Vaxart Inc (VXRT) 2005 Q2 法說會逐字稿

Good afternoon. I will be your conference facilitator today. At this time, I would like to welcome everyone to the Nabi Biopharmaceuticals second-quarter 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 today, Tuesday, July 19, 2005. Thank you. I would now like to introduce Connie Bienfait. Miss Bienfait, you may begin your conference.

Good afternoon and welcome to Nabi Biopharmaceuticals conference call and webcast to review our second-quarter 2005 operational and financial 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 related to the possibility that our confirmatory Phase III clinical trials for StaphVAX or our plans to commercialize StaphVAX for the European Union and the United States may not be successful; the possibility that we may not realize the value of our acquisition of PhosLo; the Company's ability to raise additional capital on acceptable terms; the Company's dependence on third parties to manufacture our products; the Company's ability to fully utilize capacity of its manufacturing facilities; the impact on sales of Nabi-HB from patient treatment protocol and the number of liver transplants performed in hepatitis B (indiscernible); 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 disclosed in the Company's annual report on Form 10-K for the fiscal year ended December 25th, 2004, 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, July 19, 2005. Any redistribution, retransmission or rebroadcast of this call with 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 July 26, 2005. Information about how to access the telephone replay is available on our 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 Biopharmaceuticals' website, www.Nabi.com, through 5 PM Eastern time on July 25, 2005.

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

Thank you, Connie. On behalf of all of us at Nabi Biopharmaceuticals, I want to welcome you to your first investor teleconference and to extend our best wishes for your future success.

During the second quarter, we continued to make excellent progress toward achieving our strategic objectives. We are very excited as we approach the major transforming events that we have worked so hard to develop. Strategic planning is core to what we do and how we do it. We know things will never happened exactly as we lay them out in our plan. Things change. New opportunities and new challenges emerge but our plan sets the context for what we need to accomplish and our plan anticipates alternatives.

I believe today's review of our progress in the second quarter underscores the importance of our plan and its execution. Planning, combined with measurement and execution, is redefining us as a company. They say timing is everything. Public awareness of the severity of the challenges associated with staph infections continues to build. Just last week in the Wall Street Journal, America learned that in 2004, in just 173 hospitals in Pennsylvania there were almost 12,000 hospital-acquired infections.

These infections caused 1500 deaths. And they led to 205,000 additional days of hospitalization. The total of hospital charges associated with these infections? $2 billion.

When those results are extended to all hospitals and all states, the magnitude of the issue we are working to address comes into sharp focus. If we can prevent the complications of hospital-acquired preventions we will improve health, we will save lives and we will save health care dollars.

For our initial launch, from a portfolio of vaccines and antibodies under development to address this medical challenge, our focus remains firmly set on StaphVAX. We continue to work towards its approval in Europe and towards filing our BLA in the U.S. before the end of the year.

Clearly, though, one of the most significant event in 2005 will be announcing the results from the ongoing Phase III StaphVAX trial in the U.S. We anticipate announcing these results around the end of the third quarter. The timing is dependent upon how quickly we can analyze the blood samples from patients in the study since the most significant level of enrollment in the trial occurred during the first 2 weeks of August last year, much of the analysis will be concentrated at the end of the study period.

We continue on plan; and we expect a clinical trial data will be available in time to file our BLA by the end of the year. Other developments in our StaphVAX program in the second quarter were also very exciting. Earlier this month, we announced results from an NNO (ph) genocity trial in cardiovascular surgery patients. This trial indicated that 93% of patients responded to StaphVAX by developing protective levels of antibodies.

By comparison, the response rate in dialysis patients who are more immune compromised ranges from 80 to 85%. The data also supports that these patients develop protective levels of antibodies within seven to 10 days following vaccination. The data is compelling and it suggests that StaphVAX can provide protection in patients who know they will be scheduled for surgery or those who are at long-term risk for infection due to an implanted device, the risk of recurrence or other factors.

These results will be supplemented with data from a similar study in orthopedic patients in the U.S., expected during the third quarter, as well as an ongoing trial in orthopedic patients in the UK. Combined, these results will begin to define benefits that can be derived from using StaphVAX to prevent infections in at-risk groups beyond ESRD.

