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enlightening
empowering
enhancing
2012 ANNUAL REPORT
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enlightening
empowering
enhancing
Financial Highlights | Amounts in thousands, except per share data
Years Ended December 31,
2012 2011 2010 2009 2008
Revenue $ 79 $ 598 $ 617 $ -- $ --
Operating expenses 28,068 24,702 13,294 7,408 6,692
Loss from operations (27,989) (24,104) (12,677) (7,408) (6,692)
Income (loss) attributable
to common stockholders
(29,201)
5,513 (58,172) (39,846) (5,166)
Basic income (loss) per share (0.29) 0.06 (0.72) (0.54) (0.08)
As of December 31,
2012 2011 2010 2009 2008
Total assets $ 11,972 $ 31,194 $ 10,863 $ 9,018 $ 9,619
Stockholders’ equity (deficit) (1,405) 21,132 4,132 (9,870) (3,026)
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enlightening
empowering
enhancing
A year of milestone achievements for patients,
physicians and shareholders
To Our Valued Shareholders,
This past year has marked a momentous period for Navidea Biopharmaceuticals. At the core of our
performance throughout the year, we brought Lymphoseek®, the first new diagnostic agent for lymphatic
mapping in 30 years and the first precision diagnostic, through the U.S. Food and Drug Administration (FDA)
approval process and to patients with breast cancer and melanoma. Moreover, we advanced our leadership
position in innovative precision diagnostics on several fronts: we advanced our development pipeline for large
and growing markets in oncology and neurodegenerative diseases; we enhanced our internal capabilities with
the addition of key personnel in commercial, clinical, regulatory, manufacturing and management; and we met
our financial commitments and secured flexible access to multiple available funding sources to support our
growth as well as grew our institutional investor shareholder base. We believe these accomplishments lay the
foundation for value enhancement to our shareholders. Following are a few highlights.
Lymphoseek & Oncology Programs
• In the U.S., Lymphoseek, our first precision diagnostic, was approved by
the FDA in March 2013. Lymphoseek® (technetium Tc 99m tilmanocept)
Injection is indicated for use in lymphatic mapping procedures to help in
the diagnostic evaluation of potential cancer spread for patients with breast
cancer and melanoma. The U.S. launch of Lymphoseek began in May 2013
with sales and distribution through the extensive network of more than 140
nuclear pharmacies operated by our partner, Cardinal Health. In Europe,
the Lymphoseek Marketing Authorization Application (MAA) was submitted
to the European Medicines Agency in December 2012.
• In line with our overall product development strategy, we expanded the potential opportunity for Lymphoseek,
generating positive top-line interim data from our Phase 3 clinical study in head and neck cancer. The study
assessed Lymphoseek as a sentinel lymph node mapping agent as compared to the current gold standard,
the removal and pathology assessment of all lymph nodes during full multi-level nodal dissection surgery.
We also commenced an investigator-initiated clinical trial collaboration in colorectal cancer.
• Strong data from Lymphoseek clinical trials were presented at numerous medical meetings in the U.S. and
Europe and data from both Lymphoseek Phase 3 clinical trials for breast cancer and melanoma were
published in peer-reviewed journals.
• We were awarded a Small Business Innovation Research grant from the National Institutes of Health for
development of a radio-immuno-guided surgery (RIGS®) agent aimed at detecting metastatic cancer, with
potential for grant money up to a total of $1.5 million over three years if fully funded.
Neurodegenerative Programs
Alzheimer’s Disease and Mild Cognitive Impairment
• We initiated two Phase 2 clinical trials of NAV4694, our β-amyloid PET imaging agent with potential best-in-
class properties. The first study is designed to compare images from subjects with probable Alzheimer’s
disease (AD) to similarly aged and young healthy volunteers as an aid in diagnosing AD. The second Phase
2b study in subjects with Mild Cognitive Impairment (MCI) is evaluating the potential for NAV4694 in
monitoring progression of MCI to AD.
• Data from the NAV4694 studies were presented at key scientific and medical meetings. Positive results
from a study showing the head-to-head comparison of NAV4694 and the β-amyloid imaging gold standard
in AD and dementia was published.
2012 ANNUAL REPORT
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Parkinsonian Syndromes, Movement Disorders and
Dementia with Lewy Bodies
• To further augment our portfolio, we in-licensed NAV5001, a
SPECT imaging agent also possessing potential best-in-class
properties, which we are developing as a potential aid in the
differential diagnosis of Parkinson’s disease and other
movement disorders, as well as dementia with Lewy bodies
(DLB), the leading form of dementia after AD. We initiated a
study of NAV5001 as a tool to evaluate dopamine transporters
in the brain as a start to our program in DLB.
Prudent Financial Decisions
• To enable the Company to continue to execute on its business plan and grow stakeholder value, we secured
a $50 million credit facility with Platinum-Montaur Life Sciences LLC (Montaur) to provide flexible financial
resources to fund short- and long-term development and growth plans. Following the Lymphoseek approval
decision, a total of $35 million is available to the Company under the line, of which we have judiciously drawn
only $8 million through March 2013. Montaur also exercised certain warrants in December 2012 and March
2013, providing $3.3 million in total.
• We also worked to strengthen our institutional ownership base most tangibly through the completion of two
at-market, underwritten public offerings totaling 3.6 million shares of common stock, resulting in net proceeds
to the Company of approximately $9.3 million.
• Navidea’s operating expenses for the year ended December 31, 2012, were $28.0 million compared to
$24.1 million for 2011. For the year ended December 31, 2012, Navidea reported a loss attributable to
common stockholders of $29.2 million, or $0.29 per share, compared to income attributable to common
stockholders of $5.5 million, or $0.06 per share, for the same period in 2011 (a period that included the sale
of our gamma detection device business). Our balance sheet at the end of 2012 reported cash of $9.1
million but was augmented by access to a $50 million credit facility.
Precision Diagnostics — Navigating Toward Success
The landscape of diagnostic medicine provides a fertile foundation for growth, as the healthcare system realizes
the economic burden of an aging population and the inability to eliminate trial and error medicine.i Recent
healthcare reform has driven the pharmaceutical industry to actively seek
diagnostic tools to ensure more efficient and effective patient care that helps
control healthcare costs. This has opened important new avenues for
precision diagnostics, which offer the promise for earlier and more accurate
diagnosis, fewer needless or ineffective therapies, more informed treatment
plans, and the ability to track progress through disease monitoring.
“We are committed to creating innovative
precision diagnostics which enlighten the
sites and pathways of undetected disease,
empower critical medical decision making
and enhance patient care. In doing so, we
aim to enable value creation for our
shareholders and for the patients we assist.”
MARK J. PYKETT, V.M.D., Ph.D.
CHIEF EXECUTIVE OFFICER
NAVIDEA BIOPHARMACEUTICALS
We believe that physicians and providers are rapidly adopting innovative
imaging techniques that enable the delivery of appropriate treatment to
patients at the right time. Radiopharmaceuticals comprise a critical
component of the precision diagnostics sector, and we believe they are
poised for even stronger performance in coming years. The global
radiopharmaceuticals market reached $3.2 billion in 2010 and is expected to more than double to $6.6 billion
by 2017.ii,iii The use of radiopharmaceuticals for diagnostic purposes is a fundamental and growing segment
of this industry, with the majority of the testing studies focused in oncologic and neurological diseases.iv We
believe that our strategic portfolio of radiopharmaceutical agents addresses important medical needs in both
of these areas.
2012 ANNUAL REPORT
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Growing Markets with Unmet Needs
Oncology, US
Other
280,000
Breast
232,000
Colorectal
143,000
Melanoma
77,000
Head & Neck
67,000
Neurology, US
Parkinson’s Disease
1,500,000
Alzheimer’s Disease
5,200,000
Lung
228,000
Prostate
239,000
Dementia with Lewy Body
800,000
Essential Tremor
10,000,000
Sources (Incidence): ACS Cancer Facts & Figures, 2013 (except
H&N which are from WHO Cancer Incidence Rates); Globocan 2010
(IARC)
Sources (Prevalence): APDA Basic Info About PD
Alzheimer’s Association: 2013 Alzheimer’s Disease Facts & Figures
Lewy Body Dementia Association: What is LBD?
International Essential Tremor Foundation: Facts About ET
Delivering on the Promise: Lymphoseek
The development and commercialization of precision radiopharmaceuticals to empower clinical decision-
making and enhance patient care are crucial to Navidea’s vision. Lymphoseek represents an important
validation of this vision.
Currently approved for patients with breast cancer and melanoma, Lymphoseek enters a lymphatic mapping
marketplace characterized by unmet need and a lack of technological innovation that has endured for decades.
We estimate that lymphatic mapping is utilized in approximately 70% of the new cases of breast cancer and
melanoma each year. We believe, from experience shared by our clinical
investigators, that Lymphoseek provides physicians with a more precise
option in lymphatic mapping. It enables efficient use of resources in the
clinical setting for optimal productivity in both nuclear medicine
departments and operating rooms. Importantly, we also believe that
Lymphoseek offers potential cost savings versus current surgical
procedures and that for the patient, it may reduce hospital stays and result
in fewer, less severe adverse outcomes.
“Our experience with Lymphoseek suggests
a very high level of accuracy in the
identification and mapping of lymph nodes
that may significantly improve the precision
and practicality of lymphatic mapping
procedures, and provide precision staging
that may help direct post-surgical treatment.”
STEPHEN Y. LAI, M.D., Ph.D., FACS
THE UNIVERSITY OF TEXAS
MD ANDERSON CANCER CENTER
We are excited to embark on the commercialization of Lymphoseek. Our
partner, Cardinal Health, is selling and distributing Lymphoseek in the U.S.
through its extensive reach and pre-eminent radiopharmacy network. For
the specialized distribution and just-in-time delivery expected for radiopharmaceuticals, Cardinal Health nuclear
pharmacies are best-in-class, delivering more than 12 million radiopharmaceutical doses annually to more
than 5,000 hospitals and imaging centers. We at Navidea will also play an important role in commercial
activities, particularly in the area of medical education, by engaging target physician groups to continue driving
optimal awareness and adoption of Lymphoseek.
We believe that Lymphoseek is priced fairly and
competitively, and we will receive a true partner’s
share of the revenue generated from each dose of
Lymphoseek administered in the U.S. Given our
favorable Cost of Goods Sold (COGS) and our lean
organization, we expect that a generous portion of
end user revenue will drop to our product EBITDA.
2012 ANNUAL REPORT
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Working with payers and providing payer coverage to make Lymphoseek accessible is a top priority. We have
a robust strategy for Lymphoseek reimbursement and believe we have made good progress in our path to
securing reimbursement and developing support materials. With the full engagement of leading Key Opinion
Leader physicians, advocacy groups and our distribution and
manufacturing partners, we believe we are positioned for success.
We also believe that this is just the beginning of attaining Lymphoseek’s
substantial market potential. We plan to further grow the product through
capitalizing on the global market outside of the U.S. with our MAA
approval expected by year end; broadening into additional, large patient
populations such as head and neck and colorectal cancers; and
enhancing the Lymphoseek brand through a potential label extension into
sentinel lymph node biopsy.
“As early funders of the research that led to
Lymphoseek, we’re encouraged by the ability
to more accurately track cancer’s spread so
that doctors can treat breast cancer more
effectively, without the likelihood of removing
unaffected lymph nodes.”
CHANDINI PORTTEUS
VICE PRESIDENT OF RESEARCH,
EVALUATION AND SCIENTIFIC PROGRAMS
SUSAN G. KOMEN FOR THE CURE
A Stronger Portfolio for Value Enhancement
We also made critical development progress with our neurological pipeline. As the healthcare industry moves
toward earlier evaluation and treatment of cognitive impairment, the demand has increased significantly for
improved diagnostic tools that can identify clinical dementia and cognitive impairment before it has fully
developed. It is widely believed that if Alzheimer’s disease (AD) could be diagnosed at an earlier stage, before
clinical dementia has fully developed, the potential for successful
intervention with current and future treatments could be improved
considerably.
“For earlier diagnosis and therapeutic
intervention in AD to be a reality, clinicians
will need access to reliable, practical and
affordable imaging options. In our testing,
NAV4694 has demonstrated many desirable
performance characteristics that provide
images that should be more easily and
reliably read in clinical practice than other
earlier-generation F-18 labeled PET tracers.”
PROFESSOR CHRISTOPHER ROWE, M.D., FRACP
AUSTIN HEALTH
MELBOURNE, AUSTRALIA
NAV4694 has the potential to be a best-in-class β-amyloid imaging agent
to aid in the differential diagnosis of AD and other dementias. Studies to
date indicate that NAV4694 may also possess imaging characteristics
needed for earlier differential diagnosis of these dementias. These include
high binding to β-amyloid and low binding to background white matter,
which provides clean, unambiguous images important for detection of lower
levels of amyloid. A recently published head-to-head study comparing
NAV4694 to the gold standard β-amyloid binding tracer, Pittsburgh
Compound-B (PiB), suggests that NAV4694 images may be more easily
and reliably read in clinical practice than other F-18 labeled PET tracers. By displaying imaging characteristics
nearly identical to those of PiB, NAV4694 provides the same low background needed for earlier differential
diagnosis while affording the practicality needed for production logistics. To date, we have commenced two
studies with our NAV4694 candidate in Alzheimer’s and dementia indications and anticipate the initiation of
our Phase 3 program for AD later in 2013.
2012 ANNUAL REPORT
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Parkinsonian syndromes, movement disorders
and DLB
represent another class of
neurodegenerative diseases with important
diagnostic needs. NAV5001
is being
developed as an aid in the differential diagnosis
of these often overlapping conditions. In
studies of more than 600 subjects, NAV5001
has demonstrated a high affinity for the
transporter, a biomarker of
dopamine
Parkinson’s disease, enabling completed
imaging procedures in less than an hour, as
opposed to three to six hours with current
procedures. In April 2013, we announced a
collaborative investigator-initiated study in DLB, which is an important first step in recommencing the full clinical
development program for NAV5001. During 2013, we expect to begin a company-sponsored Phase 2b study
in DLB as well as initiate pivotal parallel Phase 3 registration studies of NAV5001 as an aid in the differential
diagnosis of Parkinsonian syndromes.
Non-Parkinsonian Movement Disorder
Parkinson’s Disease
Our plans for the oncology market also include continued development in the RIGS area, and we continue to
strive to return this program to clinical development in 2013, as well as to continue to augment our robust
radiopharmaceutical pipeline.
A Strong Outlook for 2013
Our 2013 objectives are to:
• Launch Lymphoseek in the U.S. and generate revenue
• Report results from Lymphoseek studies in head and neck and colorectal cancer aimed at sentinel
node biopsy indications
• Prepare for potential Supplemental New Drug Application (sNDA) submission in the U.S.
• Receive Lymphoseek MAA approval for Europe and continue registration process in other selected
regions
• Secure European and other international distribution partnerships for Lymphoseek
• Continue Phase 2b program of NAV4694 in MCI and initiate Phase 3 program in AD
• Continue Phase 2b efforts for NAV5001 in DLB and initiate Phase 3 program for the differential
diagnosis of Parkinsonian syndromes
• Pursue initiation of RIGS clinical study
• Evaluate additional international partnerships
2012 ANNUAL REPORT
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We see Navidea’s future as exciting and full of opportunity. We are commercializing our first precision
diagnostic radiopharmaceutical in a growing U.S. market with a demonstrated need and we expect approval
in Europe before year end. We have programs in place for expansion into additional medical indications that
will set the stage for continuing growth. Our leadership
position has been enhanced by strategic development
of our portfolio, featuring first- and best-in-class
diagnostic candidates designed to demonstrate
superior performance characteristics over existing
technologies and to provide potential competitive and
pricing advantages. We believe that our cash flow and
available financial resources are sufficient to support the
ongoing advances in our pipeline programs and
operating needs
future.
Relationships such as our Cardinal Health partnership
are a critical part of our strategy, and we expect to
develop additional strong and mutually beneficial
relationships as we expand our global reach and
portfolio.
foreseeable
the
for
We are incredibly focused on increasing shareholder value through two primary objectives: the first being the
successful execution of our Lymphoseek launch and the second, a focus on our pipeline to create a foundation
for sustained long-term growth. We are confident that with this strategy, we are well-positioned to deliver a
strong financial performance and drive shareholder value over the long-term. We move forward with
confidence – navigating the ideas and developing the innovations that empower medical decisions and
improve patient care and outcomes.
Sincerely,
Mark J. Pykett
Chief Executive Officer
Footnotes
i The Essentials of Diagnostics, DXInsights. web accessed 4-28-2013.
http://www.dxinsights.net/sites/default/files/Essentials_of_Diagnostics.pdf
ii New Radiopharmaceuticals Will Drive Future Growth of PET. BIO-TECH Systems, Inc. Breaking Market News.
November 15, 2010.
iii Radiopharmaceuticals: A Global Strategic Business Report. October 2011. Global Industry Analysts, Inc.
iv 2011 PET Imaging Market Summary Report. July 2011. IMV Medical Information Division.
2012 ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
to
Commission file number 001-35076_
NAVIDEA BIOPHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
31-1080091
(I.R.S. Employer Identification No.)
425 Metro Place North, Suite 450, Dublin, Ohio
(Address of principal executive offices)
43017-1367
(Zip Code)
Registrant's telephone number, including area code
(614) 793-7500
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
NYSE MKT
(Name of Each Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
No
Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files).
No
Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Act.)
Yes
No
The aggregate market value of shares of common stock held by non-affiliates of the registrant on June 30, 2012 was
$355,918,124.
The number of shares of common stock outstanding on March 1, 2013 was 117,610,966.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
References in this report to Navidea Biopharmaceuticals, Navidea, the Company, we, our and us refer to
Navidea Biopharmaceuticals, Inc. and its subsidiaries on a consolidated basis. In January 2012, we
changed our name to Navidea Biopharmaceuticals, Inc. from Neoprobe Corporation. Navidea was
chosen as the new name to reflect the Company’s dedication to “NAVigating IDEAs” that translate cutting
edge innovation and precision diagnostics technology into novel products to advance patient care.
Historical references within this Annual Report on Form 10-K to Neoprobe Corporation have therefore
generally been revised to refer to our new name.
The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe harbor for forward-looking
statements made by or on behalf of the Company. Statements in this document which relate to other
than strictly historical facts, such as statements about the Company’s plans and strategies, expectations
for future financial performance, new and existing products and technologies, anticipated clinical and
regulatory pathways, the ability to obtain, and timing of, regulatory approvals of the Company’s products,
the timing and anticipated results of commercialization efforts, and anticipated markets for the Company’s
products, are forward-looking statements within the meaning of the Act. The words “believe,” “expect,”
“anticipate,” “estimate,” “project,” and similar expressions identify forward-looking statements that speak
only as of the date hereof. Investors are cautioned that such statements involve risks and uncertainties
that could cause actual results to differ materially from historical or anticipated results due to many factors
including, but not limited to, the Company’s continuing operating losses, uncertainty of regulatory
approvals for and market acceptance of its products, reliance on third party manufacturers, accumulated
deficit, future capital needs, uncertainty of capital funding, dependence on limited product line and
distribution channels, competition, limited marketing and manufacturing experience, risks of development
of new products, and other risks set forth below under Item 1A, “Risk Factors”. The Company undertakes
no obligation to publicly update or revise any forward-looking statements.
PART I
Item 1. Business
Development of the Business
Navidea Biopharmaceuticals, Inc., a Delaware corporation, is a biopharmaceutical company focused on
the development and commercialization of precision diagnostics and radiopharmaceutical agents. Our
Company’s core mission is to bring the next generation of precision radiopharmaceutical agents to
market so doctors and patients can readily access, and benefit from, cutting-edge diagnostic science.
For patients and physicians, we aspire to provide innovative diagnostic imaging agents to improve patient
care for serious diseases. For our shareholders, we aim to deliver superior growth through our focus on
our innovative diagnostics platforms and products and efficient business processes. For our employees,
we provide a culture focused on the direct impact our efforts can have on patients and an innovative
development environment enabling new breakthrough products.
Navidea’s current radiopharmaceutical development programs include:
(cid:120) Lymphoseek® (technetium Tc 99m tilmanocept) Injection is a novel, receptor-targeted, small-
molecule, radiopharmaceutical designed for use in lymphatic mapping procedures that are
performed to help stage certain solid tumors. Lymphoseek is intended to help identify the lymph
nodes that drain from a primary tumor, which have the highest probability of harboring cancer.
Lymphoseek was approved for use in lymphatic mapping for breast cancer and melanoma by the
U.S. Food and Drug Administration (FDA) on March 13, 2013. Additional trials, two of which are
already ongoing in head and neck cancer and colorectal cancer, are anticipated to provide
support for expanding the utilization of Lymphoseek into multiple other cancer types.
(cid:120) NAV4694 is an F-18 radiolabeled positron emission tomography (PET) imaging agent being
developed as an aid in the diagnosis of patients with signs or symptoms of cognitive impairment
such as Alzheimer’s disease (AD).
3
(cid:120) NAV5001 is an Iodine-123 radiolabeled single photon emission computed tomography (SPECT)
imaging agent being developed as an aid in the diagnosis of Parkinson’s disease (PD) and other
movement disorders, with potential additional use as a diagnostic aid in dementia.
(cid:120) RIGScan™ is a radiolabeled monoclonal antibody being developed as a diagnostic aid for use
during surgery to help surgeons locate occult or metastatic cancer, with a primary focus on
colorectal cancer.
A Brief Look at Our History
We were originally incorporated in Ohio in 1983 and reincorporated in Delaware in 1988. From inception
until January 2012, we operated under the name Neoprobe Corporation. In January 2012, we changed
our name to Navidea Biopharmaceuticals, Inc. in connection with both the sale of our medical device
business and our strategic repositioning as a precision diagnostics company focused on “NAVigating
IDEAS” that result in the development and commercialization of precision diagnostic pharmaceuticals.
Since our inception, the majority of our efforts and resources have been devoted to the research and
clinical development of radiopharmaceutical technologies primarily related to the intraoperative diagnosis
and treatment of cancers. From the late 1990’s through 2011, we devoted substantial effort towards the
development and commercialization of medical devices, including a line of handheld gamma detection
devices which was sold in 2011 and a line of blood flow measurement devices which we operated from
2001 through 2009.
(cid:3)
From our inception through August 2011, we manufactured a line of gamma radiation detection medical
devices called the neoprobe® GDS system (the GDS Business). From October 1999 through July 2010,
the GDS products were marketed throughout most of the world through a distribution arrangement with
Ethicon Endo-Surgery, Inc. (EES), a Johnson & Johnson company. From July 2010 through August
2011, the neoprobe GDS system products were marketed through a distribution arrangement with
Devicor Medical Products, Inc. (Devicor), a successor to EES. During the fiscal years ended December
31, 2011 and 2010, we derived revenue from the sale of our GDS system products of $7.6 million and
$10.0 million, respectively. Of those amounts, $7.4 million and $9.8 million, respectively, were derived
from the sale of our GDS system products in the United States, and $166,000 and $182,000,
respectively, were derived from the sale of our GDS system products in foreign countries.
In July 2010, Devicor acquired EES’s breast biopsy business, including an assignment of the distribution
agreement with Navidea. Shortly after this acquisition, Devicor approached us regarding its interest in
acquiring the GDS Business. After careful consideration of Devicor’s proposal and in-depth discussion
regarding the changes this transaction would have on our strategy and focus, the Company’s Board of
Directors authorized the sale of the GDS Business to Devicor (the Asset Sale) and we executed an Asset
Purchase Agreement (APA) with Devicor in May 2011. Our stockholders approved the Asset Sale at our
Annual Meeting of Stockholders on August 15, 2011, and the Asset Sale closed on August 17, 2011,
consistent with the terms of the APA. Under the terms of the APA, we sold the assets and assigned
certain liabilities that were primarily related to the GDS Business. In exchange for the assets of the GDS
Business, Devicor made net cash payments to us totaling $30.3 million, assumed certain liabilities of the
Company associated with the GDS Business, and agreed to make royalty payments to us of up to an
aggregate maximum amount of $20 million based on the net revenue attributable to the GDS Business
over the course of the next six fiscal years.
The cornerstone of our current business was established in 2001 when we restarted our pharmaceutical
development by entering into a worldwide license agreement for Lymphoseek with the Regents of the
University of California through their San Diego affiliate (UCSD). In 2004, we initiated our first corporate-
sponsored clinical trial of Lymphoseek. Our business strategy is focused on advancing Navidea as a
leader in the area of precision diagnostics, a field aimed at helping physicians deliver the right treatment
to the right patient at the right time.
4
Our Technology and Product Candidates
We have a deep understanding of and experience in translating precision diagnostics technology,
particularly in the area of radiopharmaceuticals, into novel products to advance patient care. Innovative
precision diagnostic agents hold the potential to improve diagnostic accuracy, clinical decision-making
and patient care. Navidea’s pipeline includes clinical-stage radiopharmaceutical agents used to identify
the presence and status of disease to achieve these objectives.
Lymphoseek – The First and Only FDA-Approved Receptor-Targeted Radiopharmaceutical Lymphatic
Mapping Agent
Lymphoseek is a lymph node targeting radiopharmaceutical agent intended for use in intraoperative
lymphatic mapping (ILM) procedures and lymphoscintigraphy employed in the overall diagnostic
assessment of certain solid tumor cancers. Lymphoseek has the potential to provide oncology surgeons
with information to identify key predictive lymph nodes that may harbor cancer and to help avoid the
unnecessary removal of non-cancerous lymph nodes and the surrounding tissue in patients with a variety
of solid tumor cancers. Lymphoseek was approved and indicated for use in lymphatic mapping for breast
cancer and melanoma by the FDA on March 13, 2013. Additional trials, two of which are already ongoing
in head and neck cancer and colorectal cancer, are anticipated to provide support for expanding the
utilization of Lymphoseek into multiple other cancer types.
The Lymph System: Infection Fighter and Cancer Conduit
The lymph system is a critical component of the body’s immune system. Comprised of a complex
network of organs, nodes, ducts and vessels, the lymph system transports lymph – a fluid rich in white
blood cells, known as lymphocytes – from tissues into the bloodstream. The key components of the
lymph system are lymph nodes – small anatomic structures that contain disease-fighting lymphocytes,
filter lymph of bacteria and cancer cells, and signal infection in response to heightened levels of
pathogens.
The lymph system is also a common pathway for cancer to spread, or metastasize. In fact, malignant
cells will often infiltrate lymph nodes as an initial step of the metastatic process. An assessment of the
degree of lymph node involvement is instrumental to staging cancer, enabling suitable treatment
regimens and offering more accurate prognosis. Studies in a broad range of malignancies demonstrate
that the greater the extent of lymph node involvement, the poorer the likely outcome.
ILM: Targeting High-Risk Nodes
Until the 1990s, cancer patients would often undergo extensive surgeries involving the removal and
biopsy of large numbers of lymph nodes to assess disease progress. Studies subsequently showed that
as many as 80 percent of node dissections ultimately revealed no sign of cancer, exposing patients to
significant pain, morbidity, debilitating adverse effects and long recovery times for little benefit.
Over the last two decades, ILM, using injected dyes or radiopharmaceutical agents, has become a widely
accepted, less invasive technique to identify potentially cancerous lymph nodes. Upon injection, these
tracing agents follow the natural drainage path from the primary tumor into the first tier of surrounding
lymph nodes. The initial nodes in this pathway – key predictive nodes called sentinel nodes that are most
likely to harbor cancer – are of critical importance in gauging the degree of infiltration. If this initial node
or nodes show no sign of cancer cells, there is a high likelihood that lymph nodes further along the
continuum are cancer-free. If the sentinel node is positive for disease, a more comprehensive resection
of nodes may be warranted. Regardless, a patient can be more accurately staged in light of knowledge
that cancer has moved from the primary tumor site into the lymphatic system.
5
Lymphoseek: Tracing the Path to an ILM Advance
ILM has become the cancer-staging procedure of choice for oncology surgeons because it helps them
focus on key predictive lymph nodes and reduce patient exposure to unnecessary surgical complications.
Lymphoseek is a radiolabeled diagnostic for detection of the key predictive lymph nodes draining the
tumor region. Lymphoseek is purposely-designed to accumulate in lymphatic tissue by specifically
binding to mannose binding receptor (MBR; CD206) proteins present on the surface of immune cells.
Lymphoseek is a macromolecule consisting of multiple units of diethylene triamine pentaacetic acid
(DTPA) and mannose, each synthetically attached to a 10 kDa dextran backbone. The mannose acts as
a ligand for the receptor, and the DTPA serves as a chelating agent for labeling with the radio-isotope
Technetium Tc 99m.
In clinical studies, Lymphoseek has demonstrated significant benefits over an approved comparator
agent, vital blue dye (VBD). In Navidea’s Phase 3 clinical studies of Lymphoseek, it detected over 97
percent of positive nodes identified by VBD. Conversely, VBD missed 31 percent of the overall nodes
identified by Lymphoseek. More importantly, VBD missed 21 percent of nodes identified by Lymphoseek
that were subsequently confirmed as containing cancer, whereas Lymphoseek missed less than 1
percent of these cancer-positive nodes, representing a greater than twenty-fold reduction in the rate at
which cancer-positive lymph nodes were missed. Importantly, this resulted in 9.2% of subjects in our
Phase 3 clinical studies being up-staged by the use of Lymphoseek in cases that would have been under-
staged using VBD alone.
In the U.S., ILM employs a non-standard, Technetium 99mTc-labeled radiopharmaceutical agent known
as sulfur-colloid (TcSC) which was recently approved by the FDA based on a literature review for use in
ILM for breast cancer and melanoma. In contrast, Lymphoseek was studied in two well-controlled,
prospective Phase 3 trials which compared Lymphoseek to VBD, the same color agent utilized in the
literature-based FDA assessment of TcSC.
An abstract reviewing a meta-analysis of Phase 3 clinical trials for ILM of lymph nodes in breast cancer,
compared to standard of care techniques including colloid agents, was published in conjunction with the
2012 Annual Meeting of the American Society of Clinical Oncology (ASCO). The abstract entitled, “The
novel receptor targeted (CD206) 99mTc-labeled tilmanocept versus the currently employed Tc99m-sulfur
colloid in intraoperative lymphatic mapping (ILM) on key performance metrics in breast cancer” was
published in the Journal of Clinical Oncology Online 2012; e21066.
Assessment by meta-analysis and pooled analysis methods have been completed comparing
Lymphoseek alone to TcSC plus VBD used together in subjects with breast cancer, employing the data
provided in the FDA’s approval of TcSC. Two endpoints were evaluated; the Localization Rate, which is
the percentage of subjects with one or more radio-detected (Lymphoseek) or radio-detected and/or blue
dye-positive (TcSC/VBD) nodes and the Degree of Localization, which is the number of nodes detected
per subject. Both of these metrics help define the potential for an imaging agent’s performance in ILM
and the potential identification of metastasis to lymph nodes. The Localization Rate for TcSC/VBD was
94%. The Localization Rate for Lymphoseek was statistically significantly greater at 99.91% by meta-
analysis and 98.65% by pooled analysis (p<0.0001 and p<0.008, respectively). The Degree of
Localization derived from the publication database for TcSC/VBD was 1.6 nodes per subject and for
Lymphoseek it was 2.08 per subject by meta-analysis and 2.16 per subject by pooled analysis (p<0.0001
and p<0.0001, respectively). The analysis concluded that, in breast cancer, Lymphoseek provided
significantly greater performance over the current ILM standard of care techniques in the key metrics of
lymph node localization and identification of the number of lymph nodes found per subject.
In June 2012, we published data developed from Phase 3 trials of Lymphoseek demonstrating important
performance characteristics of Lymphoseek compared to a commercially available radiolabeled colloid
used in intra-operative lymphatic mapping. The analysis evaluated the performance of Lymphoseek to a
meta-analysis of published data for 99m-Tc-labeled nanocolloid human serum albumin (Nanocoll®),
commercially available and considered a standard of care in Europe. Data for Nanocoll were derived
from a meta-analysis of published literature that reported on the outcomes of localization rate (the
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proportion of subjects with at least one localized lymph node), and degree of localization (the average
number of localized nodes relative to the subject population). Data for Lymphoseek were derived from a
meta-analysis of two completed Lymphoseek Phase 3 clinical trials. Lymphoseek demonstrated a
localization rate of 99.9% whereas Nanocoll showed a 95.9% localization rate. The degree of
Lymphoseek localization was 2.16 (CI 1.99-2.36), whereas the colloid standard of care showed 1.67 (CI
0.94-0.98). The differences between Lymphoseek and Nanocoll in both of these parameters were
statistically significant (p < 0.0001). The study, “The efficacy of Tilmanocept in sentinel lymph node
mapping and identification in breast cancer patients: a comparative review and meta-analysis of the 99m-
Tc-labeled nanocolloid human serum albumin standard of care,” can be found in the online edition of the
peer-reviewed journal Clinical and Experimental Metastasis [DOI 10.1007/s10585-012-9497-x]. In
September 2012, we announced the presentation of related data at the European Society of Surgical
Oncology annual meeting.
We believe Lymphoseek’s unique properties in ILM and lymphoscintigraphy may offer several potential
advantages over agents currently used in ILM, including:
(cid:120)
Improved presence in key predictive lymph nodes (distinct mechanism of action allows for
effective identification of key tumor-draining lymph nodes)
(cid:120) More rapid clearance of the injection site (detectable in lymph nodes within 10 minutes and up to
30 hours)
(cid:120) Reduced patient trauma, morbidity and injection pain
(cid:120) Faster nuclear medicine imaging – reduced nuclear medicine downtime (detectable in lymph
nodes within 10 minutes and up to 30 hours)
(cid:120) Enhanced operating room efficiency; reduced operating room idle time (ILM can be performed
from 15 minutes up to 15 hours post-injection)
(cid:120) Enhanced hospital and healthcare plan reimbursement
Expansion of ILM for staging of colon, prostate, gastric, lung and other cancers
The application of ILM to solid tumor cancer management has been most widely developed in the breast
cancer and melanoma indications. Numerous clinical studies, involving thousands of patients, published
in peer-reviewed medical journals as far back as Oncology (January 1999) and The Journal of The
American College of Surgeons (December 2000), have indicated sentinel lymph node biopsy (SLNB) is
approximately 95% accurate in predicting the presence or absence of disease spread in melanoma and
breast cancers. Consequently, it is estimated that more than 80% of breast cancer patients who would
otherwise have undergone full axillary lymph node dissections (ALND), involving the removal of as many
as 20 - 30 lymph nodes, might be spared this radical surgical procedure and concomitant morbidity if the
sentinel node was found to be free of cancer.
Although ILM has found its greatest acceptance in breast cancer and melanoma, we believe that
Lymphoseek may be instrumental in extending ILM into other solid tumor cancers such as prostate,
gastric, colon, head and neck, and non-small cell lung. Investigations in these other cancer types have
thus far met with mixed levels of success due in part, we believe, to limitations associated with currently
available radioactive tracing agents. We believe our development of Lymphoseek may positively impact
the effectiveness of ILM in such expanded applications.
Lymphoseek Clinical Development
The initial pre-clinical evaluations of Lymphoseek were completed by UCSD in 2001. Since that time,
Navidea, in cooperation with UCSD, has completed or initiated five Phase 1 clinical trials, one multi-
center Phase 2 trial and three multi-center Phase 3 trials involving Lymphoseek. Two comprehensive
Phase 3 studies have been completed in subjects with breast cancer and melanoma. These pivotal
Phase 3 results have been presented at scientific conferences of a number of the world’s leading
oncology associations and nuclear medicine societies, including the American Society of Clinical
Oncology and the Society for Nuclear Medicine. Earlier-phase studies conducted at UCSD through
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grants from the Susan B. Komen Breast Cancer Research Foundation have been published in leading
medical journals including Journal of Nuclear Medicine and Annals of Surgical Oncology. Clinical
research continues with a Phase 3 trial involving subjects with head and neck squamous cell carcinoma.
Lymphoseek development has involved feedback from the FDA at a number of stages along the
development pathway. In early 2005, the UCSD physician Investigational New Drug (IND) application
was transferred to Navidea and we assumed full clinical and commercial responsibility for the
development of Lymphoseek. Additional non-clinical testing was successfully completed in late 2005.
None of the non-clinical studies revealed any toxicity issues associated with the drug. To provide
commercially-produced Lymphoseek needed for clinical study, Navidea engaged Reliable
Biopharmaceutical Corporation (Reliable) to manufacture the drug substance and OSO
BioPharmaceuticals Manufacturing LLC (OsoBio, formerly Cardinal Health PTS) for commercial
manufacturing of the final drug product.
We completed a successful Phase 2 clinical study of Lymphoseek in 80 subjects in June 2007 and
announced positive results later that year. Localization of Lymphoseek to lymphoid tissue was confirmed
by pathology in over 99% of the lymph node tissue samples removed during the Phase 2 trial. We held
an end of Phase 2 meeting with the FDA during late October 2007. Results of the study were published
in the February 2011 online edition of the Annals of Surgical Oncology.
From 2008 to March 2009, we undertook and completed a Phase 3 clinical study in subjects with either
breast cancer or melanoma (NEO3-05), an open label trial of node-negative subjects designed to
evaluate the safety and the accuracy of Lymphoseek in identifying the lymph nodes draining from the
subject’s primary tumor site. The primary efficacy objective of the study was a statistically acceptable
concordance rate between the identification of lymph nodes with VBD and Lymphoseek. In addition, a
secondary endpoint of the study was to pathologically examine lymph nodes identified by either VBD or
Lymphoseek to determine if cancer was present in the lymph nodes.
In June 2009, we initiated a Phase 3 trial in subjects with head and neck squamous cell carcinoma on the
head or in the mouth (NEO3-06). The NEO3-06 study was designed to expand the potential labeling for
Lymphoseek to other cancer types and include a sentinel lymph node targeting claim.
In March 2010, Navidea met with the FDA to review the clinical outcomes of the NEO3-05 Phase 3 trial.
The meeting included a review of the efficacy and safety results of the study and Navidea’s plans for the
submission of a New Drug Application (NDA) for Lymphoseek based on the results of NEO3-05 and other
previously completed clinical studies. In July 2010, Navidea initiated enrollment in another Phase 3
clinical evaluation of Lymphoseek in subjects with either breast cancer or melanoma (NEO3-09) accruing
subjects primarily for purposes of augmenting the safety population and supporting expanded product
labeling claims. Based on guidance received in the March 2010 meeting, we planned to file data related
to the NEO3-09 trial as part of a planned major amendment to the primary NDA.
In October 2010, Navidea met with the FDA for a pre-NDA assessment for Lymphoseek. As a result of
the pre-NDA assessment, the FDA requested that data from both the completed NEO3-05 study and the
NEO3-09 study then in progress be included in the Company’s primary NDA for Lymphoseek rather than
submitting the NEO3-09 study safety data as a planned major amendment to the ongoing NDA review, as
initially intended. The pre-NDA assessment resulted in no modification to the NEO3-09 trial design or
endpoints or to any of the other previously agreed-to clinical or regulatory components of the
Lymphoseek NDA.
Upon completion of the NEO3-09 study in early 2011, Navidea submitted the NDA for Lymphoseek in
August 2011, and was notified of acceptance of the NDA by the FDA in October 2011. The Lymphoseek
NDA submission was based on the clinical results of the NEO3-05 and NEO3-09 Phase 3 clinical studies
and other completed clinical and non-clinical evaluations. The safety database submitted with the NDA
included data from over five hundred subjects and identified no significant drug-related adverse events.
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In October 2012, we announced peer-reviewed publication of results of Lymphoseek from Phase 3
Clinical Trials in Melanoma in the Annals of Surgical Oncology. In the trials, a total of 154 subjects with
melanoma from 15 centers received Lymphoseek followed by VBD and then underwent sentinel lymph
node mapping. Lymph nodes that demonstrated Lymphoseek uptake and/or the presence of blue dye
were removed and examined for the presence of tumor. Of the 235 blue-dyed lymph nodes removed
from the 154 subjects, 232 (98.7%) demonstrated Lymphoseek uptake (p<0.001). The performance of
Lymphoseek in intraoperative lymph node identification was also assessed. Of the 154 subjects injected
with both Lymphoseek and VBD who underwent surgical removal of the lymph nodes, 150 subjects
(97.4%) had at least one radioactive node due to Lymphoseek uptake, and 138 subjects (89.6%) had at
least one blue node. This difference was statistically significant (p<0.002). Melanoma-containing lymph
nodes were detected in 34 (22.1%) subjects; Lymphoseek identified all 45 melanoma-positive lymph
nodes found in the 34 subjects. Four of these 34 node-positive subjects were detected exclusively by
Lymphoseek. Blue dye detected 36 of the 45 melanoma-positive lymph nodes, but no melanoma-positive
lymph nodes were detected exclusively by blue dye.
Clinical research continues with an ongoing Phase 3 trial involving subjects with head and neck
squamous cell carcinoma (NEO3-06). The NEO3-06 clinical study was designed to provide evidence of
Lymphoseek performance in a third cancer type and to potentially expand the product label for
Lymphoseek. In January 2013, we announced that we had accrued sufficient subjects in our NEO3-06
study in subjects with head and neck cancer to enable us to conduct a pre-planned interim analysis. This
Phase 3 trial of Lymphoseek is designed to demonstrate the performance of Lymphoseek in identifying
sentinel lymph nodes in subjects with squamous cell carcinoma on the head or in the mouth. The interim
analysis will compare the pathological analysis of the sentinel lymph nodes localized using Lymphoseek
with that of all the lymph nodes removed during a full nodal dissection surgery of the head and neck.
This full dissection surgery is considered the gold standard for determining the presence and extent of
cancer and staging of the disease in such subjects. A total of 83 subjects who underwent pre-planned,
full dissection surgery were enrolled to the interim analysis point. Results from three investigators
participating in the NEO3-06 trial representing approximately half of the enrolled subjects were presented
at major scientific conferences during 2012, all of which noted a 0% false negative rate in the subjects.
Results from the full interim statistical analysis and reporting of the findings will be available upon
completion of full site and data audits planned for later in 2013.
Following the FDA’s acceptance of our Lymphoseek NDA filing in October 2011, the FDA established a
Prescription Drug User Fee Act (PDUFA) date for Lymphoseek of June 10, 2012. In April 2012, the FDA
notified us that the Agency had elected to modify the PDUFA date for Lymphoseek by 90 days to
September 10, 2012 from the initial PDUFA date of June 10, 2012. On September 10, 2012, we received
a complete response letter (CRL) from the FDA. The decision was focused on deficiencies in current
Good Manufacturing Practices (cGMP) identified by the FDA during their pre-approval site inspections of
third-party contract manufacturing facilities, and was not related to the efficacy or safety data filed within
the Lymphoseek NDA. On October 30, 2012, we resubmitted our NDA in response to the CRL.
Following the FDA’s acceptance of our Lymphoseek NDA resubmission, the FDA established a new
PDUFA date for Lymphoseek of April 30, 2013. Lymphoseek was subsequently approved and indicated
for use in lymphatic mapping procedures in breast cancer and melanoma by the FDA on March 13, 2013.
Navidea was advised in February 2012 by the European Medicines Agency (EMA) Committee for
Medicinal Products for Human Use (CHMP) that the Committee had adopted the advice of the Scientific
Advice Working Party (SAWP) regarding the Lymphoseek development program and determined that
Lymphoseek is eligible for a Marketing Authorization Application (MAA) submission based on clinical data
accumulated from completed pivotal studies and supporting clinical literature. We submitted our MAA for
Lymphoseek to the EMA in December 2012.
