Research

Echo (ECTE) Note 12-22-14

downloadreportThe Legacy Directors Become the “Resigning Directors”
Platinum and Other Investors Commit to $4M in Fresh Funding
Echo Shares Regain Compliance with NASDAQ for Continued Listing

Download Full 4-Page Note with Important Disclosures: Morning Note 12-22-14 ECTE

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.
- Winston Churchill – November 10, 1942

The Tide Turns: Investors are now feeling like Winston Churchill, when after losing every battle for 3 years, the British finally had their first victory of WWII at the second battle of El Alamein. Friday’s 8-K filing brought news that a.) the Legacy Directors are now the “Resigning Directors”, b.) Platinum and others are providing $4M in financial support and c.) Echo has regained compliance with NASDAQ listing requirements.

Maintaining Avoid/Sell Rating for Now: We understand speculators may view Echo shares as a trading idea with the view that “things can only get better” and we might agree. However, we require a financial model with a reasonable basis to determine valuation. In the coming days, weeks and months we expect Echo to announce a new management team, a new product development plan, new timeframes, new market plans, cash requirements and audited year-end financial statements, which will allow for such a new model. We also suggest that when the Resigning Directors actually resign, that Echo change all the locks just in case “to protect the interests of all stockholders“.

It may almost be said, “Before Alamein we never had a victory. After Alamein we never had a defeat.
- Winston Churchill – History of the Second World War, vol. 4 (1951)

Guilty Conscience? Legacy Board members Vincent D. Enright, William F. Grieco and James F. Smith delivered an irrevocable resignation letter stating they will resign from the Board by the earlier of (i) the company obtaining an extended directors and officers insurance policy covering all actions taken by past and present officers and directors while they served in such capacities, which policy will be similar in all material respects to the current D&O policy and (ii) January 15, 2015. Any accrued and unpaid director fees earned by the directors prior to their resignations will be applied toward the cost of the D&O Policy.

$4M Financing Terms:
Cash: On December 18, 2014, Platinum and other investors agreed to purchase Series F Convertible Preferred Stock for $4M with $1M invested upon the execution (840,336 shares at $1.19) with the remaining in 3 consecutive monthly installments of $1M when the new director and officer insurance commences. The Preferred Stock will be equal to the dollar amount of each investment divided by the lesser of (i) the closing bid price of the Common Stock immediately preceding the execution of the respective installment or (ii) $1.50, provided that the Preferred Stock will not be convertible if the conversion would result in the holder beneficially owning more than 19.9% of the then outstanding shares, unless stockholder approval has been obtained for the issuance of the shares of Common Stock issuable upon conversion of the Preferred Stock in accordance with Nasdaq rules. There are customary provisions as well as an additional restriction on conversion such that the Preferred Stock will not be convertible if the conversion would result in the holder beneficially owning more than 9.9% of the then outstanding shares. Affiliates of Platinum agreed to exchange the number of shares of Common Stock owned by them for shares of Preferred Stock, such that the number of shares of Common Stock owned by each Investor following the exchange shall be less than 9.9% of the then outstanding shares of Common Stock.

Warrants: A 5-year Warrant for each share of Preferred Stock was issued with a $3.00 per share exercise price (840,336 Warrants issued upon execution). The Warrants will not be exercisable if the exercise would result in the holder beneficially owning more than 19.9% of the then outstanding shares, unless stockholder approval has been obtained for the issuance of the shares of Common Stock issuable upon exercise of the Warrants.

Regains Compliance with NASDAQ: On December 18, 2014, Echo was notified by NASDAQ that the Company had regained compliance with NASDAQ’s Marketplace Rule 5450(a)(2) because the bid price of the company’s common stock closed at or above the required minimum $1.00 per share for ten consecutive business days.

