caused by break-downs in facilities, third party supply and/or manufacturing issues or similar could have a significant impact on the ability to supply products and could impact both customer relations and financial performance. Issues potentially causing delay in the transfer of manufacturing of Rabipur/RabAvert and Encepur from GSK to Bavarian Nordic could negatively impact expected future margins. • Internal quality audits, including mock inspections. • Secure adequate inventory and supply chain strategy including dual sourcing. • Shelf-life extension initiatives. • Disaster recovery plans and back-up strategies. • Dedicated and competent organization focusing on the transfer of manufacturing from GSK to Bavarian Nordic. • Dedicated and competent organization responsible for manufacturing planning. Commercialization Bavarian Nordic is facing market competition from companies that are significantly larger in size and resources available than Bavarian Nordic. If Bavarian Nordic cannot effectively compete in these markets it will have a negative effect on future revenue and profit. Geopolitical or macroeconomic changes or health crisis, e.g. pandemics, could impact demand, pricing and access to vaccinations. • Secure a very engaged and competent sales, marketing and medical affairs organization. • Leverage focus rather than size vis-a-vis competition. • Look for and leverage differentiation. • Build strong relations through dedication and focus to achieve preferred supplier status. Partnering Partnering with other companies and government bodies in the industry is a central element of the Company’s strategy. Loss of partnerships, e.g. due to collaboration issues, failed projects or similar, could have a significant impact on the Company’s reputation and future performance. • Frequent interactions with partners to build and maintain common understanding. • Processes in place to resolve potential issues. Annual Report 2020 50 Risk area Risks Mitigating actions Attraction and retention of talent Not being able to attract and retain sufficient and right talents could impact the Company’s ability to perform at high standards and compete against other companies. • Perform employer branding. • Provide training and development. • Offer competitive remuneration package. • Identifying and working with key talents. Intellectual property rights (IP) The validity of patents is crucial for the company to secure future revenues and return on the investments made in development. Patents might be challenged by competitors. • Dedicated and experienced resources involved in the filing of patent applications to minimize vulnerability to future invalidity actions, and with ability to defend patents if such actions are filed. Currency exposure and tax disputes Currency risks and additional financial risks are further explained in note 24 in the consolidated financial statements. Significant fluctuations in the DKK/USD and DKK/EUR exchange rates will impact financial statements and potential disputes with tax authorities could result in additional tax payments. • Aim to create natural hedges by matching income and expenses in USD and EUR. • Material net USD exposure is hedged using FX contracts or options. Material net EUR exposure can also be hedged using FX contracts. • Taxes are paid where the Company operates, and intercompany transactions are priced and governed by agreements in compliance with OECD’s transfer pricing guidelines. • Proactive work with tax authorities to ensure alignment on tax situation and avoidance of negative surprises. Annual Report 2020 51 BOARD OF DIRECTORS The Board consists of seven external members elected by the share- holders at the annual general meeting for terms of one year; retiring members are eligible for re-election. The Board elects a chairman from among its members. Currently the Board has no employee-elected members. However, upon request from the employees, a yes/no vote took place in 2020, resulting in a decision to elect employee represent- atives to the Board. This election will take place in 2021. Gerard van Odijk Anders Gersel Pedersen Elizabeth McKee Anderson Anne Louise Eberhard MANAGEMENT OF BAVARIAN NORDIC Annual Report 2020 52 Frank Verwiel Erik Gregers Hansen Peter Kürstein Board Committees To support the Board in its duties, the Board has established three subcommittees that are charged with reviewing issues pertaining to their respective fields that are due to be considered at board meetings. Written charters specifying the tasks and responsibilities for each of the committees are available on the Company’s website. In addition to the Finance, Risk and Audit Committee and the Nomination and Compensa- tion Committee, a Science, Technology and Investment Committee was established during 2020. Gerard van Odijk, MD Anders Gersel Pedersen, MD, PhD Erik Gregers Hansen, MSc Peter Kürstein, MBA Former president and chief executive officer of Teva Pharmaceuticals Europe B.V. Former Executive Vice President of Research & Development of H. Lundbeck A/S. Professional board member. Former president and chief executive officer of Radiometer Medical ApS. Member of the board since 2008 and chairman since 2014. Chairman of the Nomination and Compensation Committee since 2015 and member of the Science, Technology and Investment Committee since 2020. Current term expires in 2021. Member of the board since 2010 and deputy chairman since 2014. Member of the Nomination and Compensation Committee and the Science, Technology and Investment Committee since 2020. Current term expires in 2021. Member of the board since 2010. Member of the Finance, Risk and Audit Committee since 2015 and the Science, Technology and Investment Committee since 2020. Current term expires in 2021. Member of the board since 2012. Member of the Nomi- nation and Compensation Committee since 2015 and the Finance, Risk and Audit Committee since 2020. Current term expires in 2021. Not independent Nationality: Dutch Born in: 1957 Independent Nationality: Danish Born in: 1951 Independent Nationality: Danish Born in: 1952 Independent Nationality: Danish Born in: 1956 Chairman of the supervisory board of Hubrecht Organoid Technology. Member of the supervisory board of Centre for Human Drug Research. Member of the board of Genmab A/S, Hansa Biopharma AB and Bond Avillion 2, an entity of Avillion LLP. Chairman of the board of Aelis Farma. Chairman of the board of Polaris Management A/S, TTiT A/S, TTiT Ejendomme A/S, TTiT Landbrug A/S and Sirius Holding ApS. Deputy chairman of the board of Lauritzen Fonden, Okono A/S, Bagger-Sørensen Fonden and Bag- ger-Sørensen & Co. A/S and four of its five subsidiaries. Member of the board of Saga Private Equity ApS, Lesanco ApS, Ecco Sko A/S, Farumgade 2B Holding ApS and its subsidiary and Wide Invest ApS. Member of the executive board of Rigas Holding ApS and its 3 subsidiaries, Sirius Holding ApS, Tresor Asset Advisers ApS, Polaris Invest II ApS and EGH Gentofte ApS. Chairman of the board of Radiometer Medical ApS and Ferrosan Medical Devices Holding A/S. Deputy Chairman of the board of FOSS A/S, Experimentarium and American Chamber of Commerce. Member of the board of N. Foss & Co. A/S and Den Erhvervsdrivende Fond Gl. Strand, Dansk BørneAstma Center and Art Agenda 2030. Member of the executive board of Mijamax ApS. Medical qualifications and extensive executive background within publicly traded and private companies in the international healthcare industry. Scientific knowledge and large drug development experience within neuroscience and oncology. Extensive board and management experience from publicly traded, international pharmaceutical and biotech companies. Training and experience in and thorough understanding of managing finance operations and experience with publicly traded companies. Extensive board and management experience from publicly traded, international healthcare companies. Board of Directors 14/15 Nomination and Compensation Committee 8/8 Science, Technology and Investment Committee 2/2 Board of Directors 15/15 Finance, Risk and Audit Committee 3/3 Nomination and Compensation Committee 3/3 Science, Technology and Investment Committee 2/2 Board of Directors 15/15 Finance, Risk and Audit Committee 6/6 Science, Technology and Investment Committee 2/2 Board of Directors 15/15 Finance, Risk and Audit Committee 3/3 Nomination and Compensation Committee 8/8 Meeting Attendance Special competences Current positions Annual Report 2020 54 Frank Verwiel, MD, MBA Elizabeth McKee Anderson, MBA Anne Louise Eberhard, MSc. Law. Former president and chief executive officer of Aptalis Pharma, Inc. Former worldwide vice president, Global Strategic Marketing and Market Access, Infectious Diseases and Vaccines for Johnson&Johnson. Former Senior Executive Vice President of Danske Bank A/S. Member of the board since 2016. Member of the Finance, Risk and Audit Committee since 2016 and the Nomination and Compensation Committee since 2020. Current term expires in 2021. Member of the board since 2017. Chairman of the Science, Technology and Investment Committee since 2020. Current term expires in 2021. Member of the board since 2019. Member of the Finance, Risk and Audit Committee since 2019 and Chairman since 2020. Current term expires in 2021. Independent Nationality: Dutch, now resident of the United States Born in: 1962 Independent Nationality: American Born in: 1957 Independent Nationality: Danish Born in: 1963 Chairman of the board of ObsEva SA and member of the board of Intellia Therapeutics, Inc. Member of the board of Revolution Medicines Inc., BioM- arin Pharmaceutical Inc., Insmed Inc., Aro Biotherapeutics Company and a member of the advisory Board of NAXION, Inc. Trustee of The Wistar Institute and principal of Pure- Sight Advisory, LLC. Member of the board of FLSmidth & Co. A/S and its sub- sidiary FLSmidth A/S, Topdanmark A/S and its subsidiary Topdanmark Forsikring A/S, Knud Højgaards Fond and two of its three subsidiaries and VL 52 ApS. Chairman of the board of Moneyflow Group A/S and its subsidiary Mon- eyflow 1 A/S. Deputy Chairman of the board of Finansiel Stabilitet SOV. CEO of EA Advice ApS. Faculty Member at Copenhagen Business School, Board Educations. Extensive strategic, operational and international experience within the pharmaceutical industry. Extensive strategic, operational and international experience within the pharmaceutical industry. Extensive strategic, finance and risk management experience as well as board experience from publicly listed companies. Board of Directors 15/15 Finance, Risk and Audit Committee 6/6 Nomination and Compensation Committee 3/3 Board of Directors 14/15 Nomination and Compensation Committee 5/5 Science, Technology and Investment Committee 2/2 Board of Directors 14/15 Finance, Risk and Audit Committee 6/6 Meeting Attendance Special competences Current positions Annual Report 2020 55 Paul Chaplin Henrik Juuel Henrik Birk Tommi Kainu Paul Chaplin President and Chief Executive Officer Paul Chaplin, PhD is a British national, born in 1967. He joined Bavarian Nordic in 1999 as director of immunology. Prior to joining the Company, Mr. Chaplin worked for several years both in the UK and Australia developing vaccines against infectious diseases. He was appointed vice president in 2004, and president and chief executive officer in 2014. Henrik Juuel Executive Vice President, Chief Financial Officer Henrik Juuel, MSc is a Danish national, born in 1965. He joined Bavarian Nordic in November 2018 from Orexo AB. Prior to Orexo Mr. Juuel has held senior positions at several large and diverse organizations including Group CFO of Virgin Mobile (Central and East- ern Europe), CFO of GN ReSound and NNE Pharmaplan, as well as several senior finance positions at Novo Nordisk EXECUTIVE MANAGEMENT Henrik Birk Executive Vice President, Chief Operating Officer Henrik Birk, MBA is a Danish National, born in 1974. He joined Bavarian Nordic in 2008 from Coloplast and has since served in various management positions of increasing responsibility, most recently as Senior Vice President, Strategy, People and Organization. Mr. Birk was appointed executive vice president and chief operating officer in 2017. Positions: Member of the board of Kompagniet.nu ApS and VIRKSOMHEDSCENTER-KBH ApS. Tommi Kainu Executive Vice President, Chief Business Officer Tommi Kainu, MD, PhD is a Finnish national, born in 1972. He joined Bavarian Nordic in 2017 from Boston Consulting Group (BCG) where he served for almost two decades, most recently as a partner and managing director. Prior to BCG, Dr. Kainu worked at the National Institutes of Health (USA) in the Cancer Genetics Branch of the National Human Genome Research Institute. Annual Report 2020 56 Jean-Christophe May Laurence De Moerlooze Anu Helena Kerns Jean-Christophe May Executive Vice President, Chief Commercial Officer Jean-Christophe (JC) May, PharmD, MBA is a French national, born in 1967. He joined Bavarian in January 2020 from GlaxoSmithKline (GSK), where he served as vice president and global vaccines commercialization leader and was responsible for global strategic lead- ership and performance of several lifesaving vaccines, including Rabipur/RabAvert and Encepur, which Bavarian Nordic acquired from GSK in 2019. Laurence De Moerlooze Executive Vice President, Chief Medical Officer Laurence De Moerlooze, PhD is a Belgian national, born in 1964. She joined Bavarian in April 2020 from Takeda Vaccines, where she served as Vice President and Global Program Lead for vaccines against Zika virus and Norovirus. Prior to Takeda she worked at GSK for more than 15 years, holding various leading roles in medical affairs and vaccine development working with numerous life-saving vaccines including Rabipur/ RabAvert and Encepur. Anu Helena Kerns Executive Vice President, People and Organization Anu Helena Kerns, MSc is a Danish national, born in 1972. She joined Bavarian Nordic in November 2020 from Novo Nordisk, where she served for 11 years holding various leadership roles with increasing responsibilities, including 5 years abroad where she was responsible for establishing a new regional or- ganizational structure and driving the HR development and communication strategy. Prior to Novo Nordisk, Ms. Kerns worked for 8 years in the financial sector with employer branding, reputation management and change communication. FINANCIAL REVIEW 2020 The financial review is based on the Group’s consolidated financial information for the year ended December 31, 2020, with comparative 2019 figures for the Group in brackets. There is no significant difference in the development of the Group and the Parent Company (except if noted specifically below). In 2020, the Company generated revenues of DKK 1,852 million (DKK 662 million) compared to a guidance of DKK 1,900 million. The income before interest and taxes (EBIT) was DKK 380 million (loss of DKK 328 million) and EBITDA was an income of DKK 740 million (loss of DKK 271 million) compared to a guided income of DKK 725 million. EBITDA came in slightly better than guided due to continued tight focus on cost and profitability. Securities, cash and cash equivalents as of December 31, 2020 amounted to DKK 1,670 million (DKK 472 million) compared to a guidance of DKK 1,600 million. The year-end cash position exceeded guidance due to phasing of ongoing investments and working capital movements. This was achieved without draw-down of existing credit facilities of DKK 244 million. Due to the strong cash position the draw-down was deferred to 2021. INCOME STATEMENT Revenue Revenue for the year was DKK 1,852 million (DKK 662 million). Revenue in 2020 significantly increased over 2019 as a result of the commercial transformation of Bavarian Nordic following the acquisition of two commercial vaccines, Rabipur/RabAvert and Encepur. COVID-19 negative impact on Rabipur/RabAvert and Encepur revenue was limited to approximately DKK 200 million by strong brand performance in key markets and largely offset by better than originally expected JYNNEOS revenue. A USD weakening against DKK had some negative impact on RabAvert revenue in the last two months of 2020. Revenue from product sales was DKK 1,623 million (DKK 324 million) composed of sale of Rabipur/RabAvert of DKK 628 million (DKK 0 million), Encepur of DKK 455 million (DKK 0 million) and sale of smallpox bulk drug substance batches and liquid frozen vials to the U.S. Government of DKK 541 million (DKK 324 million). Annual Report 2020 58 Revenue from ongoing contract work amounted to DKK 162 million (DKK 338 million) mostly related to revenue from the U.S. Biomedical Advanced Research and Development Authority (BARDA) for running the Phase 3 study for the freeze-dried smallpox vaccine and the fund- ing to support qualification of the new fill and finish facility as well as the transfer and validation of the freeze-drying production process. During 2020 the Company received a milestone payment of DKK 67 million (DKK 0 million) from Janssen following the European Commission’s grant of the marketing authorization for Janssen’s Ebola vaccine regimen. In the Parent Company revenue was DKK 31 million higher than in the Group due to internal sales related to RabAvert sales in the US. Production costs Production costs amounted to DKK 1,195 million (DKK 355 million). Costs related directly to revenue amounted to DKK 689 million (DKK 307 million) of which cost of goods sold totaled DKK 585 million (DKK 87 million). Other production costs totaled DKK 233 million (DKK 48 million) and includes an accrual for write-down of obsolete products related to the distribution switch of Rabipur/RabAvert and Encepur from GlaxoSmithKline. Write-down on other inventory amounted to net DKK 25 million (DKK 4 million). The product rights to Rabipur/RabAvert and Encepur are amortized over 20 years with an annual amortization of DKK 273 million and recognized as production costs. Sales and distribution costs The sales and distribution costs amounted to DKK 286 million (DKK 53 million) split between costs for distribution of products DKK 113 million (DKK 0 million) and costs for running the commercial organization and activities DKK 173 million (DKK 53 million). Research and development costs The total research and development spending were DKK 446 million (DKK 628 million). The amount included research and development spend for funded contract costs of DKK 104 million (DKK 219 million). These costs are recognized as production costs in the income state- ment. The amount shown as research and development costs in the income statement totaled DKK 341 million (DKK 409 million), see note 6. The higher research and development costs in 2019 were primarily explained by costs associated with formulation work on RSV. Following the Company’s decision not to invest further in the development of CV301, the CV301 intangible asset was fully written down in 2019. The write-down of DKK 22 million was recognized as research and develop- ment costs in the consolidated financial statements for 2019. Administrative costs Administrative costs totaled DKK 278 million (DKK 173 million), an increase of DKK 105 million compared to last year. The increase follows the acquisition of Rabipur/RabAvert and Encepur and include e.g. project management for the ongoing transfer project, service fee to GlaxoSmithKline for their contribution to the project, and increased IT costs for implementation of new systems required to run a full-scale commercial business. Annual Report 2020 59 Non-recurring costs The integration and transfer of Rabipur/RabAvert and Encepur from GlaxoSmithKline necessitates expenses that by nature are no-longer needed after a full transition. Examples are use of consultants to establish distribution infrastructures, program management resources, implementation of new IT systems, recruitment costs etc. Some of these costs are one-off for 2020 and some will remain until the transfer is complete. The non-recurring costs amounted to approximately DKK 75 million in 2020. Other operating income Other operating income totaled DKK 628 million (DKK 0 million) and regards the sale of the Priority Review Voucher, granted to the Company by the FDA in connection with the approval of JYNNEOS in 2019. The sale of the Priority Review Voucher was concluded in the first quarter of 2020. EBIT/EBITDA Income before interest and tax (EBIT) was positive with DKK 380 million (loss of DKK 328 million). EBITDA was an income of DKK 740 million (loss of DKK 271 million). Amortization of product rights related to Rabipur/RabAvert and Encepur amounted to DKK 273 million (DKK 0 million) whereas depreciation and impairment losses on other fixed assets amounted to DKK 87 million (DKK 57 million). Financial income and financial expenses Financial income was DKK 98 million (DKK 23 million) and consisted of adjustment of deferred consideration to GlaxoSmithKline due to change in estimated timing of payments, DKK 68 million (DKK 0 million), currency adjustments on deferred consideration due to decreased EUR/ DKK rate during 2020, DKK 12 million (DKK 0 million), interest income on securities of DKK 9 million (DKK 16 million), fair value adjustments on securities of DKK 7 million (net loss of 15 million) and net gains on derivative financial instruments of DKK 2 million (DKK 6 million). Financial expenses were DKK 196 million (DKK 39 million) and consist- ed of unwinding 1 of the discount related to deferred consideration, DKK 145 million (DKK 0 million), interest expense on debt of DKK 32 million (DKK 18 million) and a net foreign exchange loss of DKK 19 million (DKK 5 million). The net value adjustment of deferred consideration to GSK was an expense of DKK 65 million, consisting of the three components described above. In the Parent financial statements, the financial income was DKK 120 million (DKK 50 million) and included interests on receivables from subsidiaries of DKK 22 million (DKK 24 million). The financial expenses were DKK 275 million (DKK 95 million) and included write-down of receivables from subsidiaries of DKK 34 million (DKK 61 million). Income before company tax was positive with DKK 282 million (loss of DKK 345 million). Tax on income for the year Tax on the income for the year was an expense of DKK 4 million in 1 The deferred consideration for product rights is measured at net present value and the difference between the net present value and the amounts due is recognized in the income statement as a financial expense over the period until expected payment date using the effective interest method. Annual Report 2020 60 Bavarian Nordic GmbH (DKK 2 million), corresponding to an effective tax rate for the Group of 1.6% (negative 0.6%). The effective tax rate for 2020 was low due to significant tax-deductible amortization on the acquired product rights creating a deferred tax liability which was offset by a reduction in non-recognized deferred tax assets. The new Danish tax scheme allowing 30% 'step-up' deduction for costs related to research and development activities paid by Danish entities also reduced the effective tax rate as this is a non-incurred expense deductible for tax purposes. The tax scheme has a tax value for the Company of DKK 13 million. The effective tax rate for 2019 was impacted by the increase in non-recognized tax asset. The parent company’s taxable income for the full year of 2020 was zeroed out by utilization of taxable amortization on the acquired product rights. No tax loss carry forwards were utilized. The deferred tax asset on the balance sheet remains at DKK 0 million. The Company retains the right to use the tax losses carried forward that was written down in prior years. Net profit The Group reported a net profit for the year of DKK 278 million (net loss of DKK 347 million). Liquidity and capital resources As of December 31, 2020, the Company had cash and cash equivalents of DKK 285 million (DKK 297 million) and held investments in securities of DKK 1,384 million (DKK 175 million). The Company also maintained unutilized credit lines of DKK 244 million (DKK 244 million) as of such date. Cash flows Net cash flow from operating activities totaled DKK 572 million (net spend of DKK 276 million), with a significant contribution from the sale of the Priority Review Voucher. Cash flow spend on investment activities totaled DKK 1,912 million (DKK 810 million) following net investments in securities of DKK 1,202 million (net sale of DKK 1,861 million) after sale of the Priority Review Voucher and the completion of the rights issue. Cash flow from investment activities also included DKK 394 million (DKK 0 million) in milestone payments to GlaxoSmithKline, DKK 205 million (DKK 360 million) of investments in property, plant and equipment related to finalization of the fill-and-finish plant and the ongoing expansion of the bulk facility for future production of Rabipur/RabAvert and Encepur. Investment in other intangible assets amounted to DKK 108 million (DKK 3 million) and included the ongoing Rabipur/RabAvert and Encepur technology transfer project, IT system investments and milestone payments under the license agreement with AdaptVac. Cash flow from financing activities was a contribution of DKK 1,335 mil- lion (DKK 1,115 million), following the rights issue with a net proceed of DKK 2,721 million partly offset by repayment of the bridge loan by DKK 1,373 million. The net cash flow for 2020 was negative by DKK 5 million (DKK 29 million positive). Annual Report 2020 61 BALANCE SHEET The balance sheet total was DKK 8,759 million as of December 31, 2020 (DKK 7,047 million). Assets Intangible assets stood at DKK 5,291 million (DKK 5,484 million) with the main asset being the product rights to Rabipur/RabAvert and Encepur of DKK 5,186 million (DKK 5,459 million). The product rights are amortized on a straight-line basis over their expected useful lives of 20 years with an annual amortization of DKK 273 million. In July 2020, the Company concluded a license and collaboration agree- ment with AdaptVac. The license agreement provides Bavarian Nordic the global commercialization rights to a COVID-19 vaccine candidate based on AdaptVac’s technology. Under the terms of the agreement, Bavarian Nordic made an upfront payment of EUR 4 million to Adapt- Vac. The upfront payment has been capitalized and recognized as acquired patents and licenses. Property, plant and equipment stood at DKK 1,011 million (DKK 846 mil- lion) and included asset under construction of DKK 213 million (DKK 618 million). Assets under construction relates mainly to the fill and finish manufacturing facility in Kvistgaard and the ongoing expansion of the bulk facility for future production of Rabipur/RabAvert and Encepur. As per December 