Vaxart Inc (VXRT) 2004 Q1 法說會逐字稿

Good morning. My name is Chastity, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Nabi Biopharmaceuticals first quarter earnings conference call. [Operator Instructions]

As a reminder, ladies and gentlemen, this conference is being recorded on Wednesday, April 21, 2004. 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 our first-quarter 2004 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-three clinical trial for StaphVAX or our plans to commercialize StaphVAX in Europe 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 products may expire; the company's dependence upon third parties to manufacturer 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 in 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 annual report on Form 10-K for the fiscal year ended December 27, 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, April 21, 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 5:00 p.m. Eastern time on April 28, 2004. Information about how to access the telephone replay is available on our web site, 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' web site, www.nabi.com, through 5:00 p.m. Eastern time on April 28, 2004.

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

Thank you, Mark. Today I am very pleased to provide you with an update on our first quarter 2004 accomplishments. The entire Nabi Biopharmaceuticals team has continued to build on the momentum and record of success that characterized our 2003 performance. 2004 will truly be another transformational year for us. We are working together to achieve major advances in several key areas of our business strategy.

Our strategic plan provides a clear and concise roadmap for how we will work to achieve our goal of building an extraordinary return for our investors. Our plan balances the cash return we can earn from near-term opportunities like PhosLo and our other marketed biopharmaceutical products to fund the investment in the major transforming event that will define our future: the launch of StaphVAX in Europe, followed by the United States and other markets.

As we moved into 2004, we defined five key goals that we prioritized for advancing our business strategy. They are: First and foremost, continuing to build value, and by that I mean cash return from our operating business; Second, we are continuing to expedite our efforts toward approval and launch of StaphVAX; Third, while advancing our plans for StaphVAX, we are also building exceptional opportunities to also market PhosLo and Nabi-HB in Europe; Fourth, we will establish important proofs-of-concept results for Altastaph, Civacir, and NicVAX; And finally, we remain committed to defining the right organization and assuring that we have the right people in our most critical areas.

With respect to our first goal, during the first quarter, our success in generating increased biopharmaceutical sales drove significant gains in gross margins and, therefore, operating cash flow. That in turn allowed us to double our investment in research and development programs and to support the continued acceleration toward StaphVAX commercialization in Europe.

A major factor in that success was the continued strong performance of PhosLo, a product we acquired last August. We continue to successfully execute against a well-constructed sales and marketing plan. In 2004, that plan is capitalizing on the strong momentum we gained with the relaunch of PhosLo last fall.

We were extremely pleased with the publication of the complete CARE study results in the May, 2004, issue of "Kidney International." KI is the official publication of the International Society of Nephrology, and one of the most frequently-cited peer review journals on the treatment of kidney disease patients.

As you will recall, the CARE study is not just the first, but it is so far the only randomized, double-blinded, controlled, head-to-head comparison between PhosLo and the competitive prescription product, Renagel. The results of the study support the use of PhosLo as the first-line therapy for treating hyperphosphatemia, or elevated phosphorus levels in end-stage renal disease patients.

The results published in KI also demonstrate complications associated with the use of Renagel -- acidosis and hypocalcemia, or too little calcium in the blood. These conditions have the potential to cause significant health complications for dialysis patients. The full results of the CARE study will be part of a continuing education program that was launched in March.

We have also planned other actions to build incremental value in PhosLo. Cardiac health problems are the major cause of death in kidney disease patients. Training and education recommendations issued by the American Society of Nephrology in their NephSAP publication in the first quarter clearly focus on three factors for the benefit of the patient's cardiac health; namely, the control of phosphate, calcium-phosphate product, and lipid levels in the blood.

In-line with these recommendations, we are on track to initiate the precise study during the second quarter. This study will evaluate the use of PhosLo with a lipid-lowering agent to optimize cardiac health by successfully managing all three of these factors.

Preliminary data evaluating serum levels is expected to be available this year. Data evaluating arterial calcification using EBCT will be available in 2005. The [Kidoki] guidelines issued last year also recommend using calcium-based phosphate binders, such as PhosLo, to treat predialysis, or chronic kidney disease patients. We are currently developing the protocol to study the use of PhosLo in this setting. We anticipate starting the study in this population later this year.

