Vaxart Inc (VXRT) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nabi Biopharmaceuticals third quarter 2006 financial results conference call. My name is Oneka, and I will the operator for today.

[OPERATOR INSTRUCTIONS]

At this time I would now like to turn the call over to Mr. Tom Rathjen, VP of Investor Relations. Please proceed, sir.

Thank you, Oneka, and welcome everyone to our third quarter conference call. Before we begin, I need to remind you that the information presented here speaks as of today and contains forward-looking statements which are statements that refer to expectations, projections, beliefs, or other characterizations of future events or circumstances.

Actual results may differ materially from those in the the forward-looking statements as a result of any one of a number of factors which are discussed at length in the company's Annual Report on form 10-K, for the fiscal year ended December 31, 2005, and quarterly report on form 10-Q for the quarter ended July 1, 2006, filed with the SEC.

I would now like to turn the call over to our Chairman, Chief Executive Officer, and President, Tom McLain. Tom?

Thank you, Tom. Welcome to our third quarter conference call. Jordan Siegel, our Chief Financial Officer cannot join me today due to a death in his family. Adam Logal who served as our Interim Chief Financial Officer is here with me, and will be providing a review of our third quarter revenue and cash flow results.

2006 has certainly presented a number of challenges for Nabi Biopharmaceuticals. And while a lot has been happening over the last 12 months, we are committed to focusing our business and executing on a plan that will deliver enhanced results for our shareholders. I have three key messages for today about our progress and to address topics that are of interest to our investors.

First, we built our business model on competencies and opportunities that we believe will enable us to generate improved returns for our shareholders. Based on reductions in our cash burn rate, and proceeds from the PhosLo(R) transaction, which is expected to close shortly, we are positioned to continue executing on a business plan that is focused, sustainable, and driven to create value for investors.

Second, in light of recent issues discovered at other companies, as well as questions raised by certain shareholders about Nabi Biopharmaceuticals 2006 equity grants, the audit committee has initiated a voluntary and comprehensive review of our practices. No issues with regard to fraud, back dating, or spring loading have been identified with the 2006 program.

Third, the board and management remain firmly committed to considering all strategic alternatives. We have announced publicly that we have retained Banc of America to advise the board. We continue to work diligently on executing our business plan while at the same time we pursue and evaluate other strategic alternatives.

During 2006, we have focused on building a sustainable business model that can create value for investors. After last year's StaphVAX(R) setback, we needed to reassess what would differentiate Nabi Biopharmaceuticals today and in the future, and prioritize investments in programs and opportunities that would build additional value for investors. We were in a fortunate position, because we had cash on the balance sheet, and products on the market to generate cash margins. And we had several promising product candidates in clinical development.

During 2006, we have made significant progress in balancing our cash and cash from operations against driving targeted investments for the future. Simply put, that goal has been sharpened, focused, and reduced spending.

First on focus, Nabi Biopharmaceuticals has a core business that extends from the collection of plasma through manufacturing of specialized antibody products and plasma proteins through product commercialization in the hospital. Nabi has built technical expertise, manufacturing capacity, and a strong reputation for quality in these areas. We are combining those attributes with near-term product development milestones and alliances to build additional value.

To restate that, our focus and our vertically integrated business model are grounded with depth of expertise in every core area. That allows us to develop, launch and market differentiated products like our Nabi-HB.

Today then, we have significant advantages, licensed and scalable manufacturing capacity and commercial infrastructure in the most significant market in the world for these highly specialized products. Those advantages are creating new opportunities to build value in the near term, through internal product development, through alliances, and through licensing new technologies.

What is the basis for this focus? And why is it credible? Our business plan and the pathway for achieving our objectives are inherently linked to our roots as a company, and what is today a strong business on its own, our plasma collection business. Nabi Biopharmaceuticals is a provider of top quality source and specialty antibodies from plasma that are used as building blocks for countless pharmaceutical and diagnostic products around the world.

