Navidea Biopharmaceuticals, Inc.
Q3 2012 Earnings Call Transcript

Published: 10 Nov 2012

[Operator:]

Greetings and welcome to the Navidea Biopharmaceuticals, Inc., Third Quarter 2012 Earnings Conference Call. At that time, all participants are in a listen-only mode. This call will be limited to one hour in time. A question-and-answer session will follow the following presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brent Larson, Chief Financial Officer of Navidea Biopharmaceuticals, Incorporated. Thank you, Mr. Larson. You may now begin.

[Brent Larson:]

Thank you, Doug. Good afternoon, everyone. My name is Brent Larson, CFO, Navidea and I will be moderating this afternoon’s call. 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 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 uncertainties associated with the 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 agencies or approvals or actions, market acceptance 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 as 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 Dr. Mark Pykett, President and Chief Executive Officer of Navidea. Mark?

[Mark J. Pykett:]

Thank you, Brent. We appreciate the participation of everyone on today’s call and look forward to sharing a business update and quarterly financial results. We have a number of important topics to discuss including updates on the Lymphoseek NDA and our recently submitted CRL response, the outlook for Lymphoseek Commercialization, the plan filing of the Marketing Authorization Application for Lymphoseek in the EU, and progress with our other pipeline programs. With me on the call today are Tom Tulip, Executive Vice President and Chief Business Officer; and Brent Larson Brent, Senior Vice President and CFO. Tom, as we announced, has been managing the FDA, CRL and contract manufacturing process, is recovering from knee surgery earlier this week, so he will be participating only in the Q&A portion of the call. First then let me focus on Lymphoseek, beginning with an update on the NDA review. As we announced on September 10, Navidea received the complete response letter from the FDA regarding our MBA for Lymphoseek. The CRL focused on deficiency in Current Good Manufacturing Practices or cGMPs, observed a third-party contract manufacturing facilities. That CRL was not related to Lymphoseek’s efficacy or safety and at no time has there been any request to do additional clinical trials to go gain approval. Following the receipt of the CRL, we made significant progress over the insuring seven weeks. After our September 10th announcement in conference call, we provided four updates on our progress

[Brent L. Larson:]

