Item 1. Business
Development of the Business
Navidea Biopharmaceuticals, Inc., a Delaware corporation, is a biopharmaceutical company focused on the development and commercialization of precision diagnostics and radiopharmaceutical agents. Our Company’s core mission is to bring the next generation of precision radiopharmaceutical agents to market so doctors and patients can readily access, and benefit from, cutting-edge diagnostic science.
For patients and physicians, we aspire to provide innovative diagnostic imaging agents to improve patient care for serious diseases. For our shareholders, we aim to deliver superior growth through our focus on our innovative diagnostics platforms and products and efficient business processes. For our employees, we provide a culture focused on the direct impact our efforts can have on patients and an innovative development environment enabling new breakthrough products.
Navidea’s current radiopharmaceutical products and programs include:
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Lymphoseek
®
(technetium Tc 99m tilmanocept) Injection is a novel, receptor-targeted, small-molecule radiopharmaceutical used in lymphatic mapping procedures that are performed to help evaluate patients with breast cancer and melanoma. Lymphoseek is designed to identify the lymph nodes that drain from a primary tumor, which have the highest probability of harboring cancer. It was approved by the U.S. Food and Drug Administration (FDA) in March 2013, and launched commercially in the United States in May 2013.
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Navidea’s Manocept
™
platform is predicated on the ability to specifically target the CD206 mannose receptor expressed on macrophages. This flexible and versatile platform acts as an engine for the design of purpose-built molecules offering the potential to be utilized across a range of diagnostic modalities, including single photon emission computed tomography (SPECT), positron emission tomography (PET), intra-operative and/or optical-fluorescence detection in a variety of disease states.
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NAV4694 is a Fluorine-18 (F-18) radiolabeled PET imaging agent being developed as an aid in the diagnosis of patients with signs or symptoms of Alzheimer’s disease (AD) and mild cognitive impairment (MCI).
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NAV5001 is an Iodine-123 (I-123) radiolabeled SPECT imaging agent being developed as an aid in the diagnosis of Parkinson’s disease (PD) and other movement disorders, with potential use as a diagnostic aid in dementia.
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NAV1800 (RIGScan
™
) is a radiolabeled monoclonal antibody being developed as a diagnostic aid for use during surgery to help surgeons locate occult or metastatic cancer, with a primary focus on colorectal cancer.
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A Brief Look at Our History
We were originally incorporated in Ohio in 1983 and reincorporated in Delaware in 1988. From inception until January 2012, we operated under the name Neoprobe Corporation. In January 2012, we changed our name to Navidea Biopharmaceuticals, Inc. in connection with both the sale of our medical device business and our strategic repositioning as a precision diagnostics company focused on “NAVigating IDEAs” that result in the development and commercialization of precision diagnostic pharmaceuticals.
Since our inception, the majority of our efforts and resources have been devoted to the research and clinical development of radiopharmaceutical technologies primarily related to the intraoperative diagnosis and treatment of cancers. From the late 1990’s through 2011, we devoted substantial effort towards the development and commercialization of medical devices, including a line of handheld gamma detection devices which was sold in 2011 and a line of blood flow measurement devices which we operated from 2001 through 2009.
From our inception through August 2011, we manufactured a line of gamma radiation detection medical devices called the neoprobe
®
GDS system (the GDS Business). From October 1999 through July 2010, the GDS products were marketed throughout most of the world through a distribution arrangement with Ethicon Endo-Surgery, Inc. (EES), a Johnson & Johnson company, and from July 2010 through August 2011 through a distribution arrangement with Devicor Medical Products, Inc. (Devicor).
We executed an Asset Purchase Agreement (APA) for the sale of the GDS Business (the Asset Sale) with Devicor in May 2011. Our stockholders approved the Asset Sale at our Annual Meeting of Stockholders on August 15, 2011, and the Asset Sale closed on August 17, 2011, consistent with the terms of the APA. Under the terms of the APA, we sold the assets and assigned certain liabilities that were primarily related to the GDS Business. In exchange for the assets of the GDS Business, Devicor made net cash payments to us totaling $30.3 million, assumed certain liabilities of the Company associated with the GDS Business, and agreed to make royalty payments to us of up to an aggregate maximum amount of $20 million based on the net revenue attributable to the GDS Business over the course of the next six fiscal years. To date, we have not received any such royalty payments.
Our Technology and Product Candidates
We focus on precision diagnostics technology, particularly in the area of radiopharmaceuticals. Innovative precision diagnostic agents hold the potential to improve diagnostic accuracy, clinical decision-making and patient care. Navidea’s pipeline includes our commercial product, clinical-stage radiopharmaceutical agents, and a platform technology, all used to identify the presence and status of disease to achieve these objectives.
Lymphoseek – The First and Only FDA-Approved Receptor-Targeted Radiopharmaceutical Lymphatic Mapping Agent
In 2001, we entered into a worldwide license agreement for Lymphoseek with the Regents of the University of California through their San Diego affiliate (UCSD). In 2004, we initiated our first corporate-sponsored clinical trial of Lymphoseek. Our business strategy is focused on advancing Navidea as a leader in the area of precision diagnostics, a field aimed at helping physicians deliver the right treatment to the right patient at the right time. Lymphoseek is a lymph node targeting radiopharmaceutical agent intended for use in intraoperative lymphatic mapping (ILM) procedures and lymphoscintigraphy employed in the overall diagnostic assessment of certain solid tumor cancers. Lymphoseek has the potential to provide oncology surgeons with information to identify key predictive lymph nodes that may harbor cancer and to help avoid the unnecessary removal of non-cancerous lymph nodes and the surrounding tissue in patients with a variety of solid tumor cancers. Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA in March 2013. Additional trials, one in head and neck cancer (NEO3-06) which is the focus of a supplemental New Drug Application (sNDA) that now has a Prescription Drug User Fee Act (PDUFA) target date of June 16, 2014, an ongoing trial in colorectal cancer, and other planned investigator-sponsored trials, are anticipated to provide additional support for the potential expansion of Lymphoseek utilization into multiple other cancer types. A second sNDA aimed at expanding the Lymphoseek label to support more flexible utilization practices for Lymphoseek in lymphatic mapping and lymphoscintigraphy imaging has a PDUFA target date of October 16, 2014.
The Lymph System: Infection Fighter and Cancer Conduit
The lymph system is a critical component of the body’s immune system. Comprised of a complex network of organs, nodes, ducts and vessels, the lymph system transports lymph – a fluid rich in white blood cells (WBCs) – from tissues into the bloodstream. The key components of the lymph system are lymph nodes – small anatomic structures that contain disease-fighting WBCs, filter lymph of bacteria and cancer cells, and signal infection in response to heightened levels of pathogens.
The lymph system is also a common pathway for cancer to spread, or metastasize. In fact, malignant cells will often infiltrate lymph nodes as an initial step of the metastatic process. An assessment of the degree of lymph node involvement is instrumental to staging cancer, enabling suitable treatment regimens and offering more accurate prognosis. Studies in a broad range of malignancies demonstrate that the greater the extent of lymph node involvement, the poorer the likely outcome.
ILM: Targeting High-Risk Nodes
Until the 1990s, cancer patients would often undergo extensive surgeries involving the removal and biopsy of large numbers of lymph nodes to assess disease progress. Studies subsequently showed that as many as 80 percent of node dissections ultimately revealed no sign of cancer, exposing patients to significant pain, morbidity, debilitating adverse effects and long recovery times for little benefit.
Over the last two decades, intraoperative lymphatic mapping (ILM) using injected dyes or radiopharmaceutical agents has become a widely accepted, less invasive technique to identify potentially cancerous lymph nodes. Upon injection, these tracing agents follow the natural drainage path from the primary tumor into the first tier of surrounding lymph nodes. The initial nodes in this pathway - key predictive nodes called sentinel nodes that are most likely to harbor cancer - are of critical importance in gauging the degree of infiltration. If the initial node or nodes show no sign of cancer cells, there is a high likelihood that lymph nodes further along the chain are cancer-free. If the sentinel node is positive for disease, a more comprehensive resection of nodes may be warranted. Regardless, a patient can be more accurately staged in light of knowledge that cancer has moved from the primary tumor site into the lymphatic system.
Lymphoseek: Tracing the Path to an ILM Advance
ILM has become the cancer-staging procedure of choice for oncology surgeons because it helps them focus on key predictive lymph nodes and reduce patient exposure to unnecessary surgical complications. Lymphoseek is a radiolabeled diagnostic for detection of the key predictive lymph nodes draining the tumor region. Lymphoseek is purposely designed to accumulate in lymphatic tissue by specifically binding to mannose binding receptor proteins (MBR; CD206) present on the surface of immune cells. Lymphoseek is a macromolecule consisting of multiple units of diethylene triamine pentaacetic acid (DTPA) and mannose, attached to a 10 kDa dextran backbone. The mannose acts as a ligand for the receptor, and the DTPA serves as a chelating agent for labeling with the radio-isotope Technetium Tc 99m.
In Phase 3 clinical studies NEO3-05 and NEO3-09 in subjects with breast cancer or melanoma, Lymphoseek demonstrated highly effective lymph node identification and significant benefits over an approved comparator agent, vital blue dye (VBD). Importantly, Lymphoseek missed significantly less cancer-positive lymph nodes, resulting in nearly 10% of subjects in these Phase 3 clinical studies being up-staged by the use of Lymphoseek who would have been under-staged using VBD alone.
In clinical study NEO3-06 in head and neck squamous cell carcinoma, the primary endpoint was based on the number of subjects with cancer-positive lymph nodes following a multiple level lymph node dissection. Among the total of 83 subjects evaluated in the trial, Lymphoseek accurately identified 38 of 39 subjects who had pathology-positive lymph nodes, for an overall false negative rate (FNR) of 2.56%, which was statistically significant (p=0.0205), meeting the statistical threshold for success of the primary endpoint of the study.
In the U.S., ILM has also historically employed a non-standard, Technetium 99mTc-labeled radiopharmaceutical agent known as sulfur-colloid (TcSC), often used in place of, or in addition to, VBD. Assessment by meta-analysis and pooled analysis methods have been completed comparing Lymphoseek alone to TcSC plus VBD used together in subjects with breast cancer, employing the data provided in the FDA’s approval of TcSC. Two endpoints were evaluated; the
Localization Rate,
which is the percentage of subjects with one or more radio-detected (Lymphoseek) or radio-detected and/or blue dye-positive (TcSC/VBD) nodes and the
Degree of Localization,
which is the number of nodes detected per subject. Both of these metrics help define the potential for an imaging agent’s performance in ILM and the potential identification of metastasis to lymph nodes.
The Localization Rate for TcSC/VBD was 94%. The Localization Rate for Lymphoseek was statistically significantly greater at 99.91% by meta-analysis and 98.65% by pooled analysis (p<0.0001 and p<0.008, respectively). The Degree of Localization derived from the publication database for TcSC/VBD was 1.6 nodes per subject and for Lymphoseek it was 2.08 per subject by
meta-analysis and 2.16 per subject by pooled analysis (p<0.0001 and p<0.0001, respectively). The analysis concluded that Lymphoseek provided significantly greater performance in breast cancer patients over the current ILM standard of care techniques in the key metrics of lymph node localization and identification of the number of lymph nodes found per subject. The abstract entitled,
“The novel receptor targeted (CD206) 99mTc-labeled tilmanocept versus the currently employed Tc99m-sulfur colloid in intraoperative lymphatic mapping (ILM) on key performance metrics in breast cancer”
was published in the
Journal of Clinical Oncology Online 2012; e21066
.
Similar meta-analyses have been performed with Lymphoseek melanoma and head and neck cancer data from the Phase 3 studies NEO3-05, NEO3-09, and NEO3-06 to compare Lymphoseek’s performance against TcSC performance. Pooled data from melanoma patients enrolled in NEO3-05 and NEO3-09 was compared to published retrospective and prospective data for melanoma ILM with TcSC submitted for U.S. regulatory review. Through this analysis, Lymphoseek was shown to identify at least one hot SLN in 98% of patients, whereas TcSC identified at least one hot SLN in 96.4%, a difference that was statistically significant (p=0.0014). Lymphoseek also identified more hot nodes per patient than TcSC: 2.38 vs 1.70 (p<0.0001).
In head and neck cancer, Lymphoseek’s performance in the NEO3-06 study was compared to the performance of TcSC as published in the American College of Surgeons Oncology Group (ACOSOG) study Z-0360. The FNR for TcSC was 0.10 (95% CI=0.027,0.231) compared to an FNR for Lymphoseek of 0.03 (95% CI=0.001,0.138), a difference that was statistically significant (p<0.0006). The accuracy for TcSC was 0.97 (95% CI=0.928,0.992) versus an accuracy for Lymphoseek of 0.99 (95% CI=0.934,1.000), again a difference that was statistically significant (p<0.0161). Based on these meta-analyses of clinical data, Lymphoseek provided statistically significantly better performance than TcSC in the key metrics of FNR and accuracy in head/neck squamous cell carcinoma.
In June 2012, we published data developed from the NEO3-05 and NEO3-09 Phase 3 trials of Lymphoseek demonstrating important performance characteristics of Lymphoseek compared to a European commercially available radiolabeled colloid used in intra-operative lymphatic mapping. The analysis evaluated the performance of Lymphoseek in breast cancer patients to a meta-analysis of published data for 99m-Tc-labeled nanocolloid human serum albumin (Nanocoll
®
), commercially available and considered a standard of care in Europe. Data for Nanocoll were derived from a meta-analysis of published literature on Nanocoll's performance in breast cancer patients that reported on the outcomes of localization rate (the proportion of subjects with at least one localized lymph node) and degree of localization (the average number of localized nodes relative to the subject population). Lymphoseek demonstrated a localization rate of 99.9% whereas Nanocoll showed a 95.9% localization rate. The degree of Lymphoseek localization was 2.16 (CI 1.99-2.36), whereas the colloid standard of care showed 1.67 (CI 0.94-0.98). The differences between Lymphoseek and Nanocoll in both of these parameters were statistically significant (p < 0.0001). In September 2012, we announced the presentation of related data at the European Society of Surgical Oncology annual meeting. The study,
“The efficacy of Tilmanocept in sentinel lymph node mapping and identification in breast cancer patients: a comparative review and meta-analysis of the 99m-Tc-labeled nanocolloid human serum albumin standard of care,”
can be found in the online edition of the peer-reviewed journal
Clinical and Experimental Metastasis [DOI 10.1007/s10585-012-9497-x]
.
We believe Lymphoseek’s unique properties in ILM and lymphoscintigraphy may offer several potential advantages over agents currently used in ILM, including:
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Improved detection of key predictive lymph nodes (distinct mechanism of action allows for effective identification of key tumor-draining lymph nodes)
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More rapid clearance of the injection site (detectable in lymph nodes within 10 minutes and up to 30 hours)
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Reduced patient trauma, morbidity and injection pain
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Faster nuclear medicine imaging – reduced nuclear medicine downtime (detectable in lymph nodes within 10 minutes and up to 30 hours)
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Enhanced operating room efficiency; reduced operating room idle time (ILM can be performed from 15 minutes up to 15 hours post-injection)
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Enhanced hospital and healthcare plan reimbursement
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Expansion of ILM for staging of colon, prostate, gastric, lung and other cancers
The application of ILM to solid tumor cancer management has been most widely developed in the breast cancer and melanoma indications. Numerous clinical studies, involving thousands of patients, published in peer-reviewed medical journals as far back as
Oncology
(January 1999) and
The Journal of The American College of Surgeons
(December 2000), have indicated sentinel lymph node biopsy (SLNB) is approximately 95% accurate in predicting the presence or absence of disease spread in melanoma and breast cancers. Consequently, it is estimated that more than 80% of breast cancer patients who would otherwise have undergone full axillary lymph node dissections, involving the removal of as many as 20 to 30 lymph nodes, might be spared this radical surgical procedure and concomitant morbidity if the sentinel node was found to be free of cancer.
