Evolution

S EC U R I T IES www.evosecurities.com 14 September 2005

Acambis
Mkt Cap £263m Net Cash
330 306 282 258 234 210
S O N D J F M A M J J A Source: JCF

(ACM.L)

Add

(remains as)

£94m

Price/Target: 245p/270p

Acambis versus Bavarian Nordic: Round II
Acambis’ ‘answer’ to the complaint filed by Bavarian Nordic in Delaware has been published and, as might be expected, almost everything is denied. However, a meeting between the companies in 2002 is acknowledged.

BN’s complaint indicated that it believes Acambis had unlawful access to the ‘grandfather’ strain which is the ‘ancestor’ for the viruses used in both companies’ MVA vaccines. Moreover, BN accuses Acambis of using information it gained at a meeting in 2002 with BN, which was subject to a confidentiality agreement. These legal proceedings are separate to the patent infringement case that has been filed with the International Trade Commission. In terms of the misappropriation case, BN is seeking up to triple damages as recompense. BN claims exclusive license to MVA strains In the complaint, BN stated it exclusively licensed for commercial use all strains of MVA, including one known as MVA-572, from a Professor Mayr. This is despite the fact that MVA-572 was used as the basis of a vaccine in the seventies. Acambis denies that BN holds an exclusive license for commercialisation of all MVA strains. In fact, even BN concedes that it only holds a license (in its eyes) for MVA strains developed by Prof. Mayr (which are not necessarily all strains). The fact that BN entered into a secrecy agreement with Acambis in February 2002 is acknowledged by Acambis. However, Acambis denies that this was in relation to a potential licensing agreement relating to MVA-BN (which is alleged by BN). According to BN, at a meeting in June 2002, data relating to the development and production of MVA-BN was disclosed to Acambis personnel, including the Chief Scientific Officer at the time, Tom Monath. Acambis agrees this meeting took place, but denies any confidential or proprietary information was handed over. The fact that a draft agreement was sent to Acambis from BN is agreed upon by both companies. However, while BN states that discussions continued until Acambis terminated talks when the first Request for Proposal for the development of an MVA vaccine was released, this is denied by Acambis. It is well known that Acambis did get the strain of MVA used as the basis for its MVA 3000 from the NIAID and this is acknowledged by Acambis in its ‘answer’. In fact, separate documentation suggests that Acambis used a version of MVA 572 that had further been attenuated at the NIAID by Dr. Moss. MVA 3000 appears to be MVA 580, a third generation version of the stock received from the NIAID. As far we know, Acambis did not have a development programme for an MVA based vaccine until it was given material by the NIAID. However, Acambis denies that it had not undertaken research into MVA prior to the publication of the first RFP.

Meetings with Acambis

Acambis’ strain did come from NIAID

Evolution Securities

100 Wood Street, London, EC2V 7AN

020 7071 4300

14 September 2005
On the basis of the above ‘facts’, BN made certain accusations, all of which are denied by Acambis in its ‘Answer’: • False representation: Acambis failed to advise its potential customer, the NIAID (and other government agencies) that the strains in its possession were not available for distribution for non-research purposes. In fact, BN goes further, stating that Acambis has engaged in ‘deceptive trade practices’ by ‘passing off’ MVA 3000 as a product of its own R&D. • Acambis received MVA-572 (or its derivatives) in the knowledge that the virus was the property of BN (through the exclusive license with Prof. Mayr). Furthermore, Acambis has no right to possess MVA-572 as it violated the agreement between NIAID and Prof. Mayr. • Misappropriation of secrets, that is, using BN’s technology to commercial advantage without BN’s consent. In addition, Acambis should have known that any attenuated MVA strain provided by the NIAID was given without the consent of BN. • The proprietary information gained at the June 2002 meeting was subject to a secrecy agreement, but was actually used to initiate Acambis’ own MVA programme. US government accused? As we pointed out two weeks ago, one slightly bizarre element is that while the NIAID could actually be a co-defendant in the case (as, according to BN, it handed over MVA-572 or its derivatives to Acambis), BN is accusing Acambis of failing to advise its potential customer of the proprietary position of the MVA 3000 strain. However, the customer is of course the NIAID! This point is highlighted by Acambis and is used as the ‘Fourth Defense [sic]’, which states that the case should be dismissed because of the failure to cite the US government in the legal action.
EVO Securities makes markets in Acambis

