Navidea - Pipeline Restructuring Conference Call
Friday 5/16/14 8:30am EST
On the Call:
Brent Larson - Chief Financial Officer,
Michael Goldberg - Interim CEO
Tom Tulip - President and Chief Business Officer
Brent Larson: Thank you, Jessy. Hello everyone and thank you for joining us today. My name is Brent Larson and I am the CFO of Navidea and I'll be moderating this morning's call. On today's call with me are Michael Goldberg, Interim Chief Executive Officer, and Tom Tulip, President and Chief Business Officer. At the end of the call we will hold a brief question-and-answer period.
Before we get started 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 uncertainty associated with 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 agency approvals or actions; market acceptance of any continued demand for Navidea 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 source products and materials; successful compliance with 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 would like to turn the call over to Dr. Michael Goldberg , Interim Chief Executive Officer of Navidea. Michael?
Michael Goldberg: Thank you Brent. Good morning and thank you all for participating in this call. For those of you who may know me from the perspective of portfolio manager at Platinum Montaur I want to make certain you know that I ended my formal relationship with Platinum Partners at the end of 2013. While I no longer have any portfolio management responsibilities for Platinum, and am completely independent from their decision making, I continue to share positions in many of the companies that I invested in while at Platinum. Navidea is one such investment.
As I take on the role of Interim CEO I am representing myself and hopefully the interests of all Navidea shareholders. Let me start by saying that I am extremely excited by the Navidea assets and the actions we just announced are designed to better align our assessment of the assets and the share price which we believe does not come close to properly valuing the company.
Lymphoseek sales are the top priority for Navidea and the actions we are taking today are designed to make certain that Navidea takes the appropriate steps and makes the necessary investments so that Lymphoseek sales reach their potential as quickly as possible.
We have learned a lot over the first few months of Lymphoseek sales. The existing markets for sentinel node mapping had been poorly penetrated due to the limitations of the existing products which do not function well for their intended purpose. Lymphoseek offers a significant number of advantages but the regulatory driven limitations to marketing those advantages as well as the overall market dynamics result in a long and complex sales process.
Our marketing distribution partner Cardinal has been a great help of getting into many accounts and provides the logistical support necessary to detail this type of product. We have seen remarkable stickiness in the accounts that tried the product with remarkably high adoption and reuse after the institution becomes familiar with the technology. We have heard anecdotal reports from some accounts that Lymphoseek is now being used by 100 percent of the surgeons utilizing sentinel node mapping in these institutions. We belief this represents confirmation that once used, the properties and attributes of Lymphoseek enables it to essentially continue to sell itself.
We are seeing no invitations of our existing sales efforts in many of the cancer centers who do their own isotope preparation and, therefore, are not clients of Cardinal's radiopharmaceutical sales efforts. Working with Cardinal, we have developed new contacts at a few of those institutions. Part of the reason for the actions that we are taking today is to augment the effort that led to the successes we have had to date and we are rapidly and extensively pursue those extremely valuable large accounts.
We have also seen the benefits of directly interacting with the surgeon in addition to the radiopharmacy reps, and want to built on those successes. In June, we have a very important event, the PDUFA date for the head and neck sentinel node label expansion for Lymphoseek. As we have shared with the market already, Lymphoseek performed extremely well in the Phase III study. Should we get the label extension in June, we believe our sales efforts will be materially enhanced as we can now open up a new market. In addition, in my opinion much more important, the new label will also enable us to approach surgeons in other specialties and alert them to the fact that a sentinel node imaging agent is approved and available for use, that Lymphoseek is the only such agent approved for such sentinel node mapping based on its successful prospective study in head and neck cancer. Remember, many breast and melanoma surgeons, and even some other cancer surgeons, have been using lymphatic mapping agents for years in an attempt to hopefully identify the sentinel node. Should we get the expanded label for Lymphoseek, Lymphoseek will be the first agent labeled for sentinel node mapping, and in combination with the mechanism data for Lymphoseek, we believe our ability to more deeply and quickly penetrate the broader surgical oncology market place will be enhanced.
