<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
---------- -----------
COMMISSION FILE #0-4829-03
NABI
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(Exact name of registrant as specified in its charter)
DELAWARE 59-1212264
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5800 PARK OF COMMERCE BOULEVARD N.W., BOCA RATON, FL 33487
---------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (561) 989-5800
-----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of registrant's common stock as of October 27,
2000 was 37,751,590 shares.
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
NABI
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.............................................................................3
Consolidated Balance Sheets, September 30, 2000 and December 31, 1999.....................................3
Consolidated Statements of Operations for the three month and nine month periods ended
September 30, 2000 and September 30, 1999............................................................4
Consolidated Statements of Cash Flows for the nine month periods ended
September 30, 2000 and September 30, 1999............................................................5
Notes to Consolidated Financial Statements................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................................................................................10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...............................................................................15
ITEM 2. CHANGES IN SECURITIES...........................................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................15
</TABLE>
2
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NABI
PART I Financial Information
Item 1 Financial Statements
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 2000 1999
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,539 $ 806
Trade accounts receivable, net 31,076 34,019
Inventories, net 33,030 35,932
Prepaid expenses and other assets 5,521 8,149
--------- ---------
TOTAL CURRENT ASSETS 71,166 78,906
PROPERTY AND EQUIPMENT, NET 117,510 109,138
OTHER ASSETS:
Goodwill, net 12,691 13,236
Intangible assets, net 5,458 6,028
Other, net 6,970 7,256
--------- ---------
TOTAL ASSETS $ 213,795 $ 214,564
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 14,425 $ 16,025
Accrued expenses 14,345 26,178
Notes payable 1,000 704
--------- ---------
TOTAL CURRENT LIABILITIES 29,770 42,907
NOTES PAYABLE 109,578 112,294
OTHER 299 1,186
--------- ---------
TOTAL LIABILITIES 139,647 156,387
--------- ---------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.10 per share:
5,000 shares authorized; no shares outstanding
Common stock, par value $.10 per share: 75,000 shares authorized;
37,751 and 34,961 shares issued and outstanding, respectively 3,775 3,496
Capital in excess of par value 152,300 138,071
Accumulated deficit (81,927) (83,390)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 74,148 58,177
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 213,795 $ 214,564
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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NABI
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CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 49,736 $ 54,181 $ 163,157 $ 174,402
COSTS AND EXPENSES:
Costs of products sold 39,401 37,589 117,751 125,487
Selling, general and administrative expense 8,972 8,859 26,093 23,855
Research and development expense 3,685 4,229 11,462 11,290
Royalty expense 873 2,786 6,603 8,877
Other operating expense, principally
freight and amortization 434 446 1,391 1,424
Non-recurring credit (3,875) (1,935) (3,875) (1,935)
--------- --------- --------- ---------
OPERATING INCOME 246 2,207 3,732 5,404
INTEREST INCOME 11 7 25 67
INTEREST EXPENSE (730) (1,012) (2,735) (3,303)
OTHER, NET (2) (11) 196 (65)
--------- --------- --------- ---------
(LOSS) INCOME BEFORE (PROVISION) BENEFIT FOR
INCOME TAXES AND EXTRAORDINARY GAIN (475) 1,191 1,218 2,103
(PROVISION) BENEFIT FOR INCOME TAXES (28) 259 (95) (115)
--------- --------- --------- ---------
(LOSS) INCOME BEFORE EXTRAORDINARY GAIN (503) 1,450 1,123 1,988
EXTRAORDINARY GAIN, NET OF INCOME TAXES OF $13 -- -- 340 --
--------- --------- --------- ---------
NET (LOSS) INCOME $ (503) $ 1,450 $ 1,463 $ 1,988
========= ========= ========= =========
BASIC (LOSS) EARNINGS PER SHARE:
(LOSS) INCOME BEFORE EXTRAORDINARY GAIN $ (0.01) $ 0.04 $ 0.03 $ 0.06
EXTRAORDINARY GAIN -- -- 0.01 --
--------- --------- --------- ---------
