Navidea Biopharmaceuticals, Inc.
Q1 2015 Earnings Call Transcript

Published: 12 May 2015

[Operator:]

Welcome to the Navidea Biopharmaceuticals First Quarter 2015 Earnings Call. My name is Latoya, and I'll be your operator for today. At this time all participants are in a listen-only mode. Following the prepared remarks, we will conduct a brief question-and-answer session. Please limit yourself to one and a follow-up. As a reminder, this call is being recorded. And the replay numbers were issued in the press release. I’ll now turn the call over to Sharon Correia, Associate Director of Corporate Communications at Navidea. Sharon, you may begin.

[Sharon Correia:]

Thank you, Latoya. Hello everyone, and thank you for joining us today. I'm Sharon Correia and I'm the Associate Director of Corporate Communications for Navidea. On today's call are Rick Gonzalez, President and Chief Executive Officer; Brent Larson, Chief Financial Officer, Tom Klima, Chief Commercial Officer and Michael Tomblyn, Executive Medical Director. At the end of the call, we will hold a brief question-and-answer period. Before we get started, we'd 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 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, the difficulty of predicting the timing or outcome of product development efforts and FDA or other regulatory approvals or actions; market acceptance of and continued demand for Navidea 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'd like to turn the call over to Rick Gonzalez, CEO of Navidea.

[Rick Gonzalez:]

