Vaxart Inc (VXRT) 2003 Q3 法說會逐字稿

Good afternoon. My name is Jeff, and I will be your conference facilitator today. At this time I would like to welcome everyone to the NABI Biopharmaceuticals third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. If you would like to ask a question during that time, simply press star, then the number 1 on your telephone keypad. Should anyone require assistance at any time during the conference, please press star, then zero, and an operator will assist you. As a reminder, ladies and gentlemen, this conference is being recorded Wednesday, October 22, 2003. I would now like to introduce Mr. Mark Soufleris, vice president of investor and public relations. Mr. Soufleris, you may begin your conference.

Good afternoon and welcome to the NABI Biopharmaceuticals conference call and webcast to review 2003 third quarter results. Before we begin, I would like to remind you that 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 costs of research and development; the company's dependence upon third parties to manufacture its products; the impact of current industry supply-and-demand factors on the company and its products; the ability of the company or third parties to meet contractual obligations; 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, 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. The information discussed in today's call and webcast is time-sensitive and is accurate only as of today, October 22, 2003. Any redistribution, retransmission, or rebroadcast of this call or the webcast in any form without the express written consent of NABI Biopharmaceuticals is prohibited. A telephone replay of today's conference call will be available through 5 p.m. Eastern time on October 29, 2003. Information about how to access the telephone replay is available on our website at www.nabi.com. In addition, an audio replay of today's call will be available on the Internet and can be accessed from NABI Biopharmaceuticals website, www.nabi.com through 5 p.m. Eastern time on October 29, 2003.

I will now turn the conference call over to Thomas H. McClain, chief executive officer and president of NABI Biopharmaceuticals.

Thank you, Mark. This is an exciting time for NABI Biopharmaceuticals. The third quarter marked a period of significant transformation for us as a company. I have been receiving a lot of calls and visits from investors, from employees, and from the media, all asking what has changed, what drove the recent increases in our share price? My answer is very simple. We developed a strategic plan for our company. It defined how NABI Biopharmaceuticals can uniquely build value for investors. Next, we defined and we communicated five goals for 2003 that are key to advancing that business strategy and, most importantly of all, we are accomplishing those goals.

Today I would like to begin by briefly reviewing those important 2003 business goals. First, to continue building value -- that is the cash return from our operating business; second, is our product development priority for this year to complete the actions needed to advance toward the approval and launch of StaphVAX; third, to continue advancing our other clinical programs, Altastaph, Civacir, and NicVAX but at the same time realizing our primary development objective is to advance StaphVAX towards launch; fourth, to execute on financial and business development opportunities -- opportunities that provide incremental cash resources and additional capabilities to advance our product pipeline; and, fifth, to define the right jobs and be sure we have the right people in critical areas with a 2003 focus on vaccine manufacturing, clinical, and regulatory affairs.

My goal for today's conference call is straightforward -- to discuss our progress against three of those goals that I believe have built value for investors during the third quarter. In my remarks I will highlight first the important operational factors that drove record biopharmaceutical revenues and margins in the third quarter. That, in turn, has increased the cash flow from product sales and, as a result, has increased our capacity to invest in developing StaphVAX. Second, the significant advances in our development program for StaphVAX and, finally, our important advances in developing NicVAX and Altastaph.

These accomplishments are all in line with our strategy and our 2003 plan and, at the same time, our team is very aware that our success in achieving these goals in the third quarter has redefined us as a company.

During the third quarter we were very successful against our first goal for 2003 -- building value in our base business. It comes back to our objective to manage NABI Biopharmaceuticals with a simple discipline -- using the cash we earn from product sales to fund our investment in research and clinical programs. That strategy prevents us from spending ahead of our ability to invest, and it forces us to make sure we are setting the right investment priorities. This approach makes building the cash return from operations an essential factor in the success of our business strategy. We believe strongly that our success in following this strategy since the end of 2000 differentiates us from other biopharmaceutical companies at a similar stage of development. This approach is allowing us to build significant future value for our investors within NABI Biopharmaceuticals.

