Nabi Biopharmaceuticals Q4 2008 Earnings Call Transcript

| About: Nabi Biopharmaceuticals (NABI)

Nabi Biopharmaceuticals (NASDAQ:NABI)

Q4 2008 Earnings Call Transcript

March 11, 2009 at 4:30 pm ET

Executives

Gregory Fries - Manager of Investor Relations

Raafat Fahim - President and Chief Executive Officer

Ron Kocak - Controller and Chief Accounting Officer

Analysts

Frank Sipato

Richard Mansouri - DellaCamera Capital

Martin Kane

Mark Conlin

Richard Casper - Casper Investments

Brad Gough - AU Consulting

Operator

Ladies and gentlemen, welcome to the fourth quarter and year end 2008 Nabi Biopharmaceuticals financial results conference call. My name is Tania and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions)

I would now like to turn the presentation over to your host for today’s call, Mr. Gregory Fries, Manager of Investor Relations. Mr. Fries, please proceed sir.

Gregory Fries

Thanks you, Tania, and good afternoon, and thank you all for joining us today. As a reminder, the news release announcing our fourth quarter and year end 2008 financial results is available on our website at www.nabi.com. I also like to remind you that today’s call may include forward-looking statements. These forward-looking statements and related risk factors are more fully disclosed in our annual report on Form 10-K for the fiscal year ended December 29, 2007 filed with the Securities and Exchange Commission. More information is also available on our website at nabi.com.

At this time, I like to turn the call over to Dr. Raafat Fahim, President and Chief Executive Officer of Nabi. Raafat?

Raafat Fahim

Thank you, Greg, and thank you all for participating in the call. Joining us for today call is Ron Kocak, Controller and Chief Accounting Officer. We accomplished quite a lot during 2008. Our strategic alternatives process remains the key point of focus for Nabi and we are committed to a successful outcome.

We have significantly enhanced the value of our pipeline products in 2008 and are pleased with the increased interest in our Company and these assets as a result. Additionally, we have engaged the services of several advisors in our search for PhosLo to advance the development of products and further enhance shareholders value.

Our goals in 2008 through our development pipeline were to prudently de-risk the programs while maintaining our strong financial position. After our successful Phase IIb proof of concept study for NicVAX, that was announced in 2008, we initiated and completed the successful Phase II dose and schedule optimization immunogenicity trial.

The results of the study confirmed our belief that the peak antibody level could be elevated and accelerated with the revised dose regime of six injections compared to five injections in the Phase IIb proof of concept study. In addition, the vast majority of subjects achieved what we believe is an efficacious antibody threshold at the target quit dates.

We believe that the new dosing schedule and alignment of peak antibody level with a target quit date has significantly enhanced the probability of clinical success of a Phase III trial.

On the regulatory side we had a very successful in the Phase II meeting with the FDA. The FDA agreed with the design of the Phase III NicVAX study indicated that our preclinical in many manufacturing package was adequate to initiate our Phase III and more importantly advice to submit for special protocol assessment or SPA application.

The SPA agreement with the FDA on the parameters of the Phase III trial that burned any enforcing results typically leads to a successfully regulatory outcome. We submitted the SPA and received the approval of the FDA by year end.

In our view, the successful SPA has significantly reduced the regulatory risks of the program. Within new schedule established and the SPA in place an exact is well positioned to enter Phase III. As such we have secured our leadership position in bringing the first smoking cessation to market.

We believe that such a distinct competitive advantage enhances future commercial success and attractiveness of NicVAX. We are seeking the strategic partner acquired to further advance the development of and future commercialization of the vaccine.

For PentaStaph, our goal was to advance the development of the two new antigens and enable being cessation of Phase I clinical trials in 2009. We reached two important agreements in 2008 that were significantly advanced the development of PentaStaph and reduce the costs and development risks of the program.

In September of 2008 we announced the collaborative efforts to the National Institute of Allergy and Infectious Disease to conduct preclinical toxicology evaluations of the two new antigens that we developed against two of the most violent toxins reduced by the Staph aureus bacteria, namely Panton-Valentine leukocidin or PVL and alpha toxin. These toxicology evaluations are in progress and we expect that the new antigens would be ready to enter the clinic in 2009.

