Intercell Geschäftsbericht 2009

annual report 2009

This is not … … an Annual Report like any other. This report deals, of course, with the key events at Intercell AG during 2009. It also includes a detailed balance sheet giving details of the Company‘s financial status. However, it also offers, in addition, potential strategies for the future and experiences from the past. Last but not least, it is like a little work of art to which we let ourselves be inspired by René Magritte …

Contents ¦ ¦ 01 ¦ ¦ C O M P A N Y Intercell at a Glance 01 Interview with the Management Board 05 Management Board 09 Corporate Governance Report 11 Sustainability at Intercell 20 Intercell’s Vaccine Patch 23 ¦ ¦ 02 ¦ ¦ G R O U P M A N A G E M E N T R E P O R T Products 26 Technology Platform 38 Partnerships & Cooperations 41 Locations 42 Human Resources 44 Financial Review 45 Internal Controls 47 Risk Factors 49 Disclosures acc. to sec. 243a UGB 51 Outlook 53 ¦ ¦ 03 ¦ ¦ F I N A N C I A L S Auditor‘s Report 56 Consolidated Financial Statements 59 Declaration by the Management Board 116 Shareholders‘ Information 117

Intercell . annual report . 2009

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S h are per f ormance 2 0 0 9 1600

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1400

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Turnover volume in ‘000

* Number of shares, double counted

1200

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1000 20 800 15 600 10

400

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200

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April

May

June

July

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s h are h ol d er structure ( Decem b er 3 1 , 2 0 0 9 ) Management 0.6%

Treasury Shares 0.7% GSK 1.9%

Novartis AG 14.9% Free Float 81.9% Number of shares issued: 48,480,486

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S trong f inancial position • Revenues of EUR 61.7m • R&D costs of EUR 62.5m to progress all programs forward at full speed • EUR 18.4m net loss • Strong cash position with EUR 180.0m

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For further information, please contact:

Intercell Investor Relations, investors@intercell.com, T +43-1-20620

Intercell . annual report . 2009

Share price in EUR

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The Mission

¦ ¦ 01 ¦ ¦ F o r w a r d l o o k i n g S t a t e m e n ts

This annual report contains forward-looking statements. These forward-looking statements reflect our current views of future events, are based on our assumptions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forwardlooking statements. In particular, our expectations could be affected by, among other things, uncertainties involved in the development and manufacture of vaccines, unexpected clinical trial results, unexpected regulatory actions or delays, competition in general, the impact of the global credit crisis, and our ability to obtain or maintain patent or other proprietary intellectual property protection.

We discuss many of these risks, uncertainties and other factors in this annual report in greater detail in “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on the forward-looking statements in this annual report.

Forward-looking statements include statements about: • our estimates regarding any future profits, losses or revenues generated from the development, manufacture and commercialization of our product candidates; • our ability to establish and maintain strategic partnerships; • our ability to obtain regulatory approvals and comply with regulatory requirements; • depreciations or fluctuations of currencies in which we receive revenues or incur expenses; • the highly competitive nature of the vaccine industry; • the

anticipated progress of the development, manufacture, market acceptance and commercialization of our product candidates; • our ability to operate our business without infringing third-party proprietary and intellectual property rights; • our ability to protect our proprietary and intellectual property rights from infringement by third parties; • our ability to secure additional funding, if necessary; • our ability to realize the desired results of any acquisitions we undertake; • our ability to successfully manufacture our products at our manufacturing facility in quantities sufficient for clinical trials and commercialization and the reliability of third-party manufacturing; • the availability of sufficient insurance for product-related liability claims; and • our ability to retain or recruit qualified personnel or key members of our management and scientific staff.

In some cases, forward-looking statements contain terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” and similar expressions, which are intended to identify a statement as forward-looking. Forward-looking statements represent our estimates and assumptions only as of the date of this annual report. You should read this annual report completely with the understanding that our actual future results, performance or achievements may be materially different from our expectations.

After the date of this annual report, we assume no obligation, except as required by applicable law, to update any forward-looking statements or to conform these forward-looking statements to our actual results.

Intercell Intercell. .annual annualreport report. .2009.

2009

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Intercell at a Glance

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i n t e r c e l l d e v e l o p s va c c i n e s f o r t h e p r e v e n t i o n a n d t r e at m e n t o f i n f e c t i o u s d i s e a s e s Intercell AG is an innovative biotechnology company that develops novel vaccines for the prevention and treatment of infectious diseases with substantial unmet medical needs. Intercell's vaccine to prevent Japanese Encephalitis is the Company's first product on the market.

The Company's technology platforms include an antigen-discovery system, adjuvants and a novel patch-based delivery system (Vaccine Patch, immune-stimulating Vaccine Enhancement Patch). Based on these technologies, Intercell has strategic partnerships with a number of global pharmaceutical companies, including GlaxoSmithKline, Novartis, Merck & Co., sanofi-aventis, and Pfizer (formerly Wyeth).

The Company's pipeline of investigational products includes a Travelers' Diarrhea Vaccine Patch (Phase III), a Pseudomonas vaccine candidate (Phase II), a vaccine to prevent Pandemic Influenza combining our Vaccine Enhancement Patch with an injected vaccine (Phase II), a therapeutic Hepatitis C vaccine candidate (Phase II), a vaccine program for S. aureus, which is being developed with Merck & Co. (Phase II/III), as well as a vaccine candidate for Pneumococcus (Phase I). In addition, further products focused on infectious diseases are in pre-clinical development.

Intercell is listed on the Vienna Stock Exchange under the symbol “ICLL” (U.S. level 1 ADR symbol “INRLY”).

For further information, please visit our website: www.intercell.com

Intercell . annual report . 2009

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Success 2009 / Q1 2010

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D a t e o f a n n o u n c e m e n t 2009 Jan 19

Exclusive agreement for marketing and distribution of Intercell’s Japanese Encephalitis (JE) vaccine in Japan and Korea

Jan 23

Australian authorities (TGA) first to grant final product approval for Intercell’s vaccine to prevent Japanese Encephalitis

March 30

FDA approval of IXIARO®

April 2

European approval of IXIARO®

April 7

Start of Phase I clinical trial for new Streptococcus pneumoniae vaccine

May 7

Launch of Level I ADR program in the Unites States

May 8

Multi-year contract for supply of IXIARO® to the U.S. Military

May 28

Start of Phase II trial for investigational Vaccine Enhancement Patch to improve Pandemic Influenza prevention

June 25

CDC’s Advisory Committee on Immunization Practices update of JE vaccination recommendation

Oct 14

Start of European Phase III clinical trial for the patch-based Travelers’ Diarrhea vaccine

Oct 30

Canadian approval of IXIARO®

Dec 11

Strategic alliance with GlaxoSmithKline to develop and commercialize innovative needle-free patch-based vaccines

Dec 16

Pseudomonas Phase II interim data

Dec 28

Initiation of a Phase III study in the U.S. for vaccine to protect children against Japanese Encephalitis

D a t e o f a n n o u n c e m e n t Q1 2010 Jan 4

Start of additional efficacy trial for patch-based investigational Travelers’ Diarrhea vaccine in Asia

Feb 11

Phase I results from first investigational vaccine study for Streptococcus pneumoniae

March 4

Joint Committee on Vaccination and Immunization (JCVI) in the UK broadens JE immunization recommendation to include Intercell vaccine

Intercell . annual report . 2009

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This is not a consolation patch … ... instead it’s very simply the description of a potential medical revolution. It’s the Intercell Vaccine Patch. It is being developed to simplify administration of vaccines, for instance against Traveler’s Diarrhea. But it also may have another function: to boost the immune response of vaccines, thus becoming a “Vaccine Enhancement Patch.” It might have an unusual shape but it certainly sticks out from the rest.

We think it’s just great…

Intercell . annual report . 2009

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THOMAS LINGELBACH

GERD ZETTLMEISSL

reinhard kandera

Chief Operating Officer

Chief Executive Officer

Chief Financial Officer

Intercell . annual report . 2009

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intercell’s Management Board on the Company’s development, goals and their plans for 2010 Intercell believes it is positioned to become a global leader in the delivery of state-of-the-art vaccine products and technology. The Company has a proven record for advancing a product to the market and one of the strongest pipelines in the vaccine industry. Intercell is committed over the next several years to strengthening the pipeline further by reinvesting revenue streams into R&D. Tim Friend, Medical Writer at WCG Group, talks to Intercell’s Management Team.

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What do you think is the outlook for the vaccine industry and how is Intercell positioned for future growth? zettlmeissl We have seen over the past 20 years an enormous growth in the number of vaccines on the market. The vaccine industry is on a path for rapid increase, most of which will come from new vaccines, new indications and innovation. We believe our pipeline is one of the best in the industry.

One of the areas of unmet medical need, which we are most interested in, is our innovation in the development of new vaccines to address serious viral and bacterial diseases. Hospital-acquired infections, for example, are an increasingly important medical problem – with estimated 200,000 deaths annually in Europe and the U.S. This problem is expected to become even more severe as a result of increasing antibiotic resistance. Intercell has new investigational vaccines to combat these infections in late-stage development. lingelbach The vaccine industry is dominated by five big players. They will likely continue to grow based on double-digit yearly growth in the vaccine business, driven in part by the introduction of new vaccines for new diseases. However, the big five pharmaceutical players have a major need for innovation.

That’s why collaborations with biotech companies like Intercell are becoming increasingly important, and this is where innovators will find a bright future. Intercell is among the leaders at the forefront of vaccine innovation.

Intercell has built a reputation for transforming innovation into products that provides our partners and potential future partners with trust and confidence in our technologies, which is highly valued by the pharmaceutical industry. Specifically, Intercell is one of the few biotech companies to have demonstrated that we can advance a vaccine – IXIARO® for Japanese Encephalitis – from early development to regulatory approval.

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kandera I anticipate that profitable growth for the vaccine business will be closely linked to new vaccines entering the market for indications where there have been no vaccines before or where old vaccines have significant deficiencies. Therefore, the most important factor for future profitability of the vaccine industry is innovation. Intercell is very well positioned to contribute to this growth given its innovative technology platform, which provides the potential to discover new antigens, new adjuvants, and to develop new technologies for vaccine delivery.

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What challenges will the industry face in coming years and how will Intercell meet those challenges? zettlmeissl Many new vaccines have been developed to save lives in the wealthier, western parts of world.

The challenge will be to make innovation accessible to developing countries. Intercell’s approved Japanese Encephalitis vaccine and its other investigational vaccines, such as the Travelers’ Diarrhea vaccine, can bring innovation to all geographic areas. lingelbach The emergence of new break-through vaccine products such as, the prophylactic Human

Papilloma Virus vaccines preventing cervical cancer, has caused a shift in people’s perception of vaccines.

These new areas have resulted in a growth of the potential market and an increase in overall acceptance of vaccines. A significant challenge is to meet the needs of a growing and changing vaccine market. Intercell’s progress in new disease areas will help to meet this challenge. For example, one of the most significant areas of focus in this industry is the prevention of nosocomial infections.

Also, the globalization of the world’s economy has increased demand for vaccines against travel-related diseases. There are still many countries where certain infectious diseases are endemic, and travelers – be they for business, military or leisure – need protection. Furthermore, Intercell’s advances in needle-free vaccine delivery are key focus areas. We believe Intercell is a front-runner in one specific route of delivery – our patch technology.

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What technological advances do you expect to see in the vaccine industry; and will Intercell have a role in driving those technologies? zettlmeissl We believe the technology we employ to identify new bacterial vaccine antigen candidates has

advanced the industry. This antigen identification platform leverages our knowledge of the immune system to identify new vaccine candidates. In short, we learn from the body’s natural antibody response to infection and apply that knowledge to vaccine development. Our Antigen Identification Program has delivered vaccine candidates against e.g., S. aureus and Pneumococcus infections, which are currently in clinical development.

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lingelbach I see several key areas where vaccine technology is rapidly evolving. In addition to new routes of administration, such as our patch technology, improvements are needed in the field of adjuvants. There are significant drawbacks and limitations with currently approved adjuvants, especially for pediatric and elderly populations in whom vaccines rarely produce sufficient immune responses. Intercell has developed an adjuvant system that increases immune responses in children, whose immune systems are not fully developed, and in the elderly, whose immune systems are often suppressed. Our adjuvant IC31® has the potential to improve the quality of the immune response in these challenging populations. kandera We anticipate technological advances in several areas. We expect further progress of subunit vaccines containing defined antigens rather than whole organisms. Second, adjuvants are of growing importance to the vaccine industry. Third, needle-free vaccination has been a dream of the industry for many years. Now that Intercell has advanced the first patch vaccine against Travelers’ Diarrhea into Phase III clinical trials, this dream is one step closer to reality. We are optimistic that our patch technology has broad applicability to other vaccines. We anticipate that our partnership with GlaxoSmithKline will enable the administration of new as well as existing vaccines via the skin without needles.

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Where do you see Intercell two to three years from now and what are your strategies for meeting those goals? zettlmeissl Intercell is committed to maintaining its independence as a leading vaccine biotech company going forward. The financial benefit we receive from our partnerships has allowed us to operate as an independent company, and we intend to grow our revenues by product sales and income from partnerships. lingelbach We want to become the most successful biotechnology company for infectious diseases, and we

have a plan to get there.

We will progress the commercial success of our first product, IXIARO®. We are committed to advancing products to late-stages of development before seeking partners to generate the greatest value. And, as a small biotech company, we have the advantage of opening opportunities in niche markets as we demonstrated with IXIARO®. We are small enough to bring products to market with only a moderate R&D investment. kandera Intercell is committed to continue operating on solid financial ground through our product sales and multiple revenue-generating partnerships that contribute to a growing revenue stream. Our strategy is to maximize the value of our pipeline by reinvesting revenues back into R&D. A strong cash position allows us to take advantage of opportunities that may arise, such as the Iomai acquisition we made in 2008 and the alliance with GlaxoSmithKline that we just signed. We will continue seeking opportunities that complement our technology or bolster our pipeline.

Intercell . annual report . 2009

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What activities is Intercell engaged in or planning in terms of sustainability and social responsibility? zettlmeissl The vaccine business lends itself quite well to social responsibility through the development of products for people in developing countries. IXIARO®, our vaccine protecting against Japanese Encephalitis, will be brought to India and other Asian markets through a partnership. Diarrhea caused by bacteria is a major issue in developing countries that may one day be addressed by the patch vaccine Intercell is developing. In other indications, e.g. our Pneumococcus vaccine, we are working with international organizations that are dedicated to combating illness in developing countries, including those funded by the Bill and Melinda Gates Foundation.

As a vaccine company, we have an ethical responsibility to improve the health of all people. Therefore, Intercell supports a healthcare development program in Nepal initiated by an NGO. Nepal faces major healthcare problems such as diarrheal diseases, HIV/Aids, Pneumonia, and Japanese Encephalitis. With our products we plan to sustainably improve the health of local people in impoverished areas in the future. kandera With vaccines we have a very cost-efficient instrument for preventing and treating infectious diseases. We are seeking to break new ground in social and environmental performance. Corporate social responsibility at Intercell is anchored at the Management Board level. In order to be recognized as a trustworthy company, Intercell fosters a culture where associates are expected to behave ethically and lawfully. We are convinced that a company can be commercially successful and ethically responsible at the same time.

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¦ ¦ 01 ¦ ¦ i n t e r c e l l ’ s M a n a g e m e n t B o a r d

The Intercell Management Board has the vision of building a world-leading vaccine company. Intercell’s Management possesses broad vaccine expertise and operational experience in establishing a successful biotech company. The Management is committed to achieving the Company’s corporate objectives and providing sustainable value for shareholders.

In 2009, Intercell’s Supervisory Board confirmed the existing Management Board members Gerd Zettlmeissl as CEO and Thomas Lingelbach as COO for the next three years. Reinhard Kandera, CFO since March 2009, was appointed for a term of three years as a new member of Intercell’s Management Board.

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Gerd Zettlmeissl — Chief Executive Officer Gerd Zettlmeissl joined Intercell in 2001 as COO and has served as CEO since 2005. Gerd Zettlmeissl’s scientific background, as well as his professional years with Behringwerke AG and Chiron Corporation, have led to his wide development and commercial experience in the vaccine and biotech industry.

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Thomas Lingelbach — Chief Operating Officer Thomas Lingelbach joined Intercell in 2006, serving as COO. From his international pharma and vaccine management experience and his long career at Chiron Vaccines (now Novartis Vaccines), he has gained broad knowledge and expertise in the field of industrialization and commercialization of vaccines. He is Managing Director of Intercell Biomedical Ltd. and President and CEO of Intercell USA, Inc.

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Reinhard Kandera — Chief Financial Officer Reinhard Kandera joined Intercell in 2001 and was appointed as CFO in March 2009. Since joining Intercell, he has held various important positions within the finance area, including Head of Finance and Controlling, Global Head of Investor Relations and, most recently, CFO of Intercell USA, Inc. Before joining Intercell, he was employed in the corporate and investment banking division of Deutsche Bank AG.

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Alexander von Gabain — Chief Scientific Officer Alexander von Gabain served as CSO from 2005 to 2009. With effect of November 9, 2009, he decided to transition from his Management Board role into a less operational one. In his new role, he is strongly involved in key research and development topics and contributes to the Company by leveraging his excellent network in the arena of academia, biotech, and the pharmaceutical industry.

He is a co-founder of Intercell and served as CEO from 1998 to 2005. His academic career moved him through renowned institutions such as Stanford University and the Karolinska Institutet. Today, he holds a professorship at the University of Vienna, and a foreign adjunct professorship at the Karolinska Institutet.

He is a member of the WHO Committee “Stop Tuberculosis” and member of the Governing Board of the European Institute of Innovation and Technology. In 2009, he was elected Foreign Member of the Royal Swedish Academy.

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¦ ¦ 01 ¦ ¦ I n t e r n a t i o n a l E x p e r t i s e

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Supervisory Board With expertise in the field of vaccine development combined with finance and capital market know-how obtained through distinguished careers, Intercell’s Supervisory Board provides advice related to corporate strategic developments. The Supervisory Board oversees the risk inherent in different activities, the structure and the internal risk management and control systems, the financial reporting process, and Intercell’s compliance with relevant legislation and regulations. Also, the Supervisory Board monitors management on a regular basis throughout the year and is involved in decisions of major importance.

• Michel Gréco — Chairperson • Ernst Günter Afting — Vice Chairperson • Mustapha Leavenworth Bakali • David Ebsworth • James Sulat • Hans Wigzell

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Scientific Advisory Board Intercell’s Scientific Advisory Board is composed of renowned international scientists with expertise and worldwide networks in the fields of infectious diseases, microbiology, immunology, and molecular biology.

The Scientific Advisory Board assesses the progress of research and development activities.

• Alexander von Gabain – Chairperson • Rafi Ahmed • Hubert E. Blum • Stanley N. Cohen • Franz X. Heinz • Stefan H. E. Kaufmann • Staffan Normark • Hans Wigzell

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¦ ¦ 01 ¦ ¦ C o r p o r a t e G o v e r n a n c e R e p o r t

The members of the Intercell AG Supervisory Board and the Management Board are committed to managing the Company’s business operations transparently, according to high ethical standards and focused on long-term value creation. We believe that good corporate governance has been the basis for the trust that we have gained from our investors, from institutions, and from our employees and that it will continue to strengthen this confidence in the future.

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AUSTRIAN CODE OF CORPORATE GOVERNANCE In September of 2004, the Management and Supervisory Boards passed a Declaration of Compliance with the Austrian Code of Corporate Governance, which was issued by the Austrian Working Committee for Corporate Governance in September of 2002 and was updated several times since. The Code in its current version can be viewed at www.corporate-governance.at.

The Austrian Code of Corporate Governance sets standards of good corporate management that are common in international business practice and reflect the corporate governance recommendations of the European Commission. The Code includes mandatory rules and requirements, some of which can be found under relevant Austrian law, a set of comply-or-explain rules which are mandatory unless the relevant rules and reasons for non-compliance have been disclosed, and recommendations for which non-compliance does not have to be disclosed and explained.

Intercell AG complies with the Austrian Code of Corporate Governance with the following explicit limitations: •

The Company has an established internal audit function, but because of the size of the Company, this is not a separate staff unit for internal auditing nor has this function been outsourced in accordance with Section 18 of the Code.

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The Company’s Supervisory Board divided the Nomination, Compensation and Corporate Governance Committee into two committees in December 2008. The Chairman of the Supervisory Board is the chairperson of the Nomination and Corporate Governance Committee; the Vice Chairman of the Supervisory Board is the chairperson of the separate Compensation Committee in deviation from Section 43 of the Code. Our Vice Chairman of the Supervisory Board, Prof. Ernst Günter Afting, served as Chairman of the Board for many years and has remained the chairperson of the committee for compensation issues for purposes of continuity.

In some respects, the corporate governance principles of Intercell AG go even beyond the recommendations of the Code.

Intercell . annual report . 2009

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o r g a n i z at i o n o f g o v e r n i n g b o d i e s Management Board As required by the Austrian Stock Corporation Act, we have a two-tier board system consisting of a Management Board and a Supervisory Board. The two boards are separate, and no individual may serve on both boards simultaneously.

Intercell’s Management Board is responsible for managing the Company’s day-to-day business and represents the Company in our dealings with third parties. The members of the Management Board are appointed by Intercell’s Supervisory Board for renewable terms of up to five years. The Management Board passes its resolutions by a simple majority vote. In the event of a voting deadlock, the chairperson casts the deciding vote.

Our Management Board currently consists of three members, previously four members: Name

Dr. Gerd Zettlmeissl, Chief Executive Officer and Chairperson of the Management Board Thomas Lingelbach, Chief Operating Officer DDr. Reinhard Kandera, Chief Financial Officer

Year of birth

First appointment

End of term

1955

October 2001

October 2012

1963 1969

October 2007 November 2009

October 2012 October 2012

The following persons also served on our Management Board during the fiscal year 2009: Name

Year of birth

Prof. Alexander von Gabain, Chief Scientific Officer Dr. Werner Lanthaler, Chief Financial Officer

1950 1968

First appointment

End of term

January 1998 November 2009 September 2001 March 2009

Dr. Gerd Zettlmeissl is a member of the Supervisory Board of Helmholtz Zentrum für Infektionsforschung GmbH, a public research institute in Braunschweig, Germany, and Vice Chairman of the Supervisory Board of the Karl Landsteiner Jubiliäums-Stiftung, gemeinnützige Privatstiftung in Abwicklung, an Austrian private foundation that is currently in liquidation.

Thomas Lingelbach does not hold any board seats or directorships outside the Intercell Group.

DDr. Reinhard Kandera has been serving as the Company’s Chief Financial Officer since March 6, 2009.

DDr. Kandera serves as a member of the Supervisory Board of the Karl Landsteiner Jubiliäums-Stiftung, gemeinnützige Privatstiftung in Abwicklung, an Austrian private foundation that is currently in liquidation.

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Prof. Alexander von Gabain, co-founder of the Company and its former Chief Executive Officer, stepped down from his position on the Board as Chief Scientific Officer in November 2009 and remains closely involved with the Company as Strategic Advisor to the Management Board and the Supervisory Board and as an employee of the Company. Prof. von Gabain serves on the Supervisory Board of INiTs, an entrepreneurial support organization of the Viennese universities for start-up businesses. He has been appointed to the founding Governing Board of the European Institute of Innovation and Technology (EIT).

He serves as scientific advisor to TVM Capital in Munich, Germany, and is also a member of the WHO Committee “Stop Tuberculosis”.

Dr. Werner Lanthaler stepped down from his position on the Company’s Board in March 2009.

Dr. Lanthaler has been a member of the Board of Directors of BioXell S.p.A. and currently serves as CEO of Evotec AG.

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Supervisory Board Our Supervisory Board oversees and advises our Management Board and is responsible for the appointment and discharge of members of our Management Board. Our Management Board reports regularly to the Supervisory Board on our business activities. In addition, it must obtain prior approval from our Supervisory Board for certain types of transactions, such as for transactions between the Company and members of its Management Board.

The members of our Supervisory Board are elected and may be revoked by the General Meeting of Shareholders.

Our Supervisory Board currently has six members. All Supervisory Board members are independent according to corporate governance rules. In addition, each of the Supervisory Board members has less than 10% participation in the Company and thereby meets the criteria of Section 54 of the Code. Unless otherwise provided by law, our Supervisory Board passes resolutions by a simple majority vote, with the chairperson casting the deciding vote in case of a voting deadlock. The Supervisory Board met four times during the past year.

