Navidea Biopharmaceuticals (NYSEMKT:NAVB) Q1 2016 Earnings Conference Call May 17, 2016 8:00 AM ET
Sharon Correia - Senior Director of Corporate Communications
Michael Goldberg - Chairman
Tom Klima - CCO
Jed Latkin - Interim COO
Stephen Dunn - Life Tech Capital
Good day, ladies and gentlemen, and welcome to the Navidea Biopharmaceuticals First Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]
As a reminder, this conference call is being recorded. I’d now like to introduce your host for today conference, Miss Sharon Correia. Ma’am, you may begin.
Thank you, Kelly. Hello, everyone, and thank you for joining us today. I’m Sharon Correia, and I’m the Senior Director of Corporate Communications for Navidea. On today’s call are Dr. Michael Goldberg, Navidea’s Chairman of the Board; Tom Klima, Chief Commercial Officer; and Jed Latkin, Interim Chief Operating Officer.
At the end of the call, we’ll hold a brief question-and-answer session period. Before we get started, we would 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, our ability to repay our debt, the outcome of the CRG litigation, the difficulty of predicting the timing or outcome of product development efforts and FDA or other regulatory agency approvals or actions; market acceptance of, and continued demand for Navidea’s products, clinical and regulatory pathways, the impact of competitive products and pricing, patents or other intellectual property held by competitors, the availability and pricing of third-party sourced products and materials, successful compliance with government regulations and such other risks and uncertainties 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. Michael Goldberg, Chairman of the Board of Navidea.
Thank you, Sharon and good morning, everyone, and thank you for participating in this morning’s conference call. Before I hand the call over to Tom Klima, our Chief Commercial Officer, to go through the sales performance of the third quarter and more importantly to review where we are with respect to executing on our strategy to turn Lymphoseek into the standard-of-care for sentinel node in lymphatic mapping.
I want to spend a few minutes to review the changes we have made at the company. As those of you who have listened in on the two macrophage therapeutics update calls know, Navidea is being positioned to properly maximize the three major growth drivers that all M&A from its proprietary activated macrophage targeting technology.
The first is the commercial product that is currently approved in the US for sentinel lymph node mapping in breast cancer, melanoma and oral cavity cancer, sentinel node detection as well as lymphatic mapping in all solid tumors. The product was launched in the U.S. in the second quarter of 2013 with a very narrow label and with essentially no commercial lift to Navidea as we were relaying entirely on Cardinal Health for sales and distribution.
We only received its full label in the fourth quarter of 2014. The product was launched at the five year exclusive distribution agreement with the country’s leading radio pharmacy distributor Cardinal Health. Since the product launch, Navidea has augmented the distribution agreement by investing in medical sales liaisons and then with the approval of full label with its own direct sales force that was initially deployed just about one year ago. As Tom Klima will explain the process for gaining adoption is arduous, but once adopted the product is very quickly -- is very sticky and our sales team is freed up to focus on new accounts.
In addition, our product is configured with a cardinal distribution model and we have learned that for many important accounts, the product representation needs to be reconfigured to enhance and accelerate adoption. This is clearly the case in Europe, which is why with our partner, Norgine, we elected to introduce the product only after we get a new reduced mass bio-presentation approved, which will better support the European distribution model and achieve premium pricing.
As we continue to build the sales and marketing efforts for Lymphoseek in cancer, we are developing entirely new and much larger markets for the product. We have recently completed a small grant funded study of Lymphoseek in a cardiovascular indication. Lymphoseek was dosed subcutaneously in the human study, we are very encouraged by the results and our collaborators are working with us to get these results into a peer reviewed publication as soon as possible.
Based on these results we will be seeking follow on grants to meaningfully expand the scope of our work in cardiovascular indication. As we have also indicated, we are waiting IRB approval to begin another grant funded study to dramatically expand the market for Lymphoseek the autoimmune markets first by exploring the use of Lymphoseek in diagnostic and disease monitoring in rheumatoid arthritis. There are many other indications we will pursue hopefully funded to a meaningful degree by grants as we continue to demonstrate the breadth of activity of our commercially available product. Of course, everywhere we see diagnostic utility, we have added confidence in the ability to the tailor the targeted backbone to deliver the therapeutics.
So as you can all appreciate the primary issue that faces Navidea at this time is how to prioritize spending and focus so we can develop the best product as quickly as possible with the minimum dilution to our shareholders. To achieve this goal it became clear that we needed to make some significant additions for the scientific capabilities of the Board at Navidea.
Accordingly, the Board elected two excellent board members with significant immunology as well as biotechnology industry experience Dr. Mark Greene and Dr. Tony Fiorino. To make room for two new Board members and in an effort to keep the cost reasonable for company of the Navidea size one of the two ex-cardinal Board members whose term was ending this year anyway agree to step down.
Once the new Board members are seated it became clear that the direction of the company was going to be driven by the science. At this time and with the most recent addition of Michael Rice we feel we have a right sized Board for a company on Navidea size, as well as the right skill sets for directing Navidea as it executes on a strategy that is designed to maximize return on its powerful technology platform.
