PART I
Item 1. Business
Development of the Business
Navidea
Biopharmaceuticals, Inc. (“Navidea,” the
“Company,” or “we”), a Delaware corporation
(NYSE MKT: NAVB), is a biopharmaceutical company focused on the
development and commercialization of precision immunodiagnostic
agents and immunotherapeutics. Navidea is developing multiple
precision-targeted products based on our Manocept™ platform
to enhance patient care by identifying the sites and pathways of
undetected disease and enable better diagnostic accuracy, clinical
decision-making and targeted treatment.
Navidea’s
Manocept platform is predicated on the ability to specifically
target the CD206 mannose receptor expressed on activated
macrophages. The Manocept platform serves as the molecular backbone
of Lymphoseek
®
(technetium Tc
99m tilmanocept) injection, the first product developed and
commercialized by Navidea based on the platform.
On
March 3, 2017, pursuant to an Asset Purchase Agreement dated
November 23, 2016, (the “Purchase Agreement”), the
Company completed its previously announced sale to Cardinal Health
414, LLC (“Cardinal Health 414”) of its assets used,
held for use, or intended to be used in operating its business of
developing, manufacturing and commercializing a product used for
lymphatic mapping, lymph node biopsy, and the diagnosis of
metastatic spread to lymph nodes for staging of cancer (the
“Business”), including the Company’s radioactive
diagnostic agent marketed under the Lymphoseek
®
trademark for
current approved indications by the U.S. Food and Drug
Administration (“FDA”) and similar indications approved
by the FDA in the future (the “Product”), in Canada,
Mexico and the United States (the “Territory”) (giving
effect to the License-Back described below and excluding certain
assets specifically retained by the Company) (the “Asset
Sale”). Such assets sold in the Asset Sale consist primarily
of, without limitation, (i) intellectual property used in or
reasonably necessary for the conduct of the Business, (ii)
inventory of, and customer, distribution, and product manufacturing
agreements related to, the Business, (iii) all product
registrations related to the Product, including the new drug
application approved by the FDA for the Product and all regulatory
submissions in the United States that have been made with respect
to the Product and all Health Canada regulatory submissions and, in
each case, all files and records related thereto, (iv) all related
clinical trials and clinical trial authorizations and all files and
records related thereto, and (v) all right, title and interest in
and to the Product, as specified in the Purchase Agreement (the
“Acquired Assets”).
In
connection with the closing of the Asset Sale, the Company entered
into a License-Back Agreement (the “License-Back”) with
Cardinal Health 414. Pursuant to the License-Back, Cardinal Health
414 granted to the Company a sublicensable (subject to conditions)
and royalty-free license to use certain intellectual property
rights included in the Acquired Assets and owned by Cardinal Health
414 as of the closing of the Asset Sale to the extent necessary for
the Company to (i) on an exclusive basis, subject to certain
conditions, develop, manufacture, market, sell and distribute new
pharmaceutical and other products that are not Competing Products
(as defined in the License-Back), and (ii) on a non-exclusive
basis, develop, manufacture, market, sell and distribute the
Product throughout the world other than in the Territory. Subject
to the Company’s compliance with certain restrictions in the
License-Back, the License-Back also restricts Cardinal Health 414
from using the intellectual property rights included in the
Acquired Assets to develop, manufacture, market, sell, or
distribute any product other than the Product or other product that
(a) accumulates in lymphatic tissue or tumor-draining lymph nodes
for the purpose of (1) lymphatic mapping or (2) identifying the
existence, location or staging of cancer in a body, or (b) provides
for or facilitates any test or procedure that is reasonably
substitutable for any test or procedure provided for or facilitated
by the Product. Pursuant to the License-Back and subject to rights
under existing agreements, Cardinal Health 414 was given a right of
first offer to market, sell and/or market any new products
developed from the intellectual property rights licensed by
Cardinal Health 414 to the Company by the
License-Back.
As
part of the Asset Sale, the Company and Cardinal Health 414 also
entered into ancillary agreements providing for transitional
services and other arrangements. The Company amended and restated
its license agreement with The Regents of the University of
California, San Diego (“UCSD”) pursuant to which UCSD
granted a license to the Company to exploit certain intellectual
property rights owned by UCSD and, separately, Cardinal Health 414
entered into a license agreement with UCSD pursuant to which UCSD
granted a license to Cardinal Health 414 to exploit certain
intellectual property rights owned by UCSD for Cardinal Health 414
to sell the Product in the Territory.
In
exchange for the Acquired Assets, Cardinal Health 414 (i) made a
cash payment to the Company at closing of approximately $80.6
million after adjustments based on inventory being transferred and
an advance of $3 million of guaranteed earnout payments as part of
the CRG settlement (described below in Item 3 – Legal
Proceedings), (ii) assumed certain liabilities of the Company
associated with the Product as specified in the Purchase Agreement,
and (iii) agreed to make periodic earnout payments (to consist of
contingent payments and milestone payments which, if paid, will be
treated as additional purchase price) to the Company based on net
sales derived from the purchased Product subject, in each case, to
Cardinal Health 414’s right to off-set. In no event will the
sum of all earnout payments, as further described in the Purchase
Agreement, exceed $230 million over a period of ten years, of which
$20.1 million are guaranteed payments for the three years
immediately after closing of the Asset Sale. At the closing of the
Asset Sale, $3 million of such earnout payments were advanced by
Cardinal Health 414 to the Company, and paid to CRG as part of the
Deposit Amount paid to CRG (described below in Item 3 – Legal
Proceedings).
Upon
closing of the Asset Sale, the Supply and Distribution Agreement,
dated November 15, 2007 (as amended, the “Supply and
Distribution Agreement”), between Cardinal Health 414 and the
Company was terminated and, as a result, the provisions thereof are
of no further force or effect (other than any indemnification,
payment, notification or data sharing obligations which survive the
termination). At the closing of the Asset Sale, Cardinal Health 414
paid to the Company $1.2 million, as an estimate of the accrued
revenue sharing payments owed to the Company as of the closing
date, net of prior payments.
The
Asset Sale to Cardinal Health 414 in March 2017 significantly
improved our financial condition and our ability to continue as a
going concern. The Company also continues working to establish new
sources of non-dilutive funding, including collaborations and grant
funding that can augment the balance sheet as the Company works to
reduce spending to levels that can be supported by our
revenues.
Other
than Tc 99m tilmanocept, which the Company has a license to
distribute outside of Canada, Mexico and the United States, none of
the Company’s drug product candidates have been approved for
sale in any market.
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 medicines company focused on
“NAVigating IDEAs” that result in the development and
commercialization of precision diagnostic and therapeutic
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 also 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”). We sold the GDS Business to
Devicor Medical Products, Inc. (“Devicor”) in August
2011. 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 through 2017. Based on the 2015 GDS Business revenue,
we earned royalty payments of $1.2 million. We did not earn any
such royalty payments prior to 2015 or in 2016.
Following the sale
of the GDS business and the subsequent strategic repositioning as a
precision medicines company, the Company in-licensed the two
neuro-tracer product candidates, NAV4694 and NAV5001. The Company
progressed the development of both product candidates over the
course of 2012 through 2014, moving both into Phase 3 clinical
trials. However, in May 2014, the Navidea Board announced that,
based on its belief that the public markets were not giving
appropriate value to its Phase 3 pipeline products and were likely
penalizing the Company for allocating resources to these programs,
the Company would be restructuring its development efforts to focus
on cost effective development of the Manocept platform while it
sought development partners for NAV4694 and NAV5001. In April 2015,
the Company entered into an agreement with Alseres Pharmaceuticals,
Inc. (Alseres) to terminate the NAV5001 sub-license agreement. The
Company is currently engaged in discussions related to the
potential partnering or divestiture of NAV4694.
In
December 2014, we announced the formation of a new business unit,
Macrophage Therapeutics, to further explore therapeutic
applications for the Manocept platform, which was incorporated as
Macrophage Therapeutics, Inc. (“MT”) in January 2015.
MT has developed preliminary processes for producing the first
several therapeutic Manocept immunoconstructs in the MT-1000 drug
line, designed to specifically target and kill activated CD206+
macrophages, and the MT-2000 line, which are designed to inhibit
the inflammatory activity of activated CD206+ macrophages. The
first of these constructs are MT-1001 and MT-2001, both developed
from the Manocept platform technology and the efforts of
Navidea’s development team and contain a similar chemical
scaffold and targeting moieties designed to selectively target
CD206+ macrophages. A payload of a select therapeutic molecule is
conjugated to each immunoconstruct through a linkage that will
release the molecule within the targeted tissue: MT-1001 contains
doxorubicin moieties (an anthracycline antitumor antibiotic)
conjugated to the Manocept backbone and MT-2001 contains a potent
anti-inflammatory agent. MT has contracted with independent
facilities to produce sufficient quantities of the MT-1000 and
MT-2000 class agents along with the concomitant analytical
standards, to provide material for planned preclinical animal
studies and future clinical trials.
Our Technology and Product Candidates
Our
primary development efforts over the last few years have been
focused on diagnostic products, including Lymphoseek which was sold
to Cardinal Health 414 in March 2017, as well as other diagnostic
and therapeutic line extensions based on our Manocept
platform.
Building on the
success of Tc 99m tilmanocept, the flexible and versatile Manocept
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.
We
have advanced three additional imaging product candidates into
clinical testing.
Cardiovascular
Disease (“CV”) – We have completed a nine-subject
study to evaluate diagnostic imaging of emerging atherosclerosis
plaque with the Tc 99m tilmanocept product dosed subcutaneously.
The results of this study were recently published in the
Journal of Infectious
Diseases,
confirming that the Tc 99m tilmanocept product can
both quantitatively as well as qualitatively target non-calcified
plaque in the aortic arch (NIH/NHLBI Grant 1 R43 HL127846-01). We
have applied for follow-on NIH/NHLBI support to fund additional
clinical studies. These studies are currently under development and
design for both Phase 1 and Phase 2 trials.
Rheumatoid
Arthritis (“RA”) – We have initiated two dosing
studies in RA. The first study, now complete, included 18 subjects
(12 with active disease and 6 controls) who were dosed
subcutaneously. In addition, based on completion of extensive
preclinical dosing studies pursuant to our dialog with the FDA, we
have initiated and partially completed a study dosing the Tc 99m
tilmanocept product intravenously (“IV”). These studies
have been supported through a Small Business Innovation Research
(“SBIR”) grant (NIH/NIAMSD Grant 1 R44
AR067583-01A1).
Kaposi’s
Sarcoma (“KS”) – Although we initiated and
completed a study of KS in 2015, we received additional funding
from the National Institutes of Health (“NIH”) in 2016
to continue studies in this disease. The new support not only
continues the imaging of cutaneous elements of this disease but
expands this to imaging of visceral disease via IV administration
of Tc99m tilmanocept (NIH/NCI 1 R44 CA192859-01A1). Additionally,
we received funding to support the therapeutic initiative for KS
employing a select form of the class 1000 agent under current
evaluation. The Company has already completed a portion of the
Phase 1 SBIR portion of this award (1 R44
CA206788-01).
Based
on performance in these very large imaging market opportunities the
Company anticipates continued investment in these programs
including initiating studies designed to obtain new approvals for
the Tc 99m tilmanocept product.
Preclinical data
generated by the Company in studies using tilmanocept linked to a
therapeutic agent also suggest that tilmanocept’s binding
affinity to CD206 receptors demonstrates the potential for this
technology to be useful in treating diseases linked to the
over-activation of macrophages. This includes various cancers as
well as autoimmune, infectious, CV, and central nervous system
(“CNS”) diseases. Our efforts in this area were further
supported by the 2015 formation of MT, a majority-owned subsidiary
that was formed specifically to explore therapeutic applications
for the Manocept platform.
MT has
been set up to pursue the drug delivery model. This model enables
the Company to leverage its technology over many potential
therapeutic applications and with multiple partners simultaneously
without significant capital outlays. To date, the Company has
developed two lead families of therapeutic products. The MT1000
class is designed to deplete activated macrophages via apoptosis.
The MT2000 class is designed to modulate activated macrophages from
a classically activated phenotype to the alternatively activated
phenotype. Both families have been tested in a number of disease
models in rodents.
We
continue to seek to partner or out-license NAV4694. The NAV5001
sublicense was terminated in April 2015.
Tc 99m Tilmanocept – Status in Europe
The
European Commission (“EC”) granted marketing
authorization for Tc 99m tilmanocept in the EU in November 2014. We
recently completed manufacturing validation activities on a
finished drug product contract manufacturing facility to support
the Company’s supply chain, primarily in Europe. This
facility will produce a reduced-mass vial for which we received
approval from the European Medicines Agency (“EMA”) in
September 2016. Our partner, SpePharm AG (an affiliate of Norgine
BV), is currently completing the customary pre-launch market access
activities to support commercial launch in the EU during the first
half of 2017. Following the January 2017 transfer of the Tc 99m
tilmanocept Marketing Authorization to SpePharm, we are in the
process of transferring responsibility for manufacturing the
reduced-mass vial for the EU market to SpePharm.
Tc 99m Tilmanocept – Clinical Data and Licensing
Background
In
June 2016, we announced results from three investigator-initiated
studies that demonstrate beneficial performance characteristics of
Tc 99m tilmanocept and positive comparative results versus
commonly-used, non-receptor-targeted imaging agents. The data were
presented by the investigators at the 2016 Annual Meeting of the
Society of Nuclear Medicine and Molecular Imaging
(“SNMMI”) in San Diego, CA.
“
Performance
of Tc-99m tilmanocept when used alone is as or more effective in
localizing sentinel nodes than sulfur colloid plus blue
dye
,” presented by Jonathan Unkart, M.D. and Anne
Wallace, M.D., Department of Surgery at UCSD, described a
retrospective evaluation of the rate of localization of Tc 99m
tilmanocept when used alone compared to sulfur colloid
(“SC”), blue dye (“BD”) and SC plus BD. The
study included results from 148 breast cancer patients evaluated in
two prospective Phase 3 Tc 99m tilmanocept clinical trials (data
published in Annuls of Surgical Oncology 2013). SC and BD data was
derived from a literature search presented at the SNMMI 2013
Annual Meeting including treatment groups of 17,814 SC alone,
12,821 BD alone and 19,627 SC+BD patients. Results show the
following localization rates: Tc 99m tilmanocept alone: 0.9865, SC
alone: 0.9249, BD alone: 0.8294 and SC+BD: 0.9636. The
authors’ analysis suggests that Tc 99m tilmanocept provided
superior sentinel lymph node localization in breast cancer patients
compared to the other non-targeting agents alone or in combination
providing surgeons the option to use just a single
agent.
“
Use
of lymphoscintigraphy with Tc-99m tilmanocept does not affect the
number of nodes removed during sentinel node biopsy
(“SLNB”) in breast cancer
,” also presented
by Jonathan Unkart, M.D., et al, provides a retrospective review
evaluating whether there is a difference in the number of nodes
removed using Tc 99m tilmanocept during SLNB in patients who had a
pre-operative imaging procedure called lymphoscintigraphy prior to
SLNB versus those who only had intra-operative sentinel node
(“SN”) identification. The results indicate that in
breast cancer, identification and removal of SNs using
lymphoscintigraphy (3.0 SNs) did not significantly alter the number
of SNs removed during a SLNB procedure with no imaging (2.7 SNs).
Tc 99m tilmanocept’s selective-targeting performance
characteristic enables the utilization of only a single dose of Tc
99m tilmanocept per patient irrespective of whether both
lymphoscintigraphy and SLNB are performed. The authors concluded
that by using Tc 99m tilmanocept, lymphoscintigraphy imaging
procedures may be eliminated in this patient population and may
reduce health care cost without impacting patient
outcomes.
“
Rate
of sentinel lymph node visualization in fatty breasts: Tc-99m
Tilmanocept versus Tc-99m filtered sulfur colloid
,”
presented by Maryam Shahrzad, M.D. et al, describes results from a
study at Emory University School of Medicine using Tc 99m
tilmanocept in patients with fatty breast tissue, a population that
is known to be more difficult to localize nodes when performing
SLNB. The results suggest that Tc 99m tilmanocept more effectively
visualized sentinel lymph nodes (“SLNs”) both on
lymphoscintigraphy and during surgery compared to filtered sulfur
colloids (Tc-SC) with 100% localization using Tc 99m tilmanocept
intraoperatively. These retrospective data compiled from 29
consecutive patients with early stage breast cancer where
lymphoscintigraphy was performed using Tc-SC and 28 patients where
lymphoscintigraphy was performed using Tc 99m tilmanocept. Multiple
patient variables were recorded. The Tc-SC cohort included 96% of
patients with fatty breasts versus 89% in the Tc 99m tilmanocept
group. Statistically significant findings included: (1) in
lymphoscintigraphy, SLN visualization occurred in 86% of the Tc 99m
tilmanocept group compared to 59% of the TC-SC group (
p-value: 0.02
); and (2) at surgery,
100% of patients in the Tc 99m tilmanocept group showed a
“hot” SLN compared to only 79% of patients in the Tc-SC
group (
p-value:
0.01
).
These
data further reinforce the beneficial clinical performance
attributes of Tc 99m tilmanocept. In addition, they support Tc 99m
tilmanocept’s rapid adoption in sentinel lymph node biopsy
procedures and its pre-surgical imaging utility for other solid
tumors. We believe results from these and other performance-based
studies will encourage surgeons to use Tc 99m tilmanocept as they
look to optimize outcome for their patients and improve patient
experience.
“Dynamics of 99mTc-tilmanocept
intraoperative lymphatic mapping,”
presented by
Frederick Cope, Ph.D., F.A.C.N., et al, was taken from an
evaluation of 38 breast cancer patients undergoing SLN mapping.
These data indicated the strong correlation of macrophage presence
in sentinel nodes relative to non-sentinel nodes suggesting that
SLNs have a preferred biological nexus to the primary tumor site.
Correlations were supported by macrophage counts, Tc 99m counts,
and receptor analyses. These data further support the targeting of
the CD206 receptor.
Manocept Platform - Diagnostics and Therapeutics
Background
Navidea’s
Manocept platform is predicated on the ability to specifically
target the CD206 mannose receptor expressed on activated
macrophages. Activated 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
serves as an engine for purpose-built molecules that may
significantly impact patient care by providing enhanced diagnostic
accuracy, clinical decision-making, and target-specific treatment.
This disease-targeted drug platform provides the capability to
utilize a breadth of diagnostic modalities, including SPECT, PET,
intra-operative and/or optical-fluorescence detection, as well as
delivery of therapeutic compounds that target macrophages, and
their role in a variety of immune- and inflammation-based
disorders. The FDA-approved sentinel node/lymphatic mapping agent,
Tc 99m tilmanocept, is representative of the ability to
successfully exploit this mechanism to develop powerful new
products.
Impairment of the
macrophage-driven disease mechanisms is an area of increasing focus
in medicine. The number of people affected by all the inflammatory
diseases combined is estimated at more than 40 million in the
United States and perhaps 700 million worldwide, making
macrophage-mediated diseases an area of remarkable clinical
importance. There are many recognized disorders having macrophage
involvement, including RA, atherosclerosis/vulnerable plaque,
Crohn’s disease, systemic lupus erythematosis, KS, and others
that span clinical areas in oncology, autoimmunity, infectious
diseases, cardiology, CNS diseases, and inflammation. Data from
studies using agents from the Manocept platform in RA, KS and
tuberculosis (“TB”) were published in a special
supplement,
Nature Outlook:
Medical Imaging
, in
Nature’s
October 31, 2013 issue.
The supplement included a White Paper by Navidea entitled
“
Innovations in
receptor-targeted precision imaging at Navidea: Diagnosis up close
and personal
,” focused on the Manocept
platform.
In
July 2014, the Company completed a license agreement with UCSD for
the exclusive world-wide rights in all diagnostic and therapeutic
uses of tilmanocept, except for the use of Tc 99m tilmanocept in
Canada, Mexico and the United States, which rights have been
licensed directly to Cardinal Health 414 by UCSD in connection with
the Asset Sale. The license agreement is effective until the third
anniversary of the expiration date of the longest-lived underlying
patent. Under the terms of the license agreement, UCSD has granted
Navidea the exclusive rights to make, use, sell, offer for sale and
import licensed products for all diagnostic and therapeutic uses as
defined in the agreement and to practice the defined licensed
methods during the term of the agreement. Navidea may also
sublicense the patent rights, subject to certain sublicense terms
as defined in the agreement. In consideration for the license
rights, Navidea agreed to pay UCSD a license issue fee of $25,000
and license maintenance fees of $25,000 per year. We also agreed to
make payments to UCSD upon successfully reaching certain clinical,
regulatory and cumulative sales milestones, and a royalty on net
sales of licensed products subject to a $25,000 minimum annual
royalty. Navidea also agreed to reimburse UCSD for all
patent-related costs and to meet certain diligence
targets.
Manocept Platform – Immuno-Diagnostics Clinical
Data
In
April 2016, we announced that based on a meeting with the FDA, we
would begin the clinical trial development process for our IV
injection protocols for use of tilmanocept in RA and other disease
states. Over the past year Navidea conducted a series of meetings
and communications with the FDA to gain clarity on a path to extend
the current Tc 99m tilmanocept investigational new drug
(“IND”) application to support IV administration of
tilmanocept. In parallel, the Company initiated its clinical
development efforts and has already completed six required
non-clinical animal studies for this new route of administration,
submitted the summary results in a briefing package to the FDA, and
secured NIH grants in RA and KS, worth up to $3.8 million to
support further development through Phase 2 studies. Based upon the
feedback from the latest meeting, Navidea expects to submit an IND
amendment to the FDA that will allow initiation of Phase 1/2 IV
studies of tilmanocept. The addition of this new route of
administration would enable further development of tilmanocept in
broader immunodiagnostic disease applications including RA, KS and
CV.
Rheumatoid Arthritis
Our
efforts to exploit the involvement of macrophages in the natural
history of many diseases has led us through our strategy of
expanding the use of tilmanocept and open new market opportunities.
Importantly, one of the largest defined market opportunities
resides in early diagnosis and disease monitoring for RA. RA can be
difficult to detect because it may begin with subtle symptoms such
as achy joints or joint stiffness especially in the morning.
Further, many diseases behave like RA early on; for example, gout
and lupus. There is no single test that confirms an RA diagnosis
and even combinations of tests provide little specificity for RA.
Current diagnostic tools such as x-rays, ultrasound and MRI fall
short of being able to quantitatively measure inflammation and the
underlying macrophage inflammatory component, which is a key driver
of RA progression. Misdiagnosis results in billions of dollars
being spent each year unnecessarily on therapies, which may also
result in significant side effects.
In our
primary market research, two aspects of the current unmet medical
needs identified were early diagnosis and monitoring of disease
progression and/or drug response. Early diagnosis and treatment
improves outcomes. In patients with RA, joint damage occurs early,
often within the first two years of the disease, and is
irreversible. Additionally, once treatment is started, it becomes
necessary to objectively monitor progression and measure how well a
treatment is working or not.
Approximately 10
million patients in economically advantaged countries alone are
diagnosed with RA, of which approximately half are misdiagnosed due
in large part to a lack of an accurate and cost-effective means for
early detection and differential diagnosis. More succinctly, our
primary market research suggests that early detection alone in the
U.S. could add up to 300,000 procedures per year and disease
monitoring could add as many as 700,000 procedures per
year.
Our
goals for the use of tilmanocept in RA are:
●
Reliable diagnosis
of RA by imaging;
●
Early differential
diagnosis of RA;
●
Use in monitoring
patient response to RA treatments; and
●
Quantitative
assessment of the disease process via imaging and application to
therapeutic response.
Based
on our work to date, we believe we can achieve all of the
diagnostic disease-managing elements with tilmanocept.
In
July 2016, we received Institutional Review Board
(“IRB”) approval from the University of California, San
Francisco (“UCSF”) School of Medicine for a clinical
study examining the ability of tilmanocept to specifically identify
active RA in pre-identified RA-affected joints (ClinicalTrials.gov
Identifier:NCT02683421; Study supported by NIH/NIAMSD Grant 1 R44
AR067583-01A1). Additionally, Navidea received Western
Institutional Review Board (“WIRB”) approval to expand
this study to other study sites at Navidea’s discretion. This
study was designed as an open-label, Phase 1 clinical study of up
to 18 individuals to investigate the ability of a subcutaneous
injection of Tc 99m tilmanocept to identify RA inflamed joints in
active RA subjects by SPECT and SPECT/CT imaging. The study has
enrolled four cohorts of subjects: participants with active RA and
arthritis-free individuals evaluating two different tilmanocept
doses in each group. Results of this study will be used to
determine tilmanocept’s ability to localize in subjects with
RA and show concordance with clinical symptoms, compare the
intensity between the two dose groups, and compare localization
between active RA and arthritis-free subjects. Study results will
provide information regarding trial design for follow-on studies.
This study is complete and we are comprehensively analyzing the
study data sets.
In
conjunction with the agreed submission of an IND amendment for IV
administration of tilmanocept to the FDA, we initiated a
multi-center Phase 1/2 registrational trial employing IV
administration to evaluate tilmanocept for the primary diagnosis of
RA and to aid in the differential diagnosis of RA from other types
of inflammatory arthritis. The first subject was dosed and imaged
in February 2017. This study will enroll up to 30 subjects with
dose escalation (ClinicalTrials.gov Identifier:NCT02865434; Study
supported by NIH/NIAMSD Grant 1 R44 AR067583-01A1).
Cardiovascular Disease
The
Company received an award for a Phase 1 SBIR grant providing
$322,000 from the National Heart Lung and Blood Institute, NIH
(ClinicalTrials.gov Identifier: NCT02542371; Studies supported by
NIH/NHLBI Grant 1 R43 HL127846-01). This study was conducted in
collaboration with Massachusetts General Hospital and Harvard
Medical School. This study is complete and examined the ability of
Tc 99m tilmanocept to localize in high-risk atherosclerotic
plaques. These specific plaques are rich in CD206-expressing
macrophages and are at high risk for near term rupture resulting in
myocardial infarctions, sudden cardiac death and strokes. The
consequences of atherosclerosis and the cardiovascular disease that
atherosclerosis causes, while severe in all populations of people,
are particularly concentrated in human immunodeficiency
virus-positive (“HIV+”) patients. Recently, it has been
observed that CD206 expressing macrophages densely populate
vulnerable plaques or thin cap fibroatheromas but not other kinds
(i.e., calcified plaques) of atherosclerotic plaques. A primary
goal for this grant involves an approved clinical investigation of
up to 18 individuals with and without aortic and high risk coronary
atherosclerotic plaques and with and without HIV infection to
determine the feasibility of Tc 99m tilmanocept to image high risk
plaque by SPECT/CT. Contrast with NaF18 was a parallel evaluation.
In May 2016, we reported that the first subjects were dosed
subcutaneously at Massachusetts General Hospital, and we have now
completed enrollment in this study. Results were first reported at
the
Conference on Retroviruses
and Opportunistic Infections
by Steven Grinspoon, M.D., et
al. Additional results are now published in the
Journal of Infectious Diseases (epub -
https://doi.org/10.1093/infdis/jix095)
.
Results provide strong evidence of the potential of Tc 99m
tilmanocept to accumulate in high risk morphology plaques, the
ability to make preliminary comparisons of aortic Tc 99m
tilmanocept uptake by SPECT/CT in healthy vs. clinically
symptomatic patients, and to evaluate the ability of Tc 99m
tilmanocept to identify the same aortic atherosclerotic plaques
that are identified by contrast enhanced coronary computed
tomography angiography and/or PET/CT.
Other Immuno-Diagnostic Applications
The
Company has received an award for a Fast Track SBIR grant providing
for up to $1.8 million from the NIH’s National Cancer
Institute to fund preclinical studies examining the safety of IV
injection of Tc99m tilmanocept, a Manocept platform product,
followed by a clinical study providing the initial evaluation of
the safety and efficacy of SPECT imaging studies with IV Tc99m
tilmanocept to identify and quantify both skin- and
organ-associated KS lesions in human patients. The grant is awarded
in two parts with the potential for total grant money of up to $1.8
million over two and a half years. The first six-month funding
segment of $300,000, which has already been awarded, is expected to
enable Navidea to secure necessary collaborations and Institutional
Review Board approvals. The second funding segment could provide
for up to an additional $1.5 million to be used to accrue
participants, perform the Phase 1/2 study and perform data analyses
to confirm the safety and effectiveness of intravenously
administered Tc99m tilmanocept. We have received IRB approval of
the clinical protocol, and we plan to initiate a Phase 1/2 clinical
study in KS during 2017.
