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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________.
Commission File Number: 0-4829-03
Nabi Biopharmaceuticals
(Exact name of registrant as specified in its charter)
DELAWARE 59-1212264
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5800 PARK OF COMMERCE BOULEVARD N.W., BOCA RATON, FL 33487
(Address of principal executive offices, including zip code)
(561) 989-5800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of registrant's common stock at July 26, 2002
was 38,701,090 shares.
NABI BIOPHARMACEUTICALS
- --------------------------------------------------------------------------------
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS .............................................................................3
- Consolidated Balance Sheets, June 29, 2002 and December 29, 2001.......................3
- Consolidated Statements of Operations for the Three Months and
Six Months ended June 29, 2002 and June 30, 2001....................................4
- Consolidated Statements of Cash Flows for the Six Months ended
June 29, 2002 and June 30, 2001.....................................................5
- Notes to Consolidated Financial Statements.............................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................................10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................16
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............................................17
ITEM 5. OTHER EVENTS....................................................................................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................17
SIGNATURES......................................................................................18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Nabi Biopharmaceuticals
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands, Except Per Share Data) June 29, 2002 December 29, 2001
- --------------------------------------------- ------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 46,708 $ 131,192
Trade accounts receivable, net 34,215 36,039
Inventories, net 20,229 18,138
Prepaid expenses and other current assets 3,906 7,694
--------- ---------
TOTAL CURRENT ASSETS 105,058 193,063
PROPERTY AND EQUIPMENT, NET 106,399 107,866
OTHER ASSETS:
Intangible assets, net 7,994 6,859
Other, net 1,965 2,521
--------- ---------
TOTAL ASSETS $ 221,416 $ 310,309
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 18,612 $ 20,654
Accrued expenses 14,928 23,759
--------- ---------
TOTAL CURRENT LIABILITIES 33,540 44,413
NOTES PAYABLE -- 78,500
OTHER LIABILITIES 418 190
--------- ---------
TOTAL LIABILITIES 33,958 123,103
--------- ---------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.10 per share:
5,000 shares authorized; no shares outstanding -- --
Common stock, par value $.10 per share: 75,000 shares
authorized; 38,701 and 38,445 shares issued and
outstanding, respectively 3,870 3,845
Capital in excess of par value 159,914 158,687
Treasury stock (2,137) (977)
Retained earnings 25,811 25,651
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 187,458 187,206
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 221,416 $ 310,309
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
Nabi Biopharmaceuticals
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
--------------------------- --------------------------
June 29, June 30, June 29, June 30,
(Amounts in Thousands, Except Per Share Data) 2002 2001 2002 2001
- --------------------------------------------- --------- --------- --------- ---------
SALES $ 50,802 $ 65,288 $ 91,771 $ 125,466
COSTS AND EXPENSES:
Costs of products sold 30,009 44,764 55,297 88,941
Royalty expense 4,297 3,113 5,856 5,477
--------- --------- --------- ---------
GROSS MARGIN 16,496 17,411 30,618 31,048
Selling, general and administrative expense 10,240 11,086 19,423 20,015
Research and development expense 4,930 3,900 9,342 6,878
Other operating expense, principally freight
and amortization 200 431 398 887
--------- --------- --------- ---------
OPERATING INCOME 1,126 1,994 1,455 3,268
INTEREST INCOME 246 7 893 13
INTEREST EXPENSE (77) (410) (1,944) (944)
OTHER (EXPENSE) INCOME, NET (192) 3 (182) (22)
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,103 1,594 222 2,315
PROVISION FOR INCOME TAXES (282) (79) (62) (115)
--------- --------- --------- ---------
NET INCOME $ 821 $ 1,515 $ 160 $ 2,200
========= ========= ========= =========
BASIC EARNINGS PER SHARE $ 0.02 $ 0.04 $ -- $ 0.06
========= ========= ========= =========
DILUTED EARNINGS PER SHARE $ 0.02 $ 0.04 $ -- $ 0.06
========= ========= ========= =========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 38,648 37,939 38,585 37,889
========= ========= ========= =========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 39,562 39,179 39,767 38,933
========= ========= ========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
Nabi Biopharmaceuticals
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
---------------------------------
(Dollars in Thousands) June 29, 2002 June 30, 2001
- --------------------- ------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 160 $ 2,200
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 4,901 5,308
