Vaxart Inc (VXRT) 2002 Q3 法說會逐字稿

Good afternoon and welcome ladies and gentlemen to the Nabi Biopharmaceuticals’ third quarter earnings teleconference. At this time, I would like to inform that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open up the conference for questions and answers after the presentation. The Safe Harbor will now be read by Mr. Mark Soufleris, Vice President of Investor and Public Relations for Nabi Biopharmaceuticals.

Please go ahead, sir.

Good afternoon and welcome to Nabi Biopharmaceuticals third quarter earnings call. I would like to remind you that the remarks made in this conference call and Webcast may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please be cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties. Actual results may vary materially from those in the forward-looking statements as a result of any number of factors including, but not limited to, risks relating to the cost of research and development, the company’s dependence on third parties to manufacture its products, the impact of current industry supply and demand factors on the company and its products, the future sales growth prospects for the company’s biopharmaceutical products, and the likelihood that any product in the company’s research pipeline can receive regulatory approval in the United States or abroad or be successfully developed and manufactured and marketed. Such risk factors are disclosed more fully in Nabi Biopharmaceuticals most recent Form 10-K filed with the Securities and Exchange Commission and any subsequent SEC filings. Information discussed in today’s call and Webcast is time sensitive and is accurate only as of today, October 23, 2002. Any redistribution, retransmission, or rebroadcast of this call or the Webcast in any form without the expressed written consent of Nabi Biopharmaceuticals is prohibited.

I will now turn the conference over to David J. Gury, Chairman, President, and CEO of Nabi Biopharmaceuticals.

Mark, thank you very much and thank you all for joining us to discuss our third quarter results. Joining me is also Tom [McClane], our Executive Vice President and Chief Operating Officer; and Mark Smith, our Senior Vice President of Finance and Chief Finance Officer.

On our previous conference call this year, we have discussed our straightforward strategic and operational objectives. With the cash flow that we generate from our operations, we invest in the development of innovative vaccine and antibody products with the potential to revolutionize the way doctors treat significantly unmet medical needs. Our focus in the area of bacterial or viral infections and addictive diseases.

Tom and Mark will discuss this quarter’s operational development and financial results later on in the call. I’d like to begin with an overview of [E] product developments and achievements for this quarter.

Our main focus continues to be on hospital-acquired Staphylococcus aureus infections which remain a serious unmet medical need, StaphVAX and Altastaph are targeted to address this unmet medical need. Underscoring the seriousness of this issue, during the third quarter, StaphVAX was featured in two articles in major publications. The July 8 ’02 issue of The Scientist, a leading scientific publication, and the September 30 issue of Fortune Magazine.

Further emphasizing this issue, we commissioned a qualitative and quantitative market assessment of the potential U.S. for StaphVAX from the [Madison Jack Group] a well-known global market research organization that specializes in the pharmaceutical and health care industry. This independent assessment which conservatively assumed an end stage renal disease only indication for this study confirmed out previous estimates that there approximately 12 million people at significant risk for Staphylococcus aureus infections each year in the United States and that StaphVAX represents an almost $1 billion market opportunity in the U.S. alone. As noted in our July conference call, our product development efforts remain focused on the preparations required to initiate the confirmatory Phase III trial for StaphVAX. We continue to concentrate our efforts on reducing regulatory risks, first by using vaccine manufactured at the commercial manufacturing facility at our next Phase III clinical trial and second through the design of the trial itself.

We have continued to make progress in transferring the manufacturing for StaphVAX to Dow. Manufacturer of StaphVAX is comprised of three individual components. Manufacturer of Staphylococcus aureus antigens, type 5 and type 8, and the manufacturer of the carrier protein itself. Activity at Dow to date have focused on the transfer of the manufacturing process and related assays from Nabi to Dow.

In addition, during the quarter, Nabi contracted for outside audits of the Dow facility. These audits were based on FDA requirements where consistency of lot production in preparation for our eventual BLA submission. Based on the successful outcome of these steps, we directed Dow to initiate the manufacturer of the clinical lot to be used in our upcoming Phase III trial. The balance of work at Dow this year will be associated with manufacturer of the clinical lot and continued preparation for production of consistency lots of the vaccine. Based on our progress in transferring the manufacturing process to Dow, we remain on track to have vaccine available to initiate confirmatory Phase III trial of StaphVAX next year.

