Vaxart Inc (VXRT) 2006 Q1 法說會逐字稿

Good day, Ladies and Gentlemen, welcome to the First Quarter 2006 Nabi Biopharmaceuticals Financial Results Conference Call. My name is Colby and I'll be the coordinator today. At this time all participants are listen-only mode, We will be facilitating a question and answer session toward the end of the conference. [OPERATOR INSTRUCTIONS] This conference is recorded for replay purposes. I'd like now to turn the presentation over to the host for today's call Mr. Thomas Rathjen, Vice President of Investor Relations. Please proceed, sir.

Thank you, Colby. Good afternoon, everyone, thank you for joining us for today's conference call. Before we begin I'd like to remind you that the information presented here speaks as of today, and contains forward-looking statements, which are statements refer to expectations, plans, projects, beliefs, other characterizations of future events or circumstances. Actual results may different materially from those in the forward-looking statements as a result of any number of factors which are discussed at length in the Company's quarterly report and Form 10-Q and Annual Report on Form 10-K for the fiscal year ended December 31, 2005, both of which are filed with the SEC.

Now I'd like to turn the call over to Tom McLain, Nabi Biopharmaceutical's Chairman and CEO and President. Tom?

Thank you, Tom. Adam Logal, Interim CFO is also with me today. Before I turn the call over to Adam for a discussion of our first quarter results, I'd like to begin by providing you with an overview of the progress we have made in executing on the key strategic goals we set this year.

As we noted in our Press Release today, we began a period of significant transition in the first quarter, and I am pleased with a remarkable progress we have made to date. I believe our success is due, in part, to the fact that unlike other companies that are faced with an unexpected clinical result like our StaphVAX Phase III trial, Nabi Biopharmaceuticals has a number of important competitive advantages. Advantages that set us apart.

First, as a company, we have successfully managed through a period of major transition before.

And, second, we're doing so this time around with an added asset, cash on the balance sheet.

Third, as we'll discuss today, we are already pursuing new opportunities to generate an increased cash return from operations.

Fourth, as we highlighted in January, we are not a one-program company. We are advanced three product development programs, NicVAX, Civacir and additional gram-positive antigens to the proof of concept stage.

Fifth, as we also outlined in January, our management team continues to execute on a clearly defined strategic plan to advance these development programs to lower risks and maximize our return on investment.

Sixth, in the face of the StaphVAX trial result we quickly developed and executed a comprehensive and credible approach to investigate what went wrong. We successfully defined the factors and in the process developed new knowledge and intellectual property that will enhance our future success.

Seventh, we've successfully created external funding opportunities for our pipeline programs. For example, external trial costs for NicVAX continues to be funded by NIDA, the National Institute On Drug Abuse part of NIH, and we aggressively pursuing additional sources of funding for our pipeline programs, including partnering opportunities.

Eighth, as we'll update you on today, we are actively building new alliance relationships to expand the availability of our products in key markets outside the U.S.

Finally, we can continue to generate cash margins from sales of our marketed projects in plasma. Our marketed products have unique attributes that position them well competitively, and are also creating additional opportunities for future growth. Those competitive differentiators have been key contributors to our success and we will continue to leverage them going forward. We will continue building on the positive momentum we have established this quarter.

We have always been mindful of the fact that opportunities in Biotech carry both high risks and high rewards. Our strategy has been to pursue a unique business model. As a true development stage company, we also seek opportunities to help sustain our investment in the future with operating cash flows. Continuing to execute on that business model, will allow us to advance our key pipeline programs. These development efforts target significant areas of unmet medical need.

Our goal is clear: To advance these programs through proof of concept or efficacy results. And the timelines we've set are reasonable and achievable. 2007, for NicVAX proof of concept. 2007, 2008 IVIG and plasma protein efficacy results. 2008 proof of concept results for Civacir and gram-positive program. 200, 2009 NicVAX and ATG efficacy results. Our plan also gives us ability to pursue other strategic initiatives that are aligned with our core objectives. We're pursuing opportunities that will generate additional cash and are strongly aligned with our expertise and capabilities.

With that brief overview, I would now like to turn to an update on our progress toward achieving our three strategic initiatives for 2006.

