Navidea Biopharmaceuticals, Inc.
Q1 2020 Earnings Call Transcript

Published: 15 May 2020

[Operator:]

Greeting and welcome to the Navidea Biopharmaceuticals quarter one 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.I would now like to turn the conference over to your host, Jed Latkin, CEO. Thank you. Please begin.

[Jed Latkin:]

Thank you Daryl. I appreciate the introduction. Good afternoon and welcome, everyone, to Navidea's first quarter 2020 earnings call. I am Jed Latkin, Chief Executive Officer of Navidea Biopharmaceuticals. This call will cover Navidea's financial and operating results for the first quarter of 2020, which ended on March 31, 2020, along with a discussion of goals and milestones for the rest of the year. Following our prepared remarks, we will open up the conference call to a question-and-answer session. With me on our call today is our Chief Medical Officer, Dr. Mike Rosol and our Director of Finance and Administration, Erika Eves.But before we begin our formal remarks, I would like to remind somebody of our new updated Safe Harbor statements for CVOID. I would like to remind everyone that some of the statements on this conference call may be considered forward-looking statements within the meaning of Section 27A of Securities Act of 1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as amended.That concerns matters that involve risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in the forward-looking statements. Words such as expects, anticipates, intends, plans, aims, targets, beliefs, seeks, estimates, optimistic, potential, goal, suggests and similar expressions identify forward-looking statements. These forward-looking statements relate to the effectiveness of the company's bodily fluid-based diagnostic tests as well as the company's ability to develop and successfully commercialize such test platforms for early detection of cancer and the diagnosis and monitoring of rheumatoid arthritis.The company's actual results may differ materially from those indicated in these forward-looking statements due to numerous risks and uncertainties. For instance, if we fail to develop and commercialize diagnostic products, we may be unable to execute our plan of operations. Other risks and uncertainties include the duration and severity of the recent COVID-19 outbreak and its impact on our business, financial condition or prospects, including a decline in the volume of procedures using our products, potential delays and disruptions to global supply-chain, manufacturing activities, logistics, operations, employees and contractors, the business activities of our suppliers, distributors, customers and other business partners as well as the effects on worldwide economies, financial markets, social institutions, labor market and healthcare systems, failure by the marketplace to accept the products in the company's development pipeline or any other diagnostic products the company might develop. The company will face fierce competition and the company's intended products may become obsolete due to the highly competitive nature of the diagnostics market and its rapid technological change.Inability to maintain our listing with the NYSE American, inability to maintain effective internal control over financial reporting, the outcome of any pending litigation and other risks identified in the company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q as well as other documents that the company files with the Securities and Exchange Commission. These statements are based on current expectations, estimates and projections about the company's business, based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are made as of the date of this conference call and except as required by law, the company does not undertake the obligation to update its forward-looking statements to reflect future events or circumstances.Additionally, in light of COVID-19, the longer term impact on our business is less clear at this time. Notably, we will need to continue to assess disruptions, social distancing guidelines and restrictions on travel or our ability to develop our product pipeline, potential closures of certain facilities and the general economic impact of this widespread public health crisis. In addition, the measures taken by local, state and federal government of the United States, actions taken to protect employees and the impact of the pandemic on various business activities in affected states could adversely affect our financial condition, results of operations and cash flows. We are conducting today's earnings call with participants in different locations, given the COVID-19 pandemic. So we ask you to please bear with us if there are any technical issues. Although I should mention that both Michael and myself are here in Ohio.Business updates, okay. I want to start my comments by committing and complementing all of our frontline first responders who are out in the field every day fighting this devastating virus. Without them, the situation would be much worse than it is. They are the real heroes out there and we should join with the rest of the New Yorkers who every day at 7 P.M. stop and cheer them on across the state. This is something we should be doing across the country.I also want of knowledge the team at Navidea that has continued throughout this turmoil to keep the business running and keep our trials intact. I want to especially thank my entire clinical crew, especially Bonnie and Mike who have been working around the clock every day to make sure that we keep the trials running smoothly and keep recruiting new patients. And to Dr. Ralph, who has been staring at images literally 24 hours a day for the past several weeks. Thank you for all that you have done and continue to do. And to the rest of the team, I am immensely proud of everyone of you every day.For today's comments, I am going to go to focus on two things. First, the progress of the RA trial and second on the announcement this past Monday concerning our European partnership. I am very pleased with the progress that the company has been making on many fronts. Many things have changed in our world since we last spoke with you just two months ago. Back then, we ramping up arms one and two, but still had more patients needed to reach critical mass for a potential interim analysis. I am pleased to confirm that we continue to enroll patients throughout the quarantine and have enough of the interim look and we remain confident that we will have full enrollment of the third arm of NAV3-31 very soon. Right now, our reviewers are hard at work going through the images generated thus far. And as Dr. Rosol will detail, we should have these interim results shortly.On the partnering front, we a lot to discuss and we been having daily calls with our potential partners. We feel confident that we will have some positive development imminently. But as I have said repeatedly, we are proceeding cautiously and carefully. Better to take longer than to make another bad deal.And it is on this last point that I want to spend some time. As many of you know, Europe has not met our expectations. The contract with Norgine predates current management and I think that after our announcement Monday, there was some confusion in the market as to how important this news was. I want to discuss a few things.First off, this was an evergreen contract that did not have a termination date. It also locked up all of our future product development and commercialization opportunities.Secondly, as a company, Navidea has been very disappointed in the progress of sales in Europe and understand that with a new partner or even on our own, Lymphoseek in Europe will be a great success. The termination of this contract took years in the making and it unlocks tremendous potential for a new deal with more upfront money and greater economic share. Also, as a product that is already approved in Europe and the other territories, we feel that it makes a very compelling offering to multiple potential partners that already have experience with the product in Europe. And that's something I also want to focus on.Currently, while Norgine is the main distributor of the product in Europe, they do use some outside third-party companies to sell in certain key markets. Those two key markets, which are actually doing better than the other markets in Europe, are very large imaging and diagnostic focused companies that we hope to have discussions with in the near future. I am confident that this region will finally turn from disappointment to a meaningful contributor by the end of the year. I also want to note that during the transition period, Navidea will be receiving the lion share of the economics, albeit from a very low base. This announcement should be taken as a tremendous positive because in the right hands, Lymphoseek will be as successful in Europe as it has been here in the United States.And with that, I would like to turn the call over to Dr. Rosol for more details on development front. Mike?