As Mark Smith will discuss later, we achieved record biopharmaceutical sales and margins and therefore record cash returns on biopharmaceutical sales in the third quarter. This achievement reflects 18% growth in sales of our existing products; that is, growth from sales of WinRho, NABI-HB and Aloprim as well as the new sales from the acquisition of PhosLo. During the third quarter, biopharmaceutical sales, in total, increased by 42% over the same quarter last year.

We are successfully driving continued growth in end-user sales, or patient demand, for WinRho by capturing incremental market share from traditional IV IG therapy, and we are successfully expanding the market for WinRho as well, both by delays in a surgical procedure to treat ITP, removal of the spleen, and by favorable patient outcomes under a new higher-dosage protocol for WinRho patients.

Third quarter NABI-HB revenues were up 14% over the comparable quarter in 2002. While this increase is encouraging, and it brings important cash flow to NABI Biopharmaceuticals, we have continued to monitor the decline in the number of hepatitis B liver transplant patients this year. Data published from UNOS indicates that the number of hepatitis B transplants have decreased by nearly 40% through July in comparison to the same period last year. Because there are fewer than 300 hepatitis B liver transplants in a given year, any shift in timing can have an impact on our quarterly results. This now appears to be the result of a change in how priorities for transplants are assigned -- a change that went into effect earlier this year.

Our market research indicates that there is no decrease in the numbers of hepatitis B liver transplant candidates on the waiting lists. However, because antiviral therapies can control their disease for extended periods of time, it will take longer for hepatitis B patients to be defined as critically ill under these guidelines. As a result, we continue to believe that this decrease in transplants is a temporary phenomenon, and we expect an increase in future periods, particularly in view of many of the innovative techniques that surgeons are using to increase the pool of livers that are available for transplant patients.

We also expect to benefit from growth in the overall market when NABI-HB intravenous is licensed. Under our BLA filed with the FDA last November, NABI-HB intravenous will be the only product indicated for protecting the liver at the time of and following transplant. We believe that the supplemental data filed with the FDA in August is an important next step in meeting the FDA's requirements for licensure. We expect to submit additional data in support of our BLA during the fourth quarter.

Finally, we have continued to progress towards registering NABI-HB intravenous in Europe, and we are on track to file our initial license application in Europe during the first half of 2004.

Now I would like to briefly highlight our initial results with our newest product, PhosLo. Following the acquisition of PhosLo at the beginning of August, we have executed against a well-constructed transition plan. We began active promotion of PhosLo on September 2nd, and physicians, nurses, and dietitians are responding very favorably to our selling message. While our third quarter PhosLo revenues of $5m are significant, we are particularly encouraged with the recent publication of the National Kidney Foundation's K/DOQI guidelines. These guidelines emphasize the need for more aggressive control of serum phosphorous levels and the calcium phosphate product that are proven causes of cardiac disease in dialysis patients and chronic kidney disease patients. These guidelines clearly support the importance of PhosLo as a first-line binder therapy for achieving these treatment goals.

In November, the detailed results from a perspective double-blinded controlled trial comparing PhosLo with Renagel will be presented at the American Society of Nephrology meeting in San Diego. The results from this trial clearly support that PhosLo is the only binder to meet these important guidelines for the treatment of elevated phosphorous levels in kidney disease patients.

PhosLo will continue to be an important driver for revenues, margin, and cash flow in the fourth quarter and next year. It will make an important contribution to funding the investment in our StaphVAX confirmatory Phase III trial and, at the same time, we will realize a significant intangible benefit building our presence as a quality partner in the care of patients in the nephrology and dialysis settings. I look forward to providing future updates on our progress with this new product.

In conclusion, based on the strength of our biopharmaceutical business in the third quarter, we believe that we are well positioned to meet our first goal -- to fund the steps to achieve our 2003 and 2004 research and clinical objectives from the margin earned on biopharmaceutical product sales.