NET (LOSS) INCOME $ (0.01) $ 0.04 $ 0.04 $ 0.06
========= ========= ========= =========
DILUTED (LOSS) EARNINGS PER SHARE:
(LOSS) INCOME BEFORE EXTRAORDINARY GAIN $ (0.01) $ 0.04 $ 0.03 $ 0.06
EXTRAORDINARY GAIN -- -- 0.01 --
--------- --------- --------- ---------
NET (LOSS) INCOME $ (0.01) $ 0.04 $ 0.04 $ 0.06
========= ========= ========= =========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 37,489 34,943 36,212 34,925
========= ========= ========= =========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 37,489 36,631 37,477 35,650
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
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NABI
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
DOLLARS IN THOUSANDS 2000 1999
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 1,463 $ 1,988
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,423 7,695
Provision for doubtful accounts (13) (98)
Provision for slow moving or obsolete inventory 1,189 --
Extraordinary gain, net (340) --
Non-recurring credit (3,875) (1,935)
Other 132 108
Change in assets and liabilities:
Decrease in trade accounts receivable 2,782 12,068
Decrease in inventories 1,713 2,923
Decrease in prepaid expenses and other assets 2,628 769
Increase in other assets (106) (223)
(Decrease) increase in accounts payable and accrued liabilities (10,315) 1,493
-------- --------
Total adjustments 1,218 22,800
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,681 24,788
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of antibody centers -- 2,518
Capital expenditures (14,372) (15,090)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (14,372) (12,572)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings (repayments) under line of credit, net 34 (12,785)
Equity financing 9,262 --
Repayments of term debt (417) --
Other debt (38) 64
Proceeds from the exercise of stock options 3,583 82
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 12,424 (12,639)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 733 (423)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 806 1,016
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,539 $ 593
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $ 7,623 $ 7,546
======== ========
INCOME TAXES REFUNDED $ 43 $ 118
======== ========
NON-CASH EXTINGUISHMENT OF CONVERTIBLE SUBORDINATED
DEBENTURES IN EXCHANGE FOR COMMON STOCK $ 2,000 $ --
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
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NABI
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. GENERAL
We are nearing completion of a multi-year transition from being a leading
provider of antibody products to other pharmaceutical manufacturers to becoming
a fully integrated biopharmaceutical company, developing, manufacturing and
marketing our own products for the prevention and treatment of infectious
diseases and immunological disorders. We have a portfolio of four marketed
products.
On September 19, 2000, Nabi announced the preliminary results from the phase III
clinical trial for Nabi StaphVAX (Staphylococcus aureus Type 5 and 8 Capsular
Polysaccharide ("CPS") Conjugate Vaccine) at the 40th Interscience Conference on
Antimicrobial Agents and Chemotherapy (ICAAC) in Toronto, Canada. The data from
the trial demonstrated almost a 60% reduction in s. aureus bacterimias
(bloodstream infections) through ten months. The decrease in bloodstream
infections through twelve months did not achieve statistical significance. The
protection exhibited for StaphVAX treated patients through ten months has
demonstrated that a CPS-conjugated vaccine against s. aureus can provide
protection for at-risk patients. Further, the demonstration that
StaphVAX-induced antibodies can protect against bloodstream infections has
positive implications for the success of our entire Gram-positive program.
The consolidated financial statements include the accounts of Nabi and its
subsidiaries. All significant intercompany accounts and transactions were
eliminated during the consolidation. These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in Nabi's Form 10K filed with the Securities and Exchange Commission
for the year ended December 31, 1999.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments necessary to present fairly our consolidated financial
position at September 30, 2000 and the consolidated results of its operations
for the three and nine month periods ended September 30, 2000 and September 30,
1999. The interim results of operations are not necessarily indicative of the
results that may occur for the fiscal year.
