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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
From the transition period from _________________ to _________________
Commission file number 0-4829-03
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NABI
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(Name of Registrant)
Delaware 59-1212264
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(State or Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification Number
5800 Park of Commerce Boulevard N.W., Boca Raton, Florida 33487
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Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
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 12 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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 25, 1998, 34,893,934 shares of common stock were
outstanding, of which 33,324,917 shares were held of record by non-affiliates.
The aggregate market value of shares held by non affiliates was approximately
$108,305,980 based on the closing price per share of such common stock on such
date as reported by the Nasdaq National Market.
Documents Incorporated by Reference
Portions of Nabi's definitive Proxy Statement for its annual meeting of
shareholders which Nabi intends to file within 120 days after the end of Nabi's
fiscal year ended December 31, 1997 are incorporated by reference into Part III
hereof as provided therein.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Nabi is a research and development driven biopharmaceutical company making and
marketing unique products for people with life threatening conditions. Nabi
possesses a broad portfolio of therapeutic products and vaccines to treat and
prevent infectious diseases and immune disorders. Nabi's product portfolio
includes three products approved by the United States Food and Drug
Administration (the "FDA") and nine main products across four classes in
development, including four products in clinical trials. Nabi has completed
construction and is in the process of validating a new biopharmaceutical
manufacturing facility designed to process plasma into therapeutic products. In
addition, Nabi is one of the world's largest suppliers of source plasma and
specialty plasmas which are sold to pharmaceutical and diagnostic companies.
Some of the plasma that Nabi collects also is used to manufacture Nabi's
proprietary products. Nabi collects plasma from an extensive donor base through
71 collection centers in the United States and four collection centers in
Germany. During 1996 and 1997 Nabi collected and processed approximately
2,322,000 and 2,274,000 liters of plasma, respectively. In addition, Nabi
manufactures and markets human-blood and plasma-based diagnostic products and
provides testing services on plasma and blood samples for third parties.
Nabi intends to achieve its objective of becoming a leader in the development
and marketing of proprietary therapeutic products and vaccines by expanding its
therapeutics franchise to include new antiviral and antibacterial products,
developing unique vaccines targeted to significant niche markets, developing its
own manufacturing capabilities, and continuing to optimize its plasma business
through sales of higher-margin specialty products. Nabi has combined its
expertise in the plasma business and the revenues and critical raw materials
generated by that business with a research and development team of more than 100
people capable of developing multiple product opportunities simultaneously and
bringing products through the clinical development and FDA approval processes.
Nabi has a diverse portfolio of plasma-based therapeutic products, such as
H-BIG(R), H-BIG(R) IV, WinRho SDF(TM), Autoplex(R)T, Nabi-Altastaph(TM)
(formerly StaphGAM), Nabi-Altastaph(TM)+ and, Nabi-Civacir(TM) (formerly H-CIG)
for immediate short-term protection against autoimmune and infectious diseases
and their associated complications. Nabi is also developing vaccines, such as
Nabi-StaphVAX(TM) and Nabi-StaphVAX(TM)+, to be used both as stand-alone
vaccines and as immunizing agents in plasma donors to produce purified human
antibodies for its antibody-based therapeutic products. The therapeutics
franchise has further diversified with the addition of small molecule nucleoside
analogs, such as Nabi-Cytera(TM).
MARKETED PRODUCTS
THERAPEUTIC PRODUCTS
Revenue generated by Nabi's therapeutic products has almost doubled since 1995.
Sales of these products grew 31% from $26.4 million in 1996 to $34.5 million in
1997. Nabi is currently marketing three therapeutic products approved by the
FDA: H-BIG(R), WinRho SDF(TM) and Autoplex(R)T. These products are described
below:
H-BIG(R)
Despite the availability of hepatitis B vaccines, hepatitis B infection has
spread rapidly and now affects an estimated 300 million people worldwide. The
Centers for Disease Control and Prevention (the "CDC")
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recommends that newborn infants of mothers who are hepatitis B-positive be
inoculated with both hepatitis B immune globulin and a hepatitis B vaccine.
H-BIG(R) is an intramuscular, human polyconal antibody product used following
exposure by blood transfusion, accidental ingestion, transmission from a
hepatitis B antigen-positive mother or sexual exposure. H-BIG(R), which has been
marketed since 1977, was the first hepatitis B plasma-based therapeutic product
to be licensed by the FDA. Nabi has marketed H-BIG(R) since September 1992 when
it acquired the product from Abbott Laboratories ("Abbott"). See "-Strategic
Alliances, Licenses and Royalty Obligations".
WinRho SDF(TM)
WinRho SDF(TM) is a human polyconal antibody product approved for the treatment
of Idiopathic Thrombocytopenia Purpura ("ITP") and for the suppression of Rh
isoimmunization. ITP is an autoimmune blood disorder characterized by abnormally
low platelet levels due to platelet destruction by the patient's own immune
system. Because platelets are required for blood clotting, the disorder can
result in uncontrolled bleeding, either spontaneously or in response to trauma.
In certain cases, such as severe trauma or spontaneous intracranial hemorrhage,
the bleeding can be life-threatening. ITP can occur as either a primary disease,
with no other associated condition, or secondary to another underlying disease,
such as HIV infection or lupus. Unless associated with HIV infection, ITP in
children is generally an acute condition which does not generally become
chronic. In adults, whether primary or secondary to HIV infection, the disease
is usually chronic in nature.
Nabi began exclusive marketing of WinRho SDF(TM) in the United States in
mid-1995 under a license and distribution agreement with Cangene Corporation.
WinRho SDF(TM) for the treatment of ITP has been designated an Orphan Drug. In
1997, Nabi initiated two Phase IV clinical trials for WinRho SDF(TM) and will
add another Phase IV trial in 1998 for the following indications: acute
pediatric ITP, splenectomy sparing in chronic ITP of adults and refractory
platelet alloimmunization. See "-Strategic Alliances, Licenses and Royalty
Obligations" and "-Government and Industry Regulation-Orphan Drug Act".
AutoPlex(R)T
AutoPlex(R)T is a complex of blood coagulation factors derived from plasma and
used to treat hemophilia A patients who have developed antibodies (inhibitors)
to Factor VIII, the standard therapy for people suffering from hemophilia A. In
May 1997, Nabi acquired certain assets associated with the product sales of
AutoPlex(R)T and obtained exclusive marketing rights for this product in the
United States, Canada and Mexico from Baxter Healthcare Corporation ("Baxter").
PLASMA PRODUCTS
Source Plasma
Nabi is one of the world's largest suppliers of human blood plasma to the
pharmaceutical and diagnostic industries. During 1996 and 1997, Nabi derived
revenues of $121.0 million and $135.3 million, respectively, from the sale of
source plasma, representing 58.2% and 71.3%, respectively, of Nabi's total
revenues from the sale of plasma.
Plasma is the liquid portion of blood which contains various proteins, as
distinguished from formed elements of the blood such as red blood cells, white
blood cells and platelets. Plasma is composed of several primary proteins
including: albumin, anti-hemophilic factor ("AHF") VIII and IX, and immune
globulin. After collection from donors, plasma is fractionated into these
purified proteins. The therapeutic market for these proteins drives overall
demand for plasma. The primary uses of these proteins are as follows:
o Albumin is the protein used to restore plasma volume subsequent to shock,
trauma, surgery and burns.
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o AHF VIII and IX are the clotting factors in plasma used to treat hemophilia
A and B as well as other clotting disorders.
o Immune globulin is the component of plasma, also known as antibodies, which
helps the body to fight or prevent disease. Therapeutic uses of standard
immune globulin from source plasma include the treatment of pediatric HIV,
bone marrow transplantation, B cell chronic lymphocytic leukemia,
hypogammaglobulinemia, Kawasaki syndrome and other chronic immune
deficiencies.
Specialty Plasma
During 1996 and 1997, Nabi derived revenues of $86.8 million and $54.3 million,
respectively, from the sale of specialty plasma, representing 41.8% and 28.7%,
respectively, of Nabi's total revenues from the sale of plasma.
Plasma which contains high concentrations of specific antibodies is known as
specialty plasma and is distinguished from source plasma, which has normal
concentrations of antibodies. Specialty plasma is used primarily to manufacture
hyperimmune globulins which are used to bolster the immunity of patients to help
fight a particular infection or to treat certain immune system disorders.
Following advances in intravenous immune globulin therapy in the mid-1980s, use
of specialty plasmas to generate therapeutic immune globulin products
significantly increased. Among the current uses for specialty plasmas are the
production of hyperimmune globulins to prevent or treat exposure to hepatitis A
and B, cytomegalovirus ("CMV"), tetanus and rabies and production of products to
treat ITP and Rh incompatibility in newborns. Specialty plasmas and hyperimmune
globulins derived from them are also used for diagnostic and tissue culture
purposes. Like source plasma, specialty plasma is fractionated into its
component proteins and the resulting hyperimmune globulin fraction is used to
manufacture therapeutic products.
Nabi identifies potential specialty plasma donors through internal screening and
testing procedures. Nabi also has developed FDA-licensed programs to vaccinate
potential donors to stimulate their production of specific antibodies. Through
Nabi's nationwide operations and access to its large and diverse donor base of
approximately 300,000 individuals, Nabi believes it has a strategic advantage in
its ability to collect specialty plasmas.
Nabi's principal specialty plasmas include:
o ANTI-D PLASMA. Specialty plasma containing anti-D antibodies has long been
used when there is a mismatch between a mother's Rh factor and that of her
fetus. Plasma collected from donors who have natural levels of anti-D or
who have been vaccinated to raise their anti-D levels is used to make
products to protect the infant. Nabi has proprietary donor stimulation and
management programs which enhance its ability to increase collection of
anti-D plasma. WinRho SDF(TM), a therapeutic product that Nabi markets in
the U.S. for the treatment of ITP, is also produced from anti-D plasma.
o ANTI-HEPATITIS B PLASMA. Nabi provides specialty plasma containing high
levels of antibodies to hepatitis B virus to manufacturers of hepatitis B
immune globulin therapeutic products which provide passive immunity against
hepatitis B virus. This specialty plasma collected by Nabi is also used to
produce H-BIG(R), Nabi's propriety hepatitis B therapeutic product. Nabi
believes that its proprietary donor stimulation and donor management
programs generally allow Nabi to produce anti-hepatitis B plasma having a
higher concentration and broader specificity than competing products.
o CMV PLASMA. Many individuals have been exposed to CMV. By screening its
large donor population, Nabi can identify individuals with high
concentrations of CMV antibodies in their plasma, and can supply the plasma
to product manufacturers to enhance intravenous products and to produce
CMV-specific immune globulin therapeutic products.
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o RABIES PLASMA. Nabi is a major supplier of specialty plasma enriched in
antibodies to rabies virus. Rabies plasma is used by manufacturers to make
therapeutic products which provide a short-term protective antibody
immunity to patients exposed to the rabies virus.
o RESPIRATORY SYNCYTIAL VIRUS ("RSV") PLASMA. Many individuals have been
exposed to RSV during childhood. By screening its large donor population,
Nabi can identify individuals with high concentrations of RSV-specific
antibodies in their plasma. This plasma is supplied to the major
manufacturers of RSV immune globulin therapeutic product. RSV is the
leading cause of lower respiratory tract infections in infants and young
children.
o TETANUS PLASMA. Nabi is a major supplier of specialty plasma enriched with
antibodies to tetanus toxin. Manufacturers use tetanus plasma to produce
therapeutic products which provide short-term protective immunity to
patients exposed to tetanus.
DIAGNOSTIC PRODUCTS AND SERVICES
Nabi is a supplier of infectious disease quality assurance and specialty
plasma-based products to in-vitro diagnostic ("IVD") manufacturers, regulatory
agencies and testing laboratories. Nabi's seroconverter panels and
reactive/disease-state plasmas are utilized by IVD manufacturers in the
development and production of blood screening assays. Nabi also offers a
clinical trial service to assist IVD manufacturers with regulatory submissions.
Regulatory agencies in the U.S. and Europe also use Nabi's diagnostic products
to evaluate test kits for licensure. Once test kits reach the end-user testing
laboratory, Nabi's ViroSure external run controls and proficiency panels are
used to assure accurate testing for blood screening and infectious disease
diagnostics.
THERAPEUTIC PRODUCTS UNDER DEVELOPMENT
Nabi is developing products for the prevention and treatment of infectious
diseases and their associated complications through activation and targeting of
the human immune system. Nabi is focusing a portion of its efforts on
hyperimmune globulin products which are produced from specialty plasma and which
contain a rich mixture of specific antibodies produced by healthy donors
naturally or in response to exposure to immunization. These highly purified,
human polyconal antibodies are administered to provide passive immunity against
infection in immune-compromised patients who cannot respond to a vaccine or
patients who are immediately at risk and therefore do not have time to mount
their own antibody response to vaccination. The use of plasma-derived antibody
products increased in the mid-1980's as a result of the development of
intravenous formulations which made administration of larger therapeutic doses
practical for a broad range of specific diseases. As a result, immune globulin
therapy has become a growing part of medical practice.
Nabi also is developing vaccines to be used both as immunizing agents in plasma
donors to produce antibodies for therapeutic products and as stand-alone
vaccines for long-term protection against infection in at risk populations. Nabi
is initially concentrating its vaccine development efforts on vaccines for
bacterial infections, particularly those that are hospital acquired or
associated with chronic disease. Nabi believes there may also be areas outside
of infectious diseases, for example, in the prevention and treatment of nicotine
addiction, for which conjugate vaccine technology may be applied.
Nabi has the research and development expertise and intellectual property to
develop bacterial vaccines based on carbohydrates, proteins and
carbohydrate/protein conjugates. Nabi's specific capabilities in the development
of bacterial vaccines include, among others: broad expertise in the immunology,
pathology and epidemiology associated with bacterial infections; the
identification, purification and characterization
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of bacterial antigens; the development of animal models of infection and the
development of assays and manufacturing processes.
Nabi is developing a broad product line that includes nine main products across
four product classes, including four products in clinical trials. These products
are described below:
POTENTIAL APPLICATIONS
PRODUCTS (PRODUCT TYPE) STATUS
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H-BIG(R) IV Prevention of hepatitis B reinfection Pivotal clinical trial scheduled
in liver transplant patients for 1998.
(inmune globulin).
WINRHO SDF(TM) Prevention of alloimmune Phase IV clinical trial in progress.
conditions, expansion of use
in ITP (immunoglobulin).
NABI-ALTASTAPH(TM) Prevention of Staphylococcus Donor stimulation in progress;
aureus infections (immune globulin). Phase I/II clinical trials underway.
NABI-STAPHVAX(TM) Prevention of S. AUREUS infections (vaccine). Phase II clinical trial completed;
follow-on dosing studies in
hemodialysis patients completed,
Phase III study in hemodialysis
patients scheduled to begin
first Quarter of 1998.
NABI-CIVACIR(TM) Prevention of hepatitis C virus- reinfection Preclinical primate
in liver transplant patients, post- studies underway.
exposure prophylaxis & treatment
of chronic hepatitis C virus infection
(immune globulin).
NABI-ALTASTAPH(TM)+ Prevention of S. AUREUS, S. EPIDERMIDIS Preclinical
infections and enterococcal infections
(immune globulin).
NABI-STAPHVAX(TM)+ Prevention of S. AUREUS AND S. EPIDERMIDIS Preclinical
and enterococcal infections (vaccine).
NABI-NIC VAX(TM) Prevention and treatment of nicotine Preclinical
addiction associated with tobacco use
(vaccine).
NABI-CYTERA(TM) Treatment of viral infections & cancer Preclinical
(ring expanded nucleoside analogs).
OTHER VACCINES & Various Preclinical
OTHER ANTI-MICROBIALS
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H-BIG(R) IV
Chronic hepatitis B infections can cause a deterioration of the liver, resulting
in the need for liver transplantation. Of the 126 liver transplant centers in
the U.S., only 65 currently transplant hepatitis B ("HBV") infected patients,
because historically these patients were susceptible to HBV reinfection.
However, with the use of H-BIG(R), reinfection can be significantly delayed or
prevented thus allowing more patients with HBV-induced liver failure to be
transplanted. Nabi considers this patient population a significant opportunity.
There are no products similar to H-BIG(R) IV available in the United States. In
Europe, however, certain manufacturers are currently producing substantially
similar products. If H-BIG(R) IV proves successful and receives FDA approval,
and subsequent approval in the United States medical community results in the
relaxation of prohibitions against conducting liver transplants in hepatitis B
patients, management believes that the number of hepatitis B patients receiving
liver transplants could increase.
Nabi believes treatment with H-BIG(R) IV will greatly reduce the risk of
hepatitis B re-infection in liver transplant patients by providing the patient
with additional resistance to the disease and therefore will increase the number
of liver transplants given to hepatitis B patients. Prevention of hepatitis B
reinfection is likely to require a series of intravenous treatments with large
amounts of H-BIG(R) IV during and immediately following transplantation and
maintenance doses for extended periods of undetermined length, compared to
current indications for H-BIG(R) which require only a single intramuscular
injection of a small amount of antibody. Such large doses of H-BIG(R) IV are
anticipated because liver transplant patients receive large quantities of drugs
that suppress the immune system to prevent rejection of their transplanted
organs. As a result, hepatitis B patients require large amounts of antibody in
order to neutralize the infectious virus produced BY VIRONS that persist in
non-hepatic replication sites.
Nabi is continuing human clinical trials during 1998 to study the safety and
pharmacokinetic tests in liver transplant patients. H-BIG(R) IV has been granted
Orphan Drug status as a prophylaxis against hepatitis B reinfection in liver
transplant recipients. See "-Government and Industry Regulation - Orphan Drug
Act".
WINRHO SDF(TM)
WinRho SDF(TM) is a human polyconal antibody product designed for the treatment
of ITP and the suppression of Rh isoimmunization. ITP is a blood disorder
characterized by abnormally low platelet levels due to platelet destruction by
the patient's own immune system. Because platelets are required for blood
clotting, the disorder can result in uncontrolled bleeding, either spontaneously
or in response to minor trauma. In certain cases, such as severe trauma or
spontaneous intracranial hemorrhage, the bleeding can be life-threatening. ITP
can occur as either a primary disease, with no other associated condition, or
secondary to another underlying disease, such as HIV infection or lupus. In
1997, Nabi initiated two Phase IV clinical trials for WinRho SDF(TM) and will
add another Phase IV trial in 1998 for the following indications: acute
pediatric ITP, splenectomy sparing in chronic ITP of adults and refractory
platelet alloimmunization. See "-Strategic Alliances, Licenses and Royalty
Obligations" and "-Government and Industry Regulation-Orphan Drug Act".
