Nabi Biopharmaceuticals (NASDAQ:NABI)
Q3 2008 Earnings Call Transcript
November 6, 2008, 4:30 pm ET
Gregory Fries – Manager of IR
Raafat Fahim – President and CEO
Richard Mansouri – DCM Fund
Martin Haine [ph]
Mark Calman [ph]
Good day, ladies and gentlemen, and welcome to the Q3 2008 Nabi Biopharmaceuticals earnings call. My name is Colebe [ph] and I’ll 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 turn like to turn the presentation over to your host for today’s call, Mr. Gregory Fries, Manager of Investor Relations. Please proceed sir.
Thanks you, Colebe, and good afternoon, and thank you all for joining us today. As a reminder, the news release announcing our third quarter 2008 financial results is available on our website at www.nabi.com. I’d 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 and discussed in our annual report on Form 10-K for the fiscal year ended December 29, 2007, and in our quarterly report on Form 10-Q for the quarter ended June 28, 2008 both filed with the Securities and Exchange Commission. More information is also available on our website at www.nabi.com.
At this time, I like to turn the call over to Dr. Raafat Fahim, President and Chief Executive Officer of Nabi. Raafat?
Thank you, Greg, and thanks to all of you for participating in the call. Joining me for today call is Dr. Paul Kessler, Senior Vice President, Clinical, Medical and Regulatory Affairs; and Mr. Ron Kocak, Controller and Chief Accounting Officer. On this call, I’ll be talking to you about our third quarter financial results; however, before we review the financial results, I’d like to discuss a few other subjects.
The progress of our strategic alternatives process is obviously of great interest to our shareholders. As you know this process is focused on, but not limited to, the sale or merger of the company or the out licensing of our product candidates. We remain focused on this process and we continue see interest in Nabi from several parties. This interest continues despite the overall market turmoil in recent months. As we previously indicated we do not intend to discuss details until we have a definite agreement and Nabi’s Board of Directors authorizes such communication.
Our primary objective is to maximize the value of our assets for the benefit of all of our shareholders through either a sale or merger of the company or by developing strategic partnerships for our development pipeline products. As you may know, we recently announced the final results of the NicVAX Phase II schedule optimization study. The purpose of this study was to assess the anti-body response and safety of a 400 microgram dose, six-dose immunization schedule that included an additional dose administered at 12 weeks compared to a five-dose regimen in the Phase IIb proof of concept trial.
The data from this study provides clear evidence that the 400 microgram six-dose immunization regimen results in significantly higher level of anti-nicotine antibodies that can be generated faster and in a higher percentage of subjects than observed in previous NicVAX studies.
The results show that more than 80% of subjects achieved the target anti-body level at 14 weeks compared to 50% in the Phase II proof of concept study at the same time point. Importantly, the six-dose schedule was well tolerated by the study participants with an adverse event profile similar to what we have seen in previous NicVAX clinical studies.
Another noteworthy aspect of this study is the evaluation of NicVAX in the second cohort of subjects using the vaccine lot that was manufactured for use in our planned Phase 3 clinical study. We wanted to be certain that we had a high quality vaccine lot for Phase 3.
Although the results from this second cohort are not yet finalized, the interim results are virtually identical to those of the first cohort. We have also confirmed that the antibodies produced by these two lots are functional through animal testing illustrating that both lots effectively blocked nicotine from reaching the brain of rats.
The planned Phase 3 trial design follows the dose regimen used in the schedule optimization Phase 2 study. The design will also align the target quit smoking date with peak antibody levels and includes increased intensity of counseling similar to other smoking cessation trials. We believe that the ability to significantly increase antibody levels in a majority of immunized subject increases the likelihood of success in this trial.
It is noteworthy to indicate that our leadership position in bringing the first smoking cessation vaccine to market is a distinct competitive advantage. We had a very productive meeting and successful meeting with – an end of Phase 2 meeting with them, with the FDA related to NicVAX. The FDA agreed with our Phase 3 trial design and encouraged us to submit a special protocol assessment application or SPA.