We cannot assure you that Lymphoseek will achieve regulatory approval in the EU or any market outside
the U.S. or if approved, that it will achieve market acceptance in any market. See Risk Factors.
9
NAV4694 – Precision Imaging Agent to Aid in Diagnosis of Alzheimer’s Disease
In December 2011, we executed a license agreement with AstraZeneca AB for NAV694, a proprietary
compound that is primarily intended for use in diagnosing AD and other central nervous system disorders.
The license agreement is effective until the later of the tenth anniversary of the first commercial sale of
NAV4694 or the expiration of the underlying patents. Under the terms of the license agreement,
AstraZeneca granted us an exclusive worldwide royalty-bearing license for NAV4694 with the right to
grant sublicenses. In consideration for the license rights, we paid AstraZeneca a license issue fee of $5.0
million upon execution of the agreement. We also agreed to pay AstraZeneca up to $6.5 million in
contingent milestone payments based on the achievement of certain clinical development and regulatory
filing milestones, and up to $11.0 million in contingent milestone payments due following receipt of certain
regulatory approvals and the initiation of commercial sales of the licensed product. In addition, we
agreed to pay AstraZeneca a royalty on net sales of licensed and sublicensed products.
NAV4694 is a Fluorine-18 labeled precision radiopharmaceutical candidate for use in the imaging and
evaluation of patients with signs or symptoms of cognitive impairment such as AD. NAV4694 binds to
beta-amyloid deposits in the brain that can then be imaged in PET scans. Amyloid plaque pathology is a
required feature of AD and the presence of amyloid pathology is a supportive feature for diagnosis of
probable AD. Patients who are negative for amyloid pathology do not have AD.
Based on the data accumulated to date, NAV4694 appears to have better sensitivity and specificity in
detecting beta-amyloid than other agents in development. Due to its high affinity for amyloid, improved
contrast, and enhanced uptake in the amyloid-target regions of interest in the brain compared with low
uptake in white matter background, better signal-to-noise ratios have been observed. Greater contrast
may enable the ability to detect smaller amounts of amyloid and earlier identification of disease, as well
as the opportunity to detect smaller changes in amyloid levels and monitor disease progression over time.
Beta-Amyloid Imaging for Alzheimer’s Disease
Alzheimer’s disease is a progressive and fatal neurodegenerative disease which affects a person’s
memory and ability to learn, reason, communicate and carry out daily activities. Increasing age is the
greatest risk factor for AD and there is no prevention or cure. The World Health Organization estimates
that AD affects over 24 million people worldwide. Currently in the U.S. alone, there are over 5 million
Alzheimer’s patients and according to Alzheimer’s Association (AA) estimates, as many as 16 million
Americans could have the disease by 2050. Among the brain changes evident in the development of AD
is the accumulation of the protein beta-amyloid outside nerve cells (neurons) in the brain. Somewhere
around 100 experimental therapies aimed at slowing or stopping the progression of AD are now
undergoing clinical evaluation. Regardless of causative associations, beta-amyloid levels continue to be
viewed as a reliable marker of AD.
There is a need for improvements in testing and diagnosis for AD. While there is an accepted diagnostic
process for assessing dementia, the only currently definitive diagnosis for AD is a post-mortem analysis
of brain tissue. A positive finding of plaques and tangles in the brain upon autopsy leads to this definitive
diagnosis, which is too late to benefit the patient. For this reason, the AD and imaging communities have
been interested in an effective biomarker of AD which could facilitate earlier definitive diagnosis.
Alzheimer’s disease imaging agents are potentially powerful tools aiding in the diagnosis of AD as well as
the evaluation of new drugs aiming to modify amyloid plaque levels and alter disease progression. The
prototype agent in this diagnostic quest was identified almost a decade ago at the University of
Pittsburgh. This imaging agent targets the deposits of amyloid plaque which are a hallmark of AD
pathology. This agent, frequently referred to as Pittsburgh B, or PIB, is a radiolabeled small molecule
utilized with PET imaging. As such, the PIB tracer provided strong image resolution and was able to
distinguish significant amyloid burdens in the brains of AD patients as opposed to the relative absence of
amyloid in subjects without AD. Unfortunately, PIB uses C-11, a very short-lived radio-isotope, and thus
cannot be readily commercialized.
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Other PET amyloid tracers are currently moving through the drug development process. Like PIB, these
compounds are also high-resolution PET tracers, but utilize an F-18 isotope, which permits broader
effective distribution.
These agents constitute a major step forward, but each has potential limitations. Navidea’s NAV4694
appears to have several important advantages including clean images with less white matter uptake for
identification of lower levels of amyloid and earlier detection; images that are easier to read and interpret;
and images that can be acquired more quickly.
NAV4694 Clinical Development
NAV4694 has been studied in rigorous pre-clinical studies and several clinical trials in humans. Clinical
studies through Phase 2 have included 140 subjects to date, both suspected AD patients and healthy
volunteers. Results suggest that NAV4694 has the potential ability to image patients quickly and safely
with high sensitivity and specificity. We are currently supporting a Phase 2 trial that we initiated in
September 2012, primarily to expand the safety database for the compound. We also expect to initiate a
Phase 2b trial in subjects with mild cognitive impairment in early 2013, as well as a Phase 3 autopsy-
based trial in the first half of 2013, to support registration in the U.S. and the EU. We cannot assure you,
however, that further clinical trials for this product will be successful, that it will achieve regulatory
approval, or if approved, that it will achieve market acceptance. See Risk Factors.
NAV5001
In January 2012, we executed an option agreement with Alseres Pharmaceuticals, Inc. (Alseres) to
sublicense NAV5001. Under the terms of the option agreement, Navidea paid Alseres an option fee of
$500,000 for the exclusive right to negotiate a definitive sublicense agreement by June 30, 2012. In
order to perform thorough due diligence, Navidea extended the option period from June 30, 2012, to July
31, 2012. On July 31, 2012, we entered into an agreement to sublicense NAV5001 from Alseres. Under
the terms of the sublicense agreement, Alseres granted Navidea an exclusive, worldwide sublicense to
research, develop and commercialize NAV5001. The final terms of the agreement required Navidea to
make a one-time sublicense execution payment to Alseres equal to (i) $175,000 in cash and (ii) 300,000
shares of our common stock. The sublicense agreement also provides for contingent milestone
payments of up to $2.9 million, $2.5 million of which will principally occur at the time of product
registration or upon commercial sales, and the issuance of up to an additional 1.15 million shares of
Navidea common stock, 950,000 shares of which are issuable at the time of product registration or upon
commercial sales. In addition, the sublicense terms anticipate royalties on annual net sales of the
approved product which are consistent with industry-standard terms and certain sublicense extension
fees, payable in cash and shares of common stock, in the event certain diligence milestones are not met.
NAV5001 is a patented, novel, Iodine-123 labeled small molecule radiopharmaceutical used with SPECT
imaging to identify the status of specific regions in the brains of patients suspected of having PD. The
agent binds to the dopamine transporter (DAT) on the cell surface of dopaminergic neurons in the
striatum and substantia nigra regions of the brain. Loss of these neurons is a hallmark of PD.
NAV5001 has been administered to over 600 subjects to date. Results from clinical trials have
demonstrated that NAV5001 has high affinity for DAT and rapid kinetics which enable the generation of
clean images quickly, beginning within about 20 minutes after injection, while other agents typically have
waiting periods from 4 to 24 hours before imaging can occur. In addition to its potential use as an aid in
the differential diagnosis of PD and movement disorders, NAV5001 may also be useful in the diagnosis of
Dementia with Lewy Bodies (DLB), one of the most common forms of dementia after AD. We expect to
initiate a Phase 2b trial in subjects with DLB in the first half of 2013, as well as a Phase 3 trial in subjects
with PD in the second half of 2013. We cannot assure you, however, that further clinical trials for this
product will be successful, that it will achieve regulatory approval, or if approved, that it will achieve
market acceptance. See Risk Factors.
11
RIGScan
RadioImmunoGuided Surgery (RIGS®) is a technique to provide diagnostic information during cancer
surgery. RIGS is intended to enable a surgeon to identify and delineate occult or metastatic cancerous
tissue “targeted” through the use of RIGScan, a radiolabeled, cancer-specific targeting antibody.
RIGScan is administered prior to surgery and is identified by pre-operative imaging or during surgery with
a gamma detection probe, thereby assisting a surgeon in identifying the location of cancerous tissues.
Before surgery, a cancer patient is injected with the antibody which circulates throughout the patient’s
body and binds specifically to cancer cell antigens or receptors. Concentrations of the antibody within
affected tissue are then detected using imaging methods prior to surgery or a gamma probe during
surgery to direct the surgeon to targeted tissue for removal.
Our RIGScan technology is a radiolabeled murine monoclonal antibody that serves as the biologic
targeting agent for intraoperative detection of occult or metastatic cancer. The antibody localizes or binds
to tumor antigen called TAG-72 expressed on solid tumor cancers. RIGScan is intended to be used in
conjunction with other diagnostic methods for the detection of the extent and location of occult tumor and
tumor metastases in patients with such cancers, potentially including colorectal cancer, ovarian cancer,
prostate cancer and other cancers of epithelial origin. The detection of clinically occult tumor is intended
to provide the surgeon with a more accurate assessment of the extent of disease, and therefore may
impact the surgical and therapeutic management of the patient.
RIGScan Clinical Development
The RIGScan approach has been studied in several clinical trials, including Phase 3 studies. Results
from certain of these studies have been published in leading cancer journals including Clinical Cancer
Research, Annals of Surgical Oncology and Diseases of the Colon and Rectum. In 1996, Navidea
submitted applications to the EMA and the FDA for marketing approval of RIGScan for the detection of
metastatic colorectal cancer based primarily on results of a single Phase 3 clinical trial, NEO2-14, but the
FDA declined approval, indicating that, in addition to identifying additional pathology-confirmed disease,
the clinical studies of RIGScan needed to demonstrate clinical utility in enhancing patient outcomes, an
endpoint which the completed studies were not designed to address. Navidea withdrew its application to
the EMA in November 1997.
To resume RIGScan development, we filed a new investigational new drug (IND) request with the FDA in
late 2010. We held a pre-IND meeting with the FDA in February 2011 to define the basic chemistry,
manufacturing and control (CMC) requirements needed to resume clinical development efforts on
RIGScan. The FDA provided guidance regarding enhancing our manufacturing platform, including
process improvements to increase manufacturing efficiency and the quality of the underlying biologic
antibody and potentially transitioning from a murine-based antibody to a human-based antibody. In
August 2011, we also held a meeting with the SAWP of the EMA and received similar guidance. With
this collective guidance, we have transitioned from a murine antibody to a humanized antibody. In
September 2012, we were awarded a grant from the National Institutes of Health (NIH) to further the
development of RIGScan. The first phase of the grant, which has been awarded, is for $315,000; the
second phase of the grant, which requires that we meet certain conditions, primarily investigational
review board approval, will be for an additional $1.2 million. We have focused on manufacturing the
humanized antibody with the aim of completing the necessary manufacturing steps to support the start of
clinical development; however, as the scope and required resources for the RIGScan program,
particularly in light of other development opportunities such as Lymphoseek, NAV4694, NAV5001, or
other agents continues to be assessed, the timing and scope of our plans for RIGScan may be further
affected.
RIGScan is a biologic drug that has not been produced for several years. We have completed the initial
steps in assessing the materials required for future clinical testing. We will need to establish robust
manufacturing and radiolabeling capabilities for the antibody in order to meet the regulatory needs for the
RIGScan product. We cannot assure you that further clinical development will be successful, that the
12
FDA or the EMA will clear RIGScan for marketing, or that it will be successfully introduced or achieve
market acceptance. See Risk Factors.
Market Overviews
Cancer Market Overview
Cancer is the second leading cause of death in the U.S. and Western Europe. The American Cancer
Society (ACS) estimates that cancer will cause over 580,000 deaths in 2013 in the U.S. alone. The NIH
has estimated the overall annual costs for cancer for the U.S. for 2007 at $226.8 billion: $103.8 billion for
direct medical costs and $123.0 billion for indirect mortality. For the types of cancer to which our
oncology agents may be applicable (breast, melanoma, head and neck, prostate, lung, colorectal,
gastrointestinal and gynecologic), the ACS has estimated that nearly 1.3 million new cases will occur in
the U.S. in 2013. An analysis of Globocan 2008 estimates for these same cancer types indicates an
annual incidence rate for these cancer types in excess of 7.2 million cases outside the U.S.
Currently, the application of ILM is most established in breast cancer. Breast cancer is the second
leading cause of death from cancer among all women in the U.S. The probability of developing breast
cancer generally increases with age, rising from about 0.5% in women under age 40 to 6.7% in women
age 70 or older. While the incidence rate for breast cancer appears to be decreasing, the overall number
of new cases of breast cancer is still increasing. According to the ACS, over 232,000 new cases of
invasive breast cancer are expected to be diagnosed during 2013 in the U.S. alone. Thus, we believe
that the aging of the population, combined with improved education and awareness of breast cancer and
diagnostic methods, will continue to lead to an increased number of breast cancer surgical diagnostic
procedures. While many breast cancer patients are treated in large cancer centers or university
hospitals, regional and/or community hospitals continue to treat the majority of breast cancer patients.
The use of ILM is also common in melanoma. The ACS estimates that approximately 77,000 new cases
of melanoma will be diagnosed in the U.S. during 2013. In addition to breast cancer and melanoma, we
believe that our oncology products may have utility in other cancer types with another 1 million new cases
expected during 2013 in the U.S.
If the potential of Lymphoseek as a radioactive tracing agent is ultimately realized, it may address not
only the current breast and melanoma markets on a procedural basis, but also assist in the clinical
evaluation and staging of solid tumor cancers and expanding lymph node mapping to other solid tumor
cancers such as prostate, gastric, colon, head and neck, and non-small cell lung.. However, we cannot
assure you that Lymphoseek will be cleared to market for cancers other than breast or melanoma, or if
cleared to market for other cancer types, that it will achieve significant revenue. See Risk Factors.
Alzheimer’s Disease Market Overview
The AA estimates that more than 5.4 million Americans had AD in 2012. On a global basis, Alzheimer’s
Disease International estimated in 2010 that there were 36 million people living with dementia. AA
estimates that total costs for AD care will be approximately $200 billion in 2012. AA also estimates that
there are over 15 million AD and dementia caregivers providing 17.4 billion hours of unpaid care valued
at over $210 billion. AD is the sixth-leading cause of death in the country and the only cause of death
among the top 10 in the U.S. that cannot be prevented, cured or even slowed. Based on mortality data
from 2000-2008, death rates have declined for most major diseases while deaths from AD have risen 66
percent during the same period. In February 2013, the American Academy of Neurology reported in the
online issue of Neurology that the number of people with AD may triple by 2050.
While there are several approved therapies for the treatment of AD, there is significant interest in the
development of disease-modifying therapeutics that could slow or reverse progression of the disease. In
fact, studies with cholinesterase inhibitors and experimental AD therapies suggest therapeutic
intervention is likely to have a bigger impact on disease progression when dosed in patients with early-
stage disease than in patients with advanced disease.
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For many patients, simply slowing the progression from mild cognitive impairment associated with early-
stage disease to advanced AD could have a material impact on quality of life and medical burden for the
healthcare system. Delaying the onset of AD by five years could reduce the disease prevalence by 50%
during the next few decades and, according to estimates from AA, reduce annual healthcare
expenditures by more than $50 billion.
While early detection is the goal of AD staging, there are no validated biomarkers for the onset of
symptomatic disease. All AD patients have beta-amyloid plaque deposits in the brain. Currently,
detection of the early-stages of AD is based largely on assessing the patient's history of increasing
cognitive impairment with some patients also receiving testing by an experimental PET scan to confirm
the presence of amyloid plaque. The interest in accurate imaging agent biomarkers for the detection of
beta-amyloid has grown significantly in recent years as physicians are attempting to identify methods for
detecting amyloid earlier.
Parkinson’s Disease Market Overview
Parkinson’s disease, following AD, is the second-most common neurodegenerative disorder in the United
States. The Parkinson’s Disease Foundation (PDF) estimates that up to 10 million people worldwide are
living with PD, including 1 million people in the U.S. Approximately 60,000 new cases of PD are
diagnosed in the U.S. each year. The Centers for Disease Control rated complications from PD as the
14th leading cause of death in the U.S. and as with AD, there is no cure.
A recent article conservatively estimates that the combined direct and indirect cost of PD exceeds $14.4
billion per year. There are approved therapies for the treatment of PD symptoms but these treatments
often become ineffectual as the disease progresses and none have been approved to modify, slow or
reverse the disease progression. The burden of this chronic condition is projected to grow substantially
over the next few decades as the size of the elderly population grows. Such projections are driving the
need for innovative new treatments to prevent, delay onset, or alleviate symptoms of PD. Slowing
Parkinson's progression by 50% would reduce health care costs for PD patients by 35%, representing a
dramatic reduction in cost of care even when spread over a longer expected survival and positively
impacting the patient quality of life.
PD is commonly misdiagnosed or completely missed in clinical evaluations as symptoms are often
attributed to the normal aging process. Essential tremor and other similar conditions including DLB, AD,
multiple system atrophy, progressive supranuclear palsy, and normal pressure hydrocephalus are also
common sources of confusion in PD diagnosis. Collectively, there are over 25 million people in the U.S.
and Europe with some type of movement disorder, comprising a large differential diagnosis population.
Current diagnostic guidelines are limited since they characterize PD by the presence of motor symptoms.
Error rates using clinical diagnostic methods have been reported to be high. Research has shown the
importance of who is undertaking a potential PD diagnosis by showing data that nearly half (47%) of PD
diagnoses are incorrect when performed in the primary care setting, and specialists whose expertise is
not specific movement disorders have an error rate of approximately 25%, while movement disorder
specialists are mistaken in only 6% to 8% of cases.
The interest by the medical community in using imaging as an aid in diagnosing neurological conditions is
growing. In PD, people lose dopamine-producing cells in a part of the brain associated with movement.
Loss of these cells is the hallmark of PD. Current neuroimaging agents in combination with SPECT
imaging are able to aid physicians in their diagnosis by visualizing this area of the brain to show the
degree of loss of these motor neurons.
Marketing and Distribution
We believe the most preferable and likely distribution partners for Lymphoseek would be entities with
established radiopharmaceutical distribution channels, although it is possible that other entities with more
traditional oncology or neurological pharmaceutical portfolios may also have interest. Examples of
entities with established regional and/or global radiopharmaceutical distribution networks include Cardinal
14
Health, Covidien/Mallinckrodt GE Healthcare, IBA Molecular, Advanced Accelerator Applications, Eckert
& Zeigler AG, Lantheus Medical Imaging and Bracco Imaging.
During the fourth quarter of 2007, we executed an agreement with Cardinal Health’s Nuclear Pharmacy
Services division for the exclusive distribution of Lymphoseek in the U.S. The agreement is for a term of
five years from the date of FDA marketing clearance, March 13, 2013. Under the terms of this
agreement, Navidea will receive a significant share of the revenue from each patient dose of Lymphoseek
sold. In addition, Navidea will receive up to $3 million in payments upon the achievement of certain sales
milestones by Cardinal Health. We cannot assure you that we will be able to maintain a successful
relationship with Cardinal Health, on terms acceptable to the Company, or at all.
We are in various stages of discussion with potential marketing and distribution partners in the EU and
other world markets; however, we do not currently have distribution agreements covering Lymphoseek in
any areas of the world other than the U.S. We currently have no distribution agreements for NAV4694,
NAV5001 or RIGScan. In addition, it should be noted that the distribution model we have established
with Cardinal Health in the U.S. for Lymphoseek may not necessarily be applicable to other markets or
even our other potential radiopharmaceutical candidates due to differences in regional distribution
infrastructure, regulation and medical practice patterns. We cannot assure you that we will be successful
in securing collaborative partners for other global markets or radiopharmaceutical products, or that we will
be able to negotiate acceptable terms for such arrangements.
Manufacturing
We currently use and expect to continue to be dependent upon contract manufacturers to manufacture
each of our product candidates. We have established a quality control and quality assurance program,
including a set of standard operating procedures and specifications with the goal that our products and
product candidates are manufactured in accordance with cGMP and other applicable domestic and
international regulations. We will need to invest in additional manufacturing and supply chain resources,
and may seek to enter into additional collaborative arrangements with other parties that have established
manufacturing capabilities. It is likely that we will continue to rely on third-party manufacturers for our
development and commercial products on a contract basis.
Lymphoseek Manufacturing
In preparation for the commencement of a multi-center clinical evaluation of Lymphoseek, Navidea
engaged manufacturing organizations to produce drug used in Phase 2 and Phase 3 trials, and they are
expected to be used in the ongoing Phase 3 clinical work. Reliable has produced the drug substance
and OsoBio has performed final product manufacturing including final drug formulation, lyophilization
(freeze-drying) and packaging processes. Once packaged, the vialed drug can then be shipped to a
hospital or regional commercial radiopharmacy where it will be made radioactive (radiolabeled) with
technetium-99m (99mTc) to become the final form of Lymphoseek to be administered to a patient. The
commercial manufacturing processes at Reliable and OsoBio are being concurrently validated in parallel
with the approval and commercial launch of Lymphoseek. Both organizations have assisted Navidea in
the preparation of the CMC sections of our submissions to the FDA and the EMA. Both Reliable and
OsoBio are registered manufacturers with the FDA and/or the EMA.
In November 2009, we completed a Manufacture and Supply Agreement with Reliable for the
manufacture of the bulk drug substance with an initial term of 10 years. At this point, drug product
produced by OsoBio has been manufactured under clinical development agreements. A commercial
supply agreement with OsoBio is in process. We cannot assure you that we will be successful in
reaching a commercial supply agreement with OsoBio on terms satisfactory to us, or at all.
NAV4694 Manufacturing
Supplies of NAV4694 used in clinical development through Phase 2b were manufactured by AstraZeneca
through various arrangements. As a part of the technology transfer process related to our license of
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NAV4694, we are in the process of identifying and contracting with third party manufacturers and
radiolabeling contractors necessary to build an integrated supply chain to produce the drug product for
use in further clinical studies as well as for subsequent commercial use. We are producing drug
substance, and are developing a commercial drug product kit, along with a commercial radiolabeling
process and building a network of partners for the manufacture and distribution of NAV4694. We cannot
assure you that we will be successful in executing agreements for the supply of NAV4694 on terms
acceptable to the Company, or at all.
NAV5001 Manufacturing
Supplies of NAV5001 used in clinical development through Phase 3 were manufactured by Alseres under
an agreement they had in place with Nordion, Inc. (Nordion), a Canadian corporation and well-recognized
manufacturer of 123I and nuclear medicine labeled imaging agents. As a part of the technology transfer
process related to our sublicense of NAV5001, we have begun the process of identifying potential
manufacturers and have initiated preliminary negotiations to produce the drug product for use in further
clinical studies as well as for subsequent commercial use. We cannot assure you that we will be
successful in completing a supply agreement on terms acceptable to the Company, or at all.
RIGScan Manufacturing
During the third quarter of 2009, we announced that we had executed a Biopharmaceutical Development
and Supply Agreement for RIGScan with Laureate Biopharmaceutical Services, Inc. We will need to re-
establish radiolabeling capabilities for the antibody in order to meet the regulatory needs for the RIGScan
product. We cannot assure you that we will be successful in completing the necessary development or
supply agreements to support RIGScan development or commercialization on terms acceptable to the
Company, or at all.
Summary
We cannot assure you that we will be successful in securing and/or maintaining the necessary
manufacturing, supply and/or radiolabeling capabilities for our product candidates in clinical development.
If and when established, we also cannot assure you that we will be able to maintain agreements or other
purchasing arrangements with our subcontractors on terms acceptable to us, or that our subcontractors
will be able to meet our production requirements on a timely basis, at the required levels of performance
and quality, including compliance with FDA cGMP requirements. In the event that any of our
subcontractors are unable or unwilling to meet our production requirements, we cannot assure you that
an alternate source of supply could be established without significant interruption in product supply or
without significant adverse impact to product availability or cost. Any significant supply interruption or
yield problems that we or our subcontractors experience would have a material adverse effect on our
ability to manufacture our products and, therefore, a material adverse effect on our business, financial
condition, and results of operations until a new source of supply is qualified. See Risk Factors.
Competition
Competition in the pharmaceutical and biotechnology industries is intense. We face competition from a
variety of companies focused on developing oncology and neurology diagnostic drugs. We compete with
large pharmaceutical and other specialized biotechnology companies. We also face competition from
universities and other non-profit research organizations. Many emerging medical product companies
have corporate partnership arrangements with large, established companies to support the research,
development, and commercialization of products that may be competitive with our products. In addition,
a number of large established companies are developing proprietary technologies or have enhanced their
capabilities by entering into arrangements with or acquiring companies with technologies applicable to the
detection or treatment of cancer and other diseases targeted by our product candidates. Smaller
companies may also prove to be significant competitors, particularly through collaborative arrangements
with large pharmaceutical and established biotechnology companies. Many of these competitors have
products that have been approved or are in development and operate large, well-funded research and
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development programs. Many of our existing or potential competitors have substantially greater financial,
research and development, regulatory, marketing, and production resources than we have. Other
companies may develop and introduce products and processes competitive with or superior to ours. See
Risk Factors.
We expect to encounter significant competition for the principal pharmaceutical products we plan to
develop. Companies that complete clinical trials, obtain required regulatory approvals and commence
commercial sales of their products before us may achieve a significant competitive advantage if their
products work through a similar mechanism as our products and if the approved indications are similar. A
number of biotechnology and pharmaceutical companies are developing new products for the treatment
of the same diseases being targeted by us. In some instances, such products have already entered late-
stage clinical trials or received FDA approval and may be marketed for some period prior to the approval
of our products.
We believe that our ability to compete successfully will be based on our ability to create and maintain
scientifically advanced “best-in-class” technology, develop proprietary products, attract and retain
scientific personnel, obtain patent or other protection for our products, obtain required regulatory
approvals and manufacture and successfully market our products, either alone or through third parties.
We will continue to seek licenses for technologies related to our field of interest and may face competition
with respect to such efforts. We expect that competition among products cleared for marketing will be
based on, among other things, product efficacy, safety, reliability, availability, price, and patent position.
Lymphoseek Competition
Surgeons who practice the lymphatic mapping procedure for which Lymphoseek is intended currently use
other radiopharmaceuticals such as a sulfur colloid compound in the U.S., and other colloidal compounds
in other markets. In addition, many surgeons use vital blue dyes to assist in the visual identification of the
draining lymphatic tissue around a primary tumor. In the U.S., sulfur colloid is manufactured by
Pharmalucence. Sulfur colloid had been used “off-label” in the U.S. for ILM until July 2011, when it was
approved by the FDA for use in lymphatic mapping in breast cancer patients based on a statistical meta-
analysis of published literature that compared the use of sulfur colloid with that of the vital blue dyes. The
product label for sulfur colloid was expanded to cover lymphatic mapping in melanoma in August 2012,
again on the basis of a meta-analysis of published literature. In the EU and certain Pacific Rim markets,
there are other colloidal-based compounds with various levels of approved labeling for use in lymphatic
mapping, although a number of countries still employ the use of products used “off-label”.
NAV4694 Competition
Several potential competitive 18F products have been approved or are in development for use as
biomarkers to aid in detection of AD. Developed through Eli Lilly’s wholly-owned Avid
Radiopharmaceuticals (Avid), florbetapir was reviewed in January 2011 by the FDA Peripheral and
Central Nervous System Drugs Advisory Committee, which voted 16-0 in favor of recommending that this
drug be approved for use. However, the recommendation was contingent on a training program as there
was significant variability in interpretation among readers of images generated by this agent. In March
2011, Avid received an FDA complete response letter primarily focused on the need to establish a reader
training program to ensure reader accuracy and consistency of interpretations of existing florbetapir
scans. In April 2012, Avid received FDA approval to market florbetapir. Florbetapir also received
marketing authorization in the EU in January 2013.
In addition to fluorbetipir, there are two other beta-amyloid imaging agents in late stage development:
florbetaben from Piramal Enterprises, Imaging Division, who acquired a molecular imaging research and
development portfolio from Bayer Pharma AG in April 2012, and flutemetamol from GE Healthcare. Both
have completed Phase 3 trials. Data from the Phase 3 study of florbetaben was presented in April 2012.
The study was designed to evaluate the power of florbetaben to identify whether a suspected AD patient
has cerebral beta-amyloid deposits. The data were verified by histological verification in a postmortem
autopsy. GE Healthcare is developing another PIB derivative, flutemetamol, for similar application. NDA
and MAA submissions for flutemetamol have been accepted by the FDA and EMA, respectively. The
17
NDA and MAA submissions were based on data from a series of clinical trials, including Phase 3 brain
autopsy and biopsy studies which showed high sensitivity and specificity for visual image reads as well as
strong concordance between [18F]flutemetamol PET images and beta amyloid brain pathology. Data from
these studies were presented at the Alzheimer's Association International Conference 2012 in Vancouver
and the American Academy of Neurology's 64th Annual Meeting in New Orleans. The filing also includes
data from a recently completed [18F]flutemetamol PET image reader training validation study, results of
which will be presented at a scientific forum in coming months.
NAV5001 Competition
In July 2000,GE Healthcare received EMA approval to market DaTscan™ (Ioflupane 123I Injection), a
radiopharmaceutical agent intended for use with SPECT imaging for the detection of dopamine
transporters in the brains of adult patients with suspected Parkinsonian syndromes, in the EU. DaTscan
was developed to help physicians evaluate neurodegenerative movement disorders, such as idiopathic
(of unknown cause) PD. In July 2006, GE Healthcare received expanded approval for DaTscan for use in
DLB. For patients with dementia, DaTscan has been successfully used in Europe to separate
Alzheimer’s disease from DLB. This has important implications in determining which medications can be
safely used to treat the dementia. GE Healthcare received FDA approval to market DaTscan in the U.S.
in January 2011.
RIGScan Competition
We do not believe there are any intraoperative diagnostic radiopharmaceuticals directly competitive with
RIGScan that would be used in the colorectal cancer application at which RIGScan is initially targeted.
There are other radiopharmaceuticals that are used as preoperative imaging agents; however, we are
unaware of any that could be used as a real-time diagnostic aid during surgery such as RIGScan.
Patents and Proprietary Rights
The patent position of biotechnology, including our company, generally is highly uncertain and may
involve complex legal and factual questions. Potential competitors may have filed applications, or may
have been issued patents, or may obtain additional patents and proprietary rights relating to products or
processes in the same area of technology as that used by our company. The scope and validity of these
patents and applications, the extent to which we may be required to obtain licenses thereunder or under
other proprietary rights, and the cost and availability of licenses are uncertain. We cannot assure you
that our patent applications or those licensed to us will result in additional patents being issued or that
any of our patents or those licensed to us will afford protection against competitors with similar
technology; nor can we assure you that any of these patents will not be designed around by others or that
others will not obtain patents that we would need to license or design around.
We also rely upon unpatented trade secrets. We cannot assure you that others will not independently
develop substantially equivalent proprietary information and techniques, or otherwise gain access to our
trade secrets, or disclose such technology, or that we can meaningfully protect our rights to our
unpatented trade secrets.
We require our employees, consultants, advisers, and suppliers to execute a confidentiality agreement
upon the commencement of an employment, consulting or manufacturing relationship with us. The
agreement provides that all confidential information developed by or made known to the individual during
the course of the relationship will be kept confidential and not disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all inventions conceived by the
individual will be the exclusive property of our company. We cannot assure you, however, that these
agreements will provide meaningful protection for our trade secrets in the event of an unauthorized use or
disclosure of such information. We also employ a variety of security measures to preserve the
confidentiality of our trade secrets and to limit access by unauthorized persons. We cannot assure you,
however, that these measures will be adequate to protect our trade secrets from unauthorized access or
disclosure.
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Lymphoseek Intellectual Property
Lymphoseek is being developed under exclusive worldwide license from the Regents of the University of
California through their UCSD affiliate. The UCSD license grants Navidea the commercialization rights to
Lymphoseek for diagnostic imaging and intraoperative detection applications.
Lymphoseek is also the subject of patents and patent applications in the United States and certain major
foreign markets. The patents and patent applications are held by The Regents of the University of
California and have been licensed exclusively to Navidea for lymphatic tissue imaging and intraoperative
detection worldwide. The first composition of matter patent covering Lymphoseek was issued in the
United States in June 2002. The claims of the composition of matter patent covering Lymphoseek have
been allowed in the EU and issued in the majority of EU countries in 2005. The composition of matter
patent has also been issued in Japan. We have filed additional patent applications in the U.S. related to
manufacturing processes for Lymphoseek. We will also rely on trademark protection for products that we
expect to commercialize and have registered the mark Lymphoseek® in the U.S. and other markets.
NAV4694 Intellectual Property
NAV4694 is being developed under exclusive worldwide license from AstraZeneca. The NAV4694
license grants Navidea commercialization rights to the F-18 labeled biomarker for use as an aid in the
diagnosis of AD. NAV4694 is the subject of 2 issued patents and 1 patent pending in the U.S. and 9
issued patents and 57 patents pending in 31 foreign jurisdictions. In addition, the [18F]NAV4694 drug
substance and NAV4694 Precursor 214 are the subjects of 2 issued patents and 1 patent pending in the
U.S. and 9 issued patents and 57 patents pending in 31 foreign jurisdictions.
NAV5001 Intellectual Property
NAV5001 is being developed under an exclusive sublicense from Alseres. The NAV5001 sublicense
grants Navidea commercialization rights to the Iodine-123 labeled biomarker for use as an aid in the
diagnosis of PD and other movement disorders, with potential use as a diagnostic aid in dementia.
NAV5001 is the subject of 3 issued patents and 1 patent pending in the U.S., 1 issued patent in Europe,
and 9 patents pending in 3 foreign jurisdictions.
RIGScan Intellectual Property
We continue to support proprietary protection for the products related to RIGS in major global markets
such as the U.S. and the EU, which although not currently integral to our near-term business plans, may
be important to a potential RIGS development partner. Composition of matter patents have been issued
in the U.S. and EU that cover the antibodies used in clinical studies. The most recent of these patents
was issued in 2004 and additional patent applications are pending. We have a license to these patents
through the NIH; however, our license is subject to ongoing diligence requirements and we could lose
these license rights if we don’t diligently pursue commercialization of the patented technology.
Additionally, statutory exclusivity exists for biologics upon approval in the U.S. for 12 years. In the EU,
data exclusivity extends for 10 years following marketing authorization.
Government Regulation
The research, development, testing, manufacture, labeling, promotion, advertising, distribution and
marketing, among other things, of our products are extensively regulated by governmental authorities in
the United States and other countries. In the United States, the FDA regulates drugs under the Federal
Food, Drug, and Cosmetic Act (FDCA), Public Health Service Act (PHSA), 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 Environmental Protection Act, the Toxic Substances Control Act,
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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.
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The Drug Approval Process
None of our drugs may be marketed in the U.S. until such drug has received FDA approval. The steps
required before a drug may be marketed in the U.S. include:
(cid:120) preclinical laboratory tests, animal studies and formulation studies;
(cid:120)
submission to the FDA of an IND for human clinical testing, which must become effective before
human clinical trials may begin;
(cid:120) adequate and well-controlled human clinical trials to establish the safety and efficacy of the
(cid:120)
(cid:120)
investigational product for each indication;
submission to the FDA of an 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 cGCP
standards; and
(cid:120) 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
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requesting approval to market the product for one or more indications. The testing and approval process
requires substantial time, effort and financial resources. Submission of an NDA requires payment of a
substantial review user fee to the FDA. Before approving a NDA, the FDA usually will inspect the facility
or the facilities where the product is manufactured, tested and distributed and will not approve the product
unless cGMP compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing facilities
as acceptable, the FDA may issue an approval letter or a complete response letter. A complete response
letter outlines conditions that must be met in order to secure final approval of the NDA. When and if
those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. The
approval letter authorizes commercial marketing of the drug for specific indications. As a condition of
approval, the FDA may require post-marketing testing and surveillance to monitor the product’s safety or
efficacy, or impose other post-approval commitment conditions.
The NDA for Lymphoseek was submitted with the intention for use in intraoperative lymphatic mapping
across a broad range of cancers. As a part of their review, the FDA examined the pre-clinical, clinical
and CMC data supporting our application, and, as is also typical of such reviews, conducted site audits of
our facilities and those of the sites where the referenced clinical trials were performed, as well as of
contract suppliers and third party vendors being used in the manufacturing and quality assessment
processes for Lymphoseek. On September 10, 2012, we received a CRL from the FDA, denying our
initial application for approval of Lymphoseek. The decision was focused on deficiencies in cGMP
identified by the FDA during their pre-approval site inspections of third-party contract manufacturing
facilities, and was not related to the efficacy or safety data filed within the Lymphoseek NDA. We worked
diligently with our advisors, contract manufacturers and the FDA to address the third party cGMP
manufacturing deficiencies noted in the FDA’s September CRL. On October 30, 2012, we resubmitted
our NDA in response to the CRL. The FDA accepted the resubmission and established a new PDUFA
date of April 30, 2013. Lymphoseek was approved and indicated for use in lymphatic mapping for breast
cancer and melanoma by the FDA on March 13, 2013. Additional trials, two of which are already ongoing
in head and neck cancer and colorectal cancer, are anticipated to provide support for expanding the
utilization of Lymphoseek into multiple other cancer types. We cannot assure you that Lymphoseek will
achieve regulatory approval in the EU or any market outside the U.S., or if approved, that it will achieve
market acceptance in any market. See Risk Factors.
The FDA has various programs, including fast track, priority review and accelerated approval, which are
intended to expedite or simplify the process of reviewing drugs and/or provide for approval on the basis of
surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those
for serious or life threatening conditions, those with the potential to address unmet medical needs and
those that provide meaningful benefit over existing treatments. We cannot assure you that any of our
drugs will qualify for any of these programs, or that, if a drug does qualify, the review time will be reduced
or the product will be approved.
After approval, certain changes to the approved product, such as adding new indications, making certain
manufacturing changes or making certain additional labeling claims, are subject to further FDA review
and approval. Obtaining approval for a new indication generally requires that additional clinical studies
be conducted.
Post-Approval Requirements
Holders of an approved NDA are required to: (i) conduct pharmacovigilance and report certain adverse
reactions to the FDA, (ii) comply with certain requirements concerning advertising and promotional
labeling for their products, and (iii) continue to have quality control and manufacturing procedures
conform to cGMP. The FDA periodically inspects the sponsor’s records related to safety reporting and/or
manufacturing and distribution facilities; this latter effort includes assessment of compliance with cGMP.
Accordingly, manufacturers must continue to expend time, money and effort in the area of production,
quality control and distribution to maintain cGMP compliance. We use and will continue to use third-party
manufacturers to produce our products in clinical and commercial quantities, and future FDA inspections
may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct. In addition, discovery of
22
problems with a product after approval may result in restrictions on a product, manufacturer or holder of
an approved NDA, including withdrawal of the product from the market.
Marketing of prescription drugs is also subject to significant regulation through federal and state agencies
tasked with consumer protection and prevention of medical fraud, waste and abuse. We must comply
with restrictions on off-label use promotion, anti-kickback, ongoing clinical trial registration, and limitations
on gifts and payments to physicians.
Non-U.S. Regulation
Before our products can be marketed outside of the United States, they are subject to regulatory approval
similar to that required in the U.S., although the requirements governing the conduct of clinical trials,
including additional clinical trials that may be required, product licensing, pricing and reimbursement vary
widely from country to country. No action can be taken to market any product in a country until an
appropriate application has been approved by the regulatory authorities in that country. The current
approval process varies from country to country, and the time spent in gaining approval varies from that
required for FDA approval. In certain countries, the sales price of a product must also be approved. The
pricing review period often begins after market approval is granted. Even if a product is approved by a
regulatory authority, satisfactory prices may not be approved for such product.
In Europe, marketing authorizations may be submitted at a centralized, a decentralized or national level.
The centralized procedure is mandatory for the approval of biotechnology products and provides for the
grant of a single marketing authorization that is valid in all EU member states. As of January 1995, a
mutual recognition procedure is available at the request of the applicant for all medicinal products that are
not subject to the centralized procedure. We cannot assure you that the chosen regulatory strategy will
secure regulatory approvals on a timely basis or at all.
While we are unable to predict the extent to which our business may be affected by future regulatory
developments, we believe that our substantial experience dealing with governmental regulatory
requirements and restrictions on our operations throughout the world, and our development of new and
improved products, should enable us to compete effectively within this environment.
Regulation Specific to Radiopharmaceuticals
Our radiolabeled targeting agents and biologic products, if developed, would require a regulatory license
to market from the FDA and from comparable agencies in foreign countries. The process of obtaining
regulatory licenses and approvals is costly and time consuming, and we have encountered significant
impediments and delays related to our previously proposed biologic products.
The process of completing pre-clinical and clinical testing, manufacturing validation and submission of a
marketing application to the appropriate regulatory bodies usually takes a number of years and requires
the expenditure of substantial resources, and we cannot assure you that any approval will be granted on
a timely basis, if at all. Additionally, the length of time it takes for the various regulatory bodies to
evaluate an application for marketing approval varies considerably, as does the amount of preclinical and
clinical data required to demonstrate the safety and efficacy of a specific product. The regulatory bodies
may require additional clinical studies that may take several years to perform. The length of the review
period may vary widely depending upon the nature and indications of the proposed product and whether
the regulatory body has any further questions or requests any additional data. Also, the regulatory bodies
require post-marketing reporting and surveillance programs (pharmacovigilance) to monitor the side
effects of the products. We cannot assure you that any of our potential drug or biologic products will be
approved by the regulatory bodies or approved on a timely or accelerated basis, or that any approvals
received will not subsequently be revoked or modified.
The Nuclear Regulatory Commission (NRC) oversees medical uses of nuclear material through licensing,
inspection, and enforcement programs. The NRC issues medical use licenses to medical facilities and
authorized physician users, develops guidance and regulations for use by licensees, and maintains a
23
committee of medical experts to obtain advice about the use of byproduct materials in medicine. The
NRC (or the responsible Agreement State) also regulates the manufacture and distribution of these
products. The FDA oversees the good practices in the manufacturing of radiopharmaceuticals, medical
devices, and radiation-producing x-ray machines and accelerators. The states regulate the practices of
medicine and pharmacy and administer programs associated with radiation-producing x-ray machines
and accelerators. We, or our manufacturer of the radiolabeled antibodies, must obtain a specific license
from the NRC (or the responsible Agreement State) to manufacture and distribute radiolabeled
antibodies, as well as comply with all applicable regulations. We must also comply with Department of
Transportation regulations on the labeling and packaging requirements for shipment of radiolabeled
antibodies to licensed clinics, and must comply with federal, state, and local governmental laws regarding
the disposal of radioactive waste. We cannot assure you that we will be able to obtain all necessary
licenses and permits and be able to comply with all applicable laws. The failure to obtain such licenses
and permits or to comply with applicable laws would have a materially adverse effect on our business,
financial condition, and results of operations.
Corporate Information
Our executive offices are located at 425 Metro Place North, Suite 450, Dublin, Ohio 43017. Our
telephone number is (614) 793-7500. “Navidea”, the Navidea logo, “Lymphoseek”, “RIGS” and “RIGScan”
are trademarks of Navidea Biopharmaceuticals, Inc. or its subsidiaries in the U.S. and/or other countries.
Other trademarks or service marks appearing in this report may be trademarks or service marks of other
owners.
The address for our website is http://www.navidea.com. We make available free of charge on our
website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-
K and other filings pursuant to Section 13(a) or 15(d) of the Exchange Act, and amendments to such
filings, as soon as reasonably practicable after each is electronically filed with, or furnished to, the SEC.
