Research

Navidea (NAVB) Mid-Day Note 10-15-14

downloadreportFDA Approves SLN for Breast & Melanoma Plus Mapping All Solid Tumors
Expecting Significant Price Increase with Expanded Addressable Market
Lymphoseek® Becoming Gold Standard of Care in United States
New CEO Named with Market Execution Experience

Download Full 9-Page Note with Important Disclosures: Mid-Day Note 10-15-14 NAVB

Conference Call Highlights: The major highlight from this morning’s conference call is that Navidea and partner Cardinal Healthcare (NYSE:CAH) will be increasing the price of Lymphoseek next year to better reflect the premium for the new FDA-approval for Sentinel Lymph Node detection in Breast, Melanoma and oral Head & Neck cancers as well as lymphatic mapping in all solid tumors. We expect to see the price increase from $300 to approximately $400 per procedure for at least the Breast, Melanoma and Head & Neck cancer patients. However, Lymphoseek may retain the lower price for non-SLN solid tumor patients to drive adoption in those patients. In our view, Lymphoseek is now the Gold Standard of Care for these patients. The main remaining challenge is now marketing execution by Navidea and Cardinal.

New CEO with Experience: To execute the marketing plan for Lymphoseek, Navidea announced the appointment of a new CEO, Rick Gonzalez, former Vice President, Global Operations at Spectrum Pharmaceuticals (Nasdaq:SPPI). Investors should note that Mr. Gonzalez already has experience in radiolabeled compounds like Lymphoseek as Spectrum’s Zevalin is a Yttrium-90 radiolabeled anti-CD20 monoclonal antibody for non-Hodgkin’s lymphoma. His bio is as follows:

Mr. Gonzalez most recently served as Vice President, Global Operations at Spectrum Pharmaceuticals, a biotechnology company focused in oncology and hematology. At Spectrum Pharmaceuticals, he had increasing responsibilities leading teams in the U.S. and abroad and played an active role in the evolution of the organization from a product development company to a global commercial enterprise. Most recently he was responsible for designing and leading the globalization and commercialization strategy for international markets including Europe, Asia, Middle East and Latin America. Of Mr. Gonzalez’s over 20 years of experience in the pharmaceutical industry, 14 years have been focused in specialty markets, including HIV/AIDS, Hematology and Oncology. Rick’s prior experience includes roles in all aspects of product commercialization including sales, marketing, operations, distribution, managed markets, contracting, reimbursement, pricing and government affairs with several companies including Abraxis Oncology, Genzyme, Ligand Pharmaceuticals, Roche Laboratories and GlaxoSmithKline. Mr. Gonzalez earned his Bachelor of Science in Business Logistics from Penn State University.

Reiterating Strong Speculative Buy: We believe Lymphoseek is finally emerging as the Gold Standard of Care patients. In addition to the larger patient population now approved for Lymphoseek, we will also see Lymphoseek pricing significantly increased by partner Cardinal Healthcare (NYSE:CAH) and approval by the EMA (European Medicines Agency) for Lymphoseek in Europe by year-end. We are also encouraged by Navidea’s new CEO, Rick Gonzalez, who has experience in both market execution and radiolabeled compounds. We are also optimistic now that Navidea is pursuing Lymphoseek partnerships such as the recent September 4, 2014 Lymphoseek partnership in China and the Manocept joint venture (on July 15th Navidea formed a joint enterprise called R-NAV, combining Navidea’s Manocept CD206 macrophage targeting platform and Rheumco’s proprietary Tin-117m radioisotope technology). Our model values the Lymphoseek program at $3.00 per share based on a 35x multiple on projected fiscal year 2018 EPS and discounted 20% for cumulative risk plus $0.25 per share based on our estimated upfront cash licensing values assuming deferred clinical trial enrollment ($15M NAV4694, $10M NAV5001, $3M NAV1800, $7M Manocept). Investors should note that there is significant upside to our financial model if Navidea successfully reduces cash burn on NAV4694 and NAV5001 while increasing Lymphoseek sales to become cash flow positive.

Download Full 9-Page Note with Important Disclosures: Mid-Day Note 10-15-14 NAVB

Navidea (NAVB) Note 10-15-14

downloadreportUpside Surprise #1: FDA Approves SLN for Breast Cancer & Melanoma
Upside Surprise #2: FDA Approves Lymphatic Mapping for All Solid Tumors
Lymphoseek® Becoming Gold Standard of Care in United States
Expecting EMA European Approval for Lymphoseek® by Year-End

Download Full 9-Page Note with Important Disclosures: Morning Note 10-15-14 NAVB

Note: Navidea will be holding a conference call this morning at 8:30 AM Eastern Time. U.S. dial-in 1-877-407-0789 / International dial-in 1-201-689-8562 / Live Webcast http://public.viavid.com/index.php?id=111146

Significant Upside Surprise: Navidea announced that the FDA has approved their sNDA (Supplemental New Drug Application) for the expanded use of Lymphoseek® (technetium Tc 99m tilmanocept) injection for lymphatic mapping in all solid tumors. In addition, the FDA approved adding the Sentinel Lymph Node detection claim for Lymphoseek in breast cancer and melanoma (H&N Cancer was already approved in June). In summary, Lymphoseek is the first and only FDA-approved radiopharmaceutical agent for sentinel lymph node detection and the only FDA-approved agent for lymphatic mapping of all solid tumors.