In December, we entered into a Cooperative Research and Development Agreement with the US Department of Defense and The Henry Jackson Foundation to conduct a series of collaborative clinical trials for PentaStaph. With these agreements in place we will be able to advance the development of PentaStaph much farther and faster than we could on our own. These trials included Phase I evaluation of the safety and immunogenicity of the two toxoid compounds, PVL and alpha toxin; a Phase II evaluation of the safety and immunogenicity of a trivalent vaccine containing the capsular polysaccharide types 5 and 8 and the cell wall polysaccharide type 336; and finally, a Phase III evaluation of the safety and immunogenicity of the pentavalent vaccine containing all five components given in two separate simultaneous doses.

Perfect clinical development of PentaStaph and its components beyond that contemplated by collaborations with the NIAID and the US Department of Defense, we required additional commercialization and development partners or commitment from existing process.

We continue to reduce the level of our debt during the quarter. We repurchased $18.7 million par value of our 2.875% convertible senior notes for $16.6 million, a discount of $2.1 million as resulted in a $1.6 million gain. As of December 27, 2008, we have $16.3 million par value of debt remaining on balance sheets. Late in 2007, we announced $65 million share repurchase program. Since the inception of the program, we have repurchased $10.1 million shares of common stock at an average price of $3.66 per share for a total of $36.9 million, leaving the plan balance of $28.1 million at December 27, 2008.

Now let us review the financial results.

For the full year, our net loss from continuing operations was $15 million or $0.29 per share compared to a net loss of $24.5 million or $0.41 per share in 2007. Including now 2008 continuing operations result is a gain of $4 million from the debt repurchased that was recorded as other income. Including the results from discontinuing operations, the 2008 net loss was $10.7 million or $0.20 per share compared to a net income of $47.1 million or $0.78 per share in 2007.

Income from discontinued operations for 2008 includes $2.5 million milestone proceeds associated with a sale in 2006 of PhosLo, a $2.2 million receive in Arbitration Settlement with Inhibitex and $1 million of proceeds related to sale of Aloprim in 2007. The 2007 results included $79.7 million pretax gain from the sale of the biologics business unit.

For the quarter ended December 27, 2008, the net loss from continuing operations was $2.8 million or $0.05 per share compared to a net gain of $9.7 million or $0.16 per share in the fourth quarter of 2007. Including results from discontinued operations, the net loss was $2.4 million or $0.05 per share compared to a net income of $78.7 million or $1.32 per share in 2007. The gain from the sale of the biologics business unit that I mentioned early was recognized in the fourth quarter of 2007.

For the full year, general and administrative expense was $12.4 million compared to $26.1 million in 2007, a decrease of 52%. This decrease reflects the reduce scale of operations after the sale of the biologics business unit and our continuing effort to reduce overall infrastructure costs.

Total research and development expense was $12.6 million compared to $18.8 million in 2007. This 33% decrease is primarily attributed to a decrease in pre-clinic and other R&D expense of $11.2 million due to the sale of the biologics business unit. This reduction was offset in part by $5 million of increase spending for NicVAX and PentaStaph research.

Net cash used in continuing operations for 2008 was $22.8 million compared to $42.6 million for 2007, a 47% decrease. We ended the year with cash and cash equivalents and marketable securities totaling $130.3 million compared to $219.2 million at the end of 2007. The principal components of the decrease are payments of $51.6 million for the repurchase of debts and $20 million for common stock repurchases, not included in $130 million balance is $10.2 million of restricted cash from the sale of the biologics business unit to Biotest. This cash is being held in escrow to support any potential indemnification claims made by Biotest and the balance of this account would be released to Nabi in April of 2009. As of today, Biotest had not asserted any indemnification claims.

In addition to filing our 2008 10-K today, we also filed an 8-K disclosing that we have restated our 2007 and 2006 consolidated financial statements to correct for the misapplication of intraperiod income tax allocations between continuing and discontinuing operations. I want to assure you that this adjustment did not have any impact on our consolidated net income for any period, but resulted in reducing our loss from continuing operations while reducing income from discontinuing operations for these periods.

