UPDATE 1-Bavarian says smallpox vaccine trial successful

(Adds milestone payment, share price)

COPENHAGEN, Nov 29 (Reuters) - Danish vaccine maker Bavarian Nordic (BAVA.CO) said on Thursday a Phase II trial of its Imvamune smallpox vaccine was successful and it would start a Phase III trial next year.

"We are very satisfied with these results, which brings us closer to our Emergency Use Authorisation (EUA) application, which represents an important milestone in the development of Imvamune as the modern smallpox vaccine," Chief Executive Anders Hedegaard said. The company expects EUA approval in the United States in the second half of 2008.

Bavarian won a contract from the U.S. government this summer for the development and delivery of 20 million doses of Imvamune to a government stockpile for use in case of biological attack.

It said on Thursday that it would receive a milestone payment of $25 million from the U.S. government this year in addition to the $50 million it had already been paid.

Smallpox, once a global scourge, was eradicated in 1979 after a sustained vaccination campaign. But the traditional vaccine is crude and can sometimes cause deadly side effects.

Bavarian said it conducted a placebo-controlled study in 745 healthy subjects which showed its vaccine was safe and tolerable.

"Vaccinations with Imvamune did not result in any clinically significant abnormal cardiac findings and no cardiac events that have been reported for traditional smallpox vaccines," the company said.

It added that a single vaccination resulted in a detectable immune response in 98.9 percent of the subjects.

Bavarian shares traded up 1 percent at 323 crowns by 1208 GMT, outperforming the Copenhagen exchange top 20 index which was down 0.8 percent. (Reporting by Gelu Sulugiuc; Editing by Quentin Bryar)