And for patients at more immediate risk who may not have time to respond to a vaccine, we are developing Altastaph. Altastaph has the same mechanism of action as StaphVAX; but it has the ability to provide immediate protection. We were also pleased in the second quarter with the FDA's recognition of the important role Altastaph can play in treating active staph infections in combination with antibiotics. We were granted fast track designation based on the strength of results from our early clinical studies.

We expect to conduct a post Phase II meeting with the FDA and an important outcome of that meeting will be a clear definition for our next clinical development steps.

The comprehensive approach we are taking to prevent and treat staph aureus infection is unique to Nabi. We will next build on our success with staph aureus and address other causes of hospital-acquired bacterial infections. During the second quarter, we began the first clinical studies of our vaccine to prevent staph epidermidis (ph) infection. This product will be developed for use separately or in combination with StaphVAX. We will also use this antibody response to develop a multi talent (ph) product to prevent and treat staph aureus and staph epidermidis infections.

We will also expand progress in this broad Gram-positive infections program this year by advancing a vaccine into the clinic to address the third strain causing Staph aureus infections -- Type 336 -- and by completing the early development of the vaccine to address one of the major and growing health threats in the United States and Europe, community-acquired staph infections.

Clearly for us, 2005 is a period of focus on execution. The licensing of StaphVAX. But as I have highlighted, it is also a time when we are beginning to unlock the value in our science and approach and know-how, in areas of medical need that reach beyond staph aureus types 5 and 8.

At the same time accomplishments in our clinical and regulatory activities are at record-setting levels, we are also making major progress for the launch and commercialization of StaphVAX. Much of the market and pricing research is in hand or close to completion. The awareness of the health care challenge and the need for a prevention approach is very clear to the nephrologist who treats dialysis patients. This research also indicates that staph epidermidis blood infections are now being perceived as a significant health concern.

And our preliminary cost studies support a value of prevention in line with earlier pharmacoeconomic work completed at Duke University. The data is aligned. The data is strong. The market positioning, the cost and incidents dossiers, the education and outreach efforts are all underway and we expect to be in a position to drive a successful launch at StaphVAX in Europe in 2006.

We are making these rapid advances by attracting top talent in the U.S. and Europe. In a recent development, Mark Soufleris -- formally our Vice President of Investor Relations -- was named Vice President of Marketing and we have engaged world-class agencies to work with us in developing our launch programs.

To round out our discussion of other clinical developments, we received the latest feedback from the FDA on our Nabi HB intravenous submission and we continue to make progress with regulators towards the licensure of HEBIG (ph) in Europe.

The FDA has additional comments related to the clinical data in our submission and we will meet with them as soon as possible to respond to their observations. The progress is steady in Europe and we believe we will continue to advance towards our goal in 2005.

Next on the clinical developments for PhosLo, we are encouraged by the interest in the Care 2 study. Enrollment is progressing and we expect to report preliminary data in the fourth quarter. The design of this study and the longer follow-up period will provide meaningful scientific and medical insight for nephrologists in treating hyperphosphatemia in dialysis patients.

Enrollment in the recently initiated efficacy trial for PhosLo in stage 4 for kidney disease patients is also ongoing and we expect to continue on track to file for this indication in Europe and the U.S. next year.

Turning now to operations. Clearly, our announcement today highlights that a lot is happening in the phosphate binder market in the U.S. I hope it also reinforces that we are committed to doing the right thing and to be proactive in the face of new challenges. We continue to develop PhosLo as the most efficacious and the most cost-effective phosphate binder therapy. Despite the launch of Phosrenal (ph) and the aggressive promotional activity that surround a product launch, PhosLo is holding its position in terms of patient utilization. That is a significant accomplishment.

However, we believe when we compare the level of inventories our customers are purchasing to our current patient demand projections for the remainder of 2005, inventory levels are just too high. We believe that it is important to address concerns proactively. That led to our decision to defer revenue recognition on the equivalent of approximately 2 months' worth of patient demand at the end of the second quarter.

Mark Smith will explain this in more detail in a few minutes.

