Navidea Biopharmaceuticals, Inc.
Q3 2016 Earnings Call Transcript

Published: 3 Nov 2016

[Operator:]

Good morning and welcome to the Navidea Biopharmaceuticals' Third Quarter 2016 Earnings Call. My name is Carey and I will be your operator for today's call. At this time, all participants are in a listen-only mode. [Operator Instructions] Following Navidea remarks, we will conduct a short question-and-answer session. I will now turn the call over to Jet Latkin, Interim COO and CFO. Mr. Latkin, you may begin.

[Jed Latkin:]

Thank you. Hello, everyone, and thank you for joining us today. I am Jed Latkin, and I am the Interim Chief Operating Officer and Chief Financial Officer for Navidea. On today's call is Dr. Michael Goldberg, Navidea's President and Chief Executive Officer. At the end of the call, we'll hold a brief question-and-answer period. Before we get started, however, we would like to remind you that during the course of this call, Management may make projections or other forward-looking remarks regarding future events or the future financial performance of the company. It's important to note that such statements about Navidea's estimated or anticipated future results or other non-historical facts are forward-looking statements and reflect Navidea's current perspective on existing trends and information. Navidea disclaims any intent or obligation to update these forward-looking statements. Actual results may differ materially from Navidea's current expectations depending upon a number of factors affecting Navidea's business. These factors include, among others, the inherent uncertainty associated with financial projections, timely and successful implementation of strategic initiatives, our ability to repay our debt, the outcome of the CRG litigation, the confirmation of our contemplated transaction with Cardinal Health, the difficulty of predicting the timing or outcome of product development efforts and FDA or other regulatory agency approvals or actions, market acceptance of, and continued demand for Navidea's products, clinical and regulatory pathways, the impact of competitive products and pricing, patents or other intellectual property rights held by competitors, the availability and pricing of third-party sourced products and materials, successful compliance with government regulations and such other risks and uncertainties detailed in Navidea's periodic public filings on file with the Securities and Exchange Commission. Now, I would like to turn the call over to Michael Goldberg, Navidea's President and Chief Executive Officer.

[Michael Goldberg:]

Thank you, Jed, and good morning, everyone. Thank you for participating in this morning's conference call. Today's call will be short by Navidea's standards. Since our announcement on September 6 that we have entered into a letter of intent for Cardinal Health who acquired the Lymphoseek product emphatic mapping [ph], lymph node biopsy, and the diagnosis of metastatic spread to lymph nodes for the staging of cancer in North America, we have been focused on completing due diligence and negotiating the asset purchase agreement with Cardinal Health. We continue to work diligently towards finalizing the transaction documents and we'll defer any further details and comments other than what is already public information until after the deal has been signed. Once signed, we'll issue a process statement for a share of the vote and if approved, we'll move to closing. Once we have closed the transaction and paid off the debt owed to CRG, we will schedule a conference call to provide an update on our strategy and plans for moving forward. On the clinical side, there have been many exciting developments since the beginning of the year. I will address just a few year, but as I mentioned, we plan to provide a much more detailed plan following the closing of our contemplated transaction with Cardinal Health. We have the same belief as many of you that these pipeline developments represent the future of Navidea. After receiving WIRB and IRB approval for the RA trials, we're reporting that 17 of 18 subjects have been dosed an image in the clinical trial up till Manocept administered subcutaneously and our last subject is scheduled for next week. We also received IRB approval for tilmanocept protocol in Kaposi's sarcoma. Data from the cardiovascular trial conducted at Massachusetts General Hospital has been submitted for publication and we'll keep you apprised of its status. We have continued to explore the macro phase therapeutic products in a number of disease models. We have successfully completed studies with our therapeutic and cancer models as a standalone product, targeting the tumor micro environment, as well as in combination with the cancer targeted therapeutic where we demonstrated enhancement of effect via targeting the tumor micro environment as well as additional infectious disease targeting where we attack the macrophage that host the infectious agents, and by killing the host cell, we killed the contained infectious agent. We now have results with TB-Tuberkulosis, HIV, HPV, Zika and Leishmaniasis. In all cases we target the infectious agents without having any direct effect on the infectious agent suggesting a broad-based efficacy that is unlikely to be subjected to standard drug resistance mechanisms. Finally, we have initiated larger and longer term NASH studies, as well as generated initial results in a model of a lipid storage disease. Once we close the contemplated transaction with Cardinal Health, we will have sufficient resources to significantly accelerate the studies we can undertake in therapeutics. Over the past few months, we have been developing the plans for the additional development work we will undertake as soon as we have the financial resources. We also announced this quarter that Dr. Eric Rowinsky was stepping into the role as Chairman of the Board after I was named President and CEO. Eric's breathe and depth of knowledge of Navidea and his service as a board member since 2010 will be beneficial as we advance our innovative immuno-targeting technology with the goal to become a leading biotech company. Once again, we look forward to discussing our future plans in much greater detail following the closing of our contemplated deal with Cardinal Health. I'd now like to ask Jed to provide our Q3 financial results.

