Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Brent Larson – SVP, CFO, Treasurer and Secretary

Mark Pykett – President and CEO

Fred Cope – SVP, Pharmaceutical Research and Clinical Development

Tom Tulip – EVP and Chief Business Officer

Analysts

Charles Duncan – JMP Securities

Kevin DeGeeter – Ladenburg Thalmann

Mike King – Rodman & Renshaw

Stephen Dunn – Life Tech Capital

Steve Brozak – WBB Securities

Dalton Chandler – Needham & Co

Spencer Nam – ThinkEquity

Navidea Biopharmaceuticals, Inc. (NAVB) Q2 2012 Earnings Call August 7, 2012 8:00 AM ET

Operator

Greetings and welcome to the Navidea Biopharmaceuticals, Incorporated Second Quarter 2012 Conference Call. At that time, all participants are in a listen-only mode. A brief question-and-answer session will follow the following presentation. (Operator Instructions) As a reminder, this conference is being recorded. Also management would like to alert you that today’s conference will be no more than one hour in duration.

It is now my pleasure at this time to introduce your host, Brent Larson, CFO of Navidea Biopharmaceuticals, Incorporated. Thank you, Mr. Larson. You may now begin.

Brent Larson

Thank you, Rob. Good morning, everyone. My name, as Rob said, is Brent Larson. I’m the CFO of Navidea Biopharmaceuticals, and I’ll be moderating this morning’s call.

Before we get started with the formal comments, we’d like to remind you that during the course of this call management may make projections or other forward-looking remarks regarding future events or the future financial performance of the company.

It’s important to note that such statements about Navidea’s estimated or anticipated future results or other non-historical facts are forward-looking statements and reflect Navidea’s current perspective on existing trends and information. Navidea disclaims any intent or obligation to update these forward-looking statements. Actual results may differ materially from Navidea’s current expectations depending on a number of factors affecting Navidea’s business.

These factors include among others, the inherent uncertainties associated with the financial projections, timely and successful implementation of strategic initiatives, the difficulty of predicting the timing or outcome of product development efforts, and FDA or other regulatory approvals or actions, market acceptance and continued demand for new Navidea’s products, clinical and regulatory pathways, the impact of competitive products and pricing, patents or other intellectual property rights held by competitors, the availability and pricing of third-party sourced products and materials, successful compliance of government regulations, and such other risks and uncertainties as detailed in Navidea’s periodic public filings on file with the Securities and Exchange Commission.

Now, I’d like to turn the call over to Dr. Mark Pykett, President and Chief Executive Officer of Navidea. Mark?

Mark Pykett

Thank you, Brent. We appreciate the participation of everyone on today’s call and look forward to sharing business update and quarterly financial results. We have a number of important topics to discuss today including updates on the Lymphoseek NDA, the outlook for Lymphoseek commercialization, the plan filing of the Marketing Authorization Application for Lymphoseek in the EU, progress with our Alzheimer’s disease amyloid imaging program, and a review of the license we completed last week for the CFT neuroimaging agent. Tom, Fred, Brent and I will share these topics.

We continue to make very good progress in multiple dimensions of our business. We are executing well and we believe the outlook for Navidea continues to be promising. As one looks at the landscape of biotech companies headed toward important events such as a PDUFA date, a range of factors often contributes to a company’s value. I would like to highlight a number of parameters that we believe put Navidea in a strong position, and which we believe should give investors confidence in the potential of our company.

We have a strong product in Lymphoseek. Lymphoseek has demonstrated encouraging clinical performance not only against the requisite and valid comparator required for U.S. registration, vital blue dye, but also against recognized current standards of care consisting of blue dye plus radiolabeled colloids. The Lymphoseek PDUFA date remains on track. Lymphoseek is used in lymph node mapping procedures that are already widely performed in surgical oncology. This is not a new practice. We believe we are well positioned to address this market with an outstanding partner in the U.S., Cardinal Health.

Our partnership with Cardinal Health provides attractive economics to both organizations through our revenue sharing agreement on Lymphoseek sales with mutual incentives to perform to the best of our capabilities. Lymphoseek has attractive cost of goods and gross margins, which we believe will facilitate promising net cash flows to Navidea.

In fact, the gross margins on our portion of Lymphoseek revenues are expected to be approximately 75% to 80%, meaning that about 35% to 40% of end customer revenue drops to Navidea’s EBITDA, an encouraging pre-tax return. There are clear avenues to reimbursement for Lymphoseek in the U.S., initially through a statutory pass-through code meaning there are established well recognized Medicare, Medicaid procedures for payment for the agent.

We have also advanced and diversified our pipeline of late stage assets. Over the course of the last eight months, we have not only made important progress with our two oncology agents, Lymphoseek and RIGS, but also added two potential best-in-class candidates in the neuroimaging space, 4694 and CFT, providing us with two premier franchises. Encouraging findings for 4694 continue to be generated in Phase II.

We are looking forward to commencing our own Phase IIb study later this quarter and to beginning Phase III in early 2013. We are addressing important medical needs in large markets including cancer, Alzheimer’s disease and dementia, and Parkinson’s disease and movement disorders, which we believe will remain medical areas of global significance for years to come. Our technical programs are supported by strong intellectual property and sustainable proprietary positions.