Financial Statements
Our consolidated financial statements and the related notes, including revenues, income (loss), total
assets and other financial measures are set forth at pages F-1 through F-26 of this Form 10-K.
Research and Development
We spent approximately $16.9 million, $15.2 million and $8.9 million on research and development
activities in the years ended December 31, 2012, 2011 and 2010, respectively.
Employees
As of March 1, 2013, we had 47 full-time and 9 part-time employees. We consider our relations with our
employees to be good.
Item 1A. Risk Factors
An investment in our common stock is highly speculative, involves a high degree of risk, and should be
made only by investors who can afford a complete loss. You should carefully consider the following risk
factors, together with the other information in this report, 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.
24
If we do not achieve commercial success with our approved product or if we do not successfully develop
our product candidates into marketable products, we may be unable to generate significant revenue or
become profitable.
We divested the neoprobe GDS line of gamma detection medical devices in August 2011. Through that
time, sales of gamma detection devices represented our primary source of revenue. As a result, our
near-term financial success depends in large part on Lymphoseek achieving commercial success in the
U.S. and, pending approval in other markets, on achievement of commercial success in those markets as
well. Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and
melanoma by the FDA on March 13, 2013. Additional trials, two of which are already ongoing in head
and neck cancer and colorectal cancer, are anticipated to provide support for expanding the utilization of
Lymphoseek into multiple other cancer types. We expect to begin generating revenues from product
sales of Lymphoseek in the second quarter of 2013. As we generate revenues from Lymphoseek, it is
possible we will ultimately receive payments related to the achievement of certain sales milestones by our
marketing partner in the U.S. However, we cannot assure you that Lymphoseek will achieve commercial
success in the U.S. or any other global market, that we will realize sales at levels necessary for us to
achieve sales milestone payments, or that revenue from Lymphoseek will lead to us becoming profitable.
In addition, NAV4694, NAV5001 and RIGScan are in various stages of clinical development. Regulatory
approval for additional indications for Lymphoseek may not be successful, or if successful, may not result
in increased sales. Additional clinical trials for NAV4694, NAV5001, RIGScan, or other product
candidates, may not be successful and, even if they are, we may not be successful in developing any of
them into a commercial product which will provide sufficient revenue to make us profitable.
Many companies in the pharmaceutical industry suffer significant setbacks in advanced clinical trials even
after reporting promising results in earlier trials. Even if our trials are viewed as successful, we may not
get regulatory approval. Our product candidates will be successful only if:
(cid:120)
they are developed to a stage that will enable us to commercialize them or sell related
marketing rights to pharmaceutical companies;
(cid:120) we are able to commercialize them in clinical development or sell the marketing rights to third
parties; and
(cid:120) upon being developed, they are approved by the regulatory authorities.
We are dependent on the achievement of these goals in order to generate future revenues. The failure to
generate such revenues may preclude us from continuing our research and development of these and
other product candidates.
We cannot guarantee that we will obtain regulatory approval to manufacture or market our unapproved
drug candidates and our approval to market our products or anticipated commercial launch may be
delayed as a result of the regulatory review process.
Obtaining regulatory approval to market drugs to diagnose or treat cancer is expensive, difficult and risky.
Preclinical and clinical data as well as information related to the CMC processes of drug production can
be interpreted in different ways which could delay, limit or preclude regulatory approval. Negative or
inconclusive results, adverse medical events during a clinical trial, or issues related to CMC processes
could also delay, limit or prevent regulatory approval. Even if we receive regulatory clearance to market a
particular product candidate, the approval could be conditioned on us conducting additional costly post-
approval studies or could limit the indicated uses included in our labeling.
Our radiopharmaceutical products will remain subject to ongoing regulatory review following the receipt of
marketing approval. If we fail to comply with continuing regulations, we could lose these approvals and
the sale of our products could be suspended.
Approved products may later cause adverse effects that limit or prevent their widespread use, force us to
withdraw it from the market or impede or delay our ability to obtain regulatory approvals in additional
25
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;
fines;
injunctions;
(cid:120)
(cid:120) warning letters;
(cid:120)
(cid:120)
(cid:120)
(cid:120) product seizures or detentions;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
import bans;
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.
Even if our drug candidates are successful in clinical trials, we may not be able to successfully
commercialize them.
With the historical exception of our discontinued medical device businesses, we have dedicated and will
continue to dedicate substantially all of our resources to the research and development of our
radiopharmaceutical technologies and related compounds. With the exception of Lymphoseek, now
approved for use in lymphatic mapping in breast cancer and melanoma in the U.S., all of our compounds
currently are in research or development or regulatory review and have not received marketing approval.
Prior to commercialization, each product candidate requires significant research, development and
preclinical testing and extensive clinical investigation before submission of any regulatory application for
marketing approval. The development of radiopharmaceutical technologies and compounds, including
those we are currently developing, is unpredictable and subject to numerous risks. Potential products
that appear to be promising at early stages of development may not reach the market for a number of
reasons including that they may:
fail to receive necessary regulatory approvals;
(cid:120) be found ineffective or cause harmful side effects during preclinical testing or clinical trials;
(cid:120)
(cid:120) be difficult to manufacture on a scale necessary for commercialization;
(cid:120) be uneconomical to produce;
(cid:120)
(cid:120) be precluded from commercialization by proprietary rights of third parties.
fail to achieve market acceptance; or
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.
26
If we are not successful in licensing or acquiring additional drug candidates or technologies to expand our
product pipeline, our future product portfolio and potential profitability could be harmed.
One component of our business strategy is to in-license drug compounds developed by other
pharmaceutical and biotechnology companies or academic research laboratories. All of our product
candidates in clinical development are in-licensed from third parties, consisting of Lymphoseek,
NAV4694, NAV5001 and RIGScan. We may not successfully acquire additional drug candidates or
technologies to expand our product pipeline. The number of such candidates and technologies is limited.
Competition among large pharmaceutical companies and biopharmaceutical companies for promising
drug candidates and technologies is intense because such companies generally desire to expand their
product pipelines through purchase or in-licensing. If we fail to expand our product pipeline, our potential
future revenues may be adversely affected.
Clinical trials for our radiopharmaceutical product candidates will be lengthy and expensive and their
outcome is uncertain.
Before obtaining regulatory approval for the commercial sale of any product candidates, we must
demonstrate through preclinical testing and clinical trials that our product candidates are safe and
effective for use in humans. Conducting clinical trials is a time consuming, expensive and uncertain
process and may take years to complete. During 2011, we successfully completed a second Phase 3
clinical trial in subjects with breast cancer or melanoma for our most advanced radiopharmaceutical
product candidate, Lymphoseek. These Phase 3 clinical trials served as the basis for the approval of
Lymphoseek in March 2013.
Clinical research of Lymphoseek continues with an ongoing third Phase 3 trial involving subjects with
head and neck squamous cell carcinoma (NEO3-06). The NEO3-06 clinical study was designed to
provide evidence of Lymphoseek performance in a third cancer type and to potentially expand the
product label for Lymphoseek. In January 2013, we announced that we had accrued sufficient subjects in
our NEO3-06 study in patients with head and neck cancer to enable us to conduct a pre-planned interim
analysis. This Phase 3 trial of Lymphoseek was designed to demonstrate the performance of
Lymphoseek in identifying sentinel lymph nodes in subjects with squamous cell carcinoma on the head or
in the mouth. The interim analysis will compare the pathological analysis of the sentinel lymph nodes
localized using Lymphoseek with that of all the lymph nodes removed during a full nodal dissection
surgery of the head and neck. This full dissection surgery is considered the gold standard for determining
the presence and extent of cancer and staging of the disease in such patients. A total of 83 subjects who
underwent pre-planned, full dissection surgery were enrolled and represent the interim analysis cohort.
Results from the interim statistical analysis and reporting of the findings are expected to be available
upon completion of full site and data audits planned for later in 2013.
With respect to NAV4694, AstraZeneca has completed clinical development through a Phase 2a level.
During the third quarter of 2012, we commenced our clinical development through some additional Phase
2 testing, mainly intended to expand the safety population, and we intend to commence Phase 2b testing
in patients with mild cognitive impairment and autopsy-based Phase 3 testing of NAV4694 in 2013, but
these plans could also experience complications and delays.
With respect to NAV5001, Alseres had previously completed five clinical trials in over 600 subjects.
Alseres received a Phase 3 SPA from the FDA for NAV5001 in 2009. We have held preliminary
discussions with the FDA regarding the SPA and expect to update the SPA over the coming months.
In August 2011, we held a meeting regarding RIGScan with the SAWP of the EMA and received similar
guidance as we received from the FDA, as well as the suggestion that we consider use of a humanized
version of the RIGS antibody. With this collective guidance, we have changed our development plans
from a murine-based antibody to a humanized antibody on our development and regulatory timelines. As
the scope and required resources for other development opportunities such as for NAV4694 and/or
NAV5001 continues to be assessed, the timing and scope of our development and commercialization
plan for RIGScan may be continue to be affected.
27
Historically, the results from preclinical testing and early clinical trials often do not predict the results
obtained in later clinical trials. Frequently, drugs that have shown promising results in preclinical or early
clinical trials subsequently fail to establish sufficient safety and efficacy data necessary to obtain
regulatory approval. At any time during the clinical trials, we, the participating institutions, the FDA or the
EMA might delay or halt any clinical trials for our product candidates for various reasons, including:
ineffectiveness of the product candidate;
(cid:120)
(cid:120) discovery of unacceptable toxicities or side effects;
(cid:120) development of disease resistance or other physiological factors;
(cid:120) delays in patient enrollment; or
(cid:120) 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 Lymphoseek as indicated by the
recent FDA approval, and our licensing partners have also achieved successful outcomes from earlier
trials of NAV4694 and NAV5001, the results of some of these clinical trials that have not been yet
reviewed by the FDA or other regulatory bodies, as well as pending and future trials for these and other
product candidates that we may develop or acquire, are subject to review and interpretation by various
regulatory bodies during the regulatory review process and may ultimately fail to demonstrate the safety
or effectiveness of our product candidates to the extent necessary to obtain regulatory approval, or that
commercialization of our product candidates is worthwhile. Any failure or substantial delay in
successfully completing clinical trials and obtaining regulatory approval for our product candidates could
materially harm our business.
We extensively outsource our clinical trial activities and usually perform only a small portion of the start-
up activities in-house. We rely on independent third-party contract research organizations (CROs) to
perform most of our clinical studies, including document preparation, site identification, screening and
preparation, pre-study visits, training, post-study audits and statistical analysis. Many important aspects
of the services performed for us by the CROs are out of our direct control. If there is any dispute or
disruption in our relationship with our CROs, our clinical trials may be delayed. Moreover, in our
regulatory submissions, we rely on the quality and validity of the clinical work performed by third-party
CROs. If any of our CROs’ processes, methodologies or results were determined to be invalid or
inadequate, our own clinical data and results and related regulatory approvals could be adversely
impacted.
If we fail to establish and maintain collaborations or if our partners do not perform, we may be unable to
develop and commercialize our product candidates.
We expect to enter into collaborative arrangements with third-parties to develop and/or commercialize
product candidates and are currently seeking additional collaborations. Such collaborations might be
necessary in order for us to fund our research and development activities and third-party manufacturing
arrangements, seek and obtain regulatory approvals and successfully commercialize our existing and
future product candidates. If we fail to enter into collaborative arrangements or fail to maintain our
existing collaborative arrangements, the number of product candidates from which we could receive
future revenues would decline.
28
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;
(cid:120)
(cid:120) 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;
(cid:120) 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;
(cid:120) partners may choose to develop, independently or with other companies, alternative products or
treatments. including products or treatments which compete with ours;
(cid:120) agreements with partners may expire or be terminated without renewal, or partners may breach
collaboration agreements with us;
(cid:120) 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.
(cid:120)
The occurrence of any of these events could adversely affect the development or commercialization of
our products.
If users of our products are unable to obtain adequate reimbursement from third-party payers, or if new
restrictive legislation is adopted, market acceptance of our products may be limited and we may not
achieve anticipated revenues.
Our ability to commercialize our products will depend in part on the extent to which appropriate
reimbursement levels for the cost of our products and related treatment are obtained by governmental
authorities, private health insurers and other organizations such as health maintenance organizations
(HMOs). Third-party payers are increasingly challenging the prices charged for medical care. Also, the
trend toward managed health care in the United States and the concurrent growth of organizations such
as HMOs which could control or significantly influence the purchase of health care services and products,
as well as legislative proposals to further reform health care or reduce government insurance programs,
may all result in lower prices for our products if approved for commercialization. The cost containment
measures that health care payers and providers are instituting and the effect of any health care reform
could materially harm our ability to sell our products at a profit.
While we expect a “pass-through” reimbursement code related to Lymphoseek’s designation as a new
chemical entity to be established by the U.S. Center for Medicaid and Medicare Services (CMS) in the
months following FDA approval on March 13, 2013, there can be no assurance that such pass-through
code will be received from CMS, and if not received, that the cost of Lymphoseek will be absorbed by
healthcare providers. In addition, there can be no assurance that, even if a pass-through code is
obtained, following the expiration of such code (generally two to three years following approval), we will
be successful in establishing a separate permanent code for reimbursement of Lymphoseek and
therefore the cost of Lymphoseek may be need to be absorbed by the institution as a part of the bundled
procedural code for the surgical procedure in which Lymphoseek is used. If this is the case, our
expectations of the pricing we expect to achieve for Lymphoseek and the related potential revenue may
be significantly diminished.
We may be unable to establish or contract for the pharmaceutical manufacturing capabilities necessary to
develop and commercialize our potential products.
We are in the process of establishing commercial manufacturing capabilities on a third-party contract
basis for our Lymphoseek product and clinical manufacturing capabilities for our other
radiopharmaceutical compounds. 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
29
commercialization of our potential products. Third-party manufacturers may not be able to meet our
needs with respect to timing, quantity or quality of materials.
We have a supply agreement with Reliable to manufacture the drug substance for our Lymphoseek
product and we currently use OsoBio for the finishing and vialing of our Lymphoseek product. However,
if we are unable to contract for a sufficient supply of needed materials on acceptable terms, or if we
should encounter delays or difficulties in our relationships with manufacturers, our clinical trials may be
delayed, thereby delaying the submission of product candidates for regulatory approval and the market
introduction and subsequent commercialization of our potential products, and for approved products, any
such delays, interruptions or other difficulties may render us unable to supply sufficient quantities to meet
demand. Any such delays or interruptions may lower our revenues and potential profitability.
We and any third-party manufacturers that we may use must continually adhere to cGMPs and
regulations enforced by the FDA through its facilities inspection program and/or foreign regulatory
authorities where our products will be tested and/or marketed. If our facilities or the facilities of third-party
manufacturers cannot pass a pre-approval plant inspection, the FDA and/or foreign regulatory authorities
will not grant approval to market our product candidates. In complying with these regulations and foreign
regulatory requirements, we and any of our third-party manufacturers will be obligated to expend time,
money and effort on production, record-keeping and quality control to assure that our potential products
meet applicable specifications and other requirements. The FDA and other regulatory authorities may
take action against a contract manufacturer who violates cGMPs.
We may lose out to larger or better-established competitors.
The biotechnology industry is intensely competitive. Some of our competitors have significantly greater
financial, technical, manufacturing, marketing and distribution resources as well as greater experience in
the pharmaceutical industry than we have. The particular medical conditions our product lines address
can also be addressed by other medical procedures or drugs. Many of these alternatives are widely
accepted by physicians and have a long history of use. Physicians may use our competitors’ products
and/or our products may not be competitive with other technologies. Lymphoseek is expected to
compete against sulfur colloid in the U.S. and other colloidal agents in other global markets. NAV4694 is
expected to compete against florbetapir, a first-generation beta-amyloid imaging agent which Eli Lilly
received approval for in 2012. We are also aware of two additional first-generation beta-amyloid imaging
agents in late stages of development by two other large pharmaceutical companies. In addition,
NAV5001 if approved, is expected to compete against a product marketed by GE Healthcare. If our
competitors are successful in establishing and maintaining market share for their products, our sales and
revenues may not occur at the rate we anticipate. In addition, our current and potential competitors may
establish cooperative relationships with larger companies to gain access to greater research and
development or marketing resources. Competition may result in price reductions, reduced gross margins
and loss of market share.
We may be exposed to product liability claims for our product candidates and products that we are able to
commercialize.
The testing, manufacturing, marketing and use of our commercial products, as well as product candidates
in development, involve substantial risk of product liability claims. These claims may be made directly by
consumers, healthcare providers, pharmaceutical companies or others. In recent years, coverage and
availability of cost-effective product liability insurance has decreased, so we may be unable to maintain
sufficient coverage for product liabilities that may arise. In addition, the cost to defend lawsuits or pay
damages for product liability claims may exceed our coverage. If we are unable to maintain adequate
coverage or if claims exceed our coverage, our financial condition and our ability to clinically test our
product candidates and market our products will be adversely impacted. In addition, negative publicity
associated with any claims, regardless of their merit, may decrease the future demand for our products
and impair our financial condition.
30
The administration of drugs in humans, whether in clinical studies or commercially, carries the inherent
risk of product liability claims whether or not the drugs are actually the cause of an injury. Our products
or product candidates may cause, or may appear to have caused, injury or dangerous drug interactions,
and we may not learn about or understand those effects until the product or product candidate has been
administered to patients for a prolonged period of time. We may be subject from time to time to lawsuits
based on product liability and related claims, and we cannot predict the eventual outcome of any future
litigation. We may not be successful in defending ourselves in the litigation and, as a result, our business
could be materially harmed. These lawsuits may result in large judgments or settlements against us, any
of which could have a negative effect on our financial condition and business if in excess of our insurance
coverage. Additionally, lawsuits can be expensive to defend, whether or not they have merit, and the
defense of these actions may divert the attention of our management and other resources that would
otherwise be engaged in managing our business.
As a result of a number of factors, product liability insurance has become less available while the cost
has increased significantly. We currently carry product liability insurance that our management believes
is appropriate given the risks that we face. We will continually assess the cost and availability of
insurance; however, there can be no guarantee that insurance coverage will be obtained or, if obtained,
will be sufficient to fully cover product liabilities that may arise.
If any of our license agreements for intellectual property underlying Lymphoseek, NAV4694, NAV5001 or
RIGScan, 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 intellectual
property for Lymphoseek, NAV4694, NAV5001 and RIGScan. 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 to our licensed intellectual property if diligence requirements are not met.
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.
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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.
In addition, it may be necessary for us to enforce patents under which we have rights, or to determine the
scope, validity and unenforceability of other parties’ proprietary rights, which may affect our rights. There
can be no assurance that our patents would be held valid by a court or administrative body or that an
alleged infringer would be found to be infringing. The uncertainty resulting from the mere institution and
continuation of any patent related litigation or interference proceeding could have a material and adverse
effect on us.
We typically require our employees, consultants, advisers and suppliers to execute confidentiality and
assignment of invention agreements in connection with their employment, consulting, advisory, or supply
relationships with us. They may breach these agreements and we may not obtain an adequate remedy
for breach. Further, third parties may gain unauthorized access to our trade secrets or independently
develop or acquire the same or equivalent information.
Agencies of the United States government conducted some of the research activities that led to the
development of antibody technology that some of our proposed antibody-based surgical cancer detection
products use. When the United States government participates in research activities, it retains rights that
include the right to use the technology for governmental purposes under a royalty-free license, as well as
rights to use and disclose technical data that could preclude us from asserting trade secret rights in that
data and software.
We and our collaborators, including AstraZeneca and Alseres, 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.
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The intellectual property protection for our product candidates depends on third parties.
With respect to Lymphoseek, NAV4694, NAV5001 and RIGScan, we have exclusively licensed certain
issued patents and pending patent applications covering the respective technologies underlying these
product candidates and their commercialization and use and we have licensed certain issued patents and
pending patent applications directed to product compositions and chemical modifications used in product
candidates for commercialization, and the use and the manufacturing thereof.
The patents and pending patent applications underlying our licenses do not cover all potential product
candidates, modifications and uses. In the case of patents and patent applications licensed from
AstraZeneca, we have limited control over the filing, prosecution or enforcement of these patents or
patent applications. In the case of patents and patent applications licensed from UCSD, we did not have
any control over the filing of the patents and patent applications before the effective date of the
Lymphoseek license, and have had limited control over the filing and prosecution of these patents and
patent applications after the effective date of the Lymphoseek license. We also have limited rights to
enforce patents and patent applications licensed from AstraZeneca and Alseres. We cannot be certain
that such prosecution efforts have been or will be conducted in compliance with applicable laws and
regulations or will result in valid and enforceable patents. We also cannot be assured that our licensors
or their respective licensing partners will agree to enforce any such patent rights at our request or devote
sufficient efforts to attain a desirable result. Any failure by our licensors or any of their respective
licensing partners to properly protect the intellectual property rights relating to our product candidates
could have a material adverse effect on our financial condition and results of operation.
We may become involved in disputes with AstraZeneca, UCSD, Alseres, the NIH or potential future
collaborators over intellectual property ownership, and publications by our research collaborators and
scientific advisors could impair our ability to obtain patent protection or protect our proprietary information,
which, in either case, could have a significant effect on our business.
Inventions discovered under research, material transfer or other such collaborative agreements may
become jointly owned by us and the other party to such agreements in some cases and the exclusive
property of either party in other cases. Under some circumstances, it may be difficult to determine who
owns a particular invention, or whether it is jointly owned, and disputes could arise regarding ownership
of those inventions. These disputes could be costly and time consuming and an unfavorable outcome
could have a significant adverse effect on our business if we were not able to protect our license rights to
these inventions. In addition, our research collaborators and scientific advisors generally have
contractual rights to publish our data and other proprietary information, subject to our prior review.
Publications by our research collaborators and scientific advisors containing such information, either with
our permission or in contravention of the terms of their agreements with us, may impair our ability to
obtain patent protection or protect our proprietary information, which could significantly harm our
business.
Security breaches and other disruptions could compromise our information and expose us to liability,
which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property,
our proprietary business information and that of our suppliers and business partners, and personally
identifiable information of employees and clinical trial subjects, in our data centers and on our networks.
The secure maintenance and transmission of this information is critical to our operations and business
strategy. Despite our security measures, our information technology and infrastructure may be
vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions.
Any such breach could compromise our networks and the information stored there could be accessed,
publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in
legal claims or proceedings, liability under laws that protect the privacy of personal information, and
regulatory penalties, disrupt our operations, and damage our reputation, which could adversely affect our
business, revenues and competitive position.
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Failure to comply with domestic and international privacy and security laws can result in the imposition of
significant civil and criminal penalties. The costs of compliance with these laws, including protecting
electronically stored information from cyber attacks, and potential liability associated with failure to do so
could adversely affect our business, financial condition and results of operations. We are subject to
various domestic and international privacy and security regulations, including but not limited to The
Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA mandates, among other
things, the adoption of uniform standards for the electronic exchange of information in common
healthcare transactions, as well as standards relating to the privacy and security of individually
identifiable health information, which require the adoption of administrative, physical and technical
safeguards to protect such information. In addition, many states have enacted comparable laws
addressing the privacy and security of health information, some of which are more stringent than HIPAA.
We may have difficulty raising additional capital, which could deprive us of necessary resources to
pursue our business plans.
We expect to devote significant capital resources to fund research and development, to maintain existing
and secure new manufacturing resources, and to acquire new product candidates. In order to support
the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of
assets, public or private debt or equity financing, collaborative relationships or other arrangements. Our
ability to raise additional financing depends on many factors beyond our control, including the state of
capital markets, the market price of our common stock and the development or prospects for
development of competitive technology by others. Sufficient additional financing may not be available to
us or may be available only on terms that would result in further dilution to the current owners of our
common stock.
Our future expenditures on our programs are subject to many uncertainties, including whether our
product candidates will be developed or commercialized with a partner or independently. Our future
capital requirements will depend on, and could increase significantly as a result of, many factors,
including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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 will need to expand our workforce to pursue our business plan, and the
costs involved in recruiting, training 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.
We believe that we have access to sufficient financial resources with which to fund our operations and
those of our subsidiaries for the foreseeable future. However, certain events or actions may shorten the
period through which our current operating funds will sustain us, including, without limitation, if we decide
to grow our organization in pursuit of development or commercialization activities for our current or newly
acquired or developed product candidates, if we incur unexpected expenses, or if Lymphoseek does not
generate our expected levels of sales and cash flow. We may also acquire new technologies, product
34
candidates and/or products and the cost to acquire, develop and/or commercialize such new
technologies, product candidates and/or products may shorten the period through which our current
operating funds will sustain us. If our current funds become inadequate, we may not be able to obtain
sufficient additional funding for such activities, on satisfactory terms, if at all. If we are unsuccessful in
raising additional capital, or the terms of raising such capital are unacceptable, we may have to modify
our business plan and/or significantly curtail our planned development activities, acquisition of new
product candidates and other operations.
Our ability to raise capital may be limited by applicable laws and regulations.
Our ability to raise additional capital through the sale and issuance of our equity securities may be limited
by, among other things, current Securities and Exchange Commission (Commission) and NYSE MKT
rules and regulations. Our capital raising plans include primary offerings of equity securities using a
“shelf” registration on Form S-3, which typically enables an issuer to raise additional capital on a more
timely and cost effective basis than through other means, such as registration of a securities offering
under a Form S-1 registration statement. Under current Commission rules and regulations, to be eligible
to use a Form S-3 registration statement for primary offerings without restriction as to the amount of
securities to be sold and issued, an issuer must, among other requirements, have outstanding common
equity with a market value of at least $75 million held by non-affiliates. Although we currently have
outstanding common equity with a market value of significantly more than $75 million held by non-
affiliates, if we file a “shelf” Form S-3 registration statement at a time when the aggregate market value of
our common stock held by non-affiliates, or public float, is less than $75 million (calculated as set forth in
Form S-3 and Commission rules and regulations), the amount we could raise through primary offerings of
our securities in any 12-month period using the Form S-3 registration statement may be limited to an
aggregate of one-third of our public float. Moreover, the market value of all securities sold by us under a
Form S-3 registration statement during the prior 12 months may be subtracted from that amount to
determine the amount we can then raise under the Form S-3 registration statement. The Commission’s
rules and regulations require that we periodically re-evaluate the value of our public float. If, at a re-
evaluation date, our public float is less than $75 million, the amount we could raise through primary
offerings of our securities in any 12-month period using a Form S-3 registration statement would be
subject to the one-third of public float limitation described above.
In addition, under current Commission rules and regulations, if our public float is less than $75 million or if
we seek to register a resale offering (i.e., an offering of our securities by persons other than us), we must,
among other requirements, maintain our listing with the NYSE MKT or have our common stock listed and
registered on another national securities exchange in order to be eligible to use a Form S-3 registration
statement for any primary or resale offering. Alternative means of raising capital through sales of our
securities, including through the use of a Form S-1 registration statement, may be more costly and time-
consuming.
Currently, our common stock is listed on the NYSE MKT. The NYSE MKT will review the
appropriateness of continued listing of any issuer that falls below the exchange’s continued listing
standards. For additional information regarding this risk, see the risk factor below titled “Our failure to
maintain continued compliance with the listing requirements of the NYSE MKT exchange could result in
the delisting of our common stock.” If our common stock were delisted from the NYSE MKT, our ability to
raise capital on terms and conditions we deem acceptable, if at all, may be materially impaired.
Our ability to timely raise sufficient additional capital also may be limited by the NYSE MKT’s
requirements relating to stockholder approval for transactions involving the issuance of our common
stock or securities convertible into our common stock. For instance, the NYSE MKT requires that we
obtain stockholder approval of any transaction involving the sale, issuance or potential issuance by us of
our common stock (or securities convertible into our common stock) at a price less than the greater of
book or market value, which (together with sales by our officers, directors and principal stockholders)
equals 20% or more of our presently outstanding common stock, unless the transaction is considered a
“public offering” by the NYSE MKT staff. Based on our outstanding common stock as of February 28,
2013 and the average closing price of $3.11 over the thirty trading days preceding February 28, 2013, we
35
could not raise more than approximately $70 million without stockholder approval, unless the transaction
is deemed a public offering or does not involve the sale, issuance or potential issuance by us of our
common stock (or securities convertible into our common stock) at a price less than the greater of book
or market value. However, certain prior sales by us may be aggregated with any offering we may
propose in the near-term, further limiting the amount we could raise in any future offering that is not
considered a public offering by the NYSE MKT staff and would involve the sale, issuance or potential
issuance by us of our common stock (or securities convertible into our common stock) at a price less than
the greater of book or market value. The NYSE MKT will also require stockholder approval if the
issuance or potential issuance of additional shares will be considered by the exchange staff to result in a
change of control of Navidea.
Obtaining stockholder approval is a costly and time-consuming process. If we are required to obtain
stockholder approval, we would expect to spend substantial additional money and resources. In addition,
seeking stockholder approval would delay our receipt of otherwise available capital, which may materially
and adversely affect our ability to execute our current business strategy, and there is no guarantee our
stockholders ultimately would approve a proposed transaction. A public offering under the NYSE MKT
rules typically involves broadly announcing the proposed transaction, which often has the effect of
depressing the issuer’s stock price. Accordingly, the price at which we could sell our securities in a public
offering may be less and the dilution existing stockholders experience may in turn be greater than if we
were able to raise capital through other means.
There may be future sales or other dilution of our equity, which may adversely affect the market price of
shares of our common stock.
Our existing and future preferred stock, warrants or other securities convertible into or exchangeable for
our common stock may contain adjustment provisions that could increase the number of shares issuable
upon exercise, conversion or exchange, as the case may be, and decrease the exercise, conversion or
exchange price. The market price of our shares of common stock or preferred stock could decline as a
result of sales of a large number of shares of our common stock or preferred stock or similar securities in
the market, the triggering of any such adjustment provisions or the perception that such sales could occur
in the future.
Our indebtedness imposes significant restrictions on us, and a default could materially adversely affect
our operations and financial condition.
All of our material assets, except our intellectual property, have been pledged as collateral for our
borrowings under the Loan and Security Agreement with Hercules Technology II, LP (Hercules).
In addition to the security interest in our assets, the Loan and Security Agreement carries substantial
covenants that impose significant requirements on us, including, among others, requirements that:
(cid:120) we pay all principal, interest and other charges on the outstanding balance of the borrowed funds
when due;
(cid:120) we keep reserved out of our authorized shares of common stock sufficient shares to satisfy our
obligation to issue shares on conversion of the debt and the exercise of the warrants issued in
connection with the Loan and Security Agreement;
(cid:120) we provide certain financial information and reports to Hercules in a timely manner; and
(cid:120) we indemnify Hercules against certain liabilities.
36
Additionally, with certain exceptions, the Loan and Security Agreement prohibits us from:
(cid:120) amending our organizational or governing agreements and documents, entering into any merger
or consolidation, dissolving the Company or liquidating its assets, or acquiring all or any
substantial part of the business or assets of any other person;
incurring any indebtedness, capital leases, or contingent obligations outside the ordinary course
of business or without prior written approval;
(cid:120)
(cid:120) granting or permitting liens against or security interests in our assets;
(cid:120) acquiring or making investments in any other person other than permitted investments;
(cid:120) making any material dispositions of our assets outside the ordinary course of business; or
(cid:120) declaring or paying any dividends or making any other distributions.
Our ability to comply with these provisions may be affected by changes in our business condition or
results of our operations, or other events beyond our control. The breach of any of these covenants
would result in a default under the Loan and Security Agreement, permitting Hercules to accelerate the
maturity of the debt and to sell the assets securing it. Such actions by Hercules could materially
adversely affect our operations, results of operations and financial condition, including causing us to
substantially curtail our product development activities.
Due to the extension of the PDUFA date for Lymphoseek to September 10, 2012, we did not receive FDA
approval of Lymphoseek by the June 30, 2012 deadline established in the Loan and Security Agreement
with Hercules, and therefore expect that additional loan proceeds of up to $3 million thereunder will not
be available to us under the current terms.
In addition, our Loan Agreement with Platinum-Montaur Life Sciences, LLC (Montaur) carries covenants
typical for commercial loan agreements, and similar to those contained in the Hercules Loan and Security
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 Loan Agreement,
permitting Montaur to terminate our ability to obtain additional draws under the Loan Agreement and
accelerate the maturity of the debt. Such actions by Montaur could materially adversely affect our
operations, results of operations and financial condition, including causing us to substantially curtail our
product 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 our outstanding shares of Series B Preferred Stock and any preferred stock that we may issue in
the future, to our indebtedness and to all creditor claims and other non-equity claims against us and our
assets available to satisfy claims on us, including claims in a bankruptcy or similar proceeding. Our
existing indebtedness and preferred stock restrict payment of dividends on our common stock, and future
indebtedness and preferred stock may restrict payments of dividends on our common stock.
Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due
dates, in the case of our common stock, (i) dividends are payable only when and if declared by our board
of directors or a duly authorized committee of our board of directors, and (ii) as a corporation, we are
restricted to making dividend payments and redemption payments out of legally available assets. We
have never paid a dividend on our common stock and have no current intention to pay dividends in the
future. Furthermore, our common stock places no restrictions on our business or operations or on our
ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to
shareholders generally.
37
The global financial crisis and continuing federal budget deadlock 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 ongoing credit crisis and related turmoil in the global financial system has had and may continue to
have an impact on our business and our financial condition. We may face significant challenges if
conditions in the financial markets do not improve or continue to worsen. In particular, our ability to
access the capital markets and raise funds required for our operations may be severely restricted at a
time when we would like, or need, to do so which could have an adverse effect on our ability to meet our
current and future funding requirements and on our flexibility to react to changing economic and business
conditions. The continuing federal budget deadlock 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, 2012, the
Company had a stockholders’ deficit of approximately $1.4 million. However, the NYSE MKT will not
normally consider removing from the list securities of an issuer that fails to meet these requirements if the
issuer has (1) total value of market capitalization of at least $50,000,000; or total assets and revenue of
$50,000,000 each in its last fiscal year, or in two of its last three fiscal years; and (2) the issuer has at
least 1,100,000 shares publicly held, a market value of publicly held shares of at least $15,000,000 and
400 round lot shareholders. Based on the number of outstanding shares of our common stock, recent
trading price of that stock, and number of round lot holders, we believe that we meet these exception
criteria and that our common stock will not be delisted as a result of our failure to meet the minimum
stockholders' equity requirement for continued listing. We cannot assure you that the Company will
continue to meet these and other requirements necessary to maintain the listing of our common stock on
the NYSE MKT. For example, we may determine to grow our organization or product pipeline or pursue
development or other activities at levels or on timelines that reduces our stockholders’ equity below the
level required to maintain compliance with NYSE MKT continued listing standards.
The delisting of our common stock from the NYSE MKT likely would reduce the trading volume and
liquidity in our common stock and may lead to decreases in the trading price of our common stock. The
delisting of our common stock may also materially impair our stockholders’ ability to buy and sell shares
of our common stock. In addition, the delisting of our common stock could significantly impair our ability
to raise capital, which is critical to the execution of our current business strategy.
The price of our common stock has been highly volatile due to several factors that will continue to affect
the price of our stock.
Our common stock traded as low as $2.14 per share and as high as $4.77 per share during the 12-month
period ended February 28, 2013. 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.
38
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:
(cid:120) price and volume fluctuations in the stock market at large or of companies in our industry which
(cid:120)
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;
(cid:120) FDA or international regulatory actions and regulatory developments in the U.S. and foreign
(cid:120)
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;
(cid:120) public concern as to the safety of products that we or others develop;
(cid:120) activities of short sellers in our stock; and
(cid:120)
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.
Historically, the trading volume for our common stock has been relatively limited. The average daily
trading volume for our common stock on the OTC Bulletin Board for the 12-month period ended January
31, 2011 was approximately 194,000 shares. Following the listing of our common stock on the NYSE
MKT on February 10, 2011, trading in our common stock has been more active. During the 12-month
period beginning on March 1, 2012 and ending on February 28, 2013, the average daily trading volume
for our common stock on the NYSE MKT was approximately 850,000 shares. We cannot, however,
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.
39
Due to our intent to retain any future earnings rather than pay cash dividends on our common stock and
applicable laws, regulations and contractual obligations that may restrict our ability to pay dividends on
our common stock, the success of your investment in our common stock will likely depend entirely upon
any future appreciation and there is no guarantee that our common stock will appreciate in value.
We may have difficulty attracting and retaining qualified personnel and our business may suffer if we do
not.
Our business has experienced a number of successes and faced several challenges in recent years that
have resulted in several significant changes in our strategy and business plan, including the shifting of
resources to support our current development initiatives. Our management will need to remain flexible to
support our business model over the next few years. However, losing members of the Navidea
management team could have an adverse effect on our operations. Our success depends on our ability
to attract and retain technical and management personnel with expertise and experience in the
pharmaceutical industry, and the acquisition of additional product candidates may require us to acquire
additional highly qualified personnel. The competition for qualified personnel in the biotechnology
industry is intense and we may not be successful in hiring or retaining the requisite personnel. If we are
unable to attract and retain qualified technical and management personnel, we will suffer diminished
chances of future success.
If we make any acquisitions, we will incur a variety of costs and may never realize the anticipated
benefits.
If appropriate opportunities become available, we may attempt to acquire businesses and assets that we
believe are a strategic fit with our business. While we periodically are engaged in discussions regarding
potential business or product acquisitions, we currently have no binding agreements to consummate any
material acquisitions. If we pursue any such transaction, the process of negotiating the acquisition and
integrating an acquired business and assets may result in operating difficulties and expenditures and may
require significant management attention that would otherwise be available for ongoing development of
our business whether or not any such transaction is ever consummated. Moreover, we may never realize
the anticipated benefits of any acquisition. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses
related to goodwill and other intangible assets which could harm our business, financial condition,
operating results and prospects and the trading price of our securities.
We may be adversely affected if our controls over external financial reporting fail or are circumvented.
We regularly review and update our internal controls, disclosure controls and procedures, and corporate
governance policies. In addition, we are required under the Sarbanes Oxley Act of 2002 to report
annually on our internal control over financial reporting. If it were to be determined that our internal
control over financial reporting is not effective, such shortcoming could have an adverse effect on our
business and financial results and the price of our common stock could be negatively affected. This
reporting requirement could also make it more difficult or more costly for us to obtain certain types of
insurance, including director and officer liability insurance, and we may be forced to accept reduced
policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. Any
system of internal controls, however well designed and operated, is based in part on certain assumptions
and can provide only reasonable, not absolute, assurances that the objectives of the system are met.
Any failure or circumvention of the controls and procedures or failure to comply with regulation
concerning control and procedures could have a material effect on our business, results of operation and
financial condition. Any of these events could result in an adverse reaction in the financial marketplace
due to a loss of investor confidence in the reliability of our financial statements, which ultimately could
negatively affect the market price of our shares, increase the volatility of our stock price and adversely
affect our ability to raise additional funding. The effect of these events could also make it more difficult for
us to attract and retain qualified persons to serve on our board of directors and our board committees and
as executive officers.
40
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We currently lease approximately 15,000 square feet of office space at 425 Metro Place North, Dublin,
Ohio, as our principal offices. The current lease term expires October 31, 2013, at a monthly base rent of
approximately $12,000 during 2013. We must also pay a pro-rata portion of the operating expenses and
real estate taxes of the building. We also lease approximately 4,000 square feet of office space at 10
New England Business Center Drive, Andover, Massachusetts, primarily for our business development
and commercialization departments. The current lease term expires March 2014, at a monthly base rent
of approximately $6,400 during 2013. We must also pay a pro-rata portion of the electricity cost of the
building. We believe both facilities are in good condition, but that we may need to expand our leased
space related to our radiopharmaceutical development activities depending on the level of activities
performed internally versus by third parties.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosure
Not applicable.
41
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our common stock trades on the NYSE MKT exchange under the trading symbol NAVB. Prior to our
name change from Neoprobe Corporation to Navidea Biopharmaceuticals, Inc. on January 5, 2012, our
common stock was traded on the NYSE MKT under the trading symbol NEOP. Prior to being listed on
the NYSE MKT beginning February 10, 2011, our common stock was traded on the OTC Bulletin Board
under the trading symbol NEOP.OB. The prices set forth below reflect the quarterly high, low and closing
sales prices for shares of our common stock during the last two fiscal years as reported by Reuters
Limited. These quotations reflect inter-dealer prices, without retail markup, markdown or commission,
and may not represent actual transactions.
Fiscal Year 2012:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2011:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 3.55
3.79
4.77
2.98
$ 4.71
5.48
3.60
3.18
$ 2.60
2.60
2.28
2.14
$ 2.00
3.05
1.62
2.05
As of March 1, 2013, we had approximately 701 holders of common stock of record.
We have not paid any dividends on our common stock and do not anticipate paying cash dividends on
our common stock in the foreseeable future. We intend to retain any earnings to finance the growth of
our business. We cannot assure you that we will ever pay cash dividends. Whether we pay cash
dividends in the future will be at the discretion of our Board of Directors and will depend upon our financial
condition, results of operations, capital requirements and any other factors that the Board of Directors
decides are relevant. See Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
During the three-month period ended December 31, 2012, Platinum Montaur Life Sciences, LLC
(Montaur) exercised 6,000,000 Series W warrants in exchange for issuance of 6,000,000 shares of our
common stock, resulting in gross proceeds of $1,920,000. The issuance of the shares was exempt from
registration under Sections 4(2) of the Securities Act and Regulation D promulgated thereunder.
Also during the three-month period ended December 31, 2012, 1,000 shares of the Series C Convertible
Preferred Stock automatically converted into 3,226,000 shares of our common stock. The issuance of the
shares was exempt from registration under Sections 4(2) of the Securities Act and Regulation D
promulgated thereunder.
42
Stock Performance Graph
The following graph compares the cumulative total return on a $100 investment in each of the common
stock of the Company, the Russell 3000, and the NASDAQ Biotechnology Index for the period from
December 31, 2007 through December 31, 2012. This graph assumes an investment in the Company’s
common stock and the indices of $100 on December 31, 2007 and that all dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Navidea Biopharmaceuticals, the Russell 3000 Index, and the NASDAQ Biotechnology Index
$1,200
$1,000
$800
$600
$400
$200
$0
12/07
12/08
12/09
12/10
12/11
12/12
Navidea Biopharmaceuticals
Russell 3000
NASDAQ Biotechnology
*$100 invested on 12/31/07 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2013 Russell Investment Group. All rights reserved.
Cumulative Total Return as of December 31,
2010
2012
2011
$720.28 $916.08 $989.51
110.65
163.33
95.05
129.12
94.08
113.89
Navidea Biopharmaceuticals
Russell 3000
NASDAQ Biotechnology
2007
$100.00
100.00
100.00
2008
$199.30
62.69
93.40
2009
$426.57
80.46
103.19
43
Item 6. Selected Financial Data
The following summary financial data are derived from our consolidated financial statements that have
been audited by our independent registered public accounting firm. These data are qualified in their
entirety by, and should be read in conjunction with, our Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-K as well as Management’s Discussion and Analysis of
Financial Condition and Results of Operations. Summary financial data for 2012 and prior periods reflect
the disposition of our gamma detection device business in August 2011 and the reclassification of certain
related items to discontinued operations.