[Jed Latkin:]

Thank you, Mike. I'll now speak to the third quarter 2016 results. Rather than focus on sales which increased slightly over Q2, but were impacted by our focus on completing the contemplated transaction with Cardinal Health, we would like to focus on what Navidea will look like, subsequent to our contemplate divestiture. Our expenses declined from $7.8 million to $4.2 million for the quarter and from $23.7 million in the nine months ended September 30, 2015 to $16.4 million for the past nine months. This represents a 46% year-over-year decline for the quarter-to-quarter numbers with a 30% decline for the nine-month period. This provides solid evidence of the increased focus on expense illumination from the management changes in Q2. Furthermore, upon completion of the sale of Lymphoseek to Cardinal Health, we expect another significant decline as some of the commercial sales headcount will be transferred to Cardinal Health and approximately $1.1 million of quarterly cost will be eliminated. The sale will also allow for the pay back of substantially all of our debt, thereby eliminating over $7 million of interest expenses per year. We can expect a much slimmed down and more efficient company going forward. We have achieved over 100,000 doses sold and administered to patients since we launched the product. Without any serious adverse events which supports the utility of the delivery system for use in other indications like rheumatoid arthritis and cardiovascular disease. We have funded our initial rheumatoid arthritis and cardiovascular work with NIH funding and we have applied for additional such funding to continue and expand the studies. We anticipate that post closing, the Cardinal Health deal and the repayment of the CRG debt will give us sufficient resources to initiate multisensor efficacy studies on a number of potential new imaging agents that utilize the same backbone as Lymphoseek. For the third quarter of 2016, total revenue was $8.5 million, compared to $4 million in the third quarter of last year, which denotes a 114% increase year-over-year. Total Q3 revenue includes Lymphoseek product revenues of $6.7 million, compared to $3 million in the third quarter of last year, a 127% increase. Third quarter 2016 revenue from the sale of lympocy included a $2 million of inventory purchase by Cardinal Health and a $500,000 of additional revenue from a milestone related to the sale of the 100,000th Lymphoseek dose by Cardinal Health. Other Q3 revenue included $1.8 million in grant licensing and other revenue, compared to $1 million in 2015. For the nine months ended September 30, 2016, Navidea's total revenue was $18.6 million compared to $9 million in the same period last year, an increase of 108% year-to-date. Lymphoseek product revenues were $14.7 million, compared to $6.8 million in the first nine months of last year, an increase of 118% year-over-year. The primary driver's increase were a $2 million inventory purchase by Cardinal Health, $500,000 of additional revenue from a milestone related to the sale of 100,000 Lymphoseek dose by Cardinal Health and the continued growth of Lymphoseek sales. Gross margins on Lymphoseek product remained above 80% for the third quarter and first nine months of 2016. These margins contributed to a total gross profit of $7.6 million for the quarter, compared to $3.5 million for the same period last year and gross profit of $16.6 million for the nine months of 2016 compared to $7.7 million for the same period last year. Of equal importance, our income from operations was $3.4 million for the quarter ended September 30, 2016 and $210,000 for the nine month ended September 30, 2016. This decrease in net loss is due to increased revenues and important reduced operating expenses which reflect additional operational efficiencies we have implemented. Our net loss attributable to common stock holders was $59,000 or $0.00 per share for the quarter ended September 30, 2016 and $10.4 million or a $0.07 per share for the nine months ended September 30, 2016. Net losses attributable to common shareholders include fees paid to CRG, the interest expense on our outstanding debt, as well as significant non-cash charges. For the nine months ended September 30, 2016, net loss attributable to common shareholders included $10.6 million in interest debt-related fees, losses on extinguishment of death and changes in the share value of financial instruments. We ended the quarter with $4.3 million in cash, $3.5 million of which was restricted related to the CRG debt. Once the transaction with Cardinal Health is complete and CRG is repaid, the onerous restrictions on the frozen account will be lifted and Navidea will have full access to its cash. Furthermore, once released from the CRG debt, the company will be free to pursue all of its clinical programs and realize its full potential. To conclude, the contemplated transaction with Cardinal Health as well as the impending launch of Lymphoseek in Europe by our partners B Pharma, AG and Norgine should provide additional income for many years to come. We will also renew our focus on launching Lymphoseek in other new territories over the next several quarters. Success in these efforts will allow us to move forward with expansion and development of Manocept-based diagnostic markets initially in rheumatoid arthritis and cardiovascular disease and developing immuno-therapeutic platform with a strong pre-clinical pipeline for cancer, auto-immune disease, inflammatory and infectious diseases. Thank you and I would now like to open the floor to Q&A. Operator, can we please open the call to Q&A?