Although ILM has found its greatest acceptance in breast cancer and melanoma, we believe that Lymphoseek may be instrumental in extending ILM into other solid tumor cancers such as prostate, gastric, colon, head and neck, and non-small cell lung. Investigations in these other cancer types have thus far met with mixed levels of success due in part, we believe, to limitations associated with currently available radioactive tracing agents. We believe our development of Lymphoseek may positively impact the effectiveness of ILM in such expanded applications. Application to head and neck cancer is a focus of our sNDA under review at FDA with the PDUFA target date of June 16, 2014.
Lymphoseek Clinical Development
The initial pre-clinical evaluations of Lymphoseek were completed by UCSD in 2001. Since that time, Navidea, in cooperation with UCSD, has completed five Phase 1 clinical trials, one multi-center Phase 2 trial and three multi-center Phase 3 trials involving Lymphoseek. Two comprehensive Phase 3 studies have been completed in subjects with breast cancer and melanoma. These pivotal Phase 3 results have been presented at scientific conferences of a number of the world’s leading oncology associations and nuclear medicine societies, including the American Society of Clinical Oncology and the Society for Nuclear Medicine. Earlier-phase studies conducted at UCSD through grants from the Susan B. Komen Breast Cancer Research Foundation have been published in leading medical journals including Journal of Nuclear Medicine and Annals of Surgical Oncology. A third Phase 3 trial involving subjects with head and neck squamous cell carcinoma was completed in 2013.
Lymphoseek development has involved feedback from the FDA at a number of stages along the development pathway. In early 2005, the UCSD physician Investigational New Drug (IND) application was transferred to Navidea and we assumed full clinical and commercial responsibility for the development of Lymphoseek. Additional non-clinical testing was successfully completed in late 2005. None of the non-clinical studies revealed any toxicity issues associated with the drug. To provide commercially-produced Lymphoseek needed for clinical study, Navidea engaged Reliable Biopharmaceutical Corporation (Reliable) to manufacture the drug substance and OSO BioPharmaceuticals Manufacturing LLC (OsoBio) for commercial manufacturing of the final drug product.
We completed a successful Phase 2 clinical study of Lymphoseek in 80 subjects in June 2007 and announced positive results later that year. Localization of Lymphoseek to lymphoid tissue was confirmed by pathology in over 99% of the lymph node tissue samples removed during the Phase 2 trial. We held an end of Phase 2 meeting with the FDA during late October 2007. Results of the study were published in the February 2011 online edition of the
Annals of Surgical Oncology
.
From 2008 to March 2009, we undertook and completed a Phase 3 clinical study in subjects with either breast cancer or melanoma (NEO3-05), an open label trial of node-negative subjects designed to evaluate the safety and the accuracy of Lymphoseek in identifying the lymph nodes draining from the subject’s primary tumor site. The primary efficacy objective of the study was a statistically acceptable concordance rate between the identification of lymph nodes with VBD and Lymphoseek. In addition, a secondary endpoint of the study was to pathologically examine lymph nodes identified by either VBD or Lymphoseek to determine if cancer was present in the lymph nodes.
In March 2010, Navidea met with the FDA to review the clinical outcomes of the NEO3-05 Phase 3 trial. The meeting included a review of the efficacy and safety results of the study and Navidea’s plans for the submission of a NDA for Lymphoseek based on the results of NEO3-05 and other previously completed clinical studies. In July 2010, Navidea initiated enrollment in another Phase 3 clinical evaluation of Lymphoseek in subjects with either breast cancer or melanoma (NEO3-09) accruing subjects primarily for purposes of augmenting the safety population and supporting expanded product labeling claims. Based on guidance received in the March 2010 meeting, we planned to file data related to the NEO3-09 trial as part of a planned major amendment to the primary NDA.
In October 2010, Navidea met with the FDA for a pre-NDA assessment for Lymphoseek. As a result of the pre-NDA assessment, the FDA requested that data from both the completed NEO3-05 study and the NEO3-09 study then in progress be included in the Company’s primary NDA for Lymphoseek rather than submitting the NEO3-09 study safety data as a planned major amendment to the ongoing NDA review, as initially intended. The pre-NDA assessment resulted in no modification to the NEO3-09 trial design or endpoints or to any of the other previously agreed-to clinical or regulatory components of the Lymphoseek NDA.
Upon completion of the NEO3-09 study in early 2011, Navidea submitted the NDA for Lymphoseek in August 2011, and was notified of acceptance of the NDA by the FDA in October 2011. The Lymphoseek NDA submission was based on the clinical results of the NEO3-05 and NEO3-09 Phase 3 clinical studies and other completed clinical and non-clinical evaluations. The safety database submitted with the NDA included data from over five hundred subjects and identified no significant drug-related adverse events.
In October 2012, we announced peer-reviewed publication of results of Lymphoseek from two Phase 3 clinical trials of Lymphoseek in melanoma in the
Annals of Surgical Oncology
showing strong lymph node identification properties.
Lymphoseek was approved and indicated for use in lymphatic mapping procedures in breast cancer and melanoma by the FDA in March 2013.
Clinical research continued with a Phase 3 trial involving subjects with head and neck squamous cell carcinoma (NEO3-06) which was initiated in June 2009. The NEO3-06 clinical study was designed to demonstrate the performance of Lymphoseek in head and neck cancer as well as to potentially expand the product label for Lymphoseek as a SLNB agent after the initial marketing clearance for the product. The NEO3-06 clinical study was designed to provide evidence of Lymphoseek performance in a third cancer type and to potentially expand the product label for Lymphoseek. In January 2013, we announced that we had accrued sufficient subjects in our NEO3-06 study to enable us to conduct a pre-planned interim analysis. The interim analysis compared the pathological analysis of the sentinel lymph nodes localized using Lymphoseek with that of all the lymph nodes removed during a multiple level nodal dissection surgery of the head and neck. This multiple level nodal dissection surgery is considered the "gold standard" for determining the presence and extent of cancer and staging of the disease in such subjects. A total of 83 subjects who underwent pre-planned, full dissection surgery were enrolled to the interim analysis point. Results from three investigators participating in the NEO3-06 trial representing approximately half of the enrolled subjects were presented at major scientific conferences during 2012, all of which noted a 0% false negative rate in the subjects.
In April 2013, the Company announced top-line results from the NEO3-06 clinical study. Results of the interim analysis demonstrated that Lymphoseek met the primary efficacy endpoint of accurately identifying sentinel lymph nodes (SLNs) in subjects with squamous cell carcinoma of the head, neck or mouth, as compared to the removal of all lymph nodes during multiple level nodal dissection surgery of the head and neck. The primary endpoint for the NEO3-06 trial was based on the number of subjects with pathology-positive lymph nodes (that is, lymph nodes found to harbor cancer) following a multiple level lymph node dissection and required a minimum of 38 subjects whose lymph nodes contained pathology-confirmed disease. The FNR of 2.56% was statistically significant and met the statistical threshold for success of the primary endpoint. FNR is the rate of occurrence of negative test results in subjects known to have metastatic disease in the lymph nodes, for which the individual is being tested. These findings indicate that Lymphoseek accurately identified SLNs in these trial subjects, and is likely to be predictive of overall node pathology status. On the basis of the strong safety and efficacy data observed in the interim analysis, an assessment of subject risk:benefit in the trial, and a consideration of potential benefit to head and neck cancer patients at large, the independent Data Safety Monitoring Committee (DSMC) for the NEO3-06 trial recommended terminating enrollment and closing the study. Subsequently, based on results from the NEO3-06 study, results from other studies already completed, the recommendation of the independent DSMC, and a constructive meeting with the FDA on our findings, we officially closed the NEO3-06 study.
In September 2013, results from the NEO3-06 study conducted at The Ohio State University Comprehensive Cancer Center - James Cancer Hospital & Solove Research Institute were published in the peer-reviewed journal,
JAMA Otolaryngology Head and Neck Surgery
, a publication of the American Medical Association. The publication, “
Use of a Novel Receptor-Targeted (CD206) Radiotracer, 99m-Tc-Tilmanocept, and SPECT/CT for Sentinel Lymph Node Detection in Oral Cavity Squamous Cell Carcinoma: Initial Institutional Report in an Ongoing Phase 3 Study
,” describes the experience at one of the clinical trial sites that participated in NE03-06. The results, published independently by this single clinical trial site in our larger Phase 3 NE03-06 study, corroborate data for the ability of Lymphoseek to identify sentinel lymph nodes in head and neck squamous cell carcinoma.
In October 2013, we announced additional results from the fully completed NEO3-06 study indicating that Lymphoseek also met all other pre-specified study endpoints, including sensitivity, negative predictive value (NPV) and overall accuracy relative to the pathology status of non-SLNs. Lymphoseek demonstrated a sensitivity rate of 97.6%, a NPV of 97.8%, and overall accuracy of 98.8%. No differences were observed in the ability of Lymphoseek to detect SLNs between same-day or subsequent-day surgery following Lymphoseek injection.
Moreover, multiple level nodal dissection of patients in the trial with cancer-positive lymph nodes led to an average removal of 38 lymph nodes per patient, whereas Lymphoseek on average led to the identification of approximately 4 lymph nodes. This reduction in potential lymph node removal could lead to a substantial reduction in potential morbidity for patients with head and neck cancer undergoing sentinel lymph node biopsy, as well as potentially enabling reductions in the time and cost of surgery.
In December 2013, the FDA granted fast track designation to Lymphoseek for sentinel lymph node detection in patients with head and neck cancer and we submitted a sNDA with the FDA seeking approval for the marketing and sale of Lymphoseek for the same indication. In assessing the application, the FDA chose to separate the filing into two applications based on the proposed labeling extensions requested and the scope of information provided. The first sNDA, aimed at Lymphoseek’s use as a sentinel lymph node detection agent in patients with head and neck cancer, was accepted for review by the FDA in February 2014, and was granted a priority review. Under PDUFA, the FDA has set a target review date for the first Lymphoseek sNDA in June 2014. In March 2014, the FDA accepted for review the second sNDA to support a broader and more flexible use of Lymphoseek in imaging and lymphatic mapping procedures, including lymphoscintigraphy and other optimization capabilities. Under PDUFA, the FDA has set a target review date for the second sNDA in October 2014.
We are currently pursuing registration of Lymphoseek in the European Union (EU). In February 2012, Navidea was advised by the European Medicines Agency (EMA) Committee for Medicinal Products for Human Use (CHMP) that the Committee had adopted the advice of the Scientific Advice Working Party (SAWP) regarding the Lymphoseek development program and determined that Lymphoseek is eligible for a Marketing Authorization Application (MAA) submission based on clinical data accumulated from completed pivotal studies and supporting clinical literature. We submitted our MAA for Lymphoseek to the EMA in December 2012. In December 2013, the EMA provided updated feedback on the MAA as it continued its review. The updated feedback was limited to supplemental product specification data and the NEO3-06 Phase 3 study in head and neck cancer. Based on the cumulative feedback to date, we anticipate the CHMP could take up consideration of the MAA early in 2014. A positive opinion for approval would enable commercialization in the EU subsequent to European Commission (EC) adoption of the CHMP opinion and pricing determinations on a country-by-country basis in each member state, a process which could take several months. However, we cannot assure you that Lymphoseek will achieve regulatory approval in the EU or any market outside the U.S., or if approved, that it will achieve market acceptance in any market. See Risk Factors.
Manocept Platform
Navidea’s Manocept platform is predicated on the ability to specifically target the CD206 mannose receptor expressed on macrophages. Macrophages play important roles in many disease states and are an emerging target in many diseases where diagnostic uncertainty exists. This flexible and versatile platform acts as an engine for purpose-built molecules that may enhance diagnostic accuracy, clinical decision-making and ultimately patient care, while offering the potential to utilize a breadth of diagnostic modalities, including SPECT, PET, intra-operative and/or optical-fluorescence detection. The Company’s FDA-approved precision diagnostic lymphatic mapping agent, Lymphoseek, is representative of the ability to successfully exploit this mechanism to develop powerful new diagnostic agents.
In September 2013, we presented collaborative data at the Cancer Advance Conference at Harvard Medical School from the proof-of-principle imaging studies using Cy3-tilmanocept, a fluorescent-labeled agent derived from the Manocept platform, utilizing the technical principles underlying Lymphoseek. Data presented at the conference establish the feasibility of using Manocept compounds to bind to the CD206 mannose receptor and target macrophage inflammatory cells, an approach that may enable the design of novel immune cell-targeted agents for diagnosis and disease staging. These studies focused on establishing the ability of fluorescent Cy3-tilmanocept to target macrophages in two disease states which are representative of a broader set of disorders which involve macrophages: Kaposi’s Sarcoma (KS) and tuberculosis (TB), both outside the current lymphatic mapping application. These data support the expansion of the Manocept platform into potential new indications in disorders that are mediated by, or associated with, macrophages utilizing immune-cell targeting to address unmet diagnostic needs in this emerging area. Other recognized disorders having macrophage involvement include not only KS and TB, but also rheumatoid arthritis (RA), Systemic Lupus Erythematosis, atherosclerosis/vulnerable plaque, Crohn’s disease and others that span clinical areas in oncology, autoimmunity, infectious diseases, cardiology, and inflammation. These data were published in a special supplement,
Nature Outlook: Medical Imaging
, in the October 31, 2013 issue of
Nature
. The supplement included a White Paper entitled
Innovations in receptor-targeted precision imaging at Navidea: Diagnosis up close and personal.
The online edition also includes several peer-reviewed articles published previously by Nature Publishing Group that reinforce the principle of CD206 mannose receptor targeting using Manocept compounds to identify macrophages.
In November 2013, we announced our collaboration with investigators at the University of California, San Francisco (USCF), on a clinical study to evaluate, for the first time, the use and performance of technetium–labeled tilmanocept in patients with KS. The investigator–initiated study will evaluate HIV patients with various stages of KS who will be administered 99mTc-tilmanocept and assessed by SPECT imaging for localization of KS lesions and possible identification of KS disease spread.
In February 2014, data utilizing compounds from our Manocept platform in models of RA were presented by Thomas Rosol, DVM, PhD, DACVP from The Ohio State University at a Keystone Symposia on Molecular Cell Biology of Macrophages in Human Disease held in Santa Fe, NM. The poster presentation, entitled
“Imaging of macrophages in immune-mediated inflammatory disease and cartilage antibody-induced arthritis in mice using Cy3-tilmanocept”
highlights research from Dr. Rosol and other Navidea collaborators at The Ohio State University. The studies demonstrate the ability of Cy3-tilmanocept to identify and localize to disease-state macrophages when administered intravenously, enabling detection of immune-mediated arthritis in affected joints in vivo in mice. Results were confirmed using histopathology. The data highlighted the identification of immune-mediated inflammation seen in arthritic elbows and knees of arthritis-affected mice but not in control mice or un-affected joints within arthritic mice. The imaging results in this study showed preferential localization of macrophages by Cy3-tilmanocept in affected joints with little to no localization in unaffected joints. As the mannose receptor is a key portal for imaging pathological states of macrophage-associated inflammation, the Manocept-derived molecules are potentially potent tools for addressing unmet needs in this area such as identifying, staging, assessing disease activity and monitoring therapeutic efficacy.
The Company continues to evaluate emerging data in other disease states to define areas of focus, development pathways and partnering options to capitalize on the Manocept platform. We cannot assure you that further evaluation or development will be successful, that any Manocept platform product candidate will ultimately achieve regulatory approval, or if approved, the extent to which it will achieve market acceptance. See Risk Factors.