(Amounts in thousands, except per share data)
Statement of Operations Data:
Revenue
Research and development expenses
Selling, general and administrative expenses
Loss from operations
2012
$ 79
16,890
11,178
(27,989)
Years Ended December 31,
2010
2011
2009
2008
$ 598
15,154
9,548
(24,104)
$ 617 $ --
4,380
3,028
(7,408)
8,941
4,353
(12,677)
$ --
3,756
2,936
(6,692)
Other expenses, net
(1,168)
(943)
(43,567)
(35,891)
(2,124)
Benefit from income taxes
--
7,880
2,135
1,256
1,241
Loss from continuing operations
Discontinued operations, net of tax effect
Net (loss) income
Preferred stock dividends
(29,157)
--
(29,157)
(43)
(17,167)
22,780
(54,109)
4,144
(42,043)
2,437
5,613
(100)
(49,965)
(8,207)
(39,606)
(240)
(7,575)
2,409
(5,166)
--
(Loss) income attributable to common stockholders
$ (29,200)
$ 5,513
$ (58,172) $ (39,846)
$ (5,166)
(Loss) income per common share
(basic and diluted):
Continuing operations
Discontinued operations
(Loss) income attributable to common stockholders
Shares used in computing (loss) income
per common share: (1)
Basic and diluted
Balance Sheet Data:
Total assets
Long-term obligations
Accumulated deficit
$ (0.29)
$ --
$ (0.29)
$ (0.17)
$ 0.23
$ 0.06
$ (0.77) $ (0.57)
$ 0.05 $ 0.03
$ (0.72) $ (0.54)
$ (0.12)
$ 0.04
$ (0.08)
99,060
90,509
80,726
73,772
68,594
2012
2011
As of December 31,
2010
2009
2008
$ 11,972
7,187
(274,558)
$ 31,194
6,714
(245,357)
$ 10,863 $ 9,018
13,485
(192,699)
2,787
(250,870)
$ 9,619
7,323
(148,840)
(1) Basic earnings (loss) per share is calculated by dividing net income (loss) 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 earnings (loss) 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 securities, options and warrants.
44
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read together with our Consolidated Financial Statements and the
Notes related to those statements, as well as the other financial information included in this Form 10-K.
Some of our discussion is forward-looking and involves risks and uncertainties. For information regarding
risk factors that could have a material adverse effect on our business, refer to Item 1A of this Form 10-K,
Risk Factors.
The Company
Navidea Biopharmaceuticals, Inc. (Navidea, the Company, or we), a Delaware corporation, is a
biopharmaceutical company focused on the development and commercialization of precision diagnostics
and radiopharmaceutical agents. We have one approved product in the U.S., Lymphoseek® (technetium
Tc 99m tilmanocept) Injection, a novel, receptor-targeted, small-molecule radiopharmaceutical, indicated
for use in lymphatic mapping for breast cancer and melanoma. Lymphoseek is designed to identify the
lymph nodes that drain from a primary tumor, which have the highest probability of harboring cancer.
Additional investigational trials in other solid tumor cancers are anticipated to provide support for
expanding the utilization of Lymphoseek into multiple other cancer types. We are currently developing
three other radiopharmaceutical agent platforms. NAV4694, is an F-18 radiolabeled positron emission
tomography (PET) imaging agent being developed as an aid in the diagnosis of patients with signs or
symptoms of cognitive impairment such as Alzheimer’s disease (AD). NAV5001, is an Iodine-123
radiolabeled single photon emission computed tomography (SPECT) imaging agent being developed as
an aid in the diagnosis of Parkinson’s disease (PD) and other movement disorders, with potential
additional use as a diagnostic aid in dementia. RIGScanTM, is a radiolabeled monoclonal antibody being
developed as a diagnostic aid for use during surgery to help surgeons locate occult or metastatic cancer,
with a primary focus on colorectal cancer. All of these investigational drug products are still in
development and must be cleared for marketing by the appropriate regulatory authorities before they can
be sold in any markets.
Executive Summary
We believe that the future prospects for Navidea continue to improve as we make progress in executing
our strategic vision to become a leader in precision diagnostics. Our primary development efforts over
the last few years have been focused on the development of our now-approved Lymphoseek product
candidate, as well as more recently on our other pipeline programs, including NAV4694, NAV5001 and
RIGScan. We expect our overall research and development expenditures to continue to be significantly
higher during 2013 as compared to 2012 due to the expansion of our clinical, regulatory, and business
development staff and efforts that support the commercialization of Lymphoseek, further development of
Lymphoseek, NAV4694, NAV5001 and RIGScan, and the potential sourcing and development of
additional pipeline product candidates. The level to which the expenditures rise will depend on how
successful we are in commercializing Lymphoseek and on the extent to which we are able to execute on
our strategic development initiatives.
Our efforts in 2012 and to date in 2013 have resulted in the following milestone achievements:
Corporate/Financial
(cid:120) Neoprobe Corporation became Navidea Biopharmaceuticals, Inc. (NYSE MKT: NAVB) reflecting
(cid:120)
the Company’s biopharmaceutical focus on precision diagnostics development and
commercialization.
Implemented a $50 million credit facility with Platinum-Montaur Life Sciences LLC (Montaur) in
July 2012, of which $15 million is currently available, to provide flexible financial resources to fund
short- and long-term development and growth plans. In December 2012, the Company drew a
total of $4 million under the Montaur credit facility. Montaur also exercised certain warrants in
December 2012 and March 2013, providing $1.9 million and $1.4 million in proceeds,
respectively.
45
(cid:120) Completed an underwritten public offering of 1.5 million shares of common stock in February
2013, resulting in net proceeds to the Company of approximately $4.4 million after deducting
expenses associated with the offering.
(cid:120) Appointed pharma industry veteran Cornelia Reininger, MD, PhD, as Chief Medical Officer to lead
ongoing development of our pipeline agents, playing a key role in medical strategy, protocol
design, product positioning and regulatory direction. Formerly, Dr. Reininger spearheaded
development and registration of the neuroimaging agents, florbetaben for Alzheimer’s disease
and DaTScanTM for Parkinson’s disease.
(cid:120) Augmented management with the addition of key strategic positions to strengthen the Company’s
global regulatory, commercial and manufacturing functions including William Regan, Senior Vice
President, Global Regulatory Strategy; David Pendleton, Vice President, Marketing and New
Product Planning; Stephen Haber, Vice President, Development; and David Casebier, Vice
President, Chemistry, Manufacturing and Control.
Pipeline
(cid:120) Lymphoseek
o Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer
and melanoma by the FDA on March 13, 2013.
o Submitted the Lymphoseek Marketing Authorization Application to the European
Medicines Agency in December 2012.
o Reached the interim analysis point of the NEO3-06 Phase 3 head and neck cancer study
of Lymphoseek with results from the interim statistical analysis and reporting of the
findings expected later in 2013.
Initiated a collaboration with Maimonides Medical Center on an investigator-initiated
clinical trial utilizing Lymphoseek for lymphatic mapping in colorectal cancer.
o
o Presented data from Lymphoseek clinical trials at more than 15 major medical meetings,
including: Society of Surgical Oncology, European Society of Surgical Oncology,
American Society of Clinical Oncology, Society of Nuclear Medicine, International
Conference on Head and Neck Cancer, European Association of Nuclear Medicine,
American Society for Radiation Oncology and Radiology Society of North America.
o Published data from the Lymphoseek Phase 3 Clinical Trial for Intraoperative Lymphatic
Mapping of Lymph Nodes in Breast Cancer Compared to Sulfur Colloid and Vital Blue
Dye in the Journal of Clinical Oncology Online (2012; e21066).
o Published results from the Lymphoseek Phase 3 Clinical Trials in Melanoma in the
Annals of Surgical Oncology (DOI 10.1245/s10434-012-2612-z).
(cid:120) NAV4694
o
Initiated a Phase 2 clinical trial of NAV4694 as an aid in diagnosing AD with the goal to
compare images from subjects with probable AD with similarly aged and young healthy
volunteers.
o Presented data from the NAV4694 studies six major neurological medical meetings
including: Human Amyloid Imaging meeting, Alzheimer’s Disease Neuroimaging Initiative,
Society of Nuclear Medicine and the Alzheimer’s Association International Conference on
Alzheimer’s Disease.
(cid:120) NAV5001
o Licensed NAV5001, an Iodine-123 radiolabeled imaging agent being developed as a
potential aid in the diagnosis of PD, dementia with Lewy Bodies and other movement
disorders, thus expanding the Company’s neuroimaging pipeline.
(cid:120) RIGScan
o Awarded a Small Business Innovation Research grant from the National Institutes of
Health for development of a radioimmunoguided surgery agent aimed at detecting
metastatic cancer, with potential for grant money up to a total of $1.5 million over three
years if fully funded.
46
Our Outlook
With the U.S. approval of Lymphoseek on March 13, 2013, the Company is moving forward with
preparations for commercial launch in the U.S. with our marketing partner, Cardinal Health, expected in
the second quarter of 2013. As such, we expect to report revenue from Lymphoseek in the second
quarter of 2013. However, as we do not yet have experience and insight into the level of potential sales
success we may achieve with Lymphoseek, we do not currently expect to provide revenue guidance for
2013.
Excluding the results of our discontinued operations, as discussed below, our operating expenses over
the last three years have been focused primarily on support of Lymphoseek and NAV4694 product
development, and to a lesser extent, on efforts to restart active development of RIGScan. In addition,
during 2012 we paid $1.8 million in option and sublicense fees ($1.1 million of which was non-cash in
nature) related to a sublicense agreement with Alseres for the exclusive worldwide license of NAV5001.
We spent approximately $16.9 million, $15.2 million and $8.9 million in total on research and
development activities in the years ended December 31, 2012, 2011 and 2010, respectively. Following
the sale of the GDS Business, our entire organization is focused on the development of
radiopharmaceutical agents that fulfill our vision of becoming a leader in precision diagnostics. Of the
total amounts we have spent on research and development over the last three years, excluding costs
related to our internal research and development headcount and our general and administrative staff
which we do not currently allocate among the various development programs that we have underway, we
incurred out-of-pocket charges by program as follows:
Development Program
Lymphoseek
NAV4694
NAV5001
RIGScan
2012
$ 5,632,183
3,339,592
2,159,483
253,325
2011
$ 5,286,395
5,018,490
--
1,302,851
2010
$ 5,854,703
--
--
940,435
Due to the advancement of our efforts with Lymphoseek, NAV4694, NAV5001, RIGScan, and potentially
other programs, we expect our total drug-related development and commercialization expenses for 2013
to increase significantly over 2012. The specific levels to which each program’s expenditures may rise
will depend in part on how successful we are in commercializing Lymphoseek and on the extent to which
we draw on the other financial resources we have at our disposal. In general, development expenses in
2013 for Lymphoseek are expected to decrease as compared to 2012 while expenses related to
NAV4694, NAV5001 and RIGScan are all currently expected to increase in 2013 over 2012.
During 2013, we expect to incur additional development expenses related to supporting the Marketing
Authorization Application (MAA) review of Lymphoseek in the EU, our NEO3-06 clinical trial and studies
to support Lymphoseek in a potential post-commercialization setting, and support the other product
activities related to the potential marketing registration of Lymphoseek in other markets. In addition, we
expect to incur significant costs during 2013 to support our business development and commercialization
activities surrounding Lymphoseek. We cannot assure you that Lymphoseek will achieve regulatory
approval in the EU or any other market outside the U.S., or if approved, that it will achieve market
acceptance.
We also expect to incur significant expenses for NAV4694 during 2013 related to ongoing additional
Phase 2 clinical trials and the initiation of a Phase 2 clinical study in subjects with mild cognitive
impairment and a pivotal Phase 3 clinical trial in subjects with AD, as well as costs for manufacturing-
related activities required prior to filing for regulatory clearance to market. NAV4694 is currently not
expected to contribute revenue to the Company until 2016 at the earliest. We cannot assure you that
further clinical trials for this product will be successful, that the agent will ultimately achieve regulatory
approval, or if approved, the extent to which it will achieve market acceptance.
47
We expect to incur significant expenses for NAV5001 during 2013 related to initiation of Phase 2 and
Phase 3 clinical trials, as well as for manufacturing-related activities required to support clinical activities
and to prepare to file for regulatory clearance to market. NAV5001 is not expected to generate revenue
for the Company until 2016 at the earliest. We cannot assure you that clinical trials for this product will be
successful, that the agent will ultimate achieve regulatory approval, or if approved, the extent to which it
will achieve market acceptance.
We are in the process of evaluating the business, manufacturing, development and regulatory pathways
forward with respect to RIGScan. We believe that the time required for continued development,
regulatory approval and commercialization of a RIGScan product would likely be a minimum of five years
before we receive any significant product-related royalties or revenues. We cannot assure you that we
will be able to complete satisfactory development arrangements or obtain incremental financing to fund
development of the RIGS technology and cannot guarantee that such arrangements could be obtained on
a timely basis on terms acceptable to us, or at all. We also cannot assure you that further clinical
development will be successful, that the FDA or the European Medicines Agency (EMA) will clear
RIGScan for marketing, or that it will be successfully introduced or achieve market acceptance.
Finally, if we are successful in identifying and securing additional product candidates to augment our
product development pipeline, we will likely incur significant additional expenses related to furthering the
development of such products.
Discontinued Operations
From our inception through August 2011, we developed and marketed a line of medical devices, the
neoprobe® GDS gamma detection systems (the GDS Business). However, following an analysis of our
strategic goals and objectives, our Board of Directors authorized, and our stockholders approved, the sale
of the GDS Business to Devicor Medical Products, Inc. (Devicor) in August 2011 (the Asset Sale). Under
the terms of the Asset Purchase Agreement (APA) with Devicor, we sold the assets and assigned certain
liabilities that were primarily related to the GDS Business. In exchange for the assets of the GDS
Business, Devicor made cash payments to us of $30.3 million, assumed certain liabilities of the Company
associated with the GDS Business, and agreed to make royalty payments to us of up to an aggregate
maximum amount of $20 million based on the net revenue attributable to the GDS Business over the
course of fiscal years 2012 through 2017. We did not record any royalty revenue in 2012 as Devicor did
not achieve the minimum sales of gamma detection devices required to trigger such payment. In
December 2011, we entered an agreement to transfer potential liability related to extended warranty
contracts related to the GDS Business, which were outstanding as of the date of the sale of the GDS
Business but which were not included in the August 2011 transaction. In exchange for transferring the
liability related to the extended warranty contracts to Devicor, we made a cash payment to Devicor of
$178,000.
Our consolidated statements of operations have been reclassified to discontinued operations, as
required. Cash flows associated with discontinued operations have been combined within operating,
investing and financing cash flows, as appropriate, in our consolidated statements of cash flows.
Results of Operations
This discussion of our Results of Operations focuses on describing results of our operations as if we had
not operated the discontinued operations discussed above during the periods being disclosed. In
addition, since our radiopharmaceuticals are not yet generating commercial revenue, the discussion of
our revenue focuses on the grant and other revenue we have received and our operating variances focus
on our radiopharmaceutical development programs and the supporting general and administrative
expenses.
48
Years Ended December 31, 2012 and 2011
Revenue. Revenue of $60,000 during 2012 was related to reimbursement of certain Lymphoseek
commercialization activities by our distribution partner, Cardinal Health. Revenue of $592,000 during
2011 was related to an Ohio Third Frontier grant to support Lymphoseek development. Additional
revenue of $19,000 and $6,000 during 2012 and 2011, respectively, was related to additional Ohio Third
Frontier grants to support student internships.
Research and Development Expenses. Research and development expenses increased $1.7 million, or
11%, to $16.9 million during 2012 from $15.2 million during the same period in 2011. The increase was
primarily due to net increases in drug project expenses related primarily to (i) increased NAV5001
development costs of $2.2 million, including option and sublicense fees of $1.8 million ($1.1 million of
which was non-cash in nature) coupled with due diligence, consulting and manufacturing-related costs,
(ii) a net increase in Lymphoseek development costs of $346,000 resulting from increased manufacturing-
related costs, regulatory consulting costs and filing fees related to preparation and filing of a MAA with the
EMA, and consulting costs related to preparation for a potential FDA Advisory Committee meeting, offset
by the $1.5 million FDA filing fee and UCSD license milestone payment related to filing the Lymphoseek
NDA in 2011 coupled with decreased clinical activities, and (iii) increased license fees and consulting
costs related to potential pipeline products of $192,000; offset by (iv) a net decrease in NAV4694
development costs of $1.7 million, resulting from the $5.0 million initial license fee incurred in 2011, offset
by increased clinical activities, technology transfer and manufacturing-related costs, project management
and consulting fees in 2012, and (v) decreased RIGScan development costs of $1.0 million, primarily
related to manufacturing. The net increase in research and development expenses also included an
increase in headcount and related expenses required for expanded development efforts of $1.0 million,
as well as increased costs related to travel, pharmacovigilance activities, consulting, training, recruiting,
general office and other expenses of $737,000.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased
$1.7 million, or 17%, to $11.2 million during 2012 from $9.5 million in 2011. The net increase was
primarily due to our formation of a marketing and business development team during the second half of
2011 to prepare for the commercial launch of Lymphoseek. Increased marketing costs primarily related
to the pending commercial launch of Lymphoseek of $2.5 million, increased compensation costs of $1.2
million related to increased headcount and incentive-based compensation, and increased travel,
insurance, taxes and general office expenses to support the increased headcount of $538,000 were offset
by a decrease in separation costs of $2.7 million related to our former President and CEO which were
recorded in 2011.
Other Income (Expense). Other expense, net, was $1.2 million during 2012 as compared to $943,000 in
2011. Interest expense increased to $1.2 million during 2012 from $13,000 in 2011, due to the notes
payable we entered into in December 2011 and December 2012. Of the interest expense in 2012,
$545,000 was non-cash in nature related to the amortization of debt issuance costs and debt discounts
resulting from the warrants issued and conversion features embedded in the December 2011 note.
During 2012 and 2011, we recorded income of $32,000 and charges of $952,000, respectively, related to
the changes in derivative liabilities resulting from the requirement to mark our derivative liabilities to
market.
Income Taxes. An estimated tax provision of $6.7 million related to the gain on the sale of discontinued
operations and $1.2 million related to income from discontinued operations was offset by an estimated tax
benefit of $7.9 million related to the loss from continuing operations during 2011.
Gain on Sale of Discontinued Operations. Gain on sale of discontinued operations related to the sale of
our GDS Business to Devicor was $19.5 million during 2011. The sales price of $30.3 million included a
cash payment of $30.0 million and an accrued net working capital adjustment of an additional $254,000.
The proceeds were offset by $2.8 million in investment banking, legal and other fees related to the sale,
$1.2 million in net balance sheet dispositions and write-offs, and $6.7 million of estimated taxes, as noted
above.
49
Income from Discontinued Operations. The income from discontinued operations was $3.3 million, net of
$1.0 million in estimated taxes, during 2011 and was primarily related to the operation of our GDS
Business, which was sold to Devicor in August 2011.
Years Ended December 31, 2011 and 2010
Revenue. Revenue of $592,000 during 2011 was related to the Ohio Third Frontier grant to support
Lymphoseek development. Revenue of $602,000 during 2010 was related to Ohio Third Frontier and
Qualifying Therapeutic Discovery Project grants. Additional revenue of $6,000 and $15,000 during 2011
and 2010, respectively, was related to additional Ohio Third Frontier grants to support student internships.
Research and Development Expenses. Research and development expenses increased $6.3 million, or
70%, to $15.2 million during 2011 from $8.9 million in 2010. The increase was primarily due to net
increases in drug project expenses related primarily to (i) the $5.0 million initial license fee for NAV4694,
(ii) increased Lymphoseek development costs including the $1.5 million filing fee for the Lymphoseek
NDA, regulatory consulting costs of $452,000, and license fees of $70,000, (iii) increased manufacturing,
and regulatory project costs of $457,000 related to RIGScan, and (iv) project costs of $355,000 related to
various potential new product candidates; offset by (v) decreased process development costs of $1.7
million and decreased clinical activity costs of $956,000 related to Lymphoseek, and (vi) decreased
process development costs of $76,000 related to RIGScan. The net increase in research and
development expenses was also due to increased compensation of $914,000 due to increased
headcount required for expanded development efforts and increased related expenses such as incentive-
based compensation, travel and supplies.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased
$5.1 million, or 119%, to $9.5 million during 2011 from $4.4 million in 2010. The net increase was
primarily due to separation costs of $2.3 million related to the separation of our former President and
CEO, David Bupp; increased compensation costs of $1.4 million related to net increased headcount and
incentive-based compensation; increased professional services and consulting costs of $850,000 that
supported preparation for Lymphoseek commercialization, listing on the NYSE MKT, and various
corporate governance and investor relations issues; and increased Board of Directors costs of $217,000
due to increased meeting fees related to the number of transactions considered during 2011 and stock-
based incentive compensation. The net increase in selling, general and administrative expenses was
also due to increased headcount-related costs such as travel, recruiting and space costs.
Other Income (Expense). Other expense, net decreased $42.6 million to $943,000 in 2011 from $43.6
million in 2010. During 2010, we recorded a non-cash loss on the extinguishment of debt of $41.7 million
related to the exchange of our outstanding convertible debt for convertible preferred stock. During 2011
and 2010, we recorded charges of $952,000 and $1.3 million, respectively, related to the increases in
derivative liabilities resulting from the requirement to mark our derivative liabilities to market. Interest
expense decreased $542,000 to $13,000 during 2011 from $555,000 in 2010, primarily due to the June
2010 exchange of our then-outstanding convertible debt agreements for convertible preferred stock. Of
this interest expense, $403,000 in 2010 was non-cash in nature due to the payment or accrued payment
of interest on our convertible debt with shares of our common stock. In addition, $4,000 and $16,000 of
interest expense during 2011 and 2010, respectively, was non-cash in nature related to the amortization
of debt discounts and issuance costs resulting from warrants and conversion features related to our
convertible debt. Interest income increased $17,000 to $26,000 during 2011 from $9,000 in 2010,
primarily due to increased cash balances.
Income Taxes. Estimated tax liabilities of $6.7 million related to the gain on the sale of discontinued
operations and $1.2 million related to income from discontinued operations were fully offset by an
estimated tax benefit of $7.9 million related to the loss from continuing operations during 2011. Estimated
tax liabilities of $2.1 million related to income from discontinued operations were fully offset by an
estimated tax benefit of $2.1 million related to the loss from continuing operations during 2010.
50
Gain on Sale of Discontinued Operations. We recognized a gain on sale of discontinued operations
related to the sale of our GDS Business to Devicor and subsequent disposition of our extended warranty
contracts of $19.5 million during 2011. The sales price of $30.3 million was offset by a cash payment to
Devicor of $178,000 in exchange for transferring the liability related to the extended warranty contracts,
$2.8 million in investment banking, legal and other fees related to the sale, $1.2 million in net balance
sheet dispositions and write-offs, and $6.7 million in estimated taxes which were allocated to discontinued
operations, but were fully offset by the tax benefit from our net operating loss for 2011.
Income from Discontinued Operations. Income from discontinued operations decreased $815,000, or
20%, to $3.3 million during 2011 from $4.1 million in 2010, primarily due to the sale of our GDS Business
to Devicor in August 2011. Total revenues from discontinued operations were $7.7 million and $10.1
million in 2011 and 2010, respectively.
Liquidity and Capital Resources
Cash balances decreased to $9.1 million at December 31, 2012 from $28.6 million at December 31,
2011. The net decrease was primarily due to cash used to fund our operations, mainly for research and
development activities, coupled with $1.3 million of principal payments on our notes payable, offset by
$4.0 million of cash received as proceeds from our credit facility and $2.7 million received for the exercise
of warrants and stock options. The current ratio decreased to 1.7:1 at December 31, 2012 from 9.0:1 at
December 31, 2011.
Operating Activities. Cash used in operations increased $7.9 million to $23.9 million during 2012
compared to $16.0 million during 2011. Cash used in operations increased $10.8 million to $16.0 million
during 2011 compared to $5.2 million during 2010.
Inventory levels decreased to $298,000 at December 31, 2012 from $822,000 at December 31, 2011.
Inventory decreased primarily due to the reserve or write-off of Lymphoseek inventory as a result of
changes in our projections of the probability of future commercial use and the consumption of materials
for previously unanticipated product development activities. Offsetting these decreases was an increase
in pharmaceutical materials related to the completion of a new lot of the Lymphoseek drug substance.
Inventory levels increased to $822,000 at December 31, 2011 from $632,000 at December 31, 2010
related to the finishing and vialing of a new lot of Lymphoseek, offset by some usage for research and
development. We expect inventory levels to increase during 2013 as we produce additional drug
inventory in preparation for commercial launch and establish normal stock levels for Lymphoseek.
Prepaid expenses and other current assets increased to $1.2 million at December 31, 2012 from
$555,000 at December 31, 2011, primarily due to prepayments to our third party manufacturers of
Lymphoseek inventory and increased insurance premiums paid during the fourth quarter of 2012.
Prepaid expenses and other current assets increased to $555,000 at December 31, 2011 from $258,000
at December 31, 2010, primarily due to income tax receivable related to the overpayment of estimated
2011 taxes due to the estimated gain on the Asset Sale and increased insurance premiums paid during
the fourth quarter of 2011.
Accounts payable increased to $1.4 million at December 31, 2012 from $682,000 at December 31, 2011,
primarily due to increases in NAV4694 development and Lymphoseek manufacturing activities, offset by
decreases in Lymphoseek regulatory activities, coupled with normal fluctuations in timing of receipt and
payment of invoices. Accrued liabilities and other decreased to $2.0 million at December 31, 2012 from
$2.1 million at December 31, 2011, primarily due to payment of costs related to the separation of our
former President and CEO and payment of debt issuance costs related to our convertible debt, offset by
increases in NAV4694 and Lymphoseek development costs. Accounts payable decreased to $682,000 at
December 31, 2011 from $1.4 million at December 31, 2010 primarily due to decreases in Lymphoseek
development activities as well as normal fluctuations in timing of receipt and payment of invoices.
Accrued liabilities and other increased to $2.1 million at December 31, 2011 from $1.0 million at
December 31, 2010, primarily due to increased compensation, research and development, and
professional services fees incurred during 2011 as well as costs related to the separation of Mr. Bupp.
51
Our payable and accrual balances will continue to fluctuate but will likely increase overall as we increase
our level of commercial and development activity related to Lymphoseek, and development activity
related to NAV4694, NAV5001, RIGScan, and other potential product candidates.
Investing Activities. Investing activities used $672,000 of cash during 2012 compared to $27.2 million of
cash provided during 2011 and $399,000 of cash used during 2010. The sale of the GDS Business to
Devicor in August 2011 and the disposition of the related extended warranty contracts in December 2011
provided a total of $27.4 million, net of related expenses. Capital expenditures of $663,000 during 2012
were primarily for production and laboratory equipment, software, computers, and office furniture. Capital
expenditures of $184,000 during 2011 were primarily for software, computers, and office furniture.
Capital expenditures of $367,000 during 2010 were primarily for production equipment, office furniture,
software, and computers. We expect our overall capital expenditures for 2013 will increase over 2012 as
we purchase equipment required for NAV4694 production and potentially expand our offices to
accommodate anticipated headcount additions. Payments for patent and trademark costs were $8,000,
$53,000 and $32,000 during 2012, 2011 and 2010, respectively.
Financing Activities. Financing activities provided $5.1 million of cash during 2012 compared to $11.1
million provided during 2011 and $6.3 million provided during 2010. The net $5.1 million provided by
financing activities during 2012 consisted primarily of $4.0 million of proceeds from notes payable and
$2.7 million of proceeds from the exercise of warrants and stock options, offset by $1.3 million of principal
payments on our convertible debt, $154,000 paid for related debt issuance costs, $101,000 paid for
common stock repurchased from executives, and payments of preferred stock dividends of $100,000.
The net $11.1 million provided by financing activities during 2011 consisted primarily of $7.2 million of
proceeds from the exercise of warrants and stock options, offset by $2.8 million paid for related tax
withholdings primarily related to the separation of our former President and CEO, David Bupp, $7.0
million of cash received upon completion of a partially convertible debt agreement, offset by $189,000
paid for related debt issuance costs, and payments of preferred stock dividends of $100,000. The net
$6.3 million provided by financing activities in 2010 consisted primarily of proceeds from the issuance of
common stock of $7.1 million, offset by payments of stock offering costs of $478,000, payments of tax
withholdings related to stock options exercised of $133,000, and payments of preferred stock dividends of
$111,000.
Fusion Capital
In March 2010, we sold to Fusion Capital Fund II, LLC (Fusion Capital), an Illinois limited liability
company, 540,541 shares of our common stock for proceeds of $1.0 million under a common stock
purchase agreement. In connection with this sale, we issued 120,000 shares of our common stock to
Fusion Capital as a commitment fee. The agreement with Fusion Capital expired on March 1, 2011, and
as a result, Fusion Capital may liquidate any commitment fee shares issued to it during the term of the
agreement.
Montaur and the Bupp Investors
In June 2010, we entered into a Securities Exchange Agreement with Montaur, pursuant to which
Montaur exchanged its 10% Series A Convertible Senior Secured Promissory Note with an outstanding
principal amount of $7,000,000, its 10% Series B Convertible Senior Secured Promissory Note with an
outstanding principal amount of $3,000,000, and its 3,000 shares of Series A Cumulative Convertible
Preferred Stock, for 10,000 shares of Series B Convertible Preferred Stock (the Series B Preferred
Stock), convertible into 32,700,000 shares of common stock. The Series B Preferred Stock is convertible
at the option of Montaur and carries no dividend requirement. In the event of the liquidation of the
Company, the holders of shares of the Series B Preferred Stock have preference over the common
stock. After payment of the full liquidation preference amount to which each holder is entitled, such
holders of shares of Series B Preferred Stock will not be entitled to any further participation as such in
any distribution of the assets of the Company. As consideration for the exchange, the Company issued
additional Series B Preferred Stock which is convertible into 1.3 million shares of common stock.
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Also in June 2010, we entered into a Securities Exchange Agreement with David C. Bupp, then our
President and CEO, and certain members of his family (the Bupp Investors), pursuant to which the Bupp
Investors exchanged their 10% Convertible Secured Promissory Note with an outstanding principal
amount of $1,000,000 (the Bupp Note) for 1,000 shares of Series C Convertible Preferred Stock (the
Series C Preferred Stock), convertible into 3,226,000 shares of common stock. The Series C Preferred
Stock had a 10% dividend rate and participated equally with our common stock in liquidation proceeds
based upon the number of common shares into which the Series C Preferred Stock was convertible. The
exchange of the Montaur Notes, the Series A Preferred Stock and the Bupp Note were treated as
extinguishments for accounting purposes. As a result of these exchange transactions, all security
interests in the Company’s assets held by Montaur and the Bupp Investors were extinguished.
In May 2011, Montaur converted 917 shares of their Series B Preferred Stock into 2,998,590 shares of
our common stock under the terms of the Series B Preferred Stock. In July 2012, Montaur converted
3,063 shares of their Series B Preferred Stock into 10,016,010 shares of our common stock under the
terms of the Series B Preferred Stock. In November 2012, we entered into a Securities Exchange
Agreement with Platinum Partners Value Arbitrage Fund, L.P. (Platinum), an affiliate of Montaur, pursuant
to which Platinum exchanged 3,001,860 shares of our common stock owned by Platinum for 918 shares
of our Series B Preferred Stock. As of December 31, 2012, there are 6,938 shares of Series B Preferred
Stock outstanding which are convertible into 22,687,260 shares of our common stock.
During 2011, Mr. Bupp and certain members of his family exercised 810,000 Series V warrants in
exchange for issuance of 810,000 shares of our common stock, resulting in gross proceeds of $255,600.
During 2012, the holder of 20,000 Series V warrants exercised them in exchange for issuance of 20,000
shares of our common stock, resulting in gross proceeds of $6,200. Also during 2012, Montaur exercised
6,000,000 Series W warrants in exchange for issuance of 6,000,000 shares of our common stock,
resulting in gross proceeds of $1,920,000. In March 2013, Montaur exercised 3,000,000 Series X
warrants in exchange for issuance of 3,000,000 shares of our common stock, resulting in gross proceeds
of $1,380,000.
In December 2012, we entered into a Waiver Agreement (the Waiver) pursuant to which Montaur and
Platinum, as the sole holders of the Series B Preferred Stock, agreed to irrevocably waive the provisions
set forth in the certificate of designations for the Series B Preferred Stock (the Certificate) which provided
that all outstanding shares of Series B Preferred Stock would automatically convert into shares of
common stock on December 31, 2012. The Waiver will remain in effect until December 31, 2013, upon
which date all outstanding shares of Series B Preferred Stock will automatically convert into common
stock pursuant to the terms of the Certificate. In addition, we amended the terms of Montaur’s Series X
warrant to extend the expiration date from April 16, 2013 to December 31, 2013. Also in December 2012,
the Series C Preferred Stock held by the Bupp Investors automatically converted into 3,226,000 shares of
our common stock under the terms of the Series C Preferred Stock.
2010 Public Offering
In November 2010, we entered into a Securities Purchase Agreement with institutional investors for a
registered direct public offering of 3,157,896 shares of our common stock at a price of $1.90 per share for
total gross proceeds of $6.0 million. In addition to the common stock, we issued one-year Series CC
warrants to purchase 1,578,948 shares of our common stock at an exercise price of $2.11 per share, and
two-year Series DD warrants to purchase 1,578,948 shares of our common stock at an exercise price of
$2.11 per share. As compensation for the services of the placement agent in connection with the
offering, we paid the placement agent $420,000 (7% of the gross proceeds) and issued five-year Series
EE warrants to purchase 157,895 shares of our common stock at an exercise price of $2.375 per share.
The common stock, warrants, and shares of common stock underlying the warrants were issued pursuant
to a shelf registration statement on Form S-3 that was declared effective by the Securities and Exchange
Commission on August 3, 2010.
During 2011, the holders of Series CC warrants exercised them in exchange for issuance of 1,578,948
shares of our common stock, resulting in gross proceeds of $3,331,580. Also during 2011, the holders of
53
Series DD warrants exercised them in exchange for issuance of 1,578,948 shares of our common stock,
resulting in gross proceeds of $3,331,580.
Sale of the GDS Business
In May 2011, the Company’s Board of Directors approved the sale of the GDS Business to Devicor. Our
stockholders approved the Asset Sale at our Annual Meeting of Stockholders on August 15, 2011, and
the Asset Sale closed on August 17, 2011. Under the terms of the APA with Devicor, we sold the assets
and assigned certain liabilities that were primarily related to the GDS Business. In exchange for the
assets of the GDS Business, Devicor made cash payments to us of $30.3 million, assumed certain
liabilities of the Company associated with the GDS Business, and agreed to make royalty payments to us
of up to an aggregate maximum amount of $20 million based on the net revenue attributable to the GDS
Business over the course of the next six fiscal years starting with 2012. In December 2011, we entered
an agreement to transfer potential liability related to extended warranty contracts related to the GDS
Business, which were outstanding as of the date of the sale of the GDS Business but which were not
included in the August 2011 transaction. In exchange for transferring the liability related to the extended
warranty contracts to Devicor, we made a cash payment to Devicor of $178,000. The Asset Sale has
allowed us to focus our resources and efforts on the continued development of our radiopharmaceutical
products, and to pursue efforts to expand our drug development portfolio. However, the sale of the GDS
Business eliminated cash flows from the sale of medical devices. In addition, we did not record any
royalty revenue in 2012 as Devicor did not achieve the minimum sales of gamma detection devices
required to trigger such payment.
Hercules Debt
In December 2011, we executed a Loan and Security Agreement (the Loan Agreement) with Hercules
Technology II, L.P. (Hercules), providing for a maximum borrowing of $10 million by the Company in two
advances. Pursuant to the Loan Agreement, we issued Hercules: (1) a Secured Term Promissory Note in
the principal amount of $7,000,000 (the First Advance), bearing interest at the greater of either (a) the
U.S. Prime Rate as reported in The Wall Street Journal plus 6.75%, or (b) 10.0% (effective interest rate at
December 31, 2012 was 10.0%), and (2) a Series GG warrant to purchase 333,333 shares of our
common stock at an exercise price of $2.10 per share, expiring in December 2016 (the Series GG
Warrant). Additionally, the Loan Agreement provided Navidea with the option to draw a second advance
in the principal amount of $3,000,000 if certain conditions were met by June 30, 2012. Such conditions
were not met and Hercules no longer has an obligation to provide the additional $3,000,000. The Loan
Agreement provided for an interest-only period beginning on December 29, 2011 and expiring on July 1,
2012. The principal and interest is to be repaid in 30 equal monthly installments, payable on the first of
each month following the expiration of the interest-only period. As such, a portion of the principal, net of
related discounts, has been classified as a current liability as of December 31, 2012. The outstanding
balance of the debt is due December 1, 2014. Navidea has the option to pay up to $1.5 million of the
principal amount of the debt in stock at a fixed conversion price of $2.77, subject to certain conditions. In
addition, Hercules has the option to elect payment for up to another $1.5 million of the principal amount of
the debt by conversion at a fixed conversion price of $2.77. The debt is collateralized by a security
interest in substantially all of the Company’s assets except for intellectual property, as to which the
security interest is in rights to income or proceeds from the sale or licensing thereof. The Loan
Agreement also specifies certain covenants including the requirement that Navidea provide certain
information, such as financial statements and budgets, on a periodic basis. During 2012, we paid $1.3
million of principal payments on the Hercules debt. As of December 31, 2012, the remaining outstanding
principal balance of the debt was approximately $5.7 million.
Montaur Credit Facility
In July 2012, we entered into an agreement with Montaur to provide us with a credit facility of up to $50
million. With the recent approval of Lymphoseek, Montaur is currently committed under the terms of the
agreement to extend up to $35 million in debt financing to the Company at an interest rate equal to the
greater of (a) the U.S. Prime Rate as reported in the Wall Street Journal plus 6.75%; (b) 10.0%; or (c) the
54
highest rate of interest then payable pursuant to the Hercules Loan Agreement plus 0.125% (effective
interest rate at December 31, 2012 was 10.125%). Through March 15, 2013, we have drawn a total of $4
million under the facility. The agreement also provides for Montaur to extend an additional $15 million on
terms to be negotiated. Principal amounts are due the earlier of two years from the date of draw or June
30, 2016. No conversion features or warrants are associated with the facility. During 2012, we drew a
total of $4.0 million under the credit facility and recorded interest expense of $15,000. As of December
31, 2012, the total principal amount due under the credit facility was $4.0 million.
2013 Public Offering
We filed a shelf registration statement in 2011 to provide us with future funding alternatives and flexibility
as we execute on our plans to achieve our product development and commercialization goals, as well as
evaluating and acting on opportunities to expand our product pipeline. On January 29, 2013, Navidea
entered into an underwriting agreement (the Underwriting Agreement) with Ladenburg Thalmann & Co.
Inc. (the Underwriter), related to a public offering of 1,542,389 shares of the Company’s common stock at
a price of $3.10 per share less underwriting discounts and commissions (the Offering). The Offering
closed on February 4, 2013, following the satisfaction of customary closing conditions. The net proceeds
to the Company were approximately $4.4 million after deducting expenses associated with the Offering.
The Company will use the net proceeds from the offering to fund the clinical development and launch of
Lymphoseek, NAV4694, NAV5001, and RIGScan, to fund other potential product pipeline opportunities,
and for general corporate purposes. The Offering was made pursuant to the Company’s existing effective
shelf registration statement on Form S-3.
Outlook
Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma
by the FDA on March 13, 2013. Our most significant near-term priority is to continue our pre-
commercialization activities related to Lymphoseek with a commercial launch anticipated in the second
quarter of 2013. During 2013, we expect to incur additional development expenses related to supporting
the MAA review of Lymphoseek in the EU, our NEO3-06 clinical trial and studies to support Lymphoseek
in a potential post-commercialization setting, and support the other product activities related to the
potential marketing registration of Lymphoseek in other markets. In addition, we expect marketing
expenses related to Lymphoseek to increase in preparation for the commercial launch. We also continue
to assess timelines and development costs for development of NAV4694, NAV5001 and RIGScan, but
expect our development costs to increase overall as we continue to grow our precision diagnostics
businesses. We are also actively evaluating a number of different product licensing and/or acquisition
opportunities. Costs related to in-licensing, acquiring and developing other late-stage
radiopharmaceutical candidates that we are evaluating, coupled with development costs related to our
existing product candidates, may result in the use of a material portion of our available funds.
Our future liquidity and capital requirements will depend on a number of factors, including our ability to
complete the development and commercialization of new products, our ability to achieve market
acceptance of our products, our ability to monetize our investment in non-core technologies, our ability to
obtain milestone or development funds from potential development and distribution partners, regulatory
actions by the FDA and international regulatory bodies, the ability to procure additional pipeline
development opportunities and required financial resources, and intellectual property protection.
We have developed a plan which will allow the Company to have adequate funding, and we believe that
our credit facility with Montaur, anticipated revenue deriving from U.S. sales of Lymphoseek following a
second quarter 2013 commercial launch, and our access to capital markets through our shelf registration
provide us with access to adequate financial resources to continue to fund our business plan. However,
we cannot assure you that Lymphoseek will generate our expected levels of sales and cash flow.
We will continue to evaluate our timelines and strategic needs, and although we have not decided
whether, when or how much additional capital might be raised under the shelf registration statement or
the credit facility, we will continue our efforts to maintain a strong balance sheet. Even if we decide to
55
attempt to raise additional capital, we cannot assure you that we will be successful in doing so on terms
acceptable to the Company, or at all. We also cannot assure you that we will be able to gain access
and/or be able to execute on securing new development opportunities, successfully obtain regulatory
approval for and commercialize new products, achieve significant product revenues from our products, or
achieve or sustain profitability in the future. See Risk Factors.
Recent Accounting Developments
In May 2011, the Financial Accounting Standards Board (FASB) and International Accounting Standards
Board (IASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic
820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs (ASU 2011-04). ASU 2011-04 created a uniform framework for applying fair value
measurement principles for companies around the world and clarified existing guidance in US
GAAP. ASU 2011-04 was effective for interim and annual reporting periods beginning after December
15, 2011 and was applied prospectively. ASU 2011-04 did not have a material effect on our consolidated
financial statements.
Critical Accounting Policies
We base our management’s discussion and analysis of financial condition and results of operations, as
well as disclosures included elsewhere in this Annual Report on Form 10-K, upon our consolidated
financial statements, which we have prepared in accordance with U.S. generally accepted accounting
principles. We describe our significant accounting policies in the notes to the audited consolidated
financial statements contained elsewhere in this Annual Report on Form 10-K. We include within these
policies our “critical accounting policies.” Critical accounting policies are those policies that are most
important to the preparation of our consolidated financial statements and require management’s most
subjective and complex judgment due to the need to make estimates about matters that are inherently
uncertain. Changes in estimates and assumptions based upon actual results may have a material impact
on our results of operations and/or financial condition.
Revenue Recognition. We currently generate revenue primarily from grants to support various product
development initiatives. We generally recognize grant revenue when expenses reimbursable under the
grants have been incurred and payments under the grants become contractually due. We also recognize
revenue from the reimbursement by our partners of certain expenditures for which the Company has
principal responsibility.
Research and Development. 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, CMC-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.
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 disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. We base these estimates and assumptions upon historical experience and
existing, known circumstances. Actual results could differ from those estimates. Specifically,
management may make significant estimates in the following areas:
(cid:120) Stock-Based Compensation. Stock-based payments to employees and directors, including
grants of stock options and restricted stock, are recognized in the statements of operations based
on their estimated fair values on the date of grant. The fair value of each option award is
estimated on the date of grant using the Black-Scholes option pricing model to value share-based
56
payments and the portion that is ultimately expected to vest is recognized as compensation
expense over either (1) the requisite service period or (2) the estimated performance period. The
determination of fair value using the Black-Scholes option pricing model is affected by our stock
price as well as assumptions regarding a number of complex and subjective variables, including
expected stock price volatility, risk-free interest rate, expected dividends and projected employee
stock option behaviors. We estimate the expected term based on the contractual term of the
awards and employees' exercise and expected post-vesting termination behavior. The 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.