We are also preparing to file for approval in Europe. A briefing document has been prepared and a meeting with regulators is scheduled for the second quarter. Based on the outcome of this meeting, we would expect to be on-track to file our Marketing Authorization Application for PhosLo this year. Additional capacity for the production of gel caps came fully on-line in March, and that allowed us to meet the increasing demand for this formulation of the product.

Gel caps have experienced a significant increase in both new and total prescriptions since our acquisition of PhosLo last August. We estimate that one to two months of demand was an inventory at PhosLo distributors at year end. These distributors significantly increased their inventories by the end of the first quarter, and we estimate they ended March with up to five to six months of inventory on hand.

Since Nabi's launch of PhosLo in September of last year, our efforts have led to growth in its monthly share of new prescriptions, from 50.6% to 52%, and an increase in its share of total prescriptions from 49.6% to 49.9%. In fact, final monthly prescription totals for PhosLo in the December 2003 through February 2004 period, the most recent time period reported by IMS, are at all-time highs.

While we have not received final March prescription data, weekly data for March appears to indicate that we'll see a slight decrease from the record highs. As expected, we've seen a heightened competitive response to our active promotion of PhosLo; however, that same sample data from the first two weeks in April show that we've recovered to the high levels noted in the period December through February.

Further, we believe Braintree-labeled tablet inventory has essentially been exhausted in the trade. Meaning that for the balance of 2004, all prescriptions will be filled with Nabi product. That, combined with evolving standards of care, our continuing education programs, the publication of the CARE study data, all these factors affirm our expectations for revenues of $32-$35 million in 2004.

We were also pleased by the improvement in results for Nabi-HB in the first quarter. Sales benefited significantly from initial sales under a new Novation contract announced this quarter. Novation will provide selling support and supply finished Nabi-HB product through its Novaplus Private Label Program.

As a result of this agreement, Novation will actively position Nabi-HB as its preferred brand of hepatitis B immune globulin with the more than 12,100 members of Novation's alliances. We believe the Novaplus agreement will help Nabi Biopharmaceuticals expand its share of the hepatitis B immune globulin market; particularly its use on a maintenance basis after liver transplant.

As part of our continued efforts to expand the presence of our Nabi-HB around the world, we also announced an international distribution agreement with Kamada in the first quarter. Under the terms of the agreement, Kamada will coordinate the regulatory process for registration of the product with several countries, including Israel, Argentina, Brazil, Mexico, and India. Once approved, Kamada will exclusively sell and distribute Nabi-HB within these countries.

During the quarter, we also made significant progress toward our goal to file Nabi-HB in Europe, and we are on-track to submit our application during the second quarter. Finally, we consider the outcome of a March FDA advisory panel meeting regarding the use of immunoglobulins in the treatment of hepatitis B to support the approach that we've taken with our IVBLA in the U.S. We expect to hear from the FDA on our license application during the second quarter.

While sales of WinRho SDF were behind last year's comparable quarter, we were pleased to see that end-user, or patient utilization of WinRho SDF continued to increase in first quarter of 2004. We believe that as a result of this growth, inventory levels at wholesaler customers were reduced at the end of the quarter.

Turning now to our second key objective for 2004, expediting our efforts toward the approval and launch of StaphVAX. First, with regard to the confirmatory phase III clinical trial, I am pleased to report that we now have approximately 248 primary and secondary study sites enrolled in the trials and we are now in the process of adding a fourth major dialysis provider to participate in the study.

At this point, we are slightly behind where we wanted to be at the end of March; approximately three weeks behind. But our emphasis on anticipating challenges has worked. Patient enrollment rates are rapidly accelerating, and we are now at levels which support completing enrollment by mid year, more specifically, in the third quarter of this year. Meeting that target will assure that we are on track to file our BLA in the U.S. by the end of 2005.

It is through our plan for the continual addition of new trial sites that we expect to work successfully to assure that we achieve our trial enrollment goals. Another important milestone is our progress with the manufacturing of three StaphVAX consistency lots at Cambrex. This will determine the timing to file our license submission in Europe.

Our progress at Cambrex advanced significantly in the quarter. We have successfully fermented and purified the REPA carrier protein that is used to stimulate the immune response to staph aureus bacteria. We are in the final stage of completing the fermentations of both the Type 8 and Type 5 staph aureus bacteria. And in the second quarter, we will initiate the purification of the staph aureus capsular polysaccharide.