NAV4694 – Precision Imaging Agent to Aid in Diagnosis of Alzheimer’s Disease
In December 2011, we executed a license agreement with AstraZeneca AB for NAV4694, a proprietary compound that is primarily intended for use in diagnosing AD and other central nervous system disorders. The license agreement is effective until the later of the tenth anniversary of the first commercial sale of NAV4694 or the expiration of the underlying patents. Under the terms of the license agreement, AstraZeneca granted us an exclusive worldwide royalty-bearing license for NAV4694 with the right to grant sublicenses. In consideration for the license rights, we paid AstraZeneca a license issue fee of $5.0 million upon execution of the agreement. We also agreed to pay AstraZeneca up to $6.5 million in contingent milestone payments based on the achievement of certain clinical development and regulatory filing milestones, and up to $11.0 million in contingent milestone payments due following receipt of certain regulatory approvals and the initiation of commercial sales of the licensed product. In addition, we agreed to pay AstraZeneca a royalty on net sales of licensed and sublicensed products.
NAV4694 is a Fluorine-18 labeled precision radiopharmaceutical candidate for use in the imaging and evaluation of patients with signs or symptoms of AD and potentially also MCI. NAV4694 binds to beta-amyloid deposits in the brain that can then be imaged in PET scans. Amyloid plaque pathology is a required feature of AD and the presence of amyloid pathology is a supportive feature for diagnosis of probable AD. Patients who are negative for amyloid pathology do not have AD.
Based on the data accumulated to date, NAV4694 appears to have better sensitivity and specificity in detecting beta-amyloid than other agents in development. Due to its high affinity for amyloid, improved contrast, and enhanced uptake in the amyloid-target regions of interest in the brain compared with low uptake in white matter background, better signal-to-noise ratios have been observed. Greater contrast may enable the ability to detect smaller amounts of amyloid and earlier identification of disease, as well as the opportunity to detect smaller changes in amyloid levels and monitor disease progression over time.
Beta-Amyloid Imaging for Alzheimer’s Disease
Alzheimer’s disease is a progressive and fatal neurodegenerative disease which affects a person’s memory and ability to learn, reason, communicate and carry out daily activities. Increasing age is the greatest risk factor for AD and there is no prevention or cure. The World Health Organization estimates that AD affects over 24 million people worldwide. Currently in the U.S. alone, there are over 5 million Alzheimer’s patients and according to Alzheimer’s Association (AA) estimates, as many as 16 million Americans could have the disease by 2050. Among the brain changes evident in the development of AD is the accumulation of the protein beta-amyloid outside nerve cells (neurons) in the brain. Somewhere around 100 experimental therapies aimed at slowing or stopping the progression of AD are now undergoing clinical evaluation. Regardless of causative associations, beta-amyloid levels continue to be viewed as a reliable marker of AD.
There is a need for improvements in testing and diagnosis for AD. While there is an accepted diagnostic process for assessing dementia, the only currently definitive diagnosis for AD is a post-mortem analysis of brain tissue. A positive finding of plaques and tangles in the brain upon autopsy leads to this definitive diagnosis, which is too late to benefit the patient. For this reason, the AD and imaging communities have been interested in an effective biomarker of AD which could facilitate earlier definitive diagnosis.
Alzheimer’s disease imaging agents are potentially powerful tools aiding in the diagnosis of AD as well as the evaluation of new drugs aiming to modify amyloid plaque levels and alter disease progression. The prototype agent in this diagnostic quest was identified almost a decade ago at the University of Pittsburgh. This imaging agent targets the deposits of amyloid plaque which are a hallmark of AD pathology. This agent, frequently referred to as Pittsburgh B, or PiB, is a radiolabeled small molecule utilized with PET imaging. As such, the PiB tracer provided strong image resolution and was able to distinguish significant amyloid burdens in the brains of AD patients as opposed to the relative absence of amyloid in subjects without AD. Unfortunately, PiB uses C-11, a very short-lived radio-isotope, and thus cannot be readily commercialized.
Other PET amyloid tracers are currently moving through the drug development process. Like PiB, these compounds are also high-resolution PET tracers, but utilize an F-18 isotope, which permits broader effective distribution.
Although these other agents constitute a step forward, each has potential limitations. Navidea’s NAV4694 tracer appears to have several important advantages, including the ability to generate clean images with less white matter uptake to enable identification of lower levels of amyloid, making the images easier to read and interpret and potentially facilitating earlier detection of disease.
NAV4694 Clinical Development
NAV4694 has been studied in rigorous pre-clinical studies and clinical trials in humans. Clinical studies through Phase 3 have included over 180 subjects to date and have included subjects with mild cognitive impairment (MCI), suspected AD patients, and healthy volunteers. Results suggest that NAV4694 has the potential ability to image patients quickly and safely with high sensitivity and specificity. We recently completed US enrollment in a Phase 2 trial that we initiated in September 2012, primarily to understand the diagnostic performance of NAV4694 and to expand the safety database for the compound. We also initiated a Phase 2b trial in subjects with MCI in early 2013, as well as a Phase 3 autopsy-based trial in the first half of 2013, to support registration in the U.S. and the EU.
In July 2013 at the Alzheimer's Association International Conference (AAIC), it was announced that the Australian Imaging, Biomarker & Lifestyle Flagship Study of Ageing (AIBL) plans to switch to NAV4694 for use in its comprehensive research initiative in Alzheimer’s disease and MCI from a PET imaging agent for ß-amyloid detection that for many has remained the accepted benchmark standard for studies investigating Alzheimer’s disease and differential diagnoses of dementia. Recently published results from a head-to-head study that directly compared NAV4694 to the accepted standard agent PiB demonstrated that NAV4694 displayed nearly identical imaging characteristics, and is accessible and affordable and can be reliably interpreted in a variety of clinical settings.
Also at the 2013 AAIC, researchers at the McGill Centre for Studies in Aging, Douglas Research Institute, and Montreal Neurological Institute presented results of a post-mortem brain tissue study comparing performance characteristics of NAV4694 to this accepted standard PiB, concluding that NAV4694 better differentiated amyloid deposition associated with AD in post-mortem brains.
In August 2013, we signed an agreement with Siemens PETNET Solutions that grants PETNET Solutions the right to manufacture NAV4694 for our clinical trials. Under the terms of the agreement, PETNET Solutions will initially manufacture NAV4694 clinical trial material at select U.S. radiopharmacies, with the possibility of expanding into additional Siemens’ PETNET Solutions locations in the future.
Also in August 2013, we were awarded a Small Business Innovation Research (SBIR) grant from the National Institute on Aging (NIA) of the National Institutes of Health (NIH) in connection with our Phase 3 clinical program for NAV4694 as an aid in the differential diagnosis of Alzheimer’s disease. The SBIR grant has the potential to provide up to $1.8 million in support, if fully funded, through the conclusion of the Phase 3 clinical study. Funding of $259,000 for the approved first stage of the grant is intended to provide support for initiation activities of the Phase 3 clinical program. Funding of the second stage of the grant is contingent upon meeting specific aims related to the first stage of the grant such as institutional review board approval of the Phase 3 protocol, clinical site contracting and investigator training.
In September 2013, we were awarded an additional SBIR grant from the NIA of the NIH in connection with the evaluation of NAV4694 as a diagnostic imaging agent that may aid physicians in identifying those individuals with MCI who are at greatest risk of progressing to AD. The grant has the potential to provide up to $2.3 million in support, if fully funded, through the conclusion of the clinical study. Funding of $152,000 for the approved first stage of the grant is intended to provide support for initiation activities of the clinical trial program. Funding of the second stage of the grant is contingent upon meeting specific aims related to the first stage of the grant such as clinical site contracting, investigator training and institutional review board approvals.
In February 2014, we announced that NAV4694 produced highly differentiated images in the first cohort of subjects enrolled in our Phase 2b PET imaging study of subjects with MCI. The subjects were enrolled and evaluated at the Alzheimer's Disease Center at Quincy Medical Center, Quincy, MA. The results indicate that NAV4694 produced high-quality diagnostic images that segregated MCI subjects into two discrete groups, either amyloid-positive or amyloid-negative. The image evaluation was performed on twelve subjects meeting pre-defined inclusion/exclusion criteria for emerging, or early-stage, cognitive impairment. NAV4694 scans were assessed by two independent readers using a 3-point visual scale. Image interpretation used the Company’s proprietary visual-read algorithm. All twelve MCI subjects segregated into either amyloid-positive or amyloid-negative categories. The technical quality of the scans was good and both raters were in complete agreement on the 3-point scale, with 8 scans highly positive for ß-amyloid and 4 scans negative. There were no intermediate ratings or ambiguous cases despite the early-stage characterization of the subjects’ cognitive impairment status. The scans were easy to read and the readers noted that the high gray matter relative to white matter signal made image interpretation very straight forward. To date, the product candidate appears to be safe and well-tolerated. Results are expected to be presented at an upcoming scientific conference on AD. We cannot assure you, however, that further clinical trials for this product will be successful, that the product will achieve regulatory approval, or if approved, that it will achieve market acceptance. See Risk Factors.
NAV5001
In January 2012, we executed an option agreement with Alseres Pharmaceuticals, Inc. (Alseres) to sublicense NAV5001. Under the terms of the option agreement, Navidea paid Alseres an option fee of $500,000 for the exclusive right to negotiate a definitive sublicense agreement by June 30, 2012, which was extended to July 31, 2012, to complete due diligence. On July 31, 2012, we entered into an agreement to sublicense NAV5001 from Alseres. Under the terms of the sublicense agreement, Alseres granted Navidea an exclusive, worldwide sublicense to research, develop and commercialize NAV5001. The final terms of the agreement required Navidea to make a one-time sublicense execution payment to Alseres equal to (i) $175,000 in cash and (ii) 300,000 shares of our common stock. The sublicense agreement also provides for contingent milestone payments of up to $2.9 million, $2.5 million of which will principally occur at the time of product registration or upon commercial sales, and the issuance of up to an additional 1.15 million shares of Navidea common stock, 950,000 shares of which are issuable at the time of product registration or upon commercial sales. In addition, the sublicense terms anticipate royalties on annual net sales of the approved product which are consistent with industry-standard terms and certain sublicense extension fees, payable in cash and shares of common stock, in the event certain diligence milestones are not met.
NAV5001 is a patented Iodine-123 labeled small molecule radiopharmaceutical used with SPECT imaging to identify the status of specific regions in the brains of patients suspected of having PD. The agent binds to the dopamine transporter (DAT) on the cell surface of dopaminergic neurons in the striatum and substantia nigra regions of the brain. Loss of these neurons is a hallmark of PD.
NAV5001 has been administered to approximately 600 subjects to date. Results from clinical trials have demonstrated that NAV5001 has high affinity for DAT and rapid kinetics which enable the generation of clean images quickly, beginning within about 20 minutes after injection, while other agents have waiting periods from 4 to 24 hours before imaging can occur. In addition to its potential use as an aid in the differential diagnosis of PD and movement disorders, NAV5001 may also be useful in the diagnosis of Dementia with Lewy Bodies (DLB), one of the most common forms of dementia after AD.
We initiated a Phase 2b program in DLB in April 2013, commencing an investigator-initiated study. In December 2013, we announced that the first subject had been enrolled in a pivotal Phase 3 clinical trial to assess the safety and efficacy of NAV5001 as an aid in the differential diagnosis of Parkinsonian Syndromes from non-Parkinsonian tremor. This clinical study will focus on subjects with emerging symptoms in whom diagnostic uncertainty and unmet need are highest. Results from earlier trials using NAV5001 suggest that it may be an effective, well-tolerated imaging agent. The high affinity for DAT with resulting clear images can assist physicians in reaching an accurate diagnosis sooner, and the rapid kinetics with minimal time between injection and scanning and time in the SPECT scanner not only decrease patient exposure and but also facilitate increased efficiency with potential cost savings for the nuclear medicine facility. Reducing diagnostic uncertainty and error rates for patients with movement disorders who often exhibit similar clinical symptoms has the potential to afford great value, especially early in the initial clinical presentation, and may lead to improved clinical decision-making and patient management.
In August 2013, we reached agreement with the FDA for two special protocol assessments (SPAs) for the Company’s pivotal Phase 3 program with NAV5001 as an aid in the differential diagnosis of Parkinsonian Syndromes from non-Parkinsonian tremor. The SPAs are written agreements between the Company, as the program’s sponsor, and the FDA regarding the design, endpoints and statistical analysis for the two pivotal Phase 3 clinical trials to be used in support of a potential NAV5001 NDA. The Company is actively preparing for the initiation of the pivotal Phase 3 trials later this year. The international, open-label, pivotal NAV5001 Phase 3 program consists of two similar clinical trials that will run in parallel and enroll approximately 550 total subjects who exhibit early stage tremor. Each Phase 3 trial was the subject of a SPA with the FDA. The primary endpoint of both studies is to evaluate the relative diagnostic efficacy of the NAV5001 SPECT images compared with the diagnosis made by neurologists and that established by a consensus panel of three movement disorder specialists as the ‘Standard of Truth.’ In one study, each subject will undergo SPECT imaging with NAV5001 only. In the second study, subjects will undergo SPECT imaging with both NAV5001 and an alternative SPECT agent, ioflupane, in a cross-over comparison design. In December 2013 we enrolled our first subject for the studies. We cannot assure you, however, that further clinical trials for this product will be successful, that the product will achieve regulatory approval, or if approved, that it will achieve market acceptance. See Risk Factors.
NAV1800 (formerly RIGScan)
NAV1800 is a radiolabeled, cancer-specific targeting monoclonal antibody intended to enable identification of cancerous tissue and delineate tumor or occult or metastatic cancerous tissue. NAV1800 is administered to the patient and is potentially identified by imaging or, during surgery with a gamma detection probe, thereby assisting a surgeon in identifying the location of cancerous tissues.
Our NAV1800 technology is a radiolabeled monoclonal antibody that serves as the biologic targeting agent for detection of occult or metastatic cancer. The antibody localizes or binds to a tumor antigen called TAG-72 expressed on many solid tumor cancers. NAV1800 is intended to aid in identifying a primary tumor, ascertaining margins, or determining the extent and location of occult and metastatic tumor in patients with solid tumor cancers that express the TAG-72 antigen, such as colorectal cancer, ovarian cancer, prostate cancer, lung cancer and other cancers of epithelial origin. The detection of clinically occult tumor is intended to provide the surgeon with a more accurate assessment of the extent of disease, and therefore may impact the surgical and therapeutic management of the patient.
NAV1800 Clinical Development
The murine monoclonal antibody of NAV1800 has been studied in several clinical trials, including Phase 3 studies. Results from certain of these studies have been published in leading cancer journals including
Clinical Cancer Research, Annals of Surgical Oncology
and
Diseases of the Colon and Rectum
. In 1996, Navidea submitted applications to the EMA and the FDA for marketing approval of NAV1800 for the detection of metastatic colorectal cancer based primarily on results of a single Phase 3 clinical trial, NEO2-14. The FDA declined approval, indicating that, in addition to identifying additional pathology-confirmed disease, the clinical studies of NAV1800 needed to demonstrate clinical utility in enhancing patient outcomes, an endpoint which the completed studies were not designed to address. Navidea withdrew its application to the EMA in November 1997.
To support resuming NAV1800 development, we filed a new IND request with the FDA in late 2010. In a pre-IND meeting with the FDA in February 2011, the FDA provided guidance regarding our manufacturing process, to increase manufacturing efficiency and the quality of the underlying biologic antibody and potentially transitioning from a murine-based monoclonal antibody to a human-based monoclonal antibody. In August 2011, we also held a meeting with the SAWP of the EMA and received similar guidance. With this collective guidance, we transitioned from a murine monoclonal antibody used in the previous studies noted above to a humanized monoclonal antibody.