Thank you, Mark. Good afternoon again everyone. Mark is certainly correct here. By virtue by the funding available to us under the existing facility with Platinum-Montaur we are in a strong financial position with a great deal of flexibility and how we fund our growth. We remain confidence that the Montaur facility in combination with the other financial resources at our disposal allows us to continue to adequately support our active development programs to the point where we begin to generate positive cash flow from Lymphoseek, our first radiopharmaceutical product. And that our need to draw on the Montaur’s facility will be substantively mitigated over time as cash flows from Lymphoseek are realized. Our plan is to continually monitor our financial position and assess the resources available to us as needed to maintain the strength of our balance sheet, but also with a goal of non-recurring unnecessary interest or dilution. I can also announce today that based on discussions with Platinum-Montaur that they intend within the next few weeks to exercise warrants due to expire this December, which will generate approximately $1.9 million in cash to the company. With respect to the credit facility, we also have in placed $15 million of which remains immediately available and another $20 million available on Lymphoseek approval. We currently expect and have discussed with Montaur draws on the credit facility periodically over the coming months in order to maintain an adequate cash balance, rather than drawing on the full amount of one time and incurring the unnecessary interest expense. We believe this approach is the most prudent management of our finance as we drive towards Lymphoseek launch and the revenue generation associated with it. Now let me walk through our financial results for the third quarter and first nine months of 2012. The Navidea’s revenue for the first nine months of 2012 and 2011 relate to reimbursement of certain precommercialization cost by our U.S. marketing partner for Lymphoseek and grants received in support of the company’s drug development activities. We did not recognize any revenue for the third quarter of 2012 compared with $256,000 for the same period in 2011. Revenue for the first nine months of 2012 was $72,000 compared to $598,000 for the same period in 2011. Cost related reimbursements and grants received in supportive development activities were recorded in research and development expenses. Before I described the various in our research and development expenses themselves, I would like to remind everyone as Mark mentioned during his earlier remarks that we rename to of our pipeline programs NAV4694 and NAV5001. I will be using these designations and describing the programs today. Navidea’s R&D research expenses for the third quarter of 2012 increased 59% to $6.1 million from $3.9 million for the same period in 2011. The net increase in R&D expenses for the third quarter of 2012 was attributable several primary factors including one NAV4694 development costs of $1.8 million, primarily related to manufacturing start-up another preparation since the quarter of commencing clinical trials. Two NAV5001 development costs of $1.4 million, consisting at $1.3 million in sublicense fees $1.1 million of which was non-cash in nature related to stock issues and payment to Alseres. And three increased development headcount related expenses to support these increasing development efforts of our pipeline. We would increases were partially offset by one and net decrease in Lymphoseek development cost of $817,000 as cost related the NDA filing in 2011 decreased and decreased clinical trial activity more than offsetting increases in manufacturing related costs, as well as the costs prepared to file the MAA later this year or early next. And to decrease RIGScan development cost of $471,000. Navidea’s R&D expenses for the first nine months of 2012 increased 54%, $12.5 million from $8.2 million for the same period in 2011. The increase in R&D expenses for the first nine months of 2012 was attributable again to several primary factors including one NAV4694 development cost of $2.2 million related primarily to manufacturing startup the clinical trial activities. Two NAV5001 development cost of $2.1 million comprised primarily of $1.8 million in sublicense fees including again the $1.1 million in non-cash charges, and due diligence cost of $263,000. And three out-of-pocket costs for new pipeline development activities of $203,000. Four increased headcount related to expenses to support these development efforts. These increases were partially offset by one decreased RIGScan development costs of $815,000 and two a net decrease in Lymphoseek development costs of $344,000 overall as cost again related to the NDA filing in 2011 went down and decreased clinical trial activity more than offset increases and manufacturing related costs in MAA preparation costs. Selling and general administrative expenses remain study between the two in third quarters at $2.9 million for both 2012 and 2011. Increased marketing costs related depending commercial launch of Lymphoseek to manage $597,000 and increased compensation costs related to headcount in incentive based compensation of $168,000. These increases were offset by decreased stock compensation related to the 2011 separation of our former President and CEO of $817,000. Selling and general administrative expenses increased 13% to $8.5 million for the first nine months of 2012 from $7.5 million during the same period in 2011. The net decrease is primarily due to our formation of our marketing and business development team during the second half of 2011 contributed to increase from marketing costs related to the tending commercial launch of Lymphoseek of $2.1 million. Increased compensation costs of $1.2 million, related to increased headcount and support expenses and $421,000 these were offset by separation cost of $2.7 million related again to the former President and CEO, which are reported during the first nine months of 2011. Other expenses for the third quarter of 2012 were $29,000 comprised primarily of $315,000 an interest expenses related to the Hercules on that we enter into in December 2011 offset by $284,000 of non-cash income from the impact of the changed in the value of derivative liabilities on the company’s balance sheet. This compares to other income of $13,000 for the same period in 2011, which consisted of interest income and income from the impact again of the change in derivative liabilities. Other expenses for the first nine months of 2012 were $960,000 composed primarily of $930,000 in interest expenses related to Hercules loan this compared to other expenses of $948,000 for the same period in 2011, which consisted almost entirely of the impact of non-cash changes in the value of the company’s derivative liabilities. In net loss attributable to common stockholders for the third quarter of 2012 was $9.1 million or $0.09 per share compared to net income attributable to common shareholders of $19.8 million or $0.21 per share for the third quarter of 2011. The net loss attributable the common shareholders for the first nine months of 2012 was $22 million or $0.23 per share compared to net income attributable to common shareholders of $13.1 million or $0.15 per share for the first nine months of 2011. Net income again for the third quarter and first nine months of 2011 is a remainder included approximately $30 million from the sale of our GDS business to Devicor. We ended the third quarter is a $11.2 million in cash management remains confident that these resources coupled with our other available resources continue to adequately support our programs and reached until the point we reached positive cash flow generation from Lymphoseek. Now let me turn the call back to Mark.

[Mark J. Pykett:]

Thank you, Brent. In the coming months and quarters we anticipate positive outcomes for number of milestones including Lymphoseek approval in the U.S., Lymphoseek U.S. launch with Cardinal Health, publication of additional Phase III data on Lymphoseek, filing the MAA for Lymphoseek with the EMA, establishing partnerships for Lymphoseek outside the U.S., continuing our Phase II studies of NAV4694 in Alzheimer’s disease and starting Phase II, beginning the Phase III study of NAV5001 in Parkinson’s disease, initiating RIGS clinical work and scientific and medical presentations on progress of our development programs. We believe we’re well positioned to address important medical needs with our pipeline programs aimed at in a ray of large market indications including cancer, Alzheimer’s disease and dementia and Parkinson’s disease and movement disorders, which we believe will continue to be medial areas of global significance for years to come. And we have a strong financial outlook and financing flexibility with our $50 million line of credit providing us with access to a non-diluted source of capital. So we believe there is a lot to look forward to. We would now be pleased to take your questions.