Thank you, Sharon, and good morning to everyone. Welcome to our first quarter 2015 results conference call. We’re pleased you could join us today. Our performance year-to-date reflects how quickly we are transforming Navidea into an organization singularly focused on unlocking the value of our Manocept technology both as a state-of-the-art cancer imaging agent, as well as a novel therapeutic platform. Our greatest priorities are to quickly begin to capture the commercial potential for Lymphoseek, the first FDA approved product to result from our Manocept platform, improve our operating efficiencies and strengthen our financial flexibility. In the first quarter of this year, consistent with these priorities, and the stated objectives we laid out in the last two earnings call, we have achieved sequential quarter-on-quarter Lymphoseek growth of 26% and continued improvement in key performance indicator growth targets; hired the Lymphoseek sales force of 12 representatives, which will be fully deployed in the second quarter; completed the divestiture of the first of the two non-core neuroimaging assets; reported additional validating data at the American Association for Cancer Research meeting, demonstrating the potential for our CD206 targeting platform Manocept, to target and treat Kaposi’s sarcoma, which is an ideal model for other tumor types and infectious diseases; and finally we completed an initial financing for Macrophage Therapeutics, enabling further development of the promising, early-stage Manocept therapeutic platform. As you know, we have ambitious priorities and timelines for building a successful commercial Lymphoseek business. A critical ingredient to the success is maximizing our financial flexibility. Yesterday, we announced the execution of an agreement with the CRG to bring in $60 million as part of a non-dilutive loan transaction. The CRG loan agreement provides for an initial funding of $50 million, with up to $10 million of additional funding available to Navidea at its option through December 2016, subject to the satisfaction of certain revenue milestones and other borrowing conditions. The majority of these funds will be used to retire our debt from Oxford Finance, in its entirety. After repayment of the existing Oxford debt, this transaction will immediately provide a net $80 million in capital to Navidea. This gives us the added financial flexibility at a critical time with a premier healthcare industry lender that we view as a strategic partner whose interests are aligned in our success. Further, this deal strengthens our balance sheet in a manner that minimizes the dilution to our shareholders, which was a critical factor in evaluating our options. We are now in a much stronger position to execute according to plan in the growth and development of Manocept technology, initially as a state-of-the-art FDA approved cancer imaging agent Lymphoseek and in the development of novel Manocept based therapeutics. Let me now turn specifically to our commercial business. Most critical to our new commercial strategy is the deployment of sales force that will be calling directly on surgical oncologists, as well as other hospital decision makers, including the broader treatment team. We have gone from four sales representatives which we reported on our year-end earnings call, to a full team of 12 field sales representatives. We have built a strong team of seasoned and highly motivated reps to deliver our new brand strategy reflective of Lymphoseek’s recently expanded label to target customers. As we speak, they are in training in preparation for the immediate field deployment. As we described previously, the typical Lymphoseek cycle is 4 to 6 months and the sales territories outlined covered by the sales force include centers where approximately 80% of Lymphoseek applicable cancer diagnosis in the U.S each year are treated. Visibility for the product within the medical community continues to expand. Lymphoseek clinical data have been presented recently at the Society of Surgical Oncology, the American Society of Breast Surgeons, the International Conference on Innovative Approaches to Head and Neck Oncology, and the American Head and Neck Society annual meeting, reinforcing Lymphoseek's clinical value proposition. Our rich clinical experience allows us, as well as that of independent researchers, to perform a number of analysis which further supports the proposition that Lymphoseek should be the preferred agent for all sentinel lymph node biopsy procedures. The thoughts been given at these medical conferences are being increasingly delivered by leading surgical oncology thought leaders, elevating the peer recognition for the product. In addition to this data, we are also seeing a marked increase in interest from existing and potential customers as part of our interactions at these conferences, reinforcing the value we believe Lymphoseek offers to the oncology treatment teams and patients. Consistent with this feedback, I'm happy to report that our Q1 key performance indicators are right on track. During this quarter, Lymphoseek procedures and new customers -- new customer accounts are tracking to forecast. We realize sequential growth in a number of procedures of 20% compared to Q4 2014 before our new sales force has been fully deployed, and we continue to maintain a high reorder rate, which tells us that once a customer uses Lymphoseek, they continue to reorder it. Based on Q1 commercial performance, and the anticipation of full sales force deployment starting in Q2, we remain confident that we will achieve our $10 million to $12 million Lymphoseek revenue target to Navidea for 2015. Looking ahead, to where we will go with Lymphoseek, we continue to mark progress in the first quarter towards opening new market opportunities in lymphatic mapping of solid tumors be on breast cancer, melanoma, and head and neck, where lymphatic mapping historically has not been as common in the U.S and outside the highest quality academic centers. This to include gynecological, gastrointestinal, and other tumor types. We view these additional solid tumors as one of our Lymphoseek pipeline opportunities, yet an opportunity for which we have already -- for which we already possess an approved FDA label. To accomplish this, we are actively collecting the input and partnering with clinical investigators to identify those tumors that we should initially pursue, as well as gain and understanding of what trials will be required. As part of the strategy, there are recently completed studies that we will be reporting data over the coming months. Ongoing investigator initiated and grant funded studies and several plan studies including cervical cancer, endometrial, and anorectal cancer. Importantly, the cost of Navidea for the studies is limiting as they will either be independent studies or studies funded through grants. The results from these studies as the outcomes to become published or presented, will help educate and drive the adoption of lymphatic mapping, using Lymphoseek by the broader oncology community, bridging the gap from our current label in sentinel lymph node detection in breast cancer, melanoma, and head and neck to other solid tumors. Lymphoseek as an imaging agent represents just a first novel application for the Manocept platform. Our future pipeline is based on potential expansion of this platform into additional diagnostic and select therapeutic applications. As we’ve stated, this platform targets activated macrophages, which are implicated in many diseases. If we substitute the tracer with a therapeutic agent attached to the Manocept molecular backbone, we can potentially develop novel targeted immunotherapies specifically designed to selectively deliver an agent that can kill or alter disease associated macrophages, which have been proven to be a viable target based on findings by experts in the field of immunotherapy and immune-oncology. In fact, there has been a tremendous amount of focus on this target as the data are generated with the various T cell based therapies that their activity can be enhanced if one can alter the tumor microenvironment. Many tumor microenvironments are composed of a large number of CD206 positive macrophages. As part of this effort, several critical new datasets have been or are expected to be reported at our upcoming medical conference. Much of this work centers around clinical work directed at localization and the discovery of a potential therapeutic approach for the treatment of Kaposi’s sarcoma. Given the involvement of disease associated macrophages in other tumor types as well, we believe this is an ideal model to use to better understand how the Manocept platform could be used more broadly in oncology and inflammatory conditions. Three salient points coming out of the data presentation at the American Association of Cancer Research meeting were

