Vaxart Inc (VXRT) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nabi Biopharmaceuticals fourth quarter and year-end fiscal results conference call.

[OPERATOR INSTRUCTIONS]

And now I would like to turn the presentation over to the initial host for today's call, Mr. Thomas E. Rathjen, Vice President of Investor Relations. Please proceed, sir.

Good afternoon, and thank you for joining us on Nabi Biopharmaceutical's 2005 fourth quarter and year-end conference call. Before we begin, I need to remind you that statements on this conference call about the Company that are not strictly historical are forward-looking statements, and include statements about our marketed products, products in development, demand for our products, clinical trials and studies, licensure applications and approvals, assessment of StaphVAX Phase 3 trial results, and alliances and partnerships.

You can identify these forward- looking statements because they involve our expectations, beliefs, projections, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in forward-looking statements as a result of any number of factors.

These factors include, but are not limited to, risks relating to the Company's ability to advance the development of products currently in the pipeline or in clinical trials; complete the assessment of the StaphVAX Phase 3 clinical trials during the first half of 2006; maintain the human and financial resources to commercialize current products and bring to market products in development; obtain regulatory approval for its products in the United Sates, Europe, or other markets; successfully develop, manufacture, and market its products; realize future growth in sales for its biopharmaceutical products; prevail in patent litigation; raise additional capital on acceptable terms; repay its outstanding convertible senior notes when due.

Many of these factors are more fully discussed, as are other factors, in the Company's annual report on Form 10-K for the fiscal year ended December 25, 2004, filed with the Securities and Exchange Commission. I would now like to turn the call over to Tom McLain, Nabi's Chairman, President, and Chief Executive Officer.

Thank you, Tom. Good afternoon, everyone, and thank you for joining us on today's conference call. This afternoon, I will update you on our strategic plan, focused specifically on our operational goals. After my remarks, Mark Smith, our Senior Vice President and Chief Financial Officer, will review our financials and provide guidance for 2006.

Before I begin today, I want to affirm that Nabi Biopharmaceuticals remains strong, focused, and determined to meet and exceed goals. Our vision remains constant -- to use our technology and know-how to unlock the power of the human immune system and to help people with serious and unmet medical needs. Our work is important and we remain focused on advancing products to address some of the most significant human and medical needs our generation faces.

In reviewing our 2005 results, especially our financial results, the real importance today is developing context about what to expect in 2006and beyond. I believe there are three key themes that are important to understanding the operational drivers for our full-year 2005 results.

First, results for PhosLo represent a year of transition. We withdrew the tablet formulation from the market so we could focus fully on the patient advantage gelcap product in 2006 and beyond. All of that inventory came out of the wholesaler and distributor pipeline. And during the year, bottles of gelcaps at wholesalers and distributors also came down slightly.

Bottom line, that means that at the end of the year, PhosLo inventories at wholesalers and distributors, were reduced from approximately 8 to 9 months at the end of 2004 to 4 months at the end of 2005. Why is that important? Cash flow from PhosLo sales will be more predictable in 2006.

Second, during 2005 clinical evidence mounted to support the advantages of PhosLo as the first-line therapy for hyperphosphatemia in dialysis patients. Both D-COR and DOPPS add to the body of clinical studies over the last 15 years that have demonstrated the benefits of prescribing calcium-based binders for these patients. Combining that clinical data with our intensified outreach to key decision makers at every level in dialysis market led to an impressive result in the fourth quarter of 2005.

By the end of the year, our share of new prescriptions had increased from 40% to 50%. Just as important, this externally-sourced data supports that PhosLo had a 10-point share lead in new Rxs over the nearest competitive therapy. That trend is expected to translate into gains in total Rxs in 2006. When you combine that with the new opportunities around Medicare part D and PhosLo's formulary status, as well as the expected approval for PhosLo in Europe, we have a significant opportunity to build PhosLo's position in the U.S. and global markets in 2006.

Third, it is important to remember that, in 2005, we invested heavily toward the expected launch of StaphVAX. The cost of the Phase 3 clinical trial, other clinical and pharmacoeconomic studies and our pre-launch efforts were substantial. During 2006, we will be focused on current product opportunities and advancing earlier stage development programs. We believe we can substantiate commercial value for our key pipeline programs through well-designed, focused, and cost-effective clinical trials.