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Our Supervisory Board has formed three committees: •

an Audit Committee, which is responsible for monitoring the financial reporting process, monitoring the effectiveness of our internal control system, our internal audit and our risk management system, reviewing and monitoring the independence of the auditor, reviewing our annual financial statements in preparation of our Supervisory Board’s approval of our financial statements and reviewing our interim financial statements and our consolidated annual financial statements. The committee chairperson, James Sulat, is a financial expert as defined by the Austrian Stock Corporation Act and pursuant to Section 40 of the Code. The Audit Committee met four times during the past year and

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held various telephone conferences. Accounting and auditing processes, internal control and proper risk management processes, budget, as well as tax and investment considerations were topics at these meetings. In addition, the Audit Committee discussed the quarterly financial reports and audit reviews prior to their publication and prepared the acknowledgement of the annual financial report by the Supervisory Board.

•

a Compensation Committee, which is responsible for reviewing management performance, particularly in regards to Management Board compensation. The Compensation Committee had two meetings during the past year, the subjects of which were management goals and variable compensation elements.

•

a Nomination and Corporate Governance Committee, which is responsible for succession planning and corporate governance issues, including the monitoring of the compliance of the activities of the members of our Management Board and Supervisory Board. The Nomination and Corporate Governance Committee met three times during the past year and discussed the changes to the Management Board, general corporate governance matters and various aspects of our corporate compliance program, as well as updates to the Committee charters and the Management Board and Supervisory Board by-laws.

The work of the Strategy Committee, which was set up as a “task force” for reviewing and preparing important strategic decisions together with the Management Board, has been carried out by the entire Supervisory Board. During 2009, the Supervisory Board and the Management Board held one meeting dedicated to strategy issues, which mainly focused on business plans and key milestones.

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The following persons are members of the Supervisory Board:

Name

Michel Gréco (Chairman) Prof. Ernst Günter Afting (Vice Chairman) Dr. David Ebsworth James Sulat Mustapha Leavenworth Bakali Prof. Hans Wigzell

Member of

Year of birth

First election

End of term*

Committee**, ***

1943 1942 1954 1950 1961 1938

July 2003 February 1999 November 2003 September 2004 May 2006 May 2006

2013 2013 2013 2013 2013 2012

C, N*** C***, N A, C A***, N A N

* End of General Meeting of Shareholders in the respective year ** A… Audit Committee, N… Nomination and Corporate Governance Committee, C…Compensation Committee *** Indicates Chairperson of the Committee

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Michel Gréco is currently active as a member of the Board of Directors of Argos Therapeutics, Inc., Immutep S.A., Vivalis S.A., Texcell S.A. and Noraker SAS and as Chairman of the Board of Directors of Glycovaxyn AG. He is also currently Chairman of the Board of the Hospital St. Joseph St. Luc, Lyon, France, and a Board member of the Global Tuberculosis Vaccines Foundation and of the International Aids Vaccines Initiative.

Prof. Ernst Günter Afting is an industrial advisor to venture capital firms and a Supervisory Board member of several biotech companies in Europe and the USA. Prof. Afting is currently active as Chairman of the Supervisory Board of Biovertis AG and as a member of the Supervisory Boards of BiomedCredit AG, Enanta Pharmaceuticals, Inc., Olympus Europa Holding GmbH, Sequenom, Inc., and Suppremol GmbH. Dr. David Ebsworth is a consultant to the industry and is also currently active as Chairman of the Board of Wilex AG and as a member of the Board of Renovo Plc. In September 2009, he was appointed a member of the Corporate Executive Committee of Galencia Ltd. and CEO of Vifor Pharma Ltd. James Sulat is presently active as CEO, CFO and a member of the Board of Directors of Maxygen, Inc., as well as Chairman of the Board of Directors of Momenta Pharmaceuticals Inc. Mustapha Leavenworth Bakali is currently active as a member of the Supervisory Board of Osisko Mining Corporation and a member of the Advisory Board of LeapFrog Investments. In February 2009, he was appointed President and CEO of Genocea Biosciences.

Prof. Hans Wigzell is Chairman of the Board of the Karolinska Development AB and a member of the Supervisory Boards of Raysearch AB, Biovitrum AB, Epixis SA, HuMabs LLC, Probi AB, and Neodynamics AB. Prof. Wigzell also serves on the Company’s Scientific Advisory Board.

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General Meeting of Shareholders Each shareholder has the right to attend any General Meeting of Shareholders in order to ask questions and propose resolutions in connection with any matter on the agenda that is provided at the time the meeting is announced, and to vote upon any resolution proposed. In 2009 this was the case, provided that the shareholder had duly deposited his or her shares at a designated depositary institution. Each shareholder is entitled to one vote per share. Shareholders may be represented at any General Meeting of Shareholders by a holder of written proxy. Our Management Board, Supervisory Board, or any shareholder holding at least 5% of our nominal share capital may call a General Meeting of Shareholders.

Shareholders holding at least 5% of our nominal share capital may also require items to be included in the agenda of the General Meeting of Shareholders. Notice of a General Meeting of Shareholders (including the meeting’s agenda) is published in the Official Viennese Gazette and on the Company’s website.

Intercell . annual report . 2009

16

¦ ¦ 01 ¦ ¦ Corporate Governance Report

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D i r e c t o r C o m p e n s at i o n The remuneration for the members of our Management Board is stipulated in their respective employment contracts. The table below sets forth the total compensation paid or accrued for the fiscal year ended December 31, 2009:

in EUR

Base salary

Dr. Gerd Zettlmeissl Thomas Lingelbach DDr. Reinhard Kandera1 Prof. Alexander von Gabain2 Dr. Werner Lanthaler3

Bonus

360,000 288,571 51,429 235,714 63,377 999,092

220,000 220,000 160,000 190,000 - 790,000

Other benefits

Total

Stock options granted

number

Fair value*

23,711 603,711 28,734 537,305 2,133 213,561 25,131 450,845 9,673 73,050 89,382 1,878,473

100,000 90,000 65,000 - - 255,000

499,750 449,775 324,838 1,274,363

* fair value at grant date of options granted in 2009 Base salary and other benefits for first two months since appointment Base salary and other benefits until November 2009 3 Base salary and other benefits until March 2009 1 2

The bonus is contingent on the achievement of predefined financial and individual performance goals.

Share options which have been granted to the members of the Management Board become exercisable in four portions after the annual General Shareholders’ meeting in the second, third, fourth and fifth year after being granted (the vesting period). Special options packages offered as special incentives may become exercisable after three years. All options expire no later than five years after grant. Options are not transferable or negotiable, and unvested options lapse, without compensation, upon termination of employment with the Company (cancellation). The Company has no legal or constructive obligation to repurchase or settle the options in cash. Options granted from 2008 onwards become exercisable with the effectiveness of the takeover of more than 50% of the outstanding voting rights of the Company.

In addition, Thomas Lingelbach is entitled to an additional bonus representing 75,000 so-called performance units, where one performance unit corresponds to the value of one hypothetical share in the Company’s share capital after a certain vesting period staggered over a total of five years.

Intercell has no retirement plan for the Management Board, but the Company does make contributions to a pension insurance fund with a fixed amount of EUR 1,000 per month for each member of the Management Board. The Company has entered into a contractual arrangement with the members of the Management Board entitling them to a one-off payment under certain conditions in case their contracts are not renewed for reasons that are solely due to the Company.

Intercell . annual report . 2009

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¦ ¦ 01 ¦ ¦ Corporate Governance Report

The Company maintains directors’ and officers’ liability insurance.

The remuneration of the members of our Supervisory Board is determined by resolution of the General Meeting of Shareholders. In addition, the members of our Supervisory Board are reimbursed for their outof-pocket expenses. For the financial year 2009, we expect remuneration for the members of our Supervisory Board, which will be awarded by our annual General Meeting of Shareholders, to amount to EUR 50,000 for the chairperson, EUR 40,000 for the vice chairperson, and EUR 30,000 each for all other members. For their respective committee work, we expect remuneration for the members of our Supervisory Board to be awarded by our General Meeting of Shareholders in the amount of EUR 6,000 for a committee chairperson and EUR 4,000 for a committee member. For his position on the Company’s Scientific Advisory Board, Prof. Hans Wigzell additionally received a remuneration of EUR 60,650 in 2009, see notes to the consolidated financial statements (note 30).

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S t o c k O p t i o n s a n d D i r e c t o r Pa r t i c i pat i o n The following table sets forth the number of stock options and shares privately held by members of our Management and Supervisory Boards as of December 31, 2009. For details on our stock option plans, see note 20 to our consolidated financial statements.

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Number of shares held

Members of the Management Board Dr. Gerd Zettlmeissl 250,747 Thomas Lingelbach - DDr. Reinhard Kandera 23,000

Members of the Supervisory Board Michel Gréco - Prof. Ernst Günter Afting 11,175 Dr. David Ebsworth 12,945 James Sulat - Mustapha Leavenworth Bakali - Prof. Hans Wigzell -

Intercell . annual report . 2009

Number of options held

Total

475,000 350,000 187,000

725,747 350,000 210,000

41,250 41,250 35,000 37,500 40,000 35,000

41,250 52,425 47,945 37,500 40,000 35,000

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¦ ¦ 01 ¦ ¦ Corporate Governance Report

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C o r p o r at e S o c i a l R e s p o n s i b i l i t y The development of vaccines and antibodies against infectious diseases is not only an attractive business opportunity, but also a contribution to society that provides significant value beyond commercial standards. Corporate Social Responsibility at Intercell is anchored at the Management Board level.

Ethical responsibility is leading Intercell to engage e.g. in the development of vaccines for Tuberculosis, Pneumococcal infections, Travelers’ Diarrhea, and Japanese Encephalitis in endemic countries. Special collaborations are set up with PATH (an international organization that improves the health of people around the world) and the Aeras Global Tuberculosis Vaccine Foundation, to ensure future availability and accessibility of possible vaccines in the developing world.

The more successful we are in discovering, developing, and manufacturing new vaccines, the greater the benefits we can offer to patients, partners, shareholders, and other stakeholders. We offer novel vaccine and antibody candidates that address unmet medical needs.

In order to be recognized as an innovative and trustworthy company, Intercell fosters a culture where associates are expected to behave ethically and lawfully. Intercell’s core corporate values can be characterized by goal orientation at all levels of the company, trust in our management and in each other as individuals and teams, and a sincere dedication to innovation in order to overcome unmet medical needs.

Vienna, March 4, 2010

The Management Board:

Gerd Zettlmeissl, CEO

THOMAS LINGELBACH, CoO

Reinhard Kandera, CFO

Intercell . annual report . 2009

¦ ¦ 01 ¦ ¦ C o m p a n y

This is not an eye … … instead it’s a symbol for aspirations of foresight. Intercell has been visionary from the get-go, and its Boards not only can look back on many years of experience, they also plan far into the future. For instance, Intercell’s broad-based product pipeline should keep many options open to the Company in the coming years. And, purely coincidentally, this symbol also has the shape of an Intercell Vaccine Patch.

So now you can slowly get to know it …

Intercell . annual report . 2009

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¦ ¦ 01 ¦ ¦ S u s t a i n a bi l i t y a t I n t e r c e l l AG

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I n t e r c e l l’ s u n d e r s ta n d i n g o f s u s ta i n a b i l i t y Sustainability at Intercell is anchored at the Management Board level. By developing innovative vaccines, Intercell makes an active contribution to people’s health. We feel committed – both in our behavior and our activities – to society, our stakeholders and the environment. Our philosophy and our actions are strongly guided by our core values on which we base innovation. This understanding is also reflected in our economic goals, our ecological commitment, and in our social accountability.

We believe that economic success is linked to achieving ecological and social goals. This requires longterm thinking and decision-making. Lasting continuity in both thought and action is an important requirement in the complex and time-intensive process of developing vaccines.

Our core business activities do not entail any fundamental encroachment upon natural resources.

However, to the extent that we use resources and energy and create waste, Intercell believes in implementing measures for environmental protection in the areas of waste and energy management.

The social competency of Intercell is underlined by its clear mission to prevent and treat infectious diseases. This includes the creation and preservation of jobs.

Intercell is committed to keep and improve the Company as an outstanding place to work, and to secure the highest level of personal respect, as well as personal, team and corporate motivation.

Intercell also believes that the Company is more than just an employer – we believe that we are an integral part and a contributing entity to the places in which we live and work. As such, giving back to the society is at the very center of our mission.

Intercell’s relations with its employees focus on mutual respect and a true sense for human dignity.

Respect enables us to work successfully in different cultures and with different people at our three sites and across the globe. At Intercell we attach importance to an atmosphere of esteem, fairness and recognition.

As a global corporation Intercell has the opportunity and responsibility to look beyond the daily business activities and investigate how our capabilities and resources can contribute to support significant and lasting change.

Intercell . annual report . 2009

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¦ ¦ 01 ¦ ¦ Sustainability at Intercell AG

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S u s ta i n a b i l i t y a n d C o r p o r at e S o c i a l R e s p o n s i b i l i t y ( CSR ) – H i g h l i g h t s 2 0 0 9 • Intercell started a strategic sustainability process in 2009 • Intercell is listed as a member of the VÖNIX – Austrian Sustainability Index www.voenix.at • Intercell decided to bundle its social sponsoring and selected a healthcare project in Nepal “Improving the Health Care System in Nepal” www.ecohimal.org

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E n e r g y I n i t i at i v e s i n 2 0 0 9 At present we are investigating energy consumption patterns and identifying main consumers in our Company. We have initiated activities to cut overall energy consumption by 5 to 10% compared to 2009 within the next three years.

• Free-cooling HVAC (Heating, Ventilating and Air Conditioning) systems • Heat compensation by SCADA (Supervisory Control and Data Acquisition) system • Automated shading system • Heavy-duty thermal insulation with fabric-reinforced plaster façade A budget of EUR 20,000 has been allocated to energy saving projects within the next two years.

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Human Resources – Highlights 2009 Intercell aspires to create and sustain an inclusive culture in which diverse backgrounds, ideas, experiences, and perspectives are respected and valued.

In 2006, Intercell AG was officially recognized as Investors in People for its continuous commitment to the development of its employees throughout the entire organization. The Investors in People is a standard providing a proven framework that helps organizations advance its performance through its people.

The Investors in People standard is based on three key principles: • Plan – Developing strategies to improve the performance of the organization • Do – Taking action to improve the performance of the organization • Review – Evaluating the impact on the performance of the organization

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Sponsoring – Highlights 2009 In 2009, Intercell initiated the plan to support one three-year project of social sponsorship.

In addition to our social sponsoring endeavors, we also support scientific projects such as conferences.

As a global corporation, Intercell has the opportunity and responsibility to look beyond the daily business activities and consider how our capabilities and resources can contribute to support significant and lasting change. Intercell supports the non-profit organization EcoHimal in its efforts to establish a healthcare system in Nepal. Nepal faces major healthcare problems especially in rural areas, where diarrheal diseases, HIV/Aids, Pneumonia and Japanese Encephalitis are among the major causes of illness and death.

Intercell . annual report . 2009

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¦ ¦ 01 ¦ ¦ Sustainability at Intercell AG

Furthermore, the program aims to raise awareness for healthcare among the people of Nepal in order to positively influence their health-seeking behavior. The project is organized by EcoHimal and supported by the Austrian government.

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C o m m u n i c at i o n w i t h s ta k e h o l d e r s – L i s t e n & Ta l k Transparency and a continuous dialogue with all stakeholders are among Intercell’s major goals.

By actively exchanging information we want to make our actions comprehensible. We are convinced that transparency creates reliability – both internally and externally.

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I n t e r n at i o n a l S e m m e r i n g Va c c i n e S y m p o s i a Since 2003, Intercell supports the International Semmering Vaccine Symposia, bringing together world leading scientists, top class vaccine developers, and renowned experts from the financial and pharmaceutical arena. In the meantime, the Semmering Vaccine Symposia have become a very important and internationally recognized platform. The symposia have been organized by Vienna Vaccines, a non-profit organization devoted to building vaccine networks.

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S h a r e h o l d e r D ay – O p e n H o u s e On the Shareholder Day, local shareholders are invited to visit “their” company. With a business as well as a scientific update the Management Board informs the audience about the Company’s recent development. After the presentations, shareholders are offered the opportunity to meet the members of the Management Board.

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E-mail Inquiries It is our goal to reply to all inquiries within one working day – communications@intercell.com.

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I n v e s t o r R e l at i o n s In addition to the obligatory investor relations’ activities, Intercell’s Management attaches high priority to providing transparency and timely information to investors and shareholders. In 2009, Intercell’s Management Team presented the Company at about 20 global investor conferences and road shows, at our Research and Development Day in New York, several healthcare conferences, as well as numerous one-on-one meetings with individual and institutional investors.

Intercell . annual report . 2009

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¦ ¦ 01 ¦ ¦ I n t e r c e l l ’ s v a c c i n e p a t c h

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N e e d l e - f r e e va c c i n e pat c h t e c h n o l o g y: d i s c o v e r i n g n e w way s t o va c c i n at e Intercell has developed a new method for delivering vaccines via a needle-free skin patch. This vaccine patch technology is in development to prevent and treat common infectious diseases that affect tens of millions of people worldwide.

In the first instance, Intercell is applying its patch technology as a protection against Travelers’ Diarrhea and also as an adjuvant in combination with an injectable Pandemic Influenza vaccination. The Company and its partner GlaxoSmithKline further expect to use the patch technology to develop a number of new vaccine delivery applications. Studies to date are suggesting that Intercell’s investigational Vaccine Patch and Vaccine Enhancement (VE) Patch (boosting the effect of the vaccine) are safe and efficacious.

In the long run, the ease of administration and the potential room-temperature stability of Intercell’s patch are expected to also increase accessibility to vaccines among the world’s poorest populations.

“A major challenge facing our industry is identifying ways to improve healthcare in both developed and developing nations. The patch technology program is among our initiatives aspiring to bring innovation to all countries,” said Gerd Zettlmeissl, CEO of Intercell. “We also face the challenge of overcoming concerns about injected vaccines. Other companies have attempted to address these concerns through development of oral and nasal vaccines - with limited success. We believe our patch technology can meet these challenges and be an important stimulus for future improvements.”

Intercell’s patch technology works by leveraging the skin’s own natural and efficient immune response mechanism, bypassing the need for systemic administration of antigens. When the Vaccine Patch is applied to the skin, the antigen is delivered at the skin’s surface to localized Langerhans cells, which are sentinels that serve the body as a first line of defense against invading pathogens. These sentinels are able to capture pathogens as they enter the skin and are converted into antigen-presenting cells (APCs) that are carried to regional draining lymph nodes. The APCs are recognized by the immune system, triggering a robust immune response.

Intercell’s investigational Travelers’ Diarrhea Vaccine Patch contains the heat-labile enterotoxin (LT) from E. coli, a potent stimulator of the immune system.

Intercell’s investigational Travelers’ Diarrhea Vaccine Patch is currently in late-stage development.

In October 2009, the Company launched a pivotal Phase III randomized, placebo-controlled trial for the prevention of Travelers’ Diarrhea in 1,800 volunteers traveling from Europe to Mexico or Guatemala.

Intercell . annual report . 2009

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¦ ¦ 01 ¦ ¦ Needle-free Vaccine Patch Technology: Discovering new ways to vaccinate

A Phase II placebo-controlled trial was launched in January 2010 for 800 volunteers traveling from Europe to India, testing the patch’s protection against the disease. The two studies are evaluating the patch’s ability to actively immunize against moderate to severe Diarrhea caused by enterotoxigenic E. coli (ETEC) in real-world field settings.

Annually, approximately 20 million of nearly 55 million international travelers develop diarrheal disease while visiting developing countries, primarily Africa, Asia, and Latin America. The infection is associated with significant morbidity for both travelers and local populations in areas where fecal contamination of food and water is common. Travelers’ Diarrhea generally persists for four to five days and is associated with nausea, vomiting, abdominal cramps, prostration, and dehydration. ETEC is also implicated in new onsets of post-infectious irritable bowel syndrome, which affects 10% to 20% of people who develop Travelers’ Diarrhea. Among people residing in countries where ETEC is endemic, TD sickens 210 million children each year, killing more than 350,000 of them annually.

The investigational VE Patch under study for Pandemic Influenza employs LT to boost the effectiveness of the injectable vaccine and to potentially minimize the individual dose or number of shots needed for immunogenicity.

Intercell anticipates that results of their Phase II study of the VE Patch for Pandemic Influenza will be available in Q2 2010. The clinical trial of 500 subjects investigated the VE Patch in combination with an injectable H5N1 Pandemic Influenza vaccine with the aim of a single application. The LT is used as an adjuvant in the Pandemic Influenza VE Patch. The study, which is part of Intercell’s overall Pan Flu program, is fully funded by the U.S. Department of Health and Human Services (HHS). The Company believes that the VE Patch may improve the efficacy of numerous vaccines already approved or in development where increased immunogenicity, decreased antigen doses or fewer immunizations are desired.

In December 2009, Intercell and GlaxoSmithKline announced the formation of a strategic alliance to accelerate the development and commercialization of needle-free, patch-based vaccines. The agreement includes Intercell’s candidate vaccine for Travelers’ Diarrhea, an investigational single-application Pandemic Influenza vaccine, and the use of the patch technology for other vaccines in GlaxoSmithKline’s portfolio.

Thomas Lingelbach, COO of Intercell, said the patch technology is expected to unlock significant market opportunities for the Company.

“Our vision is to further develop this technology so that new and existing vaccines may be delivered effectively and safely through the skin,” said Lingelbach. “The extent to which it can be leveraged has yet to be proven but we see a huge potential.” (Tim Friend, Medical Writer at WCG Group)

Intercell . annual report . 2009

¦ ¦ 02 ¦ ¦ G r o u p m a n a g e m e n t R e p o r t

This is not an exotic fish … … instead it’s a little reminder of our Vaccine Patch, which coincidentally has the exact same shape as the Pacific Archetypus Rocherus. By the way, there are also lots of viruses and bacteria infecting human beings in Asia, for example those causing Japanese Encephalitis (Intercell sells a vaccine against this disease), Traveler’s Diarrhea or Hepatitis C (the Intercell product pipeline includes investigational vaccines protecting against both diseases). But in addition to these specific diseases, the focus will also be on hospital-borne infections in the coming years …

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ P r o d u c t s

Intercell is a biotech company focused on the research, development, manufacturing, and commercialization of innovative vaccine products against a variety of infectious diseases with substantial unmet medical need. We are among the largest stand-alone vaccine companies in the world, balancing innovation and commercial success.

We believe we are a global player in the creation of innovative vaccines and antibodies against infectious diseases based on our Antigen Identification Program (AIP®), our novel B- and T-cell adjuvant IC31®, and our needle-free, patch-based vaccine and VE Patch.

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First product on the market In 2009, Intercell’s first product, the vaccine to prevent Japanese Encephalitis, was approved in the U.S., Europe, Australia, and Canada. The approval of IXIARO®/JESPECT® marks a crucial milestone in Intercell’s evolution as one of the leading independent vaccine development companies with a product on the market.

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N e w pa r t n e r t o d e v e l o p & c o m m e r c i a l i z e t h e va c c i n e pat c h We have partnerships with global players in the vaccine industry, such as GlaxoSmithKline, Merck & Co., Novartis, Pfizer (formerly Wyeth), and sanofi-aventis.

In 2009, Intercell successfully progressed its R&D programs and entered into strategic partnership with GlaxoSmithKline to accelerate the development and commercialization of needle-free, patch-based vaccines. Included in the agreement are Intercell’s investigational Travelers’ Diarrhea (TD) vaccine, currently in Phase III, and an investigational single application Pandemic Influenza vaccine in Phase II as well as other future potential patch vaccines.

Intercell has created, and is advancing, a broad pipeline of innovative vaccine candidates that we are exploring to address unmet medical needs on a global scale. With one marketed product and a number of therapeutic and prophylactic vaccine candidates in clinical, and others in pre-clinical development, Intercell’s pipeline provides various value creation opportunities. We believe focused pipeline expansions drive the value for our shareholders. By focusing our internal work on vetted targets, the Company is making insightful investments in its platform technology.

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ Products

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I n t e r c e l l’ s w e l l - b a l a n c e d p r o d u c t p i p e l i n e

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Vaccine on the market

Product Candidate

Vaccine Type

Japanese Encephalitis Prophylactic vaccine

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Status/Phase

Expected Milestones

Strategic Partner

Approved U.S., Australia, Europe, Canada/ Phase IV

Country approvals in Novartis / CSL / various territories Biological E. Expansion of label (children)

Vaccines in clinical phases

Product Candidate

Vaccine Type

Status/Phase

Travelers’ Diarrhea Vaccine Patch

Prophylactic/ III Vaccine Patch

Expected Milestones

Strategic Partner

First efficacy data end 2010 / early 2011

GlaxoSmithKline

S. aureus vaccine Prophylactic

II/III First efficacy data 2010 (adaptive design) Progression into Phase III

Merck & Co.

