Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 25, 2004

Commission File Number: 000-04829

Nabi Biopharmaceuticals

(Exact name of registrant as specified in its charter)

5800 Park of Commerce Boulevard N.W., Boca Raton, FL 33487

(Address of principal executive offices, including zip code)

(561) 989-5800

(Registrant’s telephone number, including area code)

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 twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    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.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    x  Yes    ¨  No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter was: $806,362,914

As of March 3, 2005, 58,774,255 shares of the registrant’s common stock were outstanding.

Documents Incorporated by Reference

Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders, which will be filed within 120 days after the close of the Registrant’s fiscal year ended December 25, 2004, are incorporated by reference into Part III.

Table of Contents

Nabi Biopharmaceuticals

TABLE OF CONTENTS

2

Table of Contents

Nabi Biopharmaceuticals

PART I

ITEM 1. BUSINESS

OVERVIEW

We leverage our experience and knowledge in powering the immune system to develop and market products that fight serious medical conditions. We are poised to capture large, commercial opportunities in our four core business areas: Gram-positive bacterial infections; hepatitis; kidney disease (nephrology); and nicotine addiction. We have four products on the market today and a number of products in various stages of clinical and preclinical development. We invest the gross margins we earn from sales of our marketed products toward funding the development of our product pipeline.

This business model has allowed us to largely self-fund the application of our clinical, regulatory, commercial and manufacturing expertise in developing innovative new products. We believe these products will not only save lives and improve clinical outcomes for patients, but at the same time will make an important contribution to reducing the increasing financial burden on the healthcare system.

As an example, our lead product in development, StaphVAX (Staphylococcus aureus Polysaccharide Conjugate Vaccine), is positioned to become a new standard of preventative care for patients at risk of contracting life-threatening S. aureus bacterial infections. In the U.S. alone, $5 billion in additive patient-care costs are incurred annually because of bacterial infections. S. aureus and other Gram-positive bacteria are the cause of a majority of these infections and have become serious public health challenges that plague millions of patients around the world. Current approaches do not adequately prevent or treat the most prevalent and dangerous strains of S. aureus bacteremia that are becoming increasingly resistant to antibiotic treatments. To combat this problem, thought leaders in government and academic arenas favor preventative approaches to combat bacterial infections. This is based on a belief that prevention is better for patients and less costly than treatment.

In December 2004, we submitted a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMEA, under the Centralized Registration Procedure for approval to market StaphVAX within the European Union. The indication sought under this initial license application is for the prevention of S. aureus bacteremia in patients with end-stage kidney disease on hemodialysis for up to 40 weeks. These patients are at a particularly high risk for S. aureus infections; approximately 6% of these patients will develop a S. aureus infection each year. In 2005, following completion of a confirmatory Phase III clinical trial, we intend to file a Biologics License Application for marketing clearance of StaphVAX in the U.S.

StaphVAX is also an important component of our focus in kidney disease (nephrology). Kidney disease is a growing, global public health problem driven by the increasing incidence of diabetes, obesity and hypertension around the world. In the U.S. alone, the annual direct medical costs for end-stage renal disease, or ESRD, are nearly $23 billion. Our currently marketed product, PhosLo (calcium acetate), is indicated for the treatment of hyperphosphatemia, or elevated serum phosphate levels, among patients suffering from ESRD. We believe that, combined, StaphVAX and PhosLo will position us as a leader in the large and growing global nephrology market.

Furthermore, we plan to broaden the application of StaphVAX beyond kidney disease patients to prevent a number of dangerous and prevalent Gram-positive bacterial infections in other high-risk patient groups. Globally, our Gram-positive bacterial infections program could represent a $1 - $2 billion market opportunity.

In addition to our biopharmaceutical business, we also collect specialty and non-specific antibodies for use in our products and sell the excess production to pharmaceutical and diagnostic customers for the subsequent manufacture of their products.

3

Table of Contents

We are incorporated in Delaware. Our U.S. operations are headquartered in Boca Raton, Florida and our European headquarters are located in Bray, Ireland. We maintain our commercial and manufacturing operations in Boca Raton and our research and development operations in Rockville, Maryland.

4

Table of Contents

The following table shows our currently marketed and development products:

5

Table of Contents

PRODUCTS

GRAM-POSITIVE INFECTIONS

Within the approximately 5,400 acute care hospitals in the U.S., S. aureus is the leading cause of hospital-acquired bloodstream infections. In addition, the U.S. Centers for Disease Control, or CDC, estimates that more than two million patients in the U.S. each year contract an infection as a result of exposure to a pathogen while receiving care in a hospital. In the EU’s approximately 7,600 acute care hospitals, SENTRY reports S. aureus to be the cause of blood stream infections 19% of the time, which is nearly as frequent as in the U.S. where S. aureus is reported to cause 25% of blood stream infections acquired in acute care hospitals. With its capacity to cause serious complications and its increasing resistance to most antibiotics, S. aureus has become a critically dangerous pathogen and a global health concern. S. aureus can spread from the blood to the bones or the inner lining of the heart and its valves, or cause abscesses in internal organs such as the lungs, kidneys and brain.

Staphylococcal infections are difficult to treat because the bacteria that cause them are virulent and often resistant to antibiotics. The rise of antibiotic resistance as reported by the CDC in the 2003 National Nosocomial Infections Surveillance Systems report has markedly curtailed options for treating these infections. Methicillin-resistant S. aureus, or MRSA, from all sites of infection has risen from 22% in 1995 to 57% in 2002 in the U.S. The European Antimicrobial Resistance Surveillance System reported significant increases in MRSA infections throughout Europe from 1998 to 2002. The greatest relative increases were found in Belgium, Germany, Ireland, The Netherlands and the United Kingdom, or UK, with MRSA in the UK increasing from 33% in 1999 to 43% in 2003. And, according to the SENTRY Antimicrobial Surveillance Program in the Asia-Pacific region, similar trends have been described in the Asia-Pacific region with a rate of MRSA of 73% in Japan, and similar rates in certain other Asian countries.

S. aureus infection rates in patient populations at high-risk for S. aureus infection can be as high as up to 40%. These infections result in longer hospital stays, higher death rates, increased illness and significantly higher medical costs. A retrospective study completed at the Duke University Medical Center determined that dialysis-dependent patients hospitalized with MRSA had a mean in-patient stay of 14.2 days. These patients also incurred mean costs of treatment of $32,655 and had a 35% mortality rate at 12 weeks.

In 2004, investigators from Duke Clinical Research Institute, Duke University Medical Center, Durham, North Carolina and Health Economics Consulting, Annapolis, Maryland completed a study evaluating heart disease patients with implanted cardiovascular devices such as prosthetic valves, pacemakers and defibrillators, ventricular assist devices, intra-aortic balloon pumps and non-hemodialysis intravascular stents/grafts who developed S. aureus bacteremia that was sponsored by us. In this study, 44% of the patients evaluated experienced serious complications as a result of their infection and 35% died within 12 weeks. The study also demonstrated that S. aureus bacteremia was associated with substantial medical costs with individual patients incurring a mean cost of $82,300 for a hospital-acquired infection.

StaphVAX

StaphVAX, our lead product in clinical development, seeks to address this global healthcare issue. StaphVAX represents a new approach in the available clinical tools against S. aureus infections. It is focused on prevention rather than treatment. We are developing StaphVAX for patients who are at high risk of S. aureus infection and who are able to respond to a vaccine by producing their own antibodies.

6

Table of Contents

StaphVAX is an investigational polysaccharide conjugate vaccine based on patented vaccine technology licensed on an exclusive basis from the Public Health Service/NIH. StaphVAX represents a novel approach to the prevention of S. aureus infections. StaphVAX contains surface polysaccharides found in the outer coating of Types 5 and 8 S. aureus. The polysaccharide molecules are linked, or conjugated, to a non-toxic, carrier protein derived from the bacteria Pseudomonas aeruginosa (Pseudomonas exoprotein A) that causes a strong response by the immune system to the conjugated complex. Once given the vaccine, the patient’s immune system produces proteins, called antibodies, to the polysaccharides, which bind to S. aureus on subsequent exposure to the bacteria. These antibodies help the immune system to identify the S. aureus bacteria while it is in the blood and eliminate it before significant damage can be inflicted. Since these antibodies bind to several sites on the bacteria’s surface polysaccharides, we believe that it will be much more difficult for the bacteria to develop resistance to the antibodies, contrary to what has been observed with most antibiotics in the treatment of S. aureus bacteria.

The initial formulation of StaphVAX is intended to stimulate a patient’s immune system to produce antibodies to S. aureus Types 5 and 8, which are responsible for approximately 85% of S. aureus infections.

Potential at-risk populations who may benefit from the use of StaphVAX include;

In December 2004, we filed a MAA in the EU using the Centralized Registration Procedure. This MAA submission is based on efficacy data obtained from our first Phase III clinical trial. Based on the results of this trial, we are seeking an initial indication that StaphVAX prevents S. aureus bacteremia for up to 40 weeks in ESRD patients on hemodialysis. The MAA submission included manufacturing conformance data generated at Cambrex Bio Science Baltimore, Inc., or Cambrex Bio Science, our contract manufacturer for StaphVAX. If the MAA is approved, we will be granted simultaneous regulatory approval to market StaphVAX for this indication throughout the 25 member states within the EU. Following receipt of regulatory approval, we would then seek reimbursement approval in specific EU country markets. We also plan to file a supplement to the MAA dossier in the EU upon approval of the initial application incorporating safety and immune

7

Table of Contents

response data from immunogenicity clinical trials that are being conducted in the U.S. and the EU in patients undergoing orthopedic and cardiothoracic surgery as well as data from a confirmatory Phase III clinical trial in dialysis patients currently underway in the U.S. The purpose of this supplemental filing is to expand the indication to the prevention of S. aureus bacteremia and secondary infections caused by bacteremia in at-risk adults.

In general, reimbursement by government payer systems requires demonstration of the cost-effectiveness of new products and treatments. We will initially seek reimbursement for StaphVAX in the EU. We are currently conducting country specific pharmacoeconomic studies for StaphVAX to comply with requirements for pharmacoeconomic data in reimbursement dossiers. Based on our understanding of the costs of treating S. aureus infections in hospital settings, we believe that these studies will demonstrate the cost-effectiveness of vaccination of at-risk patients with StaphVAX.

In August 2004, we completed enrollment in our confirmatory Phase III clinical trial for StaphVAX in the U.S. with a prospectively defined primary efficacy end point at eight months post-vaccination. This double-blinded, placebo-controlled, randomized trial is being conducted in ESRD patients undergoing hemodialysis, the same patient population in which we conducted our initial Phase III clinical trial of StaphVAX. A total of 3,976 patients were enrolled in the trial, exceeding our target enrollment of 3,600 patients and a total of 3,447 patients have been randomized for injection with either StaphVAX or placebo, also exceeding our target of 3,240 patients. As enrolled, the study is powered to demonstrate a 50% reduction in infection with 90% power. At the eight-month primary end point of this trial, we will administer a booster dose of the vaccine and subjects will be monitored for antibody levels and infection rates for at least an additional four months as secondary end points. Consequently, patients enrolled in the trial will be followed for at least 12 months in total. The study will remain blinded during the entire period of the trial. If we achieve positive results from this efficacy trial, we plan to file a BLA for StaphVAX with the U.S. Food and Drug Administration, or FDA by the end of 2005. Our BLA filing will incorporate the efficacy data from both the current Phase III trial of StaphVAX and the initial Phase III clinical trial as well as safety and immune response data from immunogenicity trials being conducted in the U.S. and in the EU in patients undergoing orthopedic and cardiothoracic surgery.

Our initial Phase III double-blinded, placebo-controlled and randomized clinical trial for StaphVAX was conducted in hemodialysis patients with ESRD. We targeted these patients because of their high infection rate and they were at long-term risk of infection. A total of 1,804 patients were included in the clinical trial. Half the enrolled patients were vaccinated with StaphVAX and half received a placebo. All patients were evaluated at intervals for up to a year for vaccine safety and S. aureus infection rates. Some patients were followed for up to 36 months. The results of the trial demonstrated that a single injection of StaphVAX was safe and showed a 57% reduction in the incidence of S. aureus bacteremia through 10 months post-vaccination. The highest effect was seen after 8 months, where a 63% reduction in S. aureus event rate was observed. After the 8-month time point, the cumulative reduction in infections started to wane as antibody levels on average began to fall below what are believed to be protective levels. The reduction in bacteremia one-year after vaccination, the prospectively defined efficacy end-point of the trial, was 26% and was not statistically significant. No significant side effects attributable to the vaccine were noted. The results in ESRD patients are especially significant because these patients are severely immune-compromised and generally respond poorly to vaccines. Based upon previous clinical trials in healthy volunteers, immune-competent patients who are at risk for S. aureus infections are expected to respond with higher levels of antibody to StaphVAX than ESRD patients. The significance of the results of this trial was confirmed by publication in the New England Journal of Medicine in February 2002.

To evaluate the immune response to a booster dose, for patients at long-term risk for infection, we conducted a booster trial in 2001, giving a second dose of StaphVAX to 77 hemodialysis patients who had previously received an initial dose of the vaccine in the first Phase III clinical trial. On average the booster was dosed 36 months after the initial vaccination. The trial demonstrated that a booster dose of the vaccine

8

Table of Contents

given to previously vaccinated hemodialysis patients significantly increased the concentration of the vaccine-specific antibodies against S. aureus. Hence, the trial results suggest that periodic booster doses of StaphVAX can be administered to increase and sustain antibody levels for patients at chronic risk of S. aureus infection. The average antibody concentrations reached in this trial were above what were demonstrated to be protective in the Phase III clinical trial, although the levels were not as high as those following the first dose of vaccine. However, the decline of antibody levels over time was slower after the booster vaccination than following the initial vaccination.

The FDA has awarded StaphVAX Fast Track Designation for the prevention of S. aureus bacteremia in ESRD patients.

Altastaph. [Staphylococcus aureus Immune Globulin Intravenous (Human)]

Altastaph is an investigational human polyclonal antibody product that contains high levels of S. aureus Types 5 and 8 specific antibodies. These antibodies are collected from the plasma of healthy donors who have been vaccinated with StaphVAX at our FDA approved antibody collection centers. Altastaph is also being developed to treat patients with active S. aureus infections in conjunction with standard of care therapy including antibiotic treatment. Altastaph can also provide a prevention option for patients who cannot respond to vaccines due to their compromised immune system or who do not have the 10 to 14 days time-period necessary to respond to the vaccine, prior to being at-risk of infection.

The mechanism of action for Altastaph is the same as for StaphVAX. The S. aureus Types 5 and 8 specific antibodies included in Altastaph bind to the polysaccharide capsule of the bacteria at several sites upon exposure to in the bloodstream, and help the body’s immune system to eliminate it in the bloodstream.

High-risk patient populations that could benefit from Altastaph include patients with persistent S. aureus infections, very low birth-weight newborns, emergency surgery patients, trauma patients and patients in intensive care and burn units.

Patients with active S. aureus infections could also benefit from a combination therapy of Altastaph plus StaphVAX at the conclusion of their treatment to reduce the otherwise high risk for re-infection. Re-infection with S. aureus following initial treatment and release from hospital has been reported in up to 30% of patients within 18 months after discharge.

In January 2005, we announced results from our U.S. Phase I/II clinical trial using Altastaph to treat adult in-hospital patients with persistent S. aureus bloodstream infections, or bacteremia. The study was a double-blinded, placebo-controlled, randomized trial in 40 patients designed to evaluate the safety of Altastaph and to measure S. aureus specific antibody levels. Patients were randomly allocated to receive two intravenous doses of Altastaph or saline placebo in combination with standard-of-care treatment, which included treatment with antibiotics. The results of the study demonstrated that Altastaph was well tolerated and no drug-related, serious adverse events were reported. Patients were able to maintain antibody titers at or above levels previously demonstrated to be protective against S. aureus infections in patients with ESRD. In this study there was an observed 36% reduction in median time from administration of the study drug to hospital discharge in the Altastaph-treated patients as compared to the placebo-treated patients, representing nine days in the Altastaph group versus 14 days in the placebo group. Because this overall result in a small safety/immunogenicity trial approached statistical significance, we believe this reduction in the length of hospital stay for the Altastaph-treated group indicates that the S. aureus antibodies in Altastaph could be associated with a measurable medical benefit in the treatment of persistent S. aureus infections.

9

Table of Contents

In November 2004, we announced the results of our Phase II clinical trial for the prevention of S. aureus infections in very low birth-weight newborns, defined as newborns with birth weights between 500 and 1500 grams. This randomized, double-blinded, placebo-controlled Phase II clinical trial was conducted in approximately 200 newborns at 20 neonatology centers throughout the U.S. Newborns were randomly selected to receive Altastaph at one of two dose levels or placebo and followed for up to 42 days for safety and incidence of infections. The results from this study showed that Altastaph was safe and was able to elevate Types 5 and 8 S. aureus specific antibodies to what are believed to be protective levels, the primary endpoints of the trial. However, the rate of serious S. aureus infections reported in each arm of this trial was 3%, too low to allow us to make any inferences about the efficacy of Altastaph as administered in this study. In order to maximize the clinical and commercial potential for Altastaph in preventing bacterial infections in very low birth-weight neonates, we plan to advance development of a next generation Altastaph product, or Altastaph NxG which could prevent a majority (up to two-thirds) of bacterial infections observed in neonates, specifically S. aureus Types 5 and 8 plus Type 336 and S. epidermidis. S. epidermidis is one of the most prevalent and dangerous bacteria to infect very low birth-weight neonates.

