Research

Navidea (NAVB) Note 05-25-16

downloadreportDowngrading to Avoid/Sell as Secured Creditor CRG Prevails in Court
Navidea in Technical Default with more Litigation Possible
Too Much Uncertainty Pending Navidea’s Debt Refinancing Efforts

Download Full 7-Page Note with Important Disclosures: Morning Note 05-25-16 NAVB

Downgrading to Avoid/Sell from Neutral as CRG Prevails in Court: According to Navidea’s 8-K filed last night, senior secured creditor Capital Royalty Partners (CRG) succeeded in having Navidea’s temporary restraining order lifted paving the way for CRG to exercise control of Navidea’s accounts pursuant to the blocked account control and pledge collateral account control agreements with CRG under the Events of Default terms. In response, Navidea stated they have set up alternative banking arrangements so that it may continue to function during the pendency of the case. However, Navidea expects CRG to attempt to gain and exercise control over these alternative banking arrangements which would result in additional litigation. Finally, while Navidea is actively pursuing refinancing the debt with another creditor, CRG could possibly impede the process. The 8-K filing may be accessed at:
https://www.sec.gov/Archives/edgar/data/810509/000114420416104550/v440859_8k.htm

Too Much Uncertainty for Now: On May 17, 2016, Navidea reiterated 2016 guidance of sales revenue between $23M and $25M including Lymphoseek sales, license revenue, grants and other revenue and operating expenses between $21.5M and $23.5M with the goal of operating cash flow breakeven in H2’16 while Norgine remains on track to launch Lymphoseek cold kits in certain European countries in Q4 2016 and generating revenue in 2017. Given that, our fundamental financial model yielded $1.25 consisting of an operational value of $1.00 per share based on a 35x multiple on projected fiscal year 2019 EPS and discounted 20% for cumulative risk plus $0.25 per share based on our internal $40M valuation for Macrophage Therapeutics (the rheumatoid arthritis program was not yet included pending data from the pilot trial). However, while we believe Navidea will eventually solve all of the issues, there is currently too much uncertainty regarding potential delays, additional litigation, cash requirements, impact on development activities, intellectual property licensing and management distractions to assign a valuation with any degree of confidence at the present time. We do not have a time horizon for potential resolution but investors should note that Navidea indicated a debt refinancing could be completed within 4 months per their May 23, 2017 press release:
http://ir.navidea.com/phoenix.zhtml?c=68527&p=irol-newsArticle&ID=2171330

Other Development Updates from May 17, 2016 Conference Call:
Rheumatoid Arthritis Plan Reiterated: Navidea reiterated that the rheumatoid arthritis (RA) diagnostic pilot trial is awaiting IRB (institutional review board) approval by UCSF for 18 patients using subcutaneous delivery with SPECT and SPECT/CT imaging. Once IRB approved, the trial will be relatively quick to complete depending on SPECT access time (see  https://clinicaltrials.gov/ct2/show/NCT02683421). If the RA Phase I imaging shows a good signal, the Phase II trial will enroll ≤50 patients with subcutaneous and intravenous delivery treatment arms (we believe both localized and systemic delivery will be useful depending on the application). If successful, a Phase III trial could begin as early as Q1 2017. Although cautiously optimistic, we are waiting for the results of the pilot trial for rheumatoid arthritis before we add the program to our financial model. Investors should note the recent acquisition of Padlock Therapeutics (private) by Bristol-Myers (NYSE:BMY Not Rated) validates the attractiveness of the early-RA space.

Cardiovascular Trial Complete: The investigator sponsored trial (IST) for coronary atherosclerosis imaging at Massachusetts General Hospital has completed and the data is being analyzed for submission to a peer-reviewed publication. (see https://clinicaltrials.gov/ct2/show/NCT02542371)

Lymphoseek Label Expansion Studies for Cancer Ongoing: The Lymphoseek study for pediatric use is currently enrolling patients in four or five sites. The cervical cancer study is active in three sites and has enrolled five patients so far. The IST for endometrial cancer is open and enrolling patients and enrollment for the anal rectal cancer trial is expected to begin in H2 2016. These studies are using NIH grants

Macrophage Therapeutics: MT-2002 was tested in a murine (mouse) model for collagen-induced arthritis. The preliminary 8-week data showed “clear, anti-inflammatory activity with no apparent significant side effects.” This followed a preclinical asthma model showing anti-inflammatory effect against three unnamed biomarkers. No specific results were discussed for either study. In addition, preclinical results for neuroinflammation and NASH (nonalcoholic steatohepatitis) are expected “in the coming weeks“. They are also working on the MT-1000 class of compounds designed to deplete tumor associated macrophages or TAMs in a number of different cancer models.

