Navidea Biopharmaceuticals, Inc.
Q3 2015 Earnings Call Transcript

Published: 4 Nov 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the Navidea Biopharmaceuticals’ Q3 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Ms. Sharon Correia, Associate Director of Corporate Communications. Ma’am, you may begin.

[Sharon Correia:]

Thank you, Crystal. Hello, everyone and thank you for joining us today. On today’s call are Rick Gonzalez, President and Chief Executive Officer; Brent Larson, Chief Financial Officer; and Tom Klima, Chief Commercial Officer. Dr. Fred Cope, Chief Scientific Officer; Dr. Michael Tomblyn, Chief Medical Officer; and Bill Regan, Chief Compliance Officer will also be available during the brief Q&A at the end of the call. Before we get started, we would like to remind you that during the course of this call, management may make projections or other forward-looking remarks regarding the 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, 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 Rick Gonzalez, President and Chief Executive Officer of Navidea.

[Rick Gonzalez:]

Thank you, Sharon and welcome to our third quarter 2015 results conference call. Our business today is centered on a state-of-the-art immunodiagnostic agent, Lymphoseek. It was built by combining a radioactive imaging isotope with our proprietary CD206 targeting platform, Manocept, which selectively seeks out and binds the activated macrophages that over-express CD206. Activated macrophages are immune cells that can have undesirable effects that contribute to disease progression. We believe Lymphoseek within its current label offers a tremendous commercial opportunity. The initial commercial opportunity is in sentinel lymph node biopsy in breast cancer, melanoma and all cavity head and neck cancers. In addition, we plan to expand our market into other solid tumors under that current label. From there, we believe Lymphoseek’s immunodiagnostic value can be expanded into additional applications to diagnose diseases that affect even greater number of patients, such as rheumatoid arthritis and Kaposi sarcoma. Addressing these diagnostic applications will serve as a bridge to our ultimate goal of developing immunotherapeutics, whereby we would substitute the diagnostic radiolabel payload using Lymphoseek with a therapeutic agent. As we laid out at the beginning of the year, we are executing against our new Lymphoseek commercial strategy. The implementation of the strategy is progressing well and we continue to build strong momentum. Based on this momentum, we have achieved $6.8 million in Lymphoseek product sales through the end of Q3, which represents approximately 50% of the total brand revenue year-to-date. We also recognized $3 million in Lymphoseek product sales just for the third quarter, representing 50% sequential and 168% year-over-year growth and maintain high margins in excess of 80%. Based on our performance to-date, we are reiterating our expectations that we will achieve our 2015 revenue guidance of $10 million to $12 million to Navidea in Lymphoseek sales. The commercial potential for Lymphoseek is promising and the business has three clearly defined phases. The first phase is to focus on sentinel lymph node biopsy in melanoma, breast cancer and all cavity head and neck cancers. These indications provide us with an ideal entry point for Lymphoseek into hospital and hospital networks. The next phase of growth for Lymphoseek is to drive adoption in other solid tumors under the current approved label and where lymphatic mapping is an emerging modality. Investigators throughout the U.S. are conducting independent studies across multiple tumor types with several expected data readouts next year. The final phase of this growth will come from new immunodiagnostic applications in macrophage associated diseases. As a result of initial discussions with the FDA, regarding our intentions for label expansion, we will leverage Lymphoseek’s current IND to streamline the development path and NDA submission. Further, the requirements for establishing additional roots of administration were delineated setting a clear and defined path to submitting the necessary data allowing us to move into the required clinical trials. We expect to submit the non-clinical package in the first quarter of next year and move into Phase 1/2 trials in 2016. We will continue to work collaboratively with the FDA through the development process. Our efforts specifically will first focus on rheumatoid arthritis, where we have received NIH funding through Phase 1/2. We believe a successful program will allow physicians to accomplish the following

[Tom Klima:]