Our proven ability to produce quality plasma products which contain high levels of specific antibodies and which meet the most stringent compliance standards in the world provides us with a reliable and predictable cash source. Just as importantly, this plasma business, when combined with our manufacturing facility and expertise, becomes the engine that drives many of our most promising clinical development programs. Particularly in the areas of transplant medicine, oncology, and hematology.

This provides Nabi Biopharmaceuticals with the foundation to advance our promising and innovative antibody product candidates such as Nabi-HB intravenous, Civacir(R), Altastaph(R) as well as our own IVIG and anti-D products. We are uniquely positioned to succeed. By leveraging this combination of assets with expertise, we are creating important competitive differentiators, improving both the clinical efficacy, and the commercial viability of these therapies.

It is this approach that also serves as the foundation of our hospital-based franchise model. Specifically, the development of low-risk proven antibody products targeting areas of unmet medical needs provides us with important inroads into specialized and high value hospital communities. Our hospital presence and our reputation for quality today will allow us to create new opportunities in our core areas of focus for the future.

An important in element in building that core business focus continues to be our knowledge of vaccines and monoclonal antibodies. Vaccines are used to stimulate plasma donors to produce specific antibodies for specialized products like our Nabi-HB, or the Imogam Rabies product we will manufacture for Sanofi Pasteur. Or another example, StaphVAX(R) will allow us to manufacture our antibody product Altastaph(R).

We have also developed monoclonal antibodies to support product development and testing. In the future, that platform will lead to next generation products. While our expertise in all three of these areas creates significant opportunities for the future, our investments in 2007 and 2008 must be sharply focused. In terms of our clinical development programs, I want to reiterate that we carefully evaluate our financial position before making commitments to fund clinical trials.

In keeping with that philosophy, further trials for both the NicVAX and StaphVAX(R) programs will be initiated only when partnerships or other outside funding are secured. These remain important programs addressing significant unmet medical needs, and again, in the case of StaphVAX(R), advancing our vaccine program will also lead to Altastaph(R), an important antibody product and an important commercial opportunity for Nabi Biopharmaceuticals in the hospital.

So what are the results of our sharpened focus? That answer is a simple one. Reduced spending and investing in lower risk opportunities to build value. Events in the second half of 2006 are putting that concept into action. Focus drove our decision to sell PhosLo(R) to Fresenius which we announced on October 12. This was a pivotal moment in the evolution of Nabi Biopharmaceuticals and important in sharpening our focus on our key pipeline programs and core business areas.

The sale of PhosLo(R) represented an excellent financial outcome for Nabi Biopharmaceuticals. While PhosLo(R) has continued to be a valuable asset, it was no longer strategically aligned with our commercialization efforts. As you may recall, we originally acquired PhosLo(R) in 2003 to build relationships and gain experience in the nephrology area. This was important in preparation for the launch of the first generation of StaphVAX(R) which would have been initially licensed for dialysis patients.

This early focus on nephrology is no longer part of our plans for the future development of StaphVAX(R). Given the ongoing investments required in 2006 and in the future, to be a successful participant in the nephrology marketplace, it was not viable for us to continue to sell a stand-alone product in this market.

The sale of PhosLo(R) will significantly enhance our financial position. We hope to realize proceeds of $150 million through three components, cash at closing, milestone payments, and royalties on incremental sales of a new product formulation under development. Specifically, under the terms of the agreement, Fresenius will pay Nabi Biopharmaceuticals $65 million in cash at closing, and an additional $20 million upon the successful completion of certain milestones.

We expect to realize $10 million in milestones this year, and the remaining $10 million in 2007 and 2008. Upon the successful launch of the new product formulation, Fresenius has agreed to pay Nabi Biopharmaceuticals royalties for 10 years after the closing date, until the total consideration we realized from the sale of PhosLo(R) reaches $150 million.

In connection with this sale, Fresenius will also assume the prosecution of the Roxane patent litigation further reducing Nabi's risk profile.