Our first goal, building value of current operations means building the cash return on operating assets. These assets include our marketed products and sales force, our manufacturing plant here in Florida, our plasma collection centers, and our development and manufacturing expertise.

In the first quarter of 2006, PhosLo revenues increased $8 million. And inventory levels wholesalers stayed the same when compared to year-end. During the quarter, we, also, advanced our efforts to increase the markets and the cash return from PhosLo.

Our license submission for PhosLo in Europe has now advanced in six important markets. That means that we have taken advantage of a regulatory strategy and when PhosLo is approved, which we expect to happen this quarter, that approval for six markets, rather than one, which is typical under the mutual recognition process. In addition, we reported today that initial patient sales of PhosLo reported in Canada by the first quarter by our commercial partner there.

Over the course of 2006 and 2007, we expect to see this upward trajectory for PhosLo to continue, primarily driven by several key factors. First, commercial expansion into six markets across Europe, and our discussions with potential European partners are progressing. Second, revenue appreciation in Canada. As I indicated PhosLo was recently approved for reimbursement and commercial sale. Third, wider understanding and appreciation of the stronger scientific underpinning and the safety that PhosLo has over currently marketed products. This understanding and appreciation will be informed by independent third-party thought and unbiased clinical evidence. Finally, the favorable reimbursement environment in the United States.

Additionally, by leveraging our core competencies and manufacturing capacity, we plan to capitalize on a new opportunity and pursue the development of products to be manufactured in our fractionation plant in 2006. Those opportunities include intravenous immune globulin or IVIG and plasma proteins. IVIG will enable us to advance entirely new late-stage intravenous product that draws upon the existing plasma-based product infrastructure on the core competencies and on our capital assets.

By way of background, IVIG products are derived from the plasma of large numbers of individuals who have formed antibody to a wide variety of micro-organisms and help to protect against harmful bacteria, viruses, and other germs and to combat autoimmune diseases.

Two recent developments have made IVIG an increasingly attractive opportunity for Nabi Biopharmaceuticals. First, demand for IVIG in the U.S. has increased significantly and is projected to exceed the capacity of currently licensed manufacturers. This prompted the FDA to issue a notice late last year encouraging potential manufacturers to enter the IVIG market. In that notice, the FDA simplified and streamlined the clinical development program to license new IVIG products. We believe a single study in, approximately, 40 to 60 patients, will demonstrate efficacy and pharmaco-kinetics.

Second, we realized process improvements in the plant which will improve yields and further enhance the quality of the intravenous products we manufacturer. IVIG sells at a lower price than highly specific products like our Nabi-HB. However, with higher yields production of IVIG will yield increased cash returns and leverage the value of our plasma collection and manufacturing base.

Nabi Biopharmaceuticals has the right combination of core competencies and facility capacity to aggressively and competitively participate in this market opportunity. This effort will be supported by our product development, manufacturing and marketing teams. We will utilize our nine antibody collection centers and state-of-the-art manufacturing facility. We expect that this program will position us to capture a competitive position in the market. We expect to be able to price our products to realize an incremental cash return, even as supply catches up to demand. We would expect to initiate our clinical study in the first quarter of next year.

It is also very important to note that the manufacturing enhancements that generate the cash return on IVIG will, also, increase the return on products in our pipeline and on the market today. Products like Nabi-HB, Civacir and AltaStaph.

In support of the importance of this strategic opportunity to optimize value of current operation, let me summarize. First, we're in a position to maximize a low-risk, high-reward product opportunity with IVIG and new technologies, filling an unmet clinical need with small capital output, increasing product yield, and as a result, increasing our product margins. Second, maximizing plasma business leverages core competencies in manufacturing, our hospital-based commercial expertise, and contract sales. Third, we're strongly positioned to be a viable IVIG supplier while at the same time employing new technologies across multiple existing and future product candidates. And, finally, reaping optimal cash return from what we have in place today.

Another example of our focus and success in increasing the cash return on operations in the first quarter, was evident in the securing new customer agreements for the specialty plasma we produce in the antibody collection centers. Because they are higher margin products we expect to earn an increased cash return from that's assets in 2006.