I want to take this opportunity, though, to clearly emphasize that we decided to follow this course of action because we deemed it the right thing to do. It was right in the context of market dynamics at the end of the second quarter of 2005. It was right because we believe wholesaler inventories should be managed at lower levels. But this decision does not alter our confidence in PhosLo. This decision does not diminish our conviction that through the combination of solid scientific and clinical evidence from well-designed trials -- trials already reported and new trials underway -- that with compelling costs and reimbursement data and with successful outreach through education and key opinion leaders' support, we will drive significant future growth in patient use of this product.

That winning core strategy, combined with expanded indications and new market opportunities, will be key to increasing the return from PhosLo in the second half of 2005 and, again, in 2006.

I look forward to providing you with updates on our progress. With that brief overview of our operational and clinical developments in the second quarter, I would like to ask Mark Smith to review our financial performance. Mark.

Our operating strategy is to ensure that we have the financial resources to fund the development of our brand positive franchise. This strategy drove us to complete the convertible debt offering in the second quarter, generating the financial resources to accelerate the commercialization activities for StaphVAX and the development of our next generation of Gram-positive products.

Due to the increased strength of our balance sheet along with the cash margin generated from sales which, for the second quarter, were 26 million -- including $15 million of biopharmaceutical revenue -- we increased our investment in research and development to $19 million. This investment is essential to maintaining the momentum toward filing our BLA by year-end in the U.S. and progressing our European filings as well as the clinical work underway supporting our currently marketed products PhosLo and Nabi-HB. As a result of the increased investment in research and development and our work to prepare for the commercial sale of StaphVAX, PhosLo, and HEBIG in Europe we reported a net loss of $20.9 million or $0.35 per share for the quarter, compared to a net loss of $17.6 million or $0.30 a share in the comparable quarter of 2004.

For the six months ended June 25, 2005 we reported sales of $52 million including $32 million of biopharmaceutical sales. With the increased investment in research and development of $34 million we reported a loss of $37 million or $0.62 per share for the first six months of '05.

In reporting current (indiscernible) quarter sales of PhosLo, we took a hard look at our inventory levels for this product at our wholesale and customer locations compared to patient demand. This analysis concluded that inventory levels were at approximately 8 to 9 months. Our assessment of the market factors and the desire to manage down wholesaler inventory levels resulted in our decision to defer approximately 2 months of revenue, measured in patient demand. Using pricing in effect at the time of sales this deferred amount totaled approximately $5.2 million.

While these sales have been deferred for revenue recognition, we expect our customers will pay us on normal terms. There were no special discounts for sales terms from us to our customers. To be clear, we undergo this assessment each quarter as part of our closing process and it is consistent with the established accounting policy for reporting revenue.

As previously reported in planning for 2005, we made a strategic decision to aggressively convert the market from PhosLo tablets to the more compliant enhancing gel cap formulation. Based on current withdrawals we anticipate the tablet inventories will be exhausted by the end of the third quarter and the conversion to PhosLo gel caps will have been completed. As communicated to you previously, this contributed to increased wholesale inventories at year-end. The wholesale of customers re-established inventory levels in the second quarter at the time of a 40% price increase that we announced, effective July 1. As a result of deferring these revenues reported sales of PhosLo for the second quarter totaled $3.2 million compared to $7.8 million in the second quarter of 2004.

Sales of Nabi-HB were $2.9 million in the second quarter of 2005, a 10% increase from $9.9 million in the comparable 2004 quarter. We have gained market share in this product in the first half of 2005, significantly offsetting the lower levels reported in liver transplants for HBV positive patients. Year-to-date sales of Nabi-HB reflect end user demand for the product based on recent liver transplantation activity and our increased market share for Nabi-HB.

Sales of our other biopharmaceutical products were $.4 million in the second quarter of '05, reflecting lower sales of Aloprim as a result of competition for that product since the second half of 2004 and lower contract manufacturing revenue.

In the second quarter of 2005, our manufacturing facility was almost fully absorbed in the manufacture of our own product. Total antibody sales were $11.4 million in the second quarter, relatively comparable to last year's second quarter reflecting stable nonspecific plasma production and our attention of anti-HBs plasma for future manufacturer of Nabi-HB.

Gross margin for the second quarter of 2005 was 39% or $10 million. Gross margin for the period was impacted by the write-off of Nabi-HB inventory damaged at a contract labeling facility as well as the write-off of a lot of Nabi-HB IV due to projected product expiration totaling $1.8 million.

