Navidea Biopharmaceuticals, Inc.
Q4 2013 Earnings Call Transcript

Published: 6 Mar 2014

[Operator:]

Welcome to the Navidea Fourth Quarter and Full Year 2013 Financial Results Conference Call. My name is Vivian, and I'll be your operator for today's call. [Operator Instructions] I would now like to turn the call over to Ms. Sharon Correia.

[Sharon Correia:]

Thank you, Vivian. Hello, everyone, and thank you for joining us. I'm Sharon Correia, Associate Director of Corporate Communications at Navidea. On today's call are Mark Pykett, Chief Executive Officer; Tom Tulip, President and Chief Business Officer; and Brent Larson, Chief Financial Officer. As Vivian mentioned, at the end of the call, we will hold a brief question-and-answer 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 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 nonhistorical 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 any continued demand for Navidea products; clinical and regulatory pathways; the impact of competitive products and pricing; patents or other intellectual property rights held by competitors; the availability of pricing of third-party source 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 Mark Pykett, Chief Executive Officer of Navidea.

[Mark Jerome Pykett:]

Thanks, Sharon. Greetings to all, and thank you for your time on today's year end 2013 review call. We appreciate your time and interest in Navidea. Moving on to Slide 3. As you can see, we're going to do this call a little bit differently than in the past by holding this webcast. We look forward to covering a range of topics, to discussing revenue and to providing revenue guidance for the first time, and we want you to be able to easily follow along with the discussion and the numbers. Before I go on to the presentation, I would like to begin by welcoming 2 new Directors to the Navidea board, Michael Goldberg and Perry Karsen. Both men have tremendous experience in the health care space. Michael, as an Investor, and Biotech CEO; and Perry, as an Executive with Human Genome Sciences, Bristol-Myers, Genentech, Abbott, and of course, Celgene, one of the most successful biotechs to date. We very much look forward to the contribution of these outstanding individuals. So let me start by saying that as CEO, I have never been more excited about Navidea's position and potential. I believe this is a promising and critical time for us, an inflection point for the company. A position from which we believe we can build considerable value. We are a leader in the precision diagnostic space with an approved best-in-class product generating growing revenue, an industry-leading pipeline populated by second-generation innovative products, and a team consisting of some of the best people in the field. We have outstanding partners to assist us with realizing our maximum potential. And we have a low risk, high-efficiency business model that can generate high probability returns. So we have a lot going for us, and I feel there is a lot to be excited about at Navidea. Moving on to the next slide. At the outset, I want to review some of these value drivers that we think need to be clearly communicated to, and digested by, investors. Many of the advantages we have at Navidea are arguably under-recognized, and yet they contribute to Navidea value proposition that we believe is very compelling. First, we have carved out a true leadership position within our chosen field of precision diagnostics. This is not an easy thing to achieve in any field, and yet within just about 2.5 years since our repositioning in the space, we are setting the pace and defining a field that is pulled by the demand from patients and physicians seeking more accurate diagnosis and better care. And by health care systems, driving for better efficiency and cost-effectiveness. Part of our progress has been achieved on the basis of the approval of our first product, Lymphoseek. As we'll review, we believe this is a product that really helps patients. It's realizing excellent growth, and utilization and penetration in its early stages of launch and it has a bright outlook. Behind Lymphoseek, we have an extraordinarily robust pipeline of late-stage product candidates, which we believe are the best in their fields across a number of therapeutic areas. The diverse assets in our portfolio markedly diversify our risk, and I'm not sure that's fully baked into the investment calculus to date yet. So that pipeline, as represented here on Slide 5, has a scope that now spans 3 therapeutic areas

[Thomas H. Tulip:]

