Navidea Biopharmaceuticals, Inc.
Q4 2015 Earnings Call Transcript

Published: 24 Mar 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to Navidea Biopharmaceuticals Q4 2015 and Year-End Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] I’d now like to turn the conference over to our host for today, Sharon Correia, Senior Director of Corporate Communications. You may begin.

[Sharon Correia:]

Thank you, Sonia. Hello, everyone, and thank you for joining us today. As Sonia mentioned, I’m Sharon Correia, and I’m the Senior 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 Fred Cope, Chief Scientific Officer. At the end of the call, we’ll hold a brief question-and-answer session period. 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 on 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’d like to turn the call over to Rick Gonzalez, President and CEO of Navidea.

[Rick Gonzalez:]

Thank you, Sharon, and good morning, everyone. I want to thank you for joining us today to discuss our 2015 year-end results as well as our expectations for 2016. When I became the CEO of Navidea, in October of 2014, we were a company with unsustainable cash burn, a poorly defined commercialization strategy and a void in our pipeline. To turn around the business, we needed to restructure our capital foundation, overhaul our commercial strategy and sharpen the focus of our development by devising an integrated plan to better leverage Navidea’s assets. Today, after just one year, our business is in a much stronger position despite the challenges we have faced. Although we’re still working to achieve two of our 2015 goals, namely the timing of the 4694 asset sale and our goal for achieving cash flow breakeven, they remain very real and very achievable for this year. There are several powerful factors that provide assurance for meeting our goals for 2016. First, our commercial businesses are substantially more viable, thus more valuable, having achieved sales guidance by more than doubling revenues. We expect further revenue growth in 2016. Secondly, our product pipeline is substantially more valuable as a result of a real world clinical data we have gleaned that substantially lowers development risks and increases the probability of regulatory success. Thirdly, we have already begun advancing the regulatory process to get approval for Lymphoseek in rheumatoid arthritis, an indication that has an addressable market that is substantially larger than the current indications. This label expansion will be done under the current IMD, which will save us time and money. Lastly, despite having added a sales team, we reduced our 2015 total operating expenses in comparison to 2014, resulting in a reduction of our overall corporate cash burn. Our commercial progress in 2015 was a direct result of a new strategy we implemented to better leverage our 2014 label expansion and to exploit Lymphoseek’s clinical and operational customer centric benefits. A major element of this effort was the hiring and training of a new sales force, focused on targeting oncology treatment teams, which initially included 12 sales professionals, supported by three medical signed liaisons. As expected, we began to realize the impact of the new strategy late in the fourth quarter. To date, the sales force has already penetrated more than 20% of the targeted hospitals with high to medium volumes, which given the product’s high reorder rate, is creating in effect, an annuity like sales base. Additional commercial achievements last year included the following. Sales growth of 142% year-over-year based on achieving sales guidance of $10.3 million for 2015. Increased penetration into large accounts, nearly tripling the number of accounts that average more than 20 doses per month in 2015 compared to the prior year. More than 300 new accounts added contributing more than 9,000 additional doses, maintain a high reorder rate of more than 85% well in excess of industry standards, and achieved an increase in 55% in the average daily doses sold from the end of 2014 through the end of 2015. We also gained additional insight into the brand dynamics as a result of our newly implemented commercial strategy and our team’s first full year of experience with the product. Specifically, it became apparent that the sales cycle is on average, closer to six months because physician habits are very entrenched and the hospital sales process is quite complex. In a given account, there are multiple decision makers, which include nuclear medicine personnel, radiologists, surgeons and administrators that play a role in either making a decision or in some cases, resisting change. We also learned that our strategy to communicate directly with these decision makers as a treatment team has had an impact. For example, the improvement in patient experience as a result of less injection pain versus Sulfur Colloid is a key product differentiator. The patient experience has become even more relevant due to Medicare’s reimbursement HCAP rules. These learnings influence the fine tuning of our strategy for 2016, which I will discuss shortly. The void in our pipeline that resulted from the curtailing of our neuro imaging development initiative was quickly filled as a result of the efforts of our R&D team, who is seeking to expand Lymphoseek’s label. Last year, we met with the FDA to gain clarity on a path to extend the current Lymphoseek IND to support IV administration of Lymphoseek. As agreed during that meeting, in the fourth quarter, we completed the six required non-clinical animal studies and have submitted our briefing package with the results to the FDA. The addition of this new route of administration will enable further development of Lymphoseek in broader immunodiagnostic disease applications including rheumatoid arthritis. On the therapeutic side of our pipeline, preclinical studies with the University of California, San Francisco, show that a Manocept compound linked with doxorubicin successfully targeted Kaposi’s sarcoma associated macrophages and triggered the death of 85% of the tumor and tumor associated cells via apoptosis. To summarize our progress in 2015, we are now in a stronger position to achieve sustained revenue growth over the next several years. As we look to 2016, we will focus on the following three value drivers. Number one, driving Lymphoseek revenues, number two, expanding the Lymphoseek label into rheumatoid arthritis, and number three, accelerate the Manocept immunotherapeutics program while maintaining fiscal discipline and ultimately achieving cash flow breakeven. I will now ask Tom Klima to speak of our commercial plans for 2016.