Altastaph for prevention of S. aureus in very low birth-weight neonates has been designated an Orphan Drug by the FDA, entitling us to marketing exclusivity for this indication for a period of seven years post licensure, and has received Fast Track Designation from the FDA for this indication.

Next Generation Products and Other Anti-Bacterial Vaccines in Development.

We have identified and patented an antigen called Type 336, found on a serotype of S. aureus. Based on all isolates we have tested to date, Type 336 accounts for 15% to 20% of all clinically significant S. aureus infections. We have purified and characterized the Type 336 antigen and have prepared a prototype conjugate vaccine that is capable of protecting animals from challenge with clinical isolates of the serotype. In 1998, we were issued a U.S. patent for the Type 336 antigen. Included in the patent were claims relating to vaccines made from Type 336 antigen as well as the corresponding monoclonal and polyclonal antibodies reactive to the antigen. Patents for Type 336 antigen and its use are being pursued worldwide. Next generation StaphVAX and Altastaph products are expected to contain S. aureus Type 336 antigen in addition to S. aureus Types 5 and 8 antigens. We expect the next-generation StaphVAX and Altastaph products to provide protection against virtually all clinically significant S. aureus infections today.

S. epidermidis and Enterococcus faecalis are the two other clinically significant Gram-positive bacteria that cause hospital-acquired infections. We intend to extend product coverage to these two Gram-positive bacteria in subsequent generations of StaphVAX and Altastaph. We have been issued 18 patents containing claims covering both a S. epidermidis vaccine as well as the corresponding human monoclonal and polyclonal antibodies and have filed patent applications on selected enterococcal antigens. Prototypical S. epidermidis and enterococcal vaccines produced by us have been shown to induce antibodies that are protective in animal models and facilitate elimination of bacteria by the same type of immune system response as StaphVAX. We have prepared a clinical lot of S. epidermis conjugate vaccine and plan to initiate a Phase I/II clinical trial using this material during 2005.

KIDNEY DISEASE

PhosLo (calcium acetate)

PhosLo is a prescription calcium acetate phosphate binder indicated for the control of elevated blood, or serum, phosphorus levels, or hyperphosphatemia in ESRD patients. The Kidney Disease Outcome Quality Initiative, or K/DOQI, guidelines issued by the National Kidney Foundation, or NKF, specifies that controlling elevated phosphorus levels in dialysis patients is critical because these patients are unable to eliminate excess phosphorus on their own. Elevated levels of phosphorus are associated with significant increases in illness including calcification of the arterial walls, heart valves and joints, bone pain and bone deformity and may result in death.

10

Table of Contents

We acquired the worldwide rights to PhosLo in August 2003 as our initial step to establish our commercial presence in the nephrology market and with the physicians who treat ESRD patients. This will be an important early market for our lead product in clinical development, StaphVAX. We currently market PhosLo in the U.S. In October 2004, we filed a MAA in the EU under the Mutual Recognition Procedure, or MRP, for PhosLo. The MRP provides that following approval of a product in one country, other countries within the EU may approve a product on the basis of the initial approval. The filing used the Common Technical Document, or CTD, format, which is widely accepted on a global basis. Under this format, the filing can be readily submitted in other countries around the world, facilitating our ability to expand the marketing of PhosLo in key ESRD markets beyond the U.S. and the EU.

When given with food, the calcium acetate in PhosLo combines with dietary phosphorus to form insoluble calcium-phosphate complexes that are eliminated from the body, thereby reducing phosphorus absorption and lowering serum phosphorus levels.

PhosLo is distinct from calcium carbonate containing phosphate binder products, typically prescription products in the EU or over-the-counter products such as TUMS in the U.S., due to its higher phosphate binding activity. Hence, PhosLo achieves control of serum phosphorus levels as well as calcium-phosphorus product in accordance with the K/DOQI guidelines to a greater extent than calcium carbonate products. Many ESRD patients in the U.S. use over-the-counter calcium carbonate based products to treat elevated phosphorus levels for reasons of cost despite its inferior activity.

According to the U.S. Renal Disease Service, or USRDS, at December 2001, 406,000 patients in the U.S. met the criteria for ESRD. The USRDS also projects that the population of ESRD patients will grow to over 2.2 million patients by 2030. This growth in the number of ESRD patients is largely attributable to increases in the incidence of diseases, such as diabetes and hypertension, the primary causes of kidney failure, the overall aging of the U.S. population and increased life expectancy for dialysis patients. Based on our market research, we believe ESRD patients undergoing chronic dialysis are likely to experience elevated phosphorus levels at some point during each year of their treatment and therefore will require phosphate binder therapy to control their blood phosphorus levels for a period of time.

Kidney disease is the ninth leading cause of death in the U.S. It has been estimated in the Morbidity and Mortality Weekly Report that approximately 19 million people in the U.S. suffer from chronic kidney failure. According to the American Journal of Kidney Disease, of these patients, an estimated 5.9 million individuals suffer from level 1 kidney failure, the lowest level of kidney failure, 5.3 million individuals were estimated to be at level 2 kidney failure, 7.6 million individuals were estimated at level 3 kidney failure, 400,000 individuals were estimated at level 4 kidney failure and 300,000 individuals had level 5 kidney failure. Level 5 kidney failure typically requires dialysis treatment.

According to national renal associations, in Germany, France, Italy, Spain and the UK alone, there are currently approximately 176,000 patients undergoing chronic renal dialysis. This figure increases to nearly 230,000 patients when Europe is looked at in total. This patient population is expected to grow due to increased incidence of diabetes, hypertension and the overall aging of the EU population. Consistent with treatment practices in the U.S., European nephrologists utilize phosphate binders on a regular basis. Currently, the phosphate binder market in the five largest European markets exceeds 200 million Euros and is primarily served by Renagel (sevelamer hydrochloride) as well as a number of calcium acetate and calcium carbonate products.

In the U.S., dialysis providers are primarily reimbursed by the Federal government through the ESRD Program. The Federal government reimburses approved providers for 80% of allowed

11

Table of Contents

dialysis costs. The remainder is paid by other sources, including Medicaid, private insurers and through state renal programs. Reimbursement for dialysis services is made via the Composite Rate, which includes all dialysis services and supplies, including certain drugs, but excluding oral products such as PhosLo and other phosphate binders. Effective January 1, 2006, The Medicare Prescription Drug Improvement and Modernization Act, or MMA, will include an outpatient prescription drug benefit, under a new Part D that will incorporate PhosLo and other prescription phosphate binders.

For those patients who meet defined qualification for financial assistance, PhosLo is available at no charge under our Patient Assistance Program.

In the EU, the Reference Pricing System, or RPS, is typically applied to pharmaceutical products that derive from the same therapeutic class as an alternative pharmaceutical product for which the patent has expired. Using the RPS, prices may be set at the average of prices in effect for the same class of pharmaceutical products currently available or prices may be set within a range below the price of the most expensive product in the group and above the least expensive product in the group. Patients have to pay the difference if the price charged exceeds the reference price. The RPS is expected to be applied to PhosLo following regulatory approval in the EU as certain EU countries currently reimburse for calcium acetate products that would compete with PhosLo.

In the May 2004 issue of Kidney International, the study: Treatment of Hyperphosphatemia in Hemodialysis Patients: The Calcium Acetate Renagel Evaluation, or CARE, was published as a full original paper. This is the only double-blinded, randomized controlled comparison study of PhosLo and Renagel. The results of the study showed that patients treated with PhosLo were able to control serum phosphorus levels more effectively than patients treated with Renagel throughout the 8-week study period. Specifically, patients in the CARE study treated with PhosLo achieved K/DOQI guideline targets for phosphorus and calcium-phosphorus product levels more often and for longer periods of time than patients treated with Renagel. In addition, the CARE study identified there were significant differences in the cost of treatment between PhosLo and Renagel. The mean daily cost of treatment with PhosLo, based on the level of treatment provided to patients in the study at the end of the study period was $2.14 compared to $11.70 for Renagel. Based on average wholesaler prices in January 2004, and assuming continuous use, on an annualized basis, this would translate into $753 in projected treatment costs for PhosLo compared to $4,319 for Renagel, a potential cost-savings of $3,566 per year for patients treated with PhosLo.

Cardiac illness is a leading cause of death among ESRD patients. Training and education recommendations issued by the American Society of Nephrology in their NEPHSAP publication during the first quarter of 2004 focused on a number of factors instrumental to the ESRD patient’s cardiac health, including the control of serum phosphorus, calcium phosphorus product and lipid levels in the blood. We believe any difference in cardiac calcification between patients treated with PhosLo versus patients treated with Renagel is due to the lipid lowering benefit associated with Renagel. During 2004 we initiated the CARE 2 study that will compare the efficacy, safety and arterial calcification in patients treated with PhosLo plus Lipitor (atorvastatin calcium), and Renagel plus Lipitor. Lipitor will be added to patients in each treatment regimen as appropriate to secure Low Density Lipoprotein, or LDL, levels in accordance with the guidelines recently issued by the National Cholesterol Education Program. These guidelines recommend that LDL levels in very high-risk patients such as ESRD patients should be at or below 70mg/dL of blood. The goal of the CARE 2 study is to demonstrate that when patients with ESRD treated with either PhosLo or Renagel achieve the same level of lipid control, there will be no significant difference in the development of coronary artery calcification thereby refuting the hypothesis that calcium intake as part of the PhosLo treatment is associated with cardiovascular calcification. The study is further designed to demonstrate that the combination of PhosLo and Lipitor will achieve superior control of serum phosphorus levels and calcium phosphorus product. It is expected that the total annual cost of PhosLo plus Lipitor in combination will be significantly less than the cost of Renagel alone. Preliminary data evaluating serum phosphorus levels, serum calcium levels, calcium phosphorus product and lipid levels are expected to be available in the second half of 2005. Final data evaluating arterial calcification using electron beam computer tomography, or EBCT, is expected in the second half of 2006.

12

Table of Contents

In line with recommendations included in the K/DOQI guidelines that pre-dialysis chronic kidney disease, or CKD, patients may benefit from phosphate binder therapy, we expect to initiate a study using PhosLo in CKD patients in the first half of 2005 entitled Effect of PhosLo in Chronic Kidney Disease, or EPICK. PhosLo is well positioned for the CKD patient, as it is likely to control serum phosphorus and a secondary endpoint of parathyroid hormone levels without causing very low calcium levels, or hypocalcemia, or high levels of acidity in the blood, or metabolic acidosis. The EPICK trial will seek to demonstrate that PhosLo can safely and effectively control parathyroid hormone levels, serum phosphorus levels and calcium phosphorus product in CKD patients. This possible extension of the labeled use for PhosLo is significant because of estimates that there are approximately 400,000 CKD patients suffering level IV kidney failure in the U.S. alone.

HEPATITIS

Nabi-HB [Hepatitis B Immune Globulin (Human)]

Nabi-HB is a human polyclonal antibody product indicated to prevent hepatitis B following accidental exposure to hepatitis B virus, or HBV. However, we believe the majority of our Nabi-HB sales are for use to prevent re-infection with hepatitis B disease in HBV-positive liver transplant patients. In November 2002, we filed a BLA with the FDA for Nabi-HB Intraveneous, to prevent re-infection with hepatitis B disease in HBV-positive liver transplant patients. In June 2004 we filed a MAA in Europe for regulatory approval for Nabi-HB Intravenous under the MRP.

Nabi-HB reflects the application of our clinical, regulatory, manufacturing and commercial expertise in antibody technology to the treatment of patients exposed to HBV and HBV liver transplant patients. We produce the anti-HBV plasma raw material at our FDA approved antibody collection centers, manufacture Nabi-HB in our state of the art fractionation and purification facility and make medical education materials available to physicians through our medical liaison activities.

Nabi-HB is a purified human polyclonal antibody product collected at our FDA approved antibody collection centers from plasma donors, which have been previously vaccinated with a hepatitis B vaccine. Hepatitis B vaccines contain the hepatitis B surface antigen, which is known to provide protection against HBV. When administered, the anti-hepatitis B antibody contained in Nabi-HB binds to the Hepatitis B virus and triggers its clearance by the body’s immune system.

HBV is a major global health concern. In a January 2004 issue of the Morbidity and Mortality Weekly Report, the CDC estimated that in the U.S. alone there are approximately 1.3 million chronic hepatitis B carriers, 73,000 new hepatitis B infections per year, and 5,000 individuals who die annually from hepatitis B or its complications. Rates of HBV infection throughout the EU are reported as similar to those in the U.S. Chronic HBV infection is a frequent cause of end-stage liver disease and according to the United Network for Organs Sharing, or UNOS, over 4% of liver transplants through November 2004 were due to underlying hepatitis B liver disease. Moreover, during surgery and in the period immediately following transplant surgery, patients do not have any licensed treatment options to prevent re-infection of the transplanted liver. Re-infection of the transplanted liver is almost inevitable after surgery in HBV-positive patients without treatment with a hepatitis B immunoglobulin product such as Nabi-HB.

When used peri-operatively in liver transplantation, Nabi-HB is administered in the in-patient hospital setting and included in the Diagnosis Related Group, or DRG, reimbursement amount for the procedure. When Nabi-HB is administered as part of the patient’s follow-up care in a physician office setting, the MMA establishes the reimbursement rate to average sales price plus 6% from January 2004. Beginning in January 2006, the MMA will allow physicians to choose to

13

Table of Contents

purchase and store pharmaceutical products in their offices, or to order the product from a distributor who will be responsible for securing reimbursement from the government or other third party payers.

In the EU, RPS is expected to be applied to Nabi-HB Intravenous as certain EU countries currently reimburse for hepatitis immune globulin products that would compete with Nabi-HB Intravenous.

Nabi-HB Intravenous has received Orphan Drug Designation from the FDA for prevention of re-infection of hepatitis B disease in HBV-positive liver transplant patients, entitling us to marketing exclusivity in the U.S. for this indication for a period of seven years post licensure.

Civacir [Hepatitis C Immune Globulin (Human)]

Civacir is an investigational human polyclonal antibody product that contains antibodies to hepatitis C virus, or HCV. Pre-clinical studies indicate that Civacir contains antibodies that are neutralizing to HCV. We are developing Civacir to prevent re-infection with hepatitis C disease in HCV-positive liver transplant patients, an unmet medical need among these patients. During surgery and in the period immediately following transplant surgery, patients do not have any licensed treatment options to prevent re-infection of the transplanted liver. Re-infection of the transplanted liver is 100% after surgery in HCV-positive patients.

Civacir aligns with our commercial model for Nabi-HB, focused on infectious disease and the organ transplant market. The product applies our clinical, regulatory, manufacturing and commercial expertise in antibody technology to the treatment of HCV liver transplant patients. We intend to manufacture Civacir in our state-of-the-art fractionation and purification facility and market the product through our own sales force.

Civacir is derived from human plasma enriched with HCV antibodies collected from screened donors at our nine FDA licensed antibody collection centers. Using the process of fractionation we purify and concentrate the antibodies that neutralize HCV. The antibodies in Civacir have been shown in animal studies to neutralize HCV. It is believed that the antibodies against HCV in Civacir bind to the virus in the blood stream and help the body’s immune system to clear these viruses before they re-infect critical organs, such as a transplanted liver in a HCV-positive patient.

HCV is a major cause of acute hepatitis C and chronic liver disease, including cirrhosis and liver cancer. The World Health Organization, or WHO, estimates that about 170 million people, or 3% of the world’s population are chronically infected with HCV and 2 to 4 million people are newly infected each year. The CDC currently estimates there are approximately 2.7 million individuals in the U.S. chronically infected with HCV.

HCV has significant social impact because it causes chronic infections in a large percentage of those infected and often results in severe illness and death in later stages of the disease. Chronic HCV infection is a frequent cause of end-stage liver disease resulting in the need for liver transplantation. In the U.S. and EU, approximately 40% of liver transplants are due to HCV infection. Moreover, during surgery and in the period immediately following, these patients have no treatment options to prevent re-infection of the transplanted liver. Re-infection of the transplanted liver is 100% within weeks to months after surgery and can occur within days of transplantation. HCV infection also contributes to frequent hospitalizations and failure of the transplanted liver when it occurs in transplant patients.

In 2004, we announced results from a Phase I/II clinical trial of Civacir in HCV-positive liver transplant patients funded by The National Institute of Allergy and Infectious Diseases, or NIAID, which is a part of the NIH. The trial was conducted by the NIAID sponsored Collaborative Anti-Viral Study Group at four study sites in the U.S. This trial was a three-armed, randomized, controlled clinical study evaluating two different dose levels of Civacir in a total of 18 patients undergoing liver transplantation. In this trial, the NIH

14

Table of Contents

evaluated the safety of dosing patients with Civacir during and after transplant surgery. The NIH also evaluated the level of HCV-specific antibodies in trial subjects following dosing, as well as liver enzyme levels, a measure of liver damage, and HCV levels in the transplanted livers. Although this trial was not designed to show efficacy, the results contributed to supporting the safety of Civacir in this patient population and will assist us in defining the efficacy markers that may be important in subsequent Phase II and III clinical trials. Preliminary results from this trial were released in February 2004. The results showed that Civacir was well tolerated at both dose levels. In addition, a trend towards a reduction in ALT levels, an important indicator of improved liver function, was observed. There also appeared to be a reduction in viral levels in liver tissue in the group receiving high dose Civacir. This data will be used to define our continued development strategy for Civacir.