NABI-STAPHVAX(TM) AND NABI-ALTASTAPH(TM)
Staphylococci, especially Staphylococcus aureus ("S. AUREUS") and Staphylococcus
epidermidis ("S. EPIDERMIDIS"), are an increasingly important cause of serious
bacterial infections in hospitalized patients and patients with chronic disease.
In addition, staphylococci continue to acquire antibiotic resistance at an
alarming rate in all clinical settings.
It is currently estimated that 40% of the S. AUREUS infections and 60% of the S.
EPIDERMIDIS infections occurring in large, urban U.S. hospitals are resistant to
every antibiotic except vancomycin. As well, during the past 6 months, cases of
S. AUREUS with notably reduced sensitivity to vancomycin were
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reported in Japan and the United States. The Nabi-StaphVAX(TM) and
Nabi-Altastaph(TM) products rely on a different mechanism of action than those
of systemic antibiotics, therefore it is believed that prophylactic use of these
products will not be prone to the selection of resistant mutants.
Nabi is developing two products for the prevention and treatment of S. AUREUS
infections. Nabi-StaphVAX(TM) is a capsular polysaccharide-based glycoconjugate
vaccine which targets the two S. AUREUS serotypes (Type 5 and Type 8)
responsible for over 85% of S. AUREUS infections. This bivalent vaccine is a
carbohydrate/protein conjugate based on patented vaccine technology in-licensed
by Nabi from the National Institute of Health ("NIH"). See "-Strategies
Alliances, Licenses and Royalty Obligations". Nabi-Altastaph(TM) is a specific
polyclonal antibody product that contains high levels of antibodies against S.
AUREUS Type 5 and Type 8. It is produced by immunizing healthy plasma donors
with Nabi-StaphVAX(TM) then purifying immunoglobulin from pooled donor plasma.
Nabi-StaphVAX(TM) is directed at patients who are at high risk of infection over
an extended period of time and who are immunocompetent and thus able to respond
to a vaccine. The initial clinical target is kidney hemodialysis patients who
are at high risk of S. AUREUS infections due to their vascular access grafts.
Other potential clinical targets for Nabi-StaphVAX(TM) include: (a) at risk
patients who are expected to have long stays in medical facilities; (b) patients
undergoing planned cardiac surgery who can be vaccinated in advance and in whom
staphylococcal infections can have serious consequences; (c) prosthetic surgery
and vascular graft patients whose implants are at long-term risk of
staphylococcal infections; and (d) patients undergoing any other planned
surgery. Nabi began Phase III clinical studies of Nabi-StaphVAX(TM) in
hemodialysis patients early in 1998. This trial uses Nabi-StaphVAX(TM)
formulated to provide higher levels of protective antibodies in
immunocompromised patients, such as those undergoing renal dialysis.
Recently, Nabi identified a serotype of S. AUREUS (type 336) that accounts for
over 90% of non-type 5 and non-type 8 S. AUREUS clinical infections. The company
has identified, purified and characterized a polysaccharide from type 336 S.
AUREUS and has prepared a glycoconjugate vaccine that is capable of protecting
animals from challenge with clinical isolates of this serotype. A trivalent
Nabi-StaphVAX(TM) containing antigens to type 5, type 8 and type 336 antigens is
currently in evaluation in cattle for the prevention of S. AUREUS induced
mastitis. This study is being conducted under a Cooperative Research and
Development Agreement with the U.S. Department of Agriculture. Based on the
reactivity of antibodies to this trivalent vaccine with human clinical isolates
of S. AUREUS, this vaccine is expected to account for nearly all clinical
isolates of S. AUREUS. Nabi has applied for patents for type 336 antigen,
antibodies to type 336 and the use of type 336 antigen in vaccines. The company
plans to include type 336 antigen in the next generation of its
Nabi-StaphVAX(TM) product.
In contrast to Nabi-StaphVAX(TM), which is expected to provide long-term
immunological protection, Nabi-Altastaph(TM) is designed to provide immediate,
on demand protection for patients who are at high, short-term risk of infection
or who are immunocompromised and cannot respond effectively to a vaccine. This
type of prophylactic treatment is likely to be cost effective because
intravaneously administered polyclonal antibodies persist in the bloodstream for
several weeks, and a single dose may be sufficient to provide protection for the
entire risk period. High risk populations include low birth weight neonates,
trauma patients and surgical patients. Nabi began a Phase I/II trial in neonates
in early 1998.
Previous studies using either rats or mice in several different bacterial
challenge modes have demonstrated the efficacy of active immunization with
Nabi-StaphVAX(TM) and passive protection with Nabi-Altastaph(TM). In all
prophylactic settings studied, antibodies to Nabi-StaphVAX(TM), whether actively
or passively acquired, conferred statistically significant protection against
the relevant S. AUREUS challenge strains.
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NABI-CIVACIR(TM)
Nabi-Civacir(TM) is a human polyclonal antibody product derived from the plasma
of screened donors. It is designed to prevent hepatitis C virus reinfection in
liver transplant patients who test positive for hepatitis C antibody at the time
of transplant, as a potential adjunctive therapy in chronic hepatitis C
infection, and as a prophylaxis after needlestick injury. Approximately 40% -
50% of liver transplants are caused by liver complications resulting from
hepatitis C infections. Hepatitis C is not as imminently pathogenic as hepatitis
B; however, it does have significant economic impact because it causes chronic
infections in a significant percentage of those infected and contributes to
frequent hospitalizations when it occurs in liver transplant patients.
In 1998, Nabi initiated a series of chimpanzee studies of Nabi-Civacir(TM) in
collaboration with the U.S. Centers for Disease Control under a Cooperative
Research and Development Agreement. The studies will evaluate Nabi-Civacir(TM)
in this relevant animal model of hepatitis C virus infection. Preliminary data
from these studies to date show that Nabi-Civacir(TM) is able to delay the onset
of acute hepatitis in a challenged chimp. Additional studies are underway to
evaluate the ability of repeated doses of the drug to delay hepatitis
indefinitely. Pending results from the chimpanzee studies, Nabi plans to enter a
Phase I safety study with Nabi-Civacir(TM) iN late 1998. Nabi has applied for
Orphan Drug status for Nabi-Civacir(TM).
NABI-STAPHVAX(TM)+, NABI-ALTASTAPH(TM)+
Staphylococcus epidermidis and Enterococcus spp. are the next most clinically
common Gram positive bacterial infections after S. AUREUS. Because of this, Nabi
is developing a combination vaccine product, Nabi-StaphVAX(TM)+, that expands
coverage of Gram positive bacterial to include these pathogens. The S.
EPIDERMIDIS and enterococcal components of a combined staphylococcal and
enterococcal vaccine are undergoing preclinical testing and process development.
It recently has been shown that antibodies to these antigens are protective in
animal models and facilitate the killing of bacteria by white blood cells. In
addition, the S. EPIDERMIDIS antigens contained in this next generation vaccine
induce the formation of antibodies that recognize the S. EPIDERMIDIS strains
responsible for over 90% of S. EPIDERMIDIS infections. The company has filed
patent application in the S. EPIDERMIDIS and enterococcal antigens.
In connection with Nabi-StaphVAX(TM)+, Nabi plans to develop a second-generation
polyconal product, Nabi-Altastaph(TM)+, containing antibodies to both S. AUREUS
and S. EPIDERMIDIS. Development of this product will involve stimulating donors
with immunizing agents against both infections.
NABI-NIC VAX(TM)
The use of tobacco products has been associated with increased risk of heart and
lung disease and cancer world-wide. Addiction to nicotine as a result of tobacco
use has been identified as one of the major factors that prevent cigarette
smokers and other tobacco users from giving up this life-threatening activity.
Nabi has begun development of a vaccine against nicotine that is intended to be
used to prevent and treat nicotine addiction. Prototypic versions of the vaccine
induce high titers of nicotine-specific antibodies in vaccinated animals.
Studies evaluating the ability of the vaccine to prevent intake of nicotine into
the brain and to modify animal behavior in response to nicotine are underway.
Nabi believes that a nicotine vaccine that raises antibodies that bind nicotine
with high affinity can prevent nicotine addiction by blocking nicotine from
reaching drug receptors in the brain. The company also believes that Nabi-Nic
VAX(TM) can be an effective product for those attempting to give up tobacco use.
NABI-CYTERA(TM)
Nabi-Cytera(TM) is a new class of anti-viral therapeutics being developed from a
novel, proprietary technology developed at the University of Maryland and
licensed by Nabi. The technology permits the synthesis of so-called ring
expanded nucleoside (RENs) and nucleotide ("RENt) analogs with the potential for
antiviral and anti-tumor cell activity. Using this technology, a number of
active compounds have been
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prepared by Nabi through its collaboration with the University. A lead compound
has been selected for further development. This drug, called Nabi-Cytera(TM)-B
has been initially shown to have an acceptable cytotoxicity profile and to have
good activity and specificity against hepatitis B virus IN VITOR. Further
preclinical development of Nabi-Cytera(TM)-B is scheduled for 1998 in
preparation for studies in the highly relevant woodchuck hepatitis model planned
for later in the year". See "-Strategic Alliances, Licenses and Royalty
Obligations".
STRATEGIC ALLIANCES, LICENSES AND ROYALTY OBLIGATIONS
In its research and development and marketing programs, Nabi established
collaborations with several leading infectious disease specialists, university
laboratories, contract research companies and government laboratories. Nabi
believes that these collaborations will allow it to make efficient use of its
research resources and leverage the fundamental discoveries emerging from basic
research institutions throughout the United States.
Nabi's key strategic alliances are discussed below.
CANGENE CORPORATION
During 1997, Nabi entered into a co-promotion and supply agreement with Cangene
Corporation ("Cangene") under which Cangene will manufacture H-BIG(R) IV for
approximately three years. In addition, Cangene was granted exclusive marketing
rights for, and will share profits from sales of H-BIG(R) IV in Canada for three
years, provided Cangene achieves specified minimum annual sales levels.
Under a license and distribution agreement with Cangene, Nabi has exclusive
marketing rights for, and shares in the profits from sales of, WinRho SDF(TM) in
the United States. Cangene, which holds the FDA licenses for thE product, is
required to supply the necessary quantities of WinRho SDF(TM) to support such
sales. The Cangene agreement terminates in 2005, and requires Nabi to meet
specified sales goals and make specified payments to Cangene.
CHIRON DIAGNOSTICS CORPORATION
In November 1995, Nabi entered into an agreement with Chiron (the "Chiron
Agreement") pursuant to which Chiron has agreed to supply exclusively to Nabi
Chiron's CMV vaccine for use as an immunizing agent in humans to produce
immunotherapeutic products. The Chiron Agreement also grants Nabi options or
rights of first negotiation for exclusive rights to 14 other Chiron vaccines for
use in humans to produce immunotherapeutic products. In addition, the Chiron
Agreement grants Nabi access to Chiron's adjuvant, MF 59, for donor
immunization. Nabi will be responsible for all development, manufacturing and
worldwide distribution of these products. Nabi may terminate the Chiron
Agreement on a product-by-product basis in which event Nabi shall transfer to
Chiron all of Nabi's rights with respect to the product as to which the Chiron
Agreement has been terminated. Similarly, Chiron may terminate its obligations
to supply immunizing agents to Nabi on a product-by-product basis, in which
event Chiron shall grant to Nabi a license of the technology necessary for Nabi
to manufacture the applicable immunizing agent and the financial arrangements in
the Chiron Agreement with respect to such agent shall continue.
OTHER LICENSES AND ROYALTY OBLIGATIONS
As part of the purchase price for the H-BIG(R) product acquisition, Nabi is
obligated to pay Abbott a royalty based on net sales of H-BIG(R) through
September 2002. Nabi will also be obligated to pay a royalty to the New York
Blood Center, Inc. based upon net sales of its product manufactured with the
viral inactivation step, solvent detergent treatment.
Under a license agreement with the NIH, Nabi has exclusive rights to the NIH's
patent relating to a carbohydrate/protein conjugate vaccine against
Staphylococcus, and is obligated to pay the NIH a royalty
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based on net sales. The licensed patent rights cover Nabi-StaphVAX(TM) and
Nabi-Altastaph(TM) products. The license terminates with respect to each country
on the date that the NIH's patent rights expire in such country.
Under a license agreement with the University of Maryland, Nabi has exclusive
rights to patents relating to ring expanded nucleoside and nucleotide analogs,
and is obligated to pay the University a royalty based on net sales. The
licensed patent rights cover Nabi-Cytera(TM)'s products. The license terminates
with respect to each country on the date that the patent rights expire in such
country.
CUSTOMER RELATIONSHIPS
Nabi sells therapeutic products to wholesalers, distributors, home healthcare
companies and pharmacies. Nabi sells plasma to pharmaceutical and diagnostic
product manufacturers, most of which have been customers of Nabi for many years.
These customers constitute most of the worldwide purchasers of human blood
plasma.
Customers to which sales exceeded 10% of Nabi's annual consolidated sales in the
last three fiscal years ending December 31, 1997 were: Baxter, Bayer Corporation
("Bayer") and Immuno Trading AG ("Immuno") in 1995; Baxter; Bayer and Biotest
Pharma GmbH ("Biotest") in 1996; and Baxter and Bayer in 1997. Aggregate sales
of source and specialty plasma to these customers were approximately $92
million, $107 million and $93 million, or 47%, 45% and 41% of total sales for
the years ended December 31, 1995, 1996 and 1997, respectively.
Nabi generally sells its plasma under contracts ranging from one to five years
which allow for annual pricing renegotiations. Pricing for product deliveries is
generally mutually agreed to prior to the beginning of the contract year and
fixed for that year, subject to price changes to reflect changes in customer
specifications or price adjustments to compensate Nabi for increased costs
associated with new governmental testing regulations. Consequently, Nabi may be
adversely or beneficially affected if changes in donor fees or other costs of
producing and selling plasma rise or fall during the year.
SUPPLY AND MANUFACTURING
THERAPEUTICS
Nabi collects and supplies the specialty plasma necessary for the manufacture of
H-BIG(R). In 1997, Nabi entered into an agreement with Cangene pursuant to which
Cangene, subject to receiving FDA approval, will formulate, process and package
H-BIG(R). Nabi anticipates receiving product from Cangene by late 1998 or early
1999, although there can be no assurance that product will be available at that
time. Nabi's previous manufacturer of H-BIG(R) has supplied Nabi with a
sufficient inventory of H-BIG(R) to maintain Nabi's historical sales levels of
the product into the fourth quarter of 1998. See "-Factors to be Considered -
Dependence upon Third Parties to Manufacture Product" and "-Factors to be
Considered - Government Regulation; Uncertainty of Regulatory Approvals". Nabi's
agreement with Cangene has a three year term commencing upon the date Cangene
receives FDA approval, although either party may terminate the agreement upon 12
months notice. Nabi has completed construction and is in the process of
validating a biopharmaceutical manufacturing facility which is designed to allow
Nabi to manufacture, formulate, and package H-BIG(R). Currently Nabi anticipates
that the facility will not be able to produce H-BIG(R) for commercial sale prior
to late 1999.
Nabi is required to purchase its requirements of WinRho SDF(TM) from Cangene,
which has granted to Nabi exclusive marketing rights to the product in the
United States. WinRho SDF(TM) is manufactured by Cangene using a process that
includes solvent-detergent treatment and nanofiltration, two validated virus
removal and inactivation steps to ensure product safety.
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In 1997, Nabi acquired certain assets associated with the product sales of
Autoplex(R)T and obtained exclusive marketing rights for this product in the
United States, Canada and Mexico from Baxter. In connection with the
acquisition, Baxter agreed to manufacture Autoplex(R)T until the earlier of May
2000 or such later date as may be approved by the Federal Trade Commission
("FTC"), or four months after Nabi obtains FDA approval to manufacture the
product. If Nabi does not obtain FDA approval within the required timetable, the
FTC could terminate the divestiture agreement associated with Nabi's acquisition
of AutoPlex(R)T from Baxter. In the event, all the assets and marketing rights
associated with the acquisition would revert to Baxter. Nabi and Baxter would
equally share in the proceeds from the ultimate sale of these assets under
certain specified conditions. See "-Factors to be Considered - Dependence upon
Third Parties to Manufacture Product" and "-Factors to be Considered -
Government Regulation; Uncertainty of Regulatory Approvals".
Nabi manufactures its clinical supplies of products under development at its
facilities in Miami and Boca Raton, Florida and Rockville, Maryland.
PLASMA COLLECTION PROCESS
Nabi currently collects and processes plasma from 75 plasma collection centers
located in 28 states and Germany, including five independently-owned centers
which under contract supply their entire plasma collection output to Nabi. Each
Nabi-owned United States center is licensed and regulated by the FDA. Most of
Nabi's centers are located in urban areas and many are near universities and
military bases. Prospective plasma donors are required to complete an extensive
medical questionnaire and are subject to laboratory testing and a physical
examination under the direction or supervision of a physician. Following this
screening, plasma is collected from suitable donors by means of a process known
as plasmapheresis.
PATENTS AND PROPRIETARY RIGHTS
Nabi's success will depend, in part, on its abilities to obtain or in-license
patents, and to protect trade secrets and other intellectual property rights.
Nabi has acquired title or licenses to a number of patents or patent
applications of others and has filed two patent applications of its own. See
"-Factors to Be Considered-Uncertainty of Legal Protection Afforded by Patents
and Proprietary Rights".
GOVERNMENT AND INDUSTRY REGULATION
The collection, processing and sale of Nabi's products as well as its research,
preclinical development and clinical trials are subject to regulation for safety
and efficacy by numerous governmental authorities in the United States and other
countries. Domestically, the federal Food, Drug and Cosmetic Act, the Public
Health Service Act, and other federal and state statutes and regulations govern
the collection, testing, manufacture, safety, efficacy, labeling, storage,
record keeping, approval, advertising and promotion of Nabi's products.
THERAPEUTICS
Immune globulin products currently are classified as "biological products" under
FDA regulations. The steps required before a biological product may be marketed
in the United States generally include preclinical studies, the filing of an
Investigation for New Drug ("IND") application with the FDA, which must become
effective pursuant to FDA regulations before human clinical studies may
commence, and FDA approval of a Product License Application ("PLA"). In addition
to obtaining FDA approval for each product, an Establishment License Application
("ELA") must be filed and the FDA must approve the manufacturing facilities for
the product. Biological products, once approved, have no provision allowing
competitors to market generic versions.