Thanks, Mark, and good morning. I want to begin my comments by reviewing certain aspects of the early days for our Lymphoseek commercialization in the U.S. To cut to the chase, we've had a successful launch for Lymphoseek, with numbers of ordering accounts and dispense doses growing robustly, particularly in the fourth quarter and that was trends continue into this year. I think it's critical to recognize 3 important elements, which came together starting in October that are driving this strong growth pattern. First and foremost, the sales process, which, as Mark suggested, is in fact, complex, began to yield results in October. The complexity of this process is part of what we've continued to learn and expect to be able to apply to our ongoing decisions for other products. Secondly, we've worked hard with CMS after the approval to secure appropriate coverage, coding and payment for Lymphoseek. And this work has resulted in a product being granted both a transitional C-code and a permanent A-code the former coming early in October. It's clear that this October C-code award serves as an important trigger to drive product demand and we've certainly seen that. And finally, we also believe that coherent medical education and -- in an outreach form to the various communities we are addressing is a critically important element for the ongoing success of Lymphoseek. As a somewhat satisfied set of audiences didn't perhaps recognize the benefits that Lymphoseek might derive, this educational activity is clearly, critically important. To that end, we've developed a significant array of medical education instruments, including those supported by CME, and we've deployed our own MSLT. I'm now convinced these efforts, particularly the field-based MSL sitting in their stride were major contributing factors to the upper inflection of performance that we started to see in October, and they continue to make a major difference for the product, today, and going forward, where they can play a critical role after the approval of our head and neck cancer sNDA, now undergoing priority review by the FDA. Could we advance to the next slide, please? I'd next like to build on Mark's comments, covering some of the bases -- basis of 2013. Going back to March, not even a year ago, Lymphoseek was approved by the FDA for use in lymphatic mapping in patients with breast cancer melanoma based on a very successful set of Phase III studies. As FDA noted, Lymphoseek was the first product approved in the lymphatic mapping space in over 30 years. Such prolonged familiarity with the past generation product like this can lead to uncertainty that the advantages of an innovation, such as the Lymphoseek, in essence, one doesn't know what one doesn't know. It's thus, the critical need to apply concerted attention to education. Within 2 months, after approval, we had the product on the market earning revenue with our partner, Cardinal Health. Since that time, we witnessed solid month, on record month sales growth, with virtually every week meeting out the prior week's performance. We're encouraged by these trends, clearly, which I'll share with you momentarily. Next slide, please. Before we take a look at performance, I want to review Lymphoseek's market opportunity today and in the future. With the initial approval in breast cancer melanoma, we are addressing an annual U.S. incidence population of approximately 300,000, about 2/3 of which undergo lymphatic mapping procedures. And these procedures, roughly 80 -- and of these procedures, roughly 80% use a radiopharmaceutical agent. Thus, our initial U.S. market opportunity is approximately 160,000 studies per year, as we've noted previously. But that's just the initial indications limited to the U.S. There's exciting upside potential here, not only from other geographies, but in other cancer types as well. The benefits of expanded lymphatic mapping have largely gone unrecognized and unrealized due to the fact that existing technology had proved ineffective. Included in such potential cancer types are head and neck disease, again, the subject of our ongoing priority review at the FDA, as well as other cancers, such as colorectal disease, the subject of a fascinating investor-initiated study we previously disclosed, and include, but are not limited to, gynecologic, prostate, bladder and upper G.I. cancers, all of which we plan to explore in one fashion or another going forward. The collective incidents in the U.S. multiplies the overall potential population from 300,000 by as much as 4x to reach potential targets of 1.3 million. These numbers are further multiplied by opportunities in Europe and around the world, where the total incidence of adenocarcinoma patients reaches almost 12 million per year, even helping to provide better care to a fraction of these patients will make a huge difference and fuel growth of the product in turn. Now let's consider our approach to the market on the next slide, please. As we'll recall, we partnered with the Cardinal Health, a leading radiopharmacy network in the U.S., to provide the product with great reach as they are able to access well in excess of 95% of hospital customers within 3 hours after receiving a script. They provide broad sales coverage and perhaps most importantly, they provide this spaces largest group of knowledgeable, highly respected customer-oriented pharmacies -- pharmacists who frequently speak to their customers -- our customers multiple times in a single day. To augment Cardinal's transactional prowess, we fielded that our own MSL team to assure that our imperative medical education messages are expertly delivered to select influential customers, be they nuclear medicine or surgery. As I mentioned earlier, we believe that this team has been instrumental in building awareness, interest, and eventually, appetite in, and for the product, in the face of initially relatively unmated -- unmotivated clinical audience. As we've stated previously, our approach from the beginning is to engage our market in 2 phases

[Brent L. Larson:]