In summary, our agreement with Fresenius for PhosLo(R) is important in three respects. First, it creates a significant cash realization opportunity for our company. Second, following this transaction, we expect to achieve a significant reduction in our selling, general, and administrative expenses reducing our cash burn rate. Third, the sale of this business will allow Nabi Biopharmaceuticals to focus our resources and energies on enhancing the value of our marketed and pipeline products in the hospital setting.

With respect to NicVAX, our product candidate for the treatment of nicotine addiction and the prevention of smoking relapse, we were extremely pleased to have recently announced the completion of enrollment for the product candidate's phase IIB proof-of-concept study. Thanks to the dedication and diligence of our clinical team and also based on the strong interest from smokers and physicians in this new and innovative technology, we were able to complete enrollment for the study before the end of September. A full three months ahead of schedule. As a result, we are now poised to have trial results early in the second quarter of 2007.

This increases our confidence that the program is well positioned for initiating Phase III pivotal trials in the second half of next year. We will fund these Phase III trials through a development partnership. We expect these trial results will build off early clinical data, which demonstrated that NicVAX has the potential to be one of the most efficacious smoking cessation products available.

The value of this positive clinical data for NicVAX is strengthened by a strong global I.P. position and our ability to manufacture the vaccine at commercial scale. These are attributes we believe no other company with the development stage smoking cessation vaccine can equal. Once again, we will initiate the Phase III NicVAX trials only when partnerships or other external funding is secured. Clearly, having these clinical results available early in 2007 helps to advance our efforts to have that funding in place in order to begin efficacy studies next year. We would expect to conclude a partnership in the first half of 2007.

Moving on to technology alliances. We were excited to announce in the third quarter the acquisition of the exclusive rights to a novel plasma protein purification technology from ProMetic Life Sciences. We believe that this agreement will have a major impact in the future in helping us to achieve one of our fundamental strategic goals. Optimizing the value of our current operations.

We expect that access to the ProMetic technology will enable us to provide higher yields and therefore higher margins for our hyperimmune products and product candidates including Civacir(R) and Altastaph(R) and potentially for Nabi-HB and Nabi-HB Intravenous. When you consider that utilizing this technology in the production of Civacir(R) is expected to double the yield we could achieve from this same leader of plasma, the commercial benefits of this agreement become quite clear. We are also eagerly anticipating a decision from the FDA regarding the approval for Nabi-HB Intravenous.

This past summer, the FDA's Blood Products Advisory Committee gave a positive opinion on our biologics license application for the product. If the FDA follows this recommendation, Nabi-HB Intravenous will be the only product in the U.S. indicated for the protection of the transplanted liver from reinfection in HBV-positive liver transplantations.

We have supplied data from that meeting requested by the FDA, and although we cannot influence the timing of their review, we hope to have a response later this year. Licensure for Nabi-HB Intravenous would carry with it several key advantages that we expect will translate into increased revenue potential for our company. As many of you are aware, Nabi-HB is currently used off label in liver transplant patients at risk for reinfection, and is acknowledged as the standard of care.

However, hospital pharmacists currently can use their own discretion in setting protocols for the use of Nabi-HB. That's as a means for managing costs and aligning with reimbursement rates. If Nabi-HB Intravenous receives licensure as expected, it would result in new guidance and it would be good for transplant patients, and it would also lead to increased usage of the product for long-term prevention of reinfection.

This would also be favorable for reimbursement and it would enable us to distribute clinical data supporting the success of liver transplants in patient's dosed with Nabi-HB Intravenous. The bottom line is that with an approval, we anticipate an increase in revenue from this important product.

Progress is also continuing in our efforts to secure licensure of the comparable product HEBIG(TM) for its use in HBV-positive liver transplant patients in Europe. The product has been reformulated for Europe and is on stability. We remain on track to refile in the Reference Member State in 2007, and the Reference Member State has committed to an accelerated review when the filing with this new data is resubmitted.