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Each biological product, even if it basically has the same composition and is
for the same indication, must undergo the entire development process in order to
be approved.
Preclinical studies are conducted on laboratory animals to evaluate the
potential efficacy and safety of a product. The results of preclinical studies
are submitted as part of the IND application, which must become effective
pursuant to FDA regulations before human clinical trials may begin. The initial
human clinical evaluation, Phase I trials, generally involve administration of a
product to a small number of healthy persons. The product is tested for safety,
dosage, tolerance, metabolism and pharmacokinetic properties. Phase II trials
generally involve administration of a product to a limited number of patients
with a particular disease to determine dosage, efficacy and safety. Phase III
trials generally examine the clinical efficacy and safety of a product in an
expanded patient population at geographically dispersed clinical sites. The FDA
reviews the clinical plans and the results of trials and can discontinue the
trials at any time if there are significant safety issues. The results of the
preclinical and clinical trials are submitted after completion of the Phase III
trials in the form of a PLA for approval to commence commercial sales. The
approval process is affected by several factors, including the severity of the
disease, the availability of alternative treatments, and the risks and benefits
demonstrated in clinical trials. The FDA also may require post-marketing
surveillance to monitor potential adverse effects of the product. The regulatory
process can be modified by Congress or the FDA in specific situations.
Among the requirements for product license approval is the requirement that the
prospective manufacturer's methods conform to the FDA's Good Manufacturing
Practice ("cGMP") regulations, which must be followed at all times. In complying
with standards set forth in these regulations, manufacturers must continue to
expend time, money and effort in the area of production and quality control to
ensure full technical compliance.
PLASMA
The collection, storage and testing of plasma is regulated by the FDA. Any
person operating a plasma collection facility in the United States must have an
Establishment License and individual Product Licenses issued by the FDA and each
plasma center must be inspected and approved by the FDA. Nabi holds
Establishment Licenses and Product Licenses issued by the FDA covering all
Nabi-owned collection centers located in the United States. In addition, plasma
collection centers require FDA approval to collect each specialty plasma.
Nabi continually pursues its commitment to quality and compliance with
applicable FDA regulations through its own internal quality assurance programs.
As part of its commitment to quality, Nabi has embraced the Quality Plasma
Program ("QPP") which was initiated by the American Blood Resources Association,
an industry group which establishes standards for plasmapheresis centers. QPP
imposes standards for plasmapheresis centers in addition to those presently
required by the FDA. QPP certification is proving increasingly significant,
because many customers will only purchase plasma which has been collected in QPP
certified centers. All of Nabi's domestic-owned centers are QPP certified
centers.
Concern over blood safety has led to self-sufficiency movements in a number of
European countries to restrict the importation of plasma and plasma components
collected outside the country's borders or, in the case of certain European
countries, outside of Europe. In 1997, Germany increased its regulatory
requirements for plasma collected outside Germany. To date, however, these
efforts have not led to any meaningful restriction on the importation of plasma
and plasma components and have not adversely affected Nabi. There can be no
assurance, however, that such restrictions will not be imposed in the future and
that Nabi will not be adversely affected. As a partial response to this risk,
Nabi acquired or established four licensed plasma collection centers and a
testing laboratory in Germany. Despite its German centers, there can be no
assurance that an increase in restrictions on plasma collected outside Germany
or Europe will not have a material adverse effect on Nabi's business financial
condition or results of operations.
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ORPHAN DRUG ACT
Under the Orphan Drug Act, the FDA may designate a product or products as having
Orphan Drug status to treat a "rare disease or condition," which currently is
defined as a disease or condition that affects populations of less than 200,000
individuals in the United States, or, if victims of a disease number more than
200,000, for which the sponsor establishes that it does not realistically
anticipate its product sales in the United States will be sufficient to recover
its costs. If a product is designated an Orphan Drug, then the sponsor is
entitled to receive certain incentives to undertake the development and
marketing of the product. In addition, the sponsor that obtains the first
marketing approval for a designated Orphan Drug for a given indication
effectively has marketing exclusivity for a period of seven years. There may be
multiple designations of Orphan Drug status for a given drug and for different
indications. However, only the sponsor of the first PLA for a given drug for its
use in treating a given rare disease may receive marketing exclusivity. WinRho
SDF(TM) has received Orphan Drug protection for the treatment of ITP and Nabi
has obtained Orphan Drug status for certain other indications and certain other
of Nabi's products under development have obtained Orphan Drug status. See
"-Factors to Be Considered - Uncertainty of Orphan Drug Designation".
OTHER
Nabi's Miami-based FDA-approved testing laboratory is licensed by the State of
Florida Department of Health and Rehabilitative Services, and the states of
Maryland, New York, Pennsylvania and West Virginia. The laboratory is licensed
pursuant to Medicare regulations and regulations of the U.S. Health Care Finance
Administration's Clinical Laboratory Improvement Act of 1988.
Nabi also is subject to government regulations enforced under the Occupational
Safety and Health Act, the Environmental Protection Act, the Clean Air Act, the
Clean Water Act, the National Environmental Policy Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Medical Waste
Tracking Act and other national, state or local restrictions.
COMPETITION
Nabi believes that H-BIG(R) has a significant share of the domestic market and
that Nabi's access to the vaccines and specialty plasma necessary for the
manufacture of H-BIG(R) will allow it to maintain its market share provided it
has a sufficient supply of this product. See "Supply and Marketing -
Therapeutics". Nabi's main competitor in marketing H-BIG(R) has been Bayer AG
("Bayer"), a major multinational pharmaceutical company. Bayer has purchased
some of the specialty plasma used in the manufacture of its hepatitis B immune
globulin product from Nabi. Bayer also is a significant customer of source and
other specialty plasma. A significant percentage of Bayer's total plasma
requirements are provided by Nabi.
Nabi believes that WinRho SDF(TM) has a significant and growing share of the
domestic market for ITP treatment. Competing therapeutic modalities include the
use of steroids; intravenous immune globulins ("IVIG"); and splenectomy (a
surgical procedure to remove the spleen). Each of these therapies has
significant drawbacks associated with its use, and Nabi believes that WinRho
SDF(TM) can be used for long-term treatment of chronic ITP, is relatively less
expensive and less time consuming in its administration, presents no surgical
risks and has demonstrated consistency in its ability to elicit a platelet
response when compared to the alternative ITP therapies. WinRho SDF(TM) is also
designed to suppress Rh isoimmunization. There are currently three competitive
therapeutic products licensed for Rh isoimmunization indications in the United
States, however only two of these products are actively marketed. These products
are typically less expensive than WinRho SDF(TM) and, as a result, Nabi does not
anticipate significant sales of WinRho SDF(TM) for Rh isoimmunization.
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Autoplex(R)T competes in the anti-inhibitor segment of the hemophilia A
marketplace. Autoplex(R)T and other competitive agents are used to treat
patients that have developed inhibitors (an immunity) to Factor VIII, the
standard therapy for people suffering from hemophilia A. The primary competitors
to Autoplex(R)T include: FEIBA (Baxter) and Hyate C (Speywood Pharmaceuticals,
Inc.). The estimated U.S. market for anti-inhibitor products is $88 million.
Nabi and other independent plasma suppliers sell plasma principally to
pharmaceutical companies that process plasma into finished products. Although
these pharmaceutical companies generally own plasmapheresis centers, in the
aggregate they purchase a substantial portion of their plasma requirements from
independent suppliers. There is intense competition among independent plasma
collectors. Nabi attempts to compete for sales by providing customers with
substantial quantities of products, by stressing its ability to meet delivery
schedules and by providing high-quality products. Management believes Nabi has
the ability to continue to compete successfully in these areas.
Nabi competes for donors with pharmaceutical companies which obtain plasma for
their own use through their own plasma collection centers, other commercial
plasma collection companies and non-profit organizations such as the American
Red Cross and community blood banks which solicit the donations of blood. Nabi
competes for donors by providing competitive financial incentives which
compensate donors for their time, by providing outstanding customer service to
its donors, by implementing programs designed to attract donors through
education as to the uses for collected plasma, by encouraging groups to have
their members become plasma donors for fund raising purposes, and by improving
the attractiveness of Nabi's plasma collection facilities.
Most of the plasma which Nabi collects, processes, and sells to its customers is
used in the manufacture of therapeutic products to treat certain diseases.
Several companies are marketing and continue to develop products to treat some
of these diseases based upon technology which would lessen or eliminate the need
for human blood plasma. Such products could adversely affect the demand for
plasma. Products utilizing technology developed to date have not proven as
cost-effective and marketable to healthcare providers as products based on human
blood plasma. However, Nabi is unable to predict the impact on its business of
future technological advances.
EMPLOYEES
Nabi employed approximately 2,122 persons at December 31, 1997. Nabi believes
that the relations between Nabi's management and its employees are generally
good.
FACTORS TO BE CONSIDERED
The parts of this Annual Report on Form 10-K titled "Item 1 - Business," "Item 3
- - Legal Proceedings" and "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" contain certain forward-looking
statements which involve risks and uncertainties. In addition, officers of Nabi
may from time to time make certain forward-looking statements which also involve
risks and uncertainties. Set forth below is a discussion of certain factors that
could cause Nabi's actual results to differ materially from the results
projected in such forward-looking statements.
UNCERTAINTY ASSOCIATED WITH RAPID EXPANSION OF THERAPEUTIC EFFORTS
Although Nabi's objective has been to become a fully integrated developer,
manufacturer and marketer of therapeutic products, Nabi's historic business
primarily has been the collection and sale of plasma products. Prior to its
November 1995 merger (the "Merger") with Univax Biologics, Inc. ("Univax"), Nabi
had four therapeutic products (two of which are under development and one of
which is no longer being developed). Two of these products were acquired from
Abbott. The Merger accelerated this shift to
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therapeutic products by adding 10 products (one of which is being marketed,
seven of which are under development and two of which are no longer being
developed) to Nabi's product portfolio as well as a large research and
development group and an expanded sales and marketing team. Independently, Nabi
has completed construction and is in the process of validating a new
biopharmaceutical manufacturing facility which is intended to enable Nabi to
manufacture for the first time on a commercial scale certain of its therapeutic
products. Although therapeutic products offer higher margins than the collection
and sale of plasma, these products require significant product development
activities and expenditures, may not be successfully developed (or if
successfully developed, may not be successfully commercialized), require
rigorous manufacturing specifications and practices, and are exposed to
significant competition and the uncertainty of technological change. The effect
of these risks on Nabi may be magnified by Nabi's rapid expansion into the
therapeutics business and its lack of in-depth prior experience in the
therapeutics business, particularly with respect to successfully bringing a
product through clinical trials and FDA licensure. There can be no assurance
that Nabi's therapeutic product activities will be successful, and to the extent
they are not, Nabi's business, financial condition and results of operations
will be materially adversely affected.
COSTS OF RESEARCH AND DEVELOPMENT
Nabi expects to incur significant expenses associated with its therapeutic
product development activities, including the cost of clinical trials relating
to product development and marketing expenses relating to product introduction.
Any revenues generated from products under development will not be realized for
several years. Other material and unpredictable factors which could adversely
affect operating results include: the uncertainty of clinical trial results; the
uncertainty, timing and costs associated with product approvals and
commercialization; the issuance and use of patents and proprietary technology by
Nabi or its competitors; the effect of technology and other business
acquisitions or transactions; the increasing emphasis on controlling healthcare
costs and potential legislation or regulation of healthcare prices; and actions
by collaborators, customers and competitors. There can be no assurance that Nabi
has the financial resources to continue to fund research and development as
necessary for the development and commercialization of higher margin therapeutic
products. Nabi's ability to fund its research and development efforts are
dependent in large part on the success of its plasma operations. The operating
results of Nabi's plasma operations in 1997 did not meet expectations. A
significant reduction in such research, development and other expenses could
have a material adverse effect on the development and commercialization of
therapeutic products currently under development and could have a material
adverse effect on the ability of Nabi to realize its objective of becoming a
fully integrated developer, manufacturer and marketer of therapeutic products.
UNCERTAINTY OF NEW PRODUCT DEVELOPMENT
Nabi's future success will depend on its ability to achieve scientific and
technological advances and to translate such advances into commercially
competitive products on a timely basis. Nabi's therapeutic products under
development are at various stages of research and development, and substantial
further development, preclinical testing and clinical trials will be required to
determine their technical feasibility and commercial viability. The proposed
development schedules for these products may be affected by a variety of
factors, including technological difficulties, proprietary technology of others,
reliance on third parties and changes in government regulation, many of which
factors are not within the control of Nabi. Positive results for a product in a
clinical trial do not necessarily assure that positive results will be obtained
in future clinical trials or that government approval to commercialize the
product will be obtained. In addition, any delay in the development,
introduction or marketing of Nabi's products under development could result
either in such products being marketed at a time when their cost and performance
characteristics would not be competitive in the marketplace or in a shortening
of their commercial lives. There can be no assurance that Nabi's therapeutic
products under development will prove to be technologically feasible,
commercially viable and able to obtain necessary regulatory approvals and
licenses on a timely basis, if at all. The failure of Nabi to successfully and
timely develop and
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commercialize several of its therapeutic products and obtain necessary
regulatory approvals could have a material adverse effect on Nabi's business,
financial condition and results of operations.
COMPETITIVE MARKET FOR THERAPEUTIC PRODUCTS
Nabi currently markets and sells three therapeutic products: H-BIG(R), WinRho
SDF(TM) and Autoplex(R)T. No assurance can be given that the market for these
products can be addressed effectively by Nabi's current sales force and
distribution network. Nabi will lose its exclusive rights to market WinRho
SDF(TM) in the United States if it does not meet specific sales goals or pay
specified amounts to Cangene. Nabi may also lose its rights to Autoplex(R)T if
it abandons its efforts to obtain FDA approval to manufacture the product or
does not obtain such approval by mid 2000. If Nabi successfully develops
additional therapeutic products, additional expenditures, management resources
and time may be required to develop a larger sales force, unless Nabi elects to
have a third party market any or all of such products. If Nabi so elects, there
can be no assurance that Nabi will be able to find a partner on acceptable terms
or at all, or that any such partner will be successful in its efforts. If Nabi
succeeds in bringing one or more products to market, it will compete with many
other companies that may have extensive and well-funded marketing and sales
operations. The failure of Nabi to successfully market existing and new
therapeutic products or the loss of exclusive rights to market WinRho SDF(TM) in
the United States or to market Autoplex(R)T, could have a material adverse
effect on Nabi's business, financial condition and results of operations.
UNCERTAINTY OF MARKET ACCEPTANCE
There can be no assurance that any of Nabi's products in development will
achieve market acceptance. The degree of market acceptance will depend upon a
number of factors, including the receipt of regulatory approvals, the
establishment and demonstration in the medical community of the clinical
efficacy and safety of Nabi's products and their potential advantages over
existing treatment methods, the prices of such products, and reimbursement
policies of government and third-party payors. The failure of any therapeutic
product under development to gain market acceptance could have a material
adverse effect on Nabi's business, financial condition and results of
operations.
FLUCTUATIONS IN PLASMA SUPPLY AND DEMAND
The basic raw material essential to Nabi's business is human blood plasma. Nabi
has historically derived substantially all of its revenues from the collection
and sale of plasma components and will continue to depend on plasma revenues
until such time, if ever, that the revenues generated by the manufacture and
sale of therapeutic products increase significantly. The worldwide supply of
plasma has historically fluctuated. Currently the worldwide supply exceeds the
demand for plasma as a result of the FDA's regulatory initiatives within the
plasma industry which have adversely affected the fractionation capacity of
several of Nabi's major customers. Demand for fractionated plasma products,
however, remains strong and continues to increase due to an increase in both the
number and use of products which require plasma components for their
manufacture.
Concern over the safety of blood products, including plasma, has resulted in the
adoption of more rigorous screening procedures by regulatory authorities and
manufacturers of plasma-based products. These procedures, which include a more
extensive investigation into a donor's background and new tests, have
disqualified numerous potential donors and discouraged other donors who may be
reluctant to undergo the screening procedures. Future changes in government
regulation relating to the collection and use of plasma, its fractionation or
any negative public perception about the plasma collection process could further
adversely affect the overall supply of or demand for plasma. Fluctuations in the
demand for or supply of plasma could have a material adverse effect on Nabi's
business, financial condition and results of operations.
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GOVERNMENT REGULATION; UNCERTAINTY OF REGULATORY APPROVALS
Nabi's research, preclinical development, clinical trials, manufacturing and
marketing of its products are subject to extensive regulation by numerous
government authorities in the United States. The process of obtaining FDA and
other required regulatory approvals is lengthy and expensive, and the time
required for such approvals is uncertain. The approval process is affected by
several factors, including the severity of the disease, the availability of
alternative treatments, and the risks and benefits demonstrated in clinical
trials. The FDA also may require post-marketing surveillance to monitor
potential adverse effects of the product. The regulatory process can be modified
by Congress or the FDA in specific situations. Most of Nabi's clinical trials
are at a relatively early stage and, except for H-BIG(R), WinRho SDF(TM) and
Autoplex(R)T, no approval from the FDA or any other government agency for the
manufacturing or marketing of any of its products under development has been
granted. Currently, Autoplex(R)T is manufactured by Baxter. If Nabi does not
obtain FDA approval to manufacture Autoplex(R)T on a timely basis, the assets
and marketing rights associated with Autoplex(R)T could revert to Baxter. There
can be no assurance that Nabi will be able to obtain the necessary approvals for
manufacturing or marketing of any of its products. Failure to obtain additional
FDA approvals of products currently marketed or FDA approval for products under
development could have a material adverse effect on Nabi's business, financial
condition and results of operations. If a product is approved, its failure to
comply with applicable regulatory requirements could, among other things, result
in fines, suspension or revocation of regulatory approvals, product recalls or
seizures, operating restrictions, injunctions and criminal prosecutions.
Distribution of Nabi's products outside the United States is subject to
extensive government regulation. These regulations, including the requirements
for approvals or clearance to market, the time required for regulatory review
and the sanctions imposed for violations, vary from country to country. There
can be no assurance that Nabi will obtain regulatory approvals in such countries
or that it will not be required to incur significant costs in obtaining or
maintaining its foreign regulatory approvals. In addition, the export by Nabi of
certain of its products which have not yet been cleared for domestic commercial
distribution may be subject to FDA export restrictions. Failure to obtain
necessary regulatory approvals, the restriction, suspension or revocation of
existing approvals or any other failure to comply with regulatory requirements
would have a material adverse effect on Nabi's business, financial condition and
results of operations.
Nabi's United States plasma collection, storage, labeling and distribution
activities also are subject to strict regulation and licensing by the FDA.