Moving now to our second key strategic goal, building value through strategic points and commercial alliances. In support of this objective, we announced today that we have signed an agreement with Sanofi Pasteur to collect and fractionate human anti-rabies plasma used for production of Imogam Rabies-HT product. Imogam Rabies-HT provides passive protection when given immediately to individuals exposed to rabies virus. Under the terms of agreement we'll fraction a human plasma containing antibody of rab bee virus at Florida manufacturing facility and then ship the partially manufactured product to Sanofi Pasteur for completion of production at its manufacturing facility in France.

This strategic manufacturing agreement is important for many reasons. First, its streamlines the process for Imogam Rabies-HT, from plasma collection, to processing, greatly improving production and shipping efficiency. Second, it affirms and it leverages our core competencies as a leader provider of source and speciality antibody plasma products. Third, it supports our proven experience in the fractionation of immune globulins the state-of-the-art biologicals manufacturer facility in Florida. Fourth, it bolsters cash return.

We plan to initiate manufacturing in the second half of 2006.

As you may also recall, we announced in early April that we had licensed exclusive North American commercialization rights to ATG-Fresenius S, a Phase III antibody product designed to prevent and treat or organ rejection following transplantation. This bolsters our commercial franchise in transplant medicine. This product, which is approved in over 60 countries worldwide, has been shown to significantly reduce transplant failure and substantially improve survival rates. Under the terms of the agreement, Fresenius Biotech granted rights to ATG-Fresenius S in the U.S. and Canada. We have already assumed oversight of an ongoing Phase III clinical study that is being conducted in lung transplant patients in the U.S. and Europe. We may also conduct additional studies to expand the indications into other areas, such as bone marrow transplant.

This agreement is aligned with our core competencies in development and commercialization of poly-antibody products. Further, it is fully aligned with the commercial focus in organ transplant medicine, both with Nabi-HB marketed today and our pipeline program, Civacir. It is also aligned with other important elements of our business strategy. Namely, to focus on new, low-risk, high-reward initiatives to drive revenues and a cash return and to build shareholders value. In this case, ATG-Fresenius S is a competitive product, making it highly attractive alternative to other products currently on the market. It also targets the needs of a sizeable and growing population.

Our focus on building incremental value through strategic partnerships and commercial alliances, also, includes agreements for the marketing of PhosLo and HEBIG outside of the United States. In addition, pursue in-licensing opportunities in core commercial areas of transplant medicine, and hospital specialty products, and nephrology, and we're pursuing partnership opportunities for our vaccine programs and other product development programs outside of North America.

Now, turning to our third strategic goal, unlocking the value within our Research & Development programs through proof of concept clinical studies. As announced in January, we will demonstrate proof of concept clinical evidence for key programs, by following a common development process that is well-designed, focused, and cost effective. We will work in consultation with an external scientific and clinical advisory panel on the design, the execution, and the assessment of each development program. These Phase II proof of concept studies will follow a design similar to what we expect to use in future Phase III clinical trials. we will use clinical material manufactured in our plant on a scale capable of supporting commercial launch. And we'll also analyze relevant pharmaco-economic data that support the cost benefit of our product approach.

In the first quarter, we made significant progress with NicVAX and with the gram-positive infections programs. We plan to initiate the proof of concept trial for NicVAX this quarter. Given the many drawbacks of current treatment options, we believe NicVAX has the potential to be a large commercial product. This opportunity was advanced in the first quarter when the FDA granted NicVAX FastTrack designation and we announced positive results from open label Phase II dosing study completed late last year.

With respect to our gram-positive program, we were very excited to announce in the first quarter the resumption of clinical programs for StaphVAX and AltaStaph Types 5 and 8. The findings from outside advisory panel were not only important because they gave new life to these programs, but because this knowledge will help us to continue to advance products that are needed to treat and prevent one of the most serious pathogens confronts health care professionals today. Clinically, commercially, and scientifically, the gram-positive infections opportunity represents an opportunity opportunity for Nabi Biopharmaceuticals. Our unique knowledge base and our experience in this area has been strengthened by what we have learned from the confirmatory Phase III study analysis and from our work with a respected panel of objective experts. We plan to be positioned to work with a partner to initiate a Phase III study with a multi-valen staph vaccine in 2007. We will also advance a multi--valen AltaStaph in 2006, and we plan to initiate a Phase II proof of concept study on our own in the first half of 2007.

