Macrophage Therapy Is Navidea's Value Driver

Summary

Navidea's highest value is as a therapeutic company.

A shift from diagnostics will result in better revenue-generating products.

When Lymphoseek is fused with medication instead of indicators, current treatments will be enhanced.

Intro To Immunology

What do Alzheimers, macular degeneration, AIDS, ebola and most cancers have in common? The diseases take advantage of the human immune system as they destroy the bodies of those who suffer from them.

When a pathogen (such as a virus, bacteria, cancer cell, etc.) is found to be present in the body, macrophages, or specialized white blood cells, envelop the pathogen and attempt to digest and destroy it. Once a macrophage detects the pathogen, it becomes "activated" and sends for other immune system cells such as lymphocytes to attack and destroy the pathogen. Macrophage reactions are largely responsible for the immune response of swelling as well.

However, in many diseases, including the ones mentioned above, macrophages subvert the immune system and are used by the pathogen as a means for spreading bacteria or viruses. In other cases, the swelling itself is more destructive than the pathogen involved in the disease. I will go through a few examples in which macrophage response is actually bad for the body.

Cancer

In the typical cancer case, macrophages actually provide an environment in which the disease spreads. In medical lingo,

Macrophages contribute to tumor growth and progression. Attracted to oxygen-starved (hypoxic) and necrotic tumor cells they promote chronic inflammation. Inflammatory compounds such as Tumor necrosis factor (TNF)-alpha released by the macrophages activate the gene switch nuclear factor-kappa B. NF-κB then enters the nucleus of a tumor cell and turns on production of proteins that stop apoptosis and promote cell proliferation and inflammation. Moreover macrophages serve as a source for many pro-angiogenic factors including vascular endothelial factor (VEGF), tumor necrosis factor-alpha (TNF-alpha), granulocyte macrophage colony-stimulating factor (GM-CSF) and IL-1 and IL-6 contributing further to the tumor growth. Macrophages have been shown to infiltrate a number of tumors. Their number correlates with poor prognosis in certain cancers including cancers of breast, cervix, bladder and brain.

In other words, TNF-alpha cause NF-kB to stop the cancer cells from dying. The cells then continually reproduce inside the macrophage. As new cells are produced without old cells dying, the tumor grows and spreads quickly. By time the cancer exits the macrophage, it's often too large and fast-growing to be stopped.

HIV And Ebola

A similar process happens in the spread of HIV and ebola. In the case of these two viral diseases, the virus is unable to live for prolonged periods outside of a cell. The virus will be swallowed (by phagocytes) by a macrophage. Instead of being digested by the macrophage, the virus will inject RNA into the nucleus of the cell and use it to continually replicate the virus. At some point the macrophage dies and millions of copies of the virus are released. As these copies of the virus are attacked by macrophages, the process repeats itself.

Heart Disease and Macular Degeneration

In the case of these two diseases, the macrophage reaction which causes swelling is responsible for the damaging symptoms of the disease. In Atherosclerosis, macrophages accumulate in the arterial walls as they attempt to rid the body of dead cholesterol and triglyceride cells. These macrophages accumulate and calcetize causing swelling and hardening of the arterial wall. In the same respect, the swelling caused by macrophages is a major cause of vision loss in macular degeneration patients.

Navidea's Entry

Navidea's (NYSEMKT:NAVB) drug, Lymphoseek, when fused with technetium-99 is approved as a diagnostic drug. Lymphoseek seeks out the activated macrophages, or the marcrophages which are responsible for the above conditions, and the technetium-99 isotope serves as an indicator of where the macrophage response is. To date, Lymphoseek is an effective diagnostic tool. For example, without a tool such as Lymphoseek, its difficult to differentiate between rheumatoid arthritis and osteoarthritis. When using Lyphoseek to target and highlight the activated macrophages associated with arthritic swelling, the diagnosis becomes easier, making the treatment route more clear.