An SPA represents an agreement with the FDA regarding the specific endpoints for the clinical trial. The advantage of having an SPA is that achieving the specified endpoint typically leads to a successful regulatory outcome. We have submitted the application and anticipate the response from the FDA by year end. Assuming the FDA agrees with all aspects of the SPA application before year-end, we could initiate the planned Phase 3 clinical trial later this year.
We continue to reduce our level of debt during the quarter. We repurchased 7 million par value of our 2.875% convertible senior notes for $6.2 million a discount of $800,000, resulting in a $600,000 gain.
As of September 27, 2008, we had $35 million par value of debt remaining on our balance sheet. We reduced the debt even further in October by repurchasing an additional $18.7 million par value of the notes at a discount of $2.1 million leaving a balance of $16.3 million compared to $112.4 million one year ago.
Late in 2007, we announced a $65 million share repurchase program. Through the third quarter, we’ve repurchased 9.5 million shares of common stock at an average price of $3.69 per share for a total of $35.2 million leaving a balance of $29.8 million from the originally authorized amount. We did not repurchase additional shares during the third quarter.
Now let’s review the third quarter financial results. For the third quarter the net loss from continuing operations were $4.3 million or $0.08 per share compared to a net loss of $10.4 million or $0.17 per share for the same period in 2007. The gain on retirement of debt I mentioned earlier was recorded as other income and is part of continuing operations. Including the results from discontinued operations, the third quarter 2008 net loss was $1.7 million or $0.03 per share compared to a net loss of $15.9 million or $0.26 per share in 2007.
General and administrative expenses were $2.1 million compared to $6.4 million in the third quarter of 2007, a decrease of 67%. This decrease reflects the reduced scale of operations after the sale of the biologics business unit and our continuing efforts to reduce overall infrastructure costs.
Research and development expense was $3.4 million compared to $4.5 million in 2007. This 25% decrease is primarily due to general cost reduction efforts as we focus on our lead product candidates NicVAX and PentaStaph.
Net cash using continuing operations for the nine months ended September 27, 2008, was $16 million compared to $31.9 million for the 2007 period or a 50% decrease year-to-date.
We ended the quarter with cash and cash equivalents totaling $152.2 million and about $400,000 of this balance represents cash collected by us for sales of Nabi HP that is due to Biotest. Biotest has informed us that it has received all necessary licenses and regulatory permits as of the close of the third quarter. So that in the future we would no longer be receiving payments for Nabi HP on behalf of Biotest.
Not included in $152.2 million balance is $10.6 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 will then be released to Nabi in April of 2009. As of September 27, 2008, Biotest had not asserted any indemnification claims.
With 9 months of fiscal 2008 behind us, we are revising our 2008 financial guidance for operating expenses and cash used in continuing operations. We now expect our 2008 general and administrative expenses to decrease by approximately 50% compared to 2007 levels. This betters our previous guidance of 40% reduction in general and administrative expenses. We are also revising our R&D projections for the current year to reflect the decrease of about 25% compared to 2007 R&D expenses. We originally estimated an increase in research and development expenses of approximately 45% compared to 2007.
We now expect that our 2008 cash used in operating activities will be about 50% of the 2007 level. Our original expectation for cash used in operating activities from continuing operations was a decrease of approximately 15% compared to 2007.
That concludes our prepared remarks. Thank you everyone for listening. Operator, let’s open the call for questions.
(Operator instructions) Your first question comes from the line of Richard Mansouri with DCM Fund. Please proceed.
Richard Mansouri – DCM Fund
Hi, yes. Thank you. Just a few questions. The cash and investments that you guys have. What exactly is it invested in. Are you fairly secure about the underlying assets that you characterize as cash?
Yes. Thank you very much Richard for the question. Yes all of cash is either in treasury bills or in U.S. government agencies. So they’re all AAA and they’re all highly rated and all high quality.
