Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Nabi Form 10-K405 12/31/95 70 360K
2: EX-3.1 Restated Certificate of Incorporation 7 36K
3: EX-4.2 Indenture Between Nabi & State Street 75 413K
4: EX-4.3 6 1/2 % Convertible Subordinated Notes Due 2003 17 100K
6: EX-10.18 Employment Agreement Nabi & Robert B. Naso 5 24K
7: EX-10.19 Employment Agreement-Nabi and Thomas Stagnaro 4 21K
8: EX-10.20 Separation Agreement Nabi & Raj Kamar 2 11K
5: EX-10.4 Amendment Nos. 3 and 4 to Credit Agreement 16 69K
9: EX-21 Subsidiaries of the Registrant 2 7K
10: EX-23 Consent of Independent Certified Pub. Accountants 2 7K
11: EX-27 Financial Data Schedule 2± 10K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-4829-03
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NABI
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(Name of Registrant)
Delaware 59-1212264
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(State or Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification Number
5800 Park of Commerce Boulevard N.W., Boca Raton, FL 33487
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Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
As of March 22, 1996, 34,074,109 shares of common stock were outstanding, of
which 33,513,939 shares were held of record by non-affiliates. The aggregate
market value of shares held by non affiliates was approximately $439,870,449
based on the closing price per share of such common stock on such date as
reported by the NASDAQ National Market.
Documents Incorporated by Reference
Portions of NABI's definitive Proxy Statement for its annual meeting of
shareholders which NABI intends to file within 120 days after the end of NABI's
fiscal year ended December 31, 1995 are incorporated by reference into Part III
hereof as provided therein.
1
PART I
ITEM 1. BUSINESS
OVERVIEW
NABI (formerly North American Biologicals, Inc.) is a vertically
integrated biopharmaceutical company that supplies human blood plasma and
develops and commercializes therapeutic products for the prevention and
treatment of infectious diseases and immunological disorders. NABI is one of
the world's largest suppliers of source plasma and specialty plasma which are
sold to pharmaceutical and diagnostic companies or used in NABI's proprietary
products. NABI collects plasma from an extensive donor base through 78
collection centers in the United States and three collection centers in
Germany. During 1994 and 1995 NABI collected and processed approximately
1,830,000 and 2,020,000 liters of plasma, respectively. NABI also is
developing a broad specific polyclonal antibody ("SPA") product line that
includes two therapeutic products approved by the United States Food and Drug
Administration (the "FDA") and 12 therapeutic products that are in development,
including four products in clinical trials. NABI has completed construction,
and has commenced validation, of a new biopharmaceutical manufacturing facility
designed to process plasma into immunotherapeutic products. In addition, NABI
manufactures and markets human blood plasma-based control products and
diagnostic products and provides testing services on plasma and blood samples
supplied by third parties.
On November 29, 1995, Univax Biologics, Inc. ("Univax"), a publicly traded
biopharmaceutical company developing and marketing products for the prevention
and treatment of infectious diseases and their associated complications through
the activation and targeting of the human immune system, was merged into NABI
(the "Merger").
TRADEMARKS
NABI(R), WinRho SD(TM), H-BIG(R), HIV-IG(TM), HyperGAM+CF(TM),
StaphVAX(TM), StaphGAM(TM), H-BIG IV(TM), CMV NeutraGAM(TM), QS-21
Stimulon(TM), H-CIG IV(TM), NeoGAM(TM), OmniGam(TM), NorMLCera-Plus(R),
QC-HIV(R), ViroSure (TM) and QC-Hepatitis(TM) are trademarks that are either
owned or licensed by NABI.
INDUSTRY BACKGROUND
Source and Specialty Plasma
Plasma is the liquid portion of blood which contains various proteins, as
distinguished from formed elements of the blood such as red blood cells, white
blood cells and platelets. According to Marketing Research Bureau, an
independent market research company, the worldwide market for plasma-based
products was approximately $4.6 billion in 1994. Plasma is obtained in the
United States through donations from individuals at approximately 450 plasma
collection centers. The market factors influencing the plasma industry have
included: (i) the expanded use of immunotherapeutic products to prevent and
treat disease, (ii) extensive public concern over the safety of the blood
supply, with subsequent political demand for tighter scrutiny of blood product
suppliers and a resulting reduction in blood collection, and (iii) an increase
in regulatory control over the collection and testing of plasma.
A worldwide shortage of plasma began in 1991, partially due to the
increased need for plasma components to treat larger and older populations, and
partially due to a diminished pool of donors that resulted from more
restrictive testing and screening requirements imposed by regulatory
authorities. In 1991, the FDA mandated screening for hepatitis C, thereby
disqualifying donations from a significant portion of the then existing donor
base.
Plasma is composed of three primary proteins: albumin, anti-hemophilic
factor ("AHF") and immune globulin. After collection, plasma is fractionated,
or separated, into these three proteins. The therapeutic market for
2
each of these proteins at any one time drives overall demand for plasma. The
primary uses of these proteins are as follows:
- Albumin is the protein used to restore plasma volume subsequent to shock,
trauma, surgery and burns.
- AHF is the clotting factor in plasma used to treat hemophilia and
clotting disorders.
- Immune globulin is the component of plasma that carries antibodies
to fight disease. Therapeutic uses include the treatment of tetanus,
rabies, hepatitis, immune thrombocytopenic purpura ("ITP") and acquired or
congenital immune disorders.
Plasma which contains high concentrations of specific antibodies is known
as specialty plasma and is distinguished from source plasma, which does not
have such high concentrations. Specialty plasma is used primarily to
manufacture plasma-based immunotherapeutic products which bolster the immunity
of patients to fight a particular infection or to treat certain immune system
disorders. Following advances in intravenous therapy in the mid-1980s, use of
specialty plasmas for therapeutic purposes significantly increased. Among the
current uses for specialty plasmas are the production of products to prevent
hepatitis, ITP, Rh incompatibility in newborns, cytomegalovirus ("CMV")
infections, tetanus and rabies. Specialty plasmas are also widely used for
diagnostic and tissue culture purposes.
Specialty plasmas can be obtained by screening the normal donor population
for individuals who have an acceptable level of the desired antibody due to
previous exposure to the pathogen. This screening approach is only feasible if
high concentrations of the desired antibodies occur naturally in a significant
percentage of the donor population. An alternative approach is to stimulate
donors with an immunizing agent specifically directed at the targeted pathogen.
Such donor stimulation can create a steadier supply of plasma with high levels
of the desired types of antibodies. Specialty plasma is fractionated into its
three component proteins and the resulting immunoglobulin is used to
manufacture immunotherapeutic products. Donor stimulation has been used
successfully for years for the collection of specialty plasmas containing
antibodies active against tetanus, rabies, hepatitis B and Rh incompatibility.
Immunotherapeutics
Immunotherapeutic products include plasma-based immunoglobulin therapeutic
products and vaccines. Immunotherapeutic products which are produced from
specialty plasma contain a rich mixture of antibodies produced by healthy
donors naturally or in response to exposure to particular component substances
produced by a virus or bacteria. These SPAs are administered to provide passive
immunity against infection in immune-compromised patients or patients who are
immediately at risk and therefore do not have time to mount their own antibody
response.
NABI believes that plasma-based immunotherapeutic products have a high
benefit-to-cost ratio and have a high level of physician acceptance based on
past usage. Immunotherapeutic products offer numerous clinical advantages. They
are produced naturally from a human source, and their safety has been well
documented over several decades of clinical experience.
The use of plasma-based immunotherapeutic products increased in the
mid-1980s as a result of the development of intravenous formulations which made
administration of larger therapeutic doses practical for a broad range of
specific diseases. As a result, immunoglobulin therapy has become a growing
part of medical practice. According to Market Research Bureau, in 1994, the
market was approximately $983 million.
Vaccines play an important role in the development and production of
immunotherapeutic products. They can be used as stimulating agents to cause the
human body to produce SPAs. They also can provide long-term protection against
exposure to a specific disease-causing substance or pathogen. When invaded by
viruses, bacteria or other disease-causing organisms, the human body mounts an
immune response, producing antibodies that target
3
and help kill the invading pathogen. This natural immune response to an
infection is termed "active immunity." Vaccines induce active immunity in the
absence of an actual infection by presenting to the immune system dead or
disabled organisms or purified components derived from the organism's surface.
The immune system develops an active immune response to the vaccine and
"remembers" that response just as it does for a natural infection. Vaccines
can provide significant long-term protection because this "immune memory"
results in a stronger and more rapid immune response upon subsequent exposure
to the pathogen. Vaccines are powerful tools in the fight against infectious
disease and have been largely responsible for the elimination of smallpox,
polio, diphtheria, whooping cough and certain other diseases as major causes of
death in the United States.
In contrast to viral vaccines, bacterial vaccines generally cannot be
based on dead or disabled organisms because bacteria produce many toxins that
are dangerous even if the bacteria are no longer infective. Moreover, because
of certain structural characteristics, protein-based bacterial vaccines are not
likely to be broadly useful. One solution may be to exploit the complex
carbohydrates present on the surface of most bacteria. Only four
carbohydrate-based bacterial vaccines are currently on the market in the United
States because vaccine companies have historically focused primarily on viral
rather than bacterial diseases.
STRATEGY
NABI's objective is to become a leader in the development and marketing of
proprietary plasma-based immunotherapeutic products. The key elements of NABI's
strategy include the following:
Leverage NABI's Plasma Business into the Higher Margin Immunotherapeutics
Business. NABI intends to continue the expansion of its historical lower
margin plasma business into the higher margin plasma-based immunotherapeutics
business. NABI intends to build upon its expertise in the plasma business and
on the consistent revenues and critical raw materials generated by that
business. Through the Merger, NABI significantly increased the number of
immunotherapeutic products it has in development.
Capitalize on Fully Integrated Development Capabilities. NABI's 81 plasma
collection centers in the United States and Germany make NABI one of the
world's largest suppliers of plasma to the pharmaceutical and diagnostic
industries. NABI's 81 person research and development team based in Rockville,
Maryland has the capabilities to develop multiple product opportunities
simultaneously, and bring products through the clinical development and FDA
approval processes. NABI also has an experienced sales and marketing
organization currently consisting of 16 salespersons, and a distribution
network adding 40 more salespersons. In addition, NABI has completed
construction and has begun validation of a new biopharmaceutical manufacturing
facility in Boca Raton, Florida designed to process specialty plasma into
immunotherapeutic products. NABI anticipates that it will receive requisite
validation and FDA licensure of this facility in 1998. NABI intends to
capitalize on this fully integrated development capability to become a leader
in the plasma-based immunotherapeutics industry.
Focus on Products that Prevent and Treat Infectious Diseases. NABI is
focusing its efforts on SPA-based immunotherapeutic products, such as H-BIG IV,
WinRho SD and HyperGAM+CF, for immediate short-term protection against
infectious diseases and their associated complications. In support of these
efforts, NABI is developing vaccines, such as StaphVAX and OmniVAX, to be used
as stimulating agents in humans to produce antibodies for its immunotherapeutic
products and, potentially, as long-term protection against infection.
Pursue Selected Product Strategic Alliance Opportunities. NABI has
developed strategic alliances with Genzyme Corporation ("Genzyme"), Chiron
Biocine Company ("Chiron") and others to complement its in house research and
development and product marketing capabilities, and intends to seek additional
strategic alliances with others where appropriate. See "-Strategic Alliances,
Licenses and Royalty Obligations."
4
PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
Source Plasma
NABI is one of the world's largest suppliers of human blood plasma to the
pharmaceutical and diagnostic industries. During 1994 and 1995, NABI derived
revenues of $98.6 million and $108.3 million, respectively, from the sale of
source plasma, representing 68.6% and 63.9%, respectively, of NABI's total
revenues from the sale of plasma.
Specialty Plasma
During 1994 and 1995, NABI derived revenues of $45.1 million and $61.2
million, respectively, from the sale of specialty plasma, representing 31.4%
and 36.1%, respectively, of NABI's total revenues from the sale of plasma.
NABI identifies potential specialty plasma donors through internal
screening and testing procedures. NABI also has developed FDA-licensed programs
to inoculate potential donors to stimulate their production of specific
antibodies. Through NABI's nationwide operating base and access to its large
and diverse donor base, NABI believes it has a strategic advantage in its
ability to collect specialty plasmas.
NABI's principal specialty plasmas include:
- Hepatitis B Plasma. NABI provides anti-hepatitis B plasma to
manufacturers of hepatitis B immunotherapeutic products which provide
passive immunity to hepatitis B. Anti-hepatitis B plasma collected by
NABI is also used to produce H-BIG, NABI's own hepatitis B
immunotherapeutic product. NABI believes that its proprietary donor
stimulation and management programs generally allow NABI to produce
anti-hepatitis B plasma having a higher concentration of antibody than
competing products.
- Anti-D Plasma. Specialty plasma containing anti-D antibody has long
been used when there is a mismatch between a mother's Rh factor and
that of her fetus. Plasma collected from donors who have natural levels of
anti-D antibody or who have been inoculated to raise their anti-D antibody
levels is used to make products to protect the infant. NABI has
proprietary donor stimulation and management programs which enhance its
ability to increase collection of anti-D plasma.
- HAV Plasma. Plasma which is rich in antibodies against the
hepatitis A virus ("HAV") is available from the small percentage of the
population that has been exposed to the hepatitis A virus. HAV plasma is
used to augment general intravenous immunotherapeutic products to provide
protection from this virus.
- CMV Plasma. CMV antibody-positive donors are indigenous in the
population. By screening its large donor population, NABI can
identify individuals with high concentrations of CMV antibodies in their
plasma, and supply the plasma to product manufacturers to enhance
intravenous products and to produce specific CMV immunoglobulin
therapeutic products.
- Rabies Plasma. NABI is a major supplier of rabies antibody-rich
plasma to manufacturers of rabies immunotherapeutic products, which
provide a short-term boost in immunity to patients exposed to the rabies
virus.
Immunotherapeutic Products
NABI is developing and marketing products for the prevention and treatment
of infectious diseases and their associated complications through activation
and targeting of the human immune system. NABI is focusing its efforts
principally on SPA-based immunotherapeutic products. NABI also is developing
vaccines to be used principally as stimulating agents in humans to produce
antibodies for immunotherapeutic products and also,
5
potentially, as long-term protection against infection. NABI is concentrating
its vaccine development efforts on vaccines for bacterial infections,
particularly those that are hospital-acquired or associated with chronic
disease. NABI is developing a broad product line that includes two currently
marketed immunotherapeutic products approved by the FDA and 12 products that
are in development, including four products in clinical trials.
NABI believes that it has research capability in the development of
bacterial vaccines based on carbohydrates and carbohydrate/protein compounds.
NABI's specific capabilities in the development of carbohydrates and
carbohydrate/protein compound bacterial vaccines include, among others, broad
expertise in the molecular and cellular biology of bacterial pathogens, and the
ability to develop cell lines and manufacturing processes that maximize the
production of carbohydrates and proteins.
NABI's research and development capabilities have been enhanced as a
result of the Merger by NABI's succession to collaborations with several of the
major academic and government research laboratories active in this area. NABI
has also licensed the use of proprietary proteins and enhancing agents which it
believes will enhance the development of highly immune-stimulating vaccines.
IMMUNOTHERAPEUTIC PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
NABI's product line of immunotherapeutic products was initiated with the
acquisition of H-BIG and HIV-IG from Abbott Laboratories ("Abbott") in
September and November 1992, respectively. NABI has expanded this product line
with the formulation and development of H-BIG IV, an intravenous formulation of
H-BIG, and H-CIG IV, another intravenous product. As a result of the Merger,
NABI has added ten more products to its pipeline, including three products in
clinical trials. The following table summarizes NABI's pipeline of products on
the market or in development.
[Enlarge/Download Table]
PRODUCTS POTENTIAL APPLICATIONS STATUS
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H-BIG Hepatitis B Product License Application ("PLA")
approved; marketing
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WinRho SD ITP and Rh isoimmunization PLA approved; marketing
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WinRho SD Additional autoimmune conditions Phase IV clinical trial in progress
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HIV-IG HIV/AIDS transmission from mother Phase III clinical trial in progress in
to fetus collaboration with the National Institutes of Health
(the "NIH")
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HyperGAM+CF Chronic pseudomonas infections in Phase II clinical trial in progress in U.S.
cystic fibrosis patients and Europe in collaboration with Genzyme
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StaphVAX Staph A infections (vaccine) Phase II clinical trial completed; follow-on
dosing studies in hemodialysis patients in progress
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StaphGAM Staph A infections Donor stimulation in progress; Phase I/II
with purified antibody to begin in 1996
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H-BIG IV Hepatitis B reinfection in liver Phase I/II clinical trial to begin in 1996
transplant patients
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CMV NeutraGAM CMV in renal transplant patients Donor stimulation and Phase I/II
clinical trial to begin in 1996
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H-CIG IV Hepatitis C reinfection in liver Preclinical; donor screening in progress
transplant patients
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StaphVAX II Staph epi infections (vaccine) Preclinical
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StaphGAM II Staph A and Staph epi infections Preclinical
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NeoGAM Staph A and Staph epi infections in Preclinical
neonates
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OmniGAM Staphylococcal and Enterococci Preclinical
infections in intensive care
transplant and surgical patients
6
H-BIG
Despite the availability of hepatitis B vaccines, hepatitis B infection
has spread rapidly and now affects approximately 300 million people worldwide.
The Centers for Disease Control and Prevention (the "CDC") recommends that
newborn infants of mothers who are hepatitis B-positive be inoculated with both
hepatitis B immune globulin and a hepatitis B vaccine. The worldwide market for
the current formulation and indications of H-BIG is estimated to be
approximately $50 million. H-BIG is an intramuscular SPA product used following
exposure by blood transfusion, accidental ingestion, transmission from a
hepatitis B antigen-positive mother or sexual exposure. NABI believes that
H-BIG is the first hepatitis B plasma-based immunotherapeutic product to be
licensed by the FDA and has been marketed since 1977. NABI has marketed H-BIG
since 1992 when it acquired the product. NABI is obligated to pay a royalty to
Abbott on net sales of H-BIG through September 2002. NABI believes that it has
substantially all of the United States market for sales of plasma-based
immunotherapeutic products for the prevention and treatment of hepatitis B.
WinRho SD
WinRho SD is an SPA product designed for the treatment of ITP and the
suppression of Rh isoimmunization. ITP is a blood disorder characterized by
abnormally low platelet levels due to platelet destruction by the patient's own
immune system. Because platelets are required for blood clotting, the disorder
can result in uncontrolled bleeding, either spontaneously or in response to
even minor trauma. In certain cases, such as severe trauma or spontaneous
intracranial hemorrhage, the bleeding can be life-threatening. ITP can occur as
either a primary disease with no other associated condition, or secondary to
another underlying disease, such as HIV infection or lupus. Unless associated
with HIV infection, ITP in children is generally an acute condition which
resolves itself within six months with or without therapy. In adults, whether
primary or secondary to HIV infection, the disease is generally chronic in
nature.
In the United States, there are currently approximately 67,000 individuals
who suffer from primary ITP or ITP secondary to HIV infection. Approximately
17,000 of these cases are primary ITP; the remaining 50,000 patients suffer
from chronic ITP secondary to HIV infection, which represents 5% of the
estimated one million HIV-positive individuals in the United States today.
There are approximately 30,000 additional patients with ITP secondary to lupus
and other conditions.
Current therapies for ITP include steroids, standard IVIG, splenectomy and
chemotherapeutic agents. These therapies all have significant drawbacks.
Steroids and chemotherapy result in many undesirable side effects and cannot be
used for long-term maintenance. Standard IVIG must be given in large doses,
which are expensive, require several hours to administer and often lead to
adverse reactions. Splenectomy procedures subject patients to the inherent
risks of surgery plus a resulting life-long susceptibility to severe infection.
Zidovudine ("AZT") or other antiviral drugs also can be used to treat ITP in
HIV-positive patients, but only 50% of treated patients show a significant
platelet response to these drugs. NABI believes that WinRho SD avoids many of
these drawbacks. Unlike steroids and chemotherapy, WinRho SD can be used for
long-term treatment of chronic ITP. Also, compared to standard IVIG, WinRho SD
is relatively less expensive and also is less time-consuming in its
administration. In addition, the product presents no surgical risk and, unlike
AZT, has demonstrated consistency in its ability to elicit a platelet response.
Rh isoimmunization occurs when a woman with Rh negative blood type becomes
pregnant with an Rh positive fetus. The woman's immune system recognizes the
fetal blood cells as foreign and develops antibodies that can attack the fetus
and threaten future Rh pregnancies. Rh isoimmunization can be suppressed by
treating the mother with antibodies that suppress this toxic reaction. There
are currently three immunotherapeutic products on the market in the United
States for the suppression of Rh isoimmunization. These products are priced at
lower levels than WinRho SD and, as a result, notwithstanding the fact that
NABI believes that WinRho SD is a superior product, NABI does not anticipate
significant sales of WinRho SD for Rh isoimmunization.
NABI commenced marketing WinRho SD, for which it has exclusive marketing
rights in the United States only, in mid 1995 under a license and distribution
agreement with Cangene Corporation, formerly Rh Pharmaceuticals, Inc.
("Cangene"). WinRho SD for the treatment of ITP has been designated an Orphan
Drug.
7
NABI plans to conduct in 1996 three Phase IV clinical trials for WinRho SD for
the following indications: ITP secondary to lupus, chronic inflammatory
demylinating polyneuropathies (CIDP) and refractory platelet alloimmunization.
See "-Strategic Alliances, Licenses and Royalty Obligations" and
"-Government and Industry Regulation-Orphan Drug Act."
HIV-IG
In the United States, approximately 15% to 30% of the infants born to
HIV-infected mothers become infected. Approximately 7,000 such infants are born
at risk of contracting HIV/AIDS from their HIV positive mothers in the United
States each year. The CDC estimates that there are approximately 3,500 children
with AIDS in the United States and an additional 7,000 to 10,000 that are HIV
positive. More than 80% of these HIV/AIDS infections resulted from the
transmission of the virus from the mother to child at birth. In addition,
recent World Health Organization data show that young women are a rapidly
growing subgroup of HIV infection, making the need for prevention of vertical
transmission especially pressing.
HIV-IG is an experimental product currently manufactured by NABI for
potential prophylactic and therapeutic use in treating HIV/AIDS. HIV-IG is
prepared from the plasma of HIV-antibody positive individuals who are otherwise
healthy and have displayed a strong immune response to the HIV virus. The
plasma is extensively tested and virally inactivated during processing. The
antibodies within the plasma are then purified and concentrated in preparation
for administration to patients. HIV-IG has been granted Orphan Drug status for
use in the prevention of vertical perinatal transmission of HIV/AIDS from
mother to child. See "-Government and Industry Regulation-Orphan Drug Act."
NABI acquired HIV-IG from Abbott in 1992 and will pay a royalty on any
commercial sales of the product. See "-Strategic Alliances, Licenses and
Royalty Obligations-Other Licenses and Royalty Obligations."
AZT has been used to lessen the flow of the HIV virus from mother to the
unborn child, and is currently being used in conjunction with HIV-IG in a Phase
III clinical trial presently being conducted by the National Heart, Lung and
Blood Institute, in collaboration with the National Institute of Child Health
and Human Development and the National Institute of Allergy and Infectious
Disease (collectively, the "Institutes"). However, the therapeutic goal of
HIV-IG is to prevent rather than lessen the transmission of the virus, and
therefore HIV-IG would, if effective, prove to be more beneficial than AZT used
alone. Other approaches to the problem of HIV transmission from mother to
unborn child are being developed by competitors and are in early experimental
stages, and it is too early to discern the benefits and drawbacks of such
approaches.