Turning now to our second goal for 2003 -- our primary product development objective this year continues to be advancing StaphVAX, our lead product for preventing hospital-acquired bacterial infections. We accomplished three major advances in our StaphVAX development program during the third quarter. First, in early September we announced the completion of an immunogenicity trial using a lot of vaccine produced by a contract manufacturer. This was a very significant milestone. We were able to prove we could successfully transfer and scale up the production of StaphVAX in a commercial manufacturing facility. This study supported that the vaccine produced by a contract manufacturer was safe and that it produced an immune response that was equal to or better than the response to previous lots of vaccine made in our research and development pilot plan. This positive outcome addressed the last major development hurdle for our StaphVAX program. We have now proven that we can successfully manufacture StaphVAX in a commercial scale facility.

The second major development during the third quarter -- we concluded the regulatory and manufacturing collaborations and the planning that have resulted in targeting submission of our first license application for StaphVAX in Europe by the end of 2004, a full two years ahead of schedule. This is also one year ahead of our planned submission in the U.S. This achievement significantly advances our most important product opportunity and will accelerate the cash return from StaphVAX sales. This achievement is also very meaningful for patients and physicians in Europe who don't have an adequate answer for the consequences of life-threatening Staph aureus infections today.

Our third important accomplishment in the StaphVAX program was the start of our confirmatory Phase III trial for StaphVAX in the U.S. ahead of schedule in September. This trial, which will enroll 3,000 end-stage kidney disease patients on hemodialysis is a double-blinded, placebo-controlled study designed to demonstrate StaphVAX's ability to prevent the incidence of Staph aureus type V and type A bacteremia for eight months. We are now focused on successfully completing enrollment in this confirmatory clinical trial because this will drive the timelines for submission of our BLA and accelerate the opportunities to broaden the global market reach for this product. We have planned that the enrollment period will take approximately nine months so that by mid-2004 patient enrollment should be complete. That will keep us on track to file our BLA in the U.S. and in an expanded MAA in Europe by the end of 2005.

The third goal I would like to review this afternoon is our success in advancing Altastaph and NicVAX during the quarter. We began two important Phase II trials that will offer some important insight into the potential efficacy of these products next year. In July we initiated a Phase II study of Altastaph in very low birth weight neonates, or premature babies. This 200-subject trial will evaluate Altastaph's ability to reduce the incidence of Staph aureus infections in this patient population that is at high risk for developing infections due to their underdeveloped immune system. Results from this trial are expected to be available during the second half of 2004 and will help us to design the confirmatory Phase III clinical trial.

In August we initiated a Phase II clinical trial of NicVAX in smokers in the United States. Enrollment in this trial was completed by the end of September. This trial will evaluate three NicVAX dosage levels in three groups of patients, 21 patients in each arm. Nicotine-specific antibody levels, the safety of NicVAX, and its potential impact on smoking cessation are being measured in the clinical study. We expect to also have results from this trial sometime during the second half of 2004 and, as an update, the Phase I-II trial of NicVAX being conducted in smokers and non-smokers in the Netherlands is also making fast progress, and we plan to report results of this trial in the first quarter of next year.

Finally, while we had hoped to have results from the NIH-sponsored Civacir trial in liver transplant patients during the third quarter, we still are anxiously awaiting the announcement of these results from the NIH, who sponsored and funded the trial. This trial has been completed, and we would expect a report on these findings during the fourth quarter.

In concluding my remarks, we are very excited that our launch of PhosLo is on target, and we expect sales of our biopharmaceutical products to contribute significantly to operating cash flow in future periods. But even greater significance than our improved financial performance in the third quarter, our product development achievements have redefined NABI Biopharmaceuticals. These accomplishments, combined with several other important business developments in the quarter, have advanced our most important and most significant opportunities to build value for our investors.

Now I'd like to introduce Mark Smith, who will review our financial performance for the third quarter and discuss our updated 2003 expectations.

