Vaxart Inc (VXRT) 2003 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Nabi Biopharmaceuticals fourth quarter and fiscal year end 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen, this conference is being recorded on Wednesday February 18, 2004. I would now like to introduce Mr. Mark Soufleris, Vice President of Investor and Public Relations. Mr. Soufleris, you may begin the conference.

Good afternoon, and welcome to the Nabi Biopharmaceuticals conference call and webcast to review our 2003 fourth quarter and year end 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 differ significantly from those in the forward-looking statements as a result of any number of factors, including, but not limited to -- risks relating to the possibility that our confirmatory Phase III clinical trial for StaphVAX, or our plans to commercialize StaphVAX in the European Union, may not be successful; the possibility that we may not realize the value of our acquisition of PhosLo; the possibility that our rights to two existing biopharmaceutical product may expire; the Company's dependence upon third parties to manufacture its products; the Company's ability to utilize the full capacity of its manufacturing facility; the impact on sales of Nabi-HB from patient treatment protocols, and the number of liver transplants performed on hepatitis B positive patients; reliance on a small number of customers; the future sales growth prospects for the Company's biopharmaceutical products; and the Company's ability to obtain regulatory approval for its products in the United States or abroad, or to successfully develop, manufacture and market its products. These factors are more fully discussed in the Company's report on form 8-K dated December 10, 2003, filed with the Securities and Exchange Commission.

Information discussed in today's call and webcast is time-sensitive and is accurate only as of today, February 18, 2004. 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 PM Eastern time on February 25, 2004. Information about how to access the telephone replay is available on our website, 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 PM Eastern time on February 25, 2004.

I will now turn the conference call over to Thomas H. McLain, Chief Executive Officer and President of Nabi Biopharmaceuticals.

Thank you, Mark. Today we are very proud of the important contributions the members of our team made toward building a tremendous record of accomplishment in 2003. We made significant progress in every area of the Company during the past year. These accomplishments have not only redefined Nabi Biopharmaceuticals as a company, but they have positioned us for the next critical phase of execution of our business strategy.

Throughout the year, we worked diligently to achieve our objectives. For our team, our strategic plan provides a clear and concise roadmap for how we can work towards building extraordinary value for our investors. It is a plan that balances near-term opportunities, like PhosLo and our other marketed biopharmaceutical products, with the major transforming event that will define our future as a company, the launch of StaphVAX in Europe and then in the US.

At the beginning of 2003, we defined and communicated the 5 goals that were most important for advancing our strategy. They were -- first, to continue building value -- that is, the cash return from our operating business; the second was our development priority for the year, to complete the actions needed to advance toward the approval and launch of StaphVAX in the U.S.; then third was to continue advancing our other clinical programs, Altastaph, Civacir, and NicVAX. But we were also clear that our primary development objective was to advance StaphVAX towards launch; our fourth objective was to execute on financial and business development opportunities that would generate incremental cash resources and additional capabilities to advance our product pipeline; and fifth, we committed to defining the right organization and assuring that we have the right people in critical areas, with a 2003 focus on vaccine manufacturing and our clinical and regulatory affairs team.

I also want to be clear that our expectations for successfully executing against our plan are firmly grounded in reality as well. We know things are going to change. Working together the right way, the Nabi way, our team is confident that we can work to successfully overcome new challenges and that we will be able in a position to maximize value from new opportunities. That in total was what allowed our company to build value for our investors in 2003.

During the fourth quarter and throughout 2003, we achieved our first objective, continuing to build value in our marketed biopharmaceutical products. We believe in a simple discipline that defines how we run our business, 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 requires that we set clear investment priorities, based on facts and financial models.

We believe our success in following this strategy since the end of 2000 differentiates us from other biopharmaceutical companies at a similar stage of development. Mark Smith will summarize our record biopharmaceutical sales and margins, and therefore, our record cash return on biopharmaceutical sales. That cash return is what drives our investment in the future, our clinical trials, and our research programs.

A major factor contributing to this record performance was the acquisition of PhosLo at the beginning of August. We continue to successfully execute against a well constructed sales and marketing plan. Our sales force has been increased from 40 to 51 people in the field, to maximize our messaging for this important lifesaving product. Capitalizing on the momentum gained by the successful American Society of Nephrology (ph) Meeting in November, the CARE study results, and the publication of the K/DOQI treatment guidelines, we are seeing a sustained increase in new patient prescriptions for PhosLo. In fact, according to IMS pipeline data, December pipeline withdrawals for PhosLo totaled 81,000 bottles of product. That is the highest monthly total since January of 2001. At today's pricing, that roughly equals annualized gross revenues of $32 million.

As we continue to build the market for PhosLo, it is important to remember there is also a longer-term strategic benefit for Nabi Biopharmaceuticals, building our presence as a quality partner in the care of patients in the nephrology and dialysis settings. These are important initial markets for StaphVAX in Europe and the United States. I look forward to providing future updates on our progress with this important product in 2004.

We are also pleased with the results for our other biopharmaceutical products in 2003. We were able to offset the effect of a significant decline in hepatitis B liver transplants on sales of Nabi-HB by expanding our market share, particularly the use of Nabi-HB over an extended period for maintaining a newly transplanted liver free of virus. In addition, we were able to reduce the negative impact in numbers of transplants through favorable pricing. We do expect to see some increase in the numbers of hepatitis B liver transplants in 2004.