The Phase III clinical trial being conducted by the Institutes is intended
to determine whether HIV-IG will prevent the vertical transmission of HIV/AIDS
from HIV-positive mothers to their unborn children. This trial is expected to
be completed during the first half of 1997. The cost to the Institutes of this
trial is estimated to be in excess of $20 million. Participants in this trial
receive HIV-IG together with AZT while a control group receives a
non-HIV-specific immune globulin and AZT.
HyperGAM+CF
Cystic fibrosis ("CF") is a genetic defect which, according to the
International Cystic Fibrosis Association, is currently found in approximately
25,000 individuals in the United States and in an estimated 60,000 individuals
worldwide. This defect inhibits an individual's ability to secrete fluids of
proper viscosity on the mucous membranes of the gastrointestinal and
respiratory tracts. The fluids secreted by CF patients are thick and tend to
trap bacteria in the lungs. Studies by the Cystic Fibrosis Foundation have
shown that approximately 60% of CF patients harbor Pseudomonas bacteria in
their lungs, and up to 90% of CF patients who survive to adulthood will
experience chronic obstructive bronchitis associated with Pseudomonas. Once the
lungs are infected, Pseudomonas secrete carbohydrates that lead to enhanced
mucus accumulation in the infected lung. The resulting thick, bacteria-laden
discharge inflames and damages lung tissue causing the breathing difficulties
common in CF patients. The damage is exacerbated by the attack of white blood
cells on the bacteria which often results in accumulation of cellular debris in
the lungs and further breathing difficulty.
8
HyperGAM+CF contains high levels of antibodies against the Pseudomonas
mucoid exopolysaccharide ("MEP"). The product is designed to be administered
prophylactically on a monthly basis to provide passive immunity against
Pseudomonas. There currently are no immunotherapeutic products on the market
that attempt to alleviate Pseudomonas infections in CF patients. Many
commonly-used antibiotics are less effective against Pseudomonas due to growing
bacterial resistance. A product recently introduced by a competitor attempts to
dissolve the DNA which accumulates in the lungs of CF patients. HyperGAM+CF, on
the other hand, is an immunotherapeutic approach that is designed to attack the
problem at its source by removing the Pseudomonas bacteria from the patients'
lungs, rather than to alleviate the symptoms of the infections that result from
the presence of the bacteria.
A Phase II trial was initiated in the first quarter of 1995, designed to
evaluate HyperGAM+CF's efficacy in reducing the number of acute exacerbations
suffered by CF patients. An interim analysis of the data from this trial is
expected during the third quarter of 1996. NABI has received two Orphan Drug
designations for this product, for both the prevention and the treatment of
Pseudomonas infections associated with CF. NABI has entered into an agreement
with Genzyme under which Genzyme has agreed to provide funding support for
development and clinical trials of HyperGAM+CF in exchange for marketing
rights. NABI licensed certain patent rights applicable to HyperGAM+CF from a
third party to which a royalty will be due on any commercial sales of the
product. See "-Strategic Alliances, Licenses and Royalty Obligations."
StaphGAM and StaphVAX
Staphylococcal bacteria, especially Staphylococcus aureus ("Staph A")
and Staphylococcus epidermis ("Staph epi"), are an increasing cause of
bacterial infections in hospitalized patients and patients with chronic
disease. These two species are responsible for the vast majority of all
staphylococcal infections. Persons who are at a high risk of contracting
staphylococcal infections include the following patient groups:
Kidney Dialysis Patients. Patients on chronic dialysis due to kidney
failure are constantly at risk for staph infections due to their in-dwelling
catheters. Continuous ambulatory peritoneal dialysis ("CAPD") patients have a
50% risk of contracting an infection each year, of which 50% are due to
staphylococcal bacteria (15% Staph A and 35% Staph epi). Hemodialysis patients
have a significantly lower risk of infection (only 15% each year). In the
hemodialysis patient group, 75% of the infections are due to Staphylococci (50%
Staph A and 25% Staph epi). In the United States there are currently 30,000
CAPD patients and 160,000 hemodialysis patients.
Severe Trauma Patients. Patients suffering from severe trauma (i.e.,
Level I trauma center intensive care unit ("ICU") admissions) are at a 40%
risk of acquiring an infection while in the hospital. Approximately 30% of
these infections are due to staphylococcal bacteria (20% Staph A and 10% Staph
epi). The majority of these infections occur within the first week after
admission, but there is also a substantial long-term risk of infection in these
patients due to the extended hospital stays often required. It currently is
estimated that approximately 3% of the 2.8 million trauma victims admitted to
hospitals each year in the United States are Level I trauma center ICU
admissions.
Cardiac Surgery Patients. Approximately 500,000 patients undergo cardiac
surgery each year in the United States. Infections of the sternum appear in
approximately 6% of patients following cardiac surgery, of which about 25%, or
1.5% overall, are deep infections of the sternum requiring surgical
intervention. Approximately 60% of these infections are due to staphylococcal
bacteria (40% Staph A and 20% Staph epi). The majority of these infections
occur within one to two weeks of surgery, but the use of prosthetic devices
such as valve replacements in cardiac surgery and the use of synthetic dacron
grafts in arterial replacements present long-term infection risk.
Vascular Graft Patients. Approximately 180,000 patients undergo vascular
graft surgery annually in the United States. The incidence of infection
following vascular graft surgery is approximately 2%, of which 60% are due to
staphylococcal bacteria (30% Staph A and 30% Staph epi). Although this rate of
infection is reasonably low compared to other risk groups, the consequences of
infection in this population can be severe. There is nearly a 25% mortality
associated with vascular graft infections and another 25% of patients require
amputation of the
9
affected limb. Moreover, in this patient group, there is a demonstrated risk of
late stage infections appearing 11 to 12 months after surgery.
Prosthetic Surgery Patients. There are approximately 420,000 orthopedic
joint replacement surgeries performed in the United States each year. These
patients run a 1% to 5% risk of contracting an infection while recovering from
surgery, 60% of which are due to staphylococcal bacteria (30% Staph A and 30%
Staph epi). Again, although the incidence is very low, the consequences can be
severe and often require removal of the artificial joint. Moreover, there is a
significant long-term risk that prosthetic joints will become infected even
several years after surgery.
It currently is estimated that 40% to 60% of the staphylococcal infections
occurring in United States hospitals are caused by bacterial strains that are
resistant to every currently available antibiotic except vancomycin. Of even
greater concern is the increase in the bacteria that are resistant to all
current antibiotics, including vancomycin. The percentage of hospital-acquired
enterococcal infections that are resistant to vancomycin has increased from
0.3% in 1989 to nearly 10% in 1993, with the rate approaching 15% in ICUs.
Because, like Staphylococci, Enterococci is a gram-positive bacterium, this
vancomycin resistance could, at any time, be transferred to the staphylococcal
bacteria present in hospitals. Such transfer has, in fact, recently been
demonstrated in the research laboratory. If vancomycin resistance continues to
grow, NABI believes certain bacterial infections could become untreatable.
StaphGAM contains high levels of antibodies against the two most important
clinical strains of Staph A. StaphGAM is designed to provide immediate,
on-demand protection for patients who suddenly find themselves at high,
short-term risk of Staph A infection or for patients who are immune-compromised
and cannot respond effectively to a vaccine. Consequently, this SPA product
might be used in patients who are at short- and long-term risk of contracting
Staph A infections. Even in those patient groups in which the incidence of
staphylococcal infection is relatively low, such as cardiac surgery patients,
the consequences of an infection can be so severe that NABI believes that
administration of the SPA product to all patients may be deemed medically
appropriate.
NABI expects to produce StaphGAM by stimulating healthy plasma donors with
an immunizing agent. NABI began a preliminary donor stimulation program with
this immunizing agent in July 1994, which was recently concluded. A six-month
follow-on donor stimulation trial was initiated in September 1995. NABI expects
to commence in 1996 a Phase I/II clinical trial using StaphGAM on severe trauma
patients.
NABI's goal is to use the same immunizing agent used to produce antibodies
in healthy plasma donors for the production of StaphGAM as a vaccine in high
risk patient populations. This vaccine, StaphVAX, is a carbohydrate/protein
compound intended to elicit high levels of antibodies against the two bacterial
strains responsible for over 90% of clinically important Staph A infections,
Staph A and Pseudomonas. StaphVAX is based on patented vaccine technology
in-licensed by NABI from NIH, and development of the vaccine is partially
covered by a Cooperative Research and Development Agreement ("CRADA") with
NIH. See "-Strategic Alliances, Licenses and Royalty Obligations." Supported
by studies of StaphVAX in animal models, the vaccine has recently completed a
Phase II trial in continuous ambulatory peritoneal dialysis patients. The
clinical trial showed the vaccine to be safe but ineffective. Two possible
explanations for the inability of StaphVAX to prevent infections related to
peritoneal dialysis in vaccinated patients are that the immunogenicity of the
vaccine was too low due to suboptimal vaccine dosing or that antibodies in the
bloodstream are unable to affect infection in certain anatomic areas, such as
the peritoneum. Like peritoneal dialysis patients, hemodialysis patients with
kidney disease also have high Staph A infection rates. However, the Staph A
infections contracted by hemodialysis patients are primarily bloodborne and may
be more accessible to Staph A antibodies. As a result, NABI is designing a
Phase II clinical trial with StaphVAX in hemodialysis patients and expects to
begin treating patients in 1996.
H-BIG IV
One of the severe side effects of hepatitis B infection is deterioration
of the liver, resulting in the need for liver transplantation. NABI believes
that up to 20% of the current eligible liver transplant population is comprised
of hepatitis B patients. These patients are at high risk for liver reinfection
with the hepatitis B virus once the
10
transplant is completed. Reinfection causes the process of liver deterioration
to recur, and, as a result, most transplant centers consider hepatitis
B-infected patients to be poor candidates for transplantation. A significant
number of transplant centers have policies precluding these patients from the
transplant population, given the relative scarcity of available livers and poor
prognosis for such patients. Due to these policies, liver transplants of
hepatitis B-infected patients represented only 5% of the approximately 3,000
liver transplants performed in the United States in 1993.
There are no products similar to H-BIG IV available in the United States.
In Europe, however, certain manufacturers are currently producing substantially
similar products. If H-BIG IV proves successful and receives FDA approval, and
subsequent approval in the United States medical community results in the
relaxation of prohibitions against conducting liver transplants in hepatitis B
patients, it is estimated that approximately 1,000 additional hepatitis B
patients would receive transplants each year.
NABI believes treatment with H-BIG IV will greatly reduce the risk of
hepatitis B re-infection in liver transplant patients by providing the patient
with additional resistance to the disease and therefore will increase the
number of liver transplants given to hepatitis B patients. Prevention of
hepatitis B reinfection is likely to require a series of intravenous treatments
with large amounts of H-BIG IV immediately following transplantation and
maintenance doses for extended periods of undetermined length, compared to
current indications for H-BIG which require only a single intramuscular
injection of a small amount of antibody. Such large doses of H-BIG IV are
anticipated because liver transplant patients receive large quantities of drugs
that suppress the immune system to prevent rejection of their transplanted
organs. As a result, hepatitis B patients require amounts of antibody that are
sufficient to provide virtually 100% of the antibody required to neutralize
their infections.
NABI filed an Investigation for New Drug ("IND") application for H-BIG IV
in July 1994 for the specific indication of use for hepatitis B liver
transplant cases. In 1996, NABI intends to begin human clinical trials studying
safety and pharmacokinetic tests in liver transplant patients. H-BIG IV has
been granted Orphan Drug status.
CMV NeutraGAM
CMV, a member of the herpes virus family, is widely prevalent throughout
the world. Although most infections are without symptoms, CMV causes
significant clinical disease in individuals with weakened immune systems,
including transplant recipients and HIV infected individuals, and is the most
common cause of virally produced birth defects (such as congenital deafness and
mental retardation). CMV commonly affects renal transplant recipients and is a
significant risk factor which could result in fever after a transplant,
followed by leukopenia, graft failure and death. There were approximately
10,000 kidney transplants performed in the United States in 1994 and
approximately 9,000 in Europe. It is estimated that 50% to 80% of these
patients can develop CMV infection. In addition, CMV infection is a known
complication in bone marrow transplant recipients, of which there were
approximately 3,500 in the United States and 3,500 in Europe in 1994. CMV is
also a major risk in other solid organ transplant patients, including those
undergoing heart and liver transplants. Approximately 8,000 people underwent
solid organ transplants (excluding kidney transplants) in the United States in
1994, and approximately 2,000 in Europe. In heart transplant recipients, CMV
may play a role in the development of accelerated coronary graft
atherosclerosis which is responsible for the majority of late cardiac graft
failure and resulting patient morbidity and mortality.
Preliminary laboratory evaluation of antibody concentration in plasma of
subjects immunized with a Chiron CMV vaccine candidate indicates that the
plasma could contain significantly higher levels of CMV neutralizing antibodies
than currently available screened plasma used in other manufacturers' products.
The higher levels of specific antibody may allow the product to be administered
in lower doses with a potential for fewer side effects, shorter infusion times
and improved efficacy. The higher concentration product might also allow the
product to be injected directly into muscle. NABI expects to begin Phase I/II
clinical trials with CMV NeutraGAM in 1996.
11
H-CIG IV
H-CIG IV is designed to prevent reinfection in liver transplant patients
who test positive for hepatitis C antibody at the time of transplant. NABI
believes that hepatitis C infection is actually more prevalent among their
liver transplant patients than hepatitis B. Hepatitis C was an under-recognized
contributor to morbidity and hospitalization in liver transplant patients until
recently when a diagnostic test specific for hepatitis C became widely
available. Hepatitis C is not as lethal as hepatitis B; however, it does have
significant economic impact because it contributes to frequent hospitalizations
when it occurs in liver transplant patients.
NABI expects to initiate preclinical studies of H-CIG IV in 1997. Because
NABI's H-CIG IV is the first product to provide hepatitis C antibody for
clinical use, no data exists to predict the efficacy and the dose level of
H-CIG IV that will produce the best combination of safety and efficacy, other
than experience with H-BIG IV. NABI has applied for Orphan Drug status for
H-CIG IV.
StaphVAX II/StaphGAM II/NeoGAM
NABI plans to develop a second generation vaccine product, StaphVAX II,
which is directed to both Staph A and Staph epi. Staph epi is the second most
clinically significant Staphylococcus species. The Staph epi components of
Staph VAX II are undergoing preclinical testing and process development. The
vaccine is expected to contain the two previously identified Staph A
carbohydrates and one to three Staph epi antigens present on the surface of the
bacteria. It recently has been shown that antibodies to one of these Staph Epi
antigens bind not only the two Staph epi strains responsible for over 90% of
Staph epi infections, but also Staphylococcus hemolyticus, another clinically
important staphylococcal bacteria.
In connection with StaphVAX II, NABI plans to develop a second-generation
SPA product, StaphGAM II, containing antibodies to both Staph A and Staph epi.
Development of this product is expected to involve stimulating donors with
immunizing agents against both Staph A and Staph epi.
NABI also plans to develop an additional SPA product, NeoGAM, which
contains antibodies to both Staph A and Staph epi, and is specifically targeted
at the prevention of infections in low birth weight neonates. Such neonates
have a 25% overall rate of infection and a 60% rate of progression to sepsis.
NeoGAM is being designed to contain antibodies against the bacteria responsible
for approximately 50% of these infections.
OmniGAM
In 1994, NABI began a program directed at Enterococci, for which studies
are underway, to identify the most clinically important strains for use in
developing a vaccine. If an effective immunizing agent against Enterococci can
be developed, NABI plans to add it to the Staph A and Staph epi components to
create OmniGAM, a combination SPA product. OmniGAM is targeted at the
prevention of infections in high risk ICU patients, particularly patients
recovering from major gastrointestinal, head or neck surgery and/or trauma,
patients who have specific risk factors such as diabetes, alcoholism, chronic
liver disease, severely impaired cardiovascular and/or pulmonary function, and
patients who are already infected upon ICU admission.
Diagnostic Products and Services
NABI develops and manufactures human serum-based products used by clinical
laboratories to assure accurate testing for infectious diseases, and growth
media used for genetic engineering. Among the products manufactured by NABI are
NorMLCera-Plus from human serum, which is sold to tissue typing banks as a
testing control for organ transplantation and for use in biological research.
In 1993, NABI obtained FDA clearance to market VirocheQC I Quality Assurance
Reagent, which is a multiconstituent reagent used as an external control to
promote testing accuracy for HIV 1 and 2, hepatitis B antigen, hepatitis core,
hepatitis C and HTLV-I. VirocheQC
12
I, and its companion products, QC-Hepatitis and QC-HIV, are sold to reference
laboratories, blood bank laboratories and diagnostic product companies.
NABI also provides testing services on plasma and blood samples supplied
by third parties. Among the tests performed by NABI are screening tests for the
antibody to HIV. NABI also performs confirmatory tests for the HIV antibody and
other blood and plasma tests, including hepatitis, tetanus, CMV and protein
electropheresis. Customers for laboratory services include hospitals, blood
banks and other plasma collectors as well as the United States Department of
Defense.
STRATEGIC ALLIANCES, LICENSES AND ROYALTY OBLIGATIONS
Strategic alliances were an important element of Univax's corporate
strategy. In its research and development and marketing programs, Univax
established collaborations with a number of leading infectious disease
specialists and government laboratories. NABI intends to continue this
collaborative approach to research and development with respect to certain of
its products, thereby allowing NABI to make efficient use of its research
resources and leverage the fundamental discoveries emerging from basic research
institutions throughout the United States.
As a result of the Merger, NABI succeeded to the key strategic alliances
of Univax described below.
Cangene
Under a license and distribution agreement with Cangene, NABI has
exclusive marketing rights for, and shares in the profits from sales of, WinRho
SD in the United States. Cangene, which holds the FDA licenses for the product,
is required to supply the necessary quantities of WinRho SD to support such
sales. In addition, Cangene has a license to sell in Canada certain of NABI's
current products in development. The Cangene agreement terminates in 2005,
although NABI may lose its exclusive rights to market WinRho SD if NABI fails
to meet specified sales goals or make specified payments to Cangene.
Genzyme
In August 1993, Univax entered into a collaborative agreement with Genzyme
("the Genzyme Agreement") to develop and commercialize products to treat
certain infections in cystic fibrosis patients, including HyperGAM+CF. The
terms of the agreement include a $5 million equity investment by Genzyme
(August 1993), milestone payments to NABI, sharing of development funding and
profit-sharing arrangements.
NABI will be responsible for manufacturing the products developed pursuant
to the Genzyme Agreement. In the event that NABI fails to supply Genzyme with
products meeting specifications, Genzyme will have the right to manufacture the
products or have the products manufactured. Genzyme will be responsible for
sales of the products worldwide. All terms of sale will be set by Genzyme. NABI
will receive a manufacturing allowance and Genzyme will receive a marketing
allowance, and the net pretax profit from sales of the products will be divided
in proportion to the development funding.
The exclusive license granted to Genzyme for use and sale of products will
terminate on a country-by-country basis upon the later of the expiration of the
patent or ten years after the first commercial sale in such country. Either
party may terminate the Genzyme Agreement upon 90 days written notice to the
other, in which event the non-terminating party may, at its option, purchase
over time all of the terminating party's rights to the products. Genzyme and
NABI are discussing proposed amendments to the Genzyme Agreement which would
include a provision allowing Genzyme to terminate the Genzyme Agreement, upon
receipt of the interim analysis of the data from the current phase II trial of
HyperGAM+CF, in which event Genzyme will be obligated to make specified
wind-down payments to NABI under certain circumstances.
13
Chiron
In November 1995, Univax entered into an agreement with Chiron (the
"Chiron Agreement") pursuant to which Chiron has agreed to supply exclusively
to NABI Chiron's CMV vaccine for use as an immunizing agent in humans to
produce immunotherapeutic products. The Chiron Agreement also grants NABI
options or rights of first negotiation for exclusive rights to 14 other Chiron
vaccines for use in humans to produce immunotherapeutic products. In addition,
the Chiron Agreement grants NABI access to Chiron's adjuvant, MF 59, for donor
immunization. NABI has made an initial payment to Chiron and is obligated to
make milestone payments and to share profits from the sale of immunotherapeutic
products. NABI will be responsible for all development, manufacturing and
worldwide distribution of these products. NABI may terminate the Chiron
Agreement on a product-by-product basis in which event NABI shall transfer to
Chiron all of NABI's rights with respect to the product as to which the Chiron
Agreement has been terminated. Similarly, Chiron may terminate its obligations
to supply immunizing agents to NABI on a product-by-product basis, in which
event Chiron shall grant to NABI a license of the technology necessary for NABI
to manufacture the applicable immunizing agent and the financial arrangements
in the Chiron Agreement with respect to such agent shall continue.
Cambridge Biotech Corporation
In April 1993, Univax entered into a licensing agreement with Cambridge
Biotech Corporation ("Cambridge Biotech"). The agreement with Cambridge
Biotech provides NABI with exclusive rights to incorporate Cambridge Biotech's
patented QS-21 Stimulon adjuvant in a wide range of bacterial immunizing agents
used to stimulate plasma donors to produce antibodies. NABI will be responsible
for, and provide funding in connection with, completing product development,
conducting clinical trials, obtaining regulatory approvals and marketing
products resulting from use of the adjuvant. NABI must reach annual mandatory
funding levels during the course of product development, and sales levels after
product licensure, in order to maintain the exclusivity of the license with
respect to each product. Cambridge Biotech will be responsible for
manufacturing the adjuvant. NABI will pay milestone fees on a per product basis
if development of any product reaches certain development phases, and royalty
payments once any products are commercialized. NABI has the right to
manufacture the adjuvant and obtain from Cambridge Biotech all information
necessary to engage in such manufacturing in the event that Cambridge Biotech
fails to satisfy its obligations under the agreement.
Other Licenses and Royalty Obligations
As part of the purchase price for the acquisitions of H-BIG and HIV-IG,
NABI is obligated to pay Abbott a royalty based on net sales of H-BIG through
September 2002 and a royalty based on net sales of HIV-IG in each country for
which NABI acquired patent rights to HIV-IG from Abbott. The HIV-IG royalty
obligation terminates on a country-by-country basis beginning 20 years after
NABI's first commercial sale of the product in the country or such shorter
period in any country as may be required under applicable law. If NABI employs
the viral inactivation step currently contemplated for the manufacture of
H-BIG, it also will be obligated to pay a royalty based upon net sales of this
product to the New York Blood Center, Inc.
Under a license agreement with Brigham and Women's Hospital ("BWH"),
NABI has a worldwide, exclusive license to make and sell all products covered
by a certain patent issued to BWH including HyperGAM+CF, and is obligated to
pay BWH a royalty based on net sales. In the event that NABI fails to meet the
marketing milestones contained in the agreement, BWH has the right to make
NABI's rights non-exclusive, and in the event that NABI fails to pay BWH
certain royalty amounts, BWH has the right to terminate the license.
Under a license agreement with the NIH, NABI has exclusive rights to the
NIH's patent relating to a carbohydrate/protein conjugate vaccine against
staphylococcus, and is obligated to pay the NIH a royalty based on net sales.