Thank you, Tom. NABI Biopharmaceuticals generated a net income of $2.2m this third quarter on total sales of over $42m. Strong third quarter earnings have resulted in our year-to-date net loss reducing to less than $300,000, or 1 cent per share, on sales of $129m. Important in this result was the growth in our biopharmaceutical product sales. The area we have focused our attention on for growth through our business development and research development activities and the significant driver of our improving gross margin.

As Tom has described to you, our biopharmaceutical product sales grew over 42% to a record level of $30.7m compared to the third quarter of 2002 of $24.8m. Excluding the positive impact of PhosLo, sales of our long-standing biopharmaceutical products grew 18% from the comparable quarter of 2002. Sales of antibody products were $11.7m in the third quarter. The decrease from the third quarter of 2002 level of $24.4m was expected following the expiration of a zero-margin agreement with a single customer reported in April this year. As a reminder to you, we provided this customer normal source antibodies we acquired from the purchaser of the majority of the antibody business at the ultimate sales price, earning no margin. We reported revenue under the agreement because we retained the credit risk from the customer. In the third quarter of 2003 we reported no sales under this agreement compared to $12m in the third quarter of 2002. In this quarter we have reported an increase of $4.7m in sales of normal sourced antibodies produced at our centers, which is in line with the increased production. Sales of specialty antibodies were lower this quarter. This is primarily the result of the expiration of a contract to provide a single customer with rabies antibodies this year and what we believe to be short-term import restrictions from an international market limiting tetanus antibody sales.

As a direct result of the growth in our sales of biopharmaceutical products, our overall gross margin this third quarter grew to 49% of total sales compared to 34% in the comparable quarter of 2002. In dollar terms we generated gross margin of almost $21m in the quarter. This overall gross margin result was driven by a 66% gross margin from our biopharmaceutical products business, reflecting the margin generated by our newly acquired product, PhosLo, increased sales of each of NABI-HB, WinRho SDF, and Aloprim and increased utilization of our Boca Raton manufacturing facility in this quarter.

This higher gross margin drove our third quarter net income of $2.2m. Importantly, as we look to generate operating cash flow to support future investments in research and clinical activities, we generated earnings before interest, taxes, depreciation, and amortization at $7.6m. As we have discussed previously, we consider EBITDA a significant measure of the cash generated from our operations to support future strategic investments.

Sales of Autoplex T in the quarter were again constrained by product supply shortfalls from the manufacturer. As we have previously described, when the manufacturer fails to provide us contracted minimums of Autoplex T product, we are reimbursed the lost margin from this shortfall in the form of a penalty. In the third quarter of 2003 we received a penalty of $1.9m, which compares to a penalty of $1.7m received in the third quarter of 2002. These penalties are included as an offset to expense within cost of sales and gross margin.

Turning to a brief review of our operating expenses -- selling, general, and administrative expenses increased to $9.4m from $8.7m in the comparable quarter of 2002, primarily reflecting increased selling and marketing expense associated with the launch of PhosLo offset by some improved administrative efficiencies.

Research and development expenses increased to $6.5m from $5.6m in the third quarter of 2002. This increase funded completion of the immunogenicity trial in the quarter and, following this important pre-step, initiation of the confirmatory Phase III trial of StaphVAX. Other areas of focus included funding NicVAX clinical trials both here in the U.S. and in the Netherlands, support of the Alphastaph Phase II trial in very low birth weight neonates, and support of our NABI-HB IV BLA.

Other operating expenses increased to $1.6m from $150,000 in the third quarter of last year due primarily to noncash amortization expense related to the acquisition of PhosLo.

Interest expense for the quarter totaled $500,000. This reflects quarterly interest on our term loan of $10m, amortization of certain expenses related to establishing a loan facility, and imputed interest on PhosLo-related purchase obligations. As part of the acquisition of PhosLo, we entered into notes totaling $30m in the period ended March 1, 2007. These notes do not bear interest. The accounting treatment that is required for an interest-free note is to record the notes at a present value, discounted by the company's approximate borrowing rate. This discount is then amortized as a non-cash interest expense over the term of the note.