Civacir has received Orphan Drug Designation from the FDA for use in prevention of re-infection with HCV in HCV-positive liver transplant patients, entitling us to seven years marketing exclusivity post licensure for this indication.

NICOTINE ADDICTION

NicVAX (Nicotine Conjugate Vaccine)

NicVAX is an investigational vaccine designed as an aid to smoking cessation, as well as an aid to prevent relapses of a treated smoker.

NicVAX represents an opportunistic application of our conjugate vaccine technology that allows us to address a significant medical need. We believe that broad commercialization of NicVAX will be in conjunction with a marketing partner that has a demonstrated expertise in executing large scale sales and marketing programs because the physician audience will be very broadly and focused outside the hospital setting.

Nicotine is a small molecule that upon inhalation into the body quickly passes into the bloodstream and subsequently reaches the brain by crossing the blood-brain barrier. Once in the brain, the nicotine binds to specific nicotine receptors that result in the release of stimulants, such as dopamine, providing the smoker with a positive sensation, which causes addiction. NicVAX is designed to stimulate the immune system to produce antibodies that bind to nicotine in the bloodstream and prevent it from crossing the blood-brain barrier and entering the brain. The net effect is that the brain does not produce the positive sensation stimulants as a response to nicotine. Pre-clinical animal studies with NicVAX have shown that vaccination could prevent nicotine from reaching the brain and block the effects of nicotine, including effects that can lead to addiction or can reinforce and maintain addiction.

According to the World Health Organization, or WHO, there are approximately 1.3 billion smokers worldwide, including 65 million in the U.S. Among the 65 million smokers in the U.S., 70% have an expressed desire to quit. However, of smokers who do attempt to quit, up to 90% relapse. In addition, according to CDC estimates, smoking is directly responsible for approximately 440,000 deaths in the U.S. each year, which makes it one of the largest causes of preventable death in the U.S. The financial implications are equally staggering and it is estimated that smoking results in an annual health-related economic cost of approximately $157 billion. According to the WHO, tobacco use is expected to kill 4 million people worldwide within the next year.

Nicotine addiction is difficult to treat effectively. We believe NicVAX has advantages over existing treatment therapies because NicVAX’s effect is irreversible for potentially six to 12 months following vaccination as antibodies to nicotine continue to be produced by the body’s immune system. This is important due to the extremely high relapse rate that has been observed when a smoker attempts to quit smoking. Currently, the smoker is being treated for nicotine addiction can stop using the therapy and resume their addiction.

15

Table of Contents

In September 2004, we announced the results of a Phase II dose response, double-blinded, placebo-controlled, randomized clinical trial in 63 smokers. The objectives of the study, which were met, were to demonstrate that NicVAX was able to safely generate nicotine-specific antibodies in smokers, and to assess its potential use as an aid in smoking cessation among smokers who wanted to quit. The effect of the vaccine in the limited number of smokers included in the trial, and therefore not statistically significant, indicated a 33% quit rate in smokers who received NicVAX at the highest dose level versus 9% in the placebo group. The results represented a vaccine-only effect, as patients were only given NicVAX without any supplemental treatments, behavioral support or counseling. This trial was funded in part by a grant from the National Institute of Drug Abuse, or NIDA. Based on these results, we have initiated a second Phase II clinical trial in the EU dosing NicVAX at doses equal to and higher than those administered in the first Phase II clinical trial and at more frequent intervals. The clinical end points of this trial are also to assess safety, measure nicotine specific antibody titers and measurement of smoking cessation.

In February 2004, we announced the results of a placebo controlled, double-blinded Phase I/II clinical trial of NicVAX in smokers, ex-smokers and non-smokers in collaboration with researchers at the University of Maastricht in The Netherlands. The primary end point of this trial was to evaluate the development of nicotine specific antibody levels and safety of the vaccine in study participants. The results showed that multiple injections of NicVAX were well tolerated and resulted in a rapid and boosted immune response that generated nicotine specific antibodies.

OTHER - HEMATOLOGY AND ONCOLOGY

WinRho SDF [Rh_o(D) Immune Globulin Intravenous (Human)]

WinRho SDF is a human polyclonal antibody based product approved and marketed for the treatment of ITP, an autoimmune disease that manifests itself in abnormally low platelet levels, or thrombocytopenia, that can result in excessive bleeding.

We market WinRho SDF in the U.S. under a license and distribution agreement with Cangene Corporation, or Cangene. We pay a royalty to Cangene equal to approximately half of the net profits from sales of WinRho SDF after accounting for the cost of production and marketing and sales expense. Our license and distribution agreement with Cangene ends on March 24, 2005 and we will no longer market WinRho SDF after that date.

WinRho SDF is generally administered as a part of the patients care in a physician office setting. The MMA establishes the reimbursement rate to average sales price plus 6% from January 2004. Beginning in January 2006, the MMA will allow physicians to choose to purchase and store pharmaceutical products in their offices or to order the product from a distributor who will be responsible for securing reimbursement from the government or third party payers.

16

Table of Contents

Aloprim [(Allopurinol sodium) for injection]

Aloprim is indicated for the treatment of chemotherapy-induced hyperuricemia, or elevated uric acid levels, for patients with leukemia, lymphoma or solid organ tumors that cannot tolerate oral therapy. Complications associated with chemotherapy-induced hyperuricemia in these patients include renal failure.

The Leukemia and Lymphoma Society estimates that approximately 96,000 patients will be diagnosed with leukemia and lymphoma in the U.S. in 2004. These patients could potentially be at-risk for developing chemotherapy-induced hyperuricemia.

Aloprim is generally administered in the in-patient hospital setting. When administered as part of in-patient care in a hospital, Aloprim is included in the DRG reimbursement amount for the related procedure.

In 2004, we exercised our right under our distribution agreement to acquire Aloprim from DSM Pharmaceuticals, Inc., or DSM. In conjunction with acquiring Aloprim, we entered into a manufacturing agreement with DSM for DSM to continue to supply product to us for a term of up to five years.

CONTRACT MANUFACTURING

We have a state-of-the-art facility for the fractionation and purification of human immunoglobulin. Our facility was designed to accommodate manufacture of Nabi-HB, as well as our antibody-based products in clinical development, Altastaph and Civacir. Based on current utilization forecasts, we have available manufacturing capacity for the manufacture of the antibody-based products of other companies on a contract basis. Although we do not consider contract manufacturing to be a core operating strategy, we utilize contract manufacturing to partially offset the fixed costs for maintaining the facility.

Potential contract manufacturing customers are primarily research and development stage companies that do not possess their own manufacturing capacity or companies that possess mature products that are being manufactured in older facilities that would require significant capital expenditure to upgrade to current compliance requirements.

Our facility has been licensed by the FDA since 2001 and, as such, is among the most recently licensed fractionation and purification facilities in the U.S.

CURRENTLY MARKETED ANTIBODIES

We operate nine FDA licensed antibody collection centers located in six states within the U.S. that supply specialty antibodies and non-specific antibodies to our customers in the pharmaceutical and diagnostic industries. Our operating strategy for these products is to sell our excess production under contracts that provide a consistent operating cash flow. As we are able to achieve licensure for antibody-based biopharmaceutical products in our research and development pipeline, we anticipate a strategic shift in our antibody segment of converting production of non-specific antibodies into the production of specialty antibodies which we will use to manufacture our own antibody-based biopharmaceutical products.

Specialty Antibodies

Specialty antibody products contain high concentrations of a specific antibody and are used primarily to manufacture antibody-based biopharmaceutical products to treat chronic immune disorders and to prevent and treat viral and bacterial diseases as well as to develop diagnostic products.

17

Table of Contents

We identify potential specialty antibody donors through screening and testing procedures. We also have developed FDA-licensed programs to vaccinate potential donors to stimulate their production of specific antibodies. We believe that our antibody collection capabilities, operational expertise in donor immunization programs, clinical and medical experience in conducting clinical trials under Investigational New Drug Applications, or IND’s, and access to a diverse antibody donor base provides us with the ability to produce specialty antibodies.

Our specialty antibody products include hepatitis B, Rh_oD, tetanus, cytomegalovirus, or CMV, Varicella Zoster Virus, or VZV, and rabies antibodies as well as other plasma products sold to diagnostic customers. Hepatitis B antibodies are the primary raw material in the manufacture of Nabi-HB.

Non-specific Antibodies

Our nine FDA licensed antibody collection centers also supply non-specific human antibodies from normal healthy donors to our customers.

Although non-specific antibodies lack high levels of antibodies to specific antigens, such antibodies are used by our customers to manufacture standard IVIG, a product used to fight infections, and in the treatment of several conditions, including bone marrow transplantation, B-cell chronic lymphocytic leukemia, hypogammaglobulinemia, Kawasaki syndrome and other chronic immune deficiencies.

Sales and Segment Sales

Sales of our biopharmaceutical products totaled $131.8 million in 2004 compared to $109.5 million in 2003 and $89.5 million in 2002. In 2004, biopharmaceutical products accounted for 73% of our sales and 96% of our gross margin.

Total sales of our antibody products were $48.0 million in 2004 compared to $67.1 million in 2003 and $106.5 million in 2002. These decreases were expected due to the conclusion in April 2003 of a single supply contract that generated no gross margin. We retained this contract after the sale of the majority of our antibody collection business and testing laboratory in September 2001. In 2004, antibody products accounted for 27% of our sales and 4% of our gross margin.

18

Table of Contents

Research and Development Programs

The following table provides the estimated amounts spent during the last three fiscal years on our research and development programs:

Research and development expenses of approximately $0.3 million, $1.3 million and $1.2 million related to the NicVAX program were reimbursed by the National Institute on Drug Abuse, or NIDA, for fiscal years 2004, 2003 and 2002, respectively.

STRATEGIC ALLIANCES

We enter into strategic alliances for the manufacture and commercialization of some of our marketed and pipeline products. Our current key strategic alliances are discussed below.

Cambrex Bio Science Baltimore, Inc.

In October 2003, we entered into a contract manufacturing agreement with Cambrex Bio Science to produce commercial quantities of StaphVAX.

We entered into our contract manufacturing agreement with Cambrex Bio Science in order to have available commercial scale manufacturing capacity to launch the product in Europe and the U.S. The manufacturing process for StaphVAX has been transferred to Cambrex Bio Science from a previous contract manufacturer, as well as from our research and development pilot plant in Rockville, Maryland. In August 2004, we completed the manufacture of three consistency lots of StaphVAX, thereby completing the transfer of the manufacturing process to Cambrex Bio Science. The manufacturing and other technical data from these lots was included in the MAA we filed for StaphVAX December 2004.

Our manufacturing agreement has an initial seven-year term and requires us to make certain payments to Cambrex Bio Science to secure future access to commercial vaccine manufacturing

19

Table of Contents

capacity and to enable Cambrex Bio Science to ready its facility for the future commercial scale manufacture of StaphVAX. The agreement can be extended an additional three years. The agreement also sets the terms for future purchases of manufactured bulk vaccine.

Public Health Services/National Institutes of Health

Under a license agreement with the Public Health Services/National Institute of Health, or PHS/NIH, we have the exclusive, worldwide right to use their patented conjugation process to manufacture vaccines against staphylococcal infections including StaphVAX.

During the term of the license we are obligated to pay PHS/NIH a royalty based on net sales of products made using this technology. This agreement remains in effect until the expiration of the last-to-expire licensed patent, or April 20, 2010. After this date, no further royalties will be due to PHS/NIH for use of the subject technology. In addition to our license with PHS/NIH we own an extensive global portfolio of issued patents and pending patent applications directed to our novel vaccine products and methods of using such products as described in further detail below under “Patents and Proprietary Rights”.

Chiron Corporation

We have an agreement with Chiron Corporation, or Chiron, that grants us an exclusive supply agreement for four vaccines, including hepatitis C. In addition, we have rights to 10 additional Chiron vaccines for use in humans to produce immunotherapeutic products. The agreement may also grant us access to a vaccine adjuvant, MF 59.

This agreement may be important to the development of the next generation of our investigational product, Civacir.

We will be responsible for all development, manufacturing and worldwide distribution of these products. We may terminate the agreement on a product-by-product basis in which event we must transfer to Chiron all of our rights with respect to the product as to which the agreement has been terminated. Similarly, Chiron may terminate its obligations to supply immunizing agents to us on a product-by-product basis, in which event Chiron shall grant to us a license of the technology necessary for us to manufacture the applicable immunizing agent and the financial arrangements in the Chiron Agreement with respect to such agent shall continue.

Pfizer

In April 2003, we licensed the worldwide rights to our whole cell vaccine technology for the prevention and treatment of S. aureus infections in cattle to Pfizer. In a letter dated March 2, 2005, Pfizer notified us that they would not pursue further development of this product and were terminating the license agreement with us. Pursuant to the license agreement, we retain our full rights to information and data generated under this agreement and have no further obligations to Pfizer.

CUSTOMER RELATIONSHIPS

We sell our biopharmaceutical products to wholesalers, distributors, hospitals and home healthcare companies and sell our antibody products to pharmaceutical and diagnostic product manufacturers.

We sell biopharmaceutical products to AmerisourceBergen, Cardinal Health, Inc. and McKesson Drug Co. under purchase orders placed by them on terms that are generally between 30 days, net and 60 days. During 2004 and in February 2005, we have entered into inventory distribution services agreements with two of our major wholesaler customers that establish that these customers will provide us defined services for a fee measured as at least a minimum discount from our standard prices. We do not believe that these fees will exceed to any material extent the negotiated discounts that have been provided to these customers for the 2004 fiscal year.

20

Table of Contents

In connection with the sale of the majority of our antibody collection business and testing laboratory, we entered into an agreement for the purpose of assuring that each party would have the ability to meet supply commitments to customers of the transferred business after completion of the sale. Under this agreement we were obligated to provide to the purchaser Rh_oD antibodies at our cost plus a handling fee in order that the purchaser might fulfill its obligations under a contract it assumed. This agreement, which ended on December 31, 2004, limited our ability to sell these antibodies to other customers at higher margins during 2004.

Pricing for product deliveries under our antibody contract products is fixed for the contract term, generally one year or less, although the contracts generally provide for price increases/decreases during the contract term to reflect changes in customer specifications or new governmental regulations. In addition, in 2004 we expect to sell antibody products in individually negotiated transactions that will be subject to market conditions at the time of negotiation. Our profit margins for these transactions may be adversely or beneficially affected by market conditions for antibody products at those times.

Sales for the year ended December 25, 2004 to significant customers included sales to three customers of our biopharmaceutical products segment, Cardinal Health, Inc., McKesson Drug Co., AmerisourceBergen and one customer of our antibody products segment, Bayer Corporation, representing 26%, 25%, 23% and 15% of total consolidated 2004 sales, respectively.

SUPPLY AND MANUFACTURING

Biopharmaceutical Products

We manufacture Nabi-HB in our FDA approved biopharmaceutical manufacturing facility in Boca Raton, Florida. Additionally, we manufacture clinical lots of our investigational products, Altastaph and Civacir, in this facility. We have constructed a state-of-the-art bulk vaccine manufacturing capacity within available space in our Boca Raton manufacturing facility. The vaccine production capacity, once licensed, will be used initially to support the commercial manufacture of StaphVAX following FDA approval. We designed this manufacturing capacity to be flexible and expandable so as to support the manufacture of StaphVAX and NicVAX, as well as our next generation Gram-positive vaccines in our research and development pipeline.

In October 2003, we entered into an agreement with Cambrex Bio Science in order to have commercial scale manufacturing in place to support the launch of StaphVAX in Europe and in the U.S. In August 2004, we completed manufacture of the consistency lots that were required to support the MAA. We also intend to incorporate the Cambrex Bio Science manufacturing facility into our BLA for StaphVAX that we expect to file by the end of 2005.

Third parties manufacture each of our marketed products other than Nabi-HB for us. PhosLo is manufactured for us by Braintree Laboratories, Inc. under an agreement that can be extended until 2018. PhosLo is also manufactured for us by another third-party. DSM Pharmaceuticals, Inc. manufactures Aloprim for us under an agreement that extends to June 2009.

Antibody Collection Process

We currently collect and process antibodies from our nine collection centers located in six states across the U.S. Each center is licensed and regulated by the FDA.

21

Table of Contents

PATENTS AND PROPRIETARY RIGHTS

Our success depends in part on our ability to maintain our rights to our existing marketed biopharmaceutical products and our ability to obtain patent protection for product candidates in clinical development. Currently, we have over 30 granted patents and over 60 patent applications pending.

Marketed products

PhosLo

We have two patents granted in the U.S., one patent granted in Canada and one patent application allowed in the U.S. relating to PhosLo. The granted patents contain claims directed to methods of using calcium acetate in an orally ingested form to inhibit gastrointestinal absorption of phosphorus. The patent claims support the use of PhosLo for our approved application in ESRD patients. Patent coverage for these claims expires in April 2007 in the U.S. and in 2012 in Canada. We also have another U.S. patent granted and a U.S. patent application allowed with claims to a second-generation, phosphorus-binding capsule formulation. The next generation capsules are intended to enhance ease of patient use and, as a result, improve treatment management. This granted U.S. patent expires in April 2021 and any patent granted on the pending U.S. application would expire in October 2022.