We have also made good progress in compiling the documentation that is required for filing the Marketing Authorization Application with the European Union by the end of this year and the Biologics License Application in the U.S. by the end of 2005.

With regard to our third key objective, advancing our commercialization plans for Europe, we have made very good progress with StaphVAX, as well as with PhosLo and Nabi-HB. We have established a wholly-owned subsidiary in Ireland for the purpose of facilitating regulatory approval, as well as the sales and marketing of our products in Europe.

We have begun forming relationships with key opinion leader in the countries where we initially plan on marketing these products, including a StaphVAX scientific and clinical advisory board meeting in April.

We have advanced the development of pharmical economic analyses and reimbursement strategies that will be important to the successful launch of StaphVAX. In addition, we are on-track to file our MAA for Nabi-HB in the second quarter, and have scheduled a meeting with regulators in Europe on our PhosLo submission this quarter.

We also made strong progress against our fourth key objecting, advancing our other important development programs: Altastaph, Civacir, and NicVAX. In February, we announced that Altastaph had received orphan drug, and later fast-track designation, from the FDA.

This is for an initial indication for immediate protection against staph aureus infections in low birth-weight infants. These were important milestones for us, as they affirm the significance of the medical need we are working to address, and it also commits the FDA to working closely with us as we advance this program.

Our phase II proof of concept trial is expected to yield results in the second half of this year. With good results in hand, we should be in a position to begin a phase III trial in 2005. Also in February, we announced preliminary results from an N.I.H. conducted phase I/II clinical trial for Civacir, our antibody-based therapy being developed to prevent reinfection in liver transplant patients with chronic hepatitis C.

The study demonstrated that Civacir was well tolerated in both high and low-dose treatment arms of the trial. Although the clinical trial was not statistically powered to identify significant differences in effect, there was a trend towards a reduction in ALT levels, an important measure of liver health, and that trend was dose related. A trend towards reduction in hepatitis C viral levels was also documented in the high-dose group.

The next step for Civacir is to review the data with the FDA ,and to begin a process to define markers of efficacy, since in many respects, defining efficacy indicators will be a groundbreaking discussion, we are not in a position to project when the next clinical trial may begin.

Finally, during the quarter, the company presented results from our phase I/II trial of NicVAX, that was conducted in healthy smoking and nonsmoking volunteers. The results of the study that was conducted in the Netherlands demonstrated that NicVAX was both well tolerated, and was able to generate high levels of nicotine-specific antibodies.

The NicVAX phase II trial that is currently under way in the United States in smokers has been fully enrolled, and that trial remains on track to generate important safety and pharmico-kinetic data, as well as some indication of the vaccine's impact on smoking during the second half of this year.

In order to help us further determine the optimal dosing for NicVAX for our anticipated phase III trial, we expect to start an additional dose-ranging study in the second quarter. And finally, we continue to make progress on our fifth objective, our organization, with the important addition of Dr. Miguel Fort, joining us to lead our medical, clinical, and regulatory affairs efforts in Europe. Dr. Fort will coordinate the important regulatory submissions in Europe this year, as well as establish the infrastructure that will position us to begin important clinical trials in Europe.

I would like to conclude my remarks today by emphasizing that we achieved excellent progress in the first quarter, and we are off to a great start for 2004. These are very exciting times for all of us on the Nabi Biopharmaceuticals team. And as we look forward to the rest of the year, we will continue to diligently execute against the strategic plan that we have defined for our company.

We will continue to build our biopharmaceutical business to generate the increased cash margins we need to support our investments in research, clinical trials, manufacturing development, and building a market for our products in Europe. We remain highly focused, and we remain on track for achieving the important milestone priorities I have just outlined.

Now, I would like to ask Mark Smith, our Senior Vice President of Finance and Chief Financial Officer, to highlight our financial results for the quarter. Mark?

Thank you, Tom. Sales in the first quarter of 2004 totaled $46 million, including a record first-quarter level of biopharmaceutical product sales of $34 million. Biopharmaceutical sales increased 50% above first-quarter 2003 levels of $23 million, and were comparable with the fourth quarter of 2003.