We believe sentinel node mapping will become much more widespread than just breast, melanoma and head and neck cancer. We have initiated studies with Lymphoseek in colon cancer and anticipate doing so in certain gynecological tumors and other types of cancers. We'll seek to expand those efforts. Post approval we have been approached by a number of interested parties seeking to collaborate on using Lymphoseek in a variety of new indications. We expect interest to accelerate once we have the new label.
The actions that we are taken today are specifically intended to make certain that the funding is there for the advancement of these efforts to built the Lymphoseek platform so that it more rapidly becomes the cash generating engine that we believed in when we at Platinum first started investing in Navidea, then called Neoprobe, in late 2007 and 2008. I first became involved in Navidea after the phase II results convinced me and my partners at Platinum that Lymphoseek had the potential to be a major commercial product in that it met a large unmet medical need. Based on the data from the phase II, Platinum was convinced that the product would likely work. But our decision to invest was based on our assessment of it as a commercial product. They, actually 'we' at the time, invested solely on the potential of Lymphoseek. Platinum believed then, and to my knowledge, still does now, as I surely do, that sentinel node mapping will be routine in properly staging most solid tumors. Based on our research we concluded that the existing use of nonspecific imaging agents for sentinel node identification was limited only by the fact that the available agent was very crude, did not perform very well, were difficult to use properly, and had numerous side effects. We concluded that the fact that surgeons were using these agents at all was an indication of the significant potential for a specialty-built effective product.
Once Platinum invested in Navidea, work began with Navidea to plan on how to leverage the unique skill set to build a bigger, more robust business. We concluded that Lymphoseek would be the first new radiopharmaceutical developed and approved in many years, and therefore, the skill set would be unique to the market. Management went out and successfully leveraged that skill set by identifying two exciting radiopharmaceutical compounds that required the specialized skill set that Navidea developed while working on getting Lymphoseek approved.
The fact that Astra Zeneca, a large multinational pharmaceutical company with tremendous skills and successes in drug development entrusted Navidea with the development of their radiopharmaceutical is a testament of the value of the skill set that Navidea developed. I believe Navidea has clearly proven that the confidence that Astra Zeneca had in Navidea is well placed as Navidea has navigated the complex regulatory and logistic pathways and advanced the Alzheimer's product into both a phase III and a critically important phase II designed to demonstrate the unique properties of NAV4969. This will, in our opinion, differentiate the product from first-generation products and just like with Lymphoseek offers the potential to replace inferior existing products, expand the market significantly due to the product's unique properties and significantly higher resolution.
Similarly, with the Parkinson's product, Navidea has proven its unique skill set by advancing this product as well into phase III.
Two things changed from our initial projections on Navidea, though. The first was a lengthy delay in getting approved for Lymphoseek, and the second was the emergence of the potential for the manocept platform. The delay in Lymphoseek approval created an imbalance in our cash flow projections making the commitments to fully fund the development of the two in-licensed compounds on the initial timeline unworkable.
On the other hand, the emergence of the manocept platform provides the potential to create a very full pipeline of high value products at a very low cost to Navidea. All of these resulted in the decision to refocus our priorities to maximize Navidea's potential.
We are taking steps to prioritize: #1 Lymphoseek penetration, and thus sales and cash flow; #2 to cut the burn so that Navidea can achieve its objectives without needing the additional equity financings, especially, not anything approaching the current share price.
I consider myself to be first and foremost a shareholders' representative on this Board. I joined the Board to make certain the company had a shareholder centered representative on the Board and at the table when decisions are made regarding financing the company. Navidea is blessed with more opportunities than the current funds can support. The decision to appoint me as interim CEO is designed to provide our shareholders with the comfort that their interest will have a priority in decision making concerning the spent and project prioritization. The recent weakness in the share price is inconsistent with our sense of the current value of the company and the confidence we had in the potential for Lymphoseek.