[Tom Klima:]

Thanks, Rick, and good morning, everyone. To build on large year’s commercial success, in 2016, we are expanding our sales team from 12 to 16 sales professionals supported by four MSLs, and I’m happy to announce that the planned expansion is nearly completed and training is now underway. This expansion will not only open up new territories for us, but will give us greater access to key customers while increasing our call frequency with both new and existing accounts. In addition to expanding our sales force, some of the highlights of our 2016 commercial plans include continuing to deliver a promotional message that reinforces the clinical value message and the business value proposition of Lymphoseek to customer targets. We will have a presence at 20 national regional medical conventions, including the Society of Surgical Oncology, the American Society of Breast Surgeons, the Society of Nuclear Medicine, the American Head and Neck Society, and the San Antonio Breast Cancer Symposium. We will expand the position of peer-to-peer educational and promotional efforts, we will work closely with advocacy groups to expand awareness of Lymphoseek among the patients and we will continue to increase access to Lymphoseek-billed programs such as the Lymphoseek voucher program and the Vial Consignment program. The Vial Consignment program is designed to expand our market to customers, who radio-label their own products in-house or who are not currently a part of Cardinal Health Nuclear Pharmacy Services Distribution Network. Together with Cardinal, we designed a program that will allow for distribution of unlabeled cold kits directly to these hospitals. The program will initially target larger predominantly academic institutions who have their own radio labeling capabilities and who are influential on the practices of other institutions. Finally, as expected, the CMS pass through code for Lymphoseek expired on December 31, 2015 and converted to a procedure code. Often, changes in reimbursement impact sales trends while customers digest them, we so we are constantly monitoring for changes including any potential impact from the expiration of the CMS pass through code. Thus far, we have not seen any measureable effect. Should our diligence identify any such potential impact, we stand ready to implement the necessary strategies to counteract any material negative effect. To support the full potential of Lymphoseek’s existing U.S. label post marketing activities are underway to optimize protocols and generate data to enable medical adoption of Lymphoseek to the broader imaging market. This includes Lymphatic mapping of other solid tumors with an initial focus on colorectal, cervical, anal and endometrial cancers, in which the American Cancer Society 2016 report note there are approximately 225,000 newly diagnosed cases per year combined. All of these studies are now either underway or enrolling patients or will be doing so shortly with the goal to support and accelerate the adoption of lymphatic mapping and SNLB using Lymphoseek. Historically, lymphatic mapping has not been as commonly relied upon in staging of other solid tumors due to a lack of performance of other agents you used off label. For the first time, with an improved indication, Lymphoseek could offer physicians and patients a product that can achieve the required performance, improving lymph node mapping and sentinel node detection while leading to less extensive and more focused surgeries. Nearly all our related studies are funded by NIH grants substantially bringing the cost of what could otherwise be a very expensive endeavor. Importantly, the market opportunity for imaging in addition to solid tumors far exceeds that of just breast cancer, melanoma and oral cancer markets as the Americas 2016 cancer facts and figures reports disease incidence in the U.S. alone for applicable tumor types is greater than 800,000 new cases per year. In 2016, we expect to continue enrollment or initiate enrollment in six post marketing studies that will facilitate adoption of Lymphoseek under its current label for imaging solid tumors and are supported by non-dilutive grant funding or collaborative with investigators. European commercialization for the surgical market which includes sentinel lymph node biopsy for breast cancer, melanoma, and oral cancer is expected to begin in the fourth quarter of this year. To review, we achieved approval for the product in late 2014 based on phase 3 clinical data, further market access activities entailing of a Lymphoseek presentation for the European market has been underway prior to commercialization. Unlike the U.S., Europe has a very fragmented market with regard to the pricing and reimbursement. In addition in the absence of the commercial radio pharmacy, radioactive products are labeled in the hospital in which patients are being cared for. In order to better support this model and to gain premium pricing for Lymphoseek throughout each target country, we have been working diligently over the last year in the development of a single dose file adapted for this market. These efforts are almost complete and should coincide with the commercial launch of Lymphoseek planned for later this year. These efforts will also eventually support the distribution of cold kits in the U.S. Given the resources required to bring Lymphoseek to the market beyond the regulatory approval, we elected to enter into a partnership in 2015 with Norgine who have been collaboratively spearheading these activities. Norgine has the infrastructure and resources and the expertise to effectively launch Lymphoseek throughout Europe. Our collaborative market access activities are close to a completion, and as a result, we expect Norgine to launch in Q4 2016. I will now turn the call back over to Rick.

[Rick Gonzalez:]