And lastly, we have a strong balance sheet, recently augmented with a $50 million line of credit providing us with access to a non-dilutive source of capital and financial flexibility and staying power. We believe by focusing on core fundamental strategies, we continue to get stronger, our opportunities continue to advance and diversify, and our risks continue to be mitigated. We believe these recent accomplishments provide a strong foundation for upcoming catalysts.

In the coming months and quarters, we are looking forward to Lymphoseek approval in the U.S., Lymphoseek U.S. launch with Cardinal Health, publication of Phase III data on Lymphoseek, filing the Marketing Authorization Application for Lymphoseek with the EMA, establishing partnerships for Lymphoseek outside the U.S., beginning our Phase IIb and Phase III studies of 4694 in Alzheimer’s disease, beginning the Phase III study of CFT in Parkinson’s disease, RIGS clinical study, and scientific and medical presentations on the forward progress of our development programs. So there is a lot to look forward to, and we are very excited about the prospects for our company.

With this brief overview, I would like to turn the call over to Fred for details of some of our scientific and medical advances.

Fred Cope

Thanks very much Mark. I would like to provide a brief update on the clinical activities. First, as a number of our press releases have noted, both personnel from Navidea as well as numerous Navidea investigators have attended and conducted presentations at internationally recognized meetings that were focused on the topics of surgical oncology, breast cancer, melanoma, and head and neck cancer.

Since the last quarter update, Lymphoseek data has been presented at eight international medical and scientific conferences, including most recently, the annual meetings of the Society for Nuclear Medicine and Molecular Imaging and the American Head and Neck Society.

In these two forums, Lymphoseek was selected for both showcase presentation and as a highlight of the meetings. Upcoming data presentations include the European Society for Surgical Oncology and the European Association for Nuclear Medicine. Overall, by the end of 2012, Navidea and its investigators, will have participated in more than 35 major conferences and given more than 44 presentations involving key biochemical, preclinical and clinical experiences with Lymphoseek.

In addition, in June 2012, we published data developed from the Phase III trials of Lymphoseek demonstrating important performance characteristics of Lymphoseek compared to the commercially available radiolabeled colloid used for intraoperative mapping in Europe.

The analysis evaluated the performance of Lymphoseek to a meta-analysis of the published data for Technetium labeled nanocolloid human serum albumin or Nanocoll. This is the commercially available radiolabeled agent in Europe and the standard of care. The difference between Lymphoseek and Nanocoll in the parameters analyzed was statistically significant.

This had a p-value of 0.0001. The study entitled the efficacy of Tilmanocept in sentinel lymph node mapping and identification in breast cancer patients; a comparative review and meta-analysis of Technetium 99 labeled nanocolloid human serum albumin standard of care, can be found in the current online edition of the peer-reviewed journal Clinical and Experimental Metastasis.

Data for Nanocoll were derived from a meta-analysis of the published literature that reported on the outcomes of localization rate or in other words the percentage of patients with at least one localized lymph node, and the degree of localization; that is the average number of lymph nodes found per patient.

Data for Lymphoseek were derived from a meta-analysis of the two completed Phase III clinical trials on Lymphoseek. Lymphoseek demonstrated a localization rate of 99.9%, while Nanocoll showed a 95.9% localization rate. The degree of Lymphoseek localization was 2.16 nodes per patient, whilst colloid standard of care showed 1.67 nodes per patient. The difference between Lymphoseek and Nanocoll in both of these key parameters was statistically significant at p less than 0.0001. In the near future, we anticipate additional publications including publications on other Phase III findings in breast cancer and melanoma.

Now, I’d like to turn the call over to Tom for his review.

Tom Tulip

Fred, thank you and congratulations to you and your team for your consistent delivery of cutting edge science, it really is the bedrock of the company, and good morning to all on the call. As Mark mentioned, we continue to accelerate our strategy of developing and commercializing precision diagnostics with Lymphoseek as our flagship. Given the near term PDUFA date, we are well advanced in our launch planning with Cardinal Health.

The joint marketing teams have developed a strong program including a wide array of activities in collateral. Just last week, we participated in Cardinal’s national sales meeting, where together we continued to educate their sales people and operations leadership about the strong features and benefits of Lymphoseek. I am really happy to report that the Cardinal team is energized and ready to go. This true partnership is proving to be all that we hoped for. We realized that our incentive and theirs are very well aligned, and we’re totally in concert in our approach to this launch.

Let me now turn briefly to the U.S. market opportunity for Lymphoseek. Initially, we’ll focus our attention on breast cancer and melanoma, where Intraoperative Lymphatic Mapping is already the standard of care and which has annual incidence in excess of 300,000. We’ll then expand our attention to the almost 1 million additional solid tumor presentations, which occur annually in the U.S. Many of these additional cancer sufferers could benefit from sentinel node assessment, but today’s tracers are not suitable for this assessment in ways that we believe Lymphoseek will be.

Next, where do we stand on our establishment of non-U.S. partnerships? Clearly, there is a huge opportunity for non-U.S. cancer patients, as we are able to make the product available in their geographies. The adenocarcinoma market worldwide exceeds 8 million. For many of these patients, Lymphoseek offers a great possibility to improve their management and ultimately their outcome. This global opportunity constitutes the market almost 34 larger than our current breast cancer and melanoma focus.