Our
commercial evaluation of new clinical data as well as our evolving
understanding of Tc 99m tilmanocept, the underlying Manocept
backbone, and its potential utility in identifying tumor-associated
macrophages (“TAMs”) and multifocal tumor disease have
caused us to question the viability of the NAV1800 development
program (previously referred to as the RIGS
®
or
radioimmunoguided surgery program) as it was originally envisioned.
To that end, we petitioned the NIH to repurpose the
$1.5 million grant we were previously awarded towards the
study of TAMs in colorectal cancer, and subsequently received
confirmation of the acceptance of this repurposing. This repurposed
grant now supports a Manocept-based diagnostic approach in patients
with anal/rectal cancer and possibly colon cancer. We recognize
this repurposing represents a major refocusing of the original
NAV1800 initiative, but we are confident that this change
represents the best course of action at this time towards
benefiting patients afflicted with colorectal cancer and is one
which is consistent with the excitement we are seeing on many
fronts related to our work on the Manocept platform. To this end,
we have completed two preclinical evaluations, clinical trial
protocol development, and site review; we are awaiting IRB
confirmation for the clinical portion of this initiative. However,
there can be no assurance that if further clinical trials for this
product 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.
Macrophage Therapeutics Background
In
December 2014, the Company formed a new business unit, Macrophage
Therapeutics, to further explore therapeutic applications for the
Manocept platform. In January 2015, Navidea incorporated the
business unit as Macrophage Therapeutics, Inc. (“MT”),
initially a wholly-owned subsidiary of Navidea.
In
March 2015, MT entered into a Securities Purchase Agreement to sell
up to 50 shares of its Series A Convertible Preferred Stock
(“MT Preferred Stock”) and warrants to purchase up to
an additional 1,500 common shares of Macrophage Therapeutics, Inc.
(“MT Common Stock”) to Platinum-Montaur Life Sciences,
LLC (together with its affiliates, “Platinum”) and Dr.
Michael Goldberg, then one of our directors and CEO of Macrophage
Therapeutics, Inc. (collectively, the “MT Investors”);
the agreed purchase price was $50,000 per unit. On March 13, 2015,
Navidea announced that definitive agreements with the MT Investors
had been signed for the sale of the first 10 shares of MT Preferred
Stock and warrants to purchase 300 shares of MT Common Stock to the
MT Investors, with gross proceeds to MT of $500,000. Under the
agreement, 40% of the MT Preferred Stock and warrants are committed
to be purchased by Dr. Goldberg, and the balance by Platinum. The
full 50 shares of MT Preferred Stock and warrants that may be sold
under the agreement are convertible into and exercisable for MT
Common Stock representing an aggregate 1% interest on a fully
converted and exercised basis. Navidea retains ownership of the
remainder of MT Common Stock.
In
addition, Navidea entered into a Securities Exchange Agreement with
the MT Investors providing them an option to exchange their MT
Preferred Stock for our common stock in the event that MT has not
completed a public offering with gross proceeds to MT of at least
$50 million by the second anniversary of the closing of the initial
sale of MT Preferred Stock, at an exchange rate per share obtained
by dividing $50,000 by the greater of (i) 80% of the twenty-day
volume weighted average price per share of our common stock on the
second anniversary of the initial closing or (ii) $3.00. To the
extent that the MT Investors do not timely exercise their exchange
right, MT has the right to redeem their MT Preferred Stock for a
price equal to $58,320 per share. Navidea also granted MT an
exclusive license for certain therapeutic applications of the
Manocept technology.
MT has
developed processes for producing the first two therapeutic
Manocept immunoconstruct classes, MT-1000, designed to specifically
target and kill activated CD206+ macrophages and MT-2000, designed
to inhibit the inflammatory activity of activated CD206+
macrophages. The first of these constructs are MT-1001 and MT-2001,
both developed from the Manocept platform technology and the
efforts of Navidea’s development team and contain a similar
chemical scaffold and targeting moieties designed to selectively
target CD206+ macrophages. A payload of a select therapeutic
molecule is conjugated to each immunoconstruct through a linkage
that will release the molecule within the targeted tissue: MT-1001
contains doxorubicin moieties (an anthracycline antitumor
antibiotic), conjugated to the Manocept backbone while MT-2001
contains a potent anti-inflammatory agent. MT has contracted with
independent facilities to produce sufficient quantities of the
MT-1000 and MT-2000 class agents along with the concomitant
analytical standards, to provide material for planned preclinical
animal studies and future clinical trial.
Manocept Platform – Immunotherapeutics In-Vitro and
Pre-Clinical Data
During
investor update conference calls held during 2016, MT reported the
following from its ongoing pre-clinical animal
studies:
●
Binding affinity
studies with the therapeutic constructs confirm results seen with
imaging agent with dissociation constants (K
d
)K d
{\displaystyle K_{d}} on the order of 10
-11
;
●
Cell culture
studies with numerous infectious agents demonstrate consistent
activity across all agents tested including HIV, human herpesvirus
8 (“HHV8”), Zika, leishmaniasis, and
dengue;
●
An 8-week,
preclinical mouse study in an arthritis mouse model with a Manocept
anti-inflammatory targeted therapeutic product, MT2002, was
completed with initial results reporting clear anti-inflammatory
activity with no apparent significant side-effects;
●
An animal study in
an asthma model that measured the ability of MT2002 to decrease all
three markers of pro-inflammatory markers secreted by
disease-causing macrophages was completed and successfully
demonstrated an anti-inflammatory effect;
●
A study in a
rodent neuro-inflammation model confirmed the ability to cross the
blood-brain barrier while maintaining the desired activity of the
therapeutic linked to our delivery agent;
●
We completed three
studies in an animal model for non-alcoholic steatohepatitis
(“NASH”). We have looked at a number of different
dosing regimens and compared performance of both families of our
therapeutic products. We have also looked at initiating dosing
later in the course of the disease to determine if we can have an
impact on preventing fibrosis. According to the group that ran
these studies (Stelic, Japan), our agents performed the best of all
agents they have ever tested in their STAM
TM
animal model.
Finally, the livers of these animals were analyzed and showed no
evidence of off-target or histo-pathological damage.
●
We completed
dosing in a neuro-inflammation model which confirmed that the
anti-inflammatory construct very effectively crosses the
blood-brain barrier. This study also confirmed that the addition of
the drug conjugate to the Manocept backbone did not affect
blood-brain barrier activity.
●
We completed four
independent cancer-modeling studies evaluating the TAM-depleting
performance of compounds from the MT1000 class of conjugates. In
three of these models employing the MT1000 conjugate alone, we
observed an immediate reduction on the rate of tumor growth. In a
fourth cancer model where the MT agent was tested in combination
with a tumor targeted antibody we also observed a significant
co-effect on tumor reduction. This latter study was repeated and
further highlighted the potentiation of the targeted antibody to
the tumor driven by the MT agent targeting to the TAMs, a key
component of the tumor microenvironment.
The
novel Manocept construct is designed to specifically deliver
doxorubicin, a chemotoxin, which can kill KS tumor cells and their
TAMs potentially altering the course of cancer. KS is a serious and
potentially life threatening illness in persons infected with HIV
and the third leading cause of death in this population worldwide.
The prognosis for patients with KS is poor with high probabilities
for mortality and greatly diminished quality of life. The funds for
this Fast Track grant will be released in three parts, which
together have the potential to provide up to $1.8 million in
resources over 2.5 years with the goal of completing an IND
submission for a Manocept construct (MT1000 class of compounds)
consisting of tilmanocept linked to doxorubicin for the treatment
of KS. The first part of the grant will provide $232,000 to support
analyses including in vitro and cell culture studies and will be
followed by Part 2 and 3 animal testing studies. If successful, the
information from these studies will be combined with other
information in an IND application that will be submitted to the FDA
requesting permission to begin testing the compound selected in
human KS patients.
Navidea and MT
continue to evaluate emerging data in other disease states to
define areas of focus, development pathways and partnering options
to capitalize on the Manocept platform, including ongoing studies
in KS and RA. The immuno-inflammatory process is remarkably complex
and tightly regulated with indicators that initiate, maintain and
shut down the process. Macrophages are immune cells that play a
critical role in the initiation, maintenance, and resolution of
inflammation. They are activated and deactivated in the
inflammatory process. Because macrophages may promote dysregulation
that accelerates or enhances disease progression, diagnostic and
therapeutic interventions that target macrophages may open new
avenues for controlling inflammatory diseases. There can be no
assurance 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 (Candidate for Divestiture)
NAV4694 is a
fluorine-18 (“F-18”) labeled PET imaging agent being
developed as an aid in the imaging and evaluation of patients with
signs or symptoms of Alzheimer’s disease (“AD”)
and mild cognitive impairment (“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. NAV4694 has been studied in rigorous pre-clinical
studies and clinical trials in humans. Clinical studies through
Phase 3 have included subjects with 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.
In May
2014, the Board of Directors made the decision to refocus the
Company's resources to better align the funding of our pipeline
programs with the expected growth in Tc 99m tilmanocept revenue.
This realignment primarily involved reducing our near-term support
for our neurological product candidates, including NAV4694, as we
sought a development partner or partners for these programs. The
Company is currently engaged in discussions related to the
potential partnering or divestiture of NAV4694. We continue to have
active interest from potential partners or acquirers; however, our
negotiations have experienced delays due in large part to
litigation brought by one of the potential partners (see Part II,
Item 1 – Legal Proceedings). The Company believed the suit
was without merit and filed a motion to dismiss the action. In
September 2016, the court determined that there was enough evidence
to proceed with the case and denied Navidea’s motion to
dismiss. Navidea is currently preparing for a trial which is
expected to take place within the next twelve months. At this time
it is not possible to determine with any degree of certainty the
ultimate outcome of this legal proceeding, including making a
determination of liability.
In
July 2016, the Company executed a term sheet with Cerveau
Technologies, Inc. (“Cerveau”) as a designated party
for the rights resulting from the relationship between Navidea and
Hainan Sinotau Pharmaceutical Co., Ltd. (“Sinotau”).
The term sheet outlined the terms of a potential agreement between
the parties to sublicense NAV4694 to Cerveau in return for license
fees, milestone payments and royalties. With the exception of
certain provisions, the term sheet was non-binding and was subject
to the agreement of AstraZeneca, from whom the Company has licensed
the NAV4694 technology. The Company had 60 days to execute a
definitive agreement, however no definitive agreement was reached.
Discussions related to the potential partnering or divestiture of
NAV4694 are ongoing.
NAV5001 (In-License Terminated)
NAV5001 is an
iodine-123 (“I-123”) labeled 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. 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. 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, one of the most common forms of dementia
after AD.
In May
2014, the Board of Directors made the decision to refocus the
Company's resources to better align the funding of our pipeline
programs with the expected growth in Tc 99m tilmanocept revenue.
This realignment primarily involved reducing our near-term support
for our neurological product candidates, including
NAV5001.
In
April 2015, the Company entered into an agreement with Alseres to
terminate the sub-license agreement dated July 31, 2012 for
research, development and commercialization of NAV5001. Under the
terms of this agreement, Navidea transferred all regulatory,
clinical and manufacturing-related data related to NAV5001 to
Alseres. Alseres agreed to reimburse Navidea for any incurred
maintenance costs of the contract manufacturer retroactive to March
1, 2015. In addition, Navidea has supplied clinical support
services for NAV5001 on a cost-plus reimbursement basis. However,
to this point, Alseres has been unsuccessful in raising the funds
necessary to restart the program and reimburse Navidea. As a
result, we have taken steps to end our obligations under the
agreement and notified Alseres that we consider them in breach of
the agreement. We are in the process of trying to recover the funds
we expended complying with our obligations under the termination
agreement. As of the filing of this document, we remain in
discussions and Alseres has expressed its commitment to pay the
related payables.
Market Overviews
Tc 99m Tilmanocept – Cancer Market Overview
Cancer
is the second leading cause of death in the U.S. and the leading
cause of death in 12 European countries. The American Cancer
Society (“ACS”) estimates that cancer will cause over
600,000 deaths in 2017 in the U.S. alone. The Agency for Healthcare
Research and Quality has estimated that the direct medical costs
for cancer in the U.S. for 2014 were $87.8 billion. Additionally,
the ACS estimates that approximately 1.7 million new cancer cases
will be diagnosed in the U.S. during 2017. 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 over 1.1 million new cases
will occur in the U.S. in 2017.
Currently, the
application of intraoperative lymphatic mapping (“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 6.8% in women
age 70 or older. According to the ACS, over 255,000 new cases of
breast cancer are expected to be diagnosed during 2017 in the U.S.
alone.
The
use of ILM is also common in melanoma. The ACS estimates that
approximately 87,000 new cases of melanoma will be diagnosed in the
U.S. during 2017. In addition to breast cancer and melanoma, we
believe that our oncology products may have utility in other cancer
types with another 786,000 new cases expected during 2017 in the
U.S.
If the
potential of Tc 99m tilmanocept as a radioactive tracing agent is
ultimately realized, it may address not only the 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, gynecologic, and non-small
cell lung. Tc 99m tilmanocept is approved by the U.S. FDA for use
in solid tumor cancers where lymphatic mapping is a component of
surgical management and for guiding sentinel lymph node biopsy in
patients with clinically node negative breast cancer, melanoma or
squamous cell carcinoma of the oral cavity. Tc 99m tilmanocept has
also received European approval in imaging and intraoperative
detection of sentinel lymph nodes in patients with melanoma, breast
cancer or localized squamous cell carcinoma of the oral
cavity.
Manocept Diagnostics and Macrophage Therapeutics Market
Overview
Impairment of the
macrophage-driven disease mechanism is an area of increasing focus
in medicine. The number of people affected by all the inflammatory
diseases combined is estimated at more than 40 million in the
United States and perhaps 700 million worldwide, making these
macrophage-mediated diseases an area of remarkable clinical
importance. There are many recognized disorders having macrophage
involvement, including RA, atherosclerosis/vulnerable plaque,
Crohn’s disease, TB, systemic lupus erythematosus, KS, and
others that span clinical areas in oncology, autoimmunity,
infectious diseases, cardiology, and inflammation. Data from
studies using agents from the Manocept platform in RA, KS and TB
were published in a special supplement,
Nature Outlook: Medical
Imaging
, in
Nature’s
October 31, 2013 issue.
The supplement included a White Paper by Navidea entitled
“
Innovations in
receptor-targeted precision imaging at Navidea: Diagnosis up close
and personal,
” focused on the Manocept
platform.
NAV4694 - Alzheimer’s Disease Market Overview
The
Alzheimer’s Association (“AA”) estimates that
more than 5.4 million Americans had AD in 2016. On a global basis,
Alzheimer’s Disease International estimated in 2015 that
there were 46.8 million people living with dementia. AA estimates
that total costs for AD care was approximately $236 billion in 2016
and is expected to rise to more than $1 trillion by 2050. AA also
estimates that there are over 15 million AD and dementia caregivers
providing 18.1 billion hours of unpaid care valued at over $221
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 U.S. mortality data from
2000-2013, deaths from AD have risen 71 percent while deaths
attributed to the number one cause of death, heart disease,
decreased 14 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.
Marketing and Distribution
In
March 2017, Navidea completed the Asset Sale to Cardinal Health
414, as discussed previously under “Development of the
Business.” Pursuant to the Purchase Agreement, we sold all of
our assets used, held for use, or intended to be used in operating
the Business, including the Product, in the Territory. Upon closing
of the Asset Sale, the Supply and Distribution Agreement between
Cardinal Health 414 and the Company was terminated and Cardinal
Health 414 has assumed responsibility for marketing Lymphoseek in
the Territory.
Unlike
the U.S., where institutions typically rely on radiopharmaceutical
products which are compounded and delivered by specialized
radiopharmacy distributors such as Cardinal Health 414,
institutions in Europe predominantly purchase non-radiolabeled
material and compound the radioactive product on-site. With respect
to Tc 99m tilmanocept commercialization in Europe, we have chosen a
specialty pharmaceutical strategy that should be supportive of
premium product positioning and reinforce Tc 99m tilmanocept's
clinical value proposition, as opposed to a commodity or a generics
positioning approach. In March 2015, we entered into an exclusive
sublicense agreement for the commercialization and distribution of
a 50 microgram kit for radiopharmaceutical preparation
(tilmanocept) in the European Union with SpePharm AG (an affiliate
of Norgine BV), a European specialist pharmaceutical company with
an extensive pan-European presence. Under the terms of the
exclusive license agreement, Navidea transferred responsibility for
regulatory maintenance of the Tc 99m tilmanocept Marketing
Authorization to SpePharm in January 2017. SpePharm will also be
responsible for production, distribution, pricing, reimbursement,
sales, marketing, medical affairs, and regulatory activities. In
connection with entering into the agreement, Navidea received an
upfront payment of $2 million, and is entitled to milestones
totaling up to an additional $5 million and royalties on European
net sales. The initial territory covered by the agreement includes
all 28 member states of the European Economic Community with the
option to expand into additional geographical areas. SpePharm is
currently performing the customary pre-launch market access
activities to support commercial launch in the EU during the first
half of 2017.
In
August 2014, Navidea entered into an exclusive agreement with
Sinotau, a pharmaceutical organization with a broad China focus in
oncology and other therapeutic areas, who will develop and
commercialize Tc 99m tilmanocept in China. In exchange, Navidea
will earn revenue based on unit sales to Sinotau, a royalty based
on Sinotau’s sales of Tc 99m tilmanocept and up to $2.5
million in milestone payments from Sinotau, including a $300,000
non-refundable upfront payment. As part of the agreement, Sinotau
is responsible for costs and conduct of clinical studies and
regulatory applications to obtain Tc 99m tilmanocept approval by
the China Food and Drug Administration (CFDA). Upon approval,
Sinotau will be responsible for all Tc 99m tilmanocept sales,
marketing, market access and medical affairs activities in China
and excluding Hong Kong, Macau and Taiwan. Navidea and Sinotau will
jointly support certain pre-market planning activities with a joint
commitment on clinical and market development programs pending CFDA
approval. In addition to the $300,000 upfront payment, Navidea is
eligible for $700,000 in milestone payments up to and through
product approval, and an additional $1.5 million in sales
milestones. On February 1, 2017, Navidea filed a suit against
Sinotau, and on February 2, 2017, Sinotau filed a suit against the
Company and Cardinal Health 414. See Item 3 – Legal
Proceedings.
Tc 99m
tilmanocept is in various stages of approval in other global
markets and sales to this point in these markets, if any, have not
been material. However, we believe that with international
partnerships to complement our position in the EU, we will help
establish Tc 99m tilmanocept as a global leader in lymphatic
mapping, as we are aware of no other company which has a global
geographic range. We cannot assure you that Tc 99m tilmanocept will
achieve regulatory approval in any market outside the U.S. or EU,
or if approved, that it will achieve market acceptance in any
market. We also 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. See Risk
Factors.
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 may 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.
Tc 99m Tilmanocept Manufacturing
In
November 2009, we completed a Manufacture and Supply Agreement with
Reliable Biopharmaceutical Corporation (“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 OSO BioPharmaceuticals Manufacturing, LLC
(“OsoBio”) for contract pharmaceutical development,
manufacturing, packaging and analytical services for Tc 99m
tilmanocept. Also in September 2013, we completed a Service and
Supply Master Agreement with Gipharma S.r.l.
(“Gipharma”) for process development, manufacturing and
packaging of reduced-mass vials for sale in the EU. Upon closing of
the Asset Sale to Cardinal Health 414, our contracts with Reliable
and OsoBio were transferred to Cardinal Health 414. Similarly,
following the transfer of the Tc 99m tilmanocept Marketing
Authorization to SpePharm, our contract with Gipharma will be
transferred to SpePharm. We cannot assure you that we will be
successful in completing future agreements for the supply of Tc 99m
tilmanocept 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 manufactured NAV4694 clinical trial material at
select U.S. radiopharmacies through the expiration of the agreement
in August 2016. Navidea has continued to incur costs related to
maintaining our NAV4694 manufacturing sites while seeking to
partner or out-license the product.
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.
We
expect to encounter significant competition for our pharmaceutical
products. 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 expect that competition
among products cleared for marketing will be based on, among other
things, product efficacy, safety, reliability, availability, price,
and patent position. See Risk Factors.
Tc 99m Tilmanocept Competition
Surgeons who
practice the lymphatic mapping procedure for which Tc 99m
tilmanocept is intended currently use other radiopharmaceuticals
such as a sulfur colloid or other colloidal compounds. In addition,
some surgeons still use vital blue dyes to assist in the visual
identification of the draining lymphatic tissue around a primary
tumor. In the EU and certain Pacific Rim markets, there are
colloidal-based compounds with various levels of approved labeling
for use in lymphatic mapping, although a number of countries still
employ products used “off-label.”
NAV4694 Competition
Several potential
competitive [
18
F] products have
been approved for use as biomarkers to aid in detection of AD.
Developed through Eli Lilly’s wholly-owned Avid
Radiopharmaceuticals, florbetapir, now known as Amyvid, received
FDA approval to market in April 2012. Florbetapir also received
marketing authorization in the EU in January 2013. In addition to
fluorbetapir, there are two other beta-amyloid imaging agents
available: florbetaben from Piramal Enterprises, Imaging Division,
and flutemetamol from GE Healthcare. In October 2013, the FDA
approved flutemetamol, under the name Vizamyl
TM
, for adults being
evaluated for AD and dementia with PET brain imaging. Florbetaben,
now called Neuraceq
TM
, received EMA
approval for use in PET imaging of the brain to estimate
beta-amyloid neuritic plaque density in adult patients with
cognitive impairment who are being evaluated for AD and other
causes of cognitive decline from the EMA in February 2014 and from
the FDA in March 2014.
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 the 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.
See Risk Factors.
Tilmanocept Intellectual Property
Tilmanocept is
under license from UCSD for the exclusive world-wide rights in all
diagnostic and therapeutic uses of tilmanocept, except for the use
of Tc 99m tilmanocept in Canada, Mexico and the United States,
which rights have been licensed directly to Cardinal Health 414 by
UCSD in connection with the Asset Sale. Navidea maintains license
rights to Tc 99m tilmanocept in the rest of the world, as well as a
license to the intellectual property underlying the Manocept
platform.
Tc 99m
tilmanocept, including the Manocept backbone composition and
methods of use, is the subject of multiple patent families
totaling 42 patents and patent applications in the United
States and certain major foreign markets.
The
first composition of matter patent covering tilmanocept was issued
in the United States in June 2002. This patent will expire in May
2020, but a request for patent term extension has been filed to
further extend the life of this patent. The claims of the
composition of matter patent covering tilmanocept have been allowed
in the EU and issued in the majority of major-market EU countries
in 2004. These patents will expire in 2020, but a request for
supplemental protection certificates are in process to further
extend the life of these patents. The composition of matter patent
has also been issued in Japan, which will expire in
2020.
We
have filed additional patent applications in the U.S. and certain
major foreign markets related to manufacturing processes for
tilmanocept, the first of which was issued in the U.S. in 2013.
These patents and/or applications will expire between 2029 and
2032. We have filed further patent applications jointly with The
Ohio State Innovation Foundation related to CD206 expressing
cell-related disorders. These patents and/or applications will
expire between 2034 and 2035. We have filed further patent
applications related to 2-heteroaryl substituted benzofurans. These
patents and/or applications will expire between 2036 and
2037.
We
will also rely on trademark protection for products that we expect
to commercialize and have registered or are in the process of
registering the mark Manocept™ in the U.S. and other
markets.
NAV4694 Intellectual Property
NAV4694 is being
developed under an exclusive worldwide license from AstraZeneca.
The NAV4694 license grants Navidea commercialization rights to the
fluorine-18 labeled biomarker for use as an aid in the diagnosis of
AD. NAV4694 is the subject of 3 issued patents in the U.S. and 29
patents issued or pending in 13 foreign jurisdictions covering the
[
18
F]NAV4694 drug
substance and the NAV4694 precursor. These patents and/or
applications will expire between 2028 and 2029.
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 U.S. 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:
●
preclinical
laboratory tests, animal studies and formulation
studies;
●
submission to the
FDA of an IND application for human clinical testing, which must
become effective before human clinical trials may
begin;
●
adequate and
well-controlled human clinical trials to establish the safety and
efficacy of the investigational product for each
indication;
●
submission to the
FDA of a NDA;
●
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
●
FDA review and
approval of the NDA.
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 Special Protocol Assessment (“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
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. We cannot assure you that any of our drug
candidates will qualify for any of these programs, or that, if a
drug candidate 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.
U.S. 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.
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. A mutual recognition procedure is available
at the request of the applicant for all medicinal products that are
not subject to the centralized procedure.
The EC
granted marketing authorization for Tc 99m tilmanocept in the EU in
November 2014, and a reduced-mass vial developed for the EU market
was approved in September 2016.
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 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” and the Navidea logo 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-39 of this Form
10-K.
Research and Development
We
spent approximately $8.9 million, $12.8 million and $16.8 million
on research and development activities in the years ended December
31, 2016, 2015 and 2014, respectively.
Employees
As of
March 10, 2017, we had 22 full-time and 6 part-time
employees.
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 Form
10-K, 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 Cardinal Health 414 or SpePharm AG do not achieve commercial
success with Tc 99m tilmanocept, we may be unable to generate
significant revenue or become profitable.
In
March 2017, Navidea completed the Asset Sale to Cardinal Health
414, as discussed previously under “Development of the
Business.” Pursuant to the Purchase Agreement, we sold all of
our assets used, held for use, or intended to be used in operating
the Business, including Lymphoseek, in Canada, Mexico and the
United States. Upon closing of the Asset Sale, the Supply and
Distribution Agreement between Cardinal Health 414 and the Company
was terminated. Under the terms of the Purchase Agreement, Navidea
is entitled to receive periodic earnout payments (to consist of
contingent payments and milestone payments which, if paid, will be
treated as additional purchase price) from Cardinal Health 414
based on net sales derived from Lymphoseek, subject, in each case,
to Cardinal Health 414’s right to off-set.
We
announced an exclusive EU distribution partnership for Tc 99m
tilmanocept with SpePharm AG, a subsidiary of Norgine B.V., in
March 2015, and SpePharm expects to commence marketing of Tc 99m
tilmanocept in the EU during the first half of 2017. Navidea is
entitled to receive royalty and milestone payments from SpePharm
based on net sales derived from Tc 99m tilmanocept.
We
cannot assure you that Cardinal Health 414 or SpePharm will achieve
commercial success in North America or in the EU, or any other
global market, that Cardinal Health 414 or SpePharm will realize
sales at levels necessary for us to achieve sales-based earnout,
royalty or milestone payments, or that such payments will lead to
us becoming profitable.
If we do not successfully develop any additional product candidates
into marketable products, we may be unable to generate significant
revenue or become profitable.
Additional
diagnostic and therapeutic applications of the Manocept platform,
including diagnosis of other solid tumor cancers, rheumatoid
arthritis and cardiovascular disease, are in various stages of
pre-clinical and clinical development. Regulatory approval of
additional Manocept-based product candidates may not be successful,
or if successful, may not result in increased sales. Additional
clinical testing for 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.
We are
continuing to seek to partner or sub-license our NAV4694 candidate,
which is designed to enable PET imaging of beta-amyloid deposits in
the brain, believed to correlate with the presence of AD. While
discussions with a potential licensee have progressed, our pending
litigation with Sinotau has prevented completion of a licensing
transaction. See Item 3 – Legal Proceedings. Pending
resolution of the Sinotau litigation, we continue to incur costs to
maintain our ability to support future clinical evaluation of this
product candidate to preserve it for eventual
sub-licensing.
Many
companies in the pharmaceutical industry suffer significant
setbacks in advanced clinical trials even after reporting promising
results in earlier trials. Even if our Manocept trials are viewed
as successful, we may not get regulatory approval for marketing of
any Manocept product candidate. Our Manocept product candidates
will be successful only if:
●
they are developed
to a stage that will enable us to commercialize them or sell
related marketing rights to pharmaceutical companies;
●
we are able to
commercialize them in clinical development or sell the marketing
rights to third parties; and
●
upon being
developed, they are approved by the regulatory
authorities.
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 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.
Clinical trials for our 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.