Thanks, Tom. Our efforts to exploit the involvement of macrophages in the natural history of many diseases has lead us to our strategy of expanding the Lymphoseek label and open new market opportunities. Our R&D team, as mentioned earlier, is developing a new indication for rheumatoid arthritis into the clinic with additional exploratory work in cardiovascular disease and Kaposi’s Sarcoma. The label expansion requires an IND amendment for the new IV route of administration for Lymphoseek prior to proceeding in the clinic. As a reminder, subcutaneous, intradermal and epidermal administration are already included in the label. In this area, our progress has been rapid. Last year we had a productive dialog with the FDA to establish a path to start clinical development, establish the necessary pre-clinical package to add a new route of administration and secure NIH grants in RA and Kaposi’s Sarcoma worth up to $3.8 million to support the development through phase 2 studies. The preclinical package for IV route of administration program has been submitted. We look forward to a positive meeting with the FDA on March 29 of this year, enabling us to begin clinical testing. Importantly, the largest defined market opportunity resides in early diagnosis and disease monitoring for rheumatoid arthritis, or RA. RA can be hard to detect because it may begin with subtle symptoms such as achy joints or a low stiffness in the morning. Also, many diseases behave like RA early on, for example, gout or lupus. There is no single test that confirms an RA diagnosis. Current diagnostic tools such as x-rays, ultrasound and MRI are reasonable, but still fall short of being able to quantitatively measure inflammation and the underlying macrophage inflammatory component, which is a key driver of RA progression. Misdiagnosis results in billions of dollars being spent each year unnecessarily on therapies which may also result in significant side effects. In our premiere market research, two aspects of the current unmet medical needs identified were early diagnosis and monitoring of disease progression and or drug response. Early diagnosis and treatment improves outcomes. Rheumatoid arthritis joint damage occurs early, often within the first two years of the disease and is irreversible. Additionally, once treatment is started, it becomes necessary to objectively monitory progression and measure how well a treatment is working or not. Approximately 10 million patients in economically advantaged countries alone are diagnosed with RA, of which approximately half are misdiagnosed due to in large part, to a lack of accurate and cost-effective means for early detection and differential diagnosis. Drilling further down, our primary market research suggests that early detection alone in the U.S. could add up to 300 procedures per year and disease monitor could add up another 700,000 procedures per year. Our goals for Lymphoseek in RA are straight. Number one, reliable diagnosis of RA by imaging, number two, early differential diagnosis of RA, and number three, use in monitoring patients response to RA treatment. Based on our preliminary work, we believe we can achieve all three diagnosis diagnostic disease managing elements with Lymphoseek. Pending the clearance from the FDA, the first clinical study this year will be a phase 1 pilot trial evaluating subcutaneous injection of Lymphoseek in active RA subjects. This protocol has been finalized and is under IRB review. We expect to dose a first patient in the first half of 2016. During the second half of 2016, we expect to initiate an additional multi-center phase 1/2 registrational trial in rheumatoid arthritis employing IV administration. Positive outcomes from these studies will allow us to initiate phase 3 studies for the detection of RA label as early as next year with the goal of being on the market as early as 2019. Clinical proof of concept for targeting disease associated macrophages for the detection of Kaposi’s Sarcoma in HIV patients serves as a foundation for additional clinical development in rheumatoid arthritis and to detect vulnerable plaque in cardiovascular disease. We expect to start an additional Kaposi’s Sarcoma study in IV administered Lymphoseek in the second half of 2016 again, supported by a grant from the National Cancer Institute. More specifically, we have already initiated a grant funded pilot study in cardiovascular disease in HIV patients, a patient group who has a remarkably higher incidence of vulnerable plaque than the general population This study was initiated at the Massachusetts General Hospital some five months ago. The results to-date provides strong encouragement for the utility of Lymphoseek in imaging and detecting vulnerable plaque. Results of this pilot study are currently being drafted into publication. We expect that Navidea and the Massachusetts General Team will present these results at a medical conference following manuscript submission. As a reminder, virtually all of these studies will be undertaken with non-dilutive capital from NIH grants received in rheumatoid arthritis in Kaposi’s Sarcoma of approximately $3.8 million and an additional $320,000 for cardiovascular disease to support development of these programs. The advancement of immunodiagnostic programs has the potential to be transformative for the organization and simultaneously serve as a critical bridge to our next phase of growth. The development of Manocept based immunotherapeutics and the work being done in conjunction with our subsidiary macrophage therapeutics. We are currently in the early stages of research in a number of disease areas. To continue to move this opportunity forward, we will initially be reliant of research grants, academic collaborators, and industry partners. An example of a partnership is a research collaboration with Fine Therapeutics that was established to explore synergies between antigens and the Manocept targeted platform. Currently, we have had several planning and development sessions with Bind to advance its collaboration in 2016. Plans for further study designs and development are ongoing. However, we are not pleased with the progress of our subsidiary. But we remain confident in the platform’s potential value and promise. As stated on the press release earlier this month, that unit is undergoing a transformation to focus and prioritize its objectives. As you may recall, the genesis goes back to early 2015, when we created a subsidiary to develop therapeutic applications so that the parent company’s resources could focus directly on immunodiagnostics. With the limited resources that the subsidiary was able to garner, and the aggressive goals it set for itself, the progress in 2015 was slower than expected. Although this is a reality we face, the strategic approach to advancing the Manocept platform in this direction still holds great promise and needs to be accelerated. We expect to accelerate the forward movement on this ongoing preclinical work and IND package elements supported by the addition of two Navidea directors with therapeutic development experience. While the value resulting from this work materializes, we will continue to evaluate the ideal corporate structure to maximize the value to the Navidea shareholders. The value inflection points can occur following attainment of reproducable positive in vivo preclinical testing with statistical significant, completing IND enabling studies, entering clinical studies and generating early clinical signals. To be clear, the data we have thus far is extremely encouraging but we need to generate a much, much deeper body of data to fully unlock the value and convince potential investors or partners of its value. Let me now shift gears to discuss our financials. We have already provided you with a look at our commercial progress. But in 2015, we also continued to realize the improvements in our operating efficiencies, which combined with revenue growth and continued non-dilutive grant funding, have resulted in measureable reductions in our quarterly burn despite the deployment of a direct field sales force and continuation of carrying costs for our newer assets while we continue our efforts to sell this asset. Measures taken include the reduction of headcount, including senior management, reallocation of capital towards commercialization, and divesting the development stage Parkinson’s Disease imaging agent, which required substantially more capital to gain approval and was no longer part of our long-term strategic direction. Shortly after my appointment, I put plan in place to extend our cash runway. To proactively address the limited 2015 capital, we restructured our debt at a critical time with a lender who has a strong track record of working with successful biopharma organizations. We secured the debt facility from CRG, which through a debt restructuring of existing debt, gave us access to non-dilutive capital at a very critical point in time for the Company, ensuring that we have the resources to invest in our commercial organization, and support our ongoing development activities. We did so with terms on par with industry standards, for companies are staged and profiled. This partnership has enabled us to continue to modestly or confidently invest in growth of our oncology business, and expand the benefit of our technology to new disease indications. Our R&D team has been in work prolific over the last few years in generating grant revenue. It’s through their efforts in 2015, we secured non-dilutive NIH grant funding of the IRIT program through phase 1/2 under the current IND, initiated required preclinical activities and are now on the cusp of beginning clinical trials. Clinical development is already underway in cardiovascular disease as well as Kaposi’s Sarcoma, both under NIH funded programs. With additional NIH funded programs planned to commence in 2016 in additional indications. I would also like to remind you that in the addition to the above grants, we were awarded in 2015 for cervical, colorectal and anal cancers and Alzheimer’s disease in excess of $4 million. In 2015, we also continued to reduce the pace of our investment in NAV4694, our Alzheimer’s disease imaging agent. Our investment was reduced to a level that ensured the phase 3 program remain viable as we seek to sell this exciting product candidate. The landscape for disease modifying agents in Alzheimer’s disease is rapidly evolving and as a result, there is a distinct need for early detection. This can both support trial design of new therapeutics as well as enable earlier intervention. We also believe that 4694 is a best in class agent. For these reasons, we made a strategic decision to continue clinical development last year, while we sought a buyer. While the sale of 4694 was not finalized in 2015 due to a legal hurdle, we remain engaged in advanced discussions with the interested buyer. We believe this hurdle can be overcome, however, at this time, the timing is less clear. While we await the resolution of this issue in the interest of preserving the asset’s value, we continue to minimally support ongoing development activities at a reduced carrying cost of roughly $125,000 per month. Having concluded that the monetization of this asset remains in the best interest of the Company and our shareholders. I would now like to ask Brent to provide 2015 financial highlights.

