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If you had purchased and held $10,000 worth of Nabi Biopharmaceuticals (NABI) stock when it came public at $8 in 1969, you'd have a whopping $8,388 today. Historically, Nabi has not created value for its shareholders.

Several of its largest shareholders have run out of patience. At least four hedge funds, which in total own more than 31% of the outstanding shares, are demanding that CEO Thomas McLain be removed from his position and/or that the company be sold as a whole or in pieces.

Dan Loeb of Third Point LLC is leading the charge. Loeb's firm owns 9.5% of Nabi. The largest holder is David Knott of Knott Partners, with 9.8% of the shares outstanding. Knott and Loeb previously teamed up to force

Ligand Pharmaceuticals

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to

cooperate with their initiatives.

Third Point demanded and received the right to add three members to Ligand's board. In addition, after facilitating its sale of Avinza (Ligand's largest commercial asset) to

King Pharmaceuticals

( KG), Jason Aryeh, general partner of Jalaa Equities, was also added to Ligand's board. Aryeh, whose fund owns nearly 2.5% of Nabi, is in agreement that big changes need to be made at the company.

What's It Worth?

Although Nabi recently announced that it hired Banc of America Securities to help

explore strategic alternatives (i.e., sale of the company or assets) and shortly thereafter sold its PhosLo business to Fresenius Medical Care, Aryeh is concerned that the recent developments will not ensure a legitimate course of action. "The danger is that they're going to run an encumbered process," he says. "If you have a CEO and board members who are not fully committed to a potential sale of many or all of the company's assets, the process can go awry." Nabi has rejected many of the demands of the activist shareholders for months.

Jalaa's Aryeh believes there is still $13-$14 a share in value, but in someone else's hands. Nabi has "proven not to have capabilities to develop drugs and bring them to market," he says. "If these drugs were in the hands of a

Merck

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or a

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, not only would they make money, they'd save lives."

Knott's Tony Campbell also believes the company or its assets are ready to be acquired. "Look, we're patient investors. We've been there five years," he says. "But we found by making some calls there are some people that would like to own this company, either in parts or in toto." Campbell believes the company should conservatively sell for $10-$11 a share.

No Love for McLain

The focal point of the funds' ire is CEO Tom McLain. Third Point's Loeb has written scathing letters to the board regarding the chief executive. In June, he wrote, "Mr. McLain has paid only lip service to the notion that management serves at the pleasure of the owners of the company (i.e., the shareholders)." He also promised the board to "work assiduously to ensure that you will have ample time to pursue your golf games and to enjoy the Florida sun."

Despite the sale of PhosLo, Loeb remains unimpressed. In an Oct. 16 letter, he expressed his displeasure with McLain's plan to use the sale proceeds to fund the company's cash burn in 2007 and 2008. He states, "we (and, we are confident, other shareholders) will not tolerate a 'burning the furniture to heat the house' policy with respect to asset sales and spending."

On Nabi's Oct. 12 conference call, Aryeh asked the CEO why there is a cash burn considering the strong cash flow from Nabi-HB, an approved drug for the treatment of hepatitis. McLain responded that the cash that is generated will fund the costs of being a public company, along with sales and general and administrative expenses. Nabi-HB recorded revenue of roughly $40 million in each of the past two years.

Loeb writes, "While we can't begin to fathom why it would cost nearly that much to run Nabi as a public company, Mr. McLain's answer makes our point seem obvious -- Nabi should NOT be a public company."

Nabi declined to make Mr. McLain available for comment. Spokesman Tom Rathjen would not comment on the company's cost structure, citing the company's pending Oct. 25 earnings release.

But it's not just Loeb who is pushing for McLain's ouster. In a letter dated Oct. 6, Knott's Tony Campbell applauded the company's announcement that it will seek strategic alternatives. However, Campbell and his firm believe "Mr. McLain lacks the insight and vision to allow the company to realize its full potential." He asks that the board "immediately take all necessary steps to remove Mr. McLain from his present position in management."

He also questions whether the board and McLain are living up to their fiduciary responsibility. He points to $2.7 million in payments to director Richard Harvey's investment banking firm, Stonebridge Associates, during 2001-03. Some of the work for which Stonebridge was paid was for help in the acquisition of PhosLo in 2003.

"I find it extremely curious that the lead director gets paid that kind of money, considering these guys have done nothing to enhance shareholder value," Campbell fumed. He is also unhappy with the lack of insider ownership, pointing to Harvey's 23,500 shares (not including options), contrasted by the $2.7 million in fees his firm collected.

Nabi's Rathjen refused to comment on the payments to Harvey.

Along with Nabi-HB, the company's other approved drug is Aloprim, to reduce uric acid in the blood. But the highest hopes are on Nabi's NicVAX, a vaccine to treat nicotine addiction. However, the wheels came off for Nabi last November when phase III results for staph infection treatment StaphVax failed to meet primary endpoints. In one day, the stock crumbled from $11.74 to $3.63 on the news.

Aryeh believes that as a result of activism from its major shareholders, the company and Bank of America will be successful in selling or breaking up Nabi and unlocking the hidden value for its long-suffering owners. "Will there be a Nabi in three to nine months?" he ponders. "Probably not in anything near its current form."

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Nabi Biopharmaceuticals to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86, 87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback;

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