Turning briefly to our balance sheet at the end of the quarter, we ended the quarter with a cash balance of $26m and borrowing capacity of almost $19m under our revolving line of credit. Our borrowings were limited to $10m under our term loan entered into on June 20th of this year, and the obligations related to the acquisition of PhosLo. We had no borrowings under our revolving line of credit.

Trade accounts receivable has increased to $36m, an increase of approximately $13m from the prior quarter due to the timing of sales and will generate cash for us in the fourth quarter. Inventory of $26m reflects increases in NABI-HB inventory to support future sales. Trade payables and accrued liabilities have increased at quarter-end due to royalties payable on higher sales of WinRho SDF and Aloprim as well as sales-related payor accruals on the sales of our biopharmaceutical products including PhosLo.

I would now like to discuss our expectations for the full year 2003. Based on the addition of PhosLo to our product portfolio and the sales gains we have reported for our other products, we now confirm our expectation of biopharmaceutical sales growth of 18% from last year. This expectation includes our prior guidance for PhosLo of sales between $10m and $12m this year. Based on the newly issued K/DOQI guidelines, the use of phosphate binders for patients with chronic and end-stage renal disease as well as the presentation of clinical data at the upcoming American Society of Nephrologists meeting in November, we will relaunch PhosLo in January 2004. We expect this re-launch to drive increased patient use of PhosLo in 2004, leading to the sales levels previously projected for PhosLo of between $27m and $30m in that year.

We expect sales of WinRho SDF to continue to grow to between $44m and $48m for the full year 2003 -- a year-on-year growth rate of approximately 30%. This performance reflects increased patient utilization of this product that continues to benefit from competitive advantages versus its competition for the treatment of ITP, and year-to-date gains already reported as wholesalers and distributors have increased their inventories of WinRho SDF in response to increases in patient demand.

The level of hepatitis B liver transplants drive sales of NABI-HB. As we have noted, UNOS reports a 40-percent decrease in hepatitis B transplants in 2003 compared to last year. As a result we expect full-year NABI-HB sales to be between $35m and $37m compared to full-year 2002 sales of $41m. Our expectations for antibody revenues remain unchanged with sales projected at approximately 70% of prior-year levels.

Based on forecast production already underway for the balance of 2003, we continue to project excess capacity expense for our Boca Raton manufacturing facility to be approximately $2.5m. However, lower sales of NABI-HB in future periods will result in future sales periods being limited, and we will increase this excess capacity expense.

Selling, general, and administrative expense is expected to increase by approximately 16% for the full year including the impact of the retirement package of $3.3m provided to our former CEO in June of this year and reported in the second quarter. These projected expenses also include the cost of launching PhosLo since its acquisition.

Research and development expenses now are expected to increase approximately 35% in 2003 to 2002 levels. These increased costs include initiating the StaphVAX Phase III confirmatory trial ahead of schedule. In planning for research and development spending in 2004, these expenses are expected to include the cost of running the Phase III trial throughout the year as well as clinical activity targeted at supporting marketing activities of our newly acquired product, PhosLo. Both these research and development activities will be new activities from this year.

As previously noted, with the end of our contract to manufacture commercial of the StaphVAX at Dow announced on October 9, 2003, we will incur a noncash charge for the write-off of the manufacturing asset currently estimated at $13m in this fourth quarter. As a result of the write-off of the Dow asset and the impact of research and development tax credits, we now expect our effective tax rate for financial reporting purposes to be less than 10% for the full year 2003.

Due to the impact of the retirement package for our former CEO, the cash payments which are deferred to future periods and the non-cash write-off of the manufacturing right at Dow, we now expect to report a loss for the full year of 2003. However, with the strength of the cash flow from our ongoing operations combined with the cash on hand and our access to capital, we believe we have the resources available to support our research and development strategic asset investments over the upcoming year.

Now let me return the call to Tom McClain.