Thank you, Rick and good morning everyone. The commercial team has been tremendously active this year. We deployed our dedicated 12-person field force in May, which for the first time allowed us to directly target the oncology treatment team with the focus on the surgical oncologist. We are building momentum and the team is now executing on a new brand strategy reflective of Lymphoseek’s current product profile enabled by the expanded label received late last year. The Lymphoseek’s sales cycle is estimated to be between four and six months and as a result we anticipate the fourth quarter to be the first full quarter, where we will begin to benefit from the impact of their efforts and expect to see this momentum building into next year. As an example of this momentum, just recently, we achieved a record level of weekly doses utilized. With our sales force and new commercial strategy, we are now reaching integrated delivery networks and working with larger hospitals, where significant opportunity exists. Visibility for the product within the medical community also continues to expand significantly. A critical paper was published in August, which demonstrated statistically significant less pain using Lymphoseek versus Sulfur Colloid based on an investigator initiated study out of the University of California, San Diego. Frequent customer feedback is that this improvement in patient experience influences their decision to use Lymphoseek as they look to optimize care for their patients. Another major factor in their decision process is workflow and treatment efficiencies at the hospital. Along these lines an independent study is expected to report results at the upcoming Radiological Society of North America meeting in December. The lead investigator from Thomas Jefferson University in Philadelphia was specifically comparing patient throughput times namely how long it takes for post-injection to image acquisition and the impact this has on expediting the patient to transport to the operating room. A separate study is also underway looking at multiple efficiency parameters. The results we anticipate will complement our commercial activities with physicians, hospitals and system wide decision makers, ultimately is our goal for Lymphoseek to be the preferred agent for all sentinel lymph node biopsy procedures. As we are commercializing the clinical value proposition of Lymphoseek surgeons are starting to use the product under the current label in other cancers such as cervical, endometrial and anal. As further data are reported we anticipate greater adoption of Lymphoseek in other solid tumors. Consistent with our momentum, I am happy to report that we are making great progress against our commercial plan. Recent key highlights include the following. Lymphoseek procedures and new customer accounts are tracking to forecast. We realized continued sequential procedure growth notably ahead of the anticipated impact from a fully deployed sales force. As part of our plan, we implemented a press adjustment that has been met with little if any measurable pushback from customers and purchasers. We believe this reflects the cost effectiveness of Lymphoseek and acknowledgement by our physicians and of the clinical value proposition. And we continued to maintain a high reorder rate which tells us once customers use Lymphoseek they continue to reorder it. Based on the first nine months of commercial performance, we remain confident that we will achieve our Lymphoseek revenue target for 2015. I will now turn the call over to our Chief Financial Officer, Brent Larson to review the financials in greater detail. Brent?

[Brent Larson:]

Thank you, Tom. Total revenues for the third quarter of 2015 were $4 million, an increase of 45% sequentially and 77% year-over-year. For the nine months ended September 30, 2015 total revenues were $9 million compared to $4.1 million for the period of 2014 and they increased nearly 120% year-over-year. The major driver of these increases was Lymphoseek product sales for which the third quarter sales were $3 million, an increase of 50% sequentially and 168% year-over-year. For the nine months ended September 30, 2015 Lymphoseek product sales were $6.8 million compared to $2.8 million in the first nine months of last year, an increase of 143% year-over-year. Gross margins on Lymphoseek product sales continued to exceed 80% for the third quarter and the first three quarters combined of 2015 as our gross profit grew to $3.5 million for the third quarter alone. Total operating expenses on a year-to-date basis decreased from $26 million in the nine months ended September 30, 2014 to $23.7 million for the first nine of 2015. During 2015, we have continued to make limited investments in the NAV4694 clinical trial process based on the potential we believe it has to monetize this best-in-class asset in Alzheimer’s disease which has a great unmet medical need. Our net loss from operations was $4.3 million for the quarter ended September 30, 2015 and $15.9 million for the nine months ended September 30, 2015, a decrease of 19% and 31% compared to their respective periods in 2014. We ended the quarter with $11.4 million in cash. To provide some context for our financial performance, growth in Lymphoseek sales combined with funding from grants and our continued efforts to contain costs have contributed to an overall trend of reduction in our quarterly cash grant. We remain confident that we will see additional commercial momentum during the fourth quarter which based on the projected four months to six months sales cycle for Lymphoseek will be the first full period in which we expect to realize a measurable impact from the field sales force we deployed in May. This expected increase coupled with an estimated gross margin in excess of 80% means that each incremental dollar of revenue that our sales force generates has a significant positive impact to our cash flow. I would like to now turn the call back over to Rick.