31, 2020 investments in the fill and finish building, the installations and the freezedryer, filing and packaging line were trans- ferred to the relevant asset groups, whereas other production equip- ment was still recognized as asset under construction. The depreciation of the fill and finish building and equipment will start in 2021. Inventories stood at DKK 521 million (DKK 101 million), of which the inventory of Rabipur/RabAvert and Encepur products amounted to DKK 308 million (DKK 0 million) as per December 31, 2020. Receivables stood at DKK 190 million (DKK 82 million), of which trade receivables amounted to DKK 139 million (DKK 43 million) mainly related to sale of Rabipur/RabAvert and Encepur products. As of December 31, 2020, cash and securities stood at DKK 1,670 million (DKK 472 million). The increase in the cash position follows the sale of the Priority Review Voucher and the rights issue partly offset by the repayment of the bridge loan. Bavarian Nordic’s cash and cash equivalents are primarily invested in deposit accounts with highly rated banks and in short-term Danish government and mortgage bonds. Equity After the transfer of the profit for the year, equity stood at DKK 4,894 million (DKK 1,865 million). Net proceeds from the rights issue in March 2020 amounted to DKK 2,721 million. Liabilities The present value of the future milestone payments to GlaxoSmithKline for the acquisition of the product rights has been recognized as deferred consideration. Deferred consideration amounted to DKK 2,823 million (DKK 3,151 million), a decrease of DKK 329 million compared to December 31, 2019. Two milestone payments were paid to GlaxoSmithKline during 2020 following the transfer of the Annual Report 2020 62 marketing authorizations for the main markets. In 2020, the Company also paid an adjustment to the upfront consideration. Total payment to GlaxoSmithKline amounted to DKK 394 million. The adjustment of the net present value of the deferred consideration, both in terms of change in assumed timing of the future milestone payments and unwinding of the discount, amounted to DKK 65 million. The deferred consideration does not include the sales milestone of EUR 25 million included in the asset purchase agreement with GlaxoSmithKline as the Company does not assess the sales milestone to be probable as of December 31, 2020. As of December 31, 2020, debt to credit institutions amounted to DKK 395 million (DKK 1,771 million) and included the European Investment Bank loan of DKK 372 million (DKK 372 million) and a mortgage loan of DKK 23 million (DKK 25 million). In December 2019, the Company utilized the obtained bridge loan facility to partly fund the upfront payment to GlaxoSmithKline. The bridge loan was repaid end March 2020 when the rights issue was completed. Annual Report 2020 63 FINANCIAL STATEMENTS Annual Report 2020 64 FINANCIAL STATEMENTS – GROUP Consolidated Financial Statements Group Key Figures 2016-2020 66 Consolidated Income Statements 67 Consolidated Statements of Comprehensive Income 67 Consolidated Statements of Cash Flow 68 Consolidated Statements of Financial Position – Assets 69 Consolidated Statements of Financial Position – Equity and Liabilities 70 Consolidated Statements of Changes in Equity 71 NOTES 1 Significant accounting policies 73 2 Significant accounting estimates and judgments 74 3 Revenue 75 4 Production costs 78 5 Sales and distribution costs 78 6 Research and development costs 79 7 Adminstrative costs 79 8 Staff costs 80 9 Depreciation, amortization and impairment losses 81 10 Fees to auditor appointed at the annual general meeting 82 11 Other operating income 82 12 Financial income 83 13 Financial expenses 83 14 Tax for the year 84 15 Earnings per share (EPS) 86 16 Intangible assets 87 17 Property, plant and equipment 90 18 Right-of-use-assets 93 66 73 CONTENTS 19 Inventories 94 20 Trade receivables 95 21 Other receivables 96 22 Prepayments 96 23 Other liabilities 97 24 Financial risks and financial instruments 98 25 Deferred consideration for product rights 104 26 Debt to credit institutions 105 27 Lease liabilities 106 28 Prepayment from customers 107 29 Related party transactions 107 30 Share-based payment 108 31 Contingent liabilities and other contractual obligations 117 32 Significant events after the balance sheet date 118 33 Approval of the consolidated financial statements 118 Annual Report 2020 65 Group Key Figures 2016–2020 DKK million 2020 2019 2018 2017 2016 Income statement Revenue 1,852.4 662.5 500.6 1,370.2 1,006.7 Production costs 1,195.1 354.8 255.1 290.6 297.8 Sales and distribution costs 285.8 53.5 33.7 39.9 38.6 Research and development costs 341.4 409.3 386.3 518.4 463.2 Administrative costs 278.1 173.4 180.0 168.0 174.2 Income before interest and tax (EBIT) 379.6 (328.4) (354.5) 353.2 33.0 Financial items, net (97.6) (16.3) (2.2) (50.9) 6.5 Income before company tax 282.0 (344.7) (356.6) 302.3 39.5 Net profit for the year 277.5 (346.8) (361.9) 181.3 30.6 Balance sheet Total non-current assets 6,378.0 6,392.2 552.7 382.2 541.1 Total current assets 2,381.0 654.9 2,508.3 2,770.5 2,282.6 Total assets 8,759.1 7,047.1 3,060.9 3,152.7 2,823.7 Equity 4,894.4 1,865.5 2,180.6 2,506.3 2,017.2 Non-current liabilities 2,912.4 3,134.4 397.6 399.8 54.7 Current liabilities 952.3 2,047.2 482.7 246.6 751.8 Cash Flow Statement Securities, cash and cash equivalents 1,669.6 472.4 2,317.2 2,583.7 1,899.9 Cash flow from operating activities 571.9 (275.9) (288.5) 216.1 267.6 Cash flow from investment activities (1,911.5) (809.9) 17.1 (1,345.2) (448.2) – Investment in intangible assets (501.9) (2,310.9) (10.2) (22.3) (43.7) – Investment in property, plant and equipment (204.8) (360.1) (201.8) (56.4) (47.8) – Net investment in securities (1,202.1) 1,861.1 229.2 (1,266.6) (358.3) Cash flow from financing activities 1,334.9 1,114.7 245.8 613.4 657.2 DKK million 2020 2019 2018 2017 2016 Financial Ratios 1) EBITDA 739.8 (271.4) (312.9) 390.7 78.4 Earnings (basic) per share of DKK 10 5.1 (10.7) (11.2) 5.7 1.0 Net asset value per share 83.7 57.6 67.5 77.7 64.3 Share price at year-end 187 171 127 224 249 Share price/Net asset value per share 2.2 3.0 1.9 2.9 3.9 Number of outstanding shares at year-end (thousand units) 58,450 32,389 32,311 32,245 31,354 Equity share 56% 26% 71% 79% 71% Number of employees, converted to full-time, at year-end 690 491 419 420 437 1) Earnings per share (EPS) is calculated in accordance with IAS 33 “Earning per share”. Other financial ratios have been calculated in accordance with the guidelines from the Danish Society of Financial Analysts. Reconciliation of EBITDA Income before interest and tax (EBIT) 379.6 (328.4) (354.5) 353.2 33.0 Depreciation and amortization (note 9) 344.1 57.0 41.6 37.5 45.4 Impairment losses (note 9) 16.1 - - - - EBITDA 739.8 (271.4) (312.9) 390.7 78.4 Annual Report 2020 66 Consolidated Statements of Comprehensive Income For the years ended December 31, 2020 and 2019 DKK thousand Note 2020 2019 Net profit for the year 277,521 (346,777) Items that may subsequently be reclassified to the income statement: Exchange rate adjustments on translating foreign operations (3,082) (149) Change in fair value of financial instruments entered into to hedge future cash flows (3,096) 2,644 Other comprehensive income after tax (6,178) 2,495 Total comprehensive income 271,343 (344,282) Consolidated Income Statements For the years ended December 31, 2020 and 2019 DKK thousand Note 2020 2019 Revenue 3 1,852,383 662,488 Production costs 4,8,9 1,195,094 354,757 Gross profit 657,289 307,731 Sales and distribution costs 5,8 285,783 53,476 Research and development costs 6,8,9 341,420 409,284 Administrative costs 7,8,9,10 278,145 173,417 Total operating costs 905,348 636,177 Other operating income 11 627,647 – Income before interest and tax (EBIT) 379,588 (328,446) Financial income 12 97,922 22,540 Financial expenses 13 195,534 38,843 Income before company tax 281,976 (344,749) Tax on income for the year 14 4,455 2,028 Net profit for the year 277,521 (346,777) Earnings per share (EPS) – DKK Basic earnings per share of DKK 10 15 5.1 (10.7) Diluted earnings per share of DKK 10 15 5.1 (10.7) Annual Report 2020 67 Consolidated Statements of Cash Flow For the years ended December 31, 2020 and 2019 DKK thousand Note 2020 2019 Net profit for the year 277,521 (346,777) Adjustment for non-cash items: Financial income (97,922) (22,540) Financial expenses 195,534 38,843 Tax on income for the year 4,455 2,028 Depreciation, amortization and impairment losses 9 360,147 57,045 Share-based payment 30 32,998 26,449 Adjustment for other non-cash items - 22,200 Changes in inventories (420,320) (22,074) Changes in receivables (88,094) 15,763 Changes in current liabilities 345,723 (51,229) Cash flow from operations (operating activities) 610,042 (280,292) Received financial income 5,847 27,052 Paid financial expenses (40,034) (19,457) Paid company taxes (3,944) (3,213) Cash flow from operating activities 571,911 (275,910) DKK thousand Note 2020 2019 Investments in product rights 16,25 (393,992) (2,307,570) Investments in other intangible assets 16 (107,885) (3,338) Investments in property, plant and equipment 17 (204,833) (360,102) Investments in financial assets (2,677) (73) Investments in securities (2,343,828) (1,239,097) Disposal of securities 1,141,683 3,100,240 Cash flow from investment activities (1,911,532) (809,940) Payment on loans 26 (1,375,598) (248,884) Proceeds from loans 26 - 1,372,953 Repayment of lease liabilities 27 (17,799) (12,923) Proceeds from warrant programs exercised 15,564 10,315 Proceeds from rights issue 2,824,326 - Costs related to issue of new shares (103,184) (2,219) Sale of preemptive rights - treasury shares 2,664 - Purchase of treasury shares (11,099) (4,576) Cash flow from financing activities 1,334,874 1,114,666 Cash flow of the year (4,747) 28,816 Cash and cash equivalents as of January 1 297,545 266,658 Currency adjustments (7,311) 2,071 Cash and cash equivalents as of December 31 285,487 297,545 Annual Report 2020 68 Consolidated Statements of Financial Position – Assets December 31, 2020 and 2019 DKK thousand Note 2020 2019 Non-current assets Product rights 5,185,765 5,458,700 Acquired patents and licenses 29,813 - Software 17,631 22,512 Intangible assets in progress 57,543 3,043 Intangible assets 16 5,290,752 5,484,255 Land and buildings 366,232 162,327 Leasehold improvements 3,713 843 Plant and machinery 204,664 44,265 Fixtures and fittings, other plant and equipment 223,238 20,368 Assets under construction 213,309 618,101 Property, plant and equipment 17 1,011,156 845,904 Right-of-use assets 18 71,987 60,590 Other receivables 21 4,122 1,445 Financial assets 4,122 1,445 Total non-current assets 6,378,017 6,392,194 DKK thousand Note 2020 2019 Current assets Inventories 19 521,082 100,762 Trade receivables 20 139,292 43,405 Tax receivables - 767 Other receivables 21 37,334 28,387 Prepayments 22 13,732 9,189 Receivables 190,358 81,748 Securities 24 1,384,120 174,819 Cash and cash equivalents 285,487 297,545 Securities, cash and cash equivalents 1,669,607 472,364 Total current assets 2,381,047 654,874 Total assets 8,759,064 7,047,068 Annual Report 2020 69 DKK thousand Note 2020 2019 Equity Share capital 584,501 323,891 Treasury shares (1,077) (684) Retained earnings 4,246,359 1,460,007 Other reserves 64,570 82,241 Equity 4,894,353 1,865,455 Liabilities Deferred consideration for product rights 25 2,464,932 2,691,400 Debt to credit institutions 26 393,268 395,443 Lease liabilities 27 54,201 47,549 Non-current liabilities 2,912,401 3,134,392 Deferred consideration for product rights 25 357,736 459,730 Debt to credit institutions 26 2,174 1,375,116 Lease liabilities 27 20,422 13,851 Prepayment from customers 28 74,347 6,631 Trade payables 345,320 112,088 Company tax 497 - Other liabilities 23 151,814 79,805 Current liabilities 952,310 2,047,221 Total liabilities 3,864,711 5,181,613 Total equity and liabilities 8,759,064 7,047,068 Note Significant accounting policies 1 Significant accounting estimates and judgments 2 Financial risks and financial instruments 24 Related party transactions 29 Share-based payment 30 Contingent liabilities and other contractual obligations 31 Significant events after the balance sheet date 32 Approval of the consolidated financial statements 33 Consolidated Statements of Financial Position – Equity and Liabilities December 31, 2020 and 2019 Annual Report 2020 70 Consolidated Statements of Changes in Equity December 31, 2020 DKK thousand Share capital Treasury shares Retained earnings Reserves for currency adjustment Reserves for fair value of financial instruments Share-based payment Equity Equity as of January 1, 2020 323,891 (684) 1,460,007 (37,558) 2,287 117,512 1,865,455 Comprehensive income for the year Net profit for the year - - 277,521 - - - 277,521 Other comprehensive income Exchange rate adjustments on translating foreign operations - - - (3,082) - - (3,082) Change in fair value of financial instruments entered into to hedge future cash flows - - - - (3,096) - (3,096) Total comprehensive income for the year - - 277,521 (3,082) (3,096) - 271,343 Transactions with owners Share-based payment - - - - - 29,284 29,284 Warrant programs exercised 1,498 - 17,514 - - (3,448) 15,564 Warrant programs expired - - 33,563 - - (33,563) - Capital increase through rights issue 259,112 - 2,565,214 - - - 2,824,326 Costs related to issue of new shares - - (103,184) - - - (103,184) Purchase of treasury shares - (524) (10,575) - - - (11,099) Transfer regarding restricted stock units - 131 3,635 - - (3,766) - Sale of preemptive rights - treasury shares - - 2,664 - - - 2,664 Total transactions with owners 260,610 (393) 2,508,831 - - (11,493) 2,757,555 Equity as of December 31, 2020 584,501 (1,077) 4,246,359 (40,640) (809) 106,019 4,894,353 The share capital comprises a total of 58,450,112 shares of DKK 10 as of December 31, 2020 (32,389,065 shares). The shares are not divided into share classes, and each share carries one vote. Treasury shares In August 2020, the Board of Directors decided to launch a share buy-back program, under which the Company bought back 52,397 of its own shares (28,849 shares in 2019). The purpose of the share buy-back program was to meet the Company’s obligations arising from the share-based incentive program for the Executive Management and the Board of Directors. Under the share-based incentive program, payment of half of the achieved bonus for 2019 for members of the Executive Management are converted to restricted stock units for a value corresponding to half of the achieved bonus. The restricted stock units will be released to the Executive Management 3 years after grant. This to further increase the long-term shared interests between the Executive Management and the Company’s shareholders. The Board of Directors is granted restricted stock units corresponding to 50% of the annual fee (excl. committee fee). The vesting period for those restricted stock units is also 3 years. Treasury shares represent 0.18% (0.21%) of the total share capital. For further information about share based payment see note 30. Annual Report 2020 71 Consolidated Statements of Changes in Equity December 31, 2019 DKK thousand Share capital Treasury shares Retained earnings Reserves for currency adjustment Reserves for fair value of financial instruments Share-based payment Equity Equity as of January 1, 2019 323,106 (507) 1,797,122 (37,409) (357) 98,673 2,180,628 Comprehensive income for the year Net profit for the year - - (346,777) - - - (346,777) Other comprehensive income Exchange rate adjustments on translating foreign operations - - - (149) - - (149) Change in fair value of financial instruments entered into to hedge future cash flows - - - - 2,644 - 2,644 Total comprehensive income for the year - - (346,777) (149) 2,644 - (344,282) Transactions with owners Share-based payment - - - - - 25,589 25,589 Warrant programs exercised 785 - 11,814 - - (2,284) 10,315 Warrant programs expired - - 1,455 - - (1,455) - Costs related to issue of new shares - - (2,219) - - - (2,219) Purchase of treasury shares - (288) (4,288) - - - (4,576) Transfer regarding restricted stock units - 111 2,900 - - (3,011) - Total transactions with owners 785 (177) 9,662 - - 18,839 29,109 Equity as of December 31, 2019 323,891 (684) 1,460,007 (37,558) 2,287 117,512 1,865,455 Transactions on the share capital DKK thousand 2020 2019 2018 2017 2016 Share capital as of January 1 323,891 323,106 322,451 313,539 280,197 Issue of new shares 260,610 785 655 8,912 33,342 Share capital as of December 31 584,501 323,891 323,106 322,451 313,539 The share capital comprises a total of 32,389,065 shares of DKK 10 as of December 31, 2019 (32,310,565 shares). The shares are not divided into share classes, and each share carries one vote. Rules on changing Articles of Association Changing the Articles of Association requires that the resolution passes by at least 2/3 of the votes as well as 2/3 of the voting capital represented. Annual Report 2020 72 Note 1 Significant accounting policies Basis of preparation The consolidated financial statements for Bavarian Nordic have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and Danish disclosure requirements for the consolidated financial statements of listed companies. Danish disclosure requirements for the presentation of consolidated financial statements are imposed by the Statutory Order on Adoption of IFRS issued under the Danish Financial Statements Act. The accounting policies are unchanged from last year except for changes due to implementation of new and revised standards that were effective January 1, 2020. The consolidated financial statements are presented in Danish kroner (DKK), which is the functional currency of the parent company. The consolidated financial statements are presented on a historical cost basis, apart from derivative financial instru- ments, securities and liability relating to phantom shares, which are measured at fair value. The accounting policies have been consistently applied for the financial year and for the comparative figures except for implementation of new standards and amendments, see further below. In the narrative sections of the consolidated financial state- ments comparative figures for 2019 are shown in brackets. Implementation of new and revised standards and interpretations The International Accounting Standards Board (IASB) has is- sued new standards and revisions to existing standards (IFRS) and new interpretations (IFRIC) which are mandatory for accounting periods commencing on or after January 1, 2020. The Group has adopted the following revised standards and interpretations: • Amendments to IFRS 3, definition of a business • Amendments to IAS 1 and IAS 8, definition of materiality • Amendments to IFRS 9, IAS 39 and IFRS 7, IBOR reform • Amendments to IFRS 16, covid-19-related rent concessions The implementation of new or revised standards and interpretations that are effective from January 1, 2020 has not had a material impact on the consolidated financial statements in 2020. Furthermore, Management does not anticipate any significant impact on future periods from the adoption of these new amendments. Standards and interpretations not yet in force At the date of publication of the consolidated financial statements, a number of new and amended standards and interpretations have not yet entered into force or have not yet been adopted by the EU. Therefore, they are not incor- porated in the consolidated financial statements. None of the new or amended standards and interpretations are expected to have a material impact on the consolidated financial statements. Applying materiality The consolidated financial statements are a result of processing large numbers of transactions and aggregating those transactions into classes according to their nature or function. The transactions are presented in classes of similar items in the consolidated financial statements. If a line item is not individually material, it is aggregated with other items of a similar nature in the consolidated financial statements or in the notes. The specific disclosures required by IFRS are provided in the consolidated financial statements unless the informa- tion is considered immaterial to the users of the financial statements. Accounting policies The accounting policies for specific line items are described in the notes to the financial statements. Set out below is a description of the accounting policies for the basis of consolidation, foreign currency translation and the cash flow statement. Recognition and measurement Income is recognized in the income statement when gen- erated. Assets and liabilities are recognized in the balance sheet when it is probable that any future economic benefit will flow to or from the Group and the value can be reliably measured. On initial recognition, assets and liabilities are measured at cost. Subsequently, assets and liabilities are measured as described in the description of the accounting policies in the respective notes to the financial statements. Basis of consolidation The consolidated financial statements include Bavarian Nor- dic A/S and the subsidiaries in which the Group holds more than 50% of the voting rights or otherwise has control. Principles of consolidation The consolidated financial statements are prepared on the basis of the financial statements of the parent company and the individual subsidiaries, and these are prepared in accordance with the Group’s accounting policies and for the same accounting period. Intra-group income and expenses together with all in- tra-group profits, receivables and payables are eliminated on consolidation. In the preparation of the consolidated financial statements, the book value of shares in subsidiar- ies held by the parent company is set off against the equity of the subsidiaries. Foreign currency translation On initial recognition, transactions denominated in curren- cies other than the Group’s functional currency are translat- ed at the exchange rate ruling at the transaction date. Receivables, payables and other monetary items denom- inated in foreign currencies that have not been settled at the balance sheet date are translated at the exchange rates at the balance sheet date. Exchange differences between the exchange rate at the date of the transaction and the exchange rate at the date of payment or the balance sheet date, respectively, are rec- ognized in the income statement under financials. Property, plant and equipment and intangible assets, inventories and other nonmonetary assets acquired in foreign currency and measured based on historical cost are translated at the exchange rates at the transaction date. On recognition in the consolidated financial statements of subsidiaries whose financial statements are presented in a functional currency other than Danish kroner (DKK), the income statements are translated at the average exchange rates of the respective months. Balance sheet items are translated at the exchange rates at the balance sheet date. Exchange differences arising on the translation of foreign subsidiaries’ opening balance sheet items to the exchange rates at the balance sheet date and on the translation of the income statements from average exchange rates of the respective months to exchange rates at the balance sheet date are recognized as other compre- hensive income. Annual Report 2020 73 Segment reporting The Group does not prepare segment reporting inter- nally and therefore only reports one operating segment externally. Geographic spilt of revenue and revenue from major cus- tomers is disclosed in note 3 to the consolidated financial statements. Geographic location of noncurrent assets is disclosed in note 16 and 17 to the consolidated financial statements. Cash flow statement The cash flow statement is prepared in accordance with the indirect method on the basis of the Group’s net profit for the year. The statement shows the Group’s cash flows broken down into operating, investing and financing activi- ties, cash and cash equivalents at year end and the impact of the calculated cash flows on the Group’s cash and cash equivalents. Cash flows in foreign currencies are translated into Danish kroner (DKK) at the exchange rate on the transaction date. In the cash flows from operating activities, net profit for the year is adjusted for non-cash operating items and changes in working capital. Cash flows from investing activities include cash flows from the purchase and sale of intangible assets, property, plant and equipment, investments and securities. Cash flows from financing activities include cash flows from the raising and payment of loans and capital increases. Additionally, cash flows from assets held under finance leases are recognized by way of lease payments made. Net asset value per share: Equity Number of shares at year-end Share price/Net asset value per share: Market price per share Net asset value per share Equity share, %: Equity x 100 Total assets Earnings per share and diluted earnings per share are calculated in accordance with IAS 33 “Earnings per share” and specified in note 15. Note 1 Significant accounting policies – continued Note 2 Significant accounting estimates and judgments Significant accounting estimates In the preparation of the consolidated financial statements, Management makes a number of accounting estimates, which form the basis for the presentation, recognition and measurement of the Group’s assets and liabilities. The recognition and measurement of assets and liabilities often depend on future events that are somewhat uncer- tain. In that connection, it is necessary to assume a course of events that reflects Management’s assessment of the most probable course of events. The significant accounting estimates identified are those that have a significant risk of resulting in a material adjustment to the measurement of assets and liabilities in the following reporting period. Management bases its estimates on historical experience and various other assumptions that are held to be reasonable under the cir- cumstances. The estimates and underlying assumptions are reviewed on an ongoing basis. If necessary, changes are recognised in the period in which the estimate is revised. Management considers the key accounting estimates to be reasonable and appropriate based on currently available information. The actual amounts may differ from the amounts estimated as more detailed information becomes available. Management has made the following accounting estimates which significantly affect the amounts recognized in the consolidated financial statements: Accounting policy Significant accounting estimates and judgements Note Revenue