We previously communicated our goal to complete a number of U.S. and non-U.S. agreements this year, and we’ve been in discussions regarding more than 17 geographies with more than 25 potential suitors. Not surprisingly, a European agreement is highest priority.

For example, the breast cancer incidence in Europe alone is twice that in the States. That’s why we’ve been focused on the EU Marketing Authorization Application, which we’ll submit by the end of the year. We expect a final agreement with a major European partner consistent with this MAA timing. While I can’t share with you details at this time, I look forward to communicating the first of our international Lymphoseek partnerships in the near future.

Finally, to leak my comments regarding Lymphoseek, we are finalizing our plans to field our own medical education team, a small focus group whose objective is to ensure that the full range of Lymphoseek clinical benefits are well-known to both the nuclear medicine and surgical oncology audiences. This is consistent with our stated strategy to not only develop innovative precision diagnostics, but also to participate in their commercialization. By this participation, we expect to maximize both market development and our share of revenue associated with enhanced penetration.

Now let’s briefly turn our attention to our potential best-in-class Alzheimer’s disease imaging biomarker 4694. Since we licensed the product from AstraZeneca in December, it’s continued to grow in stature and credibility. There’ve been multiple presentations at all of the significant Alzheimer’s and imaging conferences as well as the crescendo of interest leading up to the Alzheimer’s Association International Congress last month in Vancouver.

At this meeting, Professor Christopher Rowe, a world renowned expert in dementia imaging from Melbourne, Australia, presented data on 45 subjects, who received both 4694 and C-11 PiB, the widely accepted gold standard for amyloid imaging. These data demonstrate that 4694 images and those from PiB are essentially equivalent from both visual and quantitative points of view.

This hammers home our point that the high specificity and sensitivity of 4694 and its concomitant low white matter background uptake appear to differentiate it from the three first generation F-18 amyloid tracers. In the same event, Professor Rowe noted that 94% to 98% accuracy was evident with 4694, and it had a blinded reader confidence in excess of 93%.

As Mark mentioned, our internal development plans for 4694 are proceeding apace with first patients scheduled for enrollment in our Phase IIb and III studies this quarter and early 2013 respectively. So our move into neuroimaging is our strategic move has proved a solid success, but it’s only the first step. Last week, we announced the completion of a world-wide license for exclusive rights to [123I]-E-IACFT, which I promise not to try to say again, the drug formally known as Altropane, which we will be calling CFT for the time. This marked the culmination of the rigorous diligence process per our initial communication in January. CFT is a promising neuroimaging tracer. It fits nicely into our portfolio and strategy.

As such, its Phase III ready, having been studied in more than 600 subjects. It has a high affinity for the dopamine transporter target and generates clean images quickly, beginning approximately 15 minutes after injection. This is in contrast with currently available agent, which requires waiting times as long as six hours. CFT is also fully synthetic small molecule and as such is not been subject to a Schedule II control at clinical sites, again, this difference from the currently available agent, which is derived from coca, and therefore is subject to Schedule II listing. For these and other reasons, CFT should have important practical, efficiency, and economic advantages.

CFT is primarily being developed as an aid in the diagnosis of Parkinson’s disease and movement disorders. However, it may also be useful in diagnosis of dementia with Lewy Bodies or DLB, the second most common though extremely difficult to diagnose form of dementia after Alzheimer’s disease.

Thus CFT offers a late-stage precision diagnostics aimed at not only a leading neurodegenerative disease, Parkinson’s, but also this problematic form of dementia, DLB. In the U.S. and Europe, approximately 25 million people suffer from movement disorders and hundreds of thousands present each year with new symptoms, and beyond that, the epidemic in dementia is even more compelling. 25% of the 36 million people worldwide with dementia suffer from DLB, and thus require differential treatment from AD patients. With CFT and 4694, we offer a pair of strong complementary precision diagnostics for these devastating neurologic disorders. Diagnostic dilemmas in both movement disorders and dementia remain challenging.

Like 4694, CFT should offer us, allow assessment of these difficult to diagnose conditions earlier in the disease process, when uncertainty is high, but the potential for effective therapy is higher. Like 4694, CFT is a potential best-in-class agent to improve early diagnosis. Our next steps with CFT will be to finalize our regulatory plans and to reinitiate manufacturing. During diligence, we made important progress in understanding the U.S. and European regulatory landscapes.

We intend to update the existing Special Protocol Assessment with the FDA to reflect the current availability of a commercial dopamine transporter tracer, which was not approved at the time the SPA, Special Protocol Assessment, was granted and to finalize scientific guidance from EMA. We anticipate beginning enrollment at our Phase III studies in early 2013 and should continue enrolling approximately 18 to 20 months thereafter. This should provide approximately 450 additional subjects to augment our existing safety population.

So overall, we are very pleased with the CFT license, which provides us access to yet another precision diagnostic, exactly on strategy. We know the tracer works producing clinically valuable information and has practical and commercial advantages. Taken together, the technical, medical regulatory and commercial risks of CFT are very attractive, particularly, in light of the well structured license we were able to negotiate. Brent will cover the specifics of this license in a moment. So to summarize, we continue to make solid progress with Lymphoseek and our augmented pipeline along the course we charted a year ago. We’re executing against our plan, realizing our vision of becoming a world leader in the development and commercialization of precision diagnostics.