[Brent Larson:]

Thank you, Rick. Good morning, everyone, and welcome to our call. I’m going to give you a brief review of the financial metrics which as Rick as already alluded to, are favorably converging at this time. Our loss from operations declined to $2.6 million for the fourth quarter of 2015, representing a decrease of 40% over the third quarter. Lymphoseek sales revenue also grew to $3.5 million for the fourth quarter while maintaining high margins of nearly 90%. For 2016, we estimate total revenues of $23 million to $25 million including Lymphoseek product sales consistent with the $22.5 million loan covenant with CRG and representing our second year in a row of doubling product sales. We anticipate operating expenses excluding net expenses related to Macrophage Therapeutics of between $21.5 million and $23.5 million. To accelerate the convergence of our revenue and expenses, we anticipate a more pronounced impact from the direct sales force based on where they are at in their sales cycle, as well as the continuation of cost reduction measures implemented for 2016. Collectively, these actions should put us on a clear path to sustain quarterly operational cash flow break even in the second half of this year. The Company’s cash position increased to $7.2 million at December 31, 2015 from $5.5 million at December 31, 2014. The net increase was primarily due to cash received from the CRG term loan of $50 million and draws under the platinum credit facility of $4.5 million. These were offset primarily by principal payments on the auxiliary notes of $30 million and cash used to fund our operations of $19.1 million. Revenues for the year ended December 31 2015 were $13.2 million, compared to $6.3 million for 2014. The biggest revenues for 2014 in line with our earlier disclosure listed at $10.3 million in Lymphoseek sales, $1.1 million from licensing milestones and $1.9 million from various federal grants and other revenues. This compared to $4.2 million, $300,000 and $1.7 million respectively for 2014. With an addition, the Company recorded its first year of royalties on the devices and sale that we sold in 2011 at $1.2 million. This is recorded in other income. Operating expenses for the year ended December 31, 2015 were $30 million compared to $32.3 million, for 2014. Research and development expenses were $12.8 million during 2015 compared to $16.8 million during 2014. This net decrease from 2014 to 2015 was primarily a result of reductions in NAV4694 and NAV5001 product development costs coupled with reduced headcount and related support costs but offset by increased Lymphoseek therapeutics and Manocept diagnostic product development costs. Selling and general administrative expenses were $17.3 million for 2015, compared to $15.5 million for 2014. And we are primarily related to the implementation of our internal sales force in the first quarter of 2015 reduction imports. We recognize that achieving cash flow breakeven is a critically important goal for our business. Over the last year and a half, we have made dramatic progress streamlining operations and cutting expenses achieving the 35% reduction in cash burn year-on-year that Rick previously mentioned. Based on our current projections and plans, we expect total operating expenses for 2016 to be roughly 25% lower than 2015 levels. All the while, moving Lymphoseek forward commercially and continuing to develop Lymphoseek as an immunodiagnostic. These measures coupled with growing revenue continue to bring us closer to our goal of cash flow breakeven in the second half of 2016 which will further support the long-term sustainability and viability of our business. In addition, the recently reaffirmed platinum line of credit will also provide us with flexibility in the near term to ensure that we have ample capital to support our interim needs. While we continue our efforts to secure additional non-dilutive funding sources, we may from time to time access the platinum line. We expect the draws will not exceed $5 million during 2016 leaving us with over $20 million of available credit in reserve. To the extent we are successful in securing these undiluted sources however, such as milestones relating to divestiture of NAV4694, the amount we will need to draw maybe directly affected and decreased. That concludes my remarks for 2015 and 2016, I would like to turn the call back over to Rick.

