Navidea Biopharmaceuticals, Inc.
Q4 2014 Earnings Call Transcript

Published: 5 Mar 2015

[Operator:]

Welcome to the Navidea Biopharmaceuticals Fourth Quarter 2014 Yearend Conference Call. My name is Laura, and I'll be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I’ll now turn the call over to Ms. Sharon Correia. Sharon, you may begin.

[Sharon Correia:]

Thank you, Laura. Hello everyone, and thank you for joining us today. I'm Sharon Correia and I'm the Associate Director of Corporate Communications for Navidea. On today's call are Rick Gonzalez, President and Chief Executive Officer; Tom Tulip, Chief Business Officer; Brent Larson, Chief Financial Officer, Tom Klima, Chief Commercial Officer and Michael Tomblyn, Executive Medical Director. At the end of the call, we will hold a brief question-and-answer period. Before we get started, we'd like to remind you that during the course of this call, management may make projections or other forward-looking remarks regarding future events or the future financial performance of the company. It's important to note that such statements about Navidea's estimated or anticipated future results or other non-historical facts are forward-looking statements and reflect Navidea's current perspective on existing trends and information. Navidea disclaims any intent or obligations to update these forward-looking statements. Actual results may differ materially from Navidea's current expectations depending upon a number of factors affecting Navidea's business. These factors include, among others, the inherent uncertainty associated with financial projections, timely and successful implementation of strategic initiatives, the difficulty of predicting the timing or outcome of product development efforts and FDA or other regulatory agency approvals or actions; market acceptance of and continued demand for Navidea’s products, clinical and regulatory pathways, the impact of competitive products and pricing, patents or other intellectual property rights held by competitors, the availability and pricing of third-party sourced products and materials, successful compliance with government regulations and such other risks and uncertainties detailed in Navidea's periodic public filings on file with the Securities and Exchange Commission. Now I'd like to turn the call over to Rick Gonzalez, CEO of Navidea.

[Rick Gonzalez:]