Moving forward, we've expanded our understanding of the bacteria itself. We have advanced our knowledge about the manufacturer of these products, and we have added to our intellectual property. We believe we are now positioned to realize the value from the programs and this opportunity is only bolstered by the increase in public sentiment, supporting the need for new prevention and treatment approaches, based on innovative applications of vaccine and antibody technologies.

In summary, all of us at Nabi Biopharmaceuticals are pleased with the progress we have made over the past few months. And we are excited about the concrete opportunities to build on this success in the coming quarters. I would now like to turn the call over to Adam Logal, our Interim CFO, for a review of our financial results this quarter.

Thank you, Tom. Total revenue for the first quarter of 2006 $28 million and we reported net loss of $18 million or $0.30 per share. These results compared to the first quarter 2005 with total revenue $26 million and net loss $16 million or $0.27 per share. Total sales revenue increased over the first quarter of 2005, a period included $6.2 million of revenue for [Winro], which we did not sell after March 2005. The increase in total revenue primarily driven by the strength of PhosLo and specialty antibody sales.

Net loss comparisons first quarter of 2005 included tax benefit of $6.7 million, which reduced reported loss in the first quarter of 2005, while the first quarter 2006 did not include a tax benefit. When comparing operating losses for both periods results for the first quarter of 2006 improved $4.4 million or, approximately, 20% over the first quarter 2005. This reflects higher revenue and reduced R&D spending.

Cash and cash flow are important factors in assessing our ability to fund strategy as the Company moves ahead. We ended first quarter 2006 with cash, catch equivalents and marketable securities totaling $82 million. Our cash position is consistent with our expectations for the first quarter as a result of decreased biopharmaceutical revenue during the first -- fourth quarter 2005.

Sales of PhosLo for the first quarter 2006 were $8 million compared to sales of $3.8 million compared to period 2005. PhosLo revenues were driven by a continued increase in new prescriptions and increased pricing initiated July 1,2005. Additionally, stopped shipments of the tablet formulation of PhosLo in the first quarter 2005, part of our effort to convert the market to the patient-friendly gelcap formulation.

Sales of Nabi-HB 7.2 million for the first quarter 2006 compared to $6.7 million for the comparable period of 2005. The increase in revenue reflects increase number of liver transplants in Hepatitis B positive patients.

Sales of other biopharmaceutical products, which comprise Aloprim, contract manufacturing, and manufactured intermediate products, were approximately level in the first quarter 2006, compared to 2005.

Sales of antibody products of $11.7 million first quarter 2006, were higher than sales levels of $8.6 million reported first quarter 2005. This increase reflects higher says of anti-HBS and anti-[tetanus] and anti-D antibodies.

We reported $11.39 million in gross margin for the first quarter of 2006 compared to $9 million comparable period 2005. As a percentage of revenue, gross margin was 43% first quarter 2006, compared to 35% in 2005. The increase in gross margin was primarily driven by increase in PhosLo and specialty antibody sales.

For the first quarter 2006, research and development expense $10.9 million 30% decrease from the first quarter 2005. The expense for the first quarter 2006 reflected the continuation of clinical trials EPICK and Care 2 to support PhosLo. Additionally, the first quarter included expenses to prepare for our upcoming Phase II proof of concept clinical trial for NicVAX. A Half a million dollar milestone payment made to Fresenius licensing their ATG-Fresenius S product and work to support assessment of AltaStaph and StaphVAX programs. The 2005 period included expenses related to Phase III clinical trial for StaphVAX and and activities to establish the vaccine manufacturing in our own plant.

Selling, general, and administrative expenses $16.8 million first quarter 2006 compared to $14.4 million first quarter 2005. This increase in expense included ongoing compliance efforts related to federal drug pricing programs that we participate in, stock option expensing, and benefit programs.

We did not record a tax benefit for the quarter, despite operating losses as a result of decision to record a full valuation allowance against all of our deferred tax asset. We recorded a tax benefit in the first quarter of 2005 as result of our tax plan that we had in place at that time.

Now, I'd like to turn the call back to Tom McLain. Tom?

Adam, thank you very much. Before continuing, I just like to take one moment.