Sales of WinRho SDF increased significantly in 2003 as we fully realized the benefits of a new higher dosage protocol and a single-price policy implemented during the year. And although sales of other biopharmaceutical products were not as significant, it is important to know we continue to experience issues with the supply of Autoplex T. Because these issues have continued, the manufacture of Autoplex T has notified us in writing that it will not extend our agreement when it expires in May of this year.

Turning now to our second objective for 2003, to advance StaphVAX, our lead product for preventing hospital-acquired bacterial infections. We accomplished several major advances in this development program. In October, we created a new opportunity and announced the acceleration of our commercial plans for Europe that will result in the submission of our first license application for StaphVAX in Europe by the end of this year, the end of 2004. That is a full two years ahead of our original plans and a year ahead of our planned filing for our BLA in the United States. This achievement significantly advances our most important product opportunity and will accelerate the cash return from StaphVAX sales. The acceleration of these plans also led to the signing of an agreement with Cambrex BioScience in Baltimore to manufacture StaphVAX vaccine at commercial scale in their facility, initially to support our European submission.

In 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 for our StaphVAX development program, and it addressed the last major development hurdle for this product, as it clearly demonstrated that we could successfully transfer and scale up the production of StaphVAX in a commercial manufacturing facility.

With the results of that immunogenicity study in hand, we immediately initiated our confirmatory Phase III trial for StaphVAX in the U.S. in late September. Completing enrollment by mid 2004, our stated target, will keep us on track to file our BLA in the U.S. and a supplement to our MAA in Europe, seeking a broader label for StaphVAX, by the end of 2005.

We are targeting having approximately 150 main sites, which include up to 400 subsites, signed up for this trial by the end of May. Today I'm pleased to report that we are well on our way toward our goal of achieving that, with approximately 62 main sites and 150 subsites actively participating in the trial. Patient enrollment is accelerating rapidly, and today is at the target in our enrollment plan. We are on track for achieving our patient enrollment goal by midyear.

We have also initiated the manufacturing of the three StaphVAX consistency lots at Cambrex. Those lots are required for our license submission in Europe. To date, we have successfully fermented three lots of the REPA (ph) carrier protein that is used to stimulate the immune response to the type 5 and type 8 staph aureus bacteria. This week, we are initiating the fermentation of the type 8 staph aureus bacteria. The next step in the manufacturing process will be to initiate the purification of the three lots of the carrier protein later this month.

We also made significant progress against our third objective, advancing Altastaph, Civacir, and NicVAX, during the fourth quarter and throughout 2003. As you'll recall, we began 2 important Phase II trials that are expected to generate results that will offer some important indications about the efficacy of Altastaph and NicVAX later this year. We also expect to announce results from the Phase I/II trial of Civacir this quarter.

We accomplished our fourth objective with the acquisition of PhosLo by concluding a licensing deal with Pfizer for the veterinary application of our staph aureus vaccine, and by completing two successful equity placements during the year.

And we also made great progress on our fifth objective, our organization, with the additions of Dr. Henrik Rasmussen to lead our Medical, Clinical and Regulatory Affairs team, and Dr. Raafat Fahim to lead our Technical and Production Operation team, including the manufacturing of our products. Working with their groups, they have already made significant contributions to our progress.

We also appreciate investors' confidence in our ability to build value. That confidence has been evidenced by the growth in our share price and the tripling of our market cap during 2003, including the completion of a successful secondary offering in December. Our commitment is to continue to do the right things to build value for investors in 2004 and for the long-term.

I would like to conclude my remarks today focused on how we will invest the cash we generate from operations and some of the cash on our balance sheet to build value for our investors. I first want to be very clear, though -- we expect that the increased cash margin we will earn on biopharmaceutical sales will continue to support fully our investment in research, the cost of manufacturing development, and the cost of clinical trials in 2004. That cash margin on product sales will also support our investment in building a market for our products in Europe.

So to summarize those important priorities for building value in 2004, they are expected to include -- completing enrollment in the Phase III trial of StaphVAX in the U.S.; initiating StaphVAX immunogenicity studies in Europe and other patient populations; initiating a new clinical study evaluating the use of PhosLo with a statin to optimize cardiac health in ESRD patients; initiating a steady using PhosLo in chronic kidney disease patients; completing the Altastaph and NicVAX Phase II trials; filing to market StaphVAX, PhosLo and Nabi-HB in Europe; securing the approval of our BLA for Nabi-HB intravenous in the US; completing the manufacture of consistency lots of StaphVAX at Cambrex; initiating commercial production of StaphVAX at Cambrex; initiating the development of internal vaccine manufacturing capacity; completing pharamaco-economic and reimbursement studies in the five major markets in Europe; completing pharma-economic studies in other at-risk patient populations in the U.S.; refining our market analysis for StaphVAX and PhosLo in Europe and the US; and finally, developing key opinion leader support for StaphVAX in Europe and the US.

In addition to these programs, we plan to use cash to support the capital investment for vaccine manufacturing and capacity at Cambrex, approximately $10 million, and internal vaccine manufacturing capacity through the build-out of open space in our Boca Raton manufacturing facility, approximately $20 million. We plan to launch in Europe with vaccine manufactured at Cambrex, and we expect to begin -- bring internal capacity online to supplement Cambrex for the launch in the U.S. and to support expanded labeling for StaphVAX in Europe.