Reflecting increased manufacturing of Nabi-HB in the plant during the second quarter we incurred virtually no excess capacity charges in the quarter compared to $1.6 million in the second quarter of last year.

Research and development expenses were $18.6 million in the quarter, up from $16.9 million in '04. Research and development expenses were driven primarily by costs associated with the Gram-positive infections franchise with almost 90% of our efforts being assigned to these activities. Our focus within this franchise was to prepare for filing our StaphVAX BLA by the end of 2005, including costs for the ongoing development of vaccine manufacturing capabilities at our facility here in Florida, and at Cambric's (ph) facility as well as clinical programs supporting PhosLo.

Selling, general and administrative expenses increased to $71 million due to costs related to commercialization activities to StaphVAX, our other products and development, and in Europe. Other operating expenses were $2.3 million for the quarter and were comparable to the 2004 second-quarter totals, comprising amortization of intangible assets associated with the acquisition of PhosLo.

For the quarter, we reported an income tax benefit of $7.4 million, an effective rate of approximately 26%. Our tax benefit reflects the planning activities we will undertake in 2005.

Following completion of our convertible debt offering in the quarter and after funding the advances within our Gram-positive franchise, we ended the second quarter with cash and marketable securities totaling $157 million. This puts us in a position of financial strength from which to advance our strategic plans.

Moving to our outlook. Including the effect of deferring PhosLo sales this quarter, our full-year revenue guidance for total sales is now $126 to $132 million. Within projected pharmaceutical sales of $82 to $85 million we now expect PhosLo sales to be $26 to $30 million. Our previously announced guidance for Nabi-HB is essentially unchanged with Nabi-HB revenues expected to be at least at 2004 levels of $40 million.

Funding the advances in our clinical programs, research and development expenses are expected to increase by up to 20% from 2004 levels of $60 million, driven by the cost to complete the conservatory Phase III trials bridging inconsistency studies, the completion of immunogenicity (ph) studies and other at-risk populations, plus acceleration of our Altastaph and other next generation Gram-positive programs. These additional investments are consistent with the stated use of proceeds from our convertible debt offering.

We continue to anticipate that SG&A expenses will also increase approximately 10% from 2004 levels of $55 million. As we continue to support the initial commercialization activities in Europe and we anticipate that our effective tax rate for the full year will be approximately 25% to 35% on a GAAP basis. Our effective tax rate will be impacted by our international activities and planning actions between our U.S. and international subsidiaries, as well as current year operating results.

I would now like to turn the call back to Tom McLain.

Mark, thanks for that review of our financial results. What we would like to do now is open up the lines for questions. Rebecca.

(OPERATOR INSTRUCTIONS) Mark Schoenebaum with Bear Stearns.

Hi Mark. Hello? Rebecca, I think we lost him.

Sorry. I wasn't on the last few minutes. Sorry about that. A couple of questions. Sorry, I'm just staring at my notes here. Did I hear you correctly that you took a 40% price increase on July 1 for PhosLo?

Yes we did.

What is the current price then, roughly, per patient per month?

Per patient per month, I do know that we know. Per bottle -- we do. It's about 55 per bottle, Mark.

One other question on PhosLo. Maybe I just didn't understand but you said that there's a statement in the press release where your projections no longer support an increase in patient use that would drive significant reduction demand. It sounds like there's been a shift in your view of the demand patterns for PhosLo. Am I right or wrong on that?

I'm having trouble interpreting some of the statements in your press release and that you made in prepared remarks.

Yes we were trying to be clear in the press release so I apologize for that. We had with the entrance of Phosrenal on the market we had expected to meet our sales goals and to increase demand for PhosLo such that those inventories at wholesalers would come down on increased demand. And yes we don't see that happening in 2005 just because some of the shift in the market dynamics with the launch of Phosrenal.

So it is mainly Phosrenal, then?

Yes.

Understood. And this is my last question and I will jump back in the queue. Your current guidance for PhosLo -- somebody asked this on the Genzyme call and it was pretty informative there. Their guidance for example for Renogel (ph) includes the positive De-core outcome. Did you consider De-core in your PhosLo guidance and if so how?

We consider De-core to be neutral.

That's great. Thanks -- waiting for StaphVAX so sorry to dwell on PhosLo.

No. That's great; thanks.