George Ebright, a director of company retired from the Company's board at the end of March. Unfortunately, learned this morning, that Mr. Ebright passed away on Monday. I'd like to just take this opportunity to both remember George and the contributions he made to the Company and, also, to express the sentiment of Management and the Board to his family.

Turning back to our performance. In his review of our first quarter performance, Adam highlighted the fact that our focus on maximizing opportunities to generate cash, while controlling spending, is yielding tangible results. The improvement in our operating performance is apparent, when the Winro sales and tax benefit recorded in the first quarter of 2005 are excluded from comparisons.

During the first quarter of 2006, we narrowed the focus of our research and development investment to key pipeline programs, resulting in a significant reduction in spending. Selling, general, and administrative expenses remained high in the first quarter; that was primarily attributable to specific programs including compliance efforts and incentive programs and also the new requirements to expense stock options. We are committed to reducing overall SG&A spending levels during the remainder of 2006.

During the first quarter, we made significant progress in advancing our defined strategic goals: Building the value from operations, adding incremental value through partnerships and alliances, and developing proof of concept evidence for three key program areas in our R&D pipeline, nicotine addiction, Hepatitis C reinfection, and gram-positive bacterial infections. I'm proud of our recent achievements and I look forward to updating you on the continued progress at the end of the second quarter.

With that, we would now like to open up the call for questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Tom Schrader with Harris Nesbitt. Please proceed.

All right. Good afternoon. Congratulations on a quiet inventory quarter for PhosLo. That has to be a relief.

That is nice. Thank you.

Tom, the last call, we talked a fair bit about the decision that Nabi has to makes to whether it makes sense for you to continue to sell PhosLo yourself in the U.S. Sounds to me like there's been a great deal of activity, but maybe none that's really synergistic with PhosLo. Are you still in that process and are we still waiting for products to be added to your mix that would make going PhosLo alone the obvious choice? Are we still in that process? Are we further along?

Right. And I guess the answer, Tom, I need to first say say that it is our practice to not comment on the status of our business development efforts. Certainly -- PhosLo is a product that is a branded product in an attractive marketplace, nephrology, and that product on its own, however, because of the investment, the sales force and other investments, that are required to be a successful participant in that marketplace, it doesn't justify that on its own.

And what we have been consistent in discussing with investors means one of two things. We need to either add additional products to our nephrology call so that we realize increase return on the investment in commercializing a product in that market. Or, we need to look for other alliances that would allow us to realize the return on PhosLo without bearing the cost of that investment in the infrastructure ourselves. And that is something that is important to us strategically and something that is one of our areas of focus in 2006.

Thanks for the question.

Your next question from the line of Robin Carnosos at Bear Stearns. Please proceed.

Hi, Robin.

Hi, how are you? Thanks for taking my call.

Sure.

My question comes from kind of what we talked about earlier in the year, what is the status of the manufacturing analysis of StaphVAX? When will we see the full explanation for what happened. A full data center, a full analysis of the failure of StaphVAX?

Sure. Robin, as we -- I hope we've been clear, when we went through the investigation around StaphVAX, the evidence led us back to the manufacturing process for the vaccine at the contract manufacturer. And what we saw in that process were subtle changes, changes that still would have been broadly within the usual specifications for a conjugate vaccine but when we look in particular at this the conjugate approach to prevent staphorious infections, those subtle changes had a profound impact. What we now know from this assessment is those subtle differences would not be understood or anticipated to have had that profound impact. And we believe that the know-how that has come from that investigation is important intellectual property and intellectual property that we need to secure with patent protection.

So as we go through the process of securing that protection, protecting the value of the asset that really came out of the investigation process, we will not be able to comment publicly on those process differences that led to this result. As soon as those patent applications are at a point where we can be confident that we have protected the value of what we have learned, we will certainly be very anxious to be able to describe exactly what it is and why it is important, not only for the vaccine approach and how we can successfully combat the devastating bacteria infections, but how that knowledge is of value for the investors and Nabi Biopharmaceuticals.

Thanks for your question, Robin.

Your next question comes from the line of Joe Slavinsky with Thomas Weisel Partners. Please proceed.

Hi, Joe.

Good afternoon. Wondering if you guys can give little more color SG&A line. How much of $17 million that you reported first quarter is related to the options expensing? And, you know, is your guidance that you gave on the last earnings call I believe 33% reduction, from 2005 level, is that still intact?