Now, I would like to provide you with important context with respect to our business strategy. On our February 8 conference call, I defined three key strategic goals that we believe will maximize value from operations and our pipeline programs in the 2006 through 2008 time period.

Those objectives are optimizing the value of current operations. For us, that means maximizing the cash return on the operating assets we currently own. These assets include our marketed products and our sales force. They also include the manufacturing capacity in our plant in Florida and our plasma collection centers. Our goal is to realize an increased cash return on our investment in these assets in the 2006 through 2008 timeframe.

Second, building incremental value through strategic partnerships and commercial alliances. This may include broadening the distribution of our PhosLo and HEBIG products outside the U.S., particularly with anticipated European regulatory approvals in 2006.

We will also pursue in-licensing opportunities in our core commercial areas of nephrology, transplant medicine, and hospital specialty areas, including infectious diseases and hematology and oncology. We are also pursuing partnership opportunities for our vaccine programs and for product development programs outside North America.

Our third key strategic objective, demonstrating proof of concept through Phase 2 clinical studies for key pipeline programs. We have identified three program areas where we believe value can be demonstrated through these proof-of-concept trials between now and 2008. They are nicotine addiction, hepatitis C, and gram-positive bacterial infection.

On the February 8 conference call, we focused on those key programs in our pipeline and our 2006 milestones. Today, I will be focusing on our strategic objective of optimizing the value of current operations, particularly focusing on our commercial franchise opportunities.

As you know, our business model is not typical for biotech companies advancing major pipeline programs. We have worked hard to develop operational competencies that differentiate Nabi Biopharmaceuticals from other companies. Today, we define those advantages in two areas. First is our commercial model. It's our understanding of complex products and their value proposition in terms of efficacy and cost. And then we effectively communicate that message to key decision makers - the treatment teams, reimbursers and key opinion leaders. Our focus today is targeted to hospitals and dialysis centers, where we can build a meaningful and productive commercial presence.

Second is our manufacturing model, knowing how to develop and scale up for the commercial manufacturing of our antibody and vaccine products. We expect this combination of capacity and know-how will also lead to new product opportunities that are aligned with our commercial franchises in the 2006 through 2008 time period.

The combination of these competencies will lead to significant vertical integration opportunities. One example is that owning plasma collection centers, innovative vaccines, a vaccination facility, and a hospital-based sales force can lead to significant commercial opportunities like Nabi-HB or Civacir or AltaStaph.

A second example could include the combination of our commercial-scale biological manufacturing capacity with vaccine and antibody technologies to lead us to important and innovative monoclonal antibody products. I can assure you, though, that as we prioritize our operational goals for this year, we will take a disciplined approach, focused on maximizing the cash return on the operating assets we own today.

Nephrology and dialysis became a franchise area of interest for us because of its significance for the launch of StaphVAX. We entered this market in August, 2003, with the purchase of PhosLo. In the last two years, we have learned how this market works in terms of subscribers, reimbursers, and competitors. We have established credibility through our clinically-based selling approach, and we have built strong relationships in the nephrology community.

Nephrology is a focused and attractive market. The number of prescriptions per physician is very high, generating significant revenue opportunities and the commercialization effort is reasonably focused, with an estimated 7,000 prescribing pathologists in the U.S. today. PhosLo is an excellent point of entry. It is one of only a few branded pharmaceuticals in this space, and PhosLo is well aligned with where kidney care is going. It meets the needs of this largely Medicare and Medicaid patient base by delivering clear treatment benefits combined with significant cost advantages.

That value proposition is closely aligned with our sales competencies. How we make a difference in markets through our ability to communicate balanced and value-added clinical and cost information to an able physician to define the benefits of our products for their patients.

But there is another important reality to this market has as well. There is increasing competition, and it requires continued investments in sales and marketing infrastructure and a constant flow of new clinical data. It also requires commercial focus at several different levels; the physician and treatment team, the provider, the reimburser and the standard setter.

The reality is that most companies in this space have higher-priced products or multiple products to build scale. The challenge for us to remain competitive is to broaden our portfolio products. That can allow us to earn an increased return on the infrastructure in place to support PhosLo today. If that is not achieved, we will pursue other options to build value with PhosLo, including commercial agreements and co-promotion agreements.