Nabi's plasma collection centers in the United States are subject to periodic
inspection by the FDA, and from time to time Nabi receives notices of
deficiencies from the FDA as a result of such inspections. The failure of Nabi
or its plasma collection centers to continue to meet regulatory standards or to
remedy any such deficiencies could result in corrective action by the FDA,
including closure of one or more collection centers and fines or penalties. In
addition, before new plasma collection centers are opened, the collection
centers and their procedures and personnel must meet certain regulatory
standards to obtain necessary licenses. New regulations may be enacted and
existing regulations or their interpretation or enforcement are subject to
change. Therefore, there can be no assurance that Nabi will be able to continue
to comply with any regulations or that the costs of such compliance will not
have a material adverse effect on Nabi's business, financial condition and
results of operations.
Nabi has received permission from the FDA to conduct donor stimulation programs
using the S. AUREUS and hepatitis immunizing agents. No assurance can be given,
however, that the FDA will permit Nabi to begin donor stimulation using other
immunizing agents before obtaining regulatory approval of the immunizing agents
as vaccine products. If the FDA were to require Nabi to secure such regulatory
approvals for the immunizing agents to be used in donor stimulation before
commencing clinical trials on the therapeutic products to be produced using such
immunizing agents, the overall regulatory approval process for Nabi's
therapeutic products would be significantly delayed, which could have a material
adverse effect on Nabi's business, financial condition and results of
operations.
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DEPENDENCE UPON THIRD PARTIES TO MANUFACTURE PRODUCTS
Nabi collects and supplies the specialty plasma necessary for the manufacture of
H-BIG(R). In 1997, Nabi entered into an agreement with Cangene pursuant to which
Cangene, subject to receiving FDA approval, will formulate, process and package
H-BIG(R). Nabi anticipates receiving product from Cangene by late 1998, although
there can be no assurance that product will be available at that time. Abbott,
Nabi's previous manufacturer of H-BIG(R), has supplied Nabi with a sufficient
inventory of H-BIG(R) to maintain Nabi's historical sales levels of the product
into the fourth quarter of 1998, assuming no rejection of, or delay in, release
of lots of H-BIG(R) by the FDA. Nabi's agreement with Cangene has a three year
term commencing upon the date Cangene receives FDA approval, although either
party may terminate the agreement upon 12 months' notice. Nabi also is required
to purchase its requirements of WinRho SDF(TM) from Cangene, which has granted
to Nabi exclusive marketing rights to the product in the United States. Nabi
does not have manufacturing rights for WinRho SDF(TM) and Autoplex(R)T. Baxter
has agreed to manufacture Autoplex(R)T for Nabi until the earlier of May 2000,
or such later date as may be approved by the FTC, or four months after Nabi
obtains FDA approval to manufacture the product. The failure by Nabi's
manufacturers to meet Nabi's needs for these products or delays in the receipt
of deliveries could have a material adverse effect on Nabi's business, financial
condition and results of operations. Nabi has constructed a biopharmaceutical
manufacturing facility which is designed to allow Nabi to manufacture, formulate
and package therapeutic products. Nabi is in the process of validating this
facility and related processes which will require licensure by the FDA. Nabi
does not anticipate that the facility will be able to produce H-BIG(R) for
commercial sale until late 1999 and Autoplex(R)T until mid 2000, respectively,
at the earliest. Moreover, manufacturing products at a single site may present
risks if a disaster (such as a fire or hurricane) causes interruption of
manufacturing capability. In such an event, Nabi will have to resort to
alternative sources of manufacturing which could increase its costs as well as
result in significant delays while required regulatory approvals are obtained.
Any such delays or increased costs could have a material adverse effect on
Nabi's business, financial condition and results of operations.
LIMITED MANUFACTURING CAPABILITY AND EXPERIENCE
Nabi has completed construction and is undergoing validation of a new
biopharmaceutical manufacturing facility and related processes in Boca Raton,
Florida. Nabi anticipates that it will receive FDA licensure for this facility
in late 1999 or early 2000. No assurance can be given that Nabi will be able to
obtain such licensure by such times or at all. Failure to obtain such licensure
on a timely basis or at all would have a material adverse effect on Nabi's
business, financial condition and results of operations. The new facility is
designed to process specialty plasma into Nabi's therapeutic products. However,
Nabi has not previously owned or operated such a facility and has no direct
experience in commercial, large-scale manufacturing of therapeutic products. The
failure of Nabi to successfully operate its new manufacturing facility would
have a material adverse effect on Nabi's business, financial condition and
results of operations.
POTENTIAL ADVERSE EFFECT OF LITIGATION
Nabi is currently one of several defendants in numerous suits generally based
upon claims that the plaintiffs became infected with HIV as a result of using
HIV-contaminated products made by various defendants other than Nabi or as a
result of family relations with those so infected. These suits allege, among
other things, that Nabi or its predecessors supplied HIV-contaminated plasma to
the defendants who produced the products in question. One of the suits purports
to be a class action. Nabi denies all claims made against it and intends to
vigorously defend the cases. No assurance can be given that additional lawsuits
relating to infection with HIV will not be brought against Nabi by persons who
have become infected with HIV or plasma fractionates or that cross-complaints
will not be filed in existing lawsuits. In addition, there can be no assurance
that lawsuits based on other causes of action will not be filed or that Nabi
will be successful in the defense of any or all existing or potential future
lawsuits. Defense of suits can be expensive and time-consuming, regardless of
the outcome, and an adverse result
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in one or more suits, particularly those related to HIV, could have a material
adverse effect on Nabi's business, financial condition and results of
operations.
RISK OF PRODUCT LIABILITY; LIMITED INSURANCE
The processing and sale of Nabi's plasma and plasma-based products, including
therapeutic products, involve a risk of product liability claims, and Nabi
currently is a party to litigation involving such claims. In addition, there can
be no assurance that infectious diseases will not be transmitted by Nabi's
products and therefore create additional product liability claims. Product
liability insurance for the biopharmaceutical industry generally is expensive to
the extent it is available at all. There can be no assurance that Nabi will be
able to maintain such insurance on acceptable terms or that it will be able to
secure increased coverage if the commercialization of its products progresses.
Moreover, there can be no assurance that the existing coverage of Nabi's
insurance policy and/or any rights of indemnification and contribution that Nabi
may have will offset existing or future claims. A successful claim against Nabi
with respect to uninsured liabilities or in excess of insurance coverage and not
subject to any indemnification or contribution could have a material adverse
effect on Nabi's business, financial condition and results of operations.
DEPENDENCE ON STRATEGIC ALLIANCES
Nabi is pursuing strategic alliances with third parties for the development,
marketing and sale of certain of its therapeutic products. No assurance can be
given that Nabi will be successful in these efforts or, if successful, that the
collaborators will conduct their activities in a timely manner. Certain of
Nabi's current collaborators have the right to terminate their collaborative
agreements with Nabi. If any of Nabi's existing or future collaborative partners
act in, breach or terminate their agreements with Nabi or otherwise fail to
conduct their collaborative activities in a timely manner, the preclinical or
clinical development or commercialization of products could be delayed, and Nabi
may be required to devote significant additional resources to product
development and commercialization, or terminate certain development programs.
Failure to enter into successful strategic alliances or the termination of
existing alliances could have a material adverse effect on Nabi's business,
financial condition and results of operations. In addition, there can be no
assurance that disputes will not arise in the future with respect to the
ownership of rights to any technology developed with third parties. These and
other possible disagreements between collaborators and Nabi could lead to delays
in the collaborative research, development or commercialization of certain
products or could require or result in litigation or arbitration, which would be
time-consuming and expensive, and could have a material adverse effect on Nabi's
business, financial condition and results of operations.
FOREIGN RESTRICTIONS ON IMPORTATION OF PLASMA
Export sales of plasma for the 1995, 1996 and 1997 fiscal years represented
approximately 36%, 39% and 24%, respectively, of Nabi's sales for those periods.
Nabi's export sales primarily are to European and Asian customers. Concern over
blood safety has led to movements in a number of European and other countries to
restrict the importation of plasma and plasma components collected outside such
countries' borders or, in the case of certain European countries, outside
Europe. Nabi believes that, to date, these efforts have not led to any
meaningful restriction on the importation of plasma and plasma components and
have not adversely affected Nabi. Such restrictions, however, continue to be
debated and there can be no assurance that such restrictions will not be imposed
in the future. If imposed, such restrictions could have a material adverse
effect on the demand for Nabi's plasma and on Nabi's business, financial
condition and results of operations. Uncertain economic conditions and financial
markets, such as those which occurred in Asia in 1997, could also adversely
impact Nabi's sales of plasma to foreign customers and materially and adversely
affect Nabi's business, financial condition and results of operations.
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UNCERTAINTY OF LEGAL PROTECTION AFFORDED BY PATENTS AND PROPRIETARY RIGHTS
The patent positions of biotechnology firms generally are highly uncertain and
involve complex legal and factual questions. There can be no assurance that
existing patent applications will mature into issued patents, that Nabi will be
able to obtain additional licenses to patents of others or that Nabi will be
able to develop additional patentable technology of its own. Because patent
applications in the United States are not disclosed by the Patent and Trademark
Office until patents issue, and because publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, Nabi
cannot be certain that it was the first creator of inventions covered by its
pending patent applications or that it was the first to file patent applications
for such inventions. There can be no assurances that any patents issued to Nabi
will provide it with competitive advantages or will not be challenged by others.
Furthermore, there can be no assurance that others will not independently
develop similar products, or, if patents are issued to Nabi, design around such
patents.
A number of pharmaceutical companies, biotechnology companies, universities and
research institutions have filed patent applications or received patents
relating to products or processes competitive with or similar to those of Nabi.
Some of these applications or patents may be competitive with Nabi's
applications, or conflict in certain respects with claims made under Nabi's
applications. Such a conflict could result in a significant reduction of the
coverage of Nabi's patents, if issued. In addition, if patents that contain
competitive or conflicting claims are issued to others and such claims are
ultimately determined to be valid, Nabi may be required to obtain licenses to
these patents or to develop or obtain alternative technology. If any licenses
are required, there can be no assurance that Nabi will be able to obtain any
such licenses on commercially favorable terms, if at all. Nabi's failure to
obtain a license to any technology that it may require to commercialize its
products could have a material adverse effect on Nabi's business, financial
condition and results of operations. Litigation, which could result in
substantial cost to Nabi, may also be necessary to enforce any patents issued to
Nabi or to determine the scope and validity of third-party proprietary rights.
Nabi also relies on secrecy to protect its technology, especially where patent
protection is not believed to be appropriate or obtainable. Nabi maintains
strict controls and procedures regarding access to and use of its proprietary
technology and processes. However, there can be no assurance that these controls
or procedures will not be violated, that Nabi would have adequate remedies for
any violation, or that Nabi's trade secrets will not otherwise become known or
be independently discovered by competitors.
UNCERTAINTY OF ORPHAN DRUG DESIGNATION
If a product is designated an Orphan Drug by the FDA, then the sponsor is
entitled to receive certain incentives to undertake the development and
marketing of the product. In addition, the sponsor that obtains the first
marketing approval for a designated Orphan Drug for a given indication
effectively has marketing exclusivity for a period of seven years. There may be
multiple designations of Orphan Drug status for a given drug and for different
indications. However, only the sponsor of the first approved PLA for a given
drug for its use in treating a given rare disease may receive marketing
exclusivity. While it may be advantageous to obtain Orphan Drug status for
eligible products, there can be no assurance that the precise scope of
protection that is currently afforded by Orphan Drug status will be available in
the future or that the current level of exclusivity will remain in effect.
Congress has considered legislation that would amend the Orphan Drug Act to
limit the scope of marketing exclusivity granted to Orphan Drug products. WinRho
SDF(TM) has received Orphan Drug marketing exclusivity for the treatment of ITP
(and has obtained Orphan Drug status for certain other indications) and certain
other of Nabi's products under development have Orphan Drug status. There can be
no assurance that Nabi will succeed in obtaining Orphan Drug marketing
exclusivity for products that have Orphan Drug status or that Orphan Drug
marketing exclusivity with respect to WinRho SDF(TM) or other products, if
obtained, will be of material benefit to Nabi. Furthermore, another manufacturer
could obtain an Orphan Drug designation as well as approval for the same product
for a different indication or a different product for the same indication.
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INTENSE COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE
Competition in the development of biopharmaceutical products is intense, both
from biotechnology and pharmaceutical companies, and is expected to increase.
Many of Nabi's competitors have greater financial resources and larger research
and development staffs than Nabi, as well as substantially greater experience in
developing products, obtaining regulatory approvals, and manufacturing and
marketing pharmaceutical products. Competition with these companies involves not
only product development, but also acquisition of products and technologies from
universities and other institutions. Nabi also competes with universities and
other institutions in the development of therapeutic products, technologies and
processes and for qualified scientific personnel. There can be no assurance that
Nabi's competitors will not succeed in developing technologies and products that
are more effective or affordable than those being developed by Nabi. In
addition, one or more of Nabi's competitors may achieve product
commercialization of or patent protection for competitive products earlier than
Nabi, which would preclude or substantially limit sales of Nabi's products.
Further, several companies are attempting to develop and market products to
treat certain diseases based upon technology which would lessen or eliminate the
need for human blood plasma. The successful development and commercialization by
any competitor of Nabi of any such product could have a material adverse effect
on Nabi's business, financial condition and results of operations.
Nabi competes for plasma donors with pharmaceutical companies which may obtain
plasma for their own use, other commercial plasma collection companies and
non-profit organizations such as the American Red Cross and community blood
banks which solicit the donation of blood. A number of these competitors have
access to greater financial, marketing and other resources than Nabi. Nabi
competes for donors by means of offering financial incentives to donors to
compensate them for their time and inconvenience, providing outstanding customer
service to its donors, implementing programs designed to attract donors through
education as to the uses for collected plasma, encouraging groups to have their
members become plasma donors and improving the attractiveness of Nabi's plasma
collection facilities. Nabi also competes with other independent plasma
suppliers that sell plasma principally to pharmaceutical companies that process
plasma into finished products. If Nabi is unable to maintain and expand its
donor base, its business, financial condition and results of operations will be
materially and adversely affected.
DEPENDENCE ON SMALL NUMBER OF CUSTOMERS FOR SIGNIFICANT PLASMA SALES
During the 1995, 1996 and 1997 fiscal years, plasma sales to customers
purchasing more than 10% of Nabi's consolidated sales (which did not exceed
three customers in any such period), accounted for approximately 47%, 45% and
41%, respectively, of Nabi's consolidated sales for each period. The loss of any
major customer or a material reduction in a major customer's purchases of plasma
could have a material adverse effect upon Nabi's business, financial condition
and results of operations.
UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT
Nabi's ability to commercialize its therapeutic products and related treatments
will be dependent in part upon the availability of, and Nabi's ability to
obtain, adequate levels of reimbursement from government health administration
authorities, private healthcare insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products, and there can be no assurance that adequate third-party coverage will
be available, if at all. Inadequate levels of reimbursement may prohibit Nabi
from maintaining price levels sufficient for realization of an adequate return
on its investment in developing new therapeutic products and could result in the
termination of production of otherwise commercially viable products. Government
and other third-party payors are increasingly attempting to contain healthcare
costs by limiting both the coverage and level of reimbursement for new products
approved for marketing by the FDA and by refusing, in some cases, to provide any
coverage for disease indications for which the FDA has not granted marketing
approval. Also, the trend towards managed healthcare in the United States and
the concurrent growth of
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organizations such as HMOs, which could control or significantly influence the
purchase of healthcare services and products, as well as legislative proposals
to reform healthcare or reduce government insurance programs, may all result in
lower prices for Nabi's products. The cost containment measures that healthcare
providers are instituting and the impact of any healthcare reform could have an
adverse effect on Nabi's ability to sell its products and may have a material
adverse effect on Nabi's business, financial condition and results of
operations.
There can be no assurance that reimbursement in the United States or foreign
countries will be available for Nabi's products, or, if available, will not be
decreased in the future, or that reimbursement amounts will not reduce the
demand for, or the price of, Nabi's products. The unavailability of third-party
reimbursement or the inadequacy of the reimbursement for medical treatments
using Nabi's products could have a material adverse effect on Nabi's business,
financial condition and results of operations. Moreover, Nabi is unable to
forecast what additional legislation or regulation, if any, relating to the
healthcare industry or third-party coverage and reimbursement may be enacted in
the future or what effect such legislation or regulation would have on Nabi's
business.
Most of Nabi's plasma sales are made pursuant to contracts having initial terms
ranging from one to five years. These contracts generally provide for annual
pricing renegotiations. Once established, the pricing generally remains fixed
for the year subject to price changes to reflect changes in customer
specifications or price adjustments to compensate Nabi for increased costs
associated with new governmental testing requirements. As a result, Nabi's
business, financial condition and results of operations would be adversely
affected if, due to changes in government regulation or other factors, its costs
of collecting and selling plasma rise during a given year and Nabi is not able
to pass on the increased costs until the next annual pricing renegotiation.
ITEM 2. PROPERTIES
A majority of the space occupied by Nabi is primarily used to collect plasma,
and is leased from non-affiliates under leases expiring through 2010. A majority
of these leases contain renewal options which permit Nabi to renew the leases
for periods of two to five years at the then fair rental value. Nabi believes
that in the normal course of its business it will be able to renew or replace
its existing leases. Nabi also owns four plasma collection facilities located in
Arizona, Indiana, Minnesota and Washington. Nabi's plasma collection centers
range in size from approximately 2,000 to 25,000 square feet.
Nabi leases office, laboratory, warehouse and pilot manufacturing space in
Miami, Florida and Rockville, Maryland.
Nabi owns a facility that houses its executive offices and its manufacturing
plant in Boca Raton, Florida. Nabi will commence manufacturing after it obtains
FDA licensure.
ITEM 3. LEGAL PROCEEDINGS
Nabi is a party to litigation in the ordinary course of business. Nabi does not
believe that any such litigation will have a material adverse effect on its
business, financial position or results of operations.
In addition, Nabi is a co-defendant with various other parties in numerous suits
filed in the U.S. by, or on behalf of, individuals who claim to have been
infected with HIV as a result of either using HIV-contaminated products made by
the defendants other than Nabi or having familial relations with those so
infected. The claims against Nabi are based on negligence and strict liability.