The significant drivers of our biopharmaceutical sales growth during the quarter with strong sales for PhosLo and encouraging strengthening of Nabi-HB sales. Our overall gross margin percentage in the first quarter was almost 50% of revenues, which compares to 32% in the comparable quarter of 2003. In dollar terms, we generated gross margin of $22.6 million this quarter, an increase of nearly $6 million from the comparable quarter in 2003.

This increased gross margin allowed us to nearly double our investment in research and development to $11.4 million in the first quarter, and generate a positive cash flow from operations of $4.9 million for the quarter.

This result of increased gross margin driving an increased cash flow from operations is in accordance with our stated business strategy of generating the cash return from our operations to support research and clinical development activities.

Tom has described the primary drivers of PhosLo and Nabi-HB sales growth in the quarter. These factors have resulted in us reporting PhosLo sales of $11.3 million this quarter, and Nabi-HB sales of $11.2 million, with Nabi-HB sales representing a 9% increase from the comparable quarter 2003.

Sales of WinRho SDF were $9.3 million in the quarter. While this level was below the factory sales reported in the first quarter of 2003 of $11.3 million, we are encouraged by the continued strong growth trend we have seen in patient use of this product.

With wholesalers' purchases in the fourth quarter ahead of a price increase for this product in January, we believe that customer inventory levels for this product have been reduced in the first quarter.

Within other biopharmaceutical products, sales of Aloprim in the first quarter have recovered as product supply from the manufacturer has fully resumed, as contrasted to the same period last year when the product was in short supply.

Also within our other biopharmaceutical products, sales of Autoplex T in the quarter were, once again, limited by product supply shortfall from the manufacturer, although these sales did increase compared to the first quarter of 2003.

As we had previously described, when the manufacturer fails to provide us contracted minimums of Autoplex T, we are reimbursed the lot's margin from this shortfall in the form of a penalty. During the first quarter, we received such a penalty payment of $1.5 million.

These penalties are included as an offset to expense within cost of sales and gross margin. Future sales of Autoplex T will be limited to products shipped to us before May of 2004, the period that the manufacturer has advised us the product supply will cease.

Sales of antibody products decreased in the first quarter of 2004, totaling $12 million. The decrease from the first quarter of 2003 levels was expected following the fulfillment of a zero-margin agreement with a single customer in April last year. In the first quarter of 2004, we reported no sales under this agreement, compared $18 million in the first quarter of 2003.

Sales of nonspecific plasma from our own centers were $6 million, compared $4.4 million in the first quarter of 2003, reflecting increased production at our centers. Additionally, sales of specialty antibodies totaled nearly $6 million in the first quarter of 2003.

As we have described, we generated a significant increase in gross margin this quarter due primarily to increased sales of higher margin biopharmaceutical products, specifically sales of PhosLo.

Offsetting the positive margin effect of these sales was an increase in excess capacity expense this quarter to $3.4 million, compared zero in the first quarter of 2003. This increase in excess capacity expense reflected limited manufacturer of Nabi-HB in the quarter, in accordance with previously provided guidance, as the plant underwent minor modifications related to EU compliance .

Overall from an earning's standpoint, including increased research and development and the impact of increased noncash expenses such as depreciation and amortization, we reported a net loss of $4.8 million to the period, or eight cents per share.

Turning to a brief review of operating expenses. Selling, genera,l and administrative expenses increased to $12.3 million in the quarter, from $10.1 million in the comparable quarter of 2003, primarily reflecting costs of marketing and selling PhosLo and cost related to initial commercialization activities in Europe.

As noted, research and development expenses increased almost two-fold to $11.4 million in the first quarter, from $5.8 million in the first quarter of 2003. This increase primarily reflects the costs associated with our ongoing consummatory phase III trial of StaphVAX, as well as costs to transfer of StaphVAX manufacturer at commercial scale to the contract manfacturer's's site.

Amortization expense increased in the first quarter to $2.2 million from $88,000 in 2003, due to amortization expense related to the acquisition of PhosLo completed in August of 2003. The interest expense this quarter of $1.5 million, includes a charge for early termination of our credit agreement and the noncash write-off of previously capitalized loan origination costs totaling $1.1 million.

By terminating this agreement early, we will avoid future charges for unused borrowing limits and other credit -- other debt facility-related costs. Also included in interest expense is the amortization of a loan discount amount related to our obligations arising from the acquisition of PhosLo.

