Navidea Biopharmaceuticals Inc (NAVB)

[XJINVESTOR]

http://streetregister.com/2016/09/09/navidea-biopharmaceuticals-inc-nysemktnavb-pivots-poised-for-turnaround


Navidea Biopharmaceuticals Inc (NYSEMKT:NAVB) Pivots, Poised For Turnaround
By Mike Robinson - September 9, 2016173

In Navidea Biopharmaceuticals Inc (NYSEMKT:NAVB)’s latest earnings call, analysts referenced the suffocating effect that an outstanding debt (and litigation related to said debt) was having on Navidea’s market capitalization and share price. The company is in the saddle for circa $50 million, owing to a credit facility extended to it by CRG, the global healthcare investment management firm, last year.

The debt and litigation has been, to put it lightly, a real thorn in Navidea’s side across the last twelve months, and as a result, despite what look to be some pretty solid underlying numbers, the company declined from just short of $2.50 a share this time last year, to $0.30 at August close – a close to 90% decline across the twelve-month period.

At the beginning of this week, however, the company announced what looks to be a final resolution on the matter – a resolution that should lift the above mentioned suffocating effect off the company and see it’s market capitalization start to recover.



Markets are already recognizing the potential impact of the resolution, and Navidea is up more than 165% on the week’s open.

So what’s happened?

Navidea has executed a non binding letter of intent (read: not closed yet, and very much dependent on due diligence) that will see it sell all rights and licensing to its lead product, Lymphoseek, to its lead distributor, Cardinal Health. The company will receive a license back to distribute the product outside of the US, and also develop products based on the technology that underpins Lymphoseek going forward.

In return for the rights, Cardinal Health is set to pay an $80 million upfront payment, as well as royalties and other payments based on sales volume, for a minimum of $6.7 million a year for the next three years, and with the total sale price not exceeding $310 million.

That’s the terms in a nutshell – what does it mean for Navidea?

The most important near term implication of this deal is that Navidea (subject to closing) can now pay off the $50 million debt it owes to CRG, in full, and free itself of the drag that the litigation has been putting on the company and its operations. This is not to be underestimated. The company’s CEO left earlier this year, primarily based on the impact of the litigation (whatever the media said) and reports of low morale, disgruntled staff and the reluctance of certain potential partners to strike deals with the company have hampered growth. The lifting of this situation is hugely important going forward.

The second implication is that Navidea now no longer has a revenue source. That’s not great, but according to a conference call held by management to discuss the deal, the company believes the potential future revenues from the development of its pipeline, specifically a rheumatoid arthritis treatment, outweigh the ROI on a marketing push for its Lymphoseek product.

This move can be interpreted as follows. The company is monetizing an asset to shore up its capital structure, and putting any remaining proceeds into its pipeline. We see this as a smart move. Why? Because any future growth potential was severely stunted by the company’s pre-agreement situation (of course, it’s very much still in this situation, but we are assuming the Cardinal Health deal will close out successfully).

Navidea is now an early stage junior biotech with a couple of promising candidates in its pipeline, no debt and a partnership that is set to bring in just shy of $7 million annually at the bottom end for at least three years. It should have cash on hand at close (and after paying off the debt and litigation costs) of between $25-30 million, and intends to counter CRG in the hope it can recoup some of its capital going forward.

That’s a pretty healthy position, and a complete turnaround for a company that, just last month, looked like a candidate for insolvency.

It’s not out of the woods yet, but as the deal closes and focus switches to the company’s pipeline, rather than its litigation, we expect Navidea to become a decent momentum play throughout the final quarter of this year.