To restate, the confirmatory Phase III trial designed for StaphVAX will include approximately 3,000 end stage renal disease patients undergoing hemodialysis. This will be a double-blinded, placebo-controlled trial. We anticipate conducting the trial at approximately 170 dialysis centers. The primary end point of the trial will be the reduction of Staphylococcus aureus bacteremia for eight months following initial injection of StaphVAX. After eight months, trial participants will receive a booster vaccination and will be monitored for an additional six months. This booster data should be helpful in providing some guidance on how the products can be used in chronic, at-risk patients. They study blind and placebo controlled will be maintained throughout the entire period. Based on our expectation of a positive result from this trial, we continue to anticipate filing a BLA for StaphVAX with the FDA in 2005.

We expect to begin another Phase I-II clinical trial with Altastaph, our Staphylococcus aureus immune globulin product with patients with persistent Staph bacteremia, a serious blood infection. This trial is significant in that it represents the first time that Altastaph is being studied in a patient population with active Staphylococcus aureus infection. This trial is a multicenter, double-blinded, placebo-controlled study that will access safety, pharmacokinetics, and preliminary efficacy of Altastaph in the treatment of patients with persistent Staphylococcus aureus blood-borne infections.

We anticipate announcing an additional trial to evaluate safety and preliminary efficacy of Altastaph in low-birth weight neonates later this year. We expect the results of this trial will lead to a full Phase III trial of the product in this patient population.

Our progress with other products in our development pipeline has accelerated rapidly during 2002. As reported in July, Civasir and NicVAX move into their first human clinical trials during the second quarter.

Reinfection of a transplanted liver with hepatitis C virus, or HCV, is almost universal in liver transplant patients suffering from chronic hepatitis C disease. This is despite the availability of antiviral products on the market today. The trial that is currently underway will begin to investigate the safety of treatment with Civasir and the ability of Civasir to block reinfection of the transplanted liver with HCV. Enrollment in this trial is more than 80% complete and we expect to be able to report the results next year.

Since the announcement that NicVAX had been introduced into the human clinical trials in June, there has been a tremendous interest and excitement about our NicVAX program. Media attention on this investigational product has resulted in more than 34 million people hearing about NicVAX through media coverage to date.

Earlier this month, we announced the encouraging preliminary results from our NicVAX Phase I trial. This 20 person placebo-controlled safety trial in healthy, nonsmoking volunteers, clearly showed that a single dose of NicVAX was safe and resulted in a rapid immune response that generated substantial levels of nicotine-specific antibodies. Based on these preliminary findings, we expect to initiate two additional Phase I clinical trials of NicVAX. The first of these trials will be designed to investigate NicVAX’s safety and ability to stimulate immunity in smokers and ex-smokers. Commencing this trial in the Netherlands will represent the first clinical trial conducted by Nabi Biopharmaceuticals outside the United States. We expect that this trial will commence during the fourth quarter of 2002. The second trial is expected to be a multicenter dose-ranging trial conducted in smokers and ex-smokers in the United States. We expect to commence this trial in 2003. This trial will be funded in part by our grant from, NIDA, National Institute on Drug Abuse. We are excited to have four Nabi Biopharmaceuticals products in various stages of clinical trial development.

Now, I’d like to ask Tom McClane to briefly update you on operations from the third quarter.

Thank you, Dave.

We continue to be very successful in meeting our business objectives in the third quarter. Our major focus has been on generating and increased cash return from our operations to support our important research and development program.

I’d like to spend a few moments talking about the key factors that have contributed to accomplishing this critical operational objective. These factors include the continued gain in sales of our biopharmaceutical products, the benefit of operating our own biopharmaceutical manufacturing plant, the effective process management at our plasma production facilities, and contributions of our dedicated employees.

First, I would like to focus on the most significant contributor to our success. We continue to drive impressive gains in patient use in our biopharmaceutical products in the quarter. This lead to sales in of our products to wholesalers and distributors to grow by 50% over the comparable quarter in 2001. Based on these trends, I am pleased to report that we have increased our projective growth from biopharmaceutical sales for the full year from 10% to 15% above 2001 levels. We now expect revenues for 2002 to be approximately $84 million and the most significant contributors to this performance are Nabi-HB and WinRho SDF. Factory sales of Nabi-HB this quarter were more than 60% higher than the same period in 2001. This is in line with strong gains in Nabi-HB patient use compared to last year. In fact, we have continued to set records for patient use of this product. Patient use in the third quarter was at the highest level we have ever achieved. We accomplished this record performance despite the fact that some transplant centers have been reducing the amount of hepatitis B Immune Globulin being use in combination with experimental antiviral therapies like lamivudine, and we still see excellent opportunities to continue to build on this record performance; in fact, we’ve made progress on several other fronts for Nabi-HB in the quarter.