Turning now to Civacir(R), our product candidate to prevent hepatitis C disease in HCV-positive liver transplant patients. We remain on schedule to initiate Phase II proof-of-concept trials later this year, with our partner in Europe Kedrion. If approved, Civacir(R) would fill a dire need for new therapies to prevent the recurrence of hepatitis C related liver disease, in HCV-positive liver transplant recipients.

Limitations with therapies on the market today have demonstrated minimal efficacy, leading to an almost inevitable liver reinfection and progression of the disease. In some cases, side effects from the therapy can be significant. Because Civacir(R) would address a significant unmet medical need, the product enjoys both fast-track status, and orphan drug designation from the FDA.

Collectively, Civacir(R) and Nabi-HB Intravenous form the foundation of a potential worldwide hepatitis franchise for Nabi Biopharmaceuticals, which we believe would usher in a new treatment paradigm for preventing infection among these patients. We are also continuing to move forward in the Phase III trial for ATG-Fresenius S, an immunosuppressive polyclonal antibody product used for the prevention and treatment of acute rejection following organ transplantation.

Nabi Biopharmaceuticals acquired the exclusive North American commercialization rights to this product candidate through an agreement we reached earlier this year with Fresenius Biotech. We expect to complete patient enrollment next year, and to have data from the Phase III trial in the second half of 2008. We would then expect to file our biologics license application for ATG-Fresenius S in the first half of 2009.

Finally, with respect to our gram-positive program, we are continuing to explore partnership and external funding opportunities for clinical studies of the new Multi-Valent formulation of StaphVAX(R) and for proof-of-concept clinical studies for our Multi-Valent Altastaph(R). In keeping with our commitment to make focused investment decisions, and to carefully evaluate our financial position, before making commitments to fund clinical trials, we will initiate these studies only when partnerships or other funding is secured.

Now, turning to our review of equity compensation awards. We all have been reading press around equity grants at US companies. Earlier this year, some questions were raised about our 2006 programs. Based on both of these factors, the audit committee of the board elected to initiate a voluntary review of our equity grant practices. Again, I want to emphasize, this is a voluntary review, to confirm Nabi's adherence to good corporate governance principles.

The audit committee has also engaged an independent outside law firm, Greenberg Traurig, to assist in the review. Our initial focus has been on 2006. And I am pleased to report that no fraud, back dating, or spring loading issues were identified. In order to complete a comprehensive assessment, we are now working to evaluate grants in prior years, and also to review the accounting for stock options for all periods.

The work is in progress, but to date, we have not identified any improprieties in the earlier periods under review. And because we are reviewing accounting for options, as an element of this comprehensive project, we will report our full financial results for the third quarter, when the review has been completed. We expect that this review will be done shortly. But our objective is to conduct a comprehensive review, and we will not compromise that objective to meet a specific time line.

Finally, on our evaluation of strategic alternatives. On September 27, the company announced it had retained Banc of America Securities to assist with the exploration of the full range of strategic alternatives available to the company to further enhance shareholder value. While we continue to focus on executing our business plan to create shareholder value, management and the board of directors are also moving forward with the exploration of strategic alternatives.

If these efforts determine the greater shareholder value can be achieved through the implementation of one or more strategic alternatives, including joint ventures, strategic alliances, and the sale or merger of all or part of the company, the company will pursue those alternatives. As we said when we announced the alternatives process, there can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions.

In concluding my remarks this afternoon, we are extremely pleased at the value-building events we have been able to achieve for our shareholders in recent months. The agreement to sell PhosLo(R) to Fresenius is expected to provide us with a significant cash infusion in the fourth quarter. During the third quarter, we have continued to significantly reduce our cash burn rate. The sale of PhosLo(R) will allow us to make further reductions in SG&A expenses.