Income tax expense for the quarter of approximately $260,000 was the result of initial activities to transfer the intellectual property to our international subsidiary, as part of our initial expansion into Europe that creates a U.S. tax obligation in 2004.

Turning briefly to our balance sheet. We ended the quarter with a cash balance of almost $117 million. We had no bank borrowings, and our notes payable 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 review our outlook for the rest of 2004. We maintain our expectation that biopharmaceutical sales will increase between 23% and 27% in 2004 compared to 2003.

Within biopharmaceutical sales, we continue to expect PhosLo sales to be between $32 million and $35 million for the full year 2004, based on the relaunch of PhosLo to our sales force, incorporating the positive results of the CARE study into our thousand marketing programs in January, as well as from a 13% price increase that went into effect in January of this year.

Based on increased patient use trends and a 10% price increase implemented this year, we continue to expect full-year sales of WinRho SDF to increase in 2004 from 2003 levels, although at a significantly lower rate than in 2003.

I am pleased to report that our internally generated tracking data on hepatitis B liver transplant activity indicates an increase in the number of hepatitis B liver transplants during the first quarter, compared to both the comparable period last year and the preceding fourth quarter. This encouraging trend contrasts the trends reported last year, due to a new liver transplant recipient protocol guidelines that were implemented in 2003.

We will continue to monitor this activity with updated UNS data and report on it; however, due to the reduced use of Nabi-HB in the maintenance treatment phase for HPV-positive liver transplant patients, and increased use of antiviral therapies, we are continuing our guidance of expecting unit sales of Nabi-HB to be at lower levels in 2004 than in 2003.

The impact of lower unit volumes of Nabi-HB is expected to be offset by price increases in 2004. Following on from the previously -- from previously discussed product supply shortfalls, the manufacturer of Autoplex T has advised us it will cease production in May of 2004.

Sales of Autoplex T in 2004 and gross margin will be limited to product manufactured and delivered to us through that date. The impact of this decision is fully incorporated into our biopharmaceutical sales and operations guidelines for 2004.

Total antibody sales are expected to decrease by approximately 20% from 2003 levels, due to the completion of the zero-margin supply contract in April, 2003, that was discussed earlier.

Our sales of nonspecific antibodies in 2004 will be supported by a long-term contract with a major customer that provides for the purchase of substantially all our nonspecific source plasma production. Overall, gross margin is expected to increase approximately 18% to 22% from 2003 levels, due to the positive impact of increased sales of higher margin biopharmaceutical sales. In 2003, excess manufacturing expense was $2.2 million.

Our expectation of lower unit sales of Nabi-HB will result in reduced manufacturing activity at our Boca Raton facility, leading to a higher excess capacity expense in this year. In 2004, this expense may increase to approximately $6 million. If incremental manufacture is required from the encouraging hepatitis B transplant data observed in the first quarter, this expense will be reduced.

Research and development costs are now expected to increase approximately 75% from 2003 levels as we continue our phase III clinical trial of StaphVAX throughout 2004, and complete the transfer of the StaphVAX manufacturing process to Cambrex.

The increase in our guidance for this expense from year-end guidance relates to the accounting treatment of certain costs incurred at Cambrex for the transfer of manufacture of StaphVAX at commercial scale.

As we have continued to work at Cambrex, we have increased the use of their facility and incorporated use of Nabi Biopharmaceutical's assets and people to a greater extent than had been originally forecast. The advantage we have derived from these efforts is that manufacturer of consistency lots have commenced on schedule, and we are on track to incorporate this manufacturer into our MMA filing for the EU by the end of 2004.

However, in using Nabi Biopharmaceutical assets in this endeavor, we have determined that the characterization of certain costs will be as an expense, compared to an acquisition of an intangible asset.

We now project the total research and development expense will increase by an additional $4 -- $5 million, and have capital spending for acquisition of a manufacturing right asset will be reduced by $4 -- $5 million.

As part of the commercial opportunity we have identified in Europe for StaphVAX and our currently marketed products PhosLo and Nabi-HB, we continue to expect to incur prelaunch costs of approximately $9 million in 2004.

These costs will be incurred to undertake the initial activities to obtain reimbursement for these products, and perform pharmaco-economic studies and educate key opinion leaders within European markets to the benefits from our products.

