Navidea Frustrates Short-Term Investors
Multiple Catalysts Expected in December and 2014
Undervalued Assets with Strong Balance Sheet
Longer-Term Investors Should be Rewarded
Download Full 37-Page Update Report with Important Disclosures: NAVB Update 12-02-13
Navidea Frustrates Short-Term Investors: After two PDUFA delays last year (paperwork delay then 3rd party manufacturer QC issues) Navidea finally got Lymphoseek FDA approved and launched in the U.S. with partner Cardinal Health (NYSE:CAH). However, with the pass-through reimbursement C-code not taking effect until October 1st, sales revenues have been minimal to date, and are not expected to become material until 2014. Investors have also been waiting on an executed EU distribution partnership agreement, a CHMP EU recommendation and the sNDA FDA submission for Head & Neck cancer including sentinel lymph node claims. Against this backdrop, Navidea raised $30M in September and ramped up clinical trial spending on NAV4694 for Alzheimer’s disease imaging as the Phase III got underway along with two concurrent NAV5001 Phase III trials for Parkinson’s imaging commencing very soon. As a result, short-term investors have been frustrated by the perceived lack of progress in unlocking shareholder value thus far. However, we believe that longer-term investors will begin to be rewarded during 2014.
December Catalyst #1: On Thursday December 5th at 8:30am, Navidea will host a live webcast of their Analyst Science Day in NYC which we believe will give investors clarity on Navidea’s strengths throughout their product pipeline. Scientific and medical experts are also expected to participate.
December Catalyst #2: We are anticipating a Committee for Medicinal Products for Human Use (CHMP) recommendation for Lymphoseek during their meeting on December 16th-19th. On December 18, 2012, Navidea announced they filed the European Marketing Authorization Application (MAA) for LymphoSeek® (technetium Tc 99m tilmanocept) injection for intraoperative lymphatic mapping (ILM) not restricted to any particular solid tumor type. The MAA submission package was similar to Navidea’s NDA submission to the FDA however it includes analysis versus the European standard of care, Nanocoll® (99mTc-labeled nanocolloid human serum albumin) which is used with vital blue dye. Investors should note that a published meta-analysis favorably comparing LymphoSeek to Nanocoll showed that Lymphoseek was statistically significant in superiority for localization rate (99.99% versus 95.91%) and for degree of localization (2.16 versus 1.6683). The papertitled “The efficacy of Tilmanocept in sentinel lymph mode mapping and identification in breast cancer patients: a comparative review and meta-analysis of the 99mTc-labeled nanocolloid human serum albumin standard of care” compared primary endpoints of SLN localization rate and degree of localization. LymphoSeek in 148 patients, and pooled analysis revealed a 99.99% localization rate and degree of localization of 2.16, both of which were statistically significant in superiority to Nanocoll’s localization rate of 95.91% (6,134 patients) and degree of localization of 1.6683 (1,380 patients). The abstract can be seen at http://www.springerlink.com/content/080m6r071360ggj2
December Catalyst #3: Navidea will file a sNDA for Lymphoseek in head & neck cancer and we believe the strong results seen in NEO03-06 make a solid case for a sentinel lymph node claim. For example, on April 11, 2013, Navidea announced that the interim data from their Phase III clinical trial of Lymphoseek in head and neck squamous cell carcinoma that were so strong that the Data Safety Monitoring Committee (DSMC) recommended the trial be ended early to speed an FDA sNDA submission. The primary endpoint for the NEO3-06 trial was based on the number of subjects with cancer-positive lymph nodes following a multiple level lymph node dissection and required a minimum of 38 patients whose lymph nodes contained pathology-confirmed disease. The interim results were for 39 patients with cancer-positive lymph nodes and Lymphoseek accurately identified 38 for an overall False Negative Rate (FNR) of 2.56%. This is a particularly strong result considering the goal of the trial was a FNR less than 10%. The results were also statistically significant (p=0.0205). It should also be noted that using Lymphoseek led to the removal of only 4 lymph nodes per patient on average versus an average of 38 lymph nodes per patient in the trial. LymphoSeek has the potential to provide a substantial reduction in lymph-related adverse side-effects for patients with head and neck cancer undergoing sentinel lymph node biopsy.