The next step is to continue to build the right management team with the appropriate skill set and experiences help navigate Navidea in the various Macrophage Therapeutics spin-offs. We recently announced that Jed Latkin will serve as our interim Chief Operating Officer to direct the company’s day-to-day operations and act as Principal Executive Officer and Principal Financial and Accounting Officer.
Until the leadership of Tom Klima we are confident that the Lymphoseek sales effort will continue to grow and we are excited by the progress he and his team have made in some very big multi-hospital account that should provide us the expected growth in the coming quarters. Under leadership of Dr. Fred Cope, we are confident that we will advance a number of new indications for Lymphoseek and have the potential for making Lymphoseek a blockbuster product.
Finally, with the help of the entire Navidea team and our Macrophage Therapeutics scientific advisory board we are making great progress on the development of game changing therapeutics. We will continue to host MT update conference calls as we continue to generate new data that we will use to partner and seek additional Macrophage Therapeutics specific funding. I am certain that the recent precipitous drop in our share price, as well the recent litigation initiated by our senior secured lender CRG concerns all Navidea investments.
As we are in litigation I am limited by what I can say, but clearly CRG’s actions have hurt Navidea and its shareholders and I can assure you that we are working on three things; number one, prevent their action, which we believe are clear violation of the terms of our loan agreement and thus it is CRG who has defaulted on the agreement and not Navidea. As we do not believe we have violated any of their debt convents and we have never missed a single debt payment.
In fact in depositions under oath, CRG confirmed we have never even been late on a single payment, management and the Board feel that CRG’s overly aggressive actions have open themselves up to potential legal liability that may include, but are not limited to equitable subordination, debt and validity and other potential serious counter claims by the company.
Number two, we will seek to replace them as a lender with someone better and hopefully less expensive. When we signed on with CRG last year we were at about $6 million per year revenue run rate and loosing over $20 million a year with three years left on our cardinal distribution agreement.
Now we are at a revenue run rate of $16 million plus transitioning to profitability and less than two years from restructured distribution agreement that will significantly alter the revenue split in our favor.
In addition, we have made quantum leaps in the therapeutic assets development, which was only a concept a year ago and now we have two active compound families in development. Plus, we have the progress with the subcutaneous administration in both cardiovascular and soon in rheumatoid arthritis.
And finally, we may seek to prosecute counter claims for them. Lenders with senior secured debt and access to confidential information have the right to protect their debt, but if they use their rights inappropriately there are risks of serious liability. To that end CRG went through an extreme step and froze all our bank accounts requiring that we rush into Court to get it judged to reverse that action.
We were successful, we had a hearing on Thursday terming as CRG can reinstitute the freeze sending a trial to determine the facts or if the freeze to be lifted until a court hear their basis claiming their right to shutdown the company until the loan is repaid. We will argue that as we have not violated any covenants and we haven’t missed a single payment so CRG has not right to inflict the damage they did and they should be prevented from taking this action, again until and unless they get a judgment against us in a Court of law.
In the interim, we will seek to replace the loan we have already begun discussions on that score and we are very confident that with time to competitively shop with lenders we will have no difficulty replacing CRG with a better and less expensive loan.
With respect to the situation with our accountings Navidea is focused on developing great products that will have a major impact on healthcare worldwide. When it comes to our accounting we are a plain vanilla and simple and we don’t look to be aggressive or trend setting in any manner. Please do not read anything relating to the integrity of our accounts into the fact that BDO quit because I can assure you there is nothing there. BDO would have had disclose the fact that there was an accounting issue if that was the reason, had they quit because we refuse to pay them that would also have had to have been disclosed.
In my conversation with BDO when they call to let me know that they are quitting, they were crystal clear, they are quitting because the national office decided they didn’t want to represent us. The partner who is working with us had no say in the matter. Why would an accounting firm quit on a full fair client. Clearly we were able to identify and hire a new leading accounting firm to replace BDO on extremely short notice and I must commend the team at Marcum for agreeing to step in and get their hands around things so quickly. Had we not hired Marcum and had they not worked so diligently so we could file our first quarter 10-Q on time, we would have an event of default under our CRG loan.
Despite all the noise the company remains laser focused on the test at hand and that is to continue to grow Lymphoseek sales and to continue to develop the extensive product portfolio that Navidea has. As the products continue to develop management will turn its attention towards gaining more acceptance with institutional investment. The addition of Michael Wright, who has the deepest appreciation of life science institutional investors of anyone I know will be a significant help in these efforts.
I would like to turn the call over to Tom Klima to provide our Lymphoseek commercial update.
Thank you, Mike. Good morning everyone and thank you for joining the call this morning. Our commercial progress in 2015 and so far in 2016 and the achievement of 106% product revenue growth in Q1 2016 from Q1 2015 have been a direct result of the new strategy we implemented to better leverage our 2014 label expansion and to exploit Lymphoseek’s clinical and operational benefits in breast cancer, melanoma and head and neck oral cavity cancers.
A major element of this effort was the hiring and training of a new salesforce focused on targeting the oncology treatment teams which has grown from a pilot program of two sales professionals initially to 12 sales professionals supported by 3 MSLs in 2015 and now to 16 sales professionals supported by 4 medical science liaise.