Estimate of US sales deductions and provisions for sales rebates 3 Intangible assets Estimate regarding impairment of assets; assessment whether future sales milestone have become probably; and judgement of whether a transaction is an asset acquisition or a business combination 16 Inventories Estimate of indirect production costs capitalized and inventory write-down 19 Annual Report 2020 74 Note 3 Revenue Accounting policies Sale of goods Revenue from sale of goods is recognized when the Com- pany has transferred control of products sold to the buyer and it is probable that the Company will collect the consid- eration to which it is entitled for transferring the products. Control of the products is transferred at a point in time, typically on delivery. The amount of sales to be recognized is based on the consideration the Company expects to re- ceive in exchange for its goods. When sales are recognized, the Company also records estimates for a variety of sales deductions, including product returns as well as rebates and discounts to government agencies, wholesalers, health in- surance companies, managed healthcare organisations and retail customers. Revenue is measured net of value added tax, duties, etc. collected on behalf of a third party. Where contracts contain customer acceptance criteria, the Company recognizes sales when the acceptance criteria are satisfied. Where absolute amounts are known, the rebates are recognized as other liabilities. Wholesaler charge-backs are netted against trade receivable balances. The pricing mechanisms in the US market and the different kind of rebates are described below. Pricing mechanisms in the US market In the US, sales rebates are paid in connection with govern- ment and commercial programmes. Key customers in the US include private payers, Group Purchasing Organizations (GPOs) and government payers. GPOs play a role in negotiating price concessions with drug manufacturers for the commercial channels, and determine which drugs are offered as preferred options on their drug lists. US wholesaler charge-backs Wholesaler charge-backs relate to contractual arrangements between the Company and indirect customers in the US whereby products are sold at contract prices lower than the list price originally charged to wholesalers. A wholesaler charge-back represents the difference between the invoice price to the wholesaler and the indirect customer’s contract price. Accruals are calculated for estimated charge-backs using a combination of factors such as historical experience, current wholesaler inventory levels, contract terms and the value of claims received but not yet processed. US Medicaid & Medicare rebates Medicaid & Medicare are government insurance pro- grammes. Medicaid and Medicare rebates have been estimated using a combination of historical experience, product and population growth, price increases, and the impact of contracting strategies. The calculation also involves interpretation of relevant regulations that are sub- ject to changes in interpretative guidance from government authorities. The Company adjusts the provision periodically to reflect actual sales performance. Other US discounts and sales returns Other discounts are provided to wholesalers, hospitals, pharmacies, etc. They are usually linked to sales volume or provided as cash discounts. Accruals are calculated based on historical data and recorded as a reduction in gross sales at the time the related sales are recorded. Estimated sales returns are related to damaged or expired products. Sale of services and licenses Furthermore, revenue comprises the fair value of the con- sideration received or receivable for income derived from development services where revenue is measured at the expected net sales price. Sales of licenses that transfer the rights associated with ownership of an intangible asset are recognized at a point in time when control is transferred. Revenue from develop- ment services and licenses that do not transfer the right of ownership to an intangible asset are recognized over time in line with the execution and delivery of the work. Agreements with commercial partners generally include non-refundable upfront license and collaboration fees, milestone payments, the receipt of which is dependent upon the achievement of certain clinical, regulatory or commercial milestones, as well as royalties on product sales of licensed products, if and when such product sales occur, and revenue from the supply of products. For these agreements that include multiple elements, total contract consideration is attributed to separately identifiable components on a reliable basis that reasonably reflects the selling prices that might be expected to be achieved in stand-alone transactions provided that each component has value to the partner on a stand-alone basis. The allocated consideration is recognized as revenue in accordance with the principles described above. Further details regard- ing recognition of revenue on the main contracts with Biomedical Advanced Research and Development Authority (BARDA) and Janssen Vaccines & Prevention B.V. are described below. Significant accounting estimates Provisions for sales deductions Sales discounts and rebates are predominantly issued in the US in connection with the US Federal and State Government Healthcare programs, namely Medicare and Medicaid, and commercial rebates. The estimate of sales discounts and rebates is based on a calculation which includes a combination of historical utilization data, combined with expectations in relation to the development in sales and utilization. Furthermore, specific circumstances regarding the different programs are considered. The obligations concerning sales discounts and rebates are incurred at the time the sale is recorded. However, the actual discount or rebate related to a specific sale may be invoiced later. The Company considers the provisions established for sales discounts and rebates to be reasonable and appropriate based on currently available information. However, the actual amount of discounts and rebates may differ from the amounts estimated as more detailed information becomes available. Partner contracts Whether a component of a multiple element contract has value to the partner on a stand-alone basis is based on an assessment of specific facts and circumstances and is associated with judgement. This applies also to the assess- ment of whether a license transfers rights associated with ownership of an intangible asset. Furthermore, allocation of the total consideration of a contract to separately iden- tifiable components requires considerable estimates and judgement to be made by Management. Annual Report 2020 75 Significant accounting estimates, continued At inception and throughout the life of a contract Man- agement is performing an analysis of the agreement with its partners based on available facts and circumstances at each assessment date such as historical experience and knowledge from the market to the extent obtainable. This includes also an understanding of the purpose of the deliv- erables under the contract and the negotiation taken place prior to concluding the contract. Note 3 Revenue – continued DKK thousand ´ 2020 2019 MVA-BN smallpox vaccine sale 540,769 324,258 Rabipur/RabAvert 627,699 - Encepur 455,012 - Sale of goods 1,623,480 324,258 Milestone payments 66,553 - Contract work 162,350 338,230 Sale of services 228,903 338,230 Revenue 1,852,383 662,488 Total revenue includes: Fair value adjustment concerning financial instruments entered into to hedge revenue 13,146 (13,006) Geographic split of revenue: USA 1,139,080 611,876 Germany 356,826 272 The Netherlands 96,029 49,768 Sweden 47,240 235 Switzerland 36,138 - Austria 31,235 - United Kingdom 23,069 - Japan 21,060 - Other geographic markets 101,706 337 Revenue 1,852,383 662,488 In 2020 revenue achieved on the Danish market amounted to DKK 4.4 million (DKK 0 million). Revenue for the following customer represent more than 10% of total revenue: • Biomedical Advanced Research and Development Authority (BARDA), USA, DKK 666.8 million (DKK 539.4 million). Annual Report 2020 76 Note 3 Revenue – continued Accounting for contract with Biomedical Advanced Research and Development Authority (BARDA) In September 2017 the Company secured a contract award from Biomedical Advanced Research and Development Authority (BARDA) for supply of freeze-dried smallpox vaccine. The potential value of the initial base and optional awards is in excess of USD 539 million. Initial base award secures additional smallpox bulk contract of USD 100 mil- lion and initial options valued at USD 439 million. The initial options are divided between two distinct areas, the first of which is the filling and freeze-drying of smallpox bulk products, with total potential value of USD 299 million. The second part of the contract contains provisions for clinical development, regulatory commitments, and parts of the establishment and validation of fill and finish activities, with potential value of up to USD 140 million. The award also contains options to acquire additional vaccine bulk and/or doses of smallpox vaccine in the future. The initial bulk procurement contract of USD 100 million for delivery of 40 bulk drug substance (BDS) batches of smallpox vaccine was revenue recognized during 2018 and 2019. Recognition of revenue occured in concurrence with release of the BDS batches. In April 2020 BARDA placed a new order under the con- tract, awarded in 2017, for the manufacturing and supply of JYNNEOS (Smallpox and Monkeypox Vaccine), at a total value of USD 202 million. The contract expansion covers two years of performance and includes the manufacturing of additional bulk vaccine (30 bulk drug substance (BDS) batches in 2020 and 35 batches in 2021) and the supply of up to 1.4 million doses of liquid frozen JYNNEOS. The first USD 106 million of the award was exercised in April 2020, whereas the second part was exercised in December 2020, where BARDA committed to an additional USD 83 million for the procurement of more bulk smallpox vaccine, which will be manufactured and invoiced in 2021. During 2020, 30 bulk drug substance (BDS) batches have been recognized as revenue in concurrence with release of the BDS batches. The BDS products remain in the Company’s physical possession as the procurement contract includes filling and freeze-drying of the BDS batches (a bill-and-hold arrange- ment). The Company is paid for the custodial service as part of the contract. The filling activities are going to take place in Kvistgaard in 2021-2023 when the new fill and finish manufacturing facility is operational. Payment is due within 30 days after invoicing. The Company has also been awarded funding for de- velopment work related to “Clinical activities to support licensure” of the freeze-dried version of smallpox vaccine. The contract is funded based on cost incurred plus a fixed margin. Recognition of revenue follows the timing of cost incurred. Payment is due within 30 days after invoicing. A new award was obtained in January 2019 to cover quali- fication of the new fill and finish facility, as well as transfer and validation of the freeze-drying process (contract option valued at USD 33 million). In 2020 DKK 76 million (DKK 128 million) was recognized as revenue. The remaining funds will be recognized as revenue in 2021. The contract is fund- ed based on cost occurred plus a fixed margin. Recognition of revenue follows the timing of cost incurred. Payment is due within 30 days after invoicing. The award also included USD 11 million for storage of bulk drug substance until filling and future shipments of final products (total award of USD 44 million). DKK 9 million has been recognized in revenue for storage during 2020. The remaining revenue will be recognized over the coming years. Accounting for license and collaboration agreements with Janssen Vaccines & Prevention B.V. The Company has concluded three license and collaboration agreements with Janssen Vaccines & Prevention B.V. for development of vaccines against cancers induced by hu- man papillomavirus (HPV), hepatitis B virus (HBV) and the human immunodeficiency virus (HIV). All three contracts contains an upfront payment and subsequent milestone payments following the progress in the clinical develop- ment program. Each contract has two performance obligations, both paid for by the upfront and milestone payments in the contracts: 1) Conduct development work according to the develop- ment plan and 2) Grant of a license for use of MVA-BN ® vector. Revenue for the development work is recognized over time using the “expected cost plus a margin ap- proach”, i.e. recognized over time based on cost incurred plus a margin. Allocation of revenue for the license grant is calculated using the “residual approach” by estimating the stand-alone selling price by reference to the total trans- action price less the sum of the revenue allocated to the development work. When assessing residual value avail- able for allocation to the license grant, expected costs for future development work are taken into consideration to ensure enough revenue is deferred to ensure an appropri- ate margin on the development work over the period until the next milestone payment event. The residual value is calculated and recognized as revenue for the license grant when a milestone payment is received. Revenue related to the license grant will increase over time if and when the next clinical milestone is reached, reflecting that the value of the license is expected in concurrence with the progress in the clinical development program. Janssen Vaccines & Prevention B.V. obtains control of the development work in concurrence with work performed and therefore the recognition of revenue follows the timing of cost incurred. As of December 31, 2020 all the initial prepayments under the contracts have been recognized as revenue. Under the HPV contract a new prepayment of USD 2.5 million was recevied in February 2020 related to production of a new Master Seed Virus. The full prepayment is recognized in the balance sheet, cf. note 28. Annual Report 2020 77 Note 4 Production costs Note 5 Sales and distribution costs The clinical activities to support licensure of the freeze- dried version of smallpox vaccine and qualification of the new fill and finish facility including transfer and validation of the freeze-drying process was higher during 2019 com- pared to 2020, therefore the decrease in contract costs. Other production costs amounted to DKK 233.2 million (DKK 48.3 million), of which net write-downs of inventory totaled DKK 25.2 million (DKK 4.0 million). Development in write-downs is further described in note 19. Other production costs also includes an accrual for write-downs of obsolete products related to the distribution switch of Rabipur/RabAvert and Encepur from GlaxoSmithKline. This was disclosed as a contigent liability in the Q3 2020 Interim Report. The product rights to Rabipur/RabAvert and Encepur are amortized over 20 years with an annual amortization of DKK 273 million. Accounting policies Production costs consist of costs incurred in generat- ing the revenue for the year. Costs for raw materials, con- sumables, production staff and a proportion of production overheads, including maintenance, amortization, depre- ciation and impairment of intangible and tangible assets used in production as well as operation, administration and management of the production facility are recognized as production costs. Amortization of acquired product rights are recognized as production costs. In addition, the costs related to excess capacity and write-down to net realisable value of goods on stock are recognized as other production costs. Accounting policies Sales and distribution costs comprise costs incurred for the sale and distribution of products sold during the year. This includes costs incurred for sales campaigns, training and administration of the sales force and for direct distribution, marketing and promotion. Also included are salaries and other costs for the sales, distribution and mar- keting functions, loss allowance for expected credit losses, amortization, depreciation and other indirect costs. DKK thousand 2020 2019 Cost of goods sold 584,574 87,272 Contract costs 104,409 219,200 Other production costs 233,176 48,285 Amortization of product rights 272,935 - Production costs 1,195,094 354,757 Annual Report 2020 78 Note 6 Research and development costs Note 7 Adminstrative costs Accounting policies Administrative costs include costs of Group Manage- ment, staff functions, administrative personnel, office costs, rent, short-term lease payments and depreciation not relat- ing specifically to production, research and development or sales and distribution. Research and development costs include expenses for ex- ternal clinical research organizations, or CRO’s, of DKK 121.3 million (DKK 140.6 million). In October 2019, the Company announced that the stage 1 of the Phase 2 study evaluating the combination therapy of CV301 for the treatment of patients with bladder cancer did not meet the efficacy threshold to progress into stage 2 with expanded enrollment. Following this decision the CV301 development project was expensed by DKK 22.2 million. Accounting policies Research and development costs include salaries and costs directly attributable to the Group’s research and development projects, less government grants. Further- more, salaries and costs supporting direct research and development, including costs of patents, rent, leasing and depreciation attributable to laboratories, and external scientific consultancy services, are recognized under research and development costs. No indirect or general overhead costs that are not directly attributable to research and development activities are included in the disclosure of research and development expenses recognized in the income statement. Research costs are expensed in the year they occur. Development costs are generally expensed in the year they occur. In line with industry custom, capitalization of development costs does not begin until it is deemed realistic that the product can be completed and marketed and it is highly likely that a marketing authorization will be received. In addition, there must be sufficient certainty that the future earnings to the Group will cover not only produc- tion costs, direct distribution and administrative costs, but also the development costs. Contract research and development costs incurred to achieve revenue are included in “Research and develop- ment costs incurred this year” and then transferred under “Contract costs recognized as production costs” to be recognized as production costs. Grants that compensate the Group for research and devel- opment expenses incurred, which are recognized directly in the income statement, are set off against the costs of research and development at the time when a final and binding right to the grant has been obtained. DKK thousand 2020 2019 Research and development costs incurred this year 445,829 628,484 Of which: Contract costs recognized as production costs (note 4) (104,409) (219,200) Research and development costs recognized in the income statement 341,420 409,284 Annual Report 2020 79 Note 8 Staff costs DKK thousand 2020 2019 Wages and salaries 434,710 312,020 Contribution based pension 34,993 24,927 Social security expenses 17,686 13,760 Other staff expenses 31,645 28,174 Share-based payment, see specification in note 30 32,998 26,449 Staff costs 552,032 405,330 Staff expenses are distributed as follows: Production costs 213,676 162,986 Sales and distribution costs 51,243 20,630 Research and development costs 150,675 130,365 Administrative costs 115,360 91,349 Capitalized salaries, see tech transfer costs in note 16 21,078 - Staff costs 552,032 405,330 Average number of employees converted to full-time 607 465 Number of employees as of December 31 converted to full-time 690 491 DKK thousand 2020 2019 Staff costs include the following costs: Board of Directors: Remuneration 3,825 3,883 Share-based payment 1,350 1,350 Remuneration to Board of Directors 5,175 5,233 Executive Management: Salary 5,186 5,061 Paid bonus 2,540 869 Other employee benefits 576 649 Share-based payment 4,011 5,483 Corporate Management 12,313 12,062 Salary 13,996 8,126 Paid bonus 3,359 960 Other employee benefits 1,523 484 Contribution based pension 1,674 827 Share-based payment 10,591 6,316 Other Executive Management 31,143 16,713 Remuneration to Executive Management 43,456 28,775 Total management remuneration 48,631 34,008 The Group only has defined contribution plans and pays regular fixed contributions to independent pension funds and insurance companies. Annual Report 2020 80 DKK thousand 2020 2019 Depreciation and amortization included in: Production costs 311,456 31,411 Research and development costs 2,965 2,529 Administrative costs 29,660 23,105 Depreciation and amortization 344,081 57,045 Hereof loss from disposed fixed assets 3,149 - Impairment losses included in: Production costs 16,066 - Impairment losses 16,066 - CEO and President of the Company Paul Chaplin consti- tuted the Corporate Management in the Parent Company in 2020. As from February 2021, CFO Henrik Juuel also constitutes part of the Corporate Management. For 2020 CFO Henrik Juuel, COO Henrik Birk, CPO Anu Kerns, CCO JC May, CMO Laurence De Moerlooze and CBO Tommi Kainu constituted the Other Executive Management. The Executive Management was expanded during 2020 with JC May joining January 1, 2020, Laurence De Moerloo- ze joining May 1, 2020 and Anu Kerns joining November 1, 2020. Restricted stock units In March 2020 Corporate Management was granted 0 re- stricted stock units (excl. matching shares) (6,043 restricted stock units at a value of DKK 0.9 million) as it was agreed with the Board of Directors that the full bonus amount could be paid out in cash. Other Executive Management was granted 8,705 restricted stock units (excl. matching shares) (6,679 restricted stock units) corresponding to a value of DKK 2.1 million (DKK 1.0 million at grant). In May 2020 the new CMO was granted a sign-on bonus of 8,651 restricted stock units (excl. matching shares) corresponding to a value of DKK 1.3 million at grant. In June 2020, the members of the Board of Directors were granted in total 7,111 restricted stock units (9,765 restrict- ed stock units) corresponding to 50% of their fixed fee amounting to DKK 1.4 million (DKK 1.4 million). For further description of restricted stock units see note 30. Warrants In November 2020 Corporate Management was granted 123,645 warrants (78.201 warrants) with a fair value of DKK 5.1 million (DKK 3.6 million). Other Executive Manage- ment was granted 294,675 warrants (105,161 warrants) with a fair value of DKK 12.1 million (DKK 4.8 million). In January 2020 the new CCO was granted a sign-on bonus of 23,763 warrants with a fair value of DKK 1.2 million. Fair value calculated based on Black-Scholes, cf. note 30. Incentive programs for the Executive Management and other employees are disclosed in note 30. Members of the Executive Management have contracts of employment containing standard terms for members of the Executive Management of Danish listed companies, includ- ing the periods of notice that both parties are required to give and competition clauses. If a contract of employment of a member of the Executive Management is terminated by the Company without misconduct on the part of such member, the member of the Executive Management is entitled to compensation, which, depending on the cir- cumstances, may amount to a maximum of 8-18 months’ remuneration. In the event of a change of control the compensation can amount to 24 months’ remuneration. Note 9 Depreciation, amortization and impairment losses The product rights to Rabipur/RabAvert and Encepur are amortized over 20 years with an annual amortization of DKK 273 million. The amortization is recognized as part of cost of goods sold under production costs. The product rights was acquired from GlaxoSmithKline as per December 31, 2019. See further description in note 16. Following the current rebuild of the production facility in Kvistgaard to accommodate a new production line for Rabipur/RabAvert and Encepur products, part of the existing building components and equipment has been written-down in 2020, amounting to DKK 16.1 million. Note 8 Staff costs – continued Annual Report 2020 81 Note 10 Fees to auditor appointed at the annual general meeting Note 11 Other operating income DKK thousand 2020 2019 Audit of financials statements 1,500 1,300 Other assurance services 1,144 421 Tax advisory 411 877 Other services 182 231 Fees 3,237 2,829 The fee for non-audit services provided to the Group by Deloitte Statsautoriseret Revisionspartnerselskab, Denmark, amounted to DKK 1.4 million (DKK 0.9 million) and consist- ed of assurance work related to the rights issue, assistance with compliance reviews, and other accounting and tax advisory services. Assurance fees related to the rights issue process amount to DKK 1.1 million (DKK 0.3 million). In 2019 the tax adviso- ry included assistance related to the transfer pricing audit regarding PROSTVAC development cost. Sale of the Priority Review Voucher, granted to the Compa- ny by the FDA in connection with the approval of JYNNEOS, was announced in December 2019 and final closing of the transaction occurred in January 2020 when the antitrust clearance was received. Upon completion, the Company received a cash consideration of USD 95 million. Annual Report 2020 82 Note 12 Financial income Note 13 Financial expenses DKK thousand 2020 2019 Financial income from bank and deposit contracts 193 602 Interest income from financial assets measured at amortized cost 193 602 Financial income from securities 8,756 16,435 Fair value adjustments on securities 6,783 - Adjustment of deferred consideration due to change in estimated timing of payments 67,719 - Currency adjustment deferred consideration 11,900 - Net gains on derivative financial instruments at fair value through the income statement 2,571 5,503 Financial income 97,922 22,540 DKK thousand 2020 2019 Interest expenses on debt 31,853 18,490 Interest expenses on financial liabilities measured at amortized cost 31,853 18,490 Fair value adjustments on securities - 15,330 Unwinding of the discount related to deferred consideration 145,149 - Net foreign exchange losses 18,532 5,023 Financial expenses 195,534 38,843 Accounting policies Interest income is recognized in the income state- ment at the amounts relating to the financial year. Financial income also includes adjustment of deferred considera- tion due to change in