Download Full 4-Page Note with Important Disclosures: Morning Note 12-22-14 ECTE

Navidea (NAVB) Note 12-15-14

downloadreportMacrophage Therapeutics Attractive Across Broad Spectrum of Diseases
Manocept™ De-Risked More than Typical Biotechs at this Stage
FDA Gold Standard Lymphoseek® to Begin 2015 Sales Push in U.S.
Recent European Approval to Drive Country Sales Rollouts During 2015 

Listen to Complete Conference Call:

DOWNLOAD THE COMPLETE SLIDESHOW: MACROPHAGE THERAPEUTICS 12-15-14

Download Full 6-Page Note with Important Disclosures: Mid-Day Note 12-15-14 NAVB

Macrophage Therapeutics is Real: Macrophage Therapeutics (division of Navidea) showed data underpinning their Manocept™ CD206 mannose receptor science and mechanism of action in targeting activated macrophages for immunotherapy. Specifically, pre-clinical data for Manocept was shown for Kaposi Sarcoma, HIV and HCV by Dr. Michael McGrath (UCSF), Cardiovacular Vulnerable Plaque and Atherosclerosis by Dr. Steven Grinspoon (Harvard) and Rheumatoid Arthritis and Tuberculosis by Dr. Fredrick Cope (Macrophage Therapeutics/Navidea). Disease-modifying agents targeting the innate immune system (the body’s first line of defense) have been focused on the cell signaling chemokines and cytokines produced by activated macrophages. In contrast, Macrophage Therapeutics is focusing on the activated macrophages themselves. We believe investors should also note that a.) Manocept could be used in many more macrophage-involved diseases than just those presented and b.) Manocept is already used in the FDA-approved Lymphoseek® imaging agent for sentinel lymph node detection in cancer.

The high-level takeaways from the presentation was that Manocept:

· Can target, with high-affinity, CD206 on activated macrophages
· Can kill the activated macrophages
· Can distinguish between CD206+ (activated) and CD206- macrophages
· Can deliver an active drug payload to a desired target
· Can deliver double drug payloads to a desired target (imaging & therapeutic)
· Patent portfolio is being expanded with multiple proprietary linkers
· Existing manufacturing process is low cost and proven (FDA-approved)

Attractive Today: Although Macrophage Therapeutics’s gameplan is still in the planning stages, we believe the investment proposition is unusually favorable today. The Manocept scaffold is already de-risked for safety, efficacy and manufacturing as it is already FDA-approved in Lymphoseek. The unique mechanism of action and utility in a wide variety of diseases makes it especially attractive for NIH grants and partnerships, both which are sources of non-dilutive financing. Savvy investors will get ahead of the expected significant 2015 newsflow while Navidea remains below the radar as a “biotech” on Wall Street.

Parallels to Monoclonal Antibody Development: Investors should note that monoclonal antibodies were first developed and used successfully as imaging agents before they were developed into successful therapeutics, spawning dozens of drugs and billions in sales. While Manocept™ has a fixed target it can theoretically carry multiple payloads. Combined with the fact that macrophages are involved in such a broad range of diseases, Macrophage Therapeutics could quickly build a pipeline of drug candidates. Therefore, we believe Navidea will eventually become a biotech drug company rather than “just” a diagnostic imaging company.

Funding: Navidea stated that Macrophage Therapeutics will remain under Navidea’s control so existing shareholders benefit, “but also allow funding of future development in a standalone, non-dilutive manner to Navidea’s existing shareholders“. We believe this ultimately means one or more spin-offs to unlock and maximize value.

Lymphoseek® Sales Just Getting Started: Navidea’s Lymphoseek only recently (October 15th) became the “Gold Standard” on October 15th with the first and only FDA approval for Sentinel Lymph Node detection in Breast, Melanoma and Oral head & Neck cancers and also for use in all solid tumors. Lymphoseek was also just recently (November 20th) approved in Europe. With CEO Rick Gonzalez specializing in commercialization, we now believe that Navidea has the pieces in place to begin driving Lymphoseek into the marketplace successfully. The September 4th China partnership announcement also represents additional sales upside.