Thanks Sharon and thank you and welcome to our 2014 results conference all. We’re pleased you could join us today. I’d like to start out by reviewing the key developments in the second half of 2014 and to-date in 2014 that have transformed Navidea across all areas. Starting with Lymphoseek, which due to recent approvals in major enhancements to our commercial strategy and team is now poised to accelerate product revenues allowing us to set a course towards profitability. Our sharpened focus on execution and fiscal discipline with companywide accountability, a new management team that has a deep understanding of what it will take to be successful and that has a plan to create value and an initiative to apply the Manocept backbone upon which Lymphoseek is based, for the discovery and development of promising new therapeutics. Let me start by expanding on our highest priority. The acceleration of Lymphoseek revenues and achievement of its full commercial potential, the 2015 commercialization efforts will focus initially on breast cancer, melanoma and all cavity head and neck cancers where sentinel lymph node biopsies are already a standard of care where Lymphoseek has a great -- has a highly differentiated label and most importantly, where Lymphoseek provides a superior clinical value proposition. Since its approval in March 2013, Lymphoseek’s product profile has evolved through several label changes. The most recent and most impactful change was the label expansion that occurred in October 2014. As a result, Lymphoseek’s label is stronger and the Navidea sales team can now more effectively promote to the oncology treatment team focusing on the surgical oncologist in addition to the nuclear medicine physicians by now being able to speak the same language. We can now actively communicate the use of Lymphoseek in sentinel lymph node biopsy for breast, melanoma and oral cavity head and neck cancer. This was not possible before. Pricing leverage has increased. This is due to the new highly differentiated label that supports a superior clinical value proposition to all the stakeholders on the treatment team. As a result, we implemented the first pricing action in December 2014. We’re very pleased to report that we did not receive any customer push back and that product utilization continues to increase after that pricing action. We have a rich dataset that allows us to perform a number of additional analyses, which will further support the proposition that Lymphoseek should be the preferred agent for sentinel lymph node biopsy procedures. These data are being presented at conferences and forming the basis for additional publications in a scientific literature. This very promising data will also serve to generate hypothesis for future analysis and protocols in many different tumor types. We added Tom Klima, as our Chief Commercial Officer to lead the commercial strategy, design and its execution. To expand the customer base, the first major change has been the creation and deployment of Navidea’s direct sales force in a substantially cost-neutral fashion. Consistent with this new strategy, the previous investment in field base activities is now being repurposed to fund the team of 12 specialists, who will call directly on surgical oncologist and other decision makers within the oncology treatment team. A pilot program started in 2014 with two direct sales representatives provided great insight into the brand dynamics giving us greater confidence that scaling the sales force will lead to the desired results. This team will now have a new brand strategy an expanded customer target list and will be incentivized to accelerate revenues. They will understand the target, the message and the selling process required to be successful in the hospital environment. We have wasted no time. As of today we have four specialists in place plus four more individuals, who have accepted offers. We expect that by early Q2, the new team will have been hired, trained and fully deployed. We will go with a concentration of diagnosis occur in order to target the right customers. The territories have been created from an assessment of the greatest concentration of cancer diagnosis including current Lymphoseek experience and analysis of Medicare claims and locations of highest volume cancer centers. With the force of 12 sales representatives we're confident we will be able to efficiently and effectively call on the highest volume accounts where more than 80% of all diagnosis in the U.S. each year are treated. We will increase the number of doses per account. We have three potential entry points into the hospital; oral, cavity and head and neck cancer, melanoma and breast cancer. The sales team will profile each account and lead with the tumor type that will serve as the point of entry triggering the fastest adoption. From there, the sales representative will be in a stronger position to extend utilization to other tumor types. We anticipate that the first Lymphoseek user within the hospital will also become an valuable brand champion and advocate for the products used within the institution. This approach intends to capitalize on the 90% plus product reorder rate we have observed to date. We will carry the right message and evolve the brand. The new force will bring about enhanced customer engagement as we implement a new brand strategy. While there are several attractive technical features about Lymphoseek that have been previously emphasized to nuclear medicine departments or enhancing the message to address the needs of the different stakeholders in the treatment team, focusing more on customer benefits, some which include Lymphoseek enhanced results, increased efficiency in the hospital and its contribution to the treatment decision making process and the reduced morbidity to the patient. This we firmly believe will have the greatest impact on the surgical oncologist decision in making Lymphoseek the preferred agent for sentinel lymph node biopsies. Further the mounting body of data much of which has been recently been published or presented is helping to increase the level of awareness of Lymphoseek. By way of example, a recent paper was published showing the improved targeting ability of Lymphoseek, which reduced the number of required notes being biopsies. A recent presentation in Europe by Professor Remco de Bree suggested that because of the availability of Lymphoseek, head and neck surgeons are no longer limited to en-bloc surgery requiring removal of all soft tissue in a lymph node region. Anecdotally we’re receiving an increasing number of unsolicited inquiries from perspective customers to augment our proactive outreach efforts. This is a reflection of a realization of the differentiated value of Lymphoseek. This is a tremendous opportunity for our targeted agent. When we look back at 2014, we’re encouraged by the key performance indicators or KPIs that the product demonstrated under a very restricted label with limited resources and under a very different