Selling, general, administrative expense to the U.S. operations is expected to remain consistent with 2003 levels. 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 PhosLo intangible assets and depreciation, we continue to expect to generate positive cash flow from operations.

Capital expenditures for fixed assets and our manufacturing right at Cambrex are now expected to total $28 million to $29 million in 2004, including approximately $18 million for our vaccine manufacturing facility here in Boca Raton.

Now let me turn the call back to Tom McLain.

Thanks, Mark. We would now like to open up the line for questions. And joining us are Henrik Rasmussen, Senior Vice President, Clinical, Regulatory, and Medical Affairs for Nabi, and Raafat Fahim, Senior Vice President for Research, Technical, and Production Operations.

Thank you. At this time, I would like to remind everyone if you would like to ask a questions, please press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question komes from the line of Jim Birchenough with Lehman Brothers.

Yeah, hi guys. A couple of quick questions on PhosLo. Can you just tell us if you have an inventory management program in place and if so, how you foresee the inventories coming down over the course of the year and how you'll prevent them from dropping dramatically?

The issue that we had with inventories at the end of last year, Jim, was that we were promoting the PhosLo gel cap, which is, we believe, the superior formulation for patient compliance. And yet the capacity at Braintree was limited. And part of the acquisition of PhosLo was a commitment from Braintree to increase capacity. So as we promoted the gel caps, the inventories in the trade dropped dramatically, as the pull-through was very heavy for the gel cap formulation. And as Braintree worked to bring that online, that was accomplished successfully in the first quarter, and now we're at the point where the production capacity will be able to meet projected demand as we go forward. So that's something that we're very pleased to see have worked out and we don't believe that we'll see a return to the abnormally low levels of inventories in the distributor trade that we saw, or wholesaler trade, that we saw at the end of last year.

And so, if you could just remind us where inventories are right now in terms of months of inventory, and what you think is a normal rate and how you see that getting to that normal rate.

Well, after the discussion that we had last quarter about inventory levels, we've gone back into the -- all of the data that we had from Braintree and IMS. And what we found, historically, is that the wholesalers maintain, on average, five to six months of inventory, and that is where we are at with the gel caps and the tablets today.

Okay, great. And then just a quick question on Nabi-HB. Do you have a sense of what have the market share is for Novation that you may benefit from, with them adopting Nabi-HB as its preferred brand?

Well, currently, there are two products; there's Nabi-HB and there's a product manufactured by [Baier] called [BayHep B]. And we estimate that the market today is approximately 80% Nabi-HB, 20% for [BayHep B]. Traditionally, [BayHep B] has been successful in that maintenance phase of treatment, and that is where Novation is well positioned, and we believe that that will give us the opportunity for growth in share of Nabi-HB.

Great. Well thanks for taking my questions.

You're very welcome. Thank you.

Your next question comes from the line of Peter McDonald with Harris Nesbitt.

Hello.

Hello, thanks for taking my question. Maybe, first, could you talk a little about your commercialization strategy in the EU? Sounds like you guys are going to go at it alone.

We are evaluating three options within the EU, and that's to build, which is to create a Nabi-based sales force to buy, which means to acquire a company that already has a sales force presence in Europe -- or I guess that could be more than one company -- or to rent, and that is to use a sales force to distribute the product during the period that we would either build or buy our own presence. And we are continuing to pursue all three options at this time.

Okay.

Okay.

And actually, could you talk a little about Altastaph, maybe about the clinical and regulatory strategy that you guys plan on implementing for that?

Sure. Current -- well, Henrik, do you want to answer that question?

Sure. I'd be delighted to. Currently we are doing a randomized, double-blind, placebo-controlled, phase II trial. In a total of 200 neonatal premature babies, who are being randomly allocated to receive either Altastaph or placebo.

We anticipate to have results from that study by the of the year. And we are then, obviously, going to take those results to the FDA to further refine the next steps. However, having said that, we did get fast-track designation for Altastaph previously this year. And we do anticipate that the next step for Altastaph, assuming that we'll get positive data in the phase II trial, would be to initiate [inaudible] or potential [inaudible] phase III studies sometimes next year.

How big do you think that trial will have to be?

It's obviously going to depend on the event rate we are seeing in our phase II trial. We do know that from the literature, the event -- typically, the incident of staph aureus infections is somewhere between 5% and 8%, depending on the weight of the birthweight of the neonate, and certain geographic variations, as well.