[Rick Gonzalez:]

Thanks, Brent. Before I close, I would like to make one comment on a corporate note. I would like to welcome Dr. Mark Greene and Dr. Tony Fiorino to our Board of Directors. Both offer impressive levels of experience and expertise and we look forward to their contributions in this time of transition. In addition, I would like to thank Mr. Brendan Ford for his years of service on the board and his leadership of the audit committee. In conclusion, our business has come a long way in the past year, but we have a lot more work to do. As we bring 2015 to a successful close, my personal overarching goal is to reduce uncertainty and increase confidence in Navidea. We have begun building a very strong foundation to deliver increasing shareholder value and we are just getting started. We are accelerating revenue, expanding the applications and indications for Lymphoseek that will advance and accelerated the development of the immunotherapeutic applications of the medicine platform. I look forward to reporting to you on this year’s achievements as well as our progress in accelerating growth and executing our plan. Operator, at this time, I would like to now open for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Kevin DeGeeter from Ladenburg. Your line is now open.

[Kevin DeGeeter:]

Good morning guys, and congratulations on the progress, really interesting times. My questions more actually pertains to the RA program, and the significance of central market opportunity there, in the context of the phase 1 program you described with the subcu formulation to kick off here shortly, can you just kind of walk us further with regard to a little bit of appreciation of the endpoint, some of the key takeaways there and how those takeaways will help you breach into your dosing with an IV formulation in a Phase 1/2 study involve?

[Rick Gonzalez:]

Yes, good morning Kevin. It’s a very, very exciting program. I think the rheumatoid arthritis is the most promising near-term market opportunity that we are well underway to be able to tap into. As you look at the opportunity as a whole, if you drill down, as I mentioned in my prepared remarks, the immediate opportunity in the U.S. alone, we are looking at about in excess of a million doses per year potential between early detection and disease monitoring. So specifically, on the phase 1 and phase 1/2 trials, I will ask Dr. Cope to address as he is leading these programs and overseeing the execution of them.

[Fred Cope:]

Right now, we have in place the first study which will be at UCSF which is a subcu study. This is based primarily on the observations we have already made with regard to KS and the injection dynamics related to localization – specifically focused on and targeting the CD206 macrophages which are both an element of the original KS program and I think we have stated that in terms of the key common elements of a natural history of that disease and the macrophages as well as the carry over into the natural history of RA. So that program is up and running relative to approval by the IRB at UCSF with Dr. Jon Graf. With regard to the IV study, that is another round of administration which we seek relative to some of the data we already have in anticipation of how we might deliver Lymphoseek and how that might contrast with subcutaneous injection. So the endpoints of all of these studies are common in effect, and I think Rick has actually pointed this out in his prior discussion where we talked about the three targets in terms of how we intend to evaluate RA, the first win of course, is the reliability of RA diagnosis itself. We have already presented at international meetings, the contrast of RA against RCR arthritis. And in those data, you will see a very, very remarkable contrast already with regard to the ex vivo results we have attainted between RA and OA and healthy controls. So that would be effectively target number one. Number two, is the early diagnosis, we will embody that key characteristics of differential diagnosis and early diagnosis of RA in our studies as we move forward especially in the phase 2 and then ultimately in disease monitoring which will be quite probably part of phase 2 but will be built into additional future studies. All of these so far, are funded by the NIH, Arthritis and Digestive Diseases Institute.

[Kevin Degeeter:]

Terrific, now that’s – really helpful background. And I guess maybe shifting gears with regard to follow up, can you just talk a little bit about Macrophage Therapeutics, obviously the landscape has changed significantly in kind of the financing market with regard to therapeutic companies, is sort of the near and immediate term at this point to fund, develop, primarily non-dilutively but to the extent that there is you know, Navidea capital will be put in play through Navidea, do you envision, as I guess, have been communicated previously that there may be opportunities for a third party capital into Macrophage. I’m trying to sense the operating structure and the right financial path forward for that subsidiary.

[Rick Gonzalez:]

Correct. So I think the principles of when Macrophage Therapeutics was formed are still applicable. I think the value is still there. I think the promise is still there. And as we have seen in its very early preclinical data, the applicability of the medicine platform, once loaded with a therapeutic payload, certainly has a great deal of excitement around it and shows us in the direction that we believe it should continue to go. Now in terms of the funding, that still is a subsidiary, that still is a vehicle that could be independently funded as you look at our plans for Navidea, that is the intent there. We do – we are in a period of transition, we are looking at all possibilities but believe that we can certainly tap in to our already developed competency of NIH grants and other sorts of non-diluted capital to be able to get us through the early stage of development. The race is to accelerate the animal studies and other preclinical activities that would become IND enabling. Again, the vehicle is there, we are now currently assessing and conducting an overall review of what we have. We do have two new, as I mentioned; Dr. Greene and Dr. Fiorino, are coming on to the Board, I think they will bring a great deal of perspective to help us assess what the best strategy is to again accelerate the value creating endeavors in that unit and then set it up for the proper corporate structure to move forward. So stay tuned on that, we should be coming out shortly with a result of our comprehensive analysis and then a path to move that program forward.

[Kevin Degeeter:]

All right, great. I’ll get back in the queue. Thank you, so much.

[Rick Gonzalez:]

Thank, Kevin.