The licensed patent rights cover NABI's StaphVAX and StaphGAM products. The
license terminates with respect to each country on the date that the NIH's
patent rights expire in such country.
14
RESEARCH AND DEVELOPMENT
NABI has approximately 80 employees involved in research and development
programs. Research and development expenses were 12.2% and 13.0% of sales in
1994 and 1995 respectively.
MARKETING AND SALES
Plasma
NABI sells plasma to approximately 20 pharmaceutical and diagnostic
product manufacturers, most of which have been customers of NABI for many
years. These customers constitute most of the worldwide purchasers of human
blood plasma. NABI markets its plasma through its internal sales staff.
Customers to which sales exceeded 10% of NABI's annual consolidated sales
in the last three fiscal years ending December 31, 1995 were: Immuno Trading AG
and Centeon Pharma GmbH (formerly Behringwerke AG) ("Centeon") in 1993; Baxter
Healthcare Corporation ("Baxter"), Immuno Trading AG and Centeon in 1994;
Baxter, Bayer Corporation and Immuno Trading AG in 1995. Aggregate sales of
source and specialty plasma to these customers were approximately $34 million,
$81 million and $92 million, or 34%, 48%, and 46% of total sales for the years
ended December 31, 1993, 1994 and 1995, respectively.
NABI generally sells its plasma under contracts ranging from one to five
years which, with the exception of the Baxter contract discussed below, allow
for annual pricing renegotiations. Pricing for product deliveries is generally
mutually agreed to prior to the beginning of the contract year and fixed for
that year, subject to price changes to reflect changes in customer
specifications or price adjustments to compensate NABI for increased costs
associated with new governmental testing regulations. Consequently, NABI may be
adversely or beneficially affected if changes in donor fees or other factors,
its costs of producing and selling plasma rise or fall during the year.
Effective January 1, 1994, NABI entered into two separate agreements with
terms of five years and three years, respectively, to supply source plasma to
Baxter. Under these agreements, Baxter purchased an aggregate of 597,000 liters
of source plasma in 1995 and is obligated to purchase an aggregate of
approximately 575,000 liters of source plasma during 1996. Baxter's purchase
obligations and the purchase price payable by Baxter for the plasma during the
term of the agreements are subject to adjustment. Under the five-year agreement
with Baxter, which covered 481,000 liters of the plasma sold to Baxter in 1995,
the price NABI will receive for plasma adjusts periodically to reflect changes
in NABI's principal costs for the collection of plasma. Under NABI's three-year
agreement with Baxter, the price NABI will receive for plasma will be adjusted
yearly by mutual agreement of the parties based on market conditions.
Immunotherapeutics
NABI currently has a marketing and sales staff of approximately 34
individuals. Of this number, 13 people are part of the field sales force and
the remainder are responsible for marketing, reimbursement and customer service
activities. Inventory maintenance and distribution to pharmacies is handled by
regional stocking distributors that specialize in the sale and distribution of
blood products and other biologics. These distributors have extensive
telemarketing operations, have been trained in the sale of NABI products by the
NABI sales and marketing staff and have a combined field sales force of
approximately 40 individuals. NABI also is seeking to develop distribution
arrangements with selected home healthcare companies. In addition, certain of
NABI's collaborators have marketing responsibilities in connection with the
immunotherapeutic products that are intended to result from the collaborations.
See "-Strategic Alliances, Licenses and Royalty Obligations."
Although NABI believes that the markets for WinRho SD and H-BIG can be
addressed effectively with a relatively small sales force, to the extent that
NABI itself undertakes to market other products or is unable to continue
third-party marketing of such other products, significant additional
expenditures, management resources
15
and time may be required to develop a larger sales force. There can be no
assurance that NABI will be able to enter into additional marketing agreements
or that it will be successful in gaining market acceptance for its products.
Diagnostic Products and Services
NABI markets diagnostic products and services through its own sales
organization and, in the case of diagnostic products, through independent
distributors.
SUPPLY AND MANUFACTURING
Plasma Collection Process
NABI currently collects and processes plasma from 81 plasma collection
centers located in 30 states and Germany, including six independently owned
centers which under contract supply their entire plasma collection output to
NABI. Each United States center is licensed and regulated by the FDA. Most of
NABI's centers are located in urban areas and many are near universities and
military bases. During 1995, NABI processed a monthly average of approximately
2,900 collection procedures per center.
Prospective plasma donors are required to complete an extensive medical
questionnaire and are subject to laboratory testing and a physical examination
under the direction or supervision of a physician. Following this screening,
plasma is collected from suitable donors by means of a process known as
plasmapheresis. During this process, whole blood is withdrawn from the donor,
the plasma is separated from the donor's red blood cells by means of
centrifugation and the donor's red blood cells are returned to the donor. This
procedure, which can be manual or automated, is performed under medical
supervision. The donor may donate plasma as frequently as twice a week because
the red blood cells have been returned to the donor. After collection, each
unit of plasma is frozen and stored. If properly handled and maintained, FDA
regulations permit the use of plasma which has been stored for up to 10 years.
NABI extensively tests each unit of plasma for a number of infectious diseases
at either of its central testing laboratories in Miami and Detroit before
shipment to the customer.
Effective recruitment, management and retention of donors are essential to
NABI's plasma business. NABI seeks to attract and retain its donor base by
utilizing competitive financial incentives which NABI offers for the donation
of the plasma, by providing outstanding customer service to its donors, by
implementing programs designed to attract donors through education as to the
uses of plasma, by encouraging groups to have their members become plasma
donors and by improving the attractiveness of NABI's plasma collection
facilities. NABI has also expanded its donor base by adding collection centers
through acquisitions. Since January 1994, NABI has acquired 32 plasma
collection centers.
Immunotherapeutics
Although NABI collects and supplies the specialty plasma necessary for the
manufacture of H-BIG, at the present time it is dependent on a single
manufacturer to process this raw material for H-BIG and on Abbott to formulate
and package the product. NABI's contract with the manufacturer will expire in
1996. Abbott may terminate its formulation and packaging activities on 30 days'
notice, and Abbott has advised NABI that it expects to discontinue these
activities during 1996. In August 1995, NABI entered into an agreement with
Michigan Biologic Products Institute ("MBPI") (formerly, Michigan Department of
Public Health) pursuant to which MBPI, subject to receiving FDA approval, will
also process, formulate and package quantities of the raw material for H-BIG.
NABI anticipates receiving product from MBPI by mid-1996, although there can be
no assurance that product will be available at this time. After NABI begins to
receive product from MBPI, NABI anticipates that it will terminate production,
formulation and packaging of the product with Abbott and its manufacturer and
that MBPI will become NABI's sole producer of H-BIG. NABI's agreement with MBPI
has a five-year term commencing upon the date MBPI receives FDA approval,
although either party may terminate the agreement upon 12 months' notice. NABI
has completed construction, and has begun FDA validation, of a
biopharmaceutical manufacturing facility
16
which is designed to allow NABI to formulate, process and package H-BIG. NABI
does not anticipate that the facility will be able to produce H-BIG for
commercial sale at least until 1998.
NABI is required to purchase its requirements of WinRho SD from Cangene,
which has granted to NABI exclusive marketing rights to the product in the
United States. NABI does not have manufacturing rights for WinRho SD.
NABI manufactures its clinical supplies of HIV-IG and its testing and
diagnostic products at its facility in Miami, Florida. NABI manufactures
vaccines for clinical trials at its pilot production facility in Rockville,
Maryland.
PATENTS AND PROPRIETARY RIGHTS
NABI's success will depend, in part, on its abilities to obtain or
in-license patents, and to protect trade secrets and other intellectual
property rights. NABI has acquired title or licenses to a number of patents or
patent applications of others and has filed two patent applications of its own.
There can be no assurance that existing patent applications will mature into
issued patents, that NABI will be able to obtain additional licenses to patents
of others or that NABI will be able to develop additional patentable technology
of its own. See "-Strategic Alliances, Licenses and Royalty Obligations."
NABI has been notified by the European Patent Office that NABI has been
allowed a patent for HIV-IG, giving NABI commercial protection in 12 European
countries until the year 2008. NABI also has patents for HIV-IG in Australia
and New Zealand, and has patent applications for HIV-IG pending in various
other foreign countries. NABI jointly owns these HIV-IG patents and
applications with the University of Minnesota, which is entitled to practice
the technology contained in the patent and sell a product based on the patent
in such countries to the same extent as NABI. NABI has no pending patent
application for HIV-IG in the United States. An unrelated third party holds a
United States patent for a product similar to HIV-IG. If this patent withstands
any challenge by NABI or others, NABI may be required to obtain a license from
the patent holder in order to market HIV-IG in the United States. While NABI
believes that, if necessary, it will be able to obtain such a license on
commercially acceptable terms, there can be no assurance that NABI will be
successful. If NABI is successful in perfecting Orphan Drug status for HIV-IG
prior to the unrelated patent holder, such holder would be barred from selling
a product for the same indication as HIV-IG for seven years notwithstanding its
patent.
The patent positions of biotechnology firms generally are highly uncertain
and involve complex legal and factual questions. Because patent applications in
the United States are not disclosed by the Patent and Trademark Office until
patents issue, and because publication of discoveries in the scientific or
patent literature often lags behind actual discoveries, NABI cannot be certain
that it was the first creator of inventions covered by its pending patent
applications or that it was the first to file patent applications for such
inventions. There can be no assurance that any patents issued to NABI will
provide it with competitive advantages or will not be challenged by others.
Furthermore, there can be no assurance that others will not independently
develop similar products or, if patents are issued to NABI, will not design
around such patents.
A number of pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents relating to products or processes competitive with or similar
to those of NABI. Some of these applications or patents may be competitive with
NABI's applications, or conflict in certain respects with claims made under
NABI's applications. Such a conflict could result in a significant reduction of
the coverage of NABI's patents, if issued. In addition, if patents that contain
competitive or conflicting claims are issued to others and such claims are
ultimately determined to be valid, NABI may be required to obtain licenses to
these patents or to develop or obtain alternative technology. If any licenses
are required, there can be no assurance that NABI will be able to obtain any
such licenses on commercially favorable terms, if at all. NABI's failure to
obtain a license to any technology that it may require to commercialize its
products may have a material adverse effect on NABI's business, financial
condition and results of operations. Litigation, which could result in
17
substantial cost to NABI, may also be necessary to enforce any patents issued to
NABI or to determine the scope and validity of third-party proprietary rights.
NABI also relies on secrecy to protect its technology, especially where
patent protection is not believed to be appropriate or obtainable. NABI
protects its proprietary technology and processes, in part, by confidentiality
agreements with certain of its employees, consultants and contractors. In
addition, NABI maintains strict controls and procedures regarding access to and
use of its proprietary technology and processes. However, there can be no
assurance that these agreements, controls or procedures will not be breached,
that NABI would have adequate remedies for any breach, or that NABI's trade
secrets will not otherwise become known or be independently discovered by
competitors.
GOVERNMENT AND INDUSTRY REGULATION
The collection, processing and sale of NABI's products as well as its
research, preclinical development and clinical trials are subject to regulation
for safety and efficacy by numerous governmental authorities in the United
States and other countries. Domestically, the federal Food, Drug and Cosmetic
Act, the Public Health Service Act, and other federal and state statutes and
regulations govern the collection, testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising and promotion of
NABI's products. NABI believes that it is in substantial compliance with all
applicable regulations.
Plasma
The collection, storage and testing of plasma is regulated by the FDA. Any
person operating a plasma collection facility in the United States must have an
Establishment License and individual Product Licenses issued by the FDA and
each plasma center must be inspected and approved by the FDA. NABI holds
Establishment Licenses and Product Licenses issued by the FDA covering all
NABI-owned collection centers located in the United States. In addition, plasma
collection centers require FDA approval to collect each specialty plasma.
FDA regulations applicable to plasma collection centers require that
prospective plasma donors must be given a complete medical examination no more
than one week prior to an initial donation and that repeat donors be reexamined
at least once per year. On the day of a donation a donor must have a normal
temperature, have systolic and diastolic blood pressures within normal limits,
have a minimum weight of 110 pounds and be free from any infectious disease or
history of viral hepatitis. Plasma collection centers are also required to
maintain detailed records of all donations and storage and shipping activities,
and every container of blood or source plasma must bear a label that includes a
donor identification number, an expiration date and any product information
that a manufacturer might require for use of the product. Each unit of plasma
is accompanied by a document containing test results for hepatitis, HIV, liver
function and any other pertinent special test results. FDA regulations also
prescribe the frozen temperatures at which plasma must be stored and limit or
prohibit, depending upon the circumstances, sales of plasma which has not been
maintained at proper temperature. NABI undergoes regular, unscheduled
inspections by the FDA to ascertain its compliance with that agency's
regulations and guidelines. From time to time NABI receives notices of
deficiencies from the FDA as a result of such inspections.
NABI continually pursues its commitment to quality and compliance with
applicable FDA regulations through its own internal quality assurance programs.
NABI continuously trains all levels of its employees, from managers and
regional managers through individual employees in each of its centers. At least
once each year on a formal basis, and more frequently on an informal basis,
NABI performs regulatory and quality assurance audits of each of its
facilities. As part of its commitment to quality, NABI has embraced the Quality
Plasma Program ("QPP") which was initiated by the American Blood Resources
Association, a trade group which establishes standards for plasmapheresis
centers. QPP imposes standards for plasmapheresis centers in addition to those
presently required by the FDA. QPP certification is proving increasingly
significant, because many customers will only purchase plasma which has been
collected in QPP-certified centers. Seventy of NABI's 72 domestic-owned
centers are QPP certified centers. NABI is highly committed to the QPP program
and has applied for QPP certification for the remaining two facilities. While
plasma collection costs have increased and the available donor
18
supply has been affected industry-wide as a result of the QPP as well as
additional blood plasma testing requirements imposed by the FDA, NABI believes
that additional testing and standards may ultimately benefit NABI because it may
be better able to satisfy the higher standards than some of its competitors
which may not have the technical and financial resources to meet new standards.
Concern over blood safety has led to movements in a number of European and
other countries to restrict the importation of plasma and plasma components
collected outside the country's borders or, in the case of certain European
countries, outside of Europe. To date, these efforts have not led to any
meaningful restriction on the importation of plasma and plasma components and
have not adversely affected NABI. There can be no assurance, however, that such
restrictions will not be imposed in the future and that NABI will not be
adversely affected. As a partial response to this risk, NABI acquired the
assets of two plasma collection centers in Germany in June 1994, established a
third collection center in Germany in November 1995, and intends to acquire
and/or establish additional centers in Europe. NABI's plasma collection centers
in Germany currently do not collect material amounts of plasma in relation to
the demand for plasma from NABI's European customers. While NABI currently
intends to increase its European plasma collections, there can be no assurance
that it will be successful or that it will be able to serve all or most of the
needs of its foreign customers from European plasma collections.
Immunotherapeutics
Immunoglobulin products currently are classified as "biological
products" under FDA regulations. The steps required before a biological
product may be marketed in the United States generally include preclinical
studies, the filing of an IND application with the FDA, which must become
effective pursuant to FDA regulations before human clinical studies may
commence, and FDA approval of a PLA. In addition to obtaining FDA approval for
each product, an Establishment License Application ("ELA") must be filed and
the FDA must approve the manufacturing facilities for the product. Biological
products, once approved, have no provision allowing competitors to market
generic versions. Each biological product, even if it basically has the same
composition and is for the same indication, must undergo the entire development
process in order to be approved.
Preclinical studies are conducted on laboratory animals to evaluate the
potential efficacy and safety of a product. The results of preclinical studies
are submitted as part of the IND application, which must become effective
pursuant to FDA regulations before human clinical trials may begin. The initial
human clinical evaluation, Phase I trials, generally involve administration of
a product to a small number of healthy persons. The product is tested for
safety, dosage, tolerance, metabolism, and pharmacokinetic properties. Phase II
trials generally involve administration of a product to a limited number of
patients with a particular disease to determine dosage, efficacy and safety.
Phase III trials generally examine the clinical efficacy and safety of a
product in an expanded patient population at geographically dispersed clinical
sites. The FDA reviews the clinical plans and the results of trials and can
discontinue the trials at any time if there are significant safety issues. The
results of the preclinical and clinical trials are submitted after completion
of the Phase III trials in the form of a PLA for approval to commence
commercial sales. The approval process is affected by several factors,
including the severity of the disease, the availability of alternative
treatments, and the risks and benefits demonstrated in clinical trials. The FDA
also may require post-marketing surveillance to monitor potential adverse
effects of the product. The regulatory process can be modified by Congress or
the FDA in specific situations.
Among the requirements for product license approval is the requirement
that the prospective manufacturer's methods conform to the FDA's cGMP
regulations, which must be followed at all times. In complying with standards
set forth in these regulations, manufacturers must continue to expend time,
money and effort in the area of production and quality control to ensure full
technical compliance.
The testing and approval process is likely to require substantial time and
effort. There can be no assurance that any approval will be granted on a timely
basis, if at all. Most of NABI's clinical trials are at a relatively early
stage and, except for WinRho SD and H-BIG, no approval from the FDA or any
other governmental agency for the manufacturing or marketing of any of its
products under development has been granted. The FDA may deny a PLA if
applicable regulatory criteria are not satisfied, require additional testing or
information, or require post-marketing testing and surveillance to monitor the
effects of NABI's products. In addition, the FDA may require
19
samples of any lot of the product for testing and may deny release of the lot if
the product fails the testing. Product approvals may be withdrawn if compliance
with regulatory standards is not maintained or if problems occur following
initial marketing.
NABI anticipates following different regulatory approval paths for
immunizing agents to be used solely to stimulate antibody production for
immunotherapeutic products as contrasted with immunizing agents it is
developing as vaccine products. For immunizing agents to be used solely to
stimulate antibody production for immunotherapeutic products, NABI intends to
conduct donor stimulation trials to demonstrate the safety and immunogenicity
of the immunizing agents in subjects who donate plasma. Upon satisfactory
completion of such trials, donor stimulation programs will be initiated to
provide immunotherapeutic products to be used in Phase I/II and Phase III
clinical trials conducted by NABI. Upon satisfactory completion of the Phase
III polyclonal antibody trials, PLA approval would be sought concurrently for
the immunotherapeutic product for the applicable disease indication and for the
immunizing agent used to produce the immunotherapeutic product, with donor
stimulation as the only approved indication requested for the immunizing agent.
NABI intends to follow the customary Phase I through Phase III approval
procedures for immunizing agents it is developing as vaccine products. NABI has
received permission from the FDA to conduct donor stimulation programs using
the HyperGAM+CF immunizing agent and the staph A immunizing agent. No assurance
can be given, however, that the FDA will permit NABI to begin donor stimulation
using other immunizing agents before obtaining regulatory approval of the
immunizing agents as vaccine products. If the FDA were to require NABI to
secure such regulatory approvals for the immunizing agents to be used in donor
stimulation before commencing clinical trials on the immunotherapeutic products
to be produced using such immunizing agents, the overall regulatory approval
process for NABI's immunotherapeutic products could be longer than that
normally required for biological products.
Sales of pharmaceutical products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities of foreign countries must be obtained prior
to the commencement of marketing the product in those countries. The time
required to obtain such approval may be longer or shorter than that required
for FDA approval.
Orphan Drug Act
Under the Orphan Drug Act, the FDA may designate a product or products as
having Orphan Drug status to treat a "rare disease or condition," which
currently is defined as a disease or condition that affects populations of less
than 200,000 individuals in the United States, or, if victims of a disease
number more than 200,000, for which the sponsor establishes that it does not
realistically anticipate its product sales in the United States will be
sufficient to recover its costs. If a product is designated an Orphan Drug,
then the sponsor is entitled to receive certain incentives to undertake the
development and marketing of the product. In addition, the sponsor that obtains
the first marketing approval for a designated Orphan Drug for a given
indication effectively has marketing exclusivity for a period of seven years.
There may be multiple designations of Orphan Drug status for a given drug and
for different indications. However, only the sponsor of the first PLA for a
given drug for its use in treating a given rare disease may receive marketing
exclusivity. While it may be advantageous to obtain Orphan Drug status for
eligible products, there can be no assurance that the precise scope of
protection that is currently afforded by Orphan Drug status will be available
in the future or that the current level of exclusivity will remain in effect.
Recently, Congress has considered legislation that would amend the Orphan Drug
Act to limit the scope of marketing exclusivity granted to Orphan Drug
products. WinRho SD has received Orphan Drug protection for the treatment of
ITP and has obtained Orphan Drug status for certain other indications and
certain other of NABI's products under development have obtained Orphan Drug
status.
Other
NABI's Miami-based FDA-approved diagnostic testing laboratory is licensed
by the Health and Rehabilitative Services of Florida, and the states of
Maryland, New York, Pennsylvania and West Virginia. The laboratory is licensed
pursuant to Medicare regulations and regulations of the U.S. Health Care
Finance Administration's Clinical Laboratory Improvement Act of 1988.
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NABI also is subject to government regulations enforced under the
Occupational Safety and Health Act, the Environmental Protection Act, the Clean
Air Act, the Clean Water Act, the National Environmental Policy Act, the Toxic
Substances Control Act, the Resource Conservation and Recovery Act, the Medical
Waste Tracking Act and other national, state or local restrictions.
THIRD-PARTY REIMBURSEMENT
NABI's ability to commercialize its immunotherapeutic products and related
treatments will be dependent in part upon the availability of, and NABI's
ability to obtain, adequate levels of reimbursement from government health
administration authorities, private health care insurers and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and there can be no assurance that
adequate third-party coverage will be available, if at all. Inadequate levels
of reimbursement may prohibit NABI from maintaining price levels sufficient for
realization of an adequate return on its investment in developing new
immunotherapeutic products and could result in the termination of production of
otherwise commercially viable products. Government and other third-party payors
are increasingly attempting to contain health care costs by limiting both the
coverage and level of reimbursement for new products approved for marketing by
the FDA and by refusing, in some cases, to provide any coverage for disease
indications for which the FDA has not granted marketing approval. Also, the
trend towards managed health care in the United States and the concurrent
growth of organizations such as HMOs, which could control or significantly
influence the purchase of health care services and products, as well as
legislative proposals to reform health care or reduce government insurance
programs, may all result in lower prices for NABI's products. The cost
containment measures that health care providers are instituting and the impact
of any health care reform could have an adverse effect on NABI's ability to
sell its products and may have a material adverse effect on NABI's business,
financial condition and results of operations.
There can be no assurance that reimbursement in the United States or
foreign countries will be available for NABI's products, or if available, will
not be decreased in the future, or that reimbursement amounts will not reduce
the demand for, or the price of, NABI's products. The unavailability of
third-party reimbursement or the inadequacy of the reimbursement for medical
procedures using NABI's products could have a material adverse effect on NABI's
business, financial condition and results of operations. Moreover, NABI is
unable to forecast what additional legislation or regulation, if any, relating
to the health care industry or third-party coverage and reimbursement may be
enacted in the future or what effect such legislation or regulation would have
on NABI's business.
COMPETITION
Plasma
NABI and other independent plasma suppliers sell plasma principally to
pharmaceutical companies that process plasma into finished products. Although
these pharmaceutical companies generally own plasmapheresis centers, in the
aggregate they purchase a substantial portion of their plasma requirements from
independent suppliers. There is intense competition among independent plasma
collectors. NABI attempts to compete for sales by providing customers with
substantial quantities of products, by stressing its ability to meet delivery
schedules and by providing high-quality products. Management believes NABI has
the ability to continue to compete successfully in these areas.