[Operator:]

Absolutely, thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Kevin DeGeeter of Ladenburg. Mr. DeGeeter, your line is open.

[Kevin DeGeeter:]

Hey, good morning, guys. Congratulations on the progress. Two questions both pertaining to the Manocept immuno-therapeutic development programs. Michael, can you remind us with regard to any NASH model, just kind of which models we're looking at here in pre-clinical development as we sort of anticipate, seeing some data and just your general thoughts at this point as to whether or not you envision your development as a mano-therapy or in combination with one of the multiple other NASH agents out there in clinical development today?

[Michael Goldberg:]

Sure. Thanks, Kevin, I appreciate the call. The model that we used is pretty much the premier model that is used in determining efficacy in animal models. It's a mouse model, it's done by a group in Japan which we're told by our diligence is the number one group doing these particular models and essentially, they feed these animals very high fat cholesterol diets, get them to a certain level and they've indicated to us they tested over 350 compounds in this model and they told us that actually the performance of our product and their model was the best they've ever seen. So it is a standalone agent. The initial study was actually done with the MT1000 class. That is the product which causes apoptosis of activated macrophages. We have now started another study. It has actually begun, dosing has already begun, hopefully have results around year-end where we'll be looking at different frequency of dosing as well as different duration of dosing and in addition we'll be adding our MT2000 class of molecules as well, which is an anti-inflammatory, basically one that converts from the M1 which is the activated pro-inflammatory phase to the activated anti-inflammatory phase of the macrophage. So we'll be looking as well not just like we saw in the first study where we were measuring inflammatory cells of something called balloon cells in the liver of these animals, but we'd also be looking to see the effect on fibrosis and the incidents of hepatic cancer, which is what this model shows if you extend out for more extended periods of time. All of those results should be available, as I said, roughly around year-end. The studies have begun, dosing have begun. To answer your question with respect to one molecule or combination agents, this is purely looking at it from an anti-inflammatory perspective. As you well know, those in the field we saw recently with allergen acquiring both an anti-inflammatory and a direct agent that prevents the cause of the macrophages becoming over-activated which is the cholesterol and other build up that causes this disease, but we're looking at this as a standalone agent and as I said, so far according to the group that has done the work, our agent has been more effective than any they have seen and the only thing I would add as well, which is why we're so excited by this, especially given that we use our anti-apoptotic agent is that the liver -- this is a liver disease -- and when we look at the histopathology of the liver, we saw a dramatic reduction in inflammation and very, very interesting, we didn't see any evidence of any tissue damage either by clinical or histopathology. We didn't see elevation in liver enzymes, in fact we saw reduction in liver enzymes and we didn't see any evidence of damage or off-target effect in the liver which is a target organ for treating this disease. What we saw in the study was that the actual liver and non-activated macrophages which represent 30% to 40% of the liver, the word for those are cook-for-cells were absolutely unaffected by our therapy. So we're excited by this and much more broadly because of the safety and because of the targeted activity, because this work in this model as it has in every other model that we've looked at, the mechanism is what we're excited about because what it shows is that we have the effect on the activated macrophage which is the cause of the disease and we do not think to have any perceptible off target effect at least in the animal models tested today.

[Kevin DeGeeter:]

That's great, extremely helpful. Just one more follow-up if I may and that just pertains that you have potential development of therapeutic candidates in oncology. I know the company is looking at a number of pre-clinical models, just any update as to specific tumor types or histologies that may be of interest and when we may see more data on the oncology front?

[Michael Goldberg:]