Okay. Well, Joe, in the -- with regard to option expensing, that will be disclosed in first quarter 10-Q and that amount in the first quarter is, about, $5 -- or $500,000. Excuse me, $500,000. And I think I have lost the last part of that question. So, in response, the other elements of what we described, certainly the compliance efforts with regard to our government pricing, those costs will be mainly concentrated in the first half of 2006. And that should normalize as we work our way through the rest of the year.

I hope that was responsive, thank you.

Your next question comes from line of [Azim Naboli] of Lehman Brothers. Please proceed.

Hi, Tom.

Good afternoon.

Good afternoon. Could you quantify the price increase that was taken on PhosLo?

Sure. When we speak about the price increase last July 1 we took a 40% price increase on PhosLo. That had two components. One was related to our ability to earn a return to cover the cost of clinical trials that we have that are ongoing. And in addition, it was to help us absorb the cost of some of the new rebates that were going to come due as part of the Medicare Part D program. While that increase was announced and made effective on July 1, what happens is, because of the other contracts that we have with providers, the benefit of that price increase is not realized immediately, it really takes the subsequent 12 months as those other contracts expire for us to realize the full benefit of those contracts. So I hope that is responsive there.

I think, looking at the time, we have only time for one more question. Operator?

Your final question comes from the line of Jason Aurier with Gellah Equities. Please proceed.

Hey, Tom.

Hi, Jason.

While the outcome of the advisory panels assessment of the gram-positive program is encouraging, obviously, we have a delay in bringing StaphVAX and all this back to market, so what would it take in the interim period adapt our Boca facility to begin producing viral vaccines using a cell-based manufacturing process, and then could we potentially produce vaccine to a flu virus such as H5-N1. Lastly, along the lines, we were wondering how many other vaccine facilities in the U.S. would have the capabilities to produce viral vaccines, especially via this more efficient cell-based method? Because, obviously, if there is a global pandemic, the foreign governments who we get all of our vaccines from, facilities located abroad now, they'reobviously going to keep that product for their own citizens. So, obviously, this, you know, the becomes crucial to have a U.S.-based manufacturer facility. So, sorry so many questions in one, but --

I think you got them all in there. And I was remiss in beginning the Q&A session. I also Raafat Fahim here with me, who heads up research, technical, and production operations and I think that's an ideal question to ask Raafat to answer.

Hi, Jason. Obviously, you focused on the cell-based -- cell-culture-based viral vaccines. And the facilities is set up to manufacture either cell-based viral vaccines or bacterial vaccines. We obviously designed for bacterial vaccines and could be modified to accommodate also viral vaccine manufacturing. What it has is a GMP facility with upstream fermentation cell-culture and downstream purification, that's what it has. In order for us to do anything, with cell-culture base we obviously have to get the right equipment, which we currently don't have.

So can it do it? Yes. With modifications and with additional expense. How many facilities in the U.S.? It is very difficult to tell you now, but I would imagine it is not a large number. I would imagine, maybe, no more than a dozen or so that can manufacturer currently. But, can others be modified to do cell-culture just like ours? The answer is probably more than the dozen I spoke about.

Can we take advantage of cell-culture? Technology itself not in an advanced stage as we speak. We expect it to be possibly somewhere around five years or so before you see it in practice. We currently don't have a project related to that, so we are probably behind anyone who started on cell-base by about five-years as well.

Certainly, we're very far from that. But, if an opportunity comes, and can we manufacturer it in there? Certainly we can manufacturer it in there with some modifications.

We're currently focused on the strategic value for Nabi with the project that Tom talked about in his -- in his discussion.

Okay. Raafat, thanks. Certainly, as I began my remarks today it was with a focus and acknowledgement that we are in a period of significant transition as a company. But, clearly, the progress that we made in the first quarter of 2006 leaves us confident in our ability to fully realize the value of our company through the continued execution of our strategic plan. We believe that we have an exciting future ahead of us and we are continuing to be committed to building upon our strengths and maintaining our positive momentum to grow the Company for the benefit of all of our shareholders.

Thank you for your interest in Nabi Biopharmaceuticals and your participation in today's call. And we look forward to updating you, again, on our progress at the end of the second quarter. Have a good evening.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.