Since stock-based compensation is recognized only for those awards that are ultimately expected
to vest, we have applied an estimated forfeiture rate to unvested awards for the purpose of
calculating compensation cost. These estimates will be revised, if necessary, in future periods if
actual forfeitures differ from estimates. Changes in forfeiture estimates impact compensation
cost in the period in which the change in estimate occurs.
(cid:120)
Inventory Valuation. We value our inventory at the lower of cost (first-in, first-out method) or
market. Our valuation reflects our estimates of excess and obsolete inventory as well as
inventory with a carrying value in excess of its net realizable value. Write-offs are recorded when
product is removed from saleable inventory. We review inventory on hand at least quarterly and
record provisions for excess and obsolete inventory based on several factors, including current
assessment of future product demand, anticipated release of new products into the market and
product expiration. Our industry is characterized by rapid product development and frequent new
product introductions. Uncertain timing of product approvals, variability in product launch
strategies, regulations regarding use and shelf life, product recalls and variation in product
utilization all impact the estimates related to excess and obsolete inventory.
(cid:120) Fair Value of Derivative Instruments. Derivative instruments embedded in contracts, to the extent
not already a free-standing contract, are bifurcated and accounted for separately. All derivatives
are recorded on the consolidated balance sheets at fair value in accordance with current
accounting guidelines for such complex financial instruments. Unrealized gains and losses on
the derivatives are classified in other expenses as a change in derivative liabilities in the
statements of operations. We do not use derivative instruments for hedging of market risks or for
trading or speculative purposes.
Contractual Obligations and Commercial Commitments
The following table presents our contractual obligations and commercial commitments as of December
31, 2012.
Contractual Cash
Obligations
Capital lease obligation
Operating leases
Unconditional purchase
obligations (a)
Principal and interest
on short-term debt
Principal and interest
on long-term debt
Total contractual
cash obligations
Payments Due By Period
Total
2013
2014
2015
2016
$ 17,399 $ 8,789 $ 3,039 $ 3,039 $ 2,532
--
215,173
196,068
19,105
--
2017 and
After
$ --
--
119,375
119,375
243,600
243,600
--
--
11,425,075
3,586,783
7,838,292
--
--
--
--
--
--
--
--
--
$12,020,622 $ 4,154,615 $ 7,860,436 $ 3,039
$ 2,532
$ --
(a) This amount represents purchases under binding purchase orders for which we are required to take delivery of the product
*
under the terms of the underlying supply agreement going out approximately 12 months.
This table does not include obligations such as license agreements, contracted services, or employment agreements as such
obligations are dependent upon performance conditions.
57
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. As of December 31, 2012, our $9.1 million in cash was primarily invested in interest-
bearing money market accounts. Due to the low interest rates being realized on these accounts, we
believe that a hypothetical 10% increase or decrease in market interest rates would not have a material
impact on our consolidated financial position, results of operations or cash flows.
We also have exposure to changes in interest rates on our variable-rate debt obligations. As of
December 31, 2012, the interest rate on the majority of our debt obligations was based on the U.S. prime
rate. Based on the amount of our variable rate borrowings at December 31, 2012, which totaled
approximately $9.7 million, an immediate one percentage point increase in the U.S. prime rate would
increase our annual interest expense by approximately $100,000. This estimate assumes that the
amount of variable rate borrowings remains constant for an annual period and that the interest rate
change occurs at the beginning of the period. Because our debt obligations are currently subject to the
minimum interest rates defined in the loan agreements, a decrease in the U.S. prime rate would not affect
our annual interest expense.
Foreign Currency Exchange Rate Risk. We do not currently have material foreign currency exposure
related to our assets as the majority are denominated in U.S. currency and our foreign-currency based
transaction exchange risk is not material. For the years ended December 31, 2012, 2011 and 2010, we
recorded approximately $15,000, $3,000 and $3,000 of foreign currency transaction losses, respectively.
Equity Price Risk. We do not use derivative instruments for hedging of market risks or for trading or
speculative purposes. Derivative instruments embedded in contracts, to the extent not already a free-
standing contract, are bifurcated 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. The fair value of warrant liabilities is determined using various inputs and
assumptions, one of which is the market price of Company stock. As of December 31, 2012, we did not
have any derivative liabilities recorded on our balance sheet. As such, we do not believe we are exposed
to any equity price risk related to derivative instruments.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements, and the related notes, together with the report of BDO USA, LLP
dated March 18, 2013 are set forth at pages F-1 through F-26 attached hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
58
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be
disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported
within the specified time periods. As a part of these controls, our management is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Rule 13a-15(f) under the Exchange Act.
Under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31,
2012. Disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our principal executive
and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as
of the end of the period covered by this report, our disclosure controls and procedures are adequately
designed and are effective.
Our management, including our Chief Executive Officer and Chief Financial Officer, understands that our
disclosure controls and procedures do not guarantee that all errors and all improper conduct will be
prevented. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Further, a design of a control
system must reflect the fact that there are resource constraints, and the benefit of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of improper conduct, if
any, have been detected. These inherent limitations include the realities that judgments and decision-
making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more
persons, or by management override of the control. Further, the design of any system of controls is also
based in part upon assumptions about the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent limitations of a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected.
59
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Our internal control system was designed to provide reasonable assurance to management
and the Board of Directors regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles, and includes those policies and
procedures that:
(cid:120) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(cid:120) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles and that
receipts and expenditures of the company are being made only in accordance with authorization
of management and directors of the company; and
(cid:120) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could have a material effect on the
financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2012. In making this assessment, it used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated
Framework. Based on our assessment we concluded that, as of December 31, 2012, our internal control
over financial reporting was effective based on those criteria. BDO USA, LLP, our independent registered
public accounting firm, has issued an attestation report covering our internal control over financial
reporting, which begins on page 61.
Changes in Internal Control Over Financial Reporting
During the year ended December 31, 2012, there were no changes in our internal control over financial
reporting that materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
60
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
Board of Directors
Navidea Biopharmaceuticals, Inc.
Dublin, Ohio
We have audited Navidea Biopharmaceuticals, Inc.’s internal control over financial reporting as of
December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Navidea
Biopharmaceuticals, Inc.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying “Management’s Report on Internal Control Over Financial Reporting”
included in Item 9A. Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, Navidea Biopharmaceuticals, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Navidea Biopharmaceuticals, Inc. as of
December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’
equity (deficit), and cash flows for each of the three years in the period ended December 31, 2012 and
our report dated March 18, 2013 expressed an unqualified opinion on those consolidated financial
statements.
/s/ BDO USA, LLP
Chicago, Illinois
March 18, 2013
61
Item 9B. Other Information.
None.
62
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors
Set forth below are the names and committee assignments of the persons who constitute our Board of
Directors.
Name
Age Committee(s)
Peter F. Drake, Ph.D.
59
Audit; Compensation, Nominating and Governance (Chairman)
Brendan A. Ford
54
Audit (Chairman); Compensation, Nominating and Governance
Jess Emery Jones, M.D.
34
Audit; Compensation, Nominating and Governance
Mark J. Pykett, V.M.D., Ph.D.
Eric K. Rowinsky, M.D.
49
56
--
--
Gordon A. Troup
59
Audit
Director Qualifications
The Board of Directors believes that individuals who serve on the Board should have demonstrated
notable or significant achievements in their respective field; should possess the requisite intelligence,
education and experience to make a significant contribution to the Board and bring a range of skills,
diverse perspectives and backgrounds to its deliberations; and should have the highest ethical standards,
a strong sense of professionalism and intense dedication to serving the interests of our stockholders.
The following are qualifications, experience and skills for Board members which are important to our
business and its future:
(cid:120) General Management. Directors who have served in senior leadership positions are important to
us as they bring experience and perspective in analyzing, shaping, and overseeing the execution
of important operational and policy issues at a senior level. These directors’ insights and
guidance, and their ability to assess and respond to situations encountered in serving on our
Board of Directors, are enhanced by their leadership experience developed at businesses or
organizations that operated on a global scale, faced significant competition, or involved other
evolving business models.
Industry Knowledge. Because we are a pharmaceutical development company, education or
experience in our industry, including medicine, pharmaceutical development, marketing,
distribution, or the regulatory environment, is important because such experience assists our
Directors in understanding and advising our Company.
(cid:120)
(cid:120) Business Development/Strategic Planning. Directors who have a background in strategic
planning, business development, strategic alliances, mergers and acquisitions, and teamwork
and process improvement provide insight into developing and implementing strategies for
growing our business.
(cid:120) Finance/Accounting/Control. Knowledge of capital markets, capital structure, financial control,
audit, reporting, financial planning, and forecasting are important qualities of our directors
because such qualities assist in understanding, advising, and overseeing our Company’s capital
structure, financing and investing activities, financial reporting, and internal control of such
activities.
(cid:120) Board Experience/Governance. Directors who have served on other public company boards can
offer advice and insights with regard to the dynamics and operation of a board of directors, the
relations of a board to the chief executive officer and other management personnel, the
63
importance of particular agenda and oversight matters, and oversight of a changing mix of
strategic, operational, and compliance-related matters.
Biographical Information
Set forth below is current biographical information about our directors, including the qualifications,
experience and skills that make them suitable for service as a director. Each listed director’s respective
experience and qualifications described below led the Compensation, Nominating and Governance
Committee (CNG Committee) of our Board of Directors to conclude that such director is qualified to serve
as a member of our Board of Directors.
Directors whose terms continue until the 2013 Annual Meeting:
Brendan A. Ford has served as a director of Navidea since July 2010. Since 2007, Mr. Ford has been a
partner in Talisman Capital Partners, a private investment partnership focusing on middle-market
companies. From 1991 through 2007, Mr. Ford served in various executive positions including Executive
Vice President, Business Development and Corporate Strategy with Cardinal Health, Inc., primarily in
capacities related to mergers, acquisitions and related strategic activities, and was involved in over $19
billion in acquisition and disposition transactions for Cardinal. Prior to his service with Cardinal Health,
Mr. Ford practiced law with Baker and Hostetler from 1986 to 1991. From 1980 to 1983, Mr. Ford was
employed by Touche Ross LLP as a certified public accountant. Mr. Ford has a B.S. in Business from
Miami University, and a J.D. from The Ohio State University. Mr. Ford serves as a director and board
committee member for several privately held companies.
Eric K. Rowinsky, M.D. has served as a director of Navidea since July 2010. In 2012, Dr. Rowinsky
began serving as the Head of Research and Development, Chief Medical Officer, and Executive Vice
President of Stemline Therapeutics, Inc., a discovery- and development-stage biotechnology company.
In 2010, Dr. Rowinsky also co-founded Primrose Therapeutics, a start-up biotechnology company which
was acquired in September 2011, and was a consultant in the area of new cancer drug development.
From 2005 to December 2009, he served as the Chief Medical Officer and Executive Vice President of
Clinical Development, Medical Affairs and Regulatory Affairs of ImClone Systems Incorporated, a life
sciences company, and was a principal consultant to the Lilly-ImClone Oncology Business Unit in 2010.
Prior to that, Dr. Rowinsky held several positions at the Cancer Therapy & Research Center’s Institute of
Drug Development, including Director of the Institute, Director of Clinical Research and SBC Endowed
Chair for Early Drug Development, and concurrently served as Clinical Professor of Medicine in the
Division of Medical Oncology at the University of Texas Health Science Center at San Antonio. Dr.
Rowinsky was an Associate Professor of Oncology at the Johns Hopkins University School of Medicine
and on active staff at the Johns Hopkins School of Medicine from 1987 to 1996. Dr. Rowinsky is a
member of the boards of directors of Biogen Idec, Inc. and of Coronado Biosciences, Inc., publicly-held
life sciences companies. Dr. Rowinsky serves on the Science and Research and Compensation
Committees at Biogen Idec. During the past five years, Dr. Rowinsky has also served as a director of
Tapestry Pharmaceuticals, Inc. and ADVENTRX Pharmaceuticals, Inc., publicly-held life sciences
companies. Dr. Rowinsky has extensive research and drug development experience, oncology expertise
and broad scientific and medical knowledge.
Directors whose terms continue until the 2014 Annual Meeting:
Jess Emery Jones, M.D. has served as a director of Navidea since April 2011. He is currently the Chief
Executive Officer of AngioLight, Inc. (formerly CorNova, Inc.). In addition to AngioLight, Dr. Jones is the
Chief Executive Officer of NewCardio, Inc. Dr. Jones is also on the boards of directors of AngioLight,
NewCardio, and NovaRay Inc. From October 2006 to January 2011, Dr. Jones worked with Vision
Capital Advisors, LLC in New York City as the Director of Healthcare Investing, analyzing investment
opportunities in the biotech, pharmaceutical, medical technology, and medical services fields, and
assisted companies in the implementation of their business plans. From 2001 to 2007, Dr. Jones
attended Columbia College of Physicians & Surgeons in New York City, where he received his medical
degree in May 2007. In 2005, while attending Columbia Medical School in New York City, Dr. Jones was
64
awarded an American Heart Association - Medical Student Research Fellowship to study post-stroke
inflammatory mediators in the Department of Neurosurgery. Additionally, Dr. Jones earned a B.A. degree
from the University of Utah in 2001 and an M.B.A. from Columbia Business School in May 2007.
Mark J. Pykett, V.M.D, Ph.D. has served as President and Chief Executive Officer of Navidea since April
2011 and as a director of Navidea since August 2011. He has more than 16 years of pharmaceutical
industry executive and operational management, strategic planning, and cross-functional drug
development program oversight. He has led multiple companies focusing on research through
commercialization in numerous indication areas and has particular expertise in guiding the development
of biopharmaceutical product candidates. His leadership and industry knowledge have led to numerous
international speaking and panel presentations at investment, industry, scientific and medical
conferences. Prior to joining Navidea as Executive Vice President and Chief Development Officer in
November 2010, Dr. Pykett served as Founding CEO of Talaris Advisors LLC, a strategic drug-
development company serving the biotech industry. Dr. Pykett was President and Chief Operating Officer
of Alseres Pharmaceuticals, a clinical stage biotech firm that focused on the development of
radiopharmaceutical imaging agents for diagnosis of neurodegenerative disorders, as well as
therapeutics for central nervous system indications. Dr. Pykett also held senior executive roles at several
public and private biotechnology companies which have focused on therapeutics, diagnostics and
medical devices. Dr. Pykett has also served as a Director of several public, private and not-for-profit
organizations. Dr. Pykett graduated Phi Beta Kappa, Summa Cum Laude from Amherst College, holds a
veterinary degree, Phi Zeta, Summa Cum Laude and a doctorate in molecular biology from the University
of Pennsylvania, and received an M.B.A., Beta Gamma Sigma, from Northeastern University. He
completed post-doctoral fellowships at the University of Pennsylvania and Harvard University. Dr. Pykett
held an adjunct faculty position at the Harvard School of Public Health from 1997 to 2004 and served on
Northeastern University's Center for Enterprise Growth Corporate Advisory Board.
Directors whose terms continue until the 2015 Annual Meeting:
Peter F. Drake, Ph.D. has served as a director of Navidea since April 2011. Dr. Drake began his career
as a biotechnology analyst at Kidder, Peabody and Co. where he was a partner and head of the
Healthcare Research Group. In 1988, Dr. Drake co-founded Vector Securities International, an
investment banking firm specializing in the life sciences industry, where he was Executive Vice President
and Director of Research. In 1993, Dr. Drake co-founded Vector Fund Management, a life sciences
venture fund, and Deerfield Management, a healthcare hedge fund. In 1999, Vector Securities
International was purchased by Prudential Securities, where he was a Managing Director and Head of
Healthcare Research. Dr. Drake is a board member of Trustmark Insurance, a mutual insurance
company; Enzymedica, Inc., a private nutraceutical company; and Sequoia Sciences, Inc., a private
biotechnology company. Dr. Drake received his undergraduate degree from Bowdoin College, and his
Ph.D. in neurobiology and biochemistry from Bryn Mawr College.
Gordon A. Troup has served as a director of Navidea since July 2008. Mr. Troup served as President of
the Nuclear Pharmacy Services business at Cardinal Health, Inc. (Cardinal Health), a multinational
medical products and services company, from January 2003 until his retirement in December 2007. Mr.
Troup joined Cardinal Health in 1990 and was appointed Group President of Pharmaceutical Distribution
and Specialty Distribution Services in 1999. Prior to joining Cardinal Health, Mr. Troup was employed for
10 years by American Hospital Supply Corporation and for 3 years by Zellerbach Paper, a Mead
Company. Mr. Troup is currently a partner and Chairman of the Board of Scioto Properties, LLC, a
provider of group homes to the developmentally disabled nationwide and Chairman of the Advisory Board
of Guild Associates, Inc., a chemical engineering and research and development company serving the
energy and military community. Mr. Troup has a B.S. degree in Business Management from San Diego
State University.
65
Executive Officers
In addition to Dr. Pykett, the following individuals are executive officers of Navidea and serve in the
position(s) indicated below:
Name
Age
Position
Frederick O. Cope, Ph.D.
Brent L. Larson
66
49
Senior Vice President, Pharmaceutical Research
and Clinical Development
Senior Vice President; Chief Financial Officer;
Treasurer and Secretary
William J. Regan
61
Senior Vice President, Global Regulatory Strategy
Cornelia B. Reininger, M.D., Ph.D.
60
Senior Vice President and Chief Medical Officer
Thomas H. Tulip, Ph.D.
60
Executive Vice President and Chief Business Officer
Frederick O. Cope, Ph.D., F.A.C.N., C.N.S., has served as Senior Vice President, Pharmaceutical
Research and Clinical Development of Navidea since July 2010 and as Vice President, Pharmaceutical
Research and Clinical Development from February 2009 to July 2010. Prior to accepting his position with
Navidea, Dr. Cope served as the Assistant Director for Research and Head of Program Research
Development for The Ohio State University Comprehensive Cancer Center, The James Cancer Hospital
and The Richard J. Solove Research Institute, from April 2001 to February 2009. Dr. Cope also served
as head of the Cancer and AIDS product development and commercialization program for the
ROSS/Abbott Laboratories division for 10 years, and head of human and veterinary vaccine production
and improvement group for Wyeth Laboratories for seven years. Dr. Cope served a fellowship in
oncology at the McArdle Laboratory for Cancer Research at the University of Wisconsin and was the
honored scientist in residence at the National Cancer Center Research Institute in Tokyo; he is the
recipient of the Ernst W. Volwiler Research Award. Dr. Cope is also active in a number of professional
and scientific organizations such as serving as an editorial reviewer for several professional journals, and
as an advisor/director to the research program of Roswell Park Memorial Cancer Center. Dr. Cope
received his B.Sc. from the Delaware Valley College of Science and Agriculture, his M.S. from Millersville
University of Pennsylvania and his Ph.D. from the University of Connecticut with full honors.
Brent L. Larson has served as Senior Vice President of Navidea since July 2010, as Chief Financial
Officer and Treasurer since February 1999 and as Secretary since 2003. Prior to that, Mr. Larson served
as our Vice President, Finance from July 1998 to July 2010 and as Controller from July 1996 to June
1998. Before joining Navidea, Mr. Larson was employed by Price Waterhouse LLP. Mr. Larson has a
B.B.A. degree in accounting from Iowa State University of Science and Technology and is a Certified
Public Accountant.
William J. Regan has served as Senior Vice President, Global Regulatory Strategy of Navidea since
October 2012. Prior to accepting his position with Navidea, Mr. Regan served as a consultant to Navidea
from July 2011 to September 2012. As Principal of Regan Advisory Services (RAS) from September
2006 to September 2012, Mr. Regan consulted on all aspects of regulatory affairs within pharmaceutical,
biotechnology and diagnostic imaging businesses, including PET diagnostic agents (cardiovascular,
neurology, and oncology), contrast agents, and radiopharmaceuticals. Previous to RAS, Mr. Regan held
roles of increasing responsibility in radiopharmaceutical manufacturing, quality assurance,
pharmaceutical technology and regulatory affairs at Bristol-Myers Squibb (BMS). From September 2001
to August 2006, he served as global regulatory head for BMS’ Medical Imaging business where he was
responsible for all regulatory aspects of the company’s in-market and pipeline products and led regulatory
actions resulting in product approvals. Mr. Regan has been an active member in the Society of Nuclear
Medicine, Council on Radionuclides and Radiopharmaceuticals (CORAR), and Medical Imaging and
66
Technology Alliance, and formerly served as the industry chair of the Regulatory and Clinical Practice
committee on behalf of CORAR. Mr. Regan holds a B.A. in Chemistry from Rutgers University.
Cornelia B. Reininger, M.D., Ph.D., has served as Senior Vice President and Chief Medical Officer of
Navidea since November 2012. Prior to accepting her position with Navidea, Dr. Reininger served as the
Senior Director of Clinical Research and Global Clinical Leader of Bayer Healthcare Pharmaceuticals’
beta-amyloid PET development programs from November 2007 to October 2012. Dr. Reininger also
served in roles of increasing responsibility with the global medical organizations of GE Healthcare and
Amersham Health – Diagnostic Imaging from April 2001 to October 2007. Dr. Reininger holds an
Associate Professor of Surgery and External Lecturer position at Ludwig Maximillian University (LMU) in
Munich, Germany, where she completed her medical education and residency in general and vascular
surgery. During her residency, she was on staff at the LMU Downtown Surgical Hospital and Outpatient
Clinic, rotating as Chief Resident in vascular surgery and the intensive care unit. She later became the
head of the hospital’s thrombosis research laboratory. Dr. Reininger is a member of the Society of
Nuclear Medicine and the European Association of Nuclear Medicine.
Thomas H. Tulip, Ph.D., has served as Executive Vice President and Chief Business Officer of Navidea
since June 2011. Dr. Tulip has held senior leadership positions at Alseres Pharmaceuticals, Lantheus
Medical Imaging, Bristol Myers Squibb (BMS) and DuPont, where his roles spanned product discovery
and development, business and technology planning, brand and alliance management and international
business management. Most recently, as President, Alseres Molecular Imaging, Dr. Tulip led efforts to
develop markets for a Phase III neuroimaging agent. While at DuPont and BMS prior to Alseres, he was
instrumental in the development, commercialization and international management of the highly
successful nuclear cardiology franchise, successfully built the BMS Medical Imaging international
business, and led planning activities for innovative PET tracers at Lantheus/BMS. Dr. Tulip earned a B.S.
from University of Vermont, and an M.S. and Ph.D. from Northwestern University. He was a visiting
scholar at Osaka University and served as adjunct professor at Northeastern University. Dr. Tulip serves
on the board of directors of the Medical Imaging Technology Association (MITA) and leads its PET
Working Group in the Molecular Imaging Section. He was recently Chairperson of the Institute for
Molecular Technologies (IMT) and held numerous leadership positions there. He served on the Board of
the Academy of Molecular Imaging, including as its Treasurer. Dr. Tulip was Chairperson for the Society
of Nuclear Medicine (SNM) Corporate Advisory Board and has been active in a number of Council on
Radionuclides and Radiopharmaceuticals (CORAR) committees, now serving on its Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and greater than
10% stockholders, to file reports of ownership and changes in ownership of our securities with the
Securities and Exchange Commission. Copies of the reports are required by SEC regulation to be
furnished to us. Based on our review of these reports and written representations from reporting persons,
we believe that all reporting persons complied with all filing requirements during the fiscal year ended
December 31, 2012, except for: (i) Mark J. Pykett, V.M.D., Ph.D., who had one late Form 4 filing related
to Company stock that he purchased on the open market in September 2012, and (ii) Gordon A. Troup,
who had one late Form 4 filing related to Company stock that he purchased on the open market in August
2012.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to our directors, officers and all
employees. The code of business conduct and ethics is posted on our website at www.neoprobe.com.
The code of business conduct and ethics may be also obtained free of charge by writing to Navidea
Biopharmaceuticals, Inc., Attn: Chief Financial Officer, 425 Metro Place North, Suite 450, Dublin, Ohio
43017.
67
Corporate Governance
Our Board of Directors is responsible for establishing broad corporate policies and reviewing our overall
performance rather than day-to-day operations. The primary responsibility of our Board is to oversee the
management of Navidea and, in doing so, serve the best interests of the Company and our stockholders.
Our Board selects, evaluates and provides for the succession of executive officers and, subject to
stockholder election, directors. It reviews and approves corporate objectives and strategies, and
evaluates significant policies and proposed major commitments of corporate resources. Our Board also
participates in decisions that have a potential major economic impact on the Company. Management
keeps our directors informed of Company activity through regular communication, including written
reports and presentations at Board and committee meetings.
Board of Directors Meetings
Our Board of Directors held a total of 16 meetings in the fiscal year ended December 31, 2012, and each
of the directors attended at least 75 percent of the aggregate number of meetings of the Board of
Directors and committees (if any) on which he served. It is our policy that all directors attend the Annual
Meeting of Stockholders. However, conflicts and unforeseen events may prevent the attendance of a
director, or directors. All members of our Board of Directors attended the 2012 Annual Meeting of
Stockholders in person, except for Jess Jones, M.D., who participated telephonically due to travel delays.
The Board of Directors maintains the following committees to assist it in its oversight responsibilities. The
current membership of each committee is indicated in the list of directors set forth under “Board of
Directors” above.
Audit Committee
The Audit Committee of the Board of Directors selects our independent registered public accounting firm
with whom the Audit Committee reviews the scope of audit and non-audit assignments and related fees,
the accounting principles that we use in financial reporting, and the adequacy of our internal control
procedures. The members of our Audit Committee are: Brendan A. Ford (Chairman), Peter F. Drake,
Ph.D., Jess Emery Jones, M.D., and Gordon A. Troup, each of whom is “independent” under Section
803A of the NYSE MKT Company Guide. The Board of Directors has determined that Brendan A. Ford
meets the requirements of an “audit committee financial expert” as set forth in Section 407(d)(5) of
Regulation S-K promulgated by the SEC. The Audit Committee held five meetings in the fiscal year
ended December 31, 2012. The Board of Directors adopted a written Amended and Restated Audit
Committee Charter on April 30, 2004. A copy of the Amended and Restated Audit Committee Charter is
posted on the Company’s website at www.navidea.com.
Compensation, Nominating and Governance Committee
The Compensation, Nominating and Governance (CNG) Committee of the Board of Directors discharges
the Board’s responsibilities relating to the compensation of the Company's directors, executive officers
and associates, identifies and recommends to the Board of Directors nominees for election to the Board,
and assists the Board in the implementation of sound corporate governance principles and practices.
With respect to its compensation functions, the CNG Committee evaluates and approves executive officer
compensation and reviews and makes recommendations to the Board with respect to director
compensation, including incentive or equity-based compensation plans; reviews and evaluates any
discussion and analysis of executive officer and director compensation included in the Company’s annual
report or proxy statement, and prepares and approves any report on executive officer and director
compensation for inclusion in the Company’s annual report or proxy statement required by applicable
rules and regulations; and monitors and evaluates, at the Committee’s discretion, matters relating to the
compensation and benefits structure of the Company and such other domestic and foreign subsidiaries or
affiliates, as it deems appropriate. The members of our CNG Committee are: Peter F. Drake, Ph.D.
(Chairman), Brendan A. Ford, and Jess Emery Jones, M.D. The CNG Committee held one meeting in the
fiscal year ended December 31, 2012 to complement compensation-related discussions held by the full
68
Board. The Board of Directors adopted a written Compensation, Nominating and Governance Committee
Charter on February 26, 2009. A copy of the Compensation, Nominating and Governance Committee
Charter is posted on the Company’s website at www.navidea.com.
Board of Directors Leadership Structure
Our Board of Directors has determined that it is in the best interests of the Company and its stockholders
that the roles of Chairman of the Board and Chief Executive Officer be held by different individuals within
our organization. Our Chief Executive Officer is responsible for setting the strategic direction for the
Company and the day-to-day leadership and performance of the Company, while the Chairman of the
Board provides strategic guidance and presides over meetings of the full Board of Directors. The Board
of Directors believes that this structure helps facilitate the role of the independent directors in the
oversight of the Company and the active participation of the independent directors in setting agendas and
establishing priorities and procedures that work for the Board of Directors. The Chairman of the Board
also acts as a key liaison between the Board of Directors and management. Moreover, in addition to
feedback provided during the course of meetings of the Board of Directors, our independent directors
have executive sessions led by the Chairman of the Board. Our Chairman of the Board acts as a liaison
between the independent directors and the Chief Executive Officer regarding any specific feedback or
issues following an executive session of independent directors, provides the Chief Executive Officer with
input regarding agenda items for Board of Director and committee meetings, and coordinates with the
Chief Executive Officer regarding information to be provided to the independent directors in performing
their duties.
Board of Directors Role in Risk Oversight
Our Chief Executive Officer and senior management are responsible for the day-to-day management of
the risks we face. Our Board of Directors, as a whole and through its committees, has responsibility for
the oversight of risk management, including general oversight of (i) the financial exposure of the
Company, (ii) risk exposure as related to overall company portfolio and impact on earnings, (iii), oversight
for information technology security and risk, and (iv) all systems, processes, and organizational structures
and people responsible for finance and risk functions. Certain risks are overseen by committees of the
Board of Directors and these committees make reports to the full Board of Directors, including reports on
noteworthy risk management issues. Financial risks are overseen by the Audit Committee which meets
with management to review the Company’s major financial risk exposure and the steps management has
taken to monitor and control such exposures. Compensation risks are overseen by the CNG Committee.
Members of the Company’s senior management report to the full Board of Directors about their areas of
responsibility, including reports regarding risk within such area of responsibility and the steps
management has taken to monitor and control such exposures. Additional review or reporting of risks is
conducted as needed or as requested by the Board of Directors or committee.
Item 11. Executive Compensation
Compensation Discussion and Analysis
Overview of Compensation Program. The CNG Committee of the Board of Directors is responsible for
establishing and implementing our compensation policies applicable to senior executives and monitoring
our compensation practices. The CNG Committee seeks to ensure that our compensation plans are fair,
reasonable and competitive. The CNG Committee is responsible for reviewing and approving all senior
executive compensation, all awards under our cash bonus plan, and awards under our equity-based
compensation plans.
69
Philosophy and Goals of Executive Compensation Plans. The CNG Committee’s philosophy for
executive compensation is to:
(cid:120) Pay for performance — The CNG Committee believes that our executives should be
compensated based upon their ability to achieve specific operational and strategic results.
Therefore, our compensation plans are designed to provide rewards for the individual’s
contribution to our performance.
(cid:120) Pay commensurate with other companies categorized as value creators — The CNG Committee
has set a goal that the Company should move towards compensation levels for senior executives
that are, at a minimum, at the 40th to 50th percentile for similar executives in the workforce. This
allows us to attract, hire, reward and retain senior executives who continue to formulate and
execute our strategic plans and drive exceptional results.
To ensure our programs are competitive, the CNG Committee reviews compensation information of peer
companies, national data and trends in executive compensation to help determine the appropriateness of
our plans and compensation levels. These reviews, and the CNG Committee’s commitment to pay for
performance, become the basis for the CNG Committee’s decisions on compensation plans and
individual executive compensation payments.
The CNG Committee has approved a variety of programs that work together to provide a combination of
basic compensation and strong incentives. While it is important for us to provide certain base level
salaries and benefits to remain competitive, the CNG Committee’s objective is to provide compensation
plans with incentive opportunities that motivate and reward executives for consistently achieving superior
results. The CNG Committee designs our compensation plans to:
(cid:120) Reward executives based upon overall company performance, their individual contributions and
creation of stockholder value;
(cid:120) Encourage top performers to make a long-term commitment to our Company; and
(cid:120) Align executive incentive plans with the long-term interests of stockholders.
The CNG Committee reviews competitive information and individual compensation levels before each
fiscal year. During the review process, the CNG Committee addresses the following questions:
(cid:120) Do any existing compensation plans need to be adjusted to reflect changes in competitive
practices, different market circumstances or changes to our strategic initiatives?
(cid:120) Should any existing compensation plans be eliminated or new plans be added to the executive
compensation programs?
(cid:120) What are the compensation-related objectives for our compensation plans for the upcoming fiscal
year?
(cid:120) Based upon individual performance, what compensation modifications should be made to provide
incentives for senior executives to perform at superior levels?
In addressing these questions, the CNG Committee considers input from management, outside
compensation experts and published surveys of compensation levels and practices.
The CNG Committee does not believe that our compensation policies and practices for its employees
give rise to risks that are reasonably likely to have a material adverse effect on the Company. As noted
below, our incentive-based compensation is generally tied to Company financial performance (i.e.,
revenue or gross margin) or product development goals (i.e., clinical trial progress or regulatory
milestones). The CNG Committee believes that the existence of these financial performance incentives
creates a strong motivation for company employees to contribute towards the achievement of strong,
sustainable financial and development performance, and believes that the Company has a strong set of
internal controls that minimize the risk that financial performance can be misstated in order to achieve
incentive compensation payouts.
70
In addition to the aforementioned considerations, the CNG Committee also takes into account the
outcome of stockholder advisory (“say-on-pay”) votes, taken every three years, on the compensation of
our Chief Executive Officer, Chief Financial Officer, and our other three highest-paid executive officers
(the Named Executive Officers). At the Annual Meeting of Stockholders held on August 15, 2011,
approximately 72% of our stockholders voted in favor of the resolution relating to the compensation of our
Named Executive Officers. The CNG Committee believes this affirmed stockholders’ support of the
Company’s executive compensation program, and as such did not change its approach in 2012. The
CNG Committee will continue to consider the results of future say-on-pay votes when making future
compensation decisions for the executive officers.
Scope of Authority of the CNG Committee. The Board of Directors has authorized the CNG Committee to
establish the compensation programs for all executive officers and to provide oversight for compliance
with our compensation philosophy. The CNG Committee delegates the day-to-day administration of the
compensation plans to management (except with respect to our executive officers), but retains
responsibility for ensuring that the plan administration is consistent with the Company’s policies.
Annually, the CNG Committee sets the compensation for our executive officers, including objectives and
awards under incentive plans. Dr. Pykett provides input for the CNG Committee regarding the
performance and appropriate compensation of the other officers. The CNG Committee gives
considerable weight to Dr. Pykett’s evaluation of the other officers because of his direct knowledge of
each officer’s performance and contributions. The CNG Committee also makes recommendations to the
Board of Directors on appropriate compensation for the non-employee directors. In addition to
overseeing the compensation of executive officers, the CNG Committee approves awards under short-
term cash incentive and long-term equity-based compensation plans for all other employees. For more
information on the CNG Committee’s role, see the CNG Committee’s charter, which can be found on our
website at www.navidea.com.
Independent Compensation Expertise. The CNG Committee is authorized to retain independent experts
to assist in evaluating executive compensation plans and in setting executive compensation levels.
These experts provide information on trends and best practices so the CNG Committee can formulate
ongoing plans for executive compensation. The CNG Committee retained Pearl Meyer & Partners as its
independent expert to assist in the determination of the reasonableness and competitiveness of the
executive compensation plans and senior executives’ individual compensation levels for fiscal 2011.
Pearl Meyer’s study did not raise any concerns regarding conflicts of interest.
For fiscal 2011, Pearl Meyer performed a benchmark compensation review of our key executive positions,
including our Named Executive Officers. Pearl Meyer utilized both proprietary survey and proxy reported
data from compensation peers, with market data aged to January 1, 2011 by an annualized rate of 3.4%,
the expected pay increase in 2011 for executives in the life sciences industry.
In evaluating appropriate executive compensation, it is common practice to set targets at a point within
the competitive marketplace. The CNG Committee sets its competitive compensation levels based upon
its compensation philosophy. Following completion of the Pearl Meyer study for 2011, the CNG
Committee noted that our overall executive compensation was, on average, below the 25th percentile for
an established peer group of companies. Based upon the Pearl Meyer study, the CNG Committee has
determined, over the course of the next few years, to move towards a total compensation target for senior
executive positions at the 40th to 50th percentile of total compensation for the competitive market.
Peer Group Companies. In addition to the above survey analysis, in 2012 the CNG Committee also
reviewed the compensation levels at specific competitive benchmark companies. With input from
management, the CNG Committee chose the peer companies because they operate within the
biotechnology industry, have market capitalization between $100 million and $500 million, have similar
business models to our Company or have comparable key executive positions. While the specific plans
for these companies may or may not be used, it is helpful to review their compensation data to provide
benchmarks for the overall compensation levels that will be used to attract, hire, retain and motivate our
executives.
71
As competitors and similarly situated companies that compete for the same executive talent, the CNG
Committee determined that the following peer group companies most closely matched the responsibilities
and requirements of our executives:
Argule Inc.
Cell Therapeutics Inc.
Celldex Therapeutics Inc.
Curis Inc.
Exact Sciences Corp.
Immunomedics Inc.
Infinity Pharmaceuticals Inc.
Keryx Biopharmaceuticals Inc.
The CNG Committee used the publicly available compensation information for these companies to
analyze our competitive position in the industry. The CNG Committee reviewed the base salaries and
short-term and long term incentive plans of the executives of these companies to provide background and
perspective in analyzing the compensation levels for our executives.
Specific Elements of Executive Compensation.
Base Salary. Using information gathered by Pearl Meyer, peer company data, national surveys, general
compensation trend information and recommendations from management, the CNG Committee approved
the fiscal 2012 base salaries for our senior executives. Base salaries for senior executives are set using
the CNG Committee’s philosophy that compensation should be competitive and based upon
performance. Executives should expect that their base salaries, coupled with a cash bonus award, would
provide them the opportunity to be compensated at or above the competitive market at the 40th to 50th
percentile.
Based on competitive reviews of similar positions, industry salary trends, overall company results and
individual performance, salary increases may be approved from time-to-time. The CNG Committee
reviews and approves base salaries of all executive officers.
In setting specific base salaries for fiscal 2012, the CNG Committee considered published proxy data for
similar positions at peer group companies.
The following table shows the increases in base salaries for the Named Executive Officers that were
approved for fiscal 2012 compared to the approved salaries for fiscal 2011:
Named Executive Officer
Mark J. Pykett, V.M.D., Ph.D.
Rodger A. Brown
Frederick O. Cope, Ph.D.
Brent L. Larson
Thomas H. Tulip, Ph.D. (b)
Fiscal 2012
Base Salary
425,000
191,000
271,000
265,000
325,000
Fiscal 2011
Base Salary
375,000
185,000
265,000
250,000
300,000
Increase (a)
13.3%
3.2%
2.3%
6.0%
8.3%
(a) 2012 salary increases reflect both merit increases and market adjustments that the CNG Committee felt were necessary to
remain competitive in the life sciences industry.
(b) Dr. Tulip’s salary was increased to $325,000 effective June 1, 2012. The amount shown for fiscal 2012 is the approved annual
salary of Dr. Tulip in effect at the end of 2012. The actual amount paid to Dr. Tulip during fiscal 2012 is shown under “Salary”
in the Summary Compensation table below.
The CNG Committee has approved the following base salaries for fiscal 2013: Dr. Pykett, $425,000; Mr.
Brown, $203,000; Dr. Cope, $271,000; Mr. Larson, $265,000; and Dr. Tulip, $325,000.
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Short-Term Incentive Compensation. Our executive officers, along with all of our employees, are eligible
to participate in our annual cash bonus program, which has four primary objectives:
(cid:120) Attract, retain and motivate top-quality executives who can add significant value to the Company;
(cid:120) Create an incentive compensation opportunity that is an integral part of the employee’s total
compensation program;
(cid:120) Reward participants’ contributions to the achievement of our business results; and
(cid:120) Provide an incentive for individuals to achieve corporate objectives that are tied to our strategic
goals.
The cash bonus compensation plan provides each participant with an opportunity to receive an annual
cash bonus based on our Company’s performance during the fiscal year. Cash bonus targets for senior
executives are determined as a percentage of base salary, based on published proxy data for similar
positions at peer group companies. The following are the key provisions of the cash bonus compensation
plan:
(cid:120) The plan is administered by the CNG Committee, which has the power and authority to establish,
adjust, pay or decline to pay the cash bonus for each participant, including the power and
authority to increase or decrease the cash bonus otherwise payable to a participant. However,
the Committee does not have the power to increase, or make adjustments that would have the
effect of increasing, the cash bonus otherwise payable to any executive officer. The Committee
has the right to delegate to the Chief Executive Officer its authority and responsibilities with
respect to the cash bonuses payable to employees other than executive officers.
(cid:120) All Company employees are eligible to participate.
(cid:120) The CNG Committee is responsible for specifying the terms and conditions for earning cash
bonuses, including establishing specific performance objectives. Cash bonuses payable to
executive officers are intended to constitute “qualified performance-based compensation” for
purposes of Section 162(m) of the Internal Revenue Code. Consequently, each cash bonus
awarded to an executive officer must be conditioned on one or more specified “Performance
Measures,” calculated on a consolidated basis. Possible Performance Measures include
revenues; gross margin; operating income; net income; clinical trial progress; regulatory
milestones; or any other performance objective approved by the CNG Committee.
(cid:120) As soon as reasonably practicable after the end of each fiscal year, the CNG Committee
determines whether and to what extent each specified business performance objective has been
achieved and the amount of the cash bonus to be paid to each participant.
In April 2012, the CNG Committee established the fiscal 2012 targets and performance measures for all
Company employees. For fiscal 2012, the cash bonus for each executive officer was a function of the
designated target bonus amount (stated as a percentage of base salary and pro-rated based on time
served at each salary level during fiscal 2012) and certain business performance objectives, weighted as
a percentage of the total target amount. The business performance objectives established for fiscal 2012
were as follows:
(cid:120) Approval of the Company’s Lymphoseek product by the United States Food and Drug
Administration (FDA) and initiation of the commercial launch of Lymphoseek in the United States,
subject to maximum 30% reduction of bonus if not achieved.
(cid:120) Commencement of a Phase 2 or Phase 3 clinical study for NAV4694, a Fluorine-18 labeled
precision radiopharmaceutical candidate for use in the imaging and evaluation of patients with
signs or symptoms of cognitive impairment such as Alzheimer's disease licensed by the
Company from AstraZeneca AB, subject to maximum 15% reduction of bonus if not achieved.
(cid:120) Submission to the European Medicines Agency (EMA) of an application for marketing
authorization for Lymphoseek in the European Union, subject to maximum 10% reduction of
bonus if not achieved.
73
(cid:120) Completion of an in-license or product acquisition transaction for the addition of a candidate to
the Company’s development pipeline, subject to maximum 10% reduction of bonus if not
achieved.
(cid:120) Discretionary bonus, equal to 35% of the total bonus objective.
For the Named Executive Officers, the CNG Committee established the following cash bonus targets for
fiscal 2012:
Named Executive Officer
Mark J. Pykett, V.M.D., Ph.D.
Rodger A. Brown
Frederick O. Cope, Ph.D.
Brent L. Larson
Thomas H. Tulip, Ph.D. (a)
Target Cash Bonus
(% of Salary)
50.0%
20.0%
25.0%
27.5%
35.0%
Target Cash Bonus
($ Amount)
$ 212,500
38,200
67,750
72,875
105,000
(a) Effective June 1, 2012, Dr. Tulip entered into a new employment agreement, authorized by the Board of Directors, which
provides for a maximum cash bonus amount of 35.0% of Dr. Tulip’s new annual salary. Dr. Tulip’s maximum cash bonus
amount for 2012 was pro-rated based on time served at each salary level during the 2012 calendar year.