[Mike Rosol:]

Thank you Jed and hello everyone. As always, I am happy to participate in today's call and provide you with updates from the clinical side.So I will begin with the progress on our currently running Phase 2b trial in RA. While external collaborations have slowed in many areas due to the Coronavirus crisis, we have continued to make progress on the RA trial with several of our sites still recruiting. And just this week, we opened up UCSF as another major academic site for recruitment and they are optimistic that they will have patients ready to enroll in the very short term. You might recall from our last update that we have completed enrollment in both arms one and two of this trial and are more than halfway through enrollment in arm three. While there has been a slowdown in recruitment due to the Coronavirus, our projections remain that this trial will complete this year as scheduled.As a reminder, this is a three arm trial. In arms one and two, we are evaluating the repeatability, reproducibility and stability of our tilmanocept imaging readout in both healthy subjects and in patients with active RA. And in the third arm, we are mirroring our upcoming Phase 3 study in order to enable us to obtain data to help validate our power calculations. As announced previously, the interim results on the first two arms were very positive, demonstrating low variability of imaging, both within day and over time. Those data demonstrated that technetium 99m tilmanocept can provide robust, quantitative imaging in healthy controls and in patients with active RA and that this imaging is stable, reproducible and can define joints with and without RA involved inflammation. This is fundamentally important to advancing our technology into a successful product in RA.The next milestone is the interim look at the arm three data. This is what we are currently immersed in. Our plan was to wait until about half of the arm three subjects had their second imaging events at five weeks post initiation of anti-TNF alpha therapy. We have the data in hand and have spent the last six or so weeks doing image and data analysis literally seven days a week, day and night. The amount of data is large and this is an enormous undertaking but this is absolutely critical to our next steps. And so we are spending essentially all of our time and far and over time working on this. I don't want over-promise but we expect to have preliminary results on these data that we can discuss publicly very, very soon. I would be happy to explain in more detail what we are doing in terms of the analysis, if you would like me to do so during the Q&A period.In parallel and in follow on to this, we will be preparing a fleshed out package of all of our interim analysis data from all three arms of the trial to take to the FDA in order to be sure we are fully aligned and have their nod for initiation of the Phase 3. We will continue to enroll into arm three of the current trial and are planning for the start of the Phase 2b comparative study of our imaging readout to pathology from the joints of patients with RA as well as the Phase 3. We are well positioned for the Phase 3 since most of the sites that are currently recruiting into the ongoing study will be rolled right into that trial. And so the logistics and strategies for recruitment are already being established.With some slowdowns of the review cycle of the trial protocol due to the Coronavirus, it looks like initiation of that comparative imaging to pathology Phase 2b study I just mentioned can happen in the upcoming quarter. That study will primarily enroll subjects in the U.K. where our principal investigator who is the world's leading physician in synovial tissue biopsy of patients with RA is located and where there is a network of academic centers that also have specialists in this domain. We will have at least one site in the U.S. as well.Recall that that trial is not required for FDA approval in the initial indications in RA that we are going for. But we believe it is critical in order to achieve qualification of CD206 as a biomarker for rheumatoid arthritis as well as to engage with possible pharma partners for its use in trials of their new RA therapeutics. Our plan at this time for the Phase 3 is to be ready to begin following the meeting I mentioned before with the FDA. And that first patient, first visit will happen later this year.You might have also seen that we recently announced the signing of a letter of intent with WorldCare Clinical to partner on the RA clinical imaging workflow and commercialization. This is no small point. What we have is a commitment from the world's leading independent contract research organization dedicated to imaging in clinical trials, commercial imaging and large-scale data management experience. That they want to serve as the central reading lab for tilmanocept imaging in RA once it is, assuming FDA approval, commercialized.These folks are the real deal. And they have the experience and infrastructure needed to be the central imaging lab for both the next two clinical trials as well as the commercialized product. We had multiple imaging companies vying for this opportunity. And we have vetted them all very carefully. We came to a unanimous decision internally that WorldCare was the right partner to go with based on their depth and breadth of experience, capabilities and true interest in and alignment with what we are trying to do with this product in terms of the imaging readout and workflow.So in other indications, I updated you previously that we have completed patient enrollment and imaging of all subjects in our NIH funded study in Kaposi sarcoma. As outlined in that study's title, in this trial we are seeking to evaluate the safety of escalating doses of tilmanocept by IV injection and perform a comparison to subcutaneous injection in HIV patients diagnosed with Kaposi sarcoma. You might recall that the Kaposi sarcoma cells themselves express the CD206 receptor that our technology targets. And so from both a diagnostic imaging perspective as well as a possible therapeutics perspective, it makes sense to pursue it as an indication as well as the continued impact it has on HIV-infected people, both in the U.S. and in particular, throughout Africa.So no safety signal was detected and we completed a comparison of the subcu injection route to IV injection in these subjects. The news here today is that we have recently received complete biopsy results and the final data analysis is ongoing. Qualitatively, what we have seen is localization of KS lesions and visualization of the lymphatics and following a full analysis on wrap up, we hope to open up discussion with FDA about path to a supplemental NDA in KS.On the cardiovascular disease front, work is continuing on the atherosclerotic plaque imaging study at MGH in Boston and we will begin again shortly on our NIH funded preclinical study at the UAB, University of Alabama, Birmingham. That study was slowed because of the Coronavirus virus lockdown at UAB. Using funding from our NIH therapeutics grant, you remember that we have made significant steps toward synthesizing a robust, reproducible and scalable therapeutic construct that can then be tested in human studies. We also continue to make significant strides into producing the next generation of our molecule that we think will provide for improvement in certain diagnostic and therapeutic applications. This work has continued over the last quarter.In this last quarter, we also converted another provisional patent, in this case a therapeutic one to an A1 application. We continue to expect to file at least one more new provisional patent application this year on improvements in chemical synthesis. And we also continue work on new therapeutic constructs with payloads other than dexamethasone and doxorubicin that you heard about before.Those are just some of the highlights of the last quarter that we wanted to touch on for this update. We remain largely focused on the RA pipeline, specifically the interim analysis and moving towards discussion with the FDA, while we continue to support and push for progress on our other diagnostic and therapeutic indications. As always, I want to thank the team here for their tireless efforts to keep things moving and our network of clinical trial sites and academic research collaborators for all of their hard work. I wanted to keep these remarks relatively brief today and largely focused on RA. Please feel free to ask me any questions about these or other topics I might not have mentioned.Thank you. Now I will turn this over back to Jed.