We believe that it is better to let Lymphoseek sales drive value and not force a financing at these low prices just so that we can more rapidly advance our other Pipeline products. The market has not only not rewarded Navidea for its pipeline, but we believe we are being punished for the spent on pipeline products. Therefore, we are cutting the burn on certain pipeline programs in order to allow the Lymphoseek sales ramp to continue. At the current rate, with the reduced spent, we fully expect that we can realign the spent with revenues in 2015. We believe that our two neuro in-licensed products have been significantly enhanced by the work we have done by advancing the phase III studies. At this stage, Navidea's unique skill set is less relevant for their completion and, primarily, these programs require funding to bring them across the finish line. We will conserve our cash by decreasing our investments in these products while we seek to partner them to companies that are longer on cash and shorter on opportunities than Navidea.
We'll cut internal cost accordingly with the goal of preserving our capabilities to re-accelerate the program if partnered or if cash flow from Lymphoseek supports a more aggressive development effort.
As announced yesterday, I'll be taking on the role of interim CEO with the primary responsibility of overseeing the reorganization and certain external interaction until the appointment of a new CEO. We have initiated a search for an experienced CEO with commercial product development experience specifically in sales and product line extension. The Compensation, Nominating, and Governance Committee has initiated that search. Until that position is filled, the entire Board has committed to assisting management on these initiatives. We have a tremendous breadth of experience and contact on the Board, ranging from sales, general management and business development, to clinical research and development. Mark Pykett has graciously agreed to continue to oversee the operation and to head the development of the manocept platform. I can think of no one better to lead that effort. We have a number of potentially significant near-term opportunities with partners for this platform - and Mark will oversee those efforts. In fact, Mark could not make this call because he is working on a very exciting deal based on the manocept platform.
Navidea is loaded with underappreciated gems. We have a best-in-class US approved product that we expect will get an expanded label making it the first sentinel node imaging product approved in the US. The scaffold for our lead agent Lymphoseek is manocept which we believe is a platform useful for many applications ranging from improved imaging with different imaging modalities that link to a variety of existing and to developed important detection agents, to other diagnostic and potentially even therapeutic products. This will extend the existing market and open up much higher pricing opportunities. The underlying agent has been approved and demonstrated safe and effective. Mark and his team have demonstrated numerous potential applications for this scaffold and we are going to focus on leveraging this asset much further. Manocept is a linear chain like chassis engineered to be of sufficient molecular weight with multiple link or sites enabling it to carry many differently linked entities as a payload delivery system while not losing its very specific targeting capabilities. As a complex scaffold, it shares many of the difficulties and attributes of polymer products like heparin, low molecular weight heparin, and [???]. These types of products are difficult to get approved but once approved are extremely difficult to copy. So developing generics is expensive and time consuming, and we believe this creates a tremendous barrier to entry.
The approval of Lymphoseek, the first product derived from the manocept platform is so important to Navidea's manocept business development efforts, in that it paves the way for many different product opportunities. The benefit of having a scaffold with a linker approved enables Navidea on its own and with partners, to more rapidly identify and ultimately develop multiple new innovative products in parallel and at a fraction of the cost and time compared to developing similar products with an unapproved, undeveloped scaffold.
As an investor in small cap healthcare companies, I see a lot of opportunities. There are no perfect companies. Every company goes through growing pains, and I have never seen a company manage to perfectly time their product development. The skill set necessary to take a company from stage to stage is often very different and management changes are often necessary to optimize performance. In the case of Navidea, of the time that I have invested, we have seen great progress. David Bupp was CEO when I first invested and he must be commended for acquiring the rights to Lymphoseek and getting the product into testing and through phase II. Mark Pykett did a fantastic job navigating difficult regulatory pathways and getting the product approved in the US, advancing it to the cusp of approval in Europe, and managing a very successful launch. He along his team have advanced two in-licensed products into phase III and advanced an entirely new product pipeline here at Navidea via manocept.
Now Navidea needs a new skill set. Lymphoseek will soon be generating significant cash flow and we want to maximize those revenues by further and more rapidly extending both the indication and the markets for Lymphoseek. That will ensure that we can fund our significantly expanded pipeline from our self-generated cash, and not do highly dilutive financings.