Thank you, Mark. In closing, we are very excited by the accelerating pace of achievement at NABI Biopharmaceuticals, and we are confident that we can succeed in achieving our important business objectives, and we are appreciative of the recognition and support we are receiving from our shareholders.

Now I would like to open up the line so we can answer your questions.

At this time I would like to remind everyone in order to ask a question please press star then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Martin Auster of Wachovia Securities.

Hey, guys, nice quarter.

Thank you, Martin.

I had a couple of questions for you -- first of all, on the PhosLo guidance you gave of $27m to $30m -- can you break that out as far as how much of that is expectation for increased physician/patient demand and how much of that might be from pricing? And the second question would be -- is there any kind of early feedback, I guess, on enrollment of the StaphVAX trial? Does that look to be going kind of according to plan? Maybe faster than plan? Slower than plan? What does that look like so far? Thanks.

Okay, on the PhosLo expectations for next year, the biggest driver for that growth is drivers in patient demand. So that will be the primary factor in the year-on-year growth. And, secondly, on the StaphVAX clinical trial, we are seeing the progress in that enrollment go as we had expected, and we are increasing the number of sites in the study each week as we move forward.

As we progress toward, I guess, a goal of completion of enrollment sometime around the middle of next year, will you be able to update us maybe in January in your conference call then?

When we talk about our year-end results, we'll certainly be happy to tell you where we are versus our expectations at that point.

All right, excellent. I'll hop back in queue. Thank you.

Thanks.

Your next question comes from Tom Shrader of Harris Nesbitt Gerard.

Hi, congratulations -- another quarter -- it just goes on and on, doesn't it?

Thank you, Tom.

In terms of the Cambrex deal -- what do we look for next? Will you announce the first consistency lot? Is that a first quarter thing? Is that a fourth quarter thing? Can you tell us anything about when you're sure you're going to be able to do -- make things for Europe?

We would be able to announce when we talk about our year-end results is where we stand in the timing of initiating that first consistency lot, which should happen during the first quarter, and that would be with the target of having that completed well before we expect to submit the MAA in Europe at the end of the year.

So a consistency lot would take from the first quarter to the fourth quarter?

No. It's just the fact that we need to do three of those, and we need to vial them, put them on stability, and release them.

Okay, so you'll tell us when you start the first one, but the real goal is to get all three done?

That's correct.

I think you made a comment about the NABI-HB BLA -- you're submitting more data in the fourth quarter? Did I hear that right?

Yes. What we will do is we continue to compile additional follow-up data on the patients. So we continue to extend the period of follow-up, and as we accumulate that data, we'll continue to submit that to the FDA.

Does the PDUFA date move?

If we are able to submit that data by the second or third week in November, it does not. And if that data goes in December, it could push that out.

Okay, but that would, like, be a two-month move -- a type I response?

Right, right, absolutely. Again, it's not new data. What we're doing is just expanding the database for the patients that we currently have by accumulating data for more extended periods.

Okay, last question -- this reallocation of hepatitis B -- is that a Hepsera effect already?

The way that we understand it is that previously liver transplant patients had been broken down into three or four categories to evaluate the seriousness of their need for the liver, and now that has been -- a new system is in place where they are actually divided into 40 different categories, and so that is the way that they are setting the priorities for transplants.

Okay, so it's really the markers that allow you to move to the front of the line have changed?

Well, it's that you really are in dire need of a liver -- that your life expectancy is very short, and yet you are a patient who has attributes that lead them to believe that it will be successful.

One quick question for Mark, if I could. You had no excess capacity this quarter, Mark?

No, we had a small amount of excess capacity this quarter, but it was limited versus last year, which is why it was advantageous. It will be approximately $400,000 for the quarter.

Last quarter you had $1.8m?

The plant was essentially in a mode of maintenance in the second quarter of this year, which is why that number was higher in the second quarter.

So if you say $1.8m in the second quarter, and you're down the whole quarter, is that the denominator? I mean, was your ex capacity -- excess capacity -- this quarter 0.4 over 1.8? Can we make that calculation?