Tom Shrader with Harris Nesbitt.

Mark just hit a lot of the same things I -- just if I can ask his question one more time to make sure I understand it. You originally thought that you would be able to hit guidance despite your desire to drag down inventory. And now you think that you can drag down inventory but not hit guidance? The original guidance -- is that --?

That's correct. The inventory level at the end of the second quarter are where they were at the end of the year; and in terms of 8 to 9 months on hand and that what we need to do, we believe, is to proactively drive those levels down. And part of what we have done to recognize that is to defer some of the revenue that we earned on sales in the second quarter in future periods until those inventories do come down.

Explain to me this 40% price increase. What has to happen for you to realize that? How much of it can be passed on immediately? And how much of the is through payors that only allow you to -- for that price increase to show up sort of over time?

It's all dependent on the timing of the underlying contracts and we will not realize the full benefit of that price increase in 2005. It could take up to a year's time for all of the annual contracts to come up and the new pricing to be put into effect.

Is there some inability for distributors to pass -- can they all pass that price increase along immediately? Or do some of the government payors stop them from doing that?

No. If we have a contract with one of the providers who buy from the wholesaler we need to reimburse the wholesaler for that differential in price; and that is what leads to the provision for chargebacks. One of the things on, Tom, that we did is in our significant accounting policies in the 10-K? There is a really nice paragraph that details for you that relationship between the wholesaler and the product provider and how we make the chargeback accrual. So I think if you go back and read that it will be pretty clear.

It's actually in the 10Qs as well, Tom.

Final question. I would have expected that this 40% price increase is what everybody has been waiting for and distributors will now sell largely from inventory. Why do you feel like you have to force their hand when I think you have provided them with what they're waiting for anyway?

We are not forcing their hand and what we are doing if they want to maintain inventory at 8 months we will maintain revenues as low inventories are at 6 months. What we are saying is, we don't believe that they should have more than 6 months' inventory and that that is the right level and we will record revenues in accordance with that belief as we move forward.

You think you will seek a formal agreement now on inventories? Is that -- you had enough of this?

We are entering into agreements with our major wholesaler customers. So that has been something that has been in the works. We have had an agreement with 1 and we now -- well we've had an agreement with both of our major customers. We are finalizing the new contract with the second one as we speak.

Martin Auster with Wachovia Securities.

I don't want to beat a dead horse on the PhosLo issue. I was just wondering if you guys had done any studies? Obviously you put through a couple of price increases in the past. Just looking at the sensitivity of the market to pricing and at what price point on PhosLo you think you could run into issues in terms of your ability to hold share? And then, secondly, I think I missed it when you answered Mark's question. If you could tell us what the -- maybe just what the price per pill (indiscernible) the price increase put through please?

When we look at price sensitivity to PhosLo even with the increase that we have taken a 40% increase on our small price still positions PhosLo very favorably versus the cost of other prescription therapies. So we don't look to see any impact on demand because of the price increase and in fact, the feedback from the field hasn't indicated that there will be any impact on demand. How much farther we can go would be a theoretical question that we really don't have an answer to. But I think as you are aware, all providers of products under Medicare after this September will be limited to an index-driven increase. So you won't be able to take an increase beyond the index in the future.

I think I missed it when you answered Mark's question about what the current price then would be with the price increase in PhosLo?

The price per (MULTIPLE SPEAKERS)

Do you have a price for pill that you could give us?

The price per bottle was 55 gross.

Jim Birchenough, Lehman Brothers.

I will continue to beat a dead horse. I have a couple more PhosLo questions. Just with all the inventory movements, I'm having a tough time figuring out what demand sales are. And I guess I would've thought if you were going to defer revenues it would be beyond that achieved by what you're seeing in terms of demand. So could you give us a sense in the second quarter of what the sales were attributed to demand?

What we said was, that in terms of units, our year-to-date sales were in line with demand. The confounder for your analysis is that the pricing that we realized because of some of the reserve adjustments was low in the second quarter versus what our average pricing is.

So that's a hard thing for -- I'm having a hard time figuring out a good way to get you there.

So in terms of demand-driven sales, you mentioned that demand is in line with the sales we have seen. I think we've seen something like 6 million in PhosLo sales in the first half of the year. Is that correct?

