Navidea Biopharmaceuticals Annual Report 2014

Plain-text annual report

47007cvr_Layout 1 5/19/15 2:49 AM Page 1 5600 Blazer Parkway • Suite 200 • Dublin, Ohio 43017 Phone: 614-793-7500 • E-Mail: info@navidea.com www.navidea.com Navidea, Navidea logo, Lymphoseek, Manocept and Macrophage Therapeutics are trademarks of Navidea Biopharmaceuticals, Inc. © Navidea Biopharmaceuticals, Inc. 2015 2 0 1 4 | A N N U A L R E P O R T 47007cvr_Layout 1 5/19/15 2:50 AM Page 2 Financial Highlights Amounts in thousands, except per share data Years Ended December 31, 2014 2013 2012 2011 2010 Revenue $ 6,275 $ 1,131 $ 79 $ 598 $ 617 Operating expenses 32,322 39,236 28,068 24,702 13,294 Loss from operations (27,633) (38,438) (27,989) (24,104) (12,677) Income (loss) attributable to common stockholders (35,727) (42,699) (29,201) 5,513 (58,172) Basic income (loss) per share (0.24) (0.35) (0.29) 0.06 (0.72) As of December 31, 2014 2013 2012 2011 2010 Total assets $ 11,920 $ 40,317 $ 11,972 $ 31,194 $ 10,863 Stockholders’ equity (deﬁcit) (29,803) (4,010) (1,405) 21,132 4,132 Corporate Headquarters 5600 Blazer Parkway • Suite 200 • Dublin, Ohio 43017 Investor Relations Navidea Biopharmaceuticals, Inc. • www.navidea.com • Phone: 614-793-7500 • Fax: 614-793-7520 • E-Mail: info@navidea.com Stockholder Meeting The annual meeting of stockholders will be held at The Conference Center at OCLC, 6600 Kilgour Place, Dublin, Ohio 43017, 614-764-6000, on July 16, 2015, 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. Troup1,2 Peter F. Drake, Ph.D.2 Brendan A. Ford1 Chairman of the Board, Navidea Biopharmaceuticals, Inc.; Retired President of Nuclear Pharmacy Services, Cardinal Health, Inc. Founder and General Partner, Longevity Growth Partners Partner, Talisman Capital Partners Michael M. Goldberg, M.D. Managing Partner, Montaur Capital Partners Ricardo J. Gonzalez Perry A. Karsen1,2 President and Chief Executive Ofﬁcer, Navidea Biopharmaceuticals, Inc. Chief Executive Ofﬁcer, Celgene Cellular Therapeutics Eric K. Rowinsky, M.D. Chief Medical Ofﬁcer and Head of Research and Development, Stemline Therapeutics, Inc. 1 Audit Committee 2 Compensation, Nominating and Governance Committee Corporate Ofﬁcers Ricardo J. Gonzalez Brent L. Larson President and Chief Executive Ofﬁcer Executive Vice President, Chief Financial Ofﬁcer, Treasurer and Secretary Thomas H. Tulip, Ph.D. Executive Vice President and Chief Business Ofﬁcer Frederick O. Cope, Ph.D. Senior Vice President and Chief Scientiﬁc Ofﬁcer Thomas J. Klima William J. Regan Senior Vice President and Chief Commercial Ofﬁcer Senior Vice President, Global Regulatory Affairs and Quality and Chief Compliance Ofﬁcer Cornelia B. Reininger, M.D., Ph.D. Senior Vice President and Chief Medical Ofﬁcer David S. Casebier, Ph.D. Stephen B. Haber, Ph.D. Vice President, Chemistry, Manufacturing and Controls Vice President, Development Michael B. Tomblyn, M.D. Executive Medical Director 47007txt_Layout 1 5/26/15 10:48 AM Page 1 2014 ANNUAL REPORT Dear Shareholder, In joining Navidea this past year, I was drawn by the Company’s driving purpose: Envisioning a world where disease can be precisely identiﬁed and treated. Our strategies and direction are guided with this in mind as we build a company that seeks to deliver solutions for the medical community to help identify the sites and pathways of undetected disease, enable better diagnostic accuracy, empower clinical decision-making and targeted treatments and, ultimately, enhance patient care. In Lymphoseek® (technetium Tc 99m tilmanocept) injection, the ﬁrst commercial product employing our Manocept™ technology, we have pioneered the ﬁrst approved targeted precision diagnostic cancer imaging agent in 30 years. We know that targeted diagnostics and therapies have the power to transform medicine. They offer the promise of improved healthcare efﬁciency — identifying the right patients, offering patients treatments earlier in their disease, and preventing potentially unnecessary and costly therapy of individuals who will not beneﬁt from treatment. Building on the strength of a transformative year highlighted by important accomplishments, we believe the coming year will be a deﬁning one for Navidea. During this period, we expect to unlock the value of Manocept through the execution of a new commercial strategy for aggressive growth of Lymphoseek revenues and the advancement of our therapeutics development program. The Year of Operational Transformation Recognizing the unconverted commercial potential from additional Lymphoseek approvals and the longer term promise of targeted therapeutics, a transformation of Navidea to a biotech company with a sharpened focus on Lymphoseek and a vision for the development of Manocept is underway. The evolution is being driven by a new management team with the enhanced commercial and medical affairs competencies necessary to execute a plan that will help realize the global expansion of Lymphoseek and advance a pipeline of novel Manocept therapeutics which we believe will generate new product and collaborative opportunities for years to come. Since its approval in March 2013, Lymphoseek’s product proﬁle has evolved through several label changes. The most recent and most impactful change was the expansion that occurred in October 2014. This label expansion was a pivotal event that allows us to actively promote the use of Lymphoseek in sentinel lymph node biopsy (SLNB) for breast, melanoma and oral cavity head & neck cancer in addition to lymphatic mapping in solid tumors. This was not possible before. Treatment teams and patients can now beneﬁt from the clinical value proposition that Lymphoseek presents. Customer feedback and physician interfaces are allowing us to gain valuable insights into very powerful patient stories that further support our belief that Lymphoseek should be the preferred agent for SLNB procedures. We are proud of our role in this achievement. “From a diagnostic perspective, Lymphoseek may have the same kind of impact on the surgical management and treatment of cancer patients as Cardiolite had on changing the management of cardiac patients. Lymphoseek has been studied scientiﬁcally and is excellent at identifying sentinel lymph nodes that are most likely to harbor metastases so that cancer may be staged more accurately, thereby tailoring patient treatment the most appropriately.” Chief of Cutaneous Oncology, Associate Director of the Melanoma Program, Center for Melanoma Research and Treatment | California Paciﬁc Medical Center STANLEY P. L. LEONG, M.D., FACS 47007txt_Layout 1 5/21/15 7:04 PM Page 2 2014 ANNUAL REP ORT Prepared For Success Our conﬁdence in the opportunity that exists for Lymphoseek is supported by the key performance indicators we observed in the past year. These include increases in doses used, total number of ordering accounts and the strong reorder rates. But that is not enough. Through our efforts, there is growing realization of the differentiated value of Lymphoseek including enhanced results, contributions to increased efﬁciency in the hospital and to the treatment decision making process, and the reduced morbidity to the patient. We ﬁrmly believe that these real beneﬁts will have the greatest impact on the full oncology treatment teams and will guide their decision to make Lymphoseek the preferred agent for sentinel lymph node biopsies. So, armed with our expanded label, robust clinical data sets and a new commercial strategy, we designed our commercial organization to include an experienced team of 12 sales specialists who call directly on surgical oncologists and other decision makers within the oncology treatment team. We will go where the concentration of diagnoses occur and target the right customer, with the right message. We’re conﬁdent we will be able to efﬁciently and effectively call on the highest volume accounts where more than 80% of all Lymphoseek eligible cancer diagnoses in the US each year are treated. We expect the sales growth we have seen so far in the ﬁrst half of 2015 to continue to increase even further in the second half driven by the full deployment of our direct oncology sales force. Global Expansion Launching Lymphoseek into new global markets is integral to Navidea’s corporate growth strategy. In 2014, Lymphoseek was granted European marketing authorization to detect sentinel lymph nodes draining a primary tumor in breast cancer, melanoma, or oral cavity head and neck cancers. Our commercialization agreement with Norgine BV should provide commercial, medical and development expertise, combined with a well-established infrastructure and a strong presence in the European marketplace. We believe Norgine will be the ideal commercialization partner to gain country-by-country reimbursement and drive product adoption. We expect to see measurable revenue in Europe beginning in 2017. “We believe that Lymphoseek may offer European surgeons an extremely valuable tool to identify sentinel nodes more accurately, especially in difﬁcult sites such as the ﬂoor of mouth, which enables reliable staging of the neck, may minimize post-operative complications and morbidity for patients, and potentially reduces the cost to healthcare systems at the same time.” Chair, Department of Head and Neck Surgical Oncology REMCO DE BREE, M.D., Ph.D. UMC Utrecht Cancer Center 47007txt_Layout 1 5/20/15 12:58 AM Page 3 2014 ANNUAL REP ORT Potential – The Future of Lymphoseek The recent label expansion, in addition to sentinel lymph node biopsy, included lymphatic mapping in all solid tumors. This opens up our market well beyond these top three tumor types and could include gynecological, gastrointestinal, genitourinary and other types of tumors. We will develop in collaboration with the medical community, and potentially other corporate partners, ways to apply lymphatic mapping where it has the potential to become the standard-of-care. Importantly, the cost to Navidea for these studies is limited as we expect they will either be independent studies or studies funded through grants. All of these activities represent important steps forward in bringing new and better outcomes to people with cancer. We believe Lymphoseek will make an important difference for many patients for years to come and, because of this, will generate signiﬁcant revenue to Navidea. Building and Advancing a Manocept™-Based Therapeutic Pipeline As excited as we are about Lymphoseek, we believe the greatest future value for our shareholders very likely may come from applying our technology and expertise to establish our own pipeline of novel therapeutics based on the CD206- targeting ability of the Manocept platform. Exploring High Potential Therapeutic Applications To more aggressively advance some of the most valuable opportunities, we formed a new subsidiary, Macrophage Therapeutics, Inc., to explore potential therapeutic applications of the Manocept platform across a broader range of clinical indications. We have engaged a scientiﬁc advisory board comprised of world-renowned scientists and clinicians in the areas of oncology, immunology, autoimmune diseases and macrophage biology to provide management with counsel and guidance pertaining to the research, development, and clinical application of Manocept technology. Their deep insight into the science of macrophages and macrophage-mediated diseases will be instrumental in prioritizing and advancing our therapeutic research programs in the coming year. “In the quest for better patient outcomes, the Manocept CD206 platform powerfully targets macrophages, the key portal for many pathological states, enabling remarkable potential for new and more focused clinical diagnostic and potent therapeutic opportunities.” Professor, Departments of Laboratory Medicine, Pathology, and Medicine University of California San Francisco MICHAEL S. McGRATH, M.D., Ph.D. 47007txt_Layout 1 5/22/15 8:33 AM Page 4 2014 ANNUAL REPORT Immunotherapy – Enhancing the Body’s Cancer Fighting Ability With recent novel discoveries, immunotherapy has become an important part of treating some types of cancer by either boosting or modulating a person’s immune system. Ultimately, immunotherapeutic approaches will be used to help the immune system recognize cancer cells and strengthen its response so that it will destroy them. Macrophages play an integral role in the immune system’s cancer response, affecting it both positively and negatively. When activated, macrophages express a marker called CD206 which has been proven scientiﬁcally to be targeted by Manocept platform compounds. By combining approved or investigational treatments with the Manocept backbone, targeted therapeutic delivery to disease-controlling macrophages may be possible. Recent data support this concept and reinforce our belief that the modulation or destruction of macrophages represents a potential for a paradigm- shifting immunotherapeutic strategy. As our platform matures and we garner additional clinical data, we believe there are many directions and applications of the technology we can pursue. We plan to be strategic and methodical in our approach to future opportunities ensuring, for the time being, the programs remain self-funded and that we stay true to our core beliefs, including a strong emphasis on ﬁscal discipline and product-oriented efforts. The New Frontier – CD206-Targeted Immuno-Oncology Therapies In 2014 we completed studies that demonstrated that the Manocept molecule can selectively bind and become internalized by immune cells called tumor- associated macrophages (TAMs) and by tumor cells in a Kaposi’s sarcoma (KS) preclinical model. We have since reported early results from a clinical study showing that Tc 99m tilmanocept (Lymphoseek) both detects and localizes in KS tumors and the lymph nodes involved in draining the KS tumor ﬁelds. These data demonstrate the potential for a new immunotherapeutic approach. By including different therapeutic moieties in the Manocept backbone, getting to and inside of activated macrophages, TAMs, and KS tumor cells would allow us the potential to eliminate unwanted immune cells and tumor cells. “This collective body of data reinforces our belief that the Manocept platform represents potential for a paradigm-shifting immunotherapeutic strategy.” RICARDO J. GONZALEZ Navidea President & CEO 47007txt_Layout 1 5/20/15 12:58 AM Page 5 2014 ANNUAL REP ORT Partnered Development Additionally in 2014, we established a joint venture called R-NAV with Essex-Woodlands-backed Rheumco to explore both human and veterinary diagnostic and therapeutic applications of the Manocept platform in conjunction with Tin-117m technology for arthritic conditions such as rheumatoid arthritis and osteoarthritis. We expect that this venture will help accelerate development of both diagnostic and therapeutic applications in a cost-effective manner and leverage our proven pathway established by Lymphoseek. In 2015 we expect our joint venture focused on the diagnosis and therapy of arthritic conditions to continue to advance, including clinical studies using technetium Tilmanocept and a Tin-117m labeled analogue. We look forward to forging strong alliances with our scientiﬁc advisors, partners and potential partners for the development of innovative products that take advantage of these emerging applications to beneﬁt patients in areas with unmet need. Financial Outlook The Company undertook a restructuring in the second quarter of 2014 with the goals of sharpening our focus on Lymphoseek commercialization, reshaping the development of the Manocept platform and extending our cash runway. As a result, we applied cost saving measures in our programs and made the difﬁcult decision to divest our neuroimaging assets, which fall outside of our core focus. These activities, along with our expected revenue acceleration and tightened ﬁscal expense plan, put us on track to achieving our goal of cash ﬂow breakeven. We have augmented this demonstration of ﬁscal discipline with our recent ﬁnancing with CRG to create a strengthened balance sheet with which to support the growth of our business. Looking Forward 2015 will be the year of execution and results. To be speciﬁc, our top priorities will be driving Lymphoseek revenue growth, adherence to strong ﬁscal discipline, initiation of a Lymphoseek lifecycle management program, and establishing a sound and fundable therapeutic development plan for Manocept. Our belief is that by focusing on our novel technology and our core expertise we may improve the lives of patients. We believe the path we are on will enable us to make the greatest difference for patients with cancer and other diseases while also generating signiﬁcant future value for our shareholders. The coming year should be an exciting one for Navidea, and we look forward to reporting our progress. We thank you for your support. Sincerely, Ricardo J. Gonzalez Navidea President and CEO 47007txt_Layout 1 5/20/15 12:58 AM Page 6 2014 ANNUAL RE PORT Lymphoseek Indication and Important Safety Information Lymphoseek is a radioactive diagnostic agent indicated with or without scintigraphic imaging for: • Lymphatic mapping using a handheld gamma counter to locate lymph nodes draining a primary tumor site in patients with solid tumors for which this procedure is a component of intraoperative management. • Guiding sentinel lymph node biopsy using a handheld gamma counter in patients with clinically node negative squamous cell carcinoma of the oral cavity, breast cancer or melanoma. Important Safety Information In clinical trials with Lymphoseek, no serious hypersensitivity reactions were reported, however Lymphoseek may pose a risk of such reactions due to its chemical similarity to dextran. Serious hypersensitivity reactions have been associated with dextran and modiﬁed forms of dextran (such as iron dextran drugs). Prior to the administration of Lymphoseek, patients should be asked about previous hypersensitivity reactions to drugs, in particular dextran and modiﬁed forms of dextran. Resuscitation equipment and trained personnel should be available at the time of Lymphoseek administration, and patients observed for signs or symptoms of hypersensitivity following injection. Any radiation-emitting product may increase the risk for cancer. Adhere to dose recommendations and ensure safe handling to minimize the risk for excessive radiation exposure to patients or health care workers. In clinical trials, no patients experienced serious adverse reactions and the most common adverse reactions were injection site irritation and/or pain (<1%). FULL LYMPHOSEEK PRESCRIBING INFORMATION CAN BE FOUND AT: WWW.LYMPHOSEEK.COM UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (cid:58)(cid:3)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 or (cid:133)(cid:3)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) 5600 Blazer Parkway, Suite 200, Dublin, Ohio (Address of principal executive offices) 31-1080091 (I.R.S. Employer Identification No.) 43017-7550 (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 (cid:133)(cid:3)No (cid:58) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133)(cid:3)No (cid:58) 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 (cid:58)(cid:3)No (cid:133) 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). Yes (cid:58)(cid:3)No (cid:133) 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. (cid:133) 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 (cid:134) Non-accelerated filer (cid:134) Accelerated filer (cid:95) Smaller reporting company (cid:134) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Act.) Yes (cid:133)(cid:3)No (cid:58) The aggregate market value of shares of common stock held by non-affiliates of the registrant on June 30, 2014 was $220,518,363. The number of shares of common stock outstanding on March 2, 2015 was 150,337,098. DOCUMENTS INCORPORATED BY REFERENCE None. 