estimated timing of payments, net positive value adjustments of financial instruments and securities and net currency gains. Accounting policies Interest expenses are recognized in the income statement at the amounts relating to the financial year. Financial expenses also include unwinding of the discount related to the deferred consideration, cf. note 25, negative value adjustments of financial instruments and securities and net currency losses. The deferred consideration for product rights is measured at net present value and the difference between the net present value and the amounts due is recognized in the income statement as a financial expense over the period until expected payment date using the effective interest method. Annual Report 2020 83 Note 14 Tax for the year Tax on income is an expense of DKK 4.5 million recognized in Bavarian Nordic GmbH (DKK 2.0 million), corresponding to an effective tax rate of 1.6% for the Group (negative 0.6%). The effective tax rate for 2020 is positively impact- ed by the new Danish tax scheme allowing 30% ‘step-up’ deduction for costs related to research and development activities paid by Danish entities (reduces tax for the year by DKK 13 million). The reduction in not recognized de- ferred tax asset (DKK 54 million) also reduces the effective tax rate. The effective tax rate for 2019 was impacted by write-down of the tax asset and the change in non-recog- nized tax asset related to write-down of CV301. Accounting policies Income tax for the year comprises current tax and deferred tax for the year. The part relating to the profit for the year is recognized in the income statement, and the part attributable to items in the comprehensive income is recognized in the comprehensive income statement. The tax effect of costs that have been recognized directly in equity is recognized in equity under the relevant items. Current tax receivable is recognized in the balance sheet under current asset. Current tax payable is recognized in the balance sheet under current liabilities. Deferred tax is measured using the balance sheet liability method on all temporary differences between accounting values and tax values. Deferred tax liabilities arising from temporary tax differences are recognized in the balance sheet as a liability. Deferred tax assets arising from temporary deductible differences and tax losses carried forward are recognized when it is probable that they can be realized by offsetting them against taxable temporary differences or future taxable profits. At each balance sheet date, it is assessed whether it is probable that there will be sufficient future taxable income for the deferred tax asset to be utilized. Deferred income tax is provided on temporary taxable dif- ferences arising on investments in subsidiaries, unless the parent company is able to control the timing when the de- ferred tax is to be realized and it is likely that the deferred tax will not be realized within the foreseeable future. Deferred tax is calculated at the tax rates applicable on the balance sheet date for the income years in which the tax asset is expected to be utilized. DKK thousand 2020 2019 Tax recognized in the income statement Current tax on profit for the year 5,217 3,121 Adjustments to current tax for previous years (762) (1,093) Current tax 4,455 2,028 Deferred tax - - Tax for the year recognized in the income statement 4,455 2,028 Tax on income for the year is explained as follows: Income before company tax 281,976 (344,749) Calculated tax (22.0%) on income before company tax 62,035 (75,845) Tax effect on: Different tax percentage in foreign subsidiaries (349) (1,321) Non-recognized deferred tax asset on current year losses in foreign subsidiaries 18,421 5,458 Income ()/expenses that are not taxable/deductible for tax purposes (20,412) 1,755 Non-recognized deferred tax asset on write-down of development project for sale - (10,139) Change in non-recognized deferred tax asset (54,478) 83,213 Adjustments to current tax for previous years (762) (1,093) Tax on income for the year 4,455 2,028 Tax recognized in other comprehensive income - - Tax recognized in equity - - Annual Report 2020 84 Note 14 Tax for the year – continued 2020 DKK thousand January 1, 2020 Recognized in the income statement Recognized in equity December 31, 2020 Product rights - (94,360) - (94,360) Other intangible assets 2,040 (1,663) - 377 Property, plant and equipment 22,593 15,749 - 38,342 Right-of-use assets 55 318 - 373 Development projects for sale 32,446 - - 32,446 Accrued project costs (790) 609 - (181) Receivables - 18 - 18 Provisions - 17,930 - 17,930 Financial instruments (503) - 681 178 Share-based payment 8,573 6,824 - 15,397 Tax losses carried forward 362,112 97 - 362,209 Not recognized tax asset (426,526) 54,478 (681) (372,729) Recognized deferred tax assets - - - - 2019 DKK thousand January 1, 2019 Recognized in the income statement Recognized in equity December 31, 2019 Intangible assets 3,703 (1,663) - 2,040 Property, plant and equipment 15,515 7,078 - 22,593 Right-of-use assets - 55 - 55 Development projects for sale 17,420 15,026 - 32,446 Accrued project costs (7,335) 6,545 - (790) Financial instruments 78 - (581) (503) Share-based payment 4,154 4,419 - 8,573 Tax losses carried forward 310,359 51,753 - 362,112 Not recognized tax asset (343,894) (83,213) 581 (426,526) Recognized deferred tax assets - - - - Deferred tax Recognized deferred tax assets relate to temporary differences between the tax base and accounting carrying amount and tax losses carried forward. Deferred tax assets arising from temporary deductible differences and tax losses carried forward are recognized to the extent they are expected to be offset against future taxable income. Recognized tax losses carried forward relate to Bavarian Nordic A/S and the two Danish subsidiaries Aktieselskabet af 1. juni 2011 I and Aktieselskabet af 1. juni 2011 II. The tax value of non-recognized tax losses carried forward in Bavarian Nordic A/S and the two Danish subsidiaries amounts to DKK 362.2 million (DKK 362.1 million), whereas the tax value of non-recognized temporary deductible differences amounts to DKK 10.5 million (DKK 64.4 million). Tax rate used for Danish entities is 22%. As Bavarian Nordic, Inc. has moved from California to North Carolina in January 2017, the state tax losses and state tax credit carried forward will most likely never be utilized, hence no tax asset has been recognized. Bavarian Nordic GmbH and Bavarian Nordic Switzerland AG have no tax losses carried forward. The Company’s right to use the tax losses carried forward is not time-limited. Non-recognized deferred tax asset on current year losses in foreign subsidiaries also includes deferred tax on inter- company transactions between Bavarian Nordic A/S and Bavarian Nordic, Inc. under the Distribution Agreement for sale of RabAvert in US, DKK 14.6 million (DKK 0 million). Annual Report 2020 85 Note 15 Earnings per share (EPS) Accounting policies Earnings per share is calculated as the profit or loss for the year compared to the weighted average of the issued shares in the financial year. The basis for the calcula- tion of diluted earnings per share is the weighted-average number of ordinary shares in the financial year adjusted for the dilutive effects of warrants. DKK thousand 2020 2019 Net profit for the year 277,521 (346,777) Earnings per share of DKK 10 5.1 (10.7) Diluted earnings per share of DKK 10 5.1 (10.7) The weighted average number of ordinary shares for the purpose of diluted earning per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows: Weighted average number of ordinary shares (thousand units) 54,122 32,340 Weighted average number of treasury shares (thousand units) (76) (59) Weighted average number of outstanding ordinary shares used in the calculation of basic earnings per share (thousand units) 54,046 32,281 Average dilutive effect of outstanding warrants under incentive schemes - - Weighted average number of outstanding ordinary shares used in the calculation of diluted earnings per share (thousand units) 54,046 32,281 Outstanding warrants that may have an effect on the calculation of diluted earnings per share in the future. 2020-programs 1,310,297 - 2019-program 687,467 564,585 2018-program 554,066 462,835 2017-programs 396,601 323,763 2016-program 444,558 366,690 2015-program - 293,630 2014-program - 118,500 Outstanding warrants, cf. note 30 3,392,989 2,130,003 Annual Report 2020 86 Accounting policies Intangible assets are measured at historic cost less accumulated amortization and impairment losses. Cost of acquired product rights are measured at cash consid- eration and present value of any deferred payments for those rights. Furthermore costs of acquired product rights include transaction costs that are directly attributable to the acqusition. Internal development projects that meet the requirements for recognition as intangible assets are measured at direct cost relating to the development projects. Amortization is provided on a straight-line basis over the useful economic lives of the assets. The useful lives of acquired product rights are estimated to be 20 years and software is estimated to be 3-5 years. Amortization of acquired product rights is recognized as part of cost of goods sold under production costs. Impairment The carrying amounts of intangible assets carried at cost or amortized cost are tested at least annually to determine whether there are indications of any impairment in excess of that expressed in normal amortization. If that is the case, the asset is written down to the recoverable amount, which is the higher of its fair value less costs to sell and its value in use. Impairment losses on intangible assets are recognized under the same line item as amortization of the assets. For development projects in progress, the recoverable amount is assessed annually, regardless of whether any indications of impairment have been found. Significant accounting estimates When determining the amortization period for acquired product rights, Management need to make an assessment of expected useful economic life. In the assessment Management take among other things the fol- lowing components into consideration: The maturity of the products acquired, development in the market the acquired products are targeting, the current competitors, clinical development of new competing products and entry barriers to the market due to advanced production technology. Straight-line amortization reflects the use and impairment of the product rights. Management continuously updates the valuation model used when acquiring the product rights to assess the value creation expected from the acquisition. The latest update of the model indicates a value above the net present value of the purchase price, hence there is no indications of impairment. As per December 31, 2020 Management still judge that the sales milestone of EUR 25 million included in Asset Pur- chase Agreement is not probably and therefore the present value has not been added to the cost of the product rights. Significant accounting judgments Management has made the following accounting judgment which significantly affect the amounts recognized in the consolidated financial statements: The acquisition of the two product rights from GlaxoSmith- Kline does not include any legal entities, and no other tangible asset, no employees and no working capital has been transferred to the Company as part of the transaction. Management has assessed that the acquisition constitute an asset deal and not a business combination. In determin- ing the accounting treatment, Management has performed judgments and estimates determining the method for determination of the cost price of the acquired products rights including the method and period of amortization and method for recognition of deferred consideration. Note 16 Intangible assets Annual Report 2020 87 Product rights December 31, 2019 the Company acquired the product rights to two commercial products owned by GlaxoSmith- Kline - Rabipur/RabAvert and Encepur. The products are further described in the Management Commentary. The products have been on the market for more than 20 years. There is no need to further develop the products. Management assess that it will require up to 10 years of clinical development for competitors to bring a new competing product to the market likewise the production process required to produce these products is highly com- plex. Based on these factors Management assess that the acquired product rights should be amortized over 20 years. The acquisition price for the two product rights consist of the upfront payment and the present value of the mile- stone payments included in the Asset Purchase Agreement with GlaxoSmithKline, see further below. Transaction costs that are directly attributable to the acquisition have also been included in the acquisition price. The upfront payment and the transaction costs have been divided between the two acquired product rights based on a 60%/40% split equal to the historical revenue split of the two products. The milestone payments, except for the sales milestone, are specific for each product and have been allocated accordingly. Note 16 Intangible assets – continued 2020 DKK thousand Product rights Acquired patents and licenses Software Other intangible assets in progress Total Costs as of January 1, 2020 5,458,700 - 101,041 3,043 5,562,784 Additions - 29,813 2,991 57,040 89,844 Transfer - - 2,525 (2,525) - Disposals - - (18,962) - (18,962) Exchange rate adjustments - - (8) (15) (23) Cost as of December 31, 2020 5,458,700 29,813 87,587 57,543 5,633,643 Amortization as of January 1, 2020 - - 78,529 - 78,529 Amortization 272,935 - 9,606 - 282,541 Disposals - - (18,166) - (18,166) Exchange rate adjustments - - (13) - (13) Amortization as of December 31, 2020 272,935 - 69,956 - 342,891 Carrying amount as of December 31, 2020 5,185,765 29,813 17,631 57,543 5,290,752 Geographical split of intangible assets – 2020 Denmark 5,288,247 Germany 609 USA 1,896 Total intangible assets 5,290,752 Annual Report 2020 88 Note 16 Intangible assets – continued DKK thousand Acquisition price for product rights Upfront payment at closing (EUR 307.6 million) 2,297,680 Directly attributable transaction costs 9,890 Cash outflow in 2019, cf. cash flow statement 2,307,570 Net present value of future probable milestone payments at initial recognition, cf. note 25 3,151,130 Total acquisition price 5,458,700 Allocation of acquisition price: Rabipur/RabAvert 3,140,250 Encepur 2,318,450 Total acquisition price 5,458,700 The milestone payments relate to transfer and re-regis- tration of marketing authorizations, technology transfer of different steps of the production and packaging activities as well as a milestone payment when all services agreed to be rendered has been completed. The Asset Purchase Agreement specifies the above milestone payments for each product. In total EUR 470 million. The Asset Purchase Agreement with GlaxoSmithKline also includes a sales milestone of EUR 25 million. The sales milestone is related to the total revenue of the two products. As Management didn’t judge the sales milestone to be probable as per De- cember 31, 2019, the sales milestone was not recognized as part of the product rights at initial recognition. Deferred consideration for the acquired product rights are described in note 25. Acquired patents and licenses In July 2020, the Company concluded a license and collab- oration agreement with AdaptVac. The license agreement provides the Company the global commercialization rights to a COVID-19 vaccine candidate based on AdaptVac’s technology. The Company has conducted a preclinical study for which positive results were announced March 8, 2021. AdaptVac will initiate a phase 1/2 open label, dose-escala- tion trial sponsored by Radhould University Medical Center. The Company will assume responsibility for the further clinical development and manufacturing. Under the terms of the agreement, the Company made an upfront payment of EUR 4 million to AdaptVac. The upfront payment has been capitalized and recognized as “Acquired patents and licenses”. The Company has also committed to payment of potential future development and sales milestones and tiered royalties. As those milestone payments are not assessed to be probable as per December 31, 2020, these milestone payments are not recognized as an asset and a liability. The Company will start amortizing the acquired license once a vaccine has been approved. At least annually Man- agement will assess if any indications of impairment. Intangible assets in progress Rabipur/RabAvert and Encepur are currently manufactured by GlaxoSmithKline and the basis of the technology transfer to the Company is an as-is transfer of the current manufac- turing process. This transfer will be a staged process, start- ing with packaging then filling and ending with the transfer of bulk manufacturing. The Company will incur material costs in terms of internal labour and consultancy to handle the technology transfer and gain crucial knowledge about the manufacturing process. These costs will be capitalized as an intangible asset. As per December 31, 2020 the capitalized costs amounts to DKK 38.1 million, recognized as intangible assets in progress. Other intable assets in progress relates to IT investments. Annual Report 2020 89 Note 17 Property, plant and equipment Accounting policies Property, plant and equipment include land and buildings, production equipment, leasehold improvements, office and IT equipment and laboratory equipment and is measured at cost less accumulated depreciation and impairment losses. Cost includes the costs directly attributable to the purchase of the asset, until the asset is ready for use. For assets con- structed by the Group cost includes materials, components, third-party suppliers and labour. Borrowing costs directly attributable to the construction of property, plant and equipment are included in cost. Other borrowing costs are recognized in the income statement. Depreciation is charged over the expected economic lives of the assets, and the depreciation methods, expected lives and residual values are reassessed individually for the assets at the end of each financial year. Assets are depreci- ated on a straightline basis over their estimated useful lives as follows: Buildings 10–20 years Installations 5–15 years Leasehold improvements 5 years Office and IT equipment 3–5 years Laboratory equipment 5–10 years Production equipment 3–15 years Management reviews the estimated useful lives of material property, plant and equipment at the end of each financial year. Impairment The carrying amounts of property, plant and equipment carried at cost or amortized cost are tested annually to determine whether there are indications of any impairment in excess of that expressed in normal depreciation. If that is the case, the asset is written down to the recoverable amount, which is the higher of its fair value less costs to sell and its value in use. Impairment losses on property, plant and equipment are recognized under the same line item as depreciation of the assets. 2019 DKK thousand Product rights Software Other intangible assets in progress Total Costs as of January 1, 2019 - 100,626 119 100,745 Additions 5,458,700 364 2,974 5,462,038 Transfer - 50 (50) - Exchange rate adjustments - 1 - 1 Cost as of December 31, 2019 5,458,700 101,041 3,043 5,562,784 Amortization as of January 1, 2019 - 68,245 - 68,245 Amortization - 10,282 - 10,282 Exchange rate adjustments - 2 - 2 Amortization as of December 31, 2019 - 78,529 - 78,529 Carrying amount as of December 31, 2019 5,458,700 22,512 3,043 5,484,255 Geographical split of intangible assets – 2019 Denmark 5,483,903 Germany 177 USA 175 Total intangible assets 5,484,255 Other intangible assets in progress include investments in software. Note 16 Intangible assets – continued Annual Report 2020 90 Note 17 Property, plant and equipment – continued 2020 DKK thousand Land and buildings Leasehold improve- ment Plant and machinery Other fixtures and fittings, other plant and equipment Assets under construction Total Costs as of January 1, 2020 322,501 11,112 301,174 91,072 618,101 1,343,960 Additions 26,408 1,331 657 12,254 182,224 222,874 Transfer 201,776 1,995 185,345 197,886 (587,002) - Disposals (2,390) - (2,152) (6,443) - (10,985) Exchange rate adjustments (4) (34) - (351) (14) (403) Cost as of December 31, 2020 548,291 14,404 485,024 294,418 213,309 1,555,446 Depreciation and impairment losses as of January 1,2020 160,174 10,269 256,909 70,704 - 498,056 Depreciation 17,642 453 14,014 6,969 - 39,078 Impairment losses 5,354 - 10,712 - - 16,066 Disposals (1,109) - (1,275) (6,243) - (8,627) Exchange rate adjustments (2) (31) - (250) - (283) Depreciation and impairment losses as of December 31, 2020 182,059 10,691 280,360 71,180 - 544,290 Carrying amount as of December 31, 2020 366,232 3,713 204,664 223,238 213,309 1,011,156 Geographical split of property, plant and equipment – 2020 Denmark 990,423 Germany 20,031 USA 702 Total property, plant and equipment 1,011,156 Assets under construction relates to the fill and finish manufacturing facility in Kvistgaard. As per December 31, 2020 investments in the building, the installations and the freezedryer, filing and packaging line have been transfered to the relevant asset groups, whereas other production equipment is still recognized as ‘Asset under construction’. The depreciation of the fill and finish building and equip- ment will start in 2021. The Company has not incurred any borrowing costs directly attributable to the construction of the fill finish manu- facturing facility, hence no borrowing costs have been capitalized. Mortgage loans of DKK 23.2 million are secured by mortgages totaling DKK 50.0 million on the property Bøgeskovvej 9/Hejreskovvej 10A, Kvistgaard. In addition, as of December 31, 2020, mortgage deeds for a total of DKK 75.0 million have been issued. The carrying amount of assets mortgaged in security of mortgage loans is DKK 570.9 million (land and buildings: DKK 366.2 million; plant and machinery: DKK 204.7 million). Annual Report 2020 91 Note 17 Property, plant and equipment – continued 2019 DKK thousand Land and buildings Leasehold improve- ment Plant and machinery Other fixtures and fittings, other plant and equipment Assets under construction Total Costs as of January 1, 2019 322,500 11,107 301,174 86,895 262,114 983,790 Additions - - - 1,600 358,502 360,102 Transfer - - - 2,515 (2,515) - Exchange rate adjustments 1 5 - 62 - 68 Cost as of December 31, 2019 322,501 11,112 301,174 91,072 618,101 1,343,960 Depreciation and impairment losses as of January 1, 2019 143,058 10,060 246,863 65,001 - 464,982 Depreciation 17,116 204 10,046 5,673 - 33,039 Exchange rate adjustments - 5 - 30 - 35 Depreciation and impairment losses as of December 31, 2019 160,174 10,269 256,909 70,704 - 498,056 Carrying amount as of December 31, 2019 162,327 843 44,265 20,368 618,101 845,904 Geographical split of property, plant and equipment – 2019 Denmark 832,778 Germany 12,043 USA 1,083 Total property, plant and equipment 845,904 Mortgage loans of DKK 25.4 million are secured by mortgages totaling DKK 50.0 million on the property Bøgeskovvej 9/Hejreskovvej 10A, Kvistgaard. In addition, as of December 31, 2019, mortgage deeds for a total of DKK 75.0 million have been issued. The carrying amount of assets mortgaged in security of mortgage loans is DKK 538.5 million (land and buildings: DKK 162.3 million; plant and machinery: DKK 44.3 million; fill and finish facility under construction: DKK 331.9 million). Annual Report 2020 92 Note 18 Right-of-use-assets As of 1 January 2019, Bavarian Nordic applied IFRS 16 ‘Leases’ for the first time. IFRS 16 “Leases” replaced IAS 17 “Leases”, and the new standard was implemented using the simplified retrospective transition approach without restating comparative figures, with a lease asset value equal to the lease liability value upon transition. Upon implementation January 1, 2019, the group recognized a right-of-use-asset of DKK 83 million and a lease liability of DKK 83 million. The implementation did not have any impact on equity. Accounting policies The right-of-use assets comprise the initial meas- urement of the corresponding lease liability. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses. All operating leases with a lease term of more than 12 months are recognized on the balance sheet as right-of- use-assets. For leases with a lease term of less than 12 months the lease payments are recognized as an operating expense on a straight-line basis over the term of the lease. The right-of-use-assets are measured at the present value of all future lease payments. When assessing the lease term, any extension or termination options are included in the assessment. The options are included in determining the lease term, if exercise is reasonably certain. When de- termining the discount rates used to calculate the net pres- ent value of future lease payments, an incremental country specific borrowing rate is used, based on a government bond plus the Group’s credit margin, ranging from 2.5% to 3.0%. A single discount rate is used for a portfolio of lease assets with reasonable similar characteristics. Initial direct costs are not included in measurement of the right-of- use-assets. Non-lease components are not separated from lease components. Impact from change in lease terms, lease payments or mod- ification of the lease contract is further described in note 27. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. The depreciation starts at the commencement date of the lease. IAS 36 is applied to determine whether a right-of- use asset is impaired and any identified impariment losses are accounted for as described in note 16. 2020 DKK thousand Rent facility Car leasing Equipment Total Right-of-use assets as of January 1, 2020 58,369 1,628 593 60,590 Additions 26,982 1,705 542 29,229 Modifications 1,336 459 (1) 1,794 Depreciations (17,437) (1,486) (390) (19,313) Exchange rate adjustments (319) 6 - (313) Right-of-use assets as of December 31, 2020 68,931 2,312 744 71,987 2019 DKK thousand Rent facility Car leasing Equipment Total Impact from applying IFRS 16 as of January 1, 2019 80,470 1,736 662 82,868 Additions - 1,039 306 1,345 Modifications (10,419) 292 (64) (10,191) Depreciations (11,975) (1,439) (310) (13,724) Exchange rate adjustments 293 - (1) 292 Right-of-use assets as of December 31, 2019 58,369 1,628 593 60,590 DKK thousand 2020 2019 Amounts included in the income statement Interest expense leases 1,965 1,771 Depreciation recognized on right-of-use assets 19,314 13,724 Cost recognized for short term leases (less than 12 months) 2,050 1,507 Income from subleasing right-of-use assets - 365 Annual Report 2020 93 Note 19 Inventories The inventory of Rabipur/RabAvert and Encepur products amounted to DKK 307.5 million (DKK 0 million) as per December 31, 2020. During 2020 a provisional write-down of DKK 21 million was made for batches at risk. Later in the year the final release tests failed and products were scrapped and recognized as ‘use of write-down’. Use of write-down also includes scrap of old JYNNEOS vials full written down prior years. 