Turning now to transplant medicine, which has been a focus of our commercialization efforts for many years. We know the patients and the physicians in this market well. We sell a product today that is an acknowledged gold standard in liver transplants, our Nabi-HB. We also have an important program in the pipeline to address a significant unmet medical need in hepatitis C transplant patients, Civacir.

The transplant market is a specialty market, also very much aligned with our core competencies. Well-defined, manageably-sized, hospital-based, key opinion-leader driven, and focused on clear product differentiators. It is also a market where new products and co-promotion opportunities can expand our market reach. We can build unique value around new opportunities as Nabi Biopharmaceuticals.

Building scale here can leverage the advantages we already have established in terms of cost of infrastructure and the cash return on our commercialization efforts with Nabi-HB. With the expected approval of HEBIG in Europe this year, we plan to expand the geographic reach of this franchise opportunity through development and commercial alliances.

Our programs to prevent and treat healthcare-associated bacterial infections will also be important to physicians and to transplant patients who are often on drugs to suppress their immune systems in order to prevent organ rejection. There are also synergies we can leverage with the nephrologists, who care for kidney transplant patients before and after their surgery.

Finally, our focus on transplant medicine will provide the opportunity for our sales force and medical science liaisons to be in the hospital where they can meet with our clinical and commercialization competencies in the infectious disease and hematology and oncology areas. We have extensive experience in relationships beyond liver transplant in the hospitals, based on our 10-year commercialization of WinRho through March of last year and our third marketed product, Aloprim.

It is also clear that many new product opportunities in transplant medicine could also have commercial application in infectious diseases and hematology and oncology. These areas are also closely aligned with our focus on vaccines and antibodies to prevent and treat healthcare-associated bacterial infections.

To summarize, these franchise opportunities are aligned with Nabi Biopharmaceuticals' business strategy in three important ways. Given Nabi-HB's current gold standard status, we have the opportunity and the relationships in place to set HEBIG and Civacir up for commercial success.

Second, our manufacturing capacity is strong to support these commercial opportunities. And third, the combination of our know-how and infrastructure will pave the way for new product opportunities.

During 2006, we will also advance opportunities to leverage our existing manufacturing assets, to produce our own IVIG and plasma-based protein products. These will create important therapeutic opportunities in these same franchise areas, namely transplant, infectious disease, hematology, oncology, and nephrology.

We will move this development program forward on an accelerated basis. Importantly, this program will further leverage the value of the manufacturing infrastructure we have in place today. At the same time, we will continue to prioritize meaningful contract manufacturing opportunities in the near term. This becomes a way to increase the current cash return on the assets and competencies we have in place today.

We also plan to expand our manufacturing and process development competencies to include monoclonal antibodies in 2006. That manufacturing can, in part, be based on the infrastructure already in place in our facilities in Boca Raton, Florida.

In summary, we believe we are strongly positioned to build value from our operations for the future. And we also believe that our scientific approach, our clinical and regulatory strategy, these collective commercial opportunities, our infrastructure, the current lack of viable treatment options in the areas we are focused on, and our alignment with current third-party thought, all those work together to define the significance of our product opportunities today and those we will be able to pursue in the future.

In closing, I would like to again emphasize our key milestones for 2006. They include some expected product approvals in the EU, PhosLo and ESRD patients expected in the first half of this year, and HEBIG and transplant patients expected in 2006. Next, the results of our StaphVAX, AltaStaph assessment with an outside panel of experts. Those results are expected in the first half of this year.

Third, to initiate our NicVAX proof-of-concept Phase 2 clinical trial, that is expected in the second quarter of 2006. Fourth, to initiate the Civacir proof-of-concept Phase 2 clinical trial. That is expected in the second half of 2006. Fifth, to report the important results from our CARE2 trial for PhosLo, again expected in the second half of the year.

Sixth, to report the results from our EPICK study for PhosLo, looking at the use of the product in chronic kidney disease patients. Those results are also expected in the second half of the year. Last, to file for the indication for the use of PhosLo in chronic kidney disease patients in Europe and the U.S., and that is also expected in the second half of 2006.

With that brief update on our operational strategies and our goals and our milestones for 2006, I would now like to turn the call over to Mark Smith, our Senior Vice President of Finance and Chief Financial Officer. Mark will give us a review of our 2005 financial results and our 2006 guidance. Mark.