[Rick Gonzalez:]

Thank you, Brent. To conclude our prospects are strong. Year-to-date we are pleased with the transformation of our commercial business are maintaining a high degree of fiscal discipline and we are on track or ahead of schedule across many of our stated objectives and metrics. Lymphoseek is building momentum in the marketplace. Based on the new initiatives we have implemented and the recognition by physician as hospitals, the impact it can have in patient care. Planning for the future we will continue to focus on a locking to full potential of the Manocept platform as we expand our pipeline of immunodiagnostics and immunotherapeutics. Operator, we would like now to open up the call for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Steve Brozak from WBB. Your line is now open.

[Steve Brozak:]

Hi, good morning and thanks for taking my question. I have obviously one question and one follow-up, but it has to deal with the financials, so Rick can you give us some breakdown in terms of price versus procedural growth that you saw and the color on that, because obviously that’s what everyone clinically cares about. And obviously I will have one follow-up on financials as well?

[Rick Gonzalez:]

Steve, good morning, thanks for joining the call. Specifically to your question I will add a bit of commentary, but I will ask Tom Klima to speak as he leads these efforts on the field. Overall we feel that Q3 was a very, very strong quarter. There were two levers that were pulled in Q3. One was the price adjustment as we have spoken to and that is understanding the clinical value proposition and the pricing leverage and the pricing that the drug had up until this point. We believe that, that is we implemented successfully that price adjustment and no pushback from customers. However, when you look at the underlying demand we observed double digit growth over previous quarters supporting our belief that the brand is growing sequentially that it will continue to grow as our sales force matures, but to comment more on that I will ask Tom to add his perspective.

[Tom Klima:]

Yes. Hi, good morning Steve. Consistent with what Rick said we basically implemented the price adjustment as part of the plan that was always part of the plan and part of the guidance that we provided earlier this. And so we have seen positive or really no pushback from customers related to price increases. Certainly we are seeing some impact and benefit from that. Secondly, we are seeing health in the business across a number of different parameters whether you look at new accounts, our goal for the year was to add about 25 new accounts per month. We are ahead of that goal. And then as Rick mentioned we are also seeing strength – a healthy strength in a number of procedures. And we are seeing double-digit growth in the number of procedures quarter-over-quarter. Lastly, as we add new accounts I think I mentioned this in my prepared remarks we are seeing consistent high reorder rate. So, once we get customers using Lymphoseek they tend to reorder it.

[Steve Brozak:]

Okay. Now obviously the next question is about, is going to be in terms of cash flow. You had in the past talked about guidance and the guidance you are still going with is, specifically in Q1 that you’ll reach a breakeven sometime during Q1. Can you give us any color on that or can you go into as much detail as obviously everyone would like on that as well?

[Rick Gonzalez:]

Yes, Steve. We still believe that it is achievable although still early it will be impacted by several things, the revenue growth projection, the cost containment, cost reductions that we have in play, but to expand on that a bit, I will ask Brent Larson to comment.

[Brent Larson:]

Yes, thanks Rick. At this time, Steve, I think we still believe that hitting our previous guidance of achieving cash flow breakeven from operations on a monthly basis for the first quarter is possibly based on some scenarios we’re looking at. It obviously depends on the, level of continued growth that we achieve over the next few months, the structure and potential payouts or payments I should say with respect to the ongoing asset divestiture discussions and our ability to contain and/or if necessary significantly decrease some of our operating expenditures. We’ve kind of been there before and I think we’ve got a number of different levers that we can exercise if we need to.

[Steve Brozak:]

Great. Well, again gents, congratulations on looking forward to obviously the next quarter and obviously the continued growth. And I will jump back in the queue. Thank you.

[Rick Gonzalez:]

Okay. Thanks, Steve.

[Operator:]

Thank you. Our next question comes from Stephen Dunn from LifeTech Capital. Your line is now open.

[Stephen Dunn:]

Hi, good morning everyone. Thanks for taking my questions. I just want to underscore a little bit under Steve’s comment, question rather, on the is there that you are seeing price elasticity on the price increase versus volume or are you feel that your volume is hitting within target with that price increase. In other words you had built this into the model price increase with the volume and the end revenue and you are still targeting 10 to 12. Are you seeing any surprises in there?