As expected we began to realize the impact of the new strategy in the second half of 2015 and we continue to see their impact in 2016 as we are building a strong foundation for our growing business, to-date the salesforce has already penetrated more than 20% of the targeted hospitals with high to medium potential and we have been able to maintain high reorder rates.
We have made much progress, but significant opportunities still exist. We continue to gain additional inside into the brand dynamics as a result of our newly implemented commercial strategy. Specifically it became apparent that the sales cycle is on average closer to sin months because physicians habits are entrenched and the hospital sales process is very complex. And given accounts there are multiple decision makers which include nuclear medicine, radiology, surgery and administrators that play a key role in either making a decision or in some cases resisting change.
We also lend at our strategy to communicate directly with these decision makers as the treatment team as an impact, but the process is lengthy and can be slow. To help increase the rate of adoption and penetration we have expanded our salesforces as previously mentioned, which will not only open up new territories for us, but will give us greater access to key customers while increasing our call frequency with both new and existing accounts.
Our expanded salesforce will focus on delivering a promotional message that reinforces the clinical value message and the business value proposition of Lymphoseek. They will continue to focus on opening new accounts specifically targeting higher opportunity accounts and they will focus on an increasing utilization in existing accounts for Lymphoseek has been tried, but has not been widely adopted.
The expansion of our salesforce will also allow us to work on additional access program, which will be aimed at increasing the rate of adoption and full conversion to Lymphoseek across our entire business. These programs include existing programs such as the Lymphoseek trial voucher program and the Vial Consignment program which we are just starting to see the impact from. We’re also finalizing new innovative programs that I am extremely excited about. These initiatives are aimed at the largest opportunity cancer centers and multi-hospital systems, which we expect to have a significant impact on our business and growth going forward.
We will also increase our promotional activity through non-sales force efforts including having a present at 20 national and regional medical conventions where we have access to many of our key customers, expanding physician peer-to-peer educational and promotional efforts, and working with advocacy groups to expand awareness of Lymphoseek among patients.
Our collaboration and working in relationship with Cardinal our distribution partner has continue to strengthened and evolve since they came onboard about a year and a half ago, together we have developed several programs to help our customers gain better access to Lymphoseek. By building our own Navidea sales force we’re not only complementing and enhancing the ongoing efforts from Cardinal to maximize the current indication, but we’re also building additional relationships and infrastructure and a footprint that will help us support and launch future indications such as RA and other immune disease detection applications.
As a reminder our distribution agreement with Cardinal ends in March of 2018 and we are currently evaluating what is in our best interest going forward. Ultimately we want to target and reach 100% of the relevant market for our cancer indications and potential future non-cancer indications and it is our understanding that Cardinal currently serves approximately 50% of the addressable market. We are in the process of evaluating what the agreement with Cardinal should look like going forward and we feel there are many viable options. We will keep you informed as things evolve.
Let me now turn my attention to Europe. Given the required resources to bring Lymphoseek to market in Europe beyond the regulatory approval, we elected to enter into a partnership in 2015 with Norgine who has been collaboratively sphere heading market access activities. Norgine has the infrastructure resources and expertise to effectively launch Lymphoseek throughout Europe.
Our collaborative activities have been productive and as a result we still expect Norgine to launch Lymphoseek in Q4 of 2016. As a reminder we achieved approval for the product in late 2014 based on our Phase 3 clinical data, further market access activities driven by Norgine as well as tailoring the Lymphoseek presentation for the European market have been underway prior to commercialization.
In order to better support the European distribution model and importantly to achieve premium pricing for Lymphoseek throughout each country, we have been working diligently over the last year on the development of the single dose file adapted for this market. The single dose file required a technical qualification at a European facility and PAN-EU approval for this activity. Approval for this single dose file is expected in Q3 2016, which coincides with commercial launch of Lymphoseek plan for Q4. These efforts will also eventually support the distribution of cold kits in the U.S.
Finally I’d like to discuss our efforts support expansion of the market for Lymphoseek’s existing U.S. label enabling medical adaption of Lymphoseek to the broader imaging market is a priority for us. We’re conducting post marketing trials to optimize protocols and generate data. These studies all have the supporting and accelerating the adoption of lymphatic mapping and SLNB [ph] using Lymphoseek. This includes Lymphatic mapping of other solid tumors with an initial focus on colorectal, cervical, anal and endometrial cancers, in which the American Cancer Society 2016 report notes that there are approximately 225,000 newly diagnosed cases per year combined.
Importantly, the market opportunity for imaging in all addition to solid tumors far exceeds that of the breast cancer, melanoma and oral cancer surgical markets as the most recent AC Best 2016 cancer facts and figures reports disease incidence in the U.S. alone for applicable tumor types is greater than 800,000 new cases per year.
As a reminder lymphatic mapping has not been commonly relied upon in staging of other solid tumor types due to lack of performance by other agents and used off label. For the first time with an approved indication Lymphoseek could offer physicians and patients a product that can achieve the required performance, improving lymph node mapping and sentinel node detection, while leading to less extensive more focused surgeries.