Richard Mansouri – DCM Fund
That is great. Then, in terms of the number of shares outstanding, what share count can we use. And you said that no shares were repurchased in the third quarter. Where any shares repurchased subsequent or do you have the ability to repurchase shares subsequent.
Yes. We have the ability to repurchase as you know, the program is still running and we did purchase a small amount in – after the close of the quarter.
Richard Mansouri – DCM Fund
So was there a share count that – and up-to-date share count that you guys are using.
The share count as of the close of the quarter was 52.2 approximately and after the purchase in 2000 [ph] and after the end of the quarter the share, the total share is approximately 51.9.
Richard Mansouri – DCM Fund
Okay, excellent. And then lastly, regarding the Phase 3 trial design, it says here that the FDA agreed with the Phase 3 trial design protocol and encouraged Nabi to submit an SPA application. Just assuming for a second that the company didn’t apply for an SPA could you be in a position to start Phase 3. Again I understand that you want to proceed with the SPA, that you are proceeding with the SPA, but from my understanding if the company wanted to start a Phase 3 would it be in a position to do so now.
Yes the company could start a Phase 3. I mean, as I guess I explained a few minutes earlier, it has been official to have an SPA and to have an agreement with the FDA so that there will be no confusion as to what will lead to a successful license if we reach the endpoint. So, that is the advantage. But the company is free to go ahead because in essence as I mentioned to you the FDA agreed to the protocol design and if we didn’t submit hypothetically the SPA, we could have initiated the Phase 3 after 30 days from submitting the protocol. We elected to submit an SPA and that means therefore that we need to wait for their verdict on it.
Richard Mansouri – DCM Fund
No, no. I understand. That is great. Okay, I appreciate it. Thank you.
Thank you, Richard, for your questions.
(Operator instructions) Your next question comes from the line of Martin Haine [ph], private investor. Please proceed.
Good afternoon Dr. Fahim.
Good afternoon sir.
Just one quick question. The present economic conditions that are out there now, has that caused any potential buyers or partners to walk away from the table at this point?
As you can imagine I cannot talk about specific Martin. All that I can tell you is that you can imagine that the economic turmoil has caused several companies to be a bit cautious of how they proceed with various activities. But I cannot be specific or give you any more details than the general statement.
Okay. All right. But the interest there is still some strong interest out there for what Nabi has to offer?
As I mentioned in my prepared remarks that there is interest in the company both in the entire – both in the whole company as well as the specific products.
Okay, thank you.
Your next question comes from the line of Mark Calman [ph], private investor. Please proceed.
Yes, hi. Can you give me an better idea on what you are projecting for your R&D cost for Phase 3 next year? I know you said you are looking at a 25% reduction, but can you give me more in terms of what you think it is going to be for your R&D cost.
So, in essence we have not given any specifics and I will not be able to give you specifics. And just to make sure that you that my statements were correctly interpreted, the 25% projection of forecast spend by the end of the year is relative to 2007. It doesn’t talk about costs going forward beyond 2008.
And we have not talked nor do we intend to talk specifically about costs of certain activities and certain aspects of the R&D.
Okay, thank you very much.
At this time there are no further questions in queue.
Okay, well, thank you operator. As you have heard today, we continue to make solid progress with our financial and clinical milestone goals. We continue to have discussions with interested parties regarding our strategic alternative process and strategic partnership process. The data from NicVAX Immunogenicity Study is very encouraging as we move towards the planned Phase 3 clinical trials. We held the successful NicVAX end of Phase 2 meeting with the FDA, submitted the special protocol assessment application and are anticipating the response by the end of the year.
We expect to fully achieve all of our clinical milestones we established for 2008 and we have improved our financial strength by reducing our debt to $16.3 million from $112.4 million one year ago. I believe that we are making solid progress to our above goals and objectives and I remain confident in our ability to continue on this positive track. Nabi’s management, its employees, and our board are fully committed to achieving these goals. Thank you very much for joining us today and thank you for your continued support.
Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.
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