Vaxart Inc (VXRT) 2004 Q3 法說會逐字稿

Good afternoon, my name is Angela and I will be you conference facilitator today. At this time I would like to welcome everyone to the NABI bio- pharmaceuticals third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers marks, there will be a question and answer period. If you would like to ask a question during this time then simply press number one on your telephone keypad. Should anyone need assistance at anytime during this conference please press star and then 0 and an operator will assist you offline. As a reminder ladies and gentlemen this conference is being recorded today Tuesday, October 19 2004. Thank you. I would now like to introduce Mr. Mark Soufleris, Vice President of Investor & Public Relations. Mr. Soufleris you can begin your conference.

Good afternoon and welcome to the NABI bio pharmaceutical conference call webcast to review our 3rd quarter 2004 results. Before we begin, I’d like to remind you that remarks made in this conference call webcast may contain forward looking 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 involves significant risks and uncertainties. Actual results may differ significantly than 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 3 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 in PhosLo, the company’s dependence upon third parties to manufacture its products. The company’s ability to utilize its full capacity of its manufacturing facilities. The impact on sales of Nabi HB from patient treatment protocols and the number of liver transplants performed in hepatitis B virus positive patients. Reliance on a small number of customers. The future sales growth prospects for the company’s bio- pharmaceutical 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 companies annual report on form 10K 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 October 19th 2004. Any redistribution, retransmission or rebroadcast of this call for the web cast in any form without the expressed written consent of NABI bio- pharmaceuticals is prohibited. A telephone replay of today’s conference call will be available through 5pm eastern time on October 26, 2004. Information about how to access the telephone replay is available on out recently enhanced and redesigned 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 bio- pharmaceutical website www.nabi.com through 5pm eastern time on October 26 2004 . I will now turn the conference call to Thomas McClain, Chairman and Chief Executive Officer and President of Nabi Bio-pharmaceuticals.

Thank you Mark, good afternoon and thank you for joining us for our call. Today I would like to focus my comments on the increasing pace of accomplishment at Nabi bio-pharmaceuticals. We are making significant progress in our transition to become a fully integrated bio- pharmaceutical company and certainly the third quarter of 2004 marks some very important miles stone in that transformation. One of the consequences of making such rapid progress is that our focus is always directed to the future. What is next in our strategic plan, how we continue to make the major advances that will lead to the launch of StaphVax and other programs in our pipeline, how Nabi will successfully grow hear in the US and expand commercialization of our products into Europe and other markets outside the US.

From time to time though, it is also important to look back and to acknowledge how far we have already come towards realizing our goals. The transformation we have already accomplished is an amazing one and it can be demonstrated in some very simple comparisons to Nabi just four years ago. In the third quarter of 2000, we were clearly a different company. In 2000 our business model was dominated by sales of low margin plasma collected from a network of 57 centers. Plasma revenues were $38 million dollars in the third quarter of 2000. By comparison plasma revenues were less than one third of that amount, 11 million dollars this quarter. But more significant to our strategy the comparison for bio-pharmaceutical revenues is the reverse, almost tripling from $11.5 million dollars in the third quarter of 2000 to $33 million dollars this quarter.

Because of this reversal we reported today that in the 2004 third quarter the gross margin return earned on our sales exceeded 50% for the second quarter in a row. Just four years ago, the gross margin return on our sales was 21%. Also because of our success in building a bio-pharmaceutical products business, we were able to invest nearly $18 million dollars in research and clinical programs this quarter and most of that was directed to advancing StaphVax towards licensure and we still generated positive cash flow from operations of more than $5 million dollars. In contrast, during the third quarter of 2000, we were able to invest only $4 million dollars in R&D programs and we generated a negative cash flow from operations. To restate that comparison, we have increased our investment in R&D by a factor of 4 while also generating positive cash flow from operating activities. That transformation didn’t just evolve. It is the result of a clear business strategy aligned with our core competencies and focus in areas where we can generate sustained competitive advantage.

Our focus with our marketed products and with the products we will launch from our pipeline is a simple one. They are first line therapies addressing significant medical needs. They are products that not only improve health and save lives but at the same time they save healthcare dollars by reducing the cost of treatment. Our business strategy is directed towards the areas where we can have a favorable impact on the public health issues and the public policy issues we face today.