NOTE 2. INVENTORIES
The components of inventories, stated at the lower of cost (FIFO) or market, are
as follows:
SEPTEMBER 30, DECEMBER 31,
DOLLARS IN THOUSANDS 2000 1999
-------------------------------------------------------------------------------
Finished goods, net $ 29,389 $ 32,779
Work in process, net 1,597 451
Raw materials, net 2,044 2,702
------------------- -------------------
TOTAL $ 33,030 $ 35,932
=================== ===================
6
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NOTE 3. NON-RECURRING CHARGES
During the fourth quarter of 1998, we recorded a non-recurring charge that
included $13.2 million related to a strategic plan to sell or close certain
antibody collection centers and actions to reduce pre-clinical product
development activities at our Rockville, Maryland facility. During 1999, we
reduced staff levels at our Rockville facility, closed or sold seven U.S.
antibody collection centers out of the eight centers specified in the original
plan, and transferred our four German antibody collection centers and related
operations to a third party.
Based on the positive results from the StaphVAX phase III trial and the approval
of a plan in the third quarter of 2000 to increase the level of research and
development activities in the future at our Rockville, Maryland facility we
reversed $3.0 million of the remaining non-recurring charge accrual into income
during the current period. This was reported as a non-recurring credit in our
income statement.
The balance of the restructuring accrual, after reversal of the $3.0 million
previously described, was comprised of anticipated shut-down and severance costs
related to the closure of an antibody collection center scheduled for closure in
the original plan. However, the center continues in operation and in the third
quarter of 2000 we determined that operations would continue at this center for
the foreseeable future. Based on this change to the original operating plan, the
remaining accrual of $0.9 million was reversed into income during the third
quarter of 2000 and reported as a non-recurring credit.
A summary of our restructuring activity for the nine months of 2000 is presented
below:
DOLLARS IN THOUSANDS
--------------------------------------------------------------------------------
Balance at December 31, 1999 $ 4,083
Activity during 2000:
Termination benefit payments (208)
Non-recurring credit (3,875)
-----------
BALANCE AT SEPTEMBER 30, 2000 $ --
===========
NOTE 4. EARNINGS PER SHARE
The following is reconciliation between basic and diluted earnings per share for
the three and nine month periods ended September 30, 2000 and September 30,
1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
EFFECT OF EFFECT OF
DILUTIVE DILUTIVE
SECURITIES: SECURITIES:
STOCK STOCK
(IN THOUSANDS, EXCEPT PER SHARE DATA) BASIC EPS OPTIONS DILUTED EPS BASIC EPS OPTIONS DILUTED EPS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Net (loss) income $ (503) $ -- $ (503) $ 1,463 $ -- $ 1,463
Shares 37,489 -- 37,489 36,212 1,265 37,477
Per share $ (0.01) $ -- $ (0.01) $ 0.04 $ -- $ 0.04
===================================================================================================================================
1999
Net income $ 1,450 $ -- $ 1,450 $ 1,988 $ -- $ 1,988
Shares 34,943 1,688 36,631 34,925 725 35,650
Per share $ 0.04 $ -- $ 0.04 $ 0.06 $ -- $ 0.06
===================================================================================================================================
</TABLE>
7
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NOTE 5. COMPREHENSIVE INCOME
The components of comprehensive income for the three and nine months ended
September 30, 2000 and September 30, 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ------------------------------------
DOLLARS IN THOUSANDS 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net (loss) income $ (503) $ 1,450 $ 1,461 $ 1,988
Foreign currency translation
Gain (loss) -- 61 -- (236)
------------------------------------ ------------------ -----------------
COMPREHENSIVE INCOME $ (503) $ 1,511 $ 1,461 $ 1,752
==================================== ================== =================
</TABLE>
NOTE 6. INDUSTRY SEGMENT INFORMATION
The following table presents information related to our two operating business
segments for the three and nine month periods ended September 30, 2000 and
September 30, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ------------------------------------
DOLLARS IN THOUSANDS 2000 1999 2000 1999
------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Sales
Pharmaceutical products $ 11,503 $ 18,222 $ 45,504 $ 47,974
Antibody products 38,233 35,959 117,653 126,428
---------------- ---------------- ---------------- ----------------