In conclusion, we continue to be very excited that our launch of PhosLo is on target, and we expect sales of our biopharmaceutical products to continue to fund our investments in research, clinical trials and developing important new markets in future periods. We are also excited about the product development achievements of 2003 that have redefined Nabi Biopharmaceuticals. These accomplishments, combined with the commitment and dedication to the execution of our strategic plan, give me that confidence that we will continue to successfully build value for our investors in 2004.

Now, I would like to introduce Mark Smith, who will review our financial performance for the fourth quarter and full year 2003, as well as discuss our expectations for 2004. Mark?

Thank you, Tom. Total sales in the fourth quarter of 2003 of $48 million included a record level of biopharmaceutical product sales of $34 million. Biopharmaceutical sales increased 23 percent of our fourth quarter of 2002 levels of $28 million, and 11 percent over the third quarter of 2003. Full year 2003 sales of $177 million included a record level of $109 million in biopharmaceutical sales, a 22 percent increase from 2002 levels. The significant drivers of our biopharmaceutical sales growth during the quarter and the year were strong (indiscernible) sales results of PhosLo acquired in August of 2003, and WinRho SDF.

Continuing the trend reported in the third quarter, sales of our higher margin biopharmaceutical products represented over 70 percent of total sales in the fourth quarter. In fact, biopharmaceutical product sales generated a gross margin of 69 percent in the fourth quarter, representing 95 percent of our total overall gross margin in the quarter.

Driven by the growth in sales of our biopharmaceutical products, our overall gross margin in the fourth quarter grew to 51 percent of total sales. This compares to 31 percent in the comparable quarter of 2002. In dollar terms, we generated gross margin of nearly $25 million in the quarter, an increase of almost $7 million from the comparable quarter in 2002. Full year 2003 gross margin totaled 43 percent of sales versus 33 percent for 2002, again reflecting the increasing significance of our growing biopharmaceutical business to overall company performance.

For the full year, we generated an additional $13 million of gross margin in 2003 compared to 2002, totaling $77 million. After funding, research and development spending of $29 million in 2003, an increase of approximately 40 percent from 2002, we generated a positive cash flow from operations of $7.5 million for the year. These results of increasing margins driving cash from operations are in accordance with our stated strategy of growing higher margin biopharmaceutical product sales to generate a cash return to support our clinical and product development activities, and to contribute to our investment in capital assets such as vaccine manufacturing capacity.

As Thomas outlined, sales of PhosLo and WinRho SDF have contributed significantly to the growth of our biopharmaceutical revenues in the fourth quarter and for the full year of 2003. Also as Thomas discussed, sales of Nabi-HB have decreased in 2003 as a result of lower numbers of hepatitis B liver transplant surgeries. This impact has been offset by the beneficial impact of price increases and increased market share for this important product.

Sales of Autoplex T in the quarter were once again limited by product supply shortfalls from the manufacturer. As we have previously described, when the manufacture fails to provide us contracted minimums of Autoplex T, we are reimbursed for lost margin from the shortfall in the form of a penalty. During the fourth quarter of 2003, we received a penalty of $2 million. For the full year 2003, we received penalties totaling $18.1 million. These penalties are included as an offset to expense within cost of sales and gross margin.

Also within our other biopharmaceutical products, sales of Aloprim in the fourth quarter and the full year of 2003 have recovered, as product supply from the manufacturer of this product has fully resumed since the second quarter of 2003.

As expected, sales of antibody products decreased in the fourth quarter of 2003, totaling $14 million. The decrease from the fourth quarter of 2002 levels was expected following the fulfillment of the zero margin agreement with a single customer in April this year. In the fourth quarter of 2003, we recorded no sales under this agreement, compared to $16 million in the fourth quarter of 2002. For the full year 2003, overall antibody product sales was $67 million compared to $106 million, including the full year impact of this contract being fulfilled in April.

Sales of specialty antibodies were 35 percent lower in 2003 compared to 2002, due to lower revenues from rabies, tetanus and hepatitis B plasmas. We continue to retain hepatitis B plasma produced in our centers for the manufacture of Nabi-HB.

Including the previously announced non-cash write-off of the manufacturing right of $12.6 million, we recorded a net loss of $6.6 million for the fourth quarter, or 14 cents per share. For the full year, after reflecting the non-cash write-off to the manufacturing right, as well as the $3.3 million charge in the second quarter for the retirement of our former CEO, we reported a net loss of $6.8 million, or 16 cents per share.

These results exceeded our expectations due to our effective tax rate for the fourth quarter of 2003 being 50 percent, including the benefit of research and development tax credits and net operating loss carryforwards that became available to us as a result of the announcement of our European expansion strategy, coupled with completion of our equity offering in December 2003. These tax credits and loss carryforwards would have expired without the opportunity to expand into Europe. Due to the European strategy being announced and the equity offering being completed in the fourth quarter of 2003, the tax strategy to realize this benefit related fully to this period. The full year 2003 tax rate benefit -- tax benefit rate was 49 percent, due to the recognition of this benefit.

Turning to a brief review of our other operating expenses. Selling, general and administrative expenses increased to $11.5 million in the quarter, from $10 million in the comparable quarter of 2002, primarily reflecting the launch of PhosLo. Full year SG&A expense totaled $44 million for 2003 versus $38 million for 2002. This increase reflected the launch of PhosLo, expense for the retirement of our former CEO, and increase legal and consulting costs.