Pseudomonas vaccine

II

Phase II data in Q3 2010

in-house

Hepatitis C Virus vaccine Therapeutic II

Define combination/ alliance

to be determined

Pandemic Influenza Vaccine Patch

Start of further clinical trials

GlaxoSmithKline/ HHS

First Phase I data early 2010

in-house / PATH

Prophylactic

Prophylactic/ II Vaccine Patch

Pneumococcus vaccine Prophylactic I

Tuberculosis vaccine Prophylactic I Phase II start end 2010

Statens Serum Institut/ sanofi-aventis

IC31® Seasonal Influenza Prophylactic I vaccine

Novartis

Further Phase I and/ or Phase II

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ Products

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I XIARO ® / J ESPECT ® - Va c c i n e t o p r e v e n t J a pa n e s e E n c e p h a l i t i s Japanese Encephalitis (JE) is a deadly infectious disease found mainly in Asia. Approximately 30,000 to 50,000 cases of JE are reported in Asia each year, and the actual number of cases are presumably much higher due to underreporting in rural areas. JE is fatal in approximately 30% of those who show symptoms and leaves half of the survivors with permanent damages. As there is no specific treatment for JE, vaccination is the only effective protection for the millions of travelers and military personnel who live in, or travel to, areas where the virus circulates.

Intercell’s JE vaccine is a purified, inactivated vaccine for active immunization against the Japanese Encephalitis virus. The vaccine virus is additionally attenuated. It is produced using tissue culture rather than live organisms and does not contain gelatin, any other stabilizer, or any preservatives in its formulation.

In 2009, Intercell’s prophylactic vaccine against JE was approved in the U.S., Europe and Canada (IXIARO®) as well as in Australia (JESPECT®). The vaccine offers protection against JE for adults who travel to, or live in, endemic areas. In the U.S. the vaccine is licensed for those above 17 years of age, and in Europe, Canada, and Australia it is licensed for those above 18 years of age. Additionally, Intercell has initiated a regulatory licensure process in other small territories where there is an attractive market segment for this product.

Intercell’s novel JE vaccine is manufactured in-house at Intercell Biomedical Ltd., Scotland. The site operates under a manufacturing license from the MHRA (Medicines and Healthcare products Regulatory Authority), which was successfully obtained in 2008.

Novartis markets and distributes Intercell’s JE vaccine under the trade name IXIARO® in the U.S., Canada, and Europe and holds commercialization rights for Japan, Korea, and certain defined markets in Latin America and Asia. CSL Biotherapies is Intercell’s marketing and distribution partner in Australia, New Zealand, Papua New Guinea, and the Pacific Islands, where the product is marketed as JESPECT®.

Biological E. Ltd. will manufacture a distinct product designated for defined markets in Asia and other WHO territories, based on Intercell’s technology. Following successful licensure, Biological E. will market the product in India, Bhutan, Nepal, and Bangladesh.

At the end of June, Intercell announced that the U.S. Centers for Disease Control and Prevention (CDC) Advisory Committee on Immunization Practices (ACIP) voted to update and strengthen its previous recommendations and include IXIARO®. In addition, the committee’s expanded recommendations stated that clinicians should consider vaccinating travelers visiting endemic areas during the transmission season, even those on short-term visits if they plan to travel outside of an urban area and have an increased risk of JE exposure.

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ Products

The Company also successfully entered into a multi-year contract with the Defense Logistics Agency (DLA), the Defense Supply Center of the U.S. Department of Defense, to supply IXIARO®. The exclusive contract was signed in 2009, after IXIARO® was approved by the Food and Drug Administration on March 30, 2009. The major terms of this contract are: • Exclusive contract for Intercell to supply DLA with all their requirements for JE vaccine, • Five-year contract with annual options for price modifications.

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P e d i at r i c va c c i n e f o r t r av e l e r s a n d c h i l d r e n i n e n d e m i c a r e a s Following the approval and launch of Intercell’s vaccine against JE for adult travelers and military personnel in Europe, Canada, the USA, and Australia, the further development of the vaccine to protect children travelling to endemic areas from JE is an important goal of the Company.

At the end of 2009, Intercell initiated a pediatric Phase III study for IXIARO®/JESPECT® in children above 6 months of age travelling from the U.S., Europe, and Australia to JE-endemic areas. The multinational study, which includes 100 children, will be the first of two Phase III trials in support of the IXIARO®/JESPECT® label extension for pediatric licensure for children above 2 months of age. The study will investigate the safety and immunogenicity of the vaccine.

A second Phase III study will be conducted as a pivotal trial in an endemic region, namely, the Philippines and Malaysia. This multi-center, randomized and controlled study will include 1,859 children, of whom 1,401 will receive IXIARO®/JESPECT®. The study will evaluate the safety profile of the vaccine compared to HAVRIX®720 and Prevnar®. In addition, immunogenicity will be studied in a subgroup of children, and the vaccine dose for ages three to below 12 years will be confirmed.

The development program up to licensure for pediatric use of IXIARO®/JESPECT® has been agreed with the regulatory authorities. A Phase II study conducted in 2007, comprising children aged 1 to 3 years by Intercell’s partner Biological E., suggested that the vaccine has an immunogenicity and safety profile in young children comparable to that in adults, even if only half of the adult dose is administered.

Intercell is also working with its partner Biological E. of Hyderabad, India, to make a JE vaccine available in endemic regions. Intercell and Biological E. are planning to start a pivotal Phase III study for the investigational vaccine to protect children and adults from JE during 2010.

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ Products

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T r av e l e r s ’ D i a r r h e a Va c c i n e Pat c h Diarrhea caused by enterotoxigenic E. coli (ETEC) is a disease associated with significant morbidity in travelers to areas of the world where fecal contamination of food and water is common. Travelers’ Diarrhea (TD) is generally a 4-5 day illness with frequent loose stools, usually associated with nausea, vomiting, abdominal cramps, prostration, and dehydration. ETEC is also implicated in new onsets of post-infectious irritable bowel syndrome (IBS), which affects 10 to 20% of travelers who develop Travelers’ Diarrhea.

Intercell’s investigational vaccine against Travelers’ Diarrhea is easily administrated by a novel needle-free vaccine patch system. In October 2009, the vaccine candidate entered Phase III clinical development including 1,800 subjects travelling from Europe to Mexico and Guatemala. The study will evaluate the efficacy of the TD vaccine to actively immunize against moderate to severe ETEC disease in a field setting.

First results are expected at the end of 2010 or early 2011.

The late-stage TD vaccine candidate is based on a needle-free vaccine patch technology and is targeted to confer protection against the most prevalent causative agents of diarrheal diseases. Analysis of a Phase II field study with 170 travelers showed that the vaccine patch reduced the risk of moderate to severe ETEC by 75%. The positive results from the field study were published in The Lancet in June 2008. In addition, clinical testing has shown a strong immune response directed against ETEC bacteria.

In December 2009, Intercell and GlaxoSmithKline formed a strategic alliance that includes the marketing and distribution of the patch-based TD vaccine. Intercell intends to leverage the global commercialization strengths of GlaxoSmithKline to contribute to the prevention of the estimated 20 million cases of Travelers’ Diarrhea that occur annually.

In January 2010, Intercell announced the start of a Phase II study in travelers to India as part of the clinical development program for the investigational Travelers’ Diarrhea Vaccine Patch. The placebo controlled field study with vaccinated travelers from Europe to India will test the efficacy of the Intercell TD Vaccine Patch in another travel destination. The primary objective of this clinical trial is prevention of all moderate to severe diarrheal cases in which LT, LT/ST or ST toxins (ETEC) are detected. The trial will enroll approximately 800 travelers from the UK and Germany.

Positive results from this study could further support the expected product target profile.

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ Products

The TD Vaccine Patch is a combination of a patch containing the dry-formulated LT (heat-labile toxin from E. coli, the vaccine antigen) with a skin preparation system (SPS). The SPS disrupts the stratum corneum of the skin and prepares the skin for the antigen delivery. The antigen is dissolved from the patch by transepidermal water loss and diffuses into the skin. Activated Langerhans cells take the vaccine antigen to the draining lymph nodes where the immune response is initiated.

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Vaccine Enhancement Patch to improve Pandemic Influenza prevention through single application Three major Influenza pandemics occurred in the 20th century leading to the death of more than 50 million people globally. By U.S. government estimates, Pandemic Influenza has a greater potential to cause deaths and illnesses than virtually any other natural health threat.

Intercell believes that its investigational Vaccine Enhancement Patch (VE Patch), when applied in conjunction with an injectable vaccine, has the potential for the development of improved vaccine products.

Pre-clinical studies with different vaccines and Phase I clinical study results using the VE Patch in combination with an injectable H5N1 Influenza vaccine (single application), suggest that this strategy may be used for vaccines which are already approved or in development where improved immunogenicity, decreased antigen doses, or fewer immunizations are desired.

In May 2009, Intercell started a Phase II clinical trial with its VE Patch to improve prevention of H5N1 Pandemic Influenza. The H5N1 Pandemic Influenza vaccine tested in the study comprises Intercell’s VE Patch and an injectable H5N1 Influenza vaccine manufactured by Solvay Biologicals, B.V. (Netherlands).

The randomized and blinded study aims to determine the optimal dosage of both Intercell’s VE Patch and the H5N1 Influenza vaccine injected concomitantly, when combined with each other in a single dose regimen. The trial was conducted in the U.S. and enrolled 500 subjects at six study sites. The study is fully funded by the U.S. Department of Health and Human Services (HHS) and results are expected in Q2 2010.

In 2008, Intercell announced the results of a first clinical trial where the VE Patch was combined with an injectable H5N1 Influenza vaccine. The data revealed that a single 45-microgram dose of the H5N1 Influenza vaccine, when administered with the Intercell VE Patch containing 50-microgram LT adjuvant, was sufficient to provide an immune response seen to be protective in 73% of the vaccinees. This was a statistically significant improvement when compared to the subjects receiving the H5N1 Influenza vaccine alone. Thus, it met the level of protection suggested by the U.S. Food and Drug Administration guidance that a Pandemic Influenza vaccine needs to achieve immune response levels in at least 70% of the vaccine recipients in order to be considered protective.

Intercell . annual report . 2009

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This Pandemic Influenza Vaccine Patch is also part of the strategic alliance between Intercell and GlaxoSmithKline. Intercell and GlaxoSmithKline will join forces and aim to further develop this vaccination approach under the existing USD 128m funding contract with the United States Department of Health and Human Services (HHS; Contract n° HHSO100200700031C). Subject to HHS concurrence, Intercell will continue the further development towards regulatory approval with GlaxoSmithKline’s injectable pandemic Influenza vaccine.

Following successful regulatory approval, Intercell and GlaxoSmithKline will co-market this vaccine system.

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Nosocomial Infections Nosocomial infections are hospital-acquired infections caused by bacteria and are major causes of death and serious illness. Intercell has projects underway to contribute to new vaccines and antibody treatments in this field. With advanced prophylactic vaccine candidates targeting infections with Staphylococcus aureus (S. aureus) and Pseudomonas aeruginosa – Intercell and its partners hold a leading position in this industry sector.

In the United States and Europe, about 4 million patients receiving healthcare in hospitals are infected annually, resulting in approximately 200,000 deaths. Due to medical interventions and antibiotic resistance, the incidence of nosocomial infections is steadily increasing. In the developed world, hospital-acquired infections result in an annual cost burden of an estimated USD 20bn.

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S. aureus vaccine

S. aureus is the most frequent cause of hospital-acquired infections. In addition to bloodstream infections with a mortality rate of up to 35%, infections of the bone, heart and other internal organs lead to serious health complications, death and economic burden. Approximately half of all S. aureus strains isolated in hospitals worldwide are resistant to multiple antibiotics.

The prophylactic S. aureus vaccine candidate (V710) is based on a conserved protein antigen discovered by Intercell and licensed to Merck & Co. in 2004 on an exclusive worldwide basis. The ongoing Phase II/III trial conducted by Merck & Co. is designed to evaluate investigational vaccine efficacy/safety in patients undergoing cardiothoracic surgery. The double-blind, randomized, placebo-controlled trial follows an adaptive design and can be extended directly into Phase III after an interim analysis of the data. The study involves more than 90 centers in 18 countries, including the USA, Europe, South America, and Japan.

Study recruitment in this proof of concept trial of V710 is progressing. However, the first critical interim analysis (surpassing futility) has been delayed beyond 2009 due to slower than anticipated enrolment and accrual of S. aureus infections. The first interim analysis (surpassing futility) from the ongoing Phase II/III trial in cardiothoracic surgery patients is expected in 2010.

Intercell . annual report . 2009

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Collaborator Merck & Co. is responsible for product development, manufacturing, and future marketing & distribution.

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Pseudomonas vaccine

Infections are caused by the bacterium Pseudomonas aeruginosa, which is a free-living bacterium tolerant to a wide variety of physical conditions. It is noted for its environmental versatility, ability to cause disease in particularly susceptible individuals, and its frequent resistance to antibiotics.

In most cases, Pseudomonas infections affect hospitalized persons. Infections of the heart, respiratory system, skin, and soft tissue are common. An infection is a threat to patients who are immunosuppressed, suffering from severe burns, cancer, or HIV. Pseudomonas is the second most common cause of nosocomial infections and the most common cause of intensive care unit Pneumonia.

Intercell’s investigational prophylactic vaccine is a recombinant subunit vaccine consisting of two outer membrane proteins of Pseudomonas aeruginosa. In the initial clinical setting, it aims to evaluate protection of intensive care unit (ICU) patients against Ventilator-Associated Pneumonia (VAP) and Bacteremia. The current Phase II clinical trial was started at the end of 2008 and completed enrollment of about 400 patients in more than 50 ICUs in 11 countries in Europe and Latin America by the end of 2009.

Mechanically ventilated intensive care patients are vaccinated with Intercell’s investigational prophylactic Pseudomonas aeruginosa vaccine. These patients are at a particularly high risk of acquiring severe and often life-threatening forms of Pseudomonas aeruginosa infections, such as Ventilator-Associated Pneumonia, Sepsis or soft tissue infection. Two different dosages of alum-adjuvanted vaccine and one formulation without adjuvant are used in the placebo-controlled trial.

In December 2009, the interim analysis of 225 patients has shown good safety and tolerability of the vaccine. In addition, robust immunogenicity by antibody induction, which were assessed by standard and avidity IgG ELISA and functional opsonization assays, could be identified.

Immune responses and safety data observed in intensive care patients appear largely comparable to results from a preceding Phase I trial in healthy volunteers.

Intercell . annual report . 2009

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As another objective, the current Phase II trial investigates the feasibility of performing pivotal efficacy studies in this target population. The interim analysis confirms the anticipated number of Pseudomonas aeruginosa infections; in total 73/225 patients tested positive for Pseudomonas aeruginosa at any point in time, 23/225 fulfilled the secondary endpoint definitions of invasive disease (Bacteremia, Pneumonia).

The results confirm the development strategy for Intercell’s Pseudomonas aeruginosa vaccine. However, no conclusions concerning pilot efficacy can be drawn at this stage with regards to a meaningful reduction of infections in the different study groups. This assessment will only be concluded after the data analysis of all 400 patients in the study is finalized as expected for later in 2010.

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P n e u m o c o c c u s va c c i n e

Streptococcus pneumoniae, or Pneumococcus, is a very common bacterial infection in both industrialized and developing countries. In particular, young children and the elderly represent high-risk populations of developing Pneumococcal infections. Annually, according to the World Health Organization (WHO), the bacterium kills up to one million children under the age of five years worldwide. It accounts for many Bacterial Meningitis cases in adults and it is the most common cause of Bacteremia, Pneumonia, Meningitis, and Otitis media in young children.

In 2009, Intercell’s vaccine candidate to prevent disease caused by the bacterium Streptococcus pneumoniae entered a Phase I clinical trial. The Company’s vaccine candidate is a recombinant subunit vaccine consisting of three conserved surface proteins from Streptococcus pneumoniae. Two of these proteins were discovered using Intercell’s proprietary Antigen Identification Program (AIP®), while the third was in-licensed from the U.S. Centers of Disease Control and Prevention (CDC).

In the first-in-man trial, 32 healthy adults were vaccinated with Intercell’s investigational vaccine. Two antigen dosages, with and without addition of aluminum hydroxide to improve the effect, were applied in four different study groups. The initial analysis of the data has indicated a good safety and tolerability of the vaccine candidate, which was confirmed by a Data Safety Monitoring Board. The vaccine was immunogenic, and antigen dose-dependent induction of antibodies was confirmed for all three proteins of the vaccine.

The development of Intercell’s vaccine to prevent Pneumococcal disease is supported by PATH.

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H e pat i t i s C V i r u s Va c c i n e The Hepatitis C virus (HCV) is a major cause of chronic liver disease, including Cirrhosis and Liver Cancer.

According to the WHO, approximately 170 million people worldwide are chronic HCV carriers, and 3 to 4 million are newly infected each year. In the United States alone, 8,000 to 10,000 deaths and 1,000 liver transplants due to HCV infections are recorded each year.

Intercell . annual report . 2009

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Currently, no vaccine against Hepatitis C is available and the infection can only be treated with a combination of Interferon and Ribavirin – a long-term therapy with limited efficacy, high treatment costs, and substantial side effects.

Intercell’s investigational therapeutic Hepatitis C vaccine met primary endpoints in Phase II in February 2008. The analysis showed a statistically significant viral load reduction and a good safety profile.

Long-term follow-up results announced in September 2008 showed that the load reduction was more pronounced at six months after the final vaccination than at the end of the treatment.

The vaccine combines five synthetic T-cell peptides and Intercell’s first-generation Poly-L-Arginine adjuvant (IC30). It is designed to stimulate T-cell responses against viral protein structures conserved throughout the major HCV genotypes in order to reduce the viral load in the blood of chronically infected patients.

The strategic partnering process is progressing well and it is expected that a partnership will be finalized in the first half of 2010. The strategic aim is to combine Intercell’s vaccine approach, which in the Phase II trial showed a significant virus decline in chronic Hepatitis C patients, with a small molecule treatment scheme of the potential partner.

Intercell and Novartis have terminated their partnership in this field in February 2010. Intercell received a non-exclusive, worldwide license from Novartis to further develop and commercialize its therapeutic HCV vaccine under Novartis’ strong genomic patent portfolio in HCV.

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I C 3 1 ® T u b e r c u l o s i s Va c c i n e Tuberculosis (TB) is caused by Mycobacterium tuberculosis, the most common cause, and Mycobacterium bovis. Globally, according to the WHO, someone is newly infected with the pathogen every second, about one-third of the world’s population carries the infectant latently, and the disease causes the death of more than 1.6 million people every year. This makes TB one of the most severe global health problems.

The existing Bacillus Calmette-Guérin vaccine (BCG) is a live attenuated vaccine that, when given to newborns, provides protection against TB for the first 10-15 years. However, when the protective effect decreases, an additional BCG vaccination does not provide sufficient protection against TB in adolescents and adults. In addition, the world faces an increase in multidrug resistant strains of Mycobacterium tuberculosis, highlighting the urgent need for an improved vaccine.

Intercell . annual report . 2009

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The investigational vaccine targeting Tuberculosis combines Intercell’s adjuvant IC31® with antigens discovered by the Danish Statens Serum Institut (SSI). Multiple Phase I clinical trials are proceeding according to plan. These programs are based on a partnership between Intercell, Statens Serum Institut, sanofi-aventis, and the AERAS Global Tuberculosis Foundation. Further clinical data is expected for 2010.

Currently, a total of five clinical trials with IC31®-formulated vaccines against TB are ongoing. This is the basis to create a leading franchise to fight this important disease.

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I C 3 1 ® I n f l u e n z a Va c c i n e

Influenza is a contagious respiratory illness characterized by the sudden onset of high fever, muscle pains, and a runny nose. Up to 15% of the world population each year suffers from an Influenza infection.

Although difficult to assess, these annual outbreaks are thought to result in three to five million cases of severe illness, and between 250,000 and 500,000 deaths throughout the world every year.

This vaccine candidate combines Intercell’s adjuvant IC31® with seasonal Influenza vaccines from our strategic partner Novartis.

The final data from an initial Phase I clinical trial conducted by Intercell, which was completed in February 2008, showed an excellent safety and tolerability profile. In all study groups included, vaccination with the IC31® Influenza vaccine led to the induction of virus-specific T-cells measured by interferon-gamma ELIspot, and proliferation assays as well as protective levels of antibody responses (HAI titers) against all three included Influenza strains.

Vaccination is the principal measure for preventing Influenza and reducing the impact of epidemics.

Thus, the currently available, mostly non-adjuvanted vaccine products have a suboptimal efficacy profile, especially in the population groups with the highest disease burden (elderly and infants). Also, these vaccines only offer limited cross-protection against other Influenza strains, with no, or low T-cell responses.

Due to these limitations, novel vaccines with broader protection are needed.

The agreement between Intercell and Novartis, signed in 2007, provides Novartis with an exclusive license to utilize IC31® in future potential developments of a seasonal Influenza vaccine targeting improved immunogenicity profiles. Further clinical development steps are planned for 2010.

Intercell . annual report . 2009

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V a c c i n e s i n p r e - c l i n i c a l s ta g e s Intercell is committed to innovation and to expand its existing technological roots. By continuous discovery work with a flexible, entrepreneurial spirit of a biotech organization, Intercell’s research group is delivering interesting and promising pre-clinical product candidates for potential development entry evaluation.

Vaccines in pre-clinical stages

Product Candidate

Vaccine Type

Status/ Phase

Expected Milestones

Strategic Partner

Group A Streptococcus vaccine Bacterial vaccine (undisclosed indication) Lyme Borreliosis vaccine Clostridium difficile vaccine

Prophylactic

Pre-clinical

Phase I start

Merck & Co.

Prophylactic Prophylactic Prophylactic

Pre-clinical Pre-clinical Pre-clinical

Phase I start Phase I start Phase I start

sanofi-aventis In-house In-house

Status/ Phase

Expected Milestones

Strategic Partner

Antibodies in development

Product Candidate

Antibody Type

S. aureus antibodies

Pneumococcus antibodies

Group B Streptococcus antibodies

Therapeutic (in Pre-clinical Phase I start infected patients) Therapeutic (in Pre-clinical Phase I start infected elderly) Prophylactic Pre-clinical Phase I start (in premature newborns)

Intercell . annual report . 2009

Merck & Co. Kyowa Hakko Kirin In-house

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¦ ¦ 02 ¦ ¦ T e c h n o l o g y P l a t f o r m

Intercell is initiating new approaches to vaccine development with the goal of improving worldwide access to care. With its technology platforms, Intercell is positioned as one of the most innovative vaccine companies worldwide.

The strength of Intercell’s technology platforms was again emphasized in 2009, when GlaxoSmithKline – one of the world’s leading research-based pharmaceutical and healthcare companies – entered into a strategic alliance with Intercell.

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V a c c i n e Pat c h The patch technology opens up a new way of vaccine delivery that may make the vaccines easier to administer, faster to deliver, and may result in lower or fewer doses. The Vaccine Patch is a new and needle-free delivery technology, which can be used to: • Develop new vaccines which require transcutaneous administration without a needle: Vaccine Patch • Enhance the effect of injected vaccines: Vaccine Enhancement Patch (VE Patch) Compared with standard immunization via needles, the Vaccine Patch could offer certain benefits, e.g. easy administration and direct delivery of the antigen and adjuvant to the immune system through a natural defense pathway, which could make vaccination more efficient.

In studies, the VE Patch was shown to boost cellular immunity to a diverse range of antigens and to stimulate both B-cell and T-cell responses. It contains the heat-labile enterotoxin from E. coli (LT), a potent stimulator of the immune system.

Currently, Intercell develops an investigational immunostimulating VE Patch to improve Pandemic Influenza prevention (Phase II clinical trials; fully funded by the U.S. Department of Health and Human Services, HHS).

The Vaccine Patch technology is used in the development of a novel Traveler’s Diarrhea Vaccine Patch, which entered Phase III trials in 2009.

In December 2009, Intercell and GlaxoSmithKline signed an agreement to form a strategic alliance to accelerate the development of Intercell’s needle-free vaccine patch technology for the delivery of new or existing antigens or adjuvants.

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ Technology Platform

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A n t i g e n I d e n t i f i c at i o n P r o g r a m – AIP ® The design and development of novel subunit vaccines is highly dependent on the identification and characterization of the appropriate antigens. Intercell has successfully identified and refined a large number of relevant and protective antigens for several bacterial pathogens mostly through its Antigen Identification Program (AIP®).

Selected antibodies, which are derived from infected or healthy exposed individuals and therefore directly mirror the presence, accessibility, and antigenicity of relevant proteins from the particular microorganism in its human host are used in a proprietary screening process. Through AIP®, Intercell’s team discovers antigens that are believed to induce the most protective response from the human immune system, thus providing a viable basis for the development of novel and more powerful prophylactic and therapeutic vaccines, as well as antibody treatments.