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 medicines technologies 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 precision medicine company focused on the development and commercialization of precision diagnostics, therapeutics and radiopharmaceutical agents. Navidea is developing multiple precision-targeted products based on the Manocept™ platform to help identify the sites and pathways of undetected disease and enable better diagnostic accuracy, clinical decision-making, targeted treatment and, ultimately, patient care. Navidea’s Manocept platform is predicated on the ability of the chemical backbone of the tilmanocept molecule to specifically target the CD206 mannose receptor expressed on macrophages. The Manocept platform serves as the molecular backbone of Lymphoseek® (technetium Tc 99m tilmanocept) injection, the first product developed by Navidea based on the platform. Lymphoseek is a novel, receptor-targeted, small-molecule radiopharmaceutical used in the evaluation of lymphatic basins that may have cancer involvement in patients. Lymphoseek is designed for the precise identification of lymph nodes that drain from a primary tumor, which have the highest probability of harboring cancer. Lymphoseek is approved by the U.S. Food and Drug Administration (FDA) for use in solid tumor cancers where lymphatic mapping is a component of surgical management and for guiding sentinel lymph node biopsy in patients with clinically node negative breast cancer, melanoma or squamous cell carcinoma of the oral cavity. Lymphoseek has also received European approval in imaging and intraoperative detection of sentinel lymph nodes in patients with melanoma, breast cancer or localized squamous cell carcinoma of the oral cavity. Building on the success of Lymphoseek, the flexible and versatile Manocept platform acts as an engine for the design of purpose-built molecules offering the potential to be utilized across a range of diagnostic modalities, including single photon emission computed tomography (SPECT), positron emission tomography (PET), intra-operative and/or optical-fluorescence detection in a variety of disease states. Recent preclinical data being developed by the Company using tilmanocept linked to various therapeutic agents also suggest that tilmanocept’s binding affinity to CD206 receptors demonstrates the potential for this technology to be useful in treating 3 diseases linked to the over-activation of macrophages. This includes various cancers as well as autoimmune, infectious, cardiovascular, and central nervous system diseases. Thus, in January 2015, the Company formed a new subsidiary, Macrophage Therapeutics, Inc., to further explore therapeutic applications for the Manocept platform. In addition, over the last year, the company’s Board of Directors made the decision to reduce our support while seeking to partner or out-license two of our development programs: • NAV4694 is a fluorine-18 (F-18) radiolabeled PET imaging agent being developed as an aid in the diagnosis of patients with signs or symptoms of Alzheimer’s disease (AD) and mild cognitive impairment (MCI). NAV4694 is in Phase 3 clinical development. • NAV5001 is an iodine-123 (I-123) radiolabeled SPECT imaging agent being developed as an aid in the diagnosis of Parkinson’s disease (PD) and other movement disorders, with potential use as a diagnostic aid in dementia. NAV5001 is in Phase 3 clinical development. The company is in discussions with potential parties interested in sublicensing and/or assuming financial responsibility for the ongoing development of these two neuro tracer compounds and is currently evaluating term sheets. Other than Lymphoseek, none of the Company’s drug product candidates have been approved for sale in any market. A Brief Look at Our History We were originally incorporated in Ohio in 1983 and reincorporated in Delaware in 1988. From inception until January 2012, we operated under the name Neoprobe Corporation. In January 2012, we changed our name to Navidea Biopharmaceuticals, Inc. in connection with both the sale of our medical device business and our strategic repositioning as a precision medicines company focused on “NAVigating IDEAs” that result in the development and commercialization of precision diagnostic and therapeutic pharmaceuticals. Since our inception, the majority of our efforts and resources have been devoted to the research and clinical development of radiopharmaceutical technologies primarily related to the intraoperative diagnosis and treatment of cancers. From the late 1990’s through 2011, we also devoted substantial effort towards the development and commercialization of medical devices, including a line of handheld gamma detection devices which was sold in 2011 and a line of blood flow measurement devices which we operated from 2001 through 2009. From our inception through August 2011, we manufactured a line of gamma radiation detection medical devices called the neoprobe® GDS system (the GDS Business). From October 1999 through July 2010, the GDS products were marketed throughout most of the world through a distribution arrangement with Ethicon Endo-Surgery, Inc. (EES), a Johnson & Johnson company, and from July 2010 through August 2011 through a distribution arrangement with Devicor Medical Products, Inc. (Devicor). We sold the GDS Business to Devicor in August 2011. In exchange for the assets of the GDS Business, Devicor made net cash payments to us totaling $30.3 million, assumed certain liabilities of the Company associated with the GDS Business, and agreed to make royalty payments to us of up to an aggregate maximum amount of $20 million based on the net revenue attributable to the GDS Business through 2017. To date, we have not received any such royalty payments. Following the sale of the GDS business and the subsequent strategic repositioning as a precision medicines company, the Company in-licensed the two neuro tracer product candidates, NAV4694 and NAV5001. The Company progressed the development of both product candidates over the course of 2012 through 2014, moving both into Phase 3 clinical trials. However, in May 2014, the Navidea Board announced that, based on its belief that the public markets were not giving appropriate value to its Phase 3 pipeline products and was likely penalizing the Company for allocating resources to these programs, the Company would be restructuring its development efforts to focus on cost effective development of the Manocept platform while it sought development partners for NAV4694 and NAV5001. 4 In December 2014, we announced the formation of a new business unit, Macrophage Therapeutics, to further explore therapeutic applications for the Manocept platform, which was incorporated as Macrophage Therapeutics, Inc. in January 2015. Our Technology and Product Candidates Our primary development efforts over the last few years have been focused on our now-approved Lymphoseek product, as well as more recently on our other pipeline programs, including NAV4694, NAV5001, and our Manocept platform. In May 2014, the Board of Directors made the decision to refocus the Company's resources to better align the funding of our pipeline programs with the expected growth in Lymphoseek revenue. This realignment has primarily involved reducing our near-term support for our two neurological product candidates, NAV4694 and NAV5001, as we seek to secure a development partner or partners for these programs. Navidea remains committed to realizing the full potential of Lymphoseek. We intend to deploy our own sales team and strategy to accelerate the strong growth of this important product. The Company believes that the resources being devoted to drive Lymphoseek sales will lead to positive cash flows and profitability. The Company is focused on expanding the market for Lymphoseek in all relevant markets. The Company is also working to establish new sources of non-dilutive funding, including collaborations and grant funding that can augment the balance sheet as the Company works to reduce spending to levels that can be increasingly offset by growing Lymphoseek revenue. In particular, substantial progress on the Manocept platform has resulted in several promising opportunities, including our R-NAV venture beginning in July 2014, and the formation of Macrophage Therapeutics, Inc. in January 2015, which we believe may further expand the Company's pipeline but which require less near-term funding from Navidea than the two ongoing Phase 3 neurological development programs. Lymphoseek – Regulatory Background Lymphoseek is a lymph node targeting radiopharmaceutical agent intended for use in intraoperative lymphatic mapping procedures and lymphoscintigraphy employed in the overall diagnostic assessment of certain solid tumor cancers. Lymphoseek has the potential to provide oncology surgeons with information to identify key predictive lymph nodes that may harbor cancer and to help avoid the unnecessary removal of non-cancerous lymph nodes and the surrounding tissue in patients with a variety of solid tumor cancers. Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA in March 2013. In June 2014, the FDA approved a supplemental New Drug Application (sNDA) for the expanded use of Lymphoseek indicated for guiding sentinel lymph node biopsy in head and neck cancer patients with squamous cell carcinoma of the oral cavity. In September 2014, the FDA granted Orphan Drug Designation for use in sentinel lymph node detection in patients with cancer of the head and neck. This designation provides for a seven-year market exclusivity period in this indication as well as certain incentives, including federal grants, tax credits and a waiver of PDUFA filing fees. As a result of the designation, Navidea received a refund of the previously paid filing fees of $1.1 million in the fourth quarter of 2014. In October 2014, the FDA approved a second sNDA for lymphatic mapping in solid tumors and added sentinel lymph node detection for breast cancer and melanoma to the approved indications. The FDA also allowed expanded utilization of Lymphoseek with or without scintigraphic imaging, known as lymphoscintigraphy, to enable pre-operative imaging and mapping of lymph nodes to facilitate node localization during surgical procedures. Lymphoseek is now the first and only FDA-approved radiopharmaceutical agent for sentinel lymph node detection and is the only FDA-approved agent for lymphatic mapping of solid tumors. Additional trials, including an ongoing trial in colorectal cancer, and others in various stages of execution, planning or consideration, are anticipated to provide additional data to potentially support expansion of the Lymphoseek opportunity. We submitted our Marketing Authorization Application (MAA) for Lymphoseek to the EMA in December 2012. In September 2014, the Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion recommending marketing authorization for Lymphoseek for use in the EU in imaging and intraoperative detection of sentinel lymph nodes draining a primary tumor in adult patients with breast cancer, melanoma, or localized squamous cell carcinoma of the oral cavity. The CHMP's positive opinion was reviewed by the European Commission (EC), which has the authority to approve medicinal 5 products for use in the 28 countries of the EU and generally follows the recommendations of the CHMP. The EC granted marketing authorization for Lymphoseek in the EU in November 2014. Lymphoseek - Clinical Data and Licensing Background In March 2014, we announced results of a three-year, voluntary follow-up study of Lymphoseek conducted in patients who participated in a Phase 3 clinical trial (NEO3-05) of the product. The primary objective of the follow-up study was to determine the regional recurrence-free rate (RRFR) after sentinel lymph node biopsy with Lymphoseek. Results of the follow- up study indicated that in patients who were confirmed to be node-negative after sentinel lymph node biopsy (n=88; 49 breast cancer, 39 melanoma) the RRFR was 98.8% (100% in breast cancer; 97.4% in melanoma) and the disease-specific survival rate was 98.6% (97.8% in breast cancer; 100% in melanoma) at three years. In June 2014, the Company announced results from combined analyses of Phase 3 clinical trials that evaluated Lymphoseek efficacy in lymphatic mapping for identifying pathology-positive lymph nodes across multiple solid tumor types: melanoma, breast cancer and head and neck squamous cell carcinoma. The results indicated that Lymphoseek sensitivity for sentinel lymph node mapping was consistent across the tumor type studies, regardless of whether surgery was conducted on the same day as, or on the day after, injection of Lymphoseek. Additionally, for patients with head and neck cancer, Lymphoseek demonstrated a low false negative rate (FNR) of 2.6% (4.6% for same day injection before surgery and 0.0% FNR in patients injected the day prior to surgery). Results from the study comprise part of an sNDA filing for Lymphoseek which is under review by the FDA. Also in June 2014, we announced results from a post-hoc analysis of patient data from the Company’s Phase 3 clinical trial (NEO3-06) of Lymphoseek in head and neck cancer. In the NEO3-06 Phase 3 study, Lymphoseek localization to lymph nodes showed a strong correlation with a full regional lymph node dissection and pathology analysis with a low false negative rate, a priority in identifying sentinel nodes. Lymphoseek was also observed to home preferentially to pathology-positive nodes at a higher rate than pathology-negative nodes. These results suggest that Lymphoseek not only effectively targets sentinel lymph nodes, but further that its ability to highlight tumor-positive lymph nodes may be augmented mechanistically by the recruitment of macrophages to cancer-harboring lymph nodes. In January 2015, we announced that an analysis comparing sentinel lymph node (SLN) biopsy procedures using Lymphoseek (TcTM) + vital blue dye (VDB) to filtered [99mTc] sulfur colloid (fTcSC) + VBD in breast cancer patients was published in the Annals of Surgical Oncology. Results demonstrated that (i) Lymphoseek patients had significantly fewer SLNs removed per procedure (mean TcTM: 1.85 vs. fTcSC: 3.24, p < 0.0001); (ii) proportionally fewer nodes were necessary to detect cancer spread; and (iii) nodes removed using Lymphoseek held greater predictive value for diagnosing the spread of breast cancer to lymph nodes. The study, “Comparison of [99mTc]Tilmanocept and Filtered [99mTc]Sulfur Colloid for Identification of SLNs in Breast Cancer Patients,” authored by Anne Wallace, M.D., et. al., at the UC San Diego School of Medicine was published in the January print issue of the journal Annals of Surgical Oncology. In February 2015, we announced the peer-reviewed publication of results from a Phase 3 clinical trial of Lymphoseek in patients with certain head and neck cancer in the journal Annals of Surgical Oncology. The trial assessed the performance of Lymphoseek-guided sentinel node biopsy against the standard of care, nodal pathology, in planned elective neck dissection. Results demonstrated that Lymphoseek met the primary efficacy endpoint of accurately identifying sentinel lymph nodes in subjects with node-negative squamous cell carcinoma of the oral cavity, as compared to the removal of all lymph nodes during multiple level nodal dissection surgery of the head and neck. Pathology assessment of lymph nodes from the multiple-level nodal dissection surgery is considered the “gold standard” to determine the presence and extent of cancer spread. The study, “[99mTc]Tilmanocept Accurately Detects Sentinel Lymph Nodes and Predicts Pathology Status in Patients with Oral Squamous Cell Carcinoma of the Head and Neck: Results of a Phase III Multi-Institutional Trial” was published as an Online First article in the journal Annals of Surgical Oncology. Data from this study were previously presented in part at the 2013 Society of Nuclear Medicine and Molecular Imaging Annual Meeting (Vancouver, British Columbia), at the 2013 American College of Surgeons Clinical Congress (Washington, DC), and at the 6th European Congress on Head and Neck Oncology- 2014 (Liverpool, UK). 6 An investigator-initiated study is currently underway at the University of California, San Diego (UCSD) to evaluate injection site pain between Lymphoseek and an alternative radiopharmaceutical that is commonly used in lymphatic mapping procedures. The study is designed to determine if patients receiving Lymphoseek experience the same or less pain following injection compared to radiolabeled sulfur colloid, and to measure the amount of discomfort that patients report during and after injection, as well as other characteristics of performance. In July 2014, we amended our license agreement with UCSD for the exclusive world-wide rights to Lymphoseek. The amended license agreement is effective until the third anniversary of the expiration date of the longest-lived underlying patent. Under the terms of the license agreement, UCSD has granted us the exclusive rights to make, use, sell, offer for sale and import licensed products as defined in the agreement and to practice the defined licensed methods during the term of the agreement. We may also sublicense the patent rights, subject to certain sublicense terms as defined in the agreement. In consideration for the license rights, we agreed to make payments to UCSD upon successfully reaching certain clinical, regulatory and cumulative sales milestones, and a royalty on net sales of licensed products subject to a $25,000 minimum annual royalty. We also agreed to reimburse UCSD for all patent-related costs and to meet certain diligence targets. In September 2014, Navidea received a notice of award for a Fast Track Small Business Innovation Research (SBIR) grant providing for up to $1.67 million from the National Cancer Institute National Institutes of Health (NIH), to fund evaluation of Lymphoseek in women with cervical cancer. The multicenter clinical study in patients with early cervical cancer will seek to assess and provide data in support of the use of Lymphoseek in sentinel lymph node biopsy procedures which identify and evaluate the lymph nodes most likely to harbor additional cancer. The SBIR grant is awarded in two parts with the potential for total grant money up to $1.67 million over two and a half years. The first six-month funding segment of $165,917, which has already been awarded, is expected to enable Navidea to identify and qualify trial sites and secure necessary contracts and institutional review board approvals. The second funding segment could provide for up to an additional $1.5 million to be used to accrue participants, perform the sentinel lymph node procedures and pathology evaluations, and perform data analyses to confirm the safety and effectiveness of Lymphoseek. Manocept Platform - Diagnostics and Therapeutics Background Navidea’s Manocept platform is predicated on the ability to specifically target the CD206 mannose receptor expressed on macrophages. Macrophages play important roles in many disease states and are an emerging target in many diseases where diagnostic uncertainty exists. This flexible and versatile platform serves as an engine for purpose-built molecules that may enhance diagnostic accuracy, clinical decision-making and ultimately patient care, while offering the potential to utilize a breadth of diagnostic modalities, including SPECT, PET, intra-operative and/or optical-fluorescence detection, as well as potentially in the delivery of therapeutic compounds targeting macrophages and their role in a variety of immune- and inflammation-based disorders. The Company’s FDA-approved sentinel node/lymphatic mapping agent, Lymphoseek, is representative of the ability to successfully exploit this mechanism to develop powerful new products. Impairment of the macrophage-driven disease mechanisms is an area of increasing focus in medicine. The number of people affected by all the inflammatory diseases combined is estimated at more than 40 million in the United States and perhaps 700 million worldwide, making these macrophage-mediated diseases an area of remarkable clinical importance. There are many recognized disorders having macrophage involvement, including rheumatoid arthritis (RA), atherosclerosis/vulnerable plaque, Crohn’s disease, tuberculosis (TB), systemic lupus erythematosis, Kaposi’s Sarcoma (KS), and others that span clinical areas in oncology, autoimmunity, infectious diseases, cardiology, and inflammation. Data from studies using agents from the Manocept platform in RA, KS and TB were published in a special supplement, Nature Outlook: Medical Imaging, in Nature’s October 31, 2013 issue. The supplement included a White Paper by Navidea entitled “Innovations in receptor-targeted precision imaging at Navidea: Diagnosis up close and personal,” focused on the Manocept platform. In February 2014, data utilizing compounds from our Manocept platform in models of RA were presented by representatives from The Ohio State University at a Keystone Symposia on Molecular Cell Biology of Macrophages in Human Disease. The studies demonstrate the ability of fluorescent Cy3-tilmanocept to identify and localize to disease-state macrophages when administered intravenously, enabling detection of immune-mediated arthritis in affected joints in vivo in mice. Results were 7 confirmed using histopathology. The data highlighted the identification of immune-mediated inflammation seen in arthritic joints of arthritis-affected mice but not in control mice or un-affected joints within arthritis-affected mice. The imaging results in this study showed preferential localization of macrophages by Cy3-tilmanocept in affected joints with little to no localization in unaffected joints. In April 2014, collaborators from the University of California, San Francisco presented results at the 2014 American Association for Cancer Research conference, highlighting the potential utility of imaging agents derived from the Manocept platform in identifying affected tissues and lymph nodes in patients with KS. The investigators concluded that, based on the results obtained, labeled imaging agents from the CD206-targeting Manocept platform provide potential avenues to enhance diagnosis and staging in this disorder. In July 2014, Navidea announced that it formed a joint enterprise with Essex Woodlands-backed Rheumco, LLC, to develop and commercialize radiolabeled diagnostic and therapeutic products for rheumatologic and arthritic diseases. The joint enterprise, called R-NAV, LLC (R-NAV), will combine Navidea’s proprietary Manocept CD206 macrophage targeting platform and Rheumco’s proprietary Tin-117m radioisotope technology to focus on leveraging the platforms across several indications with high unmet medical need. Also in July 2014, the Company completed a license agreement with UCSD for the exclusive world-wide rights in all diagnostic and therapeutic uses of tilmanocept. The license agreement is effective until the third anniversary of the expiration date of the longest-lived underlying patent. Under the terms of the license agreement, UCSD has granted us the exclusive rights to make, use, sell, offer for sale and import licensed products for all diagnostic and therapeutic uses as defined in the agreement and to practice the defined licensed methods during the term of the agreement. We may also sublicense the patent rights, subject to certain sublicense terms as defined in the agreement. In consideration for the license rights, we agreed to pay UCSD a license issue fee of $25,000 and license maintenance fees of $25,000 per year. We also agreed to make payments to UCSD upon successfully reaching certain clinical, regulatory and cumulative sales milestones, and a royalty on net sales of licensed products subject to a $25,000 minimum annual royalty. We also agreed to reimburse UCSD for all patent-related costs and to meet certain diligence targets. Over the course of the last few years, management has provided periodic updates regarding the status of the NAV1800 development program we previously referred to as the RIGS program, or radio-immuno-guided surgery. RIGS was originally intended to use a monoclonal antibody as an aid in identifying a primary tumor, ascertaining tumor margins, or determining the extent and location of occult and metastatic tumor in patients with solid tumor cancers, such as colorectal cancer, ovarian cancer, prostate cancer, lung cancer and other cancers of epithelial origin. The detection of clinically occult tumor is intended to provide the surgeon with a more accurate assessment of the extent and location of disease, and therefore may impact the surgical and therapeutic management of the patient. Our most recent comments regarding NAV1800 had indicated the lower prioritization of this program relative to our other development activities and comments to the effect that we would not be spending on this program beyond the boundaries of the $1.5 million grant we were awarded in September 2012. Part of our ongoing consideration of the RIGS program has involved an evaluation of the manufacturability of the monoclonal antibody known as CC49 and its humanized derivative, and ultimately their clinical and commercial viability. In recent years, these evaluations have caused us to question the viability of the monoclonal antibody initiative as it was originally envisioned. During the same time period, we’ve learned more about tilmanocept, the underlying Manocept backbone, and the potential utility of tilmanocept in identifying tumor-associated macrophages (TAMs), and their consequent potential utility in identifying tumor itself. To that end, we petitioned the NIH to repurpose the grant we were previously awarded towards the study of TAMs in colorectal cancer. We recently received confirmation of the acceptance of this repurposing. We expect this repurposed grant will now support the collaboration we entered into in November 2013 with investigators at the University of Alabama at Birmingham (UAB) to assess diagnostic approaches in colorectal cancer patients. We recognize this repurposing represents a major refocusing of the original RIGS initiative, but we are confident that this change represents the best course of action at this time towards benefiting patients afflicted with colorectal cancer and is one which is consistent with the excitement we’re seeing on many fronts related to our work on the Manocept platform. However, we cannot assure you that if further clinical trials for this product proceed, that they 8 will be successful, that the product will achieve regulatory approval, or if approved, that it will achieve market acceptance. See Risk Factors. Macrophage Therapeutics Background In December 2014, the Company formed a new business unit, Macrophage Therapeutics, to further explore therapeutic applications for the Manocept platform. In January 2015, we incorporated the business unit as Macrophage Therapeutics, Inc., a wholly-owned subsidiary of Navidea. Also in December 2014, Macrophage Therapeutics hosted a conference where data was presented using the Manocept platform compound, tilmanocept, that was generated by independent academic collaborators with expertise in the HIV/AIDS, cancer, TB, RA and cardiovascular disease therapeutic areas. The technical presentations highlighted tilmanocept’s ability to target activated macrophages implicated in pathology. In February 2015, we announced the appointment of leading experts to a newly formed scientific advisory board (SAB) to serve as a strategic resource to Macrophage Therapeutics as it looks to develop therapeutic applications for Navidea’s Manocept platform. The inaugural SAB consortium is comprised of world-renowned scientists and clinicians in the areas of oncology, immunology, autoimmune diseases and macrophage biology. The SAB will serve as an ongoing resource to provide management with counsel and guidance pertaining to the research, development, and clinical application of Manocept technology. In March 2015, Macrophage Therapeutics, Inc. (MT) entered into an agreement to sell up to 50 shares of its Series A Convertible Preferred Stock (MT Preferred Stock) and warrants to purchase up to 1,500 common shares of Macrophage Therapeutics (MT Common Stock) to Platinum-Montaur Life Sciences, LLC (Platinum) and Dr. Michael Goldberg for a purchase price of $50,000 per share of MT Preferred Stock. On March 13, 2015, we announced that definitive agreements with the investors had been signed for the sale of the first tranche of 10 shares of MT Preferred Stock and warrants to purchase 300 shares of MT Common Stock to these investors, with gross proceeds to Macrophage Therapeutics of $500,000. Under the agreement, 40% of the MT Preferred Stock and warrants are committed to be purchased by Dr. Goldberg, and the balance by Platinum. The full 50 shares of MT Preferred Stock and warrants to be sold under the agreement are convertible into and exercisable for MT Common Stock representing an aggregate 1% interest on a fully converted and exercised basis. In addition, we entered into an Exchange Agreement with the investors providing them an option to exchange their MT Preferred Stock for our common stock in the event that MT has not completed a public offering with gross proceeds to MT of at least $50 million by the second anniversary of the closing of the initial sale of MT Preferred Stock, at an exchange rate per share obtained by dividing $50,000 by the greater of (i) 80% of the twenty-day volume weighted average price per share of our common stock on the second anniversary of the initial closing or (ii) $3.00. To the extent that the investors do not timely exercise their exchange right, we have the right to redeem their MT Preferred Stock for a price equal to $58,320 per share. We also granted MT an exclusive license for certain therapeutic applications of the Manocept technology. The Company continues to evaluate emerging data in other disease states to define areas of focus, development pathways and partnering options to capitalize on the Manocept platform, including ongoing studies in KS and RA. The immune- inflammatory process is remarkably complex and tightly regulated with indicators that initiate, maintain and shut down the process. Macrophages are immune cells that play a critical role in the initiation, maintenance, and resolution of inflammation. They are activated and deactivated in the inflammatory process. Because macrophages may promote dysregulation that accelerates or enhances disease progression, diagnostic and therapeutic interventions that target macrophages may open new avenues for controlling inflammatory diseases. We cannot assure you that further evaluation or development will be successful, that any Manocept platform product candidate will ultimately achieve regulatory approval, or if approved, the extent to which it will achieve market acceptance. See Risk Factors. 9 NAV4694 (Candidate for Out-License) NAV4694 is a Fluorine-18 labeled precision radiopharmaceutical candidate for use in the imaging and evaluation of patients with signs or symptoms of AD and potentially also MCI. NAV4694 binds to beta-amyloid deposits in the brain that can then be imaged in PET scans. Amyloid plaque pathology is a required feature of AD and the presence of amyloid pathology is a supportive feature for diagnosis of probable AD. Patients who are negative for amyloid pathology do not have AD. NAV4694 has been studied in rigorous pre-clinical studies and clinical trials in humans. Clinical studies through Phase 3 have included subjects with MCI, suspected AD patients, and healthy volunteers. Results suggest that NAV4694 has the potential ability to image patients quickly and safely with high sensitivity and specificity. In May 2014, the Board of Directors made the decision to refocus the Company's resources to better align the funding of our pipeline programs with the expected growth in Lymphoseek revenue. This realignment primarily involved reducing our near- term support for our neurological product candidates, including NAV4694, as we sought a development partner or partners for these programs. The Company is currently engaged in evaluating term sheets related to NAV4694. NAV5001 (Candidate for Out-License) NAV5001 is a patented Iodine-123 labeled small molecule radiopharmaceutical used with SPECT imaging to identify the status of specific regions in the brains of patients suspected of having PD. The agent binds to the dopamine transporter (DAT) on the cell surface of dopaminergic neurons in the striatum and substantia nigra regions of the brain. Loss of these neurons is a hallmark of PD. Results from clinical trials to date have demonstrated that NAV5001 has high affinity for DAT and rapid kinetics which enable the generation of clean images quickly, beginning within about 20 minutes after injection, while other agents have waiting periods from 4 to 24 hours before imaging can occur. In addition to its potential use as an aid in the differential diagnosis of PD and movement disorders, NAV5001 may also be useful in the diagnosis of Dementia with Lewy Bodies, one of the most common forms of dementia after AD. In May 2014, the Board of Directors made the decision to refocus the Company's resources to better align the funding of our pipeline programs with the expected growth in Lymphoseek revenue. This realignment primarily involves reducing our near- term support for our neurological product candidates, including NAV5001, as we seek to secure a development partner for these programs. The Company is currently engaged in evaluating term sheets related to NAV5001. Market Overviews Lymphoseek - 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 589,000 deaths in 2015 in the U.S. alone. The Agency for Healthcare Research and Quality (AHRQ) has estimated that the direct medical costs for cancer in the U.S. for 2011 were $88.7 billion. Additionally, the ACS estimates that approximately 1.7 million new cancer cases will be diagnosed in the U.S. during 2015. For the types of cancer to which our oncology agents may be applicable (breast, melanoma, head and neck, prostate, lung, colorectal, gastrointestinal and gynecologic), the ACS has estimated that nearly 1.1 million new cases will occur in the U.S. in 2015. Currently, the application of intraoperative lymphatic mapping (ILM) is most established in breast cancer. Breast cancer is the second leading cause of death from cancer among all women in the U.S. The probability of developing breast cancer generally increases with age, rising from about 1.9% in women under age 49 to 6.7% in women age 70 or older. According to the ACS, over 231,000 new cases of invasive breast cancer are expected to be diagnosed during 2015 in the U.S. alone. The incidence rate for breast cancer appears to be stable. Thus, we believe that the aging of the population, combined with improved 10 education and awareness of breast cancer and diagnostic methods, will continue to lead to an increased number of breast cancer surgical diagnostic procedures. The use of ILM is also common in melanoma. The ACS estimates that approximately 74,000 new cases of melanoma will be diagnosed in the U.S. during 2015. In addition to breast cancer and melanoma, we believe that our oncology products may have utility in other cancer types with over another 823,000 new cases expected during 2015 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, gynecologic, and non-small cell lung. Lymphoseek has now been cleared to market in the U.S. for cancers other than breast or melanoma, however, we cannot assure you that it will achieve significant revenue. See Risk Factors. Manocept Diagnostics and Macrophage Therapeutics Market Overview Impairment of the macrophage-driven disease mechanism is an area of increasing focus in medicine. The number of people affected by all the inflammatory diseases combined is estimated at more than 40 million in the United States and perhaps 700 million worldwide, making these macrophage-mediated diseases an area of remarkable clinical importance. There are many recognized disorders having macrophage involvement, including rheumatoid arthritis (RA), atherosclerosis/vulnerable plaque, Crohn’s disease, tuberculosis (TB), systemic lupus erythematosis, Kaposi’s sarcoma (KS), and others that span clinical areas in oncology, autoimmunity, infectious diseases, cardiology, and inflammation. Data from studies using agents from the Manocept platform in RA, KS and TB were published in a special supplement, Nature Outlook: Medical Imaging, in Nature’s October 31, 2013 issue. The supplement included a White Paper by Navidea entitled “Innovations in receptor-targeted precision imaging at Navidea: Diagnosis up close and personal,” focused on the Manocept platform. While Navidea’s development of the Manocept platform still in relatively early stage, below is a table summarizing potential target markets in which Manocept may have potential diagnostic or therapeutic applications: Macrophage-Associated Diseases for CD206 Targeting (thousands) Incidence Prevalence Disease Kaposi's Sarcoma Tuberculosis Multiple Sclerosis Crohn's Disease Systemic Lupus Erythematosus Rheumatoid Arthritis Neuro- degenerative Diseases Diabetes Athero- sclerosis Worldwide 50 8,700 1,800 3,800 27,100 60,000 33,000 122,000 480,000 NAV4694 - Alzheimer’s Disease Market Overview The AA estimates that more than 5.2 million Americans had AD in 2014. On a global basis, Alzheimer’s Disease International estimated in 2013 that there were 44.4 million people living with dementia. AA estimates that total costs for AD care was approximately $214 billion in 2014 and is expected to rise to $1.2 trillion by 2050. AA also estimates that there are over 15 million AD and dementia caregivers providing 17.7 billion hours of unpaid care valued at over $220.2 billion. AD is the sixth- leading cause of death in the country and the only cause of death among the top 10 in the U.S. that cannot be prevented, cured or even slowed. Based on mortality data from 2000-2010, deaths from AD have risen 68 percent while deaths attributed to the number one cause of death, heart disease, decreased 16 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. NAV5001 - 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 11 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. The PDF estimates that the combined direct and indirect cost of PD is nearly $25 billion per year in the U.S. alone. 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. Marketing and Distribution We believe the most preferable and likely distribution partners for Lymphoseek would be entities with established radiopharmaceutical distribution channels, although it is possible that other entities with more traditional oncology or neurological pharmaceutical portfolios may also have interest. During the fourth quarter of 2007, we executed an agreement with Cardinal Health Inc.’s (Cardinal) 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 receives a significant share of the revenue from each patient dose of Lymphoseek sold. In addition, Navidea will receive up to $3 million in payments upon the achievement of certain sales milestones by Cardinal Health. We cannot assure you that we will be able to maintain a successful relationship with Cardinal Health, on terms acceptable to the Company, or at all. In May 2013 the Company announced the commercial launch of Lymphoseek in the U.S. through a distribution agreement with Cardinal. In addition to distributing Lymphoseek to hospitals, Cardinal augments product promotion to nuclear medicine professionals. The Navidea commercial team is responsible for designing and driving Lymphoseek promotional activities and conducting medical education programs tailored to the oncology treatment team, including surgeons and nuclear medicine physicians. Although it is early after the most recent FDA label expansion, we believe we are seeing positive signs in measures of success we believe are critical to the success of our new commercial strategy and deployment. With respect to Lymphoseek commercialization in Europe, we are aiming to deploy a specialty pharmaceutical strategy to commercialization that would be supportive of premium product positioning and reinforce Lymphoseek's clinical value proposition, as opposed to a commodity or a generics positioning approach. Unlike the U.S., where institutions typically rely on radiopharmaceutical products which are compounded and delivered by specialized radiopharmacy distributors such as Cardinal, institutions in Europe predominantly purchase non-radiolabeled material and compound the radioactive product on- site. In March 2015, we announced that we had entered into an exclusive sublicense agreement for the commercialization and distribution of Lymphoseek 250 microgram kit for radiopharmaceutical preparation (tilmanocept) in the European Union with SpePharm AG (an affiliate of Norgine BV), a European specialist pharmaceutical company with an extensive pan-European presence. Under the terms of the exclusive license agreement, Navidea will supply Lymphoseek product to Norgine; however, Navidea will transfer responsibility for regulatory maintenance of the Lymphoseek Marketing Authorization to Norgine. Norgine will also be responsible for pricing, reimbursement, sales, marketing, medical affairs, and regulatory activities. In connection with entering into the agreement, Navidea is entitled to an upfront payment of $2 million, milestones totaling up to an additional $5 million, and royalties on European net sales. The initial territory covered by the agreement includes all 28 member states of the European Economic Community with the option to expand into additional geographical areas. In November 2013, Navidea completed an agreement with Enigma Biomedical Group for the distribution of Lymphoseek in Canada, affording local access to that market as well. In January 2014, we entered into a distribution agreement for Lymphoseek in Taiwan with Global Medical Solutions Taiwan, Ltd. (GMST), a leading in-country distributor of nuclear medicine and diagnostic imaging products. The companies will work together to address all needed Taiwanese FDA regulatory requirements and expect local approval in 2015. Prior to complete regulatory approval, in appropriate situations, the product 12 will be made available in accordance with named-patient mechanisms. The agreement anticipates distribution of non- radioactive kits as well as unit-dose product which will be radiolabeled at the GMST commercial radiopharmacy, affording flexibility in meeting the needs of end users in the Taiwanese market. In August 2014, Navidea entered into an exclusive agreement with a wholly-owned subsidiary of Hainan Sinotau Pharmaceutical Co., Ltd. (Sinotau), a pharmaceutical organization with a broad China focus in oncology and other therapeutic areas, who will develop and commercialize Lymphoseek in China. In exchange, Navidea will earn revenue based on unit sales to Sinotau, a royalty based on Sinotau’s sales of Lymphoseek and up to $2.5 million in milestone payments from Sinotau, including a $300,000 non-refundable upfront payment. As part of the agreement, Sinotau is responsible for costs and conduct of clinical studies and regulatory applications to obtain Lymphoseek approval by the China Food and Drug Administration (CFDA). Upon approval, Sinotau will be responsible for all Lymphoseek sales, marketing, market access and medical affairs activities in China and excluding Hong Kong, Macau and Taiwan. Navidea and Sinotau will jointly support certain pre-market planning activities with a joint commitment on clinical and market development programs pending CFDA approval. In addition to the $300,000 upfront payment, Navidea is eligible for $700,000 in milestone payments up to and through product approval, and an additional $1.5 million in sales milestones. We also commenced shipment of Lymphoseek to select medical centers in the Middle East in late 2013. In September 2014, we executed a non-exclusive distribution agreement for distribution of Lymphoseek in Puerto Rico. We believe that with international partnerships to complement our position in the U.S. and EU, we will help establish Lymphoseek as a global leader in lymphatic mapping, as we are aware of no other company which has this global geographic range. We cannot assure you that Lymphoseek will achieve regulatory approval in any market outside the U.S. or EU, or if approved, that it will achieve market acceptance in any market. We currently have no distribution agreements for NAV4694 or NAV5001. 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. See Risk Factors. Manufacturing We currently use and expect to continue to be dependent upon contract manufacturers to manufacture each of our product candidates. We have established a quality control and quality assurance program, including a set of standard operating procedures and specifications with the goal that our products and product candidates are manufactured in accordance with current good manufacturing practices (cGMP) and other applicable domestic and international regulations. We will need to invest in additional manufacturing and supply chain resources, and may seek to enter into additional collaborative arrangements with other parties that have established manufacturing capabilities. It is likely that we will continue to rely on third-party manufacturers for our development and commercial products on a contract basis. Lymphoseek Manufacturing Reliable Biopharmaceutical Corporation (Reliable) produces the drug substance and OSO BioPharmaceuticals Manufacturing, LLC (OsoBio) performs final product manufacturing including final drug formulation, lyophilization (freeze-drying) and packaging processes. Once packaged, the vialed drug can then be shipped to a hospital or regional commercial radiopharmacy where it will be made radioactive (radiolabeled) with 99mTc to become the final form of Lymphoseek to be administered to a patient. Both organizations have assisted Navidea in the preparation of the chemistry, manufacturing and control (CMC) sections of our submissions to the FDA and the EMA. Both Reliable and OsoBio are registered manufacturers with the FDA and the EMA. 13 In November 2009, we completed a Manufacture and Supply Agreement with Reliable for the manufacture of the bulk drug substance with an initial term of 10 years. In September 2013, we entered into a Manufacturing Services Agreement with OsoBio for contract pharmaceutical development, manufacturing, packaging and analytical services for Lymphoseek. The agreement is through December 2016, and automatically renews for additional two-year periods. We cannot assure you that we will be successful in completing future agreements for the supply of Lymphoseek on terms acceptable to the Company, or at all. NAV4694 Manufacturing Supplies of NAV4694 used in clinical development through Phase 2b were manufactured by AstraZeneca through various arrangements. In May 2012, we executed an agreement with Molecular NeuroImaging, LLC (MNI) to produce and distribute NAV4694 to imaging centers within a specified geographic region. In October 2012, we completed an agreement with Spectron mrc, LLC (Spectron) to produce NAV4694 for use at certain clinical trial sites. In August 2013, we entered into a Manufacturing Services Agreement with PETNET Solutions, Inc. (PETNET) for the manufacture and distribution of NAV4694 with an initial term of 3 years. Under the terms of the agreement, PETNET will manufacture NAV4694 clinical trial material at select U.S. radiopharmacies, with the possibility of expanding into additional PETNET locations in the future. Given the uncertainty regarding our involvement in future development of NAV4694, we cannot assure you that we will be successful in executing future agreements for the supply of NAV4694 on terms acceptable to the Company, or at all. NAV5001 Manufacturing Supplies of NAV5001 used in clinical development through Phase 3 were manufactured by Alseres Pharmaceuticals, Inc. (Alseres) under an agreement they had in place with Nordion, Inc., a Canadian corporation and well-recognized manufacturer of 123I and nuclear medicine labeled imaging agents. In May 2013, we entered into an agreement with Nordion (Canada) Inc. (Nordion) to produce and supply NAV5001 for our late-phase clinical trials. Nordion will radiolabel NAV5001, manage the manufacturing logistics, and ship it to third-party clinical trial sites on behalf of Navidea. The initial three-year term expires in May 2016. Given the uncertainty regarding our involvement in future development of NAV5001, we cannot assure you that we will be successful in executing future agreements for the supply of NAV5001 on terms acceptable to the Company, or at all. 