As noted, research and development expenses increased to $11 million in the fourth quarter from $6 million in the fourth quarter of 2002. This increase primarily reflects the increasing costs associated with initiation of our 3600 patient confirmatory Phase III trial of StaphVAX, as well as expense related to the transfer of the StaphVAX manufacturing process to Cambrex. Full year 2003 research and development expenses totaled $29 million versus $21 million for 2002. The majority of the increase was associated with advancing our number one development priority, StaphVAX, as well as costs to support the Altastaph Phase II trial, support our Nabi-HB IV BLA, and funding NicVAX clinical trials in the U.S. and in the Netherlands.

Other operating expenses, primarily amortization and freight, increased in the fourth quarter of 2003 to 2.3 million from $200,000 in 2002, due primarily to non-cash amortization expenses related to the acquisition of PhosLo in August of 2003. The full year increase was similarly for amortization related to the acquisition of PhosLo.

As we reported in our third quarter conference call and our SEC filings in October 2003, we established a new contract manufacturing relationship with Cambrex BioScience, and ended our agreement with the previous contract manufacturer for StaphVAX. As a result of this action, we wrote off costs that had previously been capitalized relating to the right to manufacture StaphVAX at the initial manufacturer's facility in future periods. We recorded a non-cash charge of $12.6 million in the fourth quarter of 2003 for this item, the period in which we made our determination.

Turning briefly to our balance sheet. As Tom described, we completed a very successful underwritten public offering in December that generated nearly $92 million in net proceeds. Approximately $20 million of the net proceeds will be used to develop internal capacity for the manufacturer of commercial quantities of StaphVAX. We used $9.5 million of the proceeds to repay the term debt under our existing credit agreement ending 2003 with a cash balance of $115 million and no bank borrowings. Our notes payable at year end represent deferred payments pursuant to our agreement to acquire PhosLo, and will be repaid over the period ending March 1, 2007.

I would now like to discuss our outlook for 2004. We expect biopharmaceutical product sales to increase approximately 25 percent in 2004 compared to 2003. Within biopharmaceutical product sales, we now expect PhosLo sales to be between 32 million and $35 million for the full year 2004. Our increased expectations for PhosLo sales from previous guidance reflect the relaunch of PhosLo to our sales force, incorporating the positive results of the CARE study into our sales and marketing programs in January 2004, plus increased pricing. Based on increased patient use trends, we expect sales of WinRho SDF to continue to increase in 2004, although at a significantly lower rate than in 2003. Due to the reduced use of Nabi-HB in the maintenance treatment phase of HBV positive liver transplant patients, and increased use of antiviral therapies, we expect unit sales of Nabi-HB to be at lower levels in 2004 than 2003. We do expect unit sales of Nabi-HB to increase when the number of new hepatitis liver transplants increases. The impact of lower unit sales volume of Nabi-HB is expected to be offset by price increases in 2004.

Following on from previously discussed product supply shortfalls, the manufacturer of Autoplex T has advised us that it will cease production on May 11, 2004. Sales of Autoplex T in 2004 and gross margin will be limited to product manufactured and delivered to us and penalty amounts through that date.

Total antibody sales are expected to decrease by approximately 20 percent from 2003 levels, due to completion of the zero margin supply contract in April 2003 that was discussed earlier. Our sales of non-specific antibodies in 2004 will be supported by a long-term contract with Bayer that provides for the purchase of substantially all non-specific source plasma. Overall gross margin is expected to increase approximately 20 percent from 2003 levels, sue to the positive impact of increased sales of higher margin biopharmaceutical products, particularly higher sales of PhosLo.

In 2003, excess manufacturing expense was $2.2 million. Lower unit sales of Nabi-HB will result in reduced manufacturing activity at our Boca Raton facility, leading to increased excess capacity expense in future periods. Also, during the first quarter of 2004, we are making renovations to the facility to comply with EU requirements that will impact production levels in this period. In 2004, this expense may increase to approximately $6 million.

Research and development costs are expected to increase approximately 65 percent as we continue our Phase III clinical trial of StaphVAX throughout 2004 and complete the transfer of the StaphVAX manufacturing process to Cambrex. In addition, we will be conducting a PhosLo study in 2004 using PhosLo plus a statin. We will also incur clinical costs related to the preparation of filings for approval to market StaphVAX, PhosLo, and Nabi-HB in Europe, that are each expected to occur during 2004, as well as continued Phase II clinical studies of Altastaph and NicVAX.

As part of the commercial opportunity that we have identified in Europe for StaphVAX and our currently marketed products, PhosLo and Nabi-HB, we expect to incur prelaunch costs of approximately $9 million in 2004. These costs will be incurred to undertake the initial activity to obtain reimbursement for these products and perform pharmaco-economic studies, and educate key opinion leaders within European markets of the benefits from our products.

As a result of the incremental research and development activities and initial commercialization activities in Europe, we expect to generate a loss in 2004. After the impact of amortization of the PhosLo intangible assets and depreciation, we do expect to generate positive cash flow from operations to contribute to the investment in capital assets, such as the construction of our vaccine manufacturing capacity in Florida. Capital expenditures for fixed assets and our manufacturing at Cambrex -- manufacturing right at Cambrex, are expected to total $33 million in 2004, including approximately $18 million for our vaccine manufacturing facility.

Now let me turn the call back to Tom McLain.

Mark, thank you. In closing our remarks today, we are very excited by the accelerating pace of achievement at Nabi Biopharmaceuticals. We had an excellent year in 2003 and a strong foundation for building success in 2004. Our objectives are clear, our plans are in place, and we are executing against them. I am confident that with the Nabi Biopharmaceutical management team that we have in place, we can succeed in achieving our important 2004 business objectives. We are appreciative of the recognition and support we are receiving from our shareholders, and I look forward to providing you additional updates on our progress over the coming year.