Okay. Another good question. Again, remember, our product as I indicated with respect to NASH and as I indicated with all the work we've done in any infectious disease, we don't actually target per se the disease. In the case of cancer, we don't target a certain tissue or tumor type. It's not as if we have something that targets a certain type of colon cancer and versus a prostate cancer. What we target in terms of tissue types, in terms of cancer types are cancers that have an immunological impact on its environment called TAM, tumor associated macrophages. And most solid tumors have TAMs, some have greater degree of TAM involvement than others. What we focus on is tumors that have a significant TAM component and it's our belief that by targeting the tumor micro environment, we weaken the body's, the cancer's ability to provide inhibitory effect on its own immunological response to tumor, as well as to standard targeted agents like chemotherapy, or radiation, or any of the newer immuno-oncology drugs. What we look for in our animal models are animals that like in humans create a significant TAM effect and as I said, so far we've tested this with two tumor types. The two that we've looked at was a colon cancer and a renal cell cancer, both of which have significant TAMs and in both cases as a standalone agent, we're able to show a significant effect on the size and growth of the tumor. That again, remember, we're not targeting the tumor itself, we're just targeting the cells that protect the tumor and enable the tumor to grow and to metastasize. We've been able to show an effect and then really excitingly what we've shown most recently is that there's an antibody to a tumor that responds to that antibody, say, a human tumor that responds to an antibody that is blocking the growth of that tumor and what we're able to do is dose it in an animal model of that tumor. So you think the human tumor put it into the mouse and gets to a dose where that antibody has no effect and what we're able to show is that by adding our agent that works on the tumor micro environment, essentially make antibody more accessible to the tumor itself, we were able to show a very, very significant -- statistically significant -- powerful effect on the tumor growth at a dose where that antibody on its own will have no effect. That opens up again more data and more evidence to show that there's a strong rationale for being able to target the tumor micro environment and by doing so, we can make whatever agents are useful, that much more effective. For example, a lot of the interest right now in all of the checkpoint inhibitors. The problem with checkpoint inhibitors is one, resistance develops because they're multiple checkpoint inhibitors; and two, side effect of the checkpoint inhibitors are that it causes auto-immune reaction that very often is limiting in terms of the ability to treat the tumor. So conceptionally, if we can target the tumor's micro environment so that we can reduce the dose of the checkpoint inhibitor, we could potentially maintain or increase the efficacy while simultaneously dramatically reducing the side effects, which is how in many ways if you looked at the industry, especially the PD1 molecules, some of the bigger companies with the bigger agents are having competitive problems because of the side effects of the therapeutic dose. So we think we can have a synergistic effect by being able to reduce the dose and still maintaining the same or maybe even improve efficacy. There's a lot going on and I know I didn't answer your specific question as to specifically when you're going to get more information, but because of limited resources and because of the time duration that it takes to do these studies and the fact that these really are foundational studies which are very important for creating the new IP that we'll develop around the therapeutic side of things, we're going to be somewhat limited in terms of what we can and will say about these things, but under confidentiality we do share this with companies and the response rates are very promising.

[Kevin DeGeeter:]

Terrific. I appreciate the feedback. Thanks so much, Michael.

[Michael Goldberg:]

Thanks, Kevin.

[Operator:]

[Operator Instructions] The next question comes from Gilbert Good with Western International. Mr. Good, your line is open.

[Gilbert Good:]

Good morning and thank you for the great results. Just the beginning of the call, do you have a target date for the completion of the Cardinal Health arrangement?

[Michael Goldberg:]

As soon as possible?

[Gilbert Good:]

Okay.

[Michael Goldberg:]

Not to be too flippant, but this is obviously for us a very critical deal, it's very complex. We hope very, very close to completing the first of the chief staffs which is the asset purchase agreement. As soon as that is completed and signed, we'll have to get a shareholder approval. This has been video shareholder approval for this. We're preparing a proxy. Once we sign the APA, the Asset Purchase Agreement, we'll go out to the shareholders with a proxy that will describe the deal in more details as well as our request a shareholder vote. Assuming we get the shareholder vote which we'll push more as soon as possible, we will endeavor to close the transaction. The last piece of all these is once we have the shareholder votes, we then have to work out a payoff of the CRG loans so that we can get the asset, take the leans on the asset, remove them and then we can transfer it to Cardinal Health. This is our priority and we think we're making excellent progress.

[Gilbert Good:]

Okay. So really looking at probably sometime into next year before we can anticipate completion?

[Michael Goldberg:]

I hope you're wrong.

[Gilbert Good:]

Good enough. Okay. That was my questions.

[Michael Goldberg:]

Thank you.

[Gilbert Good:]

Thank you very much.

[Operator:]

Thank you. We have no further questions at this time.

[Michael Goldberg:]

Well, okay then. Let me just wrap up and say thank you. While we're very focused on getting the transaction completed and reducing our debt and removing the encumbrances we had on our ability to operate, we haven't been sitting still. There's a lot of work going on. We've developed some, we think, really, really exciting data with respect to the cardiovascular and the rheumatoid arthritis. We've identified a number of other imaging opportunities that we'd look to explore, we filed and continue to file for [indiscernible] and his team for various NIH non-dilutive financing for the company, we've generated some exciting data in some infectious disease opportunities where we think we have a real leg up on the rest of the industry. And with our recent data on the macrophage therapeutics, we've been synthesizing more material and entertaining and discussing with various groups. Other interesting deals as I indicated today, we've got our first data in a lipid storage disease and we're going to look to expand that -- very large important area. So we're very excited by where we are, but I think for now, we'll keep this short. We'll end this call and focus on closing the Cardinal transaction and I implore all of you as soon as you get the proxy in the mail, please vote yes and send it back in so that we can get this to close much sooner than into next year. Thank you very much.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.