First, we are finalizing the development of a biological license application for use of an IV formulation of Nabi-HB in patients following liver transplants. We expect to submit this application in the U.S. before the end of the year and we are also evaluating opportunities to file for registration of Nabi-HB in countries outside the U.S.

Second, we announced additional agreements for the distribution of Nabi-HB into Malacia and Singapore. These distribution agreements will pave the way for our entry into the important Asian and Western Pacific markets, which represent the most significant markets in the world for hepatitis B products.

According to the World Health Organization, 150 million chronic carriers of hepatitis B are located in Asian countries. We expect to record sales under these agreements in late 2003 or early 2004.

Finally, we have just signed an agreement with IDIS World Medicine, a U.K.-based company that will provide Nabi-HB to physicians who request our products for specific patients in their countries. The IDIS agreement covers 43 countries, including the important markets in Europe, Asia, and Latin America. This represents yet another way that we will exceed in expanding our global presence for Nabi-HB and we expect to record initial sales under this agreement in the fourth quarter.

Now, I’d like to review the impressive performance for WinRho in the period. Factory sales of WinRho for the third quarter were 55% ahead of 2001 levels. Continuing the strong trends that we saw through the second quarter, patient use of WinRho increased 12% over 2001 levels. This increase is impressive, as the reported ITP typically decreases during the summer months. That performance is a positive indicator for Q4 and the full year.

Turning now to our other biopharmaceutical products. We have continued to focus on improving product supply from the manufacturers of Autoplex and Aloprim. That is the critical issue for sales of these products and has limited our growth in revenues in 2002; but I am pleased to report that despite product shortages from the supplier of Aloprim earlier in the year, patient use of this product increased 20% from 2001 in the third quarter. That kind of performance provides solid evidence of the capability of our 40-person hospital-based sales force.

Another area of continuing focus for us is increasing utilization of our biopharmaceutical manufacturing plant which was licensed by the FDA in October of last year. Certainly the best way to do this is driving growth in sales of Nabi-HB, which is manufactured in the plant. The recently signed Nabi-HB distribution agreements with [Cancad] in Turkey, Biotech Medical Corporation, and Innovative Biotech in Singapore and Malacia and the name patient agreement with IDIS World Medicines will not only expand our global marketing presence, but will also provide us with an opportunity to increase the production of Nabi-HB in our plant in 2003 and we will continue to seek opportunities for manufacturing products on behalf of other companies in our plant for 2003 and beyond.

Antibody or plasma production also continues to be an important area of focus for operations. Our nine collection centers produce the specialty plasma raw material required for the manufacture of our Nabi-HB product and our pipeline antibody-based therapies. Our sharper focus on plasma operations and processes at these centers has resulted in a 36% increase in plasma production through the first nine months of this year. Importantly, specialty plasma production at our centers has increased to almost 50% of total production this quarter. That provides higher margins from plasma sales in the near term. But this transition is also vital to our long-term business strategy. Our strength in specialty plasma production means that we will realize significant value from this captive source of raw material with our pipeline products, Civasir and Altastaph.

As we have previously stated, our goals for leveraging the cash return from our current operations and infrastructure also include product acquisition and in licensing opportunities. We continue to work diligently on adding one or more products to our portfolio between now and the launch of StaphVAX. Quite simply by acquiring additional products, we will further increase the return from our successful sales and marketing infrastructure. The products that we are targeting for acquisition include those used by the physicians that we call on today – oncologists, hematologists, and transplant physicians – and products that will be used by the physicians that will be important to the early success of our gram-positive infections program. Additionally, an antibody-based product that meets one of these criteria would also have the important benefit of leveraging our manufacturing infrastructure, our centers and our plants.

Finally, partnering of our pipeline products continues to be a focus of our business development activities. We remain committed in finding the right partner for our product development program. We have continued to devote significant time and energy to this effort since our July conference call. While we have not set an expectation about when we would complete a partnering agreement, I can assure you this remains an important priority.

In summary, our operating performance was very strong in the third quarter and we expect to see continued strength for the remainder of this year. That performance enables us to invest in advancing our important product development programs.

Now, I would like to introduce Mark Smith who will review our financial performance of the quarter.

Thank you, Tom.

Continued growth in our biopharmaceutical product sales drove positive earnings in the third quarter of 2002. We ended the quarter with approximately $44 million of cash on hand and continue to be debt free as of September 28, 2002. This places us in a strong financial position at quarter end from which to support our research and development activities and to pursue other strategic opportunities including product acquisition opportunities.