Provision for doubtful accounts 366 7
Provision for slow moving or obsolete inventory -- 2,096
Write-off of loan origination fees 400 --
Non-cash compensation 334 835
Write-off obsolete fixed asset 269 --
Other -- 95
Changes in assets and liabilities:
Decrease in trade accounts receivable 1,458 3,873
(Increase) decrease in inventories (2,092) 245
Decrease in prepaid expenses and other assets 3,788 2,093
Increase in other assets (20) (6)
Decrease in accounts payable and accrued liabilities (10,645) (1,556)
--------- ---------
Total adjustments (1,241) 12,990
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,081) 15,190
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (3,386) (8,406)
Expenditures for other assets (1,275) (199)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (4,661) (8,605)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments under line of credit, net -- (6,057)
Repayments of term debt -- (500)
Retirement of convertible subordinated notes (78,500) --
Purchase of treasury stock (917) --
Proceeds from exercise of employee stock options 675 372
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (78,742) (6,185)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (84,484) 400
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 131,192 1,554
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 46,708 $ 1,954
========= ---------
SUPPLEMENTAL INFORMATION:
INTEREST PAID, NET OF CAPITALIZED INTEREST $ 3,550 $ 1,211
========= =========
SUPPLEMENTAL NON-CASH INFORMATION:
STOCK OPTIONS EXERCISED FOR COMMON STOCK $ 243 $ --
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
Nabi Biopharmaceuticals
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 OVERVIEW
Nabi Biopharmaceuticals (formerly "Nabi") discovers, develops, manufactures and
markets products that power the immune system to help people with serious, unmet
medical needs. We have a broad product portfolio and significant research
capabilities focused on developing and commercializing novel vaccines and
antibody-based therapies that prevent and treat infectious, autoimmune and
addictive diseases, such as STAPHYLOCOCCUS AUREUS and hepatitis infections,
immune thrombocytopenia purpura ("ITP") and nicotine addiction. We have several
products in clinical trials, as well as four marketed biopharmaceutical
products: Nabi-HB(TM) [Hepatitis B Immune Globulin (Human)] for the prevention
of hepatitis B infections, WinRho SDF(R) [Rho (D) Immune Globulin Intravenous
(Human)] for the treatment of acute, chronic and HIV-related ITP, Autoplex(R) T
[Anti-Inhibitor Coagulant Complex, Heat Treated] and Aloprim(TM) [(Allopurinol
sodium) for injection]. We have a state-of-the-art fractionation facility for
the manufacture of our biopharmaceutical products and for contract
manufacturing. Further, we also collect specialty and non-specific antibodies
for use in our products as well as to supply pharmaceutical and diagnostic
customers for the subsequent production of their products.
The consolidated financial statements include the accounts of Nabi
Biopharmaceuticals and its subsidiaries. All significant intercompany accounts
and transactions were eliminated during consolidation. These statements should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto included in our Annual Report on Form 10-K for the year ended December
29, 2001.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments, consisting of normal recurring adjustments, which, in
the opinion of management, are necessary to present fairly, our consolidated
financial position as of June 29, 2002, the consolidated results of our
operations for the three months and six months ended June 29, 2002 and June 30,
2001 and our cash flows for the six months ended June 29, 2002 and June 30,
2001. The interim results of operations are not necessarily indicative of the
results that may occur for the fiscal year.
NOTE 2 SIGNIFICANT EVENT
On April 8, 2002, we redeemed our 6.5% Convertible Subordinated Notes (the
"Notes") aggregating $78.5 million. The Notes were redeemed for cash at 100% of
the principal balance plus accrued interest through April 8, 2002. The Notes had
an original maturity date of February 1, 2003. In conjunction with the
notification made to the holders of the Notes on March 15, 2002, we recorded
$0.4 million for the write-off of loan origination fees in the first quarter of
2002.
NOTE 3 INVENTORIES
The components of inventories, stated at the lower of cost or market with cost
determined on the first-in first-out (FIFO) method, are as follows:
(Dollars in Thousands) June 29, 2002 December 29, 2001
---------------------- ------------- -----------------
Finished goods $16,200 $13,919
Work in process 3,062 3,265
Raw materials 967 954
------- -------
TOTAL $20,229 $18,138
======= =======
6
NOTE 4 EARNINGS PER SHARE
Basic earnings per share is computed by dividing our net income by the weighted
average number of shares outstanding during the period.
When the effects are not anti-dilutive, diluted earnings per share is computed
by dividing our net income by the weighted average number of shares outstanding
and the impact of all dilutive potential common shares, primarily stock options.
The dilutive impact of stock options is determined by applying the "treasury
stock" method.