AIP® has successfully been applied to identify a large number of novel antigens from several pathogenic organisms including Staphylococcus aureus and epidermidis, Streptococcus pneumoniae, Streptococcus agalactiae and pyogenes, Enterococcus faecalis, Klebsiella pneumoniae, Borrelia spp., ETEC, Shigella, Campylobacter jejuni, non-typable Haemophilus influenzae, and Moraxella catarhalis.

The AIP®-technology has resulted in promising in-house product candidates and generated strategic partnerships, e.g. current partnerships are ongoing with Novartis, Merck & Co., Inc. and sanofi-aventis.

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I n t e r c e l l’ s A d j u va n t s

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IC30 The first generation of Intercell’s adjuvants is Poly-L-Arginine. Poly-L-Arginine is not immunogenic per se and allows for repeated vaccination without the risk of becoming ineffective due to neutralizing antibodies.

Adjuvants educate the immune system to recognize pathogens and developing an adaptive immune response. Intercell’s adjuvants may address an unmet medical need for treatment because they induce antibodies and also T-cell immunity, and can be used together with a variety of different antigens.

Existing adjuvants on the market induce antibodies, but often no or only insufficient T-cell immunity.

Intercell’s synthetic first-generation therapeutic Hepatitis C vaccine consists of Poly-L-Arginine and defined antigenic peptides. Thus, IC30, or Poly-L-Arginine, has been in clinical trials and currently available data demonstrates that it induces T-cells in humans.

Intercell . annual report . 2009

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IC31® Intercell’s adjuvant IC31® induces T-cell and B-cell responses. It consists of a unique synthetic formulation combining the immunostimulating properties of an anti-microbial peptide, KLK, and an immunostimulatory oligodeoxynucleotide, ODN1a. The two-component solution can be rather easily formulated with antigens; no conjugation is required.

The adjuvant is part of several vaccine candidates and has shown a satisfactory safety and immunogenicity profile when tested in humans. Patients receiving IC31® have reported good local tolerance with no systemic adverse effects reported during clinical studies.

IC31® is used in conjunction with several vaccines being co-developed with partners in clinical programs, including prophylactic vaccines against Influenza and Tuberculosis. In addition, IC31® is also outlicensed for use in pre-clinical vaccine projects targeting diseases such as Malaria, Meningitis and various sorts of infectious diseases. Further partnering activities are planned to also include the use of IC31® in vaccines against allergies, and cancer.

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L T – L a b i l e t o x i n o f ETEC Intercell has also been utilizing the adjuvantal effect of the LT-toxin employed as an antigen in the Travelers’ Diarrhea Vaccine Patch and as an adjuvant in the Vaccine Enhancement Patch, for example as part of the investigational Pandemic Influenza vaccine patch system. LT and its derivatives have a proven effect as adjuvants. In ongoing projects, Intercell will further explore applications of LT and its derivatives as adjuvantal tools to optimize the patch technology.

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ P a r t n e r s h i p s a n d C o - o p e r a t i o n s

Intercell is leveraging its innovative science, cutting-edge technology platforms in collaborations, licensing, and acquisition to bring novel vaccines to the market. We have validated our unique approaches to vaccine development through our partnerships with global pharmaceutical organizations, including Novartis, Merck & Co., Inc., sanofi-aventis and Pfizer (formerly Wyeth).

In 2009, Intercell and GlaxoSmithKline formed a strategic alliance to accelerate the development and commercialization of needle-free, patch-based vaccines. The agreement includes Intercell’s candidate vaccine for Travelers’ Diarrhea (TD) and an investigational single application Pandemic Influenza vaccine, as well as the use of the patch technology for vaccine delivery in GlaxoSmithKline’s product portfolio.

Under the terms of the agreement, GlaxoSmithKline made an up-front cash contribution of EUR 33.6 (USD 49.4) m, in addition to making an equity investment of up to EUR 84 (USD 123.5) m through a staggered share purchase of up to 5% in Intercell.

In addition, the Company has collaboration agreements in place with the U.S. Centers for Disease Control and Prevention (Streptococcus pneumoniae vaccine), PATH (Streptococcus pneumoniae vaccine), the Malaria Vaccine Initiative (Malaria vaccine), the National Institute of Health (various projects), the U.S. Department of Health and Human Services (HHS; Pandemic Influenza vaccine), AERAS (Tuberculosis vaccine) as well as Kyowa Hakko Kirin Co. Ltd. (formerly Kirin Brewery Co., Ltd. – Pneumococcus antibodies).

Intercell’s strategic collaborations partly fund the Company’s burgeoning pipeline while at the same time enabling us to capitalize on our partners’ global development and commercial resources to effectively bring new products to the markets.

Indication

Partner

Japanese Encephalitis Virus (JEV) vaccine S. aureus vaccine IC31® Seasonal Influenza vaccine Travelers’ Diarrhea Vaccine Patch Pandemic Influenza Vaccine Patch IC31® Tuberculosis vaccine Pneumococcus vaccine Group A Streptococcus vaccine Bacterial vaccine (undisclosed indication) S. aureus antibodies Pneumococcus antibodies

Novartis / CSL / Biological E. Merck & Co. Novartis GlaxoSmithKline GlaxoSmithKline/HHS Statens Serum Institut / sanofi-aventis / AERAS PATH Merck & Co. sanofi-aventis Merck & Co. Kyowa Hakko Kirin

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ L o c a t i o n s

Intercell AG has sites in three countries with headquarters, R&D and QC facilities in Vienna, Austria, manufacturing facilities in Livingston, Scotland and R&D and manufacturing facilities for patch vaccines in Gaithersburg, MD, USA. Intercell is an international company with a workforce of approximately 400 colleagues from more than 30 different countries.

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I n t e r c e l l AG – I n t e r c e l l H e a d q u a r t e r s Intercell AG’s headquarters, located at the Campus Vienna Biocenter in Vienna, accommodate departments for R&D and administration, which includes finance and commercial activities.

Intercell AG was founded in 1997 as a spin-off from the University of Vienna. Since then the Company has been continuously growing. In 2009, Intercell AG received a certificate of Good Manufacturing Practice (GMP) from the Austrian Agency for Health and Food Safety (AGES) for the Company’s new Vienna Quality Control laboratories. Intercell AG now has the ability to develop and test materials for clinical trials as well as commercial products at its Vienna-based headquarters.

Today, approximately 210 employees are based in Vienna.

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I n t e r c e l l B i o m e d i c a l Lt d .

Intercell Biomedical Ltd. was formed in 2004 when Intercell AG acquired a manufacturing plant in Livingston, Scotland in order to produce clinical supplies for its leading product candidate, a vaccine against Japanese Encephalitis. That manufacturing plant is now dedicated to the production of IXIARO® and JESPECT®, the Company’s novel Japanese Encephalitis vaccine.

Further investments in the plant have increased the site’s capabilities and established a dedicated state-ofthe-art, GMP commercial manufacturing facility, which is now able to produce in excess of 1m doses per year. The Livingston facility, which has seen its workforce grow from 26 to approximately 80, also has separate development and clinical manufacturing capabilities.

The Livingston manufacturing site operates under a Manufacturers’ License granted by the Medicines and Healthcare products Regulatory Agency (MHRA). Inspections of cGMP-compliant commercial operations have been conducted over the past two years by MHRA (2007 and 2009), U.S. Food and Drug Administration (FDA) (2008 and 2010), and Health Canada (2009). Additional GMP inspections by key commercial partners have also been conducted successfully.

Intercell . annual report . 2009

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I n t e r c e l l USA , I n c .

Intercell USA, with more than 110 employees, focuses on the discovery and development of vaccines and immune system stimulants delivered via our novel, needle-free patch technology.

Intercell AG completed the acquisition of Iomai, Inc., forming Intercell USA, Inc. in 2008. In addition to gaining full rights to the R&D programs, Intercell also stepped into the lease for the facility in Gaithersburg, MD. Located outside of Washington D.C. in one of the top 10 biotech regions of the USA, the site has significant R&D and manufacturing capabilities.

The site has become Intercell’s center of excellence for transdermal immunization and patch manufacture.

Following a significant investment in 2009/2010, the cGMP manufacturing facility will focus on LT fermentation and purification as well as formulation of the drug substance and application onto the patch. Both the clinical trial material and the first commercial supply of the Travelers’ Diarrhea Vaccine Patch will be manufactured at this site. The facility can be adapted to manufacture other materials for Intercell USA’s ongoing patch-based clinical trials.

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ H u m a n R e s o u r c e s

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Commitment to our People Intercell is a knowledge-based company and the achievement of our ambitious goals relies strongly on our employees. Their expertise, professional experience, and dedication are among the most important factors for our future development, growth, and success.

We are a dynamic, international, and multicultural enterprise. At the end of 2009, Intercell had 403 employees, or 388 in full-time equivalents, from more than 30 different countries. 209 people are employed at Intercell’s headquarters in Vienna, 83 are working at our manufacturing facilities in Livingston, Scotland (Intercell Biomedical Ltd.), and 111 at Intercell USA in Gaithersburg, Maryland.

As of December 31, 2009, 73.2% of Intercell’s employees worked in the fields of production as well as research and development while 26.8% were involved in sales, general and administrative activities. The overall percentage of female employees is 57.6%. In total, 66.5% of Intercell’s staff are university graduates.

Intercell is committed to maintain and improve Intercell as an outstanding place to work, as well as to secure the highest level of personal respect, and personal, team and corporate motivation. Flexible working hours, personal development activities, encouraged collaborations, and participation in the operational and financial success of the Company are part of this tradition.

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Employment Statistics

Male Female Average age TOTAL

Livingston

Vienna

79 130

37.8% 62.2%

34.6 209

39 44

Total

47.0% 53.0%

37.0 83

Gaithersburg

53 58

47.8% 52.3%

42.0 111

Intercell . annual report . 2009

171 232 37.1 403

42.4% 57.6%

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¦ ¦ 02 ¦ ¦ F i n a n c i a l R e v i e w 2 0 0 9

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Revenues

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Results of Operations

Intercell’s annual revenues increased by 10.6% from EUR 55.8m in the year ended December 31, 2008 to EUR 61.7m in the year ended December 31, 2009. Following the approval of the Japanese Encephalitis vaccine, the Company posted its first revenues from product sales of EUR 7.7m in the year ended December 31, 2009. Revenues from collaborations and licensing decreased from EUR 51.4m in 2008 to EUR 46.2m in 2009, or by 10.0%. Grant income increased from EUR 4.4m in 2008 to EUR 7.7m in 2009.

The net loss for the year ended December 31, 2009 was EUR 18.4m, compared to a net profit of EUR 17.2m in the prior year. The increase in net loss was mainly due to higher research and development expenses, the high cost of goods sold, exceeding revenues from product sales in the launch year, as well as lower net other income, lower financial income and lower tax income. The Company recorded a loss before income tax of EUR 7.4m in 2008, compared to a loss before income tax of EUR 28.4m in the year ended December 31, 2009.

Cost of goods sold was EUR 12.5m, of which EUR 5.8m was directly attributable to vaccine sales in the year ended December 31, 2009 and EUR 6.7m was due to impairments resulting from write-offs of unfinished and finished products.

Net operating expenses continued to increase as a result of the progress of Intercell’s development programs and increased by 14.5% from EUR 69.6m in 2008 to EUR 79.7m in the year ended December 31, 2009.

Research and development expenses increased from EUR 56.1m in the year ended December 31, 2008 to EUR 62.5m in the year ended December 31, 2009, or by 11.6%. General, selling and administrative expenses were EUR 16.1m in 2008 and EUR 17.4m in 2009, which represents an increase of 7.6%.

Net other operating income was EUR 2.6m in the year ended December 31, 2008 and EUR 0.2m in the year ended December 31, 2009. This decrease in net other operating income was primarily due to lower research and development tax credits and foreign exchange rate fluctuations.

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F i n a n c e R e s u l t s a n d Ta x

Financial income, net of expenses, was EUR 6.4m in the year ended December 31, 2008 and EUR 2.1m in the year ended December 31, 2009. This decrease was mainly due to lower interest rates, a lower balance of cash and securities, and higher finance expenses.

Income tax income was EUR 24.6m in the year ended December 31, 2008 and EUR 10.0m in the year ended December 31, 2009. Income tax income resulted from the recognition of deferred income tax assets from tax losses, which will be used to offset future income tax obligations.

Intercell . annual report . 2009

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Cash Flow and Capital Resources

Intercell’s net cash used in operating activities of EUR 10.2m in the year ended December 31, 2008 compares to net cash used in operating activities of EUR 26.0m in the year ended December 31, 2009.

This change was primarily due to a higher loss for the period, as well as an increase in working capital.

Net cash used in investing activities for the year ended December 31, 2008 was EUR 123.7m compared to net cash generated from investing activities of EUR 47.6m in 2009. Without giving effect to investments in, and proceeds from, sale of securities, net cash used by investing activities was EUR 86.1m in the year ended December 31, 2008, compared to EUR 16.9m in the year ended December 31, 2009. This decrease was due to the prior year effect of the acquisition of Iomai Corporation (now Intercell USA, Inc.).

Net cash generated from financing activities was EUR 1.6m in the year ended December 31, 2008 and EUR 31.2m in the year ended December 31, 2009, resulting primarily from the issuance of 0.9m new shares at a price of EUR 31.21 per share or a total of EUR 28.1m in the fourth quarter to Intercell’s strategic partner, GlaxoSmithKline.

As of December 31, 2009, Intercell had liquid funds of EUR 180.0m, of which EUR 84.2m was cash and EUR 95.8m was available-for-sale financial assets.

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Key Financial Information

in EUR thousand

Revenues Net profit/(loss) Net operating cash flow Cash and marketable securities, end of the year

2009

Year ended December 31, 2008

2007

61,681 (18,375) (25,995) 180,019

55,763 17,175 (10,186) 190,865

53,349 5,009 41,686 287,571

Intercell . annual report . 2009

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¦ ¦ 02 ¦ ¦ I n t e r n a l c o n t r o l s

)

Reporting on the internal control and risk management system regarding financial reporting The responsibility for the setting up and configuration of an internal control and risk management system capable of meeting the needs of accounting rules and of assuring compliance with legal requirements rests with the Management Board under oversight by the Supervisory Board. Intercell’s central Group accounting department forms part of the Groups parent company Intercell AG. The department consists of the organizational units “Accounting”, which is responsible for reporting to outside parties, and “Controlling”, which handles reporting within the Group. Both units report directly to the Chief Financial Officer.

The principles and the processes underlying Group accounting and reporting procedures are laid down in the Accounting Manual published and updated on a regular basis by Intercell AG. The manual contains the IFRS-based accounting and reporting requirements as applied by the Group. The requirements especially apply to the accounting of, and reporting on, revenues, R&D expenses, non-current assets, trade receivables, accruals and deferrals, financial instruments, provisions, and the translation of deferred tax assets and liabilities.

“Controlling” reviews the performance of defined groups of assets on a regular basis. The adherence to the respective requirements is assured through regular reviews carried out at management meetings and, whenever necessary, through securing the participation of the central department.

The recording, and accounting of all Group transactions is handled by the integrative software solution Microsoft Dynamics AX. The Group companies perform monthly closing procedures on their accounts.

All accounting entries are available in the central accounting system and the data transfers and consolidation occurs automatically. Central Group “Accounting” performs reviews and controls of the financial data generated by Group companies on a monthly basis. Additional closing procedures, controls, and reviews are performed on a quarterly basis. The resulting financial information forms the basis of the reports issued on a quarterly basis by the Intercell Group pursuant to IFRS. No separate internal audit department has been set up in view of the Company’s size. However, an internal control and reporting-system has been defined in order to secure appropriate internal controls over financial reposting and to enable the Management Board to rapidly identify risks and to respond to such risks.

Intercell . annual report . 2009

48

¦ ¦ 02 ¦ ¦ Internal controls

A tailored planning and reporting system is used for internal management reporting. Standard reports and automatic interfaces have been created to transfer actual data from Microsoft Dynamics AX to the internal reporting system. A standardized process is employed to compile figures into reports, including budget comparisons. Reporting dimensions include departments, projects, and cost categories. Internal reports to the management include the development of operating results during the preceding month as well as rolling forecasts for the residual year. These reports feature summaries of the most important results as well as deviation analyses compared to budgets and preceding forecasts.

The financial information that has been generated as described above and the Group accounts pursuant to IFRS form the basis for the Management Board’s financial reporting to the Supervisory Board, which holds meetings on a regular basis. The Supervisory Board is informed about the financial performance of the business using consolidated results and, where appropriate, detailed project- and product-based financial information.

Intercell . annual report . 2009

49

¦ ¦ 02 ¦ ¦ R i s k F a c t o r s

Pursuing biotech innovation includes the inherent risk of failure and the Company is therefore exposed to significant industry-specific risks. Intercell is subject to the additional risk that it has launched its first product and has not generated significant revenues from commercial product sales to date. Moreover, the Company has incurred significant losses since its inception, is exposed to liquidity risk and may never sustain profitability. Management has undertaken considerable efforts to establish a risk management system in order to monitor and mitigate the risks associated with its business. However, the Company remains exposed to significant risk, in particular including the following: The Company needs to gain market acceptance for its first product in order to recover significant development costs that it has incurred. Intercell may be unable to successfully market and sell its Japanese Encephalitis vaccine and to develop and commercialize its product candidates as expected or at all. The Company’s manufacturing facility in Livingston, Scotland, is, and will continue to be, a significant factor in growing revenues from product sales and maintaining control over production costs. The manufacturing of biological materials is a complex undertaking and technical problems may occur. Intercell may face difficulties in the ability to manufacture its Japanese Encephalitis vaccine in commercial scale quantities. Biological manufacturing is subject to government regulation and regular inspection. In case of failure to comply with regulatory requirements, including current Good Manufacturing Practices, the Company’s manufacturers’ license may be suspended or revoked. The risk of suspension or revocation of a manufacturers’ license also applies to third party manufacturers and contractors with whom the Company contracts for manufacturing and services. Should external manufacturers and contractors fail to perform, the development, manufacturing, and commercialization of Intercell’s products and/or product candidates may be limited or delayed, which may have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company’s only approved product is manufactured in a dedicated manufacturing facility. The destruction of this facility by fire or other disastrous events would prevent the Company from manufacturing this product and therefore cause considerable losses. Its business requires the use of hazardous materials, which increases the Company’s exposure to dangerous and costly accidents.

The vaccine industry is highly competitive, and if the Company’s competitors commercialize their products more quickly than Intercell or develop alternatives to Intercell’s products, the Company might lose a significant share of the expected market.

The Company’s research and development activities, and in particular its late-stage clinical trial programs, are expensive and time-consuming. The result of these research and development activities is inherently uncertain and the Company may experience delays or failures in clinical trials. In order to continue to develop and commercialize its product candidates, the Company will require regulatory approvals from the U.S. Food and Drug Administration (FDA), European Medicines Agency (EMEA), and other relevant regulatory agencies in order to continue to develop and commercialize its product candidates, which may be delayed or denied. Adverse events or lack of efficacy in its clinical trials may force the Company to stop development of

Intercell . annual report . 2009

50

¦ ¦ 02 ¦ ¦ Risk factors

its product candidates, prevent regulatory approval of its product candidates, or impact its existing products which could materially harm its business.

Future business opportunities or a delay or failure in the development or commercialization of one or more of the Company’s product candidates may result in the need for additional funding, which may only be available, if at all, with unfavorable consequences or on unfavorable terms. If the Company is not able to fulfill investor or analyst expectations, its ability to raise financing may be adversely affected.

Intercell’s failure to successfully integrate Iomai and other businesses acquired in the future could have a material adverse effect on its business, financial condition and results of operations. As it further evolves as a company, Intercell may not successfully manage its growth.

The Company’s ability to commercialize its product candidates or to license its technologies depends on the ability to obtain and maintain adequate protection of its proprietary and intellectual property rights. If the Company’s efforts to protect its intellectual property rights are not sufficient, competitors may use their technologies to create competing products, erode the Company’s competitive advantage, and capture all or part of its expected market share. The Company’s efforts to avoid infringing, or to defend itself against any claims of infringement of, the intellectual property rights of third parties may be costly and, if unsuccessful, may result in limited or prohibited commercialization of its product candidates or licensing of its technologies, subject it to royalties or other fees, or force it to redesign its product candidates.

The success of the Company’s strategic partnerships depends, in part, on the performance of the strategic partners, over which the Company has little or no control. Partners may elect to delay or terminate one or more of these strategic partnerships, independently develop products that could compete with the Company’s product candidates, or fail to commit sufficient resources to the development or commercialization of the product candidates partnered with the Company.

In addition, the Company’s clinical trial liability and product liability insurance coverage may not be sufficient to cover liability or product liability claims, which Intercell may incur as a result of the use of its product candidates in clinical trials or the sale of products, or may cease to be available at a reasonable cost in the future. The development and commercialization of the Company’s product candidates may be delayed if Intercell is unable to recruit and retain qualified personnel or if any of the key members of the Management or scientific staff discontinues his or her employment or consulting relationship with the Company. Impairment of intangible assets may lead to substantial losses in the Company’s profit and loss statement. Developments in the financial markets, such as depreciation of currencies, changes in interest rates, or price changes in debt securities could adversely affect the Company’s financial condition and the results of its operations as well as its partners’ ability or willingness to further develop and commercialize partnered products or impair the value of, or returns on, the Company’s investments.

Further financial risk factors are discussed in detail in the notes to the consolidated financial statements (note 3).

Intercell . annual report . 2009

51

¦ ¦ 02 ¦ ¦ D i s c l o s u r e a c c o r di n g t o S e c t i o n 2 4 3 a UG B

• As of December 31, 2009, the Company’s share capital consists of 48,480,486 shares of common stock with no par value in bearer form. Each share represents the same pro rata amount of the aggregate share capital.

• GlaxoSmithKline has committed to retaining 900,000 shares held by GSK over a certain minimum lock-up period. The Management is not aware of any other agreements between shareholders that restrict the voting rights or the transferability of any of the issued shares.

• As of the balance sheet date, entities affiliated with Novartis AG, Switzerland, held 14.9% of the voting rights of the Company. The Management is not aware of any other shareholder whose shareholding represents 10% or more of the share capital of the Company.

• The Company has not issued any shares with special control rights as compared to all other outstanding shares, and there are no controls of voting rights for shares held by employees who do not exercise their voting rights directly.

• The Company’s regulations in regard to the appointment and discharge of the members of the Management Board and the Supervisory Board, as well as regulations in regard to the change of the articles follow Austrian legal regulations.

• The Management Board is authorized to increase the registered capital of the Company, pursuant to Section 169 of the Austrian Stock Corporation Act, and with the consent of the Supervisory Board, in one or several tranches by issuing up to 1,774,456 new bearer shares of common stock until June 15, 2012, and by issuing another up to 15,000,000 new bearer shares of common stock until June 13, 2013. The Management Board is further authorized, pursuant to Section 159 Subsection 2 of the Austrian Stock Corporation Act, to issue convertible bonds by granting the creditors conversion and/ or subscription rights for up to 15,000,000 new bearer shares of common stock, and to determine the further details of implementation with the consent of the Supervisory Board until June 15, 2012. The share capital is conditionally increased by up to 3,785,515 bearer shares insofar as the employees and members of the Management Board, who have been granted stock options, exercise their subscription rights. In addition, the Management Board is authorized, pursuant to Section 159 Subsection 3 of the Austrian Stock Corporation Act, and with the consent of the Supervisory Board, to conditionally increase the registered capital of the Company until June 13, 2013 in one or several tranches by issuing up to 855,000 new bearer shares of common stock in connection with the grant of new stock options to the employees and members of the Management Board of the Company or an affiliated company.

• On June 13, 2008, the General Meeting of Shareholders authorized the Management Board to repurchase Intercell AG shares up to the maximum amount permissible pursuant to Section 65 (1) no 8 of the Austrian Stock Exchange Act for a period of 30 months following the date of the

Intercell . annual report . 2009

52

¦ ¦ 02 ¦ ¦ Disclosure according to Section 243a UGB

shareholders’ resolution, with any such repurchase to be within the range of a minimum amount of EUR 20.00 per share and a maximum amount of EUR 60.00 per share. In the fiscal year 2009 the Management Board did not repurchase any shares under this authorization from the shareholders’ meeting.

• The following material Company agreements provide the counterparty with certain rights in the event of the change of control of the Company, which could lead to a termination of the agreement: Research Collaboration and License Agreement with Merck Sharp & Dohme Research Ltd., Strategic Alliance Agreement with Novartis Pharma AG, Marketing and Distribution Agreement with Novartis Vaccine and Diagnostics, Inc., Strategic Alliance Agreement with GlaxoSmithKline Biologicals SA and Supply and Distribution Agreement with CSL Biotherapies Pty Ltd. • The vesting of stock options, which have been issued under the Employee Stock Option Plan (ESOP) 2008, will be accelerated in case of a change of control and all such options will become immediately exercisable. The Company has entered into a contractual agreement with Thomas Lingelbach entitling him to a one-time-payment in the event of a change of control. Other than these provisions, no special compensation agreements exist between the Company and the members of its Management and Supervisory Board in case of change of control in the Company.

