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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

Navidea (NAVB) Note 09-26-14

downloadreportLymphoseek® Gets CHMP Recommendation for Full European Approval
Expecting EMA European Approval for Lymphoseek® by Year-End
U.S. FDA PDUFA Date October 16th for Enhanced Lymphoseek® Usage
Lymphoseek® Orphan Drug Designation – 7 Year Exclusivity for H&N Cancer

Download Full 8-Page Note with Important Disclosures: Morning Note 09-26-14 NAVB

Navidea announced that Lymphoseek received a positive opinion from Europe’s CHMP (Committee for Medicinal Products for Human Use) and has recommended that the EMA (European Medicines Agency) grant marketing authorization for Lymphoseek® 250 micrograms kit for radiopharmaceutical preparation (tilmanocept) in the European Union (EU). Specifically, the recommendation is for Lymphoseek use in imaging and intraoperative detection of sentinel lymph nodes draining a primary tumor in adult patients with breast cancer, melanoma, or head and neck oral cavity squamous cell carcinoma. We expect full EMA approval for use in the 28 EU countries by year-end. 

A PDF of the CHMP summary opinion can be accessed at:
http://www.ema.europa.eu/ema/pages/includes/document/open_document.jsp?webContentId=WC500173606

We also remind investors of the FDA PDUFA date of October 16th for Navidea’s second sNDA (Supplemental New Drug Application) for Lymphoseek for expanding label claims to include lymphoscintigraphy (sentinel lymph node mapping) and flexible procedure timing allowing for up to 2-days post-injection of Lymphoseek.

Reiterating Strong Speculative Buy: We note that Navidea has an FDA PDUFA date of October 16, 2014 for their sNDA to expand the label claims to include lymphoscintigraphy (sentinel lymph node mapping) and flexible procedure timing allowing for up to 2-days post-injection of Lymphoseek. We also expect a positive European CHMP recommendation and an EMA approval 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 8-Page Note with Important Disclosures: Morning Note 09-26-14 NAVB

Echo (ECTE) Note 09-24-14

downloadreportPlatinum Funds Prevent Board Shut Down of Echo – Maintains Control of Cash
Platinum Attempting Removal of Legacy Board Members “for Cause
Platinum Calls Echo Board “Worst in Class Corporate Governance

Download Full 8-Page Note with Important Disclosures: Morning Note 09-24-14 ECTE

After the close, Echo’s legacy Board members, who have been battling Platinum Management on behalf of “all shareholders“, decided without actually asking all shareholders, that they would rather halt all product development, research, manufacturing and clinical programs and operations rather than accept Platinum’s funding offer (and presumably MTIA’s remaining $2.6M as well). We find it ironic that the reason stated for the shutdown was “to conserve its liquidity and capital resources“, which apparently is a new corporate objective for Echo considering their recent proxy battle expenses, legal fees and over 50 board meetings. However, as we have been noting with our Avoid/Sell rating, Echo Therapeutics has not really been an operating company since May as the lack of specific development progress in recent press releases and 10-Q along with a lack of a Q2 investor conference call indicates to us that little progress has been made on the GEN2 system needed for CE Mark and FDA approval. In our opinion, Echo has been an entity mostly focused on control rather than execution.

In response, Platinum announced this morning that they are committed to fund Echo Therapeutics with $3 million over the next 30 weeks (equivalent to $100,000 per week) to be used for the benefit of Echo and its shareholders. As stated in their press release: One of the key terms of this deal is that only Dr. and Mr. Goldberg, as opposed to the entire Echo board of directors, will have control over these funds. Platinum has proposed that in order to prevent the misuse of these funds, current directors Vincent Enright, James Smith, and William Greico will not have access to Platinum’s capital nor have any right to determine how the new funds are utilized. Concretely, these three “lingering directors” will not be able to use the funds invested by Platinum for legal defense of their past actions or any other self-serving purposes. Michael Goldberg stated “With access to capital, while we go through the trouble of removing the three lingering directors for cause, we hope to maintain as much of the key staff and technical capabilities as possible and we would appreciate it immensely if the lingering three would cease interfering with our good faith efforts to advance the Company.

Platinum Funding Terms: As stated in the press release: The funding, while beginning immediately, will not convert into Echo shares until the three lingering directors have been removed. At that time, the investment will convert to a direct investment into Echo Therapeutics, in the form of common stock equivalents and warrants. The investment will convert into common stock equivalents at the lower of $2.00 a share or the market price at that time. While $2.00 per share is greater than a 400% premium to the current price Platinum and Messrs Goldberg are highly confident that, given progress on the plan they have presented to shareholders, and the removal of the toxic governance situation, they can anticipate a rapid recovery in valuation reflecting a going concern and not the liquidation valuation that is currently being reflected. Platinum will also get 100% warrant coverage at an exercise price of $6.00 a share, a 2400% premium to the current stock price. The funding is set to begin next Monday, September 29, 2014. The conversion to equity will officially be consummated upon the removal or resignation of the three “lingering directors.” Once the “lingering directors” no longer sit on the board, Platinum plans to move all but 9% (of the total outstanding shares) of its common stock holdings into “toothless” preferred stock thereby significantly reducing its voting power. Additionally, Platinum will agree not to exercise its right to exceed 20% ownership for voting purposes until after the 2016 annual meeting. Further, Platinum will drop all litigation against Echo. Should the three “lingering directors” leave prior to their being removed for cause, Platinum will agree not to litigate against them or the Company for any action that had occurred prior to September 30, 2014.