We
expect to sponsor efforts to explore the Manocept platform, whether
in potential diagnostic or therapeutic uses. 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, the
EMA or other regulatory authorities might delay or halt any
clinical trials for our product candidates for various reasons,
including:
●
ineffectiveness of
the product candidate;
●
discovery of
unacceptable toxicities or side effects;
●
development of
disease resistance or other physiological factors;
●
delays in patient
enrollment; or
●
other reasons that
are internal to the businesses of our potential collaborative
partners, which reasons they may not share with us.
While
we have achieved some level of success in our clinical trials for
Tc 99m tilmanocept as indicated by the FDA and EMA approvals, the
results of pending and future trials for 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.
Even if our drug candidates are successful in clinical trials, we
may not be able to successfully commercialize them.
We
have dedicated and will continue to dedicate substantially all of
our resources to the research and development (?R&D?) of our
Manocept technology and related compounds. There are many
difficulties and uncertainties inherent in pharmaceutical R&D
and the introduction of new products. A high rate of failure is
inherent in new drug discovery and development. The process to
bring a drug from the discovery phase to regulatory approval can
take 12 to 15 years or longer and cost more than $1 billion.
Failure can occur at any point in the process, including late in
the process after substantial investment. As a result, most
research programs will not generate financial returns. New product
candidates that appear promising in development may fail to reach
the market or may have only limited commercial success. Delays and
uncertainties in the regulatory approval processes in the US and in
other countries can result in delays in product launches and lost
market opportunities. Consequently, it is very difficult to predict
which products will ultimately be approved. Due to the risks and
uncertainties involved in the R&D process, we cannot reliably
estimate the nature, timing, completion dates, and costs of the
efforts necessary to complete the development of our R&D
projects, nor can we reliably estimate the future potential revenue
that will be generated from a successful R&D
project.
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:
●
be found
ineffective or cause harmful side effects during preclinical
testing or clinical trials;
●
fail to receive
necessary regulatory approvals;
●
be difficult to
manufacture on a scale necessary for
commercialization;
●
be uneconomical to
produce;
●
fail to achieve
market acceptance; or
●
be precluded from
commercialization by proprietary rights of third
parties.
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 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
have entered 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:
●
collaborative
arrangements may not be on terms favorable to us;
●
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;
●
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;
●
partners may
choose to develop, independently or with other companies,
alternative products or treatments. including products or
treatments which compete with ours;
●
agreements with
partners may expire or be terminated without renewal, or partners
may breach collaboration agreements with us;
●
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
●
the terms and
conditions of the relevant agreements may no longer be
suitable.
The
occurrence of any of these events could adversely affect the
development or commercialization of our products.
Our pharmaceutical 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:
●
restrictions on
the products, manufacturers or manufacturing
processes;
●
civil or criminal
penalties;
●
product seizures
or detentions;
●
voluntary or
mandatory product recalls and publicity requirements;
●
suspension or
withdrawal of regulatory approvals;
●
total or partial
suspension of production; and
●
refusal to approve
pending applications for marketing approval of new drugs or
supplements to approved applications.
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”).
Generally, in Europe and other countries outside the U.S., the
government-sponsored healthcare system is the primary payer of
patients’ healthcare costs. 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.
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 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. 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, clinical trials for our
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.
Our
product supply and related patient access could be negatively
impacted by, among other things: (i) product seizures or recalls or
forced closings of manufacturing plants; (ii) disruption in supply
chain continuity including from natural or man-made disasters at a
critical supplier, as well as our failure or the failure of any of
our suppliers to comply with cGMPs and other applicable regulations
or quality assurance guidelines that could lead to manufacturing
shutdowns, product shortages or delays in product manufacturing;
(iii) manufacturing, quality assurance/quality control, supply
problems or governmental approval delays; (iv) the failure of a
sole source or single source supplier to provide us with the
necessary raw materials, supplies or finished goods within a
reasonable timeframe; (v) the failure of a third-party manufacturer
to supply us with bulk active or finished product on time; and (vi)
other manufacturing or distribution issues, including limits to
manufacturing capacity due to regulatory requirements, and changes
in the types of products produced, physical limitations or other
business interruptions.
We may lose out to larger or better-established
competitors.
The
biotech and pharmaceutical industries are intensely competitive.
Many of our competitors have significantly greater financial,
technical, manufacturing, marketing and distribution resources as
well as greater experience in the 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.
To
remain competitive, we must continue to launch new products and
technologies. To accomplish this, we commit substantial efforts,
funds, and other resources to research and development. A high rate
of failure is inherent in the research and development of new
products and technologies. We must make ongoing substantial
expenditures without any assurance that our efforts will be
commercially successful. Failure can occur at any point in the
process, including after significant funds have been invested.
Promising new product candidates may fail to reach the market or
may only have limited commercial success because of efficacy or
safety concerns, failure to achieve positive clinical outcomes,
inability to obtain necessary regulatory approvals, limited scope
of approved uses, excessive costs to manufacture, the failure to
establish or maintain intellectual property rights, or infringement
of the intellectual property rights of others. Even if we
successfully develop new products or enhancements or new
generations of our existing products, they may be quickly rendered
obsolete by changing customer preferences, changing industry
standards, or competitors' innovations. Innovations may not be
accepted quickly in the marketplace because of, among other things,
entrenched patterns of clinical practice or uncertainty over
third-party reimbursement. We cannot state with certainty when or
whether any of our products under development will be launched,
whether we will be able to develop, license, or otherwise acquire
compounds or products, or whether any products will be commercially
successful. Failure to launch successful new products or new
indications for existing products may cause our products to become
obsolete, causing our revenues and operating results to
suffer.
Physicians may use
our competitors’ products and/or our products may not be
competitive with other technologies. Tc 99m tilmanocept is expected
to continue to compete against sulfur colloid in the U.S. and other
colloidal agents in the EU and other global markets. If our
competitors are successful in establishing and maintaining market
share for their products, our future earnout and royalty receipts
may not occur at the rate we anticipate. In addition, our 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.
Several
pharmaceutical companies currently have product candidates in
development that they expect to have a significant impact on the
diagnosis and treatment of AD in coming years. The prospects for
these product candidates could have a significant impact, either
positive or negative, on our ability to sub-license our NAV4694
product candidate.
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 any commercial
products that we develop, 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 our Manocept platform 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
our Manocept platform, upon which all of our current product
candidates are based. 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 three to
twenty 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.
We and our collaborators 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 Manocept and NAV4694, we have 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 Manocept
licenses, and have had limited control over the filing and
prosecution of these patents and patent applications after the
effective date of such licenses. 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 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 licensors 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.
We may be unable to complete partnering or divestiture activities
related to NAV4694 at a reasonable price, on a timely basis, or at
all.
We
have announced that we are seeking to partner or sub-license our
NAV4694 candidate, which is designed to enable PET imaging of
beta-amyloid deposits in the brain, believed to correlate with the
presence of AD. While discussions with a potential licensee have
progressed, our pending litigation with Sinotau has prevented
completion of a licensing transaction. See Item 3 – Legal
Proceedings. Pending resolution of the Sinotau litigation, we
continue to incur costs to maintain our ability to support future
clinical evaluation of this product candidate to preserve it for
eventual sub-licensing.
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 do
not currently carry cyber risk insurance.
We are subject to domestic and foreign anticorruption laws, the
violation of which could expose us to liability, and cause our
business and reputation to suffer.
We are
subject to the U.S. Foreign Corrupt Practices Act and similar
anti-corruption laws in other jurisdictions. These laws generally
prohibit companies and their intermediaries from engaging in
bribery or making other prohibited payments to government officials
for the purpose of obtaining or retaining business, and some have
record keeping requirements. The failure to comply with these laws
could result in substantial criminal and/or monetary penalties. We
operate in jurisdictions that have experienced corruption, bribery,
pay-offs and other similar practices from time-to-time and, in
certain circumstances, such practices may be local custom. We have
implemented internal control policies and procedures that mandate
compliance with these anti-corruption laws. However, we cannot be
certain that these policies and procedures will protect us against
liability. There can be no assurance that our employees or other
agents will not engage in such conduct for which we might be held
responsible. If our employees or agents are found to have engaged
in such practices, we could suffer severe criminal or civil
penalties and other consequences that could have a material adverse
effect on our business, financial position, results of operations
and/or cash flow, and the market value of our common stock could
decline.
Our international operations expose us to economic, legal,
regulatory and currency risks.
Our
operations extend to countries outside the United States, and are
subject to the risks inherent in conducting business globally and
under the laws, regulations, and customs of various jurisdictions.
These risks include, but are not limited to: (i) compliance with a
variety of national and local laws of countries in which we do
business, including but not limited to restrictions on the import
and export of certain intermediates, drugs, and technologies, (ii)
compliance with a variety of US laws including, but not limited to,
the Iran Threat Reduction and Syria Human Rights Act of 2012; and
rules relating to the use of certain “conflict
minerals” under Section 1502 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, (iii) changes in laws,
regulations, and practices affecting the pharmaceutical industry
and the health care system, including but not limited to imports,
exports, manufacturing, quality, cost, pricing, reimbursement,
approval, inspection, and delivery of health care, (iv)
fluctuations in exchange rates for transactions conducted in
currencies other than the functional currency, (v) adverse changes
in the economies in which we or our partners and suppliers operate
as a result of a slowdown in overall growth, a change in government
or economic policies, or financial, political, or social change or
instability in such countries that affects the markets in which we
operate, particularly emerging markets, (vi) differing local
product preferences and product requirements, (vii) changes in
employment laws, wage increases, or rising inflation in the
countries in which we or our partners and suppliers operate, (viii)
supply disruptions, and increases in energy and transportation
costs, (ix) natural disasters, including droughts, floods, and
earthquakes in the countries in which we operate, (x) local
disturbances, terrorist attacks, riots, social disruption, or
regional hostilities in the countries in which we or our partners
and suppliers operate and (xi) government uncertainty, including as
a result of new or changed laws and regulations. We also face the
risk that some of our competitors have more experience with
operations in such countries or with international operations
generally and may be able to manage unexpected crises more easily.
Furthermore, whether due to language, cultural or other
differences, public and other statements that we make may be
misinterpreted, misconstrued, or taken out of context in different
jurisdictions. Moreover, the internal political stability of, or
the relationship between, any country or countries where we conduct
business operations may deteriorate. Changes in a country’s
political stability or the state of relations between any such
countries are difficult to predict and could adversely affect our
operations, profitability and/or adversely impact our ability to do
business there. The occurrence of any of the above risks could have
a material adverse effect on our business, financial position,
results of operations and/or cash flow, and could cause the market
value of our common stock to decline.
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 potentially to acquire new product candidates. In
order to support the initiatives envisioned in our business plan,
we will likely 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:
●
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;
●
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;
●
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;
●
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;
●
the timing and
terms of any collaborative, licensing and other strategic
arrangements that we may establish;
●
the extent to
which we may need to expand our workforce to pursue our business
plan, and the costs involved in recruiting, training, compensating
and incentivizing new employees;
●
the effect of
competing technological and market developments; and
●
the cost involved
in establishing, enforcing or defending patent claims and other
intellectual property rights.
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 warrants or other securities convertible into or
exchangeable for our common stock, or securities we may issue in
the future, 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
could decline as a result of sales of a large number of shares of
our common stock or other securities in the market, the triggering
of any such adjustment provisions or the perception that such sales
could occur in the future.
The final outcome of the Texas CRG litigation may require us to pay
up to an additional $7 million, which would adversely affect our
financial position.
During
the course of 2016, CRG alleged multiple claims of default on the
CRG Loan Agreement, and filed suit in the District Court of Harris
County, Texas. On June 22, 2016, CRG exercised control over one of
the Company’s primary bank accounts and took possession of
$4.1 million that was on deposit, applying $3.9 million of the cash
to various fees, including collection fees, a prepayment premium
and an end-of-term fee. The remaining $189,000 was applied to the
principal balance of the debt. Multiple motions, actions and
hearings followed over the remainder of 2016 and into
2017.
On
March 3, 2017, the Company entered into a Global Settlement
Agreement with MT, CRG, and Cardinal Health 414 to effectuate the
terms of a settlement previously entered into by the parties on
February 22, 2017. In accordance with the Global Settlement
Agreement, on March 3, 2017, the Company repaid $59 million (the
“Deposit Amount”) of its alleged indebtedness and other
obligations outstanding under the CRG Term Loan. Concurrently with
payment of the Deposit Amount, CRG released all liens and security
interests granted under the CRG Loan Documents and the CRG Loan
Documents were terminated and are of no further force or effect;
provided, however, that, notwithstanding the foregoing, the Company
and CRG agreed to continue with their proceeding pending in The
District Court of Harris County, Texas to fully and finally
determine the actual amount owed by the Company to CRG under the
CRG Loan Documents (the “Final Payoff Amount”). The
Company and CRG further agreed that the Final Payoff Amount would
be no less than $47 million (the “Low Payoff Amount”)
and no more than $66 million (the “High Payoff
Amount”). In addition, concurrently with the payment of the
Deposit Amount and closing of the Asset Sale, (i) Cardinal Health
414 agreed to post a $7 million letter of credit in favor of CRG
(at the Company’s cost and expense to be deducted from the
closing proceeds due to the Company, and subject to Cardinal Health
414’s indemnification rights under the Purchase Agreement) as
security for the amount by which the High Payoff Amount exceeds the
Deposit Amount in the event the Company is unable to pay all or a
portion of such amount, and (ii) CRG agreed to post a $12 million
letter of credit in favor of the Company as security for the amount
by which the Deposit Amount exceeds the Low Payoff Amount. If, on
the one hand, it is finally determined by the Texas Court that the
amount the Company owes to CRG under the Loan Documents exceeds the
Deposit Amount, the Company will pay such excess amount, plus the
costs incurred by CRG in obtaining CRG’s letter of credit, to
CRG and if, on the other hand, it is finally determined by the
Texas Court that the amount the Company owes to CRG under the Loan
Documents is less than the Deposit Amount, CRG will pay such
difference to the Company and reimburse Cardinal Health 414 for the
costs incurred by Cardinal Health 414 in obtaining its letter of
credit. Any payments owing to CRG arising from a final
determination that the Final Payoff Amount is in excess of $59
million shall first be paid by the Company without resort to the
letter of credit posted by Cardinal Health 414, and such letter of
credit shall only be a secondary resource in the event of failure
of the Company to make payment to CRG. The Company will indemnify
Cardinal Health 414 for any costs it incurs in payment to CRG under
the settlement, and the Company and Cardinal Health 414 further
agree that Cardinal Health 414 can pursue all possible remedies,
including offset against earnout payments (guaranteed or otherwise)
under the Purchase Agreement, warrant exercise, or any other
payments owed by Cardinal Health 414, or any of its affiliates, to
the Company, or any of its affiliates, if Cardinal Health 414
incurs any cost associated with payment to CRG under the
settlement. The Company and CRG also agreed that the $2 million
being held in escrow pursuant to court order in the Ohio case and
the $3 million being held in escrow pursuant to court order in the
Texas case would be released to the Company at closing of the Asset
Sale. On March 3, 2017, Cardinal Health 414 posted a $7 million
letter of credit, and on March 7, 2017, CRG posted a $12 million
letter of credit, each as required by the Global Settlement
Agreement. The Texas hearing is currently set for July 3,
2017.
If we
are ultimately required to pay an additional $7 million to CRG,
such payment would have a significant adverse effect on our
financial position and would likely force us to curtail our planned
development activities.
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 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 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 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, 2016, the Company had a
stockholders’ deficit of approximately $67.7 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
NYSE MKT Company Guide also provides that the Exchange may suspend
or remove from listing any common stock selling for a substantial
period of time at a low price per share, if the issuer shall fail
to effect a reverse split of such shares within a reasonable time
after being notified that the Exchange deems such action to be
appropriate under all the circumstances. The Company’s common
stock has recently traded for a price as low as $0.29 per share,
and if the low trading price persists, there is a risk that the
Exchange may require the Company to effect a reverse split of its
common stock in order to maintain its NYSE MKT listing, and that
the shares will be delisted if such action is not taken to the
satisfaction of the NYSE MKT.
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 $0.26 per share and as high as $1.51
per share during the 12-month period ended February 28, 2017. 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:
●
price and volume
fluctuations in the stock market at large or of companies in our
industry which do not relate to our operating
performance;
●
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;
●
FDA or
international regulatory actions and regulatory developments in the
U.S. and foreign countries;
●
financing
arrangements we may enter that require the issuance of a
significant number of shares in relation to the number of shares
currently outstanding;
●
public concern as
to the safety of products that we or others develop;
●
activities of
short sellers in our stock; and
●
fluctuations in
market demand for and supply of our products.
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, 2016 and ending on
February 28, 2017, the average daily trading volume for our common
stock on the NYSE MKT was approximately 1.2 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.
Our management and our independent auditors have identified certain
internal control deficiencies, which management and our independent
auditors believe constitute material weaknesses although they did
not result in any adjustments.
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.
It was 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.
Our
management’s evaluation of the effectiveness of the
Company’s internal controls over financial reporting as of
December 31, 2016 concluded that our controls were not effective,
due to material weaknesses resulting from:
●
The Company did not
maintain adequate controls to ensure that information pertinent to
the Company’s operations were analyzed and communicated by
and between financial and non-financial management personnel of the
Company. Management has concluded that this control deficiency
represented a material weakness.
●
The Company did not
maintain effective oversight of the Company’s external
financial reporting and internal control over financial reporting
by the Company’s audit committee. Management has concluded
that this control deficiency represented a material
weakness.
Management
believes there is a reasonable possibility that these control
deficiencies, if uncorrected, could result in material
misstatements in the annual or interim consolidated financial
statements that would not be prevented or detected in a timely
manner. Accordingly, we have determined that these control
deficiencies constitute material weaknesses. However,
notwithstanding these material weaknesses, management has concluded
that the consolidated financial statements included in this Report
fairly present, in all material respects, the Company’s
consolidated financial position, results of operations and cash
flows for the periods presented therein, in conformity with
accounting principles generally accepted in the United States of
America. Although the Company is taking steps to remediate the
material weaknesses, there can be no assurance that similar
incidents can be prevented in the future if the internal controls
are not followed by senior management and our Board of Directors.
See Controls and Procedures—Disclosure Controls and
Procedures.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We
currently lease approximately 25,000 square feet of office space at
5600 Blazer Parkway, Dublin, Ohio, as our principal offices. The
current lease term expires in October 2022, at a monthly base rent
of approximately $25,000 during 2017. We must also pay a pro-rata
portion of the operating expenses and real estate taxes of the
building. We also lease approximately 2,000 square feet of office
space at 560 Sylvan Avenue, Englewood Cliffs, New Jersey.
The
current lease term expires in March 2018, at a monthly base rent of
approximately $3,000. We must also pay a pro-rata portion of the
electricity costs of the building. The New Jersey office is
primarily for the use of Dr. Goldberg and Mr. Latkin and the
planned hires in business and corporate development for both
Navidea and Macrophage Therapeutics. We believe that this location
will improve our access to qualified candidates, as it is located
in close proximity to the headquarters of many large pharmaceutical
companies which are located in New York City and New Jersey. It
also places our senior management closer to the institutional
investors who are the thought leaders in the life science investing
marketplace.
Item 3. Legal Proceedings
Section 16(b) Action
On
August 12, 2015, a Navidea shareholder filed an action in the
United States District Court for the Southern District of New York
against two funds managed by Platinum Management (NY) LLC
(“Platinum”) alleging violations of Section 16(b) of
the Securities Exchange Act of 1934, as amended, in connection with
purchases and sales of the Company’s common stock by the
Platinum funds, and seeking disgorgement of the short-swing profits
realized by the funds (the “Litigation”). The Company
was named as a nominal defendant in the Litigation.
The
Litigation was resolved on the terms set forth in a settlement
agreement (the “Settlement Agreement”). The Settlement
Agreement was subject to a pending joint motion for approval. The
Court approved the settlement on Friday, July 1, 2016. In
accordance with the terms of the Settlement Agreement, the interest
rate on the Platinum credit facility was reduced by 6% to 8.125%
effective July 1, 2016. In addition, Platinum assumed the
obligation to pay the legal costs associated with the
Litigation.
Sinotau Litigation – NAV4694
On
August 31, 2015, Sinotau filed a suit for damages, specific
performance, and injunctive relief against the Company in the
United States District Court for the District of Massachusetts
alleging breach of a letter of intent for licensing to Sinotau of
the Company’s NAV4694 product candidate and technology. The
Company believed the suit was without merit and filed a motion to
dismiss the action. In September 2016, the Court denied the motion
to dismiss. The Company filed its answer to the complaint and the
case is currently in the discovery phase. At this time it is not
possible to determine with any degree of certainty the ultimate
outcome of this legal proceeding, including making a determination
of liability. The Company intends to vigorously defend the
case.
In
July 2016, the Company executed a term sheet with Cerveau
Technologies, Inc. (“Cerveau”) as a designated party
for the rights resulting from the relationship between Navidea and
Sinotau. The term sheet outlined the terms of a potential agreement
between the parties to sublicense NAV4694 to Cerveau in return for
license fees, milestone payments and royalties. With the exception
of certain provisions, the term sheet was non-binding and was
subject to the agreement of AstraZeneca, from whom the Company has
licensed the NAV4694 technology. The Company had 60 days to execute
a definitive agreement, however no definitive agreement was
reached. Discussions related to the potential licensure or
divestiture of NAV4694 are ongoing.
CRG Litigation
During
the course of 2016, CRG alleged multiple claims of default on the
CRG Loan Agreement, and filed suit in the District Court of Harris
County, Texas. On June 22, 2016, CRG exercised control over one of
the Company’s primary bank accounts and took possession of
$4.1 million that was on deposit, applying $3.9 million of the cash
to various fees, including collection fees, a prepayment premium
and an end-of-term fee. The remaining $189,000 was applied to the
principal balance of the debt. Multiple motions, actions and
hearings followed over the remainder of 2016 and into
2017.
On
March 3, 2017, the Company entered into a Global Settlement
Agreement with MT, CRG, and Cardinal Health 414 to effectuate the
terms of a settlement previously entered into by the parties on
February 22, 2017. In accordance with the Global Settlement
Agreement, on March 3, 2017, the Company repaid $59 million (the
“Deposit Amount”) of its alleged indebtedness and other
obligations outstanding under the CRG Term Loan. Concurrently with
payment of the Deposit Amount, CRG released all liens and security
interests granted under the CRG Loan Documents and the CRG Loan
Documents were terminated and are of no further force or effect;
provided, however, that, notwithstanding the foregoing, the Company
and CRG agreed to continue with their proceeding pending in The
District Court of Harris County, Texas to fully and finally
determine the actual amount owed by the Company to CRG under the
CRG Loan Documents (the “Final Payoff Amount”). The
Company and CRG further agreed that the Final Payoff Amount would
be no less than $47 million (the “Low Payoff Amount”)
and no more than $66 million (the “High Payoff
Amount”). In addition, concurrently with the payment of the
Deposit Amount and closing of the Asset Sale, (i) Cardinal Health
414 agreed to post a $7 million letter of credit in favor of CRG
(at the Company’s cost and expense to be deducted from the
closing proceeds due to the Company, and subject to Cardinal Health
414’s indemnification rights under the Purchase Agreement) as
security for the amount by which the High Payoff Amount exceeds the
Deposit Amount in the event the Company is unable to pay all or a
portion of such amount, and (ii) CRG agreed to post a $12 million
letter of credit in favor of the Company as security for the amount
by which the Deposit Amount exceeds the Low Payoff Amount. If, on
the one hand, it is finally determined by the Texas Court that the
amount the Company owes to CRG under the Loan Documents exceeds the
Deposit Amount, the Company will pay such excess amount, plus the
costs incurred by CRG in obtaining CRG’s letter of credit, to
CRG and if, on the other hand, it is finally determined by the
Texas Court that the amount the Company owes to CRG under the Loan
Documents is less than the Deposit Amount, CRG will pay such
difference to the Company and reimburse Cardinal Health 414 for the
costs incurred by Cardinal Health 414 in obtaining its letter of
credit. Any payments owing to CRG arising from a final
determination that the Final Payoff Amount is in excess of $59
million shall first be paid by the Company without resort to the
letter of credit posted by Cardinal Health 414, and such letter of
credit shall only be a secondary resource in the event of failure
of the Company to make payment to CRG. The Company will indemnify
Cardinal Health 414 for any costs it incurs in payment to CRG under
the settlement, and the Company and Cardinal Health 414 further
agree that Cardinal Health 414 can pursue all possible remedies,
including offset against earnout payments (guaranteed or otherwise)
under the Purchase Agreement, warrant exercise, or any other
payments owed by Cardinal Health 414, or any of its affiliates, to
the Company, or any of its affiliates, if Cardinal Health 414
incurs any cost associated with payment to CRG under the
settlement. The Company and CRG also agreed that the $2 million
being held in escrow pursuant to court order in the Ohio case and
the $3 million being held in escrow pursuant to court order in the
Texas case would be released to the Company at closing of the Asset
Sale. On March 3, 2017, Cardinal Health 414 posted a $7 million
letter of credit, and on March 7, 2017, CRG posted a $12 million
letter of credit, each as required by the Global Settlement
Agreement. The Texas hearing is currently set for July 3,
2017.
Former CEO Arbitration
On May
12, 2016 the Company received a demand for arbitration through the
American Arbitration Association, Columbus, Ohio, from Ricardo J.
Gonzalez, the Company’s then Chief Executive Officer,
claiming that he was terminated without cause and, alternatively,
that he resigned in accordance with Section 4G of his Employment
Agreement pursuant to a notice received by the Company on May 9,
2016. On May 13, 2016, the Company notified Mr. Gonzalez that his
failure to undertake responsibilities assigned to him by the Board
of Directors and otherwise work after being ordered to do so on
multiple occasions constituted an effective resignation, and the
Company accepted that resignation. The Company rejected the
resignation of Mr. Gonzalez pursuant to Section 4G of his
Employment Agreement. Also, the Company notified Mr. Gonzalez that,
alternatively, his failure to return to work after the expiration
of the cure period provided in his Employment Agreement constituted
cause for his termination under his Employment Agreement. Mr.
Gonzalez is seeking severance and other amounts claimed to be owed
to him under his Employment Agreement. In addition, the Company
filed counterclaims against Mr. Gonzalez alleging malfeasance by
Mr. Gonzalez in his role as Chief Executive Officer. Mr. Gonzalez
has withdrawn his claim for additional severance pursuant to
Section 4G of his Employment Agreement, and the Company has
withdrawn its counterclaims. Mr. Gonzalez has made settlement
demands but the Company has made no counteroffers to date. A
three-person arbitration board has been chosen and a hearing is set
for April 3-7, 2017 in Columbus, Ohio.
Former Director Litigation
On
August 12, 2016, the Company commenced an action in the Superior
Court of California for damages and injunctive relief against
former Navidea Chairman and MT Board Member Anton Gueth. The
Complaint alleges, in part, that Mr. Gueth intentionally failed to
disclose his prior existing relationship with CRG, in addition to
multiple breaches including duty, loyalty and contract,
interference and misappropriation. The litigation was
dismissed without prejudice on December 19, 2016.
FTI Consulting, Inc. Litigation
On
October 11, 2016, FTI Consulting, Inc. (“FTI”)
commenced an action against the Company in the Supreme Court of the
State of New York, County of New York, seeking damages in excess of
$782,600 comprised of: (i) $730,264 for investigative and
consulting services FTI alleges to have provided to the Company
pursuant to an Engagement Agreement, and (ii) in excess of $52,337
for purported interest due on unpaid invoices, plus
attorneys’ fees, costs and expenses. On November 14,
2016, the Company filed an Answer and Counterclaim denying the
allegations of the Complaint and seeking damages on its
Counterclaim, in an amount to be determined at trial, for
intentional overbilling by FTI. On February 7, 2017, a preliminary
conference was held by the Court at which time a scheduling order
governing discovery was issued. The Court set August 31, 2017 as
the deadline for FTI to file a Note of Issue and Certificate of
Readiness for trial. Discovery will commence within the next few
weeks. The Company intends to vigorously defend the
action.
Sinotau Litigation – Tc 99m Tilmanocept
On
February 1, 2017, Navidea filed suit against Sinotau in the U.S.
District Court for the Southern District of Ohio. The Company's
complaint included claims seeking a declaration of the rights and
obligations of the parties to an agreement regarding rights for the
Tc 99m tilmanocept product in China and other claims. The complaint
sought a temporary restraining order ("TRO") and preliminary
injunction to prevent Sinotau from interfering with the
Company’s Asset Sale to Cardinal Health 414. On February 3,
2017, the Court granted the TRO and extended it until March 6,
2017. The Asset Sale closed on March 3, 2017. On March 6, the Court
dissolved the TRO as moot. The Ohio case remains open because all
issues raised in the complaint have not been resolved.