TOTAL $ 49,736 $ 54,181 $ 163,157 $ 174,402
================ ================ ================ ================
Operating income (loss)
Pharmaceutical products $ 3,014 $ 1,782 $ 8,768 $ 2,761
Antibody products (2,768) 425 (5,036) 2,643
---------------- ---------------- ---------------- ----------------
TOTAL $ 246 $ 2,207 $ 3,732 $ 5,404
================ ================ ================ ================
</TABLE>
8
<PAGE> 9
The following table reconciles reportable segment operating profit to income
before provision for income taxes and extraordinary gain:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ------------------------------------
DOLLARS IN THOUSANDS 2000 1999 2000 1999
------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
INCOME BEFORE PROVISION
FOR INCOME TAXES AND
EXTRAORDINARY GAIN:
Reportable segment
operating income $ 246 $ 2,207 $ 3,732 $ 5,404
Unallocated interest expense (730) (1,012) (2,735) (3,303)
Unallocated other income
and expense, net 9 (4) 219 2
---------------- ---------------- ---------------- ----------------
Consolidated income before
provision for income taxes
and extraordinary gain $ (475) $ 1,191 $ 1,216 $ 2,103
================ ================ ================ ================
</TABLE>
NOTE 7. EQUITY
During the third quarter of 2000, we completed a private placement of 1,666,667
shares of common stock to a group of private institutional investors and
realized approximately $9.3 million, net of issuance costs. Proceeds from the
equity placement were used to reduce borrowings and increase availability under
our existing line of credit. In connection with the offering, we issued a
five-year warrant to purchase 133,333 shares of common stock at an exercise
price of $7.50 per share to the placement agent. The estimated fair value of the
warrant as of September 30, 2000 was $0.8 million. This fair value was
calculated using the Black-Scholes model with the following assumptions:
expected term of five years, expected volatility of 103% and expected risk-free
interest rate of 6%.
NOTE 8. DEBT
At September 30, 2000, our bank credit agreement provided for a revolving credit
of up to $45 million subject to certain borrowing base restrictions and a term
loan of $4.6 million. The credit agreement matures in September 2002. Effective
October 25, 2000, the bank credit agreement was amended to allow for retroactive
application of certain financial covenants to September 30, 2000.
NOTE 9. RECLASSIFICATIONS
Certain items in the consolidated financial statements for the 1999 period have
been reclassified for comparative purposes.
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ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the major factors contributing to
our financial condition and results of operations for the three and nine month
periods ended September 30, 2000 and September 30, 1999. The discussion and
analysis should be read in conjunction with the condensed consolidated financial
statements and notes thereto. All dollar amounts are expressed in thousands,
except per share amounts.
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES 100.0 % 100.0 % 100.0 % 100.0 %
Costs of products sold 79.2 % 69.4 % 72.2 % 72.0 %
------------ ------------ ------------ -------------
GROSS PROFIT MARGIN 20.8 % 30.6 % 27.8 % 28.0 %
Selling, general and administrative expense 18.0 % 16.4 % 16.0 % 13.7 %
Research and development expense 7.4 % 7.8 % 7.0 % 6.5 %
Royalty expense 1.8 % 5.1 % 4.0 % 5.1 %
Other operating expense, principally
freight and amortization 0.9 % 0.8 % 0.9 % 0.8 %
Non-recurring credit (7.8)% (3.6)% (2.4)% (1.1)%
------------ ------------ ------------ -------------
OPERATING INCOME 0.5 % 4.1 % 2.3 % 3.0 %
Interest income 0.0 % 0.0 % 0.0 % 0.0 %
Interest expense (1.4)% (1.9)% (1.6)% (1.9)%
Other, net 0.0 % 0.0 % 0.1 % 0.0 %
------------ ------------ ------------ -------------
(Loss) income before (provision) benefit for
income taxes and extraordinary gain (0.9)% 2.2 % 0.8 % 1.2 %
(Provision) benefit for income taxes (0.1)% 0.5 % (0.1)% (0.1)%
------------ ------------ ------------ -------------
(Loss) income before extraordinary gain (1.0)% 2.7 % 0.7 % 1.1 %
Extraordinary gain, net 0.0 % 0.0 % 0.2 % 0.0 %
------------ ------------ ------------ -------------
NET (LOSS) INCOME (1.0)% 2.7 % 0.9 % 1.1 %
============ ============ ============ =============
</TABLE>
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Information concerning sales by operating segments for the respective periods,
is set forth in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
SEGMENT 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pharmaceutical products $ 11,503 23.1% $ 18,222 33.6%
Antibody products:
- Non-specific antibodies 25,297 50.9 24,850 45.9