The following table reconciles net income and shares for the basic and diluted
earnings per share computations:
For the Three Months Ended
(Amounts in Thousands, ---------------------------------------------------------------------------------
Except Per Share Amounts) June 29, 2002 June 30, 2001
- ------------------------- ----------------------------------- -------------------------------------
Per Per
Net Share Net Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ --------
Basic EPS $ 821 38,648 $ 0.02 $1,515 37,939 $ 0.04
------ ------ -------- ------ ------ --------
Effect of dilutive securities:
Stock options and other dilutive
securities -- 914 -- -- 1,240 --
------ ------ -------- ------ ------ --------
Diluted EPS $ 821 39,562 $ 0.02 $1,515 39,179 $ 0.04
====== ====== ======== ====== ====== ========
For the Six Months Ended
(Amounts in Thousands, ---------------------------------------------------------------------------------
Except Per Share Amounts) June 29, 2002 June 30, 2001
- ------------------------- ----------------------------------- -------------------------------------
Per Per
Net Share Net Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ --------
Basic EPS $ 160 38,585 $ -- $2,200 37,889 $ 0.06
Effect of dilutive securities:
Stock options and other dilutive
securities -- 1,182 -- -- 1,044 --
------ ------ -------- ------ ------ --------
Diluted EPS $ 160 39,767 $ -- $2,200 38,933 $ 0.06
====== ====== ======== ====== ====== ========
7
NOTE 5 OPERATING SEGMENT INFORMATION
The antibody products segment sales and operating (loss) income include the
results of antibody operations that were sold as of September 6, 2001 for the
three months and the six months ended June 30, 2001. The following table
presents information related to our two operating business segments:
For the Three Months Ended For the Six Months Ended
----------------------------------- -----------------------------------
(Dollars in Thousands) June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
- ---------------------- ------------- -------------- ------------- -------------
SALES:
Biopharmaceutical products $ 24,827 $ 18,860 $ 40,136 $ 33,974
Antibody products 25,975 46,428 51,635 91,492
--------- --------- --------- ---------
TOTAL $ 50,802 $ 65,288 $ 91,771 $ 125,466
========= ========= ========= =========
OPERATING INCOME:
Biopharmaceutical products $ 2,035 $ 1,827 $ 2,995 $ 3,627
Antibody products (909) 167 (1,540) (359)
--------- --------- --------- ---------
TOTAL $ 1,126 $ 1,994 $ 1,455 $ 3,268
========= ========= ========= =========
The following table reconciles reportable segment operating income to income
before provision for income taxes:
For the Three Months Ended For the Six Months Ended
---------------------------------- ---------------------------------
(Dollars in Thousands) June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001
- ---------------------- ------------- ------------- ------------- -------------
Reportable segment $ 1,126 $ 1,994 $ 1,455 $ 3,268
operating income
Unallocated interest income 246 7 893 13
Unallocated interest (77) (410) (1,944) (944)
expense
Unallocated other (expenses)
income, net (192) 3 (182) (22)
------- ------- ------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES $ 1,103 $ 1,594 $ 222 $ 2,315
======= ======= ======= =======
NOTE 6 TREASURY STOCK
On September 19, 2001, our Board of Directors approved the expenditure of up to
$5.0 million to repurchase shares of our common stock in the open market or in
privately negotiated transactions. Repurchases will allow us to have treasury
stock available to support our stock option and stock purchase programs. In the
six months ended June 29, 2002, we acquired 171,483 shares of Nabi
8
Biopharmaceuticals stock for $0.9 million under this program. In total we have
acquired 345,883 shares of Nabi Biopharmaceuticals stock for a total of $1.9
million since the inception of this buy back program. Repurchased shares have
been accounted for as treasury stock.
In a transaction dated March 28, 2002, an officer of the company exercised stock
options for 60,000 shares of our stock. The purchase price was paid by delivery
of 40,107 shares of common stock, valued at $0.2 million, which the officer had
acquired more than six months earlier. These shares have been accounted for as
treasury stock.
NOTE 7 INTANGIBLE ASSETS
The components of our intangible assets are as follows:
(Dollars in Thousands) June 29, 2002 December 29, 2001
- ---------------------- ------------- -----------------
Manufacturing right $ 5,997 $ 4,721
Intangible assets:
Nabi-HB related 4,028 4,028
Other 325 325
Less accumulated amortization (2,356) (2,215)
------- -------
TOTAL $ 7,994 $ 6,859
======= =======
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
(SFAS No. 142) which is effective for fiscal periods commencing after December
15, 2001. Under SFAS No. 142, goodwill and indefinite-lived intangible assets
are no longer amortized but are reviewed annually (or more frequently if
impairment indicators arise) for impairment.
In conjunction with the sale of the majority of our antibody business on
September 6, 2001, we disposed of all goodwill reflected on our balance sheet as
of that date. As of June 30, 2001, we had goodwill of $12.1 million net of
accumulated amortization of $6.3 million. A comparison of net income for the
three months and the six months ended June 29, 2002 and June 30, 2001, adjusted
to reflect the application of SFAS No. 142, follows:
For the Three Months Ended For the Six Months Ended
-------------------------- --------------------------
June 29, June 30, June 29, June 30,
(Amounts in Thousands, Except Per Share Data) 2002 2001 2002 2001
- --------------------------------------------- -------- -------- -------- --------
Net income as reported $ 821 $1,515 $ 160 $2,200
Goodwill amortization -- 182 -- 364
------ ------ ----- ------
Adjusted net income $ 821 $1,697 $ 160 $2,564
====== ====== ===== ======
Adjusted earnings per share:
Basic $ 0.02 $ 0.04 $ -- $ 0.06
====== ====== ===== ======
Diluted $ 0.02 $ 0.04 $ -- $ 0.06
====== ====== ===== ======
We had no indefinite-lived intangible assets as of June 29, 2002, December 29,
2001 or June 30, 2001.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of the major factors contributing to
our financial condition and results of operations for the three months and six
months ended June 29, 2002 and June 30, 2001. The discussion and analysis should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto.