The anticipated cash flow will justify a market value that in our view is exponentially higher than current prices based on Lymphoseek alone. We do not want to raid our current cash cow and squander shareholder value by spending our precious cash on future cash generating programs until the market is going to start giving us credit for an exciting pipeline. We are committing to you, our shareholders, that we will husband our cash, that we focus on efforts that are already underway to continue the growth of Lymphoseek. We have no plans to do any dilutive financing to fund our pipeline. Cash flow from Lymphoseek will have to be adequate. Based on our projections, we will have ample cash flow to fund our expanded pipeline but the timing of those investments will be better scheduled to coincide with cash flow periods. We believe in time our pipeline is just too groundbreaking not to be recognized. We will continue to move the pipeline forward as best we can. We just will need to ensure that it's funded without the need for further dilutive financings.
I thank you for taking the time to get updated on Navidea's story. I look forward to sitting down with the analysts and reviewing the budget in detail. I look forward to meeting with and speaking with the amazingly loyal and passionate investors that supported Navidea over the years. And I look forward to going out on the road soon and sharing this great story with new potential investors as well. Finally, I look forward to speaking with you all again in about a month after the next critically important event in the Lymphoseek story, our upcoming PDUFA date on the sNDA.
I will now open the call for questions.
Operator: Thank you…[instructions]... Our first question on the line is from Kevin DeGeeter from Ladenburg Thalman.
Kevin DeGeeter: Good morning guys. Thanks for holding this call. Just one question from me. Can you provide some context as to how we should think about a revenue run rate on Lymphoseek that may bring the company to cash flow break even based on your updated budget, but not necessarily a point estimate but a reasonable range to think it out. Thank you so much.
Michael Goldberg: Brent can you just provide Kevin with what, I guess, we told the market right now for what our projections are?
Brent Larson: Sure, I think we've told the market right now our projections are for $5-6 million of revenue in 2014. The other guiding piece of information I think that is probably relevant here is that it is anticipated that by midyear next year, that it will be at about a 50% plus market share in the Lymphatic mapping market as it exists. So, I think the combination of those two would indicate to Kevin, just understanding what the number of procedures and the penetration rate that I think we do of lymphatic mapping right now, giving him a pretty good idea…given the pricing and so forth that we have talked about so far.
Michael Goldberg: Kevin, let me add that clearly one of the issues that we want to address is that, while we talk about the existing sulphur colloid and other lymphatic mapping products, we believe that that is a fraction of the market. When we talk about a 50% penetration, that is only of the existing market. We think that a receptor taken today, or designed, can dramatically expand the market. We believe, as I have indicated in the prepared remarks that we are shooting for expanding this to most, if not all, solid tumor surgeries. In terms of the numbers, I think it is instructive if you look at the numbers in terms of what we reported so far, and the projection that the company is comfortable giving for year-end numbers, you can see that the run rate is going up relatively nicely. And we don't see any reason why that rate should not continue. So, you could say that by around year end - early next year, the monthly revenue rate will go a long way to cutting our burn. So, our target is to get the burn down so that by year end, early next year, we have relatively low burn and then, if revenues continue to track as they have been tracking, we should get into a pretty good cash generating mode earlier rather than later in 2015.
Kevin: Great. Appreciate the feedback and thanks again for the call.
Operator: Thank you. Our next question is coming from the line of Steve Brozak with WBB Securities. Please proceed with your question.
Steve Brozak: Well, good morning Dr. Goldberg. I obviously want to congratulate you on coming in and representing the shareholder. You mentioned one item - and it is something that struck me - when you said the crude difference in between what was the state of the market when you so astutely invested in Neoprobe, Navidea, and what you saw as the potential for Lymphoseek. Can you describe how that (indisernable) difference is even greater today and what you think the opportunities are? And I have one follow-up question after that.
