Navidea: Unjustly Damaged By Misleading Article

On December 19th, 2012 The GeoTeam published a heavily bearish article on Navidea Biopharmaceuticals (NAVB) that contained a number of misleading statements and outright inaccuracies that prompted this reactionary piece. Most of the truly egregious statements are listed and addressed below.

Note: Each statement is taken directly out of The GeoTeam’s article on Seeking Alpha

Statement 1: “Platinum-Montaur Life Sciences, LLC, a firm that provided a credit facility to Navidea, may be losing faith in the company. The group has sold approximately 3.8 million shares, or approximately 50% of its public equity ownership stake in NAVB since September 4, 2012.”

Platinum-Montaur Life Sciences, a firm that provided a credit facility to Navidea, is not losing faith in the company at all. The GeoTeam really can’t seem to get the facts straight. Montaur, Navidea’s largest shareholder and supporter of the company, did NOT sell 3 million shares. Instead, Montaur converted 3 million of its preferred shares into common shares in order to exercise warrants, creating a net long position for the fund.

With respect to NAV5001 and Alseres Pharmaceuticals (ALSE.PK), the only thing we know for sure is that the shares have been registered for resale, not that they have been sold. A 300,000-share position is not material for reporting for SEC purposes. Alseres is no longer a diagnostic company. If they were to sell shares, it would be to satisfy their capital needs and not as a vote of no-confidence in the Parkinson’s diagnostic agent they licensed to Navidea.

In fact, the Alseres agreement is largely back-end loaded, signaling that Alseres has a confident outlook for this product, with contingent milestone payments to Alseres of up to $2,900,000, and the issuance of up to an additional 1,150,000 shares of the Company’s common stock. In addition, the terms of the Sublicense Agreement anticipate royalties on annual net sales of products based on the agent. Alseres would not have accepted a back-end loaded structure where they get paid upon success of the product if they didn’t believe in the agent or Navidea.

Statement 1: “Platinum-Montaur Life Sciences, LLC, a firm that provided a credit facility to Navidea, may be losing faith in the company. The group has sold approximately 3.8 million shares, or approximately 50% of its public equity ownership stake in NAVB since September 4, 2012.”

Platinum-Montaur Life Sciences, a firm that provided a credit facility to Navidea, is not losing faith in the company at all. The GeoTeam really can’t seem to get the facts straight. Montaur, Navidea’s largest shareholder and supporter of the company, did NOT sell 3 million shares. Instead, Montaur converted 3 million of its preferred shares into common shares in order to exercise warrants, creating a net long position for the fund.

With respect to NAV5001 and Alseres Pharmaceuticals (ALSE.PK), the only thing we know for sure is that the shares have been registered for resale, not that they have been sold. A 300,000-share position is not material for reporting for SEC purposes. Alseres is no longer a diagnostic company. If they were to sell shares, it would be to satisfy their capital needs and not as a vote of no-confidence in the Parkinson’s diagnostic agent they licensed to Navidea.

In fact, the Alseres agreement is largely back-end loaded, signaling that Alseres has a confident outlook for this product, with contingent milestone payments to Alseres of up to $2,900,000, and the issuance of up to an additional 1,150,000 shares of the Company’s common stock. In addition, the terms of the Sublicense Agreement anticipate royalties on annual net sales of products based on the agent. Alseres would not have accepted a back-end loaded structure where they get paid upon success of the product if they didn’t believe in the agent or Navidea.

Statement 2: “Lymphoseek has now been in the approval process for 10 years, with at least another year before the possibility of approval.”

This is a completely inaccurate statement, given that Lymposeek has an PDUFA action date of April 30th, 2013 for their flagship diagnostic compound Lymphoseek. It’s also worth noting that the product could be approved before that date as well.

Statement 3: “Navidea has had chemistry, manufacturing, and controls (“CMC”) issues with its main product, Lymphoseek, since 2006 and is still having CMC issues today.”

I am perplexed as to where they got that information. The CMC issues became known when the company received a CRL (complete response letter) in September 2012, which pinpointed an issue that has now been resolved.

Statement 4: “Navidea has $16 million in cash and while it has a $50 million revolver, it can currently only draw down $15 million of that revolver for its cash needs. On December 11, 2012, the company drew $2 million from this facility. It needs approval of Lymphoseek in order to get any more than the initial $15 million. This means NAVB could run out of cash within 18 months, if not sooner, if it is unable to secure additional financing or if it is not granted FDA approval for Lymphoseek.”

Navidea’s liquidity issues are actually less significant than what is implied above. The company is currently eligible to draw $15 million from Montaur prior to approval and $20 million after approval.

Statement 5: “Management’s track record over the past 16 years with other drugs has thus far been very unimpressive. All three of NAVB’s drugs have not gained FDA approval, calling into question management’s ability to get drugs approved.”

The GeoTeam criticized the management team’s track record over the last 16 years, while it is widely known that many have joined the company within the last two years. We’ve recently seen Navidea complete clinical studies for Lymphoseek, followed with an NDA and MAA submission for the FDA and EMA (European Medicines Agency) respectively. It’s difficult to understand The GeoTeam’s argument here, because the new management team is quite competent.

Statement 6: “…Lymphoseek approval from the FDA for both breast cancer and melanoma, for a total of 300,000 cases in the United States.”

This statement was regarding the NEO3-06 phase III trial, which could expand the label for Lymphoseek to the “sentinel lymph node biopsy” claim which actually brings its target population to 1.3 million in the United States alone. This is over four times what The GeoTeam cited in their analysis.

Statement 7: “NAVB has expressed its intent to pursue the approval of treatments for melanoma and breast cancer in Europe. We feel this is highly unlikely to occur.”

This statement is completely wrong. Navidea filed their MAA with the EMA on December 18th, and fully intends to pursue the European market for lymphatic mapping. It’s also worth noting that The GeoTeam claimed that this was a market of about 300 to 400 thousand patients, while it’s closer to 2.5 million in reality.

Statement 8: “Navidea has two products other than Lymphoseek that we believe will not have any positive impact on the company’s operations: AZD4694, a phase 2 product for which comparables from other companies have failed to be approved, and Rigscan, which has been in phase 3 since 1998.”

Not only is AZD4694 a phase III drug, but it is very dissimilar from the compounds that The GeoTeam wants to compare it to – specifically Lilly’s solanezumab and Pfizer’s bapineuzumab.

Conclusion: The large number of mistakes and misleading statements that were made to build the bearish case on Navidea Pharmaceuticals in The GeoTeam’s article should be enough to discredit them as a source of reliable information for NAVB.

The slam piece actually made a dent in the stock after its release, which leads me to believe that there may have been an agenda associated with their publication. Hopefully, this article has established some clarity on Navidea’s actual prospects. Investors who have a stake in NAVB should be watching for the PDUFA action date of April 30, 2013.