On April 8, 2002, we redeemed our 6.5% Convertible Subordinated Notes (the
"Notes") aggregating $78.5 million. The Notes were redeemed for cash at 100% of
the principal balance plus accrued interest through April 8, 2002. The Notes had
an original maturity date of February 1, 2003. As a result of the notification
made to the holders of the Notes on March 15, 2002, we recorded $0.4 million for
the write-off of loan origination fees in 2002.
RESULTS OF OPERATIONS
The antibody products segment sales include the results of antibody operations
that were sold as of September 6, 2001 for the three months and six months ended
June 30, 2001. Information concerning our sales by operating segments is set
forth in the following tables:
For the Three Months Ended
-----------------------------------------------------------------
(Dollars in Thousands) June 29, 2002 June 30, 2001
- ---------------------- --------------------------- ---------------------------
Biopharmaceutical Products $ 24,827 48.9% $ 18,860 28.9%
-------- ----- -------- -----
Antibody Products:
-Specialty antibodies 8,178 16.1 14,961 22.9
-Non-specific antibodies 17,797 35.0 31,467 48.2
-------- ----- -------- -----
25,975 51.1 46,428 71.1
-------- ----- -------- -----
TOTAL $ 50,802 100.0% $ 65,288 100.0%
======== ===== ======== =====
For the Six Months Ended
-----------------------------------------------------------------
(Dollars in Thousands) June 29, 2002 June 30, 2001
- ---------------------- --------------------------- ---------------------------
Biopharmaceutical Products $ 40,136 43.7% $ 33,974 27.1%
-------- ----- -------- -----
Antibody Products:
-Specialty antibodies 15,336 16.7 29,587 23.6
-Non-specific antibodies 36,299 39.6 61,905 49.3
-------- ----- -------- -----
51,635 56.3 91,492 72.9
-------- ----- -------- -----
TOTAL $ 91,771 100.0% $125,466 100.0%
======== ===== ======== =====
10
FOR THE THREE MONTHS ENDED JUNE 29, 2002 AND JUNE 30, 2001
SALES. Sales for the second quarter of 2002 were $50.8 million compared to $65.3
million for the second quarter of 2001, a decrease of $14.5 million or 22%. This
decrease reflects the sale of the majority of the antibody business in September
2001.
Biopharmaceutical sales in the second quarter of 2002 were $24.8 million
compared to $18.9 million in the second quarter of 2001, an increase of 31%.
Sales of all four of our marketed products increased in this second quarter.
Sales of Nabi-HB(TM) [Hepatitis B Immune Globulin (Human)] increased 14% in the
second quarter of 2002 compared to the second quarter of 2001. Based on our
review of internally and externally generated end-user or sell through data, we
believe there continues to be increased end-user demand for Nabi-HB. This
increased end-user demand combined with our success in decreasing inventory
levels of Nabi-HB with wholesalers and distributors in the fourth quarter of
2001 resulted in the reported sales increase in this second quarter. During the
fourth quarter of 2001 we reduced inventory levels of Nabi-HB at distributors
and wholesalers in preparation for the transition to product manufactured at our
Boca Raton manufacturing facility. Sales of product manufactured in our Boca
Raton facility commenced in the first quarter of 2002 with approval from the
U.S. Food and Drug Administration ("FDA") of the initial production lots from
the facility. Sales of WinRho SDF(R) [Rho (D) Immune Globulin Intravenous
(Human)] increased 21% in the second quarter of 2002 from the second quarter of
2001. This increase in sales is in line with our review of internally and
externally generated end-user data for this product. Sales of Aloprim(TM)
[(Allopurinol sodium) for injection] and Autoplex(R) T [Anti-Inhibitor Coagulant
Complex, Heat Treated], benefited from improved product supply from the
manufacturers of these products in the second quarter of 2002. Sales of Aloprim
have been limited in recent quarters due to limited product supply. During the
second quarter of 2002 we received two back ordered lots of Aloprim, which,
combined with the continuation of a positive trend for patient use of Aloprim,
resulted in a four-fold increase in sales from the comparable quarter of 2001.
Sales of Aloprim in future periods will be affected by product supply from the
manufacturer. Based on the current manufacturing schedule, we do not anticipate
additional shipments of Aloprim in 2002. Consequently, future sales of Aloprim
in 2002 will likely be limited to inventory on hand at Nabi Biopharmaceuticals
as of June 29, 2002.