With that, let me turn the floor over to Brent.

Brent Larson

Thanks, Tom. Let me touch briefly on few of the financial aspects of the exclusive license we executed with Alseres for CFT. In connection with the execution of the agreement, we made a one-time execution fee of $175,000 and issued Alseres 300,000 shares in Navidea common stock.

Also as we announced in the release, the license agreement provides for contingent milestone payments of up to $2.9 million, $2.5 million of which will principally occur at the time of marketing approval in the U.S. or the EU or upon the achievement of commercial sales. We also agreed to issue 1.15 million shares in Navidea common stock based on these same milestones, which again are heavily weighted on the achievement of product registration or sales.

Overall, the compensation we agreed to in the final license terms including the license execution fees for executing in July and the contingent consideration were $175,000 and 100,000 shares were respectively in those contemplated in the original option agreement. Our objective was to compensate Alseres once the milestones which signify increasing success and development are achieved. In addition, the license terms anticipate royalties on yearly net sales on the approved products, which are consistent with industry standard terms.

Lastly, we agreed to certain diligence milestones primarily related to timing of commercial launch and timing proximity to the receipt of regulatory approval, which if we were not to achieve, we would have the ability to pay additional license extension fees in cash or common stock to maintain the license that we chose at that time.

Now let me turn to a review of the financial results for the second quarter of 2012. Navidea’s net loss attributable to common stockholders for the second quarter of 2012 was $5.9 million or $0.06 per share compared to a net loss attributable to common stockholders of $2.2 million or $0.02 per share for the second quarter of 2011.

The net loss attributable to common stockholders for the first half of 2012 was $12.9 million or $0.14 per share, compared to a net loss attributable to common stockholders of $6.7 million or $0.08 per share, for the first half of 2011. In general, while our business has changed significantly over the last year, we are making great progress on a number of fronts and investing in programs we are confident will ultimately result in improved shareholder value.

Our revenues for the second quarter and first half of 2012 and 2011 relate to the reimbursement of certain pre-commercialization costs by our U.S. marketing partner for Lymphoseek and grants received in support of the company’s drug development activity. Revenues for the second quarter of 2012 were $60,000 compared to $6000 for the same period in 2011, and revenues for the first half of 2012 were $72,000 compared to $342,000 for the same period in 2011.

Navidea’s research and development expenses for the second quarter of 2012 increased 33% to $2.5 million, from $1.9 million for the same period in 2011. The increase in R&D expenses for the second quarter of 2012 was attributable to several factors including a $243,000 increase in 4694 development cost, a $168,000 increase in Lymphoseek development cost primarily to support the NDA review, which more than offset decreases in clinical trial costs.

The company also incurred $571,000 in increased R&D cost related to a combination of expenses for new pipeline product development activities including the evaluation and other activities of CFT as well as increased head count to support these development efforts. These increases were partially offset by decreased RIGScan development cost of $320,000.

Navidea’s research and development expenses for the first half of 2012 increased 49% to $6.4 million from $4.3 million for the same period in 2011. The increase in R&D expenses for the first half of 2012 was attributable again to several primary factors including the $500,000 license fee and diligence cost related to the licensing of CFT, $474,000 in Lymphoseek development cost to support the NDA, which more than offset decreases in clinical trial cost, AZD4694 development cost, which increased $398,000 related to project management and startup activities, and $881,000 in R&D cost related to out-of-pocket expenses and other head count costs to support the new product development activities and pipeline development. These increases were also again partially offset by approximately $345,000 in decreased cost related to RIGScan development.

Selling and general administrative expenses increased $1.3 million to $3 million for the second quarter of 2012 from $1.7 million for the same period in 2011. The primary reason for the net increase was approximately $1.2 million increase in marketing and business development cost in preparation for the commercial launch of Lymphoseek and efforts to continue to build the company’s pipeline coupled with $256,000 in increased G&A, head count cost, and other support offset by $229,000 in decreased professional services costs.

Selling and general administrative expenses increased $917,000 to $5.5 million for the first half of 2012 from $4.6 million in the same period in 2011. The net increase is primarily due to $2.3 million in business development and marketing costs, again, in preparation for the commercial launch of Lymphoseek and efforts to build our pipeline. This was coupled with $600,000 in increased G&A costs to support for head count and other out-of-pocket costs offset by approximately a decrease of $1.9 million in non-recurring charges related to the separation of our former President and CEO in the first half of 2011.

Other expenses for the second quarter of 2012 of $450,000 comprised primarily of $320,000 in interest expense related to the recent Hercules loan that we entered in December, 2011, and $93,000 from the impact of change in derivative liabilities on our balance sheet.

This compares to other expenses of $9,000 for the same period in 2011. Other expenses for the first half of 2012 were $931,000, again, composed primarily of $615,000 in interest expense related to Hercules loan we entered in December 2011 and $277,000 related to the impact of change in derivative liabilities on the company’s balance sheet. This compared to other expenses of $961,000 for the same period in 2011, which also consists primarily of the impact of the change in value of the company’s derivative liabilities.