- Specialty antibodies 12,936 26.0 11,109 20.5
---------------------------- -------------- --------------
Total antibody products 38,233 76.9 35,959 66.4
---------------------------- -------------- --------------
TOTAL $ 49,736 100.0% $ 54,181 100.0%
============================ ============== ==============
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
SEGMENT 2000 1999
---------------------------------------------------------------------------------------------------------------------
Pharmaceutical products $ 45,504 27.9% $ 47,974 27.5%
Antibody products:
- Non-specific antibodies 74,887 45.9 86,812 49.8
- Specialty antibodies 42,766 26.2 39,616 22.7
---------------------------- -------------- --------------
Total antibody products 117,653 72.1 126,428 72.5
---------------------------- -------------- --------------
TOTAL $ 163,157 100.0% $ 174,402 100.0%
============================ ============== ==============
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
SALES. Revenues from pharmaceutical products decreased during the third quarter
of 2000 by $6.7 million or 37% from the comparable quarter in 1999 primarily due
to limited availability of WinRho SDF(R) (RhoD Immune Globulin (Human)). WinRho
SDF and Nabi-HB(TM) (Hepatitis B Immune Globulin (Human)) are manufactured for
us by Cangene Corporation ("Cangene"). Cangene initiated development of clinical
lots of a new product at its manufacturing facility in Canada earlier in 2000.
This new product involved changes in production materials that affected the
release of WinRho SDF and Nabi-HB in the third quarter. As a result of this
issue, the United States Food and Drug Administration ("FDA") required a
regulatory submission for release of these products, as well as the agency's
release of these products by lot. We were able to resume shipment of lots of
Nabi-HB in September with FDA approval and sales of Nabi-HB increased more than
30% from the comparable quarter in 1999. Shipment of WinRho SDF did not resume
until October 2000 with FDA approval and this drove the revenue decline in the
third quarter of 2000 compared to the comparable quarter of 1999. Sales of
Autoplex T (Anti-Inhibitor Coagulant Complex, Heat Treated) were lower in the
quarter ending September 30, 2000 compared to 1999 as a result of contractual
delivery shortfalls by the supplier of that product. Sales of Aloprim
(allopurinol sodium) were also lower in the quarter ending September 30, 2000
compared to 1999.
Total antibody revenues for the third quarter of 2000 were $2.3 million or 6%
above 1999 levels. Non-specific antibody product sales increased slightly in the
third quarter 2000 compared to the third quarter of 1999. We continued to
increase production of higher margin specialty antibody products in 2000. The
overall increase in specialty antibody revenues in the third quarter of 2000
reflected higher sales of anti-tetanus, anti-D and anti-CMV antibody products,
and increased revenues from laboratory testing services, partially offset by a
decrease in anti-Hbs product sales.
GROSS PROFIT MARGIN. Gross profit and related margin for the third quarter of
2000 was $10.3 million, or 21% of sales, compared to $16.6 million, or 31% of
sales in the third quarter of 1999. The decrease was primarily due to the
adverse effect of reduced sales of WinRho and lower margins from antibody
product sales. The lower antibody margins reflect higher costs of production
including higher donor fees and increased costs of regulatory compliance. The
decrease in gross profit margin was offset by the benefit from a non-performance
penalty due to Nabi as a result of contractual delivery shortfalls by the
supplier of Autoplex T.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $9.0 million or 18% of sales for the third quarter of 2000 compared
to $8.9 million, or 16% of sales, in the third quarter of 1999. The slight
11
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increase in third quarter 2000 compared to third quarter 1999 primarily
reflected increased selling and marketing expenses in anticipation of growth in
the pharmaceutical business for the remainder of 2000 and 2001.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $3.7
million or 7% of revenues in the third quarter of 2000 as compared to $4.2
million or 8% of revenues in the third quarter of 1999. Overall, research and
development expense in the third quarter of 2000 reflected continued support for
Nabi StaphVAX. The decrease in research and development expense in the third
quarter of 2000 compared to the third quarter of 1999 reflects a lower level of
clinical trial activity under the pivotal phase III clinical trial for StaphVAX
for which the results were announced September 19, 2000.