[Operator:]

Thank you. (Operator Instructions) Our first question comes from the line of Kevin Degeeter from Ladenburg. Please proceed with your question.

[Kevin Degeeter:]

Hi, thanks for taking my question, congratulations on the progress. Just quickly here Mark and Brent, you guys have provided a lot of disclosure in terms of updates as you move towards resubmitting Lymphoseek. Do you anticipate that there are other specific items for example manufacturing site re-inspection or other items that you maybe able to disclose between now and decision on Lymphoseek or is really that the next communication around Lymphoseek from our good work perspective most likely to be an opinion with regard to the resubmission?

[Mark J. Pykett:]

Thanks very much Kevin, that’s a great question. We believe that there will be additional communication coming from the agency to help us define the roadmap to approval. We think that will involve the designation of either the resubmission is being in Class 1 or Class 2 filing. We believe that along the way the FDA formally established new PDUFA Date and then in the context of the process that they are running may indicate to us specific activities, which will take place including the possibility of the re-inspection. We will intent to keep everyone updated to material information as we’ve learned from the agency and can create a sort of an outlook for how this process will unfold, although as we’ve said based upon the nature of the CRL, a very focused singular issue at hand with respect to the cGMP manufacturing deficiencies at the third-party facilities, that we believe that the review can be expeditious under any circumstance and that the approval could come potentially at any time. So from that prospective we are remaining prepare to move forward to commercial activities to prepare for launch with Cardinal Health, but to your point we will try and keep people up to date as we learn additional information.

[Kevin Degeeter:]

Okay. And then on a separate note, can you provide maybe a little bit more granularity with regard to the [status on Roman] on the 306 head and neck study, just the sense is to not necessarily when the interim readout maybe but in terms of if you assume to study goes on to full enrollment that think about the timeline for potential label expansion around that assuming the positive.

[Brent L. Larson:]

Its another good question, we continue to stay a breast as much as can to the progress in that study and our actively working with sites to move enrollment a patients for we believe that the point of interest to focus on probably does revolve around the interim analysis more so then and so I completing the study it could be quite sometime before the full study would complete given the enrollment rates and what’s expected an relative to occur the full number patients. We can predict what when the timing of that interim analysis might start, but certainly it would allow us at that point it certainly have the peak at additional data through the interim analysis related to this particular set of cancers and head and neck cancer patients. As well as to look at the possibility for potentially expanding the label normal disease and to you potentially look for a certain limp note claim if the data that we’ve seen to date in the 39 patients reported through other site reports continues to bare out.

[Kevin Degeeter:]

And then maybe just one more quick housekeeping question I’ll get back in the queue. Brent can you give us a little bit granularity with regard to R&D in the fourth quarter, specifically do you anticipate there will be manufacturing expenses associated with the kick-off of the Phase III Alzheimer’s programs in the quarter or those already been incurred?

[Brent L. Larson:]

Yeah. Kevin, certainly as you can appreciate, probably having seen other entities go through things like. The expenses related to starting up that manufacturing facilities even at the clinical level is going to be encouraged ratably over the course of the first, probably the next nine months or so as we get into the trial. We’ve already obviously got a couple of sites up and running to support the Phase II. We’ll obviously be transitioned through the additional sites to support the two and as well as some additional sites to support the three. So yeah and in fact you’ll get some granularity into that when you proves the 10-Q over the next few days.

[Kevin Degeeter:]

Great, thanks so much. I’ll get back in the queue.

[Operator:]

Our next question comes from the line of Jason Butler from JMP Securities. Please proceed with your question.

[Jason Nicholas Butler:]

Hi, thanks for taking the questions. First of all, could you talk about how quickly you think Lymphoseek could be available following the approval? And what the steps you’re taking now are to make sure that’s an optimal time period?

[Mark J. Pykett:]

Sure, Jason thanks. As I mention to have Tom Tulip on the call and Tom has been working closely with Cardinal. So I’ll let him address that question.