That's in terms of what we reported as sales not what we sold into the trade. We sold into the trade that amount plus what we deferred.

Then just looking at the second half of the year, the guidance would suggest you should be able to do 20 million in PhosLo sales, at least in the second half of the year. And I'm wondering how you will achieve that with flat demand and continued decrease of inventories?

We don't believe demand will be flat in the second half of the year. We believe that we will see an increase in demand; and we have a price increase and we expect that we will -- the adjustments that we had running through reserve accounts in the second quarter that led to an artificially low net realized price that will be back to realizing what the true price of PhosLo is in the second half of the year.

I will ask a transition question for StaphVAX.

Jim, I just want to come back and make sure that the revenue dollars factor in some of those reserve adjustments in the first half of the year. So you can't just simply add that and multiply it by 2 and say that's what the revenue run rate is.

Understood.

Good.

The transition question for StaphVAX is, clearly, sustained antibody (indiscernible) above some protective level will be key to success in the StaphVAX Phase III. Just wondering if you could spend a bit of time talking about what you've done in this Phase III versus the prior Phase III to ensure that these patients are at least as immuno-competent as the first cohort that were studied back in 2000.

What I failed to mentioned is we have again asked Henrik Rasmussen to be here with us for the call. So I'm going to turn that question over to Henrik, Jim.

We haven't done anything specifically. We are basically using the same eligibility criteria as we used for the first Phase III study. As you know, we have doubled the number of patients as well. Based on the demography the basic composition of the patient population is very similar to the patient population we had in our first Phase III study so we have no reason to believe that there would be any substantial -- actually we don't have any reason to believe that there would be any difference in the general immunological status of these patients. We appear to have a similar number of diabetics and the other underlying factors appear to be very similar so we think that immunologically it is very similar in the (indiscernible) trial to what it was in the first study.

Obviously as you know what we're doing to try to make sure that we are sustaining high antibody tied us for a prolonged period of time is that in the second trial, we have introduced a boost to those at the 8 months' timeline which was the timepoint where we really started to see decreases in antibody types in the first study.

Kevin DeGeeter with Dawson James.

Couple of questions here on StaphVAX. You mentioned earlier in the call that your own internal work suggests pricing and cost per infection in line with the Duke study. Could you flush that out a little more for us?

Yes. What we said is when we've gone out and done our market research on the value proposition associated with vaccinating a patient, that that's a come back and it's similar to the per patient benefit that we saw in the Duke pharmacoeconomic data; so if you will recall the model that we walked through, the cost of an MRSA had been $32,500 in $2001 when we rolled that forward to $2005, it is $44,000 per patient. If you use an incidence rate of 5% of the patients will get an infection in a given year. 5 patients time $44,000 is somewhere around $220,000; so if you try to bring that back to a per patient basis it is a per patient cost of around $2000.

What we're telling you is the value proposition work is now coming back and supporting value in that range as well. So it is good to have the data points aligned.

On that front, how do you think about this product strategically, in terms of pricing? Because the value proposition for StaphVAX is quite different in the ESRD patient than it is in an elective surgery patient. Do you price this at a higher price point, such that you capture all as much of the economic benefit in a higher prevalence -- ESRD market? And maybe give up some on the volume side in the elective surgery side? Or do you go for more of the middle-of-the-road pricing?

That is the art of the market model. So what we are doing, obviously, in the study is focusing on the cost and incidents in ESRD population because that is where we will launch in Europe; and obviously that will be an important early pickup population in the U.S. market as well. At the same time we are concluding that research we will plug-in the pharmacoeconomic data from Duke and other research on incidents of infection in other patient populations to determine optimal use of the product; and, therefore, the optimal pricing of the product in terms of size of the market opportunity.

So we will clearly with ESR the price for ESRD and as we are successful in the future and achieving a broader indication for the product then we would anticipate making some price adjustments in order to make the vaccine attractive to the physicians who are prescribing those populations. I hope that is giving you some clarification.

Yes, very very helpful. One last question; then I will jump back into queue here. If we assumed just for the moment here that the Phase III StaphVAX study -- the ongoing one in the U.S. -- is successful and that the European regulators want to see that data prior to making a decision on the more limited approval which you are seeking currently in Europe. I'm assuming that triggers a sort of a material addition to any other package and then changes the timeline here. So can you walk us through the scenario where they request additional data or a scenario where no additional data is asked for in terms of timeline?