Joining Mark and me today to respond to your questions are Dr. Henrik Rasmussen and Dr. Raafat Fahim. Amanda, would you please open up the lines for questions now?

(OPERATOR INSTRUCTIONS). Tom Shrader, Harris Nesbitt.

Congratulations. Of your 3 million in increase in PhosLo sales in the fourth quarter, or 2.8 million, I can't see any of it in script data. Should we think of that as an inventory buy-in in front of the price increase? Is that the most accurate way to deal with that?

What we saw was the actual take-away in December was at the highest level that it had been since January of 2001, so the withdrawals from wholesalers and distributors were actually at a very high level. And I think that lead to some of the strong buy-in that we had in December. I also believe that inventories of the gel cap, and that conversion of the market to the gel cap is going very well, that wholesalers and distributors are trying to build inventories of gel caps because the availability of the gel cap formulation has been very limited.

Can you tell us what the price increase was in January?

It was a price increase of a little more than 13 percent in January.

And one quick Nabi-HB question. I thought I heard two different things. I thought, Tom, in your initial remarks you said that you saw liver transplants increasing in '04?

I said we expected them to increase. If you will recall in our third quarter conference call, when we tried to project out what we thought the trend would be through the end of the year, we had hoped for a total of 180 hepatitis B liver transplants in 2003. In fact, with the analysis that we do internally -- which we expect will be affirmed when the UNOS (ph) data finally comes out for the full year -- that number was probably 195 transplants. It is difficult for us to say if that is an exception or if that is a sign that things are truly getting back to normal. And we will have to monitor numbers of transplants in the first quarter to fully be able to project what the impact will be on Nabi-HB for the full year. But at least the number of transplants in the fourth quarter, the increase was encouraging.

So these people that essentially got moved back in the liver transplant line, there is no way to determine how far they were moved back?

Because of the confidentiality of patient information, we can't be made aware of that. I don't know. It would be very difficult, I think, to figure out how far they went back. But the reality is, if you are a hepatitis B liver transplant patient with antiviral drugs, you can be maintained for a longer period of time before transplant becomes necessary. You can't -- we don't believe you can defer transplant forever, so it was just a timing issue, when the new requirements for liver transplant eligibility went into effect.

Iris Francescane (ph), Piper Jaffray.

Congratulations as well. I had a question regarding the immunogenicity studies, and I was wondering if you could give us more information regarding the type of patients that you are targeting and the timeline of that? And if there's any chance that this could basically go into the data package for the EU filing?

Absolutely. And Henrik Rasmussen is here, so I'm going to ask him to answer that, Iris.

We are planning 2 different (indiscernible) studies at the moment, one in patients undergoing (indiscernible) surgery, the other one in patients undergoing cardiac thoracic surgery. Both studies are intended to enroll approximately 200 patients, and both are planned to start in the U.K. in the first half of this year. We don't anticipate that we'll be able to incorporate the data into the initial filing, and we don't think it's going to be required, either. The initial filing, as you know, towards the end of this year is specifically targeted towards the end-stage renal disease indication. And we are then going to provide an additional supplemental filing by the fourth quarter of next year in Europe, as well as in the United States, where we are going to add data from these two immunogenicity studies as well as from the ongoing Phase III study in the United States, to give us the broader indication that StaphVAX is indicated for the prevention of at-risk patients.

And one question -- the guidance for PhosLo for '04, it only incorporates the price increase that we have already seen, correct?

It incorporates the January 2004 price increase, yes.

Is there any chance that you're going to take another price increase? Is that something that's feasible?

We don't speculate on price increases or comment on that, Iris. That is just something that's very difficult for us to do.

Thanks. And congrats again.

Jim Birchenough, Lehman Brothers.

I just want to add my congratulations. A couple of questions on PhosLo. Can you talk a bit about the market opportunity for PhosLo in Europe, number one? Number two, within the U.S. -- it may be too early, but could you give us a sense of where you expect the gains to come in terms of market share? Is it at the expense of Renagel and phosrenal (ph), or will it be at the expense of Tums?

Sure. In Europe, we have actually now built a model for both PhosLo and StaphVAX in the five major markets in Europe, and that model shows us that the current ESRD population is between 220 and 240,000 patients, which is comparable to the 275,000, to 300,000 patients that are in the U.S. yesterday. So it is a significant market, and it's a market where calcium acetate products are not being used, or not being used significantly today. In fact, the majority of use today is prescription calcium carbonate products. And what is also very interesting is that the pricing of those prescription calcium carbonate products is very similar to the pricing for PhosLo in the U.S. market. So the conditions there create really an exceptional opportunity for PhosLo -- a product with superior efficacy, lower calcium load, and very comparable pricing. And what we will do in order to take advantage of that market opportunity is to file for licensure in Europe this year. And to support that, there are additional clinical studies which we will conduct. And what I would like to do is give Henrik an opportunity to comment on that briefly before we come back to your second question.