[Thomas Tulip:]

And so sorry, a cell phone work here and thanks to your patience with my post-surgical recuperation. We do continue to work closely with Cardinal to assure that we got the smallest amount of time between approval and launch plan, we already commenced a good deal of sales training that we’ll kind of double down on that as soon as the approval comes our way. I think the reimbursement activities both at the national as well as the local levels are poised to move forward. So we’re mobilizing between ourselves and Cardinal to limit the amount of time between approval and launch, some of it depends on when that approval might takes place, end point as whether it’s adjacent to our asset through the first of the year. So I can’t give you a specific timeline other than what you know that’s clearly a goal that we have mind to keep that as soon as possible.

[Jason Nicholas Butler:]

Okay, great thanks. And then on a NAV4694, could you talk about what are the steps are between now and initiating with the Phase III in 2013?

[Mark J. Pykett:]

Sure, Jason. As we’ve said for quite sometime, this is really an asset and an agent that is Phase III ready meaning that as we move forward with additional Phase II work hold that was already under way and has been under ways as we’ve acquired the program but also the Phase IIb study that we started and announced in September. Then really and that we’re going to learn from that to inform the design or conduct of the Phase III study itself. So all of what we’re doing right now is preparing commercial and regulatory activities to be able to support the clinical trial itself. And we’ve been in dialogue with the agency about that as well as with the EMA. We expect that that will accommodate with the forward progress of the program such that we ill be able to then want this study 2013. And so it really not rocket science it’s a matter of execution and amount of certain amount of ground tactical work that will allow us to get into sites get the protocol defined and up and running and then be able to enroll patients.

[Jason Nicholas Butler:]

So, let’s finally due you have all of the products you need to run that trail already?

[Mark J. Pykett:]

Well remember this is the PET agents so its effectively manufactured on just in time or as need basis at the sites and then shift directly to at the manufacturing sites the PET centers and then shift to the clinical sites the hospitals for used in the study. The part of the efforts and therefore until getting parallel manufacturing sites up and running near by or at least within a range of the clinical sites that you expect to use in your Phase III study and that therefore is one of our activities as well.

[Jason Nicholas Butler:]

Great thank you very much.

[Mark J. Pykett:]

You’re welcome.

[Operator:]

Our next question comes from the line of Steve Brozak from WBB Securities. Please proceed with your question.

[Steve Brozak:]

Hi good afternoon gents obviously I want to ask questions about FDA but instead of doing that I’m going to ask a question about your marketing partner Cardinal. They are the 800-ton gorilla in the room to cote someone and frankly what I’m really curious about it effect that, how do you view them in terms of their excitement about marketing your product because obviously you got a situation now where our product is superior the way you’re looking at it why is it superior give me the top three and I’ll got to follow up question after that why this it make that much of a difference?

[Mark J. Pykett:]

Tom, do you want to take?

[Thomas Tulip:]

Sure, I got well I think there are a couple of different ways to approach that I can answer why we believe Cardinal is exited enthusiastic about launching Lymphoseek. And it starts at a very strategic level. Cardinal, those not have very many exclusive products in their portfolio. And they at the corporate as well as sales levels are extremely excited about the opportunity of launching a product that doesn’t fact exclusive to them that where they bring a innovative new element to a market that’s asking for exactly that. So strategically that’s important to them, we will be able to demonstrate to other innovators that they are the partner of choice to deliver innovative new products. In an exclusive circumstance to the Nuclear Medicine marketplace, they are also significantly science wise from an economic basis, we believe that their margins will be significantly improved Lymphoseek versus the agent that we’re currently distributing. And finally from operations point of view, which also figures back into their operating margins, the safety and efforts required within their radiopharmaces to compound distribute Lymphoseek is minimal versus that current that which is required for the current product. So Cardinal from there incentive point of view as at least three various significant reasons to want to move the product and move it quickly in effective.

[Steve Brozak:]

Okay. And the follow-up obviously is you know you’ve explained how you get the premier partner here in United States, that won’t preclude you from going out there and cutting a similar type or even possibly better type deal with the European partner into the future after you’ve started to kick-off sales. You want to flush that out? I’ll hop back in the queue.