Accordingly, there was no cumulative affect of the adjustment on our balance sheet as of December 29, 2007 and the adjustment did not have any impact on our net cash flows for any period, our tax liability, or our net operating losses carry forwards. I would like to indicate that the original reporting was done after consulting with tax experts.

That concludes our prepared remarks. Operator, let us open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Frank Sipato.

Frank Sipato

I was asking about, I am interested in how the Phase III for NicVAX will proceed from here?

Raafat Fahim

You are asking a question. If I read your question correctly as you mean whether we are going to initiate our Phase III and when?

Frank Sipato

Yes.

Raafat Fahim

Okay. We currently have not made a final decision on that and as we said all along, what we would like to do is to initiate the Phase III with a partner and beyond that we have not made any more statements on that.

Frank Sipato

Well, there has been a lot of consolidation in the big Pharma, how come we cannot find a partner?

Raafat Fahim

As we indicated in our prepared statements we actually have increased interest in the Company due to the recent successes that we have with the SPA and with immunogenicity study, but beyond that I cannot answer the question.

Frank Sipato

Okay. I was just wondering because the shareholder value that you speak of has only been toward those who have shorted the Company. The long people who are long Nabi have suffered terribly in the last year or so, suffered terribly, but the short people who have shorted the Company have been very successful against you.

Raafat Fahim

Yes, I mean obviously what I am telling you [Mr. Sipato] is that we are seeking a partner that is our focus in the Company. That is what we have been doing and that is the only major focus for the Company and we are continuing to add value for our programs to achieve that target.

Frank Sipato

Do you think you will find a partner this year?

Raafat Fahim

I am hoping we will find a partner.

Operator

Your next question comes from the line of Richard Mansouri - DellaCamera Capital.

Richard Mansouri - DellaCamera Capital

Just a couple of questions, one, the Company’s net operating losses, NOLs, do you have any approximation as to how much NOLs you guys have?

Ron Kocak

It was actually in the 10-K, $128 million.

Richard Mansouri - DellaCamera Capital

Hundred and twenty eight million?

Ron Kocak

Yes, Richard.

Richard Mansouri - DellaCamera Capital

Okay great. Secondly, someone just previously asked a question and you said that there is increased interest in the Company, just so I understand that when you say increased interest, can one interpret that to mean that now that you have the successful SPA in hand, I am assuming that implies that the value that could be ascribed to the NicVAX compound might be afforded a greater value by certain players if they do have an interest. Is that a fair characterization?

Raafat Fahim

That certainly is a fair characterization because we added value to the compound by doing that but obviously you and I know, Richard, that at the end of the day we will evaluate each potential interested parties, interest in the Company based on that then the market will decide what it is, but the concept itself that the SPA would increase the value is a correct one.

Richard Mansouri - DellaCamera Capital

Okay. And then lastly, just I did not quite understand it, separate in a way from NicVAX I mean that is still you do have the PentaStaph which targets currently a broad unmet medical need, are you considering partnering that compound as well?

Raafat Fahim

Absolutely, we have always said that. The agreements that we have with NIAID and the agreements with the Department of Defense does not preclude us from getting partner for PentaStaph and in fact there are partners interested in PentaStaph period.

Operator

Your next question comes from the line of Martin Kane.

Martin Kane

You mentioned PentaStaph and the two other components that are in preclinical trials.

Raafat Fahim

Correct.

Martin Kane

When do you anticipate them coming out of preclinical trials and when would you anticipate a tentative Phase I start date?

Raafat Fahim

So what we said in our prepared statement is that they are currently being tested in preclinical that we anticipate that during 2009 they will be in a Phase I clinical trial.

Martin Kane

Can you be a little more specific than sometime in 2009? Do you anticipate these two components being out of preclinical by the middle of the year or you just kind of throwing a dart and saying, “Well, we anticipate of being out of preclinical by some time the end of the year”?