Exceeding published expectations, we generated net income in the third quarter of $825,000, or $0.02 cents per share. The strong financial performance in the third quarter is built on the net income we generated through June 2002 to generate net income of almost $1 million, or $0.02 cents per share, for the nine months ended September 28, 2002.

Overall, we generated a positive EBITDA of $3.5 million in the third quarter, even after funding a $2.3 million increase in research and development expense over the prior year third quarter. On a year to date basis, we have generated an EBITDA of $9.7 million. This includes funding a year-to-date increase in research and development spending of $4.8 million. We believe this demonstrates the success of our strategy to build a base business capable of supporting our investment in developing a very strong and promising product pipeline as well as finding our capital spending needs.

Let’s now walk through the key line items on our third quarter income statement to understand Nabi Biopharmaceuticals performance. Overall, sales for the third quarter of 2002 were $46.1 million, compared to $54.6 million in the third quarter of 2001. We expected this decrease because the sales for the third quarter of 2001 included sales from the 47 antibody collection centers we sold on September 6, 2001.

Biopharmaceutical sales were $21.7 million in the third quarter of 2002, compared to $14.4 million in the third quarter of 2001, an increase of over 50% from 2001 level.

As Tom discussed, biopharmaceutical sales benefited from significant increased sales of our two elite products, Nabi-HB and WinRho SDF.

The results of Nabi-HB is significant because Nabi-HB is our highest margin product and the product we manufacture at our Boca Raton facility. Sales of Nabi-HB increased 63% in the third quarter compared to the third quarter of 2001. These increased sales reflect the combination of growth we see in patient use for this product and the success of our management of the transition to the manufacture of Nabi-HB at our Boca Raton facility from the contract manufacturer.

Sales of WinRho SDF increased over 55% in the quarter compared to 2001 level. This increase in factor sales is supported through the increased year-to-date patient use of this product. Sales of Aloprim were 10% higher than sales reported in the quarter of 2001. The increase in factory sales in this third quarter is supported by growth in patient demand for this product driven by our sales and marketing program.

Antibody sales were $24 million in the third quarter of 2002, compared to $40 million in the third quarter of 2001. We manage the antibody business optimistically to generate incremental operating margin and cash flow to fund the development of our research and development product pipeline.

Nonspecific plasma sales, or antibody sales, includes shipments to a single customer under a supply agreement which was retained by us following the sale of the majority of the antibody business and expires in May 2003. The purchase of the antibody business supplied us nonspecific plasma totalling $12.1 million in the third quarter of 2002, which we then sold to the customer under this contract and for which we [indiscernible] gross margin.

Accounting for royalty expense, our gross margin was $15. 5 million in the third quarter of 2002, compared to $16.7 million in the third quarter of 2001. This represents an increase in gross margin as a percentage of total sales of 34% this quarter from 31% in the third quarter of 2001. This increased gross margin percentage reflects the increased proportion of higher margin biopharmaceutical product sales to total sales. In dollar sense, gross margin decreased due to the impact of excess manufacturing capacity in the quarter, a [indiscernible] penalty from the manufacturer of Autoplex and the sale of the majority of the antibody collection business in 2001.

As discussed in previous quarters, when the manufacturer of Autoplex is unable to meet contracted manufacturing minimum, they must pay us a penalty for loss margin. During the third quarter of 2002, we benefitted from this penalty in the amount of $1.9 million. In the third quarter of 2001, we received a penalty of $3.7 million reflecting delivery shortfall in the third quarter of 2001, plus delivery short falls from the second quarter of 2001 for product and manufacturer initially made available for us but which we rejected in the third quarter of 2001.

This third quarter, we significantly increased our investment in research and development activities. Research and development spending increased from $3.3 million in the third quarter of 2001, to $5.6 million in the third quarter of 2002. This change reflects increased spending associated with the continued development of StaphVAX, including transfer of manufacturing to the contract manufacturer’s facility in preparation for the second Phase III clinical trial scheduled to commence in 2003.

Other significant research and development cost drivers in the third quarter, the NicVAX clinical trial [indiscernible] including ongoing clinical trial and preparation for future trials, plus associated with the preparation of the BLA for an IV formulation of Nabi-HB for treatment of liver transplant patients and costs associated with Altastaph clinical trial scheduled for this fourth quarter.

