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Wednesday, November 05, 1997

NABI, Inc.
(Nasdaq: NABI)
Phone: 561-989-5800
Website: http://www.nabi.com
Price (11/4/97): $4 1/2

HOW DID IT FIND TROUBLE?

Last year, Nabi performed an unusual feat for a biopharmaceutical company: it became profitable. Yet since reaching its February high of $12 1/2, the stock has been infected by disappointments, from a discontinued clinical trial for an HIV therapy to a huge drop in sales of its specialty plasma.

The new year got off to a nice start. Nabi's 22% higher sales for FY96 produced $0.37 a share in profits versus a loss of $0.52. Sales of higher margin specialty plasmas and even more profitable immunotherapies grew by 42% for the year.

But on March 26, the company discontinued its Phase III trial of an HIV vaccine, sinking the shares below $8 a share. The contagion spread, with Nabi's specialty plasma sales falling 25% in the first quarter and 36% in the second quarter. Centeon Corp., a major customer, reduced its plasma processing. Still, revenue from therapies, including its Autoplex hemophilia product acquired from Baxter Healthcare in May, shot up 35% in the second quarter.

On October 23 Nabi pre-announced more bad news. Despite a 39% sequential increase in therapy sales for the third quarter, the company had more problems selling plasma. Add in a $5.7 million non-recurring charge and the result was a loss of $7.9 million, or $0.23 per share. The stock dropped 18% to $5 1/8 on the news and the ensuing analyst downgrades.

BUSINESS DESCRIPTION

This Boca Raton biopharmaceutical company has two main businesses: collecting and selling blood plasma for use in medical treatments and diagnostic products (about 85% of sales) and offering its own immunotherapies based on antibodies found in that plasma (13% of sales).

Plasma is simply the liquid part of blood, as distinct from cells and platelets. The more profitable specialty plasma is rich in specific antibodies that are used as therapies to bolster people's immune responses to infections or to treat certain disorders

With 80 plasma collection centers in the U.S. and four in Germany, NABI is one of the world's leading suppliers of plasma, offering specialty plasmas for use against tetanus, hepatitis A and B, cytomegalovirus (CMV), and rabies. Its customers include about 20 pharmaceutical and diagnostic product manufacturers, with Baxter, Bayer, and Biotest together accounting for 45% of sales last year. International sales accounted for 39% of revenues.

Nabi also markets three FDA approved therapies that rely on its own specialty plasma. These are H-BIG for hepatitis B; WinRho SDF for the treatment of the platelet disorder known as immune thrombocytopenic purpura; and Autoplex T, a treatment for hemophilia.

Nabi hopes to grow its line of proprietary plasma-based therapies and vaccines since those sales are more than twice as profitable as its plasma business. It's now conducting eight clinical trials for products addressing hepatitis viruses, staph infections, and CMV. Insiders own 6.7% of the stock.

FINANCIAL FACTS

Income Statement
12-month sales: $233.1 million
12-month income: $5.5 million*
12-month EPS: $0.15*
Profit Margin: 2.4%*
Market Cap: $158 million
(*Includes non-recurring third quarter pre-tax charges of $5.7 million)

Balance Sheet*
Cash: $5.4 million
Current Assets: $89.4 million
Current Liabilities: $27.8 million
Long-term Debt: $89.4 million
(*As of June 30, 1997)

Ratios
Price-to-earnings: 30
Price-to-sales: 0.67

HOW COULD YOU HAVE SEEN IT COMING?

Biotechs can be dangerous to your wealth. Whatever can go wrong often does. Still, Nabi appeared to have left its money-losing days behind it. The firm also had a relatively no-nonsense plasma business based more on a good collection system than on arcane science.

Still, it's useful to understand the science if you plan to invest in biotechs. Knowing that every HIV vaccine ever tested has had little or no usefulness might have made one cautious about the clinical trials Nabi was conducting with the National Institutes of Health. Most experts have long agreed that the antibody response to HIV is not protective against AIDS. A vaccine based on such immunity seemed likely to fail.

WHERE TO FROM HERE?

In theory, Nabi's business seems promising. You bring in revenue by providing plasma. You then use your own access to the plasma and your experience in handling it to develop new immune-based therapies that deliver fat margins. Though the company has had some failures on the development front, it has some new therapies in the pipeline, recently launching early Phase I/II trials of a therapy for the prevention of common staph infections.

Nabi also has a new formulation of its successful hepatitis therapy that could be used to help people who have just been exposed to hepatitis B as well as people receiving liver transplants. With the post-transmission clinical trials completed by next spring, Nabi should send the FDA its product license application (PLA) by summer. The PLA for liver transplant patients could be in by late next year.

With several analysts downgrading the stock and cutting earnings estimates recently, the consensus estimates now stand at $0.06 per share this year and $0.29 in FY98. Nabi's substantial debt also dampens its valuation. Still, the company did recently manage to restructure its $20 million dollar revolving credit facility into a $50 million, five-year package.

CEO David Gury has said that the market for plasma should return to normal during 1998. The company also appears poised to keep growing its higher margin therapy revenue. With three analysts estimating long-term growth at 35%, this stock could offer some potential long-term value for the biotech investor used to substantial risks. A biotech capable of delivering profits is usually worth a closer look.

P.S. Beware of Nabi's website. It's like the Bermuda Triangle. Something strange is going on there.

- Louis Corrigan , TMFSeymor@aol.com


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