[Rick Gonzalez:]

Stephen, we are not, but Tom if you can comment on some specifics as you go throughout the country and remain in – compact with the field.

[Tom Klima:]

Yes, Stephen, I would say we are not seeing any surprises as I mentioned it was part of the plan, we rolled it out to our customers in last couple of months. If anything it’s been surprisingly quite meaning that, I think our customers realize the value proposition of Lymphoseek and they understand the efficiencies with Lymphoseek. So we haven’t seen any major pushback from the price at all. And our growth was based on a combination of not only the price increase, but obviously in the fundamentals of the business and after the implementation of the price adjustment. We have been meeting all of our other goals related to new account growth procedures and reorder rates.

[Stephen Dunn:]

And then my follow-up question here, we saw – seeing R&D expense kind of help backup to Q1 levels and I’m wondering if this is not related to the 4694 Alzheimer's program. Could you give us some what’s going on in the R&D numbers this quarter and what you expect going forward?

[Rick Gonzalez:]

Yes, so Steve let’s address that. So, what we see is that 4694 continues to hold a great deal of value to Navidea and we are in advanced stages on divestiture, therefore the investment that was put into Q3 is to preserve the integrity of the value of that asset. Brent, can you comment a little bit more and more color on the nature of that expense for Q3.

[Brent Larson:]

Yes, sure Steve. And I think as we probably talked about earlier in the year, we suspended patient to cruel end there, but we’ve continued to monitor and evaluate patients that are in the trial. So, based on that facts certain patients that were enrolled previously are continuing to pass and their brands attributed to the trial activity and we’ve – as a result of that hit some milestones related to famous, the vendors is associated with that. And I think as Rick said, we still see it very worthwhile to make that continued investment based on the – the progress we’re making on other fronts.

[Rick Gonzalez:]

Yes, correct, Steve to that point also, I just want to make sure, I think clear – clearly that, this process has been going for quite some time and right now we are beyond the initial stages of divestiture we’re actually engaged in very advanced stages of divestiture. So, I do understand that from an optical standpoint this has been going on for a while. But, we believe that the monetization in the process is ongoing holds great promise and that’s why we believe the investment, the additional small investment that was made in Q3 is worthwhile as we seek to modify this asset.

[Stephen Dunn:]

Okay. So, when I hear the milestones these are one time cost in Q3, so should I expect R&D to go down in Q4 or what’s the expectation?

[Brent Larson:]

Yes, my apologies to you, I should have clarified that. Yes, these are one time milestones we don’t expect to get more milestones on our dime.

[Stephen Dunn:]

Okay, great. And then all of the macrophage therapeutic products for the most part are currently being paid out of non-delivered brands correct?

[Rick Gonzalez:]

So, I think there is rather than looking at macrophage therapeutic, when we look at the extension of label for Lymphoseek particularly in the rheumatoid arthritis and Kaposi Sarcoma. Those are programs that are being funded and the cost that’s there additional development is being going to be funded by grants that have been received for the majority of that. So that advancement of the label – of the label for Lymphoseek on the expansion is going to be done through non-dilutive capital that has already been secured. Now one point to that grants, the track record and the video holds in obtaining grants from the NIH is based on the relationship the company has formed for a very, very long period of time. And the company over a course of year, the years has been able to secure many, many different grants and performance satisfy the aims of these grants allowing us then to maintain and foster a really good work in relationship with the agency to engage and not only natural program, but possibly future program as well. So, those programs are being primarily funded through that mechanism. On the macrophage therapeutics on our newer therapeutics, there is some portion of that does been offered by grant, but that process is still in the preclinical stage and we’re moving through the rest of the process and expect again to hope to get collaborate – work collaboratively with the NIH for additional grant funding and other type funding of the non-dilutive nature.

[Stephen Dunn:]

Okay, great. Thanks guys. I will jump back in the queue.

[Rick Gonzalez:]

Thanks, Steve.

[Operator:]

Thank you. And I am showing no further questions from the phone lines. I would now like to turn the conference call back over to Rick Gonzalez for any closing remarks.

[Rick Gonzalez:]

Thank you everyone for your time today and we look forward to updating you on the progress of our commercial business and development pipeline next year. Have a great day.

[Operator:]

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