[Brent Larson:]

Thank you, Rick. Total revenues for the quarter ended March 31, 2015 were $2.1 million compared to $752,000 for the first quarter of last year. First quarter product revenues recognized from the sale of Lymphoseek were $1.84 million compared to $1.46 million for the fourth quarter of last year, and $627,000 in the first quarter of last year. This represents a sequential quarter-on-quarter growth of 26% and year-over-year growth of approximately 200%. During the first quarter of 2015, the company also received a $2 million upfront payment related to the execution of a sublicense for Lymphoseek in the European Union with Norgine BV. However, we should note that this amount is being amortized over a two-year period in accordance with applicable according revenue recognition rules. Gross margins on Lymphoseek product sales remain strong at 76% for the first quarter of 2015 compared to 69% for the first quarter of 2014. We expect to continue to see incremental improvements in this already strong number as we gain operational experience. Research and development expenses for the first quarter of 2015 were $4.0 million, compared to $5.2 million for the first quarter of last year. Selling, general and administrative expenses were $5.5 million, compared to $3.9 million in the first quarter of last year. Included in this SG&A totals were $605,000 of sales and marketing expense for the first quarter of 2015 compared to $570,000 for the first quarter of 2014. Total operating expenses were $9.5 million for the first quarter of 2015, compared to $9.1 million for the first quarter of last year. Operating expenses for the first quarter of 2015 also included $1.4 million in estimated one-time severance and stock compensation costs associated with the March 2015 reduction in force and approximately $1.5 million in out-of-pocket expenses related to the Company’s neuroimaging programs. Navidea’s net loss attributable to common shareholders for the quarter ended March 31, 2015 was $7.3 million, or $0.05 per share, compared to $11.7 million, or $0.08 per share, for the same period in 2014. Navidea ended the quarter with $4.9 million in cash. Subsequent to the end of the quarter, as Rick has earlier described, we added over $18 million to our balance sheet from proceeds related to our new loan with CRG. As Rick also mentioned, we are reiterating our 2015 product revenue guidance of between $10 million to $12 million. Additionally, margins on product sales are expected to approach and possibly exceed 80% in the coming quarters. We also expect, following completion of the partnering activities for NAV4694, that cash operating expenses on a quarterly basis will continue to decrease to the point necessary for us to achieve our goal of cash flow breakeven from operations in early next year. This guidance does exclude therapeutic-related research and development costs for the Manocept platform, which are expected to be funded separately by Macrophage Therapeutics. Based on the improved balance sheet, our efforts to continue containing expenses in the anticipated growth in revenue and gross profit, we believe we have sufficient cash on hand today to get us through the point of cash flow breakeven from operations in the first quarter of 2016. Thank you again for your time, and I’d like to now turn the call back over to Rick for concluding remarks.

[Rick Gonzalez:]

Thank you, Brent. To conclude, we are on track or ahead of schedule across many of our stated objectives and metrics that we have laid out. We continue to focus our energies on growing the top line and key performance metrics, optimizing operations, investing appropriately in Lymphoseek life-cycle management, and advancing the Manocept therapeutic pipeline, and look forward to realizing the impact this year of our fully deployed field force. Operator, we will now like to open-up to Q&A.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question is from Stephen Dunn of Life Tech Capital. Your line is open.

[Stephen Dunn:]

Good morning everyone. Just one question, one follow-up. My first question is on the cash flow breakeven forecast, maybe this is for Brent, can you tell us what sales level of Lymphoseek you’re targeting in order to achieve the breakeven and does that breakeven include the new interest expense on the -- this new debt from CRG?