ROYALTY EXPENSE. Royalty expense was $0.9 million or 8% of pharmaceutical sales,
in the third quarter of 2000 compared to $2.8 million or 15% of pharmaceutical
sales in the third quarter of 1999 reflecting lower sales of WinRho SDF.
NON-RECURRING CREDIT. During the third quarter of 2000 we reversed restructuring
accruals totaling $3.9 million into income that was reported as a non-recurring
credit. These accruals were originally recorded in the fourth quarter of 1998 to
accrue for future rent costs for facilties impacted by the planned reduction of
pre-clinical activities at our research and development faciltiy in Rockville,
Maryland and the closure of an antibody collection center. The reversal is
primarily based on the positive results from the StaphVAX phase III trial
announced on September 19, 2000 and the approval of a plan in the third quarter
of 2000 to increase the level of research and development activities in the
future at our Rockville, Maryland facility. The result of the reversal is a
non-recurring credit in the third quarter of 2000 of $3.0 million. Also, during
the third quarter of 2000, we reviewed antibody center operations and amended
our plan to close an antibody collection center initially planned for closure.
Based on this third quarter 2000 decision, we reversed $0.9 million for accrued
antibody collection center closure costs and accrued severance into income as a
non-recurring credit.
INTEREST EXPENSE. Interest expense was $0.7 million or 2% of revenues for the
third quarter of 2000 compared to $1.0 million or 2% for the third quarter of
1999. Lower average bank borrowings in the third quarter of 2000 combined with
higher amounts of interest capitalized in the period, resulted in the decrease
in interest expense. Capitalized interest relating to construction of our
biopharmaceutical facility in Boca Raton, Florida was approximately $1.5 million
and $1.2 million for the quarters ended September 30, 2000 and 1999,
respectively.
OTHER FACTORS. The provision for income taxes of $28,000 was recorded at an
effective rate of 6%, in the third quarter of 2000 compared to $0.3 million, or
an effective rate of 22%, in the third quarter of 1999. The 6% effective tax
rate in the third quarter of 2000 differs from the statutory rate of 35% due to
our expectation of using a portion of our net operating loss carryforwards from
prior years and certain state and local taxes.
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NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
SALES. Pharmaceutical product revenues for the nine months ended September 30,
2000 decreased by approximately 5% from the comparable 1999 period primarily due
to limited availability of WinRho SDF. WinRho SDF and Nabi-HB are manufactured
for us by Cangene. Cangene initiated development of clinical lots of a new
product at its facility in Canada earlier in 2000. This new product involved
changes in production materials that affected the release of WinRho SDF and
Nabi-HB. As a result, the FDA required a regulatory submission for release of
these products, as well as the agency's release of these products by lot. We
were able to resume shipment of lots of Nabi-HB in September with FDA approval
and sales of Nabi-HB increased 50% from the comparable period in 1999. Shipments
of WinRho SDF did not resume until October 2000 with FDA approval and this drove
the revenue decline in the nine months ended September 30, 2000 compared to the
comparable period of 1999. Sales of Autoplex T were lower in the nine month
period ending September 30, 2000 compared to 1999 as a result of contractual
delivery shortfalls by the supplier of that product. Sales of Aloprim were also
lower in the nine months ended September 30, 2000 compared to the same period in
1999.
Total antibody revenues for the nine months ended September 30, 2000 decreased
6% from the same period in 1999 primarily due to the decrease in non-specific
antibody sales. This decrease was the result of our strategic decision to exit
unprofitable operations through the sale, transfer or closure of 11 antibody
collection centers in the U.S. and Germany during 1999. The decrease in sales of
non-specific antibodies was partially offset by increased revenues from
laboratory testing services in the first nine months of 2000.