In September 2012, we were awarded a grant from the NIH to further develop NAV1800. The first phase of the grant, which has been awarded, is for $315,000; the second phase of the grant, which requires that we meet certain conditions, primarily completion of the first phase, development of a protocol, and institutional review board approval, will be for an additional $1.2 million.
We have focused over the last several years on manufacturing and quality of the humanized antibody with the aim of completing the necessary steps to support clinical development. Rigorous CMC evaluation must be completed as a pre-requisite to clinical trials to ensure the antibody is adequate for human study. NAV1800 is a biologic drug that has not been produced for several years. We will need to establish robust manufacturing and radiolabeling capabilities for the antibody in order to meet the regulatory needs for the NAV1800 product. Additional non-clinical studies could potentially be required by regulatory authorities. We cannot assure you, however, that if further clinical trials for this product proceed, that if they proceed that they will be successful, that the product will achieve regulatory approval, or if approved, that it will achieve market acceptance. See Risk Factors.
In November 2013, we initiated a collaboration with investigators at the University of Alabama at Birmingham (UAB) on a potential clinical study to evaluate the safety and efficacy of NAV1800 in cancer patients. The study is intended to evaluate up to 20 patients with colorectal cancer by administering NAV1800 and assessing by SPECT/CT imaging for the presence of liver metastasis, as well as evaluate other parameters of the performance of the radiolabeled antibody. Investigators at UAB have published extensively on the use of TAG-72 targeted monoclonal antibodies in the cancer setting. As the scope and required resources for the NAV1800 program continues to be assessed, particularly in light of other development opportunities such as Lymphoseek, NAV4694, NAV5001, our Manocept platform, or other agents, the timing and scope of our plans for NAV1800 may be further affected.
Market Overviews
Cancer Market Overview
Cancer is the second leading cause of death in the U.S. and Western Europe. The American Cancer Society (ACS) estimates that cancer will cause over 586,000 deaths in 2014 in the U.S. alone. The NIH has estimated the overall annual costs for cancer for the U.S. for 2009 at $216.6 billion: $86.6 billion for direct medical costs and $130.0 billion for indirect mortality. For the types of cancer to which our oncology agents may be applicable (breast, melanoma, head and neck, prostate, lung, colorectal, gastrointestinal and gynecologic), the ACS has estimated that nearly 1.1 million new cases will occur in the U.S. in 2014.
Currently, the application of ILM is most established in breast cancer. Breast cancer is the second leading cause of death from cancer among all women in the U.S. The probability of developing breast cancer generally increases with age, rising from about 1.9% in women under age 49 to 6.7% in women age 70 or older. While the incidence rate for breast cancer appears to be stable, the overall number of new cases of breast cancer is still increasing. According to the ACS, over 233,000 new cases of invasive breast cancer are expected to be diagnosed during 2014 in the U.S. alone. Thus, we believe that the aging of the population, combined with improved education and awareness of breast cancer and diagnostic methods, will continue to lead to an increased number of breast cancer surgical diagnostic procedures. While many breast cancer patients are treated in large cancer centers or university hospitals, regional and/or community hospitals continue to treat the majority of breast cancer patients.
The use of ILM is also common in melanoma. The ACS estimates that approximately 76,000 new cases of melanoma will be diagnosed in the U.S. during 2014. In addition to breast cancer and melanoma, we believe that our oncology products may have utility in other cancer types with over another 1 million new cases expected during 2014 in the U.S. Additionally, the ACS estimates that approximately 1.7 million new cancer cases will be diagnosed in the U.S. during 2014.
If the potential of Lymphoseek as a radioactive tracing agent is ultimately realized, it may address not only the current breast and melanoma markets on a procedural basis, but also assist in the clinical evaluation and staging of solid tumor cancers and expanding lymph node mapping to other solid tumor cancers such as prostate, gastric, colon, head and neck, and non-small cell lung. However, we cannot assure you that Lymphoseek will be cleared to market for cancers other than breast or melanoma, or if cleared to market for other cancer types, that it will achieve significant revenue. See Risk Factors.
Alzheimer’s Disease Market Overview
The AA estimates that more than 5.2 million Americans had AD in 2013. On a global basis, Alzheimer’s Disease International estimated in 2013 that there were 44.4 million people living with dementia. AA estimates that total costs for AD care was approximately $203 billion in 2013 and is expected to rise to $1.2 trillion by 2050. AA also estimates that there are over 15.4 million AD and dementia caregivers providing 17.5 billion hours of unpaid care valued at over $216.4 billion. AD is the sixth-leading cause of death in the country and the only cause of death among the top 10 in the U.S. that cannot be prevented, cured or even slowed. Based on mortality data from 2000-2010, death rates have declined for most major diseases while deaths from AD have risen 68 percent during the same period. In February 2013, the American Academy of Neurology reported in the online issue of
Neurology
that the number of people with AD may triple by 2050.
While there are several approved therapies for the treatment of AD, there is significant interest in the development of disease-modifying therapeutics that could slow or reverse progression of the disease. In fact, studies with cholinesterase inhibitors and experimental AD therapies suggest therapeutic intervention is likely to have a bigger impact on disease progression when dosed in patients with early-stage disease than in patients with advanced disease.
For many patients, simply slowing the progression from MCI associated with early-stage disease to advanced AD could have a material impact on quality of life and medical burden for the healthcare system. Delaying the onset of AD by five years could reduce the disease prevalence by 50% during the next few decades and, according to estimates from AA, reduce annual healthcare expenditures by more than $50 billion.
While early detection is the goal of AD staging, there are no validated biomarkers for the onset of symptomatic disease. All AD patients have beta-amyloid plaque deposits in the brain. Currently, detection of the early-stages of AD is based largely on assessing the patient's history of increasing cognitive impairment with some patients also receiving testing by an experimental PET scan to confirm the presence of amyloid plaque. The interest in accurate imaging agent biomarkers for the detection of beta-amyloid has grown significantly in recent years as physicians are attempting to identify methods for detecting amyloid earlier.
Parkinson’s Disease Market Overview
Parkinson’s disease, following AD, is the second-most common neurodegenerative disorder in the United States.
The Parkinson’s Disease Foundation (PDF) estimates that up to 10 million people worldwide are living with PD, including 1 million people in the U.S. Approximately 60,000 new cases of PD are diagnosed in the U.S. each year. The Centers for Disease Control rated complications from PD as the 14th leading cause of death in the U.S. and as with AD, there is no cure.
A recent article conservatively estimates that the combined direct and indirect cost of PD exceeds $14.4 billion per year. There are approved therapies for the treatment of PD symptoms but these treatments often become ineffectual as the disease progresses and none have been approved to modify, slow or reverse the disease progression.
The burden of this chronic condition is projected to grow substantially over the next few decades as the size of the elderly population grows. Such projections are driving the need for innovative new treatments to prevent, delay onset, or alleviate symptoms of PD.
Slowing Parkinson's progression by 50% would reduce health care costs for PD patients by 35%, representing a dramatic reduction in cost of care even when spread over a longer expected survival and positively impacting the patient quality of life.
PD is commonly misdiagnosed or completely missed in clinical evaluations as symptoms are often attributed to the normal aging process. Essential tremor and other similar conditions including DLB, AD, multiple system atrophy, progressive supranuclear palsy, and normal pressure hydrocephalus are also common sources of confusion in PD diagnosis. Collectively, there are over 25 million people in the U.S. and Europe with some type of movement disorder, comprising a large differential diagnosis population. Current diagnostic guidelines are limited since they characterize PD by the presence of motor symptoms. Error rates using clinical diagnostic methods have been reported to be high. Research has shown the importance of who is undertaking a potential PD diagnosis by showing data that nearly half (47%) of PD diagnoses are incorrect when performed in the primary care setting, and specialists whose expertise is not specific movement disorders have an error rate of approximately 25%, while movement disorder specialists are mistaken in only 6% to 8% of cases.
The interest by the medical community in using imaging as an aid in diagnosing neurological conditions is growing. In PD, people lose dopamine-producing cells in a part of the brain associated with movement. Loss of these cells is the hallmark of PD. Current neuroimaging agents in combination with SPECT imaging are able to aid physicians in their diagnosis by visualizing this area of the brain to show the degree of loss of these motor neurons.
Marketing and Distribution
We believe the most preferable and likely distribution partners for Lymphoseek would be entities with established radiopharmaceutical distribution channels, although it is possible that other entities with more traditional oncology or neurological pharmaceutical portfolios may also have interest.
During the fourth quarter of 2007, we executed an agreement with Cardinal Health Inc.’s Nuclear Pharmacy Services division for the exclusive distribution of Lymphoseek in the U.S. The agreement is for a term of five years from the date of FDA marketing clearance, March 13, 2013. Under the terms of this agreement, Navidea will receive a significant share of the revenue from each patient dose of Lymphoseek sold. In addition, Navidea will receive up to $3 million in payments upon the achievement of certain sales milestones by Cardinal Health. We cannot assure you that we will be able to maintain a successful relationship with Cardinal Health, on terms acceptable to the Company, or at all.
In May 2013 the Company announced the commercial launch of Lymphoseek in the U.S. through a distribution agreement with Cardinal Health. Although Cardinal Health is responsible for the sale and distribution of Lymphoseek to health care professionals, we work closely with Cardinal Health in supporting marketing activities and conducting medical education programs for Lymphoseek. Although it is early in the launch, we believe we are seeing positive signs in measures of success we believe are critical when introducing a novel product such as Lymphoseek and which we believe indicate a successful initial launch.
In August 2013, we announced that the Centers for Medicare and Medicaid Services (CMS) issued a Healthcare Common Procedure Coding System (HCPCS) pass-through C Code for Lymphoseek. We anticipate that the reimbursement code, which became effective on October 1, 2013, will streamline the billing and reimbursement process for hospital providers who use Lymphoseek and support its fair and equitable reimbursement. Lymphoseek has also been granted a permanent A Code effective January 1, 2014. We believe these developments may assist in advancing utilization of Lymphoseek.
We are aiming to deploy a specialty pharmaceutical strategy to commercialization of Lymphoseek, particularly in Europe, that would be supportive of premium product positioning, as opposed to a commodity or a generics positioning approach. Unlike the U.S., where institutions typically rely on radiopharmaceutical products which are compounded and delivered by specialized radiopharmacy distributors such as Cardinal Health, institutions in Europe predominantly purchase non-radiolabeled material and compound the radioactive product on-site. In November 2013, we announced that we had selected Norgine BV and affiliates (Norgine), a leading European specialty pharmaceutical company, as our partner for Europe and certain other territories in Africa and Austral-Asia, subject to the completion of a definitive agreement. We have not yet completed a definitive agreement with Norgine and cannot assure you that we will be successful in reaching a definitive agreement, or if secured, that we will be able to maintain a successful relationship with Norgine, on terms acceptable to the Company, or at all.
Also, in November 2013, Navidea completed an agreement with Enigma Biomedical Group for the distribution of Lymphoseek in Canada, affording local access to that market as well. In January 2014, we entered into a distribution agreement for Lymphoseek in Taiwan with Global Medical Solutions Taiwan, Ltd. (GMST), a leading in-country distributor of nuclear medicine and diagnostic imaging products. The companies will work together to address all needed Taiwanese FDA regulatory requirements and expect local approval in 2014-15. Prior to complete regulatory approval, in appropriate situations, the product will be made available in accordance with named-patient mechanisms. The agreement anticipates distribution of non-radioactive kits as well as unit-dose product which will be radiolabeled at the GMST commercial radiopharmacy, affording flexibility in meeting the needs of end users in the Taiwanese market. We have also recently commenced shipment of Lymphoseek to select medical centers in the Middle East. We believe that with international partnerships to complement our position in the U.S., we will help establish Lymphoseek as a global leader in lymphatic mapping, as we are aware of no other company which has this global geographic range.
We currently have no distribution agreements for NAV4694, NAV5001 or NAV1800. In addition, it should be noted that the distribution model we have established with Cardinal Health in the U.S. for Lymphoseek may not necessarily be applicable to other markets or even our other potential radiopharmaceutical candidates due to differences in regional distribution infrastructure, regulation and medical practice patterns. We cannot assure you that we will be successful in securing collaborative partners for other global markets or radiopharmaceutical products, or that we will be able to negotiate acceptable terms for such arrangements.
Manufacturing
We currently use and expect to continue to be dependent upon contract manufacturers to manufacture each of our product candidates. We have established a quality control and quality assurance program, including a set of standard operating procedures and specifications with the goal that our products and product candidates are manufactured in accordance with current good manufacturing practices (cGMP) and other applicable domestic and international regulations. We will need to invest in additional manufacturing and supply chain resources, and may seek to enter into additional collaborative arrangements with other parties that have established manufacturing capabilities. It is likely that we will continue to rely on third-party manufacturers for our development and commercial products on a contract basis.
Lymphoseek Manufacturing
Reliable produces the drug substance and OsoBio performs final product manufacturing including final drug formulation, lyophilization (freeze-drying) and packaging processes. Once packaged, the vialed drug can then be shipped to a hospital or regional commercial radiopharmacy where it will be made radioactive (radiolabeled) with
99m
Tc to become the final form of Lymphoseek to be administered to a patient. Both organizations have assisted Navidea in the preparation of the chemistry, manufacturing and control (CMC) sections of our submissions to the FDA and the EMA. Both Reliable and OsoBio are registered manufacturers with the FDA and the EMA.
In November 2009, we completed a Manufacture and Supply Agreement with Reliable for the manufacture of the bulk drug substance with an initial term of 10 years. In September 2013, we entered into a Manufacturing Services Agreement with OsoBio for contract pharmaceutical development, manufacturing, packaging and analytical services for Lymphoseek. The agreement is through December 2016, and automatically renews for additional two-year periods. We cannot assure you that we will be successful in completing future agreements for the supply of Lymphoseek on terms acceptable to the Company, or at all.
NAV4694 Manufacturing
Supplies of NAV4694 used in clinical development through Phase 2b were manufactured by AstraZeneca through various arrangements. In May 2012, we executed an agreement with Molecular NeuroImaging, LLC (MNI) to produce and distribute NAV4694 to imaging centers within a specified geographic region. In October 2012, we completed an agreement with Spectron mrc, LLC (Spectron) to produce NAV4694 for use at certain clinical trial sites. In August 2013, we entered into a Manufacturing Services Agreement with PETNET Solutions, Inc. (PETNET) for the manufacture and distribution of NAV4694 with an initial term of 3 years. Under the terms of the agreement, PETNET will initially manufacture NAV4694 clinical trial material at select U.S. radiopharmacies, with the possibility of expanding into additional PETNET locations in the future. We cannot assure you that we will be successful in executing future agreements for the supply of NAV4694 on terms acceptable to the Company, or at all.
NAV5001 Manufacturing
Supplies of NAV5001 used in clinical development through Phase 3 were manufactured by Alseres under an agreement they had in place with Nordion, Inc., a Canadian corporation and well-recognized manufacturer of
123
I and nuclear medicine labeled imaging agents. In May 2013, we entered into an agreement with Nordion (Canada) Inc. (Nordion) to produce and supply NAV5001 for our late-phase clinical trials. Nordion will radiolabel NAV5001, manage the manufacturing logistics, and ship it to third-party clinical trial sites on behalf of Navidea. The initial three-year term expires in May 2016. We cannot assure you that we will be successful in executing future agreements for the supply of NAV5001 on terms acceptable to the Company, or at all.