Total antibody sales for the second quarter of 2002 were $26.0 million compared
to $46.4 million in the comparable quarter of 2001. This decrease reflects the
sale of the majority of the antibody business in September 2001. Non-specific
antibody sales include shipments under a supply contract, which was retained by
us and expires in May 2003. The purchaser of the majority of the antibody
business supplied us non-specific antibodies totaling $13.4 million in the
second quarter of 2002, which we then sold to the customer under this contract
and for which we earned no gross margin.
GROSS MARGIN. Gross margin was $16.5 million, or 32% of sales, in the second
quarter of 2002 compared to $17.4 million, or 27% of sales, in the second
quarter of 2001. This increase was driven by the higher proportion of
biopharmaceutical product sales to total sales in the second quarter of 2002
compared to the second quarter of 2001. Offsetting the positive gross margin
impact of increased biopharmaceuticals sales were the sale of the majority of
our antibody business in September 2001 and excess plant capacity costs of $1.6
million. In its initial periods of operation, the manufacturing capacity of the
Boca Raton facility will not be fully utilized and costs and expenses related to
excess manufacturing capacity will be expensed as cost of products sold. Because
the plant was not licensed and operating until the fourth quarter of 2001,
second quarter 2001 results do not include any charges for excess plant
capacity. Product supply from the manufacturer of Autoplex T continued to be
below product supply minimums established by contract. As a result of this
product supply shortfall, gross margin benefited from a contractual
non-performance penalty payment of $0.5 million in the second quarter of 2002
compared to no penalty reported in the second quarter of 2001. Royalty expense
as a percentage of biopharmaceutical sales was 17% in both the 2002 and 2001
periods.
11
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $10.2 million, or 20% of sales, for the second quarter of 2002
compared to $11.1 million, or 17% of sales, in 2001. General and administrative
expense in the second quarter of 2002 included a bad debt write-off of $0.4
million related to the antibody business as well as increased insurance and
consulting expenses. These cost increases have been more than offset by
reductions in cost following the sale of the majority of the antibody business
in September 2001. Our selling expense is primarily focused on the
biopharmaceutical segment of our business and was not impacted by the sale of
the majority of the antibody business in September 2001.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $4.9
million, or 10% of sales, for the second quarter of 2002 compared to $3.9
million, or 6% of sales, in the second quarter of 2001. In the second quarter of
2002, 30% of the research and development expense supported development of our
Gram-positive infections program including expenses incurred to continue the
transfer of the manufacturing process for StaphVAX(R) (STAPHYLOCOCCUS AUREUS
Polysaccharide Conjugate Vaccine) to the commercial manufacturer's facility.
Total spending for the Gram-positive program decreased in the second quarter of
2002 as we concluded the booster trial of StaphVAX in the first quarter of 2002.
Increased research and development spending was incurred for the production of
Civacir(TM) [Hepatitis C Immune Globulin (Human)] for use in clinical trials of
that product, the continued development of NicVAX(TM) (Nicotine Conjugate
Vaccine), which entered into initial human clinical trials in June 2002, and for
clinical trials of Altastaph(TM) [STAPHYLOCOCCUS AUREUS Immune Globulin (Human)]
which are scheduled for later this year.
INTEREST INCOME. Interest income for the second quarter of 2002 was $246
thousand compared to $7 thousand for the second quarter of 2001. The increase
reflects interest income from the net cash proceeds from the sale of the
majority of the antibody business in September 2001.
INTEREST EXPENSE. Interest expense for the second quarter of 2002 was $77
thousand compared to $0.4 million in the second quarter of 2001. On April 8,
2002, we redeemed our 6.5% Convertible Subordinated Debt, which resulted in a
reduction of $1.3 million in interest expense for the second quarter of 2002. In
addition, bank debt, that had been outstanding in the average amount of $25.2
million in the second quarter of 2001, was repaid in September 2001 from a
portion of the cash proceeds from the sale of the majority of the antibody
business in September 2001. Interest expense for the second quarter of 2001
reflects the capitalization of incurred interest related to construction of our
biopharmaceutical manufacturing facility in Boca Raton, Florida. The FDA's
approval of our facility to manufacture Nabi-HB was received in October 2001 and
we ceased capitalizing interest related to the construction of this facility at
that time. Capitalized interest relating to construction of our
biopharmaceutical manufacturing facility was approximately $1.6 million for the
quarter ended June 30, 2001.
OTHER FACTORS. The provision for income taxes was $0.3 million for the second
quarter of 2002 compared to a provision of $79 thousand in the second quarter of
2001. This represents a 26% effective tax rate in the second quarter of 2002,
which differs from the statutory rate of 35% due to our expectation of realizing
a current year tax benefit from the use of research and development tax credits.
The 26% effective tax rate for 2002 differs from the 6% effective tax rate for
2001 primarily due to the utilization of net operating loss carryforwards during
2001.