To close this simple comparison, I would like to focus on our overall financial position. Just four years ago we had $1.5 million dollars of cash on hand and we owed $110 million dollars in bank and convertible note obligations. Again today it is the reverse. We have $111 million dollars of cash on hand and no bank debt and no bond obligations. The successful execution of that first key element of our business strategy, building a bio-pharmaceutical products business, was absolutely essential for us to be able to advance the important programs in our product pipeline. As a result of that success, we are now poised to execute on the next phase of our strategic plan. Using our knowledge of the immune system to launch new innovative approaches to prevent or treat some of the most significant medical challenges physicians and patients face globally. Today we are preparing to file on first license applications for StaphVax in the European Union. We are also conducting a large multi-center proof of concept trial for StaphVax in the U.S in order to file our BLA next year. We are compiling important clinical data about the immune system’s response to StaphVax in other patient groups at risk for these infections. In 2004 we are also completing important proof of concept clinical trials for NicVax, Alphastaph, and Sivisteer, and by the end of this year we expect to have submitted three product applications in Europe for Nab-HB, PhosLo, and StaphVax. Things that were almost unimaginable four years ago are now achievable milestones. They are next steps in a comprehensive strategic plan to transform Nabi bio-pharmaceuticals into a leading global amino therapy company.

With that context I would like next to review the third quarter milestones that will be key to reaching our strategic goals. As communicated at our analyst investor day in New York City earlier this month, we identified early on that the incidents, the cost and the mortality associated with staph infections in end stage kidney disease or ESRG patients made this an important and unaddressed medical need in nephrology. The results from our first phase three trial indicated that we have a prevention approach for staphorious infections that works even in immune compromised dialysis patients. Further, the pharmacal economic data presented at last years Ikac meeting supported that our StaphVax prevention approach can deliver significant cost savings even in an analysis limited to avoiding the hospitalization and drug cost associated with these infections.

The significance of this emerging commercial opportunity in nephrology lead us to look for similarly positioned products, one that would allow us to begin building the relationships and reputation that would be critical for the early success of StaphVax. We found that last year with PhosLo. Our success with PhosLo is proving today that solid clinical data that clearly demonstrate both the efficacy and the economic advantages for a treatment approach are very important in nephrology, important for physicians and the treatment teams, important for patients and important for reimbursers. These are difficult patients to treat because of all of the associated complications of their disease. The cost of treatment in terms of the proportion of Medicare and Medicaid dollars spent on these patients is disproportionately high as a result. We are approving in the current reimbursement environment and will approve under the Medicare prescription drug benefits that will be introduced in 2006, that our approach of combining efficacy and cost effectiveness works well, and it works well even what is in a highly charged and a highly competitive environment.

The proof of concept is all the more persuasive for us because PhosLo was launched in 1990, fourteen years ago and the success of our approach is leading to the turnaround of a multi-year decline in market share. We initially observed a positive trend in new prescriptions, increasing from about 50% last September when we began promoting PhosLo to approximately 52% today and now as we had targeted for mid 2004 we are seeing PhosLo begin to increase in terms of total prescription share as well. PhosLo held less than a 49% share of total prescriptions last year when we acquired the product and our share now has increased to over 50% by the end of the third quarter.

Looking forward we expect to continue to build on our position by demonstrating PhosLo is the most effective binder therapy for kidney disease patients in terms of efficacy and cost and we’ll do that through four important initiatives. First, working with Nephrologists and Cardiologists, we have developed a comprehensive education program drawing from existing and emerging clinical data to focus on the key factors that contribute to heart disease in these patients.

We will kick off this program in a symposium at this year’s ASN meeting, when physicians will review the factors that contribute to Arterial Calcification in ESRD patients. This educational program summarizes all of the relevant clinical data and findings and we believe it positions PhosLo solidly in the face of the major competitive message we are facing today.

To further support these findings we are initiating our Care 2 study. This phase 4 clinical trial, will evaluate the advantages of treating patients with PhosLo and Lipitor, versus patients treated with Renagel plus Lipitor. We expect this trial to demonstrate overall the advantages for PhosLo in terms of efficacy, Coronary Artery Calcification and cost. This trial replaces the precise study initiated earlier this year. We expect to have preliminary results in the second half of 2005 and comparisons of Coronary Artery Calcification using EBCT scanning by the second half of 2006.