[Brent Larson:]

Yes, Steve, thanks for the question. We haven’t given quarter-by-quarter guidance, as I think you are aware. We are certainly considering the anticipated growth that added consistent with the levels that we’ve seen in the first quarter and I think as we’ve talked about previously, expect to see increasing growth in the third to fourth quarter as the sales force comes online. So we haven't given that kind of specific guidance yet, but I think you're probably able to extrapolate into that how you get to the levels which would get us there. As far as the cash flow breakeven calculations, yes they do take into account the new interest expense on the new debt.

[Stephen Dunn:]

Can you give us little guidance on that amount?

[Brent Larson:]

The interest expense on the $50 million?

[Stephen Dunn:]

Yes.

[Brent Larson:]

I don't have that in front of me right now, Steve. But I will get back to you with that. Its just basic math on $50 million times 14%, so …

[Stephen Dunn:]

Okay. One for you Rick, you are shifting now, you're leveraging of the Manocept platform from diagnostics, which we saw the utility in the KS studies that with AACR. You’re talking now about a therapeutic agent, a drug I’d say, when can investors start to see some data with -- some sort of payload on the CD206?

[Rick Gonzalez:]

Yes, good morning, Steve. That is a very, very exciting area for us. I think the Manocept platform in its first application as a diagnostic gives us confidence that the targeting ability and the high selectivity for the CD206 receptor on the disease associated macrophage is clearly there. That being said, the excitement towards what that application and what that targeting ability presents for therapeutic application is certainly an area of great excitement that we are looking into the future in marking the value of that Manocept platform. We are hoping to see data sometime this year around additional payloads being attached to the Manocept targeting platform and what effect that may have. So stay tuned for that. We expect that to be presented sometime later this year.

[Stephen Dunn:]

Could you give us a little bit more -- give us a little more clarity on what's later this year? I mean, is it like December or is it September or …?

[Rick Gonzalez:]

Without being able to give you a specific date, or timeframe, I hope that in the next quarter or two we will be able to see that data being presented. That is our hope.

[Stephen Dunn:]

All right. Thank you very much guys.

[Rick Gonzalez:]

Thank you, Steve.

[Operator:]

Thank you. [Operator Instructions] And the first question -- I'm sorry; the next question is from Steve Brozak of WBB. Your line is open.

[Steve Brozak:]

Hey, good morning, gentlemen. One question, one follow-up and I will hop back in the queue. Rick, obviously you are an operations guy. Can you give insights -- specific insight as to how you plan on working with the team that you have got -- now got on board to meet the expectations and obviously the specific guidance that you’ve guide [ph] out there and put out for the first time? And can you give some feedback now that you started to put people into place as to what you're seeing at the major teachings centers, the regional and the entire food chain and as far as that goes? And then I will have a follow-up in terms of macrophage please.

[Rick Gonzalez:]

Good morning, Steve. Yes and as you know my background in commercialization of products, particularly in the therapeutic oncology space, it has -- I had brought that to the team and have brought that to Navidea. One of the most exciting events that I have announced on this call is the deployment of our full field force, which actually is in training this week in our headquarters office. My intention is to be able to support and enable the team to execute to its full potential and removing all the barriers and providing all the resources needed for them to convey the clinical value proposition that Lymphoseek presents to all stakeholders, focusing on the surgical oncologists, but also looking to have maintain contact with the nuclear medicine physician and also with the patients as well. So there is a comprehensive strategy that is reflective of the clinical value proposition that Lymphoseek brings to the table and being able to deploy that. Just to give an example, I’d like to be connected to the field on last Thursday and Friday, I had the distinct pleasure of being able to shadow one of the most highly respected head and neck surgeons in the country and see the use of Lymphoseek from injection all the way through surgery. I tell you it was a life changing experience and it was really reinforcing, on my belief and our believe that Lymphoseek brings a very real clinical value proposition to patients, to surgeons and everybody involved in the management of these patients. So my goal is to maintain -- again enable the field force to execute to the best of their ability. We have hired a superb team to be deployed, to be targeting the right audience where the business is, where the patients are being diagnosed, and again that's a very, very exciting aspect for me. I'm highly confident in Tom Klima’s and his team ability to deliver this and get us to the revenue generation potential that we know Lymphoseek can achieve. But I would like Tom to add any commentary for his viewing as he deploys the sales force. Tom?