One of the suits, filed in the Circuit Court for the Eleventh Judicial Circuit
of Dade County, Florida on May 23, 1995 (Case No. 95-10489 CA 02), purports to
be a class action. The defendants in this suit, other than Nabi, include Bayer
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Corporation, Centeon Pharmaceutical Company, Rhone-Poulenc Rorer, Inc., Baxter
Healthcare Corporation, Alpha Therapeutic Corporation and The National
Hemophilia Foundation.
Nabi denies all claims against it in these suits and intends to defend the cases
vigorously. Nabi believes that any such litigation will not have a material
adverse effect on its business, financial position or results of operations.
ITEM 3A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Nabi are as follows:
NAME AGE POSITION
- ----------------------------------------------------------------------------------------------------
DAVID J. GURY 59 Chairman of the Board, President and
Chief Executive Officer
JOHN C. CARLISLE 51 Executive Vice President, Chief Operating Officer
and Director
PINYA COHEN, PH.D. 62 Senior Vice President, Quality Assurance and
Regulatory Affairs
ALFRED J. FERNANDEZ 49 Senior Vice President and Chief Financial Officer
FRANK J. MALINOSKI,M.D. PH.D. 43 Senior Vice President, Medical and Clinical Affairs
DAVID D. MUTH 44 Senior Vice President, Business Development,
Sales and Marketing
ROBERT B. NASO, PH.D. 53 Senior Vice President, Research and Development
LORRAINE M. BREECE 45 Controller and Chief Accounting Officer
DAVID J. GURY has served as Nabi's Chairman of the Board, President and Chief
Executive Officer since April 3, 1992. Previously, since May 21, 1984, he was
Nabi's President and Chief Operating Officer. He has been a director of Nabi
since 1984. From July 1977 until his employment by Nabi, Mr. Gury was employed
by Alpha Therapeutic Corporation (formerly Abbott Scientific Products, "Alpha")
as Director of Plasma Procurement (through October 1980), General Manager,
Plasma Operations (through October 1981) and Vice President, Plasma Supply
(through May 1984). In these capacities, Mr. Gury had executive responsibilities
for plasma procurement and operation of plasmapheresis centers.
JOHN C. CARLISLE has served as Executive Vice President and Chief Operating
Officer since March 1994 and was elected a director in August 1995. Mr. Carlisle
joined Nabi in January 1994 and previously, from August 1989 to January 1994 he
was President and Chief Executive Officer of Premier BioResources, Inc. ("PBI").
From June 1981 to August 1989 he served as Director of Plasma Supply for Alpha.
PINYA COHEN, PH.D. is Senior Vice President, Quality Assurance and Regulatory
Affairs, has served in that capacity since November 1995 and has served as an
executive officer since August 1992. From 1990 to 1992, he was Vice President,
Regulatory Affairs for Connaught Laboratories, Inc.. From 1976 to 1979,
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Dr. Cohen was Director, Quality Control and Regulatory Affairs and from 1979 to
1990 was Vice President, Quality Control and Regulatory Affairs at Merieux
Institute, Inc. From 1972 to 1976, he was Director of the Plasma Derivatives
Branch, Bureau of Biologics, FDA and prior to that time, from 1964 to 1972, he
was Director of the Plasma Derivatives Branch, Division of Biologics Standards,
the NIH.
ALFRED J. FERNANDEZ is Senior Vice President and Chief Financial Officer of
Nabi, has served in that capacity since November 1995 and has served as an
executive officer of Nabi since April 5, 1989. Previously, Mr. Fernandez had
been associated with Rachlin & Cohen, Certified Public Accountants, in Miami,
Florida as Director of Accounting and Audit Services since January 1988. Mr.
Fernandez was employed by the Chattahoochee Financial Corporation in Atlanta,
Georgia from May 1986 to September 1987 as Executive Vice President and Chief
Financial Officer, with responsibility over all financial, accounting and
investment functions. For more than five years prior to that time, Mr. Fernandez
served as a Senior Manager with Price Waterhouse, an international public
accounting firm.
FRANK J. MALINOSKI, M.D., PH.D. is Senior Vice President, Medical and Clinical
Affairs, and has served in that capacity since March 1997. Dr. Malinoski joined
Nabi in March 1996 as Vice President, Medical and Clinical Affairs. Previously
from 1992 to 1996, he was Director, Clinical Research for Lederle-Praxis
Biologicals in Rochester, New York. Prior to that time, from 1986 to 1992, Dr.
Malinoski conducted clinical research with the U.S. Army Medical Research
Institute of Infectious Diseases.
DAVID D. MUTH is Senior Vice President, Business Development, Sales and
Marketing, and has served in that capacity since November 1996. Mr. Muth joined
Nabi in August 1996 and previously he was Senior Vice President, Business
Development at Duramed Pharmaceuticals, Inc. in Cincinnati, Ohio from February
1995 to May 1996. From 1978 to 1995, he was employed by Ortho McNeil
Pharmaceuticals Corporation, a division of Johnson & Johnson in New Brunswick,
New Jersey as Director, Corporate Development (1992 - 1995) and numerous
positions of increasing responsibilities in both sales and marketing (1978 -
1992). Prior to that time, Mr. Muth held financial positions at Paine Webber and
Dun & Bradstreet.
ROBERT B. NASO, PH.D. joined Nabi in November 1995 as Senior Vice President,
Research and Development and General Manager, Rockville Operations. Previously,
he was Vice President of Research at Univax beginning in May 1992, and became
Vice President of Research and Development in October 1994. From 1983 to 1992,
Dr. Naso was a manager and director of pharmaceutical and vaccine research and
development at the R.W. Johnson Pharmaceutical Research Institute, a division of
Ortho Pharmaceutical Corporation and the Johnson & Johnson Biotechnology Center,
a division of the R.W. Johnson Pharmaceutical Research Institute.
LORRAINE M. BREECE is Controller and Chief Accounting Officer, and has served in
that capacity since April 1991. Previously, she had been associated with
Trammell Crow Company as Controller and as a consultant since October 1989. For
more than five years prior to that time, Ms. Breece served as Controller for
Levitt Corporation.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Nabi's common stock is quoted on the Nasdaq National Market under the symbol
"NABI". The following table sets forth for each period indicated the high and
low sale prices for the common stock (based upon intra-day trading) as reported
by the Nasdaq National Market.
HIGH LOW
--------------------------
1996
- ------------------------------------------------------------------------------
First Quarter 14 3/4 9 1/2
Second Quarter 14 5/8 8 3/4
Third Quarter 12 3/8 6 7/8
Fourth Quarter 12 1/8 7 3/8
1997
- ------------------------------------------------------------------------------
First Quarter 12 3/8 6 13/16
Second Quarter 7 1/2 5 15/16
Third Quarter 8 3/16 5 7/16
Fourth Quarter 7 5/8 3 5/16
The number of record holders of Nabi's common stock at December 31, 1997 was
1,542.
No cash dividends have been previously paid on Nabi's common stock and none are
anticipated in 1998. Nabi's credit agreement also restricts dividend payments.
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ITEM 6. SELECTED FINANCIAL DATA - FIVE YEARS ENDED DECEMBER 31, 1997
The following table sets forth selected consolidated financial data for Nabi for
the five years ended December 31, 1997 that were derived from Nabi's
consolidated financial statements, which have been audited by Price Waterhouse
LLP, independent accountants. On November 29, 1995, Univax, a publicly traded
biopharmaceutical company, was merged with and into Nabi in a tax-free,
stock-for-stock transaction. The Merger was accounted for as a pooling of
interests and accordingly, all prior period financial information has been
combined.
The data should be read in conjunction with, and are qualified by reference to,
Nabi's Consolidated Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". All
amounts in the following table are expressed in thousands, except for per share
data.
Year Ended December 31,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Sales $ 101,574 $ 164,426 $ 195,928 $ 239,909 $ 228,744
Cost of products sold 81,607 131,192 152,148 181,914 180,533
--------- --------- --------- --------- ---------
Gross profit 19,967 33,234 43,780 57,995 48,211
Selling, general and administrative expense 12,284 16,467 26,816 21,095 25,012
Research and development expense 17,089 17,599 20,132 16,721 19,126
Royalty expense 1,545 1,426 3,490 5,253 6,617
Other operating expense 1,842 2,234 3,015 3,757 3,087
Non-recurring charges -- -- -- -- 5,680
--------- --------- --------- --------- ---------
Operating income (loss) (12,793) (4,492) (9,673) 11,169 (11,311)
Interest income 1,187 354 1,064 1,275 272
Interest expense (3,282) (3,254) (1,931) (3,987) (4,712)
Other, net (24) (28) (334) (511) (70)
--------- --------- --------- --------- ---------
Income (loss) before benefit (provision) for income
taxes and accounting change/extraordinary charge (14,912) (7,420) (10,874) 7,946 (15,821)
Benefit (provision) for income taxes (1,988) (5,774) (6,687) 6,214 4,668
--------- --------- --------- --------- ---------
Income (loss) before accounting change
extraordinary charge (16,900) (13,194) (17,561) 14,160 (11,153)
Accounting change/extraordinary charge 100 (717) -- (932) --
--------- --------- --------- --------- ---------
Net income (loss) $ (16,800) $ (13,911) $ (17,561) $ 13,228 $ (11,153)
========= ========= ========= ========= =========
Basic earnings (loss) per share:
Income (loss) before accounting change/
extraordinary charge $ (0.76) $ (0.47) $ (0.52) $ 0.41 $ (0.32)
Accounting change/extraordinary charge 0.01 (0.03) -- (0.03) --
--------- --------- --------- --------- ---------
Net income (loss) $ (0.75) $ (0.50) $ (0.52) $ 0.38 $ (0.32)
========= ========= ========= ========= =========
Diluted earnings (loss) per share:
Income (loss) before accounting change/
extraordinary charge $ (0.76) $ (0.47) $ (0.52) $ 0.40 $ (0.32)
Accounting change/extraordinary charge 0.01 (0.03) -- (0.03) --
--------- --------- --------- --------- ---------
Net income (loss) $ (0.75) $ (0.50) $ (0.52) $ 0.37 $ (0.32)
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Working capital $ 39,806 $ 52,208 $ 14,690 $ 63,630 $ 63,933
Total assets 91,459 132,089 137,975 202,142 225,906
Notes payable, including current maturities 21,202 27,557 42,894 83,465 121,081
Contingent purchase price obligation,
including current maturities 7,056 -- -- -- --
Total stockholders' equity 51,635 85,319 69,442 86,061 75,663
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of Nabi's financial condition and results
of operations for the three years ended December 31, 1997 should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with the information contained under "Factors to be Considered" in Item 1.
On November 29, 1995, Univax, a publicly traded biopharmaceutical company, was
merged with and into Nabi in a tax-free, stock-for-stock transaction. The Merger
was accounted for as a pooling of interests and accordingly, all prior period
financial information has been combined.
RESULTS OF OPERATIONS
The following table sets forth Nabi's results of operations for the respective
periods expressed as a percentage of sales:
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
------- ------- -------
Sales 100.0% 100.0% 100.0%
Cost of products sold 77.7 75.8 78.9
------- ------- -------
Gross profit margin 22.3 24.2 21.1
Selling, general and administrative expense 13.7 8.8 10.9
Research and development expense 10.3 7.0 8.4
Royalty expense 1.7 2.2 2.9
Other operating expense 1.5 1.6 1.3
Non-recurring charges -- -- 2.5
------- ------- -------
Operating income (loss) (4.9) 4.6 (4.9)
Interest income 0.5 0.5 --
Interest expense (1.0) (1.6) (2.0)
Other, net (0.2) (0.2) --
------- ------- -------
Income (loss) before benefit (provision) for income taxes
and extraordinary charge (5.6) 3.3 (6.9)
Benefit (provision) for income taxes (3.4) 2.6 2.0
Extraordinary charge -- (0.4) --
======= ======= =======
Net income (loss) (9.0)% 5.5% (4.9)%
======= ======= =======
Information concerning Nabi's sales by industry segment, for the respective
periods, is set forth in the following table. All dollar amounts set forth in
the table are expressed in thousands.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
Plasma Products
-Source $108,327 55.3% $121,025 50.4% $135,331 59.2%
-Specialty 61,178 31.2 86,807 36.2 54,348 23.8
-------- ------- -------- ------- -------- -------
169,505 86.5 207,832 86.6 189,679 83.0
Therapeutic products 18,590 9.5 26,405 11.0 34,470 15.0
Diagnostic products
and services 7,833 4.0 5,672 2.4 4,595 2.0
-------- ------- -------- ------- -------- -------
TOTAL $195,928 100.0% $239,909 100.0% $228,744 100.0%
======== ======= ======== ======= ======== =======
28
29
1997 AS COMPARED TO 1996
SALES. Sales for 1997 were $228.7 million compared to $239.9 million for 1996.
Overall, revenues for the year were adversely affected by a 8.7% decline in
plasma sales attributable to several factors, notably the general disruption in
the plasma industry caused by regulatory problems experienced by the major
plasma processors and a shift in demand from certain specialty plasmas to source
plasma. While the industry disruption has not impacted the continued strong
demand for plasma derived products, it has led to decreased fractionation
capacity, a decreased ability to process raw plasma and an increase of plasma
inventories. The decline in plasma revenue was partially offset by a 30.5%
increase in therapeutic product revenues over the prior year largely due to an
increased demand for WinRho SDFTM and sales of Autoplex(R)T, a product which was
acquired from Baxter in May 1997.
GROSS PROFIT MARGIN. Gross profit and related margin for 1997 was $48.2 million
or 21.1%, compared to $58 million or 24.2% in 1996. Gross profit margins were
adversely affected by several factors, including a less favorable sales mix of
specialty and source plasma; under absorption of fixed overhead as a result of
reduced production levels in response to the general disruption in the plasma
industry and certain expenses associated with process improvement initiatives
within plasma operations. The increase in sales of higher margin therapeutic
products partially offset the overall decline in gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $25.0 million or 10.9% of sales in 1997, compared to $21.1 million
or 8.8% of sales in 1996. The increase was primarily attributable to sales and
marketing expenses associated with increased therapeutic product sales and
expenses associated with the implementation and ongoing support of new
information systems.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $19.1
million or 8.4% of sales in 1997, compared to $16.7 million or 7.0% of sales in
1996. The increase in expenses relates primarily to the advancement of clinical
trials for Nabi-H-BIG(R), Nabi-StaphVAX(TM) and Nabi-Altastaph(TM).
NON-RECURRING CHARGES. Nabi recognized approximately $5.7 million of
non-recurring charges during 1997. These charges included $3.9 million of asset
impairment losses, principally associated with Nabi's investment in Michigan
Biologic Products Institute ("MBPI"), an alternative contract fractionation
facility for the production of H-BIG(R). The project was abandoned during the
third quarter as Nabi entered into an H-BIG(R) manufacturing agreement with
Cangene Corporation. Streamlining initiatives within plasma operations
principally involving center closings contributed the remaining $1.8 million in
non-recurring charges.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net for 1997 was
$4.5 million, compared to $3.2 million in 1996. The increase was primarily
attributable to higher average outstanding borrowings and lower average
outstanding investments as compared to 1996.
OTHER FACTORS. The provision for income taxes results in a benefit of $4.7
million for 1997, compared to a benefit of $6.2 million in 1996. The benefit for
1997 relates to the recovery of income taxes previously paid on taxable income
in prior years. The benefit recognized in 1996 was primarily due to the release
of valuation allowances associated with certain net operating loss ("NOL")
carryforwards and other deferred tax assets acquired through the Merger.
29
30
1996 AS COMPARED TO 1995
SALES. Sales for 1996 increased 22% to $239.9 million, compared to $195.9
million in 1995, reflecting an increase in plasma sales of $38.3 million and an
increase in immunotherapeutic product sales of $7.8 million, both of which were
offset by a decrease in diagnostic products and services sales of $2.2 million.
The 22.6% increase in plasma sales was primarily attributable to increased
specialty plasma sales. Increased sales of immunotherapeutic products was
primarily due to an increase in H-BIG(R) sales.
GROSS PROFIT MARGIN. Gross profit and related margin for 1996 was $58 million or
24.2%, compared to $43.8 million or 22.3% in 1995. An improved sales mix
resulting primarily from increased sales of higher-margin specialty plasma and
immunotherapeutic products accounted for the improved profitability.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $21.1 million or 8.8% of sales in 1996, compared to $26.8 million or
13.7% of sales in 1995. The decrease was primarily attributable to approximately
$6 million in non-recurring merger expenses associated with the Univax merger in
1995.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $16.7
million or 7.0% of sales in 1996, compared to $20.1 million or 10.3% of sales in
1995. The decrease in expenses relates primarily to the discontinuation of
clinical trials for HyperGAM+CF during June 1996.
OTHER FACTORS. The benefit for income taxes was $6.2 million in 1996, compared
to a provision of $6.7 million in 1995. The benefit was primarily due to the
release of valuation allowances associated with certain NOL carryforwards and
other deferred tax assets acquired in the Merger. In 1995, the provision for
income taxes reflected non-deductible merger expenses and pre-merger income
which could not be offset by pre-merger losses incurred by Univax.
Net income for 1996 includes an extraordinary charge of $.9 million, or $.03 per
share, due to the write-off of debt issue costs associated with Nabi's early
repayment of its outstanding bank debt through the application of a portion of
the net proceeds of the 6.5% Convertible Subordinated Notes issued during the
first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, Nabi's credit agreement provided for a $50 million
revolving credit facility subject to certain borrowing base restrictions as
defined in the agreement which matures in September 2002. Borrowings under the
facility were $34.2 million and additional availability was approximately $10.3
million at December 31, 1997. As of that date, Nabi was not in compliance with
certain financial covenants. Effective March 30, 1998, Nabi amended its credit
agreement to provide for a waiver of noncompliance with respect to the financial
covenants and also to prospectively modify the financial covenants. The
agreement was also amended to provide for a $45 million revolving credit
facility due September 2002, and a $5 million term loan due March 1999, on
substantially the same terms as the previous credit agreement, with the
exception that all borrowings will bear interest at the prime rate plus 1%. Nabi
currently believes that it can comply with the amended covenants during 1998 and
the remaining term of the credit agreement.
At December 31, 1997, Nabi's working capital was $63.9 million compared to $63.6
million on December 31, 1996.
Projected capital expenditures for 1998 principally include deferred validation
costs, including capitalized interest for manufacturing facilities, development
and implementation of information systems and plasma center renovations. Nabi
believes that cash flow from operations and its available bank credit facilities
will be sufficient to meet its anticipated cash requirements for 1998.