Our financial results we believe are indicative of the effective way we have moved our programs forward in very visible and measurable ways, which should significantly enhance our pipeline. I should also point out that a number of the expenditures over the recent periods have included a number of non-recurring expenses including expenses related to Lymphoseek NDA review, such as the preparation for the original possibility of an ADcom meeting, costs to prepare for the MAA filing, activities again readying for the commercial launch, CFT option fee, as well as 4694 and CMC startup costs.

Many of these costs, again, are one time in nature and are not expected to occur on a regular basis. Also our virtual model provides us with a great deal of control to the way we expand our resources and to commensurate with what we have available at the time.

The recent addition of the $50 million Platinum-Montaur credit facility and we add another tool to our financing toolkit. This non-dilutive facility, which we believe is at very attractive churns compared to our understanding of current market conditions for debt for pre-commercial companies provides even more flexibility to our financial position and it’s a strong addition to the self registration and revenue generation from our anticipated first grade commercial radiopharmaceutical Lymphoseek. Based on this combination of resources at our disposable, management remains confident that our financial position is strong and able to support our strategy and growth plans.

Now, let me turn the call back over to Mark.

Mark Pykett

Thanks very much, Brent, and Tom, and Fred. At this point, we’ll be happy to address questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. Our first question is from the line of Charles Duncan of JMP Securities. Please state your question.

Charles Duncan – JMP Securities

Hi, guys. Congrats on the good progress in the quarter and thanks for taking my question. Mark, I had a question regarding Lymphoseek and I’m just wondering I know that you’re preparing for launch, but I’m wondering if you’ve had any additional feedback from the agency regarding some of the analytical questions that were asked in the PDUFA portion and then if you would anticipate a label, which is organ specific or a broad ILM encompassing label?

Mark Pykett

Thanks very much, Charles, two very good questions. As we said a while ago, we believe we have been fully responsive to the FDA’s request for additional information related to the analytical assays. We continue to tend the administration of the NDA review, and we are moving forward with our expectation that the PDUFA date stays in place and we can look forward to commercial launch.

With respect to label discussions and the potential indications that arise from that, we are in the process of engaging the agency around label discussions. So there is still quite a bit of dialogue to be had. We don’t have any formal feedback yet that we can rely on in terms of where the label will ultimately head. We continue to position the label as one aimed at general lymphatic mapping and of course our data have been generated primarily in breast cancer and melanoma. So we will expect to continue the dialogue with the agency in the coming weeks to resolve final label discussions at the time of the PDUFA date.

Charles Duncan – JMP Securities

Thank you.

Operator

Our next question is coming from the line of Kevin DeGeeter, Ladenburg Thalmann. Please proceed with your question.

Kevin DeGeeter – Ladenburg Thalmann

Hey. Good morning, guys. Congratulations on all the progress. Yeah, I want to talk a little bit about Lymphoseek in Europe specifically partnering. In your prepared comments, you set out a pretty hard timeline here to get a deal.

You announced sometime in the second half of the year, I guess, around MAA filing, which I’m interpreting the second half of the year. You – can you give us just a little insight as to your level of confidence in that timeline and what’s driving that and this – at this point, given the current state of discussions, do you envision a single partner at least for most major markets in Europe, or do you envision more of a country-by-country or region-by-region strategy?

Tom Tulip

Sure, Charles, this is Tom. Thanks for that question. We are confident in a second half 2012 agreement with a major, excuse me, yeah, Kevin,

Kevin DeGeeter – Ladenburg Thalmann

Yeah. Yeah, I’m definitely not Charles.

Tom Tulip

Excuse me, yeah way to go. Maybe I’ll start again. Thanks for that question, Kevin. So we are confident about a second half 2012 agreement with a major European partner. Our preference is to do this deal with a large entity that can cover the majority of the European markets although there are certainly the opportunities to go more country-by-country, more regionally. We are pegging this to the MAA application because with that application, I think the greatest value accrues to us and we’re quite confident about that application going in by the end of the year. So I think that they’re tightly coupled.

Kevin DeGeeter – Ladenburg Thalmann

Okay, great, and then maybe two related questions on CFT, just some kind of clarity, I’m assuming when you refer to changing the comparator after the Phase III, you are talking about the comparator being DaTscan going forward, is that correct?

Mark Pykett

Well, in truth, I didn’t say changing the comparator. In fact, it’s not clear to us that that will be required, but DaTscan is available now in the U.S., and so that clinical practice has to be recognized, and so that’s not surprisingly the kind of regulatory feedback we’ve gotten. So we’re perfecting this, the new protocol, but at this point in the U.S., it’s not at all clear that DaTscan is a required comparator.

Kevin DeGeeter – Ladenburg Thalmann

Okay, and maybe just to put a finer point on that, you do envision having a single comparator for the Phase III CFT program or something more akin to physician’s choice and then maybe just a housekeeping question and then I’ll get back in the queue. The shares that are issued to Alseres, is there any lock up on those? And that’s it from me.