Products in development

We have 25 patents issued including six U.S. patents, 15 patents in European countries and four in other countries and 38 patents pending worldwide relating to our Gram-positive infections program. With respect to Staphylococcus, the patents and pending patent applications relate both to polysaccharide antigens—our “336” S. aureus antigen and “PS-1” S. epidermidis antigen—and to a glycopeptide antigen common to S. epidermidis, S. haemolyticus and S. hominis. Additional issued patents relate to Enterococcus and describe polysaccharide antigens from E. faecalis and E. faecium, respectively.

In addition to the PHS/NIH patent with respect to which we license rights that relate to the manufacture of StaphVAX, our granted U.S. patents and ex-U.S. patents in our S. aureus program contain claims directed to vaccines, antibody based therapies, methods of preparing antigen and diagnostic assays and kits against surface antigens of S. aureus. These patents all expire in September 2016. The patent underlying our PHS/NIH licensed rights expires on April 20, 2010. After this date, no further royalties will be due to the PHS/NIH for use of the technology. Additional patent applications still pending include claims directed to the antigens, as well as to compositions, or conjugates, of the antigens, vaccines containing the antigens, antibodies to the antigens, and immunotherapy and diagnostic methods using the antigens and/or the antibodies to the antigens. In addition, we have filed a U.S. patent application covering methods directed to the use of StaphVAX, among other compositions. These two applications, which address a method of protecting a human being with a compromised immune system from Staphylococcal or enterococcal bacterial infection, include claims that prescribe our use of proprietary antigens. The applications also encompass a method for the use of Types 5 and 8 S. aureus antigens. With regard to S. epidermis, we have issued U.S. patents and ex-U.S. patents, including European countries. The patents contain claims to vaccines and hyperimmune globulins against S. epidermis surface antigen. Most of these patents expire in 2016.

In addition, we have an issued U.S. patent and ex-U.S. patent applications pending that contain claims directed to a pharmaceutical composition containing a glucan and intravenous hyperimmune globulin, which can be specific for a given pathogen like S. aureus. This combination produces an unexpected antimicrobial effect that is greater than that obtained when either the glucan or the intravenous hyperimmune globulin is used separately.

22

Table of Contents

NicVAX

Our patent portfolio for technology related to the NicVAX product comprehends both compositions and therapeutic methodology for treating or preventing a nicotine addiction. Our patent claims are directed to compositions, or conjugates, that comprise nicotine-like molecule linked to a carrier protein and to the methods for the use of these conjugates to treat or prevent nicotine addiction. We also have claims to a pharmaceutical composition that contains nicotine specific antibodies induced by conjugate antibodies, as well as to methods for using those antibodies against nicotine addiction.

Trade Secrets and Trademarks

We rely on unpatented proprietary technologies in the development and commercialization of our products. We also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as those of our advisors, consultants and other contractors that cannot be patented. To help protect our proprietary know-how, we often use trade secret protection and confidentiality agreements to protect our interests. We require employees, consultants and advisors to enter into agreements that prohibit the disclosure of confidential information and where applicable require disclosure and assignment to us of the ideas, developments, discoveries and inventions that arise from their activities for us.

We own or license trademarks associated with each of our products, including several international trademark registrations or common law rights, for each of our marketed and development products.

GOVERNMENT AND INDUSTRY REGULATION

The collection, processing and sale of our products, as well as our research, pre-clinical development and clinical trials, are subject to regulation for safety and efficacy by numerous governmental authorities including the U.S., UK, Germany, Spain, Italy, Australia and France. In the U.S., the Federal Food, Drug and Cosmetic Act, the Public Health Service Act, and other Federal and state statutes and regulations govern the collection, testing, manufacturing, safety, efficacy, labeling, storage, record keeping, transportation, approval, advertising and promotion of our products. We believe we are in compliance with all relevant material laws and regulations.

Biopharmaceutical Products

Vaccines and human polyclonal antibody products are classified as biological products under FDA regulations. The steps required before a biological product may be marketed in the U.S. generally include pre-clinical studies and the filing of an Investigational New Drug application, or IND application, with the FDA, which must be accepted by the FDA before human clinical studies may commence. The initial human clinical evaluation, called a Phase I clinical trial, generally involves administration of a product to a small number of normal, healthy volunteers to test for safety. Phase II clinical trials involve administration of a product to a limited number of patients with a particular disease to determine dosage, immunogenicity and safety. In some cases Phase II clinical trials may provide limited indications of efficacy. Phase III clinical trials examine the efficacy and safety of a product in an expanded patient population. Phase IV clinical trials primarily monitor for adverse effects and are undertaken post-licensure, such as additional large-scale, long-term studies of morbidity and mortality. The FDA reviews the clinical plans and the results of trials and can stop the trials at any time if there are significant safety issues. Biological products, once approved, currently have no provision allowing competitors to market generic versions. Each biological product must undergo the entire development process in order to be approved.

The results of all trials are submitted in the form of a BLA or a New Drug Application, or NDA, for small molecules. The BLA or NDA must be approved by the FDA prior to commencement of commercial sales. For BLA/NDA approval, the FDA requires that the sponsor demonstrate a

23

Table of Contents

favorable risk-benefit ratio. This often involves treatment of large numbers of patients, typically in double-blinded, placebo controlled or comparative randomized trials, followed for protracted periods of time. The actual size of the trials, and the length of follow-up vary from indication to indication. In addition, the prospective manufacturer’s methods must conform to the agency’s current Good Manufacturing Process, or cGMP regulations, which must be followed at all times. The prospective manufacturer must submit three conformance lots in support of the application. In complying with standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the area of production, compliance and quality control to ensure full regulatory compliance. 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 U.S. Congress, or the FDA in specific situations, can modify the regulatory process.

The overall regulatory process is similar within the EU insofar as the sponsor needs to demonstrate a favorable risk-benefit ratio of the drug product, as well as reproducible manufacturing methods. The European equivalent of the BLA/NDA is called the MAA. There are two different procedures to file a MAA, the Centralized Registration Procedure and the Mutual Recognition Procedure. The Centralized Procedure allows for simultaneous approval throughout the EU. The Mutual Recognition Procedure provides for initial approval in one country that can be used to seek approval in additional countries within the EU. There have been different requirements from country to country with regard to initiating clinical trials, however, that is also in the process of being standardized. A new standardized procedure, the Clinical Trials Application was introduced in the EU during 2004.

Medicare Prescription Drug Improvement and Modernization Act and Reimbursement

Effective January 1, 2006, the MMA will include an outpatient prescription drug benefit, under a new Part D. This benefit will provide reimbursement for PhosLo. The new benefit is designed such that after paying an initial estimated premium fee of approximately $37 per month the patient would be responsible for the following co-payment structure:

The Medicare Part D program will be administered through a combination of Prescription Drug Plans, or PDP’s, or Medicare Advantage Plans. The plan design is for the PDP’s to assume 100% of the financial risk for this patient population. The MMA requires that each plan offer a minimum of two products in each therapeutic class. Because of the risk bearing nature of the Part D program, PDP’s are likely to seek to manage their risk by selecting products that are both efficacious and low cost. As the lowest cost prescription phosphate binder currently market in the US, we believe that the Part D benefit may provide us an opportunity to grow sales and increase market share of PhosLo following implementation of the MMA in January 1, 2006. Prior to the enactment of Part D, the U.S. Federal government introduced a Medicare Discount Card as an interim step until full implementation of the Part D in 2006. Enrollment in the drug discount card program has been relatively low among Medicare participants. We did not participate in the card program.

Antibody Products

The FDA strictly regulates the collection, storage and testing of antibodies and antibody based products derived from human plasma. In order to operate in the U.S., an antibody

24

Table of Contents

collection facility must hold a Biologics License issued by the FDA’s Center for Biologics Evaluation and Research. Each collection facility must be regularly inspected and approved in order to maintain licensure. In addition, collection centers require FDA product licenses to collect each specialty antibody product. We are also subject to and are required to be in compliance with pertinent regulatory requirements of countries to which we export antibody products.

Orphan Drug Act

In January 2004, the FDA granted our investigational product Altastaph, Orphan Drug Designation for use in neonate patients for protection against S. aureus infections. Nabi-HB Intravenous has received Orphan Drug Designation under this Act for prevention of hepatitis B re-infection in liver transplant recipients. We filed a BLA for this product in November 2002. In November 2002, the FDA granted our investigational product, Civacir, Orphan Drug Designation for prevention of hepatitis C infection in HCV-positive liver transplant recipients.

Under the Orphan Drug Act, the FDA may designate a product 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 U.S. at the time of designation, or, if victims of a disease number more than 200,000, for which the sponsor establishes that costs of development will not be recovered from U.S. sales in seven years. When a product is designated an Orphan Drug, 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 BLA approved for a given drug for its use in treating a given rare disease may receive marketing exclusivity.

Fast Track Designation

StaphVAX has been granted Fast Track review designation for the ESRD patient indication while Altastaph has been granted Fast Track review designation for use in very low birth weight neonate patients.

Fast Track designation refers to a process of interacting with the FDA during drug development. The Fast Track mechanism is described in the Food and Drug Administration Modernization Act of 1997. The benefits of the Fast Track designation include scheduled meetings to seek FDA input into development plans, the option of submitting a BLA in sections rather than all components simultaneously and the option of requesting evaluation of studies using surrogate endpoints. The Fast Track designation is intended for a combination of a product and a claim that addresses an unmet medical need. The Fast Track mechanism is independent of Priority Review and Accelerated Approval.

COMPETITION

Biopharmaceutical Products

PhosLo competes with Renagel, a prescription product marketed by Genzyme Corporation, and over-the-counter calcium carbonate products, such as TUMS in the U.S. PhosLo competes with these products on the basis of its efficacy as a phosphate binder and its compliance with key elements of the K/DOQI guidelines issued by the NKF as demonstrated in the CARE study. As compared to Renagel, PhosLo also competes on the basis of a cost of treatment advantage that was also established in the CARE study. Review of third party prescription data indicates that PhosLo is prescribed at approximately the same rate as Renagel among ESRD patients.

25

Table of Contents

The FDA approved Shire Pharmaceuticals’, or Shire’s, product Fosrenol for the control of hyperphosphatemia in September 2004. To date Shire’s marketing activities have been limited, but we anticipate that we will begin to compete with Fosrenol in the U.S.

In the EU, PhosLo will compete with Renagel, Fosrenol and other calcium acetate products, as well as calcium carbonate products, which are generally prescription products in the EU.

There is one antibody-based therapy for prevention of hepatitis B post exposure currently on the market that competes with Nabi-HB in the U.S. Based on our internal market studies, we believe that Nabi-HB has achieved a significant share of the U.S. market. We believe the majority of our Nabi-HB sales are for use to prevent re-infection with hepatitis B disease in HBV-positive liver transplant patients. In November 2002, we submitted a BLA to the FDA for Nabi-HB Intravenous seeking the indication that Nabi-HB Intravenous prevents re-infection with hepatitis B disease in HBV-positive liver transplant patients and have received Orphan Drug Designation for this indication. If approved, Nabi-HB Intravenous will have seven years marketing exclusivity on the basis of its Orphan Drug Designation.

In June 2004, we submitted a MAA filing for Nabi-HB Intravenous, known as HEBIG in the EU to European regulators. If approved in the EU, Nabi-HB Intravenous will compete in the market to prevent re-infection with hepatitis B disease in HBV-positive liver transplant patients. Unlike the U.S., competitive intravenous hepatitis B immune globulin products are already marketed in most of the EU.

In addition, Nabi-HB also competes in the U.S. and, if approved, in the EU with anti-viral products that, like Nabi-HB, are not currently indicated for use to prevent re-infection in HBV-positive liver transplant patients.

WinRho SDF is the only Rh_oD antibody based biopharmaceutical product approved for the treatment of ITP. Competing therapies include, steroids, intravenous immune globulin and splenectomy, a surgical procedure to remove the spleen. We believe that Rituxan is also being used to treat refractory ITP patients. Cangene manufactures WinRho SDF for us under an agreement that ends in March 2005.

Aloprim was the first intravenous allopurinol therapy available for the treatment of chemotherapy-induced hyperuricemia. Aloprim provides a therapeutic option for patients that cannot tolerate oral allopurinol therapy. In the third quarter of 2004, a competitive intravenous allopurinol product formulation was introduced to the U.S. market and is competing based on price.

Antibody Products

We sell antibody raw materials to pharmaceutical companies that process this raw material into finished products. Although these pharmaceutical companies generally own plasmapheresis centers, in the aggregate they purchase a portion of their antibody requirements from independent suppliers. There is competition with independent suppliers as well as fractionators who own their own plasmapheresis centers. We compete for sales by maintaining competitive pricing and by providing customers with high-quality products and superior customer service.

EMPLOYEES

We believe that the relations between our management and our employees are generally good. None of our employees are covered by a collective bargaining agreement.

We had a total of 727 employees at December 25, 2004.

26

Table of Contents

FINANCIAL INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC AREAS

We have provided financial information about (i) our industry segments, and (ii) our domestic and foreign operations for each of the last three fiscal years in Note 21 to our consolidated financial statements set forth in Part II of this Annual Report on Form 10-K.

AVAILABLE INFORMATION

Our Internet address is http://www.nabi.com. We make available, free of charge, through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

RISK FACTORS

This document contains forward-looking statements that reflect our current expectations regarding future events. Any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties. Actual results may differ significantly from those in the forward-looking statements as a result of any number of factors, including, but not limited to, risks relating to the possibility that our confirmatory Phase III clinical trial for StaphVAX or our plans to commercialize StaphVAX in the EU and the U.S. may not be successful; our inability to raise additional capital on acceptable terms; the possibility that we may not realize the value of our acquisition of PhosLo; our dependence upon third parties to manufacture our products; our ability to utilize the full capacity of our manufacturing facility; the impact on sales of Nabi-HB from patient treatment protocols and the number of liver transplants performed in HBV-positive patients; reliance on a small number of customers; the future sales growth prospects for our biopharmaceutical products; and our ability to obtain regulatory approval for our products in the U.S. or in markets outside the U.S. or to successfully develop, manufacture and market our products. These factors and others are more fully discussed below.

Each of the following risk factors could adversely affect our business, operating results and financial condition.

Our initial Phase III clinical trial for StaphVAX did not achieve statistical significance for the specified end point and neither may our confirmatory Phase III clinical trial.

In late 2000, we completed our initial Phase III placebo-controlled clinical trial for StaphVAX in hemodialysis patients with end-stage renal disease. The specified end point for this trial was a statistically significant reduction in S. aureus infections in end-stage renal disease patients after 12 months. The trial did not achieve this end point. We have now completed enrollment for a Phase III clinical trial for StaphVAX with a primary efficacy end point at eight months post-vaccination. The results from this trial may not establish statistical significance for the eight-month end point. Our inability to achieve statistically significant results in our confirmatory Phase III clinical trial would adversely affect our future business, financial condition and results of operations.

Our plan to commercialize StaphVAX may not be successful.

We filed a MAA for StaphVAX in the EU using the Centralized Registration Procedure in December 2004. We plan to file a BLA for StaphVAX in the U.S. by the end of 2005. There can be no assurance that we will file the BLA by the end of 2005, or that we will receive approval to begin commercial sales of StaphVAX in the EU or the U.S., or that such approval will be timely. If we receive regulatory approval in Europe we will then need to seek reimbursement approval in specific EU country markets. There can be no assurance that StaphVAX will receive reimbursement pricing from any or all of the markets where we seek such approval or that

27

Table of Contents

reimbursement, if approved, will be at sufficient levels in each market. Any delays in or failure to obtain EU licensure or reimbursement approvals, or the failure to obtain reimbursement approvals at sufficient levels, and any delays in commercialization could adversely affect our market valuation, results of operations and our financial position and could impact the overall commercial success of StaphVAX. We have no direct experience in obtaining licensure or reimbursement for vaccines in the EU, U.S., or other markets.

Although we believe that our U.S. sales and marketing model can be readily translated to other markets, we may not be successful in doing so. We have no direct experience marketing and selling biopharmaceutical products in the EU, and currently we have no sales or marketing organization to sell and distribute StaphVAX in the EU.

A number of our product candidates and marketed products in development are in or will undergo clinical trials and the results from these trials may not be favorable.

Aside from the current Phase III clinical trial for StaphVAX, a number of our products in development are in, or will undergo clinical trials. These trials may not meet their defined endpoints, and, even if they do achieve their endpoints, we cannot be certain that results from future clinical trials will be positive. Unfavorable clinical trial results at any stage could adversely affect our market valuation and our future business.

For instance, in November 2004, we announced the results of our Phase II clinical trial for prevention of S. aureus bloodstream infections in very low birth-weight newborns. The study met its primary endpoints, namely, Altastaph was safe and well tolerated and patients dosed with Altastaph were on average maintained above protective levels of antibodies for the entire 42-day study period. However, the rate of S. aureus infections in the overall clinical trial population in this trial was 3%, well below the event rate reported in relevant medical literature. This rate was too low to allow us to make any inferences about the efficacy of Altastaph from this study. Our inability to establish statistically significant efficacy in subsequent confirmatory trials of Altastaph could adversely affect our business, operating results and financial condition. Further, our studies related to Altastaph have been in a limited number of patients. To date, we have not observed any significant adverse events related to Altastaph. However, the product safety profile will continue to be monitored in our clinical trials and if there is a significant adverse event related to the product this could have an adverse effect on our future business, financial condition, and results of operations.