Intercell . annual report . 2009

53

¦ ¦ 02 ¦ ¦ O p e r a t i o n a l a n d S t r a t e g i c O u t l o o k 2 0 1 0 / 2 0 1 1

Based on the success and achievements of 2009, we continue to pursue our strategy of creating sustainable growth.

)

Expected Next Milestones J a p a n e s e E n c e p h a l i t i s Va c c i n e

• Phase III data from children for travelers’ market • Start of Phase III for children in endemic countries • Approvals in India and other endemic markets

)

T r a v e l e r s ’ D i a r r h e a Va c c i n e P a t c h

)

Vaccines against hospital-acquired infections

• Phase III efficacy data

• Phase II/III efficacy data in S. aureus • Phase II data in Pseudomonas

)

Other advanced Pipeline Products

)

A I P ® , I C 3 1 ® , Va c c i n e P a t c h

• Multiple clinical data points in own indications and within partnerships (e.g. Tuberculosis, Flu) • Strategic alliance for HCV vaccine • Phase I data in Pneumococcus – also in target populations (children and elderly people)

• Further out-licensing of Vaccine Patch (delivery and vaccine enhancement) • Positioning of IC31® in new vaccine indications (including allergy and cancer vaccines) • Strategic alliance for antibody products

Intercell . annual report . 2009

54

¦ ¦ 02 ¦ ¦ E v e n t s a f t e r t h e b a l a n c e - s h e e t d a t e

• No material events have occurred after the balance sheet date that would have an impact on the asset-, financial- and earning-position of the Company.

Vienna, March 4, 2010

The Management Board:

Gerd Zettlmeissl, CEO

THOMAS LINGELBACH, CoO

Reinhard Kandera, CFO

The Consolidated Financial Statements of Intercell AG for the fiscal year from January 1, 2009 to December 31, 2009, the Management Report, and the Audit Opinion thereof have been issued in German language in accordance with Section 245a and 193 of the Austrian Commercial Code.

We draw attention to the fact that this translation into English is provided for convenience purposes only and that only the German wording is legally binding.

Intercell . annual report . 2009

¦ ¦ 03 ¦ ¦ F i n a n c i a l s

This is not a clam … …instead it’s an innovation: It is no coincidence that this shape mimics an Intercell Vaccine Patch, and with it the innovative and experimental power and joy behind this company. When you now turn to the section with all the facts and figures, you will see that long-term investments in research that may not pay off for 10 years or more may form a solid foundation for the biotech business…

Intercell . annual report . 2009

56

A U D I T OR ‘ S REPOR T

)

report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Intercell AG, Vienna, for the fiscal year from January 1, 2009 to December 31, 2009. These consolidated financial statements comprise the consolidated balance sheet as of December 31, 2009, the consolidated statement of comprehensive income, the consolidated cash flow statement and the consolidated statement of changes in equity for the fiscal year ended December 31, 2009, and the notes to the consolidated financial statements.

)

M a n a g e ment’s Responsibility for the Consolidated Financial Statements a n d f o r t he A ccounting System

The Company’s management is responsible for the group accounting system and for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the supplementary provisions of Section 245a UGB (Austrian Commercial Code). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

)

a u d i t o r ’s Responsibility and D escription of Type and Scope of the Statutory A udit

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with laws and regulations applicable in Austria and Austrian Standards on Auditing, as well as in accordance with International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Those standards require that we comply with professional guidelines and that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group’s preparation and fair presentation of the consolidated financial statements 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 internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Intercell . annual report . 2009

57

Auditor’s Report

)

Opinion

)

Comments on the Management Report for the Group Pursuant to statutory provisions, the management report for the Group is to be audited as to whether it is consistent with the consolidated financial statements and as to whether the other disclosures are not misleading with respect to the Company’s position. The auditor’s report also has to contain a statement as to whether the management report for the Group is consistent with the consolidated financial statements and whether the disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.

Our audit did not give rise to any objections. In our opinion, which is based on the results of our audit, the consolidated financial statements comply with legal requirements and give a true and fair view of the financial position of the Group as of December 31, 2009 and of its financial performance and its cash flows for the fiscal year from January 1, 2009 to December 31, 2009 in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the supplementary provisions of Section 245a UGB (Austrian Commercial Code).

In our opinion, the management report for the Group is consistent with the consolidated financial statements. The disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.

Vienna, March 4, 2010 PwC Wirtschaftsprüfung GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

Aslan Milla Austrian Certified Public Accountant Disclosure, publication and duplication of the consolidated financial statements together with the auditor’s report according to Section 281 (2) UGB in a form not in accordance with statutory requirements and differing from the version audited by us is not permitted. Reference to our audit may not be made without prior written permission from us. We draw attention to the fact that this translation into English is presented for convenience purposes only and that the German wording is the only legally binding version.

Intercell . annual report . 2009

This is not a football … … instead it’s just the emblem of the Intercell team spirit. A patch-shaped one. Just like a football team passes the ball, Intercell researchers and developers also work hand in hand. But cooperation doesn’t stop at the Company’s campus gates: strong partnerships with leading vaccine companies and a meaningful exchange with the global research community are also part of it all. intercell is a strong player here ...

Intercell . annual report . 2009

59

T a b l e of C on ten t s

60 61 62 63 64 64 65 76 80 83 84 85 85 86 86 89 90 92 94 98 99 99 99 100 102 103 104 104 104 105 106 107 111 112 113 115

i . C o n s o l i d at e d i n c o m e s tat e m e n t a n d s t a t e m e n t o f c o m p r e h e n s i v e i n c o m e i I . C o n s o l i d at e d b a l a n c e s h e e t i II . C o n s o l i d a t e d c a s h f l o w s t a t e m e n t i V . C o n s o l i d a t e d s t a t e m e n t o f c h a n g e s i n e q u i t y V . N o t e s t o t h e f i n a n c i a l s tat e m e n t s

1 General information 2 Summary of significant accounting policies 3 Financial risk management 4 Critical accounting estimates and judgments 5 Segment information 6 Expenses by nature 7 Employee benefit expense 8 Other income/(expenses), net 9 Finance income/(expenses) 10 Income tax 11 Earnings/Losses per share 12 Property, plant and equipment 13 Intangible assets 14 Financial instruments 15 Available-for-sale financial assets 16 Inventory 17 Trade receivables and other assets 18 Cash and cash equivalents 19 Nominal capital and additional capital paid in 20 Share options 21 Other reserves 22 Post-employment benefit obligations 23 Trade and other payables 24 Deferred income 25 Borrowings 26 Cash used in operations 27 Collaboration and license agreements 28 Commitments and Contingencies 29 Business combinations 30 Related-party transactions 31 Events after the reporting period

Intercell . annual report . 2009

60

¦ ¦ I ¦ ¦ C o n s o l i d a t e d i n c o m e s t a t e m e n t

)

EUR in thousands (except per share amounts)

note

Revenues

Product sales Revenues from collaborations, licensing and grants

5 5

Cost of goods sold

Gross profit

Research and development expenses General, selling and administrative expenses Other income and expenses, net Operating loss

Finance income Finance expenses Loss before income tax

Income tax Profit/(Loss) for the year

6/7 6/7 8

9 9

10

Year ended December 31, 2009

2008 61,681

7,727 53,954 (12,450)

49,231

55,763 55,763 -

55,763

(62,539) (17,355) 195 (30,468)

4,315 (2,245) (28,398)

10,023 (18,375)

(56,062) (16,126) 2,608 (13,818) 8,469 (2,034) (7,383) 24,557 17,175

Earnings/(Losses) per share for profit/(loss) attributable to the equity holders of the Company during the year (expressed in EUR per share) - basic 11 (0.39) - diluted 11 (0.39)

0.37 0.37

¦ ¦ I ¦ ¦ C o n s o l i d at e d s tat e m e n t o f c o m p r e h e n s i v e i n c o m e

)

EUR in thousands

note

Profit/(loss) for the year

Other comprehensive income/(loss) Fair value gains/(losses) on available-for-sale financial assets Currency translation differences

15/21 21

Year ended December 31, 2009

2008 (18,375)

17,175

1,270 (3,452)

(2,776) 14,271

Other comprehensive income/(loss) for the year, net of tax

(2,183)

11,495

Total comprehensive income/(loss) for the year attributable to the owners of the Company

(20,557)

28,670

Intercell . annual report . 2009

61

¦ ¦ II ¦ ¦ C o n s o l i d a t e d b a l a n c e s h e e t

)

EUR in thousands

note

2009

Assets Non-current assets

Property, plant and equipment Intangible assets Available-for-sale financial assets Other non-current assets Deferred income tax assets

12 13 15 17 10

Current assets

Inventory Trade receivables and other current assets Available-for-sale financial assets Cash and cash equivalents

At December 31, 2008

2007

281,860 56,435 189,656 3,784 10,622 21,363

268,086

50,834 182,953 - 10,280 24,018

32,022 11,956 19,256 810

16 17 15 18

195,799 3,441 16,123 92,024 84,211

211,491

4,893 15,733 160,969 29,896

297,370 9,799 126,528 161,043

477,659

479,577

329,391

Equity

Capital and reserves attributable to the Company’s equity holders

Nominal capital 19 Additional capital paid in 19 Other reserves 21 Retained earnings

TOTAL ASSETS

365,153 48,480 407,676 13,514 (104,518)

350,233

47,235 373,423 15,696 (86,121)

264,625 45,522 318,085 4,202 (103,183)

Liabilities

Non-current liabilities

Borrowings Other long-term liabilities Deferred income Deferred income tax liabilities

25 23 24 10

79,609 38,867 382 30,092 10,268

89,429

39,004 409 27,217 22,800

22,532 1,459 230 16,539 4,304

Current liabilities

Trade and other payables Borrowings Deferred income

23 25 24

32,897 20,749 3,029 9,119

39,915

19,854 1,890 18,172

42,234 13,731 698 27,805

TOTAL LIABILITIES

112,506

129,344

64,766

TOTAL EQUITY AND LIABILITIES

477,659

479,577

329,391

Intercell . annual report . 2009

62

¦ ¦ III ¦ ¦ C o n s o l i d a t e d c a s h f l o w s t a t e m e n t

)

EUR in thousands

note

Year ended December 31, 2009

2008

Cash flows from operating activities

Profit/(Loss) for the year Depreciation and amortization 12/13 Share-based compensation 20 Income Tax 10 Other adjustments for reconciliation to cash used in operations 26 Changes in working capital 26 Cash used in operations

26 Interest paid 9 Income tax paid 10 Net cash used in operating activities

(18,375) 5,331 4,160 (10,066) (1,992) (3,918) (24,860)

(1,118) (16) (25,995)

17,175 2,996 4,122 (24,557) (6,803) (2,563) (9,629) (538) (20) (10,186)

Cash flows from investing activities

Acquisition of subsidiary, net of cash acquired 29 Purchases of property, plant and equipment 12/26 Proceeds from sale of property, plant and equipment 26 Cash outflow for security deposit in connection with finance lease Purchases of intangible assets 13 Purchases of available-for-sale financial assets 15 Proceeds from sale of available-for-sale financial assets 15 Interest received Net cash generated from/(used in) investing activities

- (11,089) 1.967 (355) (12,923) (45,000) 109,500 5,541 47,640

(75,071) (16,984) 9,226 (10,083) (184) (142,112) 104,555 7,003 (123,651)

Cash flows from financing activities

Proceeds from issuance of common stock, net of costs of equity transactions Disposal of treasury shares Proceeds from borrowings Repayment of borrowings Net cash generated from financing activities

19 19 25 25

31,273 99 1,819 (1,964) 31,228

1,253 189 1,329 (1,137) 1,634

Net increase/(decrease) in cash

Cash at beginning of the year Exchange gains on cash Cash at end of the year

18

52,873

29,896 1,442 84,211

(132,203) 161,043 1,056 29,896

Cash, short-term deposits, and marketable securities at end of year

Intercell . annual report . 2009

180,019

190,865

63

¦ ¦ IV ¦ ¦ C o n s o l i d a t e d s ta t e m e n t o f c h a n g e s i n e q u i t y

)

EUR in thousands

Other reserves

Retained earnings

Total equity

4,202

(103,183)

264,625

Total comprehensive income for the year - - 11,495 17,175 Employee share option plan: - value of employee services 19/20 - 6,346 - - - proceeds from shares issued 19 270 1,492 - - - treasury stock re-issued 19 - 189 - - Issuance of common stock, August 2008 19 1,443 43,443 - - Deferred tax on share option scheme - - - (112) Cost of equity transactions, net of tax 19 - 3,867 - -

1,713 55,338 11,495 17,063 Balance at December 31, 2008

47,235 373,423 15,696 (86,121)

28,670 6,346 1,762 189 44,886 (112) 3,867 85,609 350,233

Balance at January 1, 2009

350,233

Balance at January 1, 2008

note

Nominal Additional capital capital paid in 45,522

47,235

318,085

373,423

15,696

(86,121)

Total comprehensive income for the year - - (2,183) (18,375) (20,557) Employee share option plan: - value of employee services 19/20 - 4,160 - - 4,160 - proceeds from shares issued 19 346 3,129 - - 3,475 - treasury stock re-issued 19 - 99 - - 99 Issuance of common stock, December 2009 19 900 27,189 - - 28,089 Deferred tax on share option scheme - - - (22) (22) Cost of equity transactions, net of tax 19 - (325) - - (325)

1,246 34,253 (2,183) (18,397) 14,919 Balance at December 31, 2009

48,480

407,676

Intercell . annual report . 2009

13,514

(104,518)

365,153

64

¦ ¦ V ¦ ¦ N o t e s t o t h e c o n s o l i d at e d f i n a n c i a l s tat e m e n t s

)

1. General information Intercell AG – together with its subsidiaries – (hereafter named “Company”) is a biotechnology company that develops novel vaccines for the prevention and treatment of infectious diseases with substantial unmet medical needs.

The Company’s technology platforms include an antigen-discovery system, adjuvants and a novel patch-based delivery system (Vaccine Patch, Vaccine Enhancement Patch). Based on these technologies, Intercell has strategic partnerships with a number of global pharmaceutical companies, including Novartis, GlaxoSmithKline, Merck & Co., Pfizer (formerly Wyeth), and sanofi-aventis.

Intercell’s vaccine to prevent Japanese Encephalitis is the Company’s first product on the market.

The product has been approved in Europe, the USA, Australia, and Canada. Phase I/II studies in India for pediatric use in endemic countries are ongoing. The Company’s pipeline of investigational products includes a Travelers’ Diarrhea Vaccine Patch (Phase III), a vaccine program against S. aureus, which is being developed with Merck & Co. (Phase II/III), a Pseudomonas vaccine candidate (Phase II), a Vaccine Enhancement Patch to prevent Pandemic Influenza in combination with an injected vaccine (Phase II), a therapeutic vaccine candidate to treat Hepatitis C (Phase II), a vaccine candidate against Pneumococcus (Phase I) and partnered vaccine programs against Tuberculosis and seasonal Influenza (both in Phase I).

In addition, further products focused on infectious diseases are in pre-clinical development.

Related business activities include product research and development, regulatory and clinical activities, commercial manufacturing and manufacturing of advanced clinical product candidates, as well as administrative, corporate development, and marketing and sales activities.

Intercell AG is a stock corporation (Aktiengesellschaft) under Austrian law with its headquarters located in 1030 Vienna, Campus Vienna Biocenter 3. The Company has its primary listing on the Vienna Stock Exchange.

Intercell AG directly or indirectly holds interests in the following subsidiaries:

Name Intercell Biomedical, Ltd. Intercell USA, Inc. (formerly IOMAI Corporation) Intercell NC, Inc. (formerly Intercell USA, Inc.) Pelias Beteiligungs GmbH Pelias Biotechnologies GmbH

Country of

incorporation UK

Interest held at December 31, 2009

2008 100% 100%

USA USA Austria Austria

100% - merged merged

100% 100% 100% 100%

Intercell Biomedical Ltd., Livingston, United Kingdom, operates a dedicated biologics manufacturing facility used for production of the Company’s Japanese Encephalitis vaccine. Intercell USA, Inc. is engaged in the discovery and development of novel vaccines and adjuvants, delivered via the patch-based, needle-free

Intercell . annual report . 2009

65

¦ V ¦ Notes to the consolidated financial statements

delivery system. Intercell USA, Inc. was consolidated from August 1, 2008. Intercell NC, Inc., Mooresville, North Carolina, and Pelias Beteiligungs GmbH, Vienna, Austria, together with its subsidiary Pelias Biotechnologies GmbH, have been liquidated and merged into the parent company, respectively.

These consolidated financial statements have been authorized for issue by the Management Board on the day of signature. The individual financial statements of the parent company, which are part of the consolidated financial statements after reconciliation to the Company accounting standards, will be reviewed and adopted by the Supervisory Board. The Supervisory Board and – in the event of submission to the Annual General Meeting – the shareholders are allowed to make changes to the individual financial statements. This would affect the presentation of the consolidated financial statements.

)

2 Summary of significant accounting policies The principal accounting policies applied in preparing these consolidated financial statements are outlined below. These policies have been consistently applied to all the years presented.

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2 . 1 Ba s i s of presentation

These 2009 Consolidated Financial Statements have been prepared under Sec. 245a of the Austrian Code of Commerce (UGB) in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union.

These consolidated financial statements have been prepared using the historical cost convention, as modified by the fair value valuation of available-for-sale financial assets.

The preparation of financial statements in conformity with IFRS as adopted by the European Union requires the use of certain critical accounting estimates. It also requires the Company’s management to exercise its judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 4.

For ease of presentation, numbers have been rounded and, where indicated, are presented in thousands of Euros. Calculations, however, are based on exact figures. Therefore, the sum of the numbers in a table column may not conform to the total figure displayed in the column.

For the years ended December 31, 2008, and December 31, 2007, the deferred income has been reclassified into a non-current and a current portion. Furthermore, for the year ended December 31, 2008, deferred taxes relating to the available-for-sale financial assets, which had been included in deferred income tax assets, were reclassified to other reserves. In addition, for the year ended December 31, 2008, a security deposit relating to the finance lease agreement for the head office and research laboratory building in Vienna which had been included in long-term borrowings, was reclassified to other long-term assets. The cash flow was reclassified accordingly. All these reclassifications, which were made to improve presentation as well as comparability, are listed below:

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EUR in thousands LIABILITIES Non-current liabilities Deferred income

Current liabilities Deferred income

EUR in thousands

December 31, 2007

December 31, 2007 Reclassification reclassified

-

16,539

16,539

44,343

(16,539)

27,805

December 31, 2008

December 31, 2008 Reclassification reclassified

ASSETS

Other non-current assets 197 10,083 Deferred income tax assets 22,542 1,476

EQUITY

Other reserves 14,220 1,476

LIABILITIES

Non-current liabilities

Borrowings 28,920 10,083 Deferred income - 27,217

Current liabilities

Deferred income 45,388 (27,217)

EUR in thousands

Year ended December 31, 2008

15,696

39,004 27,217

18,172

Year ended December 31, 2008 Reclassification reclassified

Cash flows from investing activities

Purchases of property, plant and equipment (44,259) 27,275 Proceeds from sale of property, plant and equipment 30 9,196 Cash outflow for security deposit in connection with finance lease - (10,083)

Cash flows from financing activities Proceeds from borrowings 27,717 (26,388)

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10,280 24,018

(16,984) 9,226 (10,083)

1,329

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¦ V ¦ Notes to the consolidated financial statements

)

2 . 2 I m p a ct of new, revised or amended S tandards and Interpretations

IAS 1 (Revised), ’Presentation of financial statements’ (effective from January 1, 2009).

In the statement of comprehensive income a two-statement approach is used. Items of comprehensive income are shown as a separate income statement and a separate statement of comprehensive income.

Furthermore, the share capital was split into nominal capital and additional capital paid in.

IFRS 7 ’Financial instruments – Disclosures’ (amendment) – effective from January 1, 2009.

Due to this amendment, additional information (three-level hierarchy) to fair value measurement as well as enhanced liquidity disclosure are included in the notes. The Company uses the exemption of not providing comparative information in the first year of application.

All other new standards, amendments and interpretations that were applicable in 2009 did not have a material impact on the financial statements of the Company.

Some standards, interpretations and amendments were already published, but are not yet endorsed by the European Union or are not yet applicable. These rules do not have a material impact on the financial statements, and are therefore not presented in detail.

)

2 . 3 Co n s olidation a ) Su b s i diaries

Subsidiaries are those entities over which the Company has the power to govern financial and operating policies. Control usually exists in situations where the Company has more than 50% of the voting rights.

Subsidiaries are fully consolidated as of the date on which the Company obtains such control. They are derecognized as of the date that such control ceases to exist.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Company.

The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued, and liabilities incurred or assumed on the date of exchange, plus costs directly attributable to the acquisition.

Identifiable assets acquired, liabilities, and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.

Inter-company transactions, balances, and unrealized gains on transactions between group companies are eliminated.

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2 . 4 S e g m ent reporting

The Company operates in a single business segment. For further disclosure see note 5.

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)

2 . 5 F o r e ign currency translation a ) Fu n c t ional and presentation currency

Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency).

The consolidated financial statements are presented in Euros, which is the Company’s functional and presentation currency. b ) Tr a n s actions and balances

Foreign currency transactions are converted into the functional currency using exchange rates applicable on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognized in the income statement.

Change in the fair value of monetary securities denominated in foreign currency and classified as “availablefor-sale” are analyzed by considering translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortized cost are accounted for in profit or loss and other changes in the carrying amount are accounted for in other comprehensive income. c ) Su b s i diaries

The results and financial position of all subsidiaries (none of which having the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are converted into the presentation currency as follows: (i) Assets and liabilities presented for each balance sheet are converted according to the exchange rate valid on the balance sheet date; (ii) Income and expenses for each income statement are converted at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are converted on the dates of the transactions); and (iii) All resulting exchange differences are recognized as other comprehensive income.

Upon consolidation, exchange differences arising from the conversion of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments are taken into shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that had been recorded under equity are recognized in the income statement as part of the gain or loss on sale.

)

2 . 6 R e v e nue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the amount of revenue and the costs incurred in the transaction can be reliably measured. Revenue comprises the fair value of the consideration received or receivable in the course of the Company’s ordinary activities for product sales, the grant of licenses, license options, or commercialization rights, and for services performed in collaboration

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with, or on behalf of, licensees or partners, as well as grants from governmental and non-governmental organizations designated to remunerate approved scientific research activities. Revenue is shown net of value-added tax, rebates, and discounts, and after eliminating sales within the Company. The Company bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognized as follows: a ) Sa l e o f goods

Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually upon delivery of the goods. In cases where the goods are sold via a distributor and where the consideration consists of a fixed part and a variable part, that is only payable upon the distributor’s sale of the product to the ultimate purchaser, the fixed consideration is recognized when the Company has delivered products to the distributor, the distributor has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the distributor’s acceptance of the products. The variable part of such consideration is recognized as soon as the distributor has sold the product to the market and all conditions for the Company to receive the variable consideration have been met. b ) R e v e n ues from collaborations and licensing

The Company generates revenues from collaboration and license agreements for its product candidates, and proprietary technologies. The terms of such agreements include license fees payable as initial fees, annual license maintenance fees, and fees to be paid upon achievement of milestones, as well as license option fees and fees for the performance of research services. In addition, the Company’s collaboration and licensing arrangements generally provide for royalties payable on the licensee’s future sales of products developed within the scope of the license agreement.

Under certain arrangements, the Company assumes multiple performance obligations, such as granting licenses and commercialization rights, supplying products or materials, and/or providing research services.

If the fair value of the components of such an arrangement can be reliably determined, then revenue is recorded separately for each component. If it is not possible to determine the fair value of each element of an arrangement and no specific element is considerably more significant than any other element, then revenue is recognized on a straight-line basis over the life of the agreement.

The Company recognizes initial fees for the granting of licenses under non-cancelable contracts, which permit the licensee to freely exploit the licensed intellectual property rights when such rights are assigned and associated know-how is delivered. Additional non-refundable license fees to be paid upon the achievement of certain milestones are recognized as revenue when such a milestone has been achieved.

Under certain arrangements, the Company receives non-refundable up-front fees for granting license options, which allow the licensee to obtain, upon execution of the option, a license for specific intellectual property rights on pre-defined terms and conditions. Such option premiums are deferred and amortized over the option period and the arrangement is not considered to give rise to a financial asset or liability.