NABI competes for donors with pharmaceutical companies which obtain plasma
for their own use through their own plasma collection centers, other commercial
plasma collection companies and non-profit organizations such as the American
Red Cross and community blood banks which solicit the donations of blood. NABI
competes for donors by providing competitive financial incentives which NABI
offers to donors to compensate them for their time and inconvenience, by
providing outstanding customer service to its donors, by implementing programs
designed to attract donors through education as to the uses for collected
plasma, by encouraging groups to have their members become plasma donors and by
improving the attractiveness of NABI's plasma collection facilities.
21
Most of the plasma which NABI collects, processes and sells to its
customers is used in the manufacture of therapeutic products to treat certain
diseases. Several companies are attempting to develop and market products to
treat some of these diseases based upon technology which would lessen or
eliminate the need for human blood plasma. Such products, if successfully
developed and marketed, could adversely affect the demand for plasma. Products
utilizing technology developed to date have not proven as cost-effective and
marketable to healthcare providers as products based on human blood plasma.
However, NABI is unable to predict the impact on its business of future
technological advances.
NABI believes that significant barriers to entry exist in the plasma
collection industry. In order to commence a plasma collection business, an
organization must establish a center, a process which NABI believes takes from
15 to 24 months to complete due to the need for regulatory approvals. Once a
center has been licensed by the FDA, a separate FDA license must then be
obtained for each specialty plasma to be collected. This, in turn, lengthens
the approval process. Once the center is operational, a stable donor base must
be established and cultivated. Repeat donors are critical to success for both
quality control and economic reasons. A significant volume of donated plasma,
and sophisticated screening and immunization procedures, also are necessary in
order to provide the diversity of plasma products demanded by the market.
Further, due to increasing quality requirements and more stringent testing
procedures, as well as the need to automate for cost-effectiveness, there is an
increasing need for economies of scale which generally only large firms can
provide.
Immunotherapeutics
With respect to its immunotherapeutic products, NABI is engaged in a
rapidly evolving field. Competition from other biotechnology and pharmaceutical
companies is intense and is expected to increase. Many of NABI's competitors
have greater financial resources and larger research and development staffs
than NABI, as well as substantially greater experience in developing products,
in obtaining regulatory approvals, and in manufacturing and marketing
pharmaceutical products. Competition with these companies involves not only
product development, but also acquisition of products and technologies from
universities and other institutions. NABI also competes with universities and
other institutions in the development of products, technologies and processes.
Competitors have developed or are in the process of developing technologies
that are, or in the future may be, the basis for competitive products. Some of
these products may have an entirely different approach or means of
accomplishing the desired effect than products being developed by NABI. There
can be no assurance that NABI's competitors will not succeed in developing
technologies and products that are more effective or affordable than those
being developed by NABI. In addition, one or more of NABI's competitors may
achieve product commercialization or patent protection earlier than NABI. If
NABI is unable to compete effectively, or if competing technologies are
developed which reduce or eliminate the demand for plasma-based
immunotherapeutic products, NABI's business, financial condition and results of
operations could be materially adversely affected.
NABI believes that H-BIG has a significant share of the domestic market
and that NABI's access to the vaccine and specialty plasma necessary for the
manufacture of H-BIG will allow it to maintain its market share. NABI's main
competitor in marketing H-BIG has been Bayer AG ("Bayer"), a major
multinational pharmaceutical company. Bayer has purchased some of the specialty
plasma used in the manufacture of its hepatitis B immune globulin product from
NABI. Bayer also is a significant customer of NABI for source plasma.
PRODUCT LIABILITY AND INSURANCE
The processing and sale of NABI's plasma and plasma-based and
immunotherapeutic products involve a risk of product liability claims. See
"Item 3 - Legal Proceedings." NABI currently maintains commercial general
(including product and professional liability) insurance with a limit of $5.8
million per occurrence and $5.8 million in the annual aggregate on a claims
made basis. The limit is in excess of a $250,000 self insurance retention per
claim limited to a $1 million annual aggregate. NABI intends to raise the
limits under its general insurance to $10 million. There can be no assurance
that the coverage limits of NABI's insurance policy and/or any rights of
indemnification and contribution that NABI may have will offset existing or
future claims. A successful claim against NABI with respect to an uninsured
liability or in excess of insurance coverage and not subject to
22
indemnification could have a material adverse effect on NABI's business,
financial condition and results of operations.
EMPLOYEES
NABI employed approximately 2,073 persons at December 31, 1995. NABI
believes that the relations between NABI's management and its employees are
generally good.
FACTORS TO BE CONSIDERED
The parts of this Annual Report on Form 10-K titled "Item 1 - Business,"
"Item 3 - Legal Proceedings," and "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations" contain certain
forward-looking statements which involve risks and uncertainties. In addition,
officers of NABI may from time to time make certain forward-looking statements
which also involve risks and uncertainties. Set forth below is a discussion
of certain factors that could cause NABI's actual results to differ materially
from the results projected in such forward-looking statements.
Uncertainty Associated with Rapid Expansion of Immunotherapeutic Efforts
Although NABI's objective has been to become a fully integrated developer,
manufacturer and marketer of immunotherapeutic products, NABI's historic
business primarily has been the collection and sale of plasma. Prior to its
November 1995 merger with Univax , NABI had four immunotherapeutic products
(three of which are under development). Two of these products (one of which is
under development) were acquired from Abbott. The Merger accelerated this
shift to immunotherapeutic products by adding 10 products (nine of which are
under development) to NABI's product portfolio as well as a large research and
development group and an expanded sales and marketing team. Independently,
NABI has completed construction, and has begun validation, of a new
biopharmaceutical manufacturing facility which is intended to enable NABI to
manufacture for the first time on a commercial scale certain of its
immunotherapeutic products. Although immunotherapeutic products offer higher
margins than the collection and sale of plasma, these products require
significant product development activities and expenditures, may not be
successfully developed (or if successfully developed, may not be successfully
commercialized), require rigorous manufacturing specifications and practices,
and are exposed to significant competition and the uncertainty of technological
change. The effect of these risks on NABI may be magnified by NABI's rapid
expansion into the immunotherapeutics business. There can be no assurance that
NABI's immunotherapeutic product activities will be successful, and to the
extent they are not, NABI's business, financial condition and results of
operations will be materially adversely affected.
Impact of Merger on Financial Results
Historically, without giving effect to the Merger, NABI's operations
generally were profitable. Although NABI believes that the Merger will enhance
NABI's long-term profitability and product development efforts, the Merger will
adversely affect NABI's profitability for the foreseeable future. The Merger
was consummated as a pooling of interests for financial accounting purposes
and, accordingly, the historical financial statements for both companies have
been combined for all historical periods. The transaction and related costs of
the Merger (approximately $6 million) were expensed in the fourth fiscal
quarter of 1995. As a result of the pooling of interests accounting treatment,
NABI reported a substantial loss for the fourth quarter and for 1995. On a
combined basis, after giving effect to the Merger, NABI also has had
significant net losses for the years ended December 31, 1993 and 1994. There
can be no assurance that, in order to return to profitability in future
periods, NABI will not be required to reduce research and development and other
expenses associated with the development and commercialization of higher margin
immunotherapeutic products. A significant reduction in such research,
development and other expenses could have a material adverse effect on the
development and commercialization of immunotherapeutic products currently under
development and could have a material adverse effect on the ability of NABI to
realize the anticipated long-term benefits of the Merger.
23
NABI expects to incur significant expenses associated with its
immunotherapeutic product development activities, including the cost of
clinical trials relating to product development and marketing expenses relating
to product introduction. Any revenues generated from products under development
will not be realized for several years. Other material and unpredictable
factors which could adversely affect operating results include: the uncertainty
of clinical trial results; the uncertainty, timing and costs associated with
product approvals and commercialization; the issuance and use of patents and
proprietary technology by NABI or its competitors; the effect of technology and
other business acquisitions or transactions; the increasing emphasis on
controlling health care costs and potential legislation or regulation of
health care prices; and actions by collaborators, customers and competitors.
Uncertainty of New Product Development
NABI's future success will depend on its ability to achieve scientific and
technological advances and to translate such advances into commercially
competitive products on a timely basis. NABI's immunotherapeutic products
under development are at various stages of research and development, and
substantial further development, preclinical testing and clinical trials will
be required to determine their technical feasibility and commercial viability.
The proposed development schedules for these products may be affected by a
variety of factors, including technological difficulties, proprietary
technology of others, reliance on third parties and changes in government
regulation, many of which factors are not within the control of NABI.
Positive results for a product in a clinical trial do not necessarily assure
that positive results will be obtained in future clinical trials or that
government approval to commercialize the product will be obtained. In
addition, any delay in the development, introduction or marketing of NABI's
products under development could result either in such products being marketed
at a time when their cost and performance characteristics would not be
competitive in the marketplace or in a shortening of their commercial lives.
There can be no assurance that NABI's immunotherapeutic products under
development will prove to be technologically feasible, commercially viable and
able to obtain necessary regulatory approvals and licenses on a timely basis,
if at all. The failure of NABI to successfully and timely develop and
commercialize several of its immunotherapeutic products and obtain necessary
regulatory approvals could have a material adverse effect on NABI's business,
financial condition and results of operations.
Limited Marketing Experience with Immunotherapeutic Products
NABI currently markets and sells two immunotherapeutic products: WinRho SD
and H-BIG. No assurance can be given that the market for WinRho SD can be
addressed effectively by NABI's current sales force and distribution network.
NABI will lose its exclusive rights to market WinRho SD in the United States if
it does not meet specific sales goals or pay specified amounts to Cangene. If
NABI successfully develops additional immunotherapeutic products, significant
additional expenditures, management resources and time may be required to
develop a larger sales force, unless NABI elects to have a third party market
any or all of such products. If NABI so elects, there can be no assurance that
NABI will be able to find a partner on acceptable terms or at all, or that any
such partner will be successful in its efforts. If NABI succeeds in bringing
one or more products to market, it will compete with many other companies that
currently have extensive and well-funded marketing and sales operations. There
can be no assurance that NABI's marketing and sales efforts will be able to
compete successfully against such other companies. The failure of NABI to
effectively and efficiently market existing and new immunotherapeutic products
or the loss of exclusive rights to market WinRho SD in the United States would
have a material adverse effect on NABI's business, financial condition and
results of operations.
Uncertainty Associated with Integration
The Merger has created risks typically associated with the merger of two
large independent organizations, including the possibility that the combined
financial, research, personnel and other resources may not be adequate to deal
with the needs of NABI following the Merger. To the extent any such resources
are inadequate to deal with NABI's needs, NABI's business, financial condition
and results of operations could be materially adversely affected.
Uncertainty of Market Acceptance
One of NABI's existing immunotherapeutic products, WinRho SD, has been
marketed in the United States only since mid 1995, and no assurance can be
given that physicians, patients or third-party payors will accept and utilize
this product to a significant extent. Further, there can be no assurance that,
if approved for marketing, any of NABI's other products in development will
achieve market acceptance. The degree of market acceptance will depend upon a
number of factors, including the receipt of regulatory approvals, the
establishment and demonstration in the medical community of the clinical
efficacy and safety of NABI's products and their potential advantages over
existing treatment methods, the prices of such products, and reimbursement
policies of government and third-party payors. The failure of WinRho SD or any
immunotherapeutic product under development to gain market acceptance could
have a material adverse effect on NABI's business, financial condition and
results of operations.
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Fluctuations in Plasma Supply and Demand
The basic raw material essential to NABI's business is human blood plasma.
NABI has historically derived substantially all of its revenues from the
collection and sale of plasma components and will continue to depend on plasma
revenues until such time, if ever, that the revenues generated by the
manufacture and sale of immunotherapeutic products increase significantly. As
a result of factors affecting both the demand for and supply of plasma,
worldwide demand for human blood plasma has exceeded supply since 1991. The
demand for plasma has increased primarily as a result of an increase in both
the number and use of products which require plasma components for their
manufacture. Concern over the safety of blood products, including plasma, has
resulted in the adoption of more rigorous screening procedures by regulatory
authorities and manufacturers of plasma-based products. These procedures,
which include a more extensive investigation into a donor's background and new
tests, have disqualified numerous potential donors and discouraged other donors
who may be reluctant to undergo the screening procedures. Future changes in
government regulation relating to the collection and use of plasma or any
negative public perception about the plasma collection process could further
adversely affect the number and type of available donors and, consequently, the
overall plasma supply. Future fluctuations in the demand for or supply of
plasma could have a material adverse effect on NABI's business, financial
condition and results of operations.
Government Regulation; Uncertainty of Regulatory Approvals
NABI's research, preclinical development, clinical trials, manufacturing
and marketing of its products are subject to extensive regulation by numerous
government authorities in the United States. The process of obtaining FDA and
other required regulatory approvals is lengthy and expensive, and the time
required for such approvals is uncertain. The approval process is affected by
several factors, including the severity of the disease, the availability of
alternative treatments, and the risks and benefits demonstrated in clinical
trials. The FDA also may require post-marketing surveillance to monitor
potential adverse effects of the product. The regulatory process can be
modified by Congress or the FDA in specific situations. Most of NABI's
clinical trials are at a relatively early stage and, except for H-BIG and
WinRho SD, no approval from the FDA or any other government agency for the
manufacturing or marketing of any of its products under development has been
granted. There can be no assurance that NABI will be able to obtain the
necessary approvals for manufacturing or marketing of any of its products under
development. Failure to obtain additional FDA approvals of products under
development would have a material adverse effect on NABI's business, financial
condition and results of operations. If approved, failure to comply with
applicable regulatory requirements could, among other things, result in fines,
suspension or revocation of regulatory approvals, product recalls or seizures,
operating restrictions, injunctions and criminal prosecutions.
Among the requirements for product license approval is the requirement
that the prospective manufacturer's methods conform to the FDA's current Good
Manufacturing Practice ("cGMP") regulations, which must be followed at all
times. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full technical compliance.
Distribution of NABI's products outside the United States is subject to
extensive government regulation. These regulations, including the requirements
for approvals or clearance to market, the time required for regulatory review
and the sanctions imposed for violations, vary from country to country. There
can be no assurance that NABI will obtain regulatory approvals in such
countries or that it will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals. In addition, the
export by NABI of certain of its products which have not yet been cleared for
domestic commercial distribution may be subject to FDA export restrictions.
Failure to obtain necessary regulatory approvals, the restriction, suspension
or revocation of existing approvals or any other failure to comply with
regulatory requirements would have a material adverse effect on NABI's
business, financial condition and results of operations.
25
NABI's United States plasma collection, storage, labeling and distribution
activities also are subject to strict regulation and licensing by the FDA.
NABI's plasma collection centers in the United States are subject to periodic
inspection by the FDA, and from time to time NABI receives notices of
deficiencies from the FDA as a result of such inspections. The failure of NABI
or its plasma collection centers to continue to meet regulatory standards or to
remedy any such deficiencies could result in corrective action by the FDA,
including closure of one or more collection centers and fines or penalties. In
addition, before new plasma collection centers are opened, the collection
centers and their procedures and personnel must meet certain regulatory
standards to obtain necessary licenses. New regulations may be enacted and
existing regulations or their interpretation or enforcement are subject to
change. Therefore, there can be no assurance that NABI will be able to
continue to comply with any regulations or that the costs of such compliance
will not have a material adverse effect on NABI's business, financial condition
and results of operations.
The current process for producing H-BIG does not contain a viral
inactivation step. Consequently, the FDA requires lots of H-BIG to be tested
for viral contamination before the lots can be released for commercial sale.
To date, there is no commonly accepted test to determine the presence of such
contamination, and different tests may produce different results. Although
NABI believes that H-BIG poses no significant risk of viral contamination, and
has each lot of H-BIG independently tested to determine safety, rejection of
lots of H-BIG by the FDA or delay by the FDA in the release of lots for
commercial sale could have a material adverse effect on NABI's business,
financial condition and results of operation. NABI is pursuing the development
of a manufacturing process for H-BIG which includes viral inactivation. There
can be no assurance that NABI will be successful in these efforts.
NABI has received permission from the FDA to conduct donor stimulation
programs using the HyperGAM+CF immunizing agent and the staph A immunizing
agent. No assurance can be given, however, that the FDA will permit NABI to
begin donor stimulation using other immunizing agents before obtaining
regulatory approval of the immunizing agents as vaccine products. If the FDA
were to require NABI to secure such regulatory approvals for the immunizing
agents to be used in donor stimulation before commencing clinical trials on the
immunotherapeutic products to be produced using such immunizing agents, the
overall regulatory approval process for NABI's immunotherapeutic products would
be significantly delayed, which could have a material adverse effect on NABI's
business, financial condition and results of operations.
Dependence Upon Third Parties to Manufacture Products
Although NABI collects and supplies the specialty plasma necessary for the
manufacture of H-BIG, at the present time it is dependent on a single
manufacturer to process this raw material for H-BIG and on Abbott to formulate
and package the product. NABI's contract with the manufacturer will expire in
1996. Abbott may terminate its formulation and packaging activities on 30
days' notice, and Abbott has advised NABI that it expects to discontinue these
activities during 1996. In August 1995, NABI entered into an agreement with
the MBPI pursuant to which MBPI, subject to receiving FDA approval, will also
process, formulate and package quantities of the raw material for H-BIG. NABI
anticipates receiving product from MBPI by mid-1996, although there can be no
assurance that product will be available at that time. After NABI begins to
receive product from MBPI, NABI anticipates that it will terminate production,
formulation and packaging of the product with Abbott and its manufacturer and
that MBPI will become NABI's sole producer of H-BIG. NABI's agreement with
MBPI has a five-year term commencing upon the date MBPI receives FDA approval,
although either party may terminate the agreement upon 12 months' notice. NABI
is required to purchase its requirements of WinRho SD from Cangene, which has
granted to NABI exclusive marketing rights to the product in the United States.
NABI does not have manufacturing rights for WinRho SD. The failure by any of
NABI's current or future manufacturers to meet NABI's needs for products or
delays in the receipt of deliveries could have a material adverse effect on
NABI's business, financial condition and results of operations. NABI has
constructed a biopharmaceutical manufacturing facility which is designed to
allow NABI to formulate, process and package H-BIG. Although NABI has
commenced validation of this facility, because the facility will require
complete validation and licensure by the FDA, NABI does not anticipate that the
facility will be able to produce H-BIG for commercial sale until 1998.
Moreover, manufacturing products at a single site may present risks if a
disaster (such as a fire or hurricane)
26
causes interruption of manufacturing capability. In such an event, NABI will
have to resort to alternative sources of manufacturing which could increase its
costs as well as result in significant delays while required regulatory
approvals are obtained. Any such delays or increased costs could have a
material adverse effect on NABI's business, financial condition and results of
operations.
Limited Manufacturing Capability and Experience
NABI has completed construction and has commenced validation of a new
biopharmaceutical manufacturing facility in Boca Raton, Florida. NABI
anticipates that it will validate in 1996 and receive FDA licensure for this
facility in 1998. No assurance can be given that NABI will be able to
validate or obtain such licensure. Failure to validate and obtain such
licensure on a timely basis or at all would have a material adverse effect on
NABI's business, financial condition and results of operations. The new
facility is designed to process specialty plasma into NABI's immunotherapeutic
products. However, NABI has not previously owned or operated such a facility
and has no direct experience in commercial, large-scale manufacturing of
immunotherapeutic products. The failure of NABI to successfully operate its
new manufacturing facility would have a material adverse effect on NABI's
business, financial condition and results of operations.
Potential Adverse Effect of Litigation
NABI is currently one of several defendants in numerous suits generally
based upon claims that the plaintiffs became infected with HIV as a result of
using HIV-contaminated products made by various defendants other than NABI or
as a result of family relations with those so infected. These suits allege,
among other things, that NABI or its predecessors supplied HIV-contaminated
plasma to the defendants who produced the products in question. One of the
suits purports to be a class action. NABI denies all claims made against it
and intends to vigorously defend the cases. No assurance can be given that
additional lawsuits relating to infection with HIV will not be brought against
NABI by persons who have become infected with HIV or plasma fractionators or
that cross-complaints will not be filed in existing lawsuits. In addition,
there can be no assurance that lawsuits based on other causes of action will
not be filed or that NABI will be successful in the defense of any or all
existing or potential future lawsuits. Defense of suits can be expensive and
time-consuming, regardless of the outcome, and an adverse result in one or more
suits, particularly those related to HIV, could have a material adverse effect
on NABI's business, financial condition and results of operations.
Risk of Product Liability; Limited Insurance
The processing and sale of NABI's plasma and plasma-based products,
including immunotherapeutic products, involve a risk of product liability
claims, and NABI currently is a party to litigation involving such claims. In
addition, there can be no assurance that infectious diseases will not be
transmitted by NABI's products and therefore create additional product
liability claims. Product liability insurance for the biopharmaceutical
industry generally is expensive to the extent it is available at all. While
NABI currently has $5.8 million in product liability insurance, there can be no
assurance that it will be able to maintain such insurance on acceptable terms
or that it will be able to secure increased coverage if the commercialization
of its products progresses. Moreover, there can be no assurance that the
existing coverage of NABI's insurance policy and/or any rights of
indemnification and contribution that NABI may have will offset existing or
future claims. A successful claim against NABI with respect to uninsured
liabilities or in excess of insurance coverage and not subject to any
indemnification or contribution could have a material adverse effect on NABI's
business, financial condition and results of operations.
Dependence on Strategic Alliances
NABI currently has strategic alliances with Cangene, Genzyme, Chiron and
others for the manufacturing, development, marketing and sale of
immunotherapeutic products. NABI intends to pursue strategic alliances with
third parties for the development, marketing and sale of certain of its other
immunotherapeutic products. No assurance can be given that NABI will be
successful in these efforts or, if successful, that the collaborators will
conduct their activities in a timely manner. Certain of NABI's collaborators,
including Genzyme and Chiron, have the right to
27
terminate their collaborative agreements with NABI. If any of NABI's existing
or future collaborative partners breach or terminate their agreements with NABI
or otherwise fail to conduct their collaborative activities in a timely manner,
the preclinical or clinical development or commercialization of products could
be delayed, and NABI may be required to devote significant additional resources
to product development and commercialization, or terminate certain development
programs. Failure to enter into successful strategic alliances or the
termination of existing alliances could have a material adverse effect on NABI's
business, financial condition and results of operations. In addition, there can
be no assurance that disputes will not arise in the future with respect to the
ownership of rights to any technology developed with third parties. These and
other possible disagreements between collaborators and NABI could lead to delays
in the collaborative research, development or commercialization of certain
products or could require or result in litigation or arbitration, which would be
time-consuming and expensive, and could have a material adverse effect on NABI's
business, financial condition and results of operations.
NABI's collaborative partners may develop, either alone or with others,
products that compete with the development and marketing of NABI's products.
Competing products, either developed by the collaborative partners or to which
the collaborative partners have rights, may result in those partners'
withdrawal of support with respect to certain of NABI's products, which could
have a material adverse effect on NABI's business, financial condition and
results of operations.
Foreign Restrictions on Importation of Plasma
Export sales of plasma for the 1993, 1994 and 1995 fiscal years
represented approximately 48%, 36% and 35%, respectively, of NABI's sales for
those periods. NABI's export sales primarily are to European customers.