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 14 through collaborative arrangements with large pharmaceutical and established biotechnology companies. Many of these competitors have products that have been approved or are in development and operate large, well-funded research and development programs. Many of our existing or potential competitors have substantially greater financial, research and development, regulatory, marketing, and production resources than we have. Other companies may develop and introduce products and processes competitive with or superior to ours. We expect to encounter significant competition for our pharmaceutical products. Companies that complete clinical trials, obtain required regulatory approvals and commence commercial sales of their products before us may achieve a significant competitive advantage if their products work through a similar mechanism as our products and if the approved indications are similar. A number of biotechnology and pharmaceutical companies are developing new products for the treatment of the same diseases being targeted by us. In some instances, such products have already entered late-stage clinical trials or received FDA approval and may be marketed for some period prior to the approval of our products. We believe that our ability to compete successfully will be based on our ability to create and maintain scientifically advanced “best-in-class” technology, develop proprietary products, attract and retain scientific personnel, obtain patent or other protection for our products, obtain required regulatory approvals and manufacture and successfully market our products, either alone or through third parties. We expect that competition among products cleared for marketing will be based on, among other things, product efficacy, safety, reliability, availability, price, and patent position. See Risk Factors. 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, some surgeons still 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, a subsidiary of Sun Pharmaceutical Industries Ltd. 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 for use as biomarkers to aid in detection of AD. Developed through Eli Lilly’s wholly-owned Avid Radiopharmaceuticals (Avid), florbetapir, now known as Amyvid, received FDA approval to market in April 2012. Florbetapir also received marketing authorization in the EU in January 2013. In addition to fluorbetapir, there are two other beta-amyloid imaging agents available: florbetaben from Piramal Enterprises, Imaging Division, and flutemetamol from GE Healthcare. In October 2013, the FDA approved flutemetamol, under the name VizamylTM, for adults being evaluated for AD and dementia with PET brain imaging. Florbetaben, now called NeuraceqTM, received EMA approval for use in PET imaging of the brain to estimate beta-amyloid neuritic plaque density in adult patients with cognitive impairment who are being evaluated for AD and other causes of cognitive decline from the EMA in February 2014 and from the FDA in March 2014. NAV5001 Competition In July 2000, GE Healthcare received EMA approval to market DaTscanTM (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 in the EU for DaTscan for use in DLB. For patients with dementia, DaTscan has been successfully used in Europe to separate 15 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. Patents and Proprietary Rights The patent position of biotechnology, including our company, generally is highly uncertain and may involve complex legal and factual questions. Potential competitors may have filed applications, or may have been issued patents, or may obtain additional patents and proprietary rights relating to products or processes in the same area of technology as that used by the Company. The scope and validity of these patents and applications, the extent to which we may be required to obtain licenses thereunder or under other proprietary rights, and the cost and availability of licenses are uncertain. We cannot assure you that our patent applications or those licensed to us will result in additional patents being issued or that any of our patents or those licensed to us will afford protection against competitors with similar technology; nor can we assure you that any of these patents will not be designed around by others or that others will not obtain patents that we would need to license or design around. We also rely upon unpatented trade secrets. We cannot assure you that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets, or disclose such technology, or that we can meaningfully protect our rights to our unpatented trade secrets. We require our employees, consultants, advisers, and suppliers to execute a confidentiality agreement upon the commencement of an employment, consulting or manufacturing relationship with us. The agreement provides that all confidential information developed by or made known to the individual during the course of the relationship will be kept confidential and not disclosed to third parties except in specified circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual will be the exclusive property of our company. We cannot assure you, however, that these agreements will provide meaningful protection for our trade secrets in the event of an unauthorized use or disclosure of such information. We also employ a variety of security measures to preserve the confidentiality of our trade secrets and to limit access by unauthorized persons. We cannot assure you, however, that these measures will be adequate to protect our trade secrets from unauthorized access or disclosure. See Risk Factors. Manocept/Lymphoseek Intellectual Property Lymphoseek , as well as certain aspects of intellectual property underlying the Manocept platform, is under exclusive worldwide license from the Regents of the University of California. The license grants Navidea the commercialization rights to Lymphoseek for diagnostic imaging and intraoperative detection applications. Lymphoseek, including the Manocept backbone composition and methods of use, is also the subject of 3 patent families totaling 19 patents and patent applications in the United States and certain major foreign markets. The patents and patent applications held by the Regents of the University of California have been licensed exclusively to Navidea for all diagnostic and therapeutic uses worldwide. The first composition of matter patent covering Manocept was issued in the United States in June 2002. The claims of the composition of matter patent covering Manocept have been allowed in the EU and issued in the majority of major-market EU countries in 2005. The composition of matter patent has also been issued in Japan. We have filed additional patent applications in the U.S. and certain major foreign markets related to manufacturing processes for Lymphoseek and Manocept, the first of which was issued in the U.S. in 2013. We have filed further patent applications jointly with The Ohio State Innovation Foundation related to CD206 expressing cell-related disorders. We will also rely on trademark protection for products that we expect to commercialize and have registered or are in the process of registering the marks Lymphoseek® and Manocept™ in the U.S. and other markets. NAV4694 Intellectual Property NAV4694 is being developed under an exclusive worldwide license from AstraZeneca. The NAV4694 license grants Navidea commercialization rights to the fluorine-18 labeled biomarker for use as an aid in the diagnosis of AD. NAV4694 is the subject 16 of 3 issued patents and 18 patents pending in 12 foreign jurisdictions covering the [18F]NAV4694 drug substance and the NAV4694 precursor. NAV5001 Intellectual Property NAV5001 is being developed under an exclusive sublicense from Alseres. The NAV5001 sublicense grants Navidea commercialization rights to the iodine-123 labeled biomarker for use as an aid in the diagnosis of PD and other movement disorders, with potential use as a diagnostic aid in dementia. NAV5001 is the subject of 2 issued patents, each expiring in 2030, 3 patent applications pending in the U.S., and 9 patent applications pending in 3 foreign jurisdictions. Government Regulation The research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing, among other things, of our products are extensively regulated by governmental authorities in the United States and other countries. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, Public Health Service Act, and their implementing regulations. Failure to comply with applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications or supplemental applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution. We also may be subject to regulation under the Occupational Safety and Health Act, the Atomic Energy Act, the Toxic Substances Control Act, the Export Control Act and other present and future laws of general application as well as those specifically related to radiopharmaceuticals. Most aspects of our business are subject to some degree of government regulation in the countries in which we conduct our operations. As a developer, manufacturer and marketer of medical products, we are subject to extensive regulation by, among other governmental entities, the FDA and the corresponding state, local and foreign regulatory bodies in jurisdictions in which our products are intended to be sold. These regulations govern the introduction of new products, the observance of certain standards with respect to the manufacture, quality, safety, efficacy and labeling of such products, the maintenance of certain records, the tracking of such products, performance surveillance and other matters. Failure to comply with applicable federal, state, local or foreign laws or regulations could subject us to enforcement action, including product seizures, recalls, withdrawal of marketing clearances, and civil and criminal penalties, any one or more of which could have a material adverse effect on our business. We believe that we are in substantial compliance with such governmental regulations. However, federal, state, local and foreign laws and regulations regarding the manufacture and sale of radiopharmaceuticals are subject to future changes. We cannot assure you that such changes will not have a material adverse effect on our company. For some products, and in some countries, government regulation is significant and, in general, there is a trend toward more stringent regulation. In recent years, the FDA and certain foreign regulatory bodies have pursued a more rigorous enforcement program to ensure that regulated businesses like ours comply with applicable laws and regulations. We devote significant time, effort and expense addressing the extensive governmental regulatory requirements applicable to our business. To date, we have not received a noncompliance notification or warning letter from the FDA or any other regulatory bodies of alleged deficiencies in our compliance with the relevant requirements, nor have we recalled or issued safety alerts on any of our products. However, we cannot assure you that a warning letter, recall or safety alert, if it occurred, would not have a material adverse effect on our company. See Risk Factors. In the early- to mid-1990s, the review time by the FDA to clear medical products for commercial release lengthened and the number of marketing clearances decreased. In response to public and congressional concern, the FDA Modernization Act of 1997 (the 1997 Act) was adopted with the intent of bringing better definition to the clearance process for new medical products. While the FDA review times have improved since passage of the 1997 Act, we cannot assure you that the FDA review processes will not delay our Company's introduction of new products in the U.S. in the future. In addition, many foreign countries have adopted more stringent regulatory requirements that also have added to the delays and uncertainties associated 17 with the development and release of new products, as well as the clinical and regulatory costs of supporting such releases. It is possible that delays in receipt of, or failure to receive, any necessary clearance for our new product offerings could have a material adverse effect on our business, financial condition or results of operations. See Risk Factors. The U.S. Drug Approval Process None of our drugs may be marketed in the U.S. until such drug has received FDA approval. The steps required before a drug may be marketed in the U.S. include: • • • • • • preclinical laboratory tests, animal studies and formulation studies; submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin; adequate and well-controlled human clinical trials to establish the safety and efficacy of the investigational product for each indication; submission to the FDA of 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 current good clinical practices (cGCP) standards; and FDA review and approval of the NDA. Preclinical tests include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA unless, before that time, the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin. Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. The study protocol and informed consent information for study subjects in clinical trials must also be approved by an institutional review board at each institution where the trials will be conducted. Study subjects must sign an informed consent form before participating in a clinical trial. Phase 1 usually involves the initial introduction of the investigational product into people to evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to gain an early indication of its effectiveness. Phase 2 usually involves trials in a limited subject population to (i) evaluate dosage tolerance and appropriate dosage, (ii) identify possible adverse effects and safety risks, and (iii) evaluate preliminarily the efficacy of the product candidate for specific indications. Phase 3 trials usually further evaluate clinical efficacy and further test its safety by using the product candidate in its final form in an expanded subject population. There can be no assurance that Phase 1, Phase 2 or Phase 3 testing will be completed successfully within any specified period of time, if at all. Furthermore, we or the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. The FDA and the IND sponsor may agree in writing on the design and size of clinical studies intended to form the primary basis of an effectiveness claim in an NDA application. This process is known as a Special Protocol Assessment (SPA). These agreements may not be changed after the clinical studies begin, except in limited circumstances. The existence of a SPA, however, does not assure approval of a product candidate. 18 Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical studies, together with other detailed information, including information on the manufacturing quality and composition of the investigational product, are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The testing and approval process requires substantial time, effort and financial resources. Submission of an NDA requires payment of a substantial review user fee to the FDA. Before approving a NDA, the FDA usually will inspect the facility or the facilities where the product is manufactured, tested and distributed and will not approve the product unless cGMP compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing facilities as acceptable, the FDA may issue an approval letter or a complete response letter. A complete response letter outlines conditions that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. The approval letter authorizes commercial marketing of the drug for specific indications. As a condition of approval, the FDA may require post-marketing testing and surveillance to monitor the product’s safety or efficacy, or impose other post-approval commitment conditions. The NDA for Lymphoseek was submitted with the intention for use in intraoperative lymphatic mapping across a broad range of cancers. As a part of their review, the FDA examined the pre-clinical, clinical and CMC data supporting our application, and, as is also typical of such reviews, conducted site audits of our facilities and those of the sites where the referenced clinical trials were performed, as well as of contract suppliers and third party vendors being used in the manufacturing and quality assessment processes for Lymphoseek. Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA in March 2013. In June 2014, the FDA approved a supplemental New Drug Application (sNDA) for the expanded use of Lymphoseek indicated for guiding sentinel lymph node biopsy in head and neck cancer patients with squamous cell carcinoma of the oral cavity. In October 2014, the FDA approved a second sNDA for lymphatic mapping in solid tumors and added sentinel lymph node detection for breast cancer and melanoma to the approved indications. The FDA also allowed expanded utilization of Lymphoseek with or without scintigraphic imaging, known as lymphoscintigraphy, to enable pre-operative imaging and mapping of lymph nodes to facilitate node localization during surgical procedures. Additional trials, including an ongoing trial in colorectal cancer, and others in various stages of execution, planning or consideration, are anticipated to provide additional data to potentially support expansion of the Lymphoseek opportunity. We cannot assure you that Lymphoseek will achieve regulatory approval in any market outside the U.S. or EU, or if approved, that it will achieve market acceptance in any market. 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 drug candidates will qualify for any of these programs, or that, if a drug candidate does qualify, the review time will be reduced or the product will be approved. After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes or making certain additional labeling claims, are subject to further FDA review and approval. Obtaining approval for a new indication generally requires that additional clinical studies be conducted. U.S. Post-Approval Requirements Holders of an approved NDA are required to: (i) conduct pharmacovigilance and report certain adverse reactions to the FDA, (ii) comply with certain requirements concerning advertising and promotional labeling for their products, and (iii) continue to have quality control and manufacturing procedures conform to cGMP. The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing and distribution facilities; this latter effort includes assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the area of production, quality control and distribution to maintain cGMP compliance. We use and will continue to use third-party manufacturers to produce our products in clinical and commercial quantities, and future FDA inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to 19 correct. In addition, discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the market. Marketing of prescription drugs is also subject to significant regulation through federal and state agencies tasked with consumer protection and prevention of medical fraud, waste and abuse. We must comply with restrictions on off-label use promotion, anti-kickback, ongoing clinical trial registration, and limitations on gifts and payments to physicians. Non-U.S. Regulation Before our products can be marketed outside of the United States, they are subject to regulatory approval similar to that required in the U.S., although the requirements governing the conduct of clinical trials, including additional clinical trials that may be required, product licensing, pricing and reimbursement vary widely from country to country. No action can be taken to market any product in a country until an appropriate application has been approved by the regulatory authorities in that country. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved by a regulatory authority, satisfactory prices may not be approved for such product. In Europe, marketing authorizations may be submitted at a centralized, a decentralized or national level. The centralized procedure is mandatory for the approval of biotechnology products and provides for the grant of a single marketing authorization that is valid in all EU member states. As of January 1995, a mutual recognition procedure is available at the request of the applicant for all medicinal products that are not subject to the centralized procedure. We submitted our MAA for Lymphoseek to the EMA in December 2012. In September 2014, the CHMP adopted a positive opinion recommending marketing authorization for Lymphoseek for use in the EU in imaging and intraoperative detection of sentinel lymph nodes draining a primary tumor in adult patients with breast cancer, melanoma, or localized squamous cell carcinoma of the oral cavity. The CHMP's positive opinion was reviewed by the European Commission (EC), which has the authority to approve medicinal products for use in the 28 countries of the EU and generally follows the recommendations of the CHMP. The EC granted marketing authorization for Lymphoseek in the EU in November 2014. 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 20 biologic products will be approved by the regulatory bodies or approved on a timely or accelerated basis, or that any approvals received will not subsequently be revoked or modified. The Nuclear Regulatory Commission (NRC) oversees medical uses of nuclear material through licensing, inspection, and enforcement programs. The NRC issues medical use licenses to medical facilities and authorized physician users, develops guidance and regulations for use by licensees, and maintains a committee of medical experts to obtain advice about the use of byproduct materials in medicine. The NRC (or the responsible Agreement State) also regulates the manufacture and distribution of these products. The FDA oversees the good practices in the manufacturing of radiopharmaceuticals, medical devices, and radiation-producing x-ray machines and accelerators. The states regulate the practices of medicine and pharmacy and administer programs associated with radiation-producing x-ray machines and accelerators. We cannot assure you that we will be able to obtain all necessary licenses and permits and be able to comply with all applicable laws. The failure to obtain such licenses and permits or to comply with applicable laws would have a materially adverse effect on our business, financial condition, and results of operations. Corporate Information Our executive offices are located at 5600 Blazer Parkway, Suite 200, Dublin, OH 43017. Our telephone number is (614) 793- 7500. “Navidea”, the Navidea logo, “Lymphoseek” and “RIGS” 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-32 of this Form 10-K. Research and Development We spent approximately $16.8 million, $23.7 million and $16.9 million on research and development activities in the years ended December 31, 2014, 2013 and 2012, respectively. Employees As of February 28, 2015, we had 46 full-time and 8 part-time employees. We consider our relations with our employees to be good. 21 Item 1A. Risk Factors An investment in our common stock is highly speculative, involves a high degree of risk, and should be made only by investors who can afford a complete loss. You should carefully consider the following risk factors, together with the other information in this prospectus, including our financial statements and the related notes, before you decide to buy our common stock. Our most significant risks and uncertainties are described below; however, they are not the only risks we face. If any of the following risks actually occur, our business, financial condition, or results of operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment therein. If we do not achieve commercial success with our approved product or if we do not successfully develop any additional product candidates into marketable products, we may be unable to generate significant revenue or become profitable. We divested the neoprobe GDS line of gamma detection medical devices in August 2011. Through that time, sales of gamma detection devices represented our primary source of revenue. As a result, our near-term financial success depends in large part on Lymphoseek achieving commercial success in the U.S. and, pending approval in other markets, on achievement of commercial success in those markets as well. Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA in March 2013. In June 2014, the FDA approved a supplemental New Drug Application (sNDA) for the expanded use of Lymphoseek indicated for guiding sentinel lymph node biopsy in head and neck cancer patients with squamous cell carcinoma of the oral cavity. In October 2014, the FDA approved a second sNDA for lymphatic mapping in solid tumors and added sentinel lymph node detection for breast cancer and melanoma to the approved indications. The FDA also allowed expanded utilization of Lymphoseek with or without scintigraphic imaging, known as lymphoscintigraphy, to enable pre-operative imaging and mapping of lymph nodes to facilitate node localization during surgical procedures. Additional trials, including an ongoing trial in colorectal cancer, and others in various stages of execution, planning or consideration, are anticipated to provide additional data to potentially support expansion of the Lymphoseek opportunity. We began generating revenues from product sales of Lymphoseek in the second quarter of 2013. As we continue to realize 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. Additional product candidates based on the Manocept platform are in various stages of pre-clinical and clinical development. Regulatory approval for additional Manocept-based product candidates may not be successful, or if successful, may not result in increased sales. Additional clinical testing for products based on our Manocept platform, NAV4694, NAV5001, 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: • they are developed to a stage that will enable us to commercialize them or sell related marketing rights to pharmaceutical companies; • we are able to commercialize them in clinical development or sell the marketing rights to third parties; and • upon being developed, they are approved by the regulatory authorities. We are dependent on the achievement of a number of these goals in order to generate future revenues. The failure to generate such revenues may preclude us from continuing our research and development of these and other product candidates. 22 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 and other diseases is expensive, difficult and risky. Preclinical and clinical data as well as information related to the CMC processes of drug production can be interpreted in different ways which could delay, limit or preclude regulatory approval. Negative or inconclusive results, adverse medical events during a clinical trial, or issues related to CMC processes could also delay, limit or prevent regulatory approval. Even if we receive regulatory clearance to market a particular product candidate, the approval could be conditioned on us conducting additional costly post-approval studies or could limit the indicated uses included in our labeling. Our radiopharmaceutical products will remain subject to ongoing regulatory review following the receipt of marketing approval. If we fail to comply with continuing regulations, we could lose these approvals and the sale of our products could be suspended. Approved products may later cause adverse effects that limit or prevent their widespread use, force us to withdraw it from the market or impede or delay our ability to obtain regulatory approvals in additional countries. In addition, any contract manufacturer we use in the process of producing a product and its facilities will continue to be subject to FDA review and periodic inspections to ensure adherence to applicable regulations. After receiving marketing clearance, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and record-keeping related to the product will remain subject to extensive regulatory requirements. We may be slow to adapt, or we may never adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements. If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities or previously unknown problems with our products, manufacturers or manufacturing processes are discovered, we could be subject to administrative or judicially imposed sanctions, including: restrictions on the products, manufacturers or manufacturing processes; • • warning letters; • • • • • • • • • civil or criminal penalties; fines; injunctions; product seizures or detentions; 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. Lymphoseek is now approved for use in lymphatic mapping in solid tumors and in sentinel lymph node detection for breast cancer and melanoma in the U.S. Lymphoseek has also been approved for use in imaging and intraoperative detection of sentinel lymph nodes draining a primary tumor in adult patients with breast cancer, melanoma, or localized squamous cell carcinoma of the oral cavity in the EU. However, our other compounds currently are in research or development and have not received marketing approval. 23 Prior to commercialization, each product candidate requires significant research, development and preclinical testing and extensive clinical investigation before submission of any regulatory application for marketing approval. The development of radiopharmaceutical technologies and compounds, including those we are currently developing, is unpredictable and subject to numerous risks. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons including that they may: • • • • • • be found ineffective or cause harmful side effects during preclinical testing or clinical trials; fail to receive necessary regulatory approvals; be difficult to manufacture on a scale necessary for commercialization; be uneconomical to produce; fail to achieve market acceptance; or be precluded from commercialization by proprietary rights of third parties. The occurrence of any of these events could adversely affect the commercialization of our product candidates. Products, if introduced, may not be successfully marketed and/or may not achieve customer acceptance. If we fail to commercialize products or if our future products do not achieve significant market acceptance, we will not likely generate significant revenues or become profitable. Clinical trials for our product candidates will be lengthy and expensive and their outcome is uncertain. Before obtaining regulatory approval for the commercial sale of any product candidates, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective for use in humans. Conducting clinical trials is a time consuming, expensive and uncertain process and may take years to complete. With respect to Lymphoseek, we expect to support a number of efforts in various indications, whether internally sponsored or under investigator-sponsored studies, to provide additional data to support expansion of the Lymphoseek opportunity. We also expect to sponsor efforts to explore the Manocept platform, whether in potential diagnostic uses or investigation of uses related to Macrophage Therapeutics. With respect to NAV4694, AstraZeneca completed clinical development through a Phase 2a level. We currently have active trials in subjects with MCI initiated in March 2013 and a Phase 3 autopsy-based trial initiated in June 2013 to support registration in the U.S. and the EU; however, enrollment in both of these trials has been temporarily suspended while we determine the future of the program in connection with evaluation of a term sheet. With respect to NAV5001, Alseres completed five clinical trials in over 600 subjects. Alseres received a Phase 3 SPA from the FDA for NAV5001 in 2009. We are currently supporting Phase 3 trials in subjects with PD; however, enrollment in both of these trials has been temporarily suspended while we evaluate the future of the program within Navidea in connection with evaluation of a term sheet. Each Phase 3 trial is the subject of a SPA agreement with the FDA. We continually assess our clinical trial plans and may, from time to time, initiate additional clinical trials to support our overall strategic development objectives. Historically, the results from preclinical testing and early clinical trials often do not predict the results obtained in later clinical trials. Frequently, drugs that have shown promising results in preclinical or early clinical trials subsequently fail to establish sufficient safety and efficacy data necessary to obtain regulatory approval. At any time during the clinical trials, we, the participating institutions, the FDA or the EMA might delay or halt any clinical trials for our product candidates for various reasons, including: • • • • ineffectiveness of the product candidate; discovery of unacceptable toxicities or side effects; development of disease resistance or other physiological factors; delays in patient enrollment; or 24 • 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 FDA and EMA approvals, and our licensing partners have also achieved successful outcomes from earlier trials of NAV4694 and NAV5001, the results of some of these clinical trials that have not been yet reviewed by the FDA or other regulatory bodies, as well as pending and future trials for these and other product candidates that we may develop or acquire, are subject to review and interpretation by various regulatory bodies during the regulatory review process and may ultimately fail to demonstrate the safety or effectiveness of our product candidates to the extent necessary to obtain regulatory approval, or that commercialization of our product candidates is worthwhile. Any failure or substantial delay in successfully completing clinical trials and obtaining regulatory approval for our product candidates could materially harm our business. We extensively outsource our clinical trial activities and usually perform only a small portion of the start-up activities in- house. We rely on independent third-party contract research organizations (CROs) to perform most of our clinical studies, including document preparation, site identification, screening and preparation, pre-study visits, training, post-study audits and statistical analysis. Many important aspects of the services performed for us by the CROs are out of our direct control. If there is any dispute or disruption in our relationship with our CROs, our clinical trials may be delayed. Moreover, in our regulatory submissions, we rely on the quality and validity of the clinical work performed by third-party CROs. If any of our CROs’ processes, methodologies or results were determined to be invalid or inadequate, our own clinical data and results and related regulatory approvals could be adversely impacted. If we fail to establish and maintain collaborations or if our partners do not perform, we may be unable to develop and commercialize our product candidates. We expect to enter into collaborative arrangements with third-parties to develop and/or commercialize product candidates and are currently seeking additional collaborations. Such collaborations might be necessary in order for us to fund our research and development activities and third-party manufacturing arrangements, seek and obtain regulatory approvals and successfully commercialize our existing and future product candidates. If we fail to enter into collaborative arrangements or fail to maintain our existing collaborative arrangements, the number of product candidates from which we could receive future revenues would decline. Our dependence on collaborative arrangements with third parties will subject us to a number of risks that could harm our ability to develop and commercialize products including that: • • collaborative arrangements may not be on terms favorable to us; disagreements with partners or regulatory compliance issues may result in delays in the development and marketing of products, termination of our collaboration agreements or time consuming and expensive legal action; • • we cannot control the amount and timing of resources partners devote to product candidates or their prioritization of product candidates and partners may not allocate sufficient funds or resources to the development, promotion or marketing of our products, or may not perform their obligations as expected; partners may choose to develop, independently or with other companies, alternative products or treatments. including products or treatments which compete with ours; agreements with partners may expire or be terminated without renewal, or partners may breach collaboration agreements with us; business combinations or significant changes in a partner's business strategy might adversely affect that partner's willingness or ability to complete its obligations to us; and the terms and conditions of the relevant agreements may no longer be suitable. • • • The occurrence of any of these events could adversely affect the development or commercialization of our products. 25 If users of our products are unable to obtain adequate reimbursement from third-party payers, or if new restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve anticipated revenues. Our ability to commercialize our products will depend in part on the extent to which appropriate reimbursement levels for the cost of our products and related treatment are obtained by governmental authorities, private health insurers and other organizations such as health maintenance organizations (HMOs). Third-party payers are increasingly challenging the prices charged for medical care. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs which could control or significantly influence the purchase of health care services and products, as well as legislative proposals to further reform health care or reduce government insurance programs, may all result in lower prices for our products if approved for commercialization. The cost containment measures that health care payers and providers are instituting and the effect of any health care reform could materially harm our ability to sell our products at a profit. In August 2013, we announced that the CMS issued a HCPCS “C Code” for Lymphoseek. We anticipate that the reimbursement code, which became effective on October 1, 2013, will streamline the billing and reimbursement process for hospital providers who use Lymphoseek and support its fair and equitable reimbursement. The pass-through provisions supporting this C Code are expected to extend through December 31, 2015. Lymphoseek has also been granted a permanent “A Code” effective January 1, 2014. We believe these developments may assist in advancing utilization of Lymphoseek. However, we cannot assure you that, following the expiration of the pass-through provisions, we will be successful in establishing or obtaining a separately reimbursable status for Lymphoseek and therefore the cost of Lymphoseek may need to be absorbed by the institution as a part of the bundled procedural code for the surgical procedure in which Lymphoseek is used. If this is the case, our expectations of the pricing we expect to achieve for Lymphoseek and the related potential revenue may be significantly diminished. We may be unable to establish or contract for the pharmaceutical manufacturing capabilities necessary to develop and commercialize our potential products. We are in the process of establishing third-party clinical manufacturing capabilities for our compounds under development. We intend to rely on third-party contract manufacturers to produce sufficiently large quantities of drug materials that are and will be needed for clinical trials and commercialization of our potential products. Third-party manufacturers may not be able to meet our needs with respect to timing, quantity or quality of materials. We have a supply agreement with Reliable to manufacture the drug substance for our Lymphoseek product and a manufacturing agreement with OsoBio for the finishing and vialing of our Lymphoseek product. However, if we are unable to contract for a sufficient supply of needed materials on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers, revenues from Lymphoseek may be adversely impacted. In addition, clinical trials for our other product candidates may be delayed, thereby delaying the submission of product candidates for regulatory approval and the market introduction and subsequent commercialization of our potential products, and for approved products, any such delays, interruptions or other difficulties may render us unable to supply sufficient quantities to meet demand. Any such delays or interruptions may lower our revenues and potential profitability. We and any third-party manufacturers that we may use must continually adhere to cGMPs and regulations enforced by the FDA through its facilities inspection program and/or foreign regulatory authorities where our products will be tested and/or marketed. If our facilities or the facilities of third-party manufacturers cannot pass a pre-approval plant inspection, the FDA and/or foreign regulatory authorities will not grant approval to market our product candidates. In complying with these regulations and foreign regulatory requirements, we and any of our third-party manufacturers will be obligated to expend time, money and effort on production, record-keeping and quality control to assure that our potential products meet applicable specifications and other requirements. The FDA and other regulatory authorities may take action against a contract manufacturer who violates cGMPs. 26 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, also known as Amyvid, a first-generation beta-amyloid imaging agent for which Eli Lilly received FDA approval in 2012. Florbetapir also received marketing authorization in the EU in January 2013. There are two additional first-generation beta-amyloid imaging agents available: florbetaben from Piramal Enterprises, Imaging Division, and flutemetamol from GE Healthcare. In October 2013, the FDA approved flutemetamol, under the name Vizamyl, for adults being evaluated for AD and dementia with PET brain imaging. Florbetaben, now called Neuraceq, received EMA approval for use in PET imaging of the brain to estimate beta-amyloid neuritic plaque density in adult patients with cognitive impairment who are being evaluated for AD and other causes of cognitive decline from the EMA in February 2014 and from the FDA in March 2014. NAV5001’s primary competitor is expected to be ioflupane, marketed as DaTscan by GE Healthcare. DaTscan was developed to help physicians evaluate neurodegenerative movement disorders, such as idiopathic (of unknown cause) PD. GE Healthcare received EMA approval to market DaTscan in the EU in July 2000. In July 2006, GE Healthcare received expanded approval in the EU for DaTscan for use in DLB. GE Healthcare received FDA approval to market DaTscan in the U.S. in January 2011. If our competitors are successful in establishing and maintaining market share for their products, our sales and revenues may not occur at the rate we anticipate. In addition, our current and potential competitors may establish cooperative relationships with larger companies to gain access to greater research and development or marketing resources. Competition may result in price reductions, reduced gross margins and loss of market share. We may be exposed to product liability claims for our product candidates and products that we are able to commercialize. The testing, manufacturing, marketing and use of our commercial products, as well as product candidates in development, involve substantial risk of product liability claims. These claims may be made directly by consumers, healthcare providers, pharmaceutical companies or others. In recent years, coverage and availability of cost-effective product liability insurance has decreased, so we may be unable to maintain sufficient coverage for product liabilities that may arise. In addition, the cost to defend lawsuits or pay damages for product liability claims may exceed our coverage. If we are unable to maintain adequate coverage or if claims exceed our coverage, our financial condition and our ability to clinically test our product candidates and market our products will be adversely impacted. In addition, negative publicity associated with any claims, regardless of their merit, may decrease the future demand for our products and impair our financial condition. The administration of drugs in humans, whether in clinical studies or commercially, carries the inherent risk of product liability claims whether or not the drugs are actually the cause of an injury. Our products or product candidates may cause, or may appear to have caused, injury or dangerous drug interactions, and we may not learn about or understand those effects until the product or product candidate has been administered to patients for a prolonged period of time. We may be subject from time to time to lawsuits based on product liability and related claims, and we cannot predict the eventual outcome of any future litigation. We may not be successful in defending ourselves in the litigation and, as a result, our business could be materially harmed. These lawsuits may result in large judgments or settlements against us, any of which could have a negative effect on our financial condition and business if in excess of our insurance coverage. Additionally, lawsuits can be expensive to defend, whether or not they have merit, and the defense of these actions may divert the attention of our management and other resources that would otherwise be engaged in managing our business. 