[Jed Latkin:]

Thanks Mike. So now let's now move on to the financial updates. Erika?

[Erika Eves:]

Thank you Jed. I just wanted to start off by reminding everyone that our consolidated balance sheet, statements of operations and statements of stockholders' equity have been restated as required, for all periods presented to reflect the April 2019 reverse stock split as if it had occurred on January 1, 2018. Our consolidated statements of cash flows were not impacted by the reverse stock split.For the first quarter of 2020, total revenues were $156,000 compared to $42,000 in the same period of 2019. The increase was primarily due to an increase in grant revenue related to Small Business Innovation Research Grant from the NIH supporting Manocept development.Research and development expenses for the first quarter of 2020 were $999,000 compared to $741,000 in the same period of 2019. The increase was primarily due to net increases in drug project expenses including Manocept diagnostic development costs, offset by decreased Manocept therapeutic development costs.Selling, general and administrative expenses for the first quarter of 2020 were $1.8 million compared to $1.7 million in the same period of 2019. The net increase was primarily related to increased legal and professional services, compensation and taxes and was offset by decreased depreciation, insurance, travel and investor relations.Navidea's net loss attributable to common stockholders for the first quarter of 2020 was $2.7 million or $0.13 per share, compared to a net loss of $2.4 million or $0.24 per share for the same period in 2019. And finally, Navidea ended the first quarter of 2020 with $601,000 in cash and cash equivalents.Per Navidea's recent filings with the SEC, the company executed funding transactions totaling $7.6 million in proceeds during the first quarter of 2020. The company's quarter-ending cash balance reflects the receipt of $850,000 of this funding through March 31. An additional $1.7 million has been received during the second quarter to-date, with the remainder of the financing funds expected to continue to come in on an ongoing basis.And with that, I will turn the call back to Jed.

[Jed Latkin:]

Thank you Erika. And I wanted to thank everybody for joining us here. There is a lot of great promise in what we are trying to do here and I think that just once again I just want to stress, in no small measure, how big of a deal the announcement was on Monday. I think one of the things and we actually had an incoming shareholder question a week ago discussing both the China and the India agreements that we have in place. For instance, India is ready to launch but we have been waiting to get some very important paperwork that had to come through Europe. That is something that now that we signed this agreement that paperwork is going to be able to come through and we anticipate that India should have all the correct paperwork and we should be able to start selling the product in India also by the end of the year. So we are very excited about that.And with that, I really -- I would like to turn the Darryl who would open up for Q&A, please.

[Operator:]

[Operator Instructions]. Our first question from the line of Jason McCarthy of Maxim Group. Please proceed with your question.

[Michael Okunewitch:]

Hi guys. This is Michael Okunewitch, on for Jason. Thanks for taking the question and congrats the progress this quarter.

[Jed Latkin:]

Thank you Michael.

[Michael Okunewitch:]

Regarding the Phase 2 readout that's coming up, I would like to see the kind of primary expectations for the readout. Can you give us a bit more color on really what to expect from that? What we should be looking for? And what those results could mean versus the data we saw from arms one and two?

[Mike Rosol:]

Sure. So this is Mike Rosol. I will take that question first and Jed can chime in if he chooses. Thanks for the question. Good one. So the first two arms, remember, are the, as I just mentioned, repeatability, reproducibility and stability. From those, we have been able to get a first past guess at what is a healthy joint quantitatively versus a joint of a subject with active RA which is fundamental information from this interim analysis of the phase, the arm three study, arm three of the trial that mirrors the Phase 3.What we are going to be getting is an idea of the magnitude of change that we might expect to see if the anti-TNF therapy is working. So for this arm three, what we are doing is, we are taking subjects who are ready to be switched to a new therapy, right. We are imaging them before they switched. We are also doing clinical assessments at that time point. They then start the drug. We call them back five weeks later and do another imaging session and clinical assessment. And then we do the same at 12 weeks and 24 weeks.For this interim look, we are taking about 14 subjects who have had their baseline assessment, that's imaging and clinical, as well as their five week and then we have about half that number who have gone out to 12 weeks. And so what we are going to do is, in that first batch of 14, we will have an idea of what if -- has their imaging readout changed and how much has it changed in that time period from when they -- before they started the new drug, so when they have started the new drug and been on it for five weeks.So this will give us an idea of that dynamic range we might expect to see in a larger study of our imaging readout in patients who are undergoing this new therapy, right. And our hypothesis is that if we see a reduction in their signal output that should map to the patients getting better clinically as assessed at 12 weeks and 24 weeks and if the output remains the same or gets worse then that would likely map to the drug not really being working. So we are going to get an idea with that imaging scan at the baseline to the five weeks of how much can we expect the signal to change and that's fundamentally important to our power calculations for the sample size that we need for the Phase 3.It also gives us information about how much variability is too much variability in the imaging readout itself, right. So that goes back to that first interim analysis, the healthy subjects and the subjects in arms two who have active RA. So from that, we have got an idea of the repeatability of the imaging itself. So we know how variable it is, right. So what's the fuzziness in the imaging readout. And it turns out, it's really small, which is good. So our ruler is very finely granulated is what that amounts to basically. So we can detect small changes. So now we are going to know what the changes look like, if any, in patients who have their drug.And finally, roughly half of those subjects will have data from the 12 week time point. So at the 12 week time point is when you expect clinically that the drug will with a very noisy and nebulous clinical assessments that rheumatologists use currently to assess if a drug is working or not. And that's why we are so fundamentally important to the rheumatologists' practice, right, because we have something that is not nebulous and noisy, at least hypothetically and so far it seems to be holding up true to our hypotheses.So right now, they have these very noisy clinical assessments. They need to wait for three to six months before they can determine if the drug is working. And about half the time, that drug won't be working on the subject with RA, the patient. And the physician won't know and the patient won't really know either that it is or isn't working until that time. And so they just go on about their lives and meanwhile their disease might be getting worse and co-morbidities are stacking up. We are hoping to give them an early readout at that five week period of it the drug is working on not, right.So we are going to have about half of the subjects in this interim look. We will have had their 12 week assessment. So we are going to start to get an idea of, is our change from baseline to five week readout mapping to the clinical assessment at 12 weeks, rights. So we are going to get a number of important information points here. What is the magnitude of change we can expect to see with our readout and how does it map, how does that early indicator that we expect to have baseline to five weeks, how does that map to the clinical assessment at 12 weeks. So these are very important things. This is the nuts and bolts of what the Phase 3 will consist of and this will be our first look at those kinds of data.Now, remember, this will be preliminary. It's an interim analysis. It's a relatively small sample size. But if these trend in the directions that that we hope they do, this will be very important because it will tell us that we are on the right track, right. The data will support our hypotheses as well as the plan that we have already discussed with the FDA. Then the next step will be then to bundle all those together and then prepare for a discussion with the FDA and say, here are the data from this trial. Do you agree with everything that we have shown you? And that we can now step into the Phase 3.So I will leave it at that for now. Jed wants to chime. Maybe that's good.