In 2004, we initiated the CARE 2 study to demonstrate that when patients with ESRD treated with either PhosLo or Renagel achieve the same level of lipid control, there will be no significant difference in the development of coronary artery calcification thereby refuting the hypothesis that calcium intake as part of the PhosLo treatment is associated with cardiovascular calcification. The study is further designed to demonstrate that the combination of PhosLo and Lipitor will achieve superior control of serum phosphorus levels and calcium phosphorus product. Our inability to establish at least an equivalent result between the study arms could adversely affect our business, operating results and financial condition.

Claims and concerns may arise regarding the safety or efficacy of our product candidates and marketed products, which could lead to delayed development, product withdrawals, reduced sales, or product recalls.

In order to receive regulatory approval for the commercialization of our product candidates, we must conduct extensive clinical trials to demonstrate their safety and efficacy. Our clinical trials may not demonstrate the safety and efficacy of our potential products, and we may encounter unacceptable side effects or other problems in our clinical trials. Should this occur, we may have to delay or discontinue development of our potential products. Once obtained, any regulatory approvals may be withdrawn for a number of reasons, including the later discovery of previously unknown problems with the product, such as a previously unknown safety issue. In addition,

28

Table of Contents

postmarketing studies, which may be sponsored by our competitors, may present evidence that another product is safer or more effective than one of our products, which could lead to reduced sales of our product. For example, Genzyme is conducting a study called Dialysis Clinical Outcomes Revisited, or D-COR, examining the difference in morbidity and mortality outcomes based on arterial calcification for patients receiving Renagel and those receiving calcium-based phosphate binders, including PhosLo. First results from this study are expected in mid-2005 per Genzyme’s public statements. While we believe the calcium acetate formulation of PhosLo is differentiated from the calcium formulations of other binders being used in the comparative product group in the study, if the study’s outcome demonstrates a significant advantage to Renagel it may have a negative impact on sales of PhosLo. Finally, claims and concerns may arise regarding the safety or efficacy of one of our marketed products, which could lead to a product recall. Delayed development, product withdrawals, reduced sales, and product recalls could adversely affect our future business, financial condition, and results of operations.

Our plans to commercialize Nabi-HB Intravenous and PhosLo in the EU may not be successful.

Using the Mutual Recognition Process, we filed MAA’s for Nabi-HB Intravenous and PhosLo in the EU during 2004. There can be no assurance that we will receive approval to begin commercial sales of these products in this or any other country in the EU, or that such approval will be timely. Following approval in each country, we will then need to seek reimbursement in that country. There can be no assurance we will receive reimbursement approval from any or all of the countries where we seek such approval or that reimbursement, if approved, will be at sufficient levels in each country. Any delays in or failure to obtain licensure or reimbursement approvals, or the failure to obtain reimbursement approvals at sufficient levels, and any delays in commercialization could adversely affect our market valuation, results of operations and our financial position. We have no direct experience in obtaining licensure of these products in the EU or other non-U.S. markets. We have no direct experience marketing and selling biopharmaceutical products in the EU, and currently we have no direct sales or marketing organization to sell and distribute Nabi-HB Intravenous and PhosLo in the EU.

We may not be able to raise necessary additional capital on acceptable terms, if at all.

We may need to raise additional capital to expand our product research, development and marketing activities or to acquire additional products or technologies. In particular, we may need to raise additional capital to support commercialization of StaphVAX, to fund the development of clinical trials of Altastaph or to acquire new products and technologies. We may seek additional funding through public or private equity or debt financing, collaborative arrangements with strategic partners or from other sources. There can be no assurance, that additional financing will be available on acceptable terms, if at all. If adequate funds are not available, we may have to defer certain investments in research, product development, manufacturing, commercialization or business development, or otherwise modify our business strategy, and it could adversely affect our market valuation, results of operations and financial position.

We may not realize the value of our acquisition of PhosLo.

On August 4, 2003, we acquired the worldwide rights to PhosLo through the purchase of various intangible assets for $60.3 million in cash, 1.5 million shares of our common stock and an obligation to pay $30.0 million in cash over the period ending March 1, 2007. These intangible assets represent approximately one-fourth of the total assets reflected on our balance sheet at December 25, 2004. PhosLo is marketed to physicians caring for patients suffering kidney failure who have developed elevated phosphorus levels in their blood. This is a market in which we had no experience prior to the acquisition of PhosLo. In the U.S., PhosLo currently competes with three other products, two prescription medications and a non-prescription medication. In the EU, PhosLo will compete with multiple prescription products. A number of these products are or will be produced, marketed and sold by companies that have substantially greater financial and marketing resources than we have.

29

Table of Contents

For example, Genzyme is conducting a study called Dialysis Clinical Outcomes Revisited, or D-COR, examining the difference in morbidity and mortality outcomes based on arterial calcification for patients receiving Renagel and those receiving calcium-based phosphate binders, including PhosLo. If D-COR achieves its defined endpoints, it may negatively impact physicians’ willingness to prescribe PhosLo and, hence, negatively impact future sales of PhosLo. In addition, we expect the maker of Fosrenol, another competitive product, to begin promotion of that product. If we do not achieve the necessary level of success in marketing PhosLo to recover the value of the intangible assets we acquired, we will be required to write down or write off some or all of the PhosLo intangible assets. If this occurs, our market valuation, balance sheet, results of operations and financial position could be adversely affected.

We depend upon third parties to manufacture our biopharmaceutical products.

We manufacture only one of our marketed biopharmaceutical products and depend upon third parties to manufacture PhosLo, Aloprim and WinRho SDF for us. At times, contract manufacturers have failed to meet our needs in the past. Our biopharmaceutical product sales were constrained in 2000 because of the inability of the contract manufacturer for WinRho SDF to supply product for a period of time. Since 2000, our ability to market Aloprim has been adversely affected at certain times by our inability to obtain necessary quantities of this product from our contract manufacturer. In addition, our research and development product pipeline significantly involves conjugate vaccines. We currently rely on a third party, Cambrex Bio Science, to manufacture StaphVAX. The agreement with Cambrex Bio Science contemplates that it will provide us with product for our clinical needs and for the initial commercial launch of StaphVAX but not for all of our forecasted needs if StaphVAX is a commercial success in Europe and the U.S.

The failure of our contract manufacturers to supply us with sufficient amounts of product to meet our needs, or to renew their contracts with us on commercially reasonable terms, would have a material adverse effect on our future business, financial condition and results of operations.

The market may not be receptive to our products upon their introduction.

There can be no assurance that any of our products in development will achieve market acceptance. The degree of market acceptance will depend upon a number of factors, including

The failure of our clinical, research and development product pipeline and marketed products to gain market acceptance could have a material adverse effect on our future business, financial condition and results of operations.

We may not be successful in licensing or operating an internal commercial scale vaccine manufacturing facility currently under development.

We have constructed a vaccine plant in our Boca Raton, Florida manufacturing facility designed to allow us to produce vaccines in our product pipeline. We plan to submit a BLA to the FDA for licensure for the manufacture of StaphVAX in this facility in 2005 or 2006. In addition, we plan to submit a supplemental MAA to EU regulatory authorities for licensure for the manufacture of StaphVAX in this facility with a goal of being a back-up site for the production of StaphVAX for

30

Table of Contents

commercial sale in the EU following approval. No assurance can be given that we will be able to obtain such licensure on a timely basis or at all, and failure to obtain such licensure on a timely basis, or at all, would have a material adverse effect on our future business, financial condition and results of operations.

The new plant is designed to process several vaccines on a commercial scale. We have not previously owned or operated such a facility and have no direct experience in commercial, large-scale manufacturing of vaccine products. There can be no assurance that, if FDA and EU licensures are received, the facility can be operated efficiently and profitably. Our failure to successfully operate our new manufacturing facility would have a material adverse effect on our future business, financial condition and results of operations.

We are not currently able to utilize the full capacity of our plasma fractionation facility.

We began commercial manufacture of Nabi-HB at our Boca Raton biopharmaceutical manufacturing facility in the fourth quarter of 2001 and intend to expand the use this facility for the manufacture of polyclonal antibody products in our clinical product pipeline including, Altastaph and Civacir, and for the manufacture of products of other parties. For the foreseeable future, we may not utilize the full manufacturing capacity of the facility and there can be no assurance that we will ever operate the facility efficiently. There can be no assurance that we will have either our own products to manufacture or those of others to offset the cost of the facility’s operation. Further, we have limited experience manufacturing our clinical product candidates. Our failure to fully utilize the capacity of the plant or to manufacture products successfully could have a material adverse effect on our future business, financial condition and results of operations.

A disaster at our sole manufacturing sites would interrupt our manufacturing capability for the products produced there.

Manufacturing products at a single site presents risks because a disaster, such as a fire or hurricane, may interrupt manufacturing capability. In such an event, we will have to resort to alternative sources of manufacturing that could increase our 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 our future business, financial condition and results of operations.

Our BLA license application for Nabi-HB Intravenous may not be approved.

Our BLA license application for Nabi-HB Intravenous that was filed in November 2002 may not be approved by the FDA. Nabi-HB is a human polyclonal antibody product currently indicated to prevent hepatitis B, or HBV, infection following accidental exposure to the virus. We believe the majority of our Nabi-HB sales are used to prevent re-infection with hepatitis B disease in HBV-positive liver transplant patients. Nabi-HB is not currently labeled for this use. Our inability to obtain licensure from the FDA for Nabi-HB Intravenous could have an adverse effect on our future business, financial condition and results of operations.

Our sales of Nabi-HB are directly related to patient treatment protocols and the number of liver transplants performed in HBV positive patients, over which we have no control.

Our sales of Nabi-HB are primarily for the care of HBV-positive liver transplant patients at the time of and for a maintenance period following liver transplant. The number of liver transplants that occur depends on the number of livers available for transplant. The number of livers used for HBV-positive liver transplant candidates as well as the dosing of Nabi-HB may vary from time to time based on the following factors:

31

Table of Contents

Each of these factors is outside our control. Sales of Nabi-HB will be adversely affected if patient treatment protocols change or the number of hepatitis B liver transplants decreases. Sales of Nabi-HB Intravenous, if it is licensed, will be similarly affected. This could have an adverse effect on our future results of operations and financial condition.

A reduction in the availability of specialty antibodies could adversely affect our ability to manufacture an adequate amount of Nabi-HB, Altastaph or Civacir or to fulfill contractual obligations.

Our ability to manufacture Nabi-HB today and Nabi-HB Intravenous, HEBIG, Altastaph and Civacir, if they are licensed, will depend upon the availability of specialty antibodies that we primarily obtain from our FDA-approved antibody collection centers. We also have contractual obligations to supply other specialty antibodies to third parties that we also obtain from our FDA-approved antibody collection centers. Specialty antibodies are more difficult to obtain than non-specific antibodies. Reduced availability of the necessary specialty antibodies would adversely affect our ability to manufacture an adequate amount of Nabi-HB, Nabi-HB Intravenous, HEBIG, Altastaph and Civacir, or to fulfill our contractual obligations, with the result that our future business, financial condition and results of operations would suffer.

We sell our products to a small number of customers. The loss of any major customer could have a material adverse effect on our results of operations or financial condition.

We sell a significant portion of our biopharmaceutical products to pharmaceutical wholesalers and distributors. In 2004, three such customers accounted for 74% of our total consolidated sales. These customers maintain inventories of our products at levels that can range as high as six to eight months of end patient demand as measured by prescriptions written. A loss of any of the customers or a material reduction in such customer’s purchases or inventories on hand at their sites could have a material adverse effect on our results of operations and financial condition. We also maintain a significant receivable balance with each of these customers. If these customers become unable or unwilling to pay amounts owed to us, our financial condition and results of operations could be adversely affected.

Our antibody sales in 2004 were primarily to a single customer. The loss of this customer or a material reduction in its purchases of antibodies could have a material adverse effect upon our future business, financial condition and results of operations.

32

Table of Contents

New treatments may reduce the demand for our antibodies and antibody based biopharmaceutical products.

Most of the antibodies we collect, process and sell to our customers are used in the manufacture of biopharmaceutical products to treat certain diseases. Several companies are marketing and developing monoclonal antibody products to treat some of these diseases based on technology that would reduce or eliminate the need for human antibodies. Such products could adversely affect the demand for antibodies and antibody based biopharmaceutical products. We are unable to predict the impact of future technological advances on our business.

We may not generate sufficient cash flow from our biopharmaceutical and antibody products or obtain financing necessary to fund our research and development activity at an appropriate level.

We generate revenues from sales of our biopharmaceutical and antibody products. We will cease to generate revenues from sales of one of these products, WinRho SDF ^®, in March 2005 when our exclusive distribution agreement in the U.S. ends. Sales of WinRho SDF may be negatively impacted in the period ended March 2005 due to this change in relationship. We have incurred and expect to continue incurring significant expenses associated with our biopharmaceutical research and development activities, including the cost of clinical trials and marketing expenses. These expenses adversely affect our current ability to be profitable. Products under development may not generate sales for several years or at all. We do not have the financial resources to fund concurrently all of our biopharmaceutical product development programs to completion. Our ability to continue to fund all of our ongoing research and development activities depends on our ability to generate sales from our biopharmaceutical and antibody products or to obtain external financing. There can be no assurance, therefore, that we will be able to continue to fund our research and development activities at the level required to commercialize all of our biopharmaceutical product development programs. If we are required to reduce the funding for certain of our research and development activities, this could have a material adverse effect on our future prospects.

We may enter into strategic alliances that may not be successful and may adversely affect our ability to develop our products.

We intend to pursue strategic alliances with third parties to develop and/or commercialize certain of our biopharmaceutical products. No assurance can be given that we will be successful in these efforts or, if successful, that our collaborative partners will conduct their activities in a timely manner. If we are not successful in our efforts, our ability to continue to develop our products may be affected adversely. Even if we are successful, if any of our collaborative partners violates or terminates their agreements with us or otherwise fails to conduct their collaborative activities in a timely manner, the development or commercialization of our products could be delayed. This might require us to devote significant additional resources to product development and commercialization or terminate certain development programs. 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 our collaborative partners and us 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 our future business, financial condition and results of operations.

We may not be able to develop and commercialize new biopharmaceutical products successfully or in a timely manner, which could adversely impact our future operations.

Our future success will depend on our ability to achieve scientific and technological advances and to translate such advances into commercially competitive products on a timely basis. Our biopharmaceutical products under development are at various stages, and substantial further development, pre-clinical testing and clinical trials will be required to determine their technical

33

Table of Contents

feasibility and commercial viability. Our proposed development schedules for these products may be affected by a variety of factors, including

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 we will obtain government approval to commercialize the product. In addition, any delay in the development, introduction or marketing of our products under development could result either in such products being marketed at a time when their cost and performance characteristics might not be competitive in the marketplace or in a shortening of their commercial lives. There can be no assurance that our biopharmaceutical products under development will prove to be technologically feasible or commercially viable or that we will be able to obtain necessary regulatory approvals and licenses on a timely basis, if at all. Our failure to develop and commercialize successfully our biopharmaceutical products in a timely manner and obtain necessary regulatory approvals could have a material adverse effect on our future operations. In particular, our failure to obtain regulatory approval for StaphVAX on a timely basis could adversely affect our market valuation.

We are unable to pass through certain cost increases to our antibody product customers with which we have supply contracts.

A significant amount of our antibodies are sold under contracts that have a remaining term of up to four years. Certain contracts do not permit us to increase prices during the contract term except to reflect changes in customer specifications and new governmental regulations. If our costs of collecting antibodies under these contracts rise for reasons other than changes in customer specifications and new governmental regulations, we are unable to pass on these cost increases to our antibody product customers except with the customer’s consent.

34

Table of Contents

An increase in the supply of or a decrease in the demand for antibody products could materially and adversely affect our future business, financial condition and results of operations.

The worldwide supply of antibodies has fluctuated historically. Future changes in government regulation relating to the collection, fractionation and use of antibodies or any negative public perception about the antibody collection process or the safety of products derived from blood or antibodies could further adversely affect the overall supply of or demand for antibodies. Increases in supply or decreases in demand of antibody products could have a material adverse effect on our future business, financial condition and results of operations.

If we fail to comply with extensive regulations enforced by the FDA, European Medicines Agency, or EMEA, the Paul Erlich Institute in Germany, or PEI, the German Federal Institute for Drugs and Medical Devices, or BfArM, and other agencies, the sale of our current products and the commercialization of our product candidates would be prevented or delayed.

Research, pre-clinical development, clinical trials, manufacturing and marketing of our products are subject to extensive regulation by various government authorities. The process of obtaining FDA, EMEA, PEI, BfArM and other required regulatory approvals are lengthy and expensive, and the time required for such approvals is uncertain. The approval process is affected by such factors as

Regulatory authorities also may require post-marketing surveillance to monitor potential adverse effects of our products or product candidates. The U.S. Congress, or the FDA in specific situations, can modify the regulatory process. Many of our clinical trials are at a relatively early stage and, except for Nabi-HB, WinRho SDF, PhosLo, Aloprim and certain non-specific and specialty antibody products, no approval from the FDA or any other government agency for the manufacturing or marketing of any other products under development has been granted. There can be no assurance that we will be able to obtain the necessary approvals to manufacture or market any of our pipeline products. Failure to obtain additional regulatory approvals of products currently marketed or regulatory approval for products under development could have a material adverse effect on our future business, financial condition and results of operations. Once approved, a product’s failure to comply with applicable regulatory requirements could, among other things, result in warning letters, fines, suspension or revocation of regulatory approvals, product recalls or seizures, operating restrictions, injunctions and criminal prosecutions.