Michael Goldberg: Thank you Steve. Look, the issues that got us excited - when actually you were the one that brought us that deal, thank you - the issues that got us excited was the fact that doctors where using a product that didn't actually stick in the sentinel node. So, there was a whole bunch of issues that when you are looking at this you are making clinical decisions based on a product that was rapidly transiting through a node and we did not know if that was where the sentinel node was or it was you just a node you happened to find by the time we did the right imaging. So, the fact that such a high percentage of physicians were looking for these and trying to make clinical decisions based on a very, very imperfect product got us excited. The beautiful thing about Lymphoseek is you can dose it and know when you are finding it, it stuck in the first node, or the sentinel node. The other piece of this is, there is a certain attributes from the perspective of how to prepare the material, the ease, the pain-free nature of this. We got some studies underway that we hope to be able to use in furthering the marketing of this product. So, there are many,many attributes to these that actually lead to conclude that we now have a sentinel node agent, and we now have - which we did not have when we made the investment - which is the phase III results in head and neck, which shows at least in that tumor, that we are clearly identifying the sentinel node. But if I am a physician and I am looking to make a clinical decision based on what has transpired in the nodes, in my opinion as a former lab surgeon if you will, I would not count on any other agent other than Lymphoseek simply because of what I know with Lymphoseek - it sticking in the first node. What I know about the other agents is, who knows where they went and came from and which node we are looking at. So, if I want to make a decision, the nice thing about Lymphoseek is, it gives you the opportunity at the time the surgery to do a very careful, detailed analysis of the note that you pulled and, I believe that is why this product will take over the market.
Steve Brozak: Ok. And the follow-up to that is obviously a little bit more granularity on the sales and -quote-unquote- the repeat sales. I think there was some misunderstanding when facilities were ordering and then had some sort of hiatus. Can you explain how it wasn't a situation where they were not reordering, it was just a function of fact that in some small facilities, there is a difference on how they do procedures? And I'll jump back in the queue. Thank you.
Michael Goldberg: Right. So, when we say its near universal reorder, we can't say it's everyone has reordered because there are some small institutions that don't order every month or don't do these procedures that frequently. So, we have some institutions that, you know, we see that they order and then it may take a few months before they order again. So, some of the newer institutions, the smaller ones who have ordered, we just have not seen the reordering rate. So, we can't say with 100% certainty that we get reorders every time but we see a very, very high reorder rate.
Steve Brozak: Great. Thank you, and good luck with everything.
Michael Goldberg: Thank you.
Operator: Thank you. Our next question is coming from the line of Steven Dunn with LifeTechCapital. Please proceed with your question.
Steven Dunn: Good morning guys. Just to put, I guess, a finer touch on exactly what Navidea is now. Would it be a fair characterization to say that it is now a CD206 mannose receptor company and Lymphoseek was its first product?
Michael Goldberg: Yes, Steve, I think that is reasonable. Clearly, we are excited by the scaffold and, yes, we think that having an approved scaffold, especially, as you know from the chemistry, it is very complex to get these molecules approved. And the potential for this product is significant. But I would not dismiss the skill set that we developed in getting radiopharmaceuticals approved. So, if I had to bet on one clearly I am betting on the pipeline - I mean platform - over the skill set, because I think on a return basis that is a much better return for us, which is why we think that the two neuro products why we think they are tremendous, tremendous commercial products. We don't have any further significant differential advantage because, right now, all they need is funding. All the hard work and the specialized skill set, we have accomplished. So, on the manocept side, there is a lot of interest, a lot of potential collaborations, where we could leverage what we have already done without having to invest significantly, and still capture a very significant market opportunity based on providing them with this platform technology.
Steven Dunn: Ok. I guess we are talking about cutting the burn, especially, the CNS imaging program, are you going to formally suspend all those trials, slow them down, or what exact mechanism are you going to do to reduce that burn.
Michael Goldberg: We are going to dramatically slow them down with the goal of being in a position to either speed them up with a partner, or once we get our cash flow up, hopefully in the first half of 2015.
Steven Dunn: OK, So in Q1 of this year our cash flow was a little over $9 million. How would we envision cash burn going forward, just kind of a feel for it, are we going down $2 million a quarter, a million down a quarter, what should we think going forward on the cash burn?