We also expect to initiate a clinical trial to demonstrate the benefits of treating stage 4 chronic kidney disease patients with PhosLo this year. This trial will evaluate the benefits of using PhosLo to control PTH levels and phosphate levels. With positive results, PhosLo will become the only binder therapy indicated in its significant and growing patient population. Stage 4 CKD patients are estimated to number between 300 and 400 thousand in the United States alone. And in addition we believe that CKD patients who are treated successfully with PhosLo will likely continue on PhosLo therapy as their conditions worsens and they begin dialysis.

And finally, we’ll submit a license application to market PhosLo in Europe before the end of this year. The number of patients and the cost of therapy create favorable market conditions for launching our product in Europe. The common technical document format for the submission will also enable us to more easily file in additional markets outside the US in the future.

PhosLo is certainly proving to be an important product opportunity in Nephrology but the importance of StaphVax in this patient population was also affirmed this quarter when the FDA granted our vaccine fast track designation for the prevention of Staphorious blood stream infections in end stage kidney disease patients. This designation is very significant as it means that the FDA will work closely with Nabi to accelerate the development track for StaphVax.

With regard to the confirmatory phase 3 clinical trial of StaphVax, as we reported in August, we have completed patient enrollment in this trial. We took approximately 10 months to enroll a total of 3,976 patients in the trial, with approximately 3,400 of these patients being dosed with vaccine. This total represented a slight over enrollment as the power calculations in the study called for 3,240 evaluable patients out of 3,600 patients enrolled. More than 170 main sites have participated in the study with an additional 400 dialysis centers participating as well.

What is particularly exciting is that nearly 500 Nephrologists, or what is over 10% of the high prescribing dialysis treaters in the United States today, will participate in the study either as Principal Investigators or PI’s, as Co PI’s or as Sub Investigators, and they will gain experience with StaphVax. This certainly should be helpful in building awareness for the importance of using a vaccine to prevent these infections as we begin our commercialization efforts for the product. And by building awareness of NABI and our commitment to the treatment of Kidney disease patients through our clinical trial, there may also be a benefit for our promotion of PhosLo as well. Having completed patient enrollment during the third quarter, we expect to have data from the phase 3 trial available around the end of the third quarter in 2005. Meeting that target will assure that we are on track to file our BLA in the US by the end of 2005.

As second major StaphVax milestone during the third quarter was successfully completing the manufacture of three consistency lots of StaphVax at our contract manufacturer and completing that ahead of schedule. The consistency lots were manufactured at Cambrex and have filled in vials and also syringes that are the preferred package form in Europe. All three lots have passed release testing. In addition the vaccine is undergoing extensive characterization across all stages of manufacturing. This testing is being conducted internally as well as at an independent lab in Europe which should facilitate the regulatory review process. Also, based on our significant progress at Cambrex, we’ve taken another important step in our partnership. We have initiated production of the first commercial lots of StaphVax in their facility.

Extensive efforts are now underway to complete the StaphVax marketing authorization application or MAA that will be submitted in the European Union. This first application will be for the use of StaphVax to prevent Staphorious blood stream infections in the SRD patients. Achieving this important StaphVax milestone in the fourth quarter will be an important next step in expanding our presence in Nephrology and our presence outside the United States.

One final comment for StaphVAX, we have also achieved very good progress on the construction of a vaccine manufacturing facility within existing shelf space in our biopharmaceutical manufacturing plant in Florida. This facility will support the commercialization of StaphVAX but also has been designed for the production of our vaccines being developed to address other dangerous hospital acquired grand (ph) positive bacteria as well as for NicVAX, our vaccine for smoking cessation. This facility will ensure adequate capacity for StaphVAX commercialization, it supplements the Cambrex capacity that will support our European and our initial US launch needs. The ultimate completion of this facility will ensure Nabi’s control over its most strategic vaccine products.

All of this record progress towards clinical trials, regulatory filings and manufacturing for StaphVAX is a good lead in for a brief update on our efforts towards commercializing our products in Europe. We are building our human resources in the EU by hiring key individuals to support our clinical regulatory and commercial efforts, we have already filed our first product license application for Nabi-HB earlier this year and we plan to file our applications for PhosLo and StaphVAX in Europe before the end of this year.