As a brief update on our activities our pediatric study is open and enrolling patients in four or five sites. The cervical study is now open in three sites and has enrolled five patients to-date. The investor initiated endometrial trials also open and enrolling patients and finally we expect to begin enrollment in the anal rectal trial in the second half of this year, nearly all of our related studies are funded by NIH grand substantially deferring the cost of what could otherwise be a very expensive than ever.
We’re also evaluating potential path forward to develop a probe to detect Lymphoseek intra-operatively so we can access the large unmet medical need from Lymphoseek and other solid tumors that are currently are primarily done with robotic surgery.
In summary we’re seeing impact from the new strategy in our commercial efforts and we are rapidly building a strong foundation for future commercial efforts and future success. Keeping the patient and our customer at the center of everything we do ultimately creates value for everyone in the Navidea community. I want to thank all of the employees at Navidea especially the commercial team for their dedication, great work and continued efforts.
I would now like to turn the call back over to Mike.
Thank you. Thanks Tom for providing the commercial update. Now I’d like to take a few minutes to provide an update on our Manocept immunodiagnostic and immunotherapeutic programs. Although many of you have participated in our last two development update conference calls, I feel the reiteration of these topics is important.
For the immunodiagnostic prospects our strategy is to exploit the activated Macrophage targeting ability of the Manocept platform as we seek to expand the Lymphoseek label and open new market opportunities into a broad range of disease areas such as rheumatoid arthritis, cardiovascular disease and Kaposi’s Sarcoma.
I’ll remind you that the label expansion for other indications requires an IND amendment for a new IV root of administration for Lymphoseek prior to proceeding in the clinic. Subcutaneous intradermal and solid tumor administration are already included in the current label. Following our successful FDA meeting in March, we agreed to submit a Lymphoseek IND amendment to the FDA that allow initiation of IV clinical studies of Lymphoseek in the second half of 2016.
Our primarily focus today will be in rheumatoid arthritis. Why you might ask. Early R&D, non-clinical and animal model study results using to Manocept identified a real prospect to use of Lymphoseek in the detection of inflamed joints in rheumatoid arthritis. This represents us with a late with the large defined market opportunity with documented unmet medical needs in early diagnosis and disease monitoring for RA. RA can be hard to detect because it maybe begin with settle symptoms such as achy joints or joint stiffness especially in the morning.
Also many diseases behave like RA early on for example gout and lupus there is no single test that confirms an RA diagnosis. Current diagnostic tools such as x-rays, ultra-sound and MRI are reasonable, but still fall short of being able to quantitatively measure information and the underlying macrophage inflammatory component, which is a key driver of RA progression. This diagnostic results in billions of dollars being spent each year unnecessarily on therapies which may also results significant side effects.
In our primary market research, two aspects of the current unmet medical needs identified were, early diagnosed and monitoring of disease progression and or drug response. Early diagnosis and treatment improves outcomes. In patients with rheumatoid arthritis joint damage occurs early, often from the first two years of disease and is irreversible.
Additionally once treatment is started it becomes necessary to objectively monitor progression and measure how well a treatment is working or not. Having an effective diagnostic agent as well as an agent with the potential to provide the ability to monitor the agent’s activity and the dose could be a major improvement in the ability to safely and effectively treat this large patient population.
There are approximately 10 million patients in economically advantage countries alone diagnosed with RA, of which approximately half are misdiagnosed due in large part to a lack of inaccurate and cost effective means of early detection and differential diagnosis.
We believe from our primary market research that early detection alone in the U.S. could add up to 300,000 procedures per year and disease monitoring could add up to another 700,000 procedures per year in the U.S. alone. Our strategy is to focus on three goals for the use of Lymphoseek in rheumatoid arthritis: One, reliable diagnosis of RA by imaging; two, early differential diagnosis of rheumatoid arthritis; and three use in monitoring patient responses to rheumatoid arthritis treatments.
Based on our preliminary work, we believe we can achieve all three diagnostic and disease managing elements with Lymphoseek. As you know we have a grant to study the use of our products in rheumatoid arthritis from the NIH and NIADDK. We wait the Institutional Review Board or IRB approval from the University of California and San Francisco, San Francisco General Hospital to begin dosing Lymphoseek in a small study of up to 18 RA patients and controls.
We anticipate patient enrollment will begin very shortly, while the numbers in this study are small, we expect that there will be a lot of valuable data from every patient. Since we know half of the patients are RA Positive and half aren’t and we know which joints are clinically involved we should be able to get very definitive results especially as we will image both positive joints and joints with less to no clinical findings in the same patients.
Results from this study will help to design an execution of the impending Phase 2 study with both subcu and IB administration scheduled for the second half of 2016 and projected to be fewer than 50 patients in total and that study will also compare the performance of our product subcutaneously versus in intravenously.
Based on these results in RA we would look to initiate definitive Phase 3 studies early next year. I want to emphasis that the results we are generating with subcutaneous administration in RA patients will be determinative in setting the stage for a whole host of future studies to dramatically expand the number of indications for Lymphoseek and for obtaining grants for this study just like we have seen with Lymphoseek in cancer to-date.