Sinotau also filed
a suit against the Company and Cardinal Health 414 in the U.S.
District Court for the District of Delaware on February 2, 2017. On
February 18, 2017, the Company and Cardinal Health 414 moved to
stay the case pending the outcome of the Ohio case. The Court
granted the motion on March 1, 2017, and the stay remains in
effect.
Item 4. Mine Safety Disclosure
Not
applicable.
Notes to the Consolidat
ed
Financial Statements
1.
Organization
and Summary of Significant Accounting Policies
a.
Organization and Nature of Operations:
Navidea Biopharmaceuticals, Inc. (“Navidea,” the
“Company,” or “we”), a Delaware Corporation
(NYSE MKT: NAVB), is a biopharmaceutical company focused on the
development and commercialization of precision immunodiagnostic
agents and immunotherapeutics. Navidea is developing multiple
precision-targeted products based on our Manocept™ platform
to help identify the sites and pathways of undetected disease and
enable better diagnostic accuracy, clinical decision-making,
targeted treatment and, ultimately, patient care.
Navidea’s
Manocept platform is predicated on the ability to specifically
target the CD206 mannose receptor expressed on activated
macrophages. The Manocept platform serves as the molecular backbone
of Lymphoseek
®
(technetium Tc
99m tilmanocept) injection, the first product developed and
commercialized by Navidea based on the platform. Building on the
success of Tc 99m tilmanocept, the flexible and versatile Manocept
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.
On
March 3, 2017, pursuant to an Asset Purchase Agreement dated
November 23, 2016, (the “Purchase Agreement”), the
Company completed its previously announced sale to Cardinal Health
414, LLC (“Cardinal Health 414”) of its assets used,
held for use, or intended to be used in operating its business of
developing, manufacturing and commercializing a product used for
lymphatic mapping, lymph node biopsy, and the diagnosis of
metastatic spread to lymph nodes for staging of cancer (the
“Business”), including the Company’s radioactive
diagnostic agent marketed under the Lymphoseek
®
trademark for
current approved indications by the U.S. Food and Drug
Administration (“FDA”) and similar indications approved
by the FDA in the future (the “Product”), in Canada,
Mexico and the United States (the “Territory”) (giving
effect to the License-Back described below and excluding certain
assets specifically retained by the Company) (the “Asset
Sale”). Such assets sold in the Asset Sale consist primarily
of, without limitation, (i) intellectual property used in or
reasonably necessary for the conduct of the Business, (ii)
inventory of, and customer, distribution, and product manufacturing
agreements related to, the Business, (iii) all product
registrations related to the Product, including the new drug
application approved by the FDA for the Product and all regulatory
submissions in the United States that have been made with respect
to the Product and all Health Canada regulatory submissions and, in
each case, all files and records related thereto, (iv) all related
clinical trials and clinical trial authorizations and all files and
records related thereto, and (v) all right, title and interest in
and to the Product, as specified in the Purchase Agreement (the
“Acquired Assets”).
Upon
closing of the Asset Sale, the Supply and Distribution Agreement,
dated November 15, 2007 (as amended, the “Supply and
Distribution Agreement”), between Cardinal Health 414 and the
Company was terminated and, as a result, the provisions thereof are
of no further force or effect (other than any indemnification,
payment, notification or data sharing obligations which survive the
termination).
The
Asset Sale to Cardinal Health 414 in March 2017 significantly
improved our financial condition and our ability to continue as a
going concern. The Company also continues working to establish new
sources of non-dilutive funding, including collaborations and grant
funding that can augment the balance sheet as the Company works to
reduce spending to levels that can be supported by our
revenues.
Other
than Tc 99m tilmanocept, which the Company has a license to
distribute outside of Canada, Mexico and the United States, none of
the Company’s drug product candidates have been approved for
sale in any market.
In
January 2015, Macrophage Therapeutics, Inc. (“MT”), a
majority-owned subsidiary, was formed specifically to explore
immuno-therapeutic applications for the Manocept
platform.
From
our inception through August 2011, we also manufactured a line of
gamma detection systems called the neoprobe® GDS system (the
“GDS Business”). We sold the GDS Business to Devicor
Medical Products, Inc. (“Devicor”) in August 2011. 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
through 2017. We recorded income of $759,000, net of taxes, in 2015
related to royalty amounts earned based on 2015 GDS Business
revenue. The royalty amount of $1.2 million was offset by $436,000
in estimated taxes which were allocated to discontinued operations,
but were fully offset by the tax benefit from our net operating
loss for 2015. We did not earn or receive any such royalty payments
prior to 2015 or in 2016.
In
December 2001, we acquired Cardiosonix Ltd.
(“Cardiosonix”), an Israeli company with a blood flow
measurement device product line in the early stages of
commercialization. In August 2009, the Company’s Board of
Directors decided to discontinue the operations and attempt to sell
Cardiosonix. However, we were obligated to continue to service and
support the Cardiosonix devices through 2013. The Company has not
received significant expressions of interest in the Cardiosonix
business and as such, we continue to wind down our activities in
this area until a final shutdown of operations is
completed.
In
July 2011, we established a European business unit, Navidea
Biopharmaceuticals Limited, to address international development
and commercialization needs for our technologies, including Tc 99m
tilmanocept. Navidea owns 100% of the outstanding shares of Navidea
Biopharmaceuticals Limited.
b.
Principles of Consolidation:
Our
consolidated financial statements include the accounts of Navidea
and our wholly-owned subsidiaries, Navidea Biopharmaceuticals
Limited and Cardiosonix Ltd, as well as those of our majority-owned
subsidiary, Macrophage Therapeutics, Inc. (“MT”). All
significant inter-company accounts were eliminated in
consolidation. Prior to termination of Navidea’s joint
venture with R-NAV, LLC (“R-NAV”), Navidea's investment
in R-NAV was being accounted for using the equity method of
accounting and was therefore not consolidated. See Note
10.
c.
Use of Estimates:
The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
d.
Financial Instruments and Fair Value:
In accordance with current accounting standards, the fair value
hierarchy prioritizes the inputs to valuation techniques used to
measure fair value, giving the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value
hierarchy are described below:
Level 1
– Unadjusted quoted
prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or
liabilities;
Level 2
– Quoted prices in
markets that are not active or financial instruments for which all
significant inputs are observable, either directly or indirectly;
and
Level 3
– Prices or valuations
that require inputs that are both significant to the fair value
measurement and unobservable.
A
financial instrument’s level within the fair value hierarchy
is based on the lowest level of any input that is significant to
the fair value measurement. In determining the appropriate levels,
we perform a detailed analysis of the assets and liabilities whose
fair value is measured on a recurring basis. At each reporting
period, all assets and liabilities for which the fair value
measurement is based on significant unobservable inputs or
instruments which trade infrequently and therefore have little or
no price transparency are classified as Level 3. See Note
3.
The
following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
(1)
Cash, restricted
cash, accounts and other receivables, accounts payable, and accrued
liabilities: The carrying amounts approximate fair value because of
the short maturity of these instruments. At December 31, 2016,
restricted cash represents the balance in an account that is under
the control of Capital Royalty Partners II L.P.
(“CRG”). See Note 12. At December 31, 2016,
approximately $894,000 of accounts payable was being disputed by
the Company related to unauthorized expenditures by a former
executive during the year ended December 31, 2016.
(2)
Notes payable: The
carrying value of our debt at December 31, 2016 and 2015 primarily
consists of the face amount of the notes less unamortized
discounts. At December 31, 2016 and 2015, certain notes payable
were also required to be recorded at fair value. The estimated fair
value of our debt was calculated using a discounted cash flow
analysis as well as a Monte Carlo simulation. These valuation
methods include Level 3 inputs such as the estimated current market
interest rate for similar instruments with similar
creditworthiness. Unrealized gains and losses on the fair value of
the debt are classified in other expenses as a change in the fair
value of financial instruments in the consolidated statements of
operations. At December 31, 2016, the fair value of our notes
payable is approximately $61.6 million, equal to the carrying value
of $61.6 million. At December 31, 2015, the fair value of our notes
payable was approximately $64.0 million, compared to the carrying
value of $61.1 million. See Notes 3 and 12.
(3)
Derivative
liabilities: Derivative liabilities are related to certain
outstanding warrants which are recorded at fair value. Derivative
liabilities totaling $63,000 as of December 31, 2016 and 2015 were
included in other liabilities on the consolidated balance sheets.
The assumptions used to calculate fair value as of December 31,
2016 and 2015 included volatility, a risk-free rate and expected
dividends. In addition, we considered non-performance risk and
determined that such risk is minimal. Unrealized gains and losses
on the derivatives are classified in other expenses as a change in
the fair value of financial instruments in the statements of
operations. See Note 3.
e.
Stock-Based Compensation:
At December
31, 2016, we have instruments outstanding under two stock-based
compensation plans; the Fourth Amended and Restated 2002 Stock
Incentive Plan (the “2002 Plan”) and the 2014 Stock
Incentive Plan (the “2014 Plan”). Currently, under the
2014 Plan, we may grant incentive stock options, nonqualified stock
options, and restricted stock awards to full-time employees and
directors, and nonqualified stock options and restricted stock
awards may be granted to our consultants and agents. Total shares
authorized under each plan are 12 million shares and 5 million
shares, respectively. Although instruments are still outstanding
under the 2002 Plan, the plan has expired and no new grants may be
made from it. Under both plans, the exercise price of each option
is greater than or equal to the closing market price of our common
stock on the date of the grant.
Stock
options granted under the 2002 Plan and the 2014 Plan generally
vest on an annual basis over one to four years. Outstanding stock
options under the plans, if not exercised, generally expire ten
years from their date of grant or up to 90 days following the date
of an optionee’s separation from employment with the Company.
We issue new shares of our common stock upon exercise of stock
options.
In
September 2016, the Board of Directors approved the 2016 Stock
Incentive Plan (the “2016 Plan”), authorizing a total
of 10 million shares. The 2016 Plan has not yet been approved by
Navidea’s stockholders. In connection with Dr.
Goldberg’s appointment as Chief Executive Officer of the
Company in September 2016, the Board of Directors awarded options
to purchase 5,000,000 shares of our common stock to Dr. Goldberg,
subject to stockholder approval of the 2016 Plan. If approved,
these stock options will vest 100% when the average closing price
of the Company’s common stock over a period of five
consecutive trading days equals or exceeds $2.50 per share, and
expire on the tenth anniversary of the date of grant.
Stock-based
payments to employees and directors, including grants of stock
options, are recognized in the consolidated statement of operations
based on their estimated fair values. The fair value of each stock
option award is estimated on the date of grant using the
Black-Scholes option pricing model. Expected volatilities are based
on the Company’s historical volatility, which management
believes represents the most accurate basis for estimating expected
future volatility under the current circumstances. Navidea uses
historical data to estimate forfeiture rates. The expected term of
stock options granted is based on the vesting period and the
contractual life of the options. The risk-free rate is based on the
U.S. Treasury yield in effect at the time of the grant. The
assumptions used to calculate the fair value of stock option awards
granted during the years ended December 31, 2016, 2015 and 2014 are
noted in the following table:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Expected volatility
|
|
59%-75%
|
|
|
61%-64%
|
|
|
61%-67%
|
|
Weighted-average volatility
|
|
|
60%
|
|
|
|
62%
|
|
|
|
65%
|
|
Expected dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expected term (in years)
|
|
5.0-6.0
|
|
|
5.1-6.3
|
|
|
5.3-7.4
|
|
Risk-free rate
|
|
1.2%-1.8%
|
|
|
1.5%-1.9%
|
|
|
1.6%-2.0%
|
|
The
portion of the fair value of stock-based awards that is ultimately
expected to vest is recognized as compensation expense over either
(1) the requisite service period or (2) the estimated performance
period. Restricted stock awards are valued based on the closing
stock price on the date of grant and amortized ratably over the
estimated life of the award. Restricted stock may vest based on the
passage of time, or upon occurrence of a specific event or
achievement of goals as defined in the grant agreements. In such
cases, we record compensation expense related to grants of
restricted stock based on management’s estimates of the
probable dates of the vesting events. Stock-based awards that do
not vest because the requisite service period is not met prior to
termination result in reversal of previously recognized
compensation cost. See Note 4.
f.
Cash and Cash Equivalents:
Cash
equivalents are highly liquid instruments such as U.S.
Treasury bills, bank certificates of deposit, corporate commercial
paper and money market funds which have maturities of less than 3
months from the date of purchase.
g.
Accounts and Other Receivables:
Accounts and other receivables are recorded net of an allowance for
doubtful accounts. We estimate an allowance for doubtful accounts
based on a review and assessment of specific accounts and other
receivables and write off accounts when deemed uncollectible.
See Note 6.
h.
Inventory:
All components of inventory
are valued at the lower of cost (first-in, first-out) or market. We
adjust inventory to market value when the net realizable value is
lower than the carrying cost of the inventory. Market value is
determined based on estimated sales activity and margins. We
estimate a reserve for obsolete inventory based on
management’s judgment of probable future commercial use,
which is based on an analysis of current inventory levels,
estimated future sales and production rates, and estimated shelf
lives. See Note 7.
i.
Property and Equipment:
Property and
equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is generally computed using the
straight-line method over the estimated useful lives of the
depreciable assets. Depreciation and amortization related to
equipment under capital leases and leasehold improvements is
recognized over the shorter of the estimated useful life of the
leased asset or the term of the lease. Maintenance and repairs are
charged to expense as incurred, while renewals and improvements are
capitalized. See Note 8.
j.
Intangible Assets:
Intangible assets
consist primarily of patents and trademarks. Intangible assets are
stated at cost, less accumulated amortization. Patent costs are
amortized using the straight-line method over the estimated useful
lives of the patents of approximately 5 to 15 years. Patent
application costs are deferred pending the outcome of patent
applications. Costs associated with unsuccessful patent
applications and abandoned intellectual property are expensed when
determined to have no recoverable value. We evaluate the potential
alternative uses of all intangible assets, as well as the
recoverability of the carrying values of intangible assets, on a
recurring basis.
k.
Impairment or Disposal of Long-Lived
Assets:
Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. No impairment
was recognized during the years ended December 31, 2016, 2015 or
2014. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
l.
Leases:
Leases are categorized as
either operating or capital leases at inception. Operating lease
costs are recognized on a straight-line basis over the term of the
lease. An asset and a corresponding liability for the capital lease
obligation are established for the cost of capital leases. The
capital lease obligation is amortized over the life of the lease.
For build-to-suit leases, the Company establishes an asset and
liability for the estimated construction costs incurred to the
extent that it is involved in the construction of structural
improvements or takes construction risk prior to the commencement
of the lease. Upon occupancy of facilities under build-to-suit
leases, the Company assesses whether these arrangements qualify for
sales recognition under the sale-leaseback accounting guidance. If
a lease does not meet the criteria to qualify for a sale-leaseback
transaction, the established asset and liability remain on the
Company's balance sheet. See Note 20.
m.
Derivative Instruments:
Derivative
instruments embedded in contracts, to the extent not already a
free-standing contract, are bifurcated from the debt instrument and
accounted for separately. All derivatives are recorded on the
consolidated balance sheet at fair value in accordance with current
accounting guidelines for such complex financial instruments.
Derivative liabilities with expiration dates within one year are
classified as current, while those with expiration dates in more
than one year are classified as long term. We do not use derivative
instruments for hedging of market risks or for trading or
speculative purposes.
n.
Revenue Recognition:
Prior to the Asset
Sale to Cardinal Health 414 in March 2017, we generated revenue
primarily from sales of Lymphoseek. Our standard shipping terms are
free on board (FOB) shipping point, and title and risk of loss
passes to the customer upon delivery to a carrier for shipment. We
generally recognize sales revenue related to sales of our products
when the products are shipped. Our customers have no right to
return products purchased in the ordinary course of business,
however, we may allow returns in certain circumstances based on
specific agreements.
We
earned additional revenues based on a percentage of the actual net
revenues achieved by Cardinal Health 414 on sales to end customers
made during each fiscal year. The amount we charged Cardinal Health
414 related to end customer sales of Lymphoseek was subject to a
retroactive annual adjustment. To the extent that we could
reasonably estimate the end-customer prices received by Cardinal
Health 414, we recorded sales based upon these estimates at the
time of sale. If we were unable to reasonably estimate end customer
sales prices related to products sold, we recorded revenue related
to these product sales at the minimum (i.e., floor) price provided
for under our distribution agreement with Cardinal Health 414.
During the years ended December 31, 2016 and 2015, approximately
99% of Lymphoseek sales were made to Cardinal Health
414.
We
also earn revenues related to our licensing and distribution
agreements. The terms of these agreements may include payment to us
of non-refundable upfront license fees, funding or reimbursement of
research and development efforts, milestone payments if specified
objectives are achieved, and/or royalties on product sales. We
evaluate all deliverables within an arrangement to determine
whether or not they provide value on a stand-alone basis. We
recognize a contingent milestone payment as revenue in its entirety
upon our achievement of a substantive milestone if the
consideration earned from the achievement of the milestone (i) is
consistent with performance required to achieve the milestone or
the increase in value to the delivered item, (ii) relates solely to
past performance and (iii) is reasonable relative to all of the
other deliverables and payments within the arrangement. We received
a non-refundable upfront cash payment of $2.0 million from SpePharm
AG upon execution of the SpePharm License Agreement in March 2015.
We have determined that the license and other non-contingent
deliverables do not have stand-alone value because the license
could not be deemed to be fully delivered for its intended purpose
unless we perform our other obligations, including specified
development work. Accordingly, they do not meet the separation
criteria, resulting in these deliverables being considered a single
unit of account. As a result, revenue relating to the upfront cash
payment was deferred and was being recognized on a straight-line
basis over the estimated obligation period of two years. However,
the remaining deferred revenue of $417,000 was recognized upon
obtaining European approval of a reduced-mass vial in September
2016, several months earlier than originally
anticipated.
We
generate additional revenue from grants to support various product
development initiatives. We generally recognize grant revenue when
expenses reimbursable under the grants have been paid and payments
under the grants become contractually due. Lastly, we recognized
revenues from the provision of services to R-NAV and its
subsidiaries through the termination of the R-NAV joint venture on
May 31, 2016. See Note 10.
o.
Research and Development Costs:
Research and development (?R&D?) expenses include both internal
R&D activities and external contracted services. Internal
R&D activity expenses include salaries, benefits, and
stock-based compensation, as well as travel, supplies, and other
costs to support our R&D staff. External contracted services
include clinical trial activities, manufacturing and
control-related activities, and regulatory costs. R&D expenses
are charged to operations as incurred. We review and accrue R&D
expenses based on services performed and rely upon estimates of
those costs applicable to the stage of completion of each
project.
p.
Income Taxes:
Income taxes are
accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases, and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Due to the uncertainty
surrounding the realization of the deferred tax assets in future
tax returns, all of the deferred tax assets have been fully offset
by a valuation allowance at December 31, 2016 and
2015.
Current accounting
standards include guidance on the accounting for uncertainty in
income taxes recognized in the financial statements. Such standards
also prescribe a recognition threshold and measurement model for
the financial statement recognition of a tax position taken, or
expected to be taken, and provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company believes that the
ultimate deductibility of all tax positions is highly certain,
although there is uncertainty about the timing of such
deductibility. As a result, no liability for uncertain tax
positions was recorded as of December 31, 2016 or 2015 and we do
not expect any significant changes in the next twelve months.
Should we need to accrue interest or penalties on uncertain tax
positions, we would recognize the interest as interest expense and
the penalties as a selling, general and administrative expense. As
of December 31, 2016, tax years 2013-2016 remained subject to
examination by federal and state tax authorities. See Note
17.
q.
Change in Accounting Principle:
In
April 2015, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2015-03,
Simplifying the Presentation of Debt Issuance
Costs
. ASU 2015-03 requires that debt issuance costs related
to a recognized debt liability be presented in the balance sheet as
a direct deduction from the carrying amount of that debt liability
rather than as an asset. The recognition and measurement guidance
for debt issuance costs are not affected by ASU 2015-03. ASU
2015-03 was effective for fiscal years beginning after December 15,
2015, and interim periods within those fiscal years. Early adoption
was permitted. Entities must apply the amendments in ASU 2015-03 on
a retrospective basis. In 2015, the Company adopted ASU 2015-03. We
have reflected all remaining unamortized costs as a reduction of
the debt on the balance sheets as of December 31, 2016 and 2015,
and will continue to do so in future periods. The adoption of ASU
2015-03 had no impact on the consolidated statements of operations,
stockholders' deficit or cash flows.
In
November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred
Taxes
. ASU 2015-17 eliminates the requirement to
bifurcate deferred taxes between current and noncurrent on the
balance sheet and requires that deferred tax assets and liabilities
be classified as noncurrent on the balance sheet. ASU 2015-17
may be applied retrospectively or prospectively and early adoption
is permitted. We early-adopted ASU 2015-17 as of December 31,
2015 and the statement of financial position as of this date
reflects the revised classification of current deferred tax assets
and liabilities as noncurrent. Adoption of ASU 2015-17
resulted in a retrospective reclassification between current
deferred tax assets and noncurrent deferred tax
assets.
r.
Recent Accounting Developments:
In
August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements-Going
Concern
. ASU 2014-15 defines when and how companies are
required to disclose going concern uncertainties, which must be
evaluated each interim and annual period. ASU 2014-15 requires
management to determine whether substantial doubt exists regarding
the entity's going concern presumption. Substantial doubt about an
entity's ability to continue as a going concern exists when
relevant conditions and events, considered in the aggregate,
indicate that it is probable that the entity will be unable to meet
its obligations as they become due within one year after the date
that the financial statements are issued (or available to be
issued). If substantial doubt exists, certain disclosures are
required; the extent of those disclosures depends on an evaluation
of management's plans (if any) to mitigate the going concern
uncertainty. ASU 2014-15 is effective prospectively for annual
periods ending after December 15, 2016, and to annual and interim
periods thereafter. Early adoption was permitted. The adoption of
ASU 2014-15 did not have any effect on our consolidated financial
statements, however it does affect disclosures.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. ASU 2016-02
requires the recognition of lease assets and lease liabilities by
lessees for those leases classified as operating leases under
previous GAAP. The core principle of Topic 842 is that a lessee
should recognize the assets and liabilities that arise from leases.
A lessee should recognize in the statement of financial position a
liability to make lease payments (the lease liability) and a
right-of-use asset representing its right to use the underlying
asset for the lease term. ASU 2016-02 is effective for public
business entities for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. Early
adoption is permitted. We expect the adoption of ASU 2016-02 to
result in an increase in right-of-use assets and lease liabilities
on our consolidated statement of financial position related to our
leases that are currently classified as operating leases, primarily
for office space. Management is currently evaluating the impact
that the adoption of ASU 2016-02 will have on our consolidated
financial statements.
In
March 2016, the FASB issued ASU No. 2016-08,
Revenue from Contracts with Customers –
Principal versus Agent Considerations (Reporting Revenue Gross
versus Net)
. ASU 2016-08 does not change the core
principle of the guidance, rather it clarifies the implementation
guidance on principal versus agent considerations. ASU
2016-08 clarifies the guidance in ASU No. 2014-09,
Revenue from Contracts with Customers (Topic
606)
, which is not yet effective. The effective date
and transition requirements for ASU 2016-08 are the same as for ASU
2014-09, which was deferred by one year by ASU No. 2015-14,
Revenue from Contracts with
Customers – Deferral of the Effective Date
.
Public business entities should adopt the new revenue recognition
standard for annual reporting periods beginning after December 15,
2017, including interim periods within that year. Early
adoption is permitted only as of annual reporting periods beginning
after December 15, 2016, including interim periods within that
year. We will evaluate the potential impact that the adoption
of ASU 2014-09 may have on our consolidated financial statements
following the closing of the Asset Sale to Cardinal Health 414 in
March 2017.
In
March 2016, the FASB issued ASU No. 2016-09,
Compensation – Stock
Compensation
. ASU 2016-09 simplifies several aspects
of the accounting for share-based payment transactions, including
the income tax consequences, classification of awards as either
equity or liabilities, and classification on the statement of cash
flows. Some of the simplified areas apply only to nonpublic
entities. ASU 2016-09 is effective for public business
entities for annual periods beginning after December 15, 2016, and
interim periods within those annual periods. Early adoption
is permitted in any interim or annual period. If an entity
early adopts ASU 2016-09 in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that
includes that interim period. Methods of adoption vary
according to each of the amendment provisions. Management is
currently evaluating the impact that the adoption of ASU 2016-09
will have on our consolidated financial statements.
In
April 2016, the FASB issued ASU No. 2016-10,
Revenue from Contracts with Customers –
Identifying Performance Obligations and Licensing
. ASU
2016-10 does not change the core principle of the guidance, rather
it clarifies the identification of performance obligations and the
licensing implementation guidance, while retaining the related
principles for those areas. ASU 2016-10 clarifies the
guidance in ASU No. 2014-09,
Revenue from Contracts with Customers (Topic
606)
, which is not yet effective. The effective date
and transition requirements for ASU 2016-10 are the same as for ASU
2014-09, which was deferred by one year by ASU No. 2015-14,
Revenue from Contracts with
Customers – Deferral of the Effective Date
.
Public business entities should adopt the new revenue recognition
standard for annual reporting periods beginning after December 15,
2017, including interim periods within that year. Early
adoption is permitted only as of annual reporting periods beginning
after December 15, 2016, including interim periods within that
year. We will evaluate the potential impact that the adoption
of ASU 2016-120 may have on our consolidated financial statements
following the closing of the Asset Sale to Cardinal Health 414 in
March 2017.
In May
2016, the FASB issued ASU No. 2016-12,
Revenue from Contracts with Customers –
Narrow-Scope Improvements and Practical Expedients
. ASU
2016-12 does not change the core principle of the guidance, rather
it affects only certain narrow aspects of Topic 606, including
assessing collectability, presentation of sales taxes, noncash
consideration, and completed contracts and contract modifications
at transition. ASU 2016-12 affects the guidance in ASU No. 2014-09,
Revenue from Contracts with
Customers (Topic 606)
, which is not yet effective. The
effective date and transition requirements for ASU 2016-12 are the
same as for ASU 2014-09, which was deferred by one year by ASU No.
2015-14,
Revenue from Contracts
with Customers – Deferral of the Effective Date
.
Public business entities should adopt the new revenue recognition
standard for annual reporting periods beginning after December 15,
2017, including interim periods within that year. Early adoption is
permitted only as of annual reporting periods beginning after
December 15, 2016, including interim periods within that year. We
will evaluate the potential impact that the adoption of ASU 2016-12
may have on our consolidated financial statements following the
closing of the Asset Sale to Cardinal Health 414 in March
2017.
In
August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows –
Classification of Certain Cash Receipts and Cash Payments
.
ASU 2016-15 addresses certain specific cash flow issues with the
objective of reducing the existing diversity in practice in how
certain cash receipts and cash payments are presented and
classified in the statement cash flows. ASU 2016-15 is effective
for public business entities for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted in any interim or annual period. If an
entity early adopts ASU 2016-15 in an interim period, any
adjustments should be reflected as of the beginning of the fiscal
year that includes that interim period. ASU 2016-15 should be
applied using a retrospective transition method to each period
presented, with certain exceptions. We adopted ASU 2016-15 upon
issuance, which resulted in debt prepayment costs being classified
as financing costs rather than operating costs on the statement of
cash flows for the year ended December 31, 2016.
In
November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows – Restricted
Cash
. ASU 2016-18 requires that the statement of cash flows
explain the change during the period in the total of cash, cash
equivalents, and restricted cash or equivalents. Therefore,
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. ASU 2016-18 is effective for public
business entities for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years. Early adoption
in permitted, including adoption in an interim period. If an entity
early adopts ASU 2016-18 in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that
includes the interim period. Following the payoff of our CRG debt
and release of our restricted cash in March 2017, we do not expect
the adoption of ASU 2016-18 to have a material effect on our
consolidated financial statements.