FOR THE SIX MONTHS ENDED JUNE 29, 2002 AND JUNE 30, 2001
SALES. Sales for the first six months of 2002 were $91.8 million compared to
$125.5 million for the first six months of 2001, a decrease of $33.7 million or
27%. This decrease reflects the sale of the majority of the antibody business in
September 2001.
12
Biopharmaceutical sales in the first six months of 2002 were $40.1 million
compared to $34.0 million in the first half of 2001, an increase of 18%. Sales
of each of Nabi-HB, Aloprim and Autoplex T increased from the comparable period
of 2001. Sales of WinRho SDF were essentially even for the six months of 2002
and 2001, respectively. Sales of Nabi-HB increased 22% in the first six months
of 2002 compared to the first six months of 2001. Based on our review of
internally and externally generated end-user or sell through data, we believe
there continues to be increased end-user demand for Nabi-HB. This increased
end-user demand combined with our success in decreasing inventory levels of
Nabi-HB at wholesalers and distributors in the fourth quarter of 2001 resulted
in the reported sales increase in the first six months of 2002. During the
fourth quarter of 2001, we reduced inventory levels of Nabi-HB with distributors
and wholesalers in preparation for the transition to product manufactured at our
Boca Raton manufacturing facility. Sales of product manufactured in our Boca
Raton facility commenced in the first quarter of 2002 with approval from the FDA
of the initial production lots from the facility. Sales of WinRho SDF in the
first six months of 2002 were negatively impacted by high levels of sales for
this product in the latter part of 2001 as wholesalers increased their inventory
levels in anticipation of price increases after year-end. Sales of Aloprim and
Autoplex benefited from improved product supply from the manufacturers of these
products in the first six months of 2002. Sales of Aloprim have been limited in
recent periods due to limited product supply from the manufacturer of the
product. During the second quarter of 2002 we received two back ordered lots of
Aloprim, which, combined with the continuation of a positive trend for patient
use of Aloprim, resulted in a greater than two-fold increase in sales from the
comparable period of 2001. Sales of Aloprim in future periods will be affected
by product supply from the manufacturer. Based on the current manufacturing
schedule we do not anticipate additional shipments of Aloprim in 2002.
Consequently, future sales of Aloprim in 2002 will likely be limited to
inventory on hand at Nabi Biopharmaceuticals as of June 29, 2002.
Total antibody sales for the first six months of 2002 were $51.6 million
compared to $91.5 million in the comparable period of 2001. This decrease
reflects the sale of the majority of the antibody business in September 2001.
Non-specific antibody sales include shipments under a supply contract, which was
retained by Nabi Biopharmaceuticals and expires in May 2003. The purchaser of
the majority of the antibody business supplied us non-specific antibodies
totaling $27.6 million in the first six months of 2002 which we then sold to the
customer under this contract and for which we earned no gross margin.
GROSS MARGIN. Gross margin for the first six months of 2002 was $30.6 million,
or 33% of sales, compared to $31.0 million, or 25% of sales, in the first six
months of 2001. This increase was driven by the higher proportion of
biopharmaceutical product sales to total sales in the first six months of 2002
compared to the first six months of 2001. Offsetting the positive gross margin
impact of increased biopharmaceuticals sales were the sale of the majority of
our antibody business in September 2001 and excess plant capacity costs of $2.1
million. In its initial periods of operation, the manufacturing capacity of the
Boca Raton facility will not be fully utilized and costs and expenses related to
excess manufacturing capacity will be expensed as cost of products sold. Because
the plant was not licensed and operating until the fourth quarter of 2001, the
results for the first six months of 2001 do not include any charges for excess
plant capacity. Product supply from the manufacturer of Autoplex T continued to
be below product supply minimums established by contract. As a result of product
supply shortfalls, gross margin benefited from a contractual non-performance
penalty payment of $1.7 million in the first six months of 2002 compared to $0.9
million in the first six months of 2001. Royalty expense as a percentage of
biopharmaceutical sales was essentially even in the first six months of 2002
compared to the first six months of 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $19.4 million, or 21% of sales, for the six months ended June 29,
2002 compared to $20.0 million, or 16% of sales, in the six months ended June
30, 2001. General and administrative expense in the first six months of 2002
included a bad debt write-off of $0.4 million related to the antibody business
as well as increased insurance and consulting expenses. These cost increases
have been more than offset by reductions in costs following the sale of the
majority of the antibody business in September 2001. Our selling expense is
primarily focused on the biopharmaceutical segment of our business and was not
impacted by the sale of the majority of the antibody business in September 2001.
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RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $9.3
million, or 10% of sales, for the first six months of 2002 compared to $6.9
million, or 5% of sales, in the first six months of 2001. In the first six
months of 2002, 42% of the research and development expense supported projects
related to the development of our Gram-positive infections program. These
projects included the booster trial of StaphVAX, which results were announced in
June 2002, and costs to continue the transfer of the manufacturing process for
StaphVAX to the commercial manufacturer's facility. In addition, increased
research and development spending was incurred for the production of Civacir for
use in clinical trials of that product, the continued development of NicVAX,
which entered into initial human clinical trials in June, and for future trials
of Altastaph, which are scheduled for later this year.