Additionally the results to-date of a pilot study of Lymphoseek to detect vulnerable plaque provide strong encouragement to the utility of Lymphoseek in imaging and detecting vulnerable plaque. These results are currently being drafted into several publications expected later this year. We also continue to anticipate the start of an additional KS study with IV administered Lymphoseek in the second half of 2016 supported by grants from the National Cancer Institute.
Moving on to Macrophage Therapeutics and our Manocept immunotherapeutic platform development. If you listen to our April and May update calls you will have detected that the activity interest level in excel -- is accelerating. We noted that we had one completed an eight weeks pre clinical mouth study in arthritis model with a Manocept anti-inflammatory targeted therapeutics product, MT2002 with initial results reporting clear anti-inflammatory activity with no apparent significant side effects. We complete an animal study in an asthma model that measured the ability of MT2002 to decrease all three pro-inflammatory markers secreted by disease causing macrophages that successfully demonstrae an anti-inflammatory effect.
We completed the dosing in two studies using a neuroinflammation model and an animal model for NASH, nonalcoholic steatohepatitis, with results expected in coming weeks. And finally we initiated a number of studies evaluating the performance of compounds from the MT1000 class of compounds designed to deplete tumor associated macrophages or TAMs in a number of different cancer models.
We recognized that these are early stage studies designed to begin the process of elucidating the activity of our agents. Remains a lot of work to do to optimize our agents including the dosing, frequency and duration of these molecules. That is why we will continue to conduct these base line foundational studies in an effort to attract both corporate partners and continued funding including non-dilutive grants so we can advance these programs as expeditiously as possible.
As we await demonstrative results in these studies we are seeing the interest from academic groups, pharma companies and the health arms of government growing. We have been contacted by academic groups that study macrophages in a variety of setting, we have been asked to test our agents in their models and we have been contacted by a variety of intermediaries who represent companies that are looking for products in a variety of therapeutic areas that our technology can impact.
And finally we are very excited by the recent interest about the potential to collaborate using our technology with the Zika virus.
And I would now like to turn the call over to Jed Latkin to provide our first quarter financial results.
Thanks, Mike. I’m pleased to be joining you today as Navidea’s interim Chief Operating Officer. I want to thank the investors for being patient as we work through a fewer unexpected events that Mike discussed earlier which delayed this call.
I would also like to thanks the Navidea finance team for stepping up to provide our new accounting for Marcum with only information that they needed to review this quarterly statement in a very short time frame. To be able to hire new auditors, review past year’s filings and complete a 10-Q in under a week takes a truly herculean effort and it’s a testament to the quality of people that we have here at Navidea not only on the clinical side but also on the financial side.
Now on to the financial results. Lymphoseek sales revenue grew to $3.8 million in the first quarter while maintaining high margins in excess of 85%, our loss of operations decline to $2.6 million in the first quarter of 2016, representing a decrease of 200% over the first quarter of 2015 and was equivalent to Q4 2015 losses. Despite a sluggish first quarter for 2016 we estimate total revenues of $23 million to $25 million including Lymphoseek product sales consistent with our current loan covenant requirements and representing our second year in a row of doubling product sale.
We anticipate operating expenses, excluding expenses related to Macrophage Therapeutic between $21.5 million and $23.5 million. As Tom mentioned, we anticipate a more pronounced impact from the direct sales force with the addition of new sales reps and the restructured territories. Total revenues grew in the quarter ended March 31, 2016 were $4.7 million compared with $2.1 million in the first quarter of last year.
First quarter 2016 product revenues recognized from the sale of Lymphoseek were $3.8 million compared to $3.5 million in the fourth quarter of last year and $1.8 million in the first quarter of last year. This represents a sequential quarter-on-quarter growth of 8% and the year-over-year growth of approximately 106%.
Q1 2016 revenue for licensing milestones, various federal grant and other revenue were $940,000 compared to $791,000 in the fourth quarter of last year and $273,000 in the first quarter of last year. Total operating expenses were $6.8 million compared to $9.5 million in the first quarter of last year. Research and development expenses for the first quarter of 2016 were $2.7 million compared to $4 million in the first quarter of last year. The net decrease from 2015 to 2016 was primarily a result of reductions in NAV4694, NAV5001, and Lymphoseek product development cost coupled with reduced headcount and related support cost offset by increased therapeutics product development cost.
SG&A expenses, for the first quarter of 2016 were $4.1 million compared to $5.5 million in the first quarter of last year. The net decrease was primarily due to decreased general and administrative headcount following the first quarter of 2015 reduction in force coupled with decreased costs for contracted medical science liaisons, business development consulting services, market development expenses related to Lymphoseek and license fees, offset by increased commercial and medical headcount coupled with increased legal and professional services.
The company’s cash position decreased to $5.5 million at March 31, 2016 from $7.3 million at December 31, 2015. The CRG loan includes covenants that we maintain a minimum of $5 million in our bank accounts. We will continue to explore other diversified funding sources as well as using funds supplied by approval grants to defray clinical costs. To the extent, we’re successful in divestiture of NAV4694 and other milestones or funding sources the amount we may need to draw will be directly affected.