In February 2013, the CNG Committee determined the extent to which the Company’s goals were
achieved during 2012. With respect to the first objective, the Company did not obtain FDA approval for
Lymphoseek and the product was not commercially launched, therefore the Committee concluded that
the goal was not achieved, resulting in a 30% reduction in the target bonus amount. With regard to the
second objective, the Committee concluded that the commencement of a Phase 2 trial for NAV4694 in
September 2012 evidenced the successful achievement of that goal. With regard to the third objective,
the Committee determined that the submission of a marketing authorization application for Lymphoseek
to the EMA in December 2012 evidenced the successful achievement of that goal. With regard to the
fourth objective, the Committee concluded that the in-licensing of NAV5001 from Alseres
Pharmaceuticals, Inc. in July 2012 constituted the successful achievement of that goal. With respect to
the 35% discretionary portion, the Company’s overall performance and accomplishments were evaluated
in assessing the Company’s overall successes for the year. After reviewing the business performance
objectives and the related proposed payouts, the CNG Committee approved the total cash bonus payouts
for each employee of the Company. The approved cash bonus payouts to the Named Executive Officers,
paid in February 2013, are shown under “Non-Equity Incentive Plan Compensation” in the Summary
Compensation table below.
Also in February 2013, the CNG Committee established the fiscal 2013 targets and performance
measures for all Company employees. For fiscal 2013, the cash bonus for each executive officer will be
a function of the designated target bonus amount (stated as a percentage of base salary to be pro-rated
based on time served at each salary level during fiscal 2013) and certain business performance
objectives, weighted as a percentage of the total target amount. The business performance objectives
established for fiscal 2013 are as follows:
(cid:120) Approval of the Company’s Lymphoseek product by the FDA, initiation of the commercial launch
of Lymphoseek in the United States, and achievement of a targeted amount of revenues from
sales, subject to maximum 35% reduction of bonus if not achieved.
(cid:120) Submission of supplemental New Drug Application for Lymphoseek to the FDA, subject to
maximum 15% reduction of bonus if not achieved.
(cid:120) Commencement of a Phase 3 pivotal study for NAV4694, a Fluorine-18 labeled precision
radiopharmaceutical candidate for use in the imaging and evaluation of patients with signs or
symptoms of cognitive impairment such as Alzheimer's, subject to maximum 10% reduction of
bonus if not achieved.
(cid:120) Commencement of a Phase 3 pivotal study for NAV5001, an Iodine-123 radiolabeled imaging
agent being developed as an aid in the diagnosis of Parkinson’s disease and other movement
74
disorders, with a potential use as a diagnostic aid in dementia, subject to maximum 10%
reduction of bonus if not achieved.
(cid:120) Discretionary bonus, equal to 30% of the total bonus objective.
The CNG Committee has approved the following target cash bonus amounts (stated as a percentage of
base salary to be pro-rated based on time served at each salary level during fiscal 2013) for the Named
Executive Officers for fiscal 2013: Dr. Pykett, 50.0%; Dr. Cope, 25.0%; Mr. Larson, 27.5%; Mr. Regan,
25.0%; Dr. Reininger, 30.0%; and Dr. Tulip, 35.0%.
Long-Term Incentive Compensation. All Company employees are eligible to receive equity awards in the
form of stock options or restricted stock. Equity instruments awarded under the Company’s equity-based
compensation plan are based on the following criteria:
(cid:120) Analysis of competitive information for comparable positions;
(cid:120) Evaluation of the value added to the Company by hiring or retaining specific employees; and
(cid:120) Each employee’s long-term potential contributions to our Company.
Although equity awards may be made at any time as determined by the CNG Committee, they are
generally made to all employees once per year or on the recipient’s hire date in the case of new-hire
grants.
The CNG Committee’s philosophy on equity awards is that equity-based compensation is an effective
method to align the interests of stockholders and management and focus management’s attention on
long-term results. When awarding equity-based compensation the CNG Committee considers the impact
the participant can have on our overall performance, strategic direction, financial results and stockholder
value. Therefore, equity awards are primarily based upon the participant’s position in the organization,
competitive necessity and individual performance. Equity awards for senior executives are determined as
a percentage of base salary, based on published proxy data for similar positions at peer group
companies. Stock option awards have vesting schedules over several years to promote long-term
performance and retention of the recipient, and restricted stock awards may include specific performance
criteria for vesting or vest over a specified period of time.
On February 17, 2012, the Company granted 300,000 shares of restricted stock to Mark J. Pykett. Dr.
Pykett’s restricted stock will vest as to one-third of the shares on the first three anniversaries of the date
of grant, or upon the occurrence of a change in control as defined in the restricted stock agreement. If
the employment of Dr. Pykett with the Company is terminated for reasons other than a change in control
before all of the restricted shares have vested, then pursuant to the terms of the restricted stock
agreement all restricted shares that have not vested at the effective date of Dr. Pykett’s termination shall
immediately be forfeited by Dr. Pykett.
Also on February 17, 2012, the Company granted options to purchase shares of common stock of the
Company to all Company employees, including the Named Executive Officers. The stock options have
an exercise price of $3.28 vest as to one-fourth of the shares on each of the first four anniversaries of the
date of grant, and expire on the tenth anniversary of the date of grant. If the employment of the Named
Executives with the Company is terminated due to a change in control or without cause before all of the
stock options have vested, then pursuant to the terms of the stock option award agreement all stock
options that have not vested at the effective date of the Named Executive’s termination shall immediately
vest and become exercisable. The following number of options was granted to each Named Executive
Officer: Dr. Pykett, 250,000; Mr. Brown, 65,000; Dr. Cope, 127,000; Mr. Larson, 88,000; and Dr. Tulip,
163,000.
Other Benefits and Perquisites. The Named Executive Officers participate in other benefit plans on the
same terms as other employees. These plans include medical, dental, vision, disability and life insurance
benefits, and our 401(k) retirement savings plan (the 401(k) Plan).
75
Our vacation policy allows employees to carry up to 40 hours of unused vacation time forward to the next
fiscal year. Any unused vacation time in excess of the amount eligible for rollover is generally forfeited.
However, from time to time, due to high demands on our employees during a given fiscal year, we may
elect to pay out for unused vacation time in excess of the amount eligible for rollover. The amount paid is
calculated based on the employee’s salary in effect at the end of the fiscal year to which the unused
vacation time relates.
Our Named Executive Officers are considered “key employees” for purposes of IRC Section 125 Plan
non-discrimination testing. Based on such non-discrimination testing, we determined that our Section 125
Plan was “top-heavy”. As such, our key employees are ineligible to participate in the Section 125 Plan
and are unable to pay their portion of medical, dental, and vision premiums on a pre-tax basis. As a
result, the Company reimburses its key employees an amount equal to the lost tax benefit.
We pay group life insurance premiums on behalf of all employees, including the Named Executive
Officers. The benefit provides life insurance coverage at two times the employee’s annual salary plus
$10,000, up to a maximum of $630,000.
We also pay group long-term disability insurance premiums on behalf of all employees, including the
Named Executive Officers. The benefit provides long-term disability insurance coverage at 60% of the
employee’s annual salary, up to a maximum of $10,000 per month, beginning 180 days after the date of
disability and continuing through age 65.
401(k) Retirement Plan. All employees are given an opportunity to participate in our 401(k) retirement
savings plan (the 401(k) Plan), following a new-hire waiting period. The 401(k) Plan allows participants to
have pre-tax amounts withheld from their pay and provides for a discretionary employer matching
contribution (currently, a 40% match in the form of our common stock up to 5% of salary). Participants
may invest their contributions in various fund options, but are prohibited from investing their contributions
in our common stock. Participants are immediately vested in both their contributions and company
matching contributions. The 401(k) Plan qualifies under section 401 of the Internal Revenue Code, which
provides that employee and company contributions and income earned on contributions are not taxable to
the employee until withdrawn from the Plan, and that we may deduct our contributions when made.
Employment Agreements
Our executive officers are employed under employment agreements which specify the terms of their
employment such as base salary, benefits, paid time off, and post-employment benefits as shown in the
tables below. Our employment agreements also specify that if a change in control occurs with respect to
our Company and the employment of an executive officer is concurrently or subsequently terminated:
(cid:120) by the Company without cause (cause was defined as any willful breach of a material duty by the
executive officer in the course of his employment or willful and continued neglect of his duty as an
employee);
(cid:120) by the expiration of the term of the employment agreement; or
(cid:120) by the resignation of the executive officer because his title, authority, responsibilities, salary,
bonus opportunities or benefits have materially diminished, a material adverse change in his
working conditions has occurred, his services are no longer required in light of the Company’s
business plan, or we breach the agreement;
then, the executive officer would be paid a severance payment as disclosed in the tables below. For
purposes of such employment agreements, a change in control includes:
(cid:120)
the acquisition, directly or indirectly, by a person (other than our Company, an employee benefit
plan established by the Board of Directors, or a participant in a transaction approved by the Board
of Directors for the principal purpose of raising additional capital) of beneficial ownership of 30%
or more of our securities with voting power in the next meeting of holders of voting securities to
elect the Directors;
76
(cid:120) a majority of the Directors elected at any meeting of the holders of our voting securities are
persons who were not nominated by our then current Board of Directors or an authorized
committee thereof;
(cid:120) our stockholders approve a merger or consolidation of our Company with another person, other
than a merger or consolidation in which the holders of our voting securities outstanding
immediately before such merger or consolidation continue to hold voting securities in the
surviving or resulting corporation (in the same relative proportions to each other as existed before
such event) comprising 80% or more of the voting power for all purposes of the surviving or
resulting corporation; or
(cid:120) our stockholders approve a transfer of substantially all of our assets to another person other than
a transfer to a transferee, 80% or more of the voting power of which is owned or controlled by us
or by the holders of our voting securities outstanding immediately before such transfer in the
same relative proportions to each other as existed before such event.
Mark J. Pykett, V.M.D., Ph.D. Dr. Pykett is employed under an 18-month employment agreement
effective April 15, 2011. The employment agreement provides for an annual base salary of $375,000.
Effective January 1, 2012, Dr. Pykett’s annual base salary was increased to $425,000. For the calendar
year ending December 31, 2012, the CNG Committee determined that the maximum bonus payment to
Dr. Pykett will be $212,500.
Frederick O. Cope, Ph.D. Dr. Cope is employed under a 24-month employment agreement effective
January 1, 2013. The employment agreement provides for an annual base salary of $245,000. Effective
August 23, 2011, Dr. Cope’s annual base salary was increased to $265,000. Effective January 1, 2012,
Dr. Cope’s annual base salary was increased to $271,000. For the calendar year ending December 31,
2012, the CNG Committee determined that the maximum bonus payment to Dr. Cope will be $67,750.
Brent L. Larson. Mr. Larson is employed under a 24-month employment agreement effective January 1,
2013. The employment agreement provides for an annual base salary of $207,000. Effective August 23,
2011, Mr. Larson’s annual base salary was increased to $250,000. Effective January 1, 2012, Mr.
Larson’s annual base salary was increased to $265,000. For the calendar year ending December 31,
2012, the CNG Committee determined that the maximum bonus payment to Mr. Larson will be $72,875.
William J. Regan. Mr. Regan is employed under a 12-month employment agreement effective October 1,
2012. The employment agreement provides for an annual base salary of $250,000. For the calendar
year ending December 31, 2012, the CNG Committee determined that the maximum bonus payment to
Mr. Regan will be $28,125.
Cornelia B. Reininger, M.D., Ph.D. Dr. Reininger is employed under a 17-month employment agreement
effective November 1, 2012. The employment agreement provides for an annual base salary of
$300,000. For the calendar year ending December 31, 2012, the CNG Committee determined that the
maximum bonus payment to Dr. Reininger will be $15,041.
Thomas H. Tulip, Ph.D. Dr. Tulip is employed under a 24-month employment agreement effective June
1, 2012. The employment agreement provides for an annual base salary of $325,000. For the calendar
year ending December 31, 2012, the CNG Committee has determined that the maximum bonus payment
to Dr. Tulip will be $113,750, to be pro-rated based on time served at each salary level during the 2012
calendar year.
Post-Employment Compensation
The following tables set forth the expected benefit to be received by each of our Named Executive
Officers in the event of his termination resulting from various scenarios, assuming a termination date of
December 31, 2012 and a stock price of $2.83, our closing stock price on December 31, 2012.
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Mark J. Pykett, V.M.D., Ph.D.
For Cause Resignation
Death
Disability
Cash payments:
Severance (a)
Disability supplement (b)
Paid time off (c)
2012 401(k) match (d)
Continuation of benefits (e)
Stock option vesting
acceleration (f)
Restricted stock vesting
acceleration (g)
Total
$ -- $ -- $ -- $ --
210,100
8,173
5,000
22,870
--
8,173
5,000
22,870
--
8,173
5,000
--
--
8,173
5,000
--
End of
Term
Without
Cause
Change in
Control
$ 468,750
--
8,173
5,000
--
$ 468,750
--
8,173
5,000
34,305
$ 937,500
--
8,173
5,000
22,870
--
--
--
--
150,666
150,666
150,666
--
$ 13,173
--
$ 13,173
--
$ 36,043
--
$ 246,143
--
$ 632,589
990,150
$ 1,657,044
1,838,850
$ 2,963,059
(a) Severance amounts are pursuant to Dr. Pykett’s employment agreement.
(b) During the first 6 months of disability, the Company will supplement disability insurance payments to Dr. Pykett to achieve
100% salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum
of 24 weeks.
(c) Amount represents the value of 40 hours of accrued but unused vacation time as of December 31, 2012.
(d) Amount represents the value of 1,649 shares of Company stock which was accrued during 2012 as the Company’s 401(k)
matching contribution but was unissued as of December 31, 2012.
(e) Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2012,
except in the case of termination without cause, when the amount represents 18 months of medical, dental and vision
insurance premiums at rates in effect at December 31, 2012.
(f) Pursuant to Dr. Pykett’s stock option agreements, all unvested stock options outstanding will vest upon termination at the end
of the term of his employment agreement, termination without cause, or a change in control. Amount represents the value of
the stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options.
Amount does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock on
December 31, 2012.
(g) Pursuant to Dr. Pykett’s restricted stock agreements, certain unvested restricted stock outstanding will vest upon termination
without cause or a change in control.
Rodger A. Brown
Cash payments:
Severance (a)
Disability supplement (b)
Paid time off (c)
2012 401(k) match (d)
Continuation of benefits (e)
Stock option vesting
acceleration (f)
Restricted stock vesting
acceleration (g)
Total
For Cause Resignation
Death
Disability
$ -- $ -- $ -- $ --
93,100
3,673
--
16,304
--
3,673
--
16,304
--
3,673
--
--
--
3,673
--
--
End of
Term
Without
Cause
Change in
Control
$ 165,000
--
3,673
--
--
$ 165,000
--
3,673
--
16,304
$ 247,500
--
3,673
--
16,304
--
--
--
--
27,900
27,900
27,900
--
$ 3,673
--
$ 3,673
--
$ 19,977
--
$ 113,077
--
$ 196,573
--
$ 212,877
70,725
$ 366,102
(a) Severance amounts are pursuant to Mr. Brown’s employment agreement.
(b) During the first 6 months of disability, the Company will supplement disability insurance payments to Mr. Brown to achieve
100% salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum
of 24 weeks.
(c) Amount represents the value of 40 hours of accrued but unused vacation time as of December 31, 2012.
(d) Mr. Brown does not participate in the Company’s 401(k) Plan.
(e) Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2012.
(f) Pursuant to Mr. Brown’s stock option agreements, all unvested stock options outstanding will vest upon termination at the end
of the term of his employment agreement, termination without cause, or a change in control. Amount represents the value of
the stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options.
Amount does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock on
December 31, 2012.
(g) Pursuant to Mr. Brown’s restricted stock agreements, certain unvested restricted stock outstanding will vest upon a change in
control.
78
Frederick O. Cope, Ph.D.
For Cause Resignation
Death
Disability
Cash payments:
Severance (a)
Disability supplement (b)
Paid time off (c)
2012 401(k) match (d)
Continuation of benefits (e)
Stock option vesting
acceleration (f)
Restricted stock vesting
acceleration (g)
Total
$ -- $ -- $ -- $ --
133,100
2,085
5,000
16,304
--
2,085
5,000
16,304
--
2,085
5,000
--
--
2,085
5,000
--
End of
Term
Without
Cause
Change in
Control
$ 245,000
--
2,085
5,000
--
$ 245,000
--
2,085
5,000
16,304
$ 367,500
--
2,085
5,000
16,304
--
--
--
--
55,800
55,800
55,800
--
$ 7,085
--
$ 7,085
--
$ 23,388
--
$ 156,488
--
$ 307,885
--
$ 324,188
495,075
$ 941,763
(a) Severance amounts are pursuant to Dr. Cope’s employment agreement.
(b) During the first 6 months of disability, the Company will supplement disability insurance payments to Dr. Cope to achieve 100%
salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum of 24
weeks.
(c) Amount represents the value of 16 hours of accrued but unused vacation time as of December 31, 2012.
(d) Amount represents the value of 1,649 shares of Company stock which was accrued during 2012 as the Company’s 401(k)
matching contribution but was unissued as of December 31, 2012.
(e) Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2012.
(f) Pursuant to Dr. Cope’s stock option agreements, all unvested stock options outstanding will vest upon termination at the end of
the term of his employment agreement, termination without cause, or a change in control. Amount represents the value of the
stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options. Amount
does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock on December
31, 2012.
(g) Pursuant to Dr. Cope’s restricted stock agreements, certain unvested restricted stock outstanding will vest upon a change in
control.
Brent L. Larson
Cash payments:
Severance (a)
Disability supplement (b)
Paid time off (c)
2012 401(k) match (d)
Continuation of benefits (e)
Stock option vesting
acceleration (f)
Restricted stock vesting
acceleration (g)
Total
For Cause Resignation
Death
Disability
$ -- $ -- $ -- $ --
130,100
5,096
5,000
22,870
--
5,096
5,000
22,870
--
5,096
5,000
--
--
5,096
5,000
--
End of
Term
Without
Cause
Change in
Control
$ 207,000
--
5,096
5,000
--
$ 207,000
--
5,096
5,000
22,870
$ 310,500
--
5,096
5,000
22,870
--
--
--
--
44,175
44,175
44,175
--
$ 10,096
--
$ 10,096
--
$ 32,966
--
$ 163,066
--
$ 261,271
--
$ 284,141
212,175
$ 599,816
(a) Severance amounts are pursuant to Mr. Larson’s employment agreement.
(b) During the first 6 months of disability, the Company will supplement disability insurance payments to Mr. Larson to achieve
100% salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum
of 24 weeks.
(c) Amount represents the value of 40 hours of accrued but unused vacation time as of December 31, 2012.
(d) Amount represents the value of 1,649 shares of Company stock which was accrued during 2012 as the Company’s 401(k)
matching contribution but was unissued as of December 31, 2012.
(e) Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2012.
(f) Pursuant to Mr. Larson’s stock option agreements, all unvested stock options outstanding will vest upon termination at the end
of the term of his employment agreement, termination without cause, or a change in control. Amount represents the value of
the stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options.
Amount does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock on
December 31, 2012.
(g) Pursuant to Mr. Larson’s restricted stock agreements, certain unvested restricted stock outstanding will vest upon a change in
control.
79
Thomas H. Tulip, Ph.D.
For Cause Resignation
Death
Disability
Cash payments:
Severance (a)
Disability supplement (b)
Paid time off (c)
2012 401(k) match (d)
Continuation of benefits (e)
Stock option vesting
acceleration (f)
Restricted stock vesting
acceleration (g)
Total
$ -- $ -- $ -- $ --
160,100
6,250
5,000
--
--
6,250
5,000
--
--
6,250
5,000
--
--
6,250
5,000
--
End of
Term
Without
Cause
Change in
Control
$ 325,000
--
6,250
5,000
--
$ 325,000
--
6,250
5,000
--
$ 487,500
--
6,250
5,000
--
--
--
--
--
--
--
--
--
$ 11,250
--
$ 11,250
--
$ 11,250
--
$ 171,350
--
$ 336,250
--
$ 336,250
--
$ 498,750
(a) Severance amounts are pursuant to Dr. Tulip’s employment agreement.
(b) During the first 6 months of disability, the Company will supplement disability insurance payments to Dr. Tulip to achieve 100%
salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum of 24
weeks.
(c) Amount represents the value of 40 hours of accrued but unused vacation time as of December 31, 2012.
(d) Amount represents the value of 1,649 shares of Company stock which was accrued during 2012 as the Company’s 401(k)
matching contribution but was unissued as of December 31, 2012.
(e) Dr. Tulip does not participate in the Company’s medical, dental or vision insurance plans.
(f) Pursuant to Dr. Tulip’s stock option agreements, all unvested stock options outstanding will vest upon termination at the end of
the term of his employment agreement, termination without cause, or a change in control. Amount represents the value of the
stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options. Amount
does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock on December
31, 2012.
(g) Dr. Tulip’s restricted stock agreements do not include provisions for accelerated vesting.
Report of Compensation, Nominating and Governance Committee
The CNG Committee is responsible for establishing, reviewing and approving the Company’s
compensation philosophy and policies, reviewing and making recommendations to the Board regarding
forms of compensation provided to the Company’s directors and officers, reviewing and determining cash
and equity awards for the Company’s officers and other employees, and administering the Company’s
equity incentive plans.
In this context, the CNG Committee has reviewed and discussed with management the Compensation
Discussion and Analysis included in this annual report on Form 10-K. In reliance on the review and
discussions referred to above, the CNG Committee recommended to the Board, and the Board has
approved, that the Compensation Discussion and Analysis be included in this annual report on Form 10-K
for filing with the SEC.
The Compensation, Nominating
and Governance Committee
Peter F. Drake, Ph.D. (Chairman)
Brendan A. Ford
Jess Emery Jones, M.D.
80
Compensation, Nominating and Governance Committee Interlocks and Insider Participation
The current members of our CNG Committee are: Peter F. Drake, Ph.D. (Chairman), Brendan A. Ford,
and Jess Emery Jones, M.D., and each served as a member of the CNG Committee during the last
completed fiscal year. None of these individuals were at any time during the fiscal year ended December
31, 2012, or at any other time, an officer or employee of the Company.
No director who served on the CNG Committee during 2012 had any relationships requiring disclosure by
the Company under the SEC’s rules requiring disclosure of certain relationships and related-party
transactions. None of the Company’s executive officers served as a director or a member of a
compensation committee (or other committee serving and equivalent function) of any other entity, the
executive officers of which served as a director of the Company or member of the CNG Committee during
2012.
81
Summary Compensation Table
The following table sets forth certain information concerning the annual and long-term compensation of
our Named Executive Officers for the last three fiscal years.
Summary Compensation Table for Fiscal 2012
Named Executive Officer
Year
Salary
(a)
Stock
Awards
(b)
Option
Awards
(c)
(d)
Non-Equity
Incentive Plan
All Other
Compensation Compensation Compensation
Total
Mark J. Pykett, V.M.D., Ph.D. (e)
President and
Chief Executive Officer
2012
2011
2010
$ 425,000
363,249
41,875
$ 983,700
201,450
530,700
$ 481,827
--
193,783
$ 140,250
175,867
6,278
$ 13,808
4,788
--
$ 2,044,585
745,354
772,636
Rodger A. Brown
Vice President, Global
Regulatory Operations and
Quality Assurance
Frederick O. Cope, Ph.D.
Senior Vice President,
Pharmaceutical Research
and Clinical Development
Brent L. Larson
Senior Vice President and
Chief Financial Officer
Thomas H. Tulip, Ph.D. (f)
Executive Vice President and
Chief Business Officer
2012
2011
2010
$ 191,000
172,347
155,000
$ --
$ 125,275
$ 25,296
$ 2,553
$ 344,124
--
--
--
72,585
29,250
28,650
5,463
--
207,060
256,235
2012
2011
2010
$ 271,000
252,342
211,000
$ --
--
--
$ 244,768
--
145,169
$ 55,043
63,375
51,375
$ 11,114
$ 581,925
10,396
4,751
326,113
412,295
2012
2011
2010
2012
2011
2010
$ 265,000
222,637
195,000
$ --
--
--
$ 169,603
--
114,926
$ 49,555
43,875
37,500
$ 11,404
$ 495,562
8,450
4,595
274,962
352,021
$ 314,583
175,000
--
$ --
394,320
--
$ 314,151
346,842
--
$ 75,075
$ 9,615
$ 713,424
60,023
--
5,708
--
981,893
--
(a) Amount represents the aggregate grant date fair value in accordance with FASB ASC Topic 718. Assumptions made in the
valuation of stock awards are disclosed in Note 1(e) of the Notes to the Consolidated Financial Statements in this Form 10-K.
(b) Amount represents the aggregate grant date fair value in accordance with FASB ASC Topic 718. Assumptions made in the
valuation of option awards are disclosed in Note 1(e) of the Notes to the Consolidated Financial Statements in this Form 10-K.
(c) Amount represents the cash bonuses which have been approved by the CNG Committee and are disclosed for fiscal 2012, the
year in which they were earned (i.e., the year to which the service relates).
(d) Amount represents additional compensation as disclosed in the All Other Compensation table below.
(e) Dr. Pykett commenced employment with the Company effective November 15, 2010, and was promoted to President and Chief
Executive Officer effective April 15, 2011.
(f) Dr. Tulip commenced employment with the Company effective June 1, 2011.
82
All Other Compensation
The following table describes each component of the amounts shown in the “All Other Compensation”
column in the Summary Compensation table above.
All Other Compensation Table for Fiscal 2012
Named Executive Officer
Mark J. Pykett, V.M.D., Ph.D. (d)
Rodger A. Brown
Frederick O. Cope, Ph.D.
Brent L. Larson
Thomas H. Tulip, Ph.D. (e)
(b)
Reimbursement
of Additional
Tax Liability
Related to
Health Insurance
Premiums
(c)
401(k) Plan
Employer
Matching
Contribution
(a)
Payment
for
Unused
Vacation
Total
All Other
Compensation
$ 7,212
$ 1,596
$ 5,000
$ 13,808
--
--
1,019
--
3,769
--
4,788
--
$ 1,512
$ 1,041
$ --
$ 2,553
4,769
--
694
--
--
--
5,463
--
$ 5,096
$ 1,018
$ 5,000
$ 11,114
4,818
--
678
--
4,900
4,751
10,396
4,751
$ 4,808
$ 1,596
$ 5,000
$ 11,404
2,531
--
1,019
--
4,900
4,595
8,450
4,595
$ 4,615
$ --
$ 5,000
$ 9,615
--
--
2,807
--
2,901
--
5,708
--
Year
2012
2011
2010
2012
2011
2010
2012
2011
2010
2012
2011
2010
2012
2011
2010
(a) Amount represents payment for unused vacation time in excess of the amount eligible for rollover in fiscal 2012. The amount
paid is calculated based on the employee’s salary in effect at the end of the fiscal year to which the unused vacation time
relates.
(b) Amount represents reimbursement of the lost tax benefit due to the ineligibility of our Named Executive Officers to pay their
portion of medical, dental, and vision premiums on a pre-tax basis under our IRC Section 125 Plan.
(c) Amount represents the value of the common stock contributed to the Named Executive Officer’s account in our 401(k) Plan as
calculated on a quarterly basis.
(d) Dr. Pykett commenced employment with the Company effective November 15, 2010, and was promoted to President and Chief
Executive Officer effective April 15, 2011.
(e) Dr. Tulip commenced employment with the Company effective June 1, 2011.
83
Grants of Plan-Based Awards
The following table sets forth certain information about plan-based awards that we made to the Named
Executive Officers during fiscal 2012. For information about the plans under which these awards were
granted, see the discussion under “Short-Term Incentive Compensation” and “Long-Term Incentive
Compensation” in the “Compensation Discussion and Analysis” section above.
Grants of Plan-Based Awards Table for Fiscal 2012
Named
Executive Officer
Grant
Date
Estimated Future
Payouts Under
Non-Equity Incentive
Plan Awards (a)
Estimated Future
Payouts Under
Equity Incentive
Plan Awards (b)
Threshold Maximum Threshold Maximum
All Other
Option
Awards:
All Other
Grant Date
Stock
Number of Exercise Fair Value
Awards:
Number
of Stock
Securities Price of
of Shares Underlying Option and Option
of Stock
Options
Awards
Awards
Mark J. Pykett,
V.M.D., Ph.D.
N/A $ --
$ 212,500
2/17/2012 $ -- $ --
2/17/2012 $ -- $ --
Rodger A. Brown
N/A $ --
$ 38,200
2/17/2012 $ -- $ --
Frederick O. Cope,
Ph.D.
N/A $ --
$ 67,750
2/17/2012 $ -- $ --
Brent L. Larson
N/A $ --
$ 72,875
2/17/2012 $ -- $ --
Thomas H. Tulip,
Ph.D.
N/A $ --
$ 110,130
2/17/2012 $ -- $ --
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
300,000
--
--
--
250,000
$ -- $ -- (a)
$ 983,700 (c)
$ --
$ 481,827 (d)
$ 3.28
--
--
--
--
--
--
--
--
--
65,000
$ -- $ -- (a)
$ 125,275 (d)
$ 3.28
--
127,000
$ -- $ -- (a)
$ 244,768 (d)
$ 3.28
--
88,000
$ -- $ -- (a)
$ 169,603 (d)
$ 3.28
--
163,000
-- $ -- (a)
$ 314,151 (d)
$ 3.28
(a) The threshold amount reflects the fact that no cash bonus awards would have been payable if none of the specified business
performance objectives were achieved. The maximum amount reflects the target cash bonus awards payable if all of the
specified business performance objectives are achieved, pro-rated based on time served at each salary level during the 2012
fiscal year. For actual cash bonus award amounts, see the “Non-Equity Incentive Plan Compensation” column in the Summary
Compensation table above.
(b) The threshold amount reflects the fact that no restricted stock awards will be payable if none of the vesting terms are achieved.
The maximum amount reflects the target restricted stock awards payable if all of the vesting terms are achieved.
(c) These shares of restricted stock will vest as to one-third on each of the first three anniversaries of the date of grant or upon the
occurrence of a change in control as defined in the restricted stock agreement. If the employment of Dr. Pykett with the
Company is terminated for reasons other than a change in control before all of the restricted shares have vested, then
pursuant to the terms of the restricted stock agreements all restricted shares that have not vested at the effective date of Dr.
Pykett’s termination shall immediately be forfeited by Dr. Pykett.
(d) These stock options vest as to one-fourth on each of the first four anniversaries of the date of grant, and expire on the tenth
anniversary of the date of grant. If the employment of the Named Executive Officer with the Company is terminated due to a
change in control or without cause before all of the stock options have vested, then pursuant to the terms of the Stock Option
Award Agreements all stock options that have not vested at the effective date of the Named Executive Officer’s termination
shall immediately vest and become exercisable.
84
Outstanding Equity Awards
The following table presents certain information concerning outstanding equity awards held by the Named
Executive Officers as of December 31, 2012.
Outstanding Equity Awards Table at Fiscal 2012 Year-End
Option Awards
Stock Awards
Number of Securities
Underlying Unexercised
Options (#)
Option
Exercise
Named
Executive Officer Exercisable Unexercisable Price
Option
Expiration
Date
Note
Number of
Shares of
Stock that
Have Not
Vested
Market Value
of Shares of
Stock that
Have Not
Vested
Mark J. Pykett,
V.M.D., Ph.D.
133,334
--
66,666
250,000
$ 1.70
$ 3.28
11/12/2020
2/17/2022
(j)
(m)
300,000
$ 849,000
Rodger A. Brown
Frederick O. Cope,
Ph.D.
Brent L. Larson
Thomas H. Tulip,
Ph.D.
50,000
40,000
20,000
20,000
20,000
25,000
50,000
30,000
--
50,000
75,000
60,000
--
70,000
50,000
50,000
40,000
50,000
50,000
25,000
75,000
47,500
--
27,500
--
--
--
--
--
--
--
--
30,000
65,000
$ 0.49
$ 0.39
$ 0.26
$ 0.27
$ 0.362
$ 0.59
$ 1.10
$ 1.90
$ 3.28
--
--
60,000
127,000
$ 0.65
$ 1.10
$ 1.90
$ 3.28
--
--
--
--
--
--
--
--
47,500
88,000
$ 0.30
$ 0.49
$ 0.39
$ 0.26
$ 0.27
$ 0.362
$ 0.59
$ 1.10
$ 1.90
$ 3.28
7/28/2014
12/10/2014
12/27/2015
12/15/2016
1/3/2018
1/5/2019
10/30/2019
12/21/2020
2/17/2022
2/16/2019
10/30/2019
12/21/2020
2/17/2022
1/7/2014
7/28/2014
12/10/2014
12/27/2015
12/15/2016
1/3/2018
1/5/2019
10/30/2019
12/21/2020
2/17/2022
82,500
163,000
$ 4.93
$ 3.28
6/1/2021
2/17/2022
(b)
(c)
(d)
(e)
(f)
(g)
(i)
(k)
(m)
(h)
(i)
(k)
(m)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(i)
(k)
(m)
(l)
(m)
Equity Incentive
Plan Awards
Number of
Unearned
Shares
Market Value
of Unearned
Shares (u)
Note
300,000
50,000
$ 849,000
$ 141,500
20,000
25,000
$ 56,600
$ 70,750
(q)
(r)
(t)
(n)
(p)
100,000
75,000
$ 283,000
$ 212,250
(o)
(p)
50,000
75,000
$ 141,500
$ 212,250
(n)
(p)
60,000
$ 169,800
(s)
(a) Options were granted 1/7/2004 and vested as to one-third on each of the first three anniversaries of the date of grant.
(b) Options were granted 7/28/2004 and vested as to one-third on each of the first three anniversaries of the date of grant.
(c) Options were granted 12/10/2004 and vested as to one-third on each of the first three anniversaries of the date of grant.
(d) Options were granted 12/27/2005 and vested as to one-third immediately and on each of the first two anniversaries of the date
of grant.
(e) Options were granted 12/15/2006 and vested as to one-third on each of the first three anniversaries of the date of grant.
(f) Options were granted 1/3/2008 and vested as to one-third on each of the first three anniversaries of the date of grant.
(g) Options were granted 1/5/2009 and vested as to one-third on each of the first three anniversaries of the date of grant.
(h) Options were granted 2/16/2009 and vested as to one-third on each of the first three anniversaries of the date of grant.
(i) Options were granted 10/30/2009 and vested as to one-third on each of the first three anniversaries of the date of grant.
(j) Options were granted 11/12/2010 and vest as to one-third on each of the first three anniversaries of the date of grant.
(k) Options were granted 12/21/2010 and vest as to one-fourth on each of the first four anniversaries of the date of grant.
(l) Options were granted 6/1/2011 and vest as to one-fourth on each of the first four anniversaries of the date of grant.
(m) Options were granted 2/17/2012 and vest as to one-fourth on each of the first four anniversaries of the date of grant.
85
(n) Restricted shares granted January 3, 2008. Pursuant to the terms of restricted stock agreements between the Company and
each grantee, the restricted shares will vest upon the approval of a NDA for Lymphoseek by the FDA. If the employment of a
grantee with the Company is terminated before all of the restricted shares have vested, then pursuant to the terms of the
restricted stock agreements all restricted shares that have not vested at the effective date of such grantee’s termination shall
immediately be forfeited by the grantee. Pursuant to its authority under Section 3.2 of the restricted stock agreements the
CNG Committee eliminated the forfeiture provision in Section 3.2(b) of the restricted stock agreements effective January 1,
2009, which provision effected the forfeiture of the shares if the vesting event did not occur before June 30, 2010.
(o) Restricted shares granted February 16, 2009. Pursuant to the terms of the restricted stock agreement between the Company
and Dr. Cope, 50% of the restricted shares will vest upon the approval of a NDA for Lymphoseek by the FDA or the approval of
marketing authorization for Lymphoseek by the EMA and 50% of the restricted shares will vest upon the commencement of
patient enrollment in a Phase 3 clinical trial in humans of RIGScan. All of the restricted shares vest upon the occurrence of a
change in control as defined in Dr. Cope’s employment agreement. If the employment of Dr. Cope with the Company is
terminated for reasons other than a change in control before all of the restricted shares have vested, then pursuant to the
terms of the restricted stock agreement all restricted shares that have not vested at the effective date of Dr. Cope’s termination
shall immediately be forfeited by Dr. Cope.
(p) Restricted shares granted December 1, 2009. Pursuant to the terms of restricted stock agreements between the Company
and each grantee, the restricted shares will vest upon the approval of a NDA for Lymphoseek by the FDA or the approval of
marketing authorization for Lymphoseek by the EMA. All of the restricted shares vest upon the occurrence of a change in
control as defined in the restricted stock agreement. If the employment of a grantee with the Company is terminated for
reasons other than a change in control before all of the restricted shares have vested, then pursuant to the terms of the
restricted stock agreements all restricted shares that have not vested at the effective date of such grantee’s termination shall
immediately be forfeited by the grantee.
(q) Restricted shares granted November 15, 2010. Pursuant to the terms of the restricted stock agreement between the Company
and Dr. Pykett, 125,000 of the restricted shares will vest upon the approval of a NDA for Lymphoseek by the FDA or the
approval of marketing authorization for Lymphoseek by the EMA and 175,000 of the restricted shares will vest upon the
approval of a NDA for a RIGS technology product by the FDA or the approval of marketing authorization for a RIGS technology
product by the EMA. All of the restricted shares vest upon the occurrence of a change in control as defined in Dr. Pykett’s
employment agreement, or if Dr. Pykett is terminated without cause as defined in his employment agreement. If the
employment of Dr. Pykett with the Company is terminated for reasons other than a change in control or without cause before
all of the restricted shares have vested, then pursuant to the terms of the restricted stock agreement all restricted shares that
have not vested at the effective date of Dr. Pykett’s termination shall immediately be forfeited by Dr. Pykett.
(r) Restricted shares granted April 15, 2011. Pursuant to the terms of the restricted stock agreement between the Company and
Dr. Pykett, the restricted shares will vest upon the first regulatory approval of a Lymphoseek product by either the FDA or the
EMA. All of the restricted shares vest upon the occurrence of a change in control as defined in the restricted stock agreement.
If the employment of Dr. Pykett with the Company is terminated for reasons other than a change in control before all of the
restricted shares have vested, then pursuant to the terms of the restricted stock agreements all restricted shares that have not
vested at the effective date of Dr. Pykett’s termination shall immediately be forfeited by Dr. Pykett.
(s) Restricted shares granted June 1, 2011. Pursuant to the terms of the restricted stock agreement between the Company and
Dr. Tulip, 20,000 of the restricted shares will vest upon the partnering of Lymphoseek in Europe covering at least four
countries, 20,000 will vest upon the partnering of Lymphoseek in Asia covering either Japan or at least two other countries, and
20,000 will vest upon the achievement of annual revenue to the Company from Cardinal Health, Inc. related to Lymphoseek of
over $2 million per month for three consecutive months following the receipt of commercial marketing clearance in the U.S., if
achieved before the 24th month following such marketing clearance. Dr. Tulip’s restricted stock agreements do not include
provisions for accelerated vesting. If the employment of Dr. Tulip with the Company is terminated before all of the restricted
shares have vested, then pursuant to the terms of the restricted stock agreement all restricted shares that have not vested at
the effective date of Dr. Tulip’s termination shall immediately be forfeited by Dr. Tulip.
(t) Restricted shares granted February 17, 2012. Pursuant to the terms of the restricted stock agreement between the Company
and Dr. Pykett, the restricted shares will vest as to one-third on each of the first three anniversaries of the date of grant. All of
the restricted shares vest upon the occurrence of a change in control as defined in the restricted stock agreement. If the
employment of Dr. Pykett with the Company is terminated for reasons other than a change in control before all of the restricted
shares have vested, then pursuant to the terms of the restricted stock agreements all restricted shares that have not vested at
the effective date of Dr. Pykett’s termination shall immediately be forfeited by Dr. Pykett.
(u) Estimated by reference to the closing market price of the Company’s common stock on December 31, 2012, pursuant to
Instruction 3 to Item 402(p)(2) of Regulation S-K. The closing price of the Company’s common stock on December 31, 2012,
was $2.83.
86
Options Exercised and Stock Vested
The following table presents, with respect to the Named Executive Officers, certain information about
option exercises and restricted stock vested during fiscal 2012.
Options Exercised and Stock Vested Table for Fiscal 2012
Named Executive Officer
Mark J. Pykett, V.M.D., Ph.D.
Rodger A. Brown
Frederick O. Cope, Ph.D.
Brent L. Larson
Thomas H. Tulip, Ph.D.
Option Awards
Stock Awards
Number of
Shares
Acquired
on Exercise
--
--
--
--
--
Value
Realized on
Exercise (a)
--
--
--
--
--
Number of
Shares
Acquired
on Vesting
--
--
--
--
--
Value
Realized on
Vesting (a)
--
--
--
--
--
(a) Computed using the fair market value of the stock on the date prior to or the date of exercise or vesting, as appropriate, in
accordance with our normal practice.
Compensation of Non-Employee Directors
Each non-employee director received an annual cash retainer of $25,000 and earned an additional
$2,500 per board meeting attended in person or $500 per telephonic board meeting during the fiscal year
ended December 31, 2012. The Chairman of the Company’s Board of Directors received an additional
annual retainer of $25,000, the Chairman of the Audit Committee received an additional annual retainer of
$10,000, and the Chairman of the CNG Committee received an additional annual retainer of $7,500 for
their services in those capacities during 2012. Members of both committees of the Company’s Board of
Directors earned an additional $1,000 per committee meeting, whether attended in person or
telephonically. We also reimbursed non-employee directors for travel expenses for meetings attended
during 2012.
Each non-employee director also received 17,000 shares of restricted stock as a part of the Company’s
annual stock incentive grants, in accordance with the provisions of the Navidea Biopharmaceuticals, Inc.
Third Amended and Restated 2002 Stock Incentive Plan. The restricted stock granted will vest on the
first anniversary of the date of grant. The aggregate number of equity awards outstanding at February
28, 2013 for each Director is set forth in the footnotes to the beneficial ownership table provided in Part
III, Item 12 of this Form 10-K. Directors who are also officers or employees of Neoprobe do not receive
any compensation for their services as directors.
87
The following table sets forth certain information concerning the compensation of non-employee Directors
for the fiscal year ended December 31, 2012.
(a)
Fees
Earned or
Paid in
Cash
$ 48,500
52,000
39,500
37,000
--
67,000
Name
Peter F. Drake, Ph.D.
Brendan A. Ford
Jess Emery Jones, M.D.
Eric K. Rowinsky, M.D.
Eric K. Rowinsky, M.D. (f)
Gordon A. Troup
(b),(c)
Option
Awards
$ --
--
--
21,311
--
(d),(e)
Stock
Awards
All Other
Compensation
Total
Compensation
$ 46,733
46,733
46,733
46,733
--
46,733
$ --
--
--
--
105,000
--
$ 95,233
98,733
86,233
83,733
126,311
113,733
(a) Amount represents fees earned during the fiscal year ended December 31, 2012 (i.e., the year to which the service relates).
Quarterly retainers and meeting attendance fees are paid during the quarter following the quarter in which they are earned.
(b) Amount represents the aggregate grant date fair value in accordance with FASB ASC Topic 718. Assumptions made in the
valuation of stock option awards are disclosed in Note 1(e) of the Notes to the Consolidated Financial Statements in this Form
10-K.
(c) At December 31, 2012, the non-employee directors held an aggregate of 93,764 options to purchase shares of common stock
of the Company. Dr. Rowinsky held 73,764 options and Mr. Troup held 20,000 options.