2019 write-downs included a reversal of write-down on three batches that subsequently were deemed usable for the validation of the freeze-drying production process funded by the U.S. Biomedical Advanced Research and Development Authority (BARDA). The batches were used and sold under the BARDA funded contract and recognized as contract income. Accounting policies Inventories except for raw materials are measured at the lower of cost using the weighted average cost formula method less write-downs for obsolescence and net realis- able value. Raw materials are measured at cost based on the FIFO method. For raw materials, cost is determined as direct acquisition costs incurred. The cost of finished goods produced in-house and work in progress includes raw materials, consumables, filling cost, QC testing and direct payroll costs plus indirect costs of production. Indirect costs of production include indirect materials and labour as well as maintenance of and depreciation on the machinery used in production processes, factory buildings and equipment used and cost of production administration and management. The net realisable value is the estimated sales price in the ordinary course of business less relevant sales costs determined on the basis of marketability, obso- lescence and changes in the expected sales price. Significant accounting estimates Production overheads are measured on the basis of actual costs. The basis of the actual costs is reassessed regularly to ensure that they are adjusted for changes in the utilization of production capacity, production changes and other relevant factors. Biological living material is used, and the measurements and assumptions for the estimates made may be incomplete or inaccurate, and unexpected events or circumstances may occur, which may cause the actual outcomes to later deviate from these estimates. It may be necessary to change previous estimates as a result of changes in the assumptions on which the estimates were based or due to new information or subsequent events, for which certainty could not be achieved in the earlier estimates. Estimates that are material to the financial reporting are made in the determination of any impairment of invento- ries as a result of ‘out-of-specification’ products, expiry of products and sales risk. DKK thousand 2020 2019 Raw materials and supply materials 73,919 39,578 Work in progress 201,601 163,513 Manufactured goods and commodities 309,099 1,727 Write-down on inventory (63,537) (104,056) Inventories 521,082 100,762 Write-down on inventory as of January 1 (104,056) (107,692) Write-down for the year (25,692) (17,824) Use of write-down 65,672 7,683 Reversal of write-down 539 13,777 Write-down on inventory as of December 31 (63,537) (104,056) Cost of goods sold amounts to, cf. note 4 584,574 87,272 Annual Report 2020 94 Credit risk The Group's customers are predominantly public authorities and renowned pharmaceutical companies and wholesalers, therefore the credit risk is very low. Historically the Group hasn’t recognized losses on receivables. There are some insignificant overdue receivables as of December 31, 2020 (DKK 4 million). As of December 31, 2020 a loss allowance of DKK 80 thousand has been recognized. The loss allow- ance is recognized in the income statement under sales and distribution costs. The majority of sales of Rabipur/RabAvert and Encepur are made to wholesalers where the risk of loss is very low and therefore the loss allowance is limited. The Group has applied the simplified approach to measure the expected credit loss and a lifetime expected loss allowance for all trade receivables.The allowance is an estimate based on shared credit risk characteristics and the days past due. At the time of revenue recognition, the Company assesses the full lifetime expected credit losses. In addition, undue and due receivables are analyzed in an ongoing process. Based on the credit assessment, receiva- bles analysis, historical experience and industry experience, it is estimated whether the receivables are recoverable or write-downs are needed. The Company monitors the credit exposure on all customers, both new and existing. The Company recognizes a loss allowance for expected credit losses and writes off trade receivables when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. Subsequent recovery of amounts previously written down is credited against sales and distribution costs. The payment conditions for the customers, including credit periods and any payment of interest in case of non-pay- ment, vary, but are always based on industry practice in the relevant market. The weighted average credit period is approximately 60 days for the sales of Rabipur/RabAvert and Encepur. The tables detail the risk profile for trade receivables. Accounting policies Receivables are measured at initial recognition at fair value and subsequently at amortized value usually equal to the nominal value, net of impairment based on expected credit losses. Write-downs are calculated using the ‘full lifetime expected credit losses’ method, whereby the likelihood of non-ful- filment throughout the lifetime of the financial instrument is taken into consideration. A provision account is used for this purpose. DKK thousand 2020 2019 Trade receivables from smallpox vaccine sale - 281 Trade receivables from Encepur and Rabipur/RabAvert 121,355 - Trade receivables from contract work 17,937 43,124 Trade receivables 139,292 43,405 2020 DKK thousand Gross carrying amount Loss allowance Net carrying amount Trade receivables Not past due date 135,358 - 135,358 Overdue by 0-3 months 4,014 (80) 3,934 Trade receivables 139,372 (80) 139,292 2019 DKK thousand Gross carrying amount Loss allowance Net carrying amount Trade receivables Not past due date 43,405 - 43,405 Trade receivables 43,405 - 43,405 Note 20 Trade receivables Annual Report 2020 95 Note 21 Other receivables Note 22 Prepayments Accounting policies Receivables are measured at initial recognition at fair value and subsequently at amortized value usually equal to the nominal value, net of impairment, to counter the loss after an individual assessment of risk of loss. As per December 31, 2019 “Incurred project costs related to subsequent years” related mainly to support qualification of the new fill and finish facility funded by BARDA. The project costs were expensed in 2020 along with revenue recognition. Accounting policies Prepayments recognized under assets include costs paid in respect of subsequent financial years, including project costs incurred that relate to revenue of subsequent years. Prepayments are measured at cost. DKK thousand 2020 2019 Deposits 4,122 1,445 Receivable VAT and duties 31,486 24,188 Derivative financial instruments at fair value 606 3,530 Interest receivables 3,767 664 Other receivables 1,475 5 Other receivables 41,456 29,832 Classified as: Non-current assets 4,122 1,445 Current assets 37,334 28,387 Other receivables 41,456 29,832 DKK thousand 2020 2019 Incurred project costs related to subsequent years 824 3,591 Other prepayments 12,908 5,598 Prepayments 13,732 9,189 Annual Report 2020 96 Note 23 Other liabilities Under the new Danish Holiday Act a transitional arrange- ment exists under which vacation accrued for the period September 1, 2019 to August 31, 2020, has been frozen and will not be paid out before retirement. The Company has decided to deposit the accrued amount, DKK 25.1 mil- lion, to the Holiday Fund (“Lønmodtagernes Feriemidler”) to ensure the asset management of the funds. The deposit was made in February 2021. For a further description of financial instruments see note 24. The phantom share programs are described in note 30. Accounting policies Derivative financial instruments and liability relating to phantom shares are measured at fair value. For further details regarding measurement of fair value for phantom shares see note 30. Other financial liabilities are measured at initial recognition at fair value less any transaction costs. Subsequent other financial liabilities are measured at amortized cost using the effective interest method, whereby the difference be- tween proceeds and the nominal value is recognized in the income statement as a financial expense over the period. Amortized cost usually equal to the nominal value. DKK thousand 2020 2019 Financial instruments at fair value 1,414 1,243 Liability relating to phantom shares 4,849 1,135 Payable salaries, holiday accrual etc. 101,229 58,755 Gross to net deduction accrual 26,355 - Other accrued costs 17,967 18,672 Other liabilities 151,814 79,805 Annual Report 2020 97 Accounting policies Derivative financial instruments On initial recognition, derivative financial instruments are measured at the fair value on the settlement date. Directly attributable costs related to the purchase or issuance of the individual financial instruments (transaction costs) are added to the fair value on initial recognition, un- less the financial asset or the financial liability is measured at fair value with recognition of fair value adjustments in the income statement. Subsequently, they are measured at fair value at the balance sheet date based on the official exchange rates, market interest rates and other market data such as volatility adjusted for the special characteris- tics of each instrument. Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as effective hedges of future transactions (cash flow hedges) are rec- ognized as comprehensive income. The ineffective portion is recognized immediately in the income statement. When the hedged transactions are realized, cumulative changes are recognized in the income statement together with the hedged transaction or in respect of a non-financial item as part of the cost of the transactions in question. For derivative financial instruments that do not qualify for hedge accounting, changes in fair value are recognized as financials in the income statement as they occur. The Company has designated certain derivative financial instruments as cash flow hedges as defined under IFRS 9 “Financial Instruments”. Hedge accounting is classified as a cash flow hedge when the hedges of a particular risk is associated with the cash flows of highly probable forecast transactions. Securities Securities consist of listed bonds, which are measured at fair value on initial recognition and as of the balance sheet date. The Group’s portfolio of securities is treated as “financial items at fair value through profit or loss“, as the portfolio is accounted for and valued on the basis of the fair value in compliance with the Company’s investment policy. Both realized and unrealized value adjustments are recog- nized in the income statement under financials. Note 24 Financial risks and financial instruments DKK thousand 2020 2019 Categories of financial instruments Trade receivables 139,292 43,405 Other receivables 40,850 26,302 Cash and cash equivalents 285,487 297,545 Financial assets measured at amortized cost 465,629 367,252 Securities 1,384,120 174,819 Financial assets measured at fair value through the income statement 1,384,120 174,819 Derivative financial instruments to hedge future cash flows (exchange rate) 606 3,530 Financial assets used as hedging instruments 606 3,530 Deferred consideration for product rights 2,822,668 3,151,130 Debt to credit institutions 395,442 1,770,559 Lease liabilities 74,623 61,400 Trade payables 345,320 112,088 Other liabilities 145,551 77,427 Financial liabilities measured at amortized cost 3,783,604 5,172,604 Liability relating to phantom shares 4,849 1,135 Financial liabilities measured at fair value through the income statement 4,849 1,135 Derivative financial instruments to hedge future cash flows (interest) 1,414 1,243 Financial liabilities used as hedging instruments 1,414 1,243 Annual Report 2020 98 Note 24 Financial risks and financial instruments – continued Exchange rate risks on recognized financial assets and liabilities DKK thousand Cash and cash equivalents, securities Receivables Liabilities Net position 2020 EUR 35,364 32,418 (3,005,383) (2,937,601) USD 80,634 111,426 (126,786) 65,274 CHF 572 655 (12,916) (11,689) 2019 EUR 10,586 1,120 (4,585,427) (4,573,721) USD 86,171 63,511 (20,074) 129,608 Sensitivity analysis on exchange rates DKK thousand Likely change in exchange rate Hypothetical change in equity Hypothetical change in profit 2020 Change if higher USD-rate than actual rate 15% (46,537) 12,469 Change if higher EUR-rate than actual rate 1% (28,226) (29,445) Change if higher CHF-rate than actual rate 1% (1,934) (107) 2019 Change if higher USD-rate than actual rate 15% (45,663) 20,335 Change if higher EUR-rate than actual rate 1% (45,221) (46,416) Policy for managing financial risks Through its operations, investments and financing the Group is exposed to fluctuations in exchange rates and interest rates. These risks are managed centrally in the Parent Company, which manages the Group´s liquidity. The Group pursues a treasury policy approved by the Board of Directors. The policy operates with a low risk profile, so that exchange rate risks, interest rate risks and credit risks arise only in commercial relations. The Group therefore does not undertake any active speculation in financial risk. The Group´s capital structure is regularly assessed by the Board of Directors relative to the Group´s cash flow position and cash flow budgets. Market risks The pharmaceutical market is characterized by the aim of authorities to reduce or cap healthcare costs in general. Market changes such as price reductions and launch of competing generic products may have a considerable impact on the earnings potential of pharmaceuticals. Interest rate risk It is the Group’s policy to hedge interest rate risks on loans whenever it is deemed that interest payments can be hedged at a satisfactory level relative to the related costs. Hedging will then consist of interest rate swaps that convert floating rate loans to fixed rate loans. Management determines the economic relationship between the hedged item and the hedging instrument to ensure a high hedge effectiveness. The interest rate risk involved in placing cash funds and investing in securities is managed on the basis of duration. Exchange rate risks The Group’s exchange rate exposure is primarily to USD and EUR. The exchange rate exposure to USD is hedged to the greatest possible extent by matching incoming and outgo- ing payments denominated in USD, looking at maximum one year ahead. Regular assessments are made of whether the remaining net position should be hedged by currency forward contracts or currency option contracts. The exposure to EUR is not hedged as management be- lieves that fluctuations in EUR are limited due to the Danish fixed-rate policy which is expected to be maintained. Thus the fluctuations in EUR do not have a significant impact on financial performance. The table shows the net effect it would have had on equity and profit for the year if the year-end exchange rates of USD, EUR and CHF had been 15% or 1%, respectively, higher than the actual exchange rates. A corresponding fall in the actual exchange rates would have had an opposite (positive/negative) effect on profit and equity. Annual Report 2020 99 Note 24 Financial risks and financial instruments – continued Cash flow hedge - forward currency contracts DKK thousand Forward price Contract amount based on agreed rates Fair value as of December 31 Fair value adjustment recognized in other com- prehensive income 2020 Participating forward currency contracts (USD/DKK) minimum 5.93 - 6.00 496,967 606 606 606 606 2019 Forward currency contract (USD/DKK) 6.68 601,155 3,530 3,530 3,530 3,530 Derivative financial instruments not designated as hedge accounting Currency forward contracts and currency option contracts which are not designated as hedge accounting are clas- sified as financial assets/liabilities measured at fair value with value adjustments recognized through the income statement. There were no open currency contracts as of December 31, 2020 or as per December 31, 2019 not designated as hedge accounting. Hedging of expected future cash flows In December 2020 the Company concluded currency forward contracts of USD 125 million to hedge the sale of bulk drug substance batches to BARDA following the award of the contract for 2021 deliveries. The concluded currency forward contracts are deemed to be 100% effective. In December 2019 the Company concluded a currency forward contract of USD 90 million to hedge the main part of the income from sale of the Priority Review Voucher. In 2016 the Company refinanced the old mortgage loans (fixed rate) and obtained a new mortgage loan with float- ing rate. The Company also concluded an interest rate swap to convert the floating rate loan to a fixed rate loan. The interest rate swap has the same maturity date and nominal amount as the mortgage loan to secure high effectiveness of the hedge. Cash risks The Group´s bank deposits are placed in deposit accounts without restrictions. The Group’s cash and cash equivalents totaled DKK 285.4 million as of December 31, 2020 (DKK 297.5 million). The Group’s fixed rate bond portfolio expires as shown below. Amounts are stated excluding interest. Cash flow hedge - interest rate swap DKK thousand Contract amount based on agreed rates Fair value as of December 31 Fair value adjustment recognized in other com- prehensive income 2020 Interest rate swap DKK - fixed rate 0.9625% p.a. (expiry 2031) 23,461 (1,414) (171) (1,414) (171) 2019 Interest rate swap DKK - fixed rate 0.9625% p.a. (expiry 2031) 25,578 (1,243) (886) (1,243) (886) Annual Report 2020 100 Note 24 Financial risks and financial instruments – continued Fluctuations in interest rate levels affect the Group’s bond portfolio. An increase in the interest rate level by 1 percent- age point relative to the interest rate level on the balance sheet date would have had a negative impact of DKK 23.5 million on the Group´s profit and equity (DKK 25.5 million). A corresponding decrease in the interest rate level would have had a positive impact of DKK 23.5 million on profit and equity (DKK 25.5 million). The impact for 2019 was calculated based on the average bond portfolio holdings for the year. The bond portfolio was reduced to a very low level end December 2019, following the purchase of the Rabipur/RabAvert and Encepur product rights. 2020 2019 DKK thousand Fair value as of December 31 Effective interest Fair value as of December 31 Effective interest Bond portfolio Within 0-2 years 286,325 -0.4% - - Within 3-5 years 467,023 -0.4% 43,443 -0.3% After 5 years 630,772 0.1% 131,376 0.1% Total 1,384,120 -0.2% 174,819 0.1% Annual Report 2020 101 Maturity of financial liabilities (including interest) 2020 DKK thousand Due within 1 year Due between 1 and 5 years Due after 5 years Total Deferred consideration for product rights 1) 393,624 2,753,133 - 3,146,757 Credit institutions 15,499 394,556 12,700 422,755 Lease liabilities 20,422 54,201 - 74,623 Trade payables 345,320 - - 345,320 Other liabilities 150,897 - - 150,897 Non-derivative financial liabilities 925,762 3,201,890 12,700 4,140,352 Derivative financial liabilities 1,414 - - 1,414 Maturity of financial liabilities (including interest) 2019 DKK thousand Due within 1 year Due between 1 and 5 years Due after 5 years Total Deferred consideration for product rights 1) 469,844 3,062,577 - 3,532,421 Credit institutions 1,401,839 407,829 15,057 1,824,725 Lease liabilities 14,032 44,538 6,855 65,425 Trade payables 112,088 - - 112,088 Other liabilities 78,562 - - 78,562 Non-derivative financial liabilities 2,076,365 3,514,944 21,912 5,613,221 Derivative financial liabilities 1,243 - - 1,243 1) Further explained in note 26. Note 24 Financial risks and financial instruments – continued With respect to the Group´s debt to credit institutions, an increase in the applicable interest rate by 1 percentage point would have had a negative impact on the Group’s profit and equity of DKK 4.0 million (DKK 4.0 million). A corresponding decrease in the interest rate would have had an equivalent positive impact. In May 2015, the Group secured a loan facility of EUR 50 million from the European Investment Bank (EIB) in support of the Group’s research and development of vaccines against Ebola and other infectious diseases as well as can- cer immunotherapies. The loan facility, which is unsecured, was fully utilized in October 2017 with a net proceed of DKK 372.2 million. The loan is a five year bullet loan with expiry in 2022 and with a fixed interest of 3.532%. In August 2018 the Company was granted an unsecured loan facility of EUR 30 million from the European Invest- ment Bank to support the Company’s investments in the fill and finish manufacturing facility. The loan facility, which is unsecured, may be utilized in up to three tranches. The repayment period may be up to seven years from disburse- ment of the tranches. The loan could potentially carry a fixed or variable interest payment. The margin associated with the loan facility is 3.21%. As of December 31, 2020 the balance remains unused. The Company will have to draw down on the loan latest August 2021. In October 2019, the Company entered into a committed bridge loan facility agreement with Citi and Nordea as lenders pursuant to which the lenders granted a EUR 185 million (DKK 1,373 million) bridge loan to the Company. The Bridge Loan was utilised on December 30, 2019 and the proceeds were applied towards partly financing the upfront payment of the acquisition of product rights from GlaxoSmithKline, EUR 307.6 million paid in cash on December 31, 2019. The Bridge Loan was repaid March 2020 following the completion of the right issue. Debt to credit institutions also include a mortgage loan of DKK 23.2 million (DKK 25.4 million), further described in note 26. The Group has a credit facility of DKK 20 million (DKK 20 million) at Nordea. As of December 31, 2020, DKK 0.1 million (DKK 0.1 million) of the credit facility is utilized for bank guarantees. Annual Report 2020 102 Credit risks The primary credit risk relates to trade receivables. The Company assesses the expected credit losses also con- sidering changes in the macro environment that might impose an increased risk of losses. This is compared to the previous model where indications of credit losses were needed for the Company to recognize an expected loss. The Group´s customers are predominantly public authorities and renowned pharmaceutical companies and wholesalers, and the credit risk on the Group’s receivables is therefore considered to be very low. A loss allowance of DKK 80 thousand has been recognized as of December 31, 2020, cf. note 20. To manage credit risk regarding financial counterparties, the Company only enters into derivative financial contracts and money market deposits with financial counterparties possessing a satisfactory long-term credit rating from at least two out of the three selected ratings agencies: Standard and Poor’s, Moody’s and Fitch. Cash and cash equivalents are not deemed to be subject to any special credit risk as they are deposited with Nordea. The bond portfolio is invested in either Danish government bonds, Danish mortgage bonds or bonds issued by Danish banks with high ratings. Optimization of capital structure Management regularly assesses whether the Group´s capital structure best serves the interests of the Group and its shareholders. The overall goal is to ensure that the Group has a capital structure which supports its long-term strategy and growth target. Securities (level 1) The portfolio of publicly traded government bonds, publicly traded mortgage bonds and bank bonds is valued at listed prices and price quotas. Derivative financial instruments (level 2) Currency forward contracts, currency option contracts and currency swap contracts are valued according to generally accepted valuation methods based on relevant observable swap curves and exchange rates. Liability relating to phantom shares is determined using the Black-Scholes. The valuation is based on observable share price, interest rates and volatility rates. Fair value hierarchy for financial instruments measured at fair value 2020 DKK thousand Level 1 Level 2 Total Securities 1,384,120 - 1,384,120 Financial assets measured at fair value through the income statement 1,384,120 - 1,384,120 Derivative financial instruments to hedge future cash flow (currency) - 606 606 Derivative financial instruments to hedge future cash flow (interest) - (1,414) (1,414) Financial assets/liabilities used as hedging instruments - (808) (808) Liability relating to phantom shares - (4,849) (4,849) Financial liabilities measured at fair value through the income statement - (4,849) (4,849) Fair value hierarchy for financial instruments measured at fair value 2019 DKK thousand Level 1 Level 2 Total Securities 174,819 - 174,819 Financial assets measured at fair value through the income statement 174,819 - 174,819 Derivative financial instruments to hedge future cash flow (currency) - 3,530 3,530 Derivative financial instruments to hedge future cash flow (interest) - (1,243) (1,243) Financial assets/liabilities used as hedging instruments - 2,287 2,287 Liability relating to phantom shares - (1,135) (1,135) Financial liabilities measured at fair value through the income statement - (1,135) (1,135) Note 24 Financial risks and financial instruments – continued Annual Report 2020 103 DKK thousand Due within 1 year Due between 1 and 5 year Due after 5 years Total 2020 Deferred consideration for product rights 357,736 2,464,932 - 2,822,668 Total 357,736 2,464,932 - 2,822,668 2019 Deferred consideration for product rights 459,730 2,691,400 - 3,151,130 Total 459,730 2,691,400 - 3,151,130 Note 25 Deferred consideration for product rights The Asset Purchase Agreement with GlaxoSmithKline includes milestone payments relating to transfer and regis- tration of marketing authorizations, technology transfer of different steps of the production and packaging activities as well as a milestone payment when all services agreed to be rendered by GlaxoSmithKline has been completed. In total EUR 470 million. During 2020 the two first