Achieving cash flow breakeven is a critically important goal for our business. Over the last year and half, we have made dramatic progress streamlining operation and cutting expenses achieving a 35% reduction in cash burn year-on-year. We will also continue broad cost reduction measures for 2016. Prior to my hire, Navidea spent extensively on various IR and PR firms. With my hiring we will no longer be doing that. We have also ratcheted down Board level expenses and have target further cost cuts within the organization.
Furthermore with the changes at the top levels of the firm, we have eliminated some significant salaries in the fee suites as I’ll be handling both the Chief Financial Officer role as well as the day-to-day executive role of the company. My extensive cash management and operational experience within this arena is perfectly suited for Navidea in the near-term. Within the past two weeks we have already made massive strides in eliminating several large expense items in both the 5001 and 4694 programs.
We expect to have positive news on both of those in the near-term as well as several new grants that will continue to bring much needed R&D capital into the firm. We believe that these measures combined with the continued growth of Lymphoseek should lead us on a clear path to sustain quarterly, operational cash flow breakeven in the second half of this year.
I wanted to thank you. This now concludes our prepared remarks. I would like to turn it over to the operator for Q&A.
[Operator Instructions] Our first question comes from the line of Stephen Dunn. Your line is open.
Yeah thank you for taking my questions guys. A little -- couple of housekeeping questions here. Michael you have stated on this and the prior call that your RA Phase 1/2 will have an arm for subcu and IV your press release this morning just says the Phase 1/2 will be IV so I just want to double check what that trial would be for the Phase 1/2?
So as I indicated in the call this morning the study that we’re about to start will be determined in that if the results demonstrate what we expect it to demonstrate that subcu is adequate fairly from a commercial perspective a subcu diagnostic and imaging agent and disease progression monitoring agent is desirable over an IV. So that would be the preferred root. We definitely want to do as well studies with IV because specifically if as we get into some of the therapeutic areas we want to have some background data on the IV.
So what we’ll do is we built into the Phase 2 study arm which will have patients receiving both subcu and IV administration. And the decision is to whether a majority of patients will be subcu or IV will be made following this upcoming study but regardless we still will want to pursue IV and subcu dosing to make sure that we have that base covered as we begin to explore other applications where IV maybe desired.
Okay yeah thanks for clarifying out the press release as well. I guess on April 18th you had made a statement that you’re cash flow breakeven operationally in April from what I’m hearing now did you misspeak in April on the cash flow breakeven situation?
Nowhere essentially what we did is we set as a goal to be breakeven in April based on the April revenue rate, but as you know there are certain costs associated with getting your cost down, I mean we’ve got some close up cost and things like that on various projects. So the core business the run rate business was set to breakeven based on the April revenues and now that May revenues are projected to be higher than April revenues on a run rate basis that’s the ongoing operations of the business where it should be slightly better than cash flow breakeven in terms of operations. But as you know there are expenses, obviously now we have some legal expenses we didn’t plan on having. There will be things that come in episodically.
So what we’re essentially seeing is that we’re setting the business at that level. Things will come up things will happen, but the business is growing, the expenses are being cut as Jed mentioned a significant expense that should go away relatively quickly relates to some of the divested or desired to be divested products.
I can tell you we’ve made a lot of progress in the last few weeks on trying to get those programs to where they need to be which is into someone else’s hand who will develop them and allow us to realize some recurrent for the significant investment that we placed in them. But yes, the bottom-line is that the core business was set and this is before Jed joined, I have every expectation that with Jed’s help and with some brands that we’re expecting et cetera that we will accelerate not just cash flow breakeven, but to be able to generate cash from operations.
Okay. When do you intend to or if you intend to begin an active search for a CEO and CFO?
Well actually I’m finding out that there actually was a very active search for a CFO over the last year that I was not fully aware of. In terms of the CEO and CFO as I said in my prepared comments I think for the short-term we want to make sure that we get the businesses in the right position and then hire a CEO and a CFO with the right experiences for the business that we are rather than the business that we want to be and I think that over the next few months that will all clarify.
I believe that when we get the RA studies up and running when we get some of the other Macrophage Therapeutics studies up and running, getting some more data in place, I do believe we will have the need for a Navidea CEO who has the expertise both on the commercial side, as well as development side because of the potential from many new indications on the diagnostic applications for Lymphoseek and just as well there are may be multiple spin out opportunities with respect to Macrophage Therapeutics as we have a virus company, we have a cancer business, we have an autoimmune business, a cardiovascular business, the clinical studies the duration of those things safety window, are all so different than these various indication that I think we should have a different team in place.
And as I’ve indicated in the previous calls we are looking for foundational partnership in each of these areas and based on those foundational partnerships we look to spin out independent companies and build the management teams around the particular needs of each of those spin out opportunities.
Okay. Last question is on CRG, I guess what is CRG’s ownership right now of the intellectual property, s it is all the IP, is it include Macrophage Therapeutics IP? Does it include IP that was filed subsequent to signing the loan agreement what is the IP situation as regards to CRG?
It is my understanding that CRG has a lean on all of our assets has the first right lean on all of our assets, but I don’t believe they have any ownership on until and unless bankruptcy court if we ever get to that stage granted to them. So I don’t…
What about new IPO was filed that was the patents were applied for subsequent to the loan agreement does that incorporated…
Every asset that we have is pledged as collateral for that loan.