Selling, general, and administrative expenses were $8.7 million in the third quarter of 2002, compared to $9.6 million in the comparable quarter of 2001. This expense level is consistent with our previously provided guidance and reflects the impact of general and administrative cost savings associated with the sale of the [majority antibody business] in September 2001. Offset by increased costs of insurance and consulting. Note that selling and marketing expenses were not impacted by the sale of the [majority antibody business] on September 6, 2001.

Cash on hand decreased $3.2 million in the third quarter. The decrease was due to increases in inventory and other accounts receivable balances and capital spending, offset by cash generated from our operations. Inventory has increased as production of Nabi-HB has increased in anticipation for future demand for this product and in line with sales growth reported to you this year to date.

Now moving to our expectations for the remainder of 2002. Based on the strength of the year-to-date sales, we now believe that biopharmaceutical sales with increase more than 15% in the full year 2002 from 2001 level, or to approximately to $84 million.

Our expectations for antibody sales in the full year 2002 remained at approximately 60% of the full year 2001 level, or approximately $100 million.

As previously noted, initial operation of the plant will be diluted to earnings due to excess manufacturing capacity. Based on current plant operating expense level and depreciation, we continue to expect excess capacity expenses to be approximately $4 million in the 2002. This expectations is unchanged from our second quarter guidance and is based upon our current manufacturing schedule. We continue to see opportunities to optimize use of our manufacturing capacity, such as by expanding the markets in Nabi-HB to international distribution agreement.

Based on our sales projection and including our projected excess manufacturing capacity expense, we expect to generate an aggregate gross margin, after royalty expense, in excess of $60 million, driven primarily by our biopharmaceuticals business. Based on current clinical program activity, we now project total research and development spending in 2002 will increase over 35% from 2001 level. Our guidance provided for selling and administrative expenses being more than 10% below 2001 level for the full year 2002 is unchanged. We continue to project net income for the full year 2002.

To reiterate, the focus of our current operating plan is to generate the cash necessary to advance our extensive research and development pipeline and fund our capital investment requirements.

Now, let me turn things back to David Gury.

Thanks very much, Mark. And at this time I’d like to ask Heather if you would please open up the lines to questions.

Thank you, sir. The question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star, one, on your pushbutton telephone. If you wish to withdraw your questions, please press star, two. Your question will be taken in the order that it received. Please standby for your first question.

Our first question comes from [Siriva Godison with Ross Capital].

Yes, good afternoon, and congratulations for a very good quarter. I have a few questions. One is regarding the guidelines that you gave for the biopharmaceutical sales. Obviously, since this quarter the numbers were very high, things like the fourth quarter of 2002 sales would be below the 4Q ’01 level and I wanted to verify that and also ask what may be the reason for that? And then I also have a question about whether you will provide any guidance on the timing of initiation of the Phase III trial for StaphVAX next year, and also if you would comment on the recent deal of [indiscernible] with the focus of their staph product on the neonate, since with Altastaph you’re also moving into the neonate market and how do you see that deal shaping your collaboration?

Thanks, Siriva. Let me first of all ask Mark if you would comment on the guidance on biopharmaceutical sales for the fourth quarter and full year.

To restate our guidance for the biopharmaceutical sales, there’s an increase of 15% from the prior year’s level, which would, again to restate, bring us in at around $84 million for revenue. What we have achieved through [indiscernible] business is a more level revenue patent throughout the 2002 year. So each of the first three quarters year to date and into the fourth quarter, and we believe that that is the optimal way to run the business, both in generating a more regular cash flow from the biopharmaceutical business, as well as allowing us to better manage the manufacturing process that we have in the plant. While the guidance would suggest that revenues may be somewhat lower in the fourth quarter period to period, I think the focus is that we have seen significant growth on a year to year basis, which will, as projected, be in the around the 15% level. I think I responded to the reason for the change being our proactive management of both sales function and the manufacturing process through the year.

Right. So in a sense, I mean, obviously, the growth is very nice, so it will be more throughout the year and therefore the impact is [indiscernible] on the fourth quarter? ]

We expressed [indiscernible] last year for [riba] that we were working with our distributor wholesaler company and that work with them was to normalize the inventories that they had on hand and to normalize the pattern of sales into the wholesalers, the distributors, and patient use of the product, and that’s what you’re seeing in the way that our revenue results have come in through the year and the more level pattern but building pattern as we’ve gone through 2002.

Great. Thanks.

Secondly, the question in terms of timing of the initiation of the confirmatory trial, Siriva, at this point our concern in terms of timing or the really guiding time is the availability of the lots and as soon as that’s ready we will initiate the trial. We hope that is as early in the year as possible, but the only guidance that we can give at this point is that it will initiate in 2003. We will certainly by the time we have guidance for ’03 be able to give you something better, but at this point beyond just 2003, it’s very difficult to pin it down further.