When combined with partnering our vaccine development programs, we expect to be well-positioned to focus our resources and energies on advancing our most promising pipeline programs. The recent completion of enrollment for the NicVAX Phase IIB proof-of-concept clinical trial three months ahead of schedule is a demonstration of our ability to execute on the key milestones we have established for these programs. We are also taking the actions needed to build value in our core business.

For example, in the third quarter, we acquired exclusive rights to a novel plasma protein purification technology from ProMetic Life Sciences for its use in the production of our hyperimmune products, including Civacir(R) and Altastaph(R). This and other efforts will advance in 2007 and 2008 and are expected to produce a significant financial return to our company.

Clearly, the last 12 months have been some of the most challenging in the history of Nabi Biopharmaceuticals. Working together, the board of directors, management, and our outside advisors are committed to executing on a business plan that is sustainable and will advance the development of important new product opportunities. These efforts are expected to create value for our shareholders, either directly, or in the context of a strategic transaction. We will continue to work diligently towards executing on this plan while we also pursue and evaluate other strategic alternatives.

In closing, I also want to acknowledge the efforts and the dedication of our team, the men and women who work so diligently at Nabi Biopharmaceuticals. Through their efforts, life-saving products reach the patients who need them every day. And the answers to some of the most significant areas of medical need will be available to patients in the future. Thank you for everything that you do each and every day to achieve those important goals.

With that, I would now like to hand the call over to Adam Logal for a review of our financial results this quarter. Adam?

Thank you, Tom.

Cash and cash flow are important factors in evaluating our ability to fund our strategy as we set our priorities. During the third quarter, we made significant progress on reducing the cash used in operations. This was achieved by implementing spending controls earlier this year, and through working capital improvements. We ended the third quarter of 2006 with cash, cash equivalents, and marketable securities totaling $64.9 million. Cash used by operations was $4.3 million, a 63% decrease compared to the second quarter, and 81% decrease compared to the first quarter. Both decreases were consistent with our expectations.

Total revenue for the third quarter of 2006 was $26.4 million, a decrease of 13% when compared to total revenue of $30.5 million for the third quarter of 2005. Included in this total for both periods is revenue from PhosLo(R) which will be reported as discontinued operations beginning in the third quarter of 2006.

For the nine months ended September 30, total revenue was $83.9 million, a slight increase over the $82.4 million reported last year. As I previously mentioned, both periods include revenue from PhosLo(R) that would be recorded as discontinued operations.

In addition, the 2005 period included $6.2 million of revenue for product we no longer sell. Nabi-HB revenue was $6.8 million for the third quarter of 2006, compared to $10.8 million for the third quarter of 2005. Revenue for Nabi-HB continued to be impacted by the negotiation of a new supply agreement with a significant wholesaler customer.

As a result, we shift the minimum amount of Nabi-HB to that customer, and inventory levels at wholesalers decreased by an additional month during the quarter. It is important to note, however, that patient demand for Nabi-HB remains strong and has continued to build throughout the year. Patient demand for Nabi-HB in August, the latest month with patient demand available, was the highest level compared to the past 18 months.

We believe that the customer that we had been negotiating a supply agreement with, will begin to order Nabi-HB on a regular basis, to fill demand and that revenue for Nabi-HB should return to normal levels going forward. PhosLo(R) revenue for the third quarter of 2006 was $6.8 million, compared to revenue of $8.1 million for the third quarter of 2005. During the third quarter of 2006, we deferred $1.9 million of PhosLo(R) revenue. This deferral is a result of our analysis on the time it will take the product to be pulled through the distribution channel, once Fresenius labeled product enters the market.

Revenue of other bio pharmaceutical products which comprise Aloprim(TM) and manufactured intermediate products were $600,000 compared to $1 million in the third quarter of 2005. Antibody revenue was $12.2 million in the third quarter of 2006. 16% higher than the $10.1 million reported in the third quarter of 2005. This is a result of the increased production and higher sales of specialty antibodies, primarily, anti-HBV antibodies. As Tom previously mentioned, once we complete our review of equity grants, we will provide our full financial results for the three and nine month ended September 30. And now, I'd like to turn the call back to Tom McLain. Tom?