[Jed Latkin:]

Essentially, to really put that all down into one word, we are looking at day zero. They get their medicine. Week five, are they getting better, are they not getting better. And really, that's the key here. With those patients that we are evaluating, we are hoping to see that we can detect a change. If the change is good, they can continue on the medicines, all works great. If there is no change or it's getting worse, then the medicine is not working.As we have said in our presentations, it's important these drugs have, one, they are very, very expensive and two, have very serious consequences, potentially as we all know with COVID, because it significantly decreases their ability to fight off infections. So the faster we can detect whether or not it's working, the better it is. And that's really the thrust. That's what we are looking for.

[Michael Okunewitch:]

All right. Thank you very much. I would like see, shifting gears a bit towards Lymphoseek. Maybe you could provide a bit more detail on the European market opportunity there? Because it seems like the previous commercial rollout in Europe may have led investors to undervalue the importance of that program. So I would like to see if you can give us a bit of an overview of that.

[Jed Latkin:]

Excellent, Michael, so it's a great question because and Norgine did a very yeoman like effort in their selling of the product but one of the issues that we had is that as a company that is not focused on diagnostics, radiopharmaceuticals or really any of the related products that would relate to Lymphoseek, we always felt and we are actually in the process of doing an independent third-party valuation. We always felt that the market in Europe should be at least as big as the U.S.The U.S. is trending very well. I want to applaud Cardinal. They are doing a fantastic job over the last couple of years to really push the growth of the product. So we feel that there is no reason why Europe should not be a $50 million to $200 million market for this product, if not more so. And there are green shoots and there are a few things that Norgine did well by, in particular, subcontracting to two very good companies in certain key markets.We have seen good uptake in melanoma. We have seen good uptake in breast in certain areas. And we are starting to see some good uptake in head and neck. More importantly, we are actually seeing some of the new tenders that are coming in that have good stable pricing. One of the initial problems was they definitely overshot on the pricing. And in a price-sensitive market that Europe is, they tried to sell the product for more, well, for close to triple the price of what it was going for in the U.S. What we are looking at here is we are seeing something very, very important.We are seeing that the price that we are getting in certain key market is holding very, very strong. And that's important. So while were not getting €1,500 a dose, we are seeing market that are getting very strong prices in line with what we are seeing in Europe and in the U.S. and we are not seeing pushback on the reimbursement. More importantly and this is to Norgine's credit, we actually just got some new tenders in some very price-sensitive areas that are very profitable and they are good. I wouldn't say that they are more than the U.S., but they are in line with the U.S. and we do expect that once we re-partner with somebody focused on radiopharmaceuticals, we are going to accomplish two things.One, get a very nice upfront because we are now packaging a product that is already approved versus something that is pending approval. And we are going to with somebody that specializes in the area for this product. So we feel that there is no reason why the European market, in a few years, shouldn't be a $50 million market or more and we will get nice economics on that. I mean that is the other downside to the agreement is the economics were just not there for us and they never were going to be there and that was a problem.And the contract was a permanent contract. I think there was some rumors out there that the contract was coming to an end or there was some disagreements. There were no disagreements and the contract was certainly not coming to an end. And so this took a very, very are calculated, very measured, very long term approach to moving on. And in the end, we feel that this is a great opportunity to capture revenues that we were never expecting to get and have not been in our budget and this is something we are going to be able to capture within the next year or so because we have a six months transition period.The marketing authorizations can be transferred back to Navidea. We expect that to happen within the next couple of months. And then more importantly, over the next six months, the sort of the calculation flips. Instead of receiving a small royalty, we will be paying out a small royalty to Norgine and they will continue to distribute the product until the transition period is completed.

[Michael Okunewitch:]

Thank you. And then I would like to see how you would prioritize Lymphoseek? Because it seems like there is a significant opportunity there, but the RA side of things may be the real opportunity for a bigger market. So I want to see would you prioritize a quick deal to get this back in the market generating revenue, get those upfront and use that to fuel the RA pipeline? Or are you planning more so to take your time and really find the right partner for this, as you have been doing with the RA program? Or is it a little bit of both?

[Jed Latkin:]

Excellent question. I would say, it's a little bit of both. We are limited in some sort by what we can say. But the information that we gleaned from our former partner, even over the last couple of weeks as our transition team has been working with them, we have learned some very key things in terms of how the market dynamics were that we didn't know. We always saw that there were certain areas that were doing better than others but we really didn't get the real drill down into what was going on in the market because that was not required, once again another deficiency of the contract. We really didn't get a very solid breakdown.What we did get now is, we understand that there are two very large companies that are very focused in this area that are currently already subcontractors and are selling the product. That doesn't necessarily mean that either one of them would partner with us and it doesn't mean that we are going to choose them. But we are going to take our time. We are going to look for the right person. What I would say is, we are going to look for the right person to partner with and I do expect that once this third-party valuation that we are working on is completed within the next several weeks, I do expect to move forward fairly quickly to get something done before the end of the transition period. So we are ready for a seamless transition.Now another key take away is, remember, the rest of the rights of our products were all locked up. So for instance, when we started partnership negotiations on RA, which has been going on for a very long time since everybody knows, we couldn't talk about Europe. We can talk about Australia. We can talk about New Zealand. Because those were basically locked up as per this agreement. Now we are able to do that. So this really opens up so many amazing possibilities for us now that we are not restricted by those limitations for the future. So we are going to take a measured approach, but I do hope that we have something finalized within the transition period.