Mark Pykett

So I guess, I’ll – you may recall that the original SPA for CFT was based on a standard of truth of the movement disorder specialist’s diagnosis six months post presentation. That’s still quite a robust standard of truth, and we certainly intend to maintain that into the protocol that’s evolving.

Brent Larson

Kevin, this is Brent. Let me talk to the shares. We’ve committed, as you can read from the agreement, to file a registration statement and to have that effective within 90 days. Obviously, the only portion of that that would be applicable at first review is some portion of the 300,000 shares that we had to issue on the execution. The rest of the shares, as we talked about before, are all related to achievement of future milestones, so those will come in the future.

Kevin DeGeeter – Ladenburg Thalmann

Thank you.

Operator

Our next question is from the line of Mike King of Rodman & Renshaw. Please proceed with your question.

Mike King – Rodman & Renshaw

Good morning and thanks for taking my question, guys. I had commercial related questions. You said earlier that you – there’s a code in place for the procedure. I’m just wondering if there’s going to be a temporary code specifically for Lymphoseek or we’ll go into an undesignated or will there be actually a designated code at launch? And also related to that, are you – could you comment about what Cardinal might be doing with respect to receivables dating in order to ensure that the product isn’t – the uptake is not slow because of delay in payment from insurance?

Mark Pykett

Okay, so at launch, Lymphoseek will enjoy access to what’s referred to as a statutory pass-through provision. So the drug will be paid separately from the existing procedure – and there is an existing procedure called for lymphatic mapping – because of this pass-through provision, which we’ll maintain for two to three years, CMS pays at ASP plus 6%.

So that’s the situation against which launch will move forward, and so there is both the procedure code and there will be this pass-through code promptly put in place as well. CMS Medicare/Medicaid doesn’t pay Cardinal, they pay the hospitals and so this sort of – this is Cardinal’s normal business, so I think they know how to manage this quite well. That’s part of the reasons we chose them as a partner.

Operator

Our next question is from the line of Stephen Dunn of Life Tech Capital. Please proceed with your question.

Stephen Dunn – Life Tech Capital

Hi. Good morning, guys. Just some quick follow-up on CFT, the trial design, I guess, could you give us a little bit more specifics on what the anticipated trial, it’s going to look like POET-2 with another arm with that scheme or I missed the number of patients, I did get your timing, but can you give a little bit more detail?

Mark Pykett

Sure, so we, for reasons that many will appreciate we like the POET-2 design. What’s changed in the regulatory environment is the approval of DaTscan. I don’t think there’ll be another arm. We may augment POET-2 by the inclusion of some DaTscan procedures. Again, whether that’s in a strict comparative context or not is – remains a bit unclear.

Stephen Dunn – Life Tech Capital

Are we looking a POET 2a or 2b, like was originally envisioned or?

Mark Pykett

Well, normally, the agency would like to replicate studies and I’m sure that we’ll proceed along those lines.

Stephen Dunn – Life Tech Capital

Okay. Thanks.

Operator

Thank you. Our next question is from the line of Steve Brozak of WBB Securities. Please proceed with your question.

Steve Brozak – WBB Securities

Good morning, gentlemen. Let’s talk about what everyone really cares about on the Lymphoseek side, obviously, you’re about to launch, what are the comparative advantages? I know in the past conference calls, you’ve talked about how superior the product is, but in terms of the amount of Tc-99 that’s required, in terms of the ability to go out there and hit all solid tumors, in terms of all of that, can you go into, I hate the word, but it does apply here – granularity – in terms of why physicians, clinicians, why patients would want it, and also obviously why it would be easy to springboard into Europe after American acceptance?

Tom Tulip

Sure, so let’s start along the supply chain then. Lymphoseek is a soluble small molecule, it’s very easy to compound, requires very little by way of radiopharmaceutical production, if you will at the pharmacy sites. This is in contrast to the sulfur colloid, which is a colloid, requires filtration, needs to be cooked, things like that, and it’s not a very pharmacist friendly product, in truth. Lymphoseek’s quite different.

So from both the – at the pharmacy level, it is more economical, it’s got lower labor overhead and significantly lower radiation exposure, so that’s at the pharmacy side.

In nuclear medicine, it’s, and the interface with patients on administration, it certainly appears that Lymphoseek’s less painful on administration, it clears the injection site quite quickly, we’ve demonstrated that, and quite reliably, consistently, again, in contrast with the currently available material, which is difficult to predict.

So this predictability of the pharmacokinetics of Lymphoseek, we think is a tremendous advantage both in terms of being able to move the patients rapidly through the process, limiting waiting time in the operating room, which is a huge economic detriment right now. We hear anecdotally that story all the time from nuclear medicine. The operating room is calling down; is the patient ready; do you have my imaging for me?

And the answer is no because the material hasn’t transited the injection site to localize somewhere in the lymphatics. Lymphoseek goes to the primary echelon, the sentinel nodes and stays there. It’s got a very high affinity for the CD206 receptor, which is highly – is very dense in those – in all the nodes, but because of a high affinity, it doesn’t come off again. So it essentially sticks, as we’ve said before, it goes to sentinel nodes and only the sentinel nodes. And – but that’s normal lymphatic pathology, so that ought to apply to all cancer types in fact. If there’s more, Fred, Mark, just...