Download Full 7-Page Note with Important Disclosures: Morning Note 05-25-16 NAVB

Navidea (NAVB) Note 05-06-16

downloadreportRheumatoid Arthritis Pilot Study Starting Soon & MT Pre-Clinical Results
Creditor CRG Claims New Directors Constitute Change of Control
Remaining Neutral – Q1 Results and Conference Call Next Week

Download Full 6-Page Note with Important Disclosures: Mid-Day Note 05-06-16 NAVB

Navidea Chairman Dr. Michael Goldberg held another conference call (the previous conference call was April 18th) after the market close to discuss the status of Navidea’s subsidiary Macrophage Therapeutics (MT).

He stated the rheumatoid arthritis (RA) diagnostic pilot trial is awaiting IRB (institutional review board) approval by UCSF for 18 patients using subcutaneous delivery with SPECT and SPECT/CT imaging. Once IRB approved, the trial will be relatively quick to complete depending on SPECT access time (we are assuming the UCSF China Basin SPECT/CT unit will be used). (see https://clinicaltrials.gov/ct2/show/NCT02683421) If the RA Phase I imaging shows a good signal, the Phase II trial will enroll ≤50 patients. He did clarify his comments from the previous call and that both subcutaneous and intravenous delivery will be compared (we believe both localized and systemic delivery will be useful depending on the application). If successful, a Phase III trial could begin as early as Q1 2017.

The investigator sponsored trial (IST) for coronary atherosclerosis imaging at Massachusetts General Hospital has dosed the first patients with data being analyzed for future publication. (see https://clinicaltrials.gov/ct2/show/NCT02542371)

MT-2002 was tested in a murine (mouse) model for collagen-induced arthritis. The preliminary 8-week data showed clear, anti-inflammatory activity with no apparent significant side effects.” This followed a preclinical asthma model showing anti-inflammatory effect against three unnamed biomarkers. No specific results were discussed for either study. In addition, preclinical results for neuroinflammation and NASH (nonalcoholic steatohepatitis) are expected “any day now“. Finally, there are four preclinical cancer studies underway.

Maintaining Neutral: We remain confident in our current $40 million ($0.25 per share) valuation of Macrophage Therapeutics technology platform with Rheumatoid Arthritis (RA) providing potential upside to our model pending data. We await next week’s Q1 financial results as well as confirmation of the operating cash flow breakeven. Weighing on the share price is litigation risk as Capital Royalty Partners (CRG) declared Events of Default on the $50M (principal) debt and delivered notices to exercise control of Navidea’s accounts. On May 2, 2016, Navidea successfully sought a temporary restraining order in which the court enjoined CRG from causing any further “freeze” of Navidea’s accounts and required CRG to restore the accounts to the position they were in prior to CRG’s acts. A court hearing is scheduled for May 16, 2016. We remain Neutral at $1.25 consisting of an operational value of $1.00 per share based on a 35x multiple on projected fiscal year 2019 EPS and discounted 20% for cumulative risk plus $0.25 per share based on our internal valuation for Macrophage Therapeutics.

Download Full 6-Page Note with Important Disclosures: Mid-Day Note 05-06-16 NAVB

Navidea (NAVB) Note 04-19-16

downloadreportNavidea’s Macrophage Therapeutics Solves Chemistry & Manufacturing Delays
Awaiting Rheumatoid Arthritis Pilot Study Results & MT Pre-Clinical Results
Remaining Neutral for Now – Wait for Q1 Sales, RA Results & Q1 Financials