35

Table of Contents

Although we do not have material sales of our biopharmaceutical products outside the U.S. today, our goal is to expand our global presence for these products. Distribution of our products outside the U.S. 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 we will obtain regulatory approvals in such countries or that we will not be required to incur significant costs in obtaining or maintaining these regulatory approvals. In addition, the export by us of certain of our products that 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 our future business, financial condition and results of operations.

Our U.S. manufacturing, antibody collection, labeling, storage and distribution activities also are subject to strict regulation and licensing by the FDA. Our biopharmaceutical manufacturing facility in Boca Raton, Florida is subject to periodic inspection by the FDA, the EMEA, PEI and other regulatory authorities and from time to time, we may receive notices of deficiencies from these agencies as a result of such inspections. Our antibody collection centers in the U.S. also are subject to periodic inspection by the FDA, the EMEA and other regulatory authorities and from time to time, we may receive notices of deficiencies from these agencies as a result of such inspections. Our failure, or the failure of our biopharmaceutical manufacturing facility or our antibody collection centers, to continue to meet regulatory standards or to remedy any deficiencies could result in corrective action by the FDA, including closure of our biopharmaceutical manufacturing facility or one or more antibody collection centers and fines or penalties. New regulations may be enacted and existing regulations, their interpretation and enforcement, are subject to change. Therefore, there can be no assurance that we 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 our future business, financial condition and results of operations.

Heightened concerns over antibody products and screening measures could adversely affect our antibody production.

Our antibody collection centers and our customers for antibody products are subject to extensive regulation by the FDA and non-U.S. regulatory authorities. Concern over the safety of antibody products have in the past resulted and will likely result in the future in the adoption of more rigorous screening procedures by regulatory authorities and manufacturers of antibody products. In prior years, these changes have resulted in significantly increased costs to us in providing non-specific and specialty antibodies to our customers. New procedures, which include a more extensive investigation into a donor’s background, as well as more sensitive tests, also have disqualified numerous potential donors and discouraged other donors who may be reluctant to undergo the screening procedures. These more stringent measures could adversely affect our antibody production with a corresponding, adverse effect on our future business, financial condition and results of operations. In addition, our efforts to increase production to meet customer demand may result in higher costs to attract and retain donors.

We may be subject to costly and damaging liability claims relating to antibody contamination and other claims.

Antibodies we collect, antibody based products we manufacture, antibody based products we market or are developing, such as Nabi-HB, WinRho SDF, Altastaph and Civacir, and antibody based products our customers manufacture run the risk of being contaminated with viruses. As a result, suits may be filed against our customers and us claiming that the plaintiffs became infected with a virus as a result of using contaminated products. Such suits have been filed in the past related to contaminated antibodies, and in a number of suits we were one of several defendants. No assurance that additional lawsuits relating to infection with viruses will not be brought against us by persons who have become infected with viruses from antibody based products.

36

Table of Contents

Pharmaceutical and biotechnology companies are increasingly subject to litigation, including class action lawsuits, and governmental and administrative investigations and proceedings related to product pricing and marketing practices. There can be no assurance that lawsuits will not be filed against us or that we will be successful in the defense of these lawsuits. Defense of suits can be expensive and time consuming, regardless of the outcome, and an adverse result in one or more suits could have a material adverse effect on our future business, financial condition and results of operations.

We may not be able to maintain sufficient product liability and directors and officers insurance to cover claims against us.

Product liability and directors and officers insurance for the biopharmaceutical industry is generally expensive to the extent it is available at all. There can be no assurance that we will be able to maintain such insurance on acceptable terms or that we will be able to secure increased coverage if the commercialization of our products progresses, or that existing or future claims against us will be covered by our insurance. Moreover, there can be no assurance that the existing coverage of our insurance policy and/or any rights of indemnification and contribution that we may have will offset existing or future claims. A successful claim against us 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 our future business, financial condition and results of operations. Further, if we were unable to obtain directors and officers liability insurance, it could affect adversely our ability to attract and retain directors and senior officers.

We may not be able to maintain sufficient property insurance on our facilities in Florida.

We maintain significant real property assets in Florida. Property insurance for companies with a high concentration of property assets in Florida is generally expensive to the extent it is available at all. There can be no assurance that we will be able to maintain such insurance on acceptable terms or that we will be able to secure increased coverage if the value of our property increases.

Our patents and proprietary rights may not provide sufficient protection, and patents of other companies could prevent us from developing and marketing our products.

The patent positions of biopharmaceutical firms generally are highly uncertain and involve complex legal and factual questions. There can be no assurance that existing patent applications will result in issued patents, that we will be able to obtain additional licenses to patents of others or that we will be able to develop additional patentable technology of our own. We cannot be certain that we were the first creator of inventions covered by our patents or pending patent applications or that we were the first to file patent applications for such inventions. There can be no assurance that any patents issued to us will provide us 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 us, 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 ours. Some of these applications or patents may compete with our applications or conflict in certain respects with claims made under our applications. Such a conflict could result in a significant reduction of the coverage of our 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, we 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 we will be able to obtain any such licenses on commercially favorable terms, if at all. Our

37

Table of Contents

failure to obtain a license to any technology that we may require in order to commercialize our products could have a material adverse effect on our future business, financial condition and results of operations. Litigation, which could result in substantial cost to us, may also be necessary to enforce any patents issued to us or to determine the scope and validity of third-party proprietary rights.

We also rely on secrecy to protect our technology, especially where patent protection is not believed to be appropriate or obtainable. We maintain strict controls and procedures regarding access to and use of our proprietary technology and processes. However, there can be no assurance that these controls or procedures will not be violated, that we would have adequate remedies for any violation, or that our trade secrets will not otherwise become known or be independently discovered by competitors.

We compete with larger, better-financed and more mature pharmaceutical and biotechnology companies, which are capable of developing new products and approaches that could make our products obsolete.

Competition in the development of biopharmaceutical products is intense, both from pharmaceutical and biotechnology companies, and is expected to increase. Many of our competitors have greater financial resources and larger research and development staffs than we have, as well as substantially greater experience in developing products, obtaining regulatory approvals, and manufacturing and marketing biopharmaceutical products. We compete with our competitors

There can be no assurance that our competitors will not succeed in developing technologies and products that are more effective or affordable than those that we are developing. In addition, one or more of our competitors may achieve product commercialization of or patent protection for competitive products earlier than us, which would preclude or substantially limit sales of our products. Further, several companies are attempting to develop and market products to treat certain diseases based upon technology that would lessen or eliminate the need for human antibodies. The successful development and commercialization by any of our competitors of any such product could have a material adverse effect on our future business, financial condition and results of operations.

There are potential limitations on third-party reimbursement and other pricing-related matters that could reduce the sales of our products and may delay or impair our ability to generate sufficient revenues.

Our ability to commercialize our biopharmaceutical products and related treatments depends in part upon the availability of, and our 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 payer coverage will be available, if at all. Inadequate levels of reimbursement may prohibit us from maintaining price levels sufficient for realization of an adequate return on our investment in developing new biopharmaceutical products and could result in the termination of production of otherwise commercially viable products.

In the U.S., government and other third-party payers are increasingly attempting to contain healthcare costs by limiting both the coverage and level of reimbursement for new products

38

Table of Contents

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 U.S. and the concurrent growth of 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 our products. The cost containment measures that healthcare providers are instituting and the impact of any healthcare reform could have an adverse effect on our ability to sell our products and may have a material adverse effect on our future business, financial condition and results of operations.

Within the EU, a number of countries use price controls to limit the reimbursement for pharmaceutical products. These price control limits are often derived from the chemical entity of the product, the competitive environment for a product and pricing in relation to other products. Further, price increases in these settings in future periods may be significantly restricted or price decreases in future periods may be mandated. Reimbursement for products within the EU is negotiated in each country. There can be no assurance that that we will receive reimbursement approval from any or all of the countries where we seek such approval or that reimbursement, if approved, will be at sufficient levels in each country. Any delays in or failure to obtain licensure or reimbursement approvals, or the failure to obtain reimbursement approvals at sufficient levels, and any delays in commercialization could adversely affect our market valuation, results of operations and our financial position.

There can be no assurance that reimbursement in the U.S., the EU or other markets will be available for our products, or, if available, will not be reduced in the future, or that reimbursement amounts will not reduce the demand for, or the price of, our products. The unavailability of government or third-party reimbursement or the inadequacy of the reimbursement for medical treatments using our products could have a material adverse effect on our future business, financial condition and results of operations. Moreover, we are 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 our future business.

Anti-takeover provisions in our charter documents, under Delaware law and under our stockholder rights plan could make an acquisition of us more difficult.

Provisions of our certificate of incorporation and bylaws will make it more difficult for a third party to acquire us on terms not approved by our board of directors and may have the effect of deterring hostile takeover attempts. For example, our certificate of incorporation currently contains a fair price provision and also authorizes our board of directors to issue substantial amounts of preferred stock and to fix the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of our common stock will be subject to, and may be harmed by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock could reduce the voting power of the holders of our common stock and junior preferred stock and the likelihood that holders of our common stock and junior preferred stock will receive payments upon liquidation.

We also are subject to provisions of Delaware law that could have the effect of delaying, deferring or preventing a change in control of our company. One of these provisions prevents us from engaging in a business combination with any interested stockholder for a period of three years after the date the person becomes an interested stockholder, unless specified conditions are satisfied.

We also have implemented a stockholder rights plan, or poison pill, that would substantially reduce or eliminate the expected economic benefit to an acquirer from acquiring us in a manner or on terms not approved by our board of directors. These and other impediments to a third-party acquisition or change of control could limit the price investors are willing to pay in the future for our securities.

39

Table of Contents

Currency exchange rate fluctuations could adversely affect our results from operations.

We conduct business in countries outside of the U.S., which expose us to fluctuations in foreign currency exchange rates. Fluctuations in foreign currency exchange rates may affect our results of operations, which in turn may adversely affect reported earnings and the comparability of period-to-period results of operations.

ITEM 2. PROPERTIES

We own an 87,300 square foot facility that houses our corporate headquarters, our licensed biopharmaceutical manufacturing facility and our vaccine manufacturing facility in Boca Raton, Florida. We also own a 46,000 square foot facility in Boca Raton that houses our laboratory and cold storage facility.

We lease office, laboratory, pilot manufacturing and warehouse space in Rockville, Maryland with terms expiring through December 2008 with various options for lease extensions.

We occupy antibody collection centers ranging in size from approximately 3,200 to 20,800 square feet leased from non-affiliates under leases expiring through 2012. A majority of these leases contain renewal options that permit us to renew the leases for varying periods up to ten years at the then fair rental value. We believe that in the normal course of our business, we will be able to renew or replace our existing leases.

ITEM 3. LEGAL PROCEEDINGS

We are a party to litigation in the ordinary course of business. We do not believe that such litigation will have a material adverse effect on our future business, financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders in the fourth quarter of the year ended December 25, 2004.

40

Table of Contents

ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of Nabi Biopharmaceuticals are as follows:

Mr. McLain has served as Chairman, Chief Executive Officer and President since May 2004 and has been a director since April 2002. From June 2003 through May 2004 Mr. McLain served as Chief Executive Officer and President. From November 2002 to June 2003 Mr. McLain served as President and Chief Operating Officer. From April 2001 to November 2002, Mr. McLain served as Executive Vice President and Chief Operating Officer. From 1998 to April 2001, Mr. McLain served as Senior Vice President, Corporate Services and Chief Financial Officer. From 1988 to 1998, Mr. McLain was employed by Bausch & Lomb, Inc., a global eye care company, where, as Staff Vice President, Business Process Reengineering, he led a cross-functional team to restructure the global finance and purchasing organizations. During his tenure with Bausch & Lomb, Mr. McLain held various positions of increasing responsibility, including Staff Vice President, Accounting and Reporting and Assistant Corporate Controller. Before joining Bausch & Lomb, Mr. McLain practiced with the accounting firm of Ernst & Young LLP. In February of 2004, Mr. McLain was elected to the Board of Directors of Eastman Chemical Company, based in Kingsport, Tennessee.

Mr. Clark has served as Senior Vice President, Administration and Chief Administrative Officer since May 2004. Mr. Clark was employed from 1994 to 2004 by Right Management Consultants where he served for ten years in positions of increasing responsibilities, most recently as Chief Operating Officer for the Florida / Caribbean region. In his role as Chief Operating Officer, Mr. Clark specialized in senior executive leadership development, strategic planning, organizational performance and career transition services. Prior to joining Right Management Consultants, Mr. Clark

41

Table of Contents

was the president of the Clark Development Group, Inc., an organizational consulting firm whose practice focused on strategic planning and business development. Previously Mr. Clark worked for twenty-two years in CEO and President capacities in the field of voluntary association management.

Dr. Fahim has served as Senior Vice President, Technical and Production Operations since May 2003 having been employed as Vice President of Vaccine Manufacturing Operations in March 2003. From 2002 to 2003 Dr. Fahim was an independent consultant, working with Aventis Pasteur and other companies worldwide, on projects that included manufacturing, process improvement, quality operations and regulatory issues. From 2001 to 2002, he served as President and Chief Operating Officer of Lorus Therapeutics, Inc., a biopharmaceutical company. From 1987 to 2001, Dr. Fahim was employed by Aventis Pasteur where he was instrumental in developing several vaccines from early research to marketed products. During his employment with Aventis Pasteur Dr Fahim held the positions of Vice President, Industrial Operations, Vice President Development, Quality Operations and Manufacturing, Director of Product Development; and head of bacterial vaccines research/research scientist.

Mr. Jooste has served as Senior Vice President of Global Sales and Marketing since December 2004. From July 2002 to December 2004, Mr. Jooste was Vice President of Worldwide Product Planning for Cephalon, Inc. From June 2001 to June 2002, Mr. Jooste served as Chief Operating Officer for Aton Pharma, Inc. Prior to joining Aton Pharma, Mr. Jooste served with Wyeth and Eli Lilly and Company from 1983 to 2001, where he held positions of increasing international sales and marketing responsibility working in the U.S., Europe and the Pacific Rim. Mr. Jooste has acquired extensive knowledge and experience in marketing and sales of oral and injectable antibiotics as well as specialty products in oncology, psychiatry, endocrinology and rheumatology. Throughout his career he has had several assignments in the U.S., Europe and Australia where he was responsible for building and expanding a commercial organization and creating capabilities to support marketing and sales of leading brands.

Dr. Rasmussen has served as Senior Vice President, Clinical, Medical and Regulatory Affairs since May 2003 having been employed as Vice President of Clinical and Regulatory Affairs in February 2003. From April 1999 to February 2003, Dr Rasmussen was employed as Vice President/Senior Vice President of Clinical Research & Regulatory Affairs for GenVec, Inc., a biotech company focused on gene therapy. From November 1994 to March 1999, Dr. Rasmussen was employed as Vice President of Clinical Research/Senior Vice President of Clinical Research/Regulatory Affairs with British Biotech. From 1989 to 1995, Dr. Rasmussen held various management positions within the worldwide clinical development group of Pfizer Central Research in the UK. From 1985 to 1989, Dr. Rasmussen worked with a major university hospital in Denmark, focusing on internal medicine, including cardiology, gastroenterology and infectious disease.

Mr. Smith has served as Senior Vice President of Finance, Chief Financial Officer and Chief Accounting Officer since April 2001. From August 1999 to April 2001, Mr. Smith served as Vice President of Finance and Chief Accounting Officer and as Senior Director of Finance and Chief Accounting Officer. From 1998 to 1999, Mr. Smith served as Vice President of Finance and Administration and Chief Financial Officer of Neuromedical Systems, Inc., where he played a leadership role in that company’s strategic restructuring and sale in connection with a pre-packaged Chapter 11 proceeding under federal bankruptcy laws. From 1996 to 1998, Mr. Smith served in various financial executive capacities at Genzyme Corporation. From 1991 to 1996, Mr. Smith was employed by Genetrix, Inc., most recently as its Chief Financial Officer. Before joining Genetrix Inc., Mr. Smith practiced with the accounting firm of PricewaterhouseCoopers LLP in both the U.S. and Australia.

42

Table of Contents

Nabi Biopharmaceuticals

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITITES

Our common stock is quoted on the Nasdaq National Market under the symbol “NABI.” The following table sets forth for each period the high and low sale prices for our common stock (based upon intra-day trading) as reported by the Nasdaq National Market.

The closing price of our common stock on March 3, 2005 was $12.36 per share. The number of record holders of our common stock on March 3, 2005 was 1,021.

No cash dividends have been previously paid on our common stock and none are anticipated in 2005.

43

Table of Contents

The following table provides information about purchases made by us of our common stock for each month included in our fourth quarter:

ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6. SELECTED FINANCIAL DATA

As described under Item 7, amortization expense related to an intangible manufacturing right asset and the write off of the intangible manufacturing right asset have been restated for the years ended December 27, 2003 and December 28, 2002.

44

Table of Contents

45

Table of Contents

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OUR STRATEGY

Our business strategy is to leverage our knowledge of the immune system and our clinical, regulatory, manufacturing and commercial expertise to improve human health by reducing patient mortality and morbidity and deliver products to the marketplace that reduce the financial burden on the healthcare system.