commercial philosophy than what we're implementing today. In a review of those KPIs, approximately 22,000 procedures were performed. We achieved the sustained quarter-on-quarter growth of approximately 20%. More than 540 hospitals ordered Lymphoseek and there was a reorder rate of nearly 90%, which suggest that this is a very sticky product once it is at a customer sight. Further improvement in these metrics will be indicators that our new commercial strategy is having its intended impact. Specifically in 2015, we expect to achieve well in excess of 50,000 procedures, expansion of our current base of key accounts, increase utilization in existing accounts, maintenance of a merely 90% reorder rate and improved brand awareness and message recall. Looking at these KPIs and our projections for 2015, it gives me great confident that our commercial plan is soundly grounded to drive and capitalize on these metrics and that they will translate into accelerated revenue growth. For 2014, we expect Lymphoseek revenue to Navidea of $10 million to $12 million, which represents overall end customer brand sales of more than $20 million. We anticipate revenues to be weighted towards the second half of the year to account for our sales force coming on Board and a typical four to six months selling cycle. Our performance through the first two months of the year gave us confidence in this figure, specifically the total number of procedures performed year to date. The importance of this revenue acceleration is that when combined with our new fiscal expense plan, we are on track to achieve cash flow breakeven in the first half 2016. The recent label expansion in addition to sentinel lymph node biopsy includes lymphatic mapping and solid tumors. This opens up our market well beyond these top three tumor types and can include gynecological, gastrointestinal and genitourinary and other types of tumors. In parallel to our efforts in the top three tumor types, we will develop in collaboration with the medical community and potentially other corporate partners, ways to apply lymphatic mapping where it has the potential to become the standard of care. To lead this effort, we've hired Dr. Michael Tomlin who trained and practice as Radiation Oncologist and has an acute awareness of how Lymphoseek may be applied across multiple tumor sites. A broad label allowing use in solid tumor is just the first step in physician adoption. However, it needs to be supportive by evidence from KOL driven real world studies. Our plan is to align our resources accordingly to explore how Lymphoseek may be optimized for use with solid tumors where lymphatic mapping historically has not been as common. We're actively collecting input and partnering with clinical investigators to identify those tumors that we should initially pursue as well as gain an understanding of what trials will be required. Importantly, the cost to Navidea for these studies is limited as they will be either independent studies or studies funded through grants. The results from these studies as the outcomes become published or presented will help educate the broader oncology community on the use of lymphatic mapping. There are currently several ongoing investigator initiated in grant funded studies. These include studies in colorectal cancer, Kaposi's sarcoma, cervical cancer and rectal cancer. Launching Lymphoseek into new global markets is integral to Navidea’s corporate growth strategy. For Europe, Lymphoseek was granted marketing authorization to detect sentinel lymph nodes, draining of primary tumor in breast cancer, melanoma or oral cavity head and neck cancers. As a reminder, there are three components to our launch in Europe. First comes approval, followed by market access work and then commercialization. This morning, we announced our agreement for Lymphoseek commercialization with Norgine, a European specialist pharmaceutical company with an extensive pan European presence. Under the terms of the exclusive agreement, Navidea will be entitled to upfront payment of $2 million, milestones totaling up to an additional $5 million as well as royalties on European net sales. Navidea will supply Lymphoseek product to Norgine. Norgine will be responsible for pricing, reimbursement, commercial, medical affairs, and regulatory activities. In particular Norgine will make a substantial investment to drive market access, evidence development studies designed to achieve pricing that is consistent with Lymphoseek's value proposition. In connection with entering into the agreement, intellectual property rights for Lymphoseek will be supplied since to Norgine by Navidea. The initial territory covered by this agreement includes all 28 member states of the EEC with the options to expand into additional geographical areas. We believe that Norgine’s commercial, medical and development expertise combined with its well established infrastructure and strong presence in the European marketplace, make it an ideal commercialization partner to gain country by country reimbursement and drive product adoption. While Lymphoseek approval covers all EU countries, our market access in collaboration with Norgine will likely begin in the United Kingdom, Germany, Italy, France, and Spain. This will allow Norgine to pursue reimbursement in a targeted fashion across the largest healthcare markets in Europe. We anticipate a successful and mutually beneficial partnership with Norgine. This is based on our synergistic core competencies, our shared vision for value creation and our strong commitment to providing highly differentiated products that improve the diagnosis and treatment of disease for patients with unmet medical needs. Our core massive targeting platform upon which Lymphoseek is based is central to our future business. For us it is very exciting to see that therapeutic applications may exists using the Manocept platform. Activated macrophages play a role in many disease states. If we replace a radiolabeled on Lymphoseek with the therapeutic agent, we can potentially develop novel targeted treatments. We recently formed macrophage therapeutics to explore potentially therapeutic applications of the Manocept platform such as oncology, autoimmune and inflammatory diseases. In addition, we established a joint venture with Essex Woodlands backed entity to specifically look at rheumatologic applications in both humans and animal health. On both fronts we look forward to reporting more progress on our first quarter result call. As part of sharpened focus and new fiscal discipline we make the difficult decision to out-licence our neurology assets, which fall outside of our core focus on Lymphoseek and the Manocept platform. The activities in these areas have been largely scaled back to purely maintenance until a partner can assume future development. We're in the process of evaluating term sheets and if and when our valuation parameters are met, we will execute and announce the deal. I’ll now turn the call over to Brent to discuss the financial.