However, clinical uptake of Lymphoseek has been slow despite its diagnostic value. For this reason, Navidea hired Rick Gonzalez as its CEO. Rick, an experienced CEO will be tasked primarily to increase sales of the existing approved Lymphoseek.

Earlier this week, Navidea announced the creation of a separate division, Macrophage Therapeutics, to develop clinical uses for Lymphoseek. This is due to management's recognition that the profitability of diagnostics doesn't compare with that of treatments. At the same time, the clinical uses of Lymphoseek are potentially far greater than its diagnostic uses. For instance, once a disease is diagnosed, and is determined to be autoimmune or exacerbated by macrophage response, Lymphoseek can be used in two ways to address that disease.

Targeting And Delivery

Current untargeted molecules which are used to treat various cancers are given in large doses in order to saturate the cancer. If the company were to replace the indicator isotope with the active drug, what they have, in fact, created is a novel delivery system which could target tumors without destroying surrounding tissue or the body as a whole. The same principle would apply to any other treatment that is currently unable to be effectively targeted. The benefit of this route of treatment is that Lyphoseek ca be fused to approved drugs with known safety profiles and can shorten the approval path.

A second possible treatment paradigm would be to destroy activated macrophages. In the case of an ebola patient for example, the activated macrophage serves as a sanctuary within which the virus replicates itself. If Lymphoseek were to be fused with a drug to destroy the activated macrophage, depending on the disease, the virus may lack a replication incubator and may be destroyed.

These two novel approaches, should they work, are far move valuable than the diagnostic value of Lymphoseek. This value is not in any way represented in the share price of Navidea.

Stock Performance

Ovbiously the performance of Navidea is less than stellar. On the heels of weak sales of its flagship product, the stock has suffered. Close to 30% of the float is shorted as the company has been unable to generate operational cash flow or earnings. This problem will likely continue for at least until a viable treatment is created. The simple fact is that Lymphoseek has not succeeded in the diagnostic market.

However, the macrophage therapeutics side of the business is what may eventually drive more significant upside for both businesses. In order to effectively administer macrophage therapy, Lymphoseek will be needed to prove that the disease can be targeted. Outside of R&D, Lymphoseek is a profitable drug. The challenge is to create a ecosystem of other treatments which rely on Lymphoseek to ascertain effective targeting.

The Path Forwards

For Navidea to succeed with macrophage therapy, there are a number of steps required on management's part. The first step is to fund research to prove that Lymphoseek can indeed be fused with a therapeutically indicative molecule. That is the easiest step. The next step is to establish that the molecule can indeed destroy activated macrophages without causing collateral cell damage. In order to establish this, the most effective way to move ahead is to establish join trials with companies that have approved treatments in order to test efficacy.

That means a number of things for Navidea as a company. THe first thing which the company has to do is ascertain sufficient funding for this endeavor. Macrophage therapy is far more exciting than Lymphoseek alone, and the therapies should feed into each other. Management's best route is to focus on development of macrophage treatments, and to let an effective macrophage program drive the demand for Lymphoseek. To effectively do this, management has to create a scientific advisory board with sufficient experience in order to determine a basket of suitable illnesses and drugs which are suitable for combination.

The Financials

The case for Navidea is mainly that all the potential downside is priced in to the company, while the therapeutic side is not priced in. THe company has over $30 million accessible on its credit facility and can use that to finance research. Management has effectively reduced cash burn for four consecutive quarters, and should be able to finance development for at least another year without needing capital. There is also significant likelihood of sponsored trials of the new therapy by existing pharmaceuticals.

With a market cap of $210 million, Navidea is a small acquisition for a megacap pharmaceutical. Should Manocept be an effective delivery system for treatment molecules, any company with a large portfolio of drugs may choose to buy Navidea out. As usual, its impossible to put a hard value on a speculative pharmaceutical company, but considering the combination of an approved drug with the potential for a whole constellation of peripheral drugs built around FDA-approved Lymphoseek, some for untreated diseases, the risk-reward on Navidea is one of the best in the space.

Disclosure: The author is long NAVB.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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