Bavarian Nordic is celebrating the announcement that the US government is buying 20 million doses of the Danish drugmaker’s new smallpox vaccine in a deal that could be worth up to $1.6 billion.

The US Department of Health and Human Services has awarded the company a contract for the manufacture and delivery of Imvamune, its modified vaccinia Ankara (MVA) vaccine. The five-year deal for 20 million doses is valued at more than $500 million, though this figure could be boosted by $1.1 billion if the contract, which includes the option of a further purchase of 60 million doses of Imvamune, is extended.

This contract is the first next-generation product procured by HHS under the US government's BioShield programme, enacted after the terrorist attacks of 9/11 to guard against bioterrorism and HHS Secretary Mike Leavitt said that “to protect ourselves from the remote but extremely grave threat of a deliberate release of smallpox virus, we need vaccines that can be safely given to all Americans, including individuals with weakened immune systems.” He added that “acquiring a stockpile of this new smallpox vaccine is a key step toward protecting even more members of the American public.”

Bavarian Nordic, which beat off a rival bid from the UK’s Acambis and its US partner Baxter to win the contract earlier this year, has already invested $60 million into a state-of-the-art manufacturing facility in Denmark that can produce a minimum of 40 million doses of Imvamune per year, with the capacity of upping that to 180 million.

The firm’s chief executive, Peter Wulff, said that the clinical development of Invamune consists of 10 completed or ongoing trials and results from studies in more than 1,500 people show that the vaccine was safe and well-tolerated. He added that the funds from the HHS contract “will also enable us to expand and expedite our clinical programme for licensure of Imvamune with the US Food and Drug Administration."

As part of the contract, Bavarian Nordic is getting milestone payments of $150 million, of which $125 million will be paid this year and in 2008, the first time any company has received any advance as part of a contract under the BioShield programme. Consequently the firm has raised its financial guidance for the full-year results from revenues of 130 million kroner to 380 million kroner, while its pretax loss should fall from 350 million kroner to 50 million kroner.