Shifting now to NicVAX we are quite pleased to report out phase two trial results in September, the results are very encouraging and we believe they indicate the potential NicVAX has to represent a new paradigm in treating nicotine addiction. Also because NicVAX uses the same carrier protein in vaccine technology as StaphVAX, we believe these results also provide further proof of concept for the application of our conjugate vaccine technology. The NicVAX trial was a scientifically rigorous study that randomized 68 smokers in a double blind trial to receive either NicVAX or Placebo. The objectives of the study were to evaluate whether NicVAX could safely stimulate the immune system to generate nicotine specific antibodies at levels we believe to be effective from animal models.

The study also was designed to provide an indication of whether or not the vaccine could have an impact on smoking cessation as a secondary end point. The results clearly supported that the vaccine was safe in smokers and that there was a dose related increase in nicotine specific antibody levels. And the results also indicated a trend towards smoking cessation. While the trial was not sized to demonstrate a difference with statistical significance it is an encouraging result, smokers who receive NicVAX at the highest dose level achieved a 33% quit rate, versus a 9% quit rate in the placebo group and similar low or high single digit or double digit quit rates in the lower vaccine dose groups. This trend is a measure of a vaccine-only effect, patients were only given NicVAX with no other supplemental interventions that are common with other smoking cessation studies, interventions like behavioral support, psychological counseling or other therapies and also the definition of quit rate was the most rigorous that can be applied to a smoking cessation trial. Not only did patients report they had quit, or reduced their cigarette consumption but we also confirmed that by measuring coatmine (indiscernible) and carbon monoxide levels in the blood, two physiological measures or reduced nicotine consumption and we corroborated the results with the behavioral survey recognized as evidencing a change in smoking patterns.

The reported quit rates were further corroborated by a trend toward a substantial reduction in average cigarette consumption in smokers who receive the highest dose of NicVAX versus those receiving lower doses or placebo. A key next step in the NicVAX development program will be the complete analyses of the data form the phase two trail in preparation for presentation at a medical meeting in 2005, today we are also pleased to report that last week we initiated a second phase two trial with NicVAX in Europe to evaluate the safety and antibody levels that can be achieved when using higher doses of the vaccine and when using a more accelerated boosting schedule.

With results from this trial and Naida (ph) or other external funding in place we would hope to initiate a phase three study during the second half of 2005. In addition we will hold meetings with US and European regulators and with potential commercial partners through the program.

One of the other very exciting areas for us during this past quarter was the strengthening of our intellectual property around out Graham Positive infections and NicVAX programs, during the quarter we announced that a patent covering entricoxys, (indiscernable) antigens and vaccines was granted by the US Patent and Trademark office and two additional NicVAX patents were issued during the quarter, one for the US and a patent just announced for the European market. We believe that our expanding NicVAX patent portfolio combined with recent exciting clinical results for NicVAX place us in a leading competitive position and we plan to continue to build on the strength of our patent position globally, for example we currently have patent applications for NicVAX pending in 29 markets and regions around the world.

I would like to conclude my remarks today by emphasizing that we achieved another very productive quarter and we are well on our way to meeting our major business objectives for 2004. Looking forward, despite the challenges being created by the termination of our WinRho distribution agreement in March of 2005, the fundamental strengths of Nabi biopharmaceuticals remain in place. We believe that we have adequate financial resources to achieve our goals to for developing and launching StaphVAX. I want to thank and I want to congratulate all of the members of the Nabi biopharmaceuticals team who continue to make our success possible each and every day. We all look forward to the rest of 2004 and to 2005 and we remain committed to successfully executing against our strategic plan.

Now I would like to ask Mark Smith, our Senior Vice President of Finance and CFO, to highlight our financial and operational results for the quarter. Mark.

Thank you Tom. Sales in the third quarter of 2004 totaled $44m including nearly $33m in Biopharmaceutical product sales, a 7% increase over the third quarter of 2003, this performance keeps us on track to achieve our important biopharmaceutical sales target for 2004. As the pace our transformation into a fully integrated biopharmaceutical company quickens, represented by the strength of biopharmaceutical sales, we continue to see increases in our overall gross margin both in dollars, gross margin in Q3 2004 grew to $23m exceeding 2003 levels by over $2m and as a percentage of revenue with gross margin percentage totaling 52% in the current quarter, as compared to 49% in the third quarter of 2003.