[Michael Okunewitch:]

All right. Thank you very much and congratulations on the progress.

[Jed Latkin:]

Thank you.

[Operator:]

Our next question is from the line of Joe Pellicane. Please proceed with your question.

[Joe Pellicane:]

Thank you. How are you doing, Jed? And hi, Mike.

[Jed Latkin:]

Hi.

[Mike Rosol:]

Hi Joe.

[Joe Pellicane:]

This came out of left field, the European deals. That's mainly what I wanted to ask. The other gentleman asked most of those questions. But you give any more light, like for instance, you referred or alluded to that we could see sales in Europe in line with what we are doing in the U.S. But we do not know what we are doing in the U.S. The last I knew we were doing, I think, around 30,000 doses per year. But since we sold the program, the product to Cardinal, we have got no update. I know that there was in that sale roughly $200 million of milestones. My assumption is we won't get any of those milestone payments. But can you give any enlightenment as to maybe how well Lymphoseek is doing in the State? And what is our baseline in Europe? Are we doing 5,000 doses, 10,000 doses? Can you give a little more light on that, it will be appreciated?

[Jed Latkin:]

So Joe, I mean as per the agreement that we have with Cardinal, we have the figures internally, but we are not allowed to disclose them. That for Cardinal to do that. What I would say is where I previously thought that before 2026, we would not hit any of the milestones because you they start at $100 million in annual sales. I actually think there is a chance that prior to 2026, we pass that first milestone. I am very happy with the progress that Cardinal is making. And they are really, I think in my opinion, getting traction. I think that there is potential there. I can't discuss specifics.But what I would say is that in our initial overview of the market in Europe, I do think we can get at some point in time $50 million in sales. I really am confident in that because we have done work on it. Norgine did work on it when it first started it. I do think obviously the pricing at launch was an issue. But they have really found they are getting to a good reimbursement rate in Europe. And I think that's something that we can come to. We can't give also, that's the other thing I can't disclose what Norgine is doing in terms of dosages.What I would say is, starting this next quarter, so we will only have a stub period. We will have part of May and June where we will be recognizing the sales minus a royalty percentage and some cost of goods sold. So I think wait for the next quarter. The third quarter will be a better reflection. But of course, remember it is affected by Corona. So there are fewer procedures being done. We are seeing in some of the Southern European nations we are seeing good traction. So for instance, Spain, Italy, those are all growing nicely but they are not big markets yet.We anticipate that with development and with a more hands-on approach, especially hopefully targeting discussions with the individuals that are involved in selling in those regions, that we can turn it around fairly quickly as part of the deal were securing the next batch of product. So we will have plenty of vials to sell. We are buying approximately somewhere between 9,000 and 12,000 vials. And that will give us plenty products to sell, not just in Europe but also in India as well as well as Australia and New Zealand. So we think that while it's not going to happen overnight, we are finally in control of our own destiny. And that's what I really have to stress.When I started at this company in April 2016 and I don't want to dwell on the past. The past is the past. And that is what it is. But there were certain things that were out of our control. This was one of those things that was majorly out of control. And as you know, we have spoken quite a bit, this was something that I tried every angle to figure out how we could either improve Europe or get it back. The contract was very, very airtight. And I think that there was a little opening. We were able to work without opening and we were able to reach a common agreement with Norgine and I thank them for being so agreeable to the solution that we put together. And I am looking forward to working with them on this transition period. And we have a good transition team in place.But I think that now that we are in control of our own destiny, we will take a measured approach and we will get it done. And I know, on the back of your mind, you are thinking about also the partnership in the U.S. And as I said on the last call, we have had opportunities to sign a deal on RA just like we have opportunities to sell Lymphoseek in Europe. But I really want to try as hard as we possibly can to get the right deal with good economics, something that we are not to look back on and say, what the heck happened here?When I came in April 2016, I looked back at some of the contracts and I said, hmm, what happened? Why do we have this contract? Surely, there must have been an explanation at that time. And as you know, the company has gone in and out of financial distress. We are in a much better position now. We have a solid backer in Mr. Scott and a couple of other key shareholders who shown their willingness to continue to fund us, whether or not we have a partnership. They are also very encouraging about not to force a deal and that is something that we take very seriously.But of course, I want to guard the shareholders as much as possible and make sure that we don't do anything silly and we don't do anything hasty. We are not looking for quick press releases. What we are looking for are good press releases and good announcements. And I understand that the patience of our shareholders and how long it's taken but we are playing the long game. This European exit, the exited of this contract was the result of a very long and very measured approach.And that's why as we transition to whomever our new partner is, I hope that everybody will be happy with the new deal as well as the economics of the new deal which I expect will be better. Well, it's easy. It's a low bar to the past but I expect that they will be better than what we had in the past. Not to mention, we should also be [indiscernible] several million dollar upfront as well, which [indiscernible].

[Joe Pellicane:]

That's great. So it should be a material event for the company. Just with regards to the deal on RA, which you said is imminent and I know it's been a minute for a while and I understand there is a lot that goes into these deals.

[Jed Latkin:]

Before it was soon and it was in the near future. It's now imminent. I am not taking the sort of the Fed president look at things. But the language has specifically changed. So imminent is closer than soon or near future.

[Joe Pellicane:]

Okay. Because I am a New Yorker. I know you are from Ohio now. But we look at imminent probably different than people from Ohio. That's just a little joke. But just a question on the potential deal. Based on what you said, it sounds like there is more than one discussion going on. And then two, to just give like a very wide frame, what should be expected? My guess is we are not looking to hit a home run on the dollars up front, but we are looking for a partner that can fund the RA through commercialization with Navidea doing all the work and maintaining a bigger ownership of the potential approved product. Am I correct?