[Mark J. Pykett:]

Well yes and those discussions are actually very well in advance. I think as we’ve communicated before. The marketplace in Europe is a bit different and that there are really a very limited number of commercial radiopharmacies, which we would compound and distribute the final dose of the product, rather the supply chain flows in Europe, in particular it flows through hospital radiopharmacy. So the partners that a little more in this potential partner, a little more in discussion have existing sales organizations that call on as the hospital radiopharmaceutical, radiopharmacy nuclear medicine as those Cardinal, but then delivering about while that needs to be compounded. So we’re working with potential partners who can supply all of the requirements that would enable that hospital based radiopharmacy to compound and provide the agent within the hospital setting. So in regards a quite similar and we’re talking to the folks in Europe to have about equal stature if you will there that Cardinal enjoys here in the U.S.

[Steve Brozak:]

Great, well I’m looking forward to that positive FDA announcement. Thanks again gents.

[Mark J. Pykett:]

Thanks, Steve.

[Operator:]

(Operator Instructions) Our next question comes from the line of Richard Smith, a Private Investor. Please proceed with your question.

[Richard Smith:]

Yes, thank you. Thanks guys. I appreciate it. My question is kind of two questions and a follow up with it. But it’s related to milestones and it’s on the Lymphoseek ex-U.S. partner or partnerships that you mentioned, I think it was back in April Tom mentioned that he thought he was within months of maybe sharing something or announcing something and of course Mark mentioned that again probably a months and of course that was back in April six or seven months ago. So could you give us some, give me some clarification on when you say March, you’re talking two or three months, what’s the likelihood is going to challenged with why it went from April and we’re still not hearing anything. Just a little more clarification on that ex-US partnership for Lymphoseek?

[Brent L. Larson:]

Sure and I would certainly wish this had been completed earlier than it has do. I’d tell you that, I think of late, we’ve been suggesting that we wanted to announce a partner in a timeframe consistent with the application, the MAA going in which is as we said by the end of this year. We continue to move towards that and I’d still like for that to happen. But I’ll honestly have to tell you that job one over the course of since September 10 has been to make sure that that we are able to respond FDA’s observations around the complete response letter, in many regards on jobs two and three. We determine that we needed to focus our resources on that. And if it done so, now that that activity has been completed with turning our attention back to European potential partnership. And I think that’s going to move forward promptly now. I can’t tell you if it’s going to be a month or two months, but it is going to be in the next few months, I’m confident with that.

[Richard Smith:]

Okay thanks and I appreciate all you guys have been putting in because of the FDA situation. So certainly understand it’s just nice to hear clarification and a follow up of that again on a milestone, I know you guys got a many of them I think those investors are just anxious to actually see the finish line on the number of them. The second one is that to me that kind of not if the elephant in the room in my mind is RIGScan when you think about the potential of that, it’s probably bigger revenue wise potentially than all three of the others added together or at least closed. And yet it seems like we don’t hear a lot about exactly how that’s going to move forward and what’s going on as an example. I think one earlier this year, like the very beginning of the year, you felt that you’d be in a position probably to make a decision on whether you’d need a partnership with RIGScan and likely announce that by year end. What can you tell me on RIGScan in general and specifically that milestone?

[Mark J. Pykett:]

Sure, Richard. That’s a great question. That’s a program that we’re effectively trying to resurrect after 12 or 13 years in clinical hiatus where were no development was done. And to undertake that in an appropriate way, there has to be a lot of emphasis on the foundation of the program, some of the blocking and the tackling, which as I described over year ago, may not be the most exciting element of the current development program but it’s requisite for mitigating risks and giving a program the best chance of being successful. So we remain in the process of moving forward, CMC non-clinical and regulatory based work that all comprised the foundation of moving back into the clinic. And we’re still trying to move aggressively into the clinical as quickly as we can but not take on unnecessary risks with the funding that we received from the NIH of up to $1.5 million, some of that is obviously allocated to these beginning activities and we’re very pleased to have the endorsement of the NIH to help support this program. So we remain on track, we remain focused on moving that back into the clinic and we suspect that over the course of the next few quarters. There will be increasing clarity on the potential scope of the clinical program there although we can’t provide you assurances to the time or the scope of that clinical program we remain as committed to this program as when we first start to bring it back in online.

[Richard Smith:]

Okay thank you.

[Mark J. Pykett:]

You’re welcome.

[Operator:]

There are no further questions in the queue. I’d like to turn the call back over to Dr. Pykett for closing comments.

[Mark Pykett:]

Great, thank you very much for your time on today’s call and for your interest in Navidea. We look forward to continuing to keep you updating on our progress, the next steps with Lymphoseek as it moves through the approval process to our commercial launch and to advances in other areas of the business. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.