· FDA-Approved guiding Sentinel Lymph Node Biopsy (SLNB) using a handheld gamma counter in patients with clinically node negative squamous cell carcinoma (SCC) of the oral cavity, breast cancer or melanoma.

· FDA-Approved lymphatic mapping using a handheld gamma counter to locate lymph nodes draining a primary tumor site in patients with solid tumors for which this procedure is a component of intraoperative management

· FDA-Approved expanded utilization of Lymphoseek with or without scintigraphic imaging, known as lymphoscintigraphy, to enable pre-operative imaging and mapping of lymph nodes to facilitate node localization during surgical procedures.

· Lymphoseek is immediately available using existing reimbursement codes for this expanded population of cancer patients.

· A post-marketing pediatric study in solid tumor cancer with a target date for submission in 2018 will be conducted.

Reiterating Strong Speculative Buy: We believe Lymphoseek is finally emerging as the Gold Standard of Care for these patients. In addition to the additional patient population now approved for Lymphoseek, we would not be surprised to see Lymphoseek pricing increased by partner Cardinal Healthcare (NYSE:CAH). We also expect approval by the EMA (European Medicines Agency) for Lymphoseek in Europe by year-end. We are further encouraged that Navidea is pursuing additional indications for Lymphoseek as well as the recent September 4, 2014 Lymphoseek partnership in China and the Manocept joint venture (on July 15th Navidea formed a joint enterprise called R-NAV, combining Navidea’s Manocept CD206 macrophage targeting platform and Rheumco’s proprietary Tin-117m radioisotope technology). Our model values the Lymphoseek program at $3.00 per share based on a 35x multiple on projected fiscal year 2018 EPS and discounted 20% for cumulative risk plus $0.25 per share based on our estimated upfront cash licensing values assuming deferred clinical trial enrollment ($15M NAV4694, $10M NAV5001, $3M NAV1800, $7M Manocept). Investors should note that there is significant upside to our financial model if Navidea successfully reduces cash burn on NAV4694 and NAV5001 while increasing Lymphoseek sales to become cash flow positive.

Download Full 9-Page Note with Important Disclosures: Morning Note 10-15-14 NAVB

StemCells Inc. (STEM) Note 10-07-14

downloadreportStemCells Inc. Initiates Phase II Clinical Trial for Cervical Spinal Cord Injury
Phase II Clinical Trial for Dry AMD to Begin Soon
Remaining Neutral – No Significant Near-Term Catalysts

Download Full 7-Page Note with Important Disclosures: Morning Note 10-07-14 STEM

StemCells, Inc. announced they initiated the Phase II proof of concept clinical trial (The Pathway Study) using their proprietary HuCNS-SC® platform of human neural stem cells for the treatment of cervical spinal cord injury (SCI). The Pathway Study is the first clinical study designed to evaluate both the safety and efficacy of transplanting stem cells into patients with traumatic injury to the cervical spinal cord. The trial will be conducted as a randomized, controlled, single-blind study and efficacy will be primarily measured by assessing motor function according to the International Standards for Neurological Classification of Spinal Cord Injury (ISNCSCI). The primary efficacy outcome will focus on change in upper extremity strength as measured in the hands, arms, and shoulders. The trial will follow the patients for one year from the time of enrollment.

Remaining Neutral: While we remain enthusiastic about StemCells Inc.’s science and clinical prospects, we note the stock price will be facing headwinds during our next 12-18 month forecast period. Based on our estimated events and milestone timelines, we do not foresee significant upward news catalysts during our forecast period. We also believe that the company will be required to raise additional funds before results from their controlled Phase II trials become available. Finally, the company has had difficulty maintaining the stock price over $2.00 during the past 3 years as capital requirements have created constant pressure on the stock due to dilution. Finally, we believe investor sentiment for the company’s shares has turned cautious due to these factors and we expect it to remain so until the controlled Phase II data is announced. Our Neutral rating and 12-18 month target price of $2.00 is based on 35x estimated 2020 EPS discounted 50% for cumulative risks.