Mark Pykett

I think the culmination of that, Tom, and Steve, is that as borne out in our clinical studies, the ability to engage this receptor with a high degree of sensitivity and specificity lowers the false negative rate in detecting cancer when it’s present in the lymph nodes, which of course is the whole point of doing the lymphatic mapping procedure in the first place, you want to detect cancer when its present in the lymph nodes. That then also as borne out in our studies has led to the proper staging and in fact the upstaging of patients who would otherwise have been under diagnosed, meaning their – the metastatic state of their cancer would have been misdiagnosed.

That then allows for better treatment options for these patients going forward, and we think all of that, the totality of that information really puts Lymphoseek in a very strong competitive position.

Tom Tulip

To be quite granular about this, the numbers that we’ve seen translate into an upstaging and more appropriate treatment pattern for something on the order of 15,000 patients a year in the U.S. alone.

Steve Brozak – WBB Securities

Great, thank you, gentlemen.

Operator

Thank you. Our next question is from the line of Dalton Chandler of Needham & Co. Please proceed with your question.

Dalton Chandler – Needham & Co

Good morning and congratulations on all the progress. I just wanted to come back to the Cardinal sales force for a minute; you’d mentioned you’ve already been doing some prep work with them. I was wondering if you could give us any more color on what you’ve done there?

Do you think they’re ready to go now, or is there additional work that needs to be done? And then, what you would anticipate the timing to be between approval and when they’re actually out on the street selling?

Tom Tulip

Okay. So Cardinal has a quite a skilled sales force. Many of them are previously radio, nuclear medicine technologists, so they understand the attributes, the features and benefits of Lymphoseek and its comparison with the existing agents quite well. We trained them both on the basic lymphatic anatomy, why this anatomy and its assessment is important in cancer treatment, the diagnosis and treatment. We’ve trained them on the broad attributes of the agent that we talked about, and so that, and as I said on the basis of that education alone, they’re raring to go.

But from our point of view, they’re not quite ready to go yet, because we need to – and plan to come back immediately post launch with face to face work with small groups of them, to educate them on the specificity associated with the label. Before we launch collateral in all of our activities, we’ll need to rely on the final label with the FDA, which will be forthcoming at or about our PDUFA date.

So on the basis of the perfection of our materials and training that we get on the basis of that label, then we expect to launch, we expect them to be out educating shortly after approval but actively selling with materials on the basis of our training certainly within a few weeks thereafter. So we’re going to be hustling on that, but we’ve got a lot of these elements queued up certainly including reimbursement. There’ll be strong reimbursement support at launch.

Dalton Chandler – Needham & Co

Okay. Thanks very much and congratulations again.

Operator

Thank you. Our next question is from the line of Mary Nielson of ThinkEquity. Please proceed with your question.

Spencer Nam – ThinkEquity

Good morning. This is Spencer Nam actually. Thanks for taking my questions. Just a couple of questions here. Maybe starting with Lymphoseek, how would you describe the Cardinal Health’s current preparation on Lymphoseek distribution?

And one of the – I think one of the concerns that some of us may have is just the Cardinal Health is a very big organization, and we have this new product going in that – where there are already some products that have been used for similar purposes, and – we’re just interested in getting some qualitative thoughts on Cardinal’s commitment and how aggressive may they consider distributing this Lymphoseek once approved?

Tom Tulip

Sure. So this is Tom again, I’d really appreciate if somebody asked Brent a question here shortly. So – but thank you for that question actually. The – so Cardinal I think is quite incentivized up and down the organization. We touched on the fact that their sales reps and pharmacists are now having become aware, educated on the product, we’re very enthusiastic about it and – for a variety of reasons.

From a sales point of view and operations point of view, this is one of the first new products that Cardinal’s had to launch in a number of years and is – and because it’s exclusive, they have that additional strategic incentive to move the product. You’re certainly correct that they have radiopharmaceuticals that they already distribute, but as I mentioned before, at the pharmacy level, there is both labor P&L impact as well as radiation exposure impact that isn’t in the pharmacies in the operations advantage.

So at the sales level, at the pharmacy level, there is a lot of reason to move Lymphoseek forward. We believe that corporately, they are quite committed to this and all of their actions speak to it, again, they haven’t had an exclusive product launch into this market in sometime and they want to prove the innovative community that they can move the needle on exactly these sort of innovative products. So economically, strategically, both tactically from the economic point of view, there are a lot of reasons that Cardinal’s incentivized at the corporate level as well, and...(inaudible)

Spencer Nam – ThinkEquity

That’s helpful. And then in terms of inventory if you will, how would Cardinal build up the inventory on Lymphoseek or is that going to be more of a just in time delivery process?

Mark Pykett

Well, Cardinal’s normal procedure is to hold inventory at a central location and then feed to their pharmacies not quite just in time, but there is never much inventory at the local pharmacy. They’ve perfected the circumstance, so there is almost never shortage locally, but there is never significant buildup of inventory either. The just in time piece in the Cardinal supply chain comes in the provision of the final dose, which needs to be just in time because of the radioactivity involved.