Thank you, Tom. For those of you following on the webcast, I'll be starting with the review of our financial results for the full year on Slide 20. Revenues for the year ended December 31, 2013 were $1.1 million compared to $79,000 for 2012. Navidea's revenues for 2013 consisted of $614,000 in sales of Lymphoseek, following its approval in the first quarter of 2013 and an initial launch in the second quarter of 2013, and $516,000 from various federal and state grants. Moving onto our operating expenses. Research and development expenses were $23.7 million during 2013 compared to $16.9 million during 2012. The net increase from 2012 to 2013 was primarily a result of net increases in NAV4694, NAV5001 and Manocept platform product development cost, and compensation and other support cost-related increased headcount, offset by decreases in Lymphoseek development cost and potential pipeline expansion activities. Selling, general and administrative expenses were $15.5 million for 2013 compared to $11.2 million for 2012. A net increase in SG&A from 2012 to 2013 was primarily a result of increased medical education efforts, compensation and other support cost related to increase headcount, legal and professional services cost, offset by decreased out-of-pocket marketing cost to support the commercial launch of Lymphoseek. Navidea's net loss from operations for the year ended December 31, 2013, was $38.4 million compared to $28.0 million for the same period in 2012. For the year ended December 31, 2013, Navidea reported a loss attributable to common shareholders of $42.7 million or $0.35 per share compared to a loss attributable to common shareholders of $29.2 million or $0.29 per share for the same period in 2012. As Tom has already discussed, with the Lymphoseek sales performance we have experienced in our expected trajectory, we are projecting that Lymphoseek will realize between $5 million and $6 million in revenue to Navidea this year, an outlook we believe is generally consistent with the overall range of estimates from analysts covering Navidea, and who have provided updates of their estimates since product launch. Moving on to Slide 21 and the fourth quarter numbers. Revenues for the fourth quarter of 2013 were $535,000 compared to $7,000 for the same period in 2012. Revenues from sales of Lymphoseek for the fourth quarter of 2013 were $343,000 compared to $144,000 in the third quarter of 2013 and no revenue from Lymphoseek in 2012. We would like to remind everybody that the fourth quarter of 2013 represented the first quarter of Lymphoseek sales under the CMS reimbursement codes. We also believe our revenue for the fourth quarter is generally consistent with the range of estimates from those analysts covering Navidea and who have provided, updated us and was following product launch, and thus, who are providing quarterly estimates of their revenue. Fourth quarter of 2013 operating expenses were $13.4 million compared to $7 million for the fourth quarter of 2012. Research and development expenses were $9.4 million during the fourth quarter of 2013 compared to $4.3 million during the fourth quarter of 2012. The net increase from 2012 to 2013 was primarily a result of net increases in NAV4694, NAV5001, Lymphoseek and Manocept platform product development cost, compensation and other support cost-related increased head count. Selling, general and administrative expenses were $4 million for 2013 compared to $2.7 million for 2012. The net increase from 2012 to 2013 was attributable to the same primary factors noted for the full year comparison. Navidea's loss from operations for the fourth quarter of 2013 was $13.1 million compared to $7 million for the fourth quarter of 2012. For the fourth quarter of 2013, Navidea reported a loss attributable to common shareholders of $13.8 million or $0.10 per share compared to a loss attributable to common shareholders of $7.2 million or $0.07 per share for the fourth quarter of 2012. Moving on to Slide 22. This slide summarizes the key terms of the non-dilutive financing with Oxford Finance that we announced earlier today. The lower coupon rate of 8.5% was certainly an important factor in our decision to refinance our outstanding debt, but perhaps more important was the elimination of the financial covenants which restricted our ability to access the cash already on our balance sheet. We believe the elimination of these covenants, coupled with the ability to extend the one -- initial 1 year interest-only period on the achievement of certain milestones and the continued availability to us of over $30 million under our line of credit with Platinum, that we are well positioned from a balance sheet perspective as revenue from Lymphoseek, continues to grow. Overall, we believe we continue to maintain a great deal of financial flexibility at this critical period in our growth. Before I turn the call back over to Mark though, I do want to note one other corporate housekeeping matter just to give everyone a heads up. The company's current shelf registration statement was originally filed in 2011 and expires under its terms in April of this year. Having just solidified our balance sheet with the Oxford financing and having no current intent to access the equity capital markets, we expect to exercise prudent corporate governance in the near future by refreshing the shelf after the filing of our 10-K. Now let me turn the call back over to Mark.