(d) Amount represents the aggregate grant date fair value in accordance with FASB ASC Topic 718. Assumptions made in the
valuation of restricted stock awards are disclosed in Note 1(e) of the Notes to the Consolidated Financial Statements in this
Form 10-K.
(e) During the year ended December 31, 2012, the non-employee directors were issued an aggregate of 85,000 shares of
restricted stock which vest as to 100% of the shares on the first anniversary of the date of grant. At December 31, 2012, the
non-employee directors held an aggregate of 260,000 shares of unvested restricted stock. Messrs. Ford and Troup and Dr.
Rowinsky each held 64,000 shares of unvested restricted stock, and Drs. Drake and Jones each held 34,000 shares of
unvested restricted stock.
In addition to his service as a Board member, Dr. Rowinsky provided services to the Company under a consulting agreement.
During the year ended December 31, 2012, Dr. Rowinsky earned a total of $105,000 in cash consulting fees, and was issued
13,764 options to purchase shares of common stock of the Company.
(f)
88
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Equity Compensation Plan Information
The following table sets forth additional information as of December 31, 2012, concerning shares of our
common stock that may be issued upon the exercise of options and other rights under our existing equity
compensation plans and arrangements, divided between plans approved by our stockholders and plans
or arrangements not submitted to our stockholders for approval. The information includes the number of
shares covered by, and the weighted average exercise price of, outstanding options and other rights and
the number of shares remaining available for future grants excluding the shares to be issued upon
exercise of outstanding options, warrants, and other rights.
(a)
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
(b)
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(c)
Number of
Securities
Remaining Available
for Issuance Under
Equity
Compensation Plans
(Excluding
Securities Reflected
in Column (a))
Equity compensation plans
approved by security holders(1)
Equity compensation plans not
approved by security holders
Total
3,412,777
$ 2.01
3,219,130
--
3,412,777
--
$ 2.01
--
3,219,130
(1) Our stockholders ratified the Fourth Amended and Restated 2002 Stock Incentive Plan (the Plan) at the 2012 Annual Meeting
of Stockholders held on August 14, 2012, which increased the total number of shares available for grant under the Plan to
12,000,000 shares.
89
Security Ownership of Principal Stockholders, Directors, Nominees and Executive Officers and
Related Stockholder Matters
The following table sets forth, as of February 28, 2013, certain information with respect to the beneficial
ownership of shares of our common stock by: (i) each person known to us to be the beneficial owner of
more than 5% of our outstanding shares of common stock, (ii) each director or nominee for director of our
Company, (iii) each of the Named Executive Officers (see “Executive Compensation – Summary
Compensation Table”), and (iv) our directors and executive officers as a group.
Beneficial Owner
Rodger A. Brown
Frederick O. Cope, Ph.D.
Peter F. Drake, Ph.D.
Brendan A. Ford
Jess Emery Jones, M.D.
Brent L. Larson
Mark J. Pykett, V.M.D., Ph.D.
Cornelia B. Reininger, M.D., Ph.D.
Eric K. Rowinsky, M.D.
Gordon A. Troup
Thomas H. Tulip, Ph.D.
All directors and executive officers as a group (12 persons)
Number of Shares
Beneficially Owned (*)
Percent
of Class (**)
365,471
228,811
27,000
72,000
17,000
777,250
270,432
--
165,764
97,000
96,690
2,158,418
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)(o)
(n)
(n)
(n)
(n)
(n)
(n)
(n)
(n)
(n)
(n)
(n)
1.9%
Platinum Montaur Life Sciences, LLC
10,728,324
(m)
9.4%
(*) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission which generally
attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with
respect to those securities. Unless otherwise indicated, voting and investment power are exercised solely by the person
named above or shared with members of such person’s household.
(**) Percent of class is calculated on the basis of the number of shares outstanding on February 17, 2012, plus the number of
shares the person has the right to acquire within 60 days of February 17, 2012.
(a) This amount includes 271,250 shares issuable upon exercise of options which are exercisable within 60 days, but it does not
include 45,000 shares of unvested restricted stock and 158,750 shares issuable upon exercise of options which are not
exercisable within 60 days. Mr. Brown was one of the Company’s three most highly compensated officers, other than the
Company’s Principal Executive Officer (PEO) and Principal Financial Officer (PFO), during the fiscal year ended December 31,
2012. However, as a result of management additions which occurred during 2012, Mr. Brown is not an executive officer for the
fiscal year ending December 31, 2013.
(b) This amount includes 216,750 shares issuable upon exercise of options which are exercisable within 60 days and 7,061 shares
in Dr. Cope’s account in the 401(k) Plan, but it does not include 175,000 shares of unvested restricted stock and 300,250
shares issuable upon exercise of options which are not exercisable within 60 days.
(c) This amount does not include 29,250 shares of unvested restricted stock.
(d) This amount does not include 59,250 shares of unvested restricted stock.
(e) This amount does not include 29,250 shares of unvested restricted stock.
(f) This amount includes 479,500 shares issuable upon exercise of options which are exercisable within 60 days and 97,625
shares in Mr. Larson’s account in the 401(k) Plan, but it does not include 125,000 shares of unvested restricted stock and
255,500 shares issuable upon exercise of options which are not exercisable within 60 days.
(g) This amount includes 195,834 shares issuable upon exercise of options which are exercisable within 60 days, 1,100 shares
held in an IRA which is owned by Dr. Pykett, and 1,198 shares in Dr. Pykett’s account in the 401(k) Plan, but it does not
include 550,000 shares of unvested restricted stock and 558,166 shares issuable upon exercise of options which are not
exercisable within 60 days.
(h) This amount does not include 208,000 shares issuable upon exercise of options which are not exercisable within 60 days. Dr.
Reininger was not a Named Executive Officer during the fiscal year ended December 31, 2012. However, Dr. Reininger is an
executive officer and the Company anticipates that Dr. Reininger will be a Named Executive Officer for 2013.
(i) This amount includes 73,764 shares issuable upon exercise of options which are exercisable within 60 days, but it does not
include 59,250 shares of unvested restricted stock.
(j) This amount includes 20,000 shares issuable upon exercise of options which are exercisable within 60 days, but it does not
include 59,250 shares of unvested restricted stock.
90
(k) This amount includes 68,250 shares issuable upon exercise of options which are exercisable within 60 days, but it does not
include 60,000 shares of unvested restricted stock and 378,750 shares issuable upon exercise of options which are not
exercisable within 60 days.
(l) This amount includes 1,366,348 shares issuable upon exercise of options which are exercisable within 60 days, 1,100 shares
that are held in an IRA owned by Dr. Pykett, and 106,824 shares held in the 401(k) Plan on behalf of certain officers, but it
does not include 1,211,250 shares of unvested restricted stock and 2,022,416 shares issuable upon the exercise of options
which are not exercisable within 60 days. The Company itself is the trustee of the Navidea Biopharmaceuticals, Inc. 401(k)
Plan and may, as such, share investment power over common stock held in such plan. The trustee disclaims any beneficial
ownership of shares held by the 401(k) Plan. The 401(k) Plan holds an aggregate total of 661,461 shares of common stock.
The 12 persons referenced in this disclosure include each director and named executive officer listed in the table.
(m) Based on information filed on Schedule 13G with the Securities and Exchange Commission as of December 31, 2012. The
number of shares beneficially owned by Platinum-Montaur Life Sciences, LLC (Montaur), 152 W. 57th Street, 54th Floor, New
York, NY 10019, does not include 22,687,260 shares of common stock issuable upon conversion of 6,938 shares of Series B
Convertible Preferred Stock, 8,333,333 shares of common stock issuable upon exercise of a Series X Warrant issued to
Montaur on April 16, 2008 (the Series X Warrant), and 2,400,000 shares of common stock issuable upon exercise of a Series
AA Warrant issued to Montaur on July 24, 2009 (the Series AA Warrant). The Certificates of Designation of the Preferred
Stock, the Series X Warrant and the Series AA Warrant each provide that the holder of shares of the Preferred Stock, the
Series X Warrant and the Series AA Warrant, respectively, may not convert any of the preferred stock or exercise any of the
warrants to the extent that such conversion or exercise would result in the holder and its affiliates together beneficially owning
more than 9.99% of the outstanding shares of common stock, except on 61 days’ prior written notice to Navidea that the holder
waives such limitation.
(n) Less than one percent.
(o) The address of all directors and executive officers is c/o Navidea Biopharmaceuticals, Inc., 425 Metro Place North, Suite 450,
Dublin, Ohio 43017-1367.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
We adhere to our Code of Business Conduct and Ethics, which states that no director, officer or
employee of Navidea should have any personal interest that is incompatible with the loyalty and
responsibility owed to our Company. We do not currently have a written policy regarding related party
transactions. When considering whether to enter into a related party transaction, the Board considers a
variety of factors including, but not limited to, the nature and type of the proposed transaction, the
potential value of the proposed transaction, the impact on the actual or perceived independence of the
related party and the potential value to the Company of entering into such a transaction. All proposed
transactions with a potential value of greater than $120,000 are approved by the Board.
In August 2010, we entered into a Consulting Agreement with Eric K. Rowinsky, M.D. for services related
to the development and regulatory strategies regarding Lymphoseek and RIGS, as well as business
development assessments and transactions. Dr. Rowinsky’s Consulting Agreement was renewed in
August 2011, and renewed again in August 2012. During 2012, we paid Dr. Rowinsky a total of $105,000
in cash consulting fees, and issued 13,764 options to purchase shares of common stock of the Company.
In September 2012, 30,000 shares of restricted stock that were originally issued related to the August
2011 consulting agreement renewal vested as a result of the Company’s commencement of the Phase 2
clinical study of its NAV4694 product candidate.
Director Independence
Our Board of Directors has adopted the definition of “independence” as described under the Sarbanes-
Oxley Act of 2002 (Sarbanes-Oxley) Section 301, Rule 10A-3 under the Securities Exchange Act of 1934
(the Exchange Act) and Section 803A of the NYSE MKT Company Guide. Our Board of Directors has
determined that Messrs. Ford and Troup, and Drs. Drake and Jones, meet the independence
requirements.
91
Item 14. Principal Accountant Fees and Services
Audit Fees. The aggregate fees billed and expected to be billed for professional services rendered by
BDO USA, LLP for the audit of the Company’s annual consolidated financial statements for the 2012
fiscal year, the audit of the Company’s internal control over financial reporting as of December 31, 2012,
the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for the
2012 fiscal year, consents related to the Company’s registration statements filed during the 2012 fiscal
year, and consulting services related to certain debt and equity instruments during the 2012 fiscal year
were $264,790 (including direct engagement expenses). The aggregate fees billed and expected to be
billed for professional services rendered by BDO USA, LLP for the audit of the Company’s annual
consolidated financial statements for the 2011 fiscal year, the audit of the Company’s internal control over
financial reporting as of December 31, 2011, the reviews of the financial statements included in the
Company’s Quarterly Reports on Form 10-Q for the 2011 fiscal year, consents related to the Company’s
registration statements filed during the 2011 fiscal year, and consulting services related to the Company’s
sale of the GDS Business during the 2011 fiscal year were $256,617 (including direct engagement
expenses).
Audit-Related Fees. No fees were billed by BDO USA, LLP for audit-related services for the 2012 or
2011 fiscal years.
Tax Fees. The aggregate fees billed and expected to be billed for tax-related services rendered by BDO
USA, LLP for the IRC Section 382 study and the review of the Company’s tax returns for the 2011 tax
year during the 2012 fiscal year were $24,800 (including direct engagement expenses). The aggregate
fees billed and expected to be billed for tax-related services rendered by BDO USA, LLP for the IRC
Section 382 study and the review of the Company’s tax returns for the 2010 tax year during the 2011
fiscal year were $29,285 (including direct engagement expenses).
All Other Fees. No fees were billed by BDO USA, LLP for services other than the audit, audit-related
and tax services for the 2012 or 2011 fiscal years.
Pre-Approval Policy. The Audit Committee is required to pre-approve all auditing services and
permitted non-audit services (including the fees and terms thereof) to be performed for the Company by
its independent auditor or other registered public accounting firm, subject to the de minimis exceptions for
permitted non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934
that are approved by the Audit Committee prior to completion of the audit. The Audit Committee, through
the function of the Chairman, has given general pre-approval for 100% of specified audit, audit-related,
tax and other services.
92
PART IV
Item 15. Exhibits, Financial Statement Schedules
Exhibit
Number
Exhibit Description
3.1
3.2
3.3
4.1
4.2
Amended and Restated Certificate of Incorporation of Navidea Biopharmaceuticals, Inc., as
corrected February 18, 1994, and amended June 27, 1994, July 25, 1995, June 3, 1996,
March 17, 1999, May 9, 2000, June 13, 2003, July 29, 2004, June 22, 2005, November 20,
2006, December 26, 2007, April 30, 2009, July 27, 2009, August 2, 2010, and January 5,
2012)(incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-
K filed March 7, 2012, and incorporated herein by reference).
Certificate of Ownership Merging Neoprobe Name Change, Inc. into Neoprobe Corporation,
effective January 5, 2012, as filed with the Delaware Secretary of State (filed as Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed December 21, 2011, and incorporated
herein by reference).
Amended and Restated By-Laws dated July 21, 1993, as amended July 18, 1995, May 30,
1996 and July 26, 2007 (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K
filed August 3, 2007, and incorporated herein by reference).
Certificate of Designations, Voting Powers, Preferences, Limitations, Restrictions, and
Relative Rights of Series B Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 28, 2010).
Certificate of Designations, Voting Powers, Preferences, Limitations, Restrictions, and
Relative Rights of Series C 10% Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed June 28, 2010).
10.1 Navidea Biopharmaceuticals, Inc. Fourth Amended and Restated 2002 Stock Incentive Plan
(incorporated by reference to Appendix A to the Definitive Proxy Statement for the
Company’s 2012 Annual Meeting of Stockholders, filed July 10, 2012).
10.2 Form of Stock Option Agreement under the Navidea Biopharmaceuticals, Inc. Fourth
Amended and Restated 2002 Stock Incentive Plan (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed December 21, 2006).
10.3 Form of Restricted Stock Award and Agreement under the Fourth Amended and Restated
2002 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed January 9, 2008).
10.4
Form of Employment Agreement between the Company and each of Dr. Frederick O. Cope
and Mr. Brent L. Larson. This agreement is one of two substantially identical employment
agreements and is accompanied by a schedule which identifies material details in which each
individual agreement differs from the form filed herewith (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed January 7, 2013).
10.5
Schedule identifying material differences between the employment agreements incorporated
by reference as Exhibit 10.4 to this Annual Report on Form 10-K (incorporated by reference
to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 7, 2013).
93
10.6
Employment Agreement, effective April 15, 2011, by and between the Company and Mark J.
Pykett (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form
8-K filed April 1, 2011).
10.7 Relocation Agreement, dated March 30, 2011, by and between the Company and Mark J.
Pykett (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form
8-K filed April 1, 2011).
10.8
10.9
Employment Agreement, dated June 1 2012, between the Company and Thomas H. Tulip,
Ph.D (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed June 7, 2012).
Employment Agreement, effective November 1, 2012, between the Company and Cornelia
Reininger, M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed September 6, 2012).
10.10 Separation Agreement and Release, dated March 30, 2011, between the Company and
David C. Bupp (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed April 1, 2011).
10.11 Consulting Agreement, dated March 30, 2011, between the Company and David C. Bupp
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
April 1, 2011).
10.12 Consulting Services Agreement, dated August 3, 2011, between the Company and Eric K.
Rowinsky, M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed August 4, 2011).
10.13 Consulting Services Agreement, dated August 27, 2012, between the Company and Eric K.
Rowinsky, M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed August 30, 2012).
10.14 Navidea Biopharmaceuticals, Inc. 2012 Cash Bonus Plan (incorporated by reference to the
Company’s Current Report on Form 8-K filed April 13, 2012).
10.15 Navidea Biopharmaceuticals, Inc. 2013 Cash Bonus Plan (incorporated by reference to the
Company’s Current Report on Form 8-K filed February 27, 2013).
10.16 Technology Transfer Agreement, dated July 29, 1992, between the Company and The Dow
Chemical Corporation (portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Commission) (incorporated by
reference to Exhibit 10.10 to the Company’s Form S-1 filed October 15, 1992).
10.17 Cooperative Research and Development Agreement between the Company and the National
Cancer Institute (incorporated by reference to Exhibit 10.3.31 to the Company’s September
30, 1995, Form 10–QSB).
10.18 License, dated May 1, 1996, between the Company and The Dow Chemical Company
(incorporated by reference to Exhibit 10.3.45 to the Company’s June 30, 1996, Form 10–
QSB).
10.19 License Agreement, dated May 1, 1996, between the Company and The Dow Chemical
Company (portions of this Exhibit have been omitted pursuant to a request for confidential
treatment and have been filed separately with the Commission) (incorporated by reference to
Exhibit 10.3.46 to the Company’s June 30, 1996, Form 10–QSB).
94
10.20 License Agreement, dated January 30, 2002, between the Company and the Regents of the
University of California, San Diego, as amended on May 27, 2003 and February 1, 2006
(portions of this Exhibit have been omitted pursuant to a request for confidential treatment
and have been filed separately with the Commission) (incorporated by reference to Exhibit
10.11 to the Company’s Annual Report on Form 10-KSB filed March 31, 2006).
10.21 Evaluation License Agreement, dated March 31, 2005, between the Company and the
Regents of the University of California, San Diego (portions of this Exhibit have been omitted
pursuant to a request for confidential treatment and have been filed separately with the
Commission) (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on
Form 10-KSB filed March 31, 2006).
10.22 Product Supply Agreement between the Company and TriVirix International, Inc., dated
February 5, 2004 (portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Commission) (incorporated by
reference to Exhibit 10.17 to the Company’s December 31, 2004 Form 10-KSB).
10.23 Supply and Distribution Agreement, dated November 15, 2007, between the Company and
Cardinal Health 414, LLC (portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Commission) (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 21,
2007).
10.24 Manufacture and Supply Agreement, dated November 30, 2009, between the Company and
Reliable Biopharmaceutical Corporation (portions of this Exhibit have been omitted pursuant
to a request for confidential treatment and have been filed separately with the Commission)
(incorporated by reference to Exhibit 10.1 to the Company’s June 30, 2010 Form 10-Q).
10.25 Sublicense Agreement, dated July 31, 2012, between Alseres Pharmaceuticals, Inc. and the
Company (portions of this Exhibit have been omitted pursuant to a request for confidential
treatment and have been filed separately with the United States Securities and Exchange
Commission)(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed August 6, 2012).
10.26 Registration Rights Agreement, dated July 31, 2012, between the Company and Alseres
Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K filed August 6, 2012).
10.27 Securities Purchase Agreement, dated as of December 26, 2007, between the Company and
Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed January 2, 2008).
10.28 Amendment and Waiver for Securities Purchase Agreement, dated April 16, 2008, between
the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed April 18, 2008).
10.29 Agreement Modifying the Interest and Dividend Payment Dates of the Company’s Series A
and B Promissory Notes and Series A Preferred Stock, and Exercise and Conversion Price
Adjustment Provisions of the Company’s Series X and Y Warrants and Series A Preferred
Stock, dated March 31, 2009, between the Company and Platinum-Montaur Life Sciences,
LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed April 6, 2009).
95
10.30 Securities Amendment and Exchange Agreement, dated July 24, 2009, between the
Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed July 29, 2009).
10.31 Amended and Restated Series X Warrant to Purchase Shares of Common Stock of the
Company issued to Platinum-Montaur Life Sciences, LLC (incorporated by reference to
Exhibit 10.5 to the Company’s Current Report on Form 8-K filed July 29, 2009).
10.32 Amendment to Series X Warrant, dated December 13, 2012, between the Company and
Platinum Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed December 19, 2012).
10.33 Wavier of Automatic Conversion of Series B Convertible Preferred Stock, dated December
13, 2012, by and among the Company, Platinum Montaur Life Sciences, LLC, and Platinum
Partners Value Arbitrage Fund, L.P. (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed December 19, 2012).
10.34 Series AA Warrant to Purchase Shares of Common Stock of the Company issued to
Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.7 to the
Company’s Current Report on Form 8-K filed July 29, 2009).
10.35 Registration Rights Agreement, dated December 26, 2007, between the Company and
Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.7 to the
Company’s Current Report on Form 8-K filed January 2, 2008).
10.36 Second Amendment to Registration Rights Agreement, dated April 16, 2008, between the
Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit
10.2 to the Company’s Current Report on Form 8-K filed April 18, 2008).
10.37 Third Amendment to Registration Rights Agreement, dated July 10, 2008, between the
Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit
10.55 to pre-effective amendment No. 2 to the Company’s Registration Statement on Form
S-1, filed July 24, 2008, Registration file No. 333-150650).
10.38 Fourth Amendment to Registration Rights Agreement, dated December 5, 2008, between the
Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed December 9, 2008).
10.39 Fifth Amendment to Registration Rights Agreement, dated December 21, 2009, between the
Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed December 22, 2009).
10.40 Securities Exchange Agreement, dated June 22, 2010, by and between the Company and
Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed June 28, 2010).
10.41 Settlement Agreement, dated April 18, 2011, by and among Platinum-Montaur Life Sciences,
LLC, Platinum Partners Value Arbitrage Fund, L.P. and the Company (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 18, 2011).
10.42 Loan Agreement, dated July 25, 2012, between the Company and Platinum-Montaur Life
Sciences LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed July 31, 2012).
96
10.43 Promissory Note, dated July 25, 2012, made by Navidea Biopharmaceuticals, Inc. in favor of
Platinum-Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed July 31, 2012).
10.44 Securities Exchange Agreement, dated November 27, 2012, between the Company and
Platinum Partners Value Arbitrage Fund, L.P. (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed December 3, 2012).
10.45 Securities Purchase Agreement, dated November 7, 2010, by and among the Company and
each purchaser identified on the signature pages thereto (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 12, 2010).
10.46 Form of Series EE Common Stock Purchase Warrant (incorporated by reference to Exhibit
10.4 to the Company’s Current Report on Form 8-K filed November 12, 2010).
10.47 Underwriting Agreement, dated January 29, 2013, between the Company and Ladenburg
Thalmann & Co. Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed January 31, 2013).
10.48 Asset Purchase Agreement, dated May 24, 2011, between Devicor Medical Products, Inc.
and the Company (portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the SEC) (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed July 19,
2011).
10.49 License Agreement, dated December 9, 2011, between AstraZeneca AB and the Company
(portions of this Exhibit have been omitted pursuant to a request for confidential treatment
and have been filed separately with the United States Securities and Exchange Commission)
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A
filed April 11, 2012).
10.50 Loan and Security Agreement, dated December 29, 2011, between the Company and
Hercules Technology II, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed January 5, 2012).
10.51 Series GG Warrant to Purchase Common Stock of the Company issued to Hercules
Technology II, L.P. on December 29, 2011 (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed January 5, 2012).
21.1
Subsidiaries of the registrant.*
23.1 Consent of BDO USA, LLP.*
24.1
Power of Attorney.*
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
32.1 Certification of Chief Executive Officer of Periodic Financial Reports pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.*
97
32.2 Certification of Chief Financial Officer of Periodic Financial Reports pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.*
101.INS
XBRL Instance Document **
101.SCH
XBRL Taxonomy Extension Schema Document **
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document **
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document **
101.LAB
XBRL Taxonomy Extension Label Linkbase Document **
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document **
*
Filed herewith.
** Furnished herewith.
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 18, 2013
NAVIDEA BIOPHARMACEUTICALS, INC.
(the Company)
By:
/s/ Mark J. Pykett
Mark J. Pykett
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Mark J. Pykett
Mark J. Pykett
/s/ Brent L. Larson*
Brent L. Larson
/s/ Gordon A. Troup*
Gordon A. Troup
/s/ Peter F. Drake*
Peter F. Drake
/s/ Brendan A. Ford*
Brendan A. Ford
/s/ Jess Emery Jones*
Jess Emery Jones
/s/ Eric K. Rowinsky*
Eric K. Rowinsky
*By:
Mark J. Pykett, Attorney-in-fact
/s/ Mark J. Pykett
Director, President and
Chief Executive Officer
(principal executive officer)
Senior Vice President and
Chief Financial Officer
(principal financial officer)
March 18, 2013
March 18, 2013
Chairman, Director
March 18, 2013
March 18, 2013
March 18, 2013
March 18, 2013
March 18, 2013
Director
Director
Director
Director
99
_________________________________________________________________________
_________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________________
NAVIDEA BIOPHARMACEUTICALS, INC.
________________________
FORM 10-K ANNUAL REPORT
As of December 31, 2012 and 2011
and for Each of the
Three Years in the Period Ended
December 31, 2012
____________________________
FINANCIAL STATEMENTS
____________________________
_________________________________________________________________________________
_________________________________________________________________________________
NAVIDEA BIOPHARMACEUTICALS, INC. and SUBSIDIARIES
Index to Financial Statements
Consolidated Financial Statements of Navidea Biopharmaceuticals, Inc.
Report of Independent Registered Public Accounting Firm
BDO USA, LLP
Consolidated Balance Sheets as of
December 31, 2012 and 2011
Consolidated Statements of Operations for the years ended
December 31, 2012, 2011 and 2010
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended
December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended
December 31, 2012, 2011 and 2010
Notes to the Consolidated Financial Statements
F-2
F-3
F-5
F-6
F-7
F-8
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors
Navidea Biopharmaceuticals, Inc.
Dublin, Ohio
We have audited the accompanying consolidated balance sheets of Navidea Biopharmaceuticals, Inc. as of
December 31, 2012 and 2011 and the related consolidated statements of operations, stockholders’ equity
(deficit) and cash flows for each of the three years in the period ended December 31, 2012. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Navidea Biopharmaceuticals, Inc. at December 31, 2012 and 2011, and the results of
its operations and cash flows for each of the three years in the period ended December 31, 2012, in conformity
with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Navidea Biopharmaceuticals, Inc.’s internal control over financial reporting as of December
31, 2012, based on criteria established in Internal Control(cid:237)Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 18, 2013
expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Chicago, Illinois
March 18, 2013
F-2
Navidea Biopharmaceuticals, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
Current assets:
Cash
Accounts receivable
Inventory
Prepaid expenses and other
Total current assets
Property and equipment
Less accumulated depreciation and amortization
Patents and trademarks
Less accumulated amortization
Deferred debt issuance costs and other
December 31,
2012
December 31,
2011
$ 9,118,564
17,605
297,500
1,183,714
$ 28,644,004
15,794
821,549
565,174
10,617,383
30,046,521
2,026,895
1,092,317
1,441,229
977,960
934,578
115,053
22,571
92,482
327,954
463,269
106,592
21,171
85,421
598,709
Total assets
$ 11,972,397
$ 31,193,920
Continued
F-3
Navidea Biopharmaceuticals, Inc. and Subsidiaries
Consolidated Balance Sheets, continued
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable
Accrued liabilities and other
Notes payable, current, net of discount of $202,287
Derivative liabilities
December 31,
2012
December 31,
2011
$ 1,417,463
2,016,358
2,756,718
--
$ 681,754
2,097,786
--
568,930
Total current liabilities
6,190,539
3,348,470
Notes payable, net of discounts of $93,038 and $543,612, respectively
Other liabilities
6,930,112
257,122
6,456,388
257,315
Total liabilities
Commitments and contingencies
Stockholders’ (deficit) equity:
Preferred stock; $.001 par value; 5,000,000 shares authorized;
6,938 and 9,083 Series B shares, and 0 and 1,000 Series C shares,
issued and outstanding at December 31, 2012 and 2011, respectively
Common stock; $.001 par value; 200,000,000 shares authorized;
113,018,772 and 95,398,961 shares issued and outstanding
at December 31, 2012 and 2011, respectively
Additional paid-in capital
Accumulated deficit
13,377,773
10,062,173
7
10
113,019
273,039,442
(274,557,844)
95,399
266,393,645
(245,357,307)
Total stockholders’ (deficit) equity
(1,405,376)
21,131,747
Total liabilities and stockholders’ (deficit) equity
$ 11,972,397
$ 31,193,920
See accompanying notes to consolidated financial statements.
F-4
Navidea Biopharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31,
2012
2011
2010
Revenue
$ 78,738
$ 597,729
$ 617,392
Operating expenses:
Research and development
Selling, general and administrative
Total operating expenses
16,890,482
11,177,559
28,068,041
15,154,365
9,547,779
24,702,144
8,941,046
4,353,136
13,294,182
Loss from operations
(27,989,303)
(24,104,415)
(12,676,790)
Other income (expense):
Interest income
Interest expense
Change in derivative liabilities
Loss on extinguishment of debt
Other
Total other expense, net
Loss before income taxes
Benefit from income taxes
25,044
(1,166,332)
32,110
--
(58,723)
(1,167,901)
25,755
(13,330)
(952,375)
--
(3,211)
(943,161)
8,804
(554,988)
(1,336,234)
(41,717,380)
32,594
(43,567,204)
(29,157,204)
(25,047,576)
(56,243,994)
--
7,880,143
2,134,903
Loss from continuing operations
(29,157,204)
(17,167,433)
(54,109,091)
Discontinued operations, net of tax effect:
Gain on sale – GDS Business
Income from operations
--
--
19,450,891
3,329,534
--
4,144,223
Net (loss) income
(29,157,204)
5,612,992
(49,964,868)
Preferred stock dividends
(43,333)
(100,000)
(8,206,745)
Net (loss) income attributable to common stockholders
$ (29,200,537)
$ 5,512,992
$ (58,171,613)
(Loss) income per common share (basic and diluted):
Continuing operations
Discontinued operations
Attributable to common stockholders
$ (0.29)
$ --
$ (0.29)
$ (0.17)
$ 0.23
$ 0.06
$ (0.77)
$ 0.05
$ (0.72)
Weighted average shares outstanding:
Basic and diluted
99,059,997
90,509,326
80,726,498
See accompanying notes to consolidated financial statements.
F-5
Navidea Biopharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Deficit
Total
Balance, December 31, 2009
--
$ --
80,936,711
$ 80,937
$ 182,747,897
$ (192,698,686)
$ (9,869,852)
Issued stock in payment of interest on
convertible debt and dividends on
convertible preferred stock
Issued stock upon exercise of
stock options, net
Issued stock in connection with stock
purchase agreement, net of costs
Issued stock to 401(k) plan
Issued Series B and Series C
convertible preferred stock,
net of costs
Cancelled restricted stock
Issued restricted stock
Issued warrants in connection with
consulting agreement
Issued stock upon exercise of
warrants and other
Issued common stock and warrants in
connection with direct offering,
net of costs
Effect of change in terms of warrants
Stock compensation expense
Preferred stock dividends, including
deemed dividends
Net loss
--
--
--
--
11,000
--
--
--
--
--
--
--
--
--
--
--
--
--
11
--
--
--
--
--
--
--
--
--
347,832
350,156
660,541
53,499
--
(4,500)
660,000
--
157,778
3,157,896
--
--
--
--
348
350
661
53
--
(5)
660
--
158
3,158
--
--
--
--
476,319
(64,055)
776,797
40,570
64,636,810
5
--
279,367
316,660
4,306,793
800,878
597,672
--
--
--
--
--
--
--
--
--
--
--
--
476,667
(63,705)
777,458
40,623
64,636,821
--
660
279,367
316,818
4,309,951
800,878
597,672
--
--
(8,206,745)
(49,964,868)
(8,206,745)
(49,964,868)
Balance, December 31, 2010
11,000
11
86,319,913
86,320
254,915,713
(250,870,299)
4,131,745
Issued restricted stock
Cancelled restricted stock
Issued stock to 401(k) plan
Issued stock upon exercise of
warrants, net
Issued stock upon exercise of
stock options, net
Effect of change in terms of warrants
Conversion of Series B preferred
stock to common stock
Effect of beneficial conversion feature
of promissory note
Stock compensation expense
Preferred stock dividends
Net income
--
--
--
--
--
--
--
--
--
--
--
--
872,000
(686,000)
35,233
4,026,552
1,832,673
--
(917)
(1)
2,998,590
--
--
--
--
--
--
--
--
--
--
--
--
872
(686)
35
4,027
1,832
--
2,999
--
--
--
--
--
90
61,936
8,323,163
(2,500,055)
1,978,818
(2,998)
24,888
3,592,090
--
--
--
--
--
--
--
--
--
--
--
(100,000)
5,612,992
872
(596)
61,971
8,327,190
(2,498,223)
1,978,818
--
24,888
3,592,090
(100,000)
5,612,992
Balance, December 31, 2011
10,083
10
95,398,961
95,399
266,393,645
(245,357,307)
21,131,747
Issued restricted stock
Cancelled restricted stock
Issued stock upon exercise of
stock options, net
Cancelled stock upon repurchase
from executives
Issued stock to 401(k) plan
Issued stock upon exercise
of warrants, net
Conversion of Series B preferred
stock to common stock, net
Conversion of Series C preferred
stock to common stock
Issued stock for payment of
sublicense fee
Effect of change in terms of warrants
Short-swing profit returned to
the Company
Stock compensation expense
Preferred stock dividends
Net loss
--
--
--
--
--
--
(2,145)
(1,000)
--
--
--
--
--
--
--
--
--
--
--
--
(2)
(1)
--
--
--
--
--
--
455,000
(600,500)
1,225,271
(37,500)
17,390
6,020,000
7,014,150
3,226,000
300,000
--
--
--
--
--
455
(601)
1,226
(37)
17
6,020
7,014
3,226
300
--
--
--
--
--
--
5
742,069
(100,838)
50,255
1,972,581
(7,012)
(3,225)
1,145,700
496,671
45,473
2,304,118
--
--
--
--
--
--
--
--
--
--
--
--
--
--
(43,333)
(29,157,204)
455
(596)
743,295
(100,875)
50,272
1,978,601
--
--
1,146,000
496,671
45,473
2,304,118
(43,333)
(29,157,204)
Balance, December 31, 2012
6,938
$ 7
113,018,772
$ 113,019
$ 273,039,442
$ (274,557,844)
$ (1,405,376)
See accompanying notes to consolidated financial statements.
F-6
Navidea Biopharmaceuticals, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization of equipment
Amortization of intangible assets
Loss on disposal and abandonment of assets
Amortization of debt discount and
debt offering costs
Issuance of common stock in payment of
interest and dividends
Stock compensation expense
Change in derivative liabilities
Loss on extinguishment of debt
Issuance of warrants in connection with
consulting agreement
Gain on sale of GDS Business, before income tax
Issuance of common stock for payment of
sublicense fee
Other
Change in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable
Accrued liabilities and other liabilities
Deferred revenue
Net cash used in operating activities
Cash flows from investing activities:
Purchases of equipment
Proceeds from sales of equipment
Proceeds from sale of GDS Business
Payments of costs to sell GDS Business
Patent and trademark costs
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock, net
Payment for common stock repurchased
from executives
Payment of tax withholdings related to
stock-based compensation
Payment of stock issuance costs
Payment of preferred stock dividends
Proceeds from notes payable
Payment of debt issuance costs
Principal payments on notes payable
Payments under capital leases
Net cash provided by financing activities
Net (decrease) increase in cash
Cash, beginning of year
Years Ended December 31,
2012
2011
2010
$ (29,157,204)
$ 5,612,992
$ (49,964,868)
198,822
1,400
2,534
544,517
--
2,304,118
(32,110)
--
175,296
1,248
18,645
3,805
--
3,592,090
952,375
--
--
--
--
(26,173,805)
1,146,000
61,928
6,499
524,049
(385,125)
736,109
125,144
--
(23,923,319)
(663,348)
--
--
--
(8,460)
(671,808)
--
61,971
(219,021)
(53,289)
(40,204)
(538,666)
487,055
109,503
(16,010,005)
(183,830)
1,000
30,159,527
(2,765,932)
(52,504)
27,158,261
215,462
7,998
7,476
16,109
476,667
597,672
1,336,234
41,717,380
279,367
--
--
40,623
(707,914)
(381,382)
39,232
759,411
157,899
232,866
(5,169,768)
(366,629)
--
--
--
(32,111)
(398,740)
2,724,189
7,198,373
7,092,163
(100,875)
(8,765)
--
(100,000)
4,000,000
(153,949)
(1,285,046)
(5,867)
5,069,687
(19,525,440)
28,644,004
--
--
(2,762,710)
--
(100,000)
7,000,000
(189,390)
(62,411)
(8,620)
11,075,242
22,223,498
6,420,506
(133,153)
(478,111)
(111,389)
--
--
(8,710)
(11,628)
6,349,172
780,664
5,639,842
Cash, end of year
$ 9,118,564
$ 28,644,004
$ 6,420,506
See accompanying notes to consolidated financial statements.
F-7
Notes to the Consolidated 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, is a biopharmaceutical company focused on the development and
commercialization of precision diagnostics and radiopharmaceutical agents. Lymphoseek®
(technetium Tc 99m tilmanocept) Injection, is a novel, receptor-targeted, small-molecule,
investigational radiopharmaceutical used in lymphatic mapping procedures that are performed to help
stage breast cancer and melanoma. Lymphoseek is designed to identify the lymph nodes that drain
from a primary tumor, which have the highest probability of harboring cancer. As discussed in Note
20(a), Subsequent Events, Lymphoseek was approved by the FDA on March 13, 2013. In addition,
we are currently developing three other radiopharmaceutical agent platforms. The first, NAV4694, is
an F-18 radiolabeled positron emission tomography (PET) imaging agent being developed as an aid in
the diagnosis of patients with signs or symptoms of cognitive impairment such as Alzheimer’s disease
(AD). The second, NAV5001 (E-IACFT), is an Iodine-123 radiolabeled single photon emission
computed tomography (SPECT) imaging agent being developed as an aid in the diagnosis of
Parkinson’s disease and other movement disorders, with potential use as a diagnostic aid in dementia.
The third, RIGScanTM, is a radiolabeled monoclonal antibody being developed as a diagnostic aid for
use during surgery to help surgeons locate occult or metastatic cancer, with a primary focus on
colorectal cancer. These drug products are still in development and must be cleared for marketing by
the appropriate regulatory authorities before they can be sold in any markets.
Prior to August 2011, we also manufactured a line of gamma radiation detection equipment used in
the application of sentinel lymph node biopsy (SLNB). From July 2010 through August 2011, our
gamma detection device products were marketed throughout most of the world through a distribution
arrangement with Devicor Medical Products, Inc. (Devicor). Prior to July 2010, our gamma detection
device products were marketed through a distribution arrangement with Ethicon Endo-Surgery, Inc.
(EES), a Johnson & Johnson company. In July 2010, Devicor acquired EES’ breast biopsy business,
including an assignment of the distribution agreement with the Company. As disclosed in Note 2, we
sold our gamma detection device line of business (the GDS Business) to Devicor in August 2011.
Prior to the disposal of the GDS Business, 96% of net sales were made to Devicor or EES for the
years ended December 31, 2011 and 2010.
In 2005 we formed a new corporation, Cira Biosciences, Inc. (Cira Bio), to explore the development of
patient-specific cellular therapies that have shown positive patient responses in a variety of clinical
settings. Cira Bio was formed to combine our activated cellular therapy (ACT) technology for patient-
specific oncology treatment with similar technology licensed from Cira LLC, a privately held company,
for treating viral and autoimmune diseases. Navidea owns approximately 90% of the outstanding
shares of Cira Bio with the remaining shares being held by the principals of Cira LLC. However, ACT
is no longer under active development by Navidea.
In July 2011, we established a European business unit, Navidea Biopharmaceuticals Limited, to
address international development and commercialization needs for our technologies, including
Lymphoseek. Navidea owns 100% of the outstanding shares of Navidea Biopharmaceuticals Limited.
b. Principles of Consolidation: Our consolidated financial statements include the accounts of Navidea,
our wholly-owned subsidiary, Cardiosonix, and our majority-owned subsidiary, Cira Bio. All significant
inter-company accounts were eliminated in consolidation.
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.
F-8
Notes to the Consolidated Financial Statements
d. Financial Instruments and Fair Value: 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, accounts receivable, accounts payable, and accrued liabilities: The carrying amounts
approximate fair value because of the short maturity of these instruments.
(2) Notes payable: The carrying value of our debt at December 31, 2012 is presented as the face
amount of the notes less unamortized discounts. The estimated fair value of our debt was
calculated using a discounted cash flow analysis, which includes Level 3 inputs such as the
estimated current market interest rate for similar instruments with similar creditworthiness. At
December 31, 2012, the fair value of our notes payable is approximately $9.7 million, which
approximates face value. See Note 11.
(3) Derivative liabilities: Derivative liabilities are related to certain outstanding warrants which are
recorded at fair value. The assumptions used to calculate fair value as of December 31, 2011
include volatility, 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 derivative liabilities in the statements of
operations. See Note 12.
e. Stock-Based Compensation: At December 31, 2012, we have instruments outstanding under two
stock-based compensation plans; the 1996 Stock Incentive Plan (the 1996 Plan) and the Fourth
Amended and Restated 2002 Stock Incentive Plan (the 2002 Plan). Currently, under the 2002 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 1.5 million shares
and 12 million shares, respectively. Although instruments are still outstanding under the 1996 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 day prior
to the date of the grant.
Stock options granted under the 1996 Plan and the 2002 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 90 days from 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.
F-9
Notes to the Consolidated Financial Statements
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 for the years ended December 31, 2012, 2011 and
2010 are noted in the following table:
Expected volatility
Weighted-average volatility
Expected dividends
Expected term (in years)
Risk-free rate
2012
63%-72%
65%
--
5.0-6.3
0.6%-1.2%
2011
64%-71%
69%
--
5.3-6.3
1.3%-2.4%
2010
61%-68%
66%
--
6.0-6.3
1.7%-2.4%
Compensation cost arising from stock-based awards is recognized as expense over either (1) the
requisite service period or (2) the estimated performance period. The 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 they may vest 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. 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. The Company held no cash equivalents at
December 31, 2012 or 2011.
g.
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.
From time to time, we capitalize certain inventory costs associated with our products prior to regulatory
approval and product launch based on management’s judgment of probable future commercial use
and net realizable value of the inventory. We could be required to permanently write down previously
capitalized costs related to pre-approval or pre-launch inventory upon a change in such judgment, due
to a denial or delay of approval by regulatory bodies, a delay in commercialization, slower than
expected sales, or other potential factors. Conversely, our gross margins may be favorably impacted
if some or all of the inventory previously expensed becomes available and is used for commercial sale.
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, historical and estimated
future sales and production rates, and estimated shelf lives. As discussed in Note 20(a), Subsequent
Events, Lymphoseek was approved by the FDA on March 13, 2013. See Note 6.
h. Property and Equipment: Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over the estimated useful
lives of the depreciable assets ranging from 3 to 7 years, and includes amortization related to
equipment under capital leases, which is amortized 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 7.
i.
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
F-10
Notes to the Consolidated Financial Statements
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.
j.
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. Assets to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. See Note 7.
k. Deferred Debt Issuance Costs: We defer costs associated with the issuance of notes payable and
amortize those costs over the period of the notes using the effective interest method. In 2011, we
incurred $593,000 of debt issuance costs related to notes payable. During 2012, 2011 and 2010, we
recorded amortization of $296,000, $2,000 and $4,000, respectively, of deferred debt issuance costs.
Other assets at December 31, 2012 and 2011 include net deferred debt issuance costs of $295,000
and $591,000, respectively. See Note 11.
l. 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. See Note 12.
m. Revenue Recognition: We currently generate revenue primarily from grants to support various
product development initiatives. We generally recognize grant revenue when expenses reimbursable
under the grants have been incurred and payments under the grants become contractually due. We
also recognize revenue from the reimbursement by our partners of certain expenditures for which the
Company has principal responsibility.
n. Research and Development Costs: All costs related to research and development activities are
expensed as incurred.
o.