30
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and information required by Item 8 are listed in the
Index, presented as Item 14, and included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item and not provided in Item 3A will be
contained in Nabi's Proxy statement, which Nabi intends to file within 120 days
following the end of Nabi's fiscal year ended December 31, 1997 and such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item will be contained in Nabi's Proxy
Statement which Nabi intends to file within 120 days following the end of Nabi's
fiscal year ended December 31, 1997 and such information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item will be contained in Nabi's Proxy
Statement which Nabi intends to file within 120 days following the end of Nabi's
fiscal year ended December 31, 1997 and such information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item will be contained in Nabi's Proxy
Statement which Nabi intends to file within 120 days following the end of Nabi's
fiscal year ended December 31, 1997 and such information is incorporated herein
by reference.
31
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS
The following consolidated financial statements of Nabi and its subsidiaries are
included pursuant to Item 8 hereof.
PAGE #
------
Report of Independent Certified Public Accountants...................................................34
Consolidated Statement of Operations for the years ended December 31, 1995, 1996
and 1997.............................................................................................35
Consolidated Balance Sheet at December 31, 1996 and 1997.............................................36
Consolidated Statement of Changes in Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997.....................................................................37
Consolidated Statement of Cash Flows for the years ended December 31, 1995, 1996
and 1997.............................................................................................38
Notes to Consolidated Financial Statements...........................................................39
(A) (2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts and Reserves.........................................55
All other schedules omitted are not required, inapplicable or the
information required is furnished in the financial statements or notes
therein.
(A) (3) EXHIBITS.............................................................................................56
(B) REPORTS ON FORM 8-K
On August 21, 1997, Nabi filed a current report on Form 8-K relating to its
adoption of the Shareholders Rights Plan. Nabi inadvertently omitted disclosure
of the filing in its quarterly report on Form 10Q for the three months ended
September 30, 1997.
32
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 30th day of March,
1998.
NABI
By: /s/ DAVID J. GURY
------------------------------------
David J. Gury
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ DAVID J. GURY Chairman of the Board, March 30, 1998
- -------------------------------- President, Chief Executive Officer
David J. Gury
/s/ JOHN C. CARLISLE Senior Executive Vice President March 30, 1998
- --------------------------------
John C. Carlisle
/s/ ALFRED J. FERNANDEZ Senior Vice President, March 30, 1998
- -------------------------------- Chief Financial Officer
Alfred J. Fernandez
/s/ LORRAINE M. BREECE Chief Accounting Officer March 30, 1998
- --------------------------------
Lorraine M. Breece
/s/ JOSEPH C. COOK, JR. Director March 30, 1998
- --------------------------------
Joseph C. Cook, Jr.
/s/ RICHARD A. HARVEY, JR. Director March 30, 1998
- --------------------------------
Richard A. Harvey, Jr.
/s/ DAVID L. CASTALDI Director March 30, 1998
- --------------------------------
David L. Castaldi
/s/ DAVID A. THOMPSON Director March 30, 1998
- --------------------------------
David A. Thompson
/s/ PAUL BOGIKES Director March 30, 1998
- --------------------------------
Paul Bogikes
/s/ GEORGE W. EBRIGHT Director March 30, 1998
- --------------------------------
George W. Ebright
/s/ LINDA JENCKES Director March 30, 1998
- --------------------------------
Linda Jenckes
33
34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
Nabi
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) and (2) present fairly, in all material
respects, the financial position of Nabi and its subsidiaries at December 31,
1996 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Nabi's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Miami, Florida
March 30, 1998
34
35
NABI
CONSOLIDATED STATEMENT OF OPERATIONS
For The Years Ended December 31,
-----------------------------------------
(In Thousands, Except Per Share Data) 1995 1996 1997
--------- --------- ---------
SALES $ 195,928 $ 239,909 $ 228,744
COSTS AND EXPENSES:
Costs of products sold 152,148 181,914 180,533
Selling, general and administrative expense 26,816 21,095 25,012
Research and development expense 20,132 16,721 19,126
Royalty expense 3,490 5,253 6,617
Other operating expense, principally
amortization and freight 3,015 3,757 3,087
Non-recurring charges -- -- 5,680
--------- --------- ---------
OPERATING INCOME (LOSS) (9,673) 11,169 (11,311)
INTEREST INCOME 1,064 1,275 272
INTEREST EXPENSE (1,931) (3,987) (4,712)
OTHER, NET (334) (511) (70)
--------- --------- ---------
INCOME (LOSS) BEFORE BENEFIT (PROVISION) FOR
INCOME TAXES AND EXTRAORDINARY CHARGE (10,874) 7,946 (15,821)
BENEFIT (PROVISION) FOR INCOME TAXES (6,687) 6,214 4,668
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE (17,561) 14,160 (11,153)
EXTRAORDINARY CHARGE -- (932) --
--------- --------- ---------
NET INCOME (LOSS) $ (17,561) $ 13,228 $ (11,153)
========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary charge $ (0.52) $ 0.41 $ (0.32)
Extraordinary charge -- (0.03) --
--------- --------- ---------
Net earnings (loss) $ (0.52) $ 0.38 $ (0.32)
========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary charge $ (0.52) $ 0.40 $ (0.32)
Extraordinary charge -- (0.03) --
--------- --------- ---------
Net earnings (loss) $ (0.52) $ 0.37 $ (0.32)
========= ========= =========
The accompanying Notes are an integral part of these Financial Statements.
35
36
NABI
CONSOLIDATED BALANCE SHEET
December 31,
-------------------------
(In Thousands) 1996 1997
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18,513 $ 3,397
Short-term investments 8,797 --
Trade accounts receivable, net 38,127 36,060
Inventories, net 28,395 43,387
Prepaid expenses and other assets 4,269 16,128
--------- ---------
TOTAL CURRENT ASSETS 98,101 98,972
PROPERTY AND EQUIPMENT, NET 60,587 89,187
OTHER ASSETS
Excess of acquisition cost over net assets acquired, net 18,072 17,123
Intangible assets, net 9,684 8,104
Other, net 15,698 12,520
--------- ---------
TOTAL ASSETS $ 202,142 $ 225,906
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 9,800 $ 11,390
Accrued expenses 22,484 17,396
Notes payable 2,187 6,253
--------- ---------
TOTAL CURRENT LIABILITIES 34,471 35,039
NOTES PAYABLE 81,278 114,828
OTHER 332 376
--------- ---------
TOTAL LIABILITIES 116,081 150,243
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
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;
34,614 and 34,801 shares issued and outstanding, respectively 3,461 3,480
Capital in excess of par value 136,424 137,160
Accumulated deficit (53,824) (64,977)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 86,061 75,663
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 202,142 $ 225,906
========= =========
The accompanying Notes are an integral part of these Financial Statements.
36
37
NABI
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Common Stock
Common Stock Warrants
-------------------------------------------------------
(In Thousands) Shares Amount Shares Amount
--------- --------- --------- --------
Balance at December 31, 1994 33,296 $ 3,330 9 $ --
Compensation related to restricted
stock issued under employee stock plan -- -- -- --
Stock options exercised 700 70 -- --
Issuance of common stock pursuant to employee stock plan 22 2 -- --
Tax benefit from stock options exercised -- -- -- --
Acquisition and retirement of treasury stock (76) (8) -- --
Issuance of warrants -- -- 100 --
Collection of note receivable -- -- -- --
Net loss for the year -- -- -- --
Other -- -- -- --
--------- --------- --------- --------
Balance at December 31, 1995 33,942 3,394 109 --
Compensation related to restricted stock issued
under employee stock plan 14 1 -- --
Stock options exercised 704 71 -- --
Tax benefit from stock options exercised -- -- -- --
Acquisition and retirement of treasury stock (50) (5) -- --
Warrants exercised 4 -- (9) --
Net income for the year -- -- -- --
Other -- -- -- --
Balance at December 31, 1996 34,614 3,461 100 --
--------- --------- --------- --------
Stock options exercised 185 19 -- --
Tax benefit from stock options exercised -- -- -- --
Net loss for the year -- -- -- --
Other 2 -- -- --
--------- --------- --------- --------
Balance at December 31, 1997 34,801 $ 3,480 100 --
========= ========= ========= ========
Capital in Receivable
Excess of Accumulated from Stockholders'
(In Thousands) Par Value Deficit Stockholder Equity
---------- ----------- ----------- -----------
Balance at December 31, 1994 $ 131,606 $ (49,491) $ (126) $ 85,319
Compensation related to restricted
stock issued under employee stock plan 5 -- -- 5
Stock options exercised 1,127 -- -- 1,197
Issuance of common stock pursuant to employee stock plan 102 -- -- 104
Tax benefit from stock options exercised 819 -- -- 819
Acquisition and retirement of treasury stock (555) -- -- (563)
Issuance of warrants -- -- -- --
Collection of note receivable -- -- 126 126
Net loss for the year -- (17,561) -- (17,561)
Other (4) -- -- (4)
--------- --------- --------- ---------
Balance at December 31, 1995 133,100 (67,052) -- 69,442
Compensation related to restricted stock issued
under employee stock plan 164 -- -- 165
Stock options exercised 2,526 -- -- 2,597
Tax benefit from stock options exercised 1,211 -- -- 1,211
Acquisition and retirement of treasury stock (495) -- -- (500)
Warrants exercised -- -- -- --
Net income for the year -- 13,228 -- 13,228
Other (82) -- -- (82)
--------- --------- --------- ---------
Balance at December 31, 1996 136,424 (53,824) -- 86,061
Stock options exercised 427 -- -- 446
Tax benefit from stock options exercised 477 -- -- 477
Net loss for the year -- (11,153) -- (11,153)
Other (168) -- -- (168)
--------- --------- --------- ---------
Balance at December 31, 1997 $ 137,160 $ (64,977) -- $ 75,663
========= ========= ========= =========
The accompanying Notes are an integral part of these Financial Statements.
37
38
NABI
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Years Ended December 31,
--------------------------------------
(In Thousands) 1995 1996 1997
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(17,561) $ 13,228 $(11,153)
Adjustments to reconcile net income (loss) to net cash (used)
provided by operating activities:
Depreciation and amortization 6,959 7,883 9,856
Non-recurring charge -- -- 5,680
Compensation under employee stock plan 657 165 --
Deferred income taxes (806) (6,369) 2,503
Tax benefit from stock options exercised 819 1,211 477
Extraordinary charge -- 932 --
Other 119 916 1,179
Change in assets and liabilities:
Decrease (increase) in trade accounts receivable (4,743) (10,589) 1,066
Decrease (increase) in inventories (1,401) (5,749) (15,096)
Decrease (increase) in prepaid expenses 369 (1,396) (12,259)
Decrease (increase) in other assets (2,578) (1,106) (2,633)
Increase (decrease) in accounts payable and accrued expenses 5,495 7,121 (5,246)
-------- -------- --------
Total adjustments 4,890 (6,981) (14,473)
-------- -------- --------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (12,671) 6,247 (25,626)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash consideration for business acquisition (6,425) -- --
Capital expenditures (24,387) (23,085) (36,367)
Collections on note receivable from stockholder 126 -- --
Purchases of short-term investments (4,036) (18,190) --
Sales and redemptions of short-term investments 22,885 9,724 8,850
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (11,837) (31,551) (27,517)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible subordinated debentures -- 77,884 --
Net proceeds from sale and issuance of common stock 612 -- --
Proceeds from exercise of options and warrants 419 1,872 446
Borrowings (repayments) under line of credit, net (626) (6,760) 34,246
Repayments of term debt, net (388) (10,933) (614)
Borrowings (repayments) of flexible term notes 12,936 (18,000) --
Borrowings (repayments) of other debt 3,414 (4,237) 3,949
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,367 39,826 38,027
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,141) 14,522 (15,116)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,132 3,991 18,513
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,991 $ 18,513 $ 3,397
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 2,190 $ 3,605 $ 6,295
======== ======== ========
Income taxes paid (refunded), net $ 7,190 $ (264) $ 350
======== ======== ========
The accompanying Notes are an integral part of these Financial Statements
38
39
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BUSINESS AND ORGANIZATION
Nabi is a fully integrated research and development driven biopharmaceutical
company that develops and commercializes therapeutic products for the prevention
and treatment of infectious diseases and immunological disorders and supplies
human blood plasma.
On November 29, 1995, Univax Biologics, Inc. ("Univax"), a publicly traded
biopharmaceutical company, was merged with and into Nabi. Under the terms of the
agreement and plan of merger, Nabi issued an aggregate of 14,173,508 shares of
its common stock for the outstanding shares of Univax common and preferred
stock. The merger was accounted for as a pooling of interests and qualified as a
tax free reorganization under Internal Revenue Service regulations.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Nabi and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF PRESENTATION: Certain items in the 1995 and 1996 consolidated financial
statements have been reclassified for comparative purposes. All dollar amounts
are expressed in thousands of dollars except amounts related to per share data.
REVENUE RECOGNITION: Revenue is recognized when title and risk of loss are
transferred to the customer, generally as products are shipped. Cash collections
in excess of amounts earned on billings are recorded as deferred revenue and
recognized as services are rendered or products are shipped.
RESEARCH AND DEVELOPMENT EXPENSE: Research and development costs are expensed as
incurred. Amounts payable to third parties under collaborative product
development agreements are recorded at the earlier of the milestone achievement
or as payments become contractually due. Reimbursements from third parties for
research and development activities are recorded as a reduction in research and
development expense.
INCOME TAXES: The provision for income taxes includes federal and state income
taxes currently payable and the change in amounts deferred because of temporary
differences between financial statement and tax basis of assets and liabilities.
Deferred tax assets are accounted for under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes,"
which requires a valuation allowance when it is "more likely than not" that some
portion of the deferred tax assets will not be realized. The pronouncement
further states that "forming a conclusion that a valuation allowance is not
required is difficult" when there is persuasive evidence to the contrary, such
as cumulative losses in recent years. Nabi periodically evaluates the
probability of future taxable income including the occurrence of intervening
events which affect the probability of future taxable income and adjusts its
valuation allowance accordingly.
39
40
EARNINGS PER SHARE: During the fourth quarter of 1997, Nabi adopted SFAS No.
128, "Earnings Per Share", which requires presentation of basic and diluted
earnings per share and restatement of earnings per share for all prior periods
presented. Basic earnings per share is determined based on the weighted average
number of common shares outstanding during the year. Diluted earnings per share
is determined based on the weighted average number of common shares and
potentially dilutive securities outstanding during the year.
FINANCIAL INSTRUMENTS: The carrying amounts of financial instruments including
cash and cash equivalents, short-term investments, accounts receivable, accounts
payable and short-term debt approximated fair value as of December 31, 1996 and
1997, because of the relatively short maturity of these instruments.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: Cash equivalents consist of money
market funds and bankers acceptances with a maturity of three months or less.
Short-term investments consist of securities issued or guaranteed by the U.S.
Treasury and U.S. Government Agency Securities.
Short-term investments are classified as available-for-sale based on
management's assessment of its intent and ability to hold these investments.
INVENTORIES: Inventories are stated at the lower of cost or market with cost
determined on the first-in first-out ("FIFO") method for substantially all
inventories.
PROPERTY AND EQUIPMENT: Property and equipment are carried at cost. Depreciation
is recognized on the straight-line method over the estimated useful lives of the
assets. Depreciable lives of property and equipment are as follows:
ASSET LIFE
--------------------------------------------------------------------------
Buildings 35 - 39 Years
Furniture and fixtures 5 - 8 Years
Information systems 3 - 10 Years
Machinery and equipment 3 - 8 Years
Leasehold improvements Lesser of lease term or economic life
Maintenance and repairs are expensed as incurred. Major renewals and betterments
are capitalized as additions to property and equipment. Gain or loss upon the
retirement or sale of property and equipment is reflected currently in the
results of operations.
EXCESS OF ACQUISITION COST OVER NET ASSETS ACQUIRED: Excess of acquisition cost
over net assets acquired (goodwill) represents the excess of cost over the fair
value of identifiable assets acquired in business acquisitions. Goodwill is
amortized ratably from the date of acquisition over periods ranging from 10 to
25 years and is evaluated periodically in relation to the operating performance
and future undiscounted cash flows of the underlying assets.
INTANGIBLE ASSETS: Intangible assets represent the fair value of assets acquired
in business, product and plasma center acquisitions including customer lists,
donor lists, trademarks and trademark registrations, and non-competition
agreements. These costs are amortized ratably from the date of acquisition over
periods ranging from 3 to 25 years and are evaluated periodically in relation to
the operating performance and future undiscounted cash flows of the underlying
assets.
NOTE 3 SHORT-TERM INVESTMENTS
The following is a summary of securities available for sale as of December 31,
1996:
FAIR VALUE
-----------------------------------------------------------------
U.S. Treasury Bill $4,955
U.S. Government Agencies 3,842
------
TOTAL $8,797
======
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41
The fair value of the above securities approximates carrying value at December
31, 1996.
NOTE 4 TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are comprised of the following:
DECEMBER 31,
-----------------------
1996 1997
-------- --------
Trade accounts receivable $ 38,774 $ 36,463
Allowance for doubtful accounts (647) (403)
-------- --------
TOTAL $ 38,127 $ 36,060
======== ========
NOTE 5 INVENTORIES
The components of inventories are as follows:
DECEMBER 31,
-----------------------
1996 1997
-------- --------
Finished goods $ 23,610 $ 40,029
Work in process 1,836 212
Raw materials 8,504 3,787
-------- --------
33,950 44,028
Less reserves (5,555) (641)
-------- --------
TOTAL $ 28,395 $ 43,387
======== ========
Inventory reserves at December 31, 1997 declined substantially from the prior
year, principally due to the write-off of previously reserved development stage
raw material inventories which had no commercial viability.
NOTE 6 PREPAID EXPENSES AND OTHER ASSETS
The components of prepaid expenses and other current assets are summarized
below:
DECEMBER 31,
--------------------
1996 1997
------- -------
Federal and State income tax receivables -- $ 7,767
Other prepaid items $ 4,269 8,361
------- -------
TOTAL $ 4,269 $16,128
======= =======
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NOTE 7 PROPERTY AND EQUIPMENT
Property and equipment and related allowances for depreciation and amortization
are summarized below:
DECEMBER 31,
-------------------------
1996 1997
--------- ---------
Information systems $ 4,692 $ 19,066
Leasehold improvements 15,106 17,523
Machinery and equipment 16,839 16,882
Land and buildings 7,155 8,634
Furniture and fixtures 4,907 5,122
Construction in progress 32,298 46,776
--------- ---------
Total property and equipment 80,997 114,003
Less accumulated depreciation and amortization (20,410) (24,816)
--------- ---------
TOTAL $ 60,587 $ 89,187
========= =========
Construction in progress consists primarily of costs incurred in connection with
construction of Nabi's biopharmaceutical facility included deferred validation
costs of $2,754 and $9,370 and capitalized interest of $2,757 and $5,149 at
December 31, 1996 and 1997, respectively.