Download Full 6-Page Note with Important Disclosures: Mid-Day Note 04-19-16 NAVB

Navidea Chairman Dr. Michael Goldberg held a conference call after the market close to discuss the status of Navidea’s subsidiary Macrophage Therapeutics (MT), which has suffered from a severe lack of news since September 2015. Although Navidea’s Lymphoseek® has been in successful commercial production for years, the chemistry for Macrophage Therapeutics’ candidates involves multiple CD206 binding moieties and multiple linkers and Dr. Goldberg described a number of missteps in the chemistry and manufacturing that resulted in substantial delays. He further stated that these issues have been resolved and that some pre-clinical animal studies have been completed for their anti-inflammatory candidate and that they intend to begin additional pre-clinical animal testing for the anti-inflammatory candidate as well as their apoptosis (programmed cell death) candidate. No animal data was revealed during the call and it was unclear on the timing of any data release until their intellectual property strategy has been completed, however it was implied that pre-clinical data may be available by the BIO Conference (June 6th-9th). It was also stated that whenever their first pharma partnership is announced, Macrophage Therapeutics would begin the steps for a spin-off from Navidea as originally contemplated. No timeframe was given for either event.

Another item of interest was a discussion of the rheumatoid arthritis (RA) diagnostic and whether subcutaneous delivery (already on the label) would be used for the registration trials or if intravenous delivery will be used (as previously indicated by management). We believe both may be useful (localized and systemic) but it was unclear if they have definitively changed direction in favor of subcutaneous delivery. Finally, Dr. Goldberg made the statement that they are at “operating cash flow breakeven now“. Since this would be far ahead of management’s guidance made just 4 weeks ago of H2’16 we await confirmation that their calculations are, in fact, equivalent. Dr. Goldberg announced another Macrophage Therapeutics status call on Thursday May 5th.

Remaining Neutral for Now: Based on information thus far, we remain confident in our current $40 million ($0.25 per share) valuation of Macrophage Therapeutics technology and we look forward to reviewing the pre-clinical data that is being generated. At the present time however, we prefer to wait for Q1 sales results as well as confirmation of the operating cash flow breakeven calculations and timeframe. Perhaps more importantly, we are also waiting for the results of the pilot trial for Rheumatoid Arthritis (RA) before we add the program to our financial model, which represents potential upside to our current model. Investors should note the recent acquisition of Padlock Therapeutics (private) by Bristol-Myers (NYSE:BMY Not Rated) validates the attractiveness of the early-RA space. For now, we remain Neutral at $1.25 consisting of an operational value of $1.00 per share based on a 35x multiple on projected fiscal year 2019 EPS and discounted 20% for cumulative risk plus $0.25 per share based on our internal valuation for Macrophage Therapeutics.

Download Full 6-Page Note with Important Disclosures: Mid-Day Note 04-19-16 NAVB

Navidea (NAVB) Update Report 04-01-16

downloadreport

s Navidea 2016 Guidance & Platinum Standstill Encouraging
s Rheumatoid Arthritis (RA) Could Become a Value Driver

Download Full 35-Page Update Report with Important Disclosures: NAVB Update 04-01-16

Navidea Reveals Guidance and Strategy for 2016: Navidea has made progress reducing the unknowns that have been dragging on investor confidence for several months now. Their 2016 sales and expense guidance is expected to yield operating cash flow breakeven by H2’16 (likely Q4’16), while a significant delay from previous guidance it does not depend on the sale of NAV4694 to be achieved. The delay in the NAV4694 sale was finally revealed to be a result of the Sinotau litigation blocking China rights to the potential buyer until settled by the court, the timing of which is impossible to predict. Management also acknowledged the lack of progress with Macrophage Therapeutics during the past 8 months, which is especially disappointing as immunotherapy remains an attractive sector for investors. On the plus side, Navidea and Platinum, their largest shareholder, have settled their differences for now with a standstill agreement through September 2017, two new Board members and reaffirmation of their existing credit line (of which Navidea expects to draw up to $5M soon). Perhaps most noteworthy is Navidea’s Rheumatoid Arthritis (RA) program with a pilot trial in humans commencing soon. We believe the RA program could become a major value driver for Navidea.

Still Neutral for Now: While we believe Navidea can meet their 2016 sales guidance, we prefer to wait for Q1 sales results to verify a good start to 2016. Although cautiously optimistic, we are also waiting for the results of the pilot trial for Rheumatoid Arthritis before we add the program to our financial model. Investors should note the recent acquisition of Padlock Therapeutics (private) by Bristol-Myers (NYSE:BMY Not Rated) validates the attractiveness of the early-RA space. For now, we remain Neutral at $1.25 consisting of an operational value of $1.00 per share based on a 35x multiple on projected fiscal year 2019 EPS and discounted 20% for cumulative risk plus $0.25 per share based on our internal valuation for Macrophage Therapeutics.