mile- stone payments of a total of EUR 50 million was paid. The payments are presented as cash flow from investment activities in the cash flow statement. The majority of the milestone payments are expected to be payable in 2022- 2023. The completion milestone is expected to be payable beginning of 2025. The Asset Purchase Agreement with GlaxoSmithKline also includes a sales milestone of EUR 25 million. As per December 31, 2020 Management does not judge the sales milestone to be probable and therefore the sales milestone has not been recognized as either part of the product rights (note 16) nor the deferred consideration for product rights. The carrying amount are measured using a discount rate of 4% per annum. The discount rate was determined at intial recognition based on an interest rate on a similar loan of the same size and maturity as the contingent milestone payments and the Company’s credit rating as of December 31, 2019. The fair value of the deferred consideration as per Decem- ber 31, 2020 amounts to DKK 2,838 million, measured using the updated discount rate of 3.8%. The discount rate has been determined based on the same components as described above. Accounting policies Deferred consideration including contingent mile- stone payments for product rights is recognized when its payment is probable and it can be measured reliably and is at initial recognition measured at fair value which equals present value of future deferred payments. Subsequently, the deferred consideration is measured at amortized cost. This means that the difference between the present value of the consideration and the nominal amounts due is recognized in the income statement as a financial expense over the period until expected payment date using the effective interest method. The expected phasing of future payments and the probabil- ity of contingent payments are assessed on each reporting date. The cash flow from payment of deferred consideration for product rights will be recognized as cash flow from investment activities. Annual Report 2020 104 Note 26 Debt to credit institutions DKK thousand Due within 1 year Due between 1 and 5 year Due after 5 years Total 2020 Mortgage 1) 2,174 8,670 12,403 23,247 European Investment Bank (loan in DKK) 2) - 372,195 - 372,195 Total 2,174 380,865 12,403 395,442 2019 Bridge loan 3) 1,372,953 - - 1,372,953 Mortgage 1) 2,163 8,651 14,597 25,411 European Investment Bank (loan in DKK) 2) - 372,195 - 372,195 Total 1,375,116 380,846 14,597 1,770,559 1) Floating interest - swapped to fixed interest of 0.9625% - expiry 2031 2) Fixed interest of 3.532% - bullet loan with expiry 2022 3) Variable interest, the base rate is EURIBOR plus a margin adjusted up-wards during the tenor of the bridge loan ranging from initially 1.25% to 2.75% Cash flow from financing activities DKK thousand January 1, 2020 Cash movement Non-cash movement December 31, 2020 2020 Bridge loan 1,372,953 (1,373,434) 481 - Mortgage 25,411 (2,164) - 23,247 European Investment Bank (loan in DKK) 372,195 - - 372,195 Lease liabilities 61,400 (17,799) 31,022 74,623 Total liabilities from financing activities 1,831,959 (1,393,397) 31,503 470,065 DKK thousand January 1, 2019 Cash movement Non-cash movement December 31, 2019 2019 Bridge loan - 1,372,953 - 1,372,953 Mortgage 27,566 (2,155) - 25,411 European Investment Bank (loan in DKK) 372,195 - - 372,195 Security lending (repo transactions) 246,729 (246,729) - - Lease liabilities 1) 82,868 (12,923) (8,545) 61,400 Total liabilities from financing activities 729,358 1,111,146 (8,545) 1,831,959 1) Lease liabilities as of January 1, 2019 (DKK 82,868 thousand) reflects impact from applying IFRS 16 as of January 1, 2019. The fair value of the debt to credit institutions amounts to DKK 395.6 million (DKK 1,779.5 million). The fair value of mortgage debt is based on the market value of the un- derlying bonds set by the bank (level 2), whereas the fair value of the bridge loan and the European Investment Bank loan is based on a discounted cash analysis flow of future payments of interest and principal by applying a market based discount rate (level 2). The bridge loan was repaid end March 2020 when the rights issue was completed. The tables below detail changes in the Group’s liabilities arising from financing activities, both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flow as cash flows from financing activities. Accounting policies Loans are measured at the time of borrowing at fair value less any transaction costs. Subsequently, debt is measured at amortized cost. This means that the difference between the proceeds of the loan and the amount to be repaid is recognized in the income statement over the term of the loan as a financial expense using the effective interest method. Annual Report 2020 105 DKK thousand 2020 2019 Non-current 54,201 47,549 Current 20,422 13,851 Lease liabilities 74,623 61,400 DKK thousand Due within 1 year Due between 1 and 5 year Due after 5 years Total 2020 Lease liabilities 20,422 54,201 - 74,623 Total 20,422 54,201 - 74,623 2019 Lease liabilities 13,851 40,772 6,777 61,400 Total 13,851 40,772 6,777 61,400 Note 27 Lease liabilities Accounting policies The lease liability is initially measured at the present value of the future lease payments (see further in note 18), discounted by using an incremental country specific borrowing rate ranging from 2.5% to 3.0% applying only a single discount rate for a portfolio of lease assets with reasonable similar characteristics. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability using the effective interest method and by reducing the carrying amount to reflect the lease payments made. The lease liability is remeasured and corresponding adjustments are made to the related right-of-use-asset whenever: • The lease term has changed, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. • The lease payments change due to changes in an index or rate, in which case the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate. • A lease contract is modified and the lease modification is not accounted for as a seperate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. Annual Report 2020 106 Note 28 Prepayment from customers Note 29 Related party transactions In July 2020, the Company recieved an initial and non-re- fundable payment of DKK 55.1 million (USD 8.3 million) from Janssen Vaccines & Prevention B.V. (Janssen) related to purchase of MVA–BN–Filo Drug Substance. The initial pay- ment amounts to 60% of the agreed purchase price. The batches will be delivered in beginning of 2021. In December 2015, the Company signed a license and col- laboration agreement with Janssen Vaccines & Prevention B.V. (Janssen). Under the agreement, Janssen will acquire exclusive rights to the Group’s MVA-BN ® technology for use in a prime-boost vaccine regimen together with Janssen’s own AdVac ® technology with the purpose of targeting all cancers induced by human papillomavirus (HPV). Under the terms of the agreement, the Group received an upfront payment of DKK 61.7 million (USD 9 million) in January 2016. Revenue recognized in 2020 amounted to DKK 3.1 million. As per December 31, 2020 the full upfront payment has been recognized as revenue. There is no repayment obligation. Under the HPV license and collaboration agreement Janssen has ordered a new Master Seed Virus and made an upfront payment of DKK 16.9 million (USD 2.5 million) in February 2020. As per December 31, 2020, recognition of DKK 16.9 million in revenue is outstanding. The recognition of revenue will occur once the Master Seed Virus has been produced and released. In March 2018, the Company signed a new contract with the United States Department of Defense for the de- velopment of a prophylactic vaccine against the equine encephalitis virus – a rare but potentially deadly mos- quito-borne illness. The multi-year collaboration includes total considerations of up to USD 36 million. In 2018, the Company received prepayments of DKK 14.7 million related to production activities conducted in 2018. In the beginning of 2019, the Company received the last prepayments (DKK 35.1 million) related to the production activities. All prepayments were recognized as revenue in 2019 when the products were released. As per December 31, 2020, no recognition of revenue was outstanding. In September 2017, Janssen Vaccines & Prevention B.V. (Janssen) was awarded a contract from BARDA of USD 44.7 million, with options for additional funding over 5 years to help support the development and potential licencure of the Ebola vaccine regimen. The company supports Janssen in this process with a number of activities relating to MVA- BN ® Filo, which are also being funded under the contract with BARDA. The Company received DKK 14.4 million in prepayments. The prepayment was recognized as revenue in 2019 when the products were released. As per Decem- ber 31, 2020, no recognition of revenue was outstanding. In August 2017, the Company signed a license and collab- oration agreement with Janssen Vaccines & Prevention B.V. (Janssen). The collaboration grants Janssen the exclusive rights to Bavarian Nordic’s MVA-BN ® technology for vaccine agains hepatitis B virus (HBV) and the human immunode- ficiency virus (HIV). Under the terms of the agreement, the Group received an upfront payment of DKK 62.9 million (USD 10 million) in September 2017. Revenue recognized in 2020 amounted to DKK 3.5 million. As per December 31, 2020 the full upfront payment has been recognized as revenue. There is no repayment obligation. The recognition of revenue is described in note 3. Accounting policies Prepayments are recognized under liabilities and will be recognized in the income statement as the delivery of paid products takes place. DKK thousand 2020 2019 Prepayment from customers as of January 1 6,631 41,818 Prepayments received during the year 77,185 35,115 Recognized as revenue during the year (9,469) (70,302) Prepayment from customers as of December 31 74,347 6,631 The Group Management and Board of Directors of Bavarian Nordic A/S are considered related parties. Besides the remuneration of the Board of Directors and the Executive Management, cf. note 8, and the share-based payments, cf. note 30, there are no transactions with related parties. Transactions with subsidiaries are eliminated in the consolidated financial statements, in accordance with the accounting policies. Annual Report 2020 107 Note 30 Share-based payment Accounting policies Share-based incentive plans in which employees can only opt to buy shares in the Company (warrants) are measured at the equity instruments’ fair value at the grant date and recognized in the income statement over the vesting period. The balancing item is recognized directly in equity. The fair value on the date of grant is determined using the Black-Scholes model. Cash-based incentive programs in which employees can have the difference between the agreed exercise price and the actual share price settled in cash (phantom shares) are measured at fair value at the date of grant and recognized in the income statement over the period when the final right of cash-settlement is obtained. Granted rights are subsequently re-measured on each balance sheet date and upon final settlement, and any changes in the fair value of the programs are recognized in the income statement. The balancing item is recognized under other liabilities. The fair value of the cash-based incentive programs is determined using the Black-Scholes model. Restricted stock units are measured at fair value at grant date. Based on the achieved cash bonus for members of the Executive Management, subject to the Board of Direc- tors’ decision on the portion that should be converted to restricted stock units, the number of restricted stock units are calculated by dividing the allocated cash bonus amount by the share price of the Company at grant date. As the cash bonus has already been accrued and expensed in the income statement, the grant of restricted stock units has no additional impact on the income statement. The accrued li- ability for the converted cash bonus is reclassified to equity. Matching shares are measured at the same fair value as the initial restricted stock units and expensed over the three year vesting period. The balancing item is recognized directly in equity. Restricted stock units granted as sign-on bonus for members of the Executive Management and restricted stock units granted to the Board of Directors are expensed at grant date with the balancing item recognized directly in equity. Incentive plans In order to motivate and retain key employees and en- courage the achievement of common goals for employees, management and shareholders, the Company has estab- lished incentive plans by way of warrant programs and restricted stock units programs, the latter only for members of the Executive Management and Board of Directors. Furthermore, the Company has established three-year phantom share programs for all employees of the Group. Warrants The Board of Directors has been granting warrants to the Company´s management and selected employees of the Company and its subsidiaries. The warrants are granted in accordance with the authoriza- tions given to the Board of Directors by the shareholders. The Board of Directors has fixed the terms of and the size of the grants of warrants, taking into account authorizations from the shareholders, the Group’s guidelines for incentive pay, an assessment of expectations of the recipient´s work efforts and contribution to the Group´s growth, as well as the need to motivate and retain the recipient. Grant takes place on the date of establishment of the program. Exercise of warrants is by default subject to continuing employment with the Group. The warrants granted are subject to the provisions of the Danish Public Companies Act regarding termination of employees prior to their exercise of warrants in the case of recipients who are subject to the act. Annual Report 2020 108 Note 30 Share-based payment – continued Warrant overview – 2020 Outstanding as of January 1 Adjustment rights issue Additions Exercised Annulled Terminated Transferred Outstanding as of December 31 Corporate Management 340,791 90,006 123,645 (63,205) - (51,835) - 439,402 Other Executive Management 326,333 92,460 318,438 - - (13,905) - 723,326 Other employees 1,284,437 329,937 861,938 (86,590) (80,685) (206,797) (39,880) 2,062,360 Resigned employees 178,442 45,931 - - - (96,352) 39,880 167,901 Total 2,130,003 558,334 1,304,021 (149,795) (80,685) (368,889) - 3,392,989 Weighted average exercise price (DKK) 239 207 104 187 290 - 188 Weighted average share price at exercise (DKK) 207 Number of warrants which can be exercised as of December 31, 2020 478,632 at a weighted average exercise price of DKK 215 Warrant overview – 2020 Outstanding as of January 1 Adjustment rights issue Additions Exercised Annulled Terminated Outstan- ding as of December 31 Can be exercised as of December 31 Average exercise price (DKK) August 2014 118,500 31,295 - (149,795) - - - - December 2015 293,630 77,059 - - (1,800) (368,889) - - December 2016 366,690 94,188 - - (16,320) - 444,558 444,558 206 July 2017 26,955 7,119 - - - - 34,074 34,074 340 November 2017 296,808 77,031 - - (11,312) - 362,527 - 240 November 2018 462,835 118,503 - - (27,272) - 554,066 - 142 November 2019 564,585 146,863 - - (23,981) - 687,467 - 146 January 2020 - 6,276 23,763 - - - 30,039 - 156 November 2020 - - 1,280,258 - - - 1,280,258 - 207 Total 2,130,003 558,334 1,304,021 (149,795) (80,685) (368,889) 3,392,989 478,632 Annual Report 2020 109 Note 30 Share-based payment – continued Warrant overview – 2019 Outstanding as of January 1 Additions Exercised Annulled Terminated Transferred Outstanding as of December 31 Corporate Management 262,590 78,201 - - - - 340,791 Other Executive Management 221,172 105,161 - - - - 326,333 Other employees 1,065,467 381,223 (18,500) (143,753) - - 1,284,437 Resigned employees 288,442 - (60,000) - (50,000) - 178,442 Total 1,837,671 564,585 (78,500) (143,753) (50,000) - 2,130,003 Weighted average exercise price (DKK) 248 185 131 242 131 - 239 Weighted average share price at exercise (DKK) 175 Number of warrants which can be exercised as of December 31, 2019 412,130 at a weighted average exercise price of DKK 299 The applied volatility is based on the historical volatility of the Bavarian Nordic share, except for November 2020 program where the volatility is based on the volatility for a peer group. Recognized costs in 2020 DKK 23.3 million compared to DKK 21.4 million in 2019. Specification of parameters for Black-Scholes model Dec. 2016 Jul. 2017 Nov. 2017 Nov. 2018 Nov. 2019 Jan. 2020 Nov. 2020 Average share price 222.50 383.50 259.50 159.00 154.05 171.20 179.84 Average exercise price at grant 260.20 430.40 303.00 179.60 185.40 197.00 206.82 Average exercise price determined at date of rights issue March 30, 2020 205.80 340.40 239.60 142.00 146.60 155.80 - Applied volatility rate 44.6% 44.1% 52.4% 53.3% 52.2% 53.0% 39.8% Expected life (years) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Expected dividend per share - - - - - - - Risk-free interest rate p.a. -0.48% -0.46% -0.55% -0.43% -0.69% -0.65% -0.66% Fair value at grant 1) 54 98 80 52 45 53 41 1) Fair value of each warrant at grant date applying the Black-Scholes model. Annual Report 2020 110 Note 30 Share-based payment – continued Exercise periods Can be exercised wholly or partly in a period of 14 days commencing from the day of publication of: November 2020 Annual Report 2023 Interim Report Q1 2024 Interim Report Q2 2024 Interim Report Q3 2024 Annual Report 2024 Interim Report Q1 2025 Interim Report Q2 2025 Interim Report Q3 2025 January 2020 Annual Report 2022 Interim Report Q1 2023 Interim Report Q2 2023 Interim Report Q3 2023 Annual Report 2023 Interim Report Q1 2024 Interim Report Q2 2024 Interim Report Q3 2024 November 2019 Annual Report 2023 Interim Report Q1 2023 Interim Report Q2 2023 Interim Report Q3 2023 Annual Report 2023 Interim Report Q1 2024 Interim Report Q2 2024 Interim Report Q3 2024 November 2018 Annual Report 2021 Interim Report Q1 2022 Interim Report Q2 2022 Interim Report Q3 2022 Annual Report 2022 Interim Report Q1 2023 Interim Report Q2 2023 Interim Report Q3 2023 November 2017 Annual Report 2020 Interim Report Q1 2021 Interim Report Q2 2021 Interim Report Q3 2021 Annual Report 2021 Interim Report Q1 2022 Interim Report Q2 2022 Interim Report Q3 2022 July 2017 Interim Report Q2 2020 Interim Report Q3 2020 Annual Report 2020 Interim Report Q1 2021 Interim Report Q2 2021 Interim Report Q3 2021 Annual Report 2021 Interim Report Q1 2022 December 2016 Annual Report 2019 Interim Report Q1 2020 Interim Report Q2 2020 Interim Report Q3 2020 Annual Report 2020 Interim Report Q1 2021 Interim Report Q2 2021 Interim Report Q3 2021 Annual Report 2020 111 Note 30 Share-based payment – continued Phantom shares In 2016, the Company established a three-year phantom share program for all employees of the Group except for management and other employees receiving warrants. The employees receive up to four phantom shares per month free of charge during the period from January 1, 2017 to December 31, 2019. Each employee who is a full-time em- ployee during the entire term of the plan will be eligible to receive a maximum of 144 phantom shares. The program expired without exercise in January 2020. In 2017, the Company established a three-year phantom share program for all employees of the Group except for management and other employees receiving warrants. The employees receive up to four phantom shares per month free of charge during the period from January 1, 2018 to December 31, 2020. Each employee who is a full-time em- ployee during the entire term of the plan will be eligible to receive a maximum of 144 phantom shares. Following the rights issues in March 2020 the monthly grant increased to five phantom shares for the remaining grant period and the maximum increased to 182 phantom shares. In 2018, the Company established a three-year phantom share program for all employees of the Group except for management and other employees receiving warrants. The employees receive up to four phantom shares per month free of charge during the period from January 1, 2019 to December 31, 2021. Each employee who is a full-time em- ployee during the entire term of the plan will be eligible to receive a maximum of 144 phantom shares. Following the rights issues in March 2020 the monthly grant increased to five phantom shares for the remaining grant period and the maximum increased to 183 phantom shares. In 2019, the Company established a three-year phantom share program for all employees of the Group except for management and other employees receiving warrants. The employees receive up to four phantom shares per month free of charge during the period from January 1, 2020 to December 31, 2022. Each employee who is a full-time em- ployee during the entire term of the plan will be eligible to receive a maximum of 144 phantom shares. Following the rights issues in March 2020 the monthly grant increased to five phantom shares for the remaining grant period and the maximum increased to 183 phantom shares. In 2020, the Company established a three-year phantom share program for all employees of the Group except for management and other employees receiving warrants. The employees receive up to five phantom shares per month free of charge during the period from January 1, 2021 to December 31, 2023. Each employee who is a full-time em- ployee during the entire term of the plan will be eligible to receive a maximum of 180 phantom shares. Grants are made on a monthly basis during the life of the pro- grams as long as the employee is employed with the Group. On expiry of the programs, the employees may exercise the phantom shares granted to them and thus be entitled to a cash bonus calculated on the basis of the increase in the price of the Company´s shares. The exercise is conditional on the price of the Company´s shares being at least DKK 5 higher than the exercise price at the time of exercise. On expiry of the programs, former employees are entitled to settlement of the phantom shares granted during their term of employment. Annual Report 2020 112 Note 30 Share-based payment – continued 2020-2022 phantom share program 2020 Outstanding as of January 1 - Granted during the year 29,554 Adjustment following rights issue March 2020 1,367 Outstanding phantom shares as of December 31 30,921 Liability in DKK thousand as of December 31 1,864 Specification of parameters for Black-Scholes model Share price December 31 187 Average share exercise price 147 Expected volatility rate 40% Expected life (years) 2.0 Expected dividend per share - Risk-free interest rate p.a. -0.17% 2019-2021 phantom share program 2020 2019 Outstanding as of January 1 19,213 - Granted during the year 29,437 19,213 Adjustment following rights issue March 2020 6,445 - Outstanding phantom shares as of December 31 55,095 19,213 Liability in DKK thousand as of December 31 2,985 864 Specification of parameters for Black-Scholes model Share price December 31 187 171 Average share exercise price 142 180 Expected volatility rate 40% 51% Expected life (years) 1.0 2.0 Expected dividend per share - - Risk-free interest rate p.a. -0.15% -0.17% The expected volatility for 2020 is based on the volatility for a peer group. The expense in respect of phantom shares granted in 2020 provided a cost of DKK 1.9 million. The liability is included in other liabilities, cf. note 23. The expected volatility for 2020 is based on the volatility for a peer group, whereas the volatility for prior year is based on the historic volatility of the Company. Phantom shares granted in 2020 provided an expense of DKK 1.9 million, whereas the revaluation of previously granted phantom shares provided an expense of DKK 0.2 million, total net expense of DKK 2.1 million (net expense 2019: DKK 0.9 million). The liability is included in other liabilities, cf. note 23. Annual Report 2020 113 2018-2020 phantom share program 2020 2019 2018 Outstanding as of January 1 36,769 17,644 - Granted during the year 29,376 19,125 17,644 Adjustment following rights issue March 2020 11,082 - - Outstanding phantom shares as of December 31 77,227 36,769 17,644 Liability in DKK thousand as of December 31 - 271 145 Specification of parameters for Black-Scholes model Share price December 31 187 171 127 Average share exercise price 240 303 303 Expected volatility rate 40% 51% 52% Expected life (years) - 1.0 2.0 Expected dividend per share - - - Risk-free interest rate p.a. - -0.21% 0.02% 2017-2019 phantom share program 2020 2019 2018 2017 Outstanding as of January 1 54,857 35,772 18,234 - Granted during the year - 19,085 17,538 18,234 Expired during the year (54,857) - - - Outstanding phantom shares as of December 31 - 54,857 35,772 18,234 Liability in DKK thousand as of December 31 - 130 953 Specification of parameters for Black-Scholes model Share price December 31 171 127 224 Average share exercise price 260 260 260 Expected volatility rate 51% 52% 52% Expected life (years) - 1.0 2.0 Expected dividend per share - - - Risk-free interest rate p.a. -0.30% -0.07% 0.05% Note 30 Share-based payment – continued The expected volatility for 2020 is based on the volatility for a peer group, whereas the volatility for prior years is based on the historic volatility of the Company. Phantom shares granted in 2020 provided an expense of DKK 0.0 million, whereas the revaluation of previously granted phantom shares provided an income of DKK 0.3 million, total net income of DKK 0.3 million (net expense 2019: DKK 0.1 million). The expected volatility is based on the historic volatility. The 2017-2019 program expired in January 2020 without exercise as the actual share price was below the exercise price of DKK 260.20. Reversal of the phantom share program provided an income of DKK 0.0 million (net income 2019: DKK 0.1 million). The liability is included in other liabilities, cf. note 23. The 2018-2020 program will exercise in January 2021 if the average share price for the period December 30, 2020 - January 14, 2021 will exceed the exercise price of DKK 239.70. Otherwise the program will expire without exercise. Annual Report 2020 114 Restricted stock units In March 2020, the Board of Directors decided to postpone the payment of half of the achieved cash bonus for mem- bers of the Other Executive Management for 3 years, con- verting the postponed bonus of DKK 2.1 million into 8,705 unconditional restricted stock units using the share price of the Company at grant date (DKK 240). The Board of Direc- tors decided to grant additional restricted stock units free of charge on expiry of a 3 years