Cash Management: Navidea has reduced cash burn on their neuroimaging programs NAV4694 and NAV5001 resulting in a 20% reduction in sequential research and development expenses and they are actively seeking out partnerships to continue these programs. With expected Lymphoseek sales increases, the recent $1.1M FDA refund for the PDUFA filing fee as a result of Lymphoseek gaining orphan drug status along with $32M available under their $35M credit line, Navidea stated that they do not expect to raise money through a stock offering in the near future.

Reiterating Strong Speculative Buy: With Lymphoseek only recently achieving broad FDA and European approval, we expect commercialization will begin in earnest during 2015. We also believe Macrophage Therapeutics will begin to bring previously unlocked value to shareholders during 2015. Furthermore, with 29.5 million shares short, 19.9% of the float, a significant short squeeze is possible should these value drivers emerge in a timely fashion. We recommend savvy investors to give Navidea a fresh look. 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 internal estimates for program valuations (Manocept $15M, NAV4694 $10M, NAV5001 $8M, NAV1800 $2M).

Download Full 6-Page Note with Important Disclosures: Mid-Day Note 12-15-14 NAVB

StemCells Inc. (STEM) Downgrade 12-15-14

downloadreportDowngrading to Avoid/Sell – CIRM Cancels Loan
Missed Pre-Clinical Milestone for Alzheimer’s
Phase II Trial Started for Cervical Spinal Cord Injury
Phase II Trial Starting Soon for Dry AMD

Download Full 34-Page Research Report with Important Disclosures: STEM Downgrade 12-15-14

CIRM Terminates Alzheimer’s Loan: StemCells Inc. filed an 8-K Friday stating that the California Institute for Regenerative Medicine (CIRM) issued a Notice of Loan Award Termination to terminate the loan award for the StemCells Inc. Alzheimer’s program due a “No Go” Milestone. The specific “No Go” milestone was not disclosed but the contract indicates the various milestones for the year were related to pharmacology, toxicity, CMC and clinical/regulatory. It should be noted that the loan balance will be forgiven.

Downgrading to Avoid/Sell: Although StemCells Inc. could decide to move forward on the Alzheimer’s program without the loan, we have removed it from our model and increased the risk discount due to additional uncertainty. Our Avoid/Sell rating and 12 month target price of $0.85 is based on 35x estimated 2020 EPS discounted 55% (increased from 50%) for cumulative risks. We note the stock price will face significant headwinds as we do not foresee significant upward news catalysts until the controlled Phase II data is announced. In addition, believe the company will be required to raise additional funds before results from their controlled Phase II trials become available.

Initiated Controlled Phase II Trial for Cervical Spinal Cord Injury: StemCells Inc. initiated a controlled Phase II trial (“the Pathway Study”) of their HuCNS-SC in cervical spinal cord injury patients. The trial will enroll patients with cervical spinal cord injuries in the C5 to C7 region (representing 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 endpoints measured at one year post-transplantation. (see Human Trials of HuCNS-SC® for Chronic Spinal Cord Injury)

Initiating Controlled Phase II in Dry AMD in Q4/Q1: StemCells Inc. stated they expect to initiate a controlled Phase II efficacy proof-of-concept study by year-end 2014 (or possibly Q1) and complete enrollment in approximately one year. Trial design details have not yet been disclosed. Investors should note that 85% of all AMD patients currently have the Dry form and 100% of patients with the more serious Wet form progressed from the initial Dry form. The dry form can also cause vision loss without turning into the wet form. (see Human Clinical Trial of HuCNS-SC for Dry AMD)

Patent Infringement Suit Against Neuralstem Scheduled for December: StemCells Inc. ongoing patent infringement lawsuit against Neuralstem (NYSE MKT:CUR) has now completed the discovery phase and the first phase of the bench trial is expected to commence in December 2014. Investors should note that there are no claims of patent infringement against StemCells, Inc. by Neuralstem. (see Intellectual Property)

Licenses and Exits SC Proven Business: On November 10, 2014, StemCells Inc. granted certain licenses and sold certain assets to Takara Bio Inc. so that it could sell the “SC Proven” research tools on a worldwide and exclusive basis beginning January 1, 2015. StemCells Inc. will receive $800,000 and anticipates winding down the Stem Cell Sciences businesses after disposing of remaining inventory and complete tech transfer to Takara Bio.