Trial Design: The “Pathway Study” trial will enroll patients with cervical spinal cord injuries in the C5 to C7 region (this region represents the majority of cervical spinal cord injuries). The patients will be randomized to either a HuCNS-SC treatment arm or a non-treatment arm with blinded outcome assessment in approximately 12 centers in North America. It is expected to complete enrollment within one year with the endpoints measured one year post-transplantation. Final data in all patients is currently expected in May 2017 however interim data analysis may be possible during the trial. Details of the trial design can be found at: http://www.clinicaltrials.gov/ct2/show/NCT02163876 

Download Full 7-Page Note with Important Disclosures: Morning Note 10-07-14 STEM

Echo (ECTE) Note 10-03-14

downloadreportEcho Out of Ideas – Calls in PwC While Fighting Platinum’s Game Plan & Cash
Platinum Calls for Shareholder Vote to Remove Board Members “for Cause
Platinum Calls Echo Board “Worst in Class Corporate Governance

Download Full 11-Page Note with Important Disclosures: Morning Note 10-03-14 ECTE

Echo Therapeutics issued two announcements yesterday with the first stating that Board members Michael Goldberg M.D. and Shepard Goldberg, both nominees from Platinum Management (Echo’s largest shareholder owning 20% or 30% on a fully converted basis) were engaging in “numerous unauthorized public communications targeted at Echo stockholders, the trading markets and the media” specifically, the recent investor forum, investor conference calls and press releases. This announcement disclaiming the Goldberg’s actions due to “the potential to confuse and mislead our stockholders as well as the stock market” is unnecessary in our opinion as we have not encountered any confusion among investors outside of their bewilderment with the behavior of the legacy Board.

We also find this ironic considering two of the more “confusing” events from Echo were their press release of June 5, 2014 titled “Positive Clinical Trial Results of Echo Therapeutics Symphony CGM System to be Presented at the 74th Scientific Sessions of the American Diabetes Associationwhen in fact the trial results were not “positive” as it failed to achieve a CE Mark as they stated a month earlier on May 9, 2014. It was also “confusing” when Ms. Burke, Echo’s general counsel, was named interim CEO on June 30th for 60 days expiring August 30th but the company remained silent when August 30th passed and no CEO, interim or otherwise, was announced leading investors to believe Ms. Burke was still interim CEO. To this day we are unaware of anyone who is acting CEO and we must assume that there is an unannounced executive committee of some kind.

To further underscore the investor confusion with the legacy Board, Echo also announced that they have retained PricewaterhouseCoopers LLP’s Restructuring and Recovery Services Practice (PwC) as a financial and restructuring consultant to explore “financial and strategic alternatives that could sufficiently address its liquidity needs and allow it to resume operations. Such financial and strategic alternatives could include, but are not limited to, a sale of intellectual property and other assets, a merger, other business combination, a capital transaction and/or a voluntary petition for reorganization or liquidation pursuant to the U.S. Bankruptcy Code.In our opinion, this demonstrates to investors that after 50 board meetings, proxy battles and numerous lawyers, Echo’s legacy Board has finally admitted they do not know how to run the company or even what to do next. 

We are reiterating our Avoid/Sell rating as we believe the company remains uninvestable as it continues its death spiral as shown below:

[CLICK ON IMAGE TO ENLARGE] EchoChart100314

Download Full 11-Page Note with Important Disclosures: Morning Note 10-03-14 ECTE

Echo (ECTE) Note 09-30-14

downloadreportPlatinum Calls for Shareholder Vote to Remove Board Members “for Cause
Platinum Funds Prevent Board Shut Down of Echo – Maintains Control of Cash
Platinum Calls Echo Board “Worst in Class Corporate Governance

Download Full 10-Page Note with Important Disclosures: Morning Note 09-30-14 ECTE

Late yesterday, Platinum Management, Echo’s largest shareholder (owning 20% or 30% on a fully converted basis) announced that they have filed a proxy statement for shareholders to vote for the removal, for cause, of the legacy Board members Mr. William Grieco, Mr. Vincent Enright and Mr. James Smith. Platinum will be sending a “WHITE” proxy card asking shareholders to vote on the removal of the three Directors. Interested shareholders can call Morrow & Co. at 800-662-5200 or 203-658-9400 or by email at SaveEcho@morrowco.com We also encourage investors to review the preliminary proxy statement at http://1.usa.gov/1xwKRIQ 

Specifically, Platinum is calling for a “Removal Meeting” of Echo stockholders for the purpose of allowing stockholders by majority vote to remove William Grieco, Vincent Enright and/or James Smith from the Board for cause pursuant to Section 141(k) of the Delaware General Corporation Law. At the Removal Meeting, each of William Grieco, Vincent Enright and James Smith shall have the opportunity to present evidence in their defense following a presentation by PPVA in favor of removal.

Accordingly, Platinum is suspending work on its $5M rescission suit (announced September 17, 2014) against Echo’s Board in favor of this proxy contest, believing such action to be in the best interests of Echo stockholders in general.