Right. We are (indiscernible) planning 2 additional studies you have not heard about before. We are intending to start one study in patients with CKD, or chronic kidney disease, at the predialysis stage. Because it is well-recognized, and recently recommended by the K/DOQI guidelines, that these patients also require treatment with a phosphate binder due to hyper phosphatemia (ph). PhosLo, as well as the other phosphate binders on the market, are all only approved for the dialysis population. And we are very interested in doing additional work to justify expanding the label into the pre-dialysis CKD population. And we intend to start (indiscernible) to help us get that broader labeling later this year to specifically support commercialization in Europe. But also, to provide further support in the U.S., we are also planning to do a comparative trial comparing PhosLo against calcium carbonates, looking at the effect of the (indiscernible) phosphate levels, phosphate calcium products, as well as other (indiscernible). And we, as Tom indicated, anticipate that PhosLo will demonstrate superiority against calcium carbonates in a direct head-to-head comparison. We plan to start such a study in the first quarter of next year.

In addition to that, we are also about to start what we in the past have talked about as being the precise study, which basically was supposed to be a comparison against Renagel. However, we recently convened an advisory panel meeting, and the feedback we got from a number of leading (indiscernible) throughout the United States, including a couple of cardiologists, was that they felt that we had already with the CARE study -- which we presented at the ASN meeting last year -- we had already in a double-blind, randomized controlled study, demonstrated that PhosLo was superior to Renagel in terms of controlling CM phosphate levels, and in terms of controlling the calcium phosphate product. These patients are at great risk of developing cardiovascular disease, and there are basically three components which are responsible for the development of cardiovascular disease in this patient population, namely -- CM phosphorous (ph) levels, the calcium phosphorous product, and finally, the lipid control. The CARE study demonstrated that PhosLo is superior in controlling the first two components. The precise study, or the redesigned precise study which we hope to be able to start in the first half of this year, is specifically going to look at the third component -- that is, the control of the lipid levels. So in that study we are going to look at the combination of PhosLo where lipids are in controlling the lipid levels. And we are also in that study going to look at cardiovascular calcification, and demonstrate that by controlling these three key parameters for cardiovascular health, we can avoid progression of cardiovascular calcification in this patient population. So that study we anticipate to start in the first half of this year.

Thanks, Henrik. I think, Jim, coming back to your second question, and with our progress in the U.S. market -- where is that market shift coming from? And our strategy continues to be our interpretation with the new K/DOQI guidelines, the calcium carbonate products cannot achieve the K/DOQI recommendations for serum phosphorus and calcium phosphorous product, and that use of calcium product also comes with a significant calcium load. So we continue to position PhosLo versus Tums. And when we look at new prescription data trends, which show that PhosLo is not only capturing new prescriptions, but capturing them at a rate that exceeds the growth of new patients in this population, we believe that that is evidence that we are having success in creating new prescriptions -- i.e., in moving patients from Tums to PhosLo. We certainly believe as well that the K/DOQI guidelines and the results of the CARE study put PhosLo in a sound position in comparison to Renagel, and that we certainly can address any physician questions or concerns that they have about PhosLo based on the strength of the CARE study results, although our primary commercialization strategy is not to go out to try to take market share away from Renagel.

Just one other quick question. Do you have a sense -- this is a follow-up from an earlier question -- but (indiscernible) a sense what amount of inventory there is in the channel right now, whether it is a month's worth or two weeks worth? What a normal inventory should be and where you are at right now?

Our objective for all of our products is to manage the wholesaler and distributor trade with the inventory that averages between three and five months on hand. Gel cap inventories of PhosLo are well below that target at this point in time, and tablet inventories are within that range. One of the difficulties that we are having with IMS data is that we are still in transition. So as a company, we receive detail about Nabi-labeled PhosLo, but we are not able to secure the data about the Braintree labeled product that still remains in the trade. So that is why I have to give you an estimate on those tablet inventories. I am, unfortunately, not able to give you an exact number.

Thanks for taking my questions.

Martin Auster, Wachovia Securities.

I have a quick follow-up question on what Tom and Jim were asking you about. Could you characterize directionally how the inventory levels for the gel caps and for the tablet formations of PhosLo have changed since the last quarter when you presented results? And kind of where you think that goes going forward? The second question, about if -- wondered if you could update the status on your EU partnership talks regarding StaphVAX, and if PhosLo would likely be included in that partnership?

We are currently under-serving the market in terms of PhosLo gel caps, and we are on backorder. So the wholesaler and distributor trade has an objective to be in that three to five month range. And because of the heavy preference for gel caps in the market, we have not been able to keep up with that demand. So inventories of gel caps should increase, and we have not able to increase them. That may be something that can begin to be addressed in the trade before the end of the first quarter. Tablet inventories, we believe, have increased in the trade, as the wholesalers and distributors have bought in on Nabi labels product. And again, the frustration that we have is we are unable to know how much (technical difficulty) product is still out there.

That clarifies it for me. Thank you.

And then the second question that you had, I believe, relates to commercialization in Europe. Since our October conference call, what we have done is build market models for the five major markets in Europe. And we have looked at three discrete product opportunities -- PhosLo; we have looked at StaphVAX ESRD, which will be the initial filing in Europe; and we have looked at StaphVAX, broad indication, the product that would be licensed based on the supplemental MAA. Using that, we have defined the nephrology franchise in Europe with both StaphVAX ESRD and PhosLo, as a very attractive and a very high-value franchise; again, coming back to the fact that the numbers of ESRD patients in Europe are comparable to the numbers in the U.S., creating a market opportunity that is highly comparable to what we see for the products in the US. With that data, we have now estimated the size of commercial presence that would be required to support those products in a nephrology franchise in Europe, and that is a field sales force of between 40 and 45 representatives. Based on the outcome of that study, we are now evaluating the best way to address that commercialization, and there are three opportunities. Those opportunities would be to build a Nabi infrastructure in Europe. The second would be to acquire an infrastructure in Europe to support the sale of those products. And the third would be to rent that infrastructure from another company through a contract sales force or other type of relationship. And those are the opportunities that we are evaluating for PhosLo and for StaphVAX ESRD, and we will adhere to our commitment to give you an update on exactly how we expect to accomplish that at the middle of this year.