Concern over blood safety has led to movements in a number of European and
other countries to restrict the importation of plasma and plasma components
collected outside such countries' borders or, in the case of certain European
countries, outside Europe. NABI believes that, to date, these efforts have not
led to any meaningful restriction on the importation of plasma and plasma
components and have not adversely affected NABI. Such restrictions, however,
continue to be debated and there can be no assurance that such restrictions
will not be imposed in the future. If imposed, such restrictions could have a
material adverse effect on the demand for NABI's plasma and on NABI's business,
financial condition and results of operations.
Uncertainty of Legal Protection Afforded by Patents and Proprietary Rights
The patent positions of biotechnology firms generally are highly uncertain
and involve complex legal and factual questions. There can be no assurance
that existing patent applications will mature into issued patents, that NABI
will be able to obtain additional licenses to patents of others or that NABI
will be able to develop additional patentable technology of its own. Because
patent applications in the United States are not disclosed by the Patent and
Trademark Office until patents issue, and because publication of discoveries in
the scientific or patent literature often lags behind actual discoveries, NABI
cannot be certain that it was the first creator of inventions covered by its
pending patent applications or that it was the first to file patent
applications for such inventions. There can be no assurances that any patents
issued to NABI will provide it with competitive advantages or will not be
challenged by others. Furthermore, there can be no assurance that others will
not independently develop similar products, or, if patents are issued to NABI,
design around such patents.
A number of pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents relating to products or processes competitive with or similar
to those of NABI. Some of these applications or patents may be competitive
with NABI's applications, or conflict in certain respects with claims made
under NABI's applications. Such a conflict could result in a significant
reduction of the coverage of NABI's patents, if issued. In addition, if
patents that contain competitive or conflicting claims are issued to others and
such claims are ultimately determined to be valid, NABI may be required to
obtain licenses to these patents or to develop or obtain alternative
technology. If any licenses are required, there can be no assurance that NABI
will be able to obtain any such licenses on commercially favorable terms, if at
all. NABI's failure to obtain a license to any technology that it may require
to commercialize its products could have a material adverse effect on NABI's
business, financial condition and results of operations.
28
Litigation, which could result in substantial cost to NABI, may also be
necessary to enforce any patents issued to NABI or to determine the scope
and validity of third-party proprietary rights.
NABI has been notified by the European Patent Office that NABI has been
allowed a patent for HIV-IG, giving NABI commercial protection in 12 European
countries until the year 2008. NABI also has patents for HIV-IG in Australia
and New Zealand, and has patent applications for HIV-IG pending in various
other foreign countries. NABI jointly owns these HIV-IG patents and
applications with the University of Minnesota, which is entitled to practice
the technology contained in HIV-IG and sell HIV-IG product to the same extent
as NABI. NABI has no pending patent application for HIV-IG in the United
States. An unrelated third party which currently holds a United States patent
may claim that its patent is infringed by HIV-IG. If such patent withstands
any challenge by NABI or others, NABI will be required to obtain a license from
the patent holder in order to market HIV-IG in the United States. While NABI
believes that, if necessary, it will be able to obtain such a license on
commercially acceptable terms, there can be no assurance that NABI will be
successful.
NABI also relies on secrecy to protect its technology, especially where
patent protection is not believed to be appropriate or obtainable. NABI
maintains strict controls and procedures regarding access to and use of its
proprietary technology and processes. However, there can be no assurance that
these controls or procedures will not be violated, that NABI would have
adequate remedies for any violation, or that NABI's trade secrets will not
otherwise become known or be independently discovered by competitors.
Uncertainty of Orphan Drug Designation
Under the Orphan Drug Act, the FDA may designate a product or products as
having Orphan Drug status to treat a "rare disease or condition," which
currently is defined as a disease or condition that affects populations of less
than 200,000 individuals in the United States, or, if victims of a disease
number more than 200,000, for which the sponsor establishes that it does not
realistically anticipate its product sales in the United States will be
sufficient to recover its costs. If a product is designated an Orphan Drug,
then the sponsor is entitled to receive certain incentives to undertake the
development and marketing of the product. In addition, the sponsor that
obtains the first marketing approval for a designated Orphan Drug for a given
indication effectively has marketing exclusivity for a period of seven years.
There may be multiple designations of Orphan Drug status for a given drug and
for different indications. However, only the sponsor of the first approved PLA
for a given drug for its use in treating a given rare disease may receive
marketing exclusivity. While it may be advantageous to obtain Orphan Drug
status for eligible products, there can be no assurance that the precise scope
of protection that is currently afforded by Orphan Drug status will be
available in the future or that the current level of exclusivity will remain in
effect. Recently, Congress has considered legislation that would amend the
Orphan Drug Act to limit the scope of marketing exclusivity granted to Orphan
Drug products. WinRho SD has received Orphan Drug marketing exclusivity for
the treatment of ITP (and has obtained Orphan Drug status for certain other
indications) and certain other of NABI's products under development have Orphan
Drug status. There can be no assurance that NABI will succeed in obtaining
Orphan Drug marketing exclusivity for products that have Orphan Drug status or
that Orphan Drug marketing exclusivity with respect to WinRho SD or other
products, if obtained, will be of material benefit to NABI. Furthermore,
another manufacturer could obtain an Orphan Drug designation as well as
approval for the same product for a different indication or a different product
for the same indication.
Intense Competition; Uncertainty of Technological Change
Competition in the development of biopharmaceutical products is intense,
both from biotechnology and pharmaceutical companies, and is expected to
increase. Many of NABI's competitors have greater financial resources and
larger research and development staffs than NABI, as well as substantially
greater experience in developing products, obtaining regulatory approvals, and
manufacturing and marketing pharmaceutical products. Competition with these
companies involves not only product development, but also acquisition of
products and technologies from universities and other institutions. NABI also
competes with universities and other institutions in the development of
immunotherapeutic products, technologies, processes and for qualified
scientific personnel. There can be no assurance that NABI's competitors will
not succeed in developing technologies and products that are more effective or
affordable than those being developed by NABI. In addition, one or more of
NABI's
29
competitors may achieve product commercialization of or patent protection for
competitive products earlier than NABI, which would preclude or substantially
limit sales of NABI's products. Further, several companies are attempting to
develop and market products to treat certain diseases based upon technology
which would lessen or eliminate the need for human blood plasma. The successful
development and commercialization by any competitor of NABI of any such product
could have a material adverse effect on NABI's business, financial condition
and results of operations.
NABI competes for plasma donors with pharmaceutical companies which may
obtain plasma for their own use, other commercial plasma collection companies
and non-profit organizations such as the American Red Cross and community blood
banks which solicit the donation of blood. A number of these competitors have
access to greater financial, marketing and other resources than NABI. NABI
competes for donors by means of offering financial incentives to donors to
compensate them for lost time and inconvenience, providing outstanding customer
service to its donors, implementing programs designed to attract donors through
education as to the uses for collected plasma, encouraging groups to have their
members become plasma donors and improving the attractiveness of NABI's plasma
collection facilities. NABI also competes with other independent plasma
suppliers that sell plasma principally to pharmaceutical companies that process
plasma into finished products. If NABI is unable to maintain and expand its
donor base, its business, financial condition and results of operations will be
materially and adversely affected.
Dependence on Small Number of Customers for Plasma Sales
NABI sells its source and specialty plasma to approximately 20
pharmaceutical and diagnostic product manufacturers. These customers
constitute most of the worldwide purchasers of human blood plasma. During the
1993, 1994 and 1995 fiscal years, plasma sales to customers purchasing more
than 10% of NABI's consolidated sales (which did not exceed four customers in
any such period), accounted for approximately 34%, 48% and 46%, respectively,
of NABI's consolidated sales for each period. The loss of any major customer
or a material reduction in a major customer's purchases of plasma could have a
material adverse effect upon NABI's business, financial condition and results
of operations.
Uncertainty of Product Pricing and Reimbursement
NABI's ability to commercialize its immunotherapeutic products and related
treatments will be dependent in part upon the availability of, and NABI's
ability to obtain, adequate levels of reimbursement from government health
administration authorities, private health care insurers and other
organizations. Significant uncertainty exists as to the reimbursement status
of newly approved health care products, and there can be no assurance that
adequate third-party coverage will be available, if at all. Inadequate levels
of reimbursement may prohibit NABI from maintaining price levels sufficient for
realization of an adequate return on its investment in developing new
immunotherapeutic products and could result in the termination of production of
otherwise commercially viable products. Government and other third-party
payors are increasingly attempting to contain health care costs by limiting
both the coverage and level of reimbursement for new products approved for
marketing by the FDA and by refusing, in some cases, to provide any coverage
for disease indications for which the FDA has not granted marketing approval.
Also, the trend towards managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reform health care or reduce government
insurance programs, may all result in lower prices for NABI's products. The
cost containment measures that health care providers are instituting and the
impact of any health care reform could have an adverse effect on NABI's ability
to sell its products and may have a material adverse effect on NABI's business,
financial condition and results of operations.
There can be no assurance that reimbursement in the United States or
foreign countries will be available for NABI's products, or if available, will
not be decreased in the future, or that reimbursement amounts will not reduce
the demand for, or the price of, NABI's products. The unavailability of
third-party reimbursement or the inadequacy of the reimbursement for medical
procedures using NABI's products could have a material adverse effect on NABI's
business, financial condition and results of operations. Moreover, NABI is
unable to forecast what additional legislation or regulation, if any, relating
to the health care industry or third-party coverage and
30
reimbursement may be enacted in the future or what effect such legislation or
regulation would have on NABI's business.
Most of NABI's plasma sales are made pursuant to contracts having terms
ranging from one to five years. These contracts generally provide for annual
pricing renegotiations. Once established, the pricing generally remains fixed
for the year subject to price changes to reflect changes in customer
specifications or price adjustments to compensate NABI for increased costs
associated with new governmental testing requirements. As a result, NABI's
business, financial condition and results of operations would be adversely
affected if, due to changes in government regulation or other factors, its
costs of collecting and selling plasma rise during a given year and NABI is not
able to pass on the increased costs until the next annual pricing
renegotiation.
ITEM 2. PROPERTIES
The Company occupies approximately 712,000 square feet. A majority of the
space primarily used to collect plasma is leased under leases expiring through
2010. All leases are with parties not affiliated with NABI. A majority of these
leases contain renewal options which permit NABI to renew the leases for
periods of two to five years at the then fair rental value. Five of NABI's
plasma collection centers currently operate on month-to-month lease
arrangements. NABI believes that in the normal course of its business it will
be able to renew or replace its existing leases. NABI also owns four plasma
collection centers located in Arizona, Indiana, Minnesota and Washington.
NABI's plasma collection centers range in size from approximately 1,000 to
25,000 square feet and generally are located in population centers of 80,000 to
250,000 people.
NABI leases office, laboratory, warehouse and pilot manufacturing space in
Miami, Florida and Rockville, Maryland.
NABI has completed construction, and has begun validation, of a new 77,000
square foot facility in Boca Raton, Florida. Approximately 47,000 square feet
will be devoted to manufacturing, of which approximately 15,000 square feet is
currently unoccupied and reserved for possible future expansion. The remainder
of the facility houses certain administrative operations and executive offices.
ITEM 3. LEGAL PROCEEDINGS
NABI is a party to litigation in the ordinary course of business. NABI
does not believe that any such litigation will have a material adverse effect
on its business, financial position or results of operations.
In addition, NABI is a co-defendant with various other parties in numerous
suits filed in the U.S. and Canada brought by individuals who claim to have
been infected with HIV as a result of either using HIV-contaminated products
made by the defendants other than NABI or having familial relations with those
so infected. The claims against NABI are based on either or both negligence
and strict liability. One of the suits, filed in the Circuit Court for the
Eleventh Judicial Circuit of Dade County, Florida on May 23, 1995 (Case No.
95-10489 CA 02), purports to be a class action. The defendants in this suit,
other than NABI, include Bayer, Armour Pharmaceutical Company, Rhone-Poulenc
Rorer, Inc., Baxter, Alpha Therapeutic Corporation and The National Hemophilia
Foundation. The suits filed in Canada seek to impose liability on NABI as the
successor to a company acquired by NABI in 1986.
NABI denies all claims against it in these suits and intends to vigorously
defend the cases. Although NABI does not believe that any such litigation will
have a material adverse effect on its business, financial position or results
of operations, the defense of these lawsuits can be expensive and
time-consuming, regardless of the outcome, and an adverse result in one or more
of these lawsuits could have a material adverse effect on NABI's business,
financial condition and results of operations.
31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of NABI stockholders was held on November 29, 1995. The
following matters were approved:
a) Adoption and approval of agreement and Plan of Merger dated as of August
28, 1995 between NABI and Univax:
VOTES
------------------------------
FOR AGAINST ABSTAINED
------------------------------
14,658,758 440,610 491,416
b) Approval of an amendment to NABI's 1990 Equity Incentive Plan to increase
the total number of shares of common stock which may be awarded under such
plan by 1,500,000 shares.
VOTES
------------------------------
FOR AGAINST ABSTAINED
------------------------------
12,084,029 2,615,412 125,736
32
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of NABI are as follows:
[Download Table]
Name AGE POSITION
---- --- --------
David J. Gury 57 Chairman of the Board, President and
Chief Executive Officer
John C. Carlisle 49 Senior Executive Vice President and Director
Thomas P. Stagnaro 53 Senior Executive Vice President and Director
Alfred J. Fernandez 47 Senior Vice President and Chief Financial Officer
Pinya Cohen, Ph.D. 60 Senior Vice President, Quality Assurance and
Regulatory Affairs
Robert B. Naso, Ph.D. 51 Senior Vice President, Research and Development
Stephen W. Weston 48 Senior Vice President, Donor Management
Lorraine M. Breece 43 Controller and Chief Accounting Officer
David J. Gury has served as NABI's Chairman of the Board, President and
Chief Executive Officer since April 3, 1992. Previously, since May 21, 1984, he
was NABI's President and Chief Operating Officer. He has been a director of
NABI since 1984. From July 1977 until his employment by NABI, Mr. Gury was
employed by Alpha Therapeutic Corporation (formerly Abbott Scientific Products,
"Alpha") as Director of Plasma Procurement (through October 1980), General
Manager, Plasma Operations (through October 1981) and Vice President, Plasma
Supply (through May 1984). In these capacities, Mr. Gury had executive
responsibilities for plasma procurement and operation of plasmapheresis
centers.
John C. Carlisle has served as Senior Executive Vice President since
November 1995 and was elected a director in August 1995. Mr. Carlisle joined
NABI in January 1994 and was elected Executive Vice President and Chief
Operating Officer in March 1994. From August 1989 to January 1994 he was
President and Chief Executive Officer of Premier BioResources, Inc. ("PBI").
From June 1981 to August 1989 he served as Director of Plasma Supply for Alpha.
Thomas P. Stagnaro has served as Senior Executive Vice President and a
director of NABI since November 1995. From October 1989 to November 1995 he was
President and a director of Univax and he was Chief Executive Officer of Univax
from October 1990 until November 1995. From 1982 to 1989, Mr. Stagnaro was with
Alpha. During his tenure with Alpha, Mr. Stagnaro served as Vice President of
Sales and Marketing as well as President of Alpha Home Care Company, an
affiliate of Alpha.
Alfred J. Fernandez is Senior Vice President and Chief Financial Officer
of NABI, has served in that capacity since November 1995 and has served as an
executive officer of NABI since April 5, 1989. Previously, Mr. Fernandez had
been associated with Rachlin & Cohen, Certified Public Accountants, in Miami,
Florida as Director of Accounting and Audit Services since January 1988. Mr.
Fernandez was employed by the Chattahoochee Financial Corporation in Atlanta,
Georgia from May 1986 to September 1987 as Executive Vice President and Chief
Financial Officer, with responsibility over all financial, accounting and
investment functions. For more than five years prior to that time, Mr.
Fernandez served as a Senior Manager with Price Waterhouse, an international
public accounting firm.
33
Pinya Cohen, Ph.D. is Senior Vice President, Quality Assurance and
Regulatory Affairs, has served in that capacity since November 1995 and has
served as an executive officer since August 1992. From 1990 to 1992, he was
Vice President, Regulatory Affairs for Connaught Laboratories, Inc. From 1976
to 1990, Dr. Cohen was Vice President, Quality Control and Regulatory Affairs
at Merieux Institute, Inc. Prior to that time, from 1972 to 1976, he was
Director of the Plasma Derivatives Branch, Bureau of Biologics, FDA and from
1964 to 1972, he was Director of the Plasma Derivatives Branch, Division of
Biologics Standards, NIH.
Robert B. Naso, Ph.D. joined NABI in November 1995 as Senior Vice
President, Research and Development. Previously, he was Vice President of
Research at Univax beginning in May 1992, and became Vice President of Research
and Development in October 1994. From 1983 to 1992, Dr. Naso was a manager and
director of pharmaceutical and vaccine research and development at the R.W.
Johnson Pharmaceutical Research Institute, a division of Ortho Pharmaceutical
Corporation and the Johnson & Johnson Biotechnology Center, a division of the
R.W. Johnson Pharmaceutical Research Institute.
Stephen W. Weston is Senior Vice President, Donor Management, has served
in that capacity since November 1995 and has served as an executive officer
since March 1992. Prior to that time, he was Vice President, Finance and Chief
Financial Officer for TSI Security Acquisition Corporation in Deerfield Beach,
Florida since August 1990. From September 1988 to July 1990, Mr. Weston was
employed by ConPharma Home Healthcare, Inc. in Buffalo, New York as Vice
President, Finance and Chief Financial Officer. For more than four years prior
to that time, Mr. Weston served as Vice President, Finance and Chief Financial
Officer of NABI.
Lorraine M. Breece is NABI's Controller and Chief Accounting Officer and
has been an officer of NABI since April 1, 1991. Previously, she had been
associated with Trammell Crow Company as Controller and Consultant since
October 1989. Prior to that time, from March 1984 to October 1989, Ms. Breece
was employed by Levitt Corporation as Controller.
34
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
NABI's common stock is quoted on the NASDAQ National Market under the
symbol "NABI." Until January 18, 1996, the common stock had been quoted under
the symbol "NBIO." The following table sets forth for each period indicated
the high and low sale prices for the common stock (based upon intra-day
trading) as reported by the NASDAQ National Market.
[Download Table]
HIGH LOW
--------- ----------
1994
First Quarter $ 7 7/8 $ 3 1/16
Second Quarter 7 5 1/16
Third Quarter 7 3/4 5 1/2
Fourth Quarter 8 1/2 6 1/8
1995
First Quarter 9 3/8 6 1/4
Second Quarter 10 3/8 8
Third Quarter 11 3/4 7 3/4
Fourth Quarter 11 7 7/8
The number of record holders of NABI's common stock at December 31, 1995
was 1,490.
No cash dividends have been previously paid on NABI's common stock and
none are anticipated in 1996. NABI's loan agreement with its principal lender
also restricts dividend payments.
35
ITEM 6. SELECTED FINANCIAL DATA - FIVE YEARS ENDED DECEMBER 31, 1995
The following table sets forth selected consolidated financial data for
NABI for the five years ended December 31, 1995 that were derived from NABI's
consolidated financial statements, which have been audited by Price Waterhouse
LLP, independent accountants. The data should be read in conjunction with,
and are qualified by reference to, NABI's Consolidated Financial Statements and
the Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." All amounts in the following table are
expressed in thousands, except for per share data.
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1991 1992 1993 1994 1995
-------- --------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Sales $ 69,424 $ 83,327 $102,755 $167,209 $201,964
Cost of products sold 59,041 71,137 81,607 131,192 152,148
Gross profit 10,383 12,190 21,148 36,017 49,816
Research and development expense 4,573 12,208 18,270 20,382 26,168
Selling, general and administrative expense 6,260 10,080 12,284 16,467 26,816
Royalty expense --- 347 1,545 1,426 3,490
Other operating expense 602 2,101 1,842 2,234 3,015
Operating loss (1,052) (12,546) (12,793) (4,492) (9,673)
Investment income 399 1,653 1,187 354 1,064
Interest expense (635) (2,604) (3,282) (3,254) (1,931)
Other, net 19 (65) (24) (28) (334)
Loss before provision for income taxes
and accounting change/extraordinary charge (1,269) (13,562) (14,912) (7,420) (10,874)
Provision for income taxes (836) (5) (1,988) (5,774) (6,687)
Loss before accounting
change/extraordinary charge (2,105) (13,567) (16,900) (13,194) (17,561)
Accounting change/extraordinary charge --- --- 100 (717) ---
Net loss ($2,105) ($13,567) ($16,800) ($13,911) ($17,561)
Loss per share:
Loss before accounting change/
extraordinary charge ($0.09) ($0.65) ($0.76) ($0.47) ($0.52)
Accounting change/extraordinary charge --- --- 0.01 (0.03) ---
Net loss ($0.09) ($0.65) ($0.75) ($0.50) ($0.52)
Weighted average number of shares 23,888 20,850 22,328 28,042 33,574
BALANCE SHEET DATA:
Working capital $ 17,998 $ 36,384 $ 39,806 $ 52,208 $ 14,690
Total assets 36,429 89,958 91,459 132,089 137,975
Notes payable, including current maturities 7,782 19,969 21,202 27,557 42,894
Contingent purchase price obligation,
including current maturities --- 6,943 7,056 --- ---
Total stockholders' equity 22,413 52,678 51,635 85,319 69,442
36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of NABI's financial condition and
results of operations for the three years ended December 31, 1995 should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto.
RESULTS OF OPERATIONS
On November 29, 1995, Univax, a publicly traded biopharmaceutical company,
was merged with and into NABI in a tax-free, stock-for-stock transaction. The
Merger was accounted for as a pooling of interests for financial reporting
purposes and accordingly, all prior period financial statements have been
combined.
The following table sets forth NABI's results of operations for the
respective periods expressed as a percentage of sales:
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
Sales 100.0% 100.0% 100.0%
Cost of products sold 79.4 78.5 75.3
----- ----- -----
Gross profit margin 20.6 21.5 24.7
Research and development expense 17.8 12.2 13.0
Selling, general and administrative expense 12.0 9.8 13.3
Royalty expense 1.5 0.9 1.7
Other operating expense 1.8 1.3 1.5
----- ----- -----
Operating loss (12.5) (2.7) (4.8)
Investment income 1.2 0.2 0.5
Interest expense (3.2) (1.9) (1.0)
Other, net --- --- (0.1)
----- ----- -----
Loss before provision for income taxes, cumulative effect of
change in accounting for income taxes and extraordinary charge (14.5) (4.4) (5.4)
Provision for income taxes (1.9) (3.5) (3.3)
Cumulative effect of change in accounting for income taxes and
extraordinary charge 0.1 (0.4) --
----- ----- -----
Net loss (16.3)% (8.3)% (8.7)%
===== ===== =====
37
Information concerning NABI's sales by industry segment, for the
respective periods, is set forth in the following table. All dollar amounts set
forth in the table are expressed in thousands.