In
December 2016, the FASB issued ASU No. 2016-20,
Technical Corrections and Improvements to
Topic 606, Revenue from Contracts with Customers
. ASU
2016-20 does not change the core principle of the guidance, rather
it affects only certain narrow aspects of Topic 606, including loan
guarantee fees, contract cost impairment testing, provisions for
losses on construction- and production-type contracts,
clarification of the scope of Topic 606, disclosure of remaining
and prior-period performance obligations, contract modification,
contract asset presentation, refund liability, advertising costs,
fixed-odds wagering contracts in the casino industry, and cost
capitalization for advisors to private and public funds. ASU
2016-20 affects the guidance in ASU No. 2014-09,
Revenue from Contracts with Customers (Topic
606)
, which is not yet effective. The effective date and
transition requirements for ASU 2016-12 are the same as for ASU
2014-09, which was deferred by one year by ASU No. 2015-14,
Revenue from Contracts with
Customers – Deferral of the Effective Date
. Public
business entities should adopt the new revenue recognition standard
for annual reporting periods beginning after December 15, 2017,
including interim periods within that year. Early adoption is
permitted only as of annual reporting periods beginning after
December 15, 2016, including interim periods within that year. We
will evaluate the potential impact that the adoption of ASU 2016-20
may have on our consolidated financial statements following the
closing of the Asset Sale to Cardinal Health 414 in March
2017.
In
January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805), Clarifying
the Definition of a Business
. ASU 2017-01 provides a screen
to determine when a set of assets and activities (collectively, a
“set”) is not a business. The screen requires that when
substantially all of the fair market value of the gross assets
acquired (or disposed of) is concentrated in a single identifiable
asset or a group of similar identifiable assets, the set is not a
business. If the screen is not met, ASU 2017-01 (1) requires that
to be considered a business, a set must include, at a minimum, an
input and a substantive process that together significantly
contribute to the ability to create output, and (2) removes the
evaluation of whether a market participant could replace missing
elements. ASU 2017-01 is effective for public business entities for
annual periods beginning after December 15, 2017, including interim
periods within those periods. ASU 2017-01 should be applied
prospectively on or after the effective date. No disclosures are
required at transition. Early adoption is permitted for certain
transactions as described in ASU 2017-01. Management is currently
evaluating the impact that the adoption of ASU 2017-01 will have on
our consolidated financial statements.
2. Liquidity
Prior
to the Asset Sale to Cardinal Health 414 in March 2017, all of our
material assets, except our intellectual property, were pledged as
collateral for our borrowings under the Term Loan Agreement (the
“CRG Loan Agreement”) with CRG. In addition to the
security interest in our assets, the CRG Loan Agreement carried
covenants that imposed significant requirements on us, including,
among others, requirements that we (1) pay all principal, interest
and other charges on the outstanding balance of the borrowed funds
when due; (2) maintain liquidity of at least $5 million during the
term of the CRG Loan Agreement; and (3) meet certain annual EBITDA
or revenue targets ($22.5 million of Tc 99m tilmanocept sales
revenue in 2016) as defined in the CRG Loan Agreement. The events
of default under the CRG Loan Agreement also included a failure of
Platinum-Montaur Life Sciences LLC, an affiliate of Platinum
Management (NY) LLC, Platinum Partners Value Arbitrage Fund L.P.,
Platinum Partners Liquid Opportunity Master Fund L.P., Platinum
Liquid Opportunity Management (NY) LLC, and Montsant Partners LLC
(collectively, “Platinum”) to perform its funding
obligations under the Platinum Loan Agreement (as defined below) at
any time as to which the Company had negative EBITDA for the most
recent fiscal quarter, as a result either of Platinum’s
repudiation of its obligations under the Platinum Loan Agreement,
or the occurrence of an insolvency event with respect to Platinum.
An event of default would have entitled CRG to accelerate the
maturity of our indebtedness, increase the interest rate from 14%
to the default rate of 18% per annum, and invoke other remedies
available to it under the loan agreement and the related security
agreement.
During
the course of 2016, CRG alleged multiple claims of default on the
CRG Loan Agreement, and filed suit in the District Court of Harris
County, Texas. On June 22, 2016, CRG exercised control over one of
the Company’s primary bank accounts and took possession of
$4.1 million that was on deposit.
On
March 3, 2017, the Company entered into a Global Settlement
Agreement with MT, CRG, and Cardinal Health 414 to effectuate the
terms of the settlement previously entered into by the parties on
February 22, 2017. In accordance with the Global Settlement
Agreement, on March 3, 2017, the Company repaid $59 million (the
“Deposit Amount”) of its alleged indebtedness and other
obligations outstanding under the CRG Term Loan. Concurrently with
payment of the Deposit Amount, CRG released all liens and security
interests granted under the CRG Loan Documents and the CRG Loan
Documents were terminated and are of no further force or effect;
provided, however, that, notwithstanding the foregoing, the Company
and CRG agreed to continue with their proceeding pending in The
District Court of Harris County, Texas to fully and finally
determine the actual amount owed by the Company to CRG under the
CRG Loan Documents (the “Final Payoff Amount”). The
Company and CRG further agreed that the Final Payoff Amount would
be no less than $47 million (the “Low Payoff Amount”)
and no more than $66 million (the “High Payoff
Amount”). In addition, concurrently with the payment of the
Deposit Amount and closing of the Asset Sale, (i) Cardinal Health
414 agreed to post a $7 million letter of credit in favor of CRG
(at the Company’s cost and expense to be deducted from the
closing proceeds due to the Company, and subject to Cardinal Health
414’s indemnification rights under the Purchase Agreement) as
security for the amount by which the High Payoff Amount exceeds the
Deposit Amount in the event the Company is unable to pay all or a
portion of such amount, and (ii) CRG agreed to post a $12 million
letter of credit in favor of the Company as security for the amount
by which the Deposit Amount exceeds the Low Payoff Amount. If, on
the one hand, it is finally determined by the Texas Court that the
amount the Company owes to CRG under the Loan Documents exceeds the
Deposit Amount, the Company will pay such excess amount, plus the
costs incurred by CRG in obtaining CRG’s letter of credit, to
CRG and if, on the other hand, it is finally determined by the
Texas Court that the amount the Company owes to CRG under the Loan
Documents is less than the Deposit Amount, CRG will pay such
difference to the Company and reimburse Cardinal Health 414 for the
costs incurred by Cardinal Health 414 in obtaining its letter of
credit. Any payments owing to CRG arising from a final
determination that the Final Payoff Amount is in excess of $59
million shall first be paid by the Company without resort to the
letter of credit posted by Cardinal Health 414, and such letter of
credit shall only be a secondary resource in the event of failure
of the Company to make payment to CRG. The Company will indemnify
Cardinal Health 414 for any costs it incurs in payment to CRG under
the settlement, and the Company and Cardinal Health 414 further
agree that Cardinal Health 414 can pursue all possible remedies,
including offset against earnout payments (guaranteed or otherwise)
under the Purchase Agreement, warrant exercise, or any other
payments owed by Cardinal Health 414, or any of its affiliates, to
the Company, or any of its affiliates, if Cardinal Health 414
incurs any cost associated with payment to CRG under the
settlement. The Company and CRG also agreed that the $2 million
being held in escrow pursuant to court order in the Ohio case and
the $3 million being held in escrow pursuant to court order in the
Texas case would be released to the Company at closing of the Asset
Sale. On March 3, 2017, Cardinal Health 414 posted a $7 million
letter of credit, and on March 7, 2017, CRG posted a $12 million
letter of credit, each as required by the Global Settlement
Agreement. See Notes 12 and 24(b).
In
addition, our Loan Agreement with Platinum (the “Platinum
Loan Agreement”) carries standard non-financial covenants
typical for commercial loan agreements, many of which are similar
to those contained in the CRG 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, subject to the
limitations of the Subordination Agreement with CRG. 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.
The
Platinum Loan Agreement includes a covenant that results in an
event of default on the Platinum Loan Agreement upon default on the
CRG Loan Agreement. As discussed above, the Company is maintaining
its position that CRG’s alleged claims do not constitute
events of default under the CRG Loan Agreement and believes it has
defenses against such claims. The Company has obtained a waiver
from Platinum confirming that we are not in default under the
Platinum Loan Agreement as a result of the alleged default on the
CRG Loan Agreement and as such, we are currently in compliance with
all covenants under the Platinum Loan Agreement.
In
connection with the closing of the Asset Sale to Cardinal Health
414, the Company repaid to Platinum Partners Credit Opportunities
Master Fund, LP (“PPCO”) an aggregate of approximately
$7.7 million in partial satisfaction of the Company’s
liabilities, obligations and indebtedness under the Platinum Loan
Agreement between the Company and Platinum-Montaur Life Sciences,
LLC (“Platinum-Montaur”), which, to the extent of such
payment, were transferred by Platinum-Montaur to PPCO. The Company
was informed by Platinum Partners Value Arbitrage Fund LP
(“PPVA”) that it was the owner of the balance of the
Platinum-Montaur loan. Such balance of approximately $1.9 million
was due upon closing of the Asset Sale but withheld by the Company
and not paid to anyone as it is subject to competing claims of
ownership by both Dr. Michael Goldberg, the Company’s
President and Chief Executive Officer, and PPVA. See Notes 12 and
24(c).
Post-closing and
after paying off our outstanding indebtedness and
transaction-related expenses, Navidea has approximately $15.6
million in cash and $3.7 million in payables, a large portion of
which is tied to the 4694 program which Navidea is seeking to
divest in the near term. Following the completion of the Asset Sale
to Cardinal Health 414 and the repayment of a majority of our
indebtedness, we believe that substantial doubt about the
Company’s financial position and ability to continue as a
going concern has been removed. Although we could still be required
to pay up to an additional $7 million to CRG depending upon the
outcome of the Texas litigation, the Company believes that the
Company will be able to continue as a going concern for at least
twelve months following the issuance of this Annual Report on Form
10-K.
3.
Fair Value
Platinum has the
right to convert into common stock all or any portion of the unpaid
principal or unpaid interest accrued on all draws under the
Platinum credit facility, under certain circumstances.
Platinum’s debt instrument, including the embedded option to
convert such debt into common stock, is recorded at fair value on
the consolidated balance sheets and deemed to be a derivative
instrument as the amount of shares to be issued upon conversion is
indeterminable. The estimated fair value of the Platinum notes
payable is $9.6 million and $11.5 million at December 31, 2016
and 2015, respectively.
MT
issued warrants to purchase MT Common Stock with certain
characteristics including a net settlement provision that require
the warrants to be accounted for as a derivative liability at fair
value on the consolidated balance sheets. The estimated fair value
of the MT warrants is $63,000 at both December 31, 2016 and 2015,
and will continue to be measured on a recurring basis. See Notes
1(m) and 9.
The
following tables set forth, by level, financial liabilities
measured at fair value on a recurring basis:
Liabilities Measured at Fair Value on a Recurring Basis as of
December 31, 2016
|
|
Quoted Prices
in Active
Markets for
Identical
Assets and
Liabilities
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs (a)(b)
|
Balance as of
December 31,
|
Description
|
|
|
|
|
Platinum notes payable
|
$
—
|
$
—
|
$
9,641,179
|
$
9,641,179
|
Liability related to MT warrants
|
—
|
—
|
63,000
|
63,000
|
Liabilities Measured at Fair Value on a Recurring Basis as of
December 31, 2015
|
|
Quoted Prices
in Active
Markets for
Identical
Assets and
Liabilities
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs (a)(b)
|
Balance as of
December 31,
|
Description
|
|
|
|
|
Platinum notes payable
|
$
—
|
$
—
|
$
11,491,253
|
$
11,491,253
|
Liability related to MT warrants
|
—
|
—
|
63,000
|
63,000
|
a.
Valuation Processes-Level 3
Measurements:
The Company utilizes third-party valuation
services that use complex models such as Monte Carlo simulation to
estimate the value of our financial liabilities. Each reporting
period, the Company provides significant unobservable inputs to the
third-party valuation experts based on current internal estimates
and forecasts. The assumptions used in the Monte Carlo simulation
as of December 31, 2016 and 2015 are summarized in the following
table:
|
|
|
Estimated volatility
|
76
%
|
58
%
|
Expected term (in years)
|
4.75
|
5.75
|
Debt rate
|
8.125
%
|
14.125
%
|
Beginning stock price
|
$
0.64
|
$
1.33
|
In
addition, as of December 31, 2016 the Company estimated a 95%
chance that the majority of the Platinum debt would be repaid in
connection with the closing of the Asset Sale to Cardinal Health
414 during the first quarter of 2017.
b.
Sensitivity
Analysis-Level 3 Measurements:
Changes in the Company’s current internal
estimates and forecasts are likely to cause material changes in the
fair value of certain liabilities. The significant unobservable
inputs used in the fair value measurement of the liabilities
include the amount and timing of future draws expected to be taken
under the Platinum Loan Agreement based on current internal
forecasts, management’s estimate of the likelihood of
actually making those draws as opposed to obtaining other sources
of financing, and management’s estimate of the likelihood of
paying off the debt prior to maturity. Significant increases
(decreases) in any of the significant unobservable inputs would
result in a higher (lower) fair value measurement. A change in one
of the inputs would not necessarily result in a directionally
similar change in the others.
There
were no Level 1 or Level 2 liabilities outstanding at any time
during the years ended December 31, 2016 and 2015. There were no
transfers in or out of our Level 1 or Level 2 liabilities during
the years ended December 31, 2016 and 2015. Changes in the
estimated fair value of our Level 3 liabilities relating to
unrealized gains (losses) are recorded as changes in fair value of
financial instruments in the consolidated statements of operations.
The change in the estimated fair value of our Level 3 liabilities
during the years ended December 31, 2016, 2015 and 2014 was a
decrease of $2.9 million and increases of $615,000 and $1.3
million, respectively.
4.
Stock-Based
Compensation
For
the years ended December 31, 2016, 2015 and 2014, our total
stock-based compensation expense, which includes reversals of
expense for certain forfeited or cancelled awards, was
approximately $278,000, $2.4 million and $1.6 million,
respectively. We have not recorded any income tax benefit related
to stock-based compensation for the years ended December 31, 2016,
2015 and 2014.
A
summary of the status of our stock options as of December 31, 2016,
and changes during the year then ended, is presented
below:
|
Year Ended December 31, 2016
|
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic
Value
|
Outstanding at beginning of year
|
5,437,064
|
$
1.96
|
|
|
Granted
|
479,457
|
1.05
|
|
|
Exercised
|
(50,000
)
|
0.27
|
|
|
Canceled and forfeited
|
(2,186,906
)
|
1.69
|
|
|
Expired
|
(299,000
)
|
2.42
|
|
|
Outstanding at end of year
|
3,380,615
|
$
2.00
|
6.5 years
|
$
16,013
|
Exercisable at end of year
|
2,548,681
|
$
2.07
|
6.1 years
|
$
16,013
|
The
weighted average grant-date fair value of options granted in 2016,
2015, and 2014 was $0.53, $1.67 and $1.56, respectively. During
2016, 50,000 stock options with an aggregate intrinsic value of
$23,000 were exercised in exchange for issuance of 50,000 shares of
our common stock, resulting in gross proceeds of $13,500. During
2015, 146,625 stock options with an aggregate intrinsic value of
$144,000 were exercised in exchange for issuance of 124,238 shares
of our common stock, resulting in gross proceeds of $66,000. During
2014, 468,000 stock options with an aggregate intrinsic value of
$582,000 were exercised in exchange for issuance of 299,360 shares
of our common stock, resulting in gross proceeds of $70,000. In
2016, 2015, and 2014, the aggregate fair value of stock options
vested during the year was $3,000, $277,000 and $4,000,
respectively.
A
summary of the status of our unvested restricted stock as of
December 31, 2016, and changes during the year then ended, is
presented below:
|
Year Ended
December 31, 2016
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
Unvested at beginning of year
|
361,000
|
$
1.69
|
Granted
|
168,000
|
1.20
|
Forfeited
|
(206,000
)
|
1.77
|
Expired
|
(50,000
)
|
1.93
|
Vested
|
(66,000
)
|
1.65
|
Unvested at end of year
|
207,000
|
$
1.17
|
During
2016, 2015 and 2014, 66,000, 333,250 and 216,250 shares,
respectively, of restricted stock vested with aggregate vesting
date fair values of $63,000, $511,000 and $387,000,
respectively.
In
February 2016, 100,000 shares of restricted stock held by an
executive officer with an aggregate fair value of $96,000 were
forfeited in connection with his separation from employment. During
2016, 66,000 shares of restricted stock held by non-employee
directors with an aggregate fair value of $63,000 vested as
scheduled according to the terms of the restricted stock
agreements. Also during 2016, 106,000 shares of restricted stock
held by non-employee directors with an aggregate fair value of
$118,000 were forfeited as a result of their departures from the
Board.
During
2015, 120,000 shares of restricted stock held by non-employee
directors with an aggregate fair value of $193,000 vested as
scheduled according to the terms of the restricted stock
agreements. Also during 2015, 193,250 shares of restricted stock
held by employees with an aggregate fair value of $286,000 vested
as scheduled according to the terms of the restricted stock
agreements. During 2015, 27,000 shares of restricted stock held by
employees with an aggregate fair value of $50,000 were forfeited in
connection with their separation from employment. In April 2015,
20,000 shares of restricted stock held by an executive officer with
an aggregate fair value of $32,000 vested upon reaching a milestone
as defined by the terms of the restricted stock agreement. In May
2015, 20,000 shares of restricted stock held by an executive
officer with an aggregate fair value of $25,000 were forfeited in
connection with his separation from employment. In July 2015,
61,000 shares of restricted stock held by non-employee directors
with an aggregate fair value of $107,000 were forfeited as a result
of their departures from the Board.
During
2014, 61,250 shares of restricted stock held by non-employee
directors with an aggregate fair value of $111,000 vested as
scheduled according to the terms of the restricted stock
agreements. Also during 2014, 40,000 shares of restricted stock
held by executive officers with an aggregate fair value of $52,000
vested upon reaching certain milestones as defined by the terms of
the restricted stock agreements. In March 2014, 100,000 shares of
restricted stock with an aggregate fair value of $205,000 vested as
scheduled according to the terms of the restricted stock agreement.
In May 2014, 175,000 shares of restricted stock held by our former
CEO with an aggregate fair value of $278,000 were forfeited in
connection with his separation from employment. In September 2014,
125,000 shares of restricted stock held by our former CEO with an
aggregate fair value of $166,000 were forfeited in connection with
termination of his Consulting Agreement. In December 2014, 15,000
shares of restricted stock held by our former CEO with an aggregate
fair value of $19,000 vested as scheduled in accordance with the
terms of the restricted stock agreement.
During
2015 and 2014, we paid minimum tax withholdings related to stock
options exercised and restricted stock vested of $24,000 and
$131,000, respectively. No such tax withholdings were paid related
to stock options exercised or restricted stock vested during 2016.
As of December 31, 2016, there was approximately $223,000 of total
unrecognized compensation cost related to stock option and
restricted stock awards, which we expect to recognize over
remaining weighted average vesting terms of 1.2 years. See Note
1(e).
5.
Earnings Per
Share
Basic
(loss) earnings per share is calculated by dividing net (loss)
income attributable to common stockholders by the weighted-average
number of common shares and, except for periods with a loss from
operations, participating securities outstanding during the period.
Diluted (loss) earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common
shares had been issued. Potential common shares that may be issued
by the Company include convertible debt, convertible preferred
stock, options and warrants.
The
following table sets forth the calculation of basic and diluted
(loss) earnings per share for the years ended December 31, 2016,
2015 and 2014:
|
|
|
|
|
|
Net loss
|
$
(14,039,031
)
|
$
(27,563,535
)
|
$
(35,726,669
)
|
Less loss attributable to noncontrolling interest
|
(648
)
|
(855
)
|
—
|
Deemed dividend on beneficial conversion feature
of MT Preferred Stock
|
—
|
(46,000
)
|
—
|
Net loss attributable to common stockholders
|
$
(14,308,383
)
|
$
(27,608,680
)
|
$
(35,726,669
)
|
|
|
|
|
Weighted average shares outstanding (basic and
diluted)
|
155,422,384
|
151,180,222
|
148,748,396
|
Loss per common share (basic and diluted)
|
$
(0.09
)
|
$
(0.18
)
|
$
(0.24
)
|
Diluted (loss)
earnings per common share for the years ended December 31, 2016,
2015 and 2014 excludes the effects of 14.1 million, 14.6 million
and 19.0 million common share equivalents, respectively, since such
inclusion would be anti-dilutive. The excluded shares consist of
common shares issuable upon exercise of outstanding stock options
and warrants, and upon the conversion of convertible debt and
convertible preferred stock.
The
Company’s unvested stock awards contain nonforfeitable rights
to dividends or dividend equivalents, whether paid or unpaid
(referred to as “participating securities”). Therefore,
the unvested stock awards are required to be included in the number
of shares outstanding for both basic and diluted earnings per share
calculations. However, due to our loss from continuing operations,
207,000, 361,000 and 498,250 shares of unvested restricted stock
for the years ended December 31, 2016, 2015 and 2014, respectively,
were excluded in determining basic and diluted loss per share
because such inclusion would be anti-dilutive.
6. Accounts and Other Receivables and
Concentrations of Credit Risk
Accounts and other
receivables at December 31, 2016 and 2015 consist of the
following:
|
|
|
Trade
|
$
1,617,414
|
$
2,498,087
|
Other
|
184,596
|
1,205,099
|
|
$
1,802,010
|
$
3,703,186
|
At
December 31, 2016 and 2015, approximately 89% and 67%,
respectively, of net accounts and other receivables were due from
Cardinal Health 414. In addition, at December 31, 2015,
approximately 32% of net accounts and other receivables were due
from Devicor related to royalty amounts earned based on 2015 GDS
Business revenue. As of December 31, 2016 and 2015, there was no
allowance for doubtful accounts. We do not believe we are exposed
to significant credit risk related to Cardinal Health 414 or
Devicor based on the overall financial strength and credit
worthiness of the entities. We believe that we have
adequately addressed other credit risks in estimating the allowance
for doubtful accounts.
7.
Inventory
The
components of net inventory at December 31, 2016 and 2015, net of
reserves of $0 and $345,000, respectively, are as
follows:
|
|
|
Materials
|
$
658,650
|
$
330,000
|
Work-in-process
|
616,522
|
392,457
|
Finished goods
|
195,654
|
275,168
|
Reserves
|
—
|
(344,719
)
|
|
$
1,470,826
|
$
652,906
|
During
2016 and 2015, we utilized $131,000 and $446,000, respectively, of
Tc 99m tilmanocept inventory for clinical study and product
development purposes. Also during 2016 and 2015, we recorded
obsolescence reserves of $43,000 and $52,000 of Tc 99m tilmanocept
inventory related to specific lots that expired or were nearing
product expiry and therefore were no longer expected to be sold.
During 2016 and 2015, we wrote off $0 and $120,000, respectively,
of materials related to production issues.
8. Property and Equipment
The
major classes of property and equipment are as follows:
|
Useful Life
|
|
|
Production machinery and equipment
|
5 years
|
$
1,163,252
|
$
1,427,472
|
Other machinery and equipment, primarily computers and
research equipment
|
3 – 5 years
|
407,201
|
421,318
|
Furniture and fixtures
|
7 years
|
645,922
|
648,131
|
Software
|
3 years
|
470,669
|
476,530
|
Leasehold improvements*
|
Term of Lease
|
897,584
|
897,584
|
|
$
3,584,628
|
$
3,871,035
|
* We amortize
leasehold improvements over the term of the lease, which in all
cases is shorter than the estimated useful life of the
asset.
Property and
equipment includes $9,000 of equipment under capital leases with
accumulated amortization of $7,000 at December 31, 2015. No
property or equipment was under capital lease at December 31, 2016.
During 2016, 2015 and 2014, we recorded $496,000, $562,000 and
$488,000, respectively, of depreciation and amortization related to
property and equipment.
9. Investment in Macrophage Therapeutics,
Inc.
In
March 2015, MT, our previously wholly-owned subsidiary, entered
into a Securities Purchase Agreement to sell up to 50 shares of its
Series A Convertible Preferred Stock (“MT Preferred
Stock”) and warrants to purchase up to 1,500 common shares of
MT (“MT Common Stock”) to Platinum and Dr. Michael
Goldberg (collectively, the “MT Investors”) for a
purchase price of $50,000 per unit. A unit consists of one share of
MT Preferred Stock and 30 warrants to purchase MT Common Stock.
Under the agreement, 40% of the MT Preferred Stock and warrants are
committed to be purchased by Dr. Goldberg, and the balance by
Platinum. The full 50 shares of MT Preferred Stock and warrants
that may be sold under the agreement are convertible into, and
exercisable for, MT Common Stock representing an aggregate 1%
interest on a fully converted and exercised basis. Navidea owns the
remainder of the MT Common Stock. On March 11, 2015, definitive
agreements with the MT Investors were signed for the sale of the
first 10 shares of MT Preferred Stock and warrants to purchase 300
shares of MT Common Stock to the MT Investors, with gross proceeds
to MT of $500,000. The MT Common Stock held by parties other than
Navidea is reflected on the consolidated balance sheets as a
noncontrolling interest.
The
warrants have certain characteristics including a net settlement
provision that require the warrants to be accounted for as a
derivative liability at fair value, with subsequent changes in fair
value included in earnings. The fair value of the warrants was
estimated to be $63,000 at issuance and at December 31, 2015. See
Notes 1(m) and 3. In addition, the MT Preferred Stock was
immediately available for conversion upon issuance and includes a
beneficial conversion feature, resulting in a deemed dividend of
$46,000 related to the beneficial conversion feature. Finally,
certain provisions of the Securities Purchase Agreement obligate
the MT Investors to acquire the remaining MT Preferred Stock and
related warrants for $2.0 million at the option of MT. The
estimated relative fair value of this put option was $113,000 at
issuance based on the Black-Scholes option pricing model and is
classified within stockholders' equity.
In
addition, we entered into a Securities Exchange Agreement with the
MT Investors providing them an option to exchange their MT
Preferred Stock for our common stock in the event that MT has not
completed a public offering with gross proceeds to MT of at least
$50 million by the second anniversary of the closing of the initial
sale of MT Preferred Stock, at an exchange rate per share obtained
by dividing $50,000 by the greater of (i) 80% of the twenty-day
volume weighted average price per share of our common stock on the
second anniversary of the initial closing or (ii) $3.00. To the
extent that the MT Investors do not timely exercise their exchange
right, MT has the right to redeem their MT Preferred Stock for a
price equal to $58,320 per share. We also granted MT an exclusive
license for certain therapeutic applications of the Manocept
technology.
In
December 2015 and May 2016, Platinum contributed a total of
$200,000 to MT. MT was not obligated to provide anything in return,
although it was considered likely that the MT Board would
ultimately authorize some form of compensation to Platinum. During
the year ended December 31, 2016, the Company recorded the entire
$200,000 as a current liability pending determination of the form
of compensation.
In
July 2016, MT’s Board of Directors authorized modification of
the original investments of $300,000 by Platinum and $200,000 by
Dr. Goldberg to a convertible preferred stock with a 10%
paid-in-kind (“PIK”) coupon retroactive to the time the
initial investments were made. The conversion price of the
preferred will remain at the $500 million initial market cap but a
full ratchet was added to enable the adjustment of conversion
price, warrant number and exercise price based on the valuation of
the first institutional investment round. In addition, the MT Board
authorized issuance of additional convertible preferred stock with
the same terms to Platinum as compensation for the additional
$200,000 of investments made in December 2015 and May 2016. As of
the date of filing of this Form 10-K, final documents related
to the above transactions authorized by the MT Board have not been
completed.
10. Investment in R-NAV, LLC
In
July 2014, Navidea formed a joint enterprise with Essex
Woodlands-backed Rheumco, LLC, to develop and commercialize
radiolabeled diagnostic and therapeutic products for rheumatologic
and arthritic diseases. The joint enterprise, called R-NAV, LLC,
combined Navidea’s proprietary Manocept CD206 macrophage
targeting platform and Rheumco’s proprietary Tin-117m
radioisotope technology to focus on leveraging the platforms across
several indications with high unmet medical need, including the
detection and treatment of RA and veterinary
osteoarthritis.
Both
Rheumco and Navidea contributed licenses for intellectual property
and technology to R-NAV in exchange for common units in R-NAV. The
contributions of these licenses were recorded using the carryover
basis. R-NAV was initially capitalized through a $4.0 million
investment from third-party private investors, and the technology
contributions from Rheumco and Navidea. Navidea committed an
additional $1.0 million investment to be paid over three years,
with $333,334 in cash contributed at inception and a promissory
note in the principal amount of $666,666, payable in two equal
installments on the first and second anniversaries of the
transaction. A principal payment of $333,333 was made on the note
payable to R-NAV in July 2015. In exchange for its capital and
in-kind investment, the Company received 3,500,000 Common Units and
1,000,000 Series A preferred units of R-NAV (“Series A
Units”). The Company was to receive an additional 500,000
Series A Units for management and technical services associated
with the programs described above performed by the Company for
R-NAV pursuant to a services agreement.