December Catalyst #4: During the November 6, 2013 conference call for Q3, Navidea indicated that they have chosen Norgine BV (http://www.norgine.com) as their distribution partner in Europe for Lymphoseek but that the details were not yet finalized. We expect Navidea to announce the final agreement and to also provide more details of the partnership going forward. 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.
2014 Catalyst #1: We believe Lymphoseek sales in the United States will slowly become material during 2014 as the combination of C-code, Cardinal expanding their sales efforts from nuclear medicine professionals to include surgeons along with increasing general product awareness, begins to gain traction. Investors should note that the market demand for Lymphoseek is accelerating as management stated unit sales increased 7x from Q2 to Q3 and almost 90% of customers that ordered in May to August placed a repeat order. Of particular note is that in September, 75% of customers ordered multiple doses indicating that Lymphoseek is becoming the standard of care in those facilities.
2014 Catalyst #2: Lymphoseek European approval by the EMA is expected sometime in Q1. We expect the subsequent launch with partner Norgine BV will be modest during 2014 and will become material in 2015.
2014 Catalyst #3: We expect the Lymphoseek sNDA for head and neck cancer to be approved following a standard 10-month review cycle in Q4. We continue to believe that an approval that includes a sentinel lymph node claim would be a game changer for Navidea and position Lymphoseek as the standard of care.
Undervalued Assets with Long-Term Catalysts: Navidea has (or will soon have) late-stage clinical trials in both Alzheimer’s disease imaging (NAV4694) and Parkinson’s disease imaging (NAV5001). Of the two programs, we believe NAV5001 represents the smaller financial impact but has less reimbursement risk as there are treatments available for patients. The NAV4694 Alzheimer’s program is expected to have a much larger financial impact however reimbursement remains a risk. CMS has placed Eli Lilly’s Amyvid and GE’s Vizamyl first generation products under Coverage with Evidence Development (CED). However, we expect that CMS will ultimately grant reimbursement for this imaging class before Navidea’s NAV4694 reaches the market, which also negates the head start by competitors.
In addition, Navidea is expected to begin unlocking the value of their Manocept™ platform which was just featured in Nature Outlook-Medical Imaging (see http://www.nature.com/nature/outlook/medical-imaging/pdf/navidea-white-paper.pdf) The Manocept™ platform utilizes the CD206 mannose receptor targeting used in Lymphoseek. Navidea recently announced that investigators at the University of California, San Francisco (USCF) will begin a trial in early 2014 to evaluate HIV patients with various stages of Kaposi Sarcoma (KS).
Finally, Navidea’s RIGS humanized monoclonal antibody targeting program is expected to begin human safety and activity trials in Q1 at the University of Alabama at Birmingham in 20 patients with colorectal cancer by administering the RIGS tumor-specific radiolabeled, CH2 domain-deleted, anti-TAG-72 Mab-targeting agent and assessing by SPECT/CT imaging for the presence of liver metastasis.
SUMMARY: In our opinion, the recent severe weakness in Navidea’s share price is not related to their science, strategic direction or balance sheet, but rather, it is a cumulative revaluation based on time. Navidea’s progress is approximately 9 to 12 months behind the investor expectations set during 2012. The unfortunate PDUFA delays along with the U.S. launch and C-code timing not only pushed out Lymphoseek’s commercial returns, it resulted in financial pressure, which in turn, delayed development for all the other pipeline candidates in Navidea’s portfolio. We believe the worst effects of these delays are now behind the company with the catalysts for December and 2014 combined with Navidea’s strong balance sheet expected to begin rebuilding investor confidence going forward. We are reiterating our Strong Speculative Buy rating but reducing our 12-18 month price target to $3.75 (from $5.75) based on the cumulative effect of the delays. Our target is based on a 35x multiple on projected fiscal year 2017 EPS and discounted 25% for cumulative risk.
Download Full 37-Page Update Report with Important Disclosures: NAVB Update 12-02-13