Our currently marketed products assist us in pursuing this strategy by generating gross margin that helps fund our clinical and research and development programs. Through commercialization of our currently marketed products, we have developed a specialty sales and marketing model focused on a differentiated consultative selling style designed to develop strong physician relationships in hospital and dialysis center settings. We believe this model can be scaled up in the U.S. and is readily translated in ex-U.S. markets as we prepare for the launch of additional products.

We maintain clear commercial synergies between our currently marketed products and products in our research and development pipeline. Through our marketing of PhosLo (calcium acetate), we have developed an understanding of the nephrology market that will be an important initial patient population for StaphVAX (Staphylococcus aureus Polysaccharide Conjugate Vaccine). Our specialty sales force will be applied in the commercialization of our products in clinical development, StaphVAX, Altastaph [Staphylococcus aureus Immune Globulin (Human)] for adults and very low birth weight neonates and Civacir [Hepatitis C Immune Globulin (Human)].

KEY OPERATING ACTIVITIES

During 2004 we began our transformation to become a global company by initiating the commercialization process for StaphVAX, Nabi-HB Intravenous [Hepatitis B Immune Globulin (Human)] and PhosLo in Europe. We have hired clinical and regulatory employees in the European Union, or EU, to support our European regulatory filings and have initiated marketing and pricing studies for our products currently under EU regulatory consideration.

On December 21, 2004, we filed a Marketing Authorization Application, or MAA, for StaphVAX in the EU via the Centralized Registration Procedure. Our MAA was based on efficacy data from our first Phase III clinical trial of StaphVAX and the successful transfer of the commercial scale manufacturing process for StaphVAX to Cambrex Bio Science Baltimore, Inc., or Cambrex Bio Science, that was completed in August 2004. Also during 2004, we filed MAA’s for PhosLo in October and Nabi-HB Intravenous in June using the Mutual Recognition Procedure, or MRP. Each of the filings for StaphVAX, PhosLo and Nabi-HB Intravenous was prepared using the Common Technical Document, or CTD, format, which is widely accepted on a global basis. Under this format, the filings can be readily submitted in other countries around the world, facilitating our ability to expand the marketing of our products into markets beyond the EU and the U.S.

Our U.S. clinical strategy for StaphVAX was significantly advanced through fully enrolling our confirmatory Phase III clinical trial in the third quarter of 2004. We also completed a Phase I/II clinical trial of Altastaph in adults with persistent S. aureus infections, announcing the results in January 2005, and announced the results from our Phase II clinical trial of Altastaph in very low birth-weight neonates and our Phase I/II clinical trial for NicVAX in 2004. Based on the results of these clinical trials we are currently designing our clinical programs and undertaking further clinical trials to advance the development of each of these programs toward future commercialization.

46

Table of Contents

During 2004, we began construction of a vaccine manufacturing plant within available space in our Boca Raton, Florida facility. We anticipate that this plant will initially manufacture StaphVAX. The vaccine plant also can be used to manufacture our other vaccine product candidates.

In July 2004, Cangene Corporation, or Cangene, informed us that it would not renew the WinRho SDF license and distribution agreement with us when the agreement expires in March 2005. We will continue to distribute WinRho SDF exclusively in the U.S. through March 2005.

KEY FINANCING ACTIVITIES

On December 7, 2004, we filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission. Upon being declared effective by the SEC, this registration statement will permit us, from time to time, to offer and sell up to $175 million of equity or debt securities. We plan to use net proceeds from sales of securities under this shelf registration statement to provide additional funds for general corporate purposes, including but not limited to clinical trials, research, development and marketing expenses, and new acquisition and licensing costs.

Results of Operations

The following discussion and analysis of our financial condition and results of operations for each of the three years ended December 25, 2004, December 27, 2003 and December 28, 2002, should be read in conjunction with the Consolidated Financial Statements and Notes thereto and with the information contained under “Risk Factors” in Item 1. All amounts are expressed in thousands, except for per share and percentage data.

Information concerning our sales by industry segment, for the respective periods, is set forth in the following table.

RESTATEMENT OF PRIOR YEARS FINANCIAL STATEMENTS

During the process of preparing our consolidated financial statements for 2004, we determined that we had received a benefit from our intangible manufacturing right asset related to our right to manufacture Staph VAX at Dow Biopharmaceutical Contract Manufacturer of Dow’s, site in prior fiscal years when we had recorded no amortization expense. This determination led to our decision to restate the financial statements for these periods to record additional amortization expense. The following table summarizes the impact of the restatement on our statements of operations:

Net (loss) income originally reported as $(6.8) million or $(0.16) per share for the year ended December 27, 2003, $2.1 million or $0.05 per share for the year ended December 28, 2002 and $104.7 million or $2.36 per share for the year ended December 29, 2001 have been restated as $(6.1) million or $(0.14) per share, $1.5 million or $0.04 per share and $104.5 million or $2.36 per share, respectively.

In October 2003 we made a decision to establish a new manufacturing relationship with Cambrex Bio Science. to support an opportunity for earlier commercialization of our vaccine against S. aureus infections, StaphVAX in Europe. As a result, we terminated our contract manufacturing agreement with Dow Biopharmaceutical Contract Manufacturing Services or Dow, on October 9, 2003 and reported a non-cash write off equal to the recorded value of the manufacturing right asset as of that date. As restated, this write off amount totals $9.7 million versus $12.6 million reported previously. The restatement of amortization expense related to this asset will not require restatement of the previously reported balance sheet as of December 27, 2003.

The following table sets forth selected consolidated financial data for the five years ended December 25, 2004 that was derived from our audited consolidated financial statements.

The data should be read in conjunction with, and are qualified by reference to, Nabi Biopharmaceuticals’ 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.

47

Table of Contents

2004 as Compared to 2003 (as restated)

Sales. Total sales for 2004 were $179.8 million compared to sales of $176.6 million for 2003.

Biopharmaceutical sales. Biopharmaceutical sales for 2004 were a record $131.8 million compared to $109.5 million for 2003, an increase of 20%.

PhosLo. Sales of PhosLo were $37.6 million for 2004 compared to $12.9 million for the period of August 4, 2003 through December 27, 2003. We acquired PhosLo on August 4, 2003 and began selling the product utilizing our sales force and distribution channels in September 2003. In planning for 2005, we took the strategic decision to move aggressively to convert patients from the PhosLo tablet formulation to the PhosLo gelcap formulation. We believe the PhosLo gelcap formulation, which is easier for patients to use, will enhance overall patient compliance with their prescriptions. In line with this decision and orders received from wholesaler customers, we significantly reduced our inventory of PhosLo tablet formulation. We believe wholesaler customers increased their inventory levels in response to increased patient demand, anticipated transition to PhosLo gelcaps and our announced price increases that occurred in January 2004 and September 2004. Sales of PhosLo in 2004 included stocking of our gelcap formulation of PhosLo by our wholesaler customers in the first quarter as we increased manufacturing capacity for PhosLo gelcaps in order to facilitate transition to this formulation. Patient prescriptions for PhosLo have increased in 2004 compared to 2003 based on our review of third party prescription data. Overall reported sales of PhosLo in 2004 further benefited from the price increases that went into effect in January 2004 and September 2004 and from our pricing strategies that have resulted in lower rebate deductions from our gross selling price thereby increasing net average selling price for PhosLo.

We have entered into inventory management agreements with two of our major wholesaler customers and, as a result, expect our customers to reduce their inventory levels in 2005. We are aware that a competitive product to PhosLo, Renagel (sevelamer hydrochloride) marketed by Genzyme Corporation, has initiated a clinical trial examining the difference in morbidity and mortality outcomes based on arterial calcification for patients receiving Renagel and those receiving calcium-based phosphate binders, including PhosLo. If the results of this trial are favorable to Renagel, they may impact sales of PhosLo. The results from this trial may impact sales of PhosLo in 2005. We have initiated the CARE 2 study in 2004 that seeks to demonstrate that when a patient’s lipid levels are equally controlled, there is no clinical difference in arterial calcification between patients treated with PhosLo and Renagel. We control lipid levels in CARE 2 through use of Lipitor (atorvastatin calcium) administered to all study participants, as required to maintain lipid levels at established target levels. Interim results from this clinical trial for serum phosphorus, serum calcium calcium phosphorus product and lipid levels are expected to be available in the second half of 2005 with final data on arterial calcification measured by electron beam computer tomography being available in the second half of 2006.

Nabi-HB. Sales of Nabi-HB increased 7% in 2004 compared to sales reported in 2003. Sales of Nabi-HB in 2004 benefited from initial sales under our new agreement with Novation LLC, or Novation, entered into during the first quarter of 2004. Under the terms of the agreement, we will supply finished Nabi-HB product to Novation for distribution through their Novaplus^® Private Label Program. We believe the most significant use of Nabi-HB is for the treatment of hepatitis B positive liver transplant recipients and hence, sales of Nabi-HB are directly related to the number of hepatitis B liver transplants in the U.S. Our internally generated data indicates that the number of liver transplants for hepatitis B patients for 2004 have increased by approximately 20% compared to the number for 2003. Sales of Nabi-HB have benefited from this increase in liver transplants for hepatitis B patients and increased pricing that went into effect at the beginning of 2004 offset by the impact of changes in treatment protocols for HBV-positive liver transplant patients that have resulted in lower doses of antibody

48

Table of Contents

based therapies such as Nabi-HB. Sales reported for 2003 benefited from product backorders of $3.5 million at December 28, 2002, that were filled in 2003. At December 25, 2004 we had unfilled product orders for Nabi-HB totaling $3.8 million.

WinRho SDF [Rho (D) Immune Globulin Intravenous (Human)]. Sales of WinRho SDF were 4% lower in 2004 compared to sales in 2003. Based on internally generated patient use data, we believe patient demand for WinRho SDF in 2004 has decreased in-line with the decrease in reported sales in 2004 as compared to 2003. Our agreement with Cangene to distribute WinRho SDF will end in March 2005.

Other biopharmaceutical products. Other biopharmaceutical products, which include Aloprim [(Allopurinol Sodium) for injection], Autoplex T [Anti-Inhibitor Coagulant Complex, Heat Treated], intermediate products manufactured in our plant and contract manufacturing, generated sales of $6.2 million in 2004 compared to $9.0 million in 2003. Sales of Aloprim were lower in 2004 compared to 2003 due to the impact from the introduction of a new competitive product. We expect sales of Aloprim to continue to be affected by competition from this new product. Sales of Autoplex T were consistent in 2004 and 2003. Our contract with the manufacturer of Autoplex T ended on May 11, 2004 and sales subsequent to that date were limited to existing inventory on hand. Sales of intermediate products, which are not a strategic focus for us, were lower in 2004 compared to 2003 in line with manufacturing activity and contract-manufacturing revenue was consistent between 2004 and 2003.

Antibody products. Total antibody product sales for 2004 were $48.0 million compared to $67.1 million for 2003. Total antibody product sales decreased approximately 29% from 2003 levels due to the completion of a zero margin supply agreement for supply of non-specific antibodies in April 2003.

Non-specific antibodies. Total non-specific antibody sales were $24.7 million in 2004 compared to $45.7 million in 2003. Non-specific antibody sales from our own antibody collection centers were $24.7 million in 2004 compared to $27.1 million in 2003 reflecting decreased production levels and decreased unit sales for 2004. In addition, non-specific antibody sales in 2003 included shipments to a single customer under a supply contract that expired in April 2003 under which we earned no margin. This supply contract was retained by us following the sale of the majority of the antibody collection business and testing laboratory in September 2001. We reported sales under this arrangement because we retained the risk of credit loss with this customer. Such non-specific antibody sales totaled $18.6 million in 2003. In December 2003, we entered into a long-term supply contract for the sale of non-specific antibodies to Bayer Corporation that is expected to generate a consistent cash flow from the excess non-specific antibody production in our centers.

Specialty antibodies. Specialty antibody sales were $23.3 million for 2004 compared to $21.4 million for the comparable period of 2003, an increase of approximately 9%. The increase in specialty antibodies primarily reflects increased sales of rabies, CMV and anti-HBs antibodies partially offset by a decrease in sales of tetanus antibodies and diagnostic products. Hepatitis B antibodies produced at our antibody collection centers were primarily retained by us to support the manufacture of Nabi-HB in 2003, limiting the amount of these antibodies available for sale. Hepatitis B antibodies are the primary raw material in the manufacture of Nabi-HB. Throughout 2003 and 2004 we had a contractual commitment to supply substantial quantities of Rh_oD antibodies to the purchaser of the majority of our antibody collection and laboratory testing business. This commitment limited our ability to sell these antibodies produced at our own centers to other customers at higher margins during 2004. This contract ended on December 31, 2004.

Gross margin. Gross margin for 2004 was $85.8 million, or a record level of 48% of sales, compared to $76.8 million, or 44% of sales, for 2003. The increase in gross profit for 2004 compared to 2003 reflects the increased proportion of our biopharmaceutical product sales to total sales, led by increased sales of PhosLo. Gross margin for 2004 and 2003 also benefited

49

Table of Contents

from non-performance penalty amounts from the manufacturer of Autoplex T of $2.0 million and $8.1 million, respectively. During 2004, our Boca Raton, Florida manufacturing facility underwent renovations related to compliance with EU regulations, as well as routine maintenance, that limited utilization of the facility and resulted in excess plant capacity expense of $6.4 million. Excess plant capacity expense was $2.2 million for 2003. Additionally, in the fourth quarter of 2004 we reserved Nabi-HB inventory valued at $3.0 million due to certain units of product falling outside strict compliance with our product specifications.

Royalty expense for 2004 was $17.6 million, or 13% of biopharmaceutical sales, compared to $18.4 million, or 17% of biopharmaceutical sales, for 2003. The decrease in royalty expense as a percentage of biopharmaceutical sales reflects the increase in total biopharmaceutical sales, primarily sales of PhosLo for which we pay no royalties, during 2004, and lower sales of WinRho SDF and Aloprim. Royalty expense includes a 4% patent usage royalty related to the manufacturing process of Nabi-HB and a royalty related to Aloprim that is set at 15% of net Aloprim sales.

Selling, general and administrative expense. Selling, general and administrative expense was $55.3 million for 2004 compared to $43.9 million for 2003. Increased selling, general and administrative expenses for 2004 was primarily related to full year selling and marketing expense for PhosLo, initial commercialization activities in the EU, employee incentive expenses and costs related to implementation of the requirements of Section 404 of the Sarbanes-Oxley Act. Selling, general and administrative expense for 2003 included a charge of $3.3 million related to the retirement of our former Chief Executive Officer.

Research and development expense. Research and development expense increased more than two-fold to $61.0 million for 2004 compared to $29.0 million for 2003. Consistent with the strategic focus of our research and development activities, the majority of research and development expense in 2004 and 2003 was incurred to support our Gram-positive infections program composed of StaphVAX and Altastaph as well as our next generation Gram-positive products. These activities included our confirmatory Phase III clinical trial for StaphVAX that was fully enrolled in August 2004, transferring the StaphVAX manufacturing process to our new contract manufacturer, Cambrex Bio Science, establishing StaphVAX vaccine manufacturing capability within our Boca Raton, Florida facility, preparing the filing of our MAA for StaphVAX in the EU and completing our Phase I/II and Phase II clinical trials of Altastaph in adults with persistent S. aureus infections and in very low birth weight newborns. During 2004, we incurred approximately $17.9 million in outside clinical trial costs for the confirmatory Phase III clinical trial for StaphVAX compared to $2.0 million in 2003.

Research and development expense during 2004 and 2003 also included costs to support our currently marketed products as well as the other products in our development pipeline. In 2004 these costs included expenses to support our MAA’s filed in the EU for PhosLo and Nabi-HB Intravenous as well as ongoing costs to support our Biologics License Application, or BLA, filing for Nabi-HB Intravenous seeking an indication for the prevention of re-infection with hepatitis B in HBV-positive liver transplant patients. In addition, we incurred costs related to our Phase II clinical trial of NicVAX in smokers in the U.S. from which we reported results in September 2004, continuing costs related to our Phase II clinical trial of NicVAX in smokers and ex-smokers in The Netherlands, reporting of our Phase I/II clinical trial of Civacir and manufacture of clinical trial Civacir material. During 2003, we incurred costs to support our BLA filing for Nabi-HB Intravenous, costs related to clinical work for PhosLo and support of our Phase I/II clinical trials for NicVAX and Civacir.

We expect research and development expense to increase by more than 10% in 2005 above 2004 levels reflecting completion of the confirmatory Phase III clinical trial of StaphVAX and other clinical trial programs to support the BLA that is expected to be filed by the end of 2005 and the supplemental MAA that is expected to be filed by the end of 2005 in the EU for StaphVAX, advancing our other Gram-positive programs including Altastaph and next generation Gram-positive

50

Table of Contents

vaccines and increased clinical work in support of PhosLo including continuation of the CARE 2 study, pursuit of label expansion into the pre-dialysis chronic kidney disease patient population through our EPICK clinical trial and support of our initial commercialization activities in the EU.

Amortization of intangible assets. Amortization expense was $8.7 million for 2004 compared to $5.4 million for 2003. The increase in 2004 is due primarily to full year amortization related to the intangible assets acquired in conjunction with the acquisition of PhosLo.