27 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, our Manocept platform, or any other products or potential products are terminated, we may lose the right to develop or market that product. We have licensed intellectual property, including patents and patent applications relating to the underlying intellectual property for Lymphoseek and our Manocept platform. We may also enter into other license agreements or acquire other product candidates. The potential success of our product development programs depend on our ability to maintain rights under these licenses, including our ability to achieve development or commercialization milestones contained in the licenses. Under certain circumstances, the licensors have the power to terminate their agreements with us if we fail to meet our obligations under these licenses. We may not be able to meet our obligations under these licenses. If we default under any license agreement, we may lose our right to market and sell any products based on the licensed technology. We may not have sufficient legal protection against infringement or loss of our intellectual property, and we may lose rights or protection related to our intellectual property if diligence requirements are not met, or at the expiry of underlying patents. Our success depends, in part, on our ability to secure and maintain patent protection for our products and product candidates, to preserve our trade secrets, and to operate without infringing on the proprietary rights of third parties. While we seek to protect our proprietary positions by filing United States and foreign patent applications for our important inventions and improvements, domestic and foreign patent offices may not issue these patents. Third parties may challenge, invalidate, or circumvent our patents or patent applications in the future. Competitors, many of which have significantly more resources than we have and have made substantial investments in competing technologies, may apply for and obtain patents that will prevent, limit, or interfere with our ability to make, use, or sell our products either in the United States or abroad. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are or may be developing products. As the biotechnology and pharmaceutical industry expands and more patents are issued, the risk increases that we will be subject to claims that our products or product candidates, or their use, infringe the rights of others. In the United States, most patent applications are secret for a period of 18 months after filing, and in foreign countries, patent applications are secret for varying periods of time after filing. Publications of discoveries tend to significantly lag the actual discoveries and the filing of related patent applications. Third parties may have already filed applications for patents for products or processes that will make our products obsolete, limit our patents, invalidate our patent applications or create a risk of infringement claims. Under recent changes to U.S. patent law, the U.S. has moved to a “first to file” system of patent approval, as opposed to the former “first to invent” system. As a consequence, delays in filing patent applications for new product candidates or discoveries could result in the loss of patentability if there is an intervening patent application with similar claims filed by a third party, even if we or our collaborators were the first to invent. We or our suppliers may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our products, product candidates and/or technologies infringe their intellectual property rights or that the process of manufacturing our products or any of their respective component materials, or the component materials themselves, or the use of our products, product candidates or technologies, infringe their intellectual property rights. If one of these patents was found to cover our products, product candidates, technologies or their uses, or any of the underlying manufacturing processes or components, we could be required to pay damages and could be unable to commercialize our products or use our technologies or methods unless we are able to obtain a license to the patent or intellectual property right. A license may not be available to us in a timely manner or on acceptable terms, if at all. In addition, during litigation, a patent holder could obtain a preliminary injunction or other equitable remedy that could prohibit us from making, using or selling our products, technologies or methods. 28 Our currently held and licensed patents expire over the next one to sixteen years. Expiration of the patents underlying our technology, in the absence of extensions or other trade secret or intellectual property protection, may have a material and adverse effect on us. In addition, it may be necessary for us to enforce patents under which we have rights, or to determine the scope, validity and unenforceability of other parties’ proprietary rights, which may affect our rights. There can be no assurance that our patents would be held valid by a court or administrative body or that an alleged infringer would be found to be infringing. The uncertainty resulting from the mere institution and continuation of any patent related litigation or interference proceeding could have a material and adverse effect on us. We typically require our employees, consultants, advisers and suppliers to execute confidentiality and assignment of invention agreements in connection with their employment, consulting, advisory, or supply relationships with us. They may breach these agreements and we may not obtain an adequate remedy for breach. Further, third parties may gain unauthorized access to our trade secrets or independently develop or acquire the same or equivalent information. Agencies of the United States government conducted some of the research activities that led to the development of antibody technology that some of our proposed antibody-based surgical cancer detection products use. When the United States government participates in research activities, it retains rights that include the right to use the technology for governmental purposes under a royalty-free license, as well as rights to use and disclose technical data that could preclude us from asserting trade secret rights in that data and software. We and our collaborators, including AstraZeneca, Alseres, and the University of California Board of Regents, may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on all of our product candidates and products, when and if we have any, in every jurisdiction would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we or our licensors have not obtained patent protection to develop their own products. These products may compete with our products, when and if we have any, and may not be covered by any of our or our licensors' patent claims or other intellectual property rights. The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or pharmaceuticals, which could make it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. The intellectual property protection for our product candidates depends on third parties. With respect to Lymphoseek and Manocept, NAV4694 and NAV5001, we have exclusively licensed certain issued patents and pending patent applications covering the respective technologies underlying these product candidates and their commercialization and use and we have licensed certain issued patents and pending patent applications directed to product compositions and chemical modifications used in product candidates for commercialization, and the use and the manufacturing thereof. The patents and pending patent applications underlying our licenses do not cover all potential product candidates, modifications and uses. In the case of patents and patent applications licensed from UCSD, we did not have any control over the filing of the patents and patent applications before the effective date of the Lymphoseek license, and have had limited control over the filing and prosecution of these patents and patent applications after the effective date of the Lymphoseek license. In the case of patents and patent applications licensed from AstraZeneca, we have limited control over the filing, prosecution or enforcement of these patents or patent applications. We also have limited rights to enforce patents and patent applications licensed from AstraZeneca and Alseres. We cannot be certain that such prosecution efforts have been or will be conducted in compliance 29 with applicable laws and regulations or will result in valid and enforceable patents. We also cannot be assured that our licensors or their respective licensing partners will agree to enforce any such patent rights at our request or devote sufficient efforts to attain a desirable result. Any failure by our licensors or any of their respective licensing partners to properly protect the intellectual property rights relating to our product candidates could have a material adverse effect on our financial condition and results of operation. We may become involved in disputes with UCSD, AstraZeneca, Alseres or potential future collaborators over intellectual property ownership, and publications by our research collaborators and scientific advisors could impair our ability to obtain patent protection or protect our proprietary information, which, in either case, could have a significant effect on our business. Inventions discovered under research, material transfer or other such collaborative agreements may become jointly owned by us and the other party to such agreements in some cases and the exclusive property of either party in other cases. Under some circumstances, it may be difficult to determine who owns a particular invention, or whether it is jointly owned, and disputes could arise regarding ownership of those inventions. These disputes could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business if we were not able to protect our license rights to these inventions. In addition, our research collaborators and scientific advisors generally have contractual rights to publish our data and other proprietary information, subject to our prior review. Publications by our research collaborators and scientific advisors containing such information, either with our permission or in contravention of the terms of their agreements with us, may impair our ability to obtain patent protection or protect our proprietary information, which could significantly harm our business. Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer. In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers and business partners, and personally identifiable information of employees and clinical trial subjects, in our data centers and on our networks. The secure maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage our reputation, which could adversely affect our business, revenues and competitive position. Failure to comply with domestic and international privacy and security laws can result in the imposition of significant civil and criminal penalties. The costs of compliance with these laws, including protecting electronically stored information from cyber- attacks, and potential liability associated with failure to do so could adversely affect our business, financial condition and results of operations. We are subject to various domestic and international privacy and security regulations, including but not limited to The Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent than HIPAA. We do not currently carry cyber risk insurance. We are subject to domestic and foreign anticorruption laws, the violation of which could expose us to liability, and cause our business and reputation to suffer. We are subject to the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws in other jurisdictions. These laws generally prohibit companies and their intermediaries from engaging in bribery or making other prohibited payments to 30 government officials for the purpose of obtaining or retaining business, and some have record keeping requirements. The failure to comply with these laws could result in substantial criminal and/or monetary penalties. We operate in jurisdictions that have experienced corruption, bribery, pay-offs and other similar practices from time-to-time and, in certain circumstances, such practices may be local custom. We have implemented internal control policies and procedures that mandate compliance with these anti-corruption laws. However, we cannot be certain that these policies and procedures will protect us against liability. There can be no assurance that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or agents are found to have engaged in such practices, we could suffer severe criminal or civil penalties and other consequences that could have a material adverse effect on our business, financial position, results of operations and/or cash flow, and the market value of our common stock could decline. Our international operations expose us to economic, legal, regulatory and currency risks. Our operations extend to countries outside the United States, and are subject to the risks inherent in conducting business globally and under the laws, regulations, and customs of various jurisdictions. These risks include, but are not limited to: (i) compliance with a variety of national and local laws of countries in which we do business, including but not limited to restrictions on the import and export of certain intermediates, drugs, and technologies, (ii) compliance with a variety of US laws including, but not limited to, the Iran Threat Reduction and Syria Human Rights Act of 2012; and rules relating to the use of certain “conflict minerals” under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) changes in laws, regulations, and practices affecting the pharmaceutical industry and the health care system, including but not limited to imports, exports, manufacturing, quality, cost, pricing, reimbursement, approval, inspection, and delivery of health care, (iv) fluctuations in exchange rates for transactions conducted in currencies other than the functional currency, (v) adverse changes in the economies in which we or our partners and suppliers operate as a result of a slowdown in overall growth, a change in government or economic policies, or financial, political, or social change or instability in such countries that affects the markets in which we operate, particularly emerging markets, (vi) differing local product preferences and product requirements, (vii) changes in employment laws, wage increases, or rising inflation in the countries in which we or our partners and suppliers operate, (viii) supply disruptions, and increases in energy and transportation costs, (ix) natural disasters, including droughts, floods, and earthquakes in the countries in which we operate, (x) local disturbances, terrorist attacks, riots, social disruption, or regional hostilities in the countries in which we or our partners and suppliers operate and (xi) government uncertainty, including as a result of new or changed laws and regulations. We also face the risk that some of our competitors have more experience with operations in such countries or with international operations generally and may be able to manage unexpected crises more easily. Furthermore, whether due to language, cultural or other differences, public and other statements that we make may be misinterpreted, misconstrued, or taken out of context in different jurisdictions. Moreover, the internal political stability of, or the relationship between, any country or countries where we conduct business operations may deteriorate. Changes in a country’s political stability or the state of relations between any such countries are difficult to predict and could adversely affect our operations, profitability and/or adversely impact our ability to do business there. The occurrence of any of the above risks could have a material adverse effect on our business, financial position, results of operations and/or cash flow, and could cause the market value of our common stock to decline. We may have difficulty raising additional capital, which could deprive us of necessary resources to pursue our business plans. We expect to devote significant capital resources to fund research and development, to maintain existing and secure new manufacturing resources, and 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. 31 Our future expenditures on our programs are subject to many uncertainties, including whether our product candidates will be developed or commercialized with a partner or independently. Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including: • • • • • • • • the costs of seeking regulatory approval for our product candidates, including any nonclinical testing or bioequivalence or clinical studies, process development, scale-up and other manufacturing and stability activities, or other work required to achieve such approval, as well as the timing of such activities and approval; the extent to which we invest in or acquire new technologies, product candidates, products or businesses and the development requirements with respect to any acquired programs; the scope, prioritization and number of development and/or commercialization programs we pursue and the rate of progress and costs with respect to such programs; the costs related to developing, acquiring and/or contracting for sales, marketing and distribution capabilities and regulatory compliance capabilities, if we commercialize any of our product candidates for which we obtain regulatory approval without a partner; the timing and terms of any collaborative, licensing and other strategic arrangements that we may establish; the extent to which we 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 candidates and/or products and the cost to acquire, develop and/or commercialize such new technologies, product candidates and/or products may shorten the period through which our current operating funds will sustain us. If our current funds become inadequate, we may not be able to obtain sufficient additional funding for such activities, on satisfactory terms, if at all. If we are unsuccessful in raising additional capital, or the terms of raising such capital are unacceptable, we may have to modify our business plan and/or significantly curtail our planned development activities, acquisition of new product candidates and other operations. There may be future sales or other dilution of our equity, which may adversely affect the market price of shares of our common stock. Our existing and future preferred stock, warrants or other securities convertible into or exchangeable for our common stock may contain adjustment provisions that could increase the number of shares issuable upon exercise, conversion or exchange, as the case may be, and decrease the exercise, conversion or exchange price. The market price of our shares of common stock or preferred stock could decline as a result of sales of a large number of shares of our common stock or preferred stock or similar securities in the market, the triggering of any such adjustment provisions or the perception that such sales could occur in the future. Our indebtedness imposes significant restrictions on us, and a default could materially adversely affect our operations and financial condition. All of our material assets, except our intellectual property, have been pledged as collateral for our borrowings under the Loan and Security Agreement (the Oxford Loan Agreement) with Oxford Finance, LLC (Oxford). 32 In addition to the security interest in our assets, the Oxford Loan Agreement carries covenants that impose significant requirements on us, including, among others, requirements that: • we pay all principal, interest and other charges on the outstanding balance of the borrowed funds when due; • we keep reserved out of our authorized shares of common stock sufficient shares to satisfy our obligation to issue shares upon the exercise of the warrants issued in connection with the Oxford Loan Agreement; • we provide certain financial information and reports to Oxford in a timely manner; and • we indemnify Oxford against certain liabilities. Additionally, with certain exceptions, the Oxford Loan Agreement prohibits us from: • making any material dispositions of our assets, except for permitted dispositions; • making any changes in our business, management, ownership, or business locations; • • • • entering into any merger or consolidation without Oxford’s consent; acquiring or making investments in any other person other than permitted investments; incurring any indebtedness, other than permitted indebtedness; granting or permitting liens against our assets, other than permitted liens; declaring or paying any dividends or making any other distributions; or entering into any material transaction with any affiliate, other than in the ordinary course of business;. • Our ability to comply with these provisions may be affected by changes in our business condition or results of our operations, or other events beyond our control. The breach of any of these covenants would result in a default under the Loan Agreement, permitting Oxford to increase the interest rate on the outstanding principal amount, accelerate the maturity of the debt and to sell the assets securing it. Such actions by Oxford could materially adversely affect our operations, results of operations and financial condition, including causing us to substantially curtail our product development activities. In addition, our Loan Agreement with Platinum (the Platinum Loan Agreement) carries covenants typical for commercial loan agreements, and similar to those contained in the Oxford Loan Agreement, that impose significant requirements on us. Our ability to comply with these provisions may be affected by changes in our business condition or results of our operations, or other events beyond our control. The breach of any of these covenants would result in a default under the Platinum Loan Agreement, permitting Platinum to terminate our ability to obtain additional draws under the Platinum Loan Agreement and accelerate the maturity of the debt. Such actions by Platinum could materially adversely affect our operations, results of operations and financial condition, including causing us to substantially curtail our product development activities. Platinum may exercise its conversion right, and that could dilute your ownership and the net tangible book value per share of our common stock. Platinum may exercise the right to convert all or any portion of the unpaid principal or unpaid interest (the Conversion Amount) accrued on any draw advanced by Platinum under the Platinum Loan Agreement on or after June 25, 2013, beginning on a date that is two years from the date on which such draw was advanced, and thereafter at any time while any portion of such draw is outstanding, into shares of Navidea’s common stock. Platinum may also exercise a conversion right on the amount of any mandatory repayment due following the Company achieving $2,000,000 in cumulative revenues from sales or licensing of Lymphoseek. The conversion option applies to the Conversion Amount if the Company is prohibited from making such repayment under the terms of the Subordination Agreement between Platinum, Oxford and the Company. If Platinum exercises any or all of its conversion rights, the percentage ownership of our current stockholders will be reduced. The issuance of additional common stock may also result in dilution in the net tangible book value per share of our common stock. The $3.2 million outstanding under the Platinum credit facility as of December 31, 2014 is not subject to the conversion option, however the $3.0 million advanced to date in 2015 is subject to the conversion option. 