Thank you, Adam. Oneka, would you please open up the lines now for questions.

Thank you.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Tom Schrader with BMO Capital Management. Please proceed.

Good afternoon.

Good afternoon.

I really just had a handful of book-keeping questions. There is no comment about plant capacity in which you reported unused plant capacity. Can you comment on where you are, is the plant running at full capacity? Will there be a charge we will see later? Can you just update us?

No, Tom, the plant is not running at full capacity. It is being used for some of our clinical lot production. It is being used for production of Nabi-HB. We will add some additional contract manufacturing into the plan in the fourth quarter. There is nothing unusual though in the third quarter compared to prior quarters.

Are you actively making Civacir(R) for clinical trials now? How much capacity would that take to make enough to do that trial?

We actually have the Civacir(R) that we need to begin the clinical trial on hand. That's already been manufactured.

Okay. And then the ProMetic technology, do we expect a period where the plan is fully shut down to implement that technology? Can you just talk a little bit about what happens as that gets phased in? Or is that something that is outside of the manufacturing walls?

Actually, the ProMetic opportunity is exciting for us, for a reason that I will go through. Nabi-HB, the IVIG products that we're developing, the anti-D product that we will develop, will be using the manufacturing capacity that is in place today for the fractionation, the Cohn-Oncley fractionation process that we use.

The ProMetic technology will actually be rolled out in the other half of the plan, which had been -- has been constructed for vaccine manufacturing. It can use some of that purification suite capacity that we had constructed for StaphVAX(R) and it uses available space on that side of the plant.

So, when it rolls out, it won't have any impact on the production that happens in the fractionation plant today. And when the ProMetic technology is implemented, it will begin to use some of the capacity in the vaccine side of the facility.

How does that dovetail with NicVAX's clinical materials?

That we would still have the capacity to use the purification suites in the facility for NicVAX, and StaphVAX(R). The actual components for the ProMetic technology will be in an area that we had reserved on that side of the plant for future use, and then we have three purification suites in that side of the plant, the ProMetic technology will use one of those suite, the other two are still available for production that would come out of the vaccine part of that facility.

Okay. And now for a final and even pickier question.

I'm getting ready, Tom.

Do we expect a one-time charge for transfer of sales people from the PhosLo(R) business?

Every cost that is associated with PhosLo(R) will be reported on the discontinued operations line. Yes, there has been a reduction in our sales force. Some of those sales people will go to Fresenius. Others will not.

In essence, when the PhosLo transaction is completed, our work force will have been reduced by 10% or a little more than that.

So, we should view it as you're liquidating the sales force, there will be some severance component, and then some of them will find a home rather than them being part of the deal?

That's correct.

Okay.

And then the commercial support for Nabi-HB will actually be handled out of our clinical group, through a force of medical science liaisons who will be able to continue to promote the product -- excuse me, I can't speak clearly, promote the product even while we wait for the license indications from the FDA.

Okay. Thanks for the update, Tom.

Thank you, Tom, for the questions. They're good questions.

Your next question comes from the line of Alex Silverstein with Bear Stearns. Please proceed.

Good afternoon, Alex.

Hi, Tom. I was just wondering if you could maybe give us a little more clarity on what sparked the financial review for years prior to 2006.

Sure. When we began the project to look at the option grants in 2006, we wanted to make sure that we were comprehensive and that we were anticipating additional questions or points that our shareholders would like us to be certain to have explored.

So, when we determined with the audit committee that we would go forward, we thought that the best thing to do was not just to look at 2006 but to provide assurance for all prior periods as well. And then in light of many -- of what is going on with the review of options at other companies, we felt that it would be important to review the accounting for options over the same period at the same time.

So, it was our effort to do the right thing, to be as comprehensive as we could be, and to make sure that we were going to provide assurance for everyone that we have looked at it, and that we could be confident about our past, but also be confident that what we're doing will be in compliance going forward into the future.