BN’s accusations

Dr Jonathan Senior +44 (0) 20 7071 4355 jonathan.senior@evosecurities.com Year End 12/04A 12/05E 12/06E Sales £m 85.5 56.6 47.3 EBITDA £m 27.4 -11.8 -17.9 PBT adj £m 16.8 -14.1 -21.0 Tax % 28 EPS p 11.4 -13.2 -19.8 CFPS p -25.4 -27.5 -18.0 Net Cash Net Cash Cash Burn £m 101.8 74.7 55.7 p 95.8 70.3 52.4 p -30.4 -32.2 -22.3 R&D £m -29.4 -29.7 -30.9 R&D Chg % -47.7 -1.0 -4.0 EV/Sales x 1.9 3.3 4.4 DCF Sensitivity WACC % Fair Value £ 18.0 19.0 20.0 389 379 369

Evolution Securities

100 Wood Street, London, EC2V 7AN

020 7071 4300

14 September 2005
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Key: = EVO Securities is broker and has in the last twelve months acted as adviser or provided investment banking services, for which they have received compensation or are expecting compensation within the next three months. ∇ = EVO Securities is no longer broker, but has in the last twelve months acted as adviser or provided investment banking services, for which they have received compensation or are expecting compensation within the next three months. = EVO Securities makes a market in the securities of this company

Evolution Securities

100 Wood Street, London, EC2V 7AN

020 7071 4300

14 September 2005

Disclosure Document

Evolution Securities

100 Wood Street, London, EC2V 7AN

020 7071 4300

1

14 September 2005 Analyst details
Dr Jonathan Senior Life Science Research Analyst Acambis Alizyme Ark Therapeutics Cambridge Antibody Tech GW Pharmaceuticals Huntleigh Technology Oxford BioMedica Proteome Sciences Provalis Shire Pharmaceuticals Skyepharma Vernalis Xenova

Key:

= Analyst has financial interest

= Analyst has material interest

= Analyst is a director

= Analyst has a business interest

Recommendation History Charts (For the last 12 months to previous days closing)

Acambis

Evolution Securities

100 Wood Street, London, EC2V 7AN

020 7071 4300

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14 September 2005

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Evolution Securities – Recommendation Guide

This document is issued by Evolution Securities Ltd (ESL) (Incorporated in England No. 2316630), which is authorised and regulated in the United Kingdom by the Financial Services Authority (FSA) for designated investment business and is a member of the London Stock Exchange. This document is for information purposes only and should not be regarded as an offer or solicitation to buy the securities or other instruments mentioned in it. Expressions of opinions are those of the research department of ESL only and are subject to change without notice. No representation or warranty, either expressed or implied, is made nor responsibility of any kind is accepted by any Evolution Group company, its directors or employees either as to the accuracy or completeness of any information stated in this document. There is no regular update series for research issued by ESL. ESL and/or its officers, directors and employees may have or take positions in securities mentioned in this document (or in any related investment) and may from time to time dispose of any such securities (or instrument). ESL may act as a market maker in the securities of companies discussed in this document (or related investments), and may sell them or buy them from customers on a principal basis and may also perform underwriting services for or relating to those companies. ESL or persons connected with it may provide or may have provided corporate services to the issuers of securities mentioned in this material and recipients of this document should not therefore rely on this report as being an impartial document. Accordingly, information may be known to ESL or persons connected with it which is not reflected in this material. ESL has a conflicts management policy http://www.research.evosecurities.com/conflicts.pdf in relation to its investment research activities, this is available at:

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Evolution Securities

100 Wood Street, London, EC2V 7AN

020 7071 4300

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