The biopharmaceutical facility requires FDA licensure to produce therapeutic
products. Nabi believes that the facility will be licensed by late 1999 or early
2000. The anticipated costs of completion to prepare the facility for its
intended use are estimated to be approximately $11,000 and $12,500 in 1998 and
1999, respectively.
Machinery and equipment includes certain assets which have been accounted for as
capital leases with a net book value of $1,056 and $421 at December 31, 1996 and
1997, respectively.
Depreciation and amortization expense during 1995, 1996 and 1997 includes
amortization of assets under capital leases of approximately $861, $743 and $447
respectively.
NOTE 8 OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
-----------------------
1996 1997
-------- --------
Excess of acquisition cost over net
assets acquired $ 22,204 $ 22,204
Less accumulated amortization (4,132) (5,081)
-------- --------
$ 18,072 $ 17,123
======== ========
Intangible assets $ 15,733 $ 15,557
Less accumulated amortization (6,049) (7,453)
-------- --------
$ 9,684 $ 8,104
======== ========
Other $ 20,330 $ 18,145
Less accumulated amortization (4,632) (5,625)
-------- --------
TOTAL $ 15,698 $ 12,520
======== ========
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NOTE 9 ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
--------------------
1996 1997
------- -------
Employee compensation and benefits $ 6,919 $ 5,127
Accrued royalties and product costs 3,282 3,741
Accrued interest 2,210 2,389
Accrued chargebacks 1,956 715
Other 8,117 5,424
------- -------
TOTAL $22,484 $17,396
======= =======
NOTE 10 NOTES PAYABLE
Notes payable consist of the following:
DECEMBER 31,
-------------------------
1996 1997
--------- ---------
Bank indebtedness:
Revolving credit facility -- $ 34,246
Other $ 1,573 4,599
--------- ---------
1,573 38,845
6.5% Convertible Subordinated Notes 80,500 80,500
Equipment term notes 957 343
Other 435 1,393
--------- ---------
Total notes payable 83,465 121,081
Current maturities (2,187) (6,253)
--------- ---------
Notes payable, long-term $ 81,278 $ 114,828
========= =========
At December 31, 1997, the annual aggregate maturities of debt through the year
2002 and thereafter were $6,253; $82; $0; $0; $34,246; and $80,500.
At December 31, 1997, Nabi's credit agreement provided for a $50,000 revolving
credit facility subject to certain borrowing base restrictions as defined in the
agreement which matures in September 2002. Availability under the new facility
was approximately $10,300 at December 31, 1997. As of the same date, Nabi was
not in compliance with certain financial covenants. Effective March 30, 1998
Nabi amended its credit agreement to provide for a waiver of noncompliance with
respect to the financial covenants and also to prospectively modify the
financial covenants. The agreement was also amended to provide for a $45,000
revolving credit facility due September 2002, and a $5,000 term loan due March
1999, on substantially the same terms as the previous credit agreement, with the
exception that all borrowings will bear interest at the prime rate plus 1%. Nabi
currently believes that it can comply with the amended covenants during 1998 and
the remaining term of the credit agreement. This credit agreement is secured by
substantially all assets and contains covenants prohibiting dividend payments
and requiring the maintenance of certain financial covenants. Other bank
indebtedness includes amounts due for transactional float under the revolving
credit facility.
Equipment term notes outstanding at December 31,1997 have a weighted-average
interest rate of 5.57%, are payable in installments through 1999 and are secured
by equipment having a net book value of approximately $400 at December
31, 1997.
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44
During the first quarter of 1996, Nabi issued $80,500 of 6.5% Convertible
Subordinated Notes due February 1, 2003 ("Notes") in a private placement. The
Notes are convertible into Nabi common stock at a conversion price of $14 per
share at any time on or after May 6, 1996, unless previously redeemed or
repurchased. At any time on or after February 4, 1999, the Notes may be redeemed
at Nabi's option without premium. A total of 5,750,000 shares of common stock
have been registered and reserved for issuance upon conversion of the Notes.
Nabi utilized a portion of the net proceeds of the offering to repay a $10,000
term loan, $18,000 in flexible term notes and approximately $12,200 under a
revolving credit facility. In connection with the early repayment of the
outstanding bank debt through the application of the net proceeds of the Notes,
Nabi incurred an extraordinary charge of approximately $932 in the first quarter
of 1996.
At December 31, 1997, the fair value of Nabi's convertible subordinated notes
was approximately $53,900. The fair value was estimated using an independently
quoted market price. The carrying value of all other long-term notes payable
approximated fair value based upon quoted market prices for the same or similar
debt issues.
NOTE 11 STOCKHOLDERS' EQUITY
COMMON STOCK
Effective November 29, 1995, Nabi issued approximately 14.2 million shares of
its common stock in exchange for all of the outstanding common and preferred
stock of Univax.
Effective January 1995, Nabi increased its authorized common stock from 20
million to 50 million shares and in November 1995 to 75 million shares.
WARRANTS
In November 1995, Nabi issued a warrant to purchase 100,000 shares of its common
stock to an affiliate of its principal bank lender in connection with an
agreement whereby Nabi had the right to issue up to $20,000 in subordinated
notes. The warrants are exercisable at $9.82 per share and expire on December
31, 2000.
STOCK OPTIONS
Nabi maintains four stock option plans for its employees. Under these plans,
Nabi has granted options to certain employees entitling them to purchase shares
of common stock within ten years. The options vest over periods ranging from six
months to four years from the date of grant and are granted with exercise prices
equal to or greater than the fair market value of the underlying common stock on
the date of grant.
During May 1995, the stockholders of Nabi adopted the Stock Plan for
Non-Employee Directors (the "Directors Plan"). Nabi granted options under the
Director's Plan to certain directors entitling them to purchase shares of Nabi
common stock within five years, vesting at six months after the date of grant
and at an option price equal to the fair market value of the underlying common
stock at the date of grant. Also, during May 1995, the stockholders of Univax
approved the 1995 Director's Stock Option Plan (the "Univax Director's Plan")
for the former directors of Univax. Under the Univax Director's Plan, options to
purchase 27,650 shares of common stock were granted, all of which were exercised
prior to the effective date of the Univax merger upon which date the plan was
terminated.
44
45
At December 31, 1997, there were options outstanding under all Nabi's stock
plans to acquire 4.9 million shares of its common stock of which 1.8 million
were then exercisable. As of the same date, 4.9 million shares of common stock
are reserved for future issuance under the plans. Stock options granted and
outstanding under these plans as of December 31, 1997 is presented below:
STOCK OPTION ACTIVITY
OPTIONS EXERCISE PRICE
------- --------------
(In Thousands)
BALANCE AT DECEMBER 31, 1994 3,054 $ .19 - $12.97
Granted 1,029 $5.38 - $11.00
Exercised or canceled (1,029) $ .19 - $12.97
------- --------------
BALANCE AT DECEMBER 31, 1995 3,054 $ .19 - $12.97
Granted 975 $8.63 - $13.75
Exercised or canceled (912) $ .19 - $ 3.75
------- --------------
BALANCE AT DECEMBER 31, 1996 3,117 $ .19 - $13.75
Granted 1,001 $4.25 - $11.13
Exercised or canceled (345) $1.03 - $13.75
------- --------------
BALANCE AT DECEMBER 31, 1997 3,773 $ .19 - $13.75
======= ==============
STOCK OPTIONS OUTSTANDING
OUTSTANDING EXERCISABLE
------------------------------------------- ----------------------------
Average Average Average
EXERCISE PRICE RANGE Years Exercise Exercise
-------------------- Options Remaining Price Options Price
--------- ---------- ---------- --------- ---------
(In Thousands) (In Thousands)
$0.19 - $4.25 540 4.6 $2.65 520 $2.59
$5.06 - $7.59 1,260 7.1 6.75 834 6.77
$8.39 - $11.125 1,121 6.9 10.72 168 9.11
$12.97 - $13.75 852 6.5 13.73 241 13.68
--------- ---------- ---------- --------- ---------
TOTAL 3,773 6.5 $8.46 1,763 $8.04
========= ========== ========== ========= =========
In connection with the merger of Univax into Nabi, certain employees' stock
options were vested in connection with the termination of their employment.
Nabi has recorded compensation in connection with these plans of $657 and $165
in 1995 and 1996, respectively.
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation". SFAS 123, the disclosure
provisions of which must be implemented for fiscal years beginning subsequent to
December 15, 1995, establishes a fair value based method of accounting for
stock-based compensation plans, the effect of which can either be disclosed or
recorded. Nabi adopted the disclosure-only provisions of SFAS 123 in 1996 and
upon adoption, retained its intrinsic value method of accounting for stock-
based compensation.
The following information reflects Nabi's proforma earnings (loss) information
as if compensation expense associated with Nabi's stock plans had been recorded
under the provisions of SFAS 123. Proforma compensation expense has been
determined based upon the estimated fair market value of the options at the date
of grant.
1996 1997
---------- ----------
Net income (loss) $ 12,230 $ (12,658)
Basic earnings (loss) per share $ 0.36 $ (0.36)
Diluted earnings (loss) per share $ 0.35 $ (0.36)
45
46
The estimated fair value of each option grant is estimated using the
Black-Scholes option-pricing model with the following ranges of assumptions:
expected term of 2 - 5 years; expected volatility of 57% - 83%; and risk-free
interest rates of 5% - 8%. The weighted-average estimated fair value of options
granted during 1996 was $5.93 and $6.48 for 1997.
Effective July 25, 1997, Nabi's Board of Directors adopted a shareholders rights
plan under which a dividend of one preferred share purchase right ("the Right")
was distributed for each outstanding share of common stock held as of the close
of business on August 27, 1997. Each right entitles the holder to purchase one
one-hundredth of a share of Series One Preferred Stock at a price of $70,
subject to adjustment. The Rights expire August 1, 2007, and are exercisable
only if an individual or group has acquired or obtained the right to acquire, or
has announced a tender or exchange offer that if consummated would result in
such individual or group acquiring beneficial ownership of 15% or more of the
common stock. Such percentage may be lowered at the Board's discretion. If the
Rights become exercisable, the holder may be entitled to receive upon exercise
shares of Nabi's common stock having a market value of two times the exercise
price of the Rights or the number of shares of the acquiring company which have
a market value of two times the exercise price of the Rights. The Rights
separate from the common stock if they become exercisable. Nabi is entitled to
redeem the Rights in whole for $.01 per Right under certain circumstances.
During January 1998, Nabi granted approximately 1.6 million options to its
employees under the stock option plans.
STOCK PURCHASE PLAN
During 1991, Nabi adopted an employee stock purchase plan which was terminated
effective November 29, 1995 in connection with the Univax merger. The plan
provided for the purchase of common stock by employees at a price equal to 85%
of the fair market value of such stock. Under this plan, 41,830 common shares
were issued to employees.
NOTE 12 INCOME TAXES
Income (loss) before benefit (provision) for income taxes and extraordinary
charge was taxed under the following jurisdictions:
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
-------- -------- --------
Domestic $ (9,148) $ 6,172 $(15,348)
Foreign (1,726) 1,774 (473)
-------- -------- --------
TOTAL $(10,874) $ 7,946 $(15,821)
======== ======== ========
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The benefit (provision) for income taxes consists of the following:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
------- ------- -------
Current
Federal $(5,926) $ (529) $ 6,929
State (730) (231) (60)
------- ------- -------
(6,656) (760) 6,869
------- ------- -------
Deferred
Federal 771 7,719 (1,631)
State 35 484 (75)
------- ------- -------
806 8,203 (1,706)
------- ------- -------
Benefit charged directly to equity from exercise
of stock options and warrants (819) (1,211) (477)
Acquired tax benefit used to reduce intangible
assets (18) (18) (18)
------- ------- -------
TOTAL $(6,687) $ 6,214 $ 4,668
======= ======= =======
Deferred tax assets (liabilities) are comprised of the following:
December 31,
--------------------------------------
1995 1996 1997
-------- -------- --------
DEFERRED TAX ASSETS:
NOL carryforward $ 18,338 $ 17,429 $ 17,987
Capitalized research and development 12,712 10,387 9,003
Research tax credit 2,801 3,078 2,882
Inventory reserve and capitalization 1,518 2,044 482
Amortization 1,090 2,185 2,349
Bad debt reserve 126 233 145
Depreciation 523 719 678
Alternative minimum tax credit -- -- 703
Other 593 525 928
-------- -------- --------
37,701 36,600 35,157
Valuation allowance (34,635) (27,251) (28,324)
-------- -------- --------
Deferred tax assets 3,066 9,349 6,833
DEFERRED TAX LIABILITIES:
Amortization (937) (906) (906)
Other (72) (17) (4)
-------- -------- --------
Deferred tax liabilities (1,009) (923) (910)
======== ======== ========
Net deferred tax assets $ 2,057 $ 8,426 $ 5,923
======== ======== ========
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In November 1995, Univax was merged with and into Nabi. The merger qualifies as
a tax-free reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended. Univax's pre-merger deferred tax assets are
available to offset the future taxable income of Nabi, subject to certain annual
and change of control limitations. The Univax pre-merger deferred tax assets
primarily include NOL carryforwards, capitalized research and development
expense and research tax credit carryforwards. The NOLs and research tax credit
carryforwards expire in varying amounts through the year 2010.
Pursuant to SFAS No. 109 "Accounting for Income Taxes," Nabi recognized
approximately $7,400 of certain deferred tax assets during 1996 primarily as a
result of releasing a portion of the valuation allowance previously established
against these assets acquired in the Nabi/Univax merger. During 1997, Nabi
utilized deferred tax assets of approximately $2,500. The ultimate realization
of the remaining deferred tax assets is largely dependent on Nabi's ability to
generate sufficient future taxable income. Nabi believes that the valuation
allowance at December 31, 1997 is appropriate, given its historical loss
experience and other factors including but not limited to the uncertainty of
future taxable income expectations beyond Nabi's strategic planning horizon.
During 1997, Nabi generated a federal income tax receivable in the amount of
$6,900 due to carryback of the current year net operating loss.
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'
The significant elements contributing to the difference between the federal
statutory tax rate and the effective tax rate are as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
------ ------ ------
Federal statutory rate (35.0)% 35.0% (35.0)%
State income taxes, net of federal benefit 4.1 (2.9) 0.1
Goodwill and other amortization 2.3 (0.2) 1.1
Foreign trade income (5.1) (12.8) 1.0
Foreign loss 5.7 -- --
Merger transaction cost 19.0 (0.6) (0.9)
Pre-merger losses 14.9 -- --
Increase (reduction) in valuation allowance -- (92.9) 5.5
Tax credits -- (3.3) 0.2
Capitalized research and development 60.2 -- --
Other (4.6) (0.5) (1.5)
------ ------ ------
61.5% (78.2)% (29.5)%
====== ====== ======
NOTE 13 EARNINGS PER SHARE
Effect of
Basic Dilutive Securities: Diluted
EPS Stock Options EPS
-------- ------------------- --------
1995
Income (Loss) Before Extraordinary Charge $(17,561) -- $(17,561)
Shares 33,574 -- 33,574
Per Share $ (0.52) $ (0.52)
-------- --------- --------
1996
Income (Loss) Before Extraordinary Charge $ 14,160 -- $ 14,160
Shares 34,387 995 35,382
Per Share $ 0.41 $ 0.40
-------- --------- --------
1997
Income (Loss) Before Extraordinary Charge $(11,153) -- $(11,153)
Shares 34,737 -- 34,737
Per Share $ (0.32) $ (0.32)
-------- --------- --------
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NOTE 14 LEASES
Nabi conducts a majority of its operations under operating lease agreements.
Certain laboratory and office equipment leases are accounted for as capital
leases. The majority of the related lease agreements contain renewal options
which enable Nabi to renew the leases for periods of two to five years at the
then fair rental value at the end of the initial lease term. Management expects
that the leases will be renewed or replaced in the normal course of business.
Rent expense was approximately $5,225, $6,293 and $6,785 for the years ended
December 31, 1995, 1996 and 1997, respectively.
As of December 31, 1997, the aggregate future minimum lease payments under all
non-cancelable operating leases with initial or remaining lease terms in excess
of one year are as follows:
YEAR ENDING DECEMBER 31,
1998 $5,727
1999 4,826
2000 4,105
2001 3,487
2002 2,136
Thereafter 4,188
--------
Total minimum lease commitments $24,469
========
NOTE 15 RELATED PARTY TRANSACTIONS
Effective September 30, 1992, Nabi acquired H-BIG(R) (hepatitis B immune
globulin) a proprietary plasma-based product from Abbott Laboratories
("Abbott"), in consideration of 2 million shares of Nabi common stock valued at
$3,854 and royalties based upon product sales. The shares of Nabi common stock
issued to Abbott were not registered under the federal securities laws and
therefore were subject to restrictions on transfer. With respect to its
investment in Nabi, Abbott has agreed to various standstill measures, including
agreements not to acquire additional shares without approval of Nabi's Board of
Directors and to vote its shares on most matters in the same proportion as other
stockholders.
Related party transactions with Abbott for the years ended December 31, 1995,
1996 and 1997 are summarized below:
1995 1996 1997
------- ------- -------
Sales of plasma-related products and testing services $ 4,574 $ 3,027 $ 2,720
Purchases of diagnostic, therapeutic and testing products 8,516 10,390 14,028
Product royalty obligations 1,977 2,617 2,489
Rental payments and other 1,048 919 1,030
At December 31, 1996 and 1997, trade accounts receivable from Abbott totaled
$311 and $499 respectively, and accounts payable to Abbott aggregated $1,554 and
$894, respectively.
At December 31, 1997, notes receivable from corporate officers aggregated $390,
bear interest at the prime rate and mature at varying dates through December 31,
1998.
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NOTE 16 STRATEGIC ALLIANCES, LICENSES AND ROYALTY AGREEMENTS
Nabi has entered into product development and licensing agreements with certain
collaborators. Under these agreements, Nabi has made payments for contract
initiation, milestone achievements, cost reimbursements and profit sharing and
is obligated to make future payments under these agreements if certain
contractual conditions are achieved. Nabi incurred research and development
expenses under these agreements of $1,900 in 1995, In addition, under a certain
collaboration agreement, Nabi recorded research support reimbursements of $6,036
and $2,148 in 1995 and 1996, respectively. This collaboration agreement
terminated in 1996.