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Fees received for the performance of research services are recognized as revenue when the service has been rendered and the collectability of the receivable is deemed probable. Up-front payments received for the future performance of research services are deferred and recognized when the research has been performed. c ) G r a n t income

Grants from governmental agencies and non-governmental organizations are recognized at their fair value where there is reasonable assurance that the grant will be received and the Company will comply with all conditions.

Grant monies received as reimbursement of approved research and development expenses are recognized as revenue when the respective expenses have been incurred and there is reasonable assurance that funds will be received. Advance payments received under such grants are deferred and recognized when these conditions have been met.

Government grant monies received to support the purchase of property, plant, and equipment are included in non-current liabilities as deferred government grants and are credited to the income statement on a straightline basis over the expected lives of the related assets. d ) I n t e r e st income

Interest income is recognized on a time-proportion basis using the effective interest method.

)

2.7 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

The Company leases certain property, plant and equipment. Leases of property, plant and equipment where the Company has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the useful life of the asset.

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)

2 . 8 Pr o p erty, plant and equipment

Property, plant and equipment mainly comprise a manufacturing facility and leasehold improvements in rented office and laboratory space. All property, plants and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and that the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Property, plant and equipment include machinery, for which validation is required to bring the asset to its working condition. The costs of such validation activities are capitalized together with the cost of the asset.

Validation costs beyond the normal validation costs which are usually required to bring an asset to its working condition are expensed immediately. The usual validation costs are capitalized on the asset and depreciated over the remaining life of the asset or the shorter period till the next validation is usually required.

Depreciation of assets is calculated using the straight-line method to allocate their cost amounts to their residual values over their estimated useful lives, as follows: Buildings, leasehold improvements Machinery, laboratory equipment Furniture, fittings and office equipment Hardware

10 - 40 years 2 - 15 years 4 - 10 years 3 - 5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is immediately written down to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement.

)

2 . 9 In t a ngible assets a ) Co m p uter software

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and implement the specific software. These costs are amortized over their estimated useful lives, generally three to five years.

Costs associated with developing or maintaining computer software programs are recognized as expenses when they have been incurred.

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b ) P r o d u ction technology

Acquired production technology represents the operational processes and standards regarding the production of biologics as well as quality control and quality assurance procedures according to current Good Manufacturing Practices (cGMP) standards. Production technology is amortized over its estimated useful life, generally five years. c ) In - p r ocess research and development projects

Acquired in-process research and development projects are capitalized. Amortization of the intangible asset over its useful life starts when the product has been fully developed and is ready for use. As long as the useful life is infinite, in-process research and development projects are tested annually for impairment and carried at cost less accumulated impairment losses. d ) D e v e l opment costs

Research expenses are recognized as expenses when they have been incurred. Development expenses incurred on clinical projects (related to the design and testing of new or improved products) are recognized as intangible assets when the following criteria have been fulfilled: (a) It is technically feasible to complete the intangible asset so that it will be available for use or sale; (b) Management intends to complete the intangible asset and to utilize or sell it; (c) There is an ability to utilize or sell the intangible asset; (d) It can be demonstrated how the intangible asset will generate probable future economic benefits; (e) Adequate technical, financial, and/or other resources to complete the development and to utilize or sell the intangible asset are available; and (f) The expenditure attributable to the intangible asset during its development can be reliably measured.

Other development expenditures that do not meet these criteria are recognized as expense when they have been incurred. Development costs that have been previously recognized as an expense are not recognized as an asset in a subsequent period. Capitalized development costs are recorded as intangible assets and amortized from the point at which the asset is ready for use on a straight-line basis over its useful life, generally 15 years.

)

2 . 1 0 I m p airment of non-financial assets

Assets that have an indefinite useful life, for example goodwill and capitalized in-process research and development projects not ready for use, are not subject to amortization and are tested annually for impairment. Assets that are subject to depreciation and amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less selling costs and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

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)

2 . 1 1 Fi n ancial assets

The Company classifies its financial assets into the following categories: a) loans and receivables, and b) available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. a ) Lo a n s and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Company provides money, goods, or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except those with maturities beyond 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as “trade receivables and other assets” in the balance sheet (note 2.13).

Loans and receivables are carried at amortized cost using the effective interest method.

Impairment testing of trade receivables is described in note 2.13. b ) A v a i l able-for-sale financial assets

Available-for-sale financial assets are those intended to be held for an indefinite period of time which may be sold in respect to needs for liquidity or changes in interest rates, exchange rates or equity prices. Assets in this category are classified as current assets if they are expected to be realized within 12 months of the balance sheet date.

Purchases and sales of financial assets are recognized on the trade date - the date on which the Company commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs and available-for-sale financial assets are subsequently carried at fair value. Financial assets are derecognized when such a financial asset has been transferred or substantially all risks and rewards of ownership have been transferred, or when the rights to receive cash flows from the financial asset have expired.

Changes in the fair value of financial assets denominated in a foreign currency and classified as available-forsale are analyzed between translation differences resulting from changes in amortized cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognized in profit or loss. Changes in the fair value of monetary securities classified as available-for-sale are recognized in other comprehensive income.

When financial assets classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as “realized fair value gains or losses”. The fair value of shares in an investment fund is determined by the daily redemption price at which such shares can be sold, as quoted by the fund, based on the fund’s net asset value.

Interest on available-for-sale financial assets calculated using the effective interest method is recognized in the income statement as part of financial income.

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For each balance sheet date, the Company assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. For equity securities classified as available-for-sale, a decline in fair value below acquisition cost is considered as an indicator that the securities are impaired. If any such evidence exists, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on the financial asset that was previously recognized in profit or loss – is removed from other comprehensive income and recognized in the income statement. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

)

2 . 1 2 I n v entories

)

2 . 1 3 Tr a de receivables and other assets

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out (FIFO) method, specifically the first-expiry first-out (FEFO) method. The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

Trade receivables are initially recognized at fair value and are subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and/or default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the income statement within ‘General, selling and administrative expenses’. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘General, selling and administrative expenses’ in the income statement.

)

2 . 1 4 Ca s h and cash equivalents

)

2 . 1 5 No minal capital and additional capital paid in

Cash and cash equivalents include cash in hand, deposits held at call with banks, and time deposits.

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds, net of tax.

When the Company purchases its own equity share capital (treasury shares), the consideration paid, including any directly-attributable incremental costs (net of income taxes) is deducted from equity

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attributable to the Company’s equity holders until the shares are cancelled, reissued or otherwise disposed of. In cases where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and related income tax effects, is included in equity attributable to the Company’s equity holders.

)

2 . 1 6 Tr a de payables

)

2 . 1 7 Bo r rowings

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

Borrowings are initially recognized at fair value if determinable, net of transaction costs incurred.

Borrowings are subsequently stated at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

)

2 . 1 8 Cu r rent and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive income or directly in equity, respectively. The current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit/loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

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Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not be reversed within the foreseeable future.

)

2 . 1 9 Em ployee benefits a ) Sh a r e - based compensation

Equity-settled transactions The Company operates an equity-settled, share-based compensation plan. The fair value of such sharebased compensation is recognized as an expense for employee services received in exchange for the grant of the options. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Nonmarket vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Company revises its estimates of the number of options that are expected to become exercisable. It recognizes the impact of the revision of original estimates, if any, in the income statement, and makes a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to nominal capital (nominal value) and share premium (amount exceeding nominal value) when the options are exercised.

Cash-settled transactions The cost of cash-settled transactions is measured initially at fair value at the grant date using a Black Scholes model. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is re-measured to fair value at each reporting date, up to, and including, the settlement date, with changes in fair value recognized in employee benefits expense. b ) B o n u s plans

The Company recognizes a liability and an expense for bonuses. The Company recognizes a liability when it has assumed a contractual obligation or where there is a past practice that has created a constructive obligation.

) )

3 Financial risk management 3 . 1 F i n a ncial risk factors

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk, and price risk), credit risk, and liquidity risk.

The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.

Financial risk management is carried out by a central finance department under the close supervision of the Management Board. The central finance department identifies, evaluates, and manages financial

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ÂŚ V ÂŚ Notes to the consolidated financial statements

risks. The Management Board submits regular reports on its risk management systems, including the management of financial risks, to the audit committee of the Supervisory Board. a ) M a r k et risk Foreign exchange risk

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the U.S. Dollar and the British Pound. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities, and net investments in foreign operations.

The objective of the Company is to limit the potential negative impact of the foreign exchange rate changes.

To date, foreign exchange rate exposure has not resulted in any significant exchange rate gains or losses.

The Company has adopted a hedging policy but at December 31, 2009 does not have any hedging instrument for its currency exposure in place.

The Company has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk.

At December 31, 2009, if the U.S. Dollar had weakened by 10% against the Euro, with all other variables held constant, pre-tax loss for the year would have been higher by EUR 735 thousand (2008: EUR 319 thousand), mainly as a result of foreign exchange losses on the translation of U.S. Dollar-denominated cash equivalents and trade receivables, partly offset by a positive effect from trade payables. Income was more sensitive to fluctuations in the Euro/U.S. Dollar exchange rate at the balance sheet date in 2009 than it was in 2008 because of the increased amount of trade receivables.

At December 31, 2009, if the British Pound had weakened by 10% against the Euro with all other variables held constant, pre-tax loss for the year would have been EUR 69 thousand higher (2008: EUR 10 thousand lower), mainly as a result of foreign exchange losses on the translation of British Pound-denominated cash equivalents, partly offset by trade payables.

At December 31, 2009, if the Swiss franc had weakened by 10% against the Euro with all other variables held constant, pre-tax loss for the year would have been EUR 2 thousand lower (2008: EUR 14 thousand), mainly as a result of foreign exchange profits on the translation of Swiss franc-denominated trade payables.

Price risk

The Company is exposed to debt securities price risk because of investments held by the Company and classified on the consolidated balance sheet as available-for-sale, which depends on factors like interest rate changes, credit spreads, market liquidity, and general economic conditions.

The Company is not exposed to commodity price risk.

At December 31, 2009, the calculated impact on other comprehensive income of a 1% shift in prices of debt securities would be EUR 953 thousand (2008: EUR 1,593 thousand).

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Cash flow and fair value interest rate risk

The Company is exposed to cash flow interest rate risk from its investments in interest-bearing non-derivative assets and borrowings subject to variable interest rates.

The Company’s interest rate risk arises mainly from investments in debt securities, either directly or through mutual funds and finance leasing. Debt securities issued at variable rates expose the Company to cash flow interest rate risk. Debt securities issued at fixed rates expose the Company to fair value interest rate risk. The Company’s policy is to maintain the major part of its investments in variable rate instruments and when investments in fixed interest rate instruments are made, to select instruments with a short duration. Borrowings issued at variable rates expose the Company to cash flow interest rate risk which is offset by cash and financial assets held at variable rates. During 2009 and 2008, the Company’s investments at variable rate were mainly denominated in Euros; minor variable rate investments were denominated in U.S. Dollars and British Pounds. Borrowings at variable rate were denominated in Euros.

The Company analyses its interest rate exposure on a dynamic basis. Based on this analysis, the Company calculated the impact on profit and loss of a defined interest rate shift. The same interest rate shift was used for all currencies. The calculation only includes investments in available-for-sale securities and cash in banks that represent major interest-bearing positions. As of the balance sheet date, the calculated impact on income before tax of a 0.25% shift would be an increase or decrease of EUR 269 thousand (2008: EUR 325 thousand).

The Company has policies in place to limit the potential impact on income and operating cash flows arising from changes in interest rates. As of December 31, 2009, available-for-sale financial assets comprise government bonds, floating rate notes, and mutual funds, which mainly invest in short-term deposits, short-term debt securities, asset-backed securities, and other money market instruments. b ) C r e d i t risk

The Company is exposed to concentrations of credit risk. The Company holds bank accounts, cash balances, and securities at quality financial institutions with high credit ratings. To monitor the credit quality of its counterparts, the Company relies on credit ratings as published by specialized rating agencies such as Standard & Poor’s, Moody’s, and Fitch. The Company has policies that limit the amount of credit exposure to any single financial institution. The Company is also exposed to credit risk from its trade debtors, as its collaborations and licensing income arose from a small number of transactions. The Company has policies in place to enter into such transactions only with highly reputable, financially sound counterparts.

If customers are independently rated, these ratings are used. Otherwise, in the case that there is no independent rating, risk management assesses the credit quality of the customer, taking into account its financial position, past experience, and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The credit quality of financial assets is described in note 14.3.

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¦ V ¦ Notes to the consolidated financial statements

c ) L i q u i dity risk

The Company’s limited amount of financial liabilities only implies limited liquidity risk resulting from the maturity of such liabilities. However, substantial liquidity risk results from the fact that the Company’s operating cash flow is subject to fluctuations during accounting periods because its stream of revenue mainly depends on a limited number of payment events resulting from collaboration and licensing arrangements, while product development activities lead to substantial ongoing expenditures. Prudent liquidity risk management therefore implies maintaining sufficient cash and marketable securities in order to satisfy ongoing operating requirements and the ability to close out market positions. Extraordinary conditions on the financial markets may, however, temporarily restrict the possibility to liquidate certain financial assets.

The table below analyses the Company’s financial liabilities into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

At December 31, 2009 Borrowings (excluding finance lease liabilities)1 Finance lease liabilities Trade and other payables

At December 31, 2008 Borrowings (excluding finance lease liabilities)1 Finance lease liabilities Trade and other payables

Less than 1 year

Between 1 and 3 years

Between 3 and 5 years

Over 5 years

1,674 1,355 19,939 22,968

1,186 3,348 382 4,916

1,312 2,775 - 4,087

1,829 32,121 33,950

Less than 1 year

Between 1 and 3 years

Between 3 and 5 years

Over 5 years

652 2,642 19,854 23,147

2,130 5,224 409 7,763

532 7,138 - 7,670

929 38,591 39,520

1

The categories in this disclosure are determined by IAS 39. Finance leases are mostly outside the scope of IAS 39,

but they remain within the scope of IFRS 7. Therefore finance leases have been shown separately.

The fair values as well as the book values of the Company’s borrowings are disclosed in note 25.

To manage liquidity risk, the Company holds sufficient cash balances and generally invests in securities that can be promptly converted into cash. In addition, the Company diversifies its investments in debt securities across different classes of issuers and debt instruments, such as government bonds, floating rate notes, and mutual money market funds.

Intercell . annual report . 2009

80

¦ V ¦ Notes to the consolidated financial statements

)

3 . 2 A c c o unting for derivative financial instruments and hedging activities

)

3 . 3 Ca p i tal risk management

At the balance sheet date, the Company has no derivative financial instruments and does not engage in any hedging activities.

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide benefits for shareholders and for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may issue new shares or sell assets to reduce debt.

Consistent with its stage of development as a biotech company without stable cash flows from product sales, the Company principally relies on equity financing.

)

3 . 4 F a i r value estimation

The fair value of financial instruments traded on active markets (such as available-for-sale securities) is based on market prices or dealer quotes at the balance sheet date.

The fair value of financial instruments that are not traded on an active market is determined by using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing upon each balance sheet date, such as estimated discounted cash flows and market prices or dealer quotes for similar instruments.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to the relatively short maturity of the respective instruments. The fair value of investment funds held as available-for-sale financial assets is based on current bid rates offered by the investment fund manager based on the current market price of the fund’s assets on the balance sheet date. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financial instruments.

)

4 Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

)

4 . 1 Cr i t i cal accounting estimates and assumptions

The Management makes estimates and assumptions concerning the future. Actual future results may, by definition, differ from accounting estimates resulting from such estimates and assumptions.

Intercell . annual report . 2009

81

¦ V ¦ Notes to the consolidated financial statements

A v a i l a b l e-for-sale financial assets

The Company holds securities as part of its short-term cash management strategy. Such securities are accounted for as available-for-sale financial instruments (according to IAS 39.9) and include government bonds, floating rate notes and mutual funds. Available-for-sale financial assets are initially recognized at fair value plus transaction costs and subsequently carried at fair value. Changes in the fair value of available-for-sale financial assets are recognized in other comprehensive income. When available-forsale securities are sold or impaired, the accumulated fair value adjustments are included in the income statement as “realized fair value gains or losses”.

At December 31, 2009 the total fair value of available-for-sale financial assets was EUR 95,808 thousand, of which EUR 3,784 thousand correspond to a euro-denominated fund with its principal investments in asset-backed securities. Fair value losses, currently recorded in other comprehensive income, attributable to this fund are EUR 4,008 thousand. The fund has been suspended from trading as a consequence of the financial crisis on the asset-backed securities markets. Management’s best estimate of fair value as of balance sheet date is based on the indicative net asset value provided by the investment trust. No impairment charges on this fund have been included in the income statement. Should the Company decide to dispose of this fund at the current net asset value provided by the investment trust or should there be objective evidence for an impairment need that can be reliably estimated according to IAS 39.59 in the future, the incurred fair value losses on this fund will negatively impact the Company’s income statement. In addition, further turmoil in the asset-backed securities markets may lead to further fair value losses of the fund.

S h a r e - b a sed payments

The fair value of share options granted to the Company’s management and its employees is determined by using valuation techniques. As there had been no public market for the Company’s equity securities until February 2005, Management’s judgment as to the fair value was required and a number of estimates in applying such valuation techniques for the accounting periods before this date had to be made. Beginning from 2005, the Management’s judgment in regard to the estimated volatility was required for valuation of the Black Scholes Model. In the past, the historical volatilities have been used for the estimation of future volatilities. From 2008 on, due to the current fluctuations on the stock exchange, the Management used the best estimate on historical volatilities from prior years.

I m p a i r m ent testing of acquired research and development projects

The Company acquired intangible assets (in-process research & development projects) on acquisitions of companies which amounted to EUR 180.8m at the balance sheet date.

Determining whether the carrying amounts of in-process research and development projects are impaired, requires an estimation of the net present value of the research and development projects to which these values have been allocated. The net present value calculation (risk-adjusted discounted cash-flow method) requires the Management Board to estimate future cash-flows expected to arise from the projects, suitable risk-adjustment parameters reflecting the probability of project success and a suitable discount rate in order to calculate the present value.

Intercell . annual report . 2009

82

¦ V ¦ Notes to the consolidated financial statements

)

4 . 2 Cr i t i cal judgments in applying the entity’s accounting policies R e v e n u e recognition

The Company principally generates revenues from collaboration and license agreements for its product candidates and proprietary technologies. Such agreements usually provide for multiple performance obligations and multiple fee components. Management’s judgment is required to determine whether such different elements of an agreement are, from the partner’s perspective, viewed as one transaction or as separately identifiable components, and, where revenue recognition criteria are applied separately to multiple components of an agreement, to determine the fair value of each component of an arrangement.

De f e r r e d taxes and D evelopment costs

On December 15, 2008, the Company received a positive opinion from European Committee for Human Medicinal Products (CHMP) for the approval of its first product, a Japanese Encephalitis vaccine.

Subsequently, the Company obtained marketing authorizations for its first product in major markets, including Europe, United States, and Australia, which allowed for the market launch in early 2009.

Management’s judgment is that with the approvals the ability to utilize the product is achieved and that the product will generate probable future economic benefits. From this date on, the sufficient evidence has been provided that sufficient taxable profit will be available against which the unused tax losses can be utilized in the foreseeable future. Therefore the deferred tax asset was recognized from 2008 onward. Also, development costs from that date on will be capitalized when occurred. At the end of 2009, due to the introduction of a group taxation scheme under Austrian tax law, the Company was allowed to include tax losses from its subsidiaries outside of Austria in the calculation of income tax and changed its tax accounting policy. Such additional tax losses carried forward will not be capitalized from 2009 onwards, as there is no sufficient evidence that such unused tax losses can be utilized.

V a l i d a t i on costs on the Property, plant and equipment

The usual costs of validation required to bring assets to their working condition have to be capitalized on the property, plant and equipment and depreciated over the remaining life or the shorter period till the next normal validation is required. Generally, it is required to manufacture three consistency batches for validation after material changes in the commercial facility or process changes have been implemented.

Management believes, based on past experience in biologics manufacturing, that usually manufacturing of five to six batches is required to result in the necessary number of valid consistency validation batches.

Therefore, manufacturing costs for a higher number of batches and failed validation batches are deemed as unusual validation costs. These unusual validation costs are expensed immediately.

Intercell . annual report . 2009

83

¦ V ¦ Notes to the consolidated financial statements

)

5 Segment information The Company operates in one reportable segment, which comprises the development, production and marketing of vaccines. The Company identified the Management Board as the “chief operating decision maker”. The Management Board reviews the consolidated operating results regularly to make decisions about resources and to assess overall performance.

)

5 . 1 G e o g raphical segments

In presenting information on the basis of geographical segments, segment revenue is based on the final location where our distribution partner sells the product or the customer/partner is located. Segment assets are based on the geographical location of the assets.

EUR in thousands

Austria Europe – without Austria USA Other Revenues

EUR in thousands

Austria Europe – without Austria USA Non-current assets

Year ended December 31, 2009

2008 1,259 43,595 15,793 1,034 61,681

Year ended December 31, 2009 2008 67,455 10,829 167,807 246,091

1,002 39,803 14,833 125 55,763

As at January, 1,

2008

59,476 6,123 168,189 233,787

23,080 8,132 31,212

Non-current assets for this purpose consist of property, plant and equipment and intangible assets.

)

5 . 2 I n f o r mation about major custom ers

Collaboration and licensing revenue from the two largest customers amounted to EUR 5,000 thousand (2008: EUR 10,000 thousand) and EUR 25,200 thousand (2008: EUR 0 thousand) respectively. Product sales to the largest distribution partner amounted to EUR 5,088 thousand (2008: EUR 0 thousand).

Intercell . annual report . 2009

84

ÂŚ V ÂŚ Notes to the consolidated financial statements

)

6 Expenses by nature Cost of goods sold, research and development expenses and general, selling, and administrative expenses include the following items by nature of cost:

EUR in thousands

Consulting & other purchased services Employee benefit expense (note 7) Depreciation and amortization Building and energy costs Raw materials and consumables used Supply, office, and IT costs Travel and transportation costs Advertising costs License fees Other expenses Less: amounts capitalized as development costs and inventory Cost of goods sold, research and development expenses and general, selling, and administrative expenses

Year ended December 31, 2009

2008 44,981 35,221 5,331 5,344 4,375 2,005 1,986 584 670 340 (8,494)

31,157 29,033 2,996 4,417 5,283 1,524 2,219 458 239 408 (5,544)

92,344

72,189

According to Sec. 245a of the Austrian Code of Commerce (UGB) in accordance with Sec. 266 of the Austrian Code of Commerce (UGB) the Company has to disclose the expenses for the statutory auditor.

In 2009, these expenses amounted to EUR 136 thousand (2008: EUR 165 thousand) and the details of the expenses are as follows:

EUR in thousands

Audit of consolidated and individual financial statements Other assurance services Other services Expenses for auditors

Intercell . annual report . 2009

Year ended December 31, 2009

2008 75 61 - 136

74 67 24 165

85

¦ V ¦ Notes to the consolidated financial statements

)

7 Employee benefit expense Employee benefit expenses include the following:

EUR in thousands

Salaries Social security contributions Training and education Share options granted to management and employees Other employee benefits Employee benefit expense

Year ended December 31, 2009

2008 24,453 5,240 714 4,160 654 35,221

19,508 4,165 618 4,122 620 29,033

During the year 2009, an average of 396 white-collar workers and 7 blue-collar workers were employed (2008: 321 white-collar and 5 blue-collar workers).

)

8 Other income/(expenses), net Other income, net of other expenses, includes the following:

EUR in thousands

Foreign exchange gain/(loss), net Taxes, duties, fees, charges, other than income tax R&D tax credit Miscellaneous income/(expenses), net Other income/(expenses), net

Year ended December 31, 2009

2008 (1,941) (122) 2,050 208 195

(1,349) (221) 4,066 111 2,608

R&D tax credit is an Austrian tax premium of 8% on research and development expenses, which is credited to a company’s tax account and may be paid out in cash.

Intercell . annual report . 2009

86

¦ V ¦ Notes to the consolidated financial statements

)

9 Finance income/(expenses)

EUR in thousands

Year ended December 31, 2009

2008

Finance income

- Interest income from bank deposits - Interest income on available-for-sale financial assets

269 4,046 4,315

1,367 7,102 8,469

(1,117) (1,128) - (2,245) 2,070

(617) (847) (569) (2,034) 6,435

Finance expense

- Interest expense to banks and government agencies - Realized losses from the sale of available-for-sale financial assets - Net foreign exchange loss on financing activities

Net finance income

The company benefits from government assistance through arranging borrowing facilities that would have otherwise not been available to the Company. This assistance includes guarantees for the amount outstanding.

) )

10 Income tax 1 0 . 1 Ta x income

Income tax income is comprised of current and deferred tax.