GROSS PROFIT MARGIN. Gross profit and related margin for the nine months ended
September 30, 2000 was $45.4 million, or 28% of sales, compared to $48.9
million, or 28% of sales, in the nine months of 1999. The $3.5 million decrease
in gross profit was due primarily to the adverse effect of reduced sales of
WinRho and lower margins earned from antibody product sales. The lower antibody
margins reflect higher costs for production including higher donor fees and
increased costs of regulatory compliance. The decrease in gross profit margin
was partially offset by the benefit from a non-performance penalty due as a
result of contractual delivery shortfalls by the supplier of Autoplex T.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense was $26.1 million or 16% of sales for the nine months ended September
30, 2000 compared to $23.9 million or 14% of sales in the nine months of 1999.
The increase is primarily attributable to higher advertising and sales force
expenses in anticipation of growth in the pharmaceutical business for the
remainder of 2000 and 2001.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $11.5
million or 7% of sales for the nine months ended September 30, 2000 compared to
$11.3 million or 7% of sales, in the nine months of 1999. Research and
development expense in the nine months ended September 30, 2000 reflected
continued support for StaphVAX.
ROYALTY EXPENSE. Royalty expense for the nine months ended September 30, 2000
was $6.6 million, or 15% of pharmaceutical sales compared to $8.9 million or 19%
of pharmaceutical sales, in the nine months of 1999 reflecting lower sales of
WinRho SDF, due to limited availability of the product manufactured for us by
Cangene, and Aloprim.
NON-RECURRING CREDIT. During the third quarter of 2000, we reversed
restructuring accruals totaling $3.9 million into income that was reported as a
non-recurring credit. These accruals were originally recorded in the fourth
quarter of 1998 to accrue for future rent costs for facilties impacted by the
planned reduction of pre-clinical activities at our research and development
faciltiy in Rockville, Maryland and the closure of an antibody collection
center. The reversal is primarily based on the positive results from the
StaphVAX phase III trial announced on September 19, 2000 and the approval of a
plan in the third quarter of 2000 to increase the level of research and
development activities in the future at our Rockville, Maryland facility. The
result of the reversal is a non-recurring credit in the third quarter of 2000 of
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$3.0 million. Also, during the third quarter of 2000, we reviewed antibody
center operations and amended our plan to close an antibody collection center
initially planned for closure. Based on this third quarter 2000 decision, we
reversed $0.9 million for accrued antibody collection center closure costs and
accrued severance into income as a non-recurring credit.
INTEREST EXPENSE. Interest expense for the nine months ended September 30, 2000
was $2.7 million or 2% of sales compared to $3.3 million or 2% of sales in the
nine months of 1999. Lower average bank borrowings for the nine months of 2000
combined with higher amounts of interest capitalized in the nine months ended
September 30, 2000 resulted in the decrease in interest expense. Capitalized
interest relating primarily to construction of our biopharmaceutical facility in
Boca Raton, Florida was approximately $4.2 million and $3.5 million for the nine
months ended September 30, 2000 and 1999, respectively.
OTHER FACTORS. The provision for income taxes of $0.1 million was recorded at an
effective rate of 8% for the nine months ended September 30, 2000 compared to
$0.1 million for an effective rate of 6% for the nine months of 1999. The 8%
effective tax rate in the nine months of 2000 differs from the statutory rate of
35% due to our expectation of realizing a current year benefit from the use of a
portion of our net operating loss carryforwards from prior years.
EXTRAORDINARY GAIN. During the second quarter of 2000, we exchanged an aggregate
of 241,795 shares of our common stock for an aggregate of $2.0 million of Nabi's
6.5% Convertible Subordinated Notes due in 2003. The subsequent extinguishment
of the Notes resulted in an extraordinary gain of $0.3 million, net of taxes,
that is included in the results for the nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, our credit agreement provided for a revolving credit
facility of up to $45 million subject to certain borrowing base restrictions,
and a $4.6 million term loan. The credit agreement matures in September 2002.
Borrowings under the agreement totaled $32.1 million at September 30, 2000 as
compared to $32.5 million at December 31, 1999, and additional availability was
approximately $6.3 million at September 30, 2000. The credit agreement is
secured by substantially all of our assets, requires the maintenance of certain
financial covenants and prohibits the payment of dividends. Effective October
25, 2000 our bank credit agreement was amended to allow for retroactive
application of certain financial covenants to September 30, 2000.