[Download Table]
YEAR ENDED DECEMBER 31,
------------------------------------------------------
SEGMENT 1993 1994 1995
------- ---------------- ---------------- ----------------
Plasma - Source $ 56,029 54.5% $ 98,630 59.0% $108,327 53.6%
- Specialty 29,171 28.4 45,057 26.9 61,178 30.3
-------- ----- -------- ----- -------- -----
85,200 82.9 143,687 85.9 169,505 83.9
Immunotherapeutic products 6,557 6.4 9,295 5.6 18,590 9.2
Diagnostic products and
services 9,817 9.6 11,444 6.8 7,833 3.9
Research and development 1,181 1.1 2,783 1.7 6,036 3.0
-------- ----- -------- ----- -------- -----
Total $102,755 100.0% $167,209 100.0% $201,964 100.0%
======== ===== ======== ===== ======== =====
1995 AS COMPARED TO 1994
Sales. Sales for 1995 increased 20.8% to $202 million compared to $167.2
million in 1994, reflecting an increase in plasma sales of $25.8 million, an
increase in immunotherapeutic product sales of $9.3 million and an increase in
research revenue of $3.3 million, offset by a decrease in diagnostic products
and services sales of $3.6 million. The 18% increase in plasma sales was
primarily attributable to increased plasma shipments, primarily specialty
plasmas. Sales of immunotherapeutic products increased primarily due to an
increase of $4.3 million in H-BIG sales and $4.4 million in WinRho SD sales
which NABI began marketing in mid 1995.
Gross profit margin. Gross profit and related margin for 1995 was $49.8
million or 24.7%, compared to $36 million or 21.5% in 1994. An improved sales
mix resulting primarily from increased sales of higher-margin specialty plasmas
and immunotherapeutic products accounted for the improved profitability.
Research and development expense. Research and development expense was
$26.2 million or 13% of sales in 1995 compared to $20.4 million or 12.2% of
sales in 1994. The increase in expenses relate primarily to clinical trial
expenses associated with the Hypergam CF program, initial expenses associated
with new product development and recognition of a reserve for development stage
inventories which have no assurance of commercial viability.
Selling, general and administrative expense. Selling, general and
administrative expense was $26.8 million or 13.3% of sales in 1995, compared to
$16.5 million or 9.8% of sales in 1994. The increase was primarily
attributable to approximately $6 million in merger expenses related to the
Univax Merger and additional sales and marketing expenses incurred related to
the product launch of WinRho SD in mid 1995.
Other factors. The provision for income taxes increased to $6.7 million
in 1995, compared to $5.8 million in 1994 primarily due to NABI's stand alone
pre-tax income, which could not be offset by premerger losses and
non-deductible merger expenses incurred in 1995. Univax's net operating losses
and research tax credit carryforwards will be available to offset future
taxable income of the combined company subject to certain annual limitations.
1994 AS COMPARED TO 1993
Sales. Sales for 1994 increased 62.7% to $167.2 million compared to
$102.8 million for 1993, reflecting an increase in plasma sales of $58.5
million, an increase in sales of immunotherapeutic products of $2.7 million, an
increase in sales of diagnostic products and services of $1.6 million and an
increase in research revenue of $1.6 million. The 68.6% increase in plasma
sales is primarily attributable to source plasma shipments resulting from
38
the Premier BioResources, Inc. ("PBI") acquisition and to increased plasma
shipments, primarily specialty plasma from NABI's other plasma centers. Sales
of immunotherapeutic products increased to $9.3 million in 1994, compared to
$6.6 million in the prior year, primarily due to increased sales of H-BIG.
Gross profit margin. Gross margin for 1994 was $36 million or 21.5%,
compared to $21.1 million or 20.6% in 1993. The increase resulted from
increased shipments of higher margin specialty plasma and additional source
plasma shipments, the latter of which was due primarily to the PBI acquisition.
Gross margin percentages improved over 1993 as a result of increased sales
volume of specialty plasma and the profit contribution from increased sales of
H-BIG and diagnostic control products. The significant increase in source
plasma from PBI partially offset the otherwise improved product mix and the
gross margin as a percentage of sales.
Research and development expense. Research and development expense
increased to $20.4 million or 12.2% of sales in 1994, compared to $18.3 million
or 17.8% of sales in 1993 due primarily to increased employee and facilities
costs associated with ongoing research and development projects. Clinical trial
expenses increased as NABI expanded its donor stimulation programs and advanced
products in human clinical trials.
Selling, general and administrative expense. Selling, general and
administrative expense was $16.5 million or 9.8% of sales in 1994, as compared
to $12.3 million or 12% of sales in 1993. While expenses decreased as a
percentage of sales, the dollar increase was primarily attributable to
personnel and other corporate expenses associated with the acquisition and
continuing operations of PBI.
Other factors. Provision for income taxes increased to $5.8 million,
compared to $2 million in 1993 primarily due to NABI's stand alone pre-tax
income, which could not be offset by premerger losses. Univax's net operating
losses and research tax credit carryforwards will be available to offset
future taxable income of the combined company subject to certain annual
limitations.
Net loss for 1994 reflects an extraordinary charge of $.7 million or $.03
per share, which reflects the immediate recognition and expense of deferred debt
discount and debt issue costs associated with NABI's early retirement of its
11% Senior Subordinated notes in October 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, NABI's credit agreement, as amended through December
20, 1995, provided for a total of $55 million in available credit and consisted
of a $27 million revolving credit facility maturing on December 31, 1998,
$18 million in flexible term notes supported by an irrevocable bank letter of
credit expiring on January 31, 1998 and $10 million in a term loan maturing on
February 15, 1996. As of December 31, 1995, NABI had outstanding $6.8 million
under the revolving credit facility, $18 million in flexible term notes and
$10 million in a term loan. The credit facility is secured by substantially
all of NABI's assets and contains covenants requiring the maintenance of
various financial ratios and prohibiting the payment of dividends.
During the first quarter of 1996, NABI issued $80.5 million of 6.5%
convertible subordinated notes due 2003 in a private placement. A portion of
the net proceeds was used to repay a majority of NABI's outstanding bank
indebtedness aggregating approximately $22.2 million on February 8, 1996. NABI
will use a portion of the net proceeds for the repayment and cancellation of
the flexible term notes as they mature at varying dates through May 15, 1996.
In addition, NABI is currently negotiating an amendment to its existing
revolving credit facility providing for a minimum availability of $20 million,
and it expects to reduce its borrowing costs and eliminate or relax certain
restrictive financial covenants under the renegotiated credit agreement.
At December 31, 1995, NABI's working capital of $14.7 million compared to
working capital of $52.2 million on December 31, 1994. The reduction in
working capital was principally due to utilization of cash to fund research
and development expenditures and an increase in current maturities of bank
indebtedness at December 31, 1995.
NABI believes that the available proceeds from the sale of the 6.5%
convertible subordinated notes discussed above, cash on hand at year end 1995
and cash flow from operations will be sufficient to meet its anticipated cash
needs for fiscal 1996.
39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and information required by Item 8 are listed in
the Index, presented as Item 14, and included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item and not provided in Item 4A will
be contained in NABI's Proxy statement, which NABI intends to file within 120
days following the end of NABI's fiscal year ended December 31, 1995 and such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item will be contained in NABI's Proxy
Statement which NABI intends to file within 120 days following the end of
NABI's fiscal year ended December 31, 1995 and such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item will be contained in NABI's Proxy
Statement which NABI intends to file within 120 days following the end of
NABI's fiscal year ended December 31, 1995 and such information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item will be contained in NABI's Proxy
Statement which NABI intends to file within 120 days following the end of
NABI's fiscal year ended December 31, 1995 and such information is incorporated
herein by reference.
40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following consolidated financial statements of NABI and its
subsidiaries are included pursuant to Item 8 hereof.
[Download Table]
PAGE #
Report of Independent Certified Public Accountants........................ 46
Consolidated Balance Sheet at December 31, 1994 and 1995.................. 47
Consolidated Statement of Operations for the years ended December 31,
1993, 1994 and 1995....................................................... 48
Consolidated Statement of Changes in Stockholders' Equity for the years
ended December 31, 1993, 1994 and 1995.................................... 49
Consolidated Statement of Cash Flows for the years ended December 31,
1993, 1994 and 1995....................................................... 50
Notes to Consolidated Financial Statements................................ 51
(a) (2) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts and Reserves.............. 67
All other schedules omitted are not required, inapplicable or the
information required is furnished in the financial statements or notes therein.
41
(A) (3) EXHIBITS
[Enlarge/Download Table]
2 Agreement and Plan of Merger dated August 28, 1995 between NABI and
Univax Biologics, Inc. (incorporated by reference to NABI's Registration Statement
on Form S-4; Commission File No. 33-63497)..................................................
3.1* Restated Certificate of Incorporation of NABI...............................................
3.2 By-Laws (incorporated by reference to NABI's Registration Statement on Form S-4;
Commission File No. 33-63497)...............................................................
4.1 Specimen Stock Certificate (incorporated by reference to NABI's Registration Statement on
Form S-2; Commission File No. 33-83096).....................................................
4.2* Indenture between NABI and State Street Bank and Trust Company, dated as of
February 1, 1996............................................................................
4.3* Registration Rights Agreement by and between NABI and Robertson, Stephens & Company
LLC and Raymond James & Associates, Inc., dated as of February 1, 1996......................
10.1 Third Amended and Restated Revolving Credit and Term Loan Agreement between
NationsBank, National Association (South) (f/k/a NationsBank of Florida, National
Association) ("NationsBank") and NABI dated December 1, 1994 (incorporated by reference
to NABI's Annual Report on Form 10-K for the year ended December 31, 1994)..................
10.2 Waiver and Amendment, dated December 30, 1994, of Section 8.09(e) of Third Amended and
Restated Revolving Credit, Term Loan and Reimbursement Agreement between NationsBank
and NABI dated as of December 1, 1994 (incorporated by reference to NABI's Registration
Statement on Form S-4; Commission File No. 33-63497)........................................
10.3 Amendment No. 1 to Third Amended and Restated Revolving Credit Term Loan and
Reimbursement Agreement between NationsBank and NABI dated March 31, 1995
(incorporated by reference to NABI's Registration Statement on Form S-4; Commission
File No. 33-63497)..........................................................................
10.4* Amendment Nos. 3 and 4 to Third Amended and Restated Revolving Credit Term Loan and
Reimbursement Agreement between NABI and NationsBank dated as of November 29, 1995
and December 20, 1995, respectively.........................................................
10.5 Shareholder Agreement effective as of September 30, 1992 between NABI and Abbott
Laboratories (incorporated by reference to NABI's Annual Report on Form 10-K for the
year ended December 31, 1992)...............................................................
10.6 Shareholder Agreement between CGW Southeast Partners I, L.P. and NABI dated January 25,
1994 (incorporated by reference to NABI's Registration Statement on Form S-2; Commission
File No. 33-83096)..........................................................................
10.7 Plasma Supply Agreement dated January 1, 1994 between Baxter Healthcare Corporation
and NABI (confidential treatment) (incorporated by reference to NABI's Registration
Statement on Form S-2; Commission File No. 33-83096)........................................
42
[Enlarge/Download Table]
10.8 Plasma Supply Agreement II dated January 1, 1994 between Baxter Healthcare Corporation,
Hyland Division, and NABI (confidential treatment) (incorporated by reference to NABI's
Registration Statement on Form S-2; Commission File No. 33-83096)...........................
10.9 Agreement effective January 1, 1994 between NABI and Immuno Trading AG (confidential
treatment) (incorporated by reference to NABI's Registration Statement on Form S-2;
Commission File No. 33-83096)...............................................................
10.10 Plasma Supply Agreement dated September 8, 1992 and letter dated November 1, 1993 from
Behringwerke AG to NABI (confidential treatment) (incorporated by reference to NABI's
Registration Statement on Form S-2; Commission File No. 33-83096)..........................
10.11 Supply Agreement dated May 1, 1993 between NABI and Intergen Company L.P. (confidential
treatment) (incorporated by reference to NABI's Registration Statement on Form S-2;
Commission File No. 33-83096)..............................................................
10.12 Lease Agreements dated December 11, 1990, as modified on May 23, 1994 between NABI
and Angelo Napolitano, Trustee, for certain real property located at 16500 N.W. 15th Avenue,
Miami, Florida (incorporated by reference to NABI's Registration Statement on Form S-2;
Commission File No. 33-83096)..............................................................
10.13 Lease Agreement dated March 31, 1994 between NABI and Angelo Napolitano, Trustee, for
certain real property located at 16500 N.W. 15th Avenue, Miami, Florida (incorporated by
reference to NABI's Registration Statement on Form S-2; Commission
File No. 33-83096).........................................................................
10.14 Employment Agreement dated January 1, 1993 between NABI and David J. Gury (incorporated
by reference to NABI's Annual Report on Form 10-K for the year ended
December 31, 1992).........................................................................
10.15 Employment Agreement dated January 27, 1994 between John C. Carlisle and NABI
(incorporated by reference to NABI's Registration Statement on Form S-2; Commission File
No. 33-83096)..............................................................................
10.16 Employment Agreement effective August 1, 1995 between NABI and Alfred J. Fernandez
(incorporated by reference to NABI's Registration Statement on Form S-4; Commission File
No. 33-63497)..............................................................................
10.17 Employment Agreement effective August 1, 1995 between NABI and Stephen W. Weston
(incorporated by reference to NABI's Registration Statement on Form S-4; Commission File
No. 33-63497)..............................................................................
10.18* Employment Agreement effective December 1, 1995 between NABI and Robert B. Naso............
10.19* Employment Agreement effective December 1, 1995 between NABI and
Thomas P. Stagnaro.........................................................................
10.20* Separation Agreement effective January 5, 1996 between NABI and Raj Kumar..................
10.21 1990 Equity Incentive Plan (incorporated by reference to NABI's Registration Statement on
Form S-4; Commission File No. 33-63497)....................................................
10.22 Amended and Restated Incentive Stock Option Plan adopted in 1993 (incorporated by reference
to NABI's Annual Report on Form 10-K for the year ended December 31, 1992).................
43
[Enlarge/Download Table]
10.23 Stock Plan for Non-Employee Directors (incorporated by reference to NABI's Proxy
Statement dated April 26, 1995)............................................................
21* Subsidiaries of the Registrant.............................................................
23* Consent of Independent Certified Public Accountants........................................
27* Financial Data Schedule (for SEC use only).................................................
-----------
* Filed herewith
NABI's management contracts and compensatory plans are listed above as
Exhibits 10.14 - 10.23.
(B) REPORTS ON FORM 8-K
On December 14, 1995 NABI filed a current report on Form 8-K, reporting
under Item 2 and 7 thereof, the consummation of the Merger between NABI and
Univax and presenting proforma financial information.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on this 27th day of
March, 1996.
NABI
By: /s/ David J. Gury
------------------------------------
David J. Gury
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in capacities and on the dates indicated.
[Download Table]
SIGNATURES TITLE DATE
---------- ----- ----
/s/ David J. Gury Chairman of the Board, March 27, 1996
--------------------------- President, Chief Executive Officer
David J. Gury
/s/ Alfred J. Fernandez Senior Vice President, March 27, 1996
--------------------------- Chief Financial Officer
Alfred J. Fernandez
/s/ Lorraine M. Breece Chief Accounting Officer March 27, 1996
---------------------------
Lorraine M. Breece
/s/ John C. Carlisle Senior Executive Vice President March 27, 1996
--------------------------- Director
John C. Carlisle
/s/ Thomas P. Stagnaro Senior Executive Vice President March 27, 1996
--------------------------- Director
Thomas P. Stagnaro
/s/ Joseph C. Cook, Jr. Director March 27, 1996
---------------------------
Joseph C. Cook, Jr.
/s/ Richard A. Harvey, Jr. Director March 27, 1996
---------------------------
Richard A. Harvey, Jr.
Director March 27, 1996
---------------------------
David L. Castaldi
Director March 27, 1996
---------------------------
David A. Thompson
/s/ Paul Bogikes Director March 27, 1996
---------------------------
Paul Bogikes
/s/ George W. Ebright Director March 27, 1996
---------------------------
George W. Ebright
/s/ Brian H. Dovey Director March 27, 1996
---------------------------
Brian H. Dovey
45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
NABI
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) and (2) present fairly, in all material
respects, the financial position of NABI and its subsidiaries (formerly North
American Biologicals, Inc.) at December 31, 1994 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of NABI's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Miami, Florida
February 27, 1996
46
NABI
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Enlarge/Download Table]
DECEMBER 31,
---------------------------
1994 1995
--------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,132 $ 3,991
Short-term investments 18,698 ---
Trade accounts receivable, net 23,383 28,213
Inventories, net 20,713 22,646
Prepaid expenses and other assets 2,983 2,380
-------- --------
TOTAL CURRENT ASSETS 77,909 57,230
PROPERTY AND EQUIPMENT, NET 21,929 42,697
OTHER ASSETS
Excess of acquisition cost over net assets acquired, net 16,696 18,882
Intangible assets, net 10,615 11,048
Other, net 4,940 8,118
-------- --------
TOTAL ASSETS $132,089 $137,975
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 7,722 $ 9,379
Accrued expenses 11,312 15,997
Notes payable 6,667 17,164
-------- --------
TOTAL CURRENT LIABILITIES 25,701 42,540
NOTES PAYABLE 20,890 25,730
OTHER 179 263
-------- --------
TOTAL LIABILITIES 46,770 68,533
-------- --------
COMMITMENTS AND CONTINGENCIES --- ---
STOCKHOLDERS' EQUITY
Convertible preferred stock, par value $.10 per share:
5,000 shares authorized; no shares outstanding --- ---
Common stock, par value $.10 per share: 75,000 shares
authorized; 33,296 and 33,942 shares issued, respectively 3,330 3,394
Capital in excess of par value 131,606 133,100
Accumulated deficit (49,491) (67,052)
-------- --------
85,445 69,442
NOTE RECEIVABLE FROM STOCKHOLDER (126) ---
-------- --------
TOTAL STOCKHOLDERS' EQUITY 85,319 69,442
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $132,089 $137,975
======== ========
The accompanying Notes are an integral part of these Financial Statements
47
NABI
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Enlarge/Download Table]
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
---------- --------- ----------
SALES:
Customers $ 98,319 $161,106 $197,390
Related parties 4,436 6,103 4,574
-------- -------- --------
102,755 167,209 201,964
COSTS AND EXPENSES:
Costs of products sold 81,607 131,192 152,148
Research and development expense 18,270 20,382 26,168
Selling, general and administrative expense 12,284 16,467 26,816
Royalty expense 1,545 1,426 3,490
Other operating expense, principally amortization and freight 1,842 2,234 3,015
-------- -------- --------
OPERATING LOSS (12,793) (4,492) (9,673)
Investment income 1,187 354 1,064
Interest expense (3,282) (3,254) (1,931)
Other, net (24) (28) (334)
-------- -------- --------
LOSS BEFORE PROVISION FOR INCOME TAXES, CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES (14,912) (7,420) (10,874)
AND EXTRAORDINARY CHARGE
PROVISION FOR INCOME TAXES (1,988) (5,774) (6,687)
-------- -------- --------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES AND EXTRAORDINARY CHARGE (16,900) (13,194) (17,561)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES 100 --- ---
EXTRAORDINARY CHARGE --- (717) ---
-------- -------- --------
NET LOSS ($16,800) ($13,911) ($17,561)
======== ======== ========
LOSS PER SHARE:
Loss before cumulative effect of change in accounting for
income taxes and extraordinary charge ($0.76) ($0.47) ($0.52)
Cumulative effect of change in accounting for income taxes
and extraordinary charge 0.01 (0.03) ---
-------- -------- --------
Net loss ($0.75) ($0.50) ($0.52)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES 22,328 28,042 33,574
======== ======== ========
The accompanying Notes are an integral part of these Financial Statements.
48
NABI
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(THOUSANDS)
[Enlarge/Download Table]
PREFERRED COMMON STOCK
STOCK COMMON STOCK WARRANTS
--------------- ------------------ -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
BALANCE AT DECEMBER 1992, AS PREVIOUSLY REPORTED --- --- 12,858 $1,286 1,561 $2,314
Adjustments for business combination accounted
for as pooling of interests --- --- 8,984 898 9 ---
----- ----- ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1992, AS RESTATED --- --- 21,842 2,184 1,570 2,314
Warrants exercised --- --- 73 7 (10) ---
Issuance of restricted stock under employee stock plan --- --- 12 1 --- ---
Warrants expired --- --- --- --- (35) ---
Stock options exercised --- --- 243 25 --- ---
Tax benefit from warrants and stock options exercised --- --- --- --- --- ---
Issuance of common stock pursuant to employee stock plan --- --- 7 1 --- ---
Issuance of 503 shares Series E Preferred
stock converted to 526 shares of common stock --- --- 526 53 --- ---
Issuance of common stock --- --- 1,031 103 --- ---
Net loss for the year --- --- --- --- --- ---
----- ----- ------ ------ ----- ------
BALANCE AT DECEMBER 31, 1993 --- --- 23,734 2,374 1,525 2,314
Issuance of common stock --- --- 8,406 840 --- ---
Compensation related to restricted stock issued
under employee stock plan --- --- --- --- --- ---
Issuance of common stock pursuant to employee stock plan --- --- 12 1 --- ---
Acquisition and retirement of treasury stock --- --- (35) (3) --- ---
Stock options exercised --- --- 429 43 --- ---
Warrants exercised --- --- 750 75 (750) (908)
Tax benefit from stock options exercised --- --- --- --- --- ---
Repurchase of warrants --- --- --- --- (766) (1,406)
Collection of note receivable --- --- --- --- --- ---
Issuance of note receivable --- --- --- --- --- ---
Net loss for the year --- --- --- --- --- ---
Other --- --- --- --- --- ---
----- ----- ------ ------ ----- ------
BALANCE AT DECEMBER 31, 1994 --- --- 33,296 3,330 9 ---
Compensation related to restricted
stock issued under employee stock plan --- --- --- --- --- ---
Stock options exercised --- --- 700 70 --- ---
Issuance of common stock pursuant to employee stock plan --- --- 22 2 --- ---
Tax benefit from stock options exercised --- --- --- --- --- ---
Acquisition and retirement of treasury stock --- --- (76) (8) --- ---
Issuance of warrants --- --- --- --- 100 ---
Collection of note receivable --- --- --- --- --- ---
Net loss for the year --- --- --- --- --- ---
Other --- --- --- --- --- ---
----- ----- ------ ------ ----- ------
BALANCE AT DECEMBER 31, 1995 --- --- 33,942 $3,394 109 ---
===== ===== ====== ====== ===== ======
RETAINED
CAPITAL IN EARNINGS/ RECEIVABLE
EXCESS OF (ACCUMULATED FROM STOCKHOLDERS'
PAR VALUE DEFICIT) STOCKHOLDER EQUITY
--------- ------------ ----------- ------------
BALANCE AT DECEMBER 1992, AS PREVIOUSLY REPORTED $ 8,638 $ 1,845 ($166) $ 13,917
Adjustments for business combination accounted
for as pooling of interests 57,406 (19,544) --- 38,760
-------- -------- ------ --------
BALANCE AT DECEMBER 31, 1992, AS RESTATED 66,044 (17,699) (166) 52,677
Warrants exercised 4 --- --- 11
Issuance of restricted stock under employee stock plan 50 --- --- 51
Warrants expired --- --- --- ---
Stock options exercised 250 --- --- 275
Tax benefit from warrants and stock options exercised 394 --- --- 394
Issuance of common stock pursuant to employee stock plan 54 --- --- 55
Issuance of 503 shares Series E Preferred
stock converted to 526 shares of common stock 4,947 --- --- 5,000
Issuance of common stock 9,869 --- --- 9,972
Net loss for the year --- (16,800) --- (16,800)
-------- -------- ------ --------
BALANCE AT DECEMBER 31, 1993 81,612 (34,499) (166) 51,635
Issuance of common stock 45,985 --- --- 46,825
Compensation related to restricted stock issued
under employee stock plan 51 --- --- 51
Issuance of common stock pursuant to employee stock plan 89 --- --- 90
Acquisition and retirement of treasury stock (215) --- --- (218)
Stock options exercised 428 --- --- 471
Warrants exercised 3,270 --- --- 2,437
Tax benefit from stock options exercised 368 --- --- 368
Repurchase of warrants --- (1,081) --- (2,487)
Collection of note receivable --- --- 166 166
Issuance of note receivable --- --- (126) (126)
Net loss for the year --- (13,911) --- (13,911)
Other 18 --- --- 18
-------- -------- ------ --------
BALANCE AT DECEMBER 31, 1994 131,606 (49,491) (126) 85,319
Compensation related to restricted
stock issued under employee stock plan 5 --- --- 5
Stock options exercised 1,127 --- --- 1,197
Issuance of common stock pursuant to employee stock plan 102 --- --- 104
Tax benefit from stock options exercised 819 --- --- 819
Acquisition and retirement of treasury stock (555) --- --- (563)
Issuance of warrants --- --- --- ---
Collection of note receivable --- --- 126 126
Net loss for the year --- (17,561) --- (17,561)
Other (4) --- --- (4)
-------- -------- ------ --------
BALANCE AT DECEMBER 31, 1995 $133,100 ($67,052) --- $ 69,442
======== ======== ====== ========
The accompanying Notes are an integral part of these Financial Statements.
49
NABI
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS)
[Enlarge/Download Table]
<Caption
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($16,800) ($13,911) ($17,561)
Adjustments to reconcile net loss to net cash (used)
provided by operating activities:
Depreciation and amortization 4,623 6,319 6,959
Imputed interest and amortization of debt discount and premiums 1,218 928 14
Compensation under employee stock plan 116 105 657
Deferred income taxes 135 (197) (806)
Purchase of trading securities --- (27,926) (4,036)
Sales and redemptions of trading securities --- 25,175 22,885
Extraordinary charge --- 717 ---
Other (242) 1,372 105
Change in assets and liabilities:
Decrease (increase) in accounts receivable (4,678) (8,981) (4,743)
Decrease (increase) in inventories (1,130) (7,673) (1,401)
Decrease (increase) in prepaid expenses (66) (411) 369
Decrease (increase) in other assets (790) (2,118) (2,578)
Increase (decrease) in accounts payable and accrued expenses 1,372 4,250 6,314
-------- -------- --------
Total adjustments 558 (8,440) 23,739
-------- -------- --------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (16,242) (22,351) 6,178
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash of businesses acquired, net of transaction costs --- 614 ---
Cash consideration for business acquisitions --- --- (6,425)
Capital expenditures (4,031) (8,330) (24,387)
Collections on note receivable from stockholder --- 166 126
Purchases of investments (22,042) --- ---
Sales and redemptions of investments 33,411 --- ---
-------- -------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 7,338 (7,550) (30,686)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale and issuance of common stock 10,197 38,618 612
Proceeds from issuance of preferred stock 5,000 --- ---
Decrease in deferred offering expenses 252 --- ---
Proceeds from exercise of options and warrants 175 2,610 419
Repurchase of warrants --- (2,487) ---
Borrowings (repayments) under line of credit, net 315 (488) (626)
Borrowings of term debt 2,597 8,781 2,683
Repayments of term debt (2,057) (9,245) (3,071)
Repayment of subordinated debt --- (7,000) ---
Borrowings of flexible term notes --- 5,063 12,936
Contingent purchase price obligation payments (817) (8,213) ---
Other debt 145 1,147 3,414
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,807 28,786 16,367
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,903 (1,115) (8,141)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,344 13,247 12,132
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,247 $ 12,132 $ 3,991
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,856 $ 2,436 $ 2,190
======== ======== ========
Income taxes paid $ 945 $ 4,247 $ 7,190
======== ======== ========
The accompanying Notes are an integral part of these Financial Statements.
50
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BUSINESS AND ORGANIZATION
NABI (formerly North American Biologicals, Inc.) is a vertically
integrated biopharmaceutical company that supplies human blood plasma and
develops and commercializes therapeutic products for the prevention and
treatment of infectious diseases and immunological disorders.
On November 29, 1995, Univax Biologics, Inc. ("Univax"), a publicly traded
biopharmaceutical company, was merged with and into NABI. Under the terms of
the agreement and plan of merger, Univax's common stockholders received
.79 of a share of NABI's common stock for each Univax share. Additionally,
Univax's preferred stockholder received 1.047 shares of NABI's common
stock for each preferred share. NABI issued an aggregate of 14,173,508 shares
of its common stock for the outstanding shares of Univax common and preferred
stock. The merger was accounted for as a pooling of interests and qualifies as
a tax free reorganization under Internal Revenue Service regulations.
On January 27, 1994, NABI acquired Premier BioResources, Inc. ("PBI").
PBI's principal business activities have been the collection and sale of human
plasma. The acquisition was accounted for by the purchase method and
accordingly, the results of operations of PBI are included with those of NABI
for periods subsequent to the date of acquisition. The acquisition cost of PBI
aggregated approximately $21 million and was funded through the issuance of
approximately 2.3 million shares of NABI common stock, the assumption of
various PBI liabilities and an additional contingent purchase price
obligation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements
include the assets of NABI and its subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Basis of presentation: Certain items in the 1993 and 1994 consolidated
financial statements have been reclassified for comparative purposes. All
dollar amounts, except amounts related to per share data, are expressed in
thousands of dollars. The consolidated financial statements give effect to the
merger with Univax which was accounted for as a pooling of interests.
Accordingly, all prior period financial statements have been combined.
Cash and cash equivalents and investments: Cash equivalents and
investments consist of money market funds invested in securities issued or
guaranteed by the U.S. Treasury and debt instruments including U.S. Treasury
Securities, U.S. Government Agency Securities, high quality commercial paper
and corporate debt. NABI considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Investments are stated at market and unrealized holding gains or losses are
included in the results of operations.
Effective December 31, 1993, NABI adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" and changed its method of accounting and reporting
for investments in debt securities. All investments at adoption were
classified as trading securities based upon the active and frequent buying and
selling of these securities and were classified as short-term investments.
Inventories: Inventories are stated at the lower of cost or market with
cost determined on the first-in first-out (FIFO) method for substantially all
inventories.
51
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Property and equipment: Property and equipment are carried at cost.
Depreciation is recognized on the straight-line method over the estimated
useful lives of the assets. Depreciable lives of property and equipment are as
follows:
[Download Table]
ASSET LIFE
----- ----
Buildings 35-39 years
Furniture and fixtures 5-8 years
Machinery and equipment 5-10 years
Leasehold improvements Lesser of lease term or economic life
Maintenance and repairs are expensed as incurred. Major renewals and
betterments are capitalized as additions to property and equipment. Gain or
loss upon the retirement or sale of property and equipment is reflected
currently in the results of operations.
Excess of acquisition cost over net assets acquired: Excess of
acquisition cost over net assets acquired (goodwill) represents the excess of
cost over the fair value of identifiable assets acquired in business
acquisitions. Goodwill is amortized ratably from the date of acquisition over
periods ranging from ten to 25 years. The carrying value of goodwill is
evaluated periodically in relation to the operating performance and future
undiscounted cash flows of the underlying assets.
Intangible assets: Intangible assets represent the fair value of assets
acquired in business, product and plasma center acquisitions including customer
lists, donor lists, trademarks and trademark registrations, and non-competition
agreements. These costs are amortized ratably from the date of acquisition over
periods ranging from three to 25 years.
Revenue recognition: Revenue is recognized when title and risk of loss is
transferred to the customer, generally as products are shipped. Cash
collections in excess of amounts earned on billings are recorded as deferred
revenue and recognized as services are rendered or products are shipped.
Revenue from research support payments are recognized as the related expenses
are incurred. Milestone payments are recognized as the applicable milestone
is achieved.
Research and development expense: Research and development costs are
expensed as incurred. Amounts payable to third parties under collaborative
product development agreements are recorded at the earlier of the milestone
achievement or as payments become contractually due.
Income taxes: Effective January 1, 1993, NABI adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires a change in the method of accounting for income taxes from the
deferred method to an asset and liability approach. NABI recognized the
cumulative effect of the accounting change as of January 1, 1993. The provision
for income taxes includes federal and state income taxes currently payable and
the change in amounts deferred because of temporary differences between
financial statement and tax bases of assets and liabilities.
Loss per share: Loss per share is determined based on the weighted
average number of shares outstanding during the year. Anti-dilutive common
share equivalents are excluded from the calculation.
52
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Accounting estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Stock based compensation: In October 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
123, ("SFAS 123"), "Accounting for Stock Based Compensation". SFAS 123, the
disclosure provisions of which must be implemented for fiscal years beginning
subsequent to December 15, 1995, establishes a fair value based method of
accounting for stock based compensation plans, the effect of which can either
be disclosed or recorded. NABI intends to adopt the provisions of SFAS 123 in
1996 and upon adoption, retain the intrinsic value method of accounting
for stock based compensation.
Financial instruments: The carrying amounts of financial instruments
including cash and cash equivalents, accounts receivable, accounts payable and
short-term debt approximated fair value as of December 31, 1994 and 1995,
because of the relatively short maturity of these instruments. The carrying
value of long-term debt, including the current portion, approximated fair value
as of December 31, 1994 and 1995, based upon quoted market prices for the same
or similar debt issues.
NOTE 3 TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are comprised of the following:
[Download Table]
DECEMBER 31,
------------------
1994 1995
-------- --------
Trade accounts receivable $23,930 $28,458
Allowance for doubtful accounts (547) (245)
------- -------
$23,383 $28,213
======= =======
NOTE 4 INVENTORIES
The components of inventories are as follows:
[Download Table]
DECEMBER 31,
------------------
1994 1995
-------- --------
Finished goods $16,146 $19,054
Work in process 1,343 1,255
Raw materials 4,120 6,405
------- -------
21,609 26,714
Less: valuation allowance (896) (4,068)
------- -------
$20,713 $22,646
======= =======
53
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment and related allowances for depreciation and amortization
are summarized below:
[Download Table]
DECEMBER 31,
------------------
1994 1995
-------- --------
Land and buildings $ 2,998 $ 5,551
Furniture and fixtures 2,779 3,691
Machinery and equipment 17,152 19,443
Leasehold improvements 9,754 12,055
Construction in progress 3,133 18,311
------- -------
Total property and equipment 35,816 59,051
Less accumulated depreciation and amortization (13,887) (16,354)
------- -------
$21,929 $42,697
======= =======
Machinery and equipment includes certain assets which have been accounted
for as capital leases aggregating $1,400 and $232 at December 31, 1994 and
1995, respectively.
Depreciation and amortization expense during 1993, 1994 and 1995 includes
amortization of assets under capital leases of approximately $309, $308 and
$176, respectively.
Interest capitalized in connection with construction of NABI's
biopharmaceutical facility was $45 and $932 at December 31, 1994 and 1995,
respectively.
NOTE 6 OTHER ASSETS
Other assets consist of the following:
[Download Table]
DECEMBER 31,
------------------
1994 1995
-------- --------
Excess of acquisition cost over net assets acquired $19,155 $22,156
Less accumulated amortization (2,459) (3,274)
------- -------
$16,696 $18,882
======= =======
Intangible assets $13,371 $15,372
Less accumulated amortization (2,756) (4,324)
------- -------
$10,615 $11,048
======= =======
Other $ 6,609 $10,409
Less accumulated amortization (1,669) (2,291)
------- -------
$ 4,940 $ 8,118
======= =======
54
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 7 ACCRUED EXPENSES
Accrued expenses consist of the following:
[Download Table]
DECEMBER 31,
------------------
1994 1995
-------- --------
Employee compensation and benefits $ 4,323 $ 4,437
Deferred revenue 1,857 1,866
Other 5,132 9,694
------- -------
$11,312 $15,997
======= =======
NOTE 8 NOTES PAYABLE
Notes payable consists of the following:
[Download Table]
DECEMBER 31,
------------------
1994 1995
-------- --------
Bank indebtedness:
Term loan $ 9,875 $10,000
Revolving credit facility 7,386 6,760
Flexible term notes 5,063 18,000
Other 2,354 5,469
------- -------
24,678 40,229
Equipment term notes 2,212 1,877
Other 667 788
------- -------
Total notes payable 27,557 42,894
Current maturities (6,667) (17,164)
------- -------
Notes payable, long-term $20,890 $25,730
======= =======
At December 31, 1995, the annual aggregate maturities of debt through the
year 2000 and thereafter were $17,164; $652; $7,009; $2,469; $2,400; and
$13,200, respectively.
NABI's average short-term bank indebtedness was $2,000 and $4,450 for the
years ended December 31, 1994 and 1995, respectively, with weighted average
interest rates of 7.84% and 8.25% for the respective periods.
At December 31, 1995, NABI's bank loan agreement, as amended through
December 20, 1995 provided for a $10,000 term loan, a $27,000 revolving credit
facility under which NABI may borrow to satisfy its working capital
requirements, and an irrevocable letter of credit ("LOC") in the amount of
$18,175 as more fully discussed below. The term loan has a scheduled maturity
of February 15, 1996 and bears interest at prime plus 1.5% or LIBOR plus 2.75%.
The revolving credit facility bears interest on outstanding balances at prime
plus 1.5% or LIBOR plus 2.75% and has a due date of December 31, 1998.
At December 31, 1995, NABI had $18,000 outstanding in flexible term notes
("Flex Notes") under an agreement entered into on December 1, 1994 with a
Trustee to issue the Flex Notes up to a maximum aggregate principal amount of
$18,000. The proceeds were used to finance the construction of a new
biopharmaceutical
55
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
manufacturing facility which also includes NABI's executive offices. The Flex
Notes may have varying interest rates, not to exceed 125% of the 30 day prime
commercial rate, are redeemable by the borrower with the lender's prior consent
and are subject to mandatory sinking fund redemptions of $2,400 annually
beginning January 1, 1999 through 2003 and $1,200 annually thereafter.
Repayment of the principal and interest on the Flex Notes is secured by an
irrevocable LOC issued by NABI's principal lender in the amount of $18,175
under NABI's existing bank loan agreement, as amended. The LOC expires on the
due date of the revolving credit facility and provides for a fee of 2.75% per
annum of the outstanding balances and an unused commitment fee of .5% per
annum.
On November 29, 1995, in connection with the Univax merger (Note 14), NABI
entered into an agreement with an affiliate of its principal bank lender under
which NABI had the right to issue up to $20,000 of subordinated notes
accompanied by detachable warrants until December 31, 1996. Subsequent to
year end, the agreement was terminated without issuance of the subordinated
notes.
At December 31, 1995, the existing credit agreement was secured by
substantially all assets and contains covenants prohibiting dividend payments
and requiring the maintenance of various financial ratios. Other bank
indebtedness includes amounts due for transactional float under the revolving
credit facility.
Equipment term notes outstanding at December 31,1995 bear interest at
rates ranging from 12.2% to 13.1%, are payable in installments through 1999 and
are secured by equipment having a net book value of $1,900 at December 31,
1995.
As more fully discussed in Note 18, subsequent to year end, NABI issued
$80,500 of 6.5% convertible subordinated notes in a private placement. NABI
used a portion of the net proceeds of the notes to pay outstanding bank
indebtedness, including the repayment of all outstanding amounts under its
revolving credit facility and the repayment and cancellation of the $10,000
term loan. NABI will use a portion of the net proceeds for the repayment and
cancellation of the Flex Notes as they mature at varying dates through May 15,
1996. In addition, NABI is currently negotiating an amendment to its existing
revolving credit facility for minimum availability of $20,000 and expects to
reduce its borrowing costs and eliminate or relax certain restrictive financial
covenants under the renegotiated credit agreement. The aggregate annual
maturities of debt from 1997 through the year 2000 and thereafter after giving
effect to this refinancing are $652; $249; $69; $0 and $80,500.
NOTE 9 STOCKHOLDERS' EQUITY
Common Stock
As more fully discussed in Note 14, effective November 29, 1995, NABI
issued approximately 14,173,508 shares of its common stock in exchange for all
of the outstanding common and preferred stock of Univax. The exchange ratio was
.79 to 1 for the common shares and 1.047 to 1 for the preferred shares.
In August 1993, NABI issued 502,512 shares of preferred stock (Univax
Series E Preferred Stock) to a single shareholder for $5,000. These shares
which were entitled to participate ratably in any dividends declared and paid
on common stock, carried a liquidation preference and had a conversion price
of $9.95 per share, were converted into 526,130 million shares of NABI common
stock pursuant to the merger.
56
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
In December 1993, NABI sold approximately 1 million shares of its common
stock in private placement transactions yielding net proceeds of $9,972. On
January 27, 1994, NABI issued approximately 2.3 million shares of common stock
in connection with an acquisition discussed in Note 14. In September 1994,
NABI sold approximately 3.1 million shares of common stock in a public offering
to institutional investors yielding net proceeds of $21,534. In October 1994,
NABI completed an underwritten public offering of its common stock in which
approximately 2.9 million shares were sold by NABI and 1.9 million shares were
sold by two selling stockholders. Net proceeds from the offering were
approximately $19,300 and were used to satisfy various debt obligations.
In connection with the early retirement of debt in October 1994, NABI
incurred an extraordinary charge of $717 or $.03 per share resulting from the
immediate recognition and expense of the debt discount and deferred debt issue
costs associated with the obligation.
The note receivable from stockholder in the amount of $126 at December 31,
1994, bore interest at prime and was secured by a pledge of 36,783 shares of
NABI common stock.
Effective January 1995, NABI increased its authorized common stock from 20
million to 50 million and in November 1995 to 75 million shares.
Warrants
At December 31, 1993, NABI had warrants outstanding for the purchase of
approximately 1.5 million shares of its common stock with exercise prices of
$3.25 per share, subject to antidilution adjustments. In connection with the
October 1994 public offering discussed above, warrants to purchase 750,000
shares were exercised and warrants to purchase 766,000 shares were repurchased
by NABI.
In November 1995, NABI issued a warrant to purchase 100,000 shares of its
common stock to an affiliate of its principal bank lender in connection with an
agreement whereby NABI had the right to issue up to $20 million in
subordinated notes (Note 8). The warrants are exercisable at $9.82 per share
and expire on December 31, 2000.
Stock Purchase Plan
During 1991, NABI adopted an employee stock purchase plan which was
terminated effective November 29, 1995 in connection with the Univax merger
(Note 14). The plan provided for the purchase of common stock by employees at
a price equal to 85% of the fair market value of such stock. As of November
29, 1995, 41,830 common shares were issued to employees under this plan.
Stock Options
NABI maintains three stock option plans for its employees. Under these
plans, NABI has granted options to certain employees entitling them to purchase
shares of common stock within ten years. The options vest over periods ranging
from six months to five years from the date of grant and are granted with
exercise prices equal to or greater than the fair market value of the
underlying common stock on the date of grant.
57
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NABI has granted 300,200 non-qualified options to its consultants and
directors under terms and conditions similar to the employee stock option
plans.
During May 1995, the stockholders of NABI adopted the Stock Plan for
Non-Employee Directors (the "Directors Plan"). NABI granted options under the
Director's Plan to certain directors entitling them to purchase shares of NABI
common stock within five years, vesting at six months after the date of grant
and at an option price equal to the fair market value of the underlying common
stock at the date of grant. Also, during May 1995, the stockholders of Univax
approved the 1995 Director's Stock Option Plan (the "Univax Director's Plan")
for the former directors of Univax. Under the Univax Director's Plan, options
to purchase 27,650 shares of common stock were granted, all of which were
exercised prior to the effective date of the Univax merger upon which date the
plan was terminated.
At December 31, 1995, there were options outstanding under all NABI's
stock plans to acquire 3.1 million shares of its common stock of which 1.4
million were then exercisable. At December 31, 1995, under the plans, 2.2
million shares of common stock are reserved for future issuance. Information
with respect to stock options granted to purchase common stock (thousands)
under these plans as of December 31, 1995 is presented below:
[Download Table]
OPTIONS EXERCISE PRICE
------- --------------
BALANCE AT DECEMBER 31, 1992 2,525 $ .63-$10.13
Granted 588 $2.31-$12.97
Exercised or canceled (326) $ .19-$12.97
------- ------------
BALANCE AT DECEMBER 31, 1993 2,787 $ .19-$12.97
Granted 991 $2.64-$10.76
Exercised or canceled (724) $ .19-$12.97
------- ------------
BALANCE AT DECEMBER 31, 1994 3,054 $ .19-$12.97
Granted 1,029 $5.38-$11.00
Exercised or canceled (1,029) $ .19-$12.97
------- ------------
BALANCE AT DECEMBER 31, 1995 3,054 $ .19-$12.97
======= ============
In connection with the merger of Univax into NABI, certain employees'
stock options were vested in connection with the termination of their
employment.
The Company has recorded compensation in connection with these plans of
$116, $105 and $657 in 1993, 1994 and 1995, respectively.
58
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 10 INCOME TAXES
Effective January 1, 1993, NABI changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Loss before provision for income taxes, cumulative effect of change in
accounting for income taxes and extraordinary charge was taxed under the
following jurisdictions:
[Download Table]
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
---- ---- ----
Domestic ($14,912) ($6,612) ($9,148)
Foreign --- (808) (1,726)
-------- ------- --------
Total ($14,912) ($7,420) ($10,874)
======== ======= ========
The provision for income taxes consists of the following:
[Enlarge/Download Table]
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
---- ---- ----
Current
Federal $1,506 $4,928 $5,926
State 266 657 730
------ ------ ------
1,772 5,585 6,656
------ ------ ------
Deferred
Federal (385) (180) (771)
State (6) (17) (35)
------ ------ ------
(391) (197) (806)
------ ------ ------
Benefit from utilization of net operating loss
carryforward 526 --- ---
Benefit charged directly to equity from exercise
of stock options and warrants 59 368 819
Acquired tax benefit used to reduce intangible assets 22 18 18
------ ------ ------
$1,988 $5,774 $6,687
====== ====== ======
59
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Deferred tax assets (liabilities) are comprised of the following:
[Download Table]
DECEMBER 31,
--------------------------------------------
1993 1994 1995
-------- --------- ---------
DEFERRED TAX ASSETS:
NOL carryforward $15,200 $17,528 $18,338
Capitalized research and
development --- 6,162 12,712
Research tax credit 1,200 2,190 2,801
Inventory reserve and
capitalization 278 452 1,518
Amortization 409 911 1,090
Bad debt reserve --- 197 126
Depreciation --- 142 523
Accrued vacation 207 151 259
Foreign tax credits 111 111 111
Other 362 674 223
------- ------- -------
17,767 28,518 37,701
Valuation allowance (16,855) (26,676) (34,635)
------- ------- -------
Deferred tax assets 912 1,842 3,066
DEFERRED TAX LIABILITIES:
Amortization (145) (533) (937)
Depreciation (87) --- ---
Other --- (27) (72)
------- ------- -------
Deferred tax liabilities (232) (560) (1,009)
------- ------- -------
Net deferred tax assets $ 680 $ 1,282 $ 2,057
======= ======= =======
As more fully discussed in Note 14, in November 1995, Univax was merged
with and into NABI. The merger qualifies as a tax free reorganization within
the meaning of Section 368 of the Internal Revenue Code of 1986, as amended.
Univax's premerger deferred tax assets will be available to offset the future
taxable income of NABI, subject to certain annual limitations. The Univax
premerger deferred tax assets primarily include capitalized research and
development expense, research tax credit carryforwards, and net operating loss
carryforwards ("NOL").
At December 31, 1995, the valuation allowance relates primarily to the
NOLs and capitalized research and development expenditures. The NOLs and
research tax credit carryforwards expire in varying amounts through the year
2010.
60
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The significant elements contributing to the difference between the
federal statutory tax rate and the effective tax rate are as follows:
[Download Table]
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------ ------ ------
Federal statutory rate (35.0)% (35.0)% (35.0)%
State income taxes, net of federal benefit 1.2 5.7 4.1
Goodwill and other amortization 1.1 1.7 2.3
Foreign trade income (1.1) (3.5) (5.1)
Foreign loss --- 3.9 5.7
Merger transaction cost --- --- 19.0
Premerger losses 52.2 20.7 14.9
Capitalized research and development --- 80.7 60.2
Other (5.1) 3.6 (4.6)
----- ----- -----
13.3% 77.8% 61.5%
===== ===== =====
The Internal Revenue Service completed its audit of NABI's 1990 income tax
returns during 1993 without material change and is currently conducting an
audit of NABI's 1992 tax return. The Company does not expect a material change
as a result of the audit.
NOTE 11 LEASES
NABI conducts a majority of its operations under operating lease
agreements. Certain laboratory and office equipment leases are accounted for
as capital leases. The majority of the related lease agreements contain
renewal options which enable NABI to renew the leases for periods of two to
five years at the then fair rental value at the end of the initial lease term.
Management expects that the leases will be renewed or replaced in the normal
course of business.
Rent expense was approximately $2,251, $3,854 and $5,225 for the years
ended December 31, 1993, 1994 and 1995, respectively.
As of December 31, 1995, the aggregate future minimum lease payments under
all noncancelable operating leases with initial or remaining lease terms in
excess of one year are as follows:
[Download Table]
YEAR ENDING DECEMBER 31,
------------------------
1996 $ 5,213
1997 4,900
1998 4,424
1999 3,828
2000 3,137
Thereafter 6,831
-------
Total minimum lease commitments $28,333
=======
61
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 12 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
The acquisition of PBI described in Note 14 resulted in the following
non-cash financing and investing activities:
[Download Table]
1994
------
Contingent purchase price obligation $1,164
Issuance of NABI common stock 8,395
Bank and other indebtedness assumed 6,920
Liabilities assumed 4,174
NOTE 13 RELATED PARTY TRANSACTIONS
Effective September 30, 1992, NABI acquired H-BIG (Hepatitis B immune
globulin) a proprietary plasma-based product from Abbott Laboratories
("Abbott"), in consideration of 2 million shares of NABI common stock valued
at $3,854 and royalties based upon product sales. The shares of NABI common
stock issued to Abbott were not registered under the federal securities laws
and therefore were subject to restrictions on transfer. With respect to its
investment in NABI, Abbott has agreed to various standstill measures, including
agreements not to acquire additional shares without approval of NABI's Board of
Directors and to vote its shares on most matters in the same proportion as
other stockholders.
In November 1992, Abbott transferred to NABI all of its rights to HIV-IG
(HIV immune globulin), an experimental product, which may prevent the
transmission of AIDS to unborn infants whose mothers are HIV-positive.
Consideration for the product will be future royalties based upon commercial
sales.
Related party transactions with Abbott for the years ended December 31,
1993, 1994 and 1995 are summarized below:
[Download Table]
1993 1994 1995
------ ------ ------
Sales of plasma-related products and testing services $4,436 $6,103 $4,574
Purchases of diagnostic, therapeutic and testing products 8,735 11,260 8,516
Product royalty obligations 1,545 1,426 1,977
Product distribution fees 136 120 52
At December 31, 1994 and 1995, trade accounts receivable from Abbott
totaled $1,465 and $845, respectively, and accounts payable to Abbott
aggregated $625 and $650, respectively.
NOTE 14 MERGERS AND ACQUISITIONS
On January 27, 1994, NABI acquired PBI. PBI's principal business
activities have been the collection and sale of human plasma. The acquisition
was accounted for by the purchase method and accordingly, the results of
operations of PBI are included with those of NABI for periods subsequent to the
date of acquisition. The acquisition cost of PBI aggregated approximately
$21,000 and was funded through the issuance of approximately 2.3 million shares
of NABI common stock valued at approximately $8,000, the assumption of various
liabilities of PBI aggregating approximately $12,000 and an additional
contingent purchase price obligation of approximately
62
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
$1,000. In connection with the acquisition, NABI amended its bank credit
agreement with its principal lender, the proceeds of which were used to repay
PBI's existing bank indebtedness of approximately $6,500. Approximately $8,100
in acquisition cost over net assets acquired is being amortized ratably over 25
years. In connection with the acquisition, NABI entered into a five-year
contract to supply a substantial portion of plasma produced by PBI to a single
customer. This customer also entered into a three-year contract to purchase
additional plasma from NABI.
Effective November 29, 1995, Univax, a publicly traded biopharmaceutical
company, was merged with and into NABI. Under the terms of the agreement,
Univax's common stockholders received .79 of a share of NABI's common
stock for each Univax share. Accordingly, NABI issued 13,647,378 shares of
common stock for the outstanding shares of Univax common stock. Additionally,
Univax's preferred stockholder received 1.047 shares of NABI's common
stock for each preferred share. Accordingly, NABI issued 526,130 shares of its
common stock for the outstanding shares of Univax preferred stock. The merger
was accounted for as a pooling of interests and qualifies as a tax free
reorganization under the Internal Revenue Service regulations.
Combined and separate results of NABI and Univax during the periods
preceding the merger were as follows (in thousands):
[Enlarge/Download Table]
NABI UNIVAX ADJ. COMBINED
-------- -------- ---------- ---------
FISCAL YEAR ENDED DECEMBER 31, 1993
Revenues $101,574 $1,181 $ --- $102,755
Net income (loss) 3,505 (20,305) --- (16,800)
Other changes in stockholders' equity, net 560 15,198 --- 15,758
FISCAL YEAR ENDED DECEMBER 31, 1994
Revenues $164,678 $2,783 $ (252) $167,209
Net income (loss) 7,910 (21,821) --- (13,911)
Other changes in stockholders' equity, net 25,873 21,722 --- 47,595
NINE MONTHS ENDED SEPTEMBER 30, 1995
Revenues $141,542 $6,768 $(1,576) $146,734
Net income (loss) 9,930 (16,998) --- (7,068)
Other changes in stockholders' equity, net 41 354 --- 395
The combined financial results presented above have been adjusted to
eliminate intercompany sales.
NABI recorded a charge of approximately $6,000 in the fourth quarter of
1995 related to the merger and accrued liabilities at December 31, 1995 include
approximately $2,000 in merger related expenses.
NOTE 15 PRODUCT DEVELOPMENT AND LICENSING AGREEMENTS
NABI has entered into product development and licensing agreements with
certain collaborators. Under these agreements, NABI has made payments for
contract initiation, milestone achievements, cost reimbursements and profit
sharing and it is obligated to make future payments under these agreements if
certain contractual conditions are achieved. In addition, NABI has received
equity funding, milestone payments and development cost reimbursements under
a certain collaborative agreement.
63
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
In connection with an exclusive licensing agreement to market and
distribute WinRho SD in the U.S. through March 2005, NABI is obligated to
expend a minimum of $3,000 for marketing and selling expenses in each of the
years ending May 1996 and 1997. In addition, NABI has agreed to loan the
manufacturer of WinRho SD fifty percent of the cost of capital improvements
to its manufacturing facility up to $3,000, of which $1,300 was advanced at
December 31, 1995.
During the years ended December 31, 1993, 1994 and 1995, NABI incurred
obligations under these agreements of $1,660, $250 and $900, respectively,
including a contract initiation payment of $1,500 in the fourth quarter of
1995.
During the years ended December 31, 1993, 1994 and 1995, NABI received
payments under a certain collaboration agreement of $6,100, $2,759 and $6,051,
respectively, which included a $5,000 equity investment in 1993.
NOTE 16 COMMITMENTS AND CONTINGENCIES
NABI has been named with various other defendants in numerous suits filed
in the U.S. and Canada brought by 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 Company denies all allegations against it, and intends to vigorously
defend the cases. Management believes that the ultimate resolution of these
matters will not have a material adverse effect on NABI's financial position or
results of operations. At December 31, 1995, NABI and its subsidiaries were
also parties to certain routine claims and litigation occurring in the normal
course of business.
At December 31, 1995, NABI had outstanding purchase commitments with a
principal supplier which expire through September 1999. Under the agreement,
NABI is obligated to purchase goods from the supplier aggregating
approximately $21,942 in fiscal 1996 through fiscal 1998 and $16,457 in fiscal
1999.
NABI is committed to purchase the entire plasma production of certain
contract centers through 1999.
NOTE 17 INDUSTRY SEGMENT INFORMATION
NABI operates in four principal industry segments. Plasma consists of the
operation of plasma collection centers for the collection and processing of
source and specialty plasmas. Immunotherapeutic products consists of
proprietary plasma-based immune globulin therapeutic products. Diagnostic
products and services is composed primarily of the production and sale of human
plasma-based control and diagnostic products and the performance of laboratory
testing services. Research and development includes expenses incurred under
collaborative product development agreements and periodic reimbursements for a
portion of NABI's research activities and attainment of specified milestones.
Corporate and other includes the elimination of income on inter-segment sales,
unallocated general corporate expenses and interest, including amortization of
debt discount.
Net export sales in 1993, 1994 and 1995 were $51,722, $62,788, and
$73,286, respectively, and represented 50%, 38% and 36% of consolidated sales
for those years, respectively. Export sales are primarily to Europe. Plasma
sales to unaffiliated customers (Immuno and Centeon for 1993, Baxter, Immuno
and Centeon for 1994 and Baxter, Bayer and Immuno for 1995) exceeding 10% of
consolidated sales aggregated 34%, 48% and 46% of sales in 1993, 1994 and 1995,
respectively.
64
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Information regarding NABI's operations and identifiable assets in the
different industry segments is as follows:
[Download Table]
1993 1994 1995
--------- ---------- ---------
SALES TO UNAFFILIATED CUSTOMERS:
Plasma $ 82,129 $140,175 $166,513
Immunotherapeutic products 5,876 8,697 18,320
Diagnostic products and services 9,133 9,451 6,521
Research and development 1,181 2,783 6,036
-------- -------- --------
98,319 161,106 197,390
SALES TO AFFILIATED CUSTOMERS:
Plasma 3,071 3,512 2,992
Immunotherapeutic products 681 598 270
Diagnostic products and services 684 1,993 1,312
-------- -------- --------
4,436 6,103 4,574
-------- -------- --------
Total sales $102,755 $167,209 $201,964
======== ======== ========
OPERATING PROFIT (LOSS):
Plasma $ 10,997 $ 19,424 $ 23,091
Immunotherapeutic products 2,942 4,433 4,595
Diagnostic products and services (140) 2,910 2,189
Research and development (17,089) (17,599) (20,208)
Corporate and other (9,503) (13,660) (19,340)
-------- -------- --------
($12,793) ($4,492) ($9,673)
======== ======== ========
IDENTIFIABLE ASSETS:
Plasma $ 38,936 $ 72,250 $ 85,954
Immunotherapeutic products 6,522 11,108 27,927
Diagnostic products and services 4,965 6,210 5,638
Research and development 7,725 6,978 6,988
Corporate and other 33,311 35,543 11,468
-------- -------- --------
$ 91,459 $132,089 $137,975
======== ======== ========
CAPITAL EXPENDITURES:
Plasma $ 816 $ 2,576 $ 2,529
Immunotherapeutic products 365 1,620 15,667
Diagnostic products and services 377 282 1,004
Research and development 2,000 1,382 1,124
Corporate and other 473 2,470 4,063
-------- -------- --------
$ 4,031 $ 8,330 $ 24,387
======== ======== ========
DEPRECIATION AND AMORTIZATION EXPENSE:
Plasma $ 1,825 $ 3,254 $ 3,781
Immunotherapeutic products 232 252 382
Diagnostic products and services 405 411 391
Research and development 1,548 1,770 1,883
Corporate and other 613 632 522
-------- -------- --------
$ 4,623 $ 6,319 $ 6,959
======== ======== ========
65
NABI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
NOTE 18 SUBSEQUENT EVENT
During the first quarter of 1996, NABI issued $80,500 of 6.5% convertible
subordinated notes due February 1, 2003 ("Notes") in a private placement. The
Notes are convertible into NABI common stock at a conversion price of $14 per
share at any time after 60 days following the date of original issuance and
prior to maturity, unless previously redeemed or repurchased. At any time on
or after February 4, 1999, the Notes may be redeemed at NABI's option. A total
of 5,750,000 shares of common stock have been reserved for issuance upon
conversion of the Notes. NABI has utilized the net proceeds of the offering to
repay a $10,000 term loan, approximately $12,200 under a revolving credit
facility and $5,500 of an $18,000 flexible term notes facility. The remaining
flexible term notes will be satisfied at serial maturity through May 1996. The
balance of the net proceeds from the sale of the Notes will be used for capital
expenditures and for general corporate purposes.
In connection with the early extinguishment of the bank debt through the
application of the net proceeds of the notes, NABI will incur an extraordinary
charge of approximately $932 in the first quarter of 1996.
NOTE 19 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
[Enlarge/Download Table]
PER SHARE DATA
-----------------------------------------------
LOSS BEFORE LOSS BEFORE
GROSS EXTRAORDINARY EXTRAORDINARY EXTRAORDINARY
SALES MARGIN CHARGE NET LOSS CHARGE CHARGE NET LOSS
------------------------------------------------------------------------------------------------------------------------------------
1994
1st Quarter $ 36,439 $ 8,155 ($2,933) ($2,933) ($0.11) --- ($0.11)
2nd Quarter 42,133 8,962 (3,792) (3,792) (0.14) --- (0.14)
3rd Quarter 43,994 9,217 (3,705) (3,705) (0.13) --- (0.13)
4th Quarter 44,643 9,683 (2,764) (3,481) (0.08) (0.03) (0.11)
-------- ------- -------- -------- ------ ------ ------
$167,209 $36,017 ($13,194) ($13,911) ($0.47)(1) ($0.03) ($0.50)(1)
======== ======= ======== ======== ====== ====== ======
1995
1st Quarter $ 48,128 $11,118 ($1,830) ($1,830) ($0.05) --- ($0.05)
2nd Quarter 48,975 11,941 (2,529) (2,529) (0.08) --- (0.08)
3rd Quarter 49,631 12,360 (2,709) (2,709) (0.08) --- (0.08)
4th Quarter 55,230 14,397 (10,493)(2) (10,493)(2) (0.31) --- (0.31)
-------- ------- -------- -------- ------ ------ ------
$201,964 $49,816 ($17,561) ($17,561) ($0.52) --- ($0.52)
======== ======= ======== ======== ====== ====== ======
(1) The quarterly per share amounts do not aggregate to the total per share
amounts for 1994 due to fluctuations in the weighted average shares
outstanding.
(2) During the fourth quarter of 1995, NABI recorded a valuation allowance
to reserve for development stage inventories which have no assurance of
commercial viability.
66
NABI
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(THOUSANDS)
[Enlarge/Download Table]
ADDITIONS
-----------------------
CHARGED TO DEDUCTIONS
BALANCE AT CHARGED TO OTHER ------------------
BEGINNING OF COSTS AND ACCOUNTS- WRITE-OFFS CHARGED BALANCE AT
CLASSIFICATION PERIOD EXPENSES PROVISION AGAINST RESERVE END OF PERIOD
--------------------------------------------- ------------ ---------- ---------- ------------------ -------------
Year ended December 31, 1993:
Allowance for doubtful accounts............ $ 151 $ 22 -- $ 48 $ 125
=========== ========== ========== ================= =============
Deferred tax asset valuation allowance..... -- -- $ 16,855 -- $16,855
=========== ========== ========== ================= =============
Inventory valuation allowance.............. $ 453 $ 109 -- $ 183 $ 379
=========== ========== ========== ================= =============
Year ended December 31, 1994:
Allowance for doubtful accounts............ $ 125 $ 422 -- -- $ 547
=========== ========== ========== ================= =============
Deferred tax asset valuation allowance..... $ 16,855 -- $ 9,821 -- $26,676
=========== ========== ========== ================= =============
Inventory valuation allowance.............. $ 379 $ 801 -- $ 284 $ 896
=========== ========== ========== ================= =============
Year ended December 31, 1995:
Allowance for doubtful accounts............ $ 547 $ (86) -- $ 216 $ 245
=========== ========== ========== ================= =============
Deferred tax asset valuation allowance..... $ 26,676 -- $ 7,959 -- $34,635
=========== ========== ========== ================= =============
Inventory valuation allowance.............. $ 896 $4,186 -- $1,014 $ 4,068
=========== ========== ========== ================= =============
67
EXHIBIT INDEX
[Enlarge/Download Table]
2 Agreement and Plan of Merger dated August 28, 1995 between NABI and Univax Biologics, Inc. (incorporated by
reference to NABI's Registration Statement on Form S-4; Commission File No. 33-63497)...........................
3.1* Restated Certificate of Incorporation of NABI...................................................................
3.2 By-Laws (incorporated by reference to NABI's Registration Statement on Form S-4;
Commission File No. 33-63497) ..................................................................................
4.1 Specimen Stock Certificate (incorporated by reference to NABI's Registration Statement
on Form S-2; Commission File No. 33-83096) .....................................................................
4.2* Indenture between NABI and State Street Bank and Trust Company, dated as of
February 1, 1996................................................................................................
4.3* Registration Rights Agreement by and between NABI and Robertson, Stephens & Company
LLC and Raymond James & Associates, Inc., dated as of February 1, 1996..........................................
10.1 Third Amended and Restated Revolving Credit and Term Loan Agreement between
NationsBank, National Association (South) (f/k/a NationsBank of Florida, National
Association) ("NationsBank") and NABI dated December 1, 1994 (incorporated by reference
to NABI's Annual Report on Form 10-K for the year ended December 31, 1994)......................................
10.2 Waiver and Amendment, dated December 30, 1994, of Section 8.09(e) of Third Amended and
Restated Revolving Credit, Term Loan and Reimbursement Agreement between NationsBank
and NABI dated as of December 1, 1994 (incorporated by reference to NABI's Registration
Statement on Form S-4; Commission File No. 33-63497) ..........................................................
10.3 Amendment No. 1 to Third Amended and Restated Revolving Credit Term Loan and
Reimbursement Agreement between NationsBank and NABI dated March 31, 1995
(incorporated by reference to NABI's Registration Statement on Form S-4; Commission
File No. 33-63497) ............................................................................................
10.4* Amendment Nos. 3 and 4 to Third Amended and Restated Revolving Credit Term Loan and
Reimbursement Agreement between NABI and NationsBank dated as of November 29, 1995
and December 20, 1995, respectively.............................................................................
10.5 Shareholder Agreement effective as of September 30, 1992 between NABI and Abbott
Laboratories (incorporated by reference to NABI's Annual Report on Form 10-K for the
year ended December 31, 1992)...................................................................................
10.6 Shareholder Agreement between CGW Southeast Partners I, L.P. and NABI dated January 25,
1994 (incorporated by reference to NABI's Registration Statement on Form S-2; Commission
File No. 33-83096) .............................................................................................
10.7 Plasma Supply Agreement dated January 1, 1994 between Baxter Healthcare Corporation
and NABI (confidential treatment) (incorporated by reference to NABI's Registration
Statement on Form S-2; Commission File No. 33-83096) ...........................................................
68
[Enlarge/Download Table]
10.8 Plasma Supply Agreement II dated January 1, 1994 between Baxter Healthcare Corporation,
Hyland Division, and NABI (confidential treatment) (incorporated by reference to NABI's
Registration Statement on Form S-2; Commission File No. 33-83096) .............................................
10.9 Agreement effective January 1, 1994 between NABI and Immuno Trading AG (confidential treatment)
(incorporated by reference to NABI's Registration Statement on Form S-2;
Commission File No. 33-83096) .................................................................................
10.10 Plasma Supply Agreement dated September 8, 1992 and letter dated November 1, 1993 from
Behringwerke AG to NABI (confidential treatment) (incorporated by reference to NABI's
Registration Statement on Form S-2; Commission File No. 33-83096)..............................................
10.11 Supply Agreement dated May 1, 1993 between NABI and Intergen Company L.P. (confidential
treatment) (incorporated by reference to NABI's Registration Statement on Form S-2;
Commission File No. 33-83096) ................................................................................
10.12 Lease Agreements dated December 11, 1990, as modified on May 23, 1994 between NABI
and Angelo Napolitano, Trustee, for certain real property located at 16500 N.W. 15th Avenue,
Miami, Florida (incorporated by reference to NABI's Registration Statement on Form S-2;
Commission File No. 33-83096) .................................................................................
10.13 Lease Agreement dated March 31, 1994 between NABI and Angelo Napolitano, Trustee, for
certain real property located at 16500 N.W. 15th Avenue, Miami, Florida (incorporated by
reference to NABI's Registration Statement on Form S-2; Commission
File No. 33-83096) ............................................................................................
10.14 Employment Agreement dated January 1, 1993 between NABI and David J. Gury (incorporated
by reference to NABI's Annual Report on Form 10-K for the year ended
December 31, 1992) ............................................................................................
10.15 Employment Agreement dated January 27, 1994 between John C. Carlisle and NABI
(incorporated by reference to NABI's Registration Statement on Form S-2; Commission File
No. 33-83096) .................................................................................................
10.16 Employment Agreement effective August 1, 1995 between NABI and Alfred J. Fernandez
(incorporated by reference to NABI's Registration Statement on Form S-4; Commission File
No. 33-63497) ................................................................................................
10.17 Employment Agreement effective August 1, 1995 between NABI and Stephen W. Weston
(incorporated by reference to NABI's Registration Statement on Form S-4; Commission File
No. 33-63497) .................................................................................................
10.18* Employment Agreement effective December 1, 1995 between NABI and Robert B. Naso...................................
10.19* Employment Agreement effective December 1, 1995 between NABI and Thomas P. Stagnaro ...........................
10.20* Separation Agreement effective January 5, 1996 between NABI and Raj Kumar......................................
10.21 1990 Equity Incentive Plan (incorporated by reference to NABI's Registration Statement on
Form S-4; Commission File No. 33-63497) .......................................................................
10.22 Amended and Restated Incentive Stock Option Plan adopted in 1993 (incorporated by reference
to NABI's Annual Report on Form 10-K for the year ended December 31, 1992) ...................................
69
[Enlarge/Download Table]
10.23 Stock Plan for Non-Employee Directors (incorporated by reference to NABI's Proxy
Statement dated April 26, 1995) ..............................................................................
21* Subsidiaries of the Registrant ...............................................................................
23* Consent of Independent Certified Public Accountants ...........................................................
27* Financial Data Schedule (for SEC use only) ....................................................................
----------------
* Filed herewith
70
Dates Referenced Herein and Documents Incorporated by Reference
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