NAV1800 Manufacturing
We will need to re-establish robust CMC and radiolabeling capabilities for the antibody in order to meet the regulatory needs for the NAV1800 product. We cannot assure you that we will be successful in completing the necessary development, manufacturing or supply processes or agreements to support NAV1800 development or commercialization on terms acceptable to the Company, or at all.
Summary
We cannot assure you that we will be successful in securing and/or maintaining the necessary manufacturing, supply and/or radiolabeling capabilities for our product candidates in clinical development. If and when established, we also cannot assure you that we will be able to maintain agreements or other purchasing arrangements with our subcontractors on terms acceptable to us, or that our subcontractors will be able to meet our production requirements on a timely basis, at the required levels of performance and quality, including compliance with FDA cGMP requirements. In the event that any of our subcontractors are unable or unwilling to meet our production requirements, we cannot assure you that an alternate source of supply could be established without significant interruption in product supply or without significant adverse impact to product availability or cost. Any significant supply interruption or yield problems that we or our subcontractors experience would have a material adverse effect on our ability to manufacture our products and, therefore, a material adverse effect on our business, financial condition, and results of operations until a new source of supply is qualified. See Risk Factors.
Competition
Competition in the pharmaceutical and biotechnology industries is intense. We face competition from a variety of companies focused on developing oncology and neurology diagnostic drugs. We compete with large pharmaceutical and other specialized biotechnology companies. We also face competition from universities and other non-profit research organizations. Many emerging medical product companies have corporate partnership arrangements with large, established companies to support the research, development, and commercialization of products that may be competitive with our products. In addition, a number of large established companies are developing proprietary technologies or have enhanced their capabilities by entering into arrangements with or acquiring companies with technologies applicable to the detection or treatment of cancer and other diseases targeted by our product candidates. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and established biotechnology companies. Many of these competitors have products that have been approved or are in development and operate large, well-funded research and development programs. Many of our existing or potential competitors have substantially greater financial, research and development, regulatory, marketing, and production resources than we have. Other companies may develop and introduce products and processes competitive with or superior to ours. See Risk Factors.
We expect to encounter significant competition for the principal pharmaceutical products we plan to develop. Companies that complete clinical trials, obtain required regulatory approvals and commence commercial sales of their products before us may achieve a significant competitive advantage if their products work through a similar mechanism as our products and if the approved indications are similar. A number of biotechnology and pharmaceutical companies are developing new products for the treatment of the same diseases being targeted by us. In some instances, such products have already entered late-stage clinical trials or received FDA approval and may be marketed for some period prior to the approval of our products.
We believe that our ability to compete successfully will be based on our ability to create and maintain scientifically advanced “best-in-class” technology, develop proprietary products, attract and retain scientific personnel, obtain patent or other protection for our products, obtain required regulatory approvals and manufacture and successfully market our products, either alone or through third parties. We will continue to seek licenses for technologies related to our field of interest and may face competition with respect to such efforts. We expect that competition among products cleared for marketing will be based on, among other things, product efficacy, safety, reliability, availability, price, and patent position.
Lymphoseek Competition
Surgeons who practice the lymphatic mapping procedure for which Lymphoseek is intended currently use other radiopharmaceuticals such as a sulfur colloid compound in the U.S., and other colloidal compounds in other markets. In addition, many surgeons use vital blue dyes to assist in the visual identification of the draining lymphatic tissue around a primary tumor. In the U.S., sulfur colloid is manufactured by Pharmalucence. Sulfur colloid had been used “off-label” in the U.S. for ILM until July 2011, when it was approved by the FDA for use in lymphatic mapping in breast cancer patients based on a statistical meta-analysis of published literature that compared the use of sulfur colloid with that of the vital blue dyes. The product label for sulfur colloid was expanded to cover lymphatic mapping in melanoma in August 2012, again on the basis of a meta-analysis of published literature. In the EU and certain Pacific Rim markets, there are other colloidal-based compounds with various levels of approved labeling for use in lymphatic mapping, although a number of countries still employ the use of products used “off-label”.
NAV4694 Competition
Several potential competitive [
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F] products have been approved or are in development for use as biomarkers to aid in detection of AD. Developed through Eli Lilly’s wholly-owned Avid Radiopharmaceuticals (Avid), florbetapir was reviewed in January 2011 by the FDA Peripheral and Central Nervous System Drugs Advisory Committee, which voted 16-0 in favor of recommending that this drug be approved for use. However, the recommendation was contingent on a training program as there was significant variability in interpretation among readers of images generated by this agent. In March 2011, Avid received an FDA complete response letter primarily focused on the need to establish a reader training program to ensure reader accuracy and consistency of interpretations of existing florbetapir scans. In April 2012, Avid received FDA approval to market florbetapir. Florbetapir also received marketing authorization in the EU in January 2013.
In addition to fluorbetapir, there are two other beta-amyloid imaging agents in late stage development: florbetaben from Piramal Enterprises, Imaging Division, who acquired a molecular imaging research and development portfolio from Bayer Pharma AG in April 2012, and flutemetamol from GE Healthcare. Both have completed Phase 3 trials. In October 2013, the FDA approved flutemetamol, under the name Vizamyl, for adults being evaluated for AD and dementia with PET brain imaging. In December 2013, the EMA CHMP recommended approval of florbetaben for Alzheimer's diagnosis.
NAV5001 Competition
In July 2000, GE Healthcare received EMA approval to market DaTscan
™
(Ioflupane
123
I Injection), a radiopharmaceutical agent intended for use with SPECT imaging for the detection of dopamine transporters in the brains of adult patients with suspected Parkinsonian syndromes, in the EU. DaTscan was developed to help physicians evaluate neurodegenerative movement disorders, such as idiopathic (of unknown cause) PD. In July 2006, GE Healthcare received expanded approval in the EU for DaTscan for use in DLB. For patients with dementia, DaTscan has been successfully used in Europe to separate Alzheimer’s disease from DLB. This has important implications in determining which medications can be safely used to treat the dementia. GE Healthcare received FDA approval to market DaTscan in the U.S. in January 2011.
NAV1800 Competition
We do not believe there are any intraoperative diagnostic radiopharmaceuticals directly competitive with NAV1800 that would be used in the colorectal cancer application to which NAV1800 is initially targeted. There are other radiopharmaceuticals that are used as preoperative imaging agents; however, we are unaware of any that could be used as a real-time diagnostic aid during surgery such as NAV1800.
Patents and Proprietary Rights
The patent position of biotechnology, including our company, generally is highly uncertain and may involve complex legal and factual questions. Potential competitors may have filed applications, or may have been issued patents, or may obtain additional patents and proprietary rights relating to products or processes in the same area of technology as that used by our company. The scope and validity of these patents and applications, the extent to which we may be required to obtain licenses thereunder or under other proprietary rights, and the cost and availability of licenses are uncertain. We cannot assure you that our patent applications or those licensed to us will result in additional patents being issued or that any of our patents or those licensed to us will afford protection against competitors with similar technology; nor can we assure you that any of these patents will not be designed around by others or that others will not obtain patents that we would need to license or design around.
We also rely upon unpatented trade secrets. We cannot assure you that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets, or disclose such technology, or that we can meaningfully protect our rights to our unpatented trade secrets.
We require our employees, consultants, advisers, and suppliers to execute a confidentiality agreement upon the commencement of an employment, consulting or manufacturing relationship with us. The agreement provides that all confidential information developed by or made known to the individual during the course of the relationship will be kept confidential and not disclosed to third parties except in specified circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual will be the exclusive property of our company. We cannot assure you, however, that these agreements will provide meaningful protection for our trade secrets in the event of an unauthorized use or disclosure of such information. We also employ a variety of security measures to preserve the confidentiality of our trade secrets and to limit access by unauthorized persons. We cannot assure you, however, that these measures will be adequate to protect our trade secrets from unauthorized access or disclosure.
Lymphoseek Intellectual Property
Lymphoseek is being developed under exclusive worldwide license from the Regents of the University of California through their UCSD affiliate. The UCSD license grants Navidea the commercialization rights to Lymphoseek for diagnostic imaging and intraoperative detection applications.
Lymphoseek is also the subject of 2 patent families totaling 17 patents and patent applications in the United States and certain major foreign markets. The patents and patent applications held by The Regents of the University of California have been licensed exclusively to Navidea for lymphatic tissue imaging and intraoperative detection worldwide. The first composition of matter patent covering Lymphoseek was issued in the United States in June 2002. The claims of the composition of matter patent covering Lymphoseek have been allowed in the EU and issued in the majority of major-market EU countries in 2005. The composition of matter patent has also been issued in Japan. We have filed additional patent applications in the U.S. and certain major foreign markets related to manufacturing processes for Lymphoseek, the first of which was issued in the U.S. in 2013. We will also rely on trademark protection for products that we expect to commercialize and have registered the mark Lymphoseek
®
in the U.S. and other markets.
NAV4694 Intellectual Property
NAV4694 is being developed under exclusive worldwide license from AstraZeneca. The NAV4694 license grants Navidea commercialization rights to the F-18 labeled biomarker for use as an aid in the diagnosis of AD. NAV4694 is the subject of 2 issued patents and 1 patent pending in the U.S. and 9 issued patents and 57 patents pending in 31 foreign jurisdictions covering the [
18
F]NAV4694 drug substance and NAV4694 Precursor 214.
NAV5001 Intellectual Property
NAV5001 is being developed under an exclusive sublicense from Alseres. The NAV5001 sublicense grants Navidea commercialization rights to the Iodine-123 labeled biomarker for use as an aid in the diagnosis of PD and other movement disorders, with potential use as a diagnostic aid in dementia. NAV5001 is the subject of 2 issued patents, each expiring in 2030, and 1 patent application pending in the U.S., and 9 patent applications pending in 3 foreign jurisdictions.
NAV1800 Intellectual Property
We continue to support proprietary protection for the products related to NAV1800 in major global markets such as the U.S. and the EU, which although not currently integral to our near-term business plans, may be important to potential partners. Composition of matter patents have been issued in the U.S. and EU that cover the antibodies used in clinical studies. The most recent of these patents was issued in 2004 and additional patent applications are pending. We have a license to these patents through the NIH; however, our license is subject to ongoing diligence requirements and we could lose these license rights if we don’t diligently pursue commercialization of the patented technology. Additionally, statutory exclusivity exists for biologics upon approval in the U.S. for 12 years. In the EU, data exclusivity extends for 10 years following marketing authorization.
Government Regulation
The research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing, among other things, of our products are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, Public Health Service Act, and their implementing regulations. Failure to comply with applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications or supplemental applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution. We also may be subject to regulation under the Occupational Safety and Health Act, the Atomic Energy Act, the Toxic Substances Control Act, the Export Control Act and other present and future laws of general application as well as those specifically related to radiopharmaceuticals.
Most aspects of our business are subject to some degree of government regulation in the countries in which we conduct our operations. As a developer, manufacturer and marketer of medical products, we are subject to extensive regulation by, among other governmental entities, the FDA and the corresponding state, local and foreign regulatory bodies in jurisdictions in which our products are intended to be sold. These regulations govern the introduction of new products, the observance of certain standards with respect to the manufacture, quality, safety, efficacy and labeling of such products, the maintenance of certain records, the tracking of such products, performance surveillance and other matters.
Failure to comply with applicable federal, state, local or foreign laws or regulations could subject us to enforcement action, including product seizures, recalls, withdrawal of marketing clearances, and civil and criminal penalties, any one or more of which could have a material adverse effect on our business. We believe that we are in substantial compliance with such governmental regulations. However, federal, state, local and foreign laws and regulations regarding the manufacture and sale of radiopharmaceuticals are subject to future changes. We cannot assure you that such changes will not have a material adverse effect on our company.
For some products, and in some countries, government regulation is significant and, in general, there is a trend toward more stringent regulation. In recent years, the FDA and certain foreign regulatory bodies have pursued a more rigorous enforcement program to ensure that regulated businesses like ours comply with applicable laws and regulations. We devote significant time, effort and expense addressing the extensive governmental regulatory requirements applicable to our business. To date, we have not received a noncompliance notification or warning letter from the FDA or any other regulatory bodies of alleged deficiencies in our compliance with the relevant requirements, nor have we recalled or issued safety alerts on any of our products. However, we cannot assure you that a warning letter, recall or safety alert, if it occurred, would not have a material adverse effect on our company. See Risk Factors.
In the early- to mid-1990s, the review time by the FDA to clear medical products for commercial release lengthened and the number of marketing clearances decreased. In response to public and congressional concern, the FDA Modernization Act of 1997 (the 1997 Act) was adopted with the intent of bringing better definition to the clearance process for new medical products. While the FDA review times have improved since passage of the 1997 Act, we cannot assure you that the FDA review processes will not delay our Company's introduction of new products in the U.S. in the future. In addition, many foreign countries have adopted more stringent regulatory requirements that also have added to the delays and uncertainties associated with the development and release of new products, as well as the clinical and regulatory costs of supporting such releases. It is possible that delays in receipt of, or failure to receive, any necessary clearance for our new product offerings could have a material adverse effect on our business, financial condition or results of operations. See Risk Factors.
The Drug Approval Process
None of our drugs may be marketed in the U.S. until such drug has received FDA approval. The steps required before a drug may be marketed in the U.S. include:
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preclinical laboratory tests, animal studies and formulation studies;
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submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;
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adequate and well-controlled human clinical trials to establish the safety and efficacy of the investigational product for each indication;
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submission to the FDA of an NDA;
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satisfactory completion of FDA inspections of the manufacturing and clinical facilities at which the drug is produced, tested, and/or distributed to assess compliance with cGMPs and current good clinical practices (cGCP) standards; and
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FDA review and approval of the NDA.
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Preclinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA unless, before that time, the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND.
Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. The study protocol and informed consent information for study subjects in clinical trials must also be approved by an institutional review board at each institution where the trials will be conducted. Study subjects must sign an informed consent form before participating in a clinical trial. Phase 1 usually involves the initial introduction of the investigational product into people to evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to
gain an early indication of its effectiveness. Phase 2 usually involves trials in a limited subject population to (i) evaluate dosage tolerance and appropriate dosage, (ii) identify possible adverse effects and safety risks, and (iii) evaluate preliminarily the efficacy of the product candidate for specific indications. Phase 3 trials usually further evaluate clinical efficacy and further test its safety by using the product candidate in its final form in an expanded subject population. There can be no assurance that Phase 1, Phase 2 or Phase 3 testing will be completed successfully within any specified period of time, if at all. Furthermore, we or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.
The FDA and the IND sponsor may agree in writing on the design and size of clinical studies intended to form the primary basis of an effectiveness claim in an NDA application. This process is known as a SPA. These agreements may not be changed after the clinical studies begin, except in limited circumstances. The existence of a SPA, however, does not assure approval of a product candidate.
Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical studies, together with other detailed information, including information on the manufacturing quality and composition of the investigational product, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The testing and approval process requires substantial time, effort and financial resources. Submission of an NDA requires payment of a substantial review user fee to the FDA. Before approving a NDA, the FDA usually will inspect the facility or the facilities where the product is manufactured, tested and distributed and will not approve the product unless cGMP compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing facilities as acceptable, the FDA may issue an approval letter or a complete response letter. A complete response letter outlines conditions that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of approval, the FDA may require post-marketing testing and surveillance to monitor the product’s safety or efficacy, or impose other post-approval commitment conditions.
The NDA for Lymphoseek was submitted with the intention for use in intraoperative lymphatic mapping across a broad range of cancers. As a part of their review, the FDA examined the pre-clinical, clinical and CMC data supporting our application, and, as is also typical of such reviews, conducted site audits of our facilities and those of the sites where the referenced clinical trials were performed, as well as of contract suppliers and third party vendors being used in the manufacturing and quality assessment processes for Lymphoseek. Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA in March 2013. Additional trials, one in head and neck cancer which was recently closed, and an ongoing trial in colorectal cancer, are anticipated to provide additional data to potentially support expansion of Lymphoseek utilization into multiple other cancer types. We cannot assure you that Lymphoseek will achieve regulatory approval in the EU or any market outside the U.S., or if approved, that it will achieve market acceptance in any market. See Risk Factors.