We encourage interested parties to read the entire press release at: http://bit.ly/1ohIPnu 

Download Full 8-Page Note with Important Disclosures: Morning Note 09-24-14 ECTE

Navidea (NAVB) Note 09-23-14

downloadreportNavidea Receives Grant for Lymphoseek® Clinical Trial in Cervical Cancer
Lymphoseek® Orphan Drug Designation – 7 Year Exclusivity for H&N Cancer
FDA PDUFA Date October 16th for Enhanced Lymphoseek® Usage
European Approval for Lymphoseek® Expected by Year-End

Download Full 8-Page Note with Important Disclosures: Morning Note 09-23-14 NAVB

Navidea announced the initial award for a Fast Track Small Business Innovation Research (SBIR) grant providing for up to $1.67M from the National Cancer Institute (NCI), National Institutes of Health (NIH), to fund a clinical trial of Lymphoseek® (technetium Tc 99m tilmanocept) Injection in cervical cancer patients. The planned multicenter clinical study in patients with early cervical cancer will seek to assess and provide data in support of the use of Lymphoseek in sentinel lymph node biopsy (SLNB) procedures which identify and evaluate the lymph nodes most likely to harbor additional cancer. The study, using lymphatic mapping and SLN biopsy procedures, will compare the abilities of Lymphoseek and vital blue dye to identify SLNs during cervical cancer surgery. Additionally, the sentinel node pathology will be contrasted between agents and between the pathology of other nodes that may be removed during the procedure (non-sentinel nodes).

The study is expected to involve 40 patients and last 1.5 years. Of the $1.67M SBIR grant, $165,917 has already been awarded allowing Navidea to identify clinical trial sites and the Institutional Review Board (IRB) approvals. Up to an additional $1.5M in SBIR funding would be used to conduct the trial. This study is designed as a multicenter, open-label, within-patient comparative study of Lymphoseek versus vital blue dye for detection of lymph nodes in patients with cervical cancer.

According to the U.S. National Cancer Institute’s SEER cancer statistics, an estimated 12,360 patients will be newly diagnosed with Cervical cancer in the United States during 2014. Navidea stated that currently over 20 lymph nodes are removed during surgery leading to more complex, longer and costly surgical procedure as well as increased potential for serious post-surgical complications and morbidity. Investors should note that Navidea’s successful Phase III trial (NEO3-06) in Head & Neck cancer showed that multiple level nodal dissections of patients in the trial with cancer-positive lymph nodes led to an average removal of 38 lymph nodes per patient, whereas Lymphoseek on average would have led to the removal of approximately 4 lymph nodes per patient, representing a substantial reduction in potential morbidity for patients with head and neck cancer undergoing sentinel lymph node biopsy.

Reiterating Strong Speculative Buy: We are 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). We note that Navidea has a number of catalysts over the next few months including an FDA PDUFA date of October 16, 2014 for their sNDA to expand the label claims to include lymphoscintigraphy (sentinel lymph node mapping) and flexible procedure timing allowing for up to 2-days post-injection of Lymphoseek. In addition, we expect a positive European CHMP recommendation and an EMA approval for Lymphoseek in Europe by year-end. 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 8-Page Note with Important Disclosures: Morning Note 09-23-14 NAVB

Echo (ECTE) Note 09-22-14

downloadreportToday’s Conference Call – Dissident Board Members Pull No Punches
Attempting Removal of Legacy Board Members “for Cause
Platinum Seeks Return of $5M Calling Echo “Worst in Class Governance
Reiterating Avoid/Sell as Echo Therapeutics Nears Financial Death Spiral

Listen to Complete Conference Call:

Transcript of Opening Remarks: ECTE Goldberg Board Call 09-22-14

Download Full 8-Page Note with Important Disclosures: Mid-Day Note 09-22-14 ECTE

This morning, Echo Board members Michael Goldberg M.D. and Shepard M. Goldberg, nominated by Platinum Management, held a shareholder conference call. They gave a detailed historical account of Echo’s management and Board actions outlining the reasons for demanding the removal, for cause, of Board members William Grieco, Vincent Enright and James Smith.

Michael Goldberg described their attempts at working out the issues but finally stated “After months of trying we have reached the conclusion that the directors have no interest in leaving and according to one lawyer we consulted, will only leave in handcuffs.

He went on to state “We have been specifically asked to investigate the claim made by platinum that the three lingering directors have used Morgan Lewis for personal advice and had the Company pay for the cost. This has been labeled by the accuser as potentially embezzlement of corporate funds and they go on to say that Morgan Lewis also should be investigated for aiding and abetting in the ongoing criminal acts. Neither Shepard, nor I are qualified to assess the merits of the allegations, nor were we a party to all the facts and circumstances that support these allegations. We asked the board to allow us to engage independent qualified counsel to investigate. Of course the three lingering directors should have recused themselves but of course they refused and therefore we have no choice but to refer these allegations to the relevant authorities, The SEC, the Bar and the relevant criminal authorities. This is further evidence of their need to be terminated for cause. If they are in fact innocent, the risk to the corporation of opening up multiple investigations that could take months to years to adjudicate, will have an expensive and potentially negative impact on the Company while ongoing. This could be avoided if the investigation could address these issues and determine that there is no basis for proceeding further. Of course if they are terminated for cause they will be liable for any costs or damages resulting from their decision not to recuse themselves.”

Mr. Goldberg described the immediate steps they would take should they gain control of Echo’s Board. Specifically, cut cash burn to $500K or less per month, eliminate the Philadelphia office, reduce or eliminate legal costs and target spending toward business development efforts. The immediate development efforts would focus on the wearable computer market, MTIA reducing manufacturing costs and developing for China market, application with lidocaine in the tattoo removal space and glucose monitoring for gestational diabetes (diabetes during pregnancy).

Download Full 8-Page Note with Important Disclosures: Mid-Day Note 09-22-14 ECTE 

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