Just to get a roughly link, I mean, [indiscernible] confirmatory lots, right?

That’s correct.

And how long will it take for each lot to test it and?

We expect the confirmatory, the production of the confirmatory lots will go into 2004.

But that will be concurrent with the clinical trial.

Right.

It’s not a lead in terms of filing the BLA. See the [biosynexis] deal we think is a good indication that people like GSK are very much interested in this area of staph infection and are excited by their show of interest and support of this area. As you know, our product, both the vaccine and StaphVAX and Altastaph are polyclonal approach which from what we’ve seen so far from the release about their products, which is a monoclonal, is certainly somewhat different, and we clearly are very advanced in our development. We do intend to look at the neonate markets, and I think having the product in Phase II trials we think will put us in a very good position to move that forward.

Okay. Great. And on the collaboration front, is it helping you the fact that this happened, because obviously the size of the deal seems to be quite nice, under $20 million. Is it impacting your decision one way or the other?

Well, I frankly haven’t seen an official number anywhere, but it sounds like what the press has reported sounds very nice, and I think it certainly should be. Again, I think the whole notion of interest by a GSK in this field is very significant.

Thank you, and congratulations again.

Thanks again, Siriva.

Thank you. Our next question comes from [Tom Shrader] with [GKM]. Please state your questions.

Hi. I had most of the same financial questions. So basically what you’re saying is the seasonality is gone from your business or more gone?

The way that we’re trying to work with our distributors and wholesalers is that our sales in match the patient demand out in a better way that they have in the past.

Can you say a little bit about what’s going on from 2Q to 3Q? Is that an Autoplex effect, the fact that it’s down a little bit?

There is an Autoplex effect, if you would. As we reported in the second quarter, the Autoplex penalty in that quarter was approximately half a million dollars, and as we just mentioned in this quarter, there was a penalty of $1.9 million in the quarter. An important other difference in the quarter is that there was, as Tom mentioned, we were having supply problems from the manufacturer of Aloprim, and those were at least corrected through the receipt of two backorders of Aloprim in the second quarter, which enabled us to sell significant amounts of Aloprim taking advantage of the good growth we’ve seen in patient use of that product in the second quarter, while we’ve seen year-over-year growth in Aloprim in the third quarter versus the second quarter it is down. It’s really the Autoplex and Aloprim added together.

Some effect, what we did was refill the pipeline in the third quarter represents –

The third quarter reflects the continued more normal revenue patent versus the good growth in end use of the product.

In your guidance for the fourth quarter for pharmaceutical sales as well as your unused manufacturing capabilities, does that really include no effect of the name patient program?

The guidance that we’ve given in total for the 15% growth includes any projected impact of the name patient. Clearly that has some opportunity for good growth in the future.

Okay. Well, thank you very much. You’re projecting 15% and you’re there, so.

Thank you. Our next question comes from [Bob Wassman with Craig Hellum]. Please state your question.

Hi, David.

Hi, Bob.

A couple of questions: One is on the specialty plasma business. You stated that it’s going very well. The majority of sales are collections for your own products or are you also collecting plasma for other product for sale to outside firms?

Most of the plasma that we collect in the nine centers we have is going outside. We collect, of course, all of the plasma for Nabi-HB in plasma for our products under developments, Civasir and Altastaph. But the majority of the material right now is being sold outside.

Okay. Do you foresee growth in that business next year or is this a cyclical kind of upturn?

Well, we’ve had a very nice growth in terms of the total business with a fairly significant increase in the number of collections. But since this isn’t really a driver in our business, other than maintaining a good supply, so when we have Civasir and Altastaph that we’ve got the appropriate amount of plasma to feed the plant. We will see, I think, some growth particularly in the specialty area, but I wouldn’t characterize it as a significant driver for operating return.

Okay.

Just manage it to generate a reliable margin return from that side of the business to help support our R&D programs.

What about your production of Nabi-HB?

[Indiscernible] will contribute utilization of the facility and we have raw material supply. We clearly have the capacity to make it. So there is not a limit on our supply. It is one of the true benefits of having full control over our manufacturing from the collection of plasma through the finished product.

Okay. Your R&D expenses up 35% this year. Do you see that increase next year as well?

As we begin the clinical trial for StaphVAX, the confirmatory trial, we will have some increased spending in this area, but at this point, Bob, we haven’t really projected what ’03 in total is going to look like. So I can’t really tell you what the full impact will be of spending.