Raafat Fahim

Alright, the reason why we did not pinpoint a date is simply that we have two factors that we have to contend with number one is that we have to ask the preclinical, we have to submit a pre-IND with the FDA and get their approval and that is, as you know, not a very well defined period if they have any comments on it, and secondly is that we are also in a partnership with the US Department of Defense that they have their own procedures and committees to review what we have before they start. That is why it is not only our own control of the clinical. In fact it will be conducted by the US Department of Defense not by Nabi. It is on the Nabi’s name but it will be done because they are paying for the clinical operations part.

Martin Kane

I understand. I understand that. I was just looking to because I know the FDA will have given you a fast track on PentaStaph?

Raafat Fahim

They have still given a fast track on the original StaphVAX, and as you know with these two antigens were not in the original StaphVAX.

Martin Kane

Okay. So, you really cannot give me an answer there.

Raafat Fahim

At this stage, it is very difficult, Martin. I apologize.

Martin Kane

Okay. My second question is what are you doing to enhance our shareholder value here? I have been a long term holder with Nabi and as the first questioner started asking you, we have not seen any increase in shareholder value at all in fact under your guidance and your predecessor Dr. Hudson; we have seen a continuing downturn in shareholder value.

Raafat Fahim

I will answer the question in two ways. Number one, obviously as you can imagine and I do not need to tell you that our market is suffering these days. So that is number one.

But number two, we have actually done quite a bit to enhance shareholder value. As I mentioned in my prepared script, we now have reduced the risk of the two programs quite significantly and actually as I mentioned earlier, we are seeing the value of those reduction and risk in the fact that we have increased interest in the Company. So, we actually have done that. These things will take a little bit of time and the unfortunate part is that the stock now is simply being evaluated by whether we have a partner yet or not and the value of what we added to the program will hopefully help us get there and then we will see the ultimate value. But as the Company, as the programs have advanced, there is no doubt that we have added significant values to the program.

Martin Kane

Well, sure is not reflected in the stock price.

Raafat Fahim

I totally agree with you and I am just as disappointed. You can imagine that I am seriously disappointed by that.

Martin Kane

I am so sorry I got to ask you. Okay, I guess that will do it for me.

Operator

Your next question comes from the line of Mark Conlin.

Mark Conlin

I have two questions. Do you plan on aggressively repurchasing some stocks seeing how you do have a quite a bit of money in there and the stock is obviously pretty low? Do you plan on being pretty aggressive or seeing how we do have an opportunity to buyback the stock at the current levels?

And then secondly, I was under in your impression that you did not have enough cash to start Phase III and as we sit here and ponder, it seems like our competitors are going to catch up to us. Thank you.

Raafat Fahim

Thanks for the two questions. Just to cover the first one about the share repurchase that we do have a program and the program has parameters and those parameters are registered and it is going automatically. So, I cannot tell any more than that. The program has not ended. The program has continued. So, that is the answer to that.

As to the Phase III as I am saying, we certainly have the SPA in place now but there are a few things that we need to take care of and the decision by the Board has not been made to start the Phase III. I agree with you that the time is of the essence and we are working very hard to get there prudently and to initiate the Phase III as rapidly as we can. We said we would like very much to have a partner to help us with the Phase III.

Mark Conlin

But again it seems as though we have enough cash to at least initiate it and that might interest the partner.

Raafat Fahim

It is a valid point and as I am saying, we have not made any public statements about when or how we start it but it is a very valid point and I appreciate very much you bring it up.

Operator

Your next question comes from the line of Richard Casper - Casper Investments.

Richard Casper - Casper Investments

Hello Doctor, how are you?

Raafat Fahim

Richard, how are you doing?

Richard Casper - Casper Investments

Doing well my friend. Dr., can I assume that there is a big Pharma interest in the not NicVAX, possible Phase III initiation?

Raafat Fahim

I mean I cannot categorize how big or how small the company is, all I can tell you is that we have interest from various companies.