Download Full 34-Page Research Report with Important Disclosures: STEM Downgrade 12-15-14

Navidea (NAVB) Note 12-10-14

downloadreport“Biotech” Navidea Begins to Emerge with Macrophage Therapeutics
FDA Gold Standard Lymphoseek® to Begin 2015 Sales Push in U.S.
Recent European Approval to Drive Country Sales Rollouts During 2015
Investors Should Give Navidea a Fresh Look for 2015

Download Full 9-Page Note with Important Disclosures: Morning Note 12-10-14 NAVB

“Biotech” Navidea Begins to Emerge: This morning, Navidea announced the formation of a new division called Macrophage Therapeutics to begin exploiting their Manocept™ CD206 mannose receptor targeting agent. While the technology is FDA-approved for their diagnostic imaging agent Lymphoseek®, Macrophage Therapeutics is focused on harnessing their intellectual property and technology for disease-modifying drugs. The ability to specifically target the CD206 mannose receptor expressed on activated macrophages while delivering a variety of payloads, makes the technology attractive in multiple diseases with critical macrophage immunology involvement such as cancer, viral infections, bacterial infections, cardiovascular and central nervous system diseases. Oversight of Macrophage Therapeutics will be overseen by board members Dr. Michael Goldberg and Dr. Eric Rowinsky as well as Navidea’s Chief Science Officer Dr. Fredrick Cope.

Parallels to Monoclonal Antibody Development: Investors should note that monoclonal antibodies were first developed and used successfully as imaging agents before they were developed into successful therapeutics, spawning dozens of drugs and billions in sales. While Manocept™ has a fixed target it can theoretically carry multiple payloads. Combined with the fact that macrophages are involved in such a broad range of diseases, Macrophage Therapeutics could quickly build a pipeline of drug candidates. Therefore, we believe Navidea will eventually become a biotech drug company rather than “just” a diagnostic imaging company.

Funding: Navidea stated that Macrophage Therapeutics will remain under Navidea’s control so existing shareholders benefit, “but also allow funding of future development in a standalone, non-dilutive manner to Navidea’s existing shareholders“. We believe this ultimately means one or more spin-offs to unlock and maximize value.

Lymphoseek® Sales Just Getting Started: Navidea’s Lymphoseek only recently (October 15th) became the “Gold Standard” on October 15th with the first and only FDA approval for Sentinel Lymph Node detection in Breast, Melanoma and Oral head & Neck cancers and also for use in all solid tumors. Lymphoseek was also just recently (November 20th) approved in Europe. With CEO Rick Gonzalez specializing in commercialization, we now believe that Navidea has the pieces in place to begin driving Lymphoseek into the marketplace successfully. The September 4th China partnership announcement also represents additional sales upside.

Cash Management: Navidea has reduced cash burn on their neuroimaging programs NAV4694 and NAV5001 resulting in a 20% reduction in sequential research and development expenses and they are actively seeking out partnerships to continue these programs. With expected Lymphoseek sales increases, the recent $1.1M FDA refund for the PDUFA filing fee as a result of Lymphoseek gaining orphan drug status along with $32M available under their $35M credit line, Navidea stated that they do not expect to raise money through a stock offering in the near future.

Reiterating Strong Speculative Buy: With Lymphoseek only recently achieving broad FDA and European approval, we expect commercialization will begin in earnest during 2015. We also believe Macrophage Therapeutics will begin to bring previously unlocked value to shareholders during 2015. Furthermore, with 29.5 million shares short, 19.8% of the float, a significant short squeeze is possible should these value drivers emerge in a timely fashion. We recommend savvy investors to give Navidea a fresh look. 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 internal estimates for program valuations (Manocept $15M, NAV4694 $10M, NAV5001 $8M, NAV1800 $2M).