Okay. Good quarter. Thanks, guys.

Thank you.

Our next question comes from Sidney Vaness with [indiscernible] Capital.

Congratulations on a good quarter.

Thank you very much.

I have a couple of questions related to the some of the development programs. On the third of October there was a press release regarding some preliminary data on the NicVAX Phase I and it was stated that there were generally positive effects and that some antibodies were detected. Do you have any data on the mean antibody concentration that there was found in the blood and how much variance there was around that?

Sidney, we haven’t yet finished the data collection and have that available for public discussion. What we have said and what we do know before we, in fact, have unblinded the trial, is that we had very good levels of antibody with what was a relatively low dose of vaccine.

And these are levels that you believe to be protected?

We do not at this point know what a level of protection will be. That’s something that we’ll take probably a fair amount of trial work as we go forward. So, no, we don’t know what the appropriate level is to protect and but what we do know is we can generate significant antibodies and not have a problem, at least in the small number of individuals safety issues.

And with regards to the StaphVAX. I know that it’s been of a longstanding issue [indiscernible]. Is Phase III trial something that Nabi is willing, if necessary, to fully fund, or is that something that could potentially be an issue that the company is unable to find a marketing partner in the near term?

No, we have said that as we’ve committed to this trial, and it’s one of the things that having completed the sale of the 47 plasma collection centers last year, that we have the capability within our current resources and the business that is – the current pharmaceutical business that we’re generating sufficient revenue, that we have the resources to complete a type 5 and 8 StaphVAX confirmatory Phase III trial. So we are clearly committed to moving that forward with or without a partner. But again, to make sure that that is very clear in terms of partnering, we are very much looking for the appropriate partner, the right partner, the right time, and under the right terms. So it is something that is very much in the future but it is something that we do not need in order to continue to move this trial forward and to take it to completion.

And lastly, with respect to Civasir, the Phase I-II trial was initiated this year. What can we expect in preliminary safety and efficacy data on this product and could we possibly expect some interesting data such as we saw NicVAX earlier?

No, we will have, the trial, as we said, is I think 80% enrolled. We will have data from this trial next year, and it all depends on when the enrollment is completed, and it’s a six-month followup. So it will be some time in ’03, and I do not anticipate any sort of interim look at this.

Okay. Great. Thank you very much and congratulations on the quarter.

Thank you very much, Sidney.

Thank you. As a reminder ladies and gentlemen, if anyone should have any further questions, please press star, one, on your pushbutton telephone.

Our next question comes again from Tom Shrader with GKM. Please state your question.

Hi. Mark, can I just go back to one thing you said about your cash levels increasing. You would ascribe that principally to inventory increase? Is that what you were—

That is a significant element of it. We’ve increased – in recognition of the increased demand for Nabi-HB, we’ve increased our inventory of Nabi-HB in production in the facility and that is a significant portion of that. We also have one unpaid other receivable at the end of the quarter, which has contributed also to that.

Okay.

They are just really mundane working capital matters. They’re not issues where I expect any delay [indiscernible] back over to cash.

Okay. Thanks.

Thank you. Our next question comes from [Jason Ari with Jallo Equities]. Please state your question.

Congratulations on another good quarter, guys.

Thanks, Jason.

The recently announced international Nabi-HB deal, can you maybe break them down by deals? Give us an idea of when you expect them to be contributing revenue?

Well, Jason, as I said, the IDIS deal, which is the name patient deal that we announced this week that can and we expect to have contribute to revenue this year. So we will start to see some revenues from that in 2002 and we would expect that to continue to grow as we move through 2003.

And, Tom, how does that work that that’s able to generate revenues immediately?

That means that if there is a physician in a country outside the United States who wishes to ask for Nabi-HB for a specific patient, it is allowed through IDIS that they distribute an FDA licensed product on a named basis into these 43 countries through a company like IDIS. And as I said before, what’s exciting about it is the agreement covers the major markets in Europe and Asia and South America.

But regardless of whether the drug has gone through an approval process in any of those countries it can still be done in this manner?

Correct.

One of the benefits on a name patient basis is it can start to create demand for Nabi-HB in Turkey, which we are going through the regulatory approval process with our distributor [Cancat] and also in Malacia, where we’re already beginning to go through the regulatory process there. And talking about Singapore and Malacia in specific, we will need to take our U.S. FDA submission that was approved in 1999, we will need to reformat that to meet the needs of the regulatory agencies in Malacia and Singapore and then have approval for the product into those countries. And we expect that that can take anywhere from 12 to 18 months and that’s what I indicated that we would expect revenues under that agreement, set of agreements, either at the end of next year or in the first part of 2004.