33 Shares of common stock are equity securities and are subordinate to our existing and future indebtedness and preferred stock. Shares of our common stock are common equity interests. This means that our common stock ranks junior to our outstanding shares of Series B Preferred Stock and any preferred stock that we may issue in the future, to our indebtedness and to all creditor claims and other non-equity claims against us and our assets available to satisfy claims on us, including claims in a bankruptcy or similar proceeding. Our existing indebtedness and preferred stock restrict payment of dividends on our common stock, and future indebtedness and preferred stock may restrict payments of dividends on our common stock. Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of our common stock, (i) dividends are payable only when and if declared by our Board of Directors or a duly authorized committee of our Board of Directors, and (ii) as a corporation, we are restricted to making dividend payments and redemption payments out of legally available assets. We have never paid a dividend on our common stock and have no current intention to pay dividends in the future. Furthermore, our common stock places no restrictions on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to shareholders generally. The continuing contentious federal budget negotiations may have an impact on our business and financial condition in ways that we currently cannot predict, and may further limit our ability to raise additional funds. The continuing federal budget disputes not only may adversely affect financial markets, but could also delay or reduce research grant funding and adversely affect operations of government agencies that regulate us, including the FDA, potentially causing delays in obtaining key regulatory approvals. Our failure to maintain continued compliance with the listing requirements of the NYSE MKT exchange could result in the delisting of our common stock. Our common stock has been listed on the NYSE MKT since February 2011. The rules of NYSE MKT provide that shares be delisted from trading in the event the financial condition and/or operating results of the Company appear to be unsatisfactory, the extent of public distribution or the aggregate market value of the common stock has become so reduced as to make further dealings on the NYSE MKT inadvisable, the Company has sold or otherwise disposed of its principal operating assets, or has ceased to be an operating company, or the Company has failed to comply with its listing agreements with the Exchange. For example, the NYSE MKT may consider suspending trading in, or removing the listing of, securities of an issuer that has stockholders’ equity of less than $6.0 million if such issuer has sustained losses from continuing operations and/or net losses in its five most recent fiscal years. As of December 31, 2014, the Company had a stockholders’ deficit of approximately $29.8 million. Even if an issuer has a stockholders’ deficit, the NYSE MKT will not normally consider removing from the list securities of an issuer that fails to meet these requirements if the issuer has (1) total value of market capitalization of at least $50,000,000; or total assets and revenue of $50,000,000 each in its last fiscal year, or in two of its last three fiscal years; and (2) the issuer has at least 1,100,000 shares publicly held, a market value of publicly held shares of at least $15,000,000 and 400 round lot shareholders. Based on the number of outstanding shares of our common stock, recent trading price of that stock, and number of round lot holders, we believe that we meet these exception criteria and that our common stock will not be delisted as a result of our failure to meet the minimum stockholders' equity requirement for continued listing. We cannot assure you that the Company will continue to meet these and other requirements necessary to maintain the listing of our common stock on the NYSE MKT. For example, we may determine to grow our organization or product pipeline or pursue development or other activities at levels or on timelines that reduces our stockholders’ equity below the level required to maintain compliance with NYSE MKT continued listing standards. The delisting of our common stock from the NYSE MKT likely would reduce the trading volume and liquidity in our common stock and may lead to decreases in the trading price of our common stock. The delisting of our common stock may also materially impair our stockholders’ ability to buy and sell shares of our common stock. In addition, the delisting of our common stock could significantly impair our ability to raise capital, which is critical to the execution of our current business strategy. 34 The price of our common stock has been highly volatile due to several factors that will continue to affect the price of our stock. Our common stock traded as low as $0.97 per share and as high as $2.12 per share during the 12-month period ended February 28, 2015. The market price of our common stock has been and is expected to continue to be highly volatile. Factors, including announcements of technological innovations by us or other companies, regulatory matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, may have a significant impact on the market price of our stock. In addition, potential dilutive effects of future sales of shares of common stock by the Company and by stockholders, and subsequent sale of common stock by the holders of warrants and options could have an adverse effect on the market price of our shares. Some additional factors which could lead to the volatility of our common stock include: • • • • • • • price and volume fluctuations in the stock market at large or of companies in our industry which do not relate to our operating performance; changes in securities analysts’ estimates of our financial performance or deviations in our business and the trading price of our common stock from the estimates of securities analysts; FDA or international regulatory actions and regulatory developments in the U.S. and foreign countries; financing arrangements we may enter that require the issuance of a significant number of shares in relation to the number of shares currently outstanding; public concern as to the safety of products that we or others develop; activities of short sellers in our stock; and fluctuations in market demand for and supply of our products. The realization of any of the foregoing could have a dramatic and adverse impact on the market price of our common stock. In addition, class action litigation has often been instituted against companies whose securities have experienced substantial decline in market price. Moreover, regulatory entities often undertake investigations of investor transactions in securities that experience volatility following an announcement of a significant event or condition. Any such litigation brought against us or any such investigation involving our investors could result in substantial costs and a diversion of management’s attention and resources, which could hurt our business, operating results and financial condition. An investor’s ability to trade our common stock may be limited by trading volume. During the 12-month period beginning on March 1, 2014 and ending on February 28, 2015, the average daily trading volume for our common stock on the NYSE MKT was approximately 920,000 shares. We cannot assure you that this trading volume will be consistently maintained in the future. The market price of our common stock may be adversely affected by market conditions affecting the stock markets in general, including price and trading fluctuations on the NYSE MKT exchange. The market price of our common stock may be adversely affected by market conditions affecting the stock markets in general, including price and trading fluctuations on the NYSE MKT. These conditions may result in (i) volatility in the level of, and fluctuations in, the market prices of stocks generally and, in turn, our shares of common stock, and (ii) sales of substantial amounts of our common stock in the market, in each case that could be unrelated or disproportionate to changes in our operating performance. Because we do not expect to pay dividends on our common stock in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates. We have paid no cash dividends on any of our common stock to date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, with respect to our common stock, we do not expect to 35 pay any cash dividends in the foreseeable future, and payment of cash dividends, if any, will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our Board of Directors. Furthermore, we are subject to various laws and regulations that may restrict our ability to pay dividends and we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends. Due to our intent to retain any future earnings rather than pay cash dividends on our common stock and applicable laws, regulations and contractual obligations that may restrict our ability to pay dividends on our common stock, the success of your investment in our common stock will likely depend entirely upon any future appreciation and there is no guarantee that our common stock will appreciate in value. We may have difficulty attracting and retaining qualified personnel and our business may suffer if we do not. Our business has experienced a number of successes and faced several challenges in recent years that have resulted in several significant changes in our strategy and business plan, including the shifting of resources to support our current development initiatives. Our management will need to remain flexible to support our business model over the next few years. However, losing members of the Navidea management team could have an adverse effect on our operations. Our success depends on our ability to attract and retain technical and management personnel with expertise and experience in the pharmaceutical industry, and the acquisition of additional product candidates may require us to acquire additional highly qualified personnel. The competition for qualified personnel in the biotechnology industry is intense and we may not be successful in hiring or retaining the requisite personnel. If we are unable to attract and retain qualified technical and management personnel, we will suffer diminished chances of future success. 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. Item 1B. Unresolved Staff Comments None. 36 Item 2. Properties We currently lease approximately 25,000 square feet of office space at 5600 Blazer Parkway, Dublin, Ohio, as our principal offices. The current lease term expires in October 2022, at a monthly base rent of approximately $24,000 during 2015. We must also pay a pro-rata portion of the operating expenses and real estate taxes of the building. We also lease approximately 6,000 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 in March 2015, at a monthly base rent of approximately $10,000 during 2015. We must also pay a pro-rata portion of the electricity cost of the building. We do not intend to renew the lease for the Andover facility. We believe both facilities are in good condition. Item 3. Legal Proceedings None. Item 4. Mine Safety Disclosure Not applicable. 37 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. The prices set forth below reflect the quarterly high and low sales prices for shares of our common stock during the last two fiscal years. Fiscal Year 2014: First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year 2013: First Quarter Second Quarter Third Quarter Fourth Quarter $ $ High Low 2.12 $ 1.99 1.53 2.02 3.59 $ 2.80 3.31 2.71 1.62 1.29 1.20 0.97 2.42 2.26 2.57 1.11 As of March 2, 2015, we had 679 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, 2014, we issued 67,710 shares of our common stock to our Board of Directors as payment of their third quarter 2014 retainers. The issuance of these securities was exempt from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder. Also during the three-month period ended December 31, 2014, Crede CG III, Ltd. (Crede) exchanged their Series JJ warrant for 3,843,223 shares of our common stock in accordance with the terms of the Series JJ warrant. The issuance of these securities was exempt from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder. There were no repurchases of our common stock during the three-month period ended December 31, 2014. 38 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, 2009 through December 31, 2014. This graph assumes an investment in the Company’s common stock and the indices of $100 on December 31, 2009 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 *$100 invested on 12/31/2009 in stock or index, including reinvestment of dividends. Navidea Biopharmaceuticals Russell 3000 NASDAQ Biotechnology Cumulative Total Return as of December 31, 2009 100.00 100.00 100.00 2010 168.85 114.75 115.01 2011 214.75 113.70 128.59 2012 231.97 129.59 169.61 2013 169.67 169.69 280.89 2014 154.92 187.42 376.68 39 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) Years Ended December 31, 2014 2013 2012 2011 2010 Statement of Operations Data: Revenue Cost of goods sold Research and development expenses $ 6,275 $ 1,586 16,780 1,131 $ 333 23,710 Selling, general and administrative expenses 15,542 15,526 Loss from operations Other expenses, net Benefit from income taxes Loss from continuing operations Discontinued operations, net of tax effect Net (loss) income Preferred stock dividends 79 $ — 16,890 11,178 (27,989 ) 598 $ — 15,154 9,548 (24,104) 617 — 8,941 4,353 (12,677) (27,633) (38,438) (8,094) (4,261) (1,168 ) (943) (43,567) — — — 7,880 2,135 (35,727) — (35,727) — (42,699) — (42,699) — (29,157 ) — (17,167) 22,780 (54,109) 4,144 (29,157 ) (43 ) 5,613 (100) (49,965) (8,207) (Loss) income attributable to common stockholders $ (35,727) $ (42,699) $ (29,200) $ 5,513 $ (58,172) (Loss) income per common share (basic and diluted): Continuing operations Discontinued operations $ $ (0.24) $ — $ (0.35) $ — $ (0.29) $ — $ (Loss) income attributable to common stockholders $ (0.24) $ (0.35) $ (0.29) $ (0.17 ) $ 0.23 $ 0.06 $ (0.77) 0.05 (0.72) Shares used in computing (loss) income per common share: (1) Basic and diluted 148,748 121,809 99,060 90,509 80,726 Balance Sheet Data: Total assets Long-term obligations Accumulated deficit As of December 31, 2014 2013 2012 2011 2010 $ 11,920 $ 32,629 (352,984) 40,317 $ 33,035 (317,257) 11,972 $ 7,187 (274,558) 31,194 $ 10,863 6,714 2,787 (250,870) (245,357) (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. 40 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., a Delaware corporation, is a precision medicine company focused on the development and commercialization of precision diagnostics, therapeutics and radiopharmaceutical agents. Navidea is developing multiple precision-targeted products based on the Manocept™ platform to help identify the sites and pathways of undetected disease and enable better diagnostic accuracy, clinical decision-making, targeted treatment and, ultimately, patient care. Navidea’s Manocept platform is predicated on the ability of the chemical backbone of the tilmanocept molecule to specifically target the CD206 mannose receptor expressed on macrophages. The Manocept platform serves as the molecular backbone of Lymphoseek® (technetium Tc 99m tilmanocept) injection, the first product developed by Navidea based on the platform. Lymphoseek is a novel, receptor-targeted, small-molecule radiopharmaceutical used in the evaluation of lymphatic basins that may have cancer involvement in patients. Lymphoseek is designed for the precise identification of lymph nodes that drain from a primary tumor, which have the highest probability of harboring cancer. Lymphoseek is approved by the U.S. Food and Drug Administration (FDA) for use in solid tumor cancers where lymphatic mapping is a component of surgical management and for guiding sentinel lymph node biopsy in patients with clinically node negative breast cancer, melanoma or squamous cell carcinoma of the oral cavity. Lymphoseek has also received European approval in imaging and intraoperative detection of sentinel lymph nodes in patients with melanoma, breast cancer or localized squamous cell carcinoma of the oral cavity. Building on the success of Lymphoseek, the flexible and versatile Manocept platform acts as an engine for the design of purpose-built molecules offering the potential to be utilized across a range of diagnostic modalities, including single photon emission computed tomography (SPECT), positron emission tomography (PET), intra-operative and/or optical-fluorescence detection in a variety of disease states. Recent preclinical data being developed by the Company using tilmanocept linked to various therapeutic agents also suggest that tilmanocept’s binding affinity to CD206 receptors demonstrates the potential for this technology to be useful in treating diseases linked to the over-activation of macrophages. This includes various cancers as well as autoimmune, infectious, cardiovascular, and central nervous system diseases. Thus, in January 2015, the Company formed a new subsidiary, Macrophage Therapeutics, Inc., to further explore therapeutic applications for the Manocept platform. In addition, over the last year, the company’s Board of Directors made the decision to reduce our support while seeking to partner or out-license two of our development programs: • NAV4694 is a fluorine-18 (F-18) radiolabeled PET imaging agent being developed as an aid in the diagnosis of patients with signs or symptoms of Alzheimer’s disease (AD) and mild cognitive impairment (MCI). NAV4694 is in Phase 3 clinical development. • NAV5001 is an iodine-123 (I-123) radiolabeled SPECT imaging agent being developed as an aid in the diagnosis of Parkinson’s disease (PD) and other movement disorders, with potential use as a diagnostic aid in dementia. NAV5001 is in Phase 3 clinical development. The company is in discussions with potential parties interested in sublicensing and/or assuming financial responsibility for the ongoing development of these two neuro tracer compounds and is currently evaluating term sheets. Other than Lymphoseek, none of the Company’s drug product candidates have been approved for sale in any market. 41 Executive Summary Our primary development efforts over the last few years have been focused on our now-approved Lymphoseek product, as well as more recently on our other pipeline programs, including NAV4694, NAV5001, and our Manocept platform. In May 2014, the Board of Directors made the decision to refocus the Company's resources to better align the funding of our pipeline programs with the expected growth in Lymphoseek revenue. This realignment primarily involves reducing our near-term support for our two neurological product candidates, NAV4694 and NAV5001, as we seek to partner or divest these two programs. In addition, we are looking for ways to move Macrophage Therapeutics forward with a combination of grant funding and seed financing obtained from outside investors while retaining the vast majority of ownership benefits for existing Navidea shareholders. The level of future expenditures on our development programs will depend on the scope, requirements and timing of our strategic development initiatives in different territories around the world. Our efforts in 2014 and to date in 2015 have resulted in the following milestone achievements: Corporate • Appointed Rick Gonzalez as CEO, bringing more than 20 years of experience in the pharmaceutical industry with notable global commercial expertise with oncology and radiotherapy products. • Added Tom Klima as Chief Commercial Officer to lead commercial strategy design and execution and Michael Tomblyn, M.D. as Executive Medical Director to develop, in collaboration with the medical community and potentially other corporate partners, the application of Lymphoseek across multiple tumor types. Lymphoseek • Experienced encouraging sales metrics as measured by increasing number of procedures, account growth and re-order rates. • Expanded indications in the U.S. for sentinel lymph node biopsy (SLNB) in melanoma, head and neck, and breast cancers as well as for lymphatic mapping in all solid tumors. • Attained European approval of a Lymphoseek Marketing Authorization Application for SLNB in melanoma, breast and certain head and neck cancers. • Executed a sublicense agreement with SpePharm AG, an affiliate of Norgine BV, covering distribution of Lymphoseek in the European Union. In connection with the agreement, the Company is entitled to receive an upfront payment of $2 million, additional commercial milestone payments up to $5 million, and royalties on European net sales. • Received orphan drug designation for head and neck cancers, resulting in a $1.1 million refund of PDUFA fees • • • associated with the head and neck cancer sNDA. Signed development and commercialization agreements in China, Taiwan and Hong Kong. Published the Lymphoseek Phase 3 head and neck cancer clinical trial results and results of a Lymphoseek comparative study in breast cancer in peer-reviewed journals. Supported Lymphoseek lifecycle management efforts with Fast Track NIH Small Business Innovation Research grants and investigator-initiated studies in several cancer types. Manocept Platform • Formed Macrophage Therapeutics, Inc. as a subsidiary to explore therapeutic applications of Manocept platform compounds. • Completed agreement for up to $2.5 million of funding for Macrophage Therapeutics, Inc. in exchange for convertible preferred stock and warrants representing a 1% interest in the subsidiary on a fully converted and exercised basis. • Assembled an expert Scientific Advisory Board to serve as a strategic resource to develop therapeutic applications for the Manocept platform. • Completed the initial cohort of a physician-initiated study in Kaposi’s Sarcoma patients at the University of California, • San Francisco. Formed R-NAV joint venture with Essex Woodlands’ Rheumco to explore diagnostic and therapeutic applications in rheumatoid arthritis and canine osteoarthritis. 