[Brent Larson:]

Thanks Rick. Let me start with our year-to-date results. Revenue for the year ended December 31, 2014, were $6.3 million compared to $1.1 million for 2013. Navidea’s revenue for 2014 consisted of $4.2 million in sales of Lymphoseek, $300,000 from business development milestones and $1.7 million from various federal and state grants compared to $614,000, $0.00 and $516,000 respectively for 2013. Operating expenses for the year ended December 31, 2014, were $32.3 million compared to $39.2 million for 2013. Research and development expenses were $16.8 million compared during 2014 compared to $23.7 million during 2013 and as investors are aware, we undertook a restructuring effort starting in the third quarter of 2014, which led to net decreases and development costs from 2013 to 2014. While there was somewhat also natural decrease in expenses related to Lymphoseek our cost reduction efforts related to NAV 5001 and NAV 4694 product development activities coupled with those reductions in headcount also yielded the savings. Selling and general administrative expenses were $15.5 million for 2014 and 2013. In the case of SG&A, our cost reduction efforts to support costs, which resulted in decreased Investor Relation cost, compensation and out-of-pocket marketing costs were offset by increases in Lymphoseek related medical educational and professional services costs. Navidea's loss from operations for the year ended December 31, 2014, were $27.6 million compared to $38.4 million for the same period in 2013. For the year ended December 31, 2014, Navidea reported a loss attributable to common stockholders of $35.7 million or $0.24 per share, compared to a net loss attributable to common stockholders of $42.7 million or $0.35 per share for the same period in 2013. Moving on now to fourth quarter operational results. Revenues for the fourth quarter of 2014 were $2.2 million compared to $535,000 for the same period in 2013. Navidea’s revenue for the fourth quarter of 2014 consisted of $1.5 million in sales of Lymphoseek $738,000 from various federal and stake grants compared to $343,000 and $192,000 respectively for the same period in 2013. Fourth quarter operating expenses were $6.4 million compared to $13.4 million for the fourth quarter of 2013. Research and development expenses were $2.3 million during the fourth quarter of 2014, compared to $9.4 million during the fourth quarter of 2014 and compared to $4.2 million for the third quarter of 2014, demonstrating a continuing commitment to our cost reduction efforts. The overall net decrease from 2013 to 2014 was primarily a result of reductions in Lymphoseek NAV 5001 and NAV 4694 product development costs coupled with reduced headcount and related support cost. Selling and general administrative expenses were $4.1 million for the fourth quarter of 2014, compared to $4 million for the same period in 2013 was substantially same offsetting factors discussed for the year to date period. And also as we mentioned in this morning’s release cash flow used in operations for the fourth quarter decreased from nearly 50% from that in the first quarter of 2014, again demonstrating our continuing commitment to fiscal discipline. Navidea’s net loss from operations for the fourth quarter of 2014 was $4.5 million compared to $13.1 million for the fourth quarter of 2013. For the fourth quarter 2014 Navidea reported a loss attributable to common stockholders to $6.9 million or $0.05 per share, compared to a loss attributable to common stockholders of $13.8 million or $0.10 per share for the fourth quarter of 2013. As Rick mentioned, Navidea earlier today projected revenue guidance for 2015 of sales between $10 million and $12 million. Consistent with this revenue guidance, our current expectations is the revenue run rates we're estimating should enable us to reach cash flow breakeven based on our current strategic plans sometime in the first half of 2016. Lastly let me say that we remain highly confident that we will not have to approach the equity capital markets at any time in the near future. With that let me turn the call back over to Rick.

[Rick Gonzalez:]

Operator, let's open up for Q&A please.

[Operator:]

We may now begin the question-and-answer session. [Operator Instructions] And our first question comes from Kevin. Kevin, go ahead.

[Kevin DeGeeter:]

I guess that’s me. Hi it's Kevin DeGeeter from Ladenburg. I have a couple of questions maybe more than two actually. Hey Rick, thanks for the operational update really great, very helpful. On a little bit different note, can you just kind of walk us through what your current thinking on out-licensing for 4694 and 5001 look like? What sort of parameters do we need to achieve. It seems that time process is running longer than we anticipated. I want to appreciate kind what gets us over the goal line.

[Rick Gonzalez:]

Good morning, Kevin and thanks for joining the call. So looking at the programs of 5001 and 4694 as I stated in my prepared remarks they squarely fit outside of our focus and although we believe this is our best-in-class assets, not only it does not fit within our focus, but also imposes a tremendous pressure on our cash balance. So to that effect, the company decided mid last year to divest those assets and we are in the process of evaluating term sheets for that purpose and we'll be in a position if we sign those to then disclose to the market, but at this point that's just a process of consideration of the term sheet.

[Kevin DeGeeter:]

Okay, I am going to stay on that topic for a little bit if I may. How much should we think about R&D being scaled back in the fourth quarter? It looks like those program -- spend on those programs have been substantially brought down something approaching zero is that a reasonable way to think about spend there and how we should think about projecting spend into '15 on the R&D line.