period (so-called “matching shares”) upon the recipient still being employed in March 2023. One matching share is granted for each two acquired restricted stock units. The maximum number of matching shares is 4,353. The initial granted restricted stock units and the potential matching shares total 13,058 shares. At the annual general meeting in June 2020, the Board of Directors were granted a total of 7,111 unconditional restricted stock units corresponding to 50% of the annual fixed fee of DKK 1.4 million (excl. committee fee). The restricted stock units will be delivered after 3 years in June 2023. As sign-on bonus the new CMO was granted a total of 8,651 unconditional restricted stock units in May 2020 and 4,325 additional restricted stock units on expiry of a 3 years period (“matching shares”) upon the CMO still being employed in May 2023. Outstanding restricted stock units 2020 Outstanding as of January 1 Adjustment rights issue Granted during the year Released during the year Outstanding as of December 31 Value at grant date (DKK) Vesting date Executive Management: Conversion of cash bonus for 2019 - 2,298 8,705 - 11,003 240 Mar. 2023 Matching shares - bonus 2019 - 1,147 4,353 - 5,500 240 Mar. 2023 Sign-on bonus CMO - - 8,651 - 8,651 149 May 2023 Matching shares - sign-on CMO - - 4,325 - 4,325 149 May 2023 Conversion of cash bonus for 2018 12,722 3,358 - - 16,080 144 Mar. 2022 Matching shares - bonus 2018 6,362 1,677 - - 8,039 144 Mar. 2022 Sign-on bonus CFO 6,767 1,787 - - 8,554 156 Nov. 2021 Matching shares - sign-on CFO 3,383 894 - - 4,277 156 Nov. 2021 Conversion of cash bonus for 2017 6,910 1,824 - - 8,734 244 Mar. 2021 Matching shares - bonus 2017 3,456 910 - - 4,366 244 Mar. 2021 Conversion of cash bonus for 2016 5,642 - - (5,642) - 292 Mar. 2020 Matching shares - bonus 2016 2,821 - - (2,821) - 292 Mar. 2020 Executive Management 48,063 13,895 26,034 (8,463) 79,529 Board of Directors: Fee 2020 - - 7,111 - 7,111 190 Jun. 2023 Fee 2019 9,765 2,575 - - 12,340 138 Apr. 2022 Fee 2018 6,857 1,809 - - 8,666 175 Apr. 2021 Fee 2017 3,693 973 - (4,666) - 365 Apr. 2020 Board of Directors 20,315 5,357 7,111 (4,666) 28,117 Total 68,378 19,252 33,145 (13,129) 107,646 Note 30 Share-based payment – continued Annual Report 2020 115 In August/September 2020, the Company bought back 52,397 of its own shares to meet the obligation to deliver up to 33,145 shares to the members of the Executive Management and the Board of Directors in March/May/ June 2023. The purchase of own shares also captured the adjustment to previous granted restricted stock units following the rights issue, 19,252 shares. The grant of the initial restricted stock units to the Executive Management (8,705 shares) had no impact on the income statement for 2020, as the corresponding cash bonus (DKK 2.1 million) was accrued in 2019, though the amount has been reclassified from “Salary and wages” to “Share-based payment” in the staff cost note (note 8). The obligation related to the matching shares amount to DKK 1.0 million measured at the same fair value as the initial restricted stock units (DKK 240). The obligation will be expensed over the three year vesting period. The sign-on bonus to the new CMO was expensed by DKK 1.3 million. During 2020, DKK 4.6 million has been expensed and recognized as share-based payment for Executive Management (incl. grants of matching shares for prior years). The grant of restricted stock units to the Board of Directors (7,111 shares - DKK 1.4 million) were fully expensed at grant. Outstanding restricted stock units 2019 Outstanding as of January 1 Granted during the year Released during the year Outstanding as of December 31 Value at grant date (DKK) Vesting date Executive Management: Conversion of cash bonus for 2018 incl. matching shares - 19,084 - 19,084 144 Mar. 2021 Sign-on bonus CFO incl. matching shares 10,150 - - 10,150 156 Nov. 2021 Conversion of cash bonus for 2017 incl. matching shares 10,366 - - 10,366 244 Mar. 2021 Conversion of cash bonus for 2016 incl. matching shares 8,463 - - 8,463 292 Mar. 2020 Conversion of cash bonus for 2015 incl. matching shares 11,144 - (11,144) - 270 Mar. 2019 Executive Management 40,123 19,084 (11,144) 48,063 Board of Directors: Fee 2019 - 9,765 - 9,765 138 Apr. 2022 Fee 2018 6,857 - - 6,857 175 Apr. 2021 Fee 2017 3,693 - - 3,693 365 Apr. 2020 Board of Directors 10,550 9,765 - 20,315 Total 50,673 28,849 (11,144) 68,378 Note 30 Share-based payment – continued Annual Report 2020 116 Note 30 Share-based payment – continued Note 31 Contingent liabilities and other contractual obligations DKK thousand 2020 2019 Warrants 23,336 21,437 Restricted stock units 5,948 4,152 Share-based payment recognized directly in equity 29,284 25,589 2020-2022 phantom share program 1,864 - 2019-2021 phantom share program 2,121 864 2018-2020 phantom share program (271) 126 2017-2019 phantom share program - (130) Share-based payment recognized as a liability (change during the year) 3,714 860 Total share-based payment expensed 32,998 26,449 DKK thousand 2020 2019 Collaborative agreements Contractual obligations with research partners for long-term research projects. – Due within 1 year 45,052 36,884 Other contractual obligations – Due within 1 year 17,769 14,088 – Due between 1 and 5 years 12,604 9,615 Total share-based payments Below a specification of all share-based payments expensed in 2020 and 2019. The amounts reconcile to note 8. Sales milestone to GlaxoSmithKline The Asset Purchase Agreement with GlaxoSmithKline regarding the acquisition of the product rights to Rabipur/ RabAvert and Encepur includes a sales milestone of EUR 25 million. As per December 31, 2019 Management does not judge the sales milestone to be probable and therefore the sales milestone has not been recognized as either part of the product rights (note 16) nor the deferred consideration for product rights (note 25). License and collaboration agreement AdaptVac Under the license and collaboration agreement with AdaptVac the Company has an obligation of payment of potential future development and sales milestones and tiered royalties. License agreements National Cancer Institute The Group has license agreements with the National Cancer Institute (NCI) and Public Health Service (PHS) in the U.S. for PROSTVAC, CV301 and BN-Brachyury, respectively. The agreements include contingent liabilities for the Group to pay performance-based royalties, if and when certain milestone events are achieved. Further, the agreements include potential contingent liabilities for the Group to pay additional sublicensing royalties on the fair market value of consideration received, if and when the Group grants such sublicenses. Company mortgage The Company has by letter of indemnity granted Nordea a floating charge on unsecured claims arising from the sale of goods and services and stocks of raw materials, interme- diate products and finished products, DKK 150 million (DKK 150 million). The floating charge secures the operating credit line of DKK 20 million and the line for trading in financial instruments, DKK 50 million (DKK 50 million). Lawsuits Based on management’s assessment the Group is not involved in any lawsuits or arbitration cases which could have a material impact on the Group’s financial position or results of operations. Annual Report 2020 117 Note 32 Significant events after the balance sheet date Note 33 Approval of the consolidated financial statements On January 5, 2021, the Company announced that sales contracts with three European governments for the supply of IMVANEX ® smallpox vaccine have been concluded. The combined value of the contracts is EUR 11 million and will be revenue recognized during first half of 2021, where deliveries are expected to occur. On March 8, 2021, the Company announced preclinical data for the capsid virus like particle (cVLP) COVID-19 vaccine candidate, ABNCoV2, licensed from AdaptVac. The data con- firmed the previous strong immunogenicity results already published, and demonstrated a protective efficacy from vaccination post-challenge with SARS-CoV-2. On March 10, 2021 the Company announced the comple- tion of a directed issue and private placement of 5,150,000 new shares at an offer price of DKK 223 per share, raising gross proceeds of DKK 1,148 million. Except as noted above, there have been no significant events between December 31, 2020 and the date of approval of these financial statements that would require a change to or additional disclosure in the financial statements. The consolidated financial statements were approved by the Board of Directors and Corporate Management and authorized for issue on March 12, 2021. Annual Report 2020 118 FINANCIAL STATEMENTS – PARENT Financial statements of the Parent Company Income Statements 120 Statements of Financial Position – Assets 121 Statements of Financial Position – Equity and Liabilities 122 Statements of Changes in Equity 123 NOTES 1 Significant accounting policies and significant accounting estimates and judgments 124 2 Revenue 125 3 Research and development costs 125 4 Staff costs 126 5 Depreciation, amortization and impairment losses 127 6 Financial income 128 7 Financial expenses 128 8 Tax for the year 129 9 Intangible assets 130 10 Property, plant and equipment 131 11 Right-of-use-assets 132 120 124 CONTENTS 12 Investment in subsidiaries 133 13 Inventories 134 14 Lease liabilities 134 15 Prepayments from customers 135 16 Other liabilities 135 17 Related party transactions 136 18 Contingent liabilities and other contractual obligations 137 19 Mortgages and collateral 138 20 Proposed appropriation of net profit/(loss) 138 21 Significant events after the balance sheet date 138 Annual Report 2020 119 DKK thousand Note 2020 2019 Revenue 2 1,883,483 661,056 Production costs 4,5 1,174,546 355,212 Gross profit 708,937 305,844 Sales and distribution costs 4 267,112 54,121 Research and development costs 3,4,5 363,459 420,426 Administrative costs 4,5 288,877 224,729 Total operating costs 919,448 699,276 Other operating income 627,647 - Income before interest and tax (EBIT) 417,136 (393,432) Income from investments in subsidiaries 12 15,236 8,955 Financial income 6 119,665 49,529 Financial expenses 7 275,043 95,200 Income before company tax 276,994 (430,148) Tax on income for the year 8 - - Net profit for the year 20 276,994 (430,148) Income Statements For the years ended December 31, 2020 and 2019 Note Notes with reference to the consolidated financial statements Revenue 3 Production costs 4 Sales and distribution costs 5 Administrative costs 7 Other operating income 11 Annual Report 2020 120 Statements of Financial Position – Assets December 31, 2020 and 2019 DKK thousand Note 2020 2019 Non-current assets Product rights 5,185,765 5,458,700 Acquired patents and licenses 29,813 - Software 17,475 22,336 Other intangible assets in progress 55,194 2,868 Intangible assets 9 5,288,247 5,483,904 Land and buildings 365,704 161,879 Leasehold improvements 1,629 - Plant and machinery 204,665 44,265 Other fixtures and fittings, other plant and equipment 213,726 12,067 Assets under construction 204,702 614,566 Property, plant and equipment 10 990,426 832,777 Right-of-use assets 11 35,516 19,251 Investments in subsidiaries 12 144,004 129,415 Other receivables 3,879 1,184 Financial assets 147,883 130,599 Total non-current assets 6,462,072 6,466,531 DKK thousand Note 2020 2019 Current assets Inventories 13 503,768 100,072 Trade receivables 27,866 35,465 Receivables from subsidiaries 104,944 116 Other receivables 36,441 27,660 Prepayments 12,474 8,810 Receivables 181,725 72,051 Securities 1,384,120 174,819 Cash and cash equivalents 263,686 287,398 Securities, cash and cash equivalents 1,647,806 462,217 Total current assets 2,333,299 634,340 Total assets 8,795,371 7,100,871 Annual Report 2020 121 DKK thousand Note 2020 2019 Equity Share capital 584,501 323,891 Treasury shares (1,077) (684) Retained earnings 4,210,337 1,421,739 Reserve for development costs 13,157 15,366 Other reserves 87,916 102,506 Equity 4,894,834 1,862,818 Liabilities Deferred consideration for product rights 2,464,932 2,691,400 Credit institutions 393,269 395,443 Lease liabilities 14 25,858 13,844 Non-current liabilities 2,884,059 3,100,687 Deferred consideration for product rights 357,736 459,730 Credit institutions 2,173 1,375,116 Lease liabilities 14 11,356 5,658 Prepayment from customers 15 74,347 6,631 Trade payables 322,264 103,460 Payables to subsidiaries 137,018 118,602 Other liabilities 16 111,584 68,169 Current liabilities 1,016,478 2,137,366 Total liabilities 3,900,537 5,238,053 Total equity and liabilities 8,795,371 7,100,871 Significant accounting policies and significant accounting estimates and judgments 1 Related party transactions 17 Contingent liabilities and other contractual obligations 18 Mortgages and collateral 19 Proposed appropriation of net profit/(loss) 20 Significant events after the balance sheet date 21 Notes with reference to the consolidated financial statements Note Trade receivables 20 Prepayments 22 Financial risks and financial instruments 24 Deferred consideration for product rights 25 Debt to credit institutions 26 Prepayment from customers 28 Share-based payment 30 Statement of Financial Position – Equity and Liabilities December 31, 2020 and 2019 Annual Report 2020 122 Statements of Changes in Equity December 31, 2020 DKK thousand Share capital Treasury shares Retained earnings Reserve for development costs Other reserves Equity Equity as of January 1, 2020 323,891 (684) 1,421,739 15,366 102,506 1,862,818 Net profit for the year - - 276,994 - - 276,994 Exchange rate adjustments - - (648) - - (648) Change in fair value of financial instruments entered into to hedge future cash flows - - - - (3,096) (3,096) Share-based payment - - - - 29,283 29,283 Warrant program exercised 1,498 - 17,514 - (3,448) 15,564 Warrant recharged - - 1,212 - - 1,212 Warrant program expired - - 33,563 - (33,563) - Capital increase through rights issue 259,112 - 2,565,214 - - 2,824,326 Costs related to issue of new shares - - (103,184) - - (103,184) Purchase of treasury shares - (524) (10,575) - - (11,099) Transfer regarding restricted stock units - 131 3,635 - (3,766) - Sale of preemptive rights - treasury shares - - 2,664 - - 2,664 Reserve for development costs - - 2,209 (2,209) - - Equity as of December 31, 2020 584,501 (1,077) 4,210,337 13,157 87,916 4,894,834 Transactions on the share capital and rules on changing Articles of Associations, see statement of changes in Group equity. Other reserves consist of costs for share-based payments and hedging reserves. Annual Report 2020 123 Note 1 Significant accounting policies and significant accounting estimates and judgments Accounting policies The financial statements of the Parent Company Bavarian Nordic A/S have been prepared in accordance with the Danish Financial Statements Act (Class D). The financial statements are presented in Danish kroner (DKK), which also is the functional currency of the Parent Company. The accounting policies are unchanged from previous year. Changes in accounting policies The accounting policies are unchanged from last year. Supplementary accounting policies for the Parent Company Accounting policies for investments in subsidiaries are described in note 12. Pursuant to the schedule requirements of the Danish Finan- cial Statements Act, entries recognized in the statement of comprehensive income in the consolidated financial state- ments are recognized directly in the statement of changes in equity in the Parent Company’s financial statements. Warrant recharged to subsidiaries is treated as the Parent Company’s issuance of equity in exchange for cash. The recharge is subsequently recognized in the income statement under the cost plus agreements with the subsid- iaries. Income tax effects relating to warrant recharged is recognized in the income statement. As allowed under section 86 (4) of the Danish Financial Statements Act, no cash flow statement has been prepared for the Parent Company, as it is included in the consolidat- ed cash flow statement. Significant accounting estimates and judgments In preparation of the financial statements for the Parent Company, Management makes a number of account- ing estimates which form the basis for the preparation, recognition and measurement of the Company’s assets and liabilities. Management has made the following accounting estimates which significantly affect the amounts recognized in the financial statements: • Investments in subsidiaries (note 12) • Receivables from subsidiaries (note12) Please refer to the specific note for further description of the significant accounting estimates and assumptions used. Annual Report 2020 124 DKK thousand ´ 2020 2019 MVA-BN smallpox vaccine sale 540,769 324,258 Rabipur/RabAvert 659,022 - Encepur 455,012 - Sale of goods 1,654,803 324,258 Milestone Payments 66,553 - Contract work 162,127 336,798 Sale of services 228,680 336,798 Revenue 1,883,483 661,056 Total revenue includes: Fair value adjustment concerning financial instruments entered into to hedge revenue 13,146 (13,006) DKK thousand ´ 2020 2019 Research and development costs incurred this year 467,456 639,362 Of which: Contract costs recognized as production costs (103,997) (218,936) Research and development costs recognized in the income statement 363,459 420,426 Note 2 Revenue Note 3 Research and development costs The Group’s sale of RabAvert in US is handled and recognized in Bavarian Nordic, Inc. as from August 1, 2020. Up until then the sale was handled by GlaxoSmithKline. Bavarian Nordic Inc. operates under a distribution agreement and purchase the products from Bavarian Nordic A/S. The internal sale for the period August 1 – December 31, 2020 exceeded Bavarian Nordic, Inc.'s sale to customers by DKK 31.3 million, hence the RabAvert revenue recognized in the Parent Company is higher than the RabAvert revenue recognized in the Group. The contract with the United States Department of Defense for the development of a prophylactic vaccine against the equine encephalitis virus is concluded with Bavarian Nordic, Inc., whereas all costs related to the contract are covered by Bavarian Nordic A/S. Bavarian Nordic A/S re-invoice those costs to Bavarian Nordic, Inc. Net Bavarian Nordic, Inc. earns a mark-up, reducing the contract work revenue in the Parent Company compared to the contract work revenue in the Group. For further disclosures see the consolidated financial state- ments note 3. Accounting policies and significant accounting estimates See consolidated financial statements note 3. Write-down of the CV301 development project was included by DKK 68.3 million in 2019. Accounting policies See consolidated financial statements note 6. Annual Report 2020 125 Note 4 Staff costs DKK thousand 2020 2019 Wages and salaries 293,496 213,359 Contribution based pension 25,970 18,632 Social security expenses 2,459 2,041 Other staff expenses 24,283 21,982 Share-based payment 32,074 26,194 Staff costs 378,282 282,208 Staff expenses are distributed as follows: Production costs 195,337 147,763 Sales and distribution costs 17,397 17,027 Research and development costs 48,272 39,005 Administrative costs 98,367 78,413 Capitalized salaries 18,909 - Staff costs 378,282 282,208 Average number of employees converted to full-time 408 298 Number of employees as of December 31 converted to full-time 475 324 DKK thousand 2020 2019 Staff costs include the following costs: Board of Directors: Remuneration 3,825 3,883 Share-based payment 1,350 1,350 Remuneration to Board of Directors 5,175 5,233 Executive Management: Salary 5,186 5,061 Paid bonus 2,540 869 Other employee benefits 576 649 Contribution based pension - - Share-based payment 4,011 5,483 Corporate Management 12,313 12,062 Salary 9,288 8,126 Paid bonus 2,089 960 Other employee benefits 465 484 Contribution based pension 1,114 827 Share-based payment 8,557 6,316 Other Executive Management 21,513 16,713 Remuneration to Executive Management 33,826 28,775 Total management remuneration 39,001 34,008 Annual Report 2020 126 CEO and President of the Company Paul Chaplin constituted the Corporate Management in 2020. As from February 2021 CFO Henrik Juuel also constitutes part of the Corporate Management. For 2020 CFO Henrik Juuel, COO Henrik Birk, CPO Anu Kerns and CBO Tommi Kainu constituted the Company’s member of the Other Executive Management. Incentive programs for management and other employees are disclosed in the consolidated financial statements note 30. The CEO’s contract of employment contains standard terms for members of the management of Danish listed com- panies, including the extended period of notice that both parties are required to give. For the Company, the notice is maximum 18 months. In the event of a change of control, the term of notice for the Company will be extended to maximum 24 months. Accounting policies See consolidated financial statements note 8. Note 4 Staff costs – continued Note 5 Depreciation, amortization and impairment losses DKK thousand 2020 2019 Depreciation and amortization included in: Production costs 310,784 31,132 Research and development costs 1,400 955 Administrative costs 20,547 14,543 Depreciation and amortization 332,731 46,630 Hereof profit ()/loss from disposed fixed assets 3,149 - Impairment losses included in: Production costs 16,066 - Impairment losses 16,066 - For further disclosures see the consolidated financial statements note 9. Annual Report 2020 127 Note 6 Financial income Note 7 Financial expenses DKK thousand 2020 2019 Financial income from bank and deposit contracts 193 602 Financial income from subsidiaries 21,743 24,192 Financial income from securities 8,756 16,435 Fair value adjustments on securities 6,783 - Adjustment of deferred consideration due to change in estimated timing of payments 67,719 - Currency adjustment deferred consideration 11,900 - Net gain on derivative financial instruments at fair value in the income statement 2,571 5,502 Net foreign exchange gains - 2,798 Financial income 119,665 49,529 Accounting policies See consolidated financial statements note 12. DKK thousand 2020 2019 Interest expenses on debt 30,741 17,211 Financial expenses to subsidiaries 2,274 1,942 Fair value adjustments on securities - 15,331 Unwinding of the discount related to deferred consideration 145,149 - Net foreign exchange losses 62,558 - Write-down of receivables from subsidiaries, cf. note 12 34,321 60,716 Financial expenses 275,043 95,200 Accounting policies See consolidated financial statements note 13. The deferred consideration for product rights is measured at net present value and the difference between the net present value and the amounts due is recognized in the income statement as a financial expense over the period until expected payment date using the effective interest method. Annual Report 2020 128 Note 8 Tax for the year Accounting policies See consolidated financial statements note 14. Deferred tax Recognized deferred tax assets relate to temporary differences between valuations for accounting and taxation purposes and tax losses carried forward. For further disclosures see the consolidated financial statements note 14. DKK thousand 2020 2019 Tax recognized in the income statement Tax for the year recognized in the income statement - - Tax on income for the year is explained as follows: Income before company tax 276,994 (430,148) Calculated tax (22.0%) on income before company tax 60,939 (94,633) Tax effect on: Income from investments in subsidiaries (3,352) (1,970) Write-down of receivables from subsidiaries - not deductable for tax purposes 7,551 - Income()/expenses that are not taxable/deductible for tax purposes (10,648) 13,412 Write-down of tax assets (54,490) 83,191 Tax on income for the year - - Tax recognized in equity Tax for the year recognized in equity - - DKK thousand January 1, 2020 Recognized in the income statement Recognized in equity December 31, 2020 Product rights - (94,360) - (94,360) Other intangible assets 2,040 (1,663) - 377 Property, plant and equipment 22,593 15,749 - 38,342 Right-of-use-asset 55 318 - 373 Development projects for sale 32,446 - - 32,446 Accrued project costs (790) 609 - (181) Receivables - 18 - 18 Provisions - 17,930 - 17,930 Financial instruments (503) - 681 178 Share-based payment 8,573 6,824 - 15,397 Tax losses carried forward 362,036 85 - 362,121 Not recognized tax asset (426,450) 54,490 (681) (372,641) Recognized deferred tax assets - - - - Annual Report 2020 129 Note 9 Intangible assets 2020 DKK thousand Product rights Acquired patents and licenses Software Other intangible assets in progress Total Costs as of January 1, 2020 5,458,700 - 98,687 2,868 5,560,255 Additions - 29,813 2,991 54,691 87,495 Transfer - - 2,365 (2,365) - Disposal - - (18,962) - (18,962) Cost as of December 31, 2020 5,458,700 29,813 85,081 55,194 5,628,788 Amortization as of January 1, 2020 - - 76,351 - 76,351 Amortization 272,935 - 9,421 - 282,356 Disposals - - (18,166) - (18,166) Amortization as of December 31, 2020 272,935 - 67,606 - 340,541 Carrying amount as of December 31, 2020 5,185,765 29,813 17,475 55,194 5,288,247 Carrying amount as of December 31, 2019 5,458,700 - 22,336 2,868 5,483,904 Accounting policies See consolidated financial statements note 16. Annual Report 2020 130 Note 10 Property, plant and equipment 2020 DKK thousand Land and buildings Leasehold improve- ment Plant and machinery Other fixtures and fittings, other plant and equipment Assets under construction Total Costs as of January 1, 2020 321,503 2,702 301,174 42,658 614,566 1,282,603 Additions 26,222 1,331 657 10,902 173,342 212,454 Transfer 201,776 343 185,345 195,742 (583,206) - Disposals (2,390) - (2,152) (6,443) - (10,985) Cost as of December 31, 2020 547,111 4,376 485,024 242,859 204,702 1,484,072 Depreciation and impairment losses as of January 1, 2020 159,624 2,702 256,909 30,591 - 449,826 Depreciation 17,538 45 14,013 4,785 - 36,381 Impairment losses 5,354 - 10,712 - - 16,066 Disposals (1,109) - (1,275) (6,243) - (8,627) Depreciation and impairment losses as of December 31, 2020 181,407 2,747 280,359 29,133 - 493,646 Carrying amount as of December 31, 2020 365,704 1,629 204,665 213,726 204,702 990,426 Carrying amount as of December 31, 2019 161,879 - 44,265 12,067 614,566 832,777 For collateral see the consolidated financial statements note 17. Accounting policies See consolidated financial statements note 17. Annual Report 2020 131 Note 11 Right-of-use-assets 2020 DKK thousand Rent facility Car leasing Equipment Total Right-of-use assets as of January 1, 2020 17,531 1,417 303 19,251 Additions 24,215 619 542 25,376 Modifications 1,303 432 (1) 1,734 Depreciations (9,332) (1,184) (329) (10,845) Right-of-use assets as of December 31, 2020 33,717 1,284 515 35,516 2019 DKK thousand Rent facility Car leasing Equipment Total Impact from applying IFRS 16 as of January 1, 2019 21,070 1,493 545 23,108 Additions - 929 - 929 Modifications 688 292 - 980 Depreciations (4,227) (1,297) (242) (5,766) Right-of-use assets as of December 31, 2019 17,531 1,417 303 19,251 Amounts included in the income statement DKK thousand 2020 2019 Interest expense leases 875 525 Depreciation recognized on right-of-use assets 10,845 5,766 Cost recognized for short term leases (less than 12 months) 1,865 267 Accounting policies See consolidated financial statements note 18. Annual Report 2020 132 Note 12 Investment in subsidiaries In November 2019, the Company established a compa- ny in Switzerland for the purpose of running the future commercial organisation for Rabipur/RabAvert, Encepur and JYNNEOS. The carrying amount of investments in subsidiaries mainly relates to Bavarian Nordic GmbH (DKK 137.2 million) and the net share of profit from this subsidiary amounts to DKK 12.3 million. Accounting policies Investments in subsidiaries are recognized and measured under the equity method. This means that, in the balance sheet, investments are measured at the pro rata share of the subsidiaries’ equity plus or less unam- ortized positive, or negative, goodwill and plus or less unrealized intra-group profits or losses. Subsidiaries with a negative equity value are measured at zero value, and any receivables from these subsidiaries are written down by the Company’s share of such negative equity if it is deemed irrecoverable. If the negative equity exceeds the amount receivable, the remaining amount is recognized under provisions if the Company has a legal or constructive obligation to cover the liabilities of the relevant subsidiary. Upon distribution of profit or loss, net revaluation of invest- ments in subsidiaries is transferred to the net revaluation reserve according to the equity method under equity, if the net revaluation is positive. If the net revaluation is nega- tive, it is recognized in retained earnings in equity. Goodwill is calculated as the difference between cost of the investments and the fair value of the assets and liabilities acquired which have been measured at fair value at the date of acquisition. The amortization period for goodwill is usually five years. Investments in subsidiaries are written down to the lower of recoverable amount and carrying amount. Income from investments in subsidiaries’ contains pro rata share of subsidiaries profits or losses after elimination of unrealized intra-group profits and losses. Significant accounting estimates As of December 31, 2020, Bavarian Nordic, Inc. had a negative equity of DKK 414 million (DKK 442 million). Following the discontinuation of the PROSPECT study in September 2017, the Parent Company’s receivable from Bavarian Nordic, Inc. was fully written-down as Manage- ment assessed that there would be no significant cash flows from sale in the coming years. Management main- tains this assessment as of December 31, 2020. 