Thank you, Tom. Our financial results for the full year 2005 reflect our focus on completing the StaphVAX clinical programs in preparation for the commercial launch of the StaphVAX and PhosLo and Nabi-HB in Europe during the year.

Based on the outcome from the StaphVAX clinical trial and our filings of December 2005, you also know that our results include a number of appropriate, but significant write-downs of vaccine-related assets, totaling $27 million, as well as the assessment evaluation allowances against our deferred tax assets. These entries were recorded in the fourth quarter of 2005.

Including the impact of these factors on total revenues of $108 million, we reported a net loss for 2005 of $128 million or $2.15 per share. These results compared to 2004 total revenue of $180 million and a net loss of $50 million or $0.86 per share. As an important factor in assessing our ability to support our strategy as the company moves ahead, we ended 2005 with cash, cash equivalents, and marketable securities totaling $107 million.

Sales of biopharmaceutical products in 2005 totaled $62 million, as compared to $132 million last year. Two factors that have been discussed previously led to this decrease. The 2004 comparison revenue includes sales of WinRho totaling $48 million, which we ceased to distribute in March of 2005 and at year-end 2004, we withdrew PhosLo tablets, leading to a complete conversion to PhosLo gelcap product, and a resulting reduction in total wholesale inventory levels. Sales of PhosLo for 2005 were $14 million. With the transition to gelcaps complete, total wholesaler inventories have been reduced to approximately half year-end 2004 levels.

In our discussion of 2005 results for PhosLo included in the release today, we commented on the identification of errors in calculated rebates under certain federal programs, primarily impacting the 2005 Medicaid rebate amounts. These calculations, which are complex, are important inputs to the amounts accrued and reported in the financial statements. This is a process that we have brought focus to in the latter half of 2005, including investing in the additional outside resources to assist us in this area. Based on our review, we have reported an adjustment to previously-reported sales of PhosLo of $3.9 million covering the first three quarters of 2005 and to an immaterial extent, prior years.

We will report the quarterly impact of this error in our year-end filings and report the immaterial prior year impact -- prior impact in the fourth quarter of 2005. Based on our review, we believe we have properly reported our rebate liability at December 31, 2005, that amounts related to prior years were immaterial to those periods and that we have the processes in place to follow these rebates announced going

Moving to our other biopharmaceutical products. Sales of Nabi-HB were $39 million for 2005, compared to $40 million for 2004. As we have noted throughout 2005, overall transplant numbers for HBV-positive patients have been lower in 2004, resulting in lower utilization of Nabi-HB at the time of these procedures.

As we have further noted, this impact has been substantially offset by increased use among patients receiving maintenance therapy following transplant surgery, allowing a consistent revenue result in 2005 and 2004. Sales of other biopharmaceutical products, which comprise Aloprim, manufactured intermediate products, and contract manufacturing were lower in 2005 compared to 2004, primarily resulting from lower sales of Aloprim.

Sales of antibody products of $46 million in 2005 were comparable to sales levels of $48 million in 2004.The slight decrease reflects lower sales of anti-D antibodies following the conclusion of a low-margin supply contract in December 2004, offset by increased sales of tetanus and rabies.

We reported $37 million in gross margin for 2005, compared to $82 million in 2004. As a percentage of revenues, gross margin was 34% in 2005. Decreases in gross margin reflected the lower sales of biopharmaceutical products in 2005, as well as write-downs of inventory, including pre-launch StaphVAX inventory totaling almost $5 million in the fourth quarter. Antibody gross margins increased in 2005 to over $6 million, reflecting the completion of the low-margin anti-D supply contract.

For the fourth quarter 2005, total sales were $25 million, including correction of the errors from prior periods, compared to $42 million in the same period of 2004. Net loss in the fourth quarter of 2005 was $76 million or a loss of $1.25 per share, including the write-downs and tax valuation allowances assist as previously mentioned. This compares to a loss of $17 million or $0.29 per share for the fourth quarter of 2004.

For the full year 2005, Research & Development expense of $67 million reflected our focus on completing the StaphVAX Phase 3 clinical trial and other related clinical trials during the year. In addition, we initiated trials that expanded our Gram-positive clinical program to staph aureus and staph Epi, as well as advanced our NicVAX program.