[Rick Gonzalez:]

Those have been scaled back significantly I’ll have Brent kind of expand on the financials around the scale back.

[Brent Larson:]

Yes Kevin, we'll obviously be putting out details in the 10-K on what they spend was for the year and you'll able to see those numbers specifically. I think there is still spend that occurs on those programs at this point in time. There are underlying agreements related to the production of the product that's used in the area of clinical trial expenses as we wind down and ramp down the enrolment on those particular programs. So there is still spend there. I think we will give some more guidance on that in the K. But I think you should still expect probably through the first quarter at least may be a little bit beyond that some additional spend on those programs, but for the rest of the year and the balance of the year, I think you'll see that you're exactly correct that they will be approaching zero by the second half of the year.

[Kevin DeGeeter:]

Okay. And then couple of questions on the European partnership if I may. It appears that the agreement is substantially similar to the term sheet, the company outlined several quarters ago. First of all, is that correct and then just as a housekeeping item, should we think about the recognition of the fall $2 million upfront occurring in the first quarter of '15 or will that need to be amortized over some period.

[Rick Gonzalez:]

So Kevin, let’s -- I’ll ask both Brent and Tom Tulip to explain on the particulars on the Norgine agreement. So Brent go ahead please.

[Brent Larson:]

Let me start with the $2 million, the accounting treatment for that will obviously be gone over the first part of the year as a review of the first quarter, but my expectation based on my understanding of the terms that have been negotiated is that we will be to recognize a substantial portion of that related to that in the first quarter.

[Tom Tulip:]

And Kevin thanks for your questions. The terms that we reach with Norgine today are certainly different than those which we envision when we initially spoke about this and we learned a lot about the brand last year and as Rick mentioned, we’re moving from the approval phase to the market development, market access phase and so that put us in a different position, the value of the assets increased and that's reflected in the new agreement.

[Kevin DeGeeter:]

Great and then just lastly for me then I’ll back in the queue, if you kind of take your guidance for 2015 as suggested by third quarter, fourth quarter of '15, you’re looking let’s just take fourth quarter, it suggest that you’re looking for a revenue ramp trajectory that suggest something around two X for reserve quarter in the fourth quarter of '14. Can you just kind of use a little bit more granularity as to where your confidence of that type of ramp comes from here? Is it largely -- and what portion is price versus volume versus kind of other inputs. Thank you very much.

[Rick Gonzalez:]

Yes Kevin to our point and to what we know based on our commercial experience both Tom Klima and I bring to the table and looking at Lymphoseek and the asset in the clinical value proposition and product profile, gives us great confidence and the ramp up in the sales as projected will be materialized. Now to speak about more of the particulars of the commercial dynamics and the rollout, I’ll ask Tom Klima to address that.

[Tom Klima:]

Yeah, hi good morning, Kevin. I think first of all as Rick mentioned, I think the current trend that we're seeing in the first part of the year gives us confidence that we’re on track, but you're right, it does ramp up significantly in the second half of the year and that's primarily because of the impact that we’ll see from adding the sales force. And we really looked at this from both the top down and a bottom up approach and we feel that the new reps that we’re adding are both -- do two things number one, we're going to be able to go deeper in the existing accounts that we’re currently in and then secondly, obviously we’re going to have a much broader reach to broader group of cancer centers and hospitals.

[Operator:]

And our next question comes from Steve Brozak. Steve Your line is open.

[Steve Brozak:]

Hi, good morning gentlemen. Hi, I will ask one question and one follow-up to make sure that it’s done clearly. The question was just asked specifically about a bottom up approach and that’s something that I’d like to basically get as much clarity about as possible because obviously there has been a question as to how to go out there and how to get adoption and transfer from Sulfur Colloid into Lymphoseek. Can you detail as specific as possible, what you're going to do? How you're going to do it and why you're expectations are strong as they’re and then I'll one follow up question after that?

[Rick Gonzalez:]

Good morning Steve and thanks for your question. And just to preface out before I ask Tom Klima to address -- expand on the particulars and the specifics of the commercial dynamics, what gives us great deal of confidence at the product profile of Lymphoseek today is quite different than the product profile that it was before October 2014. In addition to that, the commercial philosophy behind it is quite different and the basic fundamental change in that philosophy is that, Navidea will now be able to deploy, control and generate the accelerated demand that we believe that product deserves by broadening our targeted base to include the oncology treatment team in surgical oncology. The core competencies to do that are a bit different to what existed before. However, we believe that with that strategy, with a new product profile and the details around it give us great deal of confidence to the execution and the feasibility of the results that we are -- that we're projecting today, but with that I will ask Tom to explain on that, to the level of granularity that you requested.