[Operator:]

Thank you. And our next question comes from the line of Steve Brozak from WBB. Your line is now open.

[Steve Brozak:]

Hi, good morning, Rick. I’m going to dive right in to the question, I think everyone really wants to know about and that is specifically on sales, sales forecast. You have obviously gone out there and doubled sales but the next doubling is the question everyone wants to know about. Can you go into as much detail and specificity as you can as to how you see sales doubling. Why you have confidence, why you are giving guidance and specifically, how you feel comfortable in terms of the acceptance adoption based on who you have hired and I will have a follow up on a different matter, please?

[Rick Gonzalez:]

Good morning, Steve. When I look at the commercial viability and when I talk about the commercial strength, we deployed our sales team late Q2 of last year. And in that process, obviously there is not only a strategy that goes behind this with some assumptions but also as a result of their activity in the field. There is a tremendous amount of learnings of how the brand actually behaves in the real world. When I look at in the rearview mirror, 2015, we learned a lot about the market. We learned that the call points are multiple in one account. We learned that we need to be – to penetrate accounts deeper. It takes a little longer. As you may recall when we first started or deployed our sales force, the estimation of the sales cycle was about four to six months. We found that it’s more towards the six-month time. When I look at how we exited after the first six months of the sales force performance, how we exited the year and if I just look at December and annualize December, we exited the year actually at a run rate of $15 million of our revenues to Navidea, so that gives me confidence that by the modifications that we have planned, the fine-tuning of the plan, the implementation of the learnings into the commercial plan that we are going to be able to grow off of that base and achieve the numbers we have laid out for you today and achieve our guidance. To give you more specifics based on your question, I will ask Tom to opine on that and walk us through what he views as the commercial plan for 2016.

[Tom Klima:]

Hi, good morning Steve. As Rick said, we’re building on some success and momentum from 2015 and as you look specifically at the second half of 2015, we started seeing a great impact from our sales force. It became clear that we needed to add additional sales force in order to accelerate even greater into 2016. So as I mentioned in the prepared remarks, we’re adding four territories to the next. I’m happy to report that we’re nearly complete by hiring that entire team and they’re already in training and the best triggers we can pull and we were very successful with in 2015, we see it accelerating in 2016, are number one, just increasing the number of new accounts and not only new accounts, but large new accounts. We expect to accelerate that going forward. Number two is to increase utilization in select targeted accounts. As you recall last year, we were looking at averages that stayed pretty steady, but we expect to increase the utilization in some of our select targeted accounts. And then lastly, we have always maintained a fairly high reorder rate. If we not only add new accounts and start to increase utilization in select accounts, and maintain a high reorder rate, we get into a very comfortable and confident feeling with the guidance that we provide.

[Steve Brozak:]

Okay. Now switching over to your Alzheimer’s diagnostic asset because obviously that is an area where you’re spending some money. You, I guess, announced a little north of a $100,000 a month in terms of expenses to go out there and maintain the value, can you give us some idea of what you’re looking at – and not in dollar amounts or time, but more along the lines of what you see your improvements to be, what kind of confidence you have got in terms of being able to obviously transfer the asset and then realize gain and obviously, also reduce burns, so that’s something I guess has been in the background and if you can go into more detail or any detail that you think is relevant that would be great and then I’ll hop back in the queue. Thank you.

[Rick Gonzalez:]

As I have stated before, Steve, the sales of 4694 as I have stated earlier has been ongoing for quite some time. We were hoping to close that sale in 2015. Due to a legal issue that was more clearly spelled out on our 10-K file that you will see later today is that prevented us from closing the sale. So a couple of things that come as a result of that. First of all, we reduced the investment in this asset to maintain and preserve its value while the sale process is completed. We are working to resolve the legal issues around it. The buyer is still interested as they were until the latter part of last year, so we have to resolve that and meanwhile, we want to preserve the asset value because when we look at the potential of the buyer and the offer up on the table versus the expenses, we believe that it is a positive equation to create value and bring value back to the organization. So when we look at what the space is, what the asset provides is the best in class, as you know there is a lot of activity in the Alzheimer space, so the value is still there. The program is still ongoing. We are still making sure to preserve that as a value and work through it to complete a sale. Now what is less clear is exactly when that will happen as unpredictable as these – not only the business that are on the process are, but legal processes are as well. So we will continue to work. We will continue to remain engaged with the buyer with the interest of closing that sale.

[Steve Brozak:]

Great. Your answers are been very helpful. Appreciate that, I look forward to the updates. Thank you.

[Rick Gonzalez:]

Thanks, Steve. Have a good day.

[Operator:]

Thank you. And our next question comes from Stephen Dunn from Life Tech Capital. Your line is now open.

[Stephen Dunn:]

Good morning, everyone. I would first talk to Brent to put together – I want to make sure I’ve got the pieces of the financial puzzle together and then I’ll follow-up on rheumatoid arthritis. I guess, Brent, your operating expense guidance for 2016, does that include – it shouldn’t, but does that include interest expense or not?

[Brent Larson:]

Yes, that this operating expenses before…

[Stephen Dunn:]

Okay. So when we say break even cash flow expected in the second half of 2016, that does include interest expense, correct?

[Brent Larson:]

That does not necessarily include interest expense, Stephen. As you are aware, there are a few different ways of looking at it so we tend to look at it before the changes in – well, I’m sorry, it does include operating expense because we’re talking about cash flow from operations, which is the operating income less the changes in the non-cash items, but before the changes in the working capital assets and so forth. So it’s not at the GAAP definition, although if you look at the GAAP definition related to 2015 versus 2014, both of them worked out to be about 35% reduction, so I don’t know if that clarifies your question or not.