As discussed in Note 15, Nabi is obligated to pay Abbott royalties based upon
its H-BIG(R) product sales.
In connection with an exclusive licensing and distribution agreement with
Cangene Corporation ("Cangene") to market and distribute WinRho SDF(TM) in the
U.S. through March 2005, Nabi was obligated to expend a minimum of $3,000 for
sales and marketing expenses in each of the fiscal years ended May 1996 and
1997. In addition, Nabi has agreed to loan Cangene fifty percent (50%) of the
cost of capital improvements to its manufacturing facility up to $3,000, of
which $2,240 was advanced at December 31, 1997. Under the agreement which
terminates in 2005, Nabi has exclusive marketing rights for and shares in the
profits from sales of WinRho SDF(TM) in the United States.
During 1997, Nabi entered into a co-promotion and supply agreement with Cangene
under which Cangene will manufacture H-BIG(R) for approximately three years once
the new formulation receives U.S. regulatory approval. In a reciprocal
agreement, Cangene gains exclusive rights to distribute H-BIG(R) in Canada for
three years, provided Cangene achieves specified minimum annual sales, and will
share profits on all Canadian sales with Nabi. Nabi is obligated to purchase
approximately $6,800 of H-BIG(R) over the three years following receipt of
regulatory approval.
Nabi also entered into an agreement in May 1997 with Baxter Healthcare
Corporation ("Baxter") to acquire certain assets associated with the product
sales of Autoplex(R)T and obtained exclusive marketing rights for this product
in the United States, Canada and Mexico. In connection with the acquisition,
Baxter agreed to manufacture Autoplex(R)T until the earlier of May 2000, or such
later date as may be approved by the Federal Trade Commission ("FTC"), or four
months after Nabi obtains FDA approval to manufacture the product. If Nabi does
not obtain FDA approval within the required timetable, FTC could terminate the
divestiture agreement associated with Nabi's acquisition of Autoplex(R)T from
Baxter. In this event, all assets and marketing rights associated with the
acquisition would revert to Baxter. Nabi and Baxter would equally share in the
proceeds from the ultimate sale of these assets under certain specified
conditions. Upon FDA licensure to manufacture the product, Nabi is obligated to
pay $1,000 to Baxter, subject to recovery of fifty percent (50%) of expenditures
incurred to license the product in excess of $6,000.
NOTE 17 COMMITMENTS AND CONTINGENCIES
Nabi has been named with various other defendants in numerous suits filed in the
U.S., by or on behalf of, individuals who claim to have been infected with HIV
as a result of either using HIV-contaminated products made by the defendants
other than Nabi or having familial relations with those so infected. Nabi denies
all allegations against it, and intends to defend the cases vigorously.
At December 31, 1996, Nabi and its subsidiaries were also parties to certain
routine claims and litigation occurring in the normal course of business.
Management believes that the ultimate resolution of these matters will not have
a material adverse effect on Nabi's financial position or results of operations.
At December 31, 1997, Nabi had outstanding purchase commitments in the normal
course of business with various suppliers. Under an agreement with a principal
supplier, Nabi is obligated to purchase goods
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aggregating approximately $21,942 in fiscal 1998 and $16,457 in fiscal 1999.
Nabi is committed to purchase the entire plasma production of certain contract
centers through December 31, 1999.
NOTE 18 INDUSTRY SEGMENT INFORMATION
Nabi operates in four principal industry segments. Plasma consists of the
collection and sale of source and specialty plasmas. Therapeutic products
consists of the production and sale of proprietary plasma-based therapeutic
products. Diagnostic products and services is composed primarily of the
production and sale of human plasma-based control and diagnostic products and
laboratory testing services. Research and development expenses are presented net
of periodic reimbursements under collaborative product development agreements.
Corporate and other includes unallocated general corporate expenses, interest
and elimination of inter-segment sales and related profits.
Net export sales in 1995, 1996 and 1997 were $70,679, $93,774 and $55,464
respectively, and represented 36%, 39% and 24% of consolidated sales for those
years, respectively. Export sales are primarily to Europe. Plasma sales to
unaffiliated customers (Baxter, Bayer and Immuno for 1995; Baxter, Bayer and
Biotest for 1996; and Baxter and Bayer for 1997) exceeding 10% of consolidated
sales aggregated 47%, 45% and 41% of sales in 1995, 1996 and 1997, respectively.
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Information regarding Nabi's operations and identifiable assets in the different
industry segments is as follows:
1995 1996 1997
--------- --------- ---------
Sales:
Plasma $ 169,505 $ 207,832 $ 189,679
Therapeutic products 18,590 26,405 34,470
Diagnostic products and services 7,833 5,672 4,595
--------- --------- ---------
$ 195,928 $ 239,909 $ 228,744
========= ========= =========
Operating Profit (Loss):
Plasma $ 23,091 $ 30,218 $ 12,253
Therapeutic products 4,595 8,498 9,540
Diagnostic products and services 2,189 2,058 1,220
Research and development (20,208) (17,353) (19,126)
Corporate and other (19,340) (12,252) (15,198)
--------- --------- ---------
($ 9,673) $ 11,169 ($ 11,311)
========= ========= =========
Identifiable Assets:
Plasma $ 85,954 $ 99,000 $ 120,985
Therapeutic products 27,927 40,224 52,809
Diagnostic products and services 5,638 6,277 3,990
Research and development 6,988 5,801 5,791
Corporate and other 11,468 50,840 42,331
--------- --------- ---------
$ 137,975 $ 202,142 $ 225,906
========= ========= =========
Capital Expenditures:
Plasma $ 2,529 $ 6,010 $ 8,885
Therapeutic products 15,667 9,974 12,896
Diagnostic products and services 1,004 898 1,396
Research and development 1,124 532 1,689
Corporate and other 4,063 5,671 11,501
--------- --------- ---------
$ 24,387 $ 23,085 $ 36,367
========= ========= =========
Depreciation and Amortization Expense:
Plasma $ 3,781 $ 4,147 $ 5,105
Therapeutic products 382 381 263
Diagnostic products and services 391 436 115
Research and development 1,883 1,915 2,133
Corporate and other 522 1,004 2,240
--------- --------- ---------
$ 6,959 $ 7,883 $ 9,856
========= ========= =========
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Note 19 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Basic Per Share Data
---------------------------------------------
Income (Loss) Before Net Income (Loss) Before Net
Gross Extraordinary Income Extraordinary Extraordinary Income
Sales Margin Charge (Loss) Charge Charge (Loss)
--------- --------- --------- --------- ------------- ----------- -----------
1996
1st Quarter $ 58,552 $ 13,713 $ 1,417 $ 485 $ 0.04 $ (0.03) $ 0.01
2nd Quarter 57,682 14,057 1,642 1,642 0.05 -- 0.05
3rd Quarter (1) 57,635 12,873 1,095 1,095 0.03 -- 0.03
4th Quarter (2) 66,040 17,352 10,006 10,006 0.29 -- 0.29
--------- --------- --------- --------- ------------- ----------- -----------
$ 239,909 $ 57,995 $ 14,160 $ 13,228 $ 0.41 $ (0.03) $ 0.38
========= ========= ========= ========= ============= =========== ===========
1997
1st Quarter $ 56,377 $ 13,192 $ 1,350 $ 1,350 $ 0.04 -- $ 0.04
2nd Quarter 57,915 14,969 2,013 2,013 0.06 -- 0.06
3rd Quarter (3) 52,849 9,479 (7,889) (7,889) (0.23) -- (0.23)
4th Quarter (4) 61,603 10,571 (6,627) (6,627) (0.19) -- (0.19)
--------- --------- --------- --------- ------------- ----------- -----------
$ 228,744 $ 48,211 $ (11,153) $ (11,153) $ (0.32) -- $ (0.32)
========= ========= ========= ========= ============= =========== ===========
Diluted Per Share Data
--------------------------------------------------
Income (Loss) Before Net
Extraordinary Extraordinary Income
Charge Charge (Loss)
---------------- ----------- -----------
1996
1st Quarter $ 0.04 $ (0.03) $ 0.01
2nd Quarter 0.05 -- 0.05
3rd Quarter (1) 0.03 -- 0.03
4th Quarter (2) 0.28 -- 0.28
----------- ----------- -----------
$ 0.40 $ (0.03) $ 0.37
=========== =========== ===========
1997
1st Quarter $ 0.04 -- $ 0.04
2nd Quarter 0.06 -- 0.06
3rd Quarter (3) (0.23) -- (0.23)
4th Quarter (4) (0.19) -- (0.19)
----------- ----------- -----------
$ (0.32) -- $ (0.32)
=========== =========== ===========
(1) During the third quarter of 1996, Nabi recorded a charge of approximately $2,000 resulting from its voluntary withdrawal of
certain lots of H-BIG(R) distributed prior to 1996 in response to implementation of second generation polymerase chain reaction
("PCR") testing requirements mandated by the Food and Drug Administration in June 1996.
(2) During the fourth quarter of 1996, Nabi recognized a tax benefit of approximately $6,500 reflecting the recognition of certain
tax benefits principally associated with the Nabi/Univax merger.
(3) During the third quarter of 1997, Nabi recognized approximately $5,700 of non-recurring charges. These charges included $3,900
of asset impairment losses, principally associated with Nabi's investment in Michigan Biologic Products Institute ("MBPI"), an
alternative contract fractionation facility for the production of H-BIG(R). The project was abandoned during the third quarter as
Nabi entered into an H-BIG(R) manufacturing agreement with Cangene Corporation. Streamlining initiatives within plasma operations
principally involving center closings contributed the remaining $1,800 in non-recurring charges.
(4) During the fourth quarter of 1997, Nabi incurred a charge of approximately $1,800 related to physical inventory adjustments, and
approximately $700 related to the write-off of accounts receivable from a foreign plasma fractionator which is in bankruptcy
proceedings.
54
55
NABI
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
Additions Deductions
-----------------------------------------------
Balance at Charged to Charged to Charged
Beginning of Costs and Other Accounts- Against Balance at End
Classification Period Expenses Provision Reserve of Period
-------------- ------------ ---------- --------------- --------- -------------
Year ended December 31, 1995:
Allowance for doubtful accounts $ 547 $ (86) -- $ 216 $ 245
Deferred tax asset valuation allowance $26,676 -- $ 7,959 -- $34,635
Inventory reserve $ 896 $ 4,186 -- $ 1,014 $ 4,068
Year ended December 31, 1996:
Allowance for doubtful accounts $ 245 $ 675 -- $ 273 $ 647
Deferred tax asset valuation allowance $34,635 -- $(7,309) $ 75 $27,251
Inventory reserve $ 4,068 $ 3,419 -- $ 1,932 $ 5,555
Year ended December 31, 1997:
Allowance for doubtful accounts $ 647 $ 1,013 -- $ 1,257 $ 403
Deferred tax asset valuation allowance $27,251 -- $ 1,073 -- $28,324
Inventory reserve $ 5,555 $ 1,648 -- $ 6,562 $ 641
55
56
EXHIBIT INDEX
PAGE #
2 Agreement and Plan of Merger dated August 28, 1995 between Nabi and Univax
Biologics, Inc. (incorporated by reference to Nabi's Registration Statement on
Form S-4; Commission File No. 33-63497)....................................................N/A
3.1 Restated Certificate of Incorporation of Nabi..............................................N/A
3.2 By-Laws (incorporated by reference to Nabi's Registration Statement on Form S-4;
Commission File No. 33-63497)..............................................................N/A
4.1 Specimen Stock Certificate (incorporated by reference to Nabi's Registration
Statement on Form S-2; Commission File No. 33-83096).......................................N/A
4.2 Indenture between Nabi and State Street Bank and Trust Company, dated as of
February 1, 1996...........................................................................N/A
4.3 Registration Rights Agreement by and between Nabi and Robertson,
Stephens & Company LLC and Raymond James & Associates, Inc., dated as of
February 1, 1996...........................................................................N/A
10.1 Third Amended and Restated Revolving Credit and Term Loan Agreement between
NationsBank, National Association (South) (f/k/a NationsBank of Florida, National
Association) ("NationsBank") and Nabi dated December 1, 1994 (incorporated by
reference to Nabi's Annual Report on Form 10-K for the year ended
December 31, 1994).........................................................................N/A
10.2 Waiver and Amendment, dated December 30, 1994, of Section 8.09(e) of Third Amended
and Restated Revolving Credit, Term Loan and Reimbursement Agreement between
NationsBank and Nabi dated as of December 1, 1994 (incorporated by reference to
Nabi's Registration Statement on Form S-4; Commission File No. 33-63497)...................N/A
10.3 Amendment No. 1 to Third Amended and Restated Revolving Credit Term Loan and
Reimbursement Agreement between NationsBank and Nabi dated March 31, 1995
(incorporated by reference to Nabi's Registration Statement on Form S-4; Commission
File No. 33-63497).........................................................................N/A
10.4 Amendment Nos. 3 and 4 to Third Amended and Restated Revolving Credit
Term Loan and Reimbursement Agreement between Nabi and NationsBank dated
as of November 29, 1995 and December 20, 1995, respectively................................N/A
10.5 Shareholder Agreement effective as of September 30, 1992 between Nabi and Abbott
Laboratories (incorporated by reference to Nabi's Annual Report on Form 10-K for the
year ended December 31, 1992) .............................................................N/A
10.6 Shareholder Agreement between CGW Southeast Partners I, L.P. and Nabi dated
January 25, 1994 (incorporated by reference to Nabi's Registration Statement on
Form S-2; Commission File No. 33-83096)....................................................N/A
56
57
10.7 Plasma Supply Agreement dated January 1, 1994 between Baxter Healthcare
Corporation and Nabi (confidential treatment) (incorporated by reference to Nabi's
Registration Statement on Form S-2; Commission File No. 33-83096)..........................N/A
10.8 Plasma Supply Agreement II dated January 1, 1994 between Baxter Healthcare
Corporation, Hyland Division, and Nabi (confidential treatment) (incorporated by
reference to Nabi's Registration Statement on Form S-2;
Commission File No. 33-83096)..............................................................N/A
10.9 Agreement effective January 1, 1994 between Nabi and Immuno Trading AG
(confidential treatment) (incorporated by reference to Nabi's Registration
Statement on Form S-2; Commission File No. 33-83096).......................................N/A
10.10 Plasma Supply Agreement dated September 8, 1992 and letter dated November 1, 1993
from Behringwerke AG to Nabi (confidential treatment) (incorporated by reference to
Nabi's Registration Statement on Form S-2; Commission File No. 33-83096)...................N/A
10.11 Supply Agreement dated May 1, 1993 between Nabi and Intergen Company L.P.
(confidential treatment) (incorporated by reference to Nabi's Registration Statement on
Form S-2; Commission File No. 33-83096)....................................................N/A
10.12 Lease Agreements dated December 11, 1990, as modified on May 23, 1994 between
Nabi and Angelo Napolitano, Trustee, for certain real property located at 16500 N.W.
15th Avenue, Miami, Florida (incorporated by reference to Nabi's Registration Statement
on Form S-2; Commission File No. 33-83096).................................................N/A
10.13 Lease Agreement dated March 31, 1994 between Nabi and Angelo Napolitano, Trustee,
for certain real property located at 16500 N.W. 15th Avenue, Miami, Florida (incorporated
by reference to Nabi's Registration Statement on Form S-2; Commission
File No. 33-83096).........................................................................N/A
10.14 Employment Agreement dated January 1, 1993 between Nabi and David J. Gury
(incorporated by reference to Nabi's Annual Report on Form 10-K for the year ended
December 31,1992)..........................................................................N/A
10.15 Employment Agreement dated January 27, 1994 between John C. Carlisle and Nabi
(incorporated by reference to Nabi's Registration Statement on Form S-2; Commission
File No. 33-83096).........................................................................N/A
10.16 Employment Agreement effective August 1, 1995 between Nabi and Alfred J. Fernandez
(incorporated by reference to Nabi's Registration Statement on Form S-4; Commission
File No. 33-63497).........................................................................N/A
10.17 Employment Agreement effective August 1, 1995 between Nabi and Stephen W. Weston
(incorporated by reference to Nabi's Registration Statement on Form S-4; Commission
File No. 33-63497).........................................................................N/A
10.18 Employment Agreement effective December 1, 1995 between Nabi and Robert B. Naso
(incorporated by reference to Nabi's Annual Report on Form 10-K for the year ended
December 31, 1995).........................................................................N/A
10.19 Employment Agreement effective December 1, 1995 between Nabi and Thomas P.
Stagnaro (incorporated by reference to Nabi's Annual Report on Form 10-K for the
year ended December 31, 1995)..............................................................N/A
57
58
10.20 Separation Agreement effective January 5, 1996 between Nabi and Raj Kumar
(incorporated by reference to Nabi's Annual Report on Form 10-K for the year
ended December 31, 1995)...................................................................N/A
10.21 1990 Equity Incentive Plan (incorporated by reference to Nabi's Registration
Statement on Form S-4; Commission File No. 33-63497).......................................N/A
10.22 Amended and Restated Incentive Stock Option Plan adopted in 1993\
(incorporated by reference to Nabi's Annual Report on Form 10-K for the
year ended December 31, 1992)..............................................................N/A
10.23 Stock Plan for Non-Employee Directors (incorporated by reference to Nabi's Proxy
Statement dated April 26, 1995)............................................................N/A
10.24 Amendment No. 5 to Third Amended and Restated Revolving Credit Term Loan and
Reimbursement Agreement between NationsBank and Nabi dated March 31, 1996
(incorporated by reference to Nabi's Quarterly Report on Form 10-Q for the quarter
ended March 31,1996).......................................................................N/A
10.25 Letter Amendment to Third Amended and Restated Revolving Credit Term
Loan and Reimbursement Agreement between NationsBank and Nabi
dated August 1, 1996.......................................................................N/A
10.26 Employment Agreement dated January 1, 1997 between John C. Carlisle
and Nabi...................................................................................N/A
10.27 $50 Million Loan and Security Agreement dated as of September 12, 1997
between Nabi, The Financial Institutions Party and NationsBank, N.A........................N/A
10.28* Rights Agreement dated as of August 1, 1997, as Amended between Nabi
and Registrar and Transfer Company.......................................................59-93
10.29* Amendment No. 1 and Waiver dated as of November 14, 1997 to Loan and
Security Agreement dated as of September 12, 1997.......................................94-101
21* Subsidiaries of the Registrant.............................................................102
23* Consent of Independent Certified Public Accountants........................................103
27* Financial Data Schedule (for S.E.C. use only).
- ----------
* FILED HEREWITH
58