2020 DKK thousand Investments in subsidiaries Receivables from subsidiaries Costs as of January 1, 2020 186,953 442,552 Additions - 74,898 Exchange rate adjustments - (40,577) Cost as of December 31, 2020 186,953 476,873 Net revaluation as of January 1, 2020 (57,538) (442,552) Net share of profit/loss for the year 15,236 - Write-down - (34,321) Exchange rate adjustments (647) - Net revaluation as of December 31, 2020 (42,949) (476,873) Carrying amount as of December 31, 2020 144,004 - Carrying amount as of December 31, 2019 129,415 - Company summary Domicile Ownership Voting rights Subsidiaries Bavarian Nordic GmbH Germany 100% 100% Bavarian Nordic, Inc. USA 100% 100% Bavarian Nordic Switzerland AG Switzerland 100% 100% Aktieselskabet af 1. juni 2011 I Denmark 100% 100% Aktieselskabet af 1. juni 2011 II Denmark 100% 100% Annual Report 2020 133 Note 13 Inventories Note 14 Lease liabilities DKK thousand 2020 2019 Raw materials and supply materials 73,037 38,888 Work in progress 201,602 163,513 Manufactured goods and commodities 292,667 1,727 Write-down on inventory (63,538) (104,056) Inventories 503,768 100,072 Write-down on inventory as of January 1 (104,056) (107,692) Write-down for the year (25,692) (17,824) Use of write-down 65,672 7,683 Reversal of write-down 538 13,777 Write-down on inventory as of December 31 (63,538) (104,056) Cost of goods sold amounts to 566,116 87,272 For further details regarding development in inventory values see consolidated financial statements note 19. Accounting policies and significant accounting estimates See consolidated financial statements note 19. Accounting policies See consolidated financial statements note 27. DKK thousand 2020 2019 Non-current 25,858 13,844 Current 11,356 5,658 Lease liabilities 37,214 19,502 DKK thousand Due within 1 year Due between 1 and 5 year Due after 5 years Total 2020 Lease liabilities 11,356 25,858 - 37,214 2019 Lease liabilities 5,658 13,844 - 19,502 Annual Report 2020 134 For further details of prepayment from customers, see consolidated financial statements note 28. Accounting policies See consolidated financial statements note 28. For further details of derivative financial instruments, see consolidated financial statements note 24. The phantom share programs are disclosed in the consolidated financial statements note 30. Accounting policies See consolidated financial statements note 23. Note 15 Prepayment from customers Note 16 Other liabilities DKK thousand 2020 2019 Prepayment from customers as of January 1 6,631 27,116 Prepayments received during the year 77,185 - Recognized as income during the year (9,469) (20,485) Prepayment from customers as of December 31 74,347 6,631 DKK thousand 2020 2019 Derivative financial instruments at fair value in the income statement 1,414 1,243 Liability relating to phantom shares 4,849 1,135 Payable salaries, holiday accrual etc. 84,026 49,926 Gross to net deduction accrual 2,502 - Other accrued costs 18,793 15,865 Other liabilities 111,584 68,169 Annual Report 2020 135 Note 17 Related party transactions The Corporate Management and Board of Directors of Bavarian Nordic A/S are considered related parties as they have significant influence over the Company. Main intercompany transactions: Bavarian Nordic GmbH provides research and development services to Bavarian Nordic A/S. Bavarian Nordic, Inc. distributes and sells RabAvert in the US on behalf of Bavarian Nordic A/S. This is done under a Distribution Agreement. Bavarian Nordic, Inc. provides research and development services to Bavarian Nordic A/S. Bavarian Nordic, Inc. also provides services to Bavarian Nordic A/S in terms of commercial affair work towards the U.S. Government, with the purpose of ensuring an efficient communication and service to U.S. authorities, in order to maintain existing contracts and explore new product/con- tract opportunities on the U.S. market. Bavarian Nordic Switzerland AG provide global commercial services to Bavarian Nordic A/S. All services except for the distribution agreement are delivered under cost plus agreements and on arms length conditions. The distribution agreement is honored according to OECD’s guidelines for a Limited Risk Distributor. Apart from intra-group transactions mentioned above and the remuneration of the Board of Directors and Corporate Management, cf. note 8 and note 30 in the consolidated financial statements, there are no transactions with related parties. Annual Report 2020 136 Note 18 Contingent liabilities and other contractual obligations Repayment obligation Repayment obligation regarding received prepayments see the consolidated financial statements note 28. Sales milestone to GlaxoSmithKline The Asset Purchase Agreement with GlaxoSmithKline regarding the acquisition of the product rights to Rabipur/ RabAvert and Encepur includes a sales milestone of EUR 25 million. As per December 31, 2019 Management does not judge the sales milestone to be probable and therefore the sales milestone has not been recognized as either part of the product rights nor the deferred consideration for product rights. License and collaboration agreement AdaptVac Under the license and collaboration agreement with AdaptVac the Company has an obligation of payment of potential future development and sales milestones and tiered royalties. Tax audit In April 2018 the Danish tax authority (“Skattestyrelsen”) notified the Company that Skattestyrelsen was proposing an adjustment of the allocation of the PROSTVAC devel- opment costs between Bavarian Nordic A/S and its U.S. subsidiary, Bavarian Nordic, Inc. for the income years 2012-2016. During 2018 and 2019 the Company has been in dialogue with Skattestyrelsen regarding the proposal. On July 1, 2019, Skattestyrelsen decided to withdraw the proposed adjustment. The transfer pricing tax audit for 2012-2016 has thereby been completed without any changes to taxable income. Incentive agreements, company mortgage and lawsuits See the consolidated financial statements note 31. 2020 2019 Collaborative agreements Contractual obligations with research partners for long-term research projects. – Due within 1 year 42,227 36,884 Other contractual obligations – Due within 1 year 17,738 14,026 – Due between 1 and 5 years 12,604 9,584 Annual Report 2020 137 Note 19 Mortgages and collateral Note 20 Proposed appropriation of net profit/(loss) Note 21 Significant events after the balance sheet date DKK thousand 2020 2019 Guarantees for subsidiaries The Parent Company stands surety for a credit facility to a subsidiary of a maximum of 3,330 3,843 The Parent Company stands surety for letter of credit to subsidiaries of a maximum of 2,200 2,689 DKK thousand 2020 2019 Retained earnings 276,994 (430,148) Total 276,994 (430,148) Bavarian Nordic A/S has signed a guarantee in favor of Bavarian Nordic, Inc.’s landlord in North Carolina. As guarantor Bavarian Nordic A/S guarantees the full and complete payment by Bavarian Nordic, Inc. of the rent and all other sums payable under the lease contract. The rent for the lease period (until August 2022) amounts to DKK 2.0 million (DKK 3.5 million). Mortgages See description regarding property, plant and equipment in note 17 in the consolidated financial statements. See description in note 32 in the consolidated financial statements. Annual Report 2020 138 STATEMENT BY MANAGEMENT ON THE ANNUAL REPORT 139 Annual Report 2020 STATEMENT BY MANAGEMENT ON THE ANNUAL REPORT The Board of Directors and the Corporate Management have today considered and approved the annual report of Bavarian Nordic A/S for the financial year January 1 – December 31, 2020. The consolidated financial statements are presented in accordance with International Financial Reporting Standards as adopted by the EU. The parent financial statements are presented in accordance with the Danish Financial Statements Act. Further, the annual report is prepared in accordance with Danish disclosure requirements for listed companies. In our opinion, the consolidated financial statements and the parent finan- cial statements give a true and fair view of the Group’s and the Parent’s financial position at December 31, 2020 as well as of the results of their operations and the Group’s cash flows for the financial year January 1 – December 31, 2020. In our opinion, the management commentary contains a fair review of the development of the Group's and the Parent’s business and financial matters, the results for the year and of the Parent’s financial position and the financial position as a whole of the entities included in the consolidated financial statements, together with a description of the principal risks and uncertainties that the Group and the Parent face. In our opinion, the annual report with the file name BAVA-2020-12-31.zip is prepared, in all material respects, in accordance with the ESEF Regulation. We recommend the annual report for adoption at the Annual General Meeting. Hellerup, March 12, 2021 Corporate Management Paul John Chaplin Henrik Juuel President and Chief Executive Officer Chief Financial Officer Board of Directors Gerard W.M. van Odijk Anders Gersel Pedersen Erik Gregers Hansen Chairman of the Board Deputy chairman Peter H. Kürstein-Jensen Frank A.G.M. Verwiel Elizabeth McKee Anderson Anne Louise Eberhard Annual Report 2020 140 INDEPENDENT AUDITOR'S REPORTS Opinion We have audited the consolidated financial statements and the parent financial statements of Bavarian Nordic A/S for the financial year January 1 – December 31, 2020, which comprise the income statement, statement of financial position, statement of changes in equity and notes, including a summary of significant accounting policies, for the Group as well as the Parent, and the statement of comprehensive income and the cash flow statement of the Group. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act, and the parent financial statements are prepared in accordance with the Danish Financial Statements Act. In our opinion, the consolidated financial statements give a true and fair view of the Group’s financial position at December 31, 2020 and of the results of its operations and cash flows for the financial year January 1 – December 31, 2020 in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements under the Danish Financial Statements Act. TO THE SHAREHOLDERS OF BAVARIAN NORDIC A/S Further, in our opinion, the parent financial statements give a true and fair view of the Parent’s financial position at December 31, 2020 and of the results of its operations for the financial year January 1 – December 31, 2020 in accordance with the Danish Financial Statements Act. Our opinion is consistent with our audit book comments issued to the Finance, Risk and Audit Committee and the Board of Directors. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements section of this auditor’s report. We are independent of the Group in accordance with the International Ethics Standards Board of Accountants' Code of Ethics for Professional Accountants (IESBA Code) and the additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Annual Report 2020 141 Key audit matter Revenue under the BARDA contracts for JYNNEOS Revenue recognized under the Biomedical Advanced Research and Development Authority (BARDA) contracts with the U.S. Government related to JYNNEOS amounted to DKK 680 million in 2020 (DKK 539 million in 2019). Contracts with BARDA include multiple elements, and recognition of revenue is significant and requires subjective evaluations. Management therefore exercises judgement in determining whether the Group has fulfilled all of its perfor- mance obligations. Management’s assessment includes whether it is probable that future economic benefits from the sale of JYNNEOS bulk drug substance will flow to the Group, the benefits can be measured reliably, ownership of the goods and services is transferred to BARDA, and the Group no longer retains man- agerial responsibility for, or control of, the goods sold and services delivered to BARDA. Refer to notes 2 and 3 in the consolidated financial statements. Based on our risk assessment procedures on the Group’s business process and internal controls for revenue under the BARDA contracts, we tested the appropriateness of the Group’s revenue recognition. We read the BARDA contracts, discussed them with Management and evaluated the related accounting treatment. During the audit, we tested whether the performance obligations for revenue recognized and measured under the BARDA contracts were met in 2020. We also evaluated the financial statements disclosures related to revenue. To the best of our knowledge and belief, we have not provided any prohibited non-audit services as referred to in Article 5(1) of Regulation (EU) No 537/2014. After Bavarian Nordic A/S was listed on Nasdaq OMX Copenhagen in 1998, we were appointed auditors at the Annual General Meeting held on May 27, 1999 for the 1999 financial year. We have been reappointed annually at the annual general meeting for a total consecutive engage- ment period of 22 years up to and including the 2020 financial year. Key audit matters Key audit matters are those matters that, in our professional judge- ment, were of most significance in our audit of the consolidated finan- cial statements and the parent financial statements for the financial year January 1 – December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Statement on the management commentary Management is responsible for the management commentary. Our opinion on the consolidated financial statements and the parent financial statements does not cover the management commentary, and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to read the manage- ment commentary and, in doing so, consider whether the management Annual Report 2020 142 commentary is materially inconsistent with the consolidated financial statements and the parent financial statements or our knowledge ob- tained in the audit or otherwise appears to be materially misstated. Moreover, it is our responsibility to consider whether the management commentary provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that the management commentary is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of the management commentary. Management's responsibilities for the consolidated financial statements and the parent financial statements Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional require- ments of the Danish Financial Statements Act as well as the preparation of parent financial statements that give a true and fair view in accordance with the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of consol- idated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements and the parent financial statements, Management is responsible for assessing the Group’s and the Parent’s ability to continue as a going concern, for disclosing, as applicable, matters related to going concern, and for using the going concern basis of accounting in preparing the consolidated financial statements and the parent financial statements unless Management either intends to liquidate the Group or the Entity or to cease operations, or has no realistic alternative but to do so. Auditor's responsibilities for the audit of the consolidated financial statements and the parent financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guaran- tee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements. As part of an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the con- solidated financial statements and the parent financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient Annual Report 2020 143 and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of Management’s use of the going concern basis of accounting in preparing the consolidated finan- cial statements and the parent financial statements, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements and the parent financial statements or, if such disclosures are inadequate, to modify our opinion. Our con- clusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Entity to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the con- solidated financial statements and the parent financial statements, including the disclosures in the notes, and whether the consolidated financial statements and the parent financial statements represent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding inde- pendence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent finan- cial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Annual Report 2020 144 Report on compliance with the ESEF Regulation As part of our audit of the consolidated financial statements and parent company financial statements of Bavarian Nordic A/S we performed procedures to express an opinion on whether the Annual Report of Ba- varian Nordic A/S for the financial year January 1 - December 31, 2020 with the file name BAVA-2020-12-31.zip is prepared, in all material re- spects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the preparation of the Annual Report in XHTML format and iXBRL tagging of the consolidated financial statements. Management is responsible for preparing an Annual Report that complies with the ESEF Regulation. This responsibility includes: • The preparing of the Annual Report in XHTML format. • The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for financial information required to be tagged using judgement where necessary. • Ensuring consistency between iXBRL tagged data and the consolidat- ed financial statements presented in human readable format. • For such internal control as Management determines necessary to enable the preparation of an Annual Report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on whether the Annual Report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor’s judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include: • Testing whether the Annual Report is prepared in XHTML format. • Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process. • Evaluating the completeness of the iXBRL tagging of the consolidated financial statements. • Evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified. • Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy. • Reconciling the iXBRL tagged data with the audited consolidated financial statements. In our opinion, the Annual Report of Bavarian Nordic A/S for the financial year January 1 – December 31, 2020 with the file name BAVA-2020-12- 31.zip is prepared, in all material respects, in compliance with the ESEF Regulation. Copenhagen, March 12, 2021 Deloitte Statsautoriseret Revisionspartnerselskab Business Registration No 33 96 35 56 Martin Norin Faarborg Eskild Nørregaard Jakobsen State-Authorized State-Authorized Public Accountant Public Accountant MNE no 29395 MNE no 11681 Annual Report 2020 145 Forward-looking Statement This annual report contains forward looking statements. The words “believe”, “expect”, “anticipate”, “intend” and “plan” and similar expressions identify forward looking statements. Actual results or performance may differ materially from any future results or performance expressed or implied by such statements. The important factors that could cause our actual results or performance to differ materially include, among others, risks associated with product discovery and development, uncertainties related to the outcome and conduct of clinical trials including unforeseen safety issues, uncertainties related to product manufacturing, the lack of market acceptance of our products, our inability to manage growth, the competitive environment in relation to our business area and markets, our inability to attract and retain suitably qualified personnel, the unenforceability or lack of protection of our patents and proprietary rights, our relationships with affiliated entities, changes and developments in technology which may render our products obsolete, and other factors. For a further discussion of these risks, please refer to the section “Risk Management” in this annual report. Bavarian Nordic does not undertake any obligation to update or revise forward looking statements in this annual report nor to confirm such statements in relation to actual results, unless required by law. Design and layout Kontrapunkt Photos Carsten Andersen Phillippe Wiget Print Dystan & Rosenberg Annual Report 2020 146 Bavarian Nordic A/S Philip Heymans Alle 3 DK-2900 Hellerup Denmark CVR no: 16 27 11 87 www.bavarian-nordic.com RabAvert ® , Rabipur ® , Encepur ® , JYNNEOS ® , IMVANEX ® , IMVAMUNE ® and MVA-BN ® are registered trade- marks owned by Bavarian Nordic. 2138006JCDVYIN6INP512020-01-012020-12-312138006JCDVYIN6INP512019-01-012019-12-312138006JCDVYIN6INP512020-01-012138006JCDVYIN6INP512020-12-312138006JCDVYIN6INP512019-01-012138006JCDVYIN6INP512019-12-312138006JCDVYIN6INP512020-01-01ifrs-full:IssuedCapitalMember2138006JCDVYIN6INP512020-01-012020-12-31ifrs-full:IssuedCapitalMember2138006JCDVYIN6INP512020-12-31ifrs-full:IssuedCapitalMember2138006JCDVYIN6INP512020-01-01ifrs-full:TreasurySharesMember2138006JCDVYIN6INP512020-01-012020-12-31ifrs-full:TreasurySharesMember2138006JCDVYIN6INP512020-12-31ifrs-full:TreasurySharesMember2138006JCDVYIN6INP512020-01-01ifrs-full:RetainedEarningsMember2138006JCDVYIN6INP512020-01-012020-12-31ifrs-full:RetainedEarningsMember2138006JCDVYIN6INP512020-12-31ifrs-full:RetainedEarningsMember2138006JCDVYIN6INP512020-01-01ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember2138006JCDVYIN6INP512020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember2138006JCDVYIN6INP512020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember2138006JCDVYIN6INP512020-01-01ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember2138006JCDVYIN6INP512020-01-012020-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember2138006JCDVYIN6INP512020-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember2138006JCDVYIN6INP512020-01-01ifrs-full:ReserveOfSharebasedPaymentsMember2138006JCDVYIN6INP512020-01-012020-12-31ifrs-full:ReserveOfSharebasedPaymentsMember2138006JCDVYIN6INP512020-12-31ifrs-full:ReserveOfSharebasedPaymentsMember2138006JCDVYIN6INP512019-01-01ifrs-full:IssuedCapitalMember2138006JCDVYIN6INP512019-01-012019-12-31ifrs-full:IssuedCapitalMember2138006JCDVYIN6INP512019-12-31ifrs-full:IssuedCapitalMember2138006JCDVYIN6INP512019-01-01ifrs-full:TreasurySharesMember2138006JCDVYIN6INP512019-01-012019-12-31ifrs-full:TreasurySharesMember2138006JCDVYIN6INP512019-12-31ifrs-full:TreasurySharesMember2138006JCDVYIN6INP512019-01-01ifrs-full:RetainedEarningsMember2138006JCDVYIN6INP512019-01-012019-12-31ifrs-full:RetainedEarningsMember2138006JCDVYIN6INP512019-12-31ifrs-full:RetainedEarningsMember2138006JCDVYIN6INP512019-01-01ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember2138006JCDVYIN6INP512019-01-012019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember2138006JCDVYIN6INP512019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember2138006JCDVYIN6INP512019-01-01ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember2138006JCDVYIN6INP512019-01-012019-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember2138006JCDVYIN6INP512019-12-31ifrs-full:ReserveOfGainsAndLossesOnFinancialAssetsMeasuredAtFairValueThroughOtherComprehensiveIncomeMember2138006JCDVYIN6INP512019-01-01ifrs-full:ReserveOfSharebasedPaymentsMember2138006JCDVYIN6INP512019-01-012019-12-31ifrs-full:ReserveOfSharebasedPaymentsMember2138006JCDVYIN6INP512019-12-31ifrs-full:ReserveOfSharebasedPaymentsMemberiso4217:DKKiso4217:DKKxbrli:sharesBavarian Nordic A/SDanmarkAktieselskabDanmarkPhilip Heymans Alle 3, DK-2900 HellerupDanmarkFremstilling af farmaceutiske præparaterBavarian Nordic A/SBavarian Nordic A/SN/A

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