EUR in thousands

Current tax Deferred tax Income tax

Year ended December 31, 2009

2008 (16) 10,040 10,023

(20) 24,577 24,557

The individual entities’ reconciliations – prepared on the basis of the tax rates applicable in each country and while taking consolidation procedures into account – have been summarized in the reconciliation below. The estimated tax charge is reconciled to the effective tax charge disclosed.

The tax on the Company’s loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows:

Intercell . annual report . 2009

87

ÂŚ V ÂŚ Notes to the consolidated financial statements

EUR in thousands

Loss before tax Tax calculated at domestic tax rates applicable to profits in the respective countries Income not subject to tax Expenses not deductible for tax purposes Unused tax losses carried forward previously not recognized and adjustments in respect of prior years Exchange differences Income tax credit Minimum corporate income tax Withholding tax Income tax

Effective tax rate

Year ended December 31, 2009

2008 (28,398)

(7,383)

10,481 662 (1,488)

4,088 1,567 (1,058)

(1,069) 482 973 (4) (13) 10,023

19,685 (126) 422 (7) (13) 24,557

35%

333%

The weighted average applicable tax rate was 37% (2008: 55%). The decrease is caused by a change in the profitability of the Company’s subsidiaries in the respective countries.

)

1 0 . 2 D e f erred tax

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.

The offset amounts are as follows:

EUR in thousands

Deferred tax assets: - Deferred tax asset to be recovered after more than 12 months - Deferred tax asset to be recovered within 12 months

Deferred tax liabilities: - Deferred tax liability to be recovered after more than 12 months - Deferred tax liability to be recovered within 12 months

Deferred tax, net

Intercell . annual report . 2009

Year ended December 31, 2009

2008

81,602 1,609 83,211

73,400 700 74,100

(72,092) (24) (72,116) 11,095

(72,647) (234) (72,881) 1,219

88

ÂŚ V ÂŚ Notes to the consolidated financial statements

The gross movement on the deferred income tax account is as follows: EUR in thousands Beginning of year Exchange differences Acquisition of subsidiary Income statement charge Tax charged directly to equity End of year

2009

2008

1,219 176 - 10,040 (340) 11,095

(3,495) (10) (25,045) 24,437 5,331 1,219

The deferred tax assets and liabilities are allocable to the various balance sheet items as follows:

EUR in thousands Deferred tax asset from

Tax losses carried forward Stock compensation Fixed assets Other items Total deferred tax assets

Deferred tax liability from

Available for sale financial assets Accelerated tax depreciation Intangible assets Other items Total deferred tax liability

Deferred tax, net

2009

At December 31,

2008

76,910 128 1,039 5,134 83,211

69,262 101 1,020 3,717 74,100

(17) (2,756) (69,336) (6) (72,116)

(229) (1,467) (71,180) (6) (72,881)

11,095

1,219

The tax losses of EUR 9,439 thousand (2008: EUR 7 thousand) that were carried forward are not recognized as it is not considered probable that future taxable profits will be available against the unused tax losses.

The resulting deferred tax assets were only recognized for entities where sufficient evidence has been provided that sufficient taxable profit will be available against which the unused tax losses can be utilized in the foreseeable future.

Operating loss carry forwards of approximately EUR 120,340 thousand and the research and development credits of EUR 3,634 thousand will begin to expire in the year 2021 if unused.

Intercell . annual report . 2009

89

ÂŚ V ÂŚ Notes to the consolidated financial statements

) )

1 1 E a r n i n g s / L o s s e s p e r s h a r e 1 1 . 1 Ba s ic

Basic earnings/losses per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of outstanding shares during the year, excluding shares purchased by the Company and held as treasury shares (note 19).

Net profit/(loss) attributable to equity holders of the Company (EUR in thousands) Weighted average number of outstanding shares

Basic earnings/(losses) per share (EUR per share)

)

Year ended December 31, 2009

2008 (18,375)

17,175

47,056,606

45,858,291

(0.39)

0.37

1 1 . 2 D i l uted

Diluted earnings per share are calculated by adjusting the weighted average number of ordinary outstanding shares to assume conversion of all dilutive potential ordinary shares. The Company has share options as dilutive potential ordinary shares. For the share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

In 2009, diluted losses per share equal basic losses per share as the conversion of all potentially dilutive shares (outstanding share options, note 20) would result in a decrease in the loss per share and is therefore not to be treated as dilutive.

Year ended December 31,

2008

Profit used to determine diluted earnings per share (EUR in thousands)

17,175

Weighted average number of outstanding shares Adjustments for share options Weighted average number of outstanding shares for diluted earnings per share

45,858,291 788,570 46,646,860

Diluted earnings per share (EUR per share)

Intercell . annual report . 2009

0.37

90

ÂŚ V ÂŚ Notes to the consolidated financial statements

)

1 2 P r o p e r t y , p l a n t a n d e q u i p m e n t

EUR in thousands

Buildings and leasehold improve- ments

Manu- facturing and laboratory equipment

Computer hardware

Furniture, fittings and other

Assets in the course of con- struction

Total

At January 1, 2008

Cost 7,594 8,081 1,042 Accumulated depreciation (1,536) (3,771) (566) Net book value 6,058 4,310 476

Year ended December 31, 2008

Opening net book value 6,058 4,310 476 Exchange rate differences (1,215) (144) (30) Acquisition of subsidiary (note 29) 995 2,663 - Additions 33,175 2,443 261 Reclassification 793 - - Disposals - (13) (3) Depreciation charge (822) (1,447) (211) Closing net book value 38,983 7,812 493

At December 31, 2008

Cost 44,475 15,077 1,250 Accumulated depreciation (5,492) (7,266) (757) Net book value 38,983 7,812 493

573 (290) 283

829 - 829

18,119 6,163 11,956

283 44 392 675 - (34) (158) 1,203

829 (34) 16 2,326 (793) - - 2,344

11,956 (1,379) 4,066 38,880 (50) (2,638) 50,834

2,244 (1,041) 1,203

2,344 - 2,344

65,390 (14,556) 50,834

Intercell . annual report . 2009

91

ÂŚ V ÂŚ Notes to the consolidated financial statements

EUR in thousands

Buildings and leasehold improve- ments

Manu- facturing and laboratory equipment

Computer hardware

Furniture, fittings and other

Assets in the course of con- struction

Total

Year ended December 31, 2009

Opening net book value 38,983 7,812 493 Reclassification computer hardware - - 160 Opening net book value, reclassified 38,983 7,812 653 Exchange rate differences 264 11 - Additions 3,280 1,480 278 Reclassification 1,209 1,109 - Disposals (343) (389) (9) Depreciation charge (1,702) (2,323) (369) Closing net book value 41,691 7,699 553

December 31, 2009

Cost 47,044 15,716 1,962 Accumulated depreciation (5,353) (8,017) (1,409) Net book value 41,691 7,699 553

1,203 (160) 1,043 (7) 167 48 (101) (177) 972

2,344 - 2,344 22 5,520 (2,366) - - 5,520

50,834 50,834 290 10,725 (842) (4,571) 56,435

1,557 (586) 972

5,520 - 5,520

71,800 (15,365) 56,435

For the year ended December 31, 2008, computer hardware with a net book value amounting to EUR 160 thousand, which had been included in furniture, fittings, and other, was reclassified to computer hardware.

Depreciation and amortization expenses of EUR 2,715 thousand (2008: EUR 1,710 thousand) were charged to research and development expenses and EUR 180 thousand (2008: EUR 119 thousand) to general, selling, and administrative expenses.

Operating property leases amounting to EUR 1,690 thousand (2008: EUR 1,425 thousand) are included in the income statement.

Intercell . annual report . 2009

92

ÂŚ V ÂŚ Notes to the consolidated financial statements

Property, plant and equipment contain the following amounts where the Company is a lessee under a finance lease agreement for the head office and research laboratory building in Vienna, including a waiver of termination right for 15 years as well as a purchase option:

EUR in thousands

)

Buildings and leasehold improve- ments

Manu- facturing and laboratory equipment

Computer hardware

Furniture, fittings and other

Assets in the course of con- struction

Total

At December 31, 2008

Cost 33,612 1,150 Accumulated depreciation (181) (31) Net book value 33,431 1,119

December 31, 2009

Cost 34,795 2,128 Accumulated depreciation (995) (345) Net book value 33,800 1,782

126 (5) 120

604 (10) 593

979 - 979

36,470 (227) 36,243

126 (33) 92

604 (82) 522

- - -

37,653 (1,456) 36,197

Production technology

In-process R&D

Develop- ment costs

Advance payments

Total

13 Intangible assets

EUR in thousands Software January 1, 2008 Cost Accumulated depreciation Net book value

523 (212) 311

64 (43) 21

18,924 - 18,924

- - -

- - -

19,511 (255) 19,256

Year ended December 31, 2008 Opening net book value Exchange rate differences Addition of subsidiary (note 29) Additions Disposals Amortization charge Closing net book value

311 19 156 183 (2) (181) 487

21 (5) - - - (16) -

18,924 17,283 144,807 - - - 181,013

- - - - - - -

- - - - - - -

19,256 17,297 144,963 183 (2) (197) 181,500

Intercell . annual report . 2009

93

¦ V ¦ Notes to the consolidated financial statements

Production technology

In-process R&D

Develop- ment costs

Advance payments

Total

1,085 (598) 487

- - -

181,013 - 181,013

- - -

- - -

182,097 (598) 181,500

EUR in thousands Software December 31, 2008 Cost Accumulated depreciation Net book value Year ended December 31, 2009 Opening net book value Adjustment purchase price allocation (note 29) Opening net book value, adjusted Exchange rate differences Additions Disposals Amortization charge Closing net book value

487

-

181,013

-

-

181,500

- 487 (4) 531 - (329) 686

- - - - - - -

1,452 182,465 (5,551) 3,844 - (145) 180,612

- - - 8,512 - (229) 8,282

- - - 76 - - 76

1,452 182,953 (5,555) 12,963 (703) 189,656

December 31, 2009 Cost Accumulated depreciation Net book value

1,542 (856) 686

- - -

180,758 (145) 180,612

8,512 (229) 8,282

76 - 76

190,887 (1,231) 189,656

In 2008, assets acquired through the acquisition of Intercell USA, Inc. include in-process research and development projects. These projects have been re-valued and capitalized as intangible assets at their fair value at the date of acquisition of in total EUR 146,104 thousand.

)

1 3 . 1 I m p airment testing of in-process research & development projects

The book values of in-process research and development projects capitalized have been assessed annually for impairment testing purposes using the risk-adjusted discounted cash-flow method.

The value-in-use calculations use post tax project cash-flow projections based on the Company’s long range business model including management’s best estimate on probability of success of the respective projects (risk-adjustment) and a discount rate of 12% per annum.

The long range business model covers a period of 20 years and therefore accounts for all project related cash flows from the development stage over the market entry until the market phase-out (project life cycle) of the relevant projects.

The discount rate of 12% per annum is based on 4.36% risk-free rate, 5% market risk premium, a beta of 0.79 and 3.70% size premium.

Intercell . annual report . 2009

94

¦ V ¦ Notes to the consolidated financial statements

)

1 3 . 2 S e n sitivity to changes in assum ptions

The net present value calculations are most sensitive to the following assumptions: • Probability of project success • Discount rate The result of research and development projects is inherently uncertain and the Company may experience delays or failures in clinical trials. A failure to demonstrate safety and efficacy in clinical product development of one of the acquired research and development projects would result in an impairment loss.

The net present value calculation uses a discount rate of 12% per annum. An increase in the discount rate of one percentage point would result in an impairment loss of EUR 16.0m.

) )

14 Financial instruments 1 4 . 1 F i n ancial instruments by category December 31, 2008 EUR in thousands

Loans and receivables

Assets as per balance sheet Available-for-sale financial assets Trade and other receivables1 Cash and cash equivalents Assets

Available for sale

Total

160,969 - - 160,969

160,969 24,594 29,896 215,459

- 24,594 29,896 54,490

Other financial liabilities

Liabilities as per balance sheet

Borrowings (excluding finance lease liabilities)2 4,553 Finance lease liabilities2 36,340 Trade and other payables 20,263 Liabilities

61,156 Prepayments and tax receivables are excluded from the trade and other receivables balance, as this analysis is required only for financial instruments.

2 The categories in this disclosure are determined by IAS 39. Finance leases are mostly outside the scope of IAS 39, but they remain within the scope of IFRS 7. Therefore finance leases have been shown separately.

1

Intercell . annual report . 2009

Total

4,553 36,340 20,263 61,156

95

¦ V ¦ Notes to the consolidated financial statements

December 31, 2009 EUR in thousands

Available for sale

Total

Assets as per balance sheet Available-for-sale financial assets - 95,808 Trade and other receivables1 18,274 - Cash and cash equivalents 84,211 - Assets

102,485 95,808

95,808 18,274 84,211 198,293

Loans and receivables

Other financial liabilities

Liabilities as per balance sheet Borrowings (excluding finance lease liabilities)2 5,642 Finance lease liabilities2 36,254 Trade and other payables 21,131 Liabilities

63,027

Total

5,642 36,254 21,131 63,027

Prepayments and tax receivables are excluded from the trade and other receivables balance, as this analysis is required only for financial instruments.

2 The categories in this disclosure are determined by IAS 39. Finance leases are mostly outside the scope of IAS 39, but they remain within the scope of IFRS 7. Therefore finance leases have been shown separately.

1

)

1 4 . 2 F a i r value measurements

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Intercell . annual report . 2009

96

¦ V ¦ Notes to the consolidated financial statements

At December 31, 2009 EUR in thousands

Level 1

Available-for-sale financial assets Government bonds Bank notes Mutual funds Asset-backed securities Available-for-sale financial assets

20,309 39,927 31,788 - 92,024

Level 3

Total

- - - 3,784 3,784

20,309 39,927 31,788 3,784 95,808

There were no available-for-sale financial assets in Level 2. There were no transfers between Level 1, Level 2 and Level 3 in the respective period.

Reconciliation of Level 3 fair value measurements of financial assets:

EUR in thousands

Opening balance December 31, 2008

Gains in other comprehensive income Losses from sales Closing balance December 31, 2009

Asset-backed securities

Total

4,618

502 (1,336) 3,784

4,618 502 (1,336) 3,784

The table above only includes financial assets.

All gains and losses included in other comprehensive income relate to asset-backed securities held at the end of the reporting period and are reported as changes of “Fair value losses on available-for-sale financial assets”.

Significant assumptions used in determining fair value of financial assets and liabilities

Asset-backed securities: The financial statements include securities backed by underlying pools of autorelated loans which are measured at fair value. The fair value of the asset-backed securities is determined using valuation techniques based on the calculation of the present value of expected future cash flows of the assets. Inputs to these valuation techniques include some assumptions relating to both these securities and the underlying loans to which they are collateralized that are not supportable by observable market prices or rates (e.g. prepayment speeds and default rates of the underlying loans and loss severity based on collateral type). The sensitivity of fair values was not calculated due to our view that there were no reasonable alternative assumptions derivable.

Intercell . annual report . 2009

97

ÂŚ V ÂŚ Notes to the consolidated financial statements

No changes in the valuation techniques have been made in the period.

)

14.3 Credit quality of financial assets

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates as follows:

EUR in thousands

Trade receivables and other financial assets1 Receivables from governmental institutions AA A Counterparties without external credit rating Trade receivables and other financial assets1

Cash at bank and short-term bank deposits AA A Counterparties without external credit rating or rating below A Cash at bank and short-term bank deposits

Available-for-sale debt securities AAA AA A Counterparties without external credit rating or rating below A Available-for-sale debt securities

At December 31, 2009

2008

4,601 13,429 - 243 18,274

4,344 20,179 25 45 24,594

1,189 83,012 9 84,211

921 28,918 57 29,896

44,539 3,179 44,874 3,216 95,808

77,186 27,791 51,952 4,041 160,969

Prepayments and tax receivables are excluded from the trade and other receivables balance, as this analysis is required only for financial instruments.

1

The rating information refers to long-term credit rating as published by Standard & Poor’s.

Intercell . annual report . 2009

98

¦ V ¦ Notes to the consolidated financial statements

)

15 Available-for-sale financial assets

EUR in thousands Non-current Current Available-for-sale financial assets

2009

At December 31,

2008

3,784 92,024 95,808

160,969 160,969

The following table shows the development of the book value of the Company’s available-for-sale financial assets: EUR in thousands

2009

2008

Beginning of the year Additions Disposals Changes in accrued interest Net gains/(losses) transfer to other comprehensive income Exchange differences End of the year

160,969 45,000 (110,628) (1,226) 1,693 - 95,808

126,528 142,114 (106,876) 2,551 (4,253) 906 160,969

Available-for-sale financial assets include government bonds, floating rate notes, money market investment funds, and asset-backed security funds. One of the funds held by the Company, with its principal investments in Euro-denominated asset-backed securities and recorded at a value at balance sheet date of EUR 3,784 thousand (2008: EUR 4,618 thousand), has been suspended from trading as a consequence of the liquidity crisis on the asset-backed securities markets. Management’s best estimate of fair value as of balance sheet date is based on the net asset value provided by the investment trust.

The amount of fair value revaluation surplus/(loss) that had originally been booked to other comprehensive income and was subsequently recognized in profit or loss on sale of available-for-sale financial assets for the year 2009 was EUR 391 thousand gain (2008: EUR 620 thousand loss).

Available-for-sale financial assets are denominated in EUR. The maximum exposure to credit risk at the reporting date is the fair value of the debt securities classified as available-for-sale.

None of the financial assets is either past due or impaired.

Intercell . annual report . 2009

99

¦ V ¦ Notes to the consolidated financial statements

)

16 Inventory At December 31,

2008

EUR in thousands

2009

Raw materials Work in progress Finished goods Inventory

346 2,599 496 3,441

360 2,799 1,734 4,893

The cost of inventories recognized as an expense and included in “cost of sales” amounted to EUR 11,430 thousand (2008: EUR 0 thousand). The cost of inventories recognized as an expense includes EUR 6,665 thousand (2008: EUR 0 thousand) in respect of write-downs of inventory to net realizable value.

)

17 Trade receivables and other assets Trade receivables and other assets include the following:

EUR in thousands

Trade receivables Less: provision for impairment of receivables Trade receivables, net Prepaid expenses Other receivables

Less non-current portion Current portion

2009

At December 31,

2008

7,835 - 7,835 1,879 17,031 26,745 (10,622) 16,123

11,313 11,313 884 13,816 26,013 (10,280) 15,733

All other non-current assets are due within five years of the balance sheet date.

The fair values of trade and other receivables equal their book values.

)

18 Cash and cash equivalents Cash and cash equivalents include cash-at-bank and in-hand, as well as short-term bank deposits with a maturity of less than 3 months.

Intercell . annual report . 2009

100

¦ V ¦ Notes to the consolidated financial statements

)

19 Nominal capital and additional capital paid in

Shares issued

Treasury shares Total

nominal Balance sheet item Nominal capital Additional capital paid in

capital and

Capital

additional EUR in thousands

Number of Nominal Share from Number Book capital (except numbers of shares)

shares capital premium ESOP* of shares value paid in Balance at January 1, 2008

45,521,707

45,522 309,462

8,998

385,889

(375) 363,607

Employee share option plan: - value of employee services - - - 6,346 - - 6,346 - proceeds from shares issued 270,077 270 1,492 - - - 1,762 - re-issuance of treasury stock - - 165 - (25,000) 24 189 Issuance of common stock, August 2008 1,442,819 1,443 43,443 - - - 44,886 Cost of equity transactions - - (473) - - - (473) Tax on cost of equity transactions - - 4,340 - - - 4,340 Balance at December 31, 2008 47,234,603 47,235 358,428 15,344 360,889 (349) 420,658

Balance at January 1, 2009 47,234,603 47,235 358,428 15,344 360,889 (349) 420,658 Employee share option plan: - value of employee services - - - 4,160 - - 4,160 - proceeds from shares issued 345,883 346 3,129 - - - 3,475 - re-issuance of treasury stock - - 87 - (12,500) 12 99 Issuance of common stock, December 2009 900,000 900 27,189 - - - 28,089 Cost of equity transactions, net of tax - - (325) - - - (325) Balance at December 31, 2009 48,480,486 48,480 388,509 19,504 348,389 (337) 456,157 *Employee share option plan

At December 31, 2009, the Company had issued 48,480,486 common shares, which were fully paid in.

The shares issued have no par value. Each share of the Company has one equal vote and equal dividend rights. The Company’s total number of outstanding shares as of December 31, 2009 – excluding 348,389 shares held as treasury stock – was 48,132,097.

Since February 28, 2005, the Company’s shares are listed on the Official Market (Amtlicher Handel) and traded in the Prime Market Segment of the Vienna Stock Exchange.

Intercell . annual report . 2009

101

ÂŚ V ÂŚ Notes to the consolidated financial statements

Conditional and authorized capital

The Company has 3,785,515 shares of conditional capital to service the exercise of existing stock options (note 20). In addition, the Management Board is authorized to conditionally increase the registered share capital by issuing up to 855,000 new shares of common stock in connection with the grant of new stock options to the employees and members of the Management Board of the Company or an affiliated company.

In addition, the Management Board is authorized, subject to approval by the Supervisory Board, to increase the registered share capital of the Company by issuing up to 16,774,456 new shares of common stock.

The Management Board is further authorized, subject to the approval of the Supervisory Board, to use 15,000,000 shares of conditional capital for the future issuance of convertible bonds and to determine the terms of such bond issuance.

Increases of share capital

In December 2009, the Company issued 0.9 million new shares to its strategic partner GlaxoSmithKline (see note 27) at an issue price of EUR 31.21 per share. The subscription rights of existing shareholders were excluded. Gross proceeds from this issuance of shares were EUR 28,089 thousand and net proceeds, after deducting EUR 296 thousand in capital tax and offering expenses, were EUR 27,793 thousand.

In July 2009, the Company issued 269,292 new shares and re-issued 12,500 existing shares of treasury stock in connection with the exercise of stock options, resulting in net proceeds of EUR 3,190 thousand (see note 20).

In November 2009, the Company issued 76,591 new shares in connection with the exercise of stock options, resulting in net proceeds of EUR 385 thousand (see note 20).

Treasury stock

In previous accounting periods, the Company had acquired a certain number of its own shares. The amount paid to acquire these shares was recorded at cost and deducted from equity. The corresponding amount deducted from equity was EUR 337 thousand in the aggregate as of December 31, 2009 and EUR 349 thousand as of December 31, 2008.

In 2009 and 2008, the Company sold 12,500 and 25,000 of its treasury shares, respectively, to members of the Supervisory Board upon the exercise of share options.

Intercell . annual report . 2009

102

¦ V ¦ Notes to the consolidated financial statements

)

20 Share options Share options are granted to members of the Management Board, the Supervisory Board, and to employees.

In general, options are exercisable for the first time in four equal portions after the Annual General Shareholders’ Meeting in the second, third, fourth and fifth year after being granted (the vesting period). Special option packages are offered to members of the Management Board and to key employees upon being hired or as a special incentive vest after three years. Options granted from 2006 onwards only become exercisable if the share price on the exercise date exceeds the exercise price by at least 15%.

All options expire no later than five years after being granted. Options are not transferable or negotiable and unvested options lapse without compensation upon termination of employment with the Company (cancellation). Options granted from 2008 onwards become exercisable with the effectiveness of the takeover of more than 50% of the outstanding voting rights of the Company.

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

2009

Number of options

Outstanding at January 1 Granted Forfeited Exercised Outstanding at year end Exercisable at year end

3,221,163 890,400 (343,052) (358,383) 3,410,128 503,511

2008

Average exercise price in EUR per share

Number of options

Average exercise price in EUR per share

20.00 26.60 19.21 9.97 22.86

17.07

2,352,525 1,344,780 (181,065) (295,077) 3,221,163 269,716

16.49 23.20 20.01 6.61 20.00 9.16

Options exercised in 2009 resulted in 345,883 shares being issued (2008: 270,077 shares) at a price of between EUR 2.10 and EUR 23.91 per share. In addition, 12,500 (2008: 25,000) shares of treasury stock (recorded at an average historical price of EUR 0.97 per share) were sold at between EUR 2.10 and EUR 10.72 per share in 2009 for servicing the exercise of stock options. The weighted average value per share at the time of option exercise was EUR 24.92 in 2009 (2008: EUR 27.90).

Share options outstanding at the end of the period have the following expiry dates and exercise prices:

Intercell . annual report . 2009

103

¦ V ¦ Notes to the consolidated financial statements

Expiry date

Exercise price Number of options at December 31, in EUR per share 2009 2008

Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2013 Dec 2014

2.10 5.50 - 8.50 10.72 - 16.85 23.95 - 26.18 3.99 - 11.43 20.63 - 31.35 21.16 – 26.99

- 227,750 456,375 680,900 66,313 1,088,390 890,400 3,410,128

124,325 368,250 692,520 798,300 86,030 1,151,738 3,221,163

The weighted-average grant-date fair value of options granted during the year 2009 was EUR 5.06 (2008: EUR 5.96). The fair value of the granted options was determined using the Black Scholes valuation model.