Navidea initially
owned approximately 33.7% of the combined entity. At December 31,
2015, Navidea owned approximately 27.3% of R-NAV. Joint oversight
over certain aspects of R-NAV was shared between Navidea and the
other investors; Navidea did not control the operations of R-NAV.
Navidea had three-year call options to acquire, at its sole
discretion, all of the equity of R-NAV’s TcRA Imaging, Inc.
subsidiary (“TcRA”) for $10.5 million prior to the
launch of a Phase 3 clinical trial for its development program, and
all of the equity of R-NAV’s SnRA Theragnostics, Inc.
subsidiary at fair value upon completion of radiochemistry and
biodistribution studies for its development program.
Effective May 31,
2016, Navidea terminated its joint venture with R-NAV. Under the
terms of the agreement, Navidea (1) transferred all of its shares
of R-NAV, consisting of 1,500,000 Series A Preferred Units and
3,500,000 Common Units, to R-NAV; and (2) paid $110,000 in cash to
R-NAV. In exchange, R-NAV (1) transferred all of its shares of TcRA
to Navidea, thereby returning the technology licensed to TcRA to
Navidea; and (2) forgave the $333,333 remaining on the promissory
note. Neither Navidea nor R-NAV has any further obligations of any
kind to either party. As a result of this transaction, the Company
recognized a loss on disposal of the investment in R-NAV of $39,732
during 2016.
Navidea’s
investment in R-NAV was being accounted for using the equity method
of accounting. In accordance with current accounting guidance, the
Company's initial contributions of cash and note payable totaling
$1.0 million were allocated between the investment in R-NAV and the
call option on TcRA based on the relative fair values of the
assets. As a result, we recorded an initial equity investment in
R-NAV of $727,000 and a call option asset of $273,000 as
non-current assets at the time of the initial investment. Navidea's
equity in the loss of R-NAV was $15,159, $305,253 and $523,809 for
the years ended December 31, 2016, 2015 and 2014, respectively.
Navidea’s equity in the loss of R-NAV exceeded our initial
investment in R-NAV. As such, the carrying value of the
Company’s investment in R-NAV was $0 as of May 31,
2016.
The
Company’s obligation to provide $500,000 of in-kind services
to R-NAV was being recognized as those services were provided. The
Company provided $15,000, $64,000 and $39,000 of in-kind services
during the years ended December 31, 2016, 2015 and 2014,
respectively. As of May 31, 2016, the Company had $383,000 of
in-kind services remaining to provide under this obligation. This
obligation ceased on May 31, 2016 under the terms of the
agreement.
Navidea provided
additional services to R-NAV in support of its development
activities. Such services were immaterial to Navidea’s
overall operations. See Note 12.
11. Accounts Payable, Accrued Liabilities and
Other
Accounts payable
at December 31, 2016 and 2015 includes an aggregate of $116,000 and
$7,000, respectively, due to related parties related to director
fees and MT scientific advisory board fees.
Accrued
liabilities and other, including an aggregate of $106,000 and
$83,000 due to related parties related to director fees and MT
scientific advisory board fees, at December 31, 2016 and 2015,
respectively, consist of the following:
|
|
|
Interest
|
$
5,756,519
|
$
478
|
Contracted services
|
1,341,601
|
1,887,281
|
Compensation
|
945,787
|
873,726
|
Royalties
|
139,957
|
175,679
|
Other
|
281,651
|
101,549
|
|
$
8,465,515
|
$
3,038,713
|
12. Notes Payable
Platinum
In
July 2012, we entered into an agreement with Platinum to provide us
with a credit facility of up to $50 million. Following the approval
of Tc 99m tilmanocept, Platinum was committed under the terms of
the agreement to extend up to $35 million in debt financing to the
Company. The agreement also provided for Platinum to extend an
additional $15 million on terms to be negotiated. Through June 25,
2013, we drew a total of $8.0 million under the original
facility.
In
June 2013, in connection with entering into the GECC/MidCap Loan
Agreement (discussed below), the Company and Platinum entered into
an Amendment to the Platinum Loan Agreement (the “First
Platinum Amendment”). Concurrent with the execution of the
First Platinum Amendment, the Company delivered an Amended and
Restated Promissory Note (the “First Amended Platinum
Note”) to Platinum, which amended and restated the original
promissory note issued to Platinum, in the principal amount of up
to $35 million. The First Amended Platinum Note also adjusted the
interest rate to the greater of (a) the U.S. Prime Rate as reported
in the Wall Street Journal plus 6.75%; (b) 10%; or (c) the highest
rate of interest then payable pursuant to the GECC/MidCap Loan
Agreement plus 0.125%. In addition, the First Platinum Amendment
granted Platinum the right, at Platinum’s option subject to
certain conditions, to convert all or any portion of the unpaid
principal or unpaid interest accrued on any future draw (the
“Conversion Amount”), beginning on a date two years
from the date the draw is advanced, into the number of shares of
Navidea’s common stock computed by dividing the Conversion
Amount by a conversion price equal to the lesser of (i) 90% of the
lowest VWAP for the 10 trading days preceding the date of such
conversion request, or (ii) the average VWAP for the 10 trading
days preceding the date of such conversion request. The First
Platinum Amendment also provided a conversion right on the same
terms with respect to the amount of any mandatory repayment due
following the Company achieving $2.0 million in cumulative revenues
from sales or licensing of Tc 99m tilmanocept. Platinum’s
option to convert future draws into common stock was determined to
meet the definition of a liability. The estimated fair value of the
embedded conversion option is included in the carrying value of the
new debt.
Also
in connection with the First Platinum Amendment, the Company and
Platinum entered into a Warrant Exercise Agreement (“Exercise
Agreement”), pursuant to which Platinum exercised its Series
X Warrant and Series AA Warrant. The warrants were exercised on a
cashless basis by canceling a portion of the indebtedness
outstanding under the Platinum Loan Agreement equal to $4.8
million, the aggregate exercise price of the warrants. Pursuant to
the Exercise Agreement, in lieu of common stock, Platinum received
on exercise of the warrants 2,364.9 shares of the Company’s
Series B Convertible Preferred Stock (the “Series B Preferred
Stock”), convertible into 7,733,223 shares of our common
stock in the aggregate (3,270 shares of common stock per preferred
share).
In
March 2014, in connection with entering into the Oxford Loan
Agreement (discussed below), we repaid all amounts outstanding
under the GECC/MidCap Loan agreement and entered into a second
amendment to the Platinum Loan Agreement (the “Second
Platinum Amendment”). Concurrent with the execution of the
Second Platinum Amendment, the Company delivered an Amended and
Restated Promissory Note (the “Second Amended Platinum
Note”) to Platinum, which amended and restated the First
Amended Platinum Note. The Second Amended Platinum Note adjusted
the interest rate to the greater of (i) the United States prime
rate as reported in The Wall Street Journal plus 6.75%, (ii) 10.0%,
and (iii) the highest rate of interest then payable by the Company
pursuant to the Oxford Loan Agreement plus 0.125%.
In May
2015, in connection with the execution of the CRG Loan Agreement
(discussed below), the Company amended the existing Platinum credit
facility to allow this facility to remain in place in a
subordinated role to the CRG Loan (the “Third Platinum
Amendment”). Among other things, the Third Platinum Amendment
(i) extended the term of the Platinum Loan Agreement until a date
six months following the maturity date or earlier repayment of the
CRG Term Loan; (ii) changes the interest rate to the greater of (a)
the United States prime rate as reported in The Wall Street Journal
plus 6.75%, (b) 10.0% and (c) the highest rate of interest then
payable pursuant to the CRG Term Loan plus 0.125%; (iii) requires
such interest to compound monthly; and (iv) changes the provisions
of the Platinum Loan Agreement governing Platinum’s right to
convert advances into common stock of the Company. The Third
Platinum Amendment provides for the conversion of all principal and
interest outstanding under the Platinum Loan Agreement, but not
until such time as the average daily volume weighted average price
of the Company’s common stock for the ten preceding trading
days exceeds $2.53 per share. The Third Platinum Amendment became
effective upon initial funding of the CRG Loan
Agreement.
The
Platinum Note is reflected on the consolidated balance sheets at
its estimated fair value, which includes the estimated fair value
of the embedded conversion option of $153,000 at December 31, 2016.
During the years ended December 31, 2016, 2015 and 2014, changes in
the estimated fair value of the Platinum debt liability were a
decrease of $2.9 million, an increase of $615,000 and an increase
of $1.3 million, respectively, and were recorded as non-cash
changes in the fair value of financial instruments. The estimated
fair value of the Platinum Note was $9.6 million and $11.5 million
as of December 31, 2016 and 2015, respectively.
The
Platinum Loan Agreement carries standard non-financial covenants
typical for commercial loan agreements, many of which are similar
to those contained in the CRG 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, subject to the
limitations of the Subordination Agreement with CRG. 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. The
Platinum Loan Agreement includes a covenant that results in an
event of default on the Platinum Loan Agreement upon default on the
CRG Loan Agreement. As discussed below, the Company is maintaining
its position that CRG’s alleged claims do not constitute
events of default under the CRG Loan Agreement and believes it has
defenses against such claims. The Company has obtained a waiver
from Platinum confirming that we are not in default under the
Platinum Loan Agreement as a result of the alleged default on the
CRG Loan Agreement and as such, we are currently in compliance with
all covenants under the Platinum Loan Agreement.
The
Platinum Loan Agreement, as amended, provides us with a credit
facility of up to $50 million. We drew a total of $4.5 million and
$4.0 million under the credit facility in each of the years ended
December 31, 2015 and 2013. We did not make any draws under the
credit facility during the years ended December 31, 2016 and 2014.
In addition, $1.0 million and $761,000 of interest was compounded
and added to the balance of the Platinum Note during the years
ended December 31, 2016 and 2015, respectively. In accordance with
the terms of a Section 16(b) Settlement Agreement, Platinum agreed
to forgive interest owed on the credit facility in an amount equal
to 6%, effective July 1, 2016. As of December 31, 2016, the
remaining outstanding principal balance of the Platinum Note was
approximately $9.5 million, consisting of $7.7 million of draws and
$1.8 million of compounded interest, with $27.3 million still
available under the credit facility. An additional $15 million is
potentially available under the credit facility on terms to be
negotiated. However, based on Platinum’s recent filing for
Chapter 15 bankruptcy protection, Navidea has substantial doubt
about Platinum’s ability to fund future draw requests under
the credit facility.
In
connection with the closing of the Asset Sale to Cardinal Health
414 in March 2017, the Company repaid to PPCO an aggregate of
approximately $7.7 million in partial satisfaction of the
Company’s liabilities, obligations and indebtedness under the
Platinum Loan Agreement between the Company and Platinum-Montaur,
which, to the extent of such payment, were transferred by
Platinum-Montaur to PPCO. The Company was informed by PPVA that it
was the owner of the balance of the Platinum-Montaur loan. Such
balance of approximately $1.9 million was due upon closing of the
Asset Sale but withheld by the Company and not paid to anyone as it
is subject to competing claims of ownership by both Dr. Michael
Goldberg, the Company’s President and Chief Executive
Officer, and PPVA.
Capital Royalty Partners II, L.P.
In May
2015, Navidea and MT, as guarantor, executed a Term Loan Agreement
(the “CRG Loan Agreement”) with Capital Royalty
Partners II L.P. (“CRG”) in its capacity as a lender
and as control agent for other affiliated lenders party to the CRG
Loan Agreement (collectively, the “Lenders”) in which
the Lenders agreed to make a term loan to the Company in the
aggregate principal amount of $50 million (the “CRG Term
Loan”), with an additional $10 million in loans to be made
available upon the satisfaction of certain conditions stated in the
CRG Loan Agreement. Closing and funding of the CRG Term Loan
occurred on May 15, 2015 (the “Effective Date”). The
principal balance of the CRG Term Loan bore interest from the
Effective Date at a per annum rate of interest equal to 14.0%.
Through March 31, 2019, the Company had the option of paying (i)
10.00% of the per annum interest in cash and (ii) 4.00% of the per
annum interest as compounded interest which is added to the
aggregate principal amount of the CRG Term Loan. During 2016 and
2015, $553,000 and $1.3 million of interest was compounded and
added to the balance of the CRG Term Loan. In addition, the Company
began paying the cash portion of the interest in arrears on June
30, 2015. Principal was due in eight equal quarterly installments
during the final two years of the term. All unpaid principal, and
accrued and unpaid interest, was due and payable in full on March
31, 2021.
Pursuant to a
notice of default letter sent to Navidea by CRG in April 2016, the
Company stopped compounding interest in the second quarter of 2016
and began recording accrued interest. As of December 31, 2016 and
2015, $5.8 million and $0, respectively, of accrued interest
related to the CRG Term Loan is included in accrued liabilities and
other on the consolidated balance sheets. As of December 31, 2016
and 2015, the outstanding principal balance of the CRG Term Loan
was $51.7 million and $51.3 million, respectively.
In
connection with the CRG Loan Agreement, the Company recorded a debt
discount related to lender fees and other costs directly
attributable to the CRG Loan Agreement totaling $2.2 million,
including a $1.0 million facility fee which is payable at the end
of the term or when the loan is repaid in full. A long-term
liability was recorded for the $1.0 million facility fee. The debt
discount was being amortized as non-cash interest expense using the
effective interest method over the term of the CRG Loan Agreement.
As further described below, the facility fee was fully paid off and
the debt discount was accelerated and fully amortized in the second
quarter of 2016.
The
CRG Term Loan was collateralized by a security interest in
substantially all of the Company's assets. In addition, the CRG
Loan Agreement required that the Company adhere to certain
affirmative and negative covenants, including financial reporting
requirements and a prohibition against the incurrence of
indebtedness, or creation of additional liens, other than as
specifically permitted by the terms of the CRG Loan Agreement. The
Lenders could accelerate the payment terms of the CRG Loan
Agreement upon the occurrence of certain events of default set
forth therein, which include the failure of the Company to make
timely payments of amounts due under the CRG Loan Agreement, the
failure of the Company to adhere to the covenants set forth in the
CRG Loan Agreement, and the insolvency of the Company. The
covenants of the CRG Loan Agreement included a covenant that the
Company shall have EBITDA of no less than $5 million in each
calendar year during the term or revenues from sales of Tc 99m
tilmanocept in each calendar year during the term of at least $22.5
million in 2016, with the target minimum revenue increasing in each
year thereafter until reaching $45 million in 2020. However, if the
Company were to fail to meet the applicable minimum EBITDA or
revenue target in any calendar year, the CRG Loan Agreement
provided the Company a cure right if it raised 2.5 times the EBITDA
or revenue shortfall in equity or subordinated debt and deposited
such funds in a separate blocked account. Additionally, the Company
was required to maintain liquidity, defined as the balance of
unencumbered cash and permitted cash equivalent investments, of at
least $5 million during the term of the CRG Term Loan. The events
of default under the CRG Loan Agreement also included a failure of
Platinum to perform its funding obligations under the Platinum Loan
Agreement at any time as to which the Company had negative EBITDA
for the most recent fiscal quarter, as a result either of
Platinum’s repudiation of its obligations under the Platinum
Loan Agreement, or the occurrence of an insolvency event with
respect to Platinum. An event of default would entitle CRG to
accelerate the maturity of our indebtedness, increase the interest
rate from 14% to the default rate of 18% per annum, and invoke
other remedies available to it under the loan agreement and the
related security agreement.
During
the course of 2016, CRG alleged multiple claims of default on the
CRG Loan Agreement, and filed suit in the District Court of Harris
County, Texas. On June 22, 2016, CRG exercised control over one of
the Company’s primary bank accounts and took possession of
$4.1 million that was on deposit, applying $3.9 million of the cash
to various fees, including collection fees, a prepayment premium
and an end-of-term fee. The remaining $189,000 was applied to the
principal balance of the debt. Multiple motions, actions and
hearings followed over the remainder of 2016 and into
2017.
On
March 3, 2017, the Company entered into a Global Settlement
Agreement with MT, CRG, and Cardinal Health 414 to effectuate the
terms of a settlement previously entered into by the parties on
February 22, 2017. In accordance with the Global Settlement
Agreement, on March 3, 2017, the Company repaid the $59 million
Deposit Amount of its alleged indebtedness and other obligations
outstanding under the CRG Term Loan. Concurrently with payment of
the Deposit Amount, CRG released all liens and security interests
granted under the CRG Loan Documents and the CRG Loan Documents
were terminated and are of no further force or effect; provided,
however, that, notwithstanding the foregoing, the Company and CRG
agreed to continue with their proceeding pending in The District
Court of Harris County, Texas to fully and finally determine the
Final Payoff Amount. The Company and CRG further agreed that the
Final Payoff Amount would be no less than $47 million and no more
than $66 million. In addition, concurrently with the payment of the
Deposit Amount and closing of the Asset Sale, (i) Cardinal Health
414 agreed to post a $7 million letter of credit in favor of CRG
(at the Company’s cost and expense to be deducted from the
closing proceeds due to the Company, and subject to Cardinal Health
414’s indemnification rights under the Purchase Agreement) as
security for the amount by which the High Payoff Amount exceeds the
Deposit Amount in the event the Company is unable to pay all or a
portion of such amount, and (ii) CRG agreed to post a $12 million
letter of credit in favor of the Company as security for the amount
by which the Deposit Amount exceeds the Low Payoff Amount. If, on
the one hand, it is finally determined by the Texas Court that the
amount the Company owes to CRG under the Loan Documents exceeds the
Deposit Amount, the Company will pay such excess amount, plus the
costs incurred by CRG in obtaining CRG’s letter of credit, to
CRG and if, on the other hand, it is finally determined by the
Texas Court that the amount the Company owes to CRG under the Loan
Documents is less than the Deposit Amount, CRG will pay such
difference to the Company and reimburse Cardinal Health 414 for the
costs incurred by Cardinal Health 414 in obtaining its letter of
credit. Any payments owing to CRG arising from a final
determination that the Final Payoff Amount is in excess of $59
million shall first be paid by the Company without resort to the
letter of credit posted by Cardinal Health 414, and such letter of
credit shall only be a secondary resource in the event of failure
of the Company to make payment to CRG. The Company will indemnify
Cardinal Health 414 for any costs it incurs in payment to CRG under
the settlement, and the Company and Cardinal Health 414 further
agree that Cardinal Health 414 can pursue all possible remedies,
including offset against earnout payments (guaranteed or otherwise)
under the Purchase Agreement, warrant exercise, or any other
payments owed by Cardinal Health 414, or any of its affiliates, to
the Company, or any of its affiliates, if Cardinal Health 414
incurs any cost associated with payment to CRG under the
settlement. The Company and CRG also agreed that the $2 million
being held in escrow pursuant to court order in the Ohio case and
the $3 million being held in escrow pursuant to court order in the
Texas case would be released to the Company at closing of the Asset
Sale. On March 3, 2017, Cardinal Health 414 posted a $7 million
letter of credit, and on March 7, 2017, CRG posted a $12 million
letter of credit, each as required by the Global Settlement
Agreement. The Texas hearing is currently set for July 3, 2017. See
Notes 3, 13 and 24(b).
Oxford Finance, LLC
In
March 2014, we executed a Loan and Security Agreement (the
“Oxford Loan Agreement”) with Oxford Finance, LLC
(“Oxford”), providing for a loan to the Company of $30
million. Pursuant to the Oxford Loan Agreement, we issued Oxford:
(1) Term Notes in the aggregate principal amount of $30
million, bearing interest at 8.5% (the Oxford Notes), and (2)
Series KK warrants to purchase an aggregate of 391,032 shares of
our common stock at an exercise price of $1.918 per share, expiring
in March 2021 (the “Series KK Warrants”). The Company
recorded a debt discount related to the issuance of the Series KK
Warrants and other fees to the lenders totaling $3.0 million. Debt
issuance costs directly attributable to the Oxford Loan Agreement,
totaling $120,000, were recorded as an additional debt discount on
the consolidated balance sheet on the closing date. The debt
discounts were being amortized as non-cash interest expense using
the effective interest method over the term of the Oxford Loan
Agreement. The final payment fee of $2.4 million was recorded in
other non-current liabilities on the consolidated balance sheet on
the closing date.
We
began making monthly payments of interest only on April 1, 2014,
and monthly payments of principal and interest beginning April 1,
2015. In May 2015, in connection with the consummation of the CRG
Loan Agreement, the Company repaid all amounts outstanding under
the Oxford Loan Agreement. The payoff amount of $31.7 million
included payments of $289,000 as a pre-payment fee and $2.4 million
as an end-of-term final payment fee. As of December 31, 2015, the
Oxford Notes were no longer outstanding. The Series KK warrants
remained outstanding as of December 31, 2016.
General Electric Capital Corporation/MidCap Financial SBIC,
LP
In
June 2013, we executed a Loan and Security Agreement (the
“GECC/MidCap Loan Agreement”) with General Electric
Capital Corporation (“GECC”) and MidCap Financial SBIC,
LP (“MidCap”), pursuant to which we issued GECC and
MidCap: (1) Term Notes in the aggregate principal amount of $25
million, bearing interest at 9.83%, (the “GECC/MidCap
Notes”), and (2) Series HH warrants to purchase an aggregate
of 301,205 shares of our common stock at an exercise price of $2.49
per share, expiring in June 2023 (the “Series HH
Warrants”). The GECC/MidCap Loan Agreement provided for an
interest-only period beginning on June 25, 2013 and expiring on
June 30, 2014. The principal and interest was to be repaid in 30
equal monthly installments, payable on the first of each month
following the expiration of the interest-only period, and one final
payment in an amount equal to the entire remaining principal
balance of the GECC/MidCap Notes on the maturity date. The
outstanding balance of the debt was due December 23, 2016. On the
date upon which the outstanding principal amount of the loan was
paid in full, the Company was required to pay a non-refundable
end-of-term fee equal to 4.0% of the original principal amount of
the loan.
The
Company recorded a debt discount related to the issuance of the
Series HH Warrants and other fees to the lenders totaling $1.9
million. Debt issuance costs directly attributable to the
GECC/MidCap Loan Agreement totaled $881,000. The debt discount and
debt issuance costs were being amortized as non-cash interest
expense using the effective interest method over the term of the
GECC/MidCap Loan Agreement. The final payment fee of $1.0 million
was recorded in other non-current liabilities on the consolidated
balance sheet on the closing date.
In
March 2014, in connection with the consummation of the Oxford Loan
Agreement, we repaid all amounts outstanding under the GECC/MidCap
Notes for a payoff amount of $26.7 million, which included payments
of $500,000 as a pre-payment fee and $1.0 million as an end-of-term
final payment fee, resulting in a loss on extinguishment of $2.6
million. As of December 31, 2014, the GECC/MidCap Notes were no
longer outstanding. The Series HH Warrants remained outstanding as
of December 31, 2016.
R-NAV, LLC
In
July 2014, in connection with entering into the R-NAV joint
enterprise, Navidea executed a promissory note in the principal
amount of $666,666, payable in two equal installments on July 15,
2015 and July 15, 2016, the first and second anniversaries of the
R-NAV transaction. The note bore interest at 0.31% per annum,
compounded annually. A principal payment of $333,333 was made on
the note payable to R-NAV in July 2015.
Effective May 31,
2016, Navidea terminated its joint venture with R-NAV. Under the
terms of the agreement, Navidea (1) transferred all of its shares
of R-NAV, consisting of 1,500,000 Series A Units and 3,500,000
Common Units, to R-NAV; and (2) paid $110,000 in cash to R-NAV. In
exchange, R-NAV (1) transferred all of its shares of TcRA to
Navidea, thereby returning the technology licensed to TcRA to
Navidea; and (2) forgave the $333,333 remaining on the promissory
note. Neither Navidea nor R-NAV has any further obligations of any
kind to either party. See Note 10.
IPFS Corporation
In
December 2016, we prepaid $348,000 of insurance premiums through
the issuance of a note payable to IPFS Corporation
(“IPFS”) with an interest rate of 8.99%. The note is
payable in eight monthly installments of $45,000, with the final
payment due on July 10, 2017. The note is included in notes
payable, current in the December 31, 2016 consolidated balance
sheet.
Summary
During
the years ended December 31, 2016, 2015 and 2014, we recorded
interest expense of $14.9 million, $6.9 million and $3.7 million,
respectively, related to our notes payable. Of those amounts, $2.0
million, $493,000 and $844,000, respectively, was non-cash in
nature related to amortization of the debt discounts and deferred
financing costs related to our notes payable. An additional $1.6
million and $2.0 million, respectively, of this interest expense
was compounded and added to the balance of our notes payable during
the years ended December 31, 2016 and 2015.
Annual
principal maturities of our notes payable are $52.0 million, $0,
$0, $0, $9.5 million and $0 in 2017, 2018, 2019, 2020, 2021 and
thereafter, respectively.
13. Commitments and Contingencies
We are
subject to legal proceedings and claims that arise in the ordinary
course of business.
Section 16(b) Action
On
August 12, 2015, a Navidea shareholder filed an action in the
United States District Court for the Southern District of New York
against two funds managed by Platinum alleging violations of
Section 16(b) of the Securities Exchange Act of 1934, as amended,
in connection with purchases and sales of the Company’s
common stock by the Platinum funds, and seeking disgorgement of the
short-swing profits realized by the funds (the
“Litigation”). The Company was named as a nominal
defendant in the Litigation.
The
Litigation was resolved on the terms set forth in a settlement
agreement (the “Settlement Agreement”). The Settlement
Agreement was subject to a pending joint motion for approval. The
Court approved the settlement on Friday, July 1, 2016. In
accordance with the terms of the Settlement Agreement, the interest
rate on the Platinum credit facility was reduced by 6% to 8.125%
effective July 1, 2016. In addition, Platinum assumed the
obligation to pay the legal costs associated with the
Litigation.
Sinotau Litigation – NAV4694
On
August 31, 2015, Hainan Sinotau Pharmaceutical Co., Ltd.
(“Sinotau”) filed a suit for damages, specific
performance, and injunctive relief against the Company in the
United States District Court for the District of Massachusetts
alleging breach of a letter of intent for licensing to Sinotau of
the Company’s NAV4694 product candidate and technology. The
Company believed the suit was without merit and filed a motion to
dismiss the action. In September 2016, the Court denied the motion
to dismiss. The Company filed its answer to the complaint and the
case is currently in the discovery phase. At this time it is not
possible to determine with any degree of certainty the ultimate
outcome of this legal proceeding, including making a determination
of liability. The Company intends to vigorously defend the
case.
In
July 2016, the Company executed a term sheet with Cerveau
Technologies, Inc. (“Cerveau”) as a designated party
for the rights resulting from the relationship between Navidea and
Sinotau. The term sheet outlined the terms of a potential agreement
between the parties to sublicense NAV4694 to Cerveau in return for
license fees, milestone payments and royalties. With the exception
of certain provisions, the term sheet was non-binding and was
subject to the agreement of AstraZeneca, from whom the Company has
licensed the NAV4694 technology. The Company had 60 days to execute
a definitive agreement, however no definitive agreement was
reached. Discussions related to the potential licensure or
divestiture of NAV4694 are ongoing.
CRG Litigation
During
the course of 2016, CRG alleged multiple claims of default on the
CRG Loan Agreement, and filed suit in the District Court of Harris
County, Texas. On June 22, 2016, CRG exercised control over one of
the Company’s primary bank accounts and took possession of
$4.1 million that was on deposit, applying $3.9 million of the cash
to various fees, including collection fees, a prepayment premium
and an end-of-term fee. The remaining $189,000 was applied to the
principal balance of the debt. Multiple motions, actions and
hearings followed over the remainder of 2016 and into
2017.