Okay. And the gross margin, when you spend drugs on it for patient basis, are they U.S. pharmaceutical gross margins then? They are not price regulated?

Correct.

I don’t know why anybody wants to get an approval in Europe? And lastly, I know this is a sensitive subject for you guys as far as the timing of the second Phase III for StaphVAX, but are you saying, then, that you basically have IRB approval that all of the sites and thus it’s a turnkey as soon as the manufacturing lots are sufficient, you can turnkey it and start the trial?

No, we’re not saying that, Jason. We hope to be in a position as soon as the material is ready to turn it on very quickly, but I wouldn’t charcterize it as having all of the IRBs and so on in place. That’s kind of difficult to get everything done in the products and all of those things in advance.

So will you have to wait until the lots are complete, David, before you try to get IRB approval, or can you try to preempt it with getting the approvals?

We’ll be doing as much as we can concurrently.

Okay.

Okay.

Okay. Fair enough. Thank you, guys.

Great. Thank you, Jason.

Our final question comes from Tony Campbell with Nott Partners. Please state your question.

Good afternoon and congratulations. I actually have a couple of questions. If you were to take all these trial that you’ve got going on and sort of through the completion of Phase III what kind of – do you have a balance sheet that allows you to do that?

Well, I’ll tell you, it’s a bit difficult to know what completion through Phase III would be for things like NicVAX and Altastaph and Civasir, because until we get through the Phase I and Phase II trials, we’re not really going to know what those are. Clearly, when we look at something like NicVAX, which we think will result from a safety standpoint fair size numbers, it’s until we can understand what those are, it’s difficult for us to be able to answer that question, Tony. So the trial that we clearly are focused on the Phase III trial with StaphVAX. We are very comfortable with some of the other trials in the Altastaph and Civasir. On a relative basis, not huge cost trials, but again until we really know what that Phase III is, I can’t give you a good answer to that question.

Okay. I guess the implications, since we sort of, you know, one of the metrics, and I have to applaud you, you guys have basically come through on most of your promises, but one of the big ones has been joint venture on StaphVAX. So I am presuming that the closer you get to starting a Phase III or through a Phase III, the dollars go up for some potential joint venture partner, and I have one other final question.

I think the more money we invest in this program, clearly the more return we’re going to be looking for.

Okay. Good. So I hope they’re listening out there. And finally, the expense of the new plant, you guys are doing a pretty good job of trying to fill it up from what I can see. When does that expense – I guess really two questions: If we were to look at say at the end of ’03, at what percent capacity as you see things today is that new plant operating at, and how we should we think of that expense for next year?

We haven’t really given guidance for 2003. We talked about the plant and controlling the cost of operating the plant rather than talking percentage of capacity mainly because the plant has the capacity to be – to have its capacity to increase substantially, what we’ve really focused on is reducing that $4 million excess capacity charge, and as we said what we’re doing to do that is the international sales agreement and trying to optimize the level of production in the plant. So really we’re not talking percentages of capacity utilization but more in terms of reducing the $4 million excess capacity charge.

So let me ask a question a different way: When does the drag of the expense go away in your minds?

The thing that we plan to do is to support the launch of Civasir and Altastaph, so if I was trying to give you an ultimate guidance with what we have today, we would fully utilize the capacity we have plus the expanded capacity that Mark alluded to when they products launch on the market. We’ve not yet given specific guidance to what we expect to have [indiscernible] capacity charge for next year.

But as we go forward the cost can only come down from where we are today, because we’re fully absorbing whatever that cost is.

Okay. Good luck.

Okay. Thank you very much, and thank you all for joining us today and your continued interest and support of Nabi Biopharmaceuticals. It’s a really exciting time for us and we look forward to updating you on our continued progress in 2003. As a reminder, phone replay for today’s conference call for U.S. callers will be available through 5 p.m. EST on October 30th. You can access it by dialing 800-428-6051; replay password 261595. For international callers the conference call can be replayed. It will be available through 5 p.m. EST October 30th; dial 1-973-709-2089; replay password 261595. In addition to the replay, an audio replay of today’s call will be available on the Internet and can be accessed from Nabi Biopharmaceuticals Website, www.nabi.com or at www.companyboardroom.com through 5 p.m EST October 30, 2002. Again, thank you for your interest in Nabi Biopharmaceuticals.

Ladies and gentlemen, that concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect. 1