Consistent with our operating strategy until StaphVAX is launched, we used the cash generated from our gross margin to support research and clinical development activity. Increased gross margin allows for nearly three-fold increase in our investment in research and development from the prior year to $17.7m while still generating a positive $5m in cash flow from operating activities.

On a year-to-date basis, biopharmaceutical sales for the first nine months of 2004 totaled $103m including the impact of strong PhosLo sales, an increase of 37% from the comparable period last year and gross margin totaled nearly $55m. An increase above $18m or 35% from the same period last year.

The increase in our gross margin percentage in each of the second and third quarters has also resulted in another milestone. Our year-to-date gross margin percentage exceeded 50% for the first time, most importantly within our operating strategy after funding increased research in clinical spending to $46m, we generated cash flow from operations of $10.4m to the first nine months of 2004.

As our press release has outlined, strong sales at PhosLo and Nabi-HB have contributed significantly to the performance of our biopharmaceutical business this quarter. Sales at PhosLo [Indiscernible] totals $9.2m in the third quarter, compared to sales of $5m to the third quarter of 2003 following it’s acquisition on August 4th.

With the success of our marketing programs emphasizing the care data and the important role of PhosLo in treating hypophosphatemia [ph] prescriptions for PhosLo have increased to the point where external data now reports that PhosLo prescription count exceeds those of the competitive product.

In addition to these unit demand factors, sales of PhosLo have benefited from our pricing strategies implemented in the current year, that have resulted in lower rebate deductions [Indiscernible] gross selling price, thereby increasing net average selling price for the product. Following on the level of customer demand for PhosLo in combination with the 13% price increase that took effect earlier in the fourth quarter, at the end of this third quarter, we had unfilled orders of approximately $4m.

Sales of Nabi-HB were $13.7m in the third quarter of 2004, compared to sales of $8.9m in 2003. Sales of Nabi-HB have closely correlated to the number of Hepatitis B liver transplants in the US. Our internal tracking data reports that increased Hepatitis B transplant activity reported in the second quarter have continued at a rate of at least our full-year estimate of 220, which combined with the price increase implemented in the first year have driven increased sales of this important product.

Sales of WinRho SDF were $7.8m in the third quarter of 2004, compared to $13.5m in the comparable period of 2003. Quarter-to-quarter sales for this product have fluctuated based on the decisions of wholesaler customers responding to our pricing strategies and changes in provider contracts held by those customers.

Notwithstanding these factors, as measured by internal company reports, year-to-date patient demand for WinRho SDF in 2004 is consistent with 2003 levels. Sales of WinRho SDF for the first nine months of 2004 totaled $34.4m compared to $38m for the 2003 period. Based on sustained patient demand and the impact of the new pricing strategy implemented in 2004, we continue to expect full-year sales of this product to increase from 2003 levels.

As announced in our July conference call, our agreement to distribute WinRho SDF will end in March 2005. We believe operating cash flow and cash on hand will be sufficient to fund the development and launch of StaphVAX

Sales of our other biopharmaceutical products were $2.1m in the first quarter, compared to $3.2m last year. Sales of Alaprim [ph] were lower in the third quarter of 2004, compared to 2003 due to a delivery of back-ordered products by our supplier in the comparable quarter last year. However, the gross margin and particularly the gross margin percentage from Alaprim increased in the period following our acquisition of this product effective June 29th, resulting in a reduced royalty obligation.

As previously reported, our license and distribution agreement for Autoplex T ended on May 11th. All third quarter and all future sales are limited to inventory on hand from that day and we anticipate exhausting our inventory of Autoplex T in the fourth quarter.

Sales of antibody products decreased slightly in the third quarter of 2004, totaling $11m versus $11.7m in 2003, reflecting lower production levels for non-specific plasma offset by increases in sales of some specialty antibody products. Most importantly, we generated a significant increase in gross margin this quarter, due to increased sales of PhosLo and Nabi-HB.

Gross margin also benefited from the increase in sales of higher margins specialty antibody products. Offsetting factors were increased unused planned capacity expense to $1.3m in the quarter, compared to a prior year charge of $400,000, as the plan underwent maintenance during the current quarter that limited production.