Okay. So basically the only reason that we didn't get a third quarter earnings number is because you're reevaluating how you're going to report the options component?

No, what it is, is while there is an ongoing assessment like this, which could have accounting implications, that we will report our full financial results when we file with the SEC. It is just when there is this kind of review that is going on, that is just the prudent thing to do with your financial results.

Okay. Should we be expecting an on-time 10-Q filing?

What we believe is that we will be able to finish the review shortly. And certainly we are working diligently both internally and with our outside advisors at Greenberg Traurig. The big thing that I want to say though is that we want to complete a thorough review, and we're not going to be driven by a time line to do something less than a thorough review. But we certainly are making quick progress, and we hope to have it wrapped up shortly.

Okay. And can you possibly provide us with your excluding option expense numbers, SG&A and R&D?

I don't think that we're prepared to do that today, Alex. The option expense, if there were changes, would flow through R&D, through SG&A, through several lines on the P&L, so we just aren't able to provide that information for you.

Right. But you presumably know how much you spent on R&D and SG&A in the third quarter, correct?

Right. Because the one thing we know is the noncash items, and we are good.

Okay. I guess maybe asking it a different way, can you maybe give us an update on your expense guidance for the fourth quarter and third quarter? Because I know the original guidance was for significant cuts, then you revised that on the second quarter call. Could you maybe update us for the second half with the Fresenius deal and you know, with all of these other, considerations?

Alex, without Jordan here, it is -- I can't go on specific line item, by line item, elements of that. But I would think generally, if you remain consistent with the guidance that we provided, at the end of the second quarter, that's the best way to think about that.

So, we should consider second half expenses to be flat with first half?

That's the best guidance that we can give you right now, Alex.

Thank you.

Okay. You're welcome.

Your next question comes from the line of Jason Aryeh with JALAA Equities. Please proceed, sir.

Good afternoon, Jason.

Good morning, Tom. I was very happy to see the expense reduction by I guess about 14 million year-over-year, and 7 million quarter over quarter. Can you just give us a little bit of details on how that was accomplished?

Sure. It is with focus on where we're spending, what we're spending, and that is a combination of looking at the SG&A line itself, and looking at the investments that we're making on the R&D line. We certainly are interested in focusing our efforts on the essential activities that are required to drive the commercial results of the company forward.

And we are setting clear priorities for the spending on the R&D side of the house, where we are investing in the programs that we believe can drive a return to the core business in a reasonable period of time, and advancing any efforts beyond that, with the StaphVAX and the NicVAX program to the level that only we believe will be needed for us to be successful in securing partnering or other outside funding for those programs in the future. So, just really through what we believe is good management and meeting those objectives.

But I mean the cuts are so dramatic, was it a question of PhosLo(R) trials completing? Clearly there had to be certain line items that were very large in those prior quarters.

Well, actually, the way that our cash spending has progressed through the year was in line with what we had expected at the beginning of the year. So, certainly, things that you would be very aware of, Jason, as in the first quarter, we were incurring costs, costs like costs for the StaphVAX(R) assessment that was ongoing in the first quarter. The experimentation, all of the work around that. We had costs as we built toward the initiation of the NicVAX Phase II clinical study.

We incurred costs for the manufacturing of NicVAX lots and other product lots to be used in clinical studies that were beginning during the year. So, for us, it was during the year, it was a timing of the programs and how we go forward with executing our clinical plans for 2006 and 2007.

So, this $4 million burn in Q3 is not an aberration, so we shouldn't see that go back up to 11 or 18 in Q4?

It all is dependent on the activities in the future as we have spending on clinical studies that we initiate then that rate can increase in the future.

So, we have given overall annual guidance because of the timing of when certain programs will start, or when they will stop, we've not given quarter by quarter guidance, but we -- our overall guidance for the year remains consistent with what we provided.