The FDA has various programs, including fast track, priority review and accelerated approval, which are intended to expedite or simplify the process of reviewing drugs and/or provide for approval on the basis of surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those for serious or life threatening conditions, those with the potential to address unmet medical needs and those that provide meaningful benefit over existing treatments. In December 2013, the FDA granted fast track designation to Lymphoseek for sentinel lymph node detection in patients with head and neck cancer and we submitted a sNDA with the FDA seeking approval for the marketing and sale of Lymphoseek for the same indication. In assessing the application, the FDA chose to separate the filing into two applications based on the proposed labeling extensions requested and the scope of information provided. The first sNDA, aimed at Lymphoseek’s use as a sentinel lymph node detection agent in patients with head and neck cancer, was accepted by the FDA in February 2014 and was granted a priority review for the expanded use. Under PDUFA, the FDA has set a target review date for the first Lymphoseek sNDA in June 2014. In March 2014, the FDA accepted the second sNDA to support a broader and more flexible use of Lymphoseek in imaging and lymphatic mapping procedures, including lymphoscintigraphy and other optimization capabilities. Under PDUFA, the FDA has set a target review date for the second sNDA in October 2014. We cannot assure you that any of our drugs will qualify for any of these programs, or that, if a drug does qualify, the review time will be reduced or the product will be approved.
After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes or making certain additional labeling claims, are subject to further FDA review and approval. Obtaining approval for a new indication generally requires that additional clinical studies be conducted.
Post-Approval Requirements
Holders of an approved NDA are required to: (i) conduct pharmacovigilance and report certain adverse reactions to the FDA, (ii) comply with certain requirements concerning advertising and promotional labeling for their products, and (iii) continue to have quality control and manufacturing procedures conform to cGMP. The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing and distribution facilities; this latter effort includes assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the area of production, quality control and distribution to maintain cGMP compliance. We use and will continue to use third-party manufacturers to produce our products in clinical and commercial quantities, and future FDA inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market.
Marketing of prescription drugs is also subject to significant regulation through federal and state agencies tasked with consumer protection and prevention of medical fraud, waste and abuse. We must comply with restrictions on off-label use promotion, anti-kickback, ongoing clinical trial registration, and limitations on gifts and payments to physicians.
Non-U.S. Regulation
Before our products can be marketed outside of the United States, they are subject to regulatory approval similar to that required in the U.S., although the requirements governing the conduct of clinical trials, including additional clinical trials that may be required, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices may not be approved for such product.
In Europe, marketing authorizations may be submitted at a centralized, a decentralized or national level. The centralized procedure is mandatory for the approval of biotechnology products and provides for the grant of a single marketing authorization that is valid in all EU member states. As of January 1995, a mutual recognition procedure is available at the request of the applicant for all medicinal products that are not subject to the centralized procedure. We cannot assure you that the chosen regulatory strategy will secure regulatory approvals on a timely basis or at all.
While we are unable to predict the extent to which our business may be affected by future regulatory developments, we believe that our substantial experience dealing with governmental regulatory requirements and restrictions on our operations throughout the world, and our development of new and improved products, should enable us to compete effectively within this environment.
Regulation Specific to Radiopharmaceuticals
Our radiolabeled targeting agents and biologic products, if developed, would require a regulatory license to market from the FDA and from comparable agencies in foreign countries. The process of obtaining regulatory licenses and approvals is costly and time consuming, and we have encountered significant impediments and delays related to our previously proposed biologic products.
The process of completing pre-clinical and clinical testing, manufacturing validation and submission of a marketing application to the appropriate regulatory bodies usually takes a number of years and requires the expenditure of substantial resources, and we cannot assure you that any approval will be granted on a timely basis, if at all. Additionally, the length of time it takes for the various regulatory bodies to evaluate an application for marketing approval varies considerably, as does the amount of preclinical and clinical data required to demonstrate the safety and efficacy of a specific product. The regulatory bodies may require additional clinical studies that may take several years to perform. The length of the review period may vary widely depending upon the nature and indications of the proposed product and whether the regulatory body has any further questions or requests any additional data. Also, the regulatory bodies require post-marketing reporting and surveillance programs (pharmacovigilance) to monitor the side effects of the products. We cannot assure you that any of our potential drug or biologic products will be approved by the regulatory bodies or approved on a timely or accelerated basis, or that any approvals received will not subsequently be revoked or modified.
The Nuclear Regulatory Commission (NRC) oversees medical uses of nuclear material through licensing, inspection, and enforcement programs. The NRC issues medical use licenses to medical facilities and authorized physician users, develops guidance and regulations for use by licensees, and maintains a committee of medical experts to obtain advice about the use of byproduct materials in medicine. The NRC (or the responsible Agreement State) also regulates the manufacture and distribution of these products. The FDA oversees the good practices in the manufacturing of radiopharmaceuticals, medical devices, and radiation-producing x-ray machines and accelerators. The states regulate the practices of medicine and pharmacy and administer programs associated with radiation-producing x-ray machines and accelerators. We, or our manufacturer of the radiolabeled antibodies, must obtain a specific license from the NRC (or the responsible Agreement State) to manufacture and distribute radiolabeled antibodies, as well as comply with all applicable regulations. We must also comply with Department of Transportation regulations on the labeling and packaging requirements for shipment of radiolabeled antibodies to licensed clinics, and must comply with federal, state, and local governmental laws regarding the disposal of radioactive waste. We cannot assure you that we will be able to obtain all necessary licenses and permits and be able to comply with all applicable laws. The failure to obtain such licenses and permits or to comply with applicable laws would have a materially adverse effect on our business, financial condition, and results of operations.
Corporate Information
Our executive offices are located at 5600 Blazer Parkway, Suite 200, Dublin, OH 43017. Our telephone number is (614) 793-7500. “Navidea”, the Navidea logo, “Lymphoseek”, “RIGS” and “RIGScan” are trademarks of Navidea Biopharmaceuticals, Inc. or its subsidiaries in the U.S. and/or other countries. Other trademarks or service marks appearing in this report may be trademarks or service marks of other owners.
The address for our website is
http://www.navidea.com
. We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings pursuant to Section 13(a) or 15(d) of the Exchange Act, and amendments to such filings, as soon as reasonably practicable after each is electronically filed with, or furnished to, the SEC.
Financial Statements
Our consolidated financial statements and the related notes, including revenues, income (loss), total assets and other financial measures are set forth at pages F-1 through F-29 of this Form 10-K.
Research and Development
We spent approximately $23.7 million, $16.9 million, and $15.2 million on research and development activities in the years ended December 31, 2013, 2012 and 2011, respectively.
Employees
As of February 28, 2014, we had 57 full-time and 8 part-time employees. We consider our relations with our employees to be good.
Item 1A. Risk Factors
An investment in our common stock is highly speculative, involves a high degree of risk, and should be made only by investors who can afford a complete loss. You should carefully consider the following risk factors, together with the other information in this prospectus, including our financial statements and the related notes, before you decide to buy our common stock. Our most significant risks and uncertainties are described below; however, they are not the only risks we face. If any of the following risks actually occur, our business, financial condition, or results of operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment therein.
If we do not achieve commercial success with our approved product or if we do not successfully develop our product candidates into marketable products, we may be unable to generate significant revenue or become profitable.
We divested the neoprobe GDS line of gamma detection medical devices in August 2011. Through that time, sales of gamma detection devices represented our primary source of revenue. As a result, our near-term financial success depends in large part on Lymphoseek achieving commercial success in the U.S. and, pending approval in other markets, on achievement of commercial success in those markets as well. Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA in March 2013. Additional trials, one in head and neck cancer (NEO3-06) which is the focus
of a sNDA that now has a PDUFA target date of June 16, 2014, an ongoing trial in colorectal cancer and other planned investigator-sponsored trials, are anticipated to provide additional support for the potential expansion of Lymphoseek utilization into multiple other cancer types. A second sNDA aimed at expanding the Lymphoseek label to support more flexible utilization practices for Lymphoseek in lymphatic mapping and lymphoscintigraphy imaging has a PDUFA target date of October 16, 2014. We began generating revenues from product sales of Lymphoseek in the second quarter of 2013. As we continue to generate revenues from Lymphoseek, it is possible we will ultimately receive payments related to the achievement of certain sales milestones by our marketing partner in the U.S. However, we cannot assure you that Lymphoseek will achieve commercial success in the U.S. or any other global market, that we will realize sales at levels necessary for us to achieve sales milestone payments, or that revenue from Lymphoseek will lead to us becoming profitable.
In addition, NAV4694, NAV5001, the Manocept platform, and NAV1800 are in various stages of clinical development. Regulatory approval for additional indications for Lymphoseek may not be successful, or if successful, may not result in increased sales. Additional clinical trials for NAV4694, NAV5001, NAV1800, products based on our Manocept platform, or other product candidates, may not be successful and, even if they are, we may not be successful in developing any of them into a commercial product which will provide sufficient revenue to make us profitable.
Many companies in the pharmaceutical industry suffer significant setbacks in advanced clinical trials even after reporting promising results in earlier trials. Even if our trials are viewed as successful, we may not get regulatory approval. Our product candidates will be successful only if:
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they are developed to a stage that will enable us to commercialize them or sell related marketing rights to pharmaceutical companies;
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we are able to commercialize them in clinical development or sell the marketing rights to third parties; and
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upon being developed, they are approved by the regulatory authorities.
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We are dependent on the achievement of a number of these goals in order to generate future revenues. The failure to generate such revenues may preclude us from continuing our research and development of these and other product candidates.
We cannot guarantee that we will obtain regulatory approval to manufacture or market our unapproved drug candidates and our approval to market our products or anticipated commercial launch may be delayed as a result of the regulatory review process.
Obtaining regulatory approval to market drugs to diagnose or treat cancer, Alzheimer’s disease, Parkinson’s and other diseases is expensive, difficult and risky. Preclinical and clinical data as well as information related to the CMC processes of drug production can be interpreted in different ways which could delay, limit or preclude regulatory approval. Negative or inconclusive results, adverse medical events during a clinical trial, or issues related to CMC processes could also delay, limit or prevent regulatory approval. Even if we receive regulatory clearance to market a particular product candidate, the approval could be conditioned on us conducting additional costly post-approval studies or could limit the indicated uses included in our labeling.
Our radiopharmaceutical products will remain subject to ongoing regulatory review following the receipt of marketing approval. If we fail to comply with continuing regulations, we could lose these approvals and the sale of our products could be suspended.
Approved products may later cause adverse effects that limit or prevent their widespread use, force us to withdraw it from the market or impede or delay our ability to obtain regulatory approvals in additional countries. In addition, any contract manufacturer we use in the process of producing a product and its facilities will continue to be subject to FDA review and periodic inspections to ensure adherence to applicable regulations. After receiving marketing clearance, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record-keeping related to the product will remain subject to extensive regulatory requirements. We may be slow to adapt, or we may never adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements.
If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities or previously unknown problems with our products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions, including:
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restrictions on the products, manufacturers or manufacturing processes;
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civil or criminal penalties;
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product seizures or detentions;
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voluntary or mandatory product recalls and publicity requirements;
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suspension or withdrawal of regulatory approvals;
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total or partial suspension of production; and
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refusal to approve pending applications for marketing approval of new drugs or supplements to approved applications.
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Even if our drug candidates are successful in clinical trials, we may not be able to successfully commercialize them.
With the historical exception of our discontinued medical device businesses, we have dedicated and will continue to dedicate substantially all of our resources to the research and development of our radiopharmaceutical technologies and related compounds. With the exception of Lymphoseek, now approved for use in lymphatic mapping in breast cancer and melanoma in the U.S., all of our compounds currently are in research or development or regulatory review and have not received marketing approval.
Prior to commercialization, each product candidate requires significant research, development and preclinical testing and extensive clinical investigation before submission of any regulatory application for marketing approval. The development of radiopharmaceutical technologies and compounds, including those we are currently developing, is unpredictable and subject to numerous risks. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons including that they may:
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be found ineffective or cause harmful side effects during preclinical testing or clinical trials;
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fail to receive necessary regulatory approvals;
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be difficult to manufacture on a scale necessary for commercialization;
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be uneconomical to produce;
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fail to achieve market acceptance; or
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be precluded from commercialization by proprietary rights of third parties.
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The occurrence of any of these events could adversely affect the commercialization of our product candidates. Products, if introduced, may not be successfully marketed and/or may not achieve customer acceptance. If we fail to commercialize products or if our future products do not achieve significant market acceptance, we will not likely generate significant revenues or become profitable.
If we are not successful in licensing or acquiring additional drug candidates or technologies to expand our product pipeline, our future product portfolio and potential profitability could be harmed.
One component of our business strategy is to in-license drug compounds developed by other pharmaceutical and biotechnology companies or academic research laboratories. All of our product candidates in clinical development are sourced or in-licensed from third parties, consisting of Lymphoseek, NAV4694, NAV5001, the Manocept platform, and NAV1800. We may not successfully acquire additional drug candidates or technologies to expand our product pipeline. The number of such candidates and technologies is limited. Competition among large pharmaceutical companies and biopharmaceutical companies for promising drug candidates and technologies is intense because such companies generally desire to expand their product pipelines through purchase or in-licensing. If we fail to expand our product pipeline, our potential future revenues may be adversely affected.
Clinical trials for our radiopharmaceutical product candidates will be lengthy and expensive and their outcome is uncertain.
Before obtaining regulatory approval for the commercial sale of any product candidates, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective for use in humans. Conducting clinical trials is a time consuming, expensive and uncertain process and may take years to complete.
During 2011, we successfully completed a second Phase 3 clinical trial in subjects with breast cancer or melanoma for our most advanced radiopharmaceutical product candidate, Lymphoseek. The Phase 3 clinical trials served as the basis for the approval of Lymphoseek in March 2013. We successfully completed a third Phase 3 clinical trial for Lymphoseek in subjects with head and neck cancer in 2013, the results of which are anticipated to provide support for the potential expansion of the product labeling for Lymphoseek to address other cancer types or potentially the enhanced indication for sentinel lymph node biopsy in certain cancers.
With respect to NAV4694, AstraZeneca completed clinical development through a Phase 2a level. We are currently supporting a Phase 2 trial that we initiated in September 2012, primarily to expand the safety database for the compound, and a Phase 2b trial in subjects with MCI initiated in March 2013. In June 2013, we initiated a Phase 3 autopsy-based trial to support registration in the U.S. and the EU.
With respect to NAV5001, Alseres completed five clinical trials in over 600 subjects. Alseres received a Phase 3 SPA from the FDA for NAV5001 in 2009. We initiated a Phase 2b program in DLB in April 2013, commencing an investigator-initiated study. We also initiated a Phase 3 trial in subjects with PD in December 2013. Each Phase 3 trial is the subject of a SPA agreement with the FDA.
We continually assess our clinical trial plans and may, from time to time, initiate additional clinical trials to support our overall strategic development objectives. Historically, the results from preclinical testing and early clinical trials often do not predict the results obtained in later clinical trials. Frequently, drugs that have shown promising results in preclinical or early clinical trials subsequently fail to establish sufficient safety and efficacy data necessary to obtain regulatory approval. At any time during the clinical trials, we, the participating institutions, the FDA or the EMA might delay or halt any clinical trials for our product candidates for various reasons, including:
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ineffectiveness of the product candidate;
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discovery of unacceptable toxicities or side effects;
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development of disease resistance or other physiological factors;
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delays in patient enrollment; or
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other reasons that are internal to the businesses of our potential collaborative partners, which reasons they may not share with us.