The significant inputs into the models were:

Expected volatility (%) Expected vesting period (term in years) Risk-free interest rate (%)

2009

26.00 – 28.00 2.00 – 5.00 0.81 – 2.35

2008 26.00 – 38.70 0.00 – 5.00 1.83 – 4.64

In 2009, 890,400 share options were granted to members of the Management Board, Supervisory Board, and employees at an exercise price of EUR 21.16 and EUR 26.99 per share (expiry date: December 2014).

)

21 Other reserves

Available-for-sale EUR in thousands

investments

Currency translation

Balance at January 1, 2008

(1,653) (120) Fair value losses from available-for-sale financial assets (2,776) - Currency translation differences - 14,271 Balance at December 31, 2008

(4,429) 14,151

Balance at January 1, 2009

(4,429) 14,151 Fair value gains from available-for-sale financial assets 1,270 - Currency translation differences - (3,452) Balance at December 31, 2009

(3,159) 10,699

Intercell . annual report . 2009

Revaluation from business combinations

Total

5,974 - - 5,974

4,202 (2,776) 14,271 15,696

5,974 - - 5,974

15,696 1,270 (3,452) 13,514

104

ÂŚ V ÂŚ Notes to the consolidated financial statements

Pelias Biomedizinische Entwicklungs AG, a formerly associated company, was fully acquired in 2007.

Therefore, the Company’s initial 46% interest was revalued directly into equity at the date of acquisition.

)

2 2 P o s t - e m p l o y m e n t b e n e f i t o b l i g a t i o n s As required under Austrian labor law, the Company makes contributions to a multi-employer, defined contribution plan (Mitarbeitervorsorgekasse). Monthly contributions to this plan are recognized in the period incurred. Monthly contributions to the scheme amount to 1.53% of the salary of each respective employee. In the years ended December 31, 2009 and 2008, contribution costs amounted to EUR 186 thousand and EUR 248 thousand, respectively.

)

23 Trade and other payables Trade and other payables include the following:

EUR in thousands

Trade payables Accrued expenses Social security and other tax payables Other payables

Less non-current portion Current portion

)

2009

At December 31,

2008

7,667 11,857 810 798 21,131 (382) 20,749

10,064 8,559 765 875 20,263 (409) 19,854

24 Deferred income

EUR in thousands

Arising from collaboration and licensing agreements Arising from government grants

Less non-current portion Current portion

Intercell . annual report . 2009

2009

At December 31,

2008

36,527 2,684 39,211 (30,092) 9,119

42,770 2,618 45,388 (27,217) 18,172

105

ÂŚ V ÂŚ Notes to the consolidated financial statements

)

25 Borrowings Borrowings of the Company at year end include the following:

EUR in thousands

Non-current Bank borrowings Other loans Finance lease liabilities

Current

Other loans Finance lease liabilities

Total borrowings

2009

At December 31,

2008

3,433 535 34,899 38,867

1,614 2,244 35,145 39,004

1,674 1,355 3,029

41,896

695 1,195 1,890 40,893

The maturity of non-current borrowings is as follows:

EUR in thousands

Between 1 and 2 years Between 2 and 3 years Between 3 and 4 years Between 4 and 5 years Over 5 years Non-current borrowings

2009

At December 31,

2008

2,136 1,542 1,616 1,757 31,816 38,867

2,933 2,059 1,492 1,302 31,217 39,004

The carrying amounts of the Company’s borrowings are denominated in the following currencies:

EUR in thousands

EUR USD Total borrowings

2009

At December 31,

2008

40,862 1,034 41,896

39,129 1,765 40,893

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

Intercell . annual report . 2009

106

ÂŚ V ÂŚ Notes to the consolidated financial statements

In 2009, EUR 4,608 thousand (2008: EUR 2,788 thousand) of the outstanding loans are guaranteed by Austrian governmental organizations.

The following table presents the fair value of guaranteed borrowings without taking the interest subsidy into consideration, based on an estimated arms’ length interest rate of 2.84% at year end 2009 (2008: 3.95%):

EUR in thousands Bank borrowings Other loans Guaranteed borrowings

Carrying amounts at December 31, 2009 2008

Fair values at December 31, 2009 2008

3,433 1,174 4,608

3,287 1,188 4,475

1,614 1,174 2,788

1,413 1,224 2,637

For all other borrowings the carrying amounts equal their fair values.

)

26 Cash used in operations The following table shows the adjustments to reconcile net loss to net cash used in operations:

EUR in thousands note Profit for the year Adjustments for - Depreciation and amortization 12/13 - Share-based compensation 20 - Tax 10 - Loss from disposal of property, plant and equipment - Other non-cash expenses - Loss on disposal of available-for-sale financial assets 15 - Interest income 9 - Interest expense 9 - Changes in other long-term assets and liabilities Changes in working capital (excluding the effects of acquisition and exchange rate differences on consolidation): - Inventory - Trade and other receivables - Trade and other payables Cash used in operations

Intercell . annual report . 2009

Year ended December 31, 2009

2008

(18,375)

17,175

5,331 4,160 (10,066) 56 30 1,128 (4,315) 1,118 (10)

2,996 4,122 (24,557) 12 294 847 (8,469) 617 (104)

1,828 (429) (5,318) (24,860)

(4,893) (4,600) 6,930 (9,629)

107

¦ V ¦ Notes to the consolidated financial statements

The following table shows the adjustments to reconcile net loss from the disposal of property, plant and equipment to proceeds from the disposal of property, plant and equipment:

EUR in thousands

2009

2008

Net book value Loss on disposal of property, plant and equipment Proceeds from disposal of property, plant and equipment

2,023 (56) 1,967

9,239 (12) 9,226

)

27 Collaboration and license agreements The Company has entered into various agreements with industrial partners and agencies under which it receives or grants certain rights on vaccine technologies, product candidates, and intellectual property. The terms of these agreements include milestone payments, which are contingent on the achievement of certain developmental milestones by the party receiving such rights as well as royalty payments, which are contingent on the sales of products derived through use of such rights.

)

27.1 In-license agreements

In June 1998, the Company entered into an agreement with Boehringer Ingelheim International GmbH (BII).

Pursuant to this agreement, the Company obtained the right to use the TransVax technology in the research and development of its products for laboratory, pharmaceutical, and diagnostic use. In April 2003, the parties signed a license agreement giving the Company commercialization rights for products based on the TransVax technology for a broad range of disease areas. In return, the Company has granted BII royalties on future net product sales. The TransVax technology is relevant for the Company’s therapeutic Hepatitis C vaccine.

In April 2003, the Company entered into a set of agreements with VaccGen International, LLC (“VaccGen”) for acquiring a vaccine project targeting Japanese Encephalitis virus infections. Under the terms of these agreements, the Company has obtained an exclusive license and certain documents and materials, which as a whole has allowed it to further develop the product and to market it after successful completion of the development process and after regulatory approval. VaccGen received milestone payments and is entitled to receive royalty payments on product sales.

In September 2003, the Company obtained a worldwide exclusive license from the National Institutes of Health (NIH) and the U.S. Centers for Disease Control and Prevention (CDC), agencies within the U.S. Department of Health and Human Services, for certain intellectual property rights relevant for the Company’s therapeutic vaccine to treat Hepatitis C. The Company is subject to annual license and milestone payments. In addition, royalties on net sales will be payable by the Company upon commercialization.

In November 2004, the Company obtained a worldwide non-exclusive license from sanofi-aventis for certain intellectual property rights related to the Company’s Japanese Encephalitis vaccine. The Company is not required to pay any milestone payments in connection with this license, but the Company is required to pay royalties on net sales of the vaccine in certain countries.

Intercell . annual report . 2009

108

¦ V ¦ Notes to the consolidated financial statements

Through the acquisition of Pelias Biomedizinische Entwicklungs AG, the Company became a party of an exclusive license agreement with Novartis, entered into in November 2005. Pursuant to this agreement, the Company gained access to an exclusive license on certain intellectual property rights with respect to a vaccine candidate for the prevention of Pseudomonas aeruginosa infections. The Company is subject to milestone payments and royalties on future net sales upon commercialization.

In June 2007, the Company obtained a worldwide exclusive license from the U.S. Centers for Disease Control and Prevention (CDC), an agency within the U.S. Department of Health and Human Services, for certain intellectual property rights relevant for the Company’s Streptococcus pneumoniae vaccine. The Company is subject to annual minimum royalties, benchmark royalties, and royalties on net sales upon commercialization.

In May 2008, the Company obtained a worldwide exclusive license from Zovec AB for certain intellectual property rights relevant for the Company’s Borrelia vaccine. The Company is subject to annual license and milestone payments. In addition, royalties on revenues and royalties on net sales will be payable by the Company upon commercialization.

Through its fully owned subsidiary Intercell USA, Inc., which was acquired in August 2008, the Company gained access to a worldwide exclusive license for certain intellectual property rights relevant for the Company’s Patch Technology, which had been obtained from the Walter Reed Army Institute of Research (WRAIR) in December 1997. The Company is subject to annual license and milestone payments. In addition, royalties on revenues and royalties on net sales will be payable by the Company upon commercialization.

In March 2009, the Company concluded an Assignment Agreement with the University of Ulm for an invention (and related patent applications) covering several GBS antigens. The Company has to pay royalty fees on net sales upon commercialization of a product.

In April 2009, the Company entered into a conditional intellectual property assignment from TechLab Therapeutics LLC for certain intellectual property rights relevant for the Company’s C. difficile vaccine.

The Company is subject to certain milestone payments and deferred payments of gross sales upon commercialization.

In June 2009, the Company entered into a license agreement with Dow for expression of LT in their Pseudomonas-based expression system Pfenex.

Total license and milestone payments made in 2009 amounted to EUR 4,516 thousand (2008: EUR 239 thousand), of which EUR 3,845 thousand have been capitalized as intangible assets. Future royalty obligations that are contingent upon future product sales are not quantifiable due to uncertainty over future product sales.

Intercell . annual report . 2009

109

¦ V ¦ Notes to the consolidated financial statements

)

27.2 Out-license agreements

In December 2003, the Company entered into a collaboration and licensing agreement with sanofi-aventis under which it has identified relevant antigens for use in a bacterial vaccine. In June 2005, sanofi-aventis exercised its option to acquire a worldwide exclusive license from the Company with respect to the intellectual property rights in the specific field of this collaboration. The Company is entitled to receive license fees, research and development funding, milestone payments, and royalty payments on product sales.

In February 2004, the Company entered into a commercial license agreement with the Statens Serum Institut (SSI) for the development of a new prophylactic Tuberculosis vaccine. The vaccine combines recombinant Tuberculosis antigens developed by SSI with the Company’s synthetic Immunizer IC31® as an adjuvant. The Company has the right to receive a substantial share in the profits on future product commercialization.

In May 2004, the Company signed a worldwide exclusive commercial license agreement with Merck & Co., Inc. (Merck & Co.), allowing Merck & Co. to develop a bacterial vaccine against Staphylococcus aureus infections and granting Merck & Co. an option to develop antibody products. This option was exercised in May 2006. The Company will, upon successful completion of certain development milestones by Merck & Co., receive further license payments and has the right to royalty payments on future product sales.

In March 2006, the Company entered into a collaboration agreement with Kirin Brewery Co Ltd. to develop human monoclonal antibodies against severe infections caused by Streptococcus pneumoniae. Over the term of the agreement, Intercell is entitled to receive license fees, milestone payments, and significant royalties on future net sales of the product.

In September 2006, the Company entered into an agreement with Pfizer (formerly Wyeth) under which it granted a worldwide non-exclusive license option to use Intercell’s synthetic adjuvant IC31® in various selected infectious disease vaccine programs. After exercise of the license option, Intercell is entitled to receive option exercise and milestone payments, as well as royalties on future product net sales.

In October 2006, the Company entered into an agreement with Merck Sharp & Dohme Research Ltd., an affiliate of Merck & Co., Inc. (Merck & Co.) under which it granted a worldwide exclusive commercial license to develop a prophylactic vaccine against Group A Streptococcus infections and a license option to develop antibody products. In September 2008, Merck & Co. has declined the antibody option. In addition, the Company will perform certain research services in connection with the development of the vaccine.

The Company is entitled to receive milestone payments upon successful completion of certain development milestones by Merck & Co., as well as service fees and royalty payments on future product sales.

In July 2007, the Company entered into a major strategic partnership with Novartis Pharma AG, an affiliate of Novartis AG (Novartis), to accelerate innovation in vaccines development in infectious diseases.

The terms of the agreement include the grant of an exclusive license by the Company for the use of its

Intercell . annual report . 2009

110

¦ V ¦ Notes to the consolidated financial statements

adjuvant IC31® in Influenza vaccines and Meningitis vaccines. In addition, Novartis was granted option rights for further licenses on IC31® and a broad range of un-partnered vaccine candidates on fixed terms and conditions. In consideration, the Company received upfront license and option fees of EUR 120m and is entitled to substantial further payments upon achievement of certain development milestones as well as royalties on future product sales or to a share of the profits. In addition, Novartis purchased 4.8 million new shares of the Company at an issue price of EUR 31.25 per share and holds 14.9% of the Company’s share capital.

In December 2009, the Company entered into a long-term strategic alliance agreement with GlaxoSmithKline (GSK) to accelerate the development and commercialization of needle-free, patchbased vaccines. The agreement includes marketing and distribution arrangements for the Company’s investigational Travelers’ Diarrhea Vaccine Patch, a collaboration on the Vaccine Enhancement Patch system in the area of Pandemic Influenza as well as a license for the use of the Vaccine Patch delivery technology for other GSK vaccines. Under the terms of the agreement the Company received an up-front cash consideration of EUR 33.6m from GSK and is entitled to substantial further payments upon achievement of certain development milestones as well as shares in profits or royalties on future product sales. In addition, the parties agreed on a staggered purchase of shares in the Company by GSK up to a maximum amount of EUR 84.0m or up to 5.0% of the Company’s share capital, of which 900,000 new shares, representing 1.9% of the Company’s share capital, were purchased upon closing at an issue price of EUR 31.21 per share.

)

27.3 Other collaborations

In December 2006, the Company agreed to enter into a marketing and distribution partnership for its Japanese Encephalitis vaccine in the USA, Europe, and certain other markets in Asia and Latin America with Novartis Vaccines and Diagnostics, Inc., an affiliate of Novartis AG (Novartis). Under the terms of this agreement, Intercell is responsible for the development and manufacturing of the vaccine and will sell the vaccine to Novartis at a transfer price, which is based on the net sales of the vaccine less a certain distribution margin. Novartis is responsible for the marketing and distribution of the vaccine at its own cost. In addition, the Company received further milestone payments after regulatory approvals of the vaccine in the USA and the European Union.

In addition, the Company has entered into marketing and distribution alliances with CSL Ltd. for Australia, New Zealand, Papua New Guinea, and certain Pacific islands, and with Biological E Limited for India, Pakistan, Nepal, and Bhutan.

The Company has also entered into a number of material transfer agreements with pharmaceutical and biotechnology companies pursuant to which it makes its proprietary adjuvant technology available for evaluation for the development of novel vaccines without granting any commercial rights.

Intercell . annual report . 2009

111

ÂŚ V ÂŚ Notes to the consolidated financial statements

)

28 Commitments and Contingencies a) Capital commitments

Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

EUR in thousands

Property, plant and equipment Capital commitments

At December 31, 2009

2008 249 249

30 30

b) Operating lease commitments

Future aggregate minimum lease commitments under non-cancelable operating leases are as follows:

EUR in thousands

At December 31, 2009

2008

Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Operating lease commitments

1,208 2,741 - 3,949

1,188 3,992 80 5,259

In addition, the Company leases parking space, employee living accommodations, cars, and equipment under cancelable operating lease agreements. These leases have varying termination clauses. c) Other contingencies

The Company has entered into contractual arrangements with members of the Management Board and with key employees, entitling them to a one-off payment in certain cases of termination of their employment relationship with the Company. Contingent liabilities under these contractual arrangements as of December 31, 2009 amounted to EUR 2,069 thousand (2008: EUR 1,089 thousand).

For commitments and contingencies resulting from transactions with related parties see note 30.

Intercell . annual report . 2009

112

¦ V ¦ Notes to the consolidated financial statements

)

29 Business combinations On August 5, 2008, the Company completed the acquisition of 100% of the shares of Iomai Corporation (“Iomai”). Iomai is engaged in the discovery and development of novel vaccines and immune system stimulants, delivered via needle-free patch technology (transcutaneous immunization). Iomai was consolidated from August 1, 2008 on.

In conjunction with the acquisition, Iomai was renamed as Intercell USA, Inc. This business combination has been accounted for under the purchase method, i.e. the cost of the business combination was allocated to the assets acquired and liabilities and contingent liabilities assumed at their respective fair values.

Initial recognition of the business combination in the consolidated financial statements of the preceding year was determined provisionally, according to IFRS 3.

Due to the completion of the above mentioned fair value measurements in 2009, some fair value adjustments of assets and liabilities were updated in order to reflect the improved knowledge in the acquired entity. According to IFRS 3, Purchase Price Allocation (PPA) completion refers to the acquisition date, and consequently, all adjustments were booked starting from that date.

As of August 5, 2008, the fair values of the assets and liabilities acquired through the business combination are as follows:

EUR in thousands Cash and cash equivalents Property, plant and equipment, and software Trade and other receivables In-process research and development projects Deferred tax liabilities Other reserves Trade and other payables Net assets acquired

Acquiree’s carrying amount

Provisional Fair value

Adjusted Fair Value

2,191 4,223 2,498 - - - (7,904) 1,008

2,191 4,223 2,498 144,807 (21,077) (341) (7,904) 124,396

2,191 4,223 2,498 146,104 (22,375) (341) (7,904) 124,396

Intercell . annual report . 2009

113

ÂŚ V ÂŚ Notes to the consolidated financial statements

Along with the final purchase price allocation for Intercell USA, Inc. (formerly: Iomai), the following specific adjustments were made to the consolidated balance sheet for the year ended December 31, 2008:

EUR in thousands

December 31, 2008

Adjustment

December 31, 2008 adjusted

ASSETS Intangible assets 181,501 1,452

EQUITY AND LIABILITIES Deferred income tax liabilities 21,348 1,452

182,953

22,800

There were no acquisitions in 2009.

)

30 Related-party transactions The following transactions were carried out with related parties:

)

30.1 Purchases of services

EUR in thousands

Purchases of services: - Member of the Supervisory Board Purchases of services

Year ended December 31, 2009

2008

- -

60 60

Hans Wigzell, a member of the Supervisory Board, is also engaged as a member in the Scientific Advisory Board. Therefore he receives fees on normal commercial terms and conditions as the other Scientific Advisory Board members.

Intercell . annual report . 2009

114

¦ V ¦ Notes to the consolidated financial statements

)

30.2 K ey management compensation

The aggregate compensation of the members of the Company’s Management Board includes the following:

EUR in thousands

Year ended December 31, 2009

2008

Salaries and other short-term employee benefits Other long-term benefits Share-based payments (stock compensation expense) Key management compensation

1,839 39 1,136 3,015

)

2,470 51 1,617 4,138

30.3 S upervisory Board compensation

The aggregate compensation of the members of the Company’s Supervisory Board amounted to EUR 193 thousand (2008: EUR 269 thousand).

Intercell . annual report . 2009

115

ÂŚ V ÂŚ Notes to the consolidated financial statements

)

31 Events after the reporting period No material events have occurred after the balance sheet date that would require a disclosure in connection with economic information included in those financial statements.

Vienna, March 4, 2010

The Management Board:

Gerd Zettlmeissl, CEO

THOMAS LINGELBACH, CoO

Reinhard Kandera, CFO

The Consolidated Financial Statements of Intercell AG for the fiscal year from January 1, 2009 to December 31, 2009, the Management Report, and the Audit Opinion thereof have been issued in German language in accordance with Section 245a and 193 of the Austrian Commercial Code.

We draw attention to the fact that this translation into English is provided for convenience purposes only and that only the German wording is legally binding.

Intercell . annual report . 2009

116

d e c l a r at i o n b y t h e m a n a g e m e n t b o a r d

)

pursuant to section 82 (4) of the austrian stock exchange act We confirm to the best of our knowledge that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group as required by the International Financial Reporting Standards, as adopted by the EU, and that the group management report gives a true and fair view of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties the group faces.

Vienna, March 4, 2010

The Management Board:

Gerd Zettlmeissl, CEO

THOMAS LINGELBACH, CoO

Reinhard Kandera, CFO

The Consolidated Financial Statements of Intercell AG for the fiscal year from January 1, 2009 to December 31, 2009, the Management Report, and the Audit Opinion thereof have been issued in German language in accordance with Section 245a and 193 of the Austrian Commercial Code.

We draw attention to the fact that this translation into English is provided for convenience purposes only and that the German wording is the only legally binding version.

The financial statements of Intercell AG according to UGB (separate financial statements) are available for download on www.intercell.com.

Intercell . annual report . 2009

117

i n v e s t o r r e l at i o n s

)

)

I n s t i t u t e s a n d A n a l y s t s c o v e r i n g I n t e r c e l l AG Bank of America Merrill Lynch

Brigitte de Lima

Berenberg Bank

Adrian Howd

Bryan, Garnier & Co

Martin Brunninger, Iyona Rajkomar

CA Cheuvreux

Vivien de Coincy

Deutsche Bank

Gunnar Romer, Matthias Pfeifenberger

Erste Bank der oesterreichischen Sparkassen AG

Vladimira Urbankova

Exane BNP Paribas

Romain Zana

Goldman Sachs

Fitzhugh Peters

HSBC Trinkaus & Burkhardt AG

Christian Packebusch

Jefferies International Ltd.

Peter Welford, Philippa Gardner, Tara Shivarattan

Kempen & Co Merchant Bank

Oscar Izeboud

Mehta Partners

Subita Srimal

Morgan Stanley

Andrew Baum, Nick Nieland

Raiffeisen Centro Bank

Daniel Damaska

Sal. Oppenheim

Peter Duellmann

UBS Investment Bank

Guillaume van Renterghem, Martin Wales

UniCredit

Katharina Kastenberger

Intercell runs an investor relations program that includes the following: •

Annual General Meeting Open House • R&D Days, themed events covering topics of interest • One-on-one and group meetings with investors and analysts • Presentations at industry conferences •

These activities focus on recently announced activities or financial results and are conducted in line with stock exchange disclosure rules and regulations. Intercell’s Management attaches high priority to providing transparency and timely information to the shareholders.

Intercell . annual report . 2009

118

Investor relations

)

2010 financial calendar March 02, 2010

Preliminary Q4 results for the twelve months ended December 31, 2009

May 11, 2010

Q1 results for the three months ended March 31, 2010

June 25, 2010

Annual General Meeting

July 02, 2010

Dividend Record & Payment Date*

August 17, 2010

Q2 results for the six months ended June 30, 2010

November 09, 2010

Q3 results for the nine months ended September 30, 2010

November 26, 2010

Open House

*no dividend payment to be expected

Share performance 2009 1600

35

1400

30

Turnover volume in ’000

* Number of shares, double counted

1200

25

1000 20 800 15 600 10

400

5

200

0

0

Jan

)

Feb

March

April

May

June

July

Aug

Sept

F o r f u r t h er information, please contact:

Intercell Investor Relations, investors@intercell.com, T +43-1-20620

Intercell . annual report . 2009

Oct

Nov

Dec

Share price in EUR

)

119

C o n ta c t i n f o r m at i o n

)

intercell headquarters i n t e r n a t ionally located in a life science think tank

Intercell’s head offices are located in the city of Vienna, in the middle of the Campus Vienna Biocenter.

I n t e r c e l l AG

Campus Vienna Biocenter 3 1030 Vienna Austria P: +43-1-20620 F: +43-1-20620-800 E: communications@intercell.com

)

Intercell Biomedical Ltd. The manufacturing capacity is dedicated to the late-stage Japanese Encephalitis vaccine and the vaccine pipeline resulting from our bacterial Antigen Identification Research and Development Programs.

I n t e r c e l l B iomedical Ltd.

Oakbank Park Road Livingston EH53 0TG Scotland

)

Intercell USA, Inc. Intercell USA focuses on the discovery and development of vaccines and immune system stimulants, administrated via a novel, needle-free vaccine patch technology.

I n t e r c e l l USA , Inc.

20 Firstfield Road Gaithersburg, MD 20878 United States of America

Intercell . annual report . 2009

120

P u b l i she d by

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intercell ag Campus Vienna Biocenter 3 1030 Vienna, Austria

Editorial: Lucia Malfent Graphic Design: alessandri design Illustrations: Bruce Meek Printed by: Angerer & Gรถschl

Intercell . annual report . 2009