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, 2012
and 2011.
Estimated tax liabilities of $6.7 million related to the gain on the sale of discontinued operations and
$1.2 million related to income from discontinued operations were fully offset by an estimated tax
benefit of $7.9 million related to the loss from continuing operations during 2011. Estimated tax
liabilities of $2.1 million related to income from discontinued operations were fully offset by an
estimated tax benefit of $2.1 million related to the loss from continuing operations during 2010. See
Note 14.
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
F-11
Notes to the Consolidated Financial Statements
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, 2012 or 2011 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, 2012, tax years 2009-
2012 remained subject to examination by federal and state tax authorities.
p. Recent Accounting Developments: In May 2011, the Financial Accounting Standards Board
(FASB) and International Accounting Standards Board (IASB) issued Accounting Standards Update
(ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU
2011-04 created a uniform framework for applying fair value measurement principles for companies
around the world and clarified existing guidance in US GAAP. ASU 2011-04 was effective for interim
and annual reporting periods beginning after December 15, 2011 and was applied prospectively.
ASU 2011-04 did not have a material effect on our consolidated financial statements.
2. Discontinued Operations
In August 2011, we completed the sale of the GDS Business to Devicor under the terms of the APA that
was signed in May 2011. Devicor made an initial cash payment to us of $30.0 million, assumed certain
liabilities of the Company associated with the GDS Business as specified in the APA, and agreed to make
royalty payments to us of up to an aggregate maximum amount of $20.0 million based on the net revenue
attributable to the GDS Business over the course of the next six fiscal years beginning in 2012. The final
sale price of $30.3 million includes the initial cash payment of $30.0 million and an additional cash
payment related to a net working capital adjustment of $338,000. The proceeds were offset by $2.8
million in investment banking, legal and other fees related to the sale and $2.4 million in net balance sheet
dispositions and write-offs.
In December 2011, we disposed of the extended warranty contracts related to the GDS Business, which
were outstanding as of the date of the sale of the GDS Business but were not included in the August 2011
transaction. In exchange for transferring the liability related to the extended warranty contracts, which was
previously recorded as deferred revenue, we made a cash payment to Devicor of $178,000. At the time of
the transfer, we had current and deferred revenue reflected in our financial statements which was being
amortized into income on a pro-rata basis over the life of the contracts. As a result of the transfer of
obligations to Devicor, we recognized the unamortized deferred revenue of $1.2 million of non-cash
income.
We recorded a net gain on the sale of the GDS business and disposal of the related extended warranty
contracts of $26.2 million in 2011, which was reduced by estimated tax expense of $6.7 million during
2011.
During 2011 and 2010, we wrote off $1,000 and $65,000, respectively, of excess and obsolete gamma
detection device materials.
Deferred revenue consists primarily of non-refundable license fees and reimbursement of past research
and development expenses which EES paid us as consideration for extending our distribution agreement
with them in prior years. During 2011 and 2010, we recognized license revenue of $63,000 and $100,000,
respectively. The unearned license revenue remaining at the date of the sale of the GDS Business was
written off as part of the gain on the sale. In addition, deferred revenue includes revenues from the sale of
extended warranties covering our medical devices over periods of one to five years. Prior to the disposal
of the extended warranty contracts, we recognized revenue from extended warranty sales on a pro-rata
basis over the period covered by the extended warranty.
F-12
Notes to the Consolidated Financial Statements
We reclassified revenues and expenses related to discontinued operations for all periods presented. The
following amounts, as well as the $26.2 million gain on the sale of the GDS Business and disposal of the
related extended warranty contracts, have been segregated from continuing operations and included in
discontinued operations in the consolidated statements of operations:
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Total operating expenses
Other expense, net
Income taxes
Years Ended December 31,
2011
2010
$ 7,684,689
2,324,427
5,360,262
$ 10,140,476
3,230,575
6,909,901
564,194
308,220
872,414
371,794
258,452
630,246
(1,084)
(1,157,230)
(529)
(2,134,903)
Income from discontinued operations
$ 3,329,534
$ 4,144,223
Subsequent to the sale of the GDS Business, the Company re-evaluated its segment disclosures and
determined that our radiopharmaceutical products under development constitute our only current line of
business.
3. Fair Value Hierarchy
There were no financial assets or liabilities measured at fair value on a recurring basis as of December 31,
2012. The following table sets forth, by level, financial liabilities measured at fair value on a recurring
basis as of December 31, 2011:
Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2011
Quoted Prices
in Active
Markets for
Identical
Assets and
Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of
December 31,
2011
$ --
$ 568,930
$ --
$ 568,930
Description
Liabilities:
Derivative liabilities
related to warrants,
current
There were no Level 1 liabilities outstanding at any time during the years ended December 31, 2012 and
2011. A total of $484,419 and $1,978,818 of our Level 2 liabilities were reclassified to equity related to
modifying certain outstanding warrants to remove the language that had previously required them to be
classified as derivative liabilities during the years ended December 31, 2012 and 2011.
There were no Level 3 liabilities outstanding at any time during the years ended December 31, 2012 or
2011.
F-13
Notes to the Consolidated Financial Statements
4. Stock-Based Compensation
For the years ended December 31, 2012, 2011 and 2010, our total stock-based compensation expense
was approximately $2.3 million, $3.6 million and $598,000, respectively. We have not recorded any
income tax benefit related to stock-based compensation for the years ended December 31, 2012, 2011
and 2010.
A summary of the status of our stock options as of December 31, 2012, and changes during the year then
ended, is presented below:
Year Ended December 31, 2012
Number of
Options
3,315,000
1,351,027
(1,232,001)
(12,249)
(9,000)
3,412,777
Weighted
Average
Exercise
Price
$ 1.02
3.16
0.62
2.18
1.73
$ 2.01
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
6.8 years
$ 3,530,862
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
1,836,237
$ 1.10
4.9 years
$ 3,271,747
The weighted average grant-date fair value of options granted in 2012, 2011 and 2010 was $1.86, $2.22
and $1.13, respectively. During 2012, 1,232,001 stock options with an aggregate intrinsic value of
$3,360,686 were exercised in exchange for issuance of 1,225,270 shares of our common stock, resulting
in gross proceeds of $752,060. During 2011, 2,697,833 stock options with an aggregate intrinsic value of
$9,620,085 were exercised in exchange for issuance of 1,832,673 shares of our common stock, resulting
in gross proceeds of $225,010. During 2010, 491,667 stock options with an aggregate intrinsic value of
$697,662 were exercised in exchange for issuance of 350,156 shares of our common stock, resulting in
gross proceeds of $32,550. During 2012, 2011 and 2010, we paid tax withholdings related to stock
options exercised of $9,000, $2.8 million and $133,000, respectively. During 2012, 2011 and 2010, the
aggregate fair value of stock options vested was $460,000, $998,000 and $379,000, respectively.
A summary of the status of our unvested restricted stock as of December 31, 2012, and changes during
the year then ended, is presented below:
Year Ended
December 31, 2012
Number of
Shares
1,556,000
405,000
(30,000)
--
(596,000)
1,335,000
Weighted
Average
Grant-Date
Fair Value
$ 2.48
3.14
2.86
--
3.36
$ 2.28
Unvested at beginning of year
Granted
Vested
Forfeited
Expired
Unvested at end of year
During 2012 and 2011, 30,000 and 1,050,000 shares, respectively, of restricted stock vested with
aggregate fair values of $85,000 and $4.2 million, respectively. No restricted stock vested during 2010.
F-14
Notes to the Consolidated Financial Statements
As of December 31, 2012, there was approximately $2.2 million 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 2.0 years. See Note 1(e).
5. Earnings Per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) 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 earnings (loss) 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 securities,
options and warrants.
The following table sets forth the calculation of basic and diluted earnings (loss) per share for the years
ended December 31, 2012, 2011 and 2010:
Net (loss) income
Preferred stock dividends
Net (loss) income attributable to common stockholders
Weighted average shares outstanding (basic and diluted)
(Loss) income per common share (basic and diluted)
2012
$ (29,157,204)
(43,333)
$ (29,200,537)
Years Ended December 31,
2011
2010
$ 5,612,992 $ (49,964,868)
(8,206,745)
$ 5,512,992 $ (58,171,613)
(100,000)
99,059,997
$ (0.29)
90,509,326
80,726,498
$ 0.06 $ (0.72)
Earnings (loss) per common share for the years ended December 31, 2012, 2011 and 2010 excludes the
effects of 38.4 million, 55.7 million and 64.1 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, 1,335,000, 1,556,000 and
2,374,500 shares of unvested restricted stock were excluded in determining basic and diluted loss per
share for the years ended December 31, 2012, 2011 and 2010, respectively, because such inclusion
would be anti-dilutive.
6.
Inventory
The components of net inventory at December 31, 2012 and 2011 are as follows:
Pharmaceutical materials
Pharmaceutical work-in-process
2012
$ 297,500
--
$ 297,500
2011
$ 482,000
339,549
$ 821,549
During 2012 and 2011, we capitalized $525,000 and $213,000, respectively, of inventory costs associated
with our Lymphoseek product. During 2012, we wrote off $741,000 of previously capitalized Lymphoseek
inventory due to changes in our projections of the probability of future commercial use for the specific lots
previously capitalized or the consumption of the Lymphoseek material in previously unanticipated product
development activities.
F-15
Notes to the Consolidated Financial Statements
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, historical and estimated future
sales and production rates, and estimated shelf lives. During 2012, we recorded an obsolescence reserve
for $308,000 of Lymphoseek inventory based on delays in U.S. regulatory approval impacting the timing of
future commercial use of the specific lots previously capitalized.
7. Property and Equipment
The major classes of property and equipment are as follows:
Production machinery and equipment
Other machinery and equipment, primarily
computers and research equipment
Furniture and fixtures
Software
Leasehold improvements
Useful Life
5 years
2012
$ 397,643
2011
$ 218,205
3 – 5 years
7 years
3 years
Life of Lease1
581,409
439,716
471,811
136,316
$ 2,026,895
399,587
416,005
305,282
102,150
$ 1,441,229
1 We amortize leasehold improvements over the life of the lease, which in all cases is shorter than the
estimated useful life of the asset.
Property and equipment includes $30,000 and $20,000 of equipment under capital leases with
accumulated amortization of $16,000 and $11,000 at December 31, 2012 and 2011, respectively. During
2012, 2011 and 2010, we recorded $199,000, $117,000 and $102,000, respectively, of depreciation and
amortization related to property and equipment.
8. Accrued Liabilities and Other
Accrued liabilities and other at December 31, 2012 and 2011 consist of the following:
Contracted services
Compensation
Other
9. Separation of Former CEO
2012
$ 1,183,805
762,266
70,287
$ 2,016,358
2011
$ 969,150
953,641
174,995
$ 2,097,786
In March 2011, Navidea announced the departure of our then-current President and CEO, David C. Bupp,
effective April 15, 2011. The following table summarizes accrued expenses as of December 31, 2012 and
2011, including employer payroll tax obligations, related to the provisions of Mr. Bupp’s separation
agreement:
Separation
Pro-rated 2011 bonus
Estimated cost of continuing healthcare coverage
As of December 31,
2012
$ --
--
24,747
$ 24,747
2011
$ 180,074
60,870
61,875
$ 302,819
F-16
Notes to the Consolidated Financial Statements
10. Convertible Securities
In June 2010, we entered into a Securities Exchange Agreement with Platinum Montaur Life Sciences,
LLC (Montaur), pursuant to which Montaur exchanged their 10% Series A Convertible Senior Secured
Promissory Note with an outstanding principal amount of $7,000,000, their 10% Series B Convertible
Senior Secured Promissory Note with an outstanding principal amount of $3,000,000, and their 3,000
shares of 8% Series A Cumulative Convertible Preferred Stock for 10,000 shares of Series B Convertible
Preferred Stock (the Series B Preferred Stock), convertible into 32,700,000 shares of common stock. The
Series B Preferred Stock is convertible at the option of Montaur and carries no dividend requirement. In
the event of the liquidation of the Company, the holders of shares of the Series B Preferred Stock have
preference over the common stock. After payment of the full liquidation preference amount to which each
holder is entitled, such holders of shares of Series B Preferred Stock will not be entitled to any further
participation as such in any distribution of the assets of the Company. As consideration for the exchange,
the Company issued additional Series B Preferred Stock which is convertible into 1.3 million shares of
common stock.
Also in June 2010, we entered into a Securities Exchange Agreement with David C. Bupp, then our
President and CEO, and certain members of his family (the Bupp Investors), pursuant to which the Bupp
Investors exchanged their 10% Convertible Secured Promissory Note with an outstanding principal
amount of $1,000,000 for 1,000 shares of Series C Convertible Preferred Stock (the Series C Preferred
Stock), convertible into 3,226,000 shares of common stock. The Series C Preferred Stock had a 10%
dividend rate and participated equally with our common stock in liquidation proceeds based upon the
number of common shares into which the Series C Preferred Stock was convertible. The exchange of the
Montaur Notes, the Series A Preferred Stock and the Bupp Note were treated as extinguishments for
accounting purposes. As a result, the Company recognized a loss on extinguishment of debt of $41.7
million, including the write-off of $966,000 in put option derivative liabilities, and recorded a deemed
dividend of $8.0 million during the second quarter of 2010. As a result of these exchange transactions, all
security interests in the Company’s assets held by Montaur and the Bupp Investors were extinguished.
In May 2011, Montaur converted 917 shares of their Series B Preferred Stock into 2,998,590 shares of our
common stock under the terms of the Series B Preferred Stock. In July 2012, Montaur converted 3,063
shares of their Series B Preferred Stock into 10,016,010 shares of our common stock under the terms of
the Series B Preferred Stock. In November 2012, we entered into a Securities Exchange Agreement with
Platinum Partners Value Arbitrage Fund, L.P. (Platinum), an affiliate of Montaur, pursuant to which
Platinum exchanged 3,001,860 shares of our common stock owned by Platinum for 918 shares of our
Series B Preferred Stock. As of December 31, 2012, there are 6,938 shares of Series B Preferred Stock
outstanding which are convertible into 22,687,260 shares of our common stock.
In December 2012, we entered into a Waiver Agreement (the Waiver) pursuant to which Montaur and
Platinum, as the sole holders of the Series B Preferred Stock, agreed to irrevocably waive the provisions
set forth in the certificate of designations for the Series B Preferred Stock (the Certificate) which provided
that all outstanding shares of Series B Preferred Stock would automatically convert into shares of common
stock on December 31, 2012. The Waiver will remain in effect until December 31, 2013, upon which date
all outstanding shares of Series B Preferred Stock will automatically convert into common stock pursuant
to the terms of the Certificate. In addition, we amended the terms of Montaur’s Series X warrant to extend
the expiration date from April 16, 2013 to December 31, 2013. Also in December 2012, the Series C
Preferred Stock held by the Bupp Investors automatically converted into 3,226,000 shares of our common
stock under the terms of the Series C Preferred Stock.
During the year ended December 31, 2010, we recorded interest expense of $16,000 related to
amortization of the debt discounts and deferred financing costs related to our convertible securities.
11. Notes Payable
In December 2011, we executed a Loan and Security Agreement (the Loan Agreement) with Hercules
Technology II, L.P. (Hercules), providing for a maximum borrowing of $10 million by the Company in two
advances. Pursuant to the Loan Agreement, we issued Hercules: (1) a Secured Term Promissory Note in
F-17
Notes to the Consolidated Financial Statements
the principal amount of $7,000,000 (the First Advance), bearing interest at the greater of either (a) the U.S.
Prime Rate as reported in The Wall Street Journal plus 6.75%, or (b) 10.0% (effective interest rate at
December 31, 2012 was 10.0%), and (2) a Series GG warrant to purchase 333,333 shares of our common
stock at an exercise price of $2.10 per share, expiring in December 2016 (the Series GG Warrant).
Additionally, the Loan Agreement provided Navidea with the option to draw a second advance in the
principal amount of $3,000,000 if certain conditions were met by June 30, 2012. Such conditions were not
met and Hercules no longer has an obligation to provide the additional $3,000,000. The Loan Agreement
provided for an interest-only period beginning on December 29, 2011 and expiring on July 1, 2012. The
principal and interest is to be repaid in 30 equal monthly installments, payable on the first of each month
following the expiration of the interest-only period. As such, a portion of the principal, net of related
discounts, has been classified as a current liability as of December 31, 2012. The outstanding balance of
the debt is due December 1, 2014. Navidea has the option to pay up to $1.5 million of the principal
amount of the debt in stock at a fixed conversion price of $2.77, subject to certain conditions. In addition,
Hercules has the option to elect payment for up to another $1.5 million of the principal amount of the debt
by conversion at a fixed conversion price of $2.77. The debt is collateralized by a security interest in
substantially all of the Company’s assets except for intellectual property, as to which the security interest is
in rights to income or proceeds from the sale or licensing thereof. The Loan Agreement also specifies
certain covenants including the requirement that Navidea provide certain information, such as financial
statements and budgets, on a periodic basis. As of December 31, 2012, we were in compliance with all
such covenants.
In accordance with current accounting standards, Hercules’ option to convert up to $1.5 million of the debt
into stock was evaluated and determined to be a beneficial conversion feature. The beneficial conversion
feature of $24,888 was recorded as a discount on the First Advance based on the market price of the
Company’s stock on the date of the Loan Agreement. In addition, the Series GG warrant was accounted
for as a liability at origination due to the existence of certain provisions in the instrument which remained in
effect for the first 365 days the warrant was outstanding. As a result, we recorded a current derivative
liability with an estimated fair value of $520,478 on the date of issuance of the Series GG warrant. The
estimated fair value of the Series GG warrant was recorded as a discount on the First Advance. Navidea
paid total debt issuance costs of $593,339 including origination, legal, and other costs related to the loan.
The total aggregate discounts on the First Advance of $545,366 and the debt issuance costs of $593,339
are being amortized as non-cash interest expense using the effective interest method over the term of the
Loan Agreement.
During 2012, we paid $1.3 million of principal payments on our note payable to Hercules. As of December
31, 2012, the remaining outstanding principal balance of the Hercules debt was approximately $5.7 million.
During the years ended December 31, 2012 and 2011, we recorded interest expense of $545,000 and
$4,000, respectively, related to amortization of the debt discounts and deferred financing costs related to
our convertible notes.
In July 2012, we entered into an agreement with Montaur to provide us with a credit facility of up to $50
million. Under the terms of the agreement, Montaur committed to extend up to $15 million in debt, which is
available immediately, to the Company at an interest rate equal to the greater of (a) the U.S. Prime Rate
as reported in the Wall Street Journal plus 6.75%; (b) 10.0%; or (c) the highest rate of interest then
payable pursuant to the Hercules Loan Agreement plus 0.125% (effective interest rate at December 31,
2012 was 10.125%). Montaur has committed an additional $20 million upon FDA approval of Lymphoseek
on consistent terms, with another $15 million potentially available on terms to be negotiated. As discussed
in Note 20(a), Subsequent Events, Lymphoseek was approved by the FDA on March 13, 2013. Principal
amounts are due the earlier of two years from the date of draw or June 30, 2016. No conversion features
or warrants are associated with the facility.
During 2012, we drew a total of $4.0 million under the credit facility and recorded interest expense of
$15,000. As of December 31, 2012, the total principal amount due under the credit facility was $4.0
million.
Annual principal maturities of our notes payable are $2.7 million and $7.0 million in 2013 and 2014,
respectively.
F-18
Notes to the Consolidated Financial Statements
12. Derivative Instruments
Certain embedded features of our convertible securities and notes payable, as well as warrants to
purchase our common stock, are treated as derivative liabilities. We do not use derivative instruments for
hedging of market risks or for trading or speculative purposes.
In June 2010, we entered into a Securities Exchange Agreement with Montaur, pursuant to which Montaur
exchanged the Montaur Notes and the Series A Preferred Stock for 10,000 shares of Series B Convertible
Preferred Stock. As a result of this exchange transaction, the Company wrote off $966,000 in put option
derivative liabilities during the second quarter of 2010.
In November 2010, we entered into agreements with certain institutional investors, pursuant to which the
investors purchased $6.0 million of our common stock at $1.90 per share. In addition to the common
stock, we issued two series of warrants to the investors: (1) one-year Series CC warrants to purchase
1,578,948 shares of our common stock at an exercise price of $2.11 per share, and (2) two-year Series
DD warrants to purchase 1,578,948 shares of our common stock at an exercise price of $2.11 per share.
The Series CC and Series DD warrants originally contained language that required Navidea to classify the
warrants as derivative liabilities, and we recorded them at their estimated fair values totaling $1.2 million.
In December 2010, a portion of the Series CC and Series DD warrants were modified to remove the
language that had previously required them to be classified as derivative liabilities. As a result of the
modification of certain of the Series CC and Series DD warrants, we reclassified $801,000 in derivative
liabilities related to those warrants to additional paid-in capital after marking the liabilities to market.
During 2010, 120,000 Series V warrants and 60,000 Series Z warrants were exercised. The Company
reclassified $280,000 in derivative liabilities related to these warrants to additional paid-in capital.
In January 2011, certain Series V warrants were modified to remove the language that had previously
required them to be classified as derivative liabilities. As a result of the modification of the Series V
warrants, we reclassified $1.4 million in derivative liabilities related to those warrants to additional paid-in
capital during the first quarter of 2011. Also in January 2011, certain Series CC and Series DD warrants
were modified to remove the language that had previously required them to be classified as derivative
liabilities. As a result of the modification of the Series CC and Series DD warrants, we reclassified
$549,000 in derivative liabilities related to those warrants to additional paid-in capital during the first
quarter of 2011.
During 2011, Mr. Bupp and certain members of his family exercised 810,000 Series V warrants in
exchange for issuance of 810,000 shares of our common stock, resulting in gross proceeds of $255,600.
The net effect of marking the derivative liabilities related to the exercised Series V warrants to market
resulted in net increases in the estimated fair values of the derivative liabilities of $119,000, which were
recorded as non-cash expense. As a result of the Series V warrant exercises, we reclassified $96,000 in
derivative liabilities related to those warrants to additional paid-in capital.
Also during 2011, the holders of 60,000 Series Z warrants exercised them on a cashless basis in
exchange for issuance of 46,902 shares of our common stock. The net effect of marking the derivative
liabilities related to the exercised Series Z warrants to market resulted in net increases in the estimated fair
values of the derivative liabilities of $79,000, which were recorded as non-cash expense. As a result of
the Series Z warrant exercises, we reclassified $164,000 in derivative liabilities related to those warrants to
additional paid-in capital.
In addition, the holders of Series CC warrants exercised them during 2011 in exchange for issuance of
1,578,948 shares of our common stock, resulting in gross proceeds of $3,331,580. Further, the holders of
Series DD warrants exercised them during 2011 in exchange for issuance of 1,578,948 shares of our
common stock, resulting in gross proceeds of $3,331,580. The net effect of marking the derivative
liabilities related to the exercised Series CC and Series DD warrants to market resulted in net increases in
the estimated fair values of the derivative liabilities of $752,000, which were recorded as non-cash
expense. As a result of the Series CC and Series DD warrant exercises, we reclassified $1.1 million in
derivative liabilities related to those warrants to additional paid-in capital.
F-19
Notes to the Consolidated Financial Statements
In December 2011, in connection with entering into the Loan Agreement with Hercules, we issued a Series
GG warrant to purchase 333,333 shares of our common stock at an exercise price of $2.10 per share,
expiring in December 2016. The Series GG warrant was accounted for as a liability at origination due to
the existence of certain price reset provisions in the instrument which remained in effect for the first 365
days the warrant was outstanding. As a result, we recorded a current derivative liability with an estimated
fair value of $520,478 on the date of issuance of the Series GG warrant. The net effect of marking the
Series GG warrants to market during 2012 resulted in net decreases in the estimated fair value of the
derivative liability of $38,000, which were recorded as non-cash income. In December 2012, the
provisions of the Series GG warrant that resulted in treatment of the instrument as a derivative liability
expired. As a result of the expiration of such provisions of the Series GG warrant, we reclassified
$484,000 in derivative liabilities related to those warrants to additional paid-in capital. See Note 11.
During 2012, the holder of 20,000 Series V warrants exercised them in exchange for issuance of 20,000
shares of our common stock, resulting in gross proceeds of $6,200. As a result of the Series V warrant
exercise, we reclassified $52,000 in derivative liabilities related to those warrants to additional paid-in
capital.
Changes in the estimated fair values of our derivative liabilities are recorded in the consolidated statement
of operations. The net effect of marking our derivative liabilities to market during the years ended
December 31, 2012, 2011 and 2010 resulted in net (decreases) increases in non-cash (income) expense
of ($32,000), $952,000 and $1.3 million. The total estimated fair value of our derivative liabilities was
$569,000 and $2.5 million as of December 31, 2011 and 2010, respectively. No derivative liabilities were
outstanding as of December 31, 2012.
13. Equity
a. Common Stock Purchase Agreement: In March 2010, we sold to Fusion Capital Fund II, LLC
(Fusion Capital), an Illinois limited liability company, 540,541 shares for proceeds of $1.0 million under
a common stock purchase agreement, as amended. In connection with this sale, we issued 120,000
shares of our common stock to Fusion Capital as an additional commitment fee. The agreement with
Fusion Capital expired on March 1, 2011.
b. Stock Warrants: At December 31, 2012, there are 11.5 million warrants outstanding to purchase our
common stock. The warrants are exercisable at prices ranging from $0.46 to $2.375 per share with a
weighted average exercise price per share of $0.68.
The following table summarizes information about our outstanding warrants at December 31, 2012:
Series X
Series AA
Series BB
Series EE
Series FF
Series GG
Exercise
Price
$ 0.46
0.97
2.00
2.375
1.97
2.10
$ 0.68
Number of
Warrants
8,333,333
2,400,000
300,000
134,211
30,000
333,333
11,530,877
Expiration Date
December 2013
July 2014
July 2015
August 2015
December 2015
December 2016
During 2010, a Bupp Investor exercised 120,000 Series V warrants in exchange for issuance of
120,000 shares of our common stock, resulting in gross proceeds of $37,200. Also during 2010,
certain outside investors exercised a total of 60,000 Series Z warrants on a cashless basis in
exchange for issuance of 37,778 shares of our common stock.
In July 2010, we issued five-year Series BB Warrants to purchase 300,000 shares of our common
stock at an exercise price of $2.00 per share to an investment advisory firm in connection with a
consulting agreement.
F-20
Notes to the Consolidated Financial Statements
During 2012, Montaur exercised 6,000,000 Series W warrants in exchange for issuance of 6,000,000
shares of our common stock, resulting in gross proceeds of $1,920,000.
See Note 12 for a discussion of Series V, Series Z, Series CC, and Series DD warrant transactions
during 2012.
c. Common Stock Reserved: As of December 31, 2012, we have reserved 38,713,946 shares of
authorized common stock for the exercise of all outstanding options, warrants, convertible preferred
stock and convertible debt.
14. Income Taxes
As of December 31, 2012 and 2011, our deferred tax assets were approximately $33.7 million and $37.7
million, respectively. The components of our deferred tax assets are summarized as follows:
As of December 31,
2012
2011
Deferred tax assets:
Net operating loss carryforwards
R&D credit carryforwards
Temporary differences
Deferred tax assets before valuation allowance
Valuation allowance
Net deferred tax assets
$ 24,767,569
6,546,049
2,408,108
33,721,726
(33,721,726)
$ --
$ 29,701,483
7,610,672
371,610
37,683,765
(37,683,765)
$ --
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,
2012 and 2011.
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, 2012.
As of December 31, 2012 and 2011, we had U.S. net operating loss carryforwards of approximately $80.9
million and $74.1 million, respectively. Of that amount, $14.1 million and $9.1 million relates to stock-
based compensation tax deductions in excess of book compensation expense (APIC NOLs) as of
December 31, 2012 and 2011, respectively, 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.
At December 31, 2012 and 2011, we had U.S. R&D credit carryforwards of approximately $6.5 million and
$7.6 million, respectively.
F-21
Notes to the Consolidated Financial Statements
U.S. net operating loss carryforwards of $20.8 million and $16.6 million and R&D credit carryforwards of
$1.1 million and $346,000 expired during 2012 and 2011, respectively. The details of our U.S. net
operating loss and R&D credit carryforward amounts and expiration dates are summarized as follows:
As of December 31, 2012
U.S. Net
Operating
Loss
Carryforwards
$ 17,142,781
--
--
--
1,282,447
337,714
1,237,146
3,246,062
3,127,238
2,863,443
2,826,656
13,753,769
5,425,105
1,904,744
27,744,687
$ 80,891,792
U.S. R&D
Credit
Carryforwards
$ 1,173,387
130,359
71,713
39,128
5,350
2,905
22,861
218,332
365,541
342,898
531,539
596,843
1,094,449
1,950,744
--
$ 6,546,049
Generated Expiration
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
Total carryforwards
The American Taxpayer Relief Act of 2012 (the Act) cleared the House of Representatives and the Senate
on January 2, 2013 and was signed into law by President Obama on January 2, 2013. The credit for
certain research and experimentation expenses expired at the end of 2011. The act retroactively extends
the credit through the end of 2013. Under current accounting guidelines, the effects of new legislation are
recognized upon enactment and as such the Company has not included a 2012 R&D tax credit in the
above table.
During the years ended December 31, 2012, 2011 and 2010, Cardiosonix recorded losses for financial
reporting purposes of $14,000, $19,000 and $15,000, respectively. As of December 31, 2012 and 2011,
Cardiosonix had tax loss carryforwards in Israel of approximately $7.6 million. 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, all of the deferred tax assets have been fully offset by
a valuation allowance at December 31, 2012 and 2011.
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. During
2010, we completed a Section 382 study and concluded that a Section 382 ownership change has not
occurred. Based on changes in the Company’s ownership in 2011 and 2012, we do not believe a Section
382 ownership change has occurred in such years 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
Adjustments to valuation allowance
Loss on extinguishment of debt
Permanent items and other
Benefit per financial statements
Years Ended December 31,
2011
2010
%
(34.0%)
--
--
2.5%
Amount
$ (19,122,958)
3,410,056
14,179,468
(601,469)
$ (2,134,903)
%
(34.0%)
6.1%
25.2%
(1.1%)
2012
Amount
$ (9,913,450)
%
(34.0%)
9,668,770
--
244,680
33.2%
--
0.8%
Amount
$ (8,516,176)
--
--
636,033
$ --
$ (7,880,143)
F-22
Notes to the Consolidated Financial Statements
15. 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 Lymphoseek
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 has the right to terminate the
agreement upon mutual written agreement, or upon material breach by the other party which is not
cured within 60 days from the date of written notice of the breach. Total purchases under the
manufacture and supply agreement were $939,000, $544,000 and $1.0 million for the years ended
December 31, 2012, 2011 and 2010. As of December 31, 2012, we have issued purchase orders
under the agreement with Reliable for $119,000 of our products for delivery through December 2013.
b. Research and Development Agreements: During January 2002, we completed a license agreement
with the University of California, San Diego (UCSD) for Lymphoseek, a proprietary compound that we
believe can be used as a lymph node locating agent in SLNB procedures. The license agreement is
effective until the later of the expiration date of the longest-lived underlying patent or January 30,
2023. 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. 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 pay UCSD milestone payments related to commencement of clinical trials
and successful regulatory clearance for marketing of the licensed products, a 5% royalty on net sales
of licensed products subject to a $25,000 minimum annual royalty, fifty percent of all sublicense fees
and fifty percent of sublicense royalties. We also agreed to reimburse UCSD for all patent-related
costs. Total costs related to the UCSD license agreement were $33,000, $98,000 and $36,000 in
2012, 2011 and 2010, respectively, and were recorded in research and development expenses.
During April 2008, we completed a license agreement with UCSD for an expanded field of use
allowing Lymphoseek to be developed as an optical or ultrasound agent. The license agreement is
effective until 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 pay
UCSD milestone payments related to commencement of clinical trials and successful regulatory
clearance for marketing of the licensed products, a 5% royalty on net sales of licensed products
subject to a $25,000 minimum annual royalty, fifty percent of all sublicense fees and fifty percent of
sublicense royalties. We also agreed to reimburse UCSD for all patent-related costs. Total costs
related to the UCSD license agreement were $31,000, $28,000 and $27,000 in 2012, 2011 and 2010,
respectively, and were recorded in research and development expenses.
In December 2011, we executed a license agreement with AstraZeneca AB for NAV694, a proprietary
compound that is primarily intended for use in diagnosing Alzheimer’s disease and other central
nervous system disorders. The license agreement is effective until the later of the tenth anniversary of
the first commercial sale of NAV4694 or the expiration of the underlying patents. Under the terms of
the license agreement, AstraZeneca granted us an exclusive worldwide royalty-bearing license for
NAV4694 with the right to grant sublicenses. In consideration for the license rights, we paid
AstraZeneca a license issue fee of $5.0 million upon execution of the agreement. We also agreed to
pay AstraZeneca up to $6.5 million in contingent milestone payments based on the achievement of
certain clinical development and regulatory filing milestones, and up to $11.0 million in contingent
milestone payments due following receipt of certain regulatory approvals and the initiation of
commercial sales of the licensed product. In addition, we agreed to pay AstraZeneca a royalty on net
sales of licensed and sublicensed products. Total costs related to the AstraZeneca license agreement
were $14,000 and $5.0 million in 2012 and 2011, respectively, and were recorded in research and
development expenses.
F-23
Notes to the Consolidated Financial Statements
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 provides for
contingent milestone payments of up to $2.9 million, $2.5 million of which will principally occur at the
time of product registration or upon commercial sales, and the issuance of up to an additional 1.15
million shares of Navidea common stock, 950,000 shares of which are issuable at the time of product
registration or upon commercial sales. In addition, the sublicense terms anticipate royalties on annual
net sales of the approved product which are consistent with industry-standard terms and certain
sublicense extension fees, payable in cash and shares of common stock, in the event certain diligence
milestones are not met. Total costs related to the Alseres sublicense agreement were $1.8 million in
2012, and were recorded in research and development expenses.
Cardiosonix’s research and development efforts have been partially financed through grants from the
Office of the Chief Scientist of the Israeli Ministry of Industry and Trade (the OCS). Through the end of
2004, Cardiosonix received a total of $775,000 in grants from the OCS. In return for the OCS’s
participation, Cardiosonix is committed to pay royalties to the Israeli Government at a rate of 3% to 5%
of the sales of its products, if any, up to 300% of the total grants received, depending on the portion of
manufacturing activity that takes place in Israel. In January 2006, the OCS consented to the transfer
of manufacturing as long as we comply with the terms of the OCS statutes under Israeli law. We are
not aware of any future performance obligations related to the grants received from the OCS. We do
not believe we will be obligated to pay the OCS any amounts greater than any royalties due on future
sales in the event that future sales are not sufficient to generate adequate revenue to completely
cover the full amount of the grant. However, under certain limited circumstances, the OCS may
withdraw its approval of a research program or amend the terms of its approval. Upon withdrawal of
approval, Cardiosonix may be required to refund the grant, in whole or in part, with or without interest,
as the OCS determines. Through December 2012, we have paid the OCS a total of $82,000 in
royalties related to sales of products developed under this program. As of December 31, 2012, we
have accrued obligations for royalties totaling $1,000.
During January 2005, we completed a license agreement with The Ohio State University (OSU), Cira
LLC, and Cira Bio for certain technology relating to activated cellular therapy. The license agreement
is effective until the expiration date of the longest-lived underlying patent. Under the terms of the
license agreement, OSU has granted the licensees the exclusive rights to make, have made, use,
lease, sell and import licensed products as defined in the agreement and to utilize the defined licensed
practices. We may also sublicense the patent rights. In consideration for the license rights, we
agreed to pay OSU a license fee of $5,000 on January 31, 2006. We also agreed to pay OSU
additional license fees related to initiation of Phase 2 and Phase 3 clinical trials, a royalty on net sales
of licensed products subject to a minimum annual royalty of $100,000 beginning in 2012, and a
percentage of any non-royalty license income. Also during January 2005, we completed a business
venture agreement with Cira LLC that defines each party’s responsibilities and commitments with
respect to Cira Bio and the license agreement with OSU. In connection with the execution of the
option, Cira Ltd. also agreed to assign all interests in the ACT technology in the event of the closing of
such a financing transaction. The license agreement with OSU was terminated effective December
31, 2012. Total costs related to the OSU license agreement were $100,000 in 2012, and were
recorded in research and development expenses.
F-24
Notes to the Consolidated Financial Statements
c. Employment Agreements: We maintain employment agreements with seven of our officers. The
employment agreements contain termination and/or change in control provisions that would entitle
each of the officers to 1.5 to 2.5 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, 2012, our maximum contingent liability under these agreements in such an event is
approximately $3.1 million. The employment agreements also provide for severance, disability and
death benefits.
16. Leases
We lease certain office equipment under capital leases which expire in 2013 and 2016. We also lease
office space in Ohio under an operating lease that expires in October 2013 and office space in
Massachusetts under an operating lease that expires in March 2014.
The future minimum lease payments for the years ending December 31 are as follows:
2013
2014
2015
2016
Less amount representing interest
Present value of net minimum lease payments
Less current portion
Capital lease obligations, excluding current portion
Operating
Leases
$ 196,068
19,105
--
--
$ 215,173
Capital
Leases
$ 8,789
3,039
3,039
2,532
17,399
3,021
14,378
7,276
$ 7,102
Total rental expense was $211,000, $154,000 and $125,000 for the years ended December 31, 2012,
2011 and 2010, respectively.
17. 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 $71,000, $56,000 and
$37,000 during 2012, 2011 and 2010, respectively.
18. Supplemental Disclosure for Statements of Cash Flows
During 2012, 2011 and 2010, we paid interest aggregating $647,000, $4,000 and $136,000, respectively.
During 2012, we issued 300,000 shares of our common stock as partial payment for the execution of a
sublicense agreement. During 2010, we issued 347,832 shares of our common stock as payment of
interest on our convertible debt and dividends on our convertible preferred stock. During 2012, 2011 and
2010, we issued 17,390, 35,233 and 53,499 shares of our common stock, respectively, as matching
contributions to our 401(k) Plan. During 2011 and 2010, we transferred $25,000 and $79,000,
respectively, of GDS Business inventory to fixed assets related to the creation and maintenance of a pool
of service loaner equipment. During 2012 and 2010, we prepaid $267,000 and $71,000, respectively, of
insurance premiums through the issuance of notes payable to finance companies with interest rates of
2.8% and 7.0%, respectively. During 2012, we purchased equipment under a capital lease totaling
$9,000. During 2010, we reclassified $223,000 of deferred stock offering costs to additional paid-in capital
related to the issuance of our common stock to Fusion Capital. See Note 13(a). Also during 2010, we
recorded a deemed dividend of $8.0 million related to the exchange of the Series A Preferred Stock for
Series B Preferred Stock. See Note 10.
F-25
Notes to the Consolidated Financial Statements
19. Contingencies
We are subject to legal proceedings and claims that arise in the ordinary course of business. In our
opinion, the amount of ultimate liability, if any, with respect to these actions will not materially affect our
financial position.
20. Subsequent Events
a. FDA Approval of Lymphoseek: On March 13, 2013, the Company received FDA approval to market
Lymphoseek. As a result of the Lymphoseek approval, 510,000 shares of restricted stock vested with
an aggregate fair value of $1.6 million. The approval of Lymphoseek also made an additional $20
million available to the Company under the credit facility with Montaur.
b. Public Offering of Common Stock: In January 2013, Navidea entered into an underwriting
agreement with Ladenburg Thalmann & Co. Inc., related to a public offering of 1,542,389 shares of the
Company’s common stock at a price of $3.10 per share less underwriting discounts and commissions
(the Offering). The Offering closed in February 2013, following the satisfaction of customary closing
conditions. The net proceeds to the Company were approximately $4.4 million after deducting
expenses associated with the Offering. The Company will use the net proceeds from the offering to
fund the clinical development and launch of its current drug products, to fund other potential product
pipeline opportunities, and for general corporate purposes. The Offering was made pursuant to the
Company’s existing effective shelf registration statement on Form S-3.
c. Warrant Exercise: In March 2013, Montaur exercised 3,000,000 of the Series X warrants in
exchange for issuance of 3,000,000 shares of our common stock, resulting in gross proceeds of
$1,380,000.
F-26
NavideaCoverSpine2012_Layout 1 5/2/13 3:34 PM Page 2
enlightening
empowering
enhancing
Corporate Headquarters
425 Metro Place North (cid:129) Suite 450 (cid:129) Dublin, Ohio 43017
Investor Relations
Navidea Biopharmaceuticals, Inc. (cid:129) www.navidea.com (cid:129) Phone: 614-793-7500 (cid:129) Fax: 614-793-7520 (cid:129) E-Mail: info@navidea.com
Stockholder Meeting
The annual meeting of stockholders will be held at the Columbus Marriott Northwest, 5605 Blazer Parkway, Dublin, OH 43017,
614-791-1000, on June 27, 2013, 9:00 am Eastern.
Registrar and Transfer Agent
The transfer agent is responsible for handling stockholder questions regarding lost stock certificates, address changes including duplicate
mailings, and changes in ownership or name in which shares are held. These requests should be directed to the transfer agent at the
following address:
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, NY 10004-1123
Phone: 212-509-4000
www.continentalstock.com
Stock Trading
Our common stock trades on the NYSE MKT under the trading symbol NAVB.
Board of Directors
Gordon A. Troup1
Peter F. Drake, Ph.D.1,2
Brendan A. Ford1,2
Jess E. Jones, M.D.1,2
Chairman of the Board, Navidea Biopharmaceuticals, Inc.;
Retired President of Nuclear Pharmacy Services, Cardinal Health, Inc.
Board Member, Trustmark Insurance; Enzymedica, Inc.; and Sequoia Sciences, Inc.
Partner, Talisman Capital Partners
Chief Executive Officer, AngioLight, Inc.;
Chief Executive Officer, NewCardio, Inc.
Mark J. Pykett, V.M.D., Ph.D.
Chief Executive Officer, Navidea Biopharmaceuticals, Inc.
Eric K. Rowinsky, M.D.
Head of Research and Development, Chief Medical Officer, and
Executive Vice President, Stemline Therapeutics, Inc.
1 Audit Committee
2 Compensation, Nominating and Governance Committee
Corporate Officers
Mark J. Pykett, V.M.D., Ph.D.
Chief Executive Officer
Frederick O. Cope, Ph.D.
Senior Vice President and Chief Scientific Officer
Brent L. Larson
William J. Regan
Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Senior Vice President, Global Regulatory Strategy
Cornelia B. Reininger, M.D., Ph.D.
Senior Vice President and Chief Medical Officer
Thomas H. Tulip, Ph.D.
President and Chief Business Officer
Rodger A. Brown
David S. Casebier, Ph.D.
Stephen B. Haber, Ph.D.
David B. Pendleton
Vice President, Global Regulatory Operations and Quality Assurance
Vice President, Chemistry, Manufacturing and Control
Vice President, Development
Vice President, Marketing and New Product Planning
43196_Cvr_Layout 1 5/7/13 12:57 PM Page 1
425 Metro Place North (cid:129) Suite 450 (cid:129) Dublin, Ohio 43017
Phone: 614-793-7500 (cid:129) E-Mail: info@navidea.com
www.navidea.com
Navidea, Navidea logo, Lymphoseek, RIGS and Cardiosonix are registered trademarks of Navidea Biopharmaceuticals, Inc. or its subsidiaries.
RIGScan is a trademark of Navidea Biopharmaceuticals, Inc.
© Navidea Biopharmaceuticals, Inc. 2013