[Stephen Dunn:]

Well, so technically it’s operating cash flow break even in essence?

[Brent Larson:]

Yes, and I think that was in the text.

[Stephen Dunn:]

Well, no, it just says cash flow break even in the press release. So can I read between lines then for Macrophage Therapeutics? We’re looking mostly towards doing what we did with RA and your other programs applying for grants for animal studies. Is that a good assumption?

[Rick Gonzalez:]

That is one of the tracks that will be pursued based on our successful engagement and relationship with the NIH on thus far, so yes, that is a viable source of non-diluted capital, which we have a core competency and have demonstrated over the last three years. That have been very successful in generating that non-diluted funding for advancement of our programs.

[Stephen Dunn:]

Okay. And then the final – I just want to make sure I get this, for the EU launch, based on your sales guidance for 2016, it looks like you don’t expect any meaningful revenue in EU until 2017, is that correct?

[Rick Gonzalez:]

That is correct. So commercialization will begin in Q4 of this year. There will be a small nominal amount of revenues generated or expected to be generated with the acceleration to occur in 2017. And similar to what we did in the U.S. of deploying our sales force and deploying them against the market, Norgine has boots on the ground. They are very, very strong with operational presence in the majority of a number of states of the EU. They will focus on the big markets and then kind of work their way through considering that there’s 28 member states and they behave somewhat as 28 different markets, but yes, that will be the deployment and it will be a very organized deployment through the countries because each country has their pricing. You’ve got to negotiate what the government being the ultimate payer and we are, as a reminder, we are pursuing premium pricing over existing products. So that’s a strategy that has been in place since we started the deal with Norgine and even before. So the expectation is that the contributions in 2016 are going to be of commercialization commencement and then the revenues to start coming in a meaningful way 2017 and beyond.

[Stephen Dunn:]

All right. I’ll be moving on to RA. You know, this morning we saw Bristol-Myers, they bought Padlock Therapeutics for $225 million up front and a total potential for $600 million and they are pre-clinical. They want to do early and even pre-RA therapeutics. They are still pre-clinical. I guess, the question I’d like to ask and maybe this is for Fred Cope. Have you guys been in discussions with some of the large Pharmas because early and even pre-RA is rather a hot topic and the valuation in the Padlock acquisition this morning for something that’s just a percentage of RA patients, but again, targeting early and pre, from a Navidea standpoint, you’re starting with imaging, which could be synergistic with Bristol-Myers acquisition, but then going on to the therapeutic side. Are you guys in discussions with large Pharma for the combined imaging and therapeutic or are you willing to split the imaging let’s say to Bristol-Myers, if you will and the therapeutic to somebody else? Anybody can give me any color on your discussions there because obviously, the valuations for pre-clinical RA is pretty high right now.

[Fred Cope:]

Yes, Steve. That is absolutely a strategic direction we are pursuing. There are early discussions and sharing of the program with big companies. As you know, therapeutically, this market is valued in billions of dollars and the big players most of them have a piece of the pie. So when we look at the applicability of Lymphoseek as a diagnostic for RA, there is definitely an interesting early diagnosis, which for therapeutic companies will allow them to have therapies, therapeutic interventions earlier. That’s one aspect of the opportunity. The second aspect of the opportunity is quantification of your response or disease progression. So that would require a combination similar to a companion diagnostic sort of strategy where you not are able to determine if a patient is responding or not, but be able to quantify quantitatively be able to define that. So our vision is that indeed, there is synergies with the existing market with the existing therapeutic market, we are in very early discussions with some of the big companies that have products in this market place and that is my vision for the future, it’s absolutely, there is value more to these big companies than there would be as an independent diagnostic. As you know, diagnostics are valued or their value is only relative to the therapeutic interventions as they allow or monitor so that’s the relationship of the value that we are attempting to create. Now the interesting part that you say, compared to the pre-clinical, when you look at our RA program, it’s a program on an approved product, the proof of concept is there. The data supports it. The FDA already agrees that this is an exciting program. We have been discussing this with the regulatory authorities to make sure that our programs are designed to expand the label. Now aside from that, on the business side of things, it allows us to look at two things. Again, is Lymphoseek going to be called Lymphoseek or is there an opportunity to rebrand? And the other is it’s a different market. It’s an outpatient diagnostic market. What are the pricing leverages there that could be attained? So the promise of RA for Lymphoseek is a very real obtainable regulatory expansion if our trials are successful and the business opportunity in either on our own or in partnership is certainly very, very valuable and actually doors that opportunity of the cancer imaging as it stands today. So the market opportunity is very, very meaningful.

[Stephen Dunn:]

Alright, thanks very much. And I will come back in the queue.

[Fred Cope:]

Thanks, Steve.

[Operator:]

And our next question comes from Laura Engel from Stonegate Capital Partners. Your line is now open.

[Laura Engel:]

Good morning and thanks for all the information, sounds like some good progress reported this morning. I wanted to just follow up on an earlier question we discussed, operating expenses and the expectation for the reduction. I wondered, with everything on cap, this forecast is such a significant reduction. What would be the source of that? Where will that come from and then I guess, it also related to that, if you could discuss a little bit expectations for the NIH funding and the clinical programs that supports - what are those expectations from timing and availability going forward?