INTEREST INCOME. Interest income for the six months ended June 29, 2002 was $893
thousand compared to $13 thousand for the six months ended June 30, 2001. The
increase reflects interest income from the net cash proceeds from the sale of
the majority of the antibody business in September 2001.
INTEREST EXPENSE. Interest expense for the first six months of 2002 was $1.9
million compared to $0.9 million in the first six months of 2001. On April 8,
2002, we redeemed our 6.5% Convertible Subordinated Debt which resulted in a
reduction of $1.3 million in interest expense for the first half of 2002. In
addition, our bank debt, that had been outstanding in the average amount of
$24.4 million in the first six months of 2001, was repaid in September 2001 from
a portion of the cash proceeds from the sale of the majority of the antibody
business in September 2001. Interest expense for the first six months of 2001
reflects the capitalization of incurred interest related to construction of our
biopharmaceutical manufacturing facility in Boca Raton, Florida. The FDA's
approval of our facility to manufacture Nabi-HB was received in October 2001 and
we ceased capitalizing interest related to the construction of this facility at
that time. Capitalized interest relating to construction of our
biopharmaceutical manufacturing facility was approximately $3.2 million for the
six months ended June 30, 2001.
OTHER FACTORS. The provision for income taxes was $62 thousand for the first six
months of 2002 compared to a provision of $0.1 million in the first six months
of 2001. This represents a 28% effective tax rate in the first six months of
2002, which differs from the statutory rate of 35% due to our expectation of
realizing a current year tax benefit from the use of research and development
tax credits. The 28% effective tax rate for 2002 differs from the 6% effective
tax rate for 2001 primarily due to utilization of net operating loss
carryforwards during 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 29, 2002 were $46.7 million compared to $131.2
million at December 29, 2001.
Cash used by operations for the six months ended June 29, 2002 was $1.1 million.
Interest on the 6.5% Convertible Subordinated Notes (the "Notes") prior to their
redemption on April 8, 2002, a reduction in trade accounts payable and accrued
compensation earned in 2001 but paid in 2002 were the primary uses of cash by
operations.
Investing activities included capital expenditures of $3.4 million for the six
months ended June 29, 2002 principally related to our Rockville, Maryland
research and development operations, antibody center operations and computer
information systems. We also incurred $1.3 million related to the acquisition of
a Manufacturing Right at the facility that will be used to manufacture StaphVAX
at commercial scale. The acquired Manufacturing Right is recorded in Intangible
Assets in our financial statements. At June 29, 2002, we had commitments of $0.8
million for future capital expenditures as well as a commitment of $0.7 million
under the current contract relating to the acquisition of the right to
manufacture StaphVAX at commercial scale at the Dow facility. Under this
contract, the facility was originally scheduled to be ready to manufacture
StaphVAX in October 2002. We expect to modify our contract with the owner of
this facility in order to complete readying the Dow facility for its intended
use, the commercial manufacture of StaphVAX. This modification will require us
to make significant additional payments relating to the acquisition of the
Manufacturing Right.
14
Cash outflows from financing activities in the first six months of 2002
consisted of the redemption of the Notes totaling $78.5 million and repurchase
of common stock in the amount of $0.9 million under a stock buy back program
approved by our Board of Directors. Cash inflows of $0.7 million were received
from the exercise of employee stock options.
On September 19, 2001, our Board of Directors approved the expenditure of up to
$5.0 million to repurchase shares of our common stock in the open market or in
privately negotiated transactions. Repurchases will allow us to have treasury
stock available to support our stock option and stock purchase programs. In the
six months ended June 29, 2002, we acquired 171,483 shares of Nabi
Biopharmaceuticals stock for $0.9 million under this program. In total we have
acquired 345,883 shares of Nabi Biopharmaceuticals stock for a total of $1.9
million since the inception of this buy back program. Repurchased shares have
been accounted for as treasury stock. We will evaluate market conditions in the
future and make decisions to repurchase additional shares of our common stock on
a case by case basis.
Our credit agreement provides for a revolving credit facility of up to $45.0
million, subject to certain borrowing base restrictions, and a $5.0 million term
loan. The credit agreement is secured by substantially all of our assets,
requires the maintenance of certain financial covenants and prohibits the
payment of dividends. At June 29, 2002, we had no borrowings under the revolving
credit facility or the term loan and availability under this credit facility was
$22.3 million. The credit agreement matures on September 12, 2002. We intend to
replace this credit agreement when it ends.
We believe that cash flow from operations and cash and cash equivalents on hand,
together with our ability to borrow funds should the need arise, will be
sufficient to meet our anticipated cash requirements for at least the next
twelve months.