[Mark Jerome Pykett:]

Okay, great. Thanks, Brent. Onto the next slide, please. So lots of good progress that we've reviewed and we'll cover a few other points in a minute. But just to be clear, to circle back to the statements that Brent and Tom made, our 2014 guidance -- revenue guidance of $5 million to $6 million is revenue to Navidea, so just bear that in mind. So to conclude, I'd just like to spend a few minutes on some of the recent developments of our pipeline programs and we won't take very much time. But as noted earlier, our pipeline has a scope that now spans 3 therapeutics areas

[Operator:]

[Operator Instructions] And our first question comes from Stephen Dunn.

[Stephen M. Dunn:]

I'm going to let others talk about Lymphoseek. I think what I would do want to skip ahead to is what's not really in the numbers. And Mark, you alluded to on NAV4694, it sound like you are going to maybe file for an accelerated approval of MCI. Did I understand that, right?

[Mark Jerome Pykett:]

No. I think Steve, what we're doing is we are accelerating the study execution as we had originally laid it out. That is a longitudinal study, and we had expected it to sort of align well with our registration efforts. But given the fact that, that study in the data we have today, we believe can great strong early differentiation for the product, we're going to accelerate the enrollment for that study so that we can generate more complete data and use that to help position the product more broadly. That study is designed as a Phase IIb study, it's not a registration level study, so we would not be seeking to use it for any sort of accelerated approval on that basis.

[Stephen M. Dunn:]

Okay, and my one follow-up question. Is the Manocept platform, which you unveiled in December, was very interesting and multifaceted. It hits pretty much any inflammatory macrophages disease, I guess. But could you help investors understand how that can be commercialized and converted into a sellable product? Or what you're -- what Navidea's thoughts are on how that would commercialize?

[Mark Jerome Pykett:]

Absolutely, Steve. That -- the platform is really an exquisitely targeted approach that we feel can have tremendous value across a range of indications. And what you've seen from us our indications in data developing in rheumatoid arthritis, Kaposi sarcoma, tuberculosis, but there's a whole suite, a whole spectrum of disorders where inflammation plays a fundamental role. Cardiovascular disease, neurodegenerative diseases, MS, Crohn's disease, lupus, in fact, there's been this resurgence, in the understanding of the innate immune system and macrophages in particular, and their role in the pathology of these very, very large patient populations and disorders. So this program has really taken off from us, and stemming from its unveiling and the publication in the nature supplement last fall, we witnessed very strong project in terms of those areas of proof of concept. This is a technology that is very flexible. We're leveraging a lot of the investment we made from Lymphoseek. Recall, this is build off of the Lymphoseek chassis, so it's a very elegant way of delivering value without having to go back to square one. And yet, we can deploy this is, for example, an imaging technology, for in vivo imaging. We can look for the ability to identify atypical or early sites of disease to be able to improve early-stage diagnosis. We can look at it in the sense of being able to understand the extensiveness of disease. And we can even think about these agents as being deployed for therapeutic monitoring and to track disease progression as imaging agents. There are also possibilities that one could use these in a more clear, laboratory-oriented approach where you can deploy the manobodies to be able to do more standardized laboratory screening tests. And so we're really now in the early stages of working with this platform, and quite frankly, there's so much to work with, we have to be very clear about our priorities and the use of our resources. But as we said back in the fall, this has really turned into a very powerful and exciting engine that we think can drive new product development in a very streamlined and effective way for this company. As I mentioned, a lot of the products were focusing on tend to have low risk profiles because you know early in development whether you have a signal or not like we've now seen with rheumatoid arthritis, and you also are pretty sure that these are going to have strong safety profiles, given that the agents are applied as single doses typically, and at low levels.

[Operator:]

And our next question comes from Steve Brozak from the WBB securities.

[Stephen G. Brozak:]

I wanted to look at one number, the 98% number. And Tom or -- if you want to hop in here, can you explain why it's 98%? Because candidly, it's one of those things where you're probably starting to get color on reordering and usage. And I want to know, clinicians that are using it, obviously. Can you tell us if there's any reason why they would go back to sulfur colloid and blue dye? And what you're significant advantage? And I've got one follow-up after that.

[Brent L. Larson:]

Sure. Just to clarify, the reorder rate that I've mentioned, if I misstated, I apologize, it's greater than 80%. And we think that less than 20% that aren't included in that largely comes from a timing question. We think about the total market. That's really only 80 procedures per institution per year. The bulk of the 160,000 are undoubtedly coming from the larger account. So there are many small accounts that actually practice this infrequently. And that's probably the major contributing factor to the reorder rates not getting towards 98% as you suggest. Reasons why they would go back? Again, we haven't seen very many. There is a -- that once institutions and physicians, surgeons begin to use Lymphoseek. I think they understand and appreciate it's benefits, attributes, and become increasingly committed to it.