Write-off of Manufacturing Right. In order to meet the filing timeline for our MAA filing in the EU for StaphVAX, we entered into a contract manufacturing relationship with Cambrex Bio Science and we ended our agreement with the previous manufacturer on October 9, 2003. As a result of this action, we wrote off costs we had capitalized in prior periods relating to the right to manufacture StaphVAX at this manufacturer’s facility in future periods and recorded a charge of $9.7 million in 2003.

Interest income. Interest income for 2004 was $1.6 million compared to $0.6 million for 2003. Interest income is earned from investing cash and cash equivalents on hand in money market funds and auction rate securities with maturities or reset periods of three months or less. The increase in interest income in 2004 compared to 2003 is due to higher average cash balances in 2004 following completion of an equity offering that raised net proceeds of $91.5 million in December 2003.

Interest expense. Interest expense for 2004 was $2.2 million compared to $1.4 million for 2003. Effective March 26, 2004, we terminated our credit agreement with Wells Fargo Foothill, Inc. in order to avoid future costs for unused credit fees and other service charges. As a result of terminating the credit agreement, we incurred an early termination fee of $0.6 million and wrote off previously capitalized loan origination costs of $0.5 million. In addition, interest expense included $1.2 million for amortization of the discount on the notes payable entered into in connection with the acquisition of PhosLo. Interest expense in 2003 included interest expense incurred under our credit facility entered into on June 20, 2003, amortization of loan origination fees and unused limit fees related to the credit agreement and non-cash interest expense imputed to our non interest bearing notes payable entered into in connection with the acquisition of PhosLo on August 4, 2003. Capitalized interest relating to construction of our vaccine manufacturing facility in Boca Raton, Florida was $0.3 million for 2004 and related to construction of our laboratory and cold storage facility in Boca Raton, Florida was $0.1 million for 2003.

Income taxes. The provision for income taxes was $10.4 million for 2004, compared to a benefit of $6.1 million for 2003. As a result of licensing the right to market StaphVAX and PhosLo in the EU to one of our ex-U.S. subsidiaries and in recognition of the value of the product rights developed and acquired by us, we realized a gain for U.S. tax reporting purposes of approximately $55 million. Although we recognized a consolidated operating loss on a GAAP basis during 2004, we nevertheless incurred income tax expense due to the U.S. taxable gain arising from licenses of these product rights to our non-U.S. subsidiary. We anticipate realizing deferred tax assets related to net operating loss carryforwards incurred in prior periods and the exercise of employee stock options to offset future cash payment of income taxes on the reported U.S. taxable gain in 2004. For 2003, the provision for income taxes reflected a benefit of $6.1 million due to the recognition of research and development tax credits as a result of our activities toward licensing the right to market StaphVAX and PhosLo in the EU that were completed in 2004. If we determine in future periods that it is not more likely than not that we will utilize our deferred tax assets, we may be required to record a valuation allowance against some of our deferred tax assets.

Fluctuating fiscal year periods. Our fiscal year ends on the last Saturday of December. Consequently, we will periodically have a 53-week fiscal year. The fiscal years ended December 25, 2004, December 27, 2003, and December 28, 2002, were 52-week years. The fiscal year ending December 31, 2005, will be a 53-week year. The extra week will be included in the fourth quarter of 2005.

51

Table of Contents

Stock option expensing. We will have an expense in 2005 related to our equity compensation plans as a result of the implementation of Financial Accounting Statement, or FAS, 123(R). Share-Based Payment that is effective for our accounting periods beginning after June 15, 2005. Using the Black-Scholes model for valuing stock options under FAS 123(R) would result in expense for options granted in prior years on a pre-tax basis in the amounts of $9.0 million, $9.4 million and $7.3 million for the years ending in 2005, 2006 and 2007, respectively.

2003 (as restated) as Compared to 2002 (as restated)

Sales. Total sales for 2003 were $176.6 million compared to sales of $196.0 million for 2002.

Biopharmaceutical sales. Biopharmaceutical sales for 2003 were $109.5 million compared to $89.5 million for 2002, an increase of 22%. Biopharmaceutical sales as a percentage of total sales increased, reflecting the increasing importance of our biopharmaceutical products. Sales for 2003 benefited from the initial sales of PhosLo as well as a significant increase in sales of WinRho SDF.

PhosLo. We acquired PhosLo on August 4, 2003 and began selling the product utilizing our sales force and distribution channels in September 2003. Sales of PhosLo totaled $12.9 million for the period August 4 through December 27, 2003. Sales of PhosLo benefited from new prescriptions for the product in 2003 compared to 2002 as reported by an external prescription monitoring service and demand for the product by wholesaler and distributor customers in anticipation of future patient demand.

Nabi-HB. Sales of Nabi-HB decreased 9% in 2003 compared to sales reported in 2002. We believe the most significant use of Nabi-HB is for the treatment of hepatitis B positive liver transplant recipients in the period of and following liver transplant. As reported by the United Network for Organs Sharing, liver transplants for hepatitis B patients for 2003 decreased approximately 30% from 2002 levels. Further, use of antibody-based products such as Nabi-HB was affected by increased use of anti-viral therapies by physicians during the period following transplant. Sales of Nabi-HB in 2003 also benefited from $3.5 million of back ordered product at December 28, 2002 that was shipped in 2003. In addition, wholesaler and distributor customers increased inventory levels of Nabi-HB in 2003. Sales of Nabi-HB in 2002 benefited from completion of the transition to Nabi-HB product manufactured in our Boca Raton facility in that period, the initial period of manufacture at that facility.

WinRho SDF. Sales of WinRho SDF increased 47% in 2003 compared to 2002. Patient utilization of WinRho SDF reflected higher dose protocols utilized by treating physicians as a result of findings reported in the March 2002 issue of the New England Journal of Medicine as well as our success versus competitive products, the growth in the overall number of ITP patients and increased pricing. In addition, sales of WinRho SDF in 2002 were negatively impacted by an inventory build-up by our wholesaler and distributor customers in 2001 in response to product supply shortages from the manufacturer of this product in 2000.

Other biopharmaceutical products. Other biopharmaceuticals sales, which primarily comprise sales of Autoplex T and Aloprim, decreased 37% in 2003 compared to 2002. Aloprim sales in 2003 were impacted by product supply shortfalls from the manufacturer of the product in the first quarter of 2003, which resulted in patient treatment being supported by alternate products. Aloprim supply from the manufacturer resumed in April 2003 and benefited sales of this product for the balance of 2003. For the full year 2003, patient utilization of Aloprim was consistent with 2002. Aloprim sales in 2002 benefited from receipt of two back-ordered lots that were substantially sold in that period.

52

Table of Contents

Antibody products. Total antibody product sales for 2003 were $67.1 million compared to $106.5 million for 2002. In December 2003, we entered into a long-term supply contract for non-specific antibodies with Bayer Corporation that is expected to generate a consistent cash flow from the excess non-specific antibody production in our centers.

Non-specific antibodies. Non-specific antibody sales included shipments to a single customer under a supply contract that expired in April 2003 under which we earned no margin. The supply contract was retained by us following the sale of the majority of the antibody collection business and testing laboratory in September 2001. We reported sales under this arrangement because we retained the risk of credit loss with this customer. Such non-specific antibody sales totaled $18.6 million in 2003 and $55.6 million in 2002. Non-specific antibody sales from our own antibody collection centers were $27.1 million in 2003 compared to $18.2 million in 2002 reflecting increased production levels and increased unit sales for 2003.

Specialty antibodies. Specialty antibody sales were $21.4 million for 2003 compared to $32.7 million for the comparable period of 2002, a decrease of approximately $11.3 million. This decrease primarily reflected decreased sales of rabies, tetanus, hepatitis B and Rh_oD antibodies. Sales of rabies antibodies have decreased due to the conclusion of a contract to provide this product to a single pharmaceutical customer in 2002. Sales of tetanus antibodies decreased due to reduced demand from the international market. Hepatitis B antibodies produced at our antibody collection centers were primarily retained by us to support the manufacture of Nabi-HB in 2003, limiting the amount of these antibodies available for sale. Hepatitis B antibodies are the primary raw material in the manufacture of Nabi-HB. We had a contractual commitment to supply substantial quantities of Rh_oD antibodies to the purchaser of the majority of our antibody collection and laboratory testing business at a low margin that ended on December 31, 2004. This commitment limited our ability to sell these antibodies produced at our own centers to other customers at higher margins during 2003.

Gross margin. Gross margin for 2003 was $76.8 million, or 44% of sales, compared to $63.9 million, or 33% of sales, for 2002. The increase in gross profit for 2003 compared to 2002 primarily reflects the increased proportion of higher margin biopharmaceutical sales compared to total sales, including initial sales of PhosLo. During 2003, we also benefited from increased utilization of our Boca Raton manufacturing facility compared to 2002 resulting in excess plant capacity expense of $2.2 million compared to an excess plant capacity expense of $3.5 million for 2002. Gross margin for 2003 and 2002 also benefited from gross non-performance penalty amounts from the manufacturer of Autoplex T of $8.1 million and $3.5 million, respectively. Offsetting these gross margin gains were reduced margin from sales of specialty antibodies, increased costs of manufacture for Nabi-HB and the impact of inventory write-offs.

We incur royalty expense by reason of our license and distribution agreements for WinRho SDF and Aloprim that provide for profit sharing from sales of these products. In addition, royalty expense includes a 4% patent usage royalty related to the manufacturing process of Nabi-HB. Royalty expense for 2003 was $18.4 million, or 17% of biopharmaceutical sales, compared to $12.9 million, or 14% of biopharmaceutical sales, for 2002. The increase in royalty expense primarily reflected increased sales of WinRho SDF in 2003 over 2002.

Selling, general and administrative expense. Selling, general and administrative expense was $43.9 million for 2003 compared to $38.4 million for 2002. Increased selling, general and administrative expense for 2003 included a charge of $3.3 million related to the retirement of our former Chief Executive Officer, increased use of a tax consultant compared to 2002 and costs to launch PhosLo.

Research and development expense. Research and development expense was $29.0 million for 2003 compared to $21.1 million for 2002. Consistent with the strategic focus of our research and development activities, the majority of research and development expense in 2003 and 2002 was incurred to support activity under our Gram-positive infections program including StaphVAX and

53

Table of Contents

Altastaph as well as pre-clinical programs. Increased research and development expense in 2003 resulted from a number of activities, including preparation for and initiation of our confirmatory Phase III clinical trial for StaphVAX, transfer of the StaphVAX manufacturing process to our new contract manufacturer, Cambrex Bio Science, development costs related to the preparation of our MAA filing for StaphVAX in the EU, initiation of a Phase II clinical trial of Altastaph in very low birth weight newborns, initiation of a Phase II clinical trial of NicVAX in smokers in the U.S. and a Phase I/II clinical trial of NicVAX in smokers and ex-smokers in The Netherlands, ongoing clinical support for our Phase I/II clinical trial of Civacir and manufacture of clinical trial Civacir material, and research and development costs to support our Nabi-HB Intravenous BLA filed with the FDA seeking an indication for the prevention of re-infection with hepatitis B in HBV-positive liver transplant patients.

Amortization of intangible assets. Amortization expense was $5.4 million for 2003 compared to $1.1 million for 2002. The increase in 2003 is due primarily to amortization related to the intangible assets acquired in conjunction with the acquisition of PhosLo in August 2003.

Write-off of Manufacturing Right. In conjunction with establishing our new contract manufacturing relationship with Cambrex Bio Science, we ended our agreement with the previous manufacturer on October 9, 2003. As a result of this action, we wrote off costs we had capitalized in prior periods relating to the right to manufacture StaphVAX at this manufacturer’s facility in future periods and recorded a charge of $9.7 million in 2003.

Interest income. Interest income for 2003 was $0.6 million compared to $1.3 million for 2002. Interest income is earned from investing cash and cash equivalents on hand in money market funds and auction rate securities with maturities or reset periods of three months or less. The decrease in interest income in 2003 compared to 2002 is due to lower average cash balances in 2003. Our cash balance at December 27, 2003 included the proceeds from our underwritten public offering of our common stock that closed on December 23, 2003 raising net cash proceeds of approximately $91.5 million. A total of $9.5 million of the funds were used to pay off our term loan on December 23, 2003. In September 2001, we received proceeds of $135 million, net of repayment of then outstanding bank debt and closing costs, from the sale of the majority of our antibody collection business and testing laboratory. These funds were invested in the financial instruments described above in 2002. In April 2002, a portion of these funds was utilized to redeem our $78.5 million 6.5% Convertible Subordinated Notes.

Interest expense. Interest expense for 2003 was $1.4 million compared to $2.1 million for 2002. Interest expense in 2003 includes interest expense incurred under our credit facility entered into on June 20, 2003, amortization of loan origination fees and unused limit fees related to the credit agreement and non-cash interest expense imputed to our non interest bearing notes payable entered into in connection with the acquisition of PhosLo on August 4, 2003. Interest expense in 2002 relates to interest on the 6.5% Convertible Subordinated Notes which were redeemed in April 2002. Capitalized interest related to construction of our laboratory and cold storage facility in Boca Raton, Florida was $0.1 million for 2003.

Income taxes. The provision for income taxes reflected a benefit of $6.1 million for 2003, compared to a provision of $0.3 million for 2002. The 50% effective tax rate for 2003 differs from the statutory rate of 34% due to the recognition of research and development tax credits as a result of our European strategy and our determination that it is more likely than not that this strategy will result in realization of these tax credits because of the completion of our equity financing in December 2003.

Liquidity and Capital Resources

Net cash provided by operating activities for the year ended December 25, 2004 was $8.7 million. The total of our cash and cash equivalents and marketable securities balances at December 25, 2004 was $103.1 million compared to cash and cash equivalents of $115.8 million at December 27, 2003.

54

Table of Contents

In conjunction with the acquisition of PhosLo in August 2003, we entered into an obligation to pay the seller $30.0 million over the period ending March 1, 2007. As of December 25, 2004, our remaining obligation, net of discount, was $23.3 million. We will repay $10.9 of this obligation in 2005. During 2004, we repaid $5.3 million of this obligation.

Under terms of an agreement entered into in October 2003 with Cambrex Bio Science, at December 25, 2004 we have a remaining commitment of $0.2 million including costs to acquire the rights to future commercial manufacturing capacity for StaphVAX at Cambrex Bio Science’s facility and to transfer commercial scale manufacture of StaphVAX to this facility. Through December 25, 2004, we have incurred $9.6 million in costs, of which a total of $3.0 million has been capitalized as a Manufacturing Right and included in intangible assets.

In April 2004, we entered into an agreement to construct a commercial scale vaccine manufacturing facility and install equipment within available space in our Boca Raton, Florida manufacturing plant. Under the terms of the agreement, as of December 25, 2004 we have a remaining commitment of $0.7 million that we expect to complete before the end of 2005. To date, we have incurred a total of $17.8 million to construct this vaccine manufacturing facility, including $14.7 million under our contractual commitment. We anticipate the total cost for the facility, including equipment, to be approximately $18.5 million to $20 million.

Capital expenditures were $22.6 million for 2004. Our capital expenditures are primarily related to the construction of commercial scale vaccine manufacturing facility at our Boca Raton, Florida manufacturing plant. In addition, capital expenditures included costs to complete our laboratory and cold storage facilities in Boca Raton, Florida as well as fixed assets to support our research and development activities in Rockville, Maryland. During 2005, we expect capital expenditures to be between $10 million to $11 million, primarily to support research and development activities, manufacturing and information technology.

In connection with an agreement related to the retirement of our former Chief Executive Officer as of December 25, 2004 we have a remaining net obligation of $1.9 million in cash payments through December 2006. The current portion of this obligation totaling $1.0 million is recorded in accrued expenses and the long-term portion is recorded in other liabilities at December 25, 2004.

During 2004, we received $9.8 million from the exercise of employee stock options.

Although we incurred income tax expense for 2004 due to the U.S. taxable gain arising from licensing of product rights to one of our non-U.S. subsidiaries, we do not anticipate a significant cash outflow for income taxes. We anticipate realizing deferred tax assets related to net operating loss carryforwards incurred in prior periods and deduction of employee stock option exercises for income tax reporting purposes to offset cash payment of income taxes on the reported U.S. taxable gain in 2004.

On December 7, 2004, we filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission. Once declared effective by the SEC, this registration statement will permit us, from time to time, to offer and sell up to $175 million of equity or debt securities. We plan to use net proceeds from sales of securities under this shelf registration statement to provide additional funds for general corporate purposes, including but not limited to clinical trials, research, development and marketing expenses, and new acquisition and licensing costs.

On March 26, 2004, we ended our credit facility with Wells Fargo Foothill, part of Wells Fargo & Company.

55

Table of Contents

On September 19, 2001, our Board of Directors approved the expenditure of up to $5.0 million to repurchase shares of our common stock in the open market or in privately negotiated transactions. Repurchases will allow us to have treasury stock available to support our stock option and stock purchase programs. We acquired no shares under this program during 2004. We will evaluate market conditions in the future and make decisions to repurchase additional shares of our common stock on a case-by-case basis in accordance with our Board of Directors’ approval. We have acquired 345,883 shares of our common stock for a total of $1.9 million since the inception of this buy back program.

We believe that cash flow from operations and cash and cash equivalents on hand will be sufficient to meet our anticipated cash requirements for operations for at least the next twelve months.

The following table provides information as of December 25, 2004 with respect to the amounts and timing of our known contractual obligations as specified below.

Contractual Obligations