Even asset that were acquired after…
Even assets that were developed afterwards, but that’s doesn’t -- again that’s very different than them having ownership they can’t -- that’s part of what they are trying to do, but not the way the system works. So…
Yeah, those are poor word am I had. Anyway, thanks for answering all the questions, I will jump back in the queue.
Thank you. Our next question comes from the line of Joe Policaine [ph]. Your line is open.
Thank you, this is for Tom Klima. A lot of people were sort of disappointed with the growth in first quarter of Lymphoseek sales and I like I know we are looking a little forward for you to give a little more clarity to both what the potential is for some large hospital group so they can potentially be selling to and doing business with the we aren’t and how that could affect sales going forward throughout the year.
And also, if you can give a little bit more clarity to what the actual opportunity is in Europe. Everyone has been a little frustrating because I don’t think we understood the process, but what is the pricing is going to be like in Europe, what is the length of time it’s going to take to ramp up and what is the potential opportunity in 2017? Is it going to be negligible or is it going to be significant? Those are my first questions.
Yeah, perfect, good morning Joe. Thanks for the questions. Regarding Q1 and your comments around Q1 and the sales process and I think Mike mentioned this earlier and I might have mentioned it in my prepared remarks, but those processes certainly lumpiest and cyclical. So any time you are looking at sales trends and sales patterns looking at it on a kind of a short-term basis is typical and doesn’t always show the true potential.
Having said that I think we’ve made significant process over the last year and we’ve seen increasing demand and we’ve seen excellent response to the product profile and as a result of that we have invested in more resources within the sales force. Specifically in Q1 what we did is we reorganize our sales force, we reorganize the sales force structure and the territories and we higher trained and deployed a new team basically.
So, about half of our team or just under half of our team are brand new and were deployed in Q1 and some of the softness or less than expected growth that you might have expected in Q1 is a direct result of some of the reordering that we were doing which really sets us up I think to execute well in the second half of this year starting immediately after Q1. So I don’t think it was any indication that there is any issues with the business and I certainly don't think it’s any indication of reception towards the product. It’s just simply we reshuffled, expanded and grew the sales force.
With respect to your question around Europe, obviously as I mentioned, we were trying to take into consideration how to best achieve premium pricing in Europe. And although I can’t comment on specific pricing part of that strategy was to create the single dose file which we expect to be approved in Q3, which coincides with the Q4 launch. We believe that launching in Q4 should yield results next year. As far as the specific opportunity we haven’t really get disclosed publically what we expect to achieve next year. I can work with our partner Norgine and get back with you on what the specific opportunity is.
Yeah, okay that would be great. But I think that people don’t really understand as it is could it be 50% of total Lymphoseek sales could it double what we’re doing here in the state people don’t really have an idea. So clarity on that would be great.
Okay. My second question if I can, will be targeted to Jade or Mike. With regards to expense reduction, I know in the past the Board and management has not really been as much focused on that. Are we coming up with specific goals on cost cutting as obviously this helps us get to cash flow breakeven sooner rather than later. And maybe Jade or Mike you can comment on that. Thank you.
Yeah this is Mike let me take the first track and Jade you can add. So as we said the new Board is very committed to prioritizing the expenses and the spend in a way that is very, very fiscally responsible. The objective is as I said to get the company to have an expense rate set to simply the April revenue rate. And that would allow for any of the continued growth that we’re expecting and obviously we’re expecting as Tom indicated a lumpy growth rate as some of these big multi-hospital chains sign on we could see some relatively large jumps in revenues as the year progresses.
So the plan is to have the expenses at that level. Now that is not the final level, we think that there are maybe more opportunities. But as we’re seeing with some of the grants that we hopefully will have announced relatively shortly, as well as some things that we’re working on that Fred and his team have been invited some of the very large grants that you have to be invited to apply for and we have. That we have some tremendous opportunities, we want to make sure that we have the staff and the capabilities to handle that.
So the process is on the sales side it’s Tom and whatever we can do to improve sales, it’s a good investment as indicated. In another few years our distribution agreement will change. We’d be looking to add significant capabilities as we’re exploring not just rheumatoid arthritis in cardiovascular disease but autoimmune diseases. So it’s very important that we have the sales force and that the sales force has the ability to expand much more broadly. The good news is as I’ve learned that once we make a sell it’s a sticky sale so that you don’t have to go back and spend a lot of time on the existing users of our product, but as our sales force teams maturity and gains experience with our product and as we start expanding into other solid dose cancer and dosage forms with the ability to potentially expand into robotics as well as all these various other diseases, we want to be properly positioned for that.
So we’re not going to be firmed firm on maintaining a certain level, but we want to have our revenues and our expenses in line near-term. And we want to obviously build our capabilities because Fred and his team have been remarkably good at getting grants. And we think with the Macrophage Therapeutics business is tremendous opportunities for therapeutic grants. With what’s going on in Zika obviously we need to have the capability to jump on that as there is a lot of lot of momentum to try to get something done very, very quickly in that area. So we need to have capacity to do that. And I think with the current plan we do and as we grow and as grants come in you may see our expenses even go up a little bit, but that will only be in line with our revenues.