Importantly, our clinical group is also supporting activities to expand the labeled indications for PhosLo and Nabi-HB and to register these products in Europe. We invested $61 million in Research & Development programs last year.

Selling, General & Administrative expenses were $68 million in 2005, compared to $55 million in 2004. These expenses included our costs to prepare for the commercialization of StaphVAX and to establish European operations. In December, we announced that we would close our European office, and we have recorded approximately $1 million in shut-down-related expenses in our 2005 results.

Pursuant to the outcome of the StaphVAX clinical trial, we recorded write-downs of our vaccine manufacturing facility of $20 million and vaccine manufacturing right of almost $3 million in the fourth quarter of 2005. These items were previously reported in a Form 8-K filed in December 2005. Please note that the cash investment for these assets was incurred in prior periods.

Our tax benefit for 2005 was $0.9 million, after establishing a valuation allowance for all of our deferred tax assets in the fourth quarter of 2005.

Turning to our operating guidance for 2006. For PhosLo, demand in the fourth quarter 2005 supports 2006 revenues in the range of $36 million to $40 million assuming no changes in wholesaler and distributor inventories. We will continue to drive our message of the clinical advantages we see for PhosLo to physicians, and will provide you an update on the success of those efforts during the first quarter call.

Sales levels of Nabi-HB will be dependent on the level of HBV-positive liver transplants. If HBV-positive liver transplants increase to average historical levels equal to past years, we expect to see an increase in revenues in this important product in 2006. Sales of other biopharmaceutical products and antibody products are expected to be consistent with 2005 levels in2006.

We anticipate that Research & Development expenses will decrease approximately 40% from 2005 levels of $67 million. During 2006, we anticipate entering into partnering or other clinical development alliances. If these alliances do not materialize, we believe we can identify additional savings from within our current programs.

Selling, General & Administrative expenses are expected to be reduced by approximately one- third from 2005 levels as we concentrate on our efforts in 2006 on U.S. markets. While a non-cash item, income taxes are expected to comprehend evaluation allowance that would limit reported tax benefits, and overall, Nabi does anticipate reporting a net loss for 2006.

Finally, we anticipate capital expenditures to be in the range of $6 million to $9 million, covering maintenance items and investment in strategically important programs. Now, I'd like to turn the call back to Tom McLain.

Thanks, Mark. As we announced last month, Mark Smith will be leaving Nabi Biopharmaceuticals to pursue a new opportunity on or around March 1. That is expected to coincide with the filing of our 2005 10-K, and we have an active search for a successor candidate for Mark that is ongoing. But I would like to take this opportunity to thank Mark for his many contributions to Nabi Biopharmaceuticals, to acknowledge that it has been both a personal and professional honor to work with him for these last six years, and to wish him much success in his future endeavors.

I would now like to open up the lines for your questions. Joining us today are Henrik Rasmussen, Senior Vice President, Clinical, Regulatory and Medical Affairs and Raafat Fahim, Senior Vice President, Research, Technical and Production Operations.

[OPERATOR INSTRUCTIONS]

Operator, while we are waiting for questions, there is just one point I would like to clarify about the adjustment for the PhosLo rebate accruals. That is that, that amount is fully reflected as a reduction in our fourth quarter reported revenues, primarily for PhosLo, and that is the way that that has been treated in the press release that we released this afternoon.

Your first question comes from Tom Shrader with Harris Nesbitt.

Hi, good afternoon. I would also like to say goodbye to Mark. Thank you for all the help over the years. If you could help me with one more thing. You did not give a fourth quarter PhosLo number. Is it about 4?

We didn't give a fourth quarter number because, including the adjustments that Tom mentioned, with the adjustments, the full number was $14 million. So, that actually, if you were to just extrapolate, I think it was about minus $1 million, but that is because of the adjustments or accruals that Tom referenced.

Okay. So, you are saying -- you had 4 in charges, you had about 3 in actual sales and the net is a million?

Right. What happened in the fourth quarter is that we held our shipments at the end of the year and wholesaler and distributor inventories had decreased further in the fourth quarter.

Are all the price increases, are they fully in effect yet?

No. When we took the last price increase in the middle of last year, we said that it would take a full year for that to come in because we have contracts with various providers, and they expire or lapse and are renewed at various points during the year.

So, they kick in in pieces or they are all in a kind of a lump in the middle of the year?

I wish it was all at one time, but every contract is on a different timeline so they progressively kick in.

