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So far, 2012 has proven to be an exciting year in the biotech sector, with investors moving quickly from one hot stock to the next. Some of these companies have rewarded investors with tremendous returns, such as Arena Pharmaceuticals (NASDAQ:ARNA) which is up over 470% since the first of the year on the strength of their newly FDA approved obesity drug Belviq.

Others have proven to be clunkers, such as Chelsea Therapeutics (NASDAQ:CHTP), which is down over 75% in the same time frame due to the FDA having recommended additional clinical trials for their rejected hypotension drug Northera.

Such is the name of the game in the highly speculative biotech sector, and it is critical to the individual investor to perform extensive due diligence in order to find the companies with the promising drug candidates, near term catalysts and stable balance sheets needed to deliver the types of stellar returns we all seek. I believe Navidea Biopharmaceuticals (NYSEMKT:NAVB) is one of these "diamond-in-the-rough" companies.

Navidea Biopharmaceuticals, based in Dublin, OH, is a small-cap, developmental stage biopharmaceutical company, engaged in the development and commercialization of precision diagnostics and radiopharmaceutical agents. Navidea, formerly known as Neoprobe Corporation, changed its name to Navidea Biopharmaceuticals, Inc. on January 05, 2012

The Company

Navidea currently has three very promising drug candidates in their pipeline:

1. Lymphoseek: a lymph node targeting agent intended for use in intraoperative lymphatic mapping. Navidea is partnered with healthcare services giant Cardinal Health to distribute Lymphoseek in the US upon FDA approval. Lymphoseek has an FDA PDUFA date of 9-10-12 (delayed from their original June 10th date by the FDA), and the company is planning to submit Lymphoseek to the European Medicines Agency for review for use in Europe by end of 2012. Navidea has stated that the expected worldwide market for Lymphoseek is $450 million.

2. RIGScan: an investigational, tumor-specific, radio-labeled monoclonal antibody targeting agent. RIGScan may be used during surgery to identify cancerous tissue undetectable by traditional diagnostic and intraoperative methods, leading to more effective colorectal cancer surgeries and improved patient survival. RIGScan has completed clinical studies for the enhanced detection of cancer in Stage IV primary or recurrent colorectal cancer.

3. AZD4694: a precision radiopharmaceutical candidate for use in the imaging and diagnosis of patients with signs or symptoms of cognitive impairment such as Alzheimer's disease. Based on clinical trail data accumulated to date, AZD4694 appears to be very effective in detecting deposits of amyloid plaque in the brain, an indication of an Alzheimer's disease diagnosis.

Upcoming Catalysts

In addition to the Lymphoseek FDA PDUFA date of September 10th, the company has also recently announced that it will be presenting at three prestigious scientific conferences over the next few weeks:

  • The European Association for Cancer Research, July 7-10, in Barcelona, Spain.
  • The Alzheimer's Association International Conference on Alzheimer's Disease, July 14-19, in Vancouver, Canada.
  • The 8th International Conference On Head and Neck Cancer, July 21-25, in Toronto, Canada.

Balance Sheet

Developmental stage biotech companies rely on various sources of capital such as dilutive stock offerings and partnerships with established pharmaceutical companies to fund the research and development of their drug candidates, which can take many years and costs tens of millions of dollars to bring to market. Financially, Navidea appears to be on very solid ground for a small cap biotech company, with $22 million cash on hand, which translates to approximately .23 cents per share, and very little debt. This strong balance sheet should be more than sufficient to see the company through its September PDUFA date. Investors can take comfort from a May 2nd statement by Navidea CFO Brent Larson:

The notification in early April from the United States Food and Drug Administration (FDA) that the Lymphoseek Prescription Drug User Fee Act (PDUFA) date has been extended by 90 days to September 10, 2012 has not impacted our business plan objectives. We remain confident that our strong financial position and experience in program management provides us with the financial flexibility to reach the point of revenue generation from Lymphoseek and support program development and growth for 2012 and beyond.

The possibility of further delay by the FDA is always a concern, but having already delayed the PDUFA date once, I view the chances of further delay as unlikely.

Conclusion

Any potential investor needs to consider the risk of further delay, or even rejection by the FDA, which however unlikely, would result in a sharp decline in share price. Navidea has a market cap of $412 million, and shares stood at a very attractive $4.37 as of July 9th. The stock has traded between a 52 week low of $1.62 and a 52 week high of $4.45. Shares have made a steady upward march as of late, up almost 40% since June 1st. I anticipate that this run up will continue as the September 10th FDA PDUFA date approaches, and should pick up steam over the next six to eight weeks, as FDA decision dates for fellow biotech companies VVUS, Inc (NASDAQ:VVUS), Horizon Pharma (NASDAQ:HZNP), and Talon Therapeutics (TLON) come to pass.

Navidea has strong insider (6.6%) and institutional (18.6%) ownership, and also has a very high short ratio of 35.4% (as of 6-15-12) which could lead to a significant short squeeze leading into the PDUFA date. There are seven analysts covering Navidea, with assigned price targets ranging from $5.75 to $9.00 per share. The average of these seven price targets is $7.28 per share, which I believe to be a reasonable valuation, and I believe the stock can and should achieve this price level prior to FDA approval of Lymphoseek, with the higher $9.00 per share target reachable post approval.

Disclosure: I am long NAVB.

Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to investors to make the correct decision after necessary research. Investing includes risks, including loss of principal.

Source: Navidea Biopharmaceuticals, A Diamond In The Rough