CRITICAL ACCOUNTING POLICIES
Property, Plant and Equipment and Depreciation
We incurred $90.3 million to construct our biopharmaceutical manufacturing
facility in Boca Raton, Florida and received approval to manufacture our own
antibody-based therapy, Nabi-HB, at this facility from the FDA in October 2001.
In constructing the facility for its intended use, we incurred approximately
$26.8 million in direct costs of acquiring the building, building systems,
manufacturing equipment and computer systems. We also incurred a total of $63.5
million of costs related to validation of the facility to operate in an FDA
approved environment and capitalized interest. Costs related to validation and
capitalized interest have been allocated to the building, building systems,
manufacturing equipment and computer systems. Buildings and building systems are
depreciated on a straight-line basis over 39 years and 20 years, respectively,
the estimated useful lives of these assets. The specialized manufacturing
equipment and computer systems are depreciated using the units-of-production
method of depreciation. The units-of-production method of depreciation is based
on management's estimate of production levels. Management believes the
units-of-production method is appropriate for these specialized assets. Use of
the units-of-production method of depreciation may result in significantly
different financial results of operation than straight-line depreciation in
periods of lower than average or higher than average production levels. However,
this differential is limited in periods of lower than average production, as we
record a minimum of 60% of the depreciation that would have otherwise been
recorded had we used the straight-line method.
15
Intangible Assets
In 2000 we entered into a contract manufacturing agreement with Dow
Biopharmaceutical Contract Manufacturing (formerly Collaborative BioAlliance)
("Dow") to establish commercial manufacturing capability for StaphVAX. The
manufacturing process for StaphVAX is being transferred to Dow from our pilot
manufacturing plant in Rockville, Maryland. The contract manufacturing agreement
requires us to make certain payments to Dow to prepare the Dow facility for the
future manufacture of StaphVAX and to ensure that we have access to commercial
vaccine manufacturing capacity in the future. These payments are recorded as a
Manufacturing Right and included in Intangible Assets. Amortization of the
Manufacturing Right will commence when commercial manufacture of StaphVAX
commences at Dow. As of June 29, 2002, the Manufacturing Right was $6.0 million.
FORWARD LOOKING STATEMENTS
The part of this Quarterly Report on Form 10-Q captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains certain forward-looking statements, which involve risks and
uncertainties. These statements are based on current expectations, estimates and
projections about the industries in which we operate, management's beliefs and
assumptions made by management. Readers should refer to a discussion under
"Factors to be Considered" contained in our Annual Report on Form 10-K for the
year ended December 29, 2001 concerning certain factors that could cause our
actual results to differ materially from the results anticipated in such
forward-looking statements. Said discussion is hereby incorporated by reference
into this Quarterly Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not engage in trading market risk sensitive instruments or purchasing
hedging instruments or "other than trading" instruments that are likely to
expose us to significant market risk, whether interest rate, foreign currency
exchange, commodity price or equity price risk. Our primary market risk exposure
is that of interest rate risk on investments, which are subject to interest
rates based on market conditions. At June 29, 2002, we had cash and cash
equivalents of $46.7 million on hand.
INTEREST RATE RISK. Our outstanding revolving credit facility and term loan are
sensitive to changes in U.S. interest rates, specifically the U.S. prime lending
rate, and expire in September 2002. Outstanding variable rate debt under the
revolving credit facility at June 29, 2002 was zero.
On April 8, 2002, we redeemed our 6.5% Convertible Subordinated Notes (the
"Notes") aggregating $78.5 million. The Notes were redeemed for cash at 100% of
the principal balance plus accrued interest through April 8, 2002. The Notes had
an original maturity date of February 1, 2003. In conjunction with the
notification made to the holders on March 15, 2002, we recorded $0.4 million for
the write-off of loan origination fees in the first quarter of 2002.
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PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matter was approved at our annual stockholder's meeting, which was
held on May 17, 2002.
(a) Election of the following to the Board of Directors:
Votes
--------------------------------
Director For Withheld
-------- ---------- ---------
David L. Castaldi 36,076,760 333,539
Geoffrey F. Cox 36,072,920 337,379
George W. Ebright 36,035,590 374,709
David J. Gury 33,858,503 2,551,796
Richard A. Harvey, Jr. 36,017,591 392,708
Linda Jenckes 36,106,838 303,461
Thomas H. McLain 34,007,090 2,403,209
Stephen G. Sudovar 36,043,883 366,416
ITEM 5. OTHER EVENTS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.51 Certification of Chief Executive Officer and Chief Financial Officer
under Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
None.
17
Nabi Biopharmaceuticals
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NABI BIOPHARMACEUTICALS
Date: August 12, 2002 By: /s/ Mark L. Smith
-------------------------------------
MARK L. SMITH
Senior Vice President, Finance,
Chief Financial Officer,
Chief Accounting Officer and Treasurer
18