Below are portions of Platinum’s letter and encourage investors to review the filing at http://1.usa.gov/1sLI51g 

Self-Dealing and Breach of Fiduciary Duty of Loyalty by the Lingering Directors
Following the Company’s 2014 Annual Meeting of stockholders and in the face of continuing public and private requests for their resignation and questions about their past and ongoing conduct, the Lingering Directors:

•changed the Company’s bylaws and took other actions to grant themselves a gold-plated indemnity package that furthered their personal interests at the expense of the Company and its stockholders, over the strenuous objections of the Stockholder Supported Directors.

•adopted a highly controversial bylaw of questionable enforceability to shift litigation costs to plaintiffs that effectively chills the exercise of stockholders’ lawful rights while insulating the entrenched Lingering Directors from checks and balances by those stockholders. This was done over the strenuous objections of the Stockholder Supported Directors and in spite of guidance from Delaware’s legislature seeking restraint by corporations while the legislature further considered such bylaws.

•amended the bylaws over strenuous objections of the Stockholder Supported Directors to deprive any two directors of their historic right to call a meeting of the Board, thus denying the Stockholder Supported Directors the use of the corporate machinery while further entrenching the Lingering Directors from the views of those equally and more recently chosen by stockholders to protect stockholder interests.

Additionally, according to public statements by one of the Stockholder Supported Directors, in 2013, the Lingering Directors twice manipulated a hand-picked compensation consulting firm, at considerable expense to the Company, to recommend an increased compensation package to the Lingering Directors despite their uniform lack of skills, experience, training or education germane to the technology the Company was trying to develop.

Breach of Fiduciary Duty of Care by the Lingering Directors
In just two examples of a breach of their fiduciary duty of Care, the Lingering Directors:

•Violated the charter of the Board’s Nominating and Corporate Governance Committee by failing to perform the annually mandated review of directors before adding Robert F. Doman to the Company’s slate of nominees for the 2014 Annual Meeting.

•Knowingly and intentionally filed in connection with the 2014 Annual Meeting a definitive proxy statement instead of a preliminary proxy statement subject to SEC review, all in violation of well-known SEC requirements and over the objections and concerns raised by Dr. Goldberg, who was a director at the time.

Abuse of the Company’s Corporate Machinery by the Lingering Directors for the Sole Purpose of Denying the New Directors Any Chance to Discharge Their Fiduciary Duties
The Lingering Directors (in what also may constitute a breach of their duty of loyalty) have engaged in a continuing, purposeful campaign to prevent the Stockholder Supported Directors—40% of the Board—from protecting stockholders by discharging their fiduciary duties by, among other things:

•Excluding the Stockholder Supported Directors from membership on any Board committee, and then conducting all Board action through rogue committee action.

•Systematically denying the Stockholder Supported Directors access to Company information to which they are entitled under Delaware law, leading one of the Stockholder Supported Directors recently to declare publicly that he does not know what the Lingering Directors are hiding.

•Systematically denying the Stockholder Supported Directors fair and customary access to Company employees while intimidating those employees with threats of retaliation and termination.

Repeated Violations by the Lingering Directors of the Disclosure Requirements of U.S. Securities Laws
During the last year, the Lingering Directors have caused the Company to engage in a series of serious disclosure violations to the detriment of stockholders and the market, including:

•Publicly announcing that the Company was conducting a search to replace ex-CEO Patrick F. Mooney, M.D., then hiding for over six months the fact that the search had secretly been suspended, leaving stockholders and the market with materially inaccurate information.

•The failure, ongoing to this day, to disclose properly, accurately and fully the facts, circumstances and legal risks surrounding and resulting from the profound breach of the Company’s various agreements with MTIA and the resulting damage the false and misleading picture the Company has painted with respect to the commercialization of its technology.

•The continuing failure to disclose the decision to file an improper definitive (rather than preliminary proxy statement) with the SEC, and the material costs and expenses flowing from that abusive filing, including the hiring of a second, duplicative (and expensive) large law firm in a glaring proxy defeat that a Stockholder Supported Director recently said cost the Company over $1 million.

Destruction of the MTIA Development and Financing Relationship by the Lingering Directors
In a display of incredible incompetence, the Lingering Directors have caused the Company to engage in a series of breaches of the terms of the December 2013 financing and licensing arrangements to the material detriment of the Company and its stockholders that has led directly to the destruction of the relationship with MTIA, including:

•Not giving MTIA the shares of Common Stock MTIA had paid for when they should have.

•Causing embarrassing cancellations of meetings with the Chinese medical regulatory authorities.

•Substantially not performing the Company’s cooperation obligations.

•Misusing the money MTIA did fund, spending it not on development but on lawyers in attempts to entrench the Lingering Directors still further.

Download Full 10-Page Note with Important Disclosures: Morning Note 09-30-14 ECTE

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