Also in the third quarter of 2003, we received a penalty of $2.1m that offset costs that would solve the Autoplex T supply shortfalls in accordance with the terms of the agreement that ended in May this year.

Turning to a brief review of our operating expenses. Selling general and administrative expenses in the 2004 third quarter increased $2.6m over the prior year, due to marketing costs for PhosLo, initial commercialization activities in Europe as well as cost to support compliance in section 404 of the Sarbanes Oxley Act.

Research and development activities in the third quarter increased significantly, compared to the third quarter of 2003. In line with our support of the StaphVAX phase 3 clinical trial that initiated in September 2003 and was fully enrolled this August 2004.

We also invested in our StaphVAX program for the manufacturer consistency [Indiscernible] at Cambrex bioscience to support the license application in the EU and to establish vaccine manufacturing within our facilities at our FDA approved manufacturing facility in Boca Raton Florida.

Other activities included our fully enrolled after staff trial in very [Indiscernible] our NicVAX program and support of PhosLo [Indiscernible] programs.

Other operating expenses primarily amortization and freight increased in the third quarter of 2004 to $2.3m due primarily to amortization with expenses related to the acquisition of PhosLo.

Income tax expense for the quarter was approximately $2m. Income tax expenses for the third quarter of 2004 reflects the quarterly share of tax expense related to the realization of the gains for US income tax purposes resulting form our planned expansion into Europe. As discussed in the second quarter, we entered into a license agreement to market StaphVAX and PhosLo in the EU with a Nabi biopharmaceutical subsidiary established outside the US.

As we also discussed in the July conference call, we will report income tax expense for the full year as a result of this transaction. To remind you though, we will utilize net operating loss carried towards the substantially offset the future cash impact of this gain on our 2004 tax return.

Overall, after accounting for the impact of increased research and development expense and tax expense as well as non-tax expenses such as depreciation and amortization, we reported a net loss of $10.9m for the quarter or18 cents per share.

I’d like to turn briefly to our balance sheet. We ended the third quarter with a cash balance of almost $111m. We had no bank borrowings and our notes payable represent the third payments totaling $23m pursuant to our agreement to acquire PhosLo [Indiscernible] that will be repaid over the period ending March 1, 2007.

During the quarter, our significant uses of cash for investment in capital projects of $9.6m including $8.4m for our vaccine manufacturing in Boca Raton, Florida and repayment of approximately $1.25m related to a PhosLo obligation. I would like now to review our outlooks for the remainder of 2004 which remains consistent with the guidance we provided in our second quarter call. We continue to expect via pharmaceutical product sales to increase between 28% and 32% in 2004 compared to 2003. Within via pharmaceutical sales we are maintaining our guidance for sales or PhosLo at between $35m and $37m for the full year of 2004. Based on continued increase in Hepatitis B liver transplant activity we are also maintaining a full year guidance as announced in June of an 8-10% increase in sales of Nabi-HB for the year. Based on consistent patient use trends, the benefit of (technical break) increase and our new pricing strategy implemented this year we continue to expect full year sales of WinRoh SDF to increase in 2004 from 2003 levels although at a significantly lower rate than in 2003.

Total antibodies sales guidance is now at approximately 25% lower than at 2003 levels due to the completion of the zero margin supply agreement for non specific plasma in April 2003. Our sales of non specific antibodies in 2004 are supported by a long term contract with a major customer that provides for the purchase of substantially all of our non specific source plasma production.

Overall gross margins are expected to increase approximately 25-28% to 2003 levels due to positive impact of increased sales of PhosLo and Nabi-HB. Also with the acquisition of Aloprim completed we will continue to benefit from significantly lower royalty rate on this product for the second half of 2004 and beyond. Based on our current planned utilization of the plant we now expect the excess manufacturing capacity to total approximately $8m in 2004. Research and development costs are expected to approximately double from 2003 levels to $29m as we continue clinical trial activities for our phase three clinical trial of StaphVAX throughout 2004 and complete the transfer of StaphVAX manufacturing process to Cambrex from Boca Raton. In addition, this investment includes cost of immunigicity trials of StaphVAX, initiation of the K-2(ph) and ethics studies of PhosLo, reporting on the alpha staph DNA trial, work on Nic VAX trials and activities related to filing for registration of StaphVAX, PhosLo and Nabi-HB in Europe.