42 Neurodegenerative Products • Evaluating out-licensing/divestiture proposals for the Phase 3 NAV4694 and NAV5001 assets. Our Outlook Following the U.S. approval of Lymphoseek in March 2013, the Company undertook the initial stages of product launch in the U.S. with our commercialization partner, Cardinal Health, in May 2013. We began reporting revenue from Lymphoseek beginning in the second quarter of 2013, though revenue for that quarter consisted primarily of inventory stocking of Cardinal Health’s nuclear pharmacies. We plan to retain additional direct sales personnel as part of our effort to accelerate Lymphoseek revenue growth in 2015 and beyond. Our strategy for increasing Lymphoseek revenue also includes focusing on areas where the concentration of diagnosis occurs, increasing the number of doses per account, and continuing to evolve the brand. Based on Lymphoseek revenue to date and anticipated growth, Navidea expects Lymphoseek revenue for 2015 to be between $10 million and $12 million, representing total brand revenue to end customers of our distributor in excess of $20 million. Our operating expenses in recent years have been focused primarily on support of Lymphoseek, our Manocept platform, and NAV4694 and NAV5001 product development. We incurred approximately $16.8 million, $23.7 million and $16.9 million in total on research and development activities during the years ended December 31, 2014, 2013 and 2012, respectively. Of the total amounts we have spent on research and development during those periods, 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 Manocept platform NAV4694 NAV5001 $ 2014 995,511 $ 503,587 6,788,286 1,441,442 2013 4,702,829 $ 503,338 7,812,602 2,602,461 2012 5,632,183 — 3,339,592 2,159,483 We expect to continue the advancement of our efforts with Lymphoseek and our Manocept platform during 2015, however, we expect the cost of these advances to be more than offset by reductions in development costs of NAV4694 and NAV5001, and as a result, we expect our total research and development expenses for 2015 to decrease significantly from 2014. Lymphoseek was approved and indicated for use in lymphatic mapping in patients with breast cancer and melanoma by the FDA in March 2013, with expanded use of Lymphoseek indicated for guiding sentinel lymph node biopsy in head and neck cancer patients with squamous cell carcinoma of the oral cavity approval in June 2014, and for lymphatic mapping in solid tumors and sentinel lymph node detection for breast cancer and melanoma as well as with or without scintigraphic imaging, known as lymphoscintigraphy, in October 2014. Lymphoseek was also approved by the EMA for use in imaging and intraoperative detection of sentinel lymph nodes draining a primary tumor in adult patients with breast cancer, melanoma, or localized squamous cell carcinoma of the oral cavity in the EU in November 2014. Although our marketing partners will bear much of the direct marketing, sales and distribution costs related to the sale of Lymphoseek, we expect to incur ongoing costs to support product marketing efforts, to target surgical oncologists at the core of the oncology treatment team, as well as medical education-related and market outreach activities associated with Lymphoseek commercialization. Additionally, we anticipate that we will incur costs related to supporting the other product, regulatory, manufacturing and commercial activities related to the potential marketing registration and sale of Lymphoseek in other markets. We also expect to incur costs related to ongoing clinical development efforts to support the use of Lymphoseek in additional cancer types. We cannot assure you that Lymphoseek will achieve regulatory approval in any other market outside the U.S. or EU, or if approved in those markets, that it will achieve market acceptance in the U.S., EU or any other market. We are currently evaluating existing and emerging data on the potential use of Manocept-related agents in the diagnosis and disease-staging of disorders in which macrophages are involved, such as KS, RA, vulnerable plaque/atherosclerosis, TB and other disease states, to define areas of focus, development pathways and partnering options to capitalize on the Manocept 43 platform. In the near-term, our more active development efforts with respect to the Manocept platform will likely be limited to such evaluations. We will also be evaluating potential funding and other resources required for continued development, regulatory approval and commercialization of any Manocept platform product candidates that we identify for further development, and potential options for advancing development. We cannot assure you that further evaluation or development will be successful, that any Manocept platform product candidate will ultimately achieve regulatory approval, or if approved, the extent to which it will achieve market acceptance. On March 12, 2015, the Company initiated a reduction in force that will include seven staff members and three executives. The three executives will continue as employees during transition periods of varying lengths, depending upon the nature and extent of responsibilities to be transitioned or wound down. As of the filing date of this document, the specific terms of the executive transition and separation were still being determined, and therefore the impact to our first quarter 2015 financial statements is not yet known. We expect the financial impact to be material, but anticipate that the initial cost will be offset with savings in compensation expense in the longer term. Results of Operations Years Ended December 31, 2014 and 2013 Net Sales and Margins. Net sales of Lymphoseek were $4.2 million during 2014, compared to $614,000 during 2013. The increase was primarily due to sales starting in late April of 2013, coupled with an increase in the initial transfer price to Cardinal beginning in the second quarter of 2014. Gross margins on net sales were 63% in 2014 and 46% in 2013. Cost of goods sold in 2014 included a reserve for inventory obsolescence of $539,000 related to a specific lot that was originally produced for commercial validation purposes and that is nearing its product expiry and therefore is no longer expected to be sold. Excluding the one-time inventory obsolescence charge, gross margin on net sales for 2014 would have been 83%. Cost of goods sold in both periods included post-production testing activities required by regulatory authorities, which are charged as one-time period costs, and a royalty on net sales payable under our license agreement with UCSD. Lymphoseek Milestone Revenue. During 2014, we recognized $300,000 of Lymphoseek milestone revenue from a non- refundable upfront milestone payment received by the Company related to the Lymphoseek distribution agreement for China for which the Company has no future obligations. No Lymphoseek milestone revenue was recognized during 2013. Grant and Other Revenue. During 2014, we recognized $1.7 million of grant revenue as compared to $516,000 during 2013, primarily related to SBIR grants from the NIH supporting NAV4694 and Manocept platform development. The net increase was primarily due to higher NAV4694 grants offset by lower Manocept platform and Lymphoseek grants. Grant and other revenue for 2014 also included $90,000 of revenue related to services provided to R-NAV for Manocept development. Research and Development Expenses. Research and development expenses decreased $6.9 million, or 29%, to $16.8 million during 2014 from $23.7 million in 2013. The decrease was primarily due to net decreases in drug project expenses related to (i) decreased Lymphoseek development costs of $3.7 million including decreased regulatory filing fees and consulting costs coupled with decreased manufacturing-related activities, offset by increased license fees related to EMA approval; (ii) decreased NAV5001 development costs of $1.2 million including decreased manufacturing-related activities and license fees, offset by increased clinical trial costs; and (iii) a net decrease in NAV4694 development costs of $1.0 million including decreased manufacturing-related activities and program management expenses, offset by increased clinical trial costs. The net decrease in research and development expenses also included decreased compensation including incentive-based awards and other expenses related to net decreased headcount resulting from the second quarter 2014 reduction in force of $567,000. Selling, General and Administrative Expenses. Selling, general and administrative expenses remained steady at $15.5 million for both 2014 and 2013. Decreased investor relations of $880,000, compensation including incentive-based awards and other expenses related to net decreased headcount resulting from the second quarter 2014 reduction in force of $458,000, and out-of- pocket Lymphoseek marketing costs of $138,000 were offset by increased support costs including depreciation, facilities, 44 Board compensation and travel of $808,000, medical education costs to support Lymphoseek of $484,000, and legal and professional services costs of $274,000. Other Income (Expense). Other expense, net, was $8.1 million during 2014 as compared to $4.3 million during 2013. Interest expense increased $927,000 to $3.7 million during 2014 from $2.8 million in 2013, primarily due to increased interest related to the Oxford Note, offset by decreased interest related to the GECC/MidCap Notes, Hercules Note and Platinum credit facility. Of this interest expense, $844,000 and $765,000 in 2014 and 2013, respectively, was non-cash in nature related to the amortization of debt issuance costs and debt discounts related to the Oxford Note, GECC/MidCap Notes, and Hercules Note. During 2014, we recorded a loss on extinguishment of debt of $2.6 million related to paying off the balance of the GECC/MidCap Notes. During 2013, we recorded losses on extinguishment of debt of $943,000 related to the modification of the Platinum credit facility and $429,000 upon paying off the balance of the Hercules Note. For the years ended December 31, 2014 and 2013, we recorded non-cash expenses of $1.3 million and $112,000, respectively, related to changes in the estimated fair value of financial instruments. During 2014, we recorded non-cash expense from our equity in the loss of R-NAV of $524,000. Years Ended December 31, 2013 and 2012 Net Sales and Margins. Net sales of Lymphoseek were $614,000 during 2013. We did not record any sales revenue during the same period in 2012. Gross margins on net sales of Lymphoseek were 46% for the year ended 2013. Cost of goods sold included a royalty on net sales payable under our license agreement with UCSD. During the year ended December 31, 2013, margins on Lymphoseek sales were negatively impacted due to the proportion of sales made up of lower margin inventory- stocking units, coupled with post-production testing activities at launch, required by regulatory authorities, which are charged as one-time period costs, including certain post-manufacture testing costs related to normal ongoing processes required by the FDA. Grant and Other Revenue. During 2013, we recognized $440,000 of grant revenue related to SBIR grants from the NIH to support NAV4694 and NAV1800 development. Grant revenue of $76,000 was received from Ohio Third Frontier and included $50,000 toward the development of alternative uses of Lymphoseek. During the year ended December 31, 2012, we recognized $60,000 of revenue related to reimbursement of certain Lymphoseek commercialization activities by our distribution partner, Cardinal Health. Research and Development Expenses. Research and development expenses increased $6.8 million, or 40%, to $23.7 million during 2013 from $16.9 million during the same period in 2012. The increase was primarily due to net increases in drug project expenses related to (i) increased NAV4694 development costs of $4.5 million including increased clinical trial costs coupled with increased manufacturing-related activities, (ii) increased Manocept platform development costs of $503,000, and (iii) a net increase in NAV5001 development costs of $443,000 including increased clinical trial costs and manufacturing- related activities of $1.9 million, offset by a decrease in licensing fees of $1.4 million; offset by (iv) a net decrease in Lymphoseek development costs of $929,000 resulting from decreased manufacturing-related costs, decreased EMA filing fees and regulatory consulting costs primarily related to filing a MAA in 2012, and decreased clinical trial costs, offset by increased costs of $2.2 million related to sNDA submissions for two additional Lymphoseek indications in 2013 and (v) decreased consulting costs related to potential pipeline products of $407,000. The net increase in research and development expenses also included increased compensation including incentive-based awards and other related expenses of $2.6 million related to increased headcount required for expanded development efforts, as well as increased travel and other support costs. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $4.3 million, or 39%, to $15.5 million during 2013 from $11.2 million during the same period in 2012. The net increase was primarily due to increased medical education costs to support Lymphoseek of $2.6 million, increased compensation including incentive-based awards and other expenses of $1.3 million related to increased headcount, and increased investor relations, legal and professional services costs, offset by decreased out-of-pocket marketing costs related to the commercial launch of Lymphoseek of $1.3 million. 45 Other Income (Expense). Other expense, net, was $4.3 million during 2013 as compared to $1.2 million during the same period in 2012. Interest expense increased $1.6 million to $2.8 million during 2013 from $1.2 million for the same period in 2012, primarily due to the interest related to the GECC/MidCap Notes as well as the draws on the Platinum credit facility, offset by the decreased balance of the Hercules Note. Of this interest expense, $765,000 and $545,000 in 2013 and 2012, respectively, was non-cash in nature related to the amortization of debt issuance costs and debt discounts related to the GECC/MidCap Notes and Hercules Note. During 2013, we recorded losses on extinguishment of debt of $943,000 related to the modification of the Platinum credit facility and $429,000 upon paying off the balance of the Hercules Note. For the years ended December 31, 2013 and 2012, we recorded non-cash expense of $112,000 and income of $32,000, respectively, related to changes in the estimated fair value of financial instruments. Liquidity and Capital Resources Cash balances decreased to $5.5 million at December 31, 2014 from $32.9 million at December 31, 2013. The net decrease was primarily due to cash used to fund our operations, mainly for research and development activities, of $29.1 million, purchases of equipment of $1.1 million, and an investment in R-NAV of $333,000, offset by a net increase of $3.2 million related to borrowings under the Oxford Note and the extinguishment of the GECC/Midcap Notes. The current ratio decreased to 0.9:1 as of December 31, 2014 from 3.3:1 December 31, 2013. As of December 31, 2014, $31.8 million was still immediately available under the Platinum credit facility. We believe that our current cash balance, our credit facility with Platinum, our projected revenue derived from sales of Lymphoseek, our ability to control expenses, the potential for partnership funding, the potential to access debt or royalty instruments, and the potential to access capital markets through our shelf registration (though we have no current intention to raise additional equity capital using the shelf registration), provide us with adequate financial resources to continue to fund our business plan for the foreseeable future and enable us to reach break-even cash flow from operations in the first quarter of 2016. Operating Activities. Cash used in operations decreased $6.5 million to $29.1 million during 2014 compared to $35.6 million during 2013. Cash used in operations increased $11.7 million to $35.6 million during the year ended December 31, 2013, compared to $23.9 million during the same period in 2012. Accounts receivable decreased to $817,000 at December 31, 2014 from $1.2 million at December 31, 2013, primarily due to decreased amounts due from the landlord of our Dublin office space for tenant improvements, offset by increased receivables due from Cardinal Health resulting from the increase in sales of Lymphoseek. Accounts receivable increased to $1.2 million at December 31, 2013 from $18,000 at December 31, 2012, primarily due to receivables due from the landlord of our Dublin office space for tenant improvements, from Cardinal Health for sales of Lymphoseek and from the NIH for SBIR grants. Inventory levels decreased to $932,000 at December 31, 2014 from $2.2 million at December 31, 2013, primarily due to finished goods inventory sold, a non-cash reserve for inventory obsolescence related to a specific lot that was originally produced for commercial validation purposes and that is nearing its product expiry and therefore is no longer expected to be sold, and materials inventory consumed for product testing and development purposes, offset by in-process and completed new lots of Lymphoseek finished drug product. Inventory levels increased to $2.2 million at December 31, 2013, from $298,000 at December 31, 2012. Increases in work-in-process and finished goods were related to in-process and completed new lots of Lymphoseek finished drug product. Increases in materials were related to purchases of Lymphoseek drug substance. We expect inventory levels to increase during 2015 as we produce additional Lymphoseek inventory to meet increasing demand. Prepaid expenses and other current assets increased to $1.4 million at December 31, 2014 from $1.0 million at December 31, 2013, primarily due to prepayments to our third party manufacturers of Lymphoseek inventory. Prepaid expenses and other current assets decreased to $1.0 million at December 31, 2013 from $1.2 million at December 31, 2012, primarily due to the utilization of prepayments to our third party manufacturers of Lymphoseek inventory. Accounts payable decreased to $1.5 million at December 31, 2014 from $2.4 million at December 31, 2013, primarily due to decreased NAV5001 development activities, coupled with normal fluctuations in timing of receipt and payment of invoices. 46 Accrued liabilities and other current liabilities decreased to $3.2 million at December 31, 2014 from $4.8 million at December 31, 2013, primarily due to decreases in accrued NAV4694 development costs. Accounts payable increased to $2.4 million at December 31, 2013 from $1.4 million at December 31, 2012, primarily due to increases in Lymphoseek and NAV5001 development activities, coupled with normal fluctuations in timing of receipt and payment of invoices. Accrued liabilities and other current liabilities increased to $4.8 million at December 31, 2013 from $2.0 million at December 31, 2012, primarily due to increases in accrued NAV4694 development costs and net increases in compensation-related accruals. Our payable and accrual balances will continue to fluctuate but will likely decrease overall as we decrease our level of development activity related to NAV4694 and NAV5001 while we seek to secure a development partner or partners for these programs, offset by planned increases in commercial activity related to Lymphoseek and development activity related to the Manocept platform. Investing Activities. Investing activities used $1.5 million during 2014 compared to $1.3 million used during 2013 and $672,000 used during 2012. Capital expenditures of $1.1 million during 2014 were primarily for leasehold improvements, office furniture and NAV4694 production equipment. Capital expenditures of $1.2 million during 2013 were primarily for equipment to be used in the production of NAV4694 and Lymphoseek, leasehold improvements, computers, and software. Capital expenditures of $663,000 during 2012 were primarily for production and laboratory equipment, software, computers, and office furniture. Investing activities also included an investment in R-NAV of $333,000 during 2014. Financing Activities. Financing activities provided $3.2 million during 2014 compared to $60.7 million during 2013 and $5.1 million during 2012. The $3.2 million provided by financing activities in 2014 consisted primarily of proceeds from the Oxford Note of $30.0 million, offset by payment of the principal and fees related to the extinguishment of the GECC/Midcap Notes of $26.7 million. The $60.7 million provided by financing activities in 2013 consisted primarily of proceeds from the issuance of common stock of $41.3 million and proceeds from notes payable of $29.0 million, offset by principal payments on our notes payable of $6.0 million, payment of common stock issuance costs of $1.8 million, payment of debt issuance costs of $1.2 million, and payment of minimum tax withholdings related to stock-based compensation of $659,000. The $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. Investment in R-NAV, LLC In July 2014, Navidea announced that it formed a joint enterprise with Essex Woodlands-backed Rheumco, LLC, to develop and commercialize radiolabeled diagnostic and therapeutic products for rheumatologic and arthritic diseases. The joint enterprise, called R-NAV, will combine Navidea’s proprietary Manocept CD206 macrophage targeting platform and Rheumco’s proprietary Tin-117m radioisotope technology to focus on leveraging the platforms across several indications with high unmet medical need: R-NAV Subsidiary 1A: Detection of RA initially using Tc-99m tilmanocept, commercially known as Lymphoseek, R-NAV Subsidiary 1B: Combination of the Manocept platform with Tin-117m for detection and treatment of RA, Detection and treatment of human and veterinary osteoarthritis (OA) using the Tin-117m R-NAV Subsidiary 2: technology, and Treatment of pediatric hemophilic arthropathy (PHA), a rare rheumatologic condition. R-NAV Subsidiary 3: Both Rheumco and Navidea have contributed licenses for intellectual property and technology to R-NAV in exchange for common units in R-NAV. Each of the licenses has grant-back provisions with respect to inventions and other intellectual property developed in these programs outside of the exclusive fields of use specified in the license. R-NAV was initially capitalized through a $4.0 million investment from Infinity Capital III, of Houston-based McRay Money Management, and other third-party private investors, and the technology contributions from Rheumco and Navidea. Navidea has committed an additional $1.0 million investment to be paid over three years, with $333,334 in cash contributed at inception and a promissory note in the principal amount of $666,666, payable in two equal installments on the first and second anniversaries of the transaction. The note will bear interest at the applicable federal rate, currently 0.31% per annum. In 47 exchange for its capital and in-kind investment, the Company received 1,000,000 Series A preferred units of R-NