Nabi Hews to Vaccine Dream

Investors will learn soon if the company's bacteria fighter is making progress.
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Just a few weeks from now, a small drug company with big ambitions will disclose if its dream has moved closer to the real marketplace.

Nabi Biopharmaceuticals

(NABI)

, of Boca Raton, Fla., is trying to create the first vaccine that would prevent some of the carnage caused by the bacteria Staphylococcus aureus, the leading cause of hospital-based infections.

Nabi is testing its StaphVax vaccine on kidney dialysis patients, who are at high risk of developing bacterial infections. If the results are favorable, Nabi expects to seek approval by the Food and Drug Administration by year-end.

Additionally, the company could learn by the end of the year if the FDA's counterpart at the European Union will clear the vaccine for preventing infections in patients requiring kidney dialysis. Nabi filed the EU application in December.

"Crunch time for Nabi," says a Sept. 14 research note from Wachovia Securities' analyst Martin D. Auster, who predicts the clinical trial has a 60% to 65% chance of success.

A flurry of "key management hires" in recent months provides "anecdotal support" of Nabi's confidence in the vaccine, says Auster. He doesn't own shares, but his firm has an investment banking relationship with the company.

Auster says the stock will trade in a $13-to-$17 range.

The clinical trial "is the most important upcoming milestone for Nabi," says Dallas Webb of Stanford Research Group, in a Sept. 13 report to clients. Webb, who has a buy rating, says there's an 85% probability of success, and that Nabi's stock could vault into the $20 range. He doesn't own shares of the company.

Nabi's stock closed at $13.19 on Thursday, about midway between its 52-week high and low.

A Dangerous Enemy

One would be hard-pressed to find something as pernicious as Staphylococcus aureus. The bacteria "is arguably the most important cause of life-threatening bacterial infections in the developed world," says Sagient Research Systems of San Diego in a recent report by its BioMedTracker, which analyzes biotech products and prospects.

S. aureus is becoming increasingly resistant to antibiotics such as methicillin, oxacillin, penicillin and amoxicillin, according to the federal Centers for Disease Control and Prevention. There are even instances where it has developed resistance to vancomycin, the so-called antibiotic of last resort.

S. aureus can cause anything from boils to food poisoning. In its most lethal incarnations, it can enter the bloodstream, causing sepsis, toxic shock syndrome or the heart infection endocarditis. The bacteria can cause pneumonia, meningitis and urinary tract infections.

A recent report by Thomas Weisel Partners predicts a successful vaccine could annually prevent up to 2,700 deaths and save $475 million in bacteria-caused treatment costs just for kidney dialysis patients.

And even though several companies are working on the next generation of antibiotics, "there are concerns that the bacteria can mutate to become resistant to these newer agents as well," Sagient Research says. That's why Nabi's focus on prevention sounds so attractive.

Words of Caution

Despite its prospects, StaphVax faces hurdles along the path from research to commerce. One question involves an earlier clinical trial that didn't produce the type of clear-cut, slam-dunk results Wall Street likes to see in order to justify issuing strong-buy recommendations.

"Because the European Union filing for StaphVax is based on a pivotal

clinical trial that did not reach its primary endpoint, we believe there is a possibility of delay, albeit small," says Joe Slavinsky of Thomas Weisel in a recent research report. He doesn't own shares.

In this test of 1,804 kidney disease patients, Nabi compared its vaccine with a placebo, gauging how StaphVax could cut the rate of bacteremia -- a blood infection -- caused by S. aureus.

The test failed to meet its primary goal. Even though StaphVax reduced the bacteremia rate by 23% vs. a placebo after 54 weeks, the reduction wasn't statistically significant. However, after 40 weeks, StaphVax did show a statistically significant improvement of 57% vs. the placebo.

Many analysts seem to shrug off this clinical trial, preferring to wait for the results of the upcoming clinical trial on kidney disease patients as well as for StaphVax test data on other patients, such as those undergoing surgery for orthopedic implants.

Nabi watchers say the latest kidney-disease trial gives the company a better chance at a clear-cut verdict. With more than 3,800 patients enrolled, it's more than double the size of the previous test. More importantly, it sets the main goal at eight months rather than 54 weeks.

"Given that the bar is lower for this ... study, and that the primary endpoint is protection against bacteremia at eight months, we believe the study has a good chance of success," says Sagient Research, which doesn't own shares and doesn't have a financial link to Nabi. The vaccine is being tested on two versions of the bacteria, which account for 85% "of all clinically significant S. aureus infections."

Although Nabi's application to the EU covers only patients who require kidney dialysis, Nabi's Chairman and CEO Thomas H. McLain says he might seek a broader indication from the FDA. He told attendees at a Sept. 13 Bear Stearns conference that such an application would require strong results from the kidney-disease trial as well as high-quality results from other clinical and preclinical tests.

Change in Strategy

Nabi has transformed itself from a provider of blood-plasma products and services to a maker of specialty products and a developer of infection-fighting drugs. The transformation was reflected in the June cover story by

Pharmaceutical Executive

magazine in which McLain was identified as "Chief of Staph."

The real change will come from clinical trial results, from regulatory agency decisions and from analysts, who now have as many buy ratings (five) as they do hold and sell ratings combined, according to Thomson First Call.

Developing StaphVax and other experimental products means that "we will burn cash" for the rest of the year, McLain has said. Nabi completed a $112 million convertible debt offering during the second quarter to help finance greater marketing and R&D expenditures. McLain says Nabi is on track to produce sales of $125 million to $131 million for the year.

Nabi's current products include PhosLo, for controlling phosphorous levels in patients with serious kidney disease; Nabi-HB, a short-term treatment for people exposed to Hepatitis B; and Aloprim, which reduces levels of uric acid in the blood of patients receiving cancer treatments. Nabi also sells blood plasma products and operates plasma donation centers in seven states.

These products have helped Nabi finance its research efforts, which include another experimental S. aureus product, Altastaph, which is designed to protect premature babies, and NicVax, a nicotine-addiction vaccine.

McLain told the Bear Stearns conference that NicVax will likely be licensed to another company. He says Nabi has enough money to "fully fund" the launch of StaphVax and continue research on other products. Some analysts say Nabi will need a partner to optimize sales of its S. aureus products.