Back in July, I wrote an article outlining the reasons why I consider Navidea Biopharmaceuticals (NAVB) to be a "Diamond In The Rough". Even though Navidea stock had run up approximately 40% over the four weeks before I wrote the article, I still felt that it had plenty more room to run, and fully expected it to reach the $5 to $6 level leading up to it September 10th PDUFA date.
What actually happened was an unexpected pullback, from a high of $4.68 on July 23rd to its most recent close at $3.64. During that time, biotech investors have watched stock after stock get slammed post approval by hedge funds using massive short positions to pile on to post approval profit taking to drive the stock prices right back down. Obesity drugs from Arena Pharmaceuticals (ARNA) and Vivus, Inc (VVUS), Amarin Corps's (AMRN) Vascepa, Horizon Pharma's (HZNP) Rayos, and Talon Therapeutics (TLON.OB) Marquibo all received FDA approval, yet all fell sharply immediately following approval, and all have yet to recover to pre approval levels.
While the lack of a continued PDUFA run up is somewhat disappointing, I still feel that Navidea Biopharmaceuticals has a strong foundation in place. Navidea's promising drug pipeline and strong balance sheet make it one of the most attractive speculative investment possibilities in the biotech sector.
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
Navidea has four very promising drug candidates at varying stages 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 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. Navidea has recently received approval for Phase 2 trials for AZD4694, and trial enrollment is expected to begin in the next few months.
4. Altopane: Navidea recently announced a licensing agreement with Alseres Pharmaceuticals (ALSE) for Altopane, or CFT (E-IACFT) injection, an Iodine-1236 radiolabeled imaging agent for use as an aid in the diagnosis of Parkinson's disease, and a potential use as a diagnostic aid in dementia cases.
An investor must view balance sheet strength as a relative thing when investigating developmental stage biotech companies. Biotech companies spend many millions of dollars funding research and development of drug candidates and conducting clinical trials prior to bringing a new drug to market. In addition to partnerships with established pharmaceutical companies, these companies often depend on the sale of stock to raise the cash needed to bring a drug candidate through the FDA approval process. Choosing companies that manage their cash efficiently and avoid dilutive stock offerings is a major factor in deciding which companies to invest in.
Navidea has a strong balance sheet, with $17 million in cash on hand as of June 30th and very little debt. The company also recently announced that it had completed a $50 million credit facility agreement with Platinum-Montaur Life Sciences, which Brett Larson, Navidea CFO, discusses in the Q2 results release:
"Access to a non-dilutive, $50 million credit facility demonstrates yet another facet of the financial flexibility we have established to help ensure that our development programs continue to advance and to support potential additional pipeline growth as we approach revenue generation from Lymphoseek."
Given their strong financial position, and assuming FDA approval, it would appear that Navidea is well positioned to begin marketing Lymphoseek while continuing to support development of their pipeline candidates, and to avoid dilutive stock offerings. The possibility of further delay by the FDA is always a concern, but having already had the Lymphoseek PDUFA date delayed once, I view a further delay at this late date as highly unlikely.
Navidea stock has traded between a 52 week low of $2.05 and a 52 week high of $4.77. The company has strong insider (6.6%) and institutional (18.6%) ownership. The short ratio has come down significantly since my last article, from 35.4% on 6-15-12 to 9.2% as of 8-15-12. There are seven Wall Street analysts covering Navidea, with price targets ranging from $5.75 to $9.00, with an average of price target of $7.28. Even the bottom target of $5.75 represents a 37% increase over the current $3.64 price, and assuming Lymphoseek approval and successful marketing, I view this as an easily attainable target.
While the PDUFA run up play may or may not be dead for the moment, Navidea Biopharmaceuticals promising and growing pipeline and their solid financial position continues to make this "diamond in the rough" a compelling long term investment story.
Disclosure: I am long NAVB.
Additional disclosure: 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.