Our guidance for selling, general and administrative expenses is also in change as the commercial opportunity in Europe for StaphVAX and our currently marketed products PhosLo and Nabi-HB is expected to incur pre-launch costs of approximately $7m in 2004 to undertake the initial activities to obtain reimbursement and to perform pharmaco-economic studies as well as educate key opinion leaders within European markets of the benefits from our products. Selling, general and administrative expense in US operations are expected to remain consistent with 2003 levels based on marketing PhosLo (indiscernible) for a year and costs to comply with section 404 of the Sarbanes Oxley Act, upset by the impact on 2003 results of the retirement charge of our former CEO. Due to the restructuring of the license rights of future marketing of StaphVAX and PhosLo in the EU resulting in US taxable gain, we expect tax expense for the full year to be approximately $15-17m. As a reminder, deferred tax assets and net operating loss carried forward will limit the cash outlay for this tax expense. As a result of incremental research and development activities and initial commercialization activities in Europe including income tax expense we expect to generate a lot from 2004. After the impact of amortization of the PhosLo intangible assets and depreciation we continue to expect a positive cash flow from operations.

On the capital investment front we continue to expect capital expenditures for fixed assets and our manufacturing right at Cambrex to total $26-28m including approximately $18-20m for our vaccine manufacturing facility. I would now like to turn the call back Tom McClain.

Thanks Mark. What we would like to do now is open up the lines for questions. Joining us are Henrik Rasmussen, our senior VP of Clinical, Regulatory and Medical affairs, and Raafat Fahim, our senior VP Research Technical and Production operations. Angella.

At this time I would like to remind everyone, if you would like to ask a question, please press star and the number 1 on your telephone keypad. We will pause for just a moment to compile the q and a roster.

Your first question comes from Tom Shrader with Harris Nesbitt.

Hi good afternoon. The wording question I was unsure of in the press release, congratulations on another successful quarter.

Thanks.

When you say sort to maintain inventory level at 6 months are you saying that they are flat for this quarter for PhosLo are you saying there is no additional inventory bill?

When we – no what we’re saying we reported at the end of the second quarter that we thought that there had been some what of a decline in the inventory levels by the end of Q2 to a 4 to 5 months range and that now in this quarter we think that those inventory levels are back at a 5 to 6 months kind of range.

Okay, and so you think you have 6 months of inventory and you’ve just announced the price increase?

Yes there was a price increase on PhosLo at the beginning of the fourth quarter of 13% and part of that build an inventory and inventory orders was in advance of the pre announced price increase.

When you say unfilled orders of 4 million were you denying orders is that what was going on because you had a price increase coming?

Because of the price increase they place orders on it that exceeded our manufacturing capacity in the month of September that product was manufactured and those orders were now being filled. But it was because of the extraordinary demand that the price increase created for the product at the end of the third quarter.

So you just couldn’t meet 4 million orders?

Right.

And are they obligated to take all of that now?

Yes they will take all of it.

Okay, thanks a lot.

Your welcome.

Your next question comes from Zev Kawin (ph) with Wachovia Securities.

Hi Zev.

Thanks for taking my call, a question I guess either for Tom or Henrik with all (indiscernible) data coming I guess this quarter could you just give us a little detail on what you would consider I guess a successful outcome as far as antibody levels that are considered protective and then maybe trend toward efficacy and reducing infection and the active arm. And then in the second part what wouldn’t the (indiscernible) concur from that as it release to StaphVAX tickle (ph) data at the end of next year?

Again this is Henrik Rasmussen here in terms of the antibody levels we’re expecting to see we clearly what to be able to establish sustained antibody tide (indiscernible) as in excess of the levels we believe our growth will be effective in terms of providing protection against stapharious (ph) infections. And as you remember we established that pre clinically and confirmed it in our first phase trace study and we believe that we’ll need to achieve levels of about 80 to 100 microgram per meal. So that is the level we are going to look for in the new (indiscernible) starting (indiscernible) of antibody tidals.