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While we have achieved some level of success in our clinical trials for Lymphoseek as indicated by the March 2013 FDA approval, and our licensing partners have also achieved successful outcomes from earlier trials of NAV4694 and NAV5001, the results of some of these clinical trials that have not been yet reviewed by the FDA or other regulatory bodies, as well as pending and future trials for these and other product candidates that we may develop or acquire, are subject to review and interpretation by various regulatory bodies during the regulatory review process and may ultimately fail to demonstrate the safety or effectiveness of our product candidates to the extent necessary to obtain regulatory approval, or that commercialization of our product candidates is worthwhile. Any failure or substantial delay in successfully completing clinical trials and obtaining regulatory approval for our product candidates could materially harm our business.
We extensively outsource our clinical trial activities and usually perform only a small portion of the start-up activities in-house. We rely on independent third-party contract research organizations (CROs) to perform most of our clinical studies, including document preparation, site identification, screening and preparation, pre-study visits, training, post-study audits and statistical analysis. Many important aspects of the services performed for us by the CROs are out of our direct control. If there is any dispute or disruption in our relationship with our CROs, our clinical trials may be delayed. Moreover, in our regulatory submissions, we rely on the quality and validity of the clinical work performed by third-party CROs. If any of our CROs’ processes, methodologies or results were determined to be invalid or inadequate, our own clinical data and results and related regulatory approvals could be adversely impacted.
If we fail to establish and maintain collaborations or if our partners do not perform, we may be unable to develop and commercialize our product candidates.
We expect to enter into collaborative arrangements with third-parties to develop and/or commercialize product candidates and are currently seeking additional collaborations. Such collaborations might be necessary in order for us to fund our research and development activities and third-party manufacturing arrangements, seek and obtain regulatory approvals and successfully commercialize our existing and future product candidates. If we fail to enter into collaborative arrangements or fail to maintain our existing collaborative arrangements, the number of product candidates from which we could receive future revenues would decline.
Our dependence on collaborative arrangements with third parties will subject us to a number of risks that could harm our ability to develop and commercialize products including that:
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collaborative arrangements may not be on terms favorable to us;
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disagreements with partners or regulatory compliance issues may result in delays in the development and marketing of products, termination of our collaboration agreements or time consuming and expensive legal action;
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we cannot control the amount and timing of resources partners devote to product candidates or their prioritization of product candidates and partners may not allocate sufficient funds or resources to the development, promotion or marketing of our products, or may not perform their obligations as expected;
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partners may choose to develop, independently or with other companies, alternative products or treatments. including products or treatments which compete with ours;
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agreements with partners may expire or be terminated without renewal, or partners may breach collaboration agreements with us;
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business combinations or significant changes in a partner's business strategy might adversely affect that partner's willingness or ability to complete its obligations to us; and
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the terms and conditions of the relevant agreements may no longer be suitable.
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The occurrence of any of these events could adversely affect the development or commercialization of our products.
If users of our products are unable to obtain adequate reimbursement from third-party payers, or if new restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve anticipated revenues.
Our ability to commercialize our products will depend in part on the extent to which appropriate reimbursement levels for the cost of our products and related treatment are obtained by governmental authorities, private health insurers and other organizations such as health maintenance organizations (HMOs). Third-party payers are increasingly challenging the prices charged for medical care. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to further reform health care or reduce government insurance programs, may all result in lower prices for our products if approved for commercialization. The cost containment measures that health care payers and providers are instituting and the effect of any health care reform could materially harm our ability to sell our products at a profit.
In August 2013, we announced that the CMS issued a HCPCS “C Code” for Lymphoseek. We anticipate that the reimbursement code, which became effective on October 1, 2013, will streamline the billing and reimbursement process for hospital providers who use Lymphoseek and support its fair and equitable reimbursement. The pass-through provisions supporting this C Code are expected to extend through December 31, 2015. Lymphoseek has also been granted a permanent “A Code” effective January 1, 2014. We believe these developments may assist in advancing utilization of Lymphoseek. However, there can be no assurance that, following the expiration of the pass-through provisions, we will be successful in establishing or obtaining a separately reimbursable status for Lymphoseek and therefore the cost of Lymphoseek may be need to be absorbed by the institution as a part of the bundled procedural code for the surgical procedure in which Lymphoseek is used. If this is the case, our expectations of the pricing we expect to achieve for Lymphoseek and the related potential revenue may be significantly diminished.
We may be unable to establish or contract for the pharmaceutical manufacturing capabilities necessary to develop and commercialize our potential products.
We are in the process of establishing third-party clinical manufacturing capabilities for our radiopharmaceutical compounds under development. We intend to rely on third-party contract manufacturers to produce sufficiently large quantities of drug materials that are and will be needed for clinical trials and commercialization of our potential products. Third-party manufacturers may not be able to meet our needs with respect to timing, quantity or quality of materials.
We have a supply agreement with Reliable to manufacture the drug substance for our Lymphoseek product and a manufacturing agreement with OsoBio for the finishing and vialing of our Lymphoseek product. However, if we are unable to contract for a sufficient supply of needed materials on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers, revenues from Lymphoseek may be adversely impacted, In addition, clinical trials for our other product candidates may be delayed, thereby delaying the submission of product candidates for regulatory approval and the market introduction and subsequent commercialization of our potential products, and for approved products, any such delays, interruptions or other difficulties may render us unable to supply sufficient quantities to meet demand. Any such delays or interruptions may lower our revenues and potential profitability.
We and any third-party manufacturers that we may use must continually adhere to cGMPs and regulations enforced by the FDA through its facilities inspection program and/or foreign regulatory authorities where our products will be tested and/or marketed. If our facilities or the facilities of third-party manufacturers cannot pass a pre-approval plant inspection, the FDA and/or foreign regulatory authorities will not grant approval to market our product candidates. In complying with these regulations and foreign regulatory requirements, we and any of our third-party manufacturers will be obligated to expend time, money and effort on production, record-keeping and quality control to assure that our potential products meet applicable specifications and other requirements. The FDA and other regulatory authorities may take action against a contract manufacturer who violates cGMPs.
We may lose out to larger or better-established competitors.
The biotechnology industry is intensely competitive. Some of our competitors have significantly greater financial, technical, manufacturing, marketing and distribution resources as well as greater experience in the pharmaceutical industry than we have. The particular medical conditions our product lines address can also be addressed by other medical procedures or drugs. Many of these alternatives are widely accepted by physicians and have a long history of use. Physicians may use our competitors’ products and/or our products may not be competitive with other technologies. Lymphoseek is expected to compete against sulfur colloid in the U.S. and other colloidal agents in other global markets. NAV4694 is expected to compete against florbetapir, a first-generation beta-amyloid imaging agent for which Eli Lilly received FDA approval in 2012. Florbetapir also received marketing authorization in the EU in January 2013. We are also aware of two additional first-generation beta-amyloid imaging agents in late stages of development by two other large pharmaceutical companies, florbetaben from Piramal Enterprises, Imaging Division, and flutemetamol from GE Healthcare. In October 2013, the FDA approved flutemetamol, under the name Vizamyl, for adults being evaluated for AD and dementia with PET brain imaging. In December 2013, the EMA CHMP recommended approval of florbetaben for Alzheimer's diagnosis. In addition, NAV5001, if approved, is expected to compete against a product marketed by GE Healthcare. If our competitors are successful in establishing and maintaining market share for their products, our sales and revenues may not occur at the rate we anticipate. In addition, our current and potential competitors may establish cooperative relationships with larger companies to gain access to greater research and development or marketing resources. Competition may result in price reductions, reduced gross margins and loss of market share.
We may be exposed to product liability claims for our product candidates and products that we are able to commercialize.
The testing, manufacturing, marketing and use of our commercial products, as well as product candidates in development, involve substantial risk of product liability claims. These claims may be made directly by consumers, healthcare providers, pharmaceutical companies or others. In recent years, coverage and availability of cost-effective product liability insurance has decreased, so we may be unable to maintain sufficient coverage for product liabilities that may arise. In addition, the cost to defend lawsuits or pay damages for product liability claims may exceed our coverage. If we are unable to maintain adequate coverage or if claims exceed our coverage, our financial condition and our ability to clinically test our product candidates and market our products will be adversely impacted. In addition, negative publicity associated with any claims, regardless of their merit, may decrease the future demand for our products and impair our financial condition.
The administration of drugs in humans, whether in clinical studies or commercially, carries the inherent risk of product liability claims whether or not the drugs are actually the cause of an injury. Our products or product candidates may cause, or may appear to have caused, injury or dangerous drug interactions, and we may not learn about or understand those effects until the product or product candidate has been administered to patients for a prolonged period of time. We may be subject from time to time to lawsuits based on product liability and related claims, and we cannot predict the eventual outcome of any future litigation. We may not be successful in defending ourselves in the litigation and, as a result, our business could be materially harmed. These lawsuits may result in large judgments or settlements against us, any of which could have a negative effect on our financial condition and business if in excess of our insurance coverage. Additionally, lawsuits can be expensive to defend, whether or not they have merit, and the defense of these actions may divert the attention of our management and other resources that would otherwise be engaged in managing our business.
As a result of a number of factors, product liability insurance has become less available while the cost has increased significantly. We currently carry product liability insurance that our management believes is appropriate given the risks that we face. We will continually assess the cost and availability of insurance; however, there can be no guarantee that insurance coverage will be obtained or, if obtained, will be sufficient to fully cover product liabilities that may arise.
If any of our license agreements for intellectual property underlying Lymphoseek, NAV4694, NAV5001 or NAV1800, or any other products or potential products are terminated, we may lose the right to develop or market that product.
We have licensed intellectual property, including patents and patent applications relating to the underlying intellectual property for Lymphoseek, NAV4694, NAV5001 and NAV1800. We may also enter into other license agreements or acquire other product candidates. The potential success of our product development programs depend on our ability to maintain rights under these licenses, including our ability to achieve development or commercialization milestones contained in the licenses. Under certain circumstances, the licensors have the power to terminate their agreements with us if we fail to meet our obligations under these licenses. We may not be able to meet our obligations under these licenses. If we default under any license agreement, we may lose our right to market and sell any products based on the licensed technology.
We may not have sufficient legal protection against infringement or loss of our intellectual property, and we may lose rights or protection related to our intellectual property if diligence requirements are not met, or at the expiry of underlying patents.
Our success depends, in part, on our ability to secure and maintain patent protection for our products and product candidates, to preserve our trade secrets, and to operate without infringing on the proprietary rights of third parties. While we seek to protect our proprietary positions by filing United States and foreign patent applications for our important inventions and improvements, domestic and foreign patent offices may not issue these patents. Third parties may challenge, invalidate, or circumvent our patents or patent applications in the future. Competitors, many of which have significantly more resources than we have and have made substantial investments in competing technologies, may apply for and obtain patents that will prevent, limit, or interfere with our ability to make, use, or sell our products either in the United States or abroad.
Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are or may be developing products. As the biotechnology and pharmaceutical industry expands and more patents are issued, the risk increases that we will be subject to claims that our products or product candidates, or their use, infringe the rights of others. In the United States, most patent applications are secret for a period of 18 months after filing, and in foreign countries, patent applications are secret for varying periods of time after filing. Publications of discoveries tend to significantly lag the actual discoveries and the filing of related patent applications. Third parties may have already filed applications for patents for products or processes that will make our products obsolete, limit our patents, invalidate our patent applications or create a risk of infringement claims.
Under recent changes to U.S. patent law, the U.S. has moved to a “first to file” system of patent approval, as opposed to the former “first to invent” system. As a consequence, delays in filing patent applications for new product candidates or discoveries could result in the loss of patentability if there is an intervening patent application with similar claims filed by a third party, even if we or our collaborators were the first to invent.
We or our suppliers may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our products, product candidates and/or technologies infringe their intellectual property rights or that the process of manufacturing our products or any of their respective component materials, or the component materials themselves, or the use of our products, product candidates or technologies, infringe their intellectual property rights. If one of these patents was found to cover our products, product candidates, technologies or their uses, or any of the underlying manufacturing processes or components, we could be required to pay damages and could be unable to commercialize our
products or use our technologies or methods unless we are able to obtain a license to the patent or intellectual property right. A license may not be available to us in a timely manner or on acceptable terms, if at all. In addition, during litigation, a patent holder could obtain a preliminary injunction or other equitable remedy that could prohibit us from making, using or selling our products, technologies or methods.
Our currently held and licensed patents expire over the next one to sixteen years. Expiration of the patents underlying our technology, in the absence of extensions or other trade secret or intellectual property protection, may have a material and adverse effect on us.
In addition, it may be necessary for us to enforce patents under which we have rights, or to determine the scope, validity and unenforceability of other parties’ proprietary rights, which may affect our rights. There can be no assurance that our patents would be held valid by a court or administrative body or that an alleged infringer would be found to be infringing. The uncertainty resulting from the mere institution and continuation of any patent related litigation or interference proceeding could have a material and adverse effect on us.
We typically require our employees, consultants, advisers and suppliers to execute confidentiality and assignment of invention agreements in connection with their employment, consulting, advisory, or supply relationships with us. They may breach these agreements and we may not obtain an adequate remedy for breach. Further, third parties may gain unauthorized access to our trade secrets or independently develop or acquire the same or equivalent information.
Agencies of the United States government conducted some of the research activities that led to the development of antibody technology that some of our proposed antibody-based surgical cancer detection products use. When the United States government participates in research activities, it retains rights that include the right to use the technology for governmental purposes under a royalty-free license, as well as rights to use and disclose technical data that could preclude us from asserting trade secret rights in that data and software.
We and our collaborators, including AstraZeneca, Alseres, and the University of California Board of Regents, may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of our product candidates and products, when and if we have any, in every jurisdiction would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we or our licensors have not obtained patent protection to develop their own products. These products may compete with our products, when and if we have any, and may not be covered by any of our or our licensors' patent claims or other intellectual property rights.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or pharmaceuticals, which could make it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
The intellectual property protection for our product candidates depends on third parties.
With respect to Lymphoseek, NAV4694, NAV5001 and NAV1800, we have exclusively licensed certain issued patents and pending patent applications covering the respective technologies underlying these product candidates and their commercialization and use and we have licensed certain issued patents and pending patent applications directed to product compositions and chemical modifications used in product candidates for commercialization, and the use and the manufacturing thereof.
The patents and pending patent applications underlying our licenses do not cover all potential product candidates, modifications and uses. In the case of patents and patent applications licensed from UCSD, we did not have any control over the filing of the patents and patent applications before the effective date of the Lymphoseek license, and have had limited control over the filing and prosecution of these patents and patent applications after the effective date of the Lymphoseek license. In the case of patents and patent applications licensed from AstraZeneca, we have limited control over the filing, prosecution or enforcement of these patents or patent applications. We also have limited rights to enforce patents and patent applications licensed from AstraZeneca and Alseres. We cannot be certain that such prosecution efforts have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents. We also cannot be assured that our licensors or their respective licensing partners will agree to enforce any such patent rights at our request or devote sufficient efforts to attain a desirable result. Any failure by our licensors or any of their respective licensing partners to properly protect the intellectual property rights relating to our product candidates could have a material adverse effect on our financial condition and results of operation.
We may become involved in disputes with UCSD, AstraZeneca, Alseres, the NIH or potential future collaborators over intellectual property ownership, and publications by our research collaborators and scientific advisors could impair our ability to obtain patent protection or protect our proprietary information, which, in either case, could have a significant effect on our business.