And then just two questions on Nabi-HB. Can you update us on -- I think the language in the press release seems to imply that perhaps you have concluded the negotiations with the distributor or are close to concluding. Can you update us on that, and update us on your efforts to get label expansion from the FDA?

Sure. First, on the comments with regard to the distributor, actually what has happened is the distributor, we believe now, is at a level of inventory that is a minimal level, so as we go through the fourth quarter, that distributor is going to have to order in line with patient demand.

So that we believe we are back to a situation where we will see normal revenue numbers for Nabi-HB. So, that is why we are at the point now where we believe going forward we will see something which would be our expectation for normal revenues for that product on a quarterly basis.

So did they have excess inventory prior? Was that the problem?

No.

Or could they restock if you settled things with them?

If we sign an agreement, I believe they would be likely to purchase quantities of inventory, because now, they are at what is a very low level of inventory to support demand for the product.

Okay. But I guess there has been no advancement in the negotiations, you're at kind of a standstill, is that fair?

Yes. On the issue that is important to us, it is a very important issue, and we don't believe that it would be in the interest of the company to concede on that issue.

And so we will see how it progresses as we go through the fourth quarter with regard to their drive, whether or not they want to have this agreement in place.

Okay. And sorry, I interrupted you about the FDA.

I was right about to go there. What we updated you on today is following the BPAC meeting, the FDA had requested that we supply some of the data that was presented at the meeting. We wanted to let you know that all of that is there. This is now in the hands of the FDA.

To move that forward in their process, we certainly have nothing on our side that is pending or would delay that process. So armed with that information, we believe it is well within their control to come back with an approval in the fourth quarter, but there is nothing left on our side to influence the timing of when they make that decision.

And there is no PDUFA date in this instance, no deadline they have to meet?

Because this is to delayed, beyond when we originally submitted the BLA, there is no PDUFA date.

Thank you.

You're welcome, Jason. I think we have time for one more question.

The next question comes from the line of Marilyn Patterson. Private investor. Please proceed.

Hi. I missed your last conference call. I believe you had one a couple of weeks ago.

Yes.

So maybe this was covered.

Okay.

And this is just personal opinion. I think you guys are doing a great job, and I am wondering, I'm curious as to why you guys have not set in some kind of a poison pill -- it irritates me greatly to see somebody who, in my mind, wants to make a quick buck over a long term value, being able to, like just turn this company so that -- I mean it is like you guys are at -- their command, and it is just -- and I personally, I see it as just a plan to make a quick buck, versus long-term value, and I'm just really have been wondering why you haven't had a poison pill in place.

Well, thank you very much for your comments. As a company, we understand that it is our responsibility to deliver value for our investors. And Nabi has a continuum of different investors with different interests, and our focus continues to be on doing the right things to build value, whether that is from what we can do internally in advancing our strategy, or through other opportunities to build value through strategic alliances or transactions. And that is what we have done, and what we will continue to do.

But thank you -- thank you very much for your comments this afternoon.

With that, what I would like to do is bring the conference call this afternoon to a close.

Thank you for your participation.

With we have emphasized three key messages today.

First, we focused our business model and based on reductions in our cash burn rate and proceeds from the PhosLo(R) transaction, which is expected to close shortly, we are positioned to execute a business plan that is focused, sustainable, and driven to create value for investors. Second, in response to issues raised about option accounting practices in the U.S., and in specific about our 2006 equity grants, the audit committee has initiated a voluntary and a comprehensive review of our historic practice, including 2006.

No issues with regard to fraud, back dating, or spring loading have been identified with the 2006 program. Third, the board and management remain firmly committed to considering all strategic alternatives. We have announced publicly that we have retained Banc of America to advise the board. We continue to work diligently on executing our business plan while at the same time we pursue and evaluate other strategic alternatives.

I look forward to updating you on our progress on future calls. Thank you for your interest in Nabi Biopharmaceuticals. Good afternoon.

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