[Stephen G. Brozak:]

Tom, you're absolutely right. I'm only an analyst, so 80% to 98%. What's the difference there?

[Thomas H. Tulip:]

It's something to look forward to that. Isn't it? Yes

[Stephen G. Brozak:]

All right. And so what you're basically saying is that the only reason why you're not seeing the -- a right away fill in orders is because these institutions just simply don't use it enough so that they would fill in that month or the next month, it might be a situation where they just wait a couple of months until they actually do get to that kind of product turn over. Is that in a nutshell, what you just -- what you're looking at?

[Thomas H. Tulip:]

Exactly. It's less around the product than it is around procedure frequency.

[Stephen G. Brozak:]

Okay. Next question is for you, Mark. On the new applications here, you've often explained the benefits and the fact that Lymphoseek is pH neutral, so that you can basically just shoot it and no one can feel it. That pretty much would prohibit any other product that, for instance sulfur colloid even if it could be applied, from being used in any kind of a diagnostic mechanism like the one you're looking at, is that also correct? I mean, it looks like you won't just have a -- an advantage in terms of what you're looking at, but the technology itself is so superior that not only will you be taking away all the diagnostics on the oncology side, but there wouldn't be any competition on the other side that you're looking at as well. Is that a fair statement? And I'll hop back in the queue.

[Mark Jerome Pykett:]

Well Steve, I think as we've said for a long time, we believe in many dimensions, Lymphoseek has a number of advantages relative to the current environment, current products and the state-of-the-art. And we think that's one reason it is -- has a strong possibility of really advancing the state-of-the-art. The applications that I believe you're referring to are the sNDA applications, which we think will collectively build on the differentiation of Lymphoseek in the marketplace, we think that we've embedded into these sNDAs a number of points that we can use to speak to the benefits of Lymphoseek utilization, relative to existing practices. But also then be able to promote to them in a way that we are not able to do today because the label doesn't support that. So it's -- it is not infrequent at all that companies come on with supplemental filings to provide additional data, create additional differentiation that improves the market positioning, all of which reinforce your statement, yes, Steve, that we are still very confident that Lymphoseek is a best-in-class agent overall in lymphatic mapping, a first-in-class agent as a receptor targeted lymphatic mapping agent that will continue to penetrate into the existing market, but also grow the market because of its performance characteristics to enable lymphatic mapping in other key entries where it's not typically perform today.

[Thomas H. Tulip:]

Lymphoseek is redefining the standard of care.

[Operator:]

Last question comes from Yi Chen from Aegis Capital.

[Yi Chen:]

I'd like to know, are there any strategic changes at Cardinal Health regarding how they view the future for Lymphoseek in the U.S.? And if you could, could you give us some more color on the current status of Lymphoseek in Europe?

[Thomas H. Tulip:]

Sure. So I can start, hardly speak to the strategic intentions of Cardinal. Generally, relative to Lymphoseek, my understanding is that they remain committed strategically intention -- tactically and economically to the advancement of the product, and that's continued unchanged. Relative to Europe, we've spoken about the progress around the MAA and the closure of an arrangement with the Europe, potentially the European partner will evolve consistent with that, MAA unfolding. So I'm not sure I can be more specific than that.

[Yi Chen:]

Okay. Do you plan to increase the price at all in the future?

[Thomas H. Tulip:]

Well, in the U.S., Cardinal controls the pricing of the product. Clearly, there's -- there would appear to be an opportunity as standard of care evolves and we expand the label and the application beyond breast cancer melanoma, head and neck disease to others. So that's an ongoing consideration, but no decisions have been made on that front today.

[Mark Jerome Pykett:]

Okay. Very good. I think that brings our session to a close this morning. We really want to thank you for your time on today's call and for your overall interest in Navidea. We started out by talking about the excitement at the company, and we hope you can see why we are excited about things going on within Navidea. In the coming months and quarters, we anticipate positive advances for a number of milestones. We look forward to keeping you updated on our progress to the next steps with Lymphoseek as it continues to grow and move forward, and to achievements in other areas of the business. So thank you again for your time and interest. Take care.

[Operator:]

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.