In terms of what level of efficacy we are going to see it obviously a little bit difficult due to the StaphVAX phase 2 started which is not (indiscernible) to show a statistically significant reduction in the stapharious event rate. We would certainly be looking to see such a trends towards the reduction in stapharious in the incident of stapharious serious infections. And we would probably be looking for some thing similar to what we saw in the first phase trace study, that would be you know at around 60% reduction in the event rate. But the be and I have to emphasize this is a phase 2 study, it is not specifically power to trigger off significant reduction in events rate. But obviously we are going to look for it and we would like to see some thing around 60%.

Okay thanks.

Your next question comes from Mark Trovosky (ph) with Piper Jeffery.

Hi thank you just two quick question on the PhosLo first on the CKD trial do you have any other information on time just how long you think the trial might be and the potential dosing pattern for the patient? And then second on the one-month additional inventory of the $9.4m in sales how should we think about that for the one-month portion of that $9.4m was the one-month stocking thanks.

In terms of the CKD (indiscernible) we anticipate it will start as Tom indicate, later this quarter and we anticipate that it will continue roll in toward the middle of next year. It’s a relatively short follow up period approximately 3 months. And it is placebo control as (indiscernible). The dose in the start is very (indiscernible) The starting dose in the start it is very (indiscernible) the starting dose is basically to follow the package insert for the stage 5 phase. That is we are going to start with a certain dose in conjunction with meals and use it up side (indiscernible) the dose depending on the phosphorus levels.

It is possible obvious to recognize some of these patients are not as (indiscernible) impaired at the end stage many of these patients is (indiscernible) by the recommended dose might turn out to be less than what we’re seeing in stage 5. But obviously we can only speculate at this point in time.

Okay so you will figure that out in the study?

Yes.

Okay.

And then Mark you had asked a question about PhosLo inventory levels by going back to that 6 month level and in essence we’d gotten back to where we were at the end of the first quarter. If you try to dollarize that if you took a 35 to $37m revenue expectation for the year one month would be some where in the range of 2 to $3m. But it just got us back actually back to a level that’s probably lower than where we were at the end of the first quarter.

Okay great, thank you.

Okay.

At this time I would like to remind every one if you would like to ask a question please press star then the number one on your telephone key pad. At this time you have a follow up question from Tom Shrader.

Hi just a question for Mark Smith, Mark the WinRho number is so low quarter over quarter can Cangene (ph) enforce that can they deny what you sell in order to remove it the next distributor or is that just normal fluctuation that’s down an enormous amount.

The agreement with Cangene is that they would supply us with product through March of 2005 so that’s not really you know we would expect them to honor that agreement and that’s certainly are of the understanding that we have between the two companies. As to the quarter-to-quarter fluctuation I think what you’re really seeing is some seasonal fluctuation that relates really to the buying patterns of our wholesaler customers who have – you know we’ve seen some build up in inventory if you go back to the fourth quarter of last year when we increased the price that resulted in a lower first quarter which was comfortable for this level of sale. Then as inventory declined they order significant amounts in the second quarter. And then we saw a dip down in the third quarter as I said for the full year we do expect to still see a small increase in the revenue of the WinRho year-over-year which I would remind you was a very significant increase from 2000 through to 2003.

A contributing factor as well Tom as well is that I think is every one is aware that that trend administration the VA business was switch to Macastin (ph) in the second quarter and that was a contributor to some of those high sales in the second quarter. Macastin is on what is a quarterly pattern so that’s what we alluded to as one of the effects of the shift in business between our wholesaler distributor customers and that it’s more pronounced for WinRho than it is for any of our other product.

On a similar note why are you still getting a penalty on Autoplex isn’t that contract over?

If I was unclear I apologize I said we didn’t get a penalty --.

-- one last quarter?

That is correct.

I got you, (indiscernible) assumptions was that those people wouldn’t need Autoplex they could be switched to other products, is there any sign that that wont be true that there will be significant pressure to keep Autoplex coming?

There is no more Autoplex (indiscernible) cease production of the product so if they are not able to use other therapy physicians are going to have to get very creative about how they prevent and treat bleeding episodes.

Okay thanks.

Alright we want to thank you for your interest in Nabi and for your questions today and certainly if you have other questions please contact us and we look forward to up dating you on our full year result in February thank you very much.

This concludes today Nabi Biopharmaceutical Conference Call you may now disconnect.