[Jed Latkin:]

What we are looking for is a deal that combines a full funding of the program as well as somebody who would assume the cost of getting the manufacturing up and running, which is no small thing, that's a several million dollar commitment as well as the marketing as well as a commitment to a minimum spend on marketing and commercialization which, as you well know because of the Lymphoseek rollout, I will just to say the Lymphoseek rollout, is no small thing. I mean that's probably tens of millions of dollars. So these are very, very detailed things that have gone in on back and forth as we are having with the multiple parties. And we are at the stage where we are in those negotiations, spend on commercialization, spend on marketing, the split of the economics.Given the amount of spend that will be committed, there will be a good economic split. But more importantly, I want to make it clear that when we get a deal done, it is designed so that we are not going to have to go back to the shareholders and say, oh you know, the launch is imminent, well. I need $30 million to get it launched. That's not going to happen. What I am hoping for is whomever we partner with and this is key of the negotiation, they understand the market, they have the financial muscle and the wherewithal to expand but more importantly, we are going to go as big and as wide with our distribution as possible.So unlike Lymphoseek, we would expect that any deal would not exclude participants who would cover 100% of the market and not 70% of the market and that's what's key. We want to make sure that every rheumatologist has access to this product. I have used the word game changer. I know they have sort of been bandied about on message boards and whatnot. But we really think and the interim analysis in the next several weeks will show that, I hope, I really think that this could be a game changer. And in order for it to be a game changer, it's got to be a few things.One, it's got to be priced well. It's got to be distributed well by somebody who has the muscle to do it. And more importantly, you have got to cast a wide net. The way we are going to run the Phase 3, we are learning from the past. So the way we are run the Phase 3 is by opening as many centers as possible. I can't give specific numbers because we don't give that away, but opening as many centers as possible in key areas, you build up a base right away. So those centers that are doing the diagnostic right now or in the trials, those are all going to be our very first customers. Their patients are going to be already getting it.So instantly, for instance, let's say and this isn't a number. Say with Phase 3, we have 100 patients in the Phase 3. We have the 100 or so 107 patients in the Phase 2b. Those are customers. Those are people, as you know, unlike Lymphoseek, they get their day zero and now they are a lifetime customer of ours. And it grows and it grows from there. I don't want to give the example of an AdvoCare pyramids game. But the more customers you have in, the more the people that are involved in it and it grows and grows and grows. And that's where we feel that we are going to have a built-in ability to distribute it right off the bat. But more importantly, whomever we partner with needs to show us a defined commercial plan that covers the entire country, because we don't want to miss anybody. We want everybody to have access to this product and we want everybody to be using this product within the first few years of launch.

[Joe Pellicane:]

Okay. That's great. Thank you Jed.

[Jed Latkin:]

Thank you Joe. Next question.

[Operator:]

Our next question comes from the line of Mike Rigali. Please proceed with your question.

[Mike Rigali:]

Yes. Good day, Jed, Mike and Erika. I am glad everybody there is well and healthy and stayed safe during this period.

[Jed Latkin:]

Thank you.

[Mike Rosol:]

Thank you Mike.

[Mike Rigali:]

Yes. My first question, let me stay on the Lymphoseek for one moment. You mentioned India. I thought it is Japan, Australia close to approving it also.

[Jed Latkin:]

So Japan, we have not licensed the product in Japan yet. I think that's something that we are working on and that's something that will happen. So Japan is further off. Because Japan similar to China. They are going to have to do full scale trials. With India, we have sent them the samples. We sent them the API. There is back and forth. We feel that they are not going to need to have the full scale trials. I mean that's the indication that we have gotten. They do need some documents that unfortunately just because of some of the issues with Europe, we haven't been able to provide those documents yet. But we feel those documents will be provided within the next week or so. And that should allow for a rollout in India hopefully by the end of the year. As you know, India is currently in the scale of a full lockdown. So I couldn't say for sure. I have to caveat that with what would happen with COVID and how soon they unlock things over there.

[Mike Rigali:]

And Australia?

[Jed Latkin:]

Australia, we are moving towards, we have the approval, I believe. And so whomever we partner with, the goal is to start selling it there imminently. But it's not, once again, Australia I don't think is going to be a huge market. But I could be surprised. I didn't Spain would be a very big market. But so far it's been nice and profitable, albeit small, but it's growing nicely.

[Mike Rigali:]

Okay. Staying with LS and European reversion. To me, the biggest benefit to that, upper revenue is a great addition, but I thought freeing up RA and the other diseases for you to market to address was even the bigger value driver?

[Jed Latkin:]

Yes. You are correct. That was a big change here. I mean, remember, not to go through the past, but at one point in time, we didn't have the right. We didn't even have the rights to RA in the U.S. That was step one. One of the first things I did was to get those rights back. And it was important to us because we did realize, for better or for worse, that as long as this contract was in place, it was going to be very difficult for us to license out RA,, CV or really any other indications outside of the U.S. and the European Union, Australia or New Zealand because of this contract.

[Mike Rigali:]

Okay. Now let me go to the financials for one quick second. In going through the spend that you had in the first quarter, your spend was about $2.8 million. It looks like you have roughly another $6.8 million to come in from the deals that you did. And you said you have got $1.7 million in the bank. Using that $2.8 million, is it fair to say that even with the trial in the U.K. and the continued growth of the arm three and Phase 3 on RA, that you should be able to get through into September time frame with all the cash that you have?

[Jed Latkin:]

Yes. For sure. I mean, I think whether or not we have a partnership, we should easily be able to get through that. I do think, like I said, things are moving rapidly on the other front, which would obviously have more money coming in. But no, I believe that we are going to have enough money and also the way the $4.2 million financing was structured, it's actually, it is structured in a very nice way where there is a trigger mechanism where we will get to keep some of the upside on the CRG. So that's more money that could potentially come into us. Actually a decent of money that could potentially come into us. So it does give us a bunch of flexibility. What I would say is, yes, we are funded well into hopefully getting everything started. But I anticipate some events happening sooner rather than later that are going to bring more funding into the company.

[Mike Rigali:]

Okay. Now on the remaining money to come in, you had still 1.65 million shares out there from the original S3. Did that ever get funded? Or is still in the offing?

[Jed Latkin:]

There is still some, I mean, obviously we have been a little bit more flexible with two of the parts of the financing to allow for some COVID-related disruptions. And so we are bringing in the money as we sort of need it. We have that buffer and we have gotten our plan out where the money will come in as we need it. So there won't be any gaps but I am not forcing any issues just to allow for the realities of what's going on in the market with COVID.