Roughly, I guess. I mean, what we really speak to is that in terms of the net of our production and plant cost that we've, as I said, expect our full-year excess capacity cost to be about $2.5m, and that would be for the full four quarters.

Okay, and then, finally, do you sell any Autoplex T at all?

When we receive product from the manufacturer, we sell the product. So there are small amounts of sales.

So there are still some sales?

Yes, we get small quantities of product each quarter. And that [audio break].

Okay, thanks a lot. Congratulations again.

Thank you.

Once again, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. Your next question comes from Russell Gilbertson of Roth Capital.

Hi, Russ.

Good afternoon, gentlemen, and congratulations on a spectacular quarter. It's certainly a testament to management's ability to execute on your plan.

Well, thank you very much.

I have two questions -- first question is related to StaphVAX and the scale-up from manufacturer -- you had mentioned in a previous press release about a $10m charge for building out the manufacturing facilities. I'm just wondering how that's going to be done and recognized. And my second question is related to PhosLo and of the $30m that -- additional payments that are due on the acquisition -- how is that going to be tied to revenues -- if you could just give us a bit more color on that.

Sorry, I didn't quite catch the PhosLo question.

Oh, the additional $30m that's due for the acquisition -- and that is going to be paid over a period of a few years here? I believe that's tied to revenues -- if you could just give us a little more detail on how that is tied, and what we can expect in terms of modeling that.

Sure. Let me start with StaphVAX -- what is always the Cambrex question. When we look at the agreement that we have with Cambrex, we look at it as being similar to the agreement that we had with Dow -- what we're establishing via the agreement is a right to manufacture StaphVAX at commercial scale in future periods. Hence, as we pay amounts to Cambrex that would be for that purpose -- establishing that manufacturing right -- we would treat them in a -- we would expect to treat that cost in a fashion the same as we treated the costs that we expended at Dow. Those costs will be expended at Cambrex over the future periods, really starting in this fourth quarter, and would continue until we are manufacturing commercial lots of product.

As it relates to the PhosLo question -- the exact multiplier and correlation with revenues is actually bound, I think, by confidentiality of the agreement between us and Braintree. However, essentially, what the rate of repayment will be is it will be fairly consistent, because it is, as you point out from the documents that are in the public domain, a revenue multiplier, it will be fairly consistently paid over the period between now and May 1 -- excuse me -- March 1, 2007.

Okay, thank you.

Your next question comes from Matt Duffy of Black Diamond Research.

Good afternoon. Things are looking good, guys. I just wanted to see if you might give us a little extra color on the trial that's going to be presented at ASN -- PhosLo versus Renagel -- just some of your thoughts on how you'll position that in the field and how that might be able to take a little share from the competition.

What's important about the trial, to again restate, it's the first double-blinded, placebo-controlled comparison of PhosLo versus Renagel, and not only will be present the results at ASN, but those results have also been submitted for publication. What the trial does is it looks at performance of PhosLo and Renagel, both on serum phosphate levels as well as calcium phosphate product over the study period, and it plots that performance versus the K/DOQI guidelines for both of those factors. And what that study demonstrates is that PhosLo quickly achieves the K/DOQI guidelines and maintains the patients at those K/DOQI guidelines or better than the K/DOQI guidelines for the study period which, for us, is very significant, and it demonstrates that Renagel is not able to achieve those levels. That piece of the study was actually presented in an abstract format at a conference last year. What will also be presented is a compilation of the cost of treatment over the period where we also believe that PhosLo has significant advantages over Renagel, and there will be a discussion around that about calcium absorption from PhosLo.

Very good, thanks.

Your next question comes from Chris Tanaka [sp] of Itros Capital.

Good afternoon, guys, thanks a lot for the call today. I had two quick questions -- firstly, I'm interested to know in terms of PhosLo -- I mean -- based on what you're saying is that PhosLo is clearly a superior option for these patients -- if the patient demand ended up being significantly higher than you currently expect, do you have sufficient manufacturing capacity to sell more than $25m to $27m next year?