Okay. To follow up on a comment that you made, Tom, about your infrastructure, can we extrapolate that if you cannot find additional products for the PhosLo sales force, you are considering not selling it yourself? Is that what you are saying?

Yes. When you look at the nephrology market, what I was trying to state as clearly as I could is that there is an infrastructure cost, a cost of entry that is expensive, and that if you cannot increase your return in that marketplace, either by having a very high-priced product or multiple products, a basket of products that lets you optimize that investment and infrastructure, that you need to think strategically.

So, PhosLo is not worth to sell by itself?

Well, PhosLo was always a great entry for StaphVAX.

I understand. And one other question, on kind of a pipeline note, the submission for chronic kidney disease, would you expect priority review for that? Does that qualify as unmet medical need?

I'm going to turn that to Henrik.

We haven't actually had any discussions with the FDA regarding that one. It certainly is something which they are going to ask them for, but I wouldn't put my head on the block. I think it is up in the air.

Okay. But it does make sense. It would still be unmet medical --

It certainly is an unmet medical need, yes.

And you would be first one to apply for that?

As far as we can tell, yes.

Okay. Thanks a lot.

Next question comes from [Alex Silverstein], Bear Stearns.

Hi guys. Thanks for taking the call. Just a quick question about prescription data. I am looking at the IMS data for the past year and it looks like you guys have actually had a lead in new prescriptions for about 44 out of the last 52 weeks. That has not really yet translated into any gains in total market share. I was wondering what made you confident that the recent gains would actually translate into total prescription share in the following year.

We rely on data from NDC, and that data shows that, through the August timeframe, PhosLo and Renagel moved together and there was no difference in share of new Rxs. As the DCOR results were announced, as we issued a dear Dr. letter, as the ASN meeting was conducted, the new Rx share for the products began to separate and separate dramatically in the fourth quarter, and the NDC-reported data at the end of the year shows PhosLo at a 50% share and Renagel at a 40% new Rx share.

With that data in hand, we consulted with NDC about this product category and this performance and what we should expect with regard to total Rxs, and they indicated to us that we should expect to see impact on the total Rx trend over the next three to six months. So, it was based on consultation with the NDC.

And also, have there been any changes since January 1, since Medicare part D. kicked in, with those trends?

Because of the point we are at, we really do not have data at this point because the reporting kicks in on a lag. And certainly we will have that data, more data on which to rely by the end of the first quarter. The one thing, it is preliminary so we do not want to blow it out of proportion, but we were seeing an increase in both NRxs and some impact on total Rxs in the January data. But until you get to see a few months together, it is difficult to call that a trend, Alex.

Right. Okay, thanks.

Your next question will come from the line of [David Holstein] with SuttonBrook.

Hi. Thank you for the call and for picking up the question. I was hoping you can go over R&D for next year. I know you talked about reduction in your spends. You have talked about taking several programs going forward. Can you talk about each of those programs with respect to cost and how you prioritize things and how you might determine -- well, just talking about how expensive each of these programs is and how much you are going to be paying for it for this year?

We have not commented on the cost of individual R&D programs. We have commented in terms of the total cost of the R&D effort and then the numbers that we report in our SEC filings are numbers that include internal and external costs and an allocation of overhead that supplies that to the programs.

Well, then can you talk about how you prioritize R&D programs?

Sure. It is what we talked about on our call on February 8. We went back with the StaphVAX results, and we looked at what we had at under development, and as I explained on the February 8 call, we said, as we go forward, we need to deliver value out of the pipeline, that we would not focus on a single program, but that we would look for programs where we felt that it was possible to demonstrate compelling proof-of-concept evidence from a Phase 2 clinical study between now and the end of 2008.

And as we looked at those opportunities, we saw those with the nicotine addiction, the NicVAX program, the Civacir program, the hepatitis C program, and we saw that with the Gram-positive program in Staph epidermidis. Each of those had different rationales. The NicVAX program, I am sure, as you are aware, is a program where much of the outside costs are shared with the National Institute on Drug abuse, and we believe that program presents an opportunity to partner the technology with a larger company, who will be able to commercialize that product, and that it has significant potential.