Inventions discovered under research, material transfer or other such collaborative agreements may become jointly owned by us and the other party to such agreements in some cases and the exclusive property of either party in other cases. Under some circumstances, it may be difficult to determine who owns a particular invention, or whether it is jointly owned, and disputes could arise regarding ownership of those inventions. These disputes could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business if we were not able to protect our license rights to these inventions. In addition, our research collaborators and scientific advisors generally have contractual rights to publish our data and other proprietary information, subject to our prior review. Publications by our research collaborators and scientific advisors containing such information, either with our permission or in contravention of the terms of their agreements with us, may impair our ability to obtain patent protection or protect our proprietary information, which could significantly harm our business.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers and business partners, and personally identifiable information of employees and clinical trial subjects, in our data centers and on our networks. The secure maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage our reputation, which could adversely affect our business, revenues and competitive position.
Failure to comply with domestic and international privacy and security laws can result in the imposition of significant civil and criminal penalties. The costs of compliance with these laws, including protecting electronically stored information from cyber-attacks, and potential liability associated with failure to do so could adversely affect our business, financial condition and results of operations. We are subject to various domestic and international privacy and security regulations, including but not limited to The Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent than HIPAA.
We may have difficulty raising additional capital, which could deprive us of necessary resources to pursue our business plans.
We expect to devote significant capital resources to fund research and development, to maintain existing and secure new manufacturing resources, and to acquire new product candidates. In order to support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of assets, public or private debt or equity financing, collaborative relationships or other arrangements. Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets, the market price of our common stock and the development or prospects for development of competitive technology by others. Sufficient additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.
Our future expenditures on our programs are subject to many uncertainties, including whether our product candidates will be developed or commercialized with a partner or independently. Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including:
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the costs of seeking regulatory approval for our product candidates, including any nonclinical testing or bioequivalence or clinical studies, process development, scale-up and other manufacturing and stability activities, or other work required to achieve such approval, as well as the timing of such activities and approval;
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the extent to which we invest in or acquire new technologies, product candidates, products or businesses and the development requirements with respect to any acquired programs;
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the scope, prioritization and number of development and/or commercialization programs we pursue and the rate of progress and costs with respect to such programs;
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the costs related to developing, acquiring and/or contracting for sales, marketing and distribution capabilities and regulatory compliance capabilities, if we commercialize any of our product candidates for which we obtain regulatory approval without a partner;
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the timing and terms of any collaborative, licensing and other strategic arrangements that we may establish;
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the extent to which we will need to expand our workforce to pursue our business plan, and the costs involved in recruiting, training and incentivizing new employees;
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the effect of competing technological and market developments; and
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the cost involved in establishing, enforcing or defending patent claims and other intellectual property rights.
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We believe that we have access to sufficient financial resources with which to fund our operations and those of our subsidiaries for the foreseeable future. However, certain events or actions may shorten the period through which our current operating funds will sustain us, including, without limitation, if we decide to grow our organization in pursuit of development or commercialization activities for our current or newly acquired or developed product candidates, if we incur unexpected expenses, or if Lymphoseek does not generate our expected levels of sales and cash flow. We may also acquire new technologies, product candidates and/or products and the cost to acquire, develop and/or commercialize such new technologies, product candidates and/or products may shorten the period through which our current operating funds will sustain us. If our current funds become inadequate, we may not be able to obtain sufficient additional funding for such activities, on satisfactory terms, if at all. If we are unsuccessful in raising additional capital, or the terms of raising such capital are unacceptable, we may have to modify our business plan and/or significantly curtail our planned development activities, acquisition of new product candidates and other operations.
There may be future sales or other dilution of our equity, which may adversely affect the market price of shares of our common stock.
Our existing and future preferred stock, warrants or other securities convertible into or exchangeable for our common stock may contain adjustment provisions that could increase the number of shares issuable upon exercise, conversion or exchange, as the case may be, and decrease the exercise, conversion or exchange price. The market price of our shares of common stock or preferred stock could decline as a result of sales of a large number of shares of our common stock or preferred stock or similar securities in the market, the triggering of any such adjustment provisions or the perception that such sales could occur in the future.
Our indebtedness imposes significant restrictions on us, and a default could materially adversely affect our operations and financial condition.
All of our material assets, except our intellectual property, have been pledged as collateral for our borrowings under the Loan and Security Agreement (the Oxford Loan Agreement) with Oxford Finance, LLC (Oxford).
In addition to the security interest in our assets, the Oxford Loan Agreement carries covenants that impose significant requirements on us, including, among others, requirements that:
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we pay all principal, interest and other charges on the outstanding balance of the borrowed funds when due;
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we keep reserved out of our authorized shares of common stock sufficient shares to satisfy our obligation to issue shares upon the exercise of the warrants issued in connection with the Oxford Loan Agreement;
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we provide certain financial information and reports to Oxford in a timely manner; and
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we indemnify Oxford against certain liabilities.
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Additionally, with certain exceptions, the Oxford Loan Agreement prohibits us from:
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making any material dispositions of our assets, except for permitted dispositions;
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making any changes in our business, management, ownership, or business locations;
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entering into any merger or consolidation without Oxford’s consent;
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acquiring or making investments in any other person other than permitted investments;
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incurring any indebtedness, other than permitted indebtedness;
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granting or permitting liens against our assets, other than permitted liens; declaring or paying any dividends or making any other distributions; or
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entering into any material transaction with any affiliate, other than in the ordinary course of business;.
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Our ability to comply with these provisions may be affected by changes in our business condition or results of our operations, or other events beyond our control. The breach of any of these covenants would result in a default under the Loan Agreement, permitting Oxford to increase the interest rate on the outstanding principal amount, accelerate the maturity of the debt and to sell the assets securing it. Such actions by Oxford could materially adversely affect our operations, results of operations and financial condition, including causing us to substantially curtail our product development activities.
In addition, our Loan Agreement (the Platinum Loan Agreement) with Platinum-Montaur Life Sciences, LLC (Platinum) carries covenants typical for commercial loan agreements, and similar to those contained in the Oxford Loan Agreement, that impose significant requirements on us. Our ability to comply with these provisions may be affected by changes in our business condition or results of our operations, or other events beyond our control. The breach of any of these covenants would result in a default under the Platinum Loan Agreement, permitting Platinum to terminate our ability to obtain additional draws under the Platinum Loan Agreement and accelerate the maturity of the debt. Such actions by Platinum could materially adversely affect our operations, results of operations and financial condition, including causing us to substantially curtail our product development activities.
Platinum may exercise its conversion right, and that could dilute your ownership and the net tangible book value per share of our common stock.
Platinum may exercise the right to convert all or any portion of the unpaid principal or unpaid interest (the Conversion Amount) accrued on any draw advanced by Platinum under the Platinum Loan Agreement on or after June 25, 2013, beginning on a date that is two years from the date on which such draw was advanced, and thereafter at any time while any portion of such draw is outstanding, into shares of Navidea’s common stock. Platinum may also exercise a conversion right on the amount of any mandatory repayment due following the Company achieving $2,000,000 in cumulative revenues from sales or licensing of Lymphoseek. The conversion option applies to the Conversion Amount if the Company is prohibited from making such repayment under the terms of the Subordination Agreement between Platinum, Oxford and the Company. If Platinum exercises any or all of its conversion rights, the percentage ownership of our current stockholders will be reduced. The issuance of additional common stock may also result in dilution in the net tangible book value per share of our common stock. The $3.2 million outstanding under the Platinum credit facility as of December 31, 2013 is not subject to the conversion option.
Shares of common stock are equity securities and are subordinate to our existing and future indebtedness and preferred stock.
Shares of our common stock are common equity interests. This means that our common stock ranks junior to our outstanding shares of Series B Preferred Stock and any preferred stock that we may issue in the future, to our indebtedness and to all creditor claims and other non-equity claims against us and our assets available to satisfy claims on us, including claims in a bankruptcy or similar proceeding. Our existing indebtedness and preferred stock restrict payment of dividends on our common stock, and future indebtedness and preferred stock may restrict payments of dividends on our common stock.
Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of our common stock, (i) dividends are payable only when and if declared by our Board of Directors or a duly authorized committee of our Board of Directors, and (ii) as a corporation, we are restricted to making dividend payments and redemption payments out of legally available assets. We have never paid a dividend on our common stock and have no current intention to pay dividends in the future. Furthermore, our common stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to shareholders generally.
The continuing contentious and partisan federal budget negotiations may have an impact on our business and financial condition in ways that we currently cannot predict, and may further limit our ability to raise additional funds.
The continuing federal budget disputes not only may adversely affect financial markets, but could also delay or reduce research grant funding and adversely affect operations of government agencies that regulate us, including the FDA, potentially causing delays in obtaining key regulatory approvals.
Our failure to maintain continued compliance with the listing requirements of the NYSE MKT exchange could result in the delisting of our common stock.
Our common stock has been listed on the NYSE MKT since February 2011. The rules of NYSE MKT provide that shares be delisted from trading in the event the financial condition and/or operating results of the Company appear to be unsatisfactory, the extent of public distribution or the aggregate market value of the common stock has become so reduced as to make further dealings on the NYSE MKT inadvisable, the Company has sold or otherwise disposed of its principal operating assets, or has ceased to be an operating company, or the Company has failed to comply with its listing agreements with the Exchange. For example, the NYSE MKT may consider suspending trading in, or removing the listing of, securities of an issuer that has stockholders’ equity of less than $6.0 million if such issuer has sustained losses from continuing operations and/or net losses in its five most recent fiscal years. As of December 31, 2013, the Company had a stockholders’ deficit of approximately $4.0 million. Even if an issuer has a stockholders’ deficit, the NYSE MKT will not normally consider removing from the list securities of an issuer that fails to meet these requirements if the issuer has (1) total value of market capitalization of at least $50,000,000; or total assets and revenue of $50,000,000 each in its last fiscal year, or in two of its last three fiscal years; and (2) the issuer has at least 1,100,000 shares publicly held, a market value of publicly held shares of at least $15,000,000 and 400 round lot shareholders. Based on the number of outstanding shares of our common stock, recent trading price of that stock, and number of round lot holders, we believe that we meet these exception criteria and that our common stock will not be delisted as a result of our failure to meet the minimum stockholders' equity requirement for continued listing. We cannot assure you that the Company will continue to meet these and other requirements necessary to maintain the listing of our common stock on the NYSE MKT. For example, we may determine to grow our organization or product pipeline or pursue development or other activities at levels or on timelines that reduces our stockholders’ equity below the level required to maintain compliance with NYSE MKT continued listing standards.
The delisting of our common stock from the NYSE MKT likely would reduce the trading volume and liquidity in our common stock and may lead to decreases in the trading price of our common stock. The delisting of our common stock may also materially impair our stockholders’ ability to buy and sell shares of our common stock. In addition, the delisting of our common stock could significantly impair our ability to raise capital, which is critical to the execution of our current business strategy.
The price of our common stock has been highly volatile due to several factors that will continue to affect the price of our stock.
Our common stock traded as low as $1.11 per share and as high as $3.59 per share during the 12-month period ended February 28, 2014.
The market price of our common stock has been and is expected to continue to be highly volatile. Factors, including announcements of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, may have a significant impact on the market price of our stock. In addition, potential dilutive effects of future sales of shares of common stock by the Company and by stockholders, and subsequent sale of common stock by the holders of warrants and options could have an adverse effect on the market price of our shares.
Some additional factors which could lead to the volatility of our common stock include:
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price and volume fluctuations in the stock market at large or of companies in our industry which do not relate to our operating performance;
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changes in securities analysts’ estimates of our financial performance or deviations in our business and the trading price of our common stock from the estimates of securities analysts;
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FDA or international regulatory actions and regulatory developments in the U.S. and foreign countries;
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financing arrangements we may enter that require the issuance of a significant number of shares in relation to the number of shares currently outstanding;
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public concern as to the safety of products that we or others develop;
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activities of short sellers in our stock; and
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fluctuations in market demand for and supply of our products.
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The realization of any of the foregoing could have a dramatic and adverse impact on the market price of our common stock. In addition, class action litigation has often been instituted against companies whose securities have experienced substantial decline in market price. Moreover, regulatory entities often undertake investigations of investor transactions in securities that experience volatility following an announcement of a significant event or condition. Any such litigation brought against us or any such investigation involving our investors could result in substantial costs and a diversion of management’s attention and resources, which could hurt our business, operating results and financial condition.
An investor’s ability to trade our common stock may be limited by trading volume.
During the 12-month period beginning on March 1, 2013 and ending on February 28, 2014, the average daily trading volume for our common stock on the NYSE MKT was approximately 1.1 million shares. We cannot assure you that this trading volume will be consistently maintained in the future.
The market price of our common stock may be adversely affected by market conditions affecting the stock markets in general, including price and trading fluctuations on the NYSE MKT exchange.
The market price of our common stock may be adversely affected by market conditions affecting the stock markets in general, including price and trading fluctuations on the NYSE MKT. These conditions may result in (i) volatility in the level of, and fluctuations in, the market prices of stocks generally and, in turn, our shares of common stock, and (ii) sales of substantial amounts of our common stock in the market, in each case that could be unrelated or disproportionate to changes in our operating performance.
Because we do not expect to pay dividends on our common stock in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.
We have paid no cash dividends on any of our common stock to date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, with respect to our common stock, we do not expect to pay any cash dividends in the foreseeable future, and payment of cash dividends, if any, will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our Board of Directors. Furthermore, we are subject to various laws and regulations that may restrict our ability to pay dividends and we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends. Due to our intent to retain any future earnings rather than pay cash dividends on our common stock and applicable laws, regulations and contractual obligations that may restrict our ability to pay dividends on our common stock, the success of your investment in our common stock will likely depend entirely upon any future appreciation and there is no guarantee that our common stock will appreciate in value.
We may have difficulty attracting and retaining qualified personnel and our business may suffer if we do not.
Our business has experienced a number of successes and faced several challenges in recent years that have resulted in several significant changes in our strategy and business plan, including the shifting of resources to support our current development initiatives. Our management will need to remain flexible to support our business model over the next few years. However, losing members of the Navidea management team could have an adverse effect on our operations. Our success depends on our ability to attract and retain technical and management personnel with expertise and experience in the pharmaceutical industry, and the acquisition of additional product candidates may require us to acquire additional highly qualified personnel. The competition for qualified personnel in the biotechnology industry is intense and we may not be successful in hiring or retaining the requisite personnel. If we are unable to attract and retain qualified technical and management personnel, we will suffer diminished chances of future success.
If we make any acquisitions, we will incur a variety of costs and may never realize the anticipated benefits.
If appropriate opportunities become available, we may attempt to acquire businesses and assets that we believe are a strategic fit with our business. While we periodically are engaged in discussions regarding potential business or product acquisitions, we currently have no binding agreements to consummate any material acquisitions. If we pursue any such transaction, the process of negotiating the acquisition and integrating an acquired business and assets may result in operating difficulties and expenditures and may require significant management attention that would otherwise be available for ongoing development of our business whether or not any such transaction is ever consummated. Moreover, we may never realize the anticipated benefits of any acquisition. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets which could harm our business, financial condition, operating results and prospects and the trading price of our securities.
We may be adversely affected if our controls over external financial reporting fail or are circumvented.
We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies. In addition, we are required under the Sarbanes Oxley Act of 2002 to report annually on our internal control over financial reporting. If it were to be determined that our internal control over financial reporting is not effective, such shortcoming could have an adverse effect on our business and financial results and the price of our common stock could be negatively affected. This reporting requirement could also make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulation concerning control and procedures could have a material effect on our business, results of operation and financial condition. Any of these events could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively affect the market price of our shares, increase the volatility of our stock price and adversely affect our ability to raise additional funding. The effect of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors and our Board committees and as executive officers.