[Mike Rigali:]

Okay. Aren't these $4.2 million on the preferred debt and equity recognition, isn't it?

[Jed Latkin:]

It's a preferred stock that is, there are terms in it where we can convert at a market price if we want to or we would use a portion of the proceeds from the CRG litigation. So it's basically backstopped by the CRG litigation and it's at our discretion how we set it up. So we think we have enough flexibility. Depending on where we are, we can redeem, we can redeem the preferred stocks for a slight premium. So the shares are issued at $10, we can redeem at $11, the preferred shares and we can do that in either stock or cash from the CRG decision.We can also, if somebody else, hypothetically speaking, if an outside investor came in and chose to buy those they could redeem it that way as well and just sort of transfer the ownership of the preferred shares. It allows for a lot of flexibility and it also allows for us to decide flexibly whether we use the proceeds from CRG or we convert it into stock. And I think a lot of things will be depending on where the price is, what the liquidity is like the market. It's just a very good, it's a very favorable instrument for the company because it allows for flexibility and moreover it limits our overall exposure.

[Mike Rigali:]

The way you structured it, it appears to be equity on the balance sheet. Is that correct or fair?

[Jed Latkin:]

Yes, it is. It is equity on the balance sheet. It's not debt because they can not claim cash unless it's available from the appeal.

[Mike Rigali:]

Okay. If you got another second, I would like a little bit into some of the scientific stuff.

[Jed Latkin:]

Yes. Sure.

[Mike Rigali:]

Mike Rosol, you said, originally you had a little more details on the arm three and what you are going through in that assessment. And you talked a little bit, you and Jed talk about the first five weeks and the 12 week. How far do you have to get? Do you have to get past the 12 or 14 weeks before you can go to the FDA with the results and the P3? Because I noticed that your timetable in your presentation that you released today isn't the same as the presentation that you had before where you got some time the middle of, I think, the third quarter going to the FDA on the P3. Is that still fair? And how far do you have to get on arm three to actually go there?

[Mike Rosol:]

Yes. That's fair. So this is Mike Rosol. Hi Mike. How are you.

[Mike Rigali:]

Fine.

[Mike Rosol:]

So a good question. So have to is a phrase that's interesting in and of itself. There is no FDA requirement here, of course. It's really up to us what we think is the best package that we can bring to the FDA with all of the considerations we have as an ongoing firm in mind as well. So we want to bring them the best data we can as rapidly as possible, but it needs to be robust data. It needs to make the case to ourselves, to us and to the FDA as well that we can go forward into the Phase 3.So the way we have planned it is and we have planned it this way from the beginning is we for the arm three and the arm three of the currently running Phase 2b is the portion again that exactly mirrors the Phase 3. So it's a mini Phase 3. What we feel we need to them to go to the FDA, an the idea of the magnitude of change. So what is the dynamic range of our imaging readout from baseline to five weeks in a bunch of subjects who are now put on a new drug, right.So we want to know what does that look like that. If they are getting better, is our readout predicting this earlier than the clinical assessments and how big of those bands, right. So how much change are we seeing, right. So we know our method is very sensitive to change. That's part of that first interim analysis. Now we are going to see what is the change in the patients themselves when they are put on a new drug.So we need at least a minimum, a significant number and we think 15, 14, 15 is a significant number of subjects who have had the baseline scan, gone on the drug and come back a month later to five week scan, right. We think it will be very importantly additive to that to bring a number of those subjects and it's going to be about half of that number, maybe two-thirds by the time we go to the FDA who will have their 12 week follow-up.And the reason for that, the reason that that is important is, as I mentioned earlier, it's at 12 weeks and then 24 weeks where the clinical assessments start to be robust enough that the doctors can say is this drug working or not. So remember, we are looking at as part of this interim analysis not just the dynamic range we can expect, but this will give us, if we wait to 12 weeks and have maybe eight to 10 subjects, we can then say, hey, in those eight to 10 subjects, how good are we at predicting the 12 week clinical assessment, when the doctor can start to make some clinical determinations his or herself, right.So think that will be important to have as well. So we want to bring, like I said, at least half of those subjects, so it was 14 or 15, we would like them to be out to the 12 week range. It turns out we have that number already. But as you might imagine, as you would expect, the trial is ongoing. Patients are, enrolled subjects are progressing through the trial. By the time we get in front of the FDA or even in the next couple of months when we send the FDA the package that we are gong to ask them to comment on, we are going to accumulate several more of those subjects who have had their 12 week scans. Some of them will have had their 24 week scan, their six-month scan.All that data will be additive to our fundamental information, which is what is the dynamic range we can expect to see because that dynamic range we modeled that and in made some guesstimation, some educated guesses for our design of the Phase 3 in terms of the powering. So this will also begin to tell us, hey, is the thing working? And remember, as Jed said nicely, we are looking at, we are going for three main indications, right. And so the first one is, can our imaging readout give doctors a reliable early indicator of if the drug is working or not.But right now, you wait three to six months, it's all trial and error. If that drug didn't work, you go on another one. That's also trial and error. You may go another three to six months. Patients may go a year with the drugs that don't do anything. And they are getting bad, things are happening to their joints, to their lives. It all stacks up and it accumulates cost to the healthcare system. It's all bad.We are hoping to have an early readout that doctors can rely on to say is this drug working or not. So that's our main meat of our indications. We are also going for because we are doing all of these clinical assessments and we are having imaging done, all at the same time points, we feel we are going to have a robust imaging readout that can follow patients longitudinally.So it's not just a one use case where a doctor says, oh, this readout says the drug is working, go home. The doctors, the patients, the healthcare providers and the payers are going to want these subjects to be followed up with scans every several months, every, I don't know, three to six months to say hey, is it still working? Is your readout getting worse? Is it indicating things are status quo? Or things maybe even getting better? So that's the second indication.The third one is really cool. So I am going to go over this quickly. I have done it before. But there are three subtypes of RA. There are thought to be three subtypes of RA, right. Two out of three of those are heavily involved macrophages. Our imaging agent targets macrophages. And so does our therapeutic. The third subtype does not have heavy macrophage involvement. And so you might say, well, that's a bad thing for you guys, right, because you are imaging the macrophages and one whole subtype doesn't really have high involvement of macrophages.That's actually part of the most exciting opportunity here. It turns out that there is no way of determining currently if you, as an RA subject, what subtype you might have unless you do one of these invasive biopsies that are unreliable in and of themselves and only done at several sites around the country and are not reimbursable. So without that, the doctor is really in the dark saying, I am going to give you some drug. There is growing evidence that the subtype you have is affected more or less positively by different classes of drugs.So we think that our scan is going to be able to tell the physician even at the baseline, does the subject have that very low level macrophage involved RA or one of the other two. And we might even be able say something about which of the other two the subject has. But in any event, if we can even just tell the doctor, look, it looks like you have got this subtype that has low level macrophage involvement. It turns out there is growing evidence that a certain class of drugs, the anti-TNF alphas, don't work well at all in those subjects.So even at that baseline scan, the doctor could say, I am going to rule out this whole class of drugs that you might spend the next year to going through and I am going to give you something else. And so we can maybe get patients the idea is to get subjects to the right drug sooner than they do currently and may be significantly sooner. And by that I mean even a year sooner or maybe even more. So those are the indications. The data we are going to take to the FDA will give us an idea of the order of the magnitude of change we can expect to see in the early readout, the baseline to five weeks.We will have an idea, by the way, you might have gleaned this from what I just said, the story I told. As we look at the baseline scan themselves, we are seeing some different, I don't know if I can -- I wouldn't call them subpopulations yet, but we are seeing different groupings of the signal readout. Those groupings might match to the subtype which would be great. We are going to know that for sure based on two things. One, clinical outcome. Two, that other Phase 2b study that I mentioned.So we are already seeing that lining up with our hypotheses, which is great. So the FDA will gain an idea of the order of magnitude of the change and an early readout of our predictive ability to the 12 week clinical assessment. So we have got the data, we think, already in hand that we need to make our case to the FDA, provided these data turn out to support our hypotheses. And I am not going to reveal anything right now. We are were really in the home stretch of analyzing those data and based on what Jed said about definitions of imminent and soon, I suppose I will change my statement to, we will be announcing our preliminary results imminently, in any event.