And for now we’re staying to the marketplace that our revenues and our expenses will be in line and that a commitment that we’re going to work for and obviously any place where we can find any excess expense we don’t need or things that we can do potentially with vendors rather than on our own because it’s episodic for example there are certain expenses we still had to get the product launched in Europe that once it’s launch will be transferred to our partner Norgine. So those expenses have to be planned for 2016, but we know they’re not going to be there in 2017. So with that as a backdrop I don’t know if Jed you want to add anything else?
No I mean, in line with that I mean basically what we’ve been doing here since I joined is just going through area by area to make sure that we’ve targeted all the expenses I think over the last few years some programs have run a little bit longer than they should, there’ve been some things that haven’t been tracked at carefully and our focus is just to get all that under control.
As I said in my remarks we’ve already targeted several areas of significant burn that we’re going to be cutting eminently, I mean we are really, really very focused on eliminating whatever is not important for the future, I mean the key going forward is to allow for the science to really grow and be commercialized as much as possible and to do that you have to make sure that the costs are in line with the resources you have. And so that’s what we’ve really been focusing on over the last several weeks and you’re going to see that in the next quarter and the quarter after that you are going to see those expenses are going to continue to come down which is why we’re so confident on our projection that we’re going to be breakeven and then eventually cash flow positive by the end of the year.
Thank you. Our next question comes from the line of Brian Brendon [ph] with National Securities. Your line is open.
Yes Michael thanks for taking my call. Most of my questions have been answered on the business side I just wanted to maybe get back to the CRG situation, I realize that maybe you can’t really discuss much about it, but understanding how the core system works and it’s very hard to determine really the length of any case what are you able to tell the shareholder today on maybe what to expect on this potential timeline with the fight with CRG?
Look I mean there is a contract and the contract says that we have to do certain things and they have to do certain things. It gives them certain rights and it gives us certain rights. It’s our belief that we have honored the contract and we believe that they’ve taken actions that have violated the contract. So it seems relatively simple, it seems to us that the question that we faced is are they allowed to do what they’ve done and if they aren’t are there remedies to us. So our understanding and our belief is basically this regardless of what they try to do we’re going to look to replace them as a lender, because obviously it’s not working out. They’re not happy and clearly we’re not happy.
We believe that replacing them as I indicated for the reasons I indicated will be something that we can do. We can do it and I think based on discussions that we’ve had there is no problem to find a lender given our current situation as compared to what it was when we signed a deal with the CRG. In reality I’m not exactly sure other than closing the problems that CRG has caused what ultimately they can do at this stage. They have to prove in a Court of law that we have violated the agreement and if they don’t, I don’t see how they can continue to do what they’ve been trying to do.
So from our perspective we think what will happen is that the contract will be evaluated, it will be clear that we haven’t violated the contract in any way, it will be clear that they have and then what ultimately happens probably if this thing is pursued it will take years and years and years to figure out who’s liable and for how much and in the interim we’ll replacing them as a lender and we’ll have grown our business and moved on and this thing will become just a footnote in our financial reporting for years to come.
Deep down I don’t think that there is really that much that should really concern us and should concern the shareholders because again it seems like it’s a very straight forward situation. There is a contract, we have certain obligations, we have met our obligations, in depositions last week leading up to this hearing next week they freely admitted that absolutely we’ve met every one of our financial obligations and that all the violations of the agreement where non-financial and in our opinion based on our lawyer’s review we haven’t violated any of them.
So they have made a couple of claims and we just view that as we have not violated any of the covenants in the agreement. That being said the actions that they have taken clearly do violate the agreement if in fact we haven’t violated anything which is our opinion. So hopefully this thing gets into the hand of the Courts and as I said the wheels of justice grand slowly in this country and that would give us plenty of time to replace them, which is ultimately I think what they want and what we want.
So I think at the end of the day everything will work out fine and we can get onto managing the business, because as I said we have a tremendous, tremendous number of opportunities in front of us and this distraction while damaging and clearly slowing us down and having an effect on our stock price short-term. I think will reverse very, very quickly when the market really gets the chance and we are going to commit with the addition of the various people on our Board to really get out there and start telling our story because we think it’s a fantastic story and one that should be a tremendous interest to invest there.
We think that our technology is absolutely at the forefront of where the industry is moving on both therapeutic and the diagnostic side and that’s we want to spend our time and effort not on these really distractions that really are just designed to slow things down and add nothing and aren’t productive for anybody.
Thank you. I would now like to turn the call back over to Michael Goldberg for closing remarks.
Okay. So we are just a little bit after 9 and really appreciate everyone taking their time. We look forward to keeping you updated as we said there is a tremendous amount happening and we will continue with the Macrophages Therapeutic updates calls every few weeks and we look forward to updating you and I think that this past quarter obviously was a quarter based on where things were. And starting with the second quarter, the quarter we are in right now, I think we are looking forward to seeing some real changes as the company is prioritized and refocused on this amazing technology engine that we think can drive lots and lots of value changing events for Navidea and its shareholder. So thank you, we look forward to updating you in the very near-term.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.
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