Brent Larson

And Spencer, this is Brent, I’ll just augment that a little bit, one of the things to understand here is as we talked about the margins on Lymphoseek are fairly high to us even at, what I’ll call the wholesale level, which means inverse that the cost of goods is actually fairly low. So it’s fairly prudent to us to have adequate inventory to feed that pipeline and because it has such a long shelf life, there is very little risk there of expiry or anything like that. So we are certainly cognizant of keeping that pipeline full and certainly have a mutual goal with Cardinal that – we won’t be missing any shipments of Lymphoseek because of inventory availability.

Operator

Thank you. Our next question is from Charles Duncan of JMP Securities. Please proceed with your question.

Unidentified Analyst

Hi, guys. This is Roy (ph), just a couple of quick follow-ups. I had a question about RIGScan, in your PR, you say that R&D is going down due to decreased development of RIGScan, but I think Mark mentioned continued development. Can you update us on the status of RIGScan? And also can you give us some visibility on the $20 million milestone for the Neoprobe GDS, how close or far from that sales threshold are we? Thank you.

Mark Pykett

Sure Roy (ph), I’ll take the first part of that question. We do continue to move RIGS forward through CMC related activities assessing the productivity of the clone, getting the clone into a position to be able to produce antibody, all with the intention of then moving into clinical activity as soon as we possibly can. There was a lot of upfront cost in getting that work underway in terms of initiating, manufacturing and scale up activities for purposes of potential GMP supply and that was why some of the costs were front-end loaded in terms of these baseline prep activities that have to happen preceding getting back into the clinic. I’ll turn it over to Brent for the GDS discussion.

Brent Larson

Yeah, Roy (ph), first thing I think we would all acknowledge Devicor is a privately held company. It doesn’t release their financial information. Certainly they hear information with us and one of the things I would also keep in mind is that the fourth quarter if you recall our historical precedence when Neoprobe then, at that time, they had the business, fourth quarter was such a big part of the business that I think we’d be a little bit remiss in tying to prognosticate and book anything at this point in time.

So our plan is to obviously review the results after the end of the year and we will provide some guidance as soon as we are able, but I wouldn’t expect that to happen until we get close to releasing the annual results for the year.

Operator

Thank you. (Operator Instructions) The next question is from the line of Mike King, Rodman & Renshaw. Please state your question.

Mike King – Rodman & Renshaw

Thanks for taking my follow-up guys, sorry to keep focusing on the reimbursement, but I also -I muted myself my prior question, I just wanted to ask about the inventory, the – I’m sorry the receivables. If you could answer that question and then also in terms of private pay, will Lymphoseek be seen as a pharmacy benefit or a medical benefit?

Brent Larson

Mike, can you clarify a little bit, were you talking about – was your question on receivables from Cardinal related to the fact that they are going to offer extended terms?

Mike King – Rodman & Renshaw

Yes.

Mark Pykett

I guess, I haven’t had that discussion Tom, I don’t know if you’ll that discussion with him at this point in time. I don’t think Mike that we anticipate the best probably going to be necessary just given the timing and the scope we were talking about here. We were talking about various promotional items with Cardinal at this point in time.

The level and extent of which are not completely finalized but dating of receivables has not been an issue that’s come up at this point. The price point for this and I know we haven’t spoken specifically to that and won’t until we get to launch, is not one that I guess we anticipate being a problem given the pass-through provision that’s going to come in fairly shortly after launch.

Operator

Thank you. Our next question is from the line of Mary Nielson of ThinkEquity. Please proceed with your question.

Spencer Nam – ThinkEquity

Thanks guys, this is Spencer Nam, again, thanks for taking my follow-up. Just wanted to move on to the 4694 a little bit, what are some of the milestones that we should expect in 2000 – rest of 2000, well, actually let’s talk about 2013. Should we expect some data on 4694 in 2013 particularly the Phase II, IIa that you’ll be starting sometime this quarter.

Brent Larson

So as we suggest we’ll be starting actually the IIb study over the course of during this quarter and I would expect to see some data coming from both that and some additional ISS work that’s continues to be ongoing we anticipate beginning our Phase III work in the – as we stated in the first half of 2013, so I think a milestone on first patient enrollment from that point of view, much – some of that’s U.S. focused, we will have some progress outside the States as well. So I would look for catalyst if you will on that front from the clinical work and potentially partnership as well.

Mark Pykett

And the data coming from the ongoing studies continues to be very impressive. We expect that the investigators involved in those studies will continue to publish and present those data showing quite compelling results relative to the benchmark that we talked about C-PiB, which we think will reinforce the idea that this agent has important competitive advantages in being able to detect lower levels of amyloid with lower levels of background white matter interference.

Spencer Nam – ThinkEquity

Thank you.

Operator

At this time, we have come to the end of our allotted time for questions-and-answer session. I would now like to turn the floor back to management for any closing or further comments.

Mark Pykett

Great. Thank you very much for your time on today’s call and your interest in Navidea. We continue to make very good progress across multiple dimensions of our business and our team has done an excellent job of executing our business strategy and model. We look forward to continuing to keep you updated on our progress, the next steps with Lymphoseek as it moves toward approval and commercial launch and to advances in other areas of our business. Thank you.

Operator

This concludes today’s teleconference. You may now disconnect your lines at this time. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Navidea Biopharmaceuticals' CEO Discusses Q2 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts