big move today!!!!!!
Stock of the Day
Jul 15, 1999
NABI: Recovering from New Drugs
by Glenn S. Curtis and Julia Muller 7/15/99
It looks like Nabi (NASDAQ:NABI - news) is about to return to the black.
The $243 million in revenue company is expected to report a profit for the
second quarter, its first since the second quarter of 1997.
As a result, its stock, which sank from a high of more than $13 a few years ago to as low as a buck, has
been rallying of late. It closed Wednesday at $4.
Nabi gets about 80% of its revenue from plasma products and roughly 20% from three drugs. Declining
revenue, increased R&D expenditures and doubt among investors about the logic of its 1995 merger with
Univax Bioglogics, a money losing biopharmaceutical company, knocked down its shares and put the
company into the red.
Most of its problems have stemmed from delays in approval of its drugs.
However, in late March the company received approval from the Food & Drug Administration (FDA) for
Nabi-HB, used for the treatment of hepatitis B, a well-known affliction that is estimated to affect up to
300 million people. Nabi-HB is a follow up to H-Big, a product that was acquired from Abbott Labs
(NYSE:ABT - news) in 1992, and was sold until the third quarter (September) of 1998, when Nabi's
inventory of the product was exhausted.
"As with H-Big, we expect that Nabi-HB will be the company's most profitable pharmaceutical," predicts
a report from boutique Select Equity Group.
Profits should also be driven in part from its other two drugs. WinRho is an approved product for ITP.
ITP is a shortened acronym for a condition that destroys the platelets in the blood and leads to
uncontrolled bleeding. Autoplex is an anti-inhibitor coagulant that in layman's terms helps the clotting of a
hemophiliac's blood.
The company should also enjoy slightly higher plasma prices.
In addition, R&D expenses should come down due to layoffs. As the top line grows, gross margins are
expected to increase from an estimated 25% in 1999 to more than 28% in 2000.
Meanwhile, in June the company announced that it had acquired the exclusive distribution rights for
Aloprim from Catalytica Pharmaceuticals (NASDAQ:CTAL - news) . Aloprim is used to manage patients
with leukemia, lymphoma and solid tumor malignancies who are receiving cancer therapy and who suffer
from elevated uric acid levels.
Meanwhile NABI has two other potentially promising drugs in early stages of development, including
Nicvax, a vaccine for nicotine addiction, and Civacir, a product that helps to eliminate hepatitis C from the
blood. The company is seeking out potential joint ventures to develop these products. CFO Thomas
McLain feels that such a partnership, "while not guaranteed could be attained by the end of this year." If
the company does hook up with a partner, it may receive up-front cash, which would provide needed
assistance for its R&D.
Insiders certainly think that the stock has a lot more room to run. Officers and directors purchased more
than 40,000 shares at prices ranging from $2.56 to $3 since March.
Be careful, however. The company has two potential sources of dilution.
First, there is $80.5 million of convertible notes outstanding that have a coupon of 6.5%. However, the
debt is convertible into common shares at a price of $14 per share. The company is likely to repay some
of this debt through its cash flow. Given the common's current price, however, we hardly consider the
threat of a conversion imminent.
There are also warrants outstanding to purchase 100,000 common shares at $9.82 per share. They expire
at the end of next calendar year. We do not see this as a dilution threat in the near-term.
In 1999 the company has the ability to generate approximately $255 million in revenue, and $0.12 to
$0.15 per share in earnings. In 2000 revenue is expected to increase to $285 million, a jump of 11.7%.
Earnings are expected to increase to $0.21 per share.
If these numbers come in, the stock is currently trading at less than 17 times 2000 estimates.
Bottom Line:
Nabi is a high risk, high reward investment opportunity. If the company is able to grow its existing product
line, take advantage of its new product Nabi-HB, and obtain a corporate partnership for any one of its
products in the pipeline, we think investors in this small cap company will be richly rewarded. |