What made you decide that a commercial partnership with kind of an established company with a dialysis presence was not the best way to go in Europe?

We believe that the opportunity for commercialization here requires the kind of specialized selling approach in Europe that is the same approach that has been successful for us in the United States, that we have taken on all of the development risk in the clinical programs, and that that risk does not exist. And if we went forward with a commercial partnership, all we would do is give away return on the commercial sale of the product to someone else for whatever cash payments we might get up front, that is cash that we do not need.

Tom, one last question and I will let you go. Is it fair to characterize then, that as you went down that road with potential partners, the terms discussed were just not acceptable to you, in terms of what would be returned to you, in terms of royalty?

A partner is going to look for a sharing in the financial results, and we are at the point where we can achieve the full accretion of those results to our investors. So when we looked at a financial justification for a partnership, we did not see it. The only motivation would have come if there were operational advantages to working with a partner. And clearly with the nephrology market, we believe building, acquiring, or renting a sales presence will allow us to take full advantage of the commercial opportunity.

And when should we expect a fuller update on the plans?

By the middle of this year.

Jason Arieh, (indiscernible) Equities.

Congratulations, guys, great progress. A couple of questions, several have already been answered. Regarding PhosLo in CKD patients, can you give us a market size there -- patients dollars? And can you give us a Cambrex update? How is your progress going with that contract manufacturer for StaphVAX?

With the chronic kidney disease population in the United States today, it's approximately 700,000 patients. That compares to the 275,000 to 300,000 ESRD patients that are in the United States today. So it is a significant opportunity. And in some cases, products like PhosLo are being used in CKD patients now. What was particularly important for us to see in the K/DOQI guidelines is the recommendation in those guidelines that a calcium-based binder be used for control of hyper phosphatemia in CKD patients. So we see that as a significant opportunity for us to further grow sales of PhosLo in the U.S., and certainly, we would expect that there is a similar number of CKD patients in Europe as well. So that presents an important market opportunity.

And what percentage of the 700,000 patients, Tom, is a realistic group for us to pursue with PhosLo?

Henrik is here to fill in for that.

It all depends on -- I think it is well recognized that once the (indiscernible) start to fall below 60 (indiscernible) that level, many of these patients will start needing treatment with a phosphate binder. So we will certainly anticipate that a substantial proportion of the 700,000 Tom was mentioning will fall into that category. The exact number, I think, is very difficult to predict, but these are patients with Stage 3 and Stage 4 kidney disease. And a substantial proportion of them will need treatment with a binder.

And obviously you're very differentiated there, vis-a-vis the K/DOQI guidelines from Renagel?

Right, right. Because as Tom indicated, the K/DOQI guidelines specifically recommend a calcium-based binder. However, obviously we can't -- we don't have the indication now (indiscernible) at the moment, so we can't promote it. That is, obviously, the main driver behind trying to expand our label by doing a specific registration study in this population.

And regarding Cambrex?

I'm going to ask Raafat Fahim to comment on our progress with Cambrex.

(indiscernible) as Tom indicated, where we are with Cambrex is that we have initiated the consistency lots that are required for filing in Europe by the end of the year. This has happened within a very, very short period of time. It really is very difficult to imagine another partnership that would have in less than five months started from zero knowledge of the product to initiation of consistency lots in such speed. So that's the answer to the question. Behind that really is that we found Cambrex to be very a highly technically capable company, and it had the experience and expertise, as well as the business savvy, to get the product where it is today. That, obviously, has been with a lot of sweat, blood and tears from both companies to share in -- obviously in the resources, to resource it correctly, and to get the technical expertise from both companies, to share them to get it done, to get it where we are today. We have been extremely delighted with our relationship, and we think the progress, almost to the day, is how we projected it from the initial plans.

(indiscernible). Tom, two other brief questions. I guess from the discussion of how you are going to go about marketing both PhosLo and StaphVAX in Europe, I guess the next logical question is are you going to try to duplicate that model in the U.S., or do you feel that a larger collaboration is necessary? And if you don't, do we have -- is the current PhosLo sales force, is that -- the size of that sales force sufficient to market StaphVAX? And I guess a follow-up to that is -- the fact that you are not looking for an influx of up-front dollars from a major collaboration, at least in Europe -- does that somehow signify your confidence, as much as you could have it, in the confirmatory trial?

You embedded a lot of questions there, Jason. We will do our best to answer them. First and foremost, with regard to the U.S. market. We believe that with PhosLo, we are building the relationships and the presence with nephrologists that will support the success of StaphVAX and its use with ESRD patients. We will in 2004 refresh our bottoms-up market model for the U.S. for the broad indication of StaphVAX, which we previously assessed would require a sales presence of between 150 and 200 representatives in the U.S. market. And we do expect that with contract sales forces and the expansion of our own sales force, that Nabi will be well positioned to address that market. Again, when you come back to the shift in paradigm, for a physician to prevent these infections rather than to treat them, we believe our sales competency will be very important to our success in the U.S. in that regard.