Kevin I think as you know here, we try to look at plan A and plan B and plan C and anticipate all possibilities. So if there were -- if the data from the Phase III study in the U.S. is provided to Europe we do not anticipate any material impact on the timelines that we have outlined. It fits within the response period.

Tom Shrader with Harris Nesbitt.

I had a follow-up for Henrik, if I could?

Absolutely.

The immunogenicity studies. I'm curious if you have studies planned in, I'm not exactly sure the population but geriatrics or people in nursing homes? Be great to know whether their antibody response was close to normal people? Or are they as immuno compromised as the dialysis people? Are those studies in the works, Henrik?

The only study which is scheduled to start later this year is a study in patients with human cancer and cancer chemotherapy so but that's certainly not to say that we are interested in looking into the possibility of further down the road of doing specific studies in the geriatric patient because it is a patient population which we are very interested in. I think regarding the immunological states I think it all depends on how you define the population. If you just go to a standard nursing home and you look at a broad population, you would still expect that they would be better off immunologically than the ESRD patients.

We still regard the ESRD patients as being one of the most heavily loaded so it's the patient populations from an immunological point of view.

I think -- and to answer that from a marketing perspective as well, Tom, the comprehensive market intelligence that we are developing now is allowing us to stratify patient populations into categories of priority and, clearly, in that regard ESRD is a high priority; cardiovascular orthopedic surgery; cancer patients; other surgical patients and ICU patients are a next priority and geriatric patients would not meet the kind of the market criteria for those 2 important tranches of opportunity. It would be an opportunity that we would go after subsequent.

Question for Mark. The $1.8 million charge for Nabi-HB IV. Did I hear that right? Is that something you thought you were going to be able to sell and now, with the additional questions, you think it is going to expire before you can sell it? Is that what's going on, Mark?

I don't want to -- that is a portion of that $1.8 million charge but yes that's an assessment we have made. (MULTIPLE SPEAKERS)

It's not the whole thing.

We had to fill a lot for the FDA inspection and we had though, obviously, if you filled it for the inspection you filled it a while ago that in an initial launch period that we would be able to solve that and now with the additional questions that came back, we don't believe that that will be possible in terms of dating.

Did you have another round of delays or another clock restarts again -- is that the expectation?

We just need to go and answer questions. We don't believe it is going to start the clock again. We need to put the clinical data in context and I think we have talked about this. I hope it is clear because Nabi-HB is the gold standard. And it is used in essentially every liver transplant patient out there. It is not possible to do a new Phase III study. But what we have access to are studies that were completed, for a shorter follow-up period. They complied with FDA guidance. At the time at their meeting about a year and 3 months ago, they came back and said that 24 months of follow-up data would be required and we were able to go back and after the fact re-create 24 months of follow-up data and that is what we need to talk with the FDA about.

Jason Aria with (indiscernible) Equities.

Couple questions, Tom. Last month on PhosLo here. Regarding the Medicare part D doughnut hole. How will this price increase affect that sweet spot for PhosLo?

It will push it a little further into the doughnut hole but it still means that there will be a significant out-of-pocket cost difference for the patient.

So significant out-of-cost pocket benefit vs. Renagel (ph) or -- .

I'm sorry. Out-of-cost benefits to the patient vs. patients who are paying for Renagel or Phosrenal (ph). Yes -- thank you.

Regarding the Nabi-HB approval in the EU, can you just mentioned -- referred to that briefly in the press release. Can you give us an update there?

Sure. Henrik?

We are actually progressing as planned and we do anticipate certainly we anticipate we could get approval, I would say, in the same half of this year. We are basically progressing, according to plan; and no one expects these issues have been raised.

Henrik, could you discuss the potential for StaphVAX and Sudomonis (ph)? You'd touched upon it in the analyst day and wondering how you might pursue that because obviously that would be a tremendously large indication.

Basically the reason we're interested in it is because the carrier coding we are using with StaphVAX is Sudomonis Exoprodine (ph). As a consequence of that we did some free clinical studies to evaluate potential activity of StaphVAX against Sudomonis and we got some encouraging data from various free clinical models. So the next obvious step would be to take it into a clinical content and there are actually some very good models in which you can -- in a relatively small number of patients -- evaluate the potential clinical effects. The obvious one is cystic fibrosis. We have (indiscernible) and subsequent infection is a huge problem. They attribute it to (indiscernible) in early childhood and most of these patients are receiving chronic (indiscernible) to treat them with antibody. To keep them staph-free.

So it is a very big problem. It would be a relatively easy model to do a clinical trial in which you could evaluate the activity of -- for StaphVAX. Having said that, we are -- the first up in the clinic for us is to look at certain moments in StaphVAX and Sudomonis infections in the ongoing Phase III study with that. It is a predefined secondary part of the study, so we are going to compare the incidents of Sudomonis and infections in the placebo and the StaphVAX (indiscernible) where we can get a signal from that. So that will be the first step. If we decide to take it any further the cystic fibrosis indication will probably be a good model in which to evaluate the activity.

So it wouldn't -- you could go into patients who are already colonized and that would not be -- that would not prevent you from trying StaphVAX?

No, it would not. And I think the exact science (ph) is something which we should still be talking about but we certainly envision a study (indiscernible) through the use of antiseptic, or antibiotic to actually get rid of the colonization. Then you would randomize these patients from receiving the StaphVAX or placebo and look at recurrent rate. If you don't treat them with (indiscernible) antibiotics or with a vaccine it may all be colonized relatively quickly after the initial eradication. So it does represent a very unique clinical model.

Did you see any effect on Sudomonis in the first Phase III trial?

We actually didn't look at it. It wasn't an end point.

The StaphVAX at-risk trial the cardiovascular trial date you recently announced. It was somewhat vague in the press release as to when whether seven days or 14 days protective levels were achieved. Could you give us a little more insight to that?

It was in the press release today, Jason, and we said it was within seven to 10 days.

How would that then address the concern regarding the use in electric procedures? How big a window do you all estimate, Tom, is needed? I mean is 14 days to long? Is seven days or 10 days right? Where do you see that coming out?

We believe that seven to 10 days to get to protective levels is a workable period for the physician to want to use StaphVAX in cases of elective surgery and clearly the vaccine for patients at risk of recurrence will be very effective, if there is less than seven to 10 days there are 2 possibilities. One is treatment with Altastaph and StaphVAX. Altastaph for immediate protection, StaphVAX for long-term protection or to rely on antibiotics for a short period of time while the patient responds to the StaphVAX and develops staph specific antibodies.

My last question. In light of the recent deal between Genentech and Biogen in purchasing Biogen facility, can you give us some idea what the Boca facility, the value of the Boca facility?

We really, with addition of the vaccine plant, we do not have a recent real estate appraisal of that so anything that I said would be purely speculative, unfortunately.

Bruce Turner with First Manhattan Company.

Could you describe for me on the second Phase II StaphVAX trial why -- given that these patients, the ESRD patients are somewhat immuno compromised? Why was the booster given at 8 months, given that the primary end point was the cumulative end rate at 8 months. What was the reason for picking that 8 months and was there thought given to doing a booster prior to the 8 month timepoint?

Basically the reason for using the 8 months' timepoint was that was the time point where in the first Phase III study started to see a substantial number of patients falling below. The estimated (indiscernible). So that was the reason for putting it in there. The reason we selected the 8 months' time point as a primary end point was because that was the timepoint where we saw the maximum (indiscernible) in the first Phase III study. We saw a reduction in (indiscernible) rate of approximately 63%. We also saw thestrongest p (ph) value at the 8 months' timepoint. So that was the reason we picked that at a primary end point and that was agreed by -- agreed with the FDA before we actually did so.

How large was the database? The ESRD database for which that 8-month timepoint booster injection was picked? Was it -- can you give me some feeling for the size of that database?

It was based on the first Phase III study which enrolled a total of 1804 patients with renal disease.

And you had data on all 1800 patients?

Yes.

At this time, we have no further questions. Mr. McLain, do you have any closing remarks?

Thank you very much. I appreciate everyone's interest in Nabi Biopharmaceuticals and your participation in today's call; and we certainly look forward to the third quarter and some of the pending developments at Nabi Biopharmaceuticals. Thanks again.

This concludes today's Nabi Biopharmaceuticals conference call.