What is very good about PhosLo is we have manufacturing at Braintree, who previously owned the product, as well as manufacturing at a secondary location, who has also produced the product. So that gives us expansion capability. If PhosLo starts to move very dramatically, it's not a complex product to manufacture, and we would be able to pursue other alternative manufacturing locations, including the potential of using available space here in our own plant.

Okay, great, thanks. And then the second question I had is on the NABI-HB sales guidance for the year. You had mentioned that, so far, that there had been around a 40% reduction in hep B transplant procedures this year, but then your sales guidance was only down 10% versus last year, and I was wondering where is the discrepancy there? Kind of -- how do you get to that number?

Well, there is an initial use of NABI-HB, which is at the point of transplant, but then there is a maintenance use of the product, and patients remain on NABI-HB for -- at a high level -- for as little as one year. Some patients remain on very high dosage levels for the rest of the their life. So when we talk about revenues of NABI-HB, it's a blend of transplant sales and maintenance sales. So that's why there wouldn't be a direct correlation between the reduction in transplants and our revenues for the product. What has also been very positive for us this year is, due to some focused efforts, we have been successful in gaining an incremental piece of that maintenance market, and that has also helped to minimize some of the impact of the reduced transplants.

Okay, great. Thank you very much.

Your next question comes from Jason Araya [sp] of Jolla [sp] Equities.

Hey, guys. I guess I'll jump on the bandwagon -- congratulations on a great quarter.

Thanks, Jason.

Sorry, Tom, but can you explain the NABI-HB demand side of this equation a little bit more? And is anything changing on the supply side of the equation? I gather what you're saying is that this year, due to things being -- due to transplants being pushed out -- it's going to be a weaker-than-expected year, but are you saying then -- I mean -- you seem to also be saying that you expect the market to grow because of better surgical procedures, but are you saying that the missed revenue opportunities in '03 are going to be realized in '04? How are you --

Gotcha -- I guess, as we just said before, there are really two components that drive the majority of the sales for NABI-HB -- the use at the time of transplant and maintenance use. So as we look at impact of reduced transplants, there is an immediate impact because there are fewer patients who are starting on NABI-HB, and then, over time, for the patients who have been transplanted previously, their use of the product will -- or may -- decrease. For some of those patients it will stay high for the rest of their lives. So a reduction in transplants now will have a tail on the maintenance end that we might see out a year from now if transplants don't increase -- is that part clear?

Okay, yes.

Okay, and then when we look at next year, there are some other key drivers for NABI-HB. The first is the distribution agreement that we've already signed, where we have expectations for our -- the first significant international sales of the product in 2004. So that will be helpful and, obviously, we look for, at some point, the fact that those patients will become critically ill and will be eligible for transplant at increasing numbers.

Okay, so the long-term demand picture then looks --

It looks the same. What's really happened here is that with this re-definition of who is critically ill and who gets the liver, it's caused a blip, and those patients will continue to worsen, because the antivirals only slow -- they don't stop the serious progression of hepatitis B. So as those patients move up the list, over time, will get to a point where they still will require a liver transplant.

Great, and I guess my last question regarding your discussions with the FDA and regarding the Dow product for StaphVAX -- even though Dow is not going to be the contract manufacturer when you bring the vaccine to market, the FDA has still signed off on this will be the only Phase III confirmatory trial that we need to do, and you will not need to do another one with down from -- the product from the new manufacturer?

That's correct. But what we have committed to is a bridging study, which will be immunogenicity study --

And you'll do that simultaneously?

We'll do that simultaneously and I believe we plan to do that in the ESRD patients.

Okay, great.

That should be done well before the BLA submission in '05.

Wonderful -- keep up the momentum.

Thank you, Jason, we'll do our best.

At this time there are no further questions.

All right. Well, I would like to thank everyone for your participation on the call today and for your interest in NABI Biopharmaceuticals, and we'll look forward to updating you on our fourth quarter performance. Thank you.

This concludes today's conference call. You may now disconnect.