[Tom Klima:]

Yeah, just to build on that, I think first of all, let’s talk about the point of entry and I think we have great confidence in being able to increase utilization in key hospitals and cancer centers. As Rick mentioned, we're for the first time going to effectively target surgical oncologist and key decision makers and broader treatment teams. And again, we’re fortunate to have a very broadened label with multiple entry points and our highly skilled sales team is going to able to go in and identify the lead cancer type that will lead to the most efficient uptick in a given hospital and then once we have uptick in that cancer type, we can expand to other cancers, other specialties and broader treatment teams. Specifically, on the sales force deployment, as Rick mentioned earlier, we had a pilot program in 2014 where we had a narrow focus in a very small number of targets that is going to expand significantly and when we talk about a bottom up approach, we really looked at the market every which way you possibly could and we figured out that we can effectively target about 80% plus of the opportunity with the addition of our 12 sales reps. We’re hiring them and giving them going as quickly as we can and we expect the impact -- we'll start seeing the impact in Q3 and in Q4 and that’s why you see the ramp being a little bit steeper in the second half of the year.

[Steve Brozak:]

Okay, that leads me to the follow-up question, given the fact that you’re dealing with slightly different sub specialties for instance on the oncology side, yes you got melanoma, you got breast, but now you got head and neck, and Rick you had mentioned earlier on the call that you were looking at other cancer indications, these are all based on solid tumors. What are your thoughts about that because obviously and all of a sudden you know what the current market is? Now you know what the strengths are? Now all of a sudden you’re looking at potential new markets here, what are your thoughts on that and you can elaborate in whatever direction you think would explain it the best and I’ll hop back in the queue. Thank you.

[Rick Gonzalez:]

Yeah, before I ask Dr. Tomblyn to expand on the clinical and his clinical views as to address your question, the most important aspect of this is that the label that Lymphoseek received in October 2014, used in solid tumor lymphatic mapping is an indicated use, that’s the first step. We need additional evidence to support the adoption and expansion into these new tumor types. So as we deploy our commercial sales force in 2015 to capitalize on the short-term opportunity the midterm opportunity opens up the value of Lymphoseek in a much wider, much broader market and that’s where we're aligning our medical affairs and investigational efforts that I spoke about in the prepared remarks, but with that I’d like Dr. Tomblyn to expand on his view on this.

[Michael Tomblyn:]

Thanks Rick and thanks Steve, we're really fortune to have about as broader an indication for lymphatic mapping as we could possibly have at this time. The challenge we face is that a private label loan is not really sufficient to drive adoption and the absence of real world evidence for tumor types for this intraoperative lymphatic mapping has not traditionally been employed. At Navidea, we really feel that it's our responsibility to provide the surgeons with the evidence and the experience that they need to empower them to incorporate Lymphoseek into their practices. Now to that end last week in Dallas we hosted a solid tumor Advisory Board where we had experts in the field review the totality of Lymphoseek data and to provide feedback on how -- what level of evidence they would need and how the design studies to evaluate this product in some of these novel tumor types that you asked about. And we’re really happy to hear that experts opinions correlated very strongly with our own internal thoughts giving us a lot of confidence that our current life cycle management plan is going to meet the needs of surgeons to yield the data that they want to see. So they could be just as confident in adopting Lymphoseek across a broad array of new tumor types really fulfilling the promise of our current label.

[Steve Brozak:]

Great, again thanks gents.

[Rick Gonzalez:]

Thanks Steve.

[Operator:]

[Operator Instructions] And we have Stephen Dunn in queue with a question. Stephen your line is open.

[Stephen Dunn:]

Good morning everyone and thanks for taking my questions. I just kind of want to follow-up a little bit on Kevin’s line of thinking and really first of all you said, you're going to have achieved cash flow breakeven, your press release says Q1 and you guys are stating first half of 2016, which one is it?

[Rick Gonzalez:]

So Steve good morning and thanks for the question. At this point it is Q1, first Q1 within first half but Q1 of 2016.