Revenue Guidance for 2016: Navidea guided 2016 sales revenue between $23M and $25M including Lymphoseek sales, license revenue, grants and other revenue. For 2016, Navidea increased their sales team from 12 to 16 sales professionals and continues with post-marketing trials for new indications such as colorectal, cervical, anal and endometrial cancers. Based on Navidea’s Q4’15 run rate and sales initiatives, we believe Navidea’s 2016 revenue guidance should be achievable. While there is some pricing risk as the pass-through code converted to a procedure code on December 31st, we believe this can be offset by sales management programs as well as the introduction of the “cold kit” (Vial Consignment Program) to influential research institutions that do their own radiolabeling. Investors should note the CRG required minimum revenue $22.5M for 2016 and $30M for 2017.

Operating Expense Guidance for 2016: Navidea guided 2016 operating expenses between $21.5M and $23.5M (approximately 25% lower than 2015) with the goal of operating cash flow breakeven in H2’16. Investors should note that achieving breakeven is not dependent on the sale of NAV4694 and also excludes some debt interest expense as well as expenses from Macrophage Therapeutics (which are expected to be offset by grants and collaborations during 2016).

Cash: Navidea reported $7.2M in cash for YE’15. Management is likely to draw on the Platinum line of credit in order to maintain compliance with the $5M liquidity covenant of the CRG Loan Agreement beginning in the second quarter of 2016. As of December 31, 2015, $27.3M was available under the Platinum credit facility (reaffirmed by Platinum in March 2016).

Rheumatoid Arthritis (RA) Program to Kick Off Soon: Navidea met with the FDA on March 29th to finalize planning for the upcoming human clinical trials for their Rheumatoid Arthritis (RA) program. Their intention is to conduct a Phase I Pilot trial using subcutaneous (sub-Q) delivery (already in the label) to be followed with a Phase I/II trial using intravenous (IV) delivery (the preclinical IV package has already been submitted). We note that Navidea has NIH grant funding of $225K for activity up to the pilot study and $1.5M for the Phase I/II study. Management stated that Phase III trials could begin sometime in 2017. Investors should note that the rationale for the RA program is that the ability to diagnose Rheumatoid Arthritis early remains an unmet medical need and that several studies have shown that early treatment yields better outcomes (and presumably lower healthcare costs).

Although we have not yet included the RA program (pending results from the Pilot trial) in our financial model investors should note that on March 23, 2016, Bristol-Myers (NYSE:BMY Not Rated) acquired Padlock Therapeutics (private) for $225M upfront with potential milestone payments of up to $375M ($600M total) with a focus on identifiable high risk patients with pre- and early-RA with a protein-arginine deiminase (PAD) enzyme inhibitor currently in preclinical development. We believe this acquisition validates the attractiveness of the pre- and early-RA drug development space.

NAV4694 Divestiture: Although there is an interested buyer in continued advanced discussions with Navidea, the 10-K revealed the litigation by Sinotau for the China market has been the cause for the extensive delay. Navidea has filed a motion to dismiss however the timing of a court decision is difficult to predict. As a result, we do not currently include any potential NAV4694 asset sale revenue in our model. Management stated the carrying cost of NAV4694 is approximately $125,000 per month. (see Partnerships and Litigation)

Macrophage Therapeutics: While no specific reason was given for the lack of visible progress in their subsidiary Macrophage Therapeutics, management finally acknowledged the delay. For now, daily operational responsibility has transferred to Rick Gonzalez, CEO of Navidea who is “currently assessing and conducting an overall review of what we have”. His stated goal is to accelerate animal studies and other preclinical activities to enable IND filing(s) using grants and collaboration funding during 2016.

Navidea and Largest Shareholder Move Forward: On March 14, 2106, Navidea announced that 1.) Platinum-Montaur Life Sciences, LLC reaffirmed the existing loan agreement from July 25, 2012 ($27.3M credit line available at YE’15) 2.) Mark Greene, M.D., Ph.D., FRCP and Tony Fiorino, M.D. Ph.D. will be elected to fill vacancies on the Board in the classes of directors whose terms will expire at the annual meetings of stockholders to be held in 2017 and 2018, respectively. 3.) Mr. Brendan Ford resigned from the Board D.) Dr. Michael Goldberg, a member of the Board, will also resign as the Chief Executive Officer of Macrophage Therapeutics 4.) Until September 14, 2017, Platinum cannot execute proxies other than those solicited by or on behalf of Navidea, soliciting proxies, purchasing additional shares that would result in a beneficial ownership, in excess of 9.99%, engaging in certain sale transactions, forming groups with any third parties, seeking to call a special meeting of stockholders, taking any action in support of or making any proposal or request that constitutes impeding or facilitating the acquisition of control of the Company, removing a Board member, or taking certain other actions.

Download Full 35-Page Update Report with Important Disclosures: NAVB Update 04-01-16

Navidea (NAVB) Downgrade Report 01-26-16

downloadreport

s Downgrading to Neutral as Delays & Unknowns Mount
s Waiting for More Guidance on March Conference Call

Download Full 33-Page Downgrade Report with Important Disclosures: NAVB Downgrade 01-26-16

Downgrading to Neutral as Unknowns Accumulate: Navidea management stated during their January 12th presentation that they met the low-end of sales guidance but also guided a delay in the sale of NAV4694 possibly into Q2. As a result, management did not mention achieving cash-flow breakeven in Q1 during their January 12th presentation as sales revenue and the sale of NAV4694, both key components, have apparently missed their timelines. Management further stated their intention to add additional salesreps and launch their Rheumatoid Arthritis (RA) program during 2016, both of which are expected to add to the near-term cash burn over and above the NIH grant for RA. Finally, management continues to remain silent on any progress in the Macrophage Therapeutics division (although the new RA program could be viewed as a precursor). We are therefore downgrading to Neutral until we get more detailed guidance from Navidea management during their early March earnings conference call and the terms of the sale of NAV4694. The cumulative effect of these significant issues on sales, cash resources and potential shareholder dilution yields Navidea at $1.00 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 valuation for Macrophage Therapeutics.

Lymphoseek Sales: Navidea reported unaudited Lymphoseek® sales for 2015 of $10.2M, which was on the low end of management’s $10M-$12M sales guidance. Although meeting guidance, sales were below the original CRG loan covenant for sales of $11M and below the whisper number of $11.5M. Management estimated 2015 gross margin at ~85% or $8.6M. Management further stated they will be expanding their sales force from the current 12 reps and is expected to announce guidance for 2016 in early March. We note the current CRG loan covenant for 2016 sales is $22.5M, which is unchanged from the original CRG agreement.

NAV4694 Sale: While we anticipated the possibility that the negotiations for the sale of NAV4694 could slip into early-Q1, management now states that their new timeline for closing the sale is H1 2016. It was reiterated that the ongoing negotiations are still with the same buyer.

Rheumatoid Arthritis (RA) Program: Navidea announced the launch of their Rheumatoid Arthritis (RA) program during 2016. In Q1, the non-clinical package supporting IV and subcutaneous administration will be filed with the FDA and a Phase I pilot study is also expected to commence in Q1 to then be followed with a Phase I/II trial in H2 2016. We note that Navidea has NIH grant funding of $225K for activity up to the pilot study and $1.5M for the Phase I/II study. Management stated that Phase III trials could begin sometime in 2017. Investors should note that the rationale for the RA program is that the ability to diagnose Rheumatoid Arthritis early remains an unmet medical need and that several studies have shown that early treatment yields better outcomes (and presumably lower healthcare costs).

Macrophage Therapeutics: Despite growing Wall Street interest in therapies beyond the checkpoint inhibitor drug class in immuno-oncology, there still has been no further mention of any progress in Navidea’s Macrophage Therapeutics division. We note that after presenting very promising therapeutic data (see Kaposi’s Sarcoma Kill Data) the Macrophage Therapeutics subsidiary CEO stated on a July 7th conference call “Finally, we will host an Investor Day in late summer or early fall where we will update interested parties on the results of the significant body of data we anticipate generating over the upcoming weeks.“, which did not occur. Instead, on September 25th, Macrophage Therapeutics announced they developed the process for producing MT-1001 and MT-2001 with no further announcements to date.

Download Full 33-Page Downgrade Report with Important Disclosures: NAVB Downgrade 01-26-16

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