In terms of the hepatitis C program, what we shared on February 8 was, in the market research that we conducted in 2005, it was very apparent that physicians are disillusioned with the solutions that are there in the marketplace today for liver transplant patients, that reinfection is essentially universal, and alarmingly, what they reported back to us is often the side effects of the treatments that they are using in these patients are so severe that they discontinue treatment, and that our product, Civacir, which aligns with our Nabi-HB would be a much-anticipated solution to that unmet medical need.

Lastly, with regard to the Gram-positive infections program, we had conducted the initial clinical studies of two antigens that would be effective against what our methicillin-resistant staph epidermidis infections, and 80% of staph epi infections are resistant to methicillin today. What our market research in '05 supported was the complications of those infections have worsened, and that physicians have identified that again as a key area of medical need because that approach is different than the approach that we had used with our StaphVAX 5 and 8 program.

We assessed that that approach was certainly worthy of further clinical study, had a profile which gave us confidence that we should see success in later stage clinical trials, and that program as well, if the assessment on 5 and 8, comes back and there is a way to go forward, we would be able to combine that program with the 5 and 8 program and have a product that would be positioned, not only to address staph epidermidis but staff aureus infections as well. We think that there is considerable value there because no one else is making the progress that we are making in the clinic in that area. So, that was the rationale behind each of those choices.

And lastly, is it fair to say that NicVAX is relatively low cost at this point if you are sharing it with the federal government?

The primary cost that we incur with the NicVAX program are the costs to manufacture the vaccine, because we have to produce the vaccine that is used in the study, and the internal clinical and regulatory support for the program. You are absolutely right. The cost for the clinical trials as the centers themselves, that is largely covered by the NIDA grant.

Thank you.

Gentlemen, your next question will come from the line of Joe Slavinsky, Thomas Weisel Partners. Please proceed.

You mentioned that PhosLo wholesaler inventories are about 4 months at the end of '05. Is that a normal level or do you expect them to come down any further?

When we bought the product, Joe, before our customers asked us to maintain or to shift to maintain higher levels, we had said our goal was 3 to 4 months. So, that is in line with where we would like to be.

Okay. And then Mark, you may have mentioned this on the call, but what do you expect your tax line to look like in '06? Do you expect to record a benefit there or expense?

What I mentioned was that we expect to set up valuation allowances against the tax benefits just because we had losses. It is much more of an accounting-driven analysis, and won't have any effect, as I'm sure you well know, as taxes we file nor taxes we pay.

Right.

So, I think our expectation would tend to look much more like what we reported this year versus seeing a tax benefit for losses.

Okay, thanks.

Gentlemen, your next question will come from the line of [Richard Mansury] with [Para Partners].

Thank you. I am wondering if you could just provide a brief description about what exactly is being produced in the new manufacturing facility?

In the vaccine facility?

In the newly constructed facility.

Yes. Well, we have a combined facility, one-half of which is licensed for the manufacture of Nabi-HB and we do contact manufacturing there, as well, and we produce AltaStaph and we produce Civacir there. The other half, which is what we constructed last year, was where we produced lots of StaphVAX and components, as well, and a lot for NicVAX that will be used in the upcoming NicVAX clinical study.

Understood. And then separately, did you comment on your antibody sales, your projections for '06?

We commented that we anticipate they will be consistent with 2005 levels, which were approximately $46 million.

Have you given any thought to possibly monetizing those? Is that even possible in this market?

Certainly we have, in the past, when conditions were right, monetized centers that were in excess of our projected need for the plasma. If you would look at market valuations today for antibody collection centers, they are not good. What we have focused on is the use of the plasma for AltaStaph, for Civacir, for our Nabi-HB product, but what we also wanted to alert you to today is that, with the demand for IVIG and the FDA's request for companies to produce IVIG products, that we are undertaking a program to develop manufacturing of our own IVIG product, and that will use incremental plasma out of our centers, as well.

And it certainly, when we look at the total return on that side of the business, we are very focused on that, very focused on maximizing the value there, and we think that there are ways that we can do that in a vertically-integrated fashion, and we are going to pursue those doggedly in 2006.

I understood, thank you.

Gentlemen, your next question will come from the line of Randy Laufman with Imperial Capital. Please proceed.

Good afternoon.

Good afternoon. Thanks for taking my question. I was wondering if you guys could discuss gross margin a little bit and explain the significant decrease this year. I was under the impression that we were supposed to start seeing price increases in PhosLo. So, if you could do that and then also comment on gross margin in 2006?