[Stephen Dunn:]

Okay, so against that backdrop you have several levers going in here, both in revenue line and the expense line, so I kind of want to see how that cash flow breakeven is going to be achieved. On the sales line, how much EU revenue are you expecting in that number, in other words, is your calculations through Q1 include nothing for Europe? Does it include just the milestones, what’s the European portion that hit that breakeven in Q1 if any?

[Rick Gonzalez:]

So Steve, thanks for that follow-up question. For Europe, we do not expect material revenues until later in 2016 into 2017. As I spoke before, the process --the three step process to commercialization and revenue generation in Europe begins with the approval followed up by market access and then begins the commercialization process. So to that effect, the revenue generation portion of that probably most likely will occur in late 2016 into 2017, but towards the cash breakeven number provided does not pack to that end. I’ll ask Brent to expand on the treatment of the $2 million upfront.

[Brent Larson:]

I think as we talked about the $2 million upfront, there are additional milestones that come down the road based on some of the regulatory and market based activity. So there are future milestones that may come into play. We haven't given any guidance on the specific timing of those, but those are within the next couple of years. So I think that’s the extent of the guidance that we're giving on that right now and obviously Steve you are also well aware of the expense controls that we put in place and the reductions that we're moving forward therein. I think the trajectory if you cross the lines is going to come in roughly at the same place based on the information we've given.

[Stephen Dunn:]

Well yes on the expense side, for the newer imaging programs you've ongoing costs still even today I believe and I would imagine those costs go to zero as you divest. At the same time at Macrophage Therapeutics, which I am not sure, investors are not sure is that going to be cost neutral because we haven't seen the finalization of the initial funding yet. So while I am taking the neuroimaging costs out, are we going to have, are they going to be offset by increased Macrophage Therapeutics costs.

[Brent Larson:]

I think Stephen we haven’t talked about the timing of the Macrophage Therapeutics and I’ll let Rick speak to that if you want, but essentially the anticipation would be that those are essentially costs neutral when the funding does start arriving.

[Rick Gonzalez:]

So Steve as previously announced we're very close to finalization of the Macrophage Therapeutics initial funding around and we -- the work will not go on until that funding arise and the most of the plants are put in motion. So the expected effect on expense for Macrophage Therapeutics to Navidea at this point has not been disclosed or not anticipated based on the initial financing around the Macrophage Therapeutics.

[Stephen Dunn:]

Okay. So if I could summarize then see I have got this correct. Your breakeven target of Q1 2016 is predicted on revenue of U.S. Lymphoseek sales plus EU milestone payments from Norgine. The expenses are going to be roughly the same as the neuroimaging expenses go away and should be replaced with Macrophage Therapeutics expenses, is that correct.

[Rick Gonzalez:]

That’s essentially correct Steve, except I think the piece that you're missing is that there are some costs to the life cycle management and the other trials that we're working on that are grant funded or are investigator initiated. So there is activity there that is essentially cost neutral for the most part as well.

[Stephen Dunn:]

Well thanks. Thanks for taking all the questions and look forward to an exciting 2015.

[Rick Gonzalez:]

Thank you, Steve.

[Operator:]

And we have [Alfredo Delrio] [ph] on the line. Alfredo you line is open.

[Unidentified Analyst:]

Thank you. Yes my question is regarding the prediction that you wouldn’t need to go to the equity markets again. In the past, I think there has been facilities that are drawn upon based on the average treating price, are there any of those still left? I’m just trying to figure out if there is a dilution?

[Rick Gonzalez:]

Good morning, Alfredo. So thanks for your question. I don’t believe that there are but, Brent can you please expand.

[Brent Larson:]

Yes, there are no additional facilities that we have available to us right now other than the debt base facility that we have from [platform] [ph], which we have already indicated is our primary facility that we're relying on at this point in time. So there is no other equity based facilities out there.

[Unidentified Analyst:]

Thank you. That was it. Thank you very much.

[Rick Gonzalez:]

Thank you. Have a great day.

[Unidentified Analyst:]

You too. Thank you. Congratulations.

[Brent Larson:]

Thank you.

[Operator:]

And we have no further questions at this time.

[Rick Gonzalez:]

All right. So we cannot emphasize enough our new sharpened focus on Lymphoseek and the Manocept platform, a heightened fiscal discipline with a goal of accelerating revenue growth, advancing our therapeutic pipeline and achieving profitability. With that, we would like to conclude our call.

[Operator:]

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