[Mike Rigali:]

Well, Mike, I would say, after the last conference call, you could hear the excitement in your voice when you were seeing arm one and arm two. I am hearing some excitement in your voice on what you are seeing arm three.

[Mike Rosol:]

Well, I am an excitable person.

[Mike Rigali:]

Yes. So I take that as a positive.

[Mike Rosol:]

I am very happy with the progress and we expect that it will continue. So things are really going well here. As I said, the office really hasn't skipped a beat. We are moving forward thankfully and hopefully we will just continue the momentum.

[Mike Rigali:]

Well, Mike --

[Mike Rosol:]

One comment. I now know why Jed directed me to some housing just very proximal to the office, expecting me to be here, actually I have moved in my cot and I think Bonnie has as well to her office. And Dave Ralph is somewhere in the inter-land staring at a computer screen as we speak. So anyway, back to you, Mike. Sorry.

[Mike Rigali:]

Anyway, that's good that you are closer. Nothing like, no, you can't do that during this period. It's distancing. You guys have got it wrong. Hey, a serious point here. The one thing that I am sure you are emphasizing with your partner is that the market doesn't see this and I don't know if you communicated it well is this ability to do the simple handheld 2D-type planar with this, so it can be used remotely, so people don't have to get into congested areas to get this done. We talked about a couple times ago. But I think the simplicity of the test you are doing really has a lot of market value to it because particularly with distancing and with people not wanting to leave and get into congested areas, this has a lot of value that I just don't think the market is seeing.

[Mike Rosol:]

I think your right. And this is Mike Rosol. I will let Jed comment as well. You are right and we do make that explanation and it's interesting actually. So I come from an imaging background in big pharma and we have seen this commonly, folks in big pharma at first pass, especially the ones who spend their lives in the weeds of imaging, will say, why don't you use some, the 3-D SPECT, yada, yada, yada. But instantly, they see when we point it out to them that there is a broad, much broader distribution base of 2-D planar cameras and other systems of that ilk. And so I think the market opportunity is made much larger by focusing on that. And indeed, it's also simpler logistically.The scans are easier to acquire. We have proven, we think, that they are robust and we will continue to do that with 2-D planar imaging systems that are out there. And we found, as I mentioned in one of the previous call, that even older generation cameras that might be in surprisingly in places in the U.S. but also in other parts of the world, those cameras give us robust readouts as well. So we think, boom, immediately when this thing is commercialized in any place where it can then be rolled out rapidly and the technology will not be an impediment to adoption, as you just said.So maybe Jed wants to add to that.

[Jed Latkin:]

No. I mean I think that's a key point. I mean we have been lucky with where our centers are and we have been lucky that we have been able to do that because it's is the simplicity of it. And that's why we do think that with the right partner and the people who understand the benefit of the tech --

[Mike Rigali:]

Hello.

[Operator:]

Gentlemen, your line may have gone on mute by accident. Erika, their line is still active but we can't hear them.

[Mike Rigali:]

Interesting.

[Erika Eves:]

I can't hear them either. I am not sure what happened.

[Operator:]

Now we can hear you.

[Jed Latkin:]

Now you can hear us?

[Operator:]

Yes.

[Erika Eves:]

There you are.

[Jed Latkin:]

We were saying all these nasty things. No, we weren't. I was just going to say that the partnership discussions we have had, those folks get it, which is a good thing. They understand the way we have thought about this smartly, I think, that we can have this wide market adoption rapidly and technology won't be an impediment. So that's it.

[Mike Rigali:]

Again, I think with the with the current COVID situation, this is a great tool to be out there in the financial markets and in the public market. This is not just limited to a big doctor office in a big medical center. Because a lot of people tend have that view.

[Jed Latkin:]

Yes. Well, very good. Well, thank you. Thank you much Mike. And I mean with that, I think we are going to wrap up. I just want to thank everybody for calling in. I hope to be speaking with all of you guys again in the very near future.

[Mike Rosol:]

Imminent?

[Jed Latkin:]

Imminent. We will see.

[Operator:]

Thank you so much. This does conclude tonight's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great evening.