On
March 3, 2017, the Company entered into a Global Settlement
Agreement with MT, CRG, and Cardinal Health 414 to effectuate the
terms of a settlement previously entered into by the parties on
February 22, 2017. In accordance with the Global Settlement
Agreement, on March 3, 2017, the Company repaid the $59 million
Deposit Amount of its alleged indebtedness and other obligations
outstanding under the CRG Term Loan. Concurrently with payment of
the Deposit Amount, CRG released all liens and security interests
granted under the CRG Loan Documents and the CRG Loan Documents
were terminated and are of no further force or effect; provided,
however, that, notwithstanding the foregoing, the Company and CRG
agreed to continue with their proceeding pending in The District
Court of Harris County, Texas to fully and finally determine the
Final Payoff Amount. The Company and CRG further agreed that the
Final Payoff Amount would be no less than $47 million and no more
than $66 million. In addition, concurrently with the payment of the
Deposit Amount and closing of the Asset Sale, (i) Cardinal Health
414 agreed to post a $7 million letter of credit in favor of CRG
(at the Company’s cost and expense to be deducted from the
closing proceeds due to the Company, and subject to Cardinal Health
414’s indemnification rights under the Purchase Agreement) as
security for the amount by which the High Payoff Amount exceeds the
Deposit Amount in the event the Company is unable to pay all or a
portion of such amount, and (ii) CRG agreed to post a $12 million
letter of credit in favor of the Company as security for the amount
by which the Deposit Amount exceeds the Low Payoff Amount. If, on
the one hand, it is finally determined by the Texas Court that the
amount the Company owes to CRG under the Loan Documents exceeds the
Deposit Amount, the Company will pay such excess amount, plus the
costs incurred by CRG in obtaining CRG’s letter of credit, to
CRG and if, on the other hand, it is finally determined by the
Texas Court that the amount the Company owes to CRG under the Loan
Documents is less than the Deposit Amount, CRG will pay such
difference to the Company and reimburse Cardinal Health 414 for the
costs incurred by Cardinal Health 414 in obtaining its letter of
credit. Any payments owing to CRG arising from a final
determination that the Final Payoff Amount is in excess of $59
million shall first be paid by the Company without resort to the
letter of credit posted by Cardinal Health 414, and such letter of
credit shall only be a secondary resource in the event of failure
of the Company to make payment to CRG. The Company will indemnify
Cardinal Health 414 for any costs it incurs in payment to CRG under
the settlement, and the Company and Cardinal Health 414 further
agree that Cardinal Health 414 can pursue all possible remedies,
including offset against earnout payments (guaranteed or otherwise)
under the Purchase Agreement, warrant exercise, or any other
payments owed by Cardinal Health 414, or any of its affiliates, to
the Company, or any of its affiliates, if Cardinal Health 414
incurs any cost associated with payment to CRG under the
settlement. The Company and CRG also agreed that the $2 million
being held in escrow pursuant to court order in the Ohio case and
the $3 million being held in escrow pursuant to court order in the
Texas case would be released to the Company at closing of the Asset
Sale. On March 3, 2017, Cardinal Health 414 posted a $7 million
letter of credit, and on March 7, 2017, CRG posted a $12 million
letter of credit, each as required by the Global Settlement
Agreement. The Texas hearing is currently set for July 3, 2017. See
Notes 3, 12 and 24(b).
Former CEO Arbitration
On May
12, 2016 the Company received a demand for arbitration through the
American Arbitration Association, Columbus, Ohio, from Ricardo J.
Gonzalez, the Company’s then Chief Executive Officer,
claiming that he was terminated without cause and, alternatively,
that he resigned in accordance with Section 4G of his Employment
Agreement pursuant to a notice received by the Company on May 9,
2016. On May 13, 2016, the Company notified Mr. Gonzalez that his
failure to undertake responsibilities assigned to him by the Board
of Directors and otherwise work after being ordered to do so on
multiple occasions constituted an effective resignation, and the
Company accepted that resignation. The Company rejected the
resignation of Mr. Gonzalez pursuant to Section 4G of his
Employment Agreement. Also, the Company notified Mr. Gonzalez that,
alternatively, his failure to return to work after the expiration
of the cure period provided in his Employment Agreement constituted
cause for his termination under his Employment Agreement. Mr.
Gonzalez is seeking severance and other amounts claimed to be owed
to him under his Employment Agreement. In addition, the Company
filed counterclaims against Mr. Gonzalez alleging malfeasance by
Mr. Gonzalez in his role as Chief Executive Officer. Mr. Gonzalez
has withdrawn his claim for additional severance pursuant to
Section 4G of his Employment Agreement, and the Company has
withdrawn its counterclaims. Mr. Gonzalez has made settlement
demands but the Company has made no counteroffers to date. A
three-person arbitration board has been chosen and a hearing is set
for April 3-7, 2017 in Columbus, Ohio.
Former Director Litigation
On
August 12, 2016, the Company commenced an action in the Superior
Court of California for damages and injunctive relief against
former Navidea Chairman and MT Board Member Anton Gueth. The
Complaint alleges, in part, that Mr. Gueth intentionally failed to
disclose his prior existing relationship with CRG, in addition to
multiple breaches including duty, loyalty and contract,
interference and misappropriation. The litigation was
dismissed without prejudice on December 19, 2016.
FTI Consulting, Inc. Litigation
On
October 11, 2016, FTI Consulting, Inc. (“FTI”)
commenced an action against the Company in the Supreme Court of the
State of New York, County of New York, seeking damages in excess of
$782,600 comprised of: (i) $730,264 for investigative and
consulting services FTI alleges to have provided to the Company
pursuant to an Engagement Agreement, and (ii) in excess of $52,337
for purported interest due on unpaid invoices, plus
attorneys’ fees, costs and expenses. On November 14,
2016, the Company filed an Answer and Counterclaim denying the
allegations of the Complaint and seeking damages on its
Counterclaim, in an amount to be determined at trial, for
intentional overbilling by FTI. On February 7, 2017, a preliminary
conference was held by the Court at which time a scheduling order
governing discovery was issued. The Court set August 31, 2017 as
the deadline for FTI to file a Note of Issue and Certificate of
Readiness for trial. Discovery will commence within the next few
weeks. The Company intends to vigorously defend the
action.
Sinotau Litigation – Tc 99m Tilmanocept
On
February 1, 2017, Navidea filed suit against Sinotau in the U.S.
District Court for the Southern District of Ohio. The Company's
complaint included claims seeking a declaration of the rights and
obligations of the parties to an agreement regarding rights for the
Tc 99m tilmanocept product in China and other claims. The complaint
sought a temporary restraining order ("TRO") and preliminary
injunction to prevent Sinotau from interfering with the
Company’s Asset Sale to Cardinal Health 414. On February 3,
2017, the Court granted the TRO and extended it until March 6,
2017. The Asset Sale closed on March 3, 2017. On March 6, the Court
dissolved the TRO as moot. The Ohio case remains open because all
issues raised in the complaint have not been resolved.
Sinotau also filed
a suit against the Company and Cardinal Health 414 in the U.S.
District Court for the District of Delaware on February 2, 2017. On
February 18, 2017, the Company and Cardinal Health 414 moved to
stay the case pending the outcome of the Ohio case. The Court
granted the motion on March 1, 2017, and the stay remains in
effect.
In
accordance with ASC Topic 450,
Contingencies
, we make a provision for
a liability when it is both probable that a liability has been
incurred and the amount of the loss can be reasonably estimated.
Although the outcome of any litigation is uncertain, in our
opinion, the amount of ultimate liability, if any, with respect to
these actions will not materially affect our financial
position.
14.
Preferred Stock
As
discussed in Note 12, in June 2013, the Company and Platinum
entered into a Warrant Exercise Agreement, pursuant to which
Platinum exercised its Series X warrant and Series AA warrant for
2,364.9 shares of the Company's Series B Preferred Stock,
convertible into 7,733,223 shares of our common stock in the
aggregate.
During
2013, Platinum converted 1,737.9 shares of the Series B Preferred
Stock into 5,682,933 shares of our common stock under the terms of
the Series B Preferred Stock. During 2014, Platinum converted 4,422
shares of the Series B Preferred Stock into 14,459,940 shares of
our common stock under the terms of the Series B Preferred Stock.
In November 2014, we entered into a second Securities Exchange
Agreement with Platinum, pursuant to which Platinum exchanged
4,499,520 shares of our common stock owned by Platinum for 1,376
shares of our Series B Preferred Stock.
In
August 2015, we entered into a Securities Exchange Agreement with
two investment funds managed by Platinum to exchange the 4,519
shares of Series B Preferred Stock held by them for twenty-year
warrants to purchase common stock of the Company (the “Series
LL Warrants”). The Series B Preferred Stock was convertible
into common stock at a conversion rate of 3,270 shares of common
stock per share of Series B Preferred Stock resulting in an
aggregate number of shares of common stock into which the Series B
Preferred Stock was convertible of 14,777,130 shares. The exercise
price of the Series LL Warrants is $0.01 per share, and the total
number of shares of common stock for which the Series LL Warrants
are exercisable is 14,777,130 shares. The Series LL Warrants
contain cashless exercise provisions, and the other economic terms
are comparable to those of the Series B Preferred Stock, except
that there is no liquidation preference associated with the Series
LL Warrants or shares issuable on the exercise thereof. The
Securities Exchange Agreement also contains certain provisions that
prohibit the payment of dividends, distributions of common stock or
issuances of common stock at effective prices less than $1.35.
There was no other consideration paid or received for the exchange.
No gain or loss was recognized in our consolidated financial
statements as a result of the exchange. The exchange transaction
was entered into in connection with the filing of an application to
list the Company’s common stock on the Tel Aviv Stock
Exchange (“TASE”) in order to comply with a listing
requirement of the TASE requiring that listed companies have only
one class of equity securities issued and outstanding. Following
the exchange, the Company has no shares of preferred stock
outstanding.
15.
Equity Instruments
a.
Stock
Warrants:
At December 31,
2016, there are 11.3 million warrants outstanding to purchase our
common stock. The warrants are exercisable at prices ranging from
$0.01 to $3.04 per share with a weighted average exercise price per
share of $0.33. See Note 24(d).
The
following table summarizes information about our outstanding
warrants at December 31, 2016:
|
|
|
Expiration Date
|
Series BB
|
$
2.00
|
300,000
|
July 2018
|
Series HH
|
2.49
|
301,205
|
June 2023
|
Series II
|
3.04
|
275,000
|
June 2018
|
Series KK
|
1.918
|
391,032
|
March 2021
|
Series LL
|
0.01
|
9,777,130
|
August 2035
|
Series MM
|
2.50
|
150,000
|
September 2019
|
Series MM
|
2.50
|
150,000
|
October 2019
|
|
$
0.33
*
|
11,344,367
|
|
* Weighted
average exercise price.
In
addition, at December 31, 2016, there are 300 warrants outstanding
to purchase MT Common Stock. The warrants are exercisable at $2,000
per share.
In
March 2014, in connection with the Oxford Loan Agreement, the
Company issued Series KK Warrants to purchase an aggregate of
391,032 shares of our common stock at an exercise price of $1.918
per share, expiring in March 2021.
In
November 2014, an outside investor exchanged their Series JJ
warrants for 3,843,223 shares of our common stock in accordance
with the terms of the Series JJ warrant agreement. As a result of
the exchange of the Series JJ warrants, we reclassified $7.7
million in derivative liabilities related to those warrants to
additional paid-in capital.
In
July 2015, we extended the expiration date of our outstanding
Series BB warrants by three years to July 2018. The modification of
the Series BB warrant expiry resulted in recording a non-cash
selling, general and administrative expense of approximately
$150,000 during the third quarter of 2015.
In
September 2015, we issued four-year Series MM warrants to purchase
150,000 shares of our common stock at an exercise price of $2.50
per share pursuant to an advisory services agreement with Chardan
Capital Markets, LLC (“Chardan”). In October 2015, we
issued additional four-year Series MM warrants to purchase 150,000
shares of our common stock at an exercise price of $2.50 per share
pursuant to the advisory services agreement with Chardan. The fair
value of the warrants issued to Chardan of $256,000 was recorded as
a non-cash selling, general and administrative expense during the
third quarter of 2015.
In
October 2015, 5,000,000 Series LL Warrants were exercised on a
cashless basis in exchange for the issuance of 4,977,679 shares of
our common stock.
c.
Common Stock
Reserved:
As of December 31,
2016, we have reserved 18,641,776 shares of authorized common stock
for the exercise of all outstanding stock options and warrants, and
upon the conversion of convertible debt and convertible preferred
stock.
16. Reductions in Force
In May
2014, the Company’s Board of Directors made the decision to
refocus the Company's resources to better align the funding of our
pipeline programs with the expected growth in Tc 99m tilmanocept
revenue. As a part of the realignment, the Company terminated a
total of 11 employees, including the Chief Executive Officer, Dr.
Mark J. Pykett.
Effective May 30,
2014, the Company and Dr. Pykett entered into a Separation
Agreement and Release. Following the termination date, Dr. Pykett
was entitled to receive a $750,000 severance payment, payable in
two equal installments on June 9, 2014, and January 2, 2015,
respectively; a single payment for accrued vacation and personal
days; and reimbursement for certain other expenses and fees.
Certain of Dr. Pykett's equity awards terminated upon separation,
while others were modified in conjunction with the Separation
Agreement and the Consulting Agreement described
below.
Effective June 1,
2014, the Company and Dr. Pykett entered into a Consulting
Agreement pursuant to which Dr. Pykett was to serve as an
independent consultant to the Company until December 31, 2014 with
respect to clinical-regulatory activities, commercial activities,
program management, and business development, among other services.
Dr. Pykett was entitled to a consulting fee of $27,500 per month
plus reimbursement of reasonable expenses. The Consulting Agreement
also provided for a grant of 40,000 shares of restricted stock
which were to vest upon certain service and performance
conditions.
Dr.
Pykett terminated the Consulting Agreement effective September 8,
2014. Certain of Dr. Pykett's equity awards were forfeited upon
termination of the Consulting Agreement, while others vested on
December 1, 2014 due to achievement of certain goals during the
period of the Consulting Agreement, in accordance with the terms of
the award agreements. The Company recognized expenses of $94,000
under the Consulting Agreement during the year ended December 31,
2014.
During
the year ended December 31, 2014, the Company recognized
approximately $557,000 of net expense as a result of the reduction
in force, which included separation costs, incremental expense
related to the modification of certain equity awards, and the
reversal of stock compensation expense for certain equity awards
for which the requisite service was not rendered.
The
Company appointed Michael M. Goldberg, M.D., as interim Chief
Executive Officer effective May 30, 2014. Dr. Goldberg then served
as a member of the Board of Directors of the Company and did not
receive any salary for his service as interim Chief Executive
Officer, although the Company agreed to pay Montaur Capital
Partners, LLC (“Montaur”), where Dr. Goldberg was
principal, $15,000 per month to cover additional costs and
resources Montaur expected to incur or redirect due to the
unavailability of Dr. Goldberg's services resulting from his
service as interim Chief Executive Officer of Navidea. During the
year ended December 31, 2014, the Company paid Montaur a total of
$53,000. Dr. Goldberg's service as interim Chief Executive Officer
terminated with the appointment of Ricardo J. Gonzalez as the
Company's Chief Executive Officer effective October 13,
2014.
In
March 2015, the Company initiated a second reduction in force that
included seven staff members and three executives. The executives
continued as employees during transition periods of varying
lengths, depending upon the nature and extent of responsibilities
transitioned or wound down.
During
the year ended December 31, 2015, the Company recognized
approximately $1.3 million of net expense as a result of the
reduction in force, which included actual and estimated separation
costs as well as the impact of accelerated vesting or forfeiture of
certain equity awards resulting from the separation of
$273,000.
The
remaining accrued separation costs of $0 and $9,000 at December 31,
2016 and 2015, respectively, related to the Company's reductions in
force represent the estimated cost of continuing healthcare
coverage and separation payments, and are included in accrued
liabilities and other on the consolidated balance
sheets.
17.
Income Taxes
As of
December 31, 2016 and 2015, our deferred tax assets were
approximately $79.1 million and $74.2 million, respectively. The
components of our deferred tax assets are summarized as
follows:
|
|
|
|
|
Deferred tax assets:
|
|
|
Net operating loss carryforwards
|
$
66,150,646
|
$
60,129,827
|
R&D credit carryforwards
|
9,729,673
|
9,465,900
|
Stock compensation
|
1,368,458
|
1,898,394
|
Intangibles
|
1,720,761
|
1,921,934
|
Temporary differences
|
132,475
|
801,002
|
Deferred tax assets before valuation allowance
|
79,102,014
|
74,217,057
|
Valuation allowance
|
(79,102,014
)
|
(74,217,057
)
|
Net deferred tax assets
|
$
—
|
$
—
|
Current accounting
standards require a valuation allowance against deferred tax assets
if, based on the weight of available evidence, it is more likely
than not that some or all of the deferred tax assets may not be
realized. Due to the uncertainty surrounding the realization of
these deferred tax assets in future tax returns, all of the
deferred tax assets have been fully offset by a valuation allowance
at December 31, 2016 and 2015.
In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities (including the
impact of available carryback and carryforward periods), projected
future taxable income, and tax-planning strategies in making this
assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more
likely than not that the Company will not realize the benefits of
these deductible differences or tax carryforwards as of December
31, 2016.
As of
December 31, 2016 and 2015, we had U.S. net operating loss
carryforwards of approximately $193.3 million and $177.6 million,
respectively. Of those amounts, $15.3 million relates to
stock-based compensation tax deductions in excess of book
compensation expense (“APIC NOLs”) as of both December
31, 2016 and 2015, that will be credited to additional paid-in
capital when such deductions reduce taxes payable as determined on
a "with-and-without" basis. Accordingly, these APIC NOLs will
reduce federal taxes payable if realized in future periods, but
NOLs related to such benefits are not included in the table
above.
As of
December 31, 2016 and 2015, we also had state net operating loss
carryforwards of approximately $28.2 million and $24.7 million,
respectively. The state net operating loss carryforwards will begin
expiring in 2032.
At
December 31, 2016 and 2015, we had U.S. R&D credit
carryforwards of approximately $9.4 million and $9.1 million,
respectively.
There
were no expirations of U.S. net operating loss carryforwards or
R&D credit carryforwards during 2016 or 2015. The details of
our U.S. net operating loss and federal R&D credit carryforward
amounts and expiration dates are summarized as
follows:
|
|
|
Generated
|
Expiration
|
U.S. Net
Operating
Loss
Carryforwards
|
U.S. R&D
Credit
Carryforwards
|
1998
|
2018
|
$
17,142,781
|
$
1,173,387
|
1999
|
2019
|
—
|
130,359
|
2000
|
2020
|
—
|
71,713
|
2001
|
2021
|
—
|
39,128
|
2002
|
2022
|
1,282,447
|
5,350
|
2003
|
2023
|
337,714
|
2,905
|
2004
|
2024
|
1,237,146
|
22,861
|
2005
|
2025
|
2,999,083
|
218,332
|
2006
|
2026
|
3,049,735
|
365,541
|
2007
|
2027
|
2,842,078
|
342,898
|
2008
|
2028
|
2,777,503
|
531,539
|
2009
|
2029
|
13,727,950
|
596,843
|
2010
|
2030
|
5,397,680
|
1,094,449
|
2011
|
2031
|
1,875,665
|
1,950,744
|
2012
|
2032
|
28,406,659
|
468,008
|
2013
|
2033
|
37,450,522
|
681,772
|
2014
|
2034
|
34,088,874
|
816,116
|
2015
|
2035
|
25,073,846
|
492,732
|
2016
|
2036
|
15,581,209
|
358,404
|
Total carryforwards
|
$
193,270,891
|
$
9,363,081
|
The
credit for certain research and experimentation expenses expired at
the end of 2014. The Protecting Americans From Tax Hikes Act of
2015 (the “Act”) was signed into law by President Obama
on December 18, 2015. The Act extends the credit
permanently.
During
the years ended December 31, 2016, 2015 and 2014, Cardiosonix
recorded losses for financial reporting purposes of $13,000,
$11,000 and $15,000, respectively. As of December 31, 2016 and
2015, Cardiosonix had tax loss carryforwards in Israel of
approximately $7.7 million and $7.6 million, respectively. Under
current Israeli tax law, net operating loss carryforwards do not
expire. Due to the uncertainty surrounding the realization of the
related deferred tax assets in future tax returns and the
Company’s intent to dissolve Cardiosonix in the near term,
all of the deferred tax assets have been fully offset by a
valuation allowance at December 31, 2016 and 2015.
Under
Sections 382 and 383 of the IRC of 1986, as amended, the
utilization of U.S. net operating loss and R&D tax credit
carryforwards may be limited under the change in stock ownership
rules of the IRC. The Company previously completed a Section 382
analysis in 2013 and does not believe a Section 382 ownership
change has occurred since then that would impact utilization of the
Company?s net operating loss and R&D tax credit
carryforwards.
Reconciliations
between the statutory federal income tax rate and our effective tax
rate for continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit at statutory rate
|
$
(4,864,851
)
|
(34.0
)%
|
$
(9,777,786
)
|
(34.0
)%
|
$
(12,147,068
)
|
(34.0
)%
|
Adjustments to valuation allowance
|
4,838,082
|
33.8
%
|
9,728,667
|
33.8
%
|
12,925,380
|
36.2
%
|
Adjustments to R&D credit
carryforwards
|
(239,049
)
|
(1.6
)%
|
(612,087
)
|
(2.1
)%
|
(340,886
)
|
(1.0
)%
|
Disqualified debt interest
|
188,060
|
1.3
%
|
438,007
|
1.5
%
|
—
|
0.0
%
|
Permanent items and other
|
77,758
|
0.5
%
|
(212,852
)
|
(0.7
)%
|
(437,426
)
|
(1.2
)%
|
Benefit per financial statements
|
$
—
|
|
$
(436,051
)
|
|
$
—
|
|
18. Segments
We
report information about our operating segments using the
“management approach” in accordance with current
accounting standards. This information is based on the way
management organizes and reports the segments within the enterprise
for making operating decisions and assessing performance. Our
reportable segments are identified based on differences in
products, services and markets served. There were no inter-segment
sales. Prior to 2015, our products and development programs were
all related to diagnostic substances. Our majority-owned
subsidiary, Macrophage Therapeutics, Inc., was formed and received
initial funding during the first quarter of 2015, which resulted in
a re-evaluation of the Company's segment determination. We now
manage our business based on two primary types of drug products:
(i) diagnostic substances, including Tc 99m tilmanocept and other
diagnostic applications of our Manocept platform, our R-NAV joint
venture (terminated on May 31, 2016), NAV4694 and NAV5001 (license
terminated in April 2015), and (ii) therapeutic development
programs, including therapeutic applications of our Manocept
platform and all development programs undertaken by Macrophage
Therapeutics, Inc.
The
information in the following tables is derived directly from each
reportable segment’s financial reporting.
Year Ended December 31, 2016
|
|
|
|
|
Lymphoseek sales revenue:
|
|
|
|
|
United States
(a)
|
$
16,982,234
|
$
—
|
$
—
|
$
16,982,234
|
International
|
54,864
|
—
|
—
|
54,864
|
Lymphoseek license revenue
|
1,795,625
|
—
|
—
|
1,795,625
|
Grant and other revenue
|
3,012,217
|
124,766
|
—
|
3,136,983
|
Total revenue
|
21,844,940
|
124,766
|
—
|
21,969,706
|
Cost of goods sold, excluding depreciation and
amortization
|
2,192,902
|
—
|
—
|
2,192,902
|
Research and development expenses,
excluding depreciation and
amortization
|
8,120,425
|
762,151
|
—
|
8,882,576
|
Selling, general and administrative expenses,
excluding depreciation and
amortization
(b)
|
3,652,154
|
63,158
|
8,901,022
|
12,616,334
|
Depreciation and amortization
(c)
|
104,138
|
—
|
397,231
|
501,369
|
Income (loss) from operations
(d)
|
7,775,321
|
(700,543
)
|
(9,298,253
)
|
(2,223,475
)
|
Other income (expense), excluding
equity in the loss of
R-NAV, LLC
(e)
|
—
|
—
|
(12,070,397
)
|
(12,070,397
)
|
Equity in the loss of R-NAV, LLC
|
—
|
—
|
(15,159
)
|
(15,159
)
|
Net income (loss)
|
7,775,321
|
(700,543
)
|
(21,383,809
)
|
(14,309,031
)
|
Total assets, net of depreciation and amortization:
|
|
|
|
|
United States
|
$
3,610,354
|
$
15,075
|
$
8,703,714
|
$
12,329,143
|
International
|
131,752
|
—
|
781
|
132,533
|
Capital expenditures
|
—
|
—
|
1,847
|
1,847
|
Year Ended December 31, 2015
|
|
|
|
|
Lymphoseek sales revenue:
|
|
|
|
|
United States
(a)
|
$
10,229,659
|
$
—
|
$
—
|
$
10,229,659
|
International
|
24,693
|
—
|
—
|
24,693
|
Lymphoseek license revenue
|
1,133,333
|
—
|
—
|
1,133,333
|
Grant and other revenue
|
1,861,622
|
—
|
—
|
1,861,622
|
Total revenue
|
13,249,307
|
—
|
—
|
13,249,307
|
Cost of goods sold, excluding depreciation and
amortization
|
1,654,800
|
—
|
—
|
1,654,800
|
Research and development expenses,
excluding depreciation and
amortization
|
12,046,221
|
730,895
|
—
|
12,777,116
|
Selling, general and administrative expenses,
excluding depreciation and
amortization
(b)
|
5,852,214
|
123,884
|
10,820,392
|
16,796,490
|
Depreciation and amortization
(c)
|
281,314
|
—
|
290,105
|
571,419
|
Loss from operations
(d)
|
(6,585,242
)
|
(854,779
)
|
(11,110,497
)
|
(18,550,518
)
|
Other income (expense), excluding
equity in the loss of
R-NAV, LLC
(e)
|
—
|
—
|
(9,902,424
)
|
(9,902,424
)
|
Equity in the loss of R-NAV, LLC
|
—
|
—
|
(305,253
)
|
(305,253
)
|
Benefit from income taxes
|
—
|
—
|
436,051
|
436,051
|
Net loss from continuing operations
|
(6,585,242
)
|
(854,779
)
|
(20,882,123
)
|
(28,322,144
)
|
Income from discontinued operations, net of
tax effect
(f)
|
—
|
—
|
758,609
|
758,609
|
Net loss
|
(6,585,242
)
|
(854,779
)
|
(20,123,514
)
|
(27,563,535
)
|
Total assets, net of depreciation and amortization:
|
|
|
|
|
United States
|
$
3,948,971
|
$
—
|
$
10,603,863
|
$
14,552,834
|
International
|
410,666
|
—
|
1,013
|
411,679
|
Capital expenditures
|
26,589
|
—
|
12,412
|
39,001
|
(a)
All
sales to Cardinal Health 414 are made in the United States;
Cardinal Health 414 distributes the product throughout the U.S.
through its network of nuclear pharmacies.
(b)
General and
administrative expenses, excluding depreciation and amortization,
represent costs that relate to the general administration of the
Company and as such are not currently allocated to our individual
reportable segments. Marketing and selling expenses are allocated
to our individual reportable segments.
(c)
Depreciation and
amortization is reflected in cost of goods sold ($104,138 and
$99,963 for the years ended December 31, 2016 and 2015,
respectively), research and development ($0 and $10,617 for the
years ended December 31, 2016 and 2015, respectively), and selling,
general and administrative expenses ($397,231 and $460,839 for the
years ended December 31, 2016 and 2015, respectively).
(d)
Loss
from operations does not reflect the allocation of certain selling,
general and administrative expenses, excluding depreciation and
amortization, to our individual reportable segments.
(e)
Amounts consist
primarily of interest income, interest expense, changes in fair
value of financial instruments, and losses on debt extinguishment,
which are not currently allocated to our individual reportable
segments.
(f)
Amount
of contingent consideration recognized related to 2015 GDS Business
revenue royalties pursuant to the 2011 sale of the GDS Business to
Devicor, net of tax effect. See Note 1(a).
19.
Agreements
a.
Supply Agreements:
In November 2009, we entered into a
manufacture and supply agreement with Reliable Biopharmaceutical
Corporation (Reliable) for the manufacture and supply of the Tc 99m
tilmanocept drug substance. The initial ten-year term of the
agreement expires in November 2019, with options to extend the
agreement for successive three-year terms. Either party had the
right to terminate the agreement upon mutual written agreement, or
upon material breach by the other party if not cured within 60 days
from the date of written notice of the breach. Total purchases
under the manufacture and supply agreement were $1.1 million,
$225,000 and $300,000 for the years ended December 31, 2016, 2015
and 2014, respectively. As of December 31, 2016, we had issued a
purchase order under the manufacture and supply agreement with
Reliable for $525,000 of Tc 99m tilmanocept drug substance for
delivery during 2017. Upon closing of the Asset Sale to Cardinal
Health 414, our contract and open purchase order with Reliable were
transferred to Cardinal Health 414.