Michael Goldberg: We sit down with you in a little bit to go through that and in a lot more detail. For now, I think what we want to leave it with is, based on cash that we have, based on the burn that we are going to adjust to, and our projections for revenues, we are making ourselves very comfortable that we will not need to raise any cash to meet our spent and our revenue projections.
Steven Dunn: Ok. My last question. Michael, are you getting any extra compensation as interim CEO?
Michael Goldberg: No, I am not doing that for compensation. I am a large enough investor that I will be more than well compensated by the closing of the gap from where the current valuation is to where I believe it should be. That being said, I will be happy to keep on working on this project and bringing some additional support to this, and we will do whatever we can to make sure that this company gets its value to where we believe it should be.
Steven Dunn: Ok Great. Thanks guys so much.
Operator: Thank you. Another reminder ladies and gentlemen… (instructions) ….Our next question is from the line of Mark Nordlicht with Platinum Partners. Please proceed with your question.
Mark Nordlicht: Ok Michael. Thank you for doing this. I just want to take this opportunity from Platinum just to thank Mark Pykett for all his efforts and we are certainly glad that he is continuing to help us out and oversee the manocept platform. Michael, can tell you us a little bit if there will be an opportunity at some point in time to raise the price of Lymphoseek, and can we do that without crimping demand?
Michael Goldberg: Well, first of all Mark, I want to echo your comments again, I don't think we can say enough for the contribution that Mark has made and for how well we expect him to do in running this manocept pipeline. We are very, very excited about that and I look forward, hopefully sooner rather than later, in updating you on some interesting developments in that area. With respect to pricing that is always under discussion, under review. I'd rather not be specific in answering that question except to say that when we get the - as soon as we get the- sNDA next month, clearly that should be first and foremost on our agenda to begin to explore with our partner Cardinal, both in the US and around the world, what impact that should have on pricing because we have a differentiated, unique product and I don't think it is unrealistic to expect that we could consider price increases as time goes on.
Mark Nordlicht: Ok, and just one follow-up, I guess. In terms of, obviously, the pricing affects the size of the market opportunity for us, but also you spoke a little bit about your expectation that this is a greater market than the existing sulphur colloid market. Expanding beyond breast and melanoma, perhaps you can give us an idea, even within breast and melanoma, how much larger can the market be than the existing sulphur colloid market?
Michael Goldberg: What is interesting is that there are a number, prior to Lymphoseek approval, there were many leading institutions that specialize in treating cancer that had close to 100% use of an agent, and sometimes a combination of agents, sulphur colloid and blue dye, in every surgical procedure that they did. Around the world, people are using various lymphatic mapping agents, but clearly not a product that works as effectively as Lymphoseek, for all different types of cancers. And pricing is pretty significant around the world. So, we know that this is a product that has significant utility and now that we have a product that actually works and works for its intended purpose and does so safely and effectively, I don't think that there is any reason why we don't expect to dramatically penetrate close to the entire markets where it is already being used. I think this will be standard of care, and I believe as well, based on some work that we are doing and that others are doing around us, that other solid tumors - 2.5 million solid tumors that are being operated per year in the United States - a large percentage of that should be amendable to better staging with an agent that actually can identify the sentinel node.
Mark Nordlicht: Ok, thank you very much.
Michael Goldberg: Thank you, Mark
Operator: Thank you, the next question is from the line of [indiscernible], a private investor. Please proceed with your question. [caller did not come on line]… Ok, we'll move on. And it appears there are no further questions at this time and I would like to turn over the floor to management for any additional concluding comments.
Michael Goldberg: I just would like to conclude by, again, thanking all of you for taking the time today to learn more about Navidea. I look forward to communicating regularly with you as we have many, many upcoming events that I believe will help us move this program, and move the company forward. And I can tell you that the Board, the management team, the employees and everybody involved in this company are excited by the opportunities that we are presented with and are eager to generate real value for you, our shareholders. Thank you very much.
Operator: Thank you ladies and gentlemen. This does conclude our conference call, Thank you for your participation and you may disconnect your lines at this time.