So we are assuming that that is the case, and we assume that we can demonstrate a 50% or more reduction, then the study will be somewhere, we are talking about around 1,000 babies. But this is -- at this stage, we really haven't looked thoroughly at the event rate. And at the moment, it's pure speculation.

Okay. Great. Thanks for the interest.

Thanks, Peter.

Your next question comes from the line of [Sandy Bascha] with Piper Jaffray.

Hi, thanks for taking my question.

Sure, Sandy.

Sorry -- I apologize for my bad call. But just to go back to the PhosLo inventory, if you are saying the inventory levels at five and six months are the normal, and actually you are at the end of first quarter --

Right --

-- so why are you not raising the PhosLo guidance from $32 - $35 million? By my calculations, that's just about $7.9 million per quarter remaining; to me, the high end of guidance.

Right. Well, we had, Sandy, in the first quarter was the fact that we ended the year with an abnormally low inventory of the gel caps. And that was in the one to two-month range.

And because we were able to meet orders with the new capacity that came on line in the quarter, those inventories were increased to the five to six-month range during the quarter. So in our projections forward, we have factored in that increase in inventories in the first quarter, and left our projections for the full year at $32 - $35 million.

So you -- so the run rate for the next three quarters is going to be similar to the fourth quarter even though you have a price increase in January?

That's what we are using as our current projections.

Okay. Thank you.

Uh-huh.

Thank you. Your next question comes from the line of [Chris Tenaka] with [inaudible] Capital.

Hi. Thanks for taking my call. My question has to do with PhosLo. I wanted to know about how much are you guys planning on spending on the clinical trials investigating PhosLo in the next year?

I don't believe, Chris, that we've talked about the cost of our clinical studies, but it's certainly factored into our projections for overall increases in R&D spending.

Okay. So overall, though, including those expenses, you still expect PhosLo to contribute cash this year?

Oh,absolutely. PhosLo is a significant cash contributor for us, and was one of the major motivators for our acquisition of the product last year.

Okay. Great. And then another question I had is on Nabi-HB. I was hoping you could explain in a little bit more detail, what was the change in the allocation process for livers?

And I'm encouraged by the data that you guys have told us about, showing increasing transplants for hepatitis B. And I wonder if you could explain why -- you know, in your understanding, why that seems to be normalizing or coming back to where it was before? [ Poor audio ]

Sure. Under the previous criteria, I believe when organizations looked at the allocation of livers, they felt that the guidelines were allowing less critically ill patients to advance on the list, and unfairly for patients who were more critically ill.

So in the new guidelines, they've drastically increased the criteria for evaluating the eligibility of the transplant patient, and in particular, for hepatitis B patients because they can be maintained for a more extended period on antiviral drugs; more extended period than patients who suffer from hepatitis C or liver cancer. There was what we felt would be, kind of , a one-time adjustment where hepatitis B patients would drop back on the list, and then as their condition inevitably advanced, that there would come a point in time where they again would be at that critical stage and be eligible for liver transplant.

And at the time those changes were made in 2003, we were uncertain as to whether that would be a 12 month or more adjustment period. And that's why even though on the list we had seen no decrease in, you know, numbers of hepatitis B transplant patients on the list, we were waiting to see when those numbers would again get to the point where they would be eligible for transplant.

Our internally generated data, both in the fourth quarter and the first quarter, appears to indicate that the numbers of hepatitis B transplants are increasing. First quarter greater than fourth quarter -- [ phone ringing ] -- but we want to wait for data from [Unos], which monitors and reports transplant data before we actually increase our projections for Nabi-HB for the year. We want the date from the official source before we make that change.

Okay. So is it safe to assume, I guess, that every patient who needs a liver transplant will eventually get one, or -- you know, is that kind of -- I'm sorry. Go ahead.

Actually, that, unfortunately, is not the case. In the United States today, it's estimated that there are 20,000 or more patients waiting for a liver transplant, and there are only 5,000 organs, in total, available each year. So that is really determined by the availability of livers. And even though there are procedures like partial liver transplants, they are not yet addressing the demand that is out there.

Thank you very much.

You're welcome.

Thank you. Once again, if you want to ask a question, please press star then the number one on your telephone keypad. You now have a followup question from the line of Jim Birchenough with Lehman Brothers.