In May
2013, we entered into a clinical supply agreement with Nordion
(Canada), Inc. (Nordion) for the manufacture and supply of NAV5001
clinical trial material. The initial three-year term expired in May
2016. In August 2014, in connection with the Company’s
decision to refocus its resources, the Nordion agreement was
amended to provide for a suspension period during which the Company
was to pay a monthly fee to maintain production space at
Nordion’s facility until such time as manufacture resumed. In
March 2016, the Nordion agreement was terminated. Total purchases
under the clinical supply agreement were $43,000, $244,000 and
$505,000 for the years ended December 31, 2016, 2015 and 2014,
respectively.
In
August 2013, we entered into a manufacturing services agreement
with PETNET Solutions, Inc. (PETNET) for the manufacture and
distribution of NAV4694. The initial three-year term of the
agreement expired in August 2016 and the agreement was not renewed.
Total purchases under the manufacturing agreement were $826,000,
$855,000 and $2.2 million for the years ended December 31, 2016,
2015 and 2014, respectively.
In
September 2013, we entered into a manufacturing services agreement
with OSO BioPharmaceuticals Manufacturing, LLC (OsoBio) for
contract pharmaceutical development, manufacturing, packaging and
analytical services for Tc 99m tilmanocept. Either party had the
right to terminate the agreement upon mutual written agreement, or
upon material breach by the other party if not cured within 60 days
from the date of written notice of the breach. During the term of
agreement, OsoBio was the primary supplier of manufacturing
services for Tc 99m tilmanocept. In consideration for these
services, the Company paid a unit pricing fee. In addition, the
Company also paid OsoBio a fee for regulatory and other support
services. Total purchases under the manufacturing services
agreement were $1.2 million, $472,000 and $96,000 for the years
ended December 31, 2016, 2015 and 2014, respectively. As of
December 31, 2016, we had issued purchase orders under the
agreement with OsoBio for $562,000 of our products for delivery
during 2017. Upon closing of the Asset Sale to Cardinal Health 414,
our contract and open purchase orders with OsoBio were transferred
to Cardinal Health 414.
Also
in September 2013, we completed a service and supply master
agreement with Gipharma S.r.l. (Gipharma) for process development,
manufacturing and packaging of reduced-mass vials to be sold in the
EU. The agreement has an initial term of three years and
automatically renews for an additional one-year periods unless
written notice is provided at least six months prior to the
expiration of the current term. Navidea may terminate the agreement
for any reason by providing 60 days prior written notice. Either
party may terminate the agreement upon material breach if not cured
within 30 days from the date of written notice of the breach, or
upon written notice following the other party’s dissolution
or cessation of normal business. In consideration for these
services, the Company will pay fees as defined in the agreement.
Total purchases under the service and supply master agreement were
$149,000, $677,000 and $272,000 for the years ended December 31,
2016, 2015 and 2014, respectively. As of December 31, 2016, we had
issued purchase orders under the agreement with Gipharma for $1,500
of services for delivery during 2017. Following the transfer of the
Tc 99m tilmanocept Marketing Authorization to SpePharm, our
contract with Gipharma will be transferred to
SpePharm.
b.
Research and Development Agreements:
In
January 2002, we completed a license agreement with the University
of California, San Diego (UCSD) for the exclusive world-wide rights
to Tc 99m tilmanocept. The license agreement was effective until
the later of the expiration date of the longest-lived underlying
patent. In July 2014, we amended the
license agreement to extend the
agreement until the third anniversary of the expiration date of the
longest-lived underlying patent. Under the terms of the license
agreement, UCSD granted us the exclusive rights to make, use, sell,
offer for sale and import licensed products as defined in the
agreement and to practice the defined licensed methods during the
term of the agreement. We could also sublicense the patent rights,
subject to certain sublicense terms as defined in the agreement. In
consideration for the license rights, we agreed to pay UCSD a
license issue fee of $25,000 and license maintenance fees of
$25,000 per year. We also agreed to make payments to UCSD upon
successfully reaching certain clinical, regulatory and cumulative
sales milestones, and a royalty on net sales of licensed products
subject to a $25,000 minimum annual royalty. In addition, we agreed
to reimburse UCSD for all patent-related costs and to meet certain
diligence targets. Total costs related to the UCSD license
agreement for Tc 99m tilmanocept were $955,000, $777,000 and
$353,000 in 2016, 2015 and 2014, respectively. Royalties on net
sales of Tc 99m tilmanocept were recorded in cost of goods sold,
license maintenance fees and patent-related costs were recorded in
research and development expenses, and sublicense fees were
recorded in selling, general and administrative
expenses.
In
connection with the March 2017 closing of the Asset Sale to
Cardinal Health 414, the Company amended and restated its Tc 99m
tilmanocept license agreement with UCSD pursuant to which UCSD
granted a license to the Company to exploit certain intellectual
property rights owned by UCSD and, separately, Cardinal Health 414
entered into a license agreement with UCSD pursuant to which UCSD
granted a license to Cardinal Health 414 to exploit certain
intellectual property rights owned by UCSD for Cardinal Health 414
to sell the Product in the Territory. Pursuant to the Purchase
Agreement, the Company granted to UCSD a five (5)-year warrant to
purchase up to 1 million shares of the Company’s common
stock, par value $.001 per share, at an exercise price of $1.50 per
share. See Note 24(a).
In
April 2008, we completed a second license agreement with UCSD for
an expanded field of use allowing Tc 99m tilmanocept to be
developed as an optical or ultrasound agent. The license agreement
was effective until the expiration date of the longest-lived
underlying patent. Under the terms of the license agreement, UCSD
granted us the exclusive rights to make, use, sell, offer for sale
and import licensed products as defined in the agreement and to
practice the defined licensed methods during the term of the
agreement. We could also sublicense the patent rights, subject to
certain sublicense terms as defined in the agreement. In
consideration for the license rights, we agreed to pay UCSD a
license issue fee of $25,000 and license maintenance fees of
$25,000 per year. We also agreed to make payments to UCSD upon
successfully reaching certain clinical, regulatory and cumulative
sales milestones, and a royalty on net sales of licensed products
subject to a $25,000 minimum annual royalty. In addition, we agreed
to reimburse UCSD for all patent-related costs and to meet certain
diligence targets. Total costs related to the UCSD license
agreement for the use of Tc 99m tilmanocept as an optical or
ultrasound agent were $25,000 in 2014, and were recorded in
research and development expenses. The license agreement for the
use of Tc 99m tilmanocept as an optical or ultrasound agent was
canceled in July 2014.
In
July 2014, the Company replaced the license agreement for the use
of Tc 99m tilmanocept as an optical or ultrasound agent with an
expanded license agreement for the exclusive world-wide rights to
all diagnostic and therapeutic uses of tilmanocept (other than Tc
99m tilmanocept). The license agreement is effective until the
third anniversary of the expiration date of the longest-lived
underlying patent. Under the terms of the license agreement, UCSD
has granted us the exclusive rights to make, use, sell, offer for
sale and import licensed products as defined in the agreement and
to practice the defined licensed methods during the term of the
agreement. We may also sublicense the patent rights, subject to
certain sublicense terms as defined in the agreement. In
consideration for the license rights, we agreed to pay UCSD a
license issue fee of $25,000 and license maintenance fees of
$25,000 per year. We also agreed to make payments to UCSD upon
successfully reaching certain clinical, regulatory and cumulative
sales milestones, and a royalty on net sales of licensed products
subject to a $25,000 minimum annual royalty. In addition, we agreed
to reimburse UCSD for all patent-related costs and to meet certain
diligence targets. Total costs related to the UCSD license
agreement for tilmanocept were $199,000, $152,000 and $25,000 in
2016, 2015 and 2014, respectively, and were recorded in research
and development expenses.
In
December 2011, we executed a license agreement with AstraZeneca AB
for NAV4694, a proprietary compound that is primarily intended for
use in diagnosing Alzheimer’s disease and other CNS
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. Total costs related to the AstraZeneca license agreement
were $116,000, $80,000 and $81,000 in 2016, 2015 and 2014,
respectively, and were recorded in research and development
expenses.
In
July 2012, we entered into an agreement with Alseres
Pharmaceuticals, Inc. (Alseres) to sublicense NAV5001, an
Iodine-123 radiolabeled imaging agent being developed as an aid in
the diagnosis of Parkinson’s disease and other movement
disorders, with a potential use as a diagnostic aid in dementia.
Under the terms of the sublicense agreement, Alseres granted
Navidea an exclusive, worldwide sublicense to research, develop and
commercialize NAV5001. The 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 provided for contingent milestone
payments of up to $2.9 million, $2.5 million of which would have
principally occurred 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
would have been issuable at the time of product registration or
upon commercial sales. In addition, the sublicense terms
anticipated royalties on annual net sales of the approved product
which were consistent with industry-standard terms and certain
sublicense extension fees, payable in cash and shares of common
stock, in the event certain diligence milestones were not met. In
April 2015, the Company entered into an agreement with Alseres to
terminate the Alseres sublicense agreement. Under the terms of this
agreement, Navidea transferred all regulatory, clinical and
manufacturing-related data related to NAV5001 to Alseres. Alseres
agreed to reimburse Navidea for any incurred maintenance costs of
the contract manufacturer retroactive to March 1, 2015. In
addition, Navidea has supplied clinical support services for
NAV5001 on a cost-plus reimbursement basis. However, to this point,
Alseres has been unsuccessful in raising the funds necessary to
restart the program and reimburse Navidea. As a result, we have
taken steps to end our obligations under the agreement and notified
Alseres that we consider them in breach of the agreement. We are in
the process of trying to recover the funds we expended complying
with our obligations under the termination agreement. Total costs
related to the Alseres sublicense agreement were $5,000 and $42,000
in 2015 and 2014, respectively, and were recorded in research and
development expenses.
c.
Employment Agreements:
As of December
31, 2016, we had employment agreements with two of our senior
officers. In addition, although certain employment agreements
expired on or before December 31, 2016, the terms of the agreements
provide for continuation of certain terms of the employment
agreements as long as the senior officers continue to be employees
of the Company following expiration of the agreements. The
employment agreements contain termination and/or change in control
provisions that would entitle each of the officers to 1.3 to 2.75
times their annual salaries, vest outstanding restricted stock and
options to purchase common stock, and continue certain benefits if
there is a termination without cause or change in control of the
Company (as defined) and their employment terminates. As of
December 31, 2016, our maximum contingent liability under these
agreements in such an event is approximately $1.9 million. The
employment agreements generally also provide for severance,
disability and death benefits.
20. Leases
We
lease office space in Ohio under an operating lease that expires in
October 2022. Beginning in March 2017, we also lease office space
in New Jersey under an operating lease that expires in March
2018.
As of
December 31, 2016, the future minimum lease payments for the years
ending December 31 are as follows:
|
|
2017
|
$
277,946
|
2018
|
284,246
|
2019
|
290,734
|
2020
|
297,405
|
2021
|
304,201
|
Thereafter
|
253,339
|
|
$
1,707,871
|
Total
rental expense was $187,000, $217,000 and $357,000 for the years
ended December 31, 2016, 2015 and 2014, respectively.
21.
Employee Benefit Plan
We
maintain an employee benefit plan under Section 401(k) of the
Internal Revenue Code. The plan allows employees to make
contributions and we may, but are not obligated to, match a portion
of the employee’s contribution with our common stock, up to a
defined maximum. We also pay certain expenses related to
maintaining the plan. We recorded expenses related to our 401(k)
plan of $101,000, $124,000 and $125,000 during 2016, 2015 and 2014,
respectively.
22.
Supplemental Disclosure for Statements of Cash
Flows
During
2016, 2015 and 2014, we paid interest aggregating $5.5 million,
$4.6 million and $2.9 million, respectively. Interest paid during
2016 included collection fees of $778,000 and a prepayment premium
of $2.1 million, both of which were withdrawn by CRG from a bank
account under their control. During 2016, 2015, and 2014, we issued
67,002, 68,157 and 36,455 shares of our common stock, respectively,
as matching contributions to our 401(k) Plan which were valued at
$121,000, $117,000 and $100,000, respectively. In December 2016, we
prepaid $348,000 of insurance premiums through the issuance of a
note payable to IPFS with an interest rate of 8.99%. During 2015
and 2014, we recorded $1.0 million and $2.4 million, respectively,
of end-of-term fees associated with our notes payable to CRG and
Oxford.
In
connection with their initial investment in March 2015, the
investors in MT were issued warrants that have been determined to
be derivative liabilities with an estimated fair value of $63,000.
A $46,000 deemed dividend related to the beneficial conversion
feature within the MT Preferred Stock was also recorded at the time
of the initial investment in MT. See Note 9.
During
2014, in connection with the Oxford Loan Agreement, we issued
warrants with an estimated relative fair value of $465,000. Also
during 2014, in connection with entering into the R-NAV joint
enterprise, Navidea executed a promissory note in the principal
amount of $666,666, payable in two equal installments on July 15,
2015 and July 15, 2016, the first and second anniversaries of the
R-NAV transaction. See Note 10.
23.
Selected Quarterly Financial Data
(Unaudited)
Quarterly
financial information for fiscal 2016 and 2015 are presented in the
following table, in thousands, except per share data:
|
|
|
|
|
|
|
2016:
|
|
|
|
|
Lymphoseek sales revenue
|
$
3,783
|
$
4,232
|
$
6,690
|
$
2,332
|
Lymphoseek license revenue
|
254
|
246
|
1,296
|
—
|
Grant and other revenue
|
686
|
917
|
511
|
1,023
|
Gross profit
|
4,188
|
4,834
|
7,575
|
3,076
|
Operating expenses
|
6,756
|
5,414
|
4,217
|
5,509
|
Operating income (loss)
|
(2,568
)
|
(580
)
|
3,358
|
(2,433
)
|
Net loss attributable to common stockholders
|
(3,686
)
|
(6,681
)
|
(59
)
|
(3,883
)
|
Basic and diluted net loss per share
(1)
|
$
(0.02
)
|
$
(0.04
)
|
$
(0.00
)
|
$
(0.03
)
|
|
|
|
|
|
2015:
|
|
|
|
|
Lymphoseek sales revenue
|
$
1,835
|
$
1,964
|
$
2,953
|
$
3,503
|
Lymphoseek license revenue
|
83
|
250
|
550
|
250
|
Grant and other revenue
|
190
|
654
|
477
|
541
|
Gross profit
|
1,659
|
2,535
|
3,522
|
3,778
|
Operating expenses
|
9,475
|
6,346
|
7,845
|
6,379
|
Operating loss
|
(7,816
)
|
(3,811
)
|
(4,323
)
|
(2,601
)
|
Net loss attributable to common stockholders
|
(7,337
)
|
(9,691
)
|
(8,071
)
|
(2,510
)
|
Basic and diluted net loss per share
(1)
|
$
(0.05
)
|
$
(0.06
)
|
$
(0.05
)
|
$
(0.02
)
|
(1)
Net loss per share
is computed independently for each of the quarters presented.
Therefore the sum of the quarterly per-share calculations will not
necessarily equal the annual per share calculation.
24. Subsequent Events:
a.
Closing on the Asset Sale to Cardinal Health
414:
On March 3, 2017, pursuant to the Asset Purchase
Agreement dated as of November 23, 2016 between the Company and
Cardinal Health 414 (the “Purchase Agreement”), the
Company completed its previously announced sale to Cardinal Health
414 of its assets used, held for use, or intended to be used in
operating its business of developing, manufacturing and
commercializing a product used for lymphatic mapping, lymph node
biopsy, and the diagnosis of metastatic spread to lymph nodes for
staging of cancer (the “Business”), including the
Company’s radioactive diagnostic agent marketed under the
Lymphoseek
®
trademark for
current approved indications by the FDA and similar indications
approved by the FDA in the future (the “Product”), in
Canada, Mexico and the United States (the “Territory”)
(giving effect to the License-Back described below and excluding
certain assets specifically retained by the Company) (the
“Asset Sale”). Such assets sold in the Asset Sale
consist primarily of, without limitation, (i) intellectual property
used in or reasonably necessary for the conduct of the Business,
(ii) inventory of, and customer, distribution, and product
manufacturing agreements related to, the Business, (iii) all
product registrations related to the Product, including the new
drug application approved by the FDA for the Product and all
regulatory submissions in the United States that have been made
with respect to the Product and all Health Canada regulatory
submissions and, in each case, all files and records related
thereto, (iv) all related clinical trials and clinical trial
authorizations and all files and records related thereto, and (v)
all right, title and interest in and to the Product, as specified
in the Purchase Agreement (the “Acquired
Assets”).
In
exchange for the Acquired Assets, Cardinal Health 414 (i) made a
cash payment to the Company at closing of approximately $80.6
million after adjustments based on inventory being transferred and
an advance of $3 million of guaranteed earnout payments as part of
the CRG settlement described below, (ii) assumed certain
liabilities of the Company associated with the Product as specified
in the Purchase Agreement, and (iii) agreed to make periodic
earnout payments (to consist of contingent payments and milestone
payments which, if paid, will be treated as additional purchase
price) to the Company based on net sales derived from the purchased
Product subject, in each case, to Cardinal Health 414’s right
to off-set. In no event will the sum of all earnout payments, as
further described in the Purchase Agreement, exceed $230 million
over a period of ten years, of which $20.1 million are guaranteed
payments for the three years immediately after closing of the Asset
Sale. At the closing of the Asset Sale, $3 million of such earnout
payments were advanced by Cardinal Health 414 to the Company, and
paid to CRG as part of the Deposit Amount paid to CRG described
below.
Upon
closing of the Asset Sale, the Supply and Distribution Agreement
between Cardinal Health 414 and the Company was terminated and, as
a result, the provisions thereof are of no further force or effect
(other than any indemnification, payment, notification or data
sharing obligations which survive the termination). At the closing
of the Asset Sale, Cardinal Health 414 paid to the Company $1.2
million, as an estimate of the accrued revenue sharing payments
owed to the Company as of the closing date, net of prior
payments.
In
connection with the closing of the Asset Sale, the Company entered
into a License-Back Agreement (the “License-Back”) with
Cardinal Health 414. Pursuant to the License-Back, Cardinal Health
414 granted to the Company a sublicensable (subject to conditions)
and royalty-free license to use certain intellectual property
rights included in the Acquired Assets (as defined below) and owned
by Cardinal Health 414 as of the closing of the Asset Sale to the
extent necessary for the Company to (i) on an exclusive basis,
subject to certain conditions, develop, manufacture, market, sell
and distribute new pharmaceutical and other products that are not
Competing Products (as defined in the License-Back), and (ii) on a
non-exclusive basis, develop, manufacture, market, sell and
distribute the Product (as defined below) throughout the world
other than in the Territory. Subject to the Company’s
compliance with certain restrictions in the License-Back, the
License-Back also restricts Cardinal Health 414 from using the
intellectual property rights included in the Acquired Assets to
develop, manufacture, market, sell, or distribute any product other
than the Product or other product that (a) accumulates in lymphatic
tissue or tumor-draining lymph nodes for the purpose of (1)
lymphatic mapping or (2) identifying the existence, location or
staging of cancer in a body, or (b) provides for or facilitates any
test or procedure that is reasonably substitutable for any test or
procedure provided for or facilitated by the Product. Pursuant to
the License-Back and subject to rights under existing agreements,
Cardinal Health 414 was given a right of first offer to market,
sell and/or market any new products developed from the intellectual
property rights licensed by Cardinal Health 414 to the Company by
the License-Back.
As
part of the Asset Sale, the Company and Cardinal Health 414 also
entered into ancillary agreements providing for transitional
services and other arrangements. The Company amended and restated
its Tc 99m tilmanocept license agreement with UCSD pursuant to
which UCSD granted a license to the Company to exploit certain
intellectual property rights owned by UCSD and, separately,
Cardinal Health 414 entered into a license agreement with UCSD
pursuant to which UCSD granted a license to Cardinal Health 414 to
exploit certain intellectual property rights owned by UCSD for
Cardinal Health 414 to sell the Product in the
Territory.
Pursuant to the
Purchase Agreement, the Company granted to each of Cardinal Health
414 and UCSD a five (5)-year warrant to purchase up to 10 million
shares and 1 million shares, respectively, of the Company’s
common stock, par value $.001 per share, at an exercise price of
$1.50 per share, each of which warrant is subject to anti-dilution
and other customary terms and conditions.
Prior
to the Asset Sale, the Company had no material relationships with
Cardinal Health 414 or its affiliates except that Cardinal Health
414 was the Company’s primary distributor of the Product
throughout the United States pursuant to the Supply and
Distribution Agreement which, as set forth above, was terminated as
of the closing of the Asset Sale.
Post-closing and
after paying off our outstanding indebtedness and
transaction-related expenses, Navidea has approximately $15.6
million in cash and $3.7 million in payables, a large portion of
which is tied to the 4694 program which Navidea is seeking to
divest in the near term. Following the completion of the Asset Sale
to Cardinal Health 414 and the repayment of a majority of our
indebtedness, we believe that substantial doubt about the
Company’s financial position and ability to continue as a
going concern has been removed.
b.
CRG Litigation and Settlement:
On
February 9, 2017, The District Court of Harris County, Texas
entered an interlocutory Order declaring that the Company and its
subsidiary, MT, committed one or more events of default under the
CRG Loan Agreement as of May 8, 2015, and granted CRG the right to
exercise its remedies provided in Section 11.01 of the CRG Loan
Agreement and 4.05 of the related Security Agreement, dated as of
May 8, 2015, by and among the Company, MT, as guarantor, CRG and
the control agent (the “Security Agreement” and
together with the CRG Loan Agreement and all other documents,
instruments and agreements between the Company and CRG executed in
connection therewith, the “CRG Loan Documents”). The
interlocutory order did not address the issues pertaining to the
Company’s affirmative defenses to CRG’s claims, or
enter an award of any amount against the Company in connection with
CRG’s claims under the Loan Agreement and Security
Agreement.
By
letter dated February 21, 2017 (the “Letter”), CRG
notified the Company that, in further exercise of its remedies
under the CRG Loan Documents, including, without limitation,
pursuant to Sections 4.01 through 4.13 and Section 5.04 of the
Security Agreement and Sections 11.02 and 12.03 of the CRG Loan
Agreement, CRG Servicing LLC, CRG’s representative, would
sell (or lease or license, as applicable), at a public sale, (A)
the stock of MT owned by the Company and pledged to CRG pursuant to
the CRG Loan Documents and (B) the U.S. Collateral (as defined in
the Security Agreement) related to Tc 99m tilmanocept on March 13,
2017. CRG claimed that, as of January 31, 2017, the outstanding
obligations due under the CRG Loan Documents, including outstanding
principal, interest, fees, and expenses, aggregated $63,198,774.46
(the “Asserted Payoff Amount”). CRG claimed that
interest, fees and expenses would continue to accrue and CRG
reserved the right to adjust or supplement the Asserted Payoff
Amount prior to the date of the public sale. The Asserted Payoff
Amount was also calculated by CRG to include costs incurred by CRG
through January 31, 2017 in respect of indemnity obligations of the
Company under Sections 12.03(a)(ii) and 12.03(b) of the CRG Loan
Agreement (the “Indemnity Obligations”), which CRG
claimed were secured obligations under the Security Agreement. CRG
claimed that, unless and until all Indemnity Obligations (inclusive
of costs incurred by CRG subsequent to January 31, 2017) are
indefeasibly paid in full, in cash, as contemplated by the Security
Agreement, such Indemnity Obligations would continue to be secured
by the liens created by and perfected in accordance with the
Security Agreement in all collateral not sold in the public sale,
including any cash proceeds of the public sale in excess of the
Asserted Payoff Amount, which cash proceeds would be deposited into
an escrow account and would be subject to CRG’s continuing
lien. CRG also noted that payment of the Asserted Payoff Amount (as
such amount may be adjusted or supplemented immediately prior to
the public sale) would not result in the indefeasible payment in
full of the Secured Obligations unless payment of the Asserted
Payoff Amount, as adjusted or supplemented, was concurrently
accompanied by a general release by the Company, MT, as guarantor,
and the successful bidder(s) of all present and future claims and
counterclaims against CRG.
On
March 3, 2017, the Company entered into a Global Settlement
Agreement with MT, CRG, and Cardinal Health 414 to effectuate the
terms of the settlement previously entered into by the parties on
February 22, 2017. In accordance with the Global Settlement
Agreement, on March 3, 2017, the Company repaid the $59 million
Deposit Amount of its alleged indebtedness and other obligations
outstanding under the CRG Term Loan. Concurrently with payment of
the Deposit Amount, CRG released all liens and security interests
granted under the CRG Loan Documents and the CRG Loan Documents
were terminated and are of no further force or effect; provided,
however, that, notwithstanding the foregoing, the Company and CRG
agreed to continue with their proceeding pending in The District
Court of Harris County, Texas to fully and finally determine the
Final Payoff Amount. The Company and CRG further agreed that the
Final Payoff Amount, inclusive of teh $59 million repaid on March
3, 2017, would be no less than $47 million and no more than $66
million. In addition, concurrently with the payment of the Deposit
Amount and closing of the Asset Sale, (i) Cardinal Health 414
agreed to post a $7 million letter of credit in favor of CRG (at
the Company’s cost and expense to be deducted from the
closing proceeds due to the Company, and subject to Cardinal Health
414’s indemnification rights under the Purchase Agreement) as
security for the amount by which the High Payoff Amount exceeds the
Deposit Amount in the event the Company is unable to pay all or a
portion of such amount, and (ii) CRG agreed to post a $12 million
letter of credit in favor of the Company as security for the amount
by which the Deposit Amount exceeds the Low Payoff Amount. If, on
the one hand, it is finally determined by the Texas Court that the
amount the Company owes to CRG under the Loan Documents exceeds the
Deposit Amount, the Company will pay such excess amount, plus the
costs incurred by CRG in obtaining CRG’s letter of credit, to
CRG and if, on the other hand, it is finally determined by the
Texas Court that the amount the Company owes to CRG under the Loan
Documents is less than the Deposit Amount, CRG will pay such
difference to the Company and reimburse Cardinal Health 414 for the
costs incurred by Cardinal Health 414 in obtaining its letter of
credit. Any payments owing to CRG arising from a final
determination that the Final Payoff Amount is in excess of $59
million shall first be paid by the Company without resort to the
letter of credit posted by Cardinal Health 414, and such letter of
credit shall only be a secondary resource in the event of failure
of the Company to make payment to CRG. The Company will indemnify
Cardinal Health 414 for any costs it incurs in payment to CRG under
the settlement, and the Company and Cardinal Health 414 further
agree that Cardinal Health 414 can pursue all possible remedies,
including offset against earnout payments (guaranteed or otherwise)
under the Purchase Agreement, warrant exercise, or any other
payments owed by Cardinal Health 414, or any of its affiliates, to
the Company, or any of its affiliates, if Cardinal Health 414
incurs any cost associated with payment to CRG under the
settlement. The Company and CRG also agreed that the $2 million
being held in escrow pursuant to court order in the Ohio case and
the $3 million being held in escrow pursuant to court order in the
Texas case would be released to the Company at closing of the Asset
Sale. On March 3, 2017, Cardinal Health 414 posted a $7 million
letter of credit, and on March 7, 2017, CRG posted a $12 million
letter of credit, each as required by the Global Settlement
Agreement. The trial date is currently set for July 3, 2017. See
Note 12.
c.
Platinum Note Payment:
In addition to
payment of the Deposit Amount to CRG described above, the Company
repaid to PPCO an aggregate of approximately $7.7 million in
partial satisfaction of the Company’s liabilities,
obligations and indebtedness under the Platinum Loan Agreement by
and between the Company and Platinum-Montaur, which, to the extent
of such payment, were transferred by Platinum-Montaur to PPCO. The
Company was informed by PPVA that it was the owner of the balance
of the Platinum-Montaur loan. Such balance of approximately $1.9
million was due upon closing of the Asset Sale but withheld by the
Company and not paid to anyone as it is subject to competing claims
of ownership by both Michael Goldberg, the Company’s
President and Chief Executive Officer, and PPVA. See Note
12.
d.
Series LL Warrant Exercise:
On January
17, 2017, Dr. Goldberg exercised 5,411,850 of his Series LL
warrants for gross proceeds to the Company of $54,119. See Note
15(a).