Download Full 9-Page Note with Important Disclosures: Morning Note 12-10-14 NAVB

Navidea (NAVB) Note 11-20-14

downloadreportLymphoseek® Granted Full European Approval by EMA
Lymphoseek® Becoming Gold Standard of Care in United States
Broad Approval Means Significant Price Increase Plus Larger Market
New Manocept™ Platform Could Emerge as Game-Changer for Navidea

Download Full 9-Page Note with Important Disclosures: Morning Note 11-20-14 NAVB

Lymphoseek® Now Approved in Europe: Lymphoseek is now the first agent centrally approved in Europe for Sentinel Lymph Node (SLN) detection as the European Medicines Agency (EMA) granted Lymphoseek marketing authorization for use in imaging and intraoperative detection of sentinel lymph nodes draining a primary tumor in adult patients with breast cancer, melanoma, or localized squamous cell carcinoma of the oral cavity. Navidea plans launches during 2015 in the U.K., France, Germany, Spain and Italy with their distribution partner Norgine BV (http://www.norgine.com). Norgine was founded in 1906 and has subsidiaries in UK, Ireland, France, Germany, Belgium, The Netherlands, Nordic, Switzerland, Austria, Italy, Portugal and Spain. Outside Europe, there are Norgine companies in Australia and New Zealand, Middle East and North Africa and South Africa. Norgine also works through a number of distributors around the world. Norgine has a strong history in hospital practice and economics in Europe. Investors should note that pricing for Europe is expected to be lower than the U.S. as the local European healthcare facilities combine the radioisotope with a “cold” kit onsite instead of the U.S. practice where the combined “hot” radiopharmaceutical is shipped to the healthcare facility from a centralized nuclear medicine distributor.

Buy on Weakness: Lymphoseek only recently became the “gold standard” product on October 15th becoming the only FDA-approved radiopharmaceutical agent for sentinel lymph node detection and the only FDA-approved agent for lymphatic mapping of all solid tumors. As a result of this “gold standard” status, a 19% price increase will be going into effect on December 1st. Also on October 15th, Navidea named a new CEO, Rick Gonzalez, with the experience needed for sales, marketing, logistics and operations on a global scale. With full European approval expected within the next 6 weeks, we believe Navidea finally has the best product and the best opportunity to unlock the value of Lymphoseek. Investors should also note the recent September 4th China partnership announcement representing additional sales upside.

Game-Changer Coming: Navidea’s proprietary Manocept CD206 macrophage targeting platform can be leveraged as both a therapeutic and a diagnostic agent in multiple indications such as oncology, autoimmunity, infectious diseases, cardiology, and inflammation. While various Manocept constructs are currently undergoing strategic review, promising initial results have already been seen in Kaposi Sarcoma and rheumatoid arthritis (Navidea recently formed R-NAV joint venture to develop the rheumatoid arthritis indication). We expect to see multiple areas of Manocept opportunities in the near-future and investors should not be surprised if Navidea becomes a biotechnology company with multiple therapeutics instead of a diagnostic company. While currently unvalued by Wall Street, the Manocept platform could be a hidden game-changer for Navidea.

Cash Management: Navidea has reduced cash burn on their neuroimaging programs NAV4694 and NAV5001 resulting in a 20% reduction in sequential research and development expenses and they are actively seeking out partnerships to continue these programs. With expected Lymphoseek sales increases, the recent $1.1M FDA refund for the PDUFA filing fee as a result of Lymphoseek gaining orphan drug status along with $32M available under their $35M credit line, Navidea stated that they do not expect to raise money through a stock offering in the near future.

Reiterating Strong Speculative Buy: With the recent broad FDA approvals for Lymphoseek, higher pricing, a new CEO with commercial experience and a potential game-changer in their Manocept platform, we believe savvy investors will give Navidea a fresh look in light of the weakness in the share price. 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 internal estimates for program valuations (Manocept $15M, NAV4694 $10M, NAV5001 $8M, NAV1800 $2M).

Download Full 9-Page Note with Important Disclosures: Morning Note 11-20-14 NAVB

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