Richard Casper - Casper Investments

Okay, because I think that this is one of the most intriguing. I have been investing for 30, 40 years now and I think that the nicotine vaccine as well as your PentaStaph vaccine deserve a substantially higher price per share and it is just a matter of time, so congratulations on what you are doing and my question basically is there a mid-to-large sized biotechnology interest which I assume there is, considering even the Obama Administration is talking about the seriousness of nicotine addiction and the number of deaths per year attributable to the lung cancer and so on from smoking? I would assume that there would be some interest then if you could assure me of that that would make my heart very happy.

Raafat Fahim

Thank you very much for the words of encouragement. Number one, number two I agree with you. The value of our programs is not definitely reflected in share price, so we agree with you on those and as I mentioned, we have various partners interested and because of the recent achievements that we have including the SPA, we have significant interest, additional significant interest. That is how I cannot categorize the interest.

Richard Casper - Casper Investments

That is good enough for me doctor, and congratulations and keep up the good work.

Operator

(Operators Instructions) Your next question comes from the line of Brad Gough - AU Consulting.

Brad Gough - AU Consulting

Good afternoon doctor, how are you?

Raafat Fahim

I am doing very well. Brad, how are you doing?

Brad Gough - AU Consulting

I am doing alright. Somewhere to some of the other shareholders obviously all of us want you to succeed but I guess my question is that along the lines of the strategic alternatives, is the time that it is taking in your mind due to sort of the market turmoil that we have been experiencing, some of the combinations that are going out with some of the larger biotech companies or in your mind are things progressing on a timetable, it seems as though is taking longer than you would have anticipated given our calls of last year?

Raafat Fahim

Certainly, it is taking longer than we anticipated but to that after you get into it you discover quickly that these things take a little longer than people anticipate. You always anticipate that it will take shorter than it does. It takes a long time and I can assure you and tell you that this is a fact.

The second part of your question is - has the market, the recent down turn of the market had an impact. In my view there is no doubt that there has been an impact. How big or small an impact, I cannot categorize it but I can tell you that certain companies are a lot more prudent, taking a lot more time to think about it and making sure that they invest wisely in things they are doing, which means that they take a little bit of time.

Brad Gough - AU Consulting

Okay. And from the banking side, your representatives given the turmoil on that side of business have you been able to keep the same bank because you have been working on this transaction over the last year or so?

Raafat Fahim

Certainly from our perspective we said that we actually did increase the advisors that are working with us on this to hopefully speed up the process or get more exposure.

Brad Gough - AU Consulting

Okay. Well, again, as other holders have said obviously it seems on one hand things are moving in the right direction but if you just do a graph of the stock it is actually lower than it was in the beginning of last year which obviously disheartening given what is going on. So, obviously we hope that things come to fruition here rather shortly.

Raafat Fahim

I hope so too but just on the market and on the stock price I am sure you have also noticed that we are not alone in that space and not almost every company has had the same experience in recent months.

Brad Gough - AU Consulting

Absolutely but obviously this is sort of I am not going to say one off situation, it has been a very difficult environment but over an extended period of time, shareholders here have not done particularly well and the evaluation of the stock was never at a lofty level to begin with. It seems to be overly discounting what is going on but it is what it is and we will have to move forward.

Raafat Fahim

Brad, I could not agree with you more. Certainly the stock price does not reflect the value of the Company or the programs that we have but we think are very valuable, much more valuable than it is reflected now. Thank you, sir for your question.

Operator

There are no further questions at this time. This is a conclusion of the question-and-answer session. I would now like to turn the call over to management for closing remarks.

Raafat Fahim

Thank you, Tania. As you heard today, we continue to make solid progress with our product pipeline program and improve our financial strength. We continue to have discussions with interested parties regarding our strategic alternatives process and have engaged several advisors in our search for a partner or acquirer to advance development of products and further enhance shareholder value and we are optimistic about our opportunities.

We are positioned to initiate Phase III clinical trials following the agreement with the FDA reached late last year on a special protocol assessment for the trial.

Thank you all for being with us.

Operator

Ladies and gentlemen, thank you for your participation in today’s call. This is the conclusion to the presentation. You may now disconnect and have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!