[Rick Gonzalez:]

Good morning, Laura. So let me give you just an overarching comment and then I’ll have Brent comment on the specifics on the reduction. So, one of the goals that when I came on board is fiscal debt supplement, so doing more with less and as we reported today, the reduction in expenses, the reduction in burn year-over-year have been meaningful. Now, that has required certain things. For example, reduction in head counts. Consolidation of offices and reduction of the executive team, there’s a lot of cost containment measures that had been put in place. In addition, anything that doesn’t go through our three main goals does not get funded. That’s just the operating principle and the culture that has developed here over the last year and a half at Navidea, so when we look at any program, we look at doing anything. We always measure – is it aligning with our goals? Is it justifiable expense? And do we get a return on it? As a result of that, you see that we are expecting for 2016, a reduction of 25% on our overall operating expense, again, while doubling sales on 2015 or close to doubling sales over 2015. So that thread is woven through everything that we do, but I’ll let Brent be more specific on some of those aspects.

[Brent Larson:]

Great. Thanks, Rick. Laura, I guess, you know, the low hanging fruit on this one is that I think if you look back at the quarterly disclosures we made throughout 2015, you will see that we spent still a significant amount of money in the first half of 2015 predominantly related to the NAV4694 program that we’ve now trended to burn down as Rick talked – I think we talked about it in the script about $125 a month, carrying cost. So that’s about a $3 million variance I think if you go back and do the rough cut math on that in and on of itself, so the R&D pieces are coming together and that’s a big part of the decrease. There’s also you know, in G&A and some other areas, some costs that are going to go down as well as the result of curtailing some activities in that front and hopefully bringing them into fruition, cutting down legal expenses and some other goals are certainly at the forefront of that. But I think, overall, the top idea there is the decrease in the 4694 cost and the impact that that’s going to have on the bottom line.

[Laura Engel:]

Okay. And then related to the NIH funding and the ability of this going forward timing-wise to offset these expenses? What are the expectations for those similar levels to continue what’s the current commitment to continue this clinical program with that grant money?

[Rick Gonzalez:]

So Laura, as we look in the rear in the last three years, there has been an increase in the ability of our team to secure and be awarded NIH grant funding, however, that is heavily dependent upon how viable the proposals are, what the funding the agency funding is and some of the changing philosophies that they undertake year-over-year. We do feel very confident that for this particular year, we have grants awarded that will help us fund the programs that we spoke about, however, it is hard to predict what those revenues will be into the future. Dr. Cope and his team had a very long strong relationship with the NIH and its institutes, so we expect that we will continue the engagement but are unable to kind of commit to having a percent of revenues will be our grants. We still focus on the main revenue generating asset to be Lymphoseek and its current commercial state and future market opportunities, so that’s the thrust of our strategy.

[Laura Engel:]

Great. Okay, while I appreciate the responses, and I will get back in the queue. Thank you.

[Rick Gonzalez:]

Thank you, Laura.

[Operator:]

Thank you. And we have a follow-up question from Kevin DeGeeter from Ladenburg. Your line is now open.

[Kevin DeGeeter:]

Quickly here; with regard to the cold kits in the U.S., do you anticipate that being a material portion of 2016 revenue and just generally how sure we think about pricing and if there’s any economic splits with the card and how to think about that as well. Thanks.

[Rick Gonzalez:]

Kevin, the strategy on the ball consignment program is particularly to allow institutions, primarily some of the large academic institutions that have in-house capabilities of real labeling. This is now your big tortoise and is particular to a certain size and certain type of accounts. These accounts under our own, as they take care of patients, they hold a great deal of volume potential within them, but also there are some institutions that do not utilize unit dose services, they do their own labeling. So what this is doing is in allowing us to penetrate accounts that not only hold volume themselves, but also are influential in the practice in neighboring hospitals and when you look at these hospitals, they are the big, big hospitals, right? So again, our opportunity there is to expand and be able to penetrate these accounts in collaboration with Parnell with the same economic split that governs our relationship under the current commercialization agreement with Parnell. So that is just an alternative to somewhat create a hybrid distribution model to allow those accounts to come in and be able to utilize Lymphoseek as standard operating procedures. So that’s the strategy there in 2016. That program just started at the beginning of this year. We have our first account signed on and we expect more to come. I think over time, we will see the impact, but don’t expect them to be material in our 2016 numbers.

[Kevin DeGeeter:]

Okay. Great and then maybe just to kind of follow-up on that. With regard to relative pricing, should we think about cold kits in the U.S. sort of being in a general type of pricing range as you have described as potentially European distribution channel or are there items that believe that pricing may be materially different on that particular niche of the market?

[Rick Gonzalez:]

Not at this time, Kevin. But as I stated before, we will make sure that we have the appropriate business proposition for these accounts to be able to have them – to bring Lymphoseek in as their preferred agent. There could be a contractual agreements reached, however, that is not the strategy at this point. Although, we remain vigilant as to how that happens and what we want to do is accelerate the utilization and the adoption of these accounts. So but at this time, no, there is material difference. The pricing as you know in the U.S. for Lymphoseek and the potential dynamics of pricing in Europe are quite different, so we don’t envision that to have a snowball effect from Europe back into the U.S.

[Operator:]

Thank you. And this does conclude our question-and-answer session. I would now like to turn the call back to Rick Gonzalez, CEO for any further remarks.

[Rick Gonzalez:]

Thank you everyone again for your time and we look forward to updating you on the progress of our commercial business and development timeline on our first quarter earnings call coming to you shortly. Thank you and have a great day.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may disconnect. Everyone, have a great day.