But with regard to partnering, I want to be clear that our focus on a Nabi presence is limited to the U.S. and the European markets, that we continue to pursue partnering opportunities in important markets like Japan, where the number of dialysis patients today are equal to the numbers of dialysis patients in the U.S., on the Asia-Pacific rim, as well as in Latin America. So there are, clearly, important and sizable markets where we believe a combination of PhosLo and StaphVAX should be very attractive to partners who are important in the nephrology franchise already, or are looking to be able to build a position in those franchises with what we know will be two of the most recognized brand name products in those markets.

Keep up the wonderful work (indiscernible) your entire management team. Thank you.

David Miller, Biotech Monthly.

Congratulations on an excellent year, gentlemen. I just wanted -- most of my questions have answered, the only one that hasn't is I just wanted to confirm the timeline for when you expect the enrollment for StaphVAX to be done, and when we're going to get the data?

We are scheduled to complete enrollment by the middle of this year. We are then going to follow everybody (indiscernible) up to 12 months, which will take us to the middle of next year. So we anticipate to be able to disclose results from the study in the third quarter of 2005, and file the BLA in the United States, as well the supplemental filing in Europe, in the fourth quarter of '05.

Jim Birchenough, Lehman Brothers.

Just on manufacturing and bringing manufacturing in-house for StaphVAX. What would be required? Would you have to do additional consistency lots, and would you have to do additional immunogenicity studies with that produced in your own facility? Or has what you've done already suggested reproducibility, and that's all you need?

Actually, the answer is a little bit of both, because in Europe it will be different from the U.S. So for the Europeans, if we establish that the product is a well-characterized product, and all that we need is to conduct consistency -- manufacture consistency lots and analyze them in the lab, we don't need to do clinical studies for that. In the U.S., however, they require consistency lots in the clinic. And therefore, we will conduct clinical trials, consistency clinical trials with the product manufactured in our facility here for the U.S. market. But we will not need that for the European market.

Great. A final question. I may have missed it, but you mentioned you would have a loss in '04. I'm not sure if you quantified that loss.

We did not quantify the loss. What we spoke to was the fluctuations in the expense categories, primarily the increase in research and development, which we increased by about 65 percent from 2003 levels. And also a $9 million investment in European -- in commercialization activities for the European opportunity. There would be some offset in that by the substantial -- the 20 percent increase in our gross margin this year. I think the important thing as we look at our operation of the business, we expect that while the increase in expenses -- some of those expenses are non-cash depreciation and amortization, and we can still expect in 2004 to generate the cash from operations that will fully fund all of those activities, and contribute toward the investment in our capital needs.

Great. Thanks for answering the question.

Tom Shrader, Harris Nesbitt.

I guess this is for Henrik. Henrik, what is the control arm in the precise study now?

We are doing (indiscernible) is a two arm study, now randomizing patients to PhosLo plus placebo versus PhosLo plus lipidor (ph). Looking at (indiscernible) classification, under (indiscernible) as being the primary end-point, but obviously also registering or looking at the ability to continue to control phosphate and calcium phosphate products. There are a couple of reasons why we are doing that. The most important one, of course, is to get a handle on the third -- as I said, the third component in the cardiovascular (indiscernible) that is lipid control. But in addition to that, we have some indications that statins are going to be standard of care in this patient population in the future. (indiscernible) studies, which are going to be published over the next year or so, indicating that these patients with end-stage renal disease are going to benefit from treatment with statins, independent of what their starting lipid levels are. And we want to make sure that we have generated data with PhosLo in conjunction with one of the most commonly used statins, that is lipidor.

Has this become a longer trial now?

No, it is the same. The timelines are the same. Obviously, with the redesign of the study we won't be able to start the study in the first quarter as we had hoped. We are confident we can start the study in the second quarter of this year. But because we are reducing the actual size of the study from the previous three arm study to a two arm study, we still anticipate that we can complete the study by the end of this year, and will get the readout from the calcification analysis by the end of next year. So the timelines are basically the same in terms of when the study is going to report out.

In your European pre-dialysis study, how hard are those patients to find? Isn't that a notoriously difficult group to identify, people who are not yet on dialysis but are soon to be?

Yes, we don't -- I didn't say (indiscernible) certainly the CKD study, we are probably going to do in the United States. The calcium carbonate comparison we are probably going to do in Europe. We don't think it's going to be difficult to get the patients. First of all, the CKD study for registration purposes, we believe, is going to be a straightforward placebo-controlled comparison. PhosLo is -- because (indiscernible) PhosLo's superiority to placebo, we don't anticipate that we will need to do a big study. We are envisioning something between, I would say, 60 and 100 patients in total for a two arm study, to demonstrate the superiority of PhosLo, we need to demonstrate versus placebo.

And the endpoint would be phosphate control?

The endpoint would be phosphate control, yes. And it would be a straightforward -- we anticipate three months duration study, to demonstrate that we can -- that we are superior in controlling CM phosphate levels in calcium phosphate product. Obviously, this being a potential registration study, we are going to discuss the actual design in some greater details with the FDA. We have not done that yet. But certainly, based on our initial analysis of the opportunity, it appears to be pretty straightforward.

At this time there are no further questions. Are there any further remarks?

Amanda, thank you very much. I would like to thank everyone for not only your interest today, but your support in 2003. And again, we look forward to a very successful and exciting 2004. Thank you again.

This concludes today's Nabi Biopharmaceuticals fourth quarter and fiscal year end 2003 earnings conference call. You may now disconnect.