As of September 30, 2000, our current assets exceeded current liabilities by
$41.4 million as compared to a net working capital position of $36.0 million at
December 31, 1999. Cash and cash equivalents at September 30, 2000 were $1.5
million compared to $0.8 million at December 31, 1999. Cash provided by
operations decreased by $22.1 million in the first nine months of 2000 as
compared to the first nine months of 1999. During 1999, we increased cash flow
from operations by significantly reducing trade receivables and inventories. In
2000, we continued to reduce our trade receivables, prepaid assets and
inventories while significantly reducing trade payables and accrued liabilities.
Also, the reversal of accrued restructuring costs of $3.9 million further
reduced our liabilities. During July 2000, we raised $9.3 million, net of
issuance costs, through a private placement of our common stock with a group of
institutional investors. In addition, in the nine months ended September 30,
2000 we realized $3.6 million of proceeds from the exercise of stock options.
The primary uses of cash during the nine months ended September 30, 2000 were
capital expenditures and the reduction of trade payables and accrued
liabilities.
Projected capital expenditures for the remainder of 2000 include costs
associated with the Boca Raton manufacturing facility, including capitalized
interest, costs associated with our agreement with Collaborative BioAlliance,
Inc. ("CBA") for the contract production and supply of Nabi StaphVAX at CBA'a
biomanufacturing facility in Rhode Island, the development of information
systems and related expenditures, and antibody collection center renovations. We
believe that cash flow from operations and our available bank credit facilities
will be sufficient to meet our anticipated cash requirements for at least the
next twelve months. We are also in the process of seeking additional cash to
fund the development of our pharmaceutical product pipeline from strategic
alliances and may seek additional funding from new or existing credit facilities
and equity placements.
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FACTORS TO BE CONSIDERED
The parts of this Quarterly Report on Form 10-Q captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Legal Proceedings" contain certain forward-looking statements. While these
statements reflect our best judgement, they are subject to risks and
uncertainties. Actual results may differ significantly from the results
projected herein due to a number of factors, including, but not limited to,
dependence upon third parties to manufacture product, the likelihood that
StaphVAX or any other product in the research and development pipeline can
receive regulatory approval in the United States or abroad or be successfully
developed, manufactured and marketed, the impact on us of current industry
supply and demand factors and the supply of and demand for our individual
products, additional financing requirements and access to capital, margin
pressure on our non-specific antibody product line and future sales growth
prospects for our pharmaceutical products. Readers should refer to a discussion
under "Factors to be Considered" contained in our Annual Report on Form 10-K for
the year ended December 31, 1999. Said discussion is hereby incorporated by
reference into this Quarterly Report.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to litigation in the ordinary course of business. In addition, we
are a co-defendant with various other parties in one suit filed in the U.S. by,
or on behalf of, individuals who claim to have been infected with HIV as a
result of either using HIV-contaminated products made by the defendants other
than Nabi or having familial relations with those so infected. The claims made
against us are based on negligence and strict liability. Several similar suits
previously pending against us, including a purported class action, have been
dismissed. We do not believe that any such litigation will have a material
adverse effect on our business, financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
On July 10, 2000, we sold 1,666,667 shares of our common stock in connection
with a private placement to a group of institutional investors and realized net
proceeds of approximately $9.3 million. The proceeds were used to reduce
borrowings and increase availability under our existing bank line of credit. In
connection with the offering, we issued a five-year warrant to purchase 133,333
shares of common stock at an exercise price of $7.50 per share to the placement
agent for $133,333. There were no underwriters for this offering. The shares of
stock and warrant were issued in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
thereof and Regulation D. All of the purchasers represented they were acquiring
the securities for investment and were furnished with all requisite information;
the offering did not involve any general advertising or solicitation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit:
None
b. Reports on Form 8-K:
None
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NABI
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NABI
Date: November 1, 2000 By: /s/ Thomas H. McLain
----------------------------------------
THOMAS H. MCLAIN
Senior Vice President, Corporate
Services and Chief Financial Officer
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