I'll take the second question first. We did not comment on our gross margin in the guidance in 2006. We commented on the revenue. On the first part of the question, gross margin in 2005, obviously one of the impacts that negatively affected gross margin was that we had the lower buy of pharmaceutical sales in 2005. The other thing that impacted negatively the margins was the write-off of pre-launch StaphVAX inventory, which we described as approximately $5 million.

In prior conference calls, we've talked about two other write-downs of inventory related to Nabi-HB. One was material that was subject to dating and another was material that was damaged in an accident at a contract vendor. Those are the factors that truly contributed to the gross margin being down, the lullaby of pharmaceutical sales and the write-downs of the inventory.

So, those would most likely be expected to be '05 kinds of items and not factors in '06 margins.

Okay. So, we could expect margins to get up to the 40% level or higher?

As Mark said, we didn't give a target for '06.

We have, in the past, seen gross margins in periods of more normalized activity, both sales, and with no inventory write-offs, overall in excess of 50%. We have not given the comment for the future, but to Tom's point, you do not expect the write-offs of pre-launch inventory to be a routine event. That tends to be one that is isolated to the period we just completed.

Okay, great. And then can you also give cash burn guidance for '06?

We have not historically given cash burn guidance, and we have not done so today. I think what we have done is given guidance around our revenues. There is a historical understanding of the gross margin, as we just discussed and then there is the expense levels. In order to help one form an opinion on cash burn, we gave guidance around the capital expenditures, which are projected at $6 to $9 million.

Okay. Thanks a lot.

Your next question will come from the line of [Jason Aurier] with [Gellah Equities].

Hello Jason.

Good afternoon, guys. NicVAX, you said in the R&D call a week or two ago, Tom, that NicVAX was in a lead position competitively. Can you discuss that? I guess Acomplia, they got the non-approvable for their nicotine indications, but can you discuss it in terms of the Pfizer product?

Sure. When we look at NicVAX, it is a unique mechanism of action. It really is in a class all of its own. We look at that in two ways. First, in terms of the benefit that the product will have, being a vaccine, raising high levels of antibodies. We think that the benefits from NicVAX will last well out, and not only help a smoker quit, but also be helpful in preventing their relapse. So, it puts it in a different class.

The other differential that we see that we believe is significant is the way the vaccine works is antibodies in the blood bind to the nicotine. They keep nicotine away from the brain. It is not like nicotine replacement therapies. It is not like Zyban. It is not like the Pfizer pill where something needs to get to the brain to be effective. So, when we look at our significant lead time advantages, we look at where we are versus where other vaccine programs are, and we believe, with having commercial-scale manufacturing in place today, where we are with our ability to go forward in our clinical programs with that material, that we are at an advantage.

Just going back to your strategic discussion on PhosLo, I assume what you have said here is that you would have to in-license a basket, not just one product, to make PhosLo worth selling, and that you are willing to monetize the product if you can't do that. Can you translate what the monetization of the product would do to the SG&A line?

No, I do not think we are at the point where I would be able to comment on that. Certainly, as I indicated, our focus is looking at what are the opportunities to increase the return on the nephrology franchise that we have in place today.

If we went into a different commercialization strategy, it could be a co-promotion strategy, it could be some other commercial agreement. There would be a whole number of options that would or would not dramatically affect that line. So, I really cannot give you any more color than that today, Jason, unfortunately.

Would it be, Tom, that you would need multiple products to make it work or could you just in-license one other product and make all of it work?

When you think about major products on the market today, those probably are more of the nature of co-promotion opportunities simply because of the cost. If you are looking to build the basket from scratch, then it would be multiple products and that would be the way forward. To make a difference on the cost of commercialization today with a major new product, there are products that are in the pipeline. They are just not on the market.

Okay, thank you.

[OPERATOR INSTRUCTIONS].

Actually, because we are coming up on an hour, this is a good opportunity to thank everyone for their participation today, for the questions and the interest in Nabi Biopharmaceuticals. Certainly, 2005 proved to be a challenging year. We are very anxious to be able to update you on the progress that we will make in 2006. We look forward to our first quarter call, and the other announcements along the way. Thank you very much. Have a good afternoon.

Ladies and gentlemen, we thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect. Have a wonderful day.