Yeah, hi guys. Just two followup questions. Again, on PhosLo, looking back to third quarter '03, fourth quarter '03, and now first quarter '04 results, we've got wildly swinging numbers from $5 million to $8 million to $11 million, and I'm not quite sure I understand what the assumed baseline rate of end-user demand is in dollar terms that we should consider in mapping this out, going forward.

Well, I think the only way to get you to anything was the calculation that I believe Sam Deep did; was that if our guidance is remaining at $32 million to $35 million and we sold $11.5 million in the quarter, that we're estimating a range of $7 million to $8 million of recurring sales in the last three quarters of the year.

Okay. Great. And then, just on the StaphVAX immunogen studies, could you just discuss that set of trials, the end points you're looking at and when we might see data?

Henrik??

Yes. We are basically planning to do at least one study in patients undergoing cardiothoracic surgery, and at least one study in patients undergoing orthopedic surgery. We are planning to initiate the first study in patients undergoing cardiothoracic surgery in a total of 200 patients in the first half of this year. And we anticipate that we will have results from that study by the end of this year.

We are planning to start the second [inaudible] study in the second half of next year, and we certainly will have data from both studies to incorporate into our 4Q '05 filing in the U.S. as well as the expanded filing we are planning to do at the same time in Europe. Because, obviously, these [inaudible] studies are going to be important to allow us to give the broad indication we are asking for; that is, that StaphVAX is indicated for the prevention of staph aureus bacteremia in at-risk patients.

So just very quickly to recap, so we are basically filing for the end-stage renal disease population by the end this year in Europe. And then one year later, for 4Q '05, we are adding the U.S. filing, and we are also adding a supplemental filing in Europe where we are going to use the [inaudible] studies to ask for the broader indication. Each of these studies are scheduled to enroll approximately 200 patients.

That's great. Thanks for taking my questions.

Okay. Thank you, Jim.

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

Good afternoon. Thanks for taking my call.

Hello, Matt.

Hi. I wondered if you might discuss some of the dynamics in the PhosLo market given the introduction of [Zinocalcet] from Amgen, and whether the introduction of that product would tend to favor calcium-based or noncalcium-based binders. And then, I guess, sort of as a follow on within that market, you talked a little bit about a competitive response against the introduction of the CARE study into your promotion. Just what that looked like, and how you countered that from [inaudible].

Sure. Thanks, Matt. [Zinocalcet] is going to make what we think is a very important contribution in the care of dialysis patients, and that's the control of PTH, or parathyroid hormone levels, which are not regulated adequately by Vitamin D today.

When you read the package insert for [Zinocalcet] which, if it's successful, should, we believe, over time, attract widespread use. It indicates that 66% of the patients who had been treated with [Zinocalcet] developed hypophosphatemia, which is low calcium levels in the blood. Certainly, we understand from the CARE study that the use of noncalcium-based binders also contributes to hypophosphatemia, and the complications of hypophosphatemia can be very severe in these patients.

You mean hypocalcemia?

Hypocalcemia. I'm sorry. You are absolutely right. I'm talking to fast here. Hypocalcemia.

So as a result, the package insert for [Zinocalcet] recommends the use of calcium-based phosphate binders. So we are hopeful that the use of those products will lead to increased use of calcium binders such as PhosLo.

Okay. How about the response of [inaudible] -- what they were saying --

The response that we've noted in the field has been continued challenge on the adverse effects of calcium intake in ESRD patients.

And that's why we were so encouraged by what we talked about, which was the NephSAP publication of treatment and education recommendations that really got to the heart of cardiac health in ESRD patients.

And again, to recap on those recommendations, that they cite three factors, which again, are the three factors that we have always understood affect cardiac health in these patients; and those are phosphate levels, calcium phosphate product, and lipid levels in the blood. So that is our easy and direct counter to that message.

Very good. Thanks.

You're welcome.

Thank you. Once again, if you want to ask a question, please press star then the number one on your telephone keypad.

I think at this point, we will wrap up the conference call for today. But I would like to thank you for your interest in Nabi Biopharmaceuticals, and we certainly look forward to updating you on our progress at the end of the second quarter. Thank you very much.

This concludes today's Nabi Biopharmaceuticals first quarter earnings conference call. You may now disconnect.