[Tom Klima:]

Yes. Thanks, Rick and Steve. Just two things to add to what Rick said. I think first and foremost, we are seeing increased interest and traction both at these major medical meetings as we’re presenting some of our data. But we are also seeing increased interest from community practices that are reaching out to us proactively and looking to have conversations with our newly deployed sales force team. And specifically I think I mentioned this on the last call, that we are going to be looking to both go deeper in existing accounts and grow the doses being used in existing accounts, but also with our new sales force on board we can go broader -- to a much broader set of accounts as well to reach all of our potential targets.

[Steve Brozak:]

Actually if you don't mind, I’d like to follow-up on this one and then go into macrophage. You now have head and neck. Obviously, now the limitations are simplify put whatever the surgeons and the clinicians are thinking about. With this sales force when you do obviously have the availability and the approval to go into other indications specifically, you see that sales force is being capable to do that and being accretive in that area and how would you describe that?

[Tom Klima:]

Yes, I would say from a capability perspective we hired a team and our targeting is based on our ability to execute on obviously the first three indications and then grow beyond that. From a numeric perspective, as we grow and look at other tumor types, we would look to obviously achieve success in the first three indications, but then we will potentially be looking to expand beyond that as we grow into that tumor types.

[Steve Brozak:]

Okay. Last question going into macrophage. Obviously, with macrophage now you’ve got a validated platform on the diagnostic side and now you're looking at therapeutic side, which obviously everyone is always talking about exciting. But with the information that you -- Rick you had mentioned earlier on the Kaposi’s sarcoma side, it is obviously a quote unquote low hanging fruit given how devastating it is, but can you tell us what the relationships are that you work with so far with the KOLs and how this is tracked and how is tracked in terms of -- just in general terms, because I know its something that you're formulating and you’ve been working on simultaneously with everything else you’re doing over in the diagnostic side. Can you give us more granularity as they like to say on macrophage, please?

[Rick Gonzalez:]

Yes. Yes, absolutely. So the first step in that process was to inform the disease selection from the scientific advisory board that brought together a [indiscernible] of experts in not only macrophage behavior, but also in many different diseases. And based on their input and their guidance which actually is an active process, we have been able to look at what disease targets we’d choose, what payloads we’d choose and then what data would be needed to develop that. Now as you look at the KS, KS is a small disease type. It is not as prevalent in the U.S as it is abroad. However, the KS presents an opportunity and a working model to understand macrophage or a disease associated macrophage behavior with other tumor types. So although KS work is the -- the initial work that is done, it serves us to understand the dynamics of the Manocept platform, the payload attached to it, and how does it behave to kill or modify these disease associated macrophages which are selectively prevalent in the KS model. So with that being said, and to the previous question that was asked, we’re very, very hopeful to see some data on this being presented in the near future that will give us a validation as we move forward with the therapeutic development and applications of the Manocept targeting mechanism. Its ability to target the over activated macrophage -- the disease associated macrophages specific to the CD206 receptor over expressed to the cell surface is incredibly valuable for these therapeutic applications, and again the future is very, very exciting as it pertains to this targeting mechanism.

[Steve Brozak:]

Great. Well, obviously you guys are giving guidance; I look forward to the next quarter and the quarter after that. Thank you, gents. I will jump back in the queue.

[Rick Gonzalez:]

Thank you, Steve. End of Q&A

[Operator:]

Thank you. There are no further questions at this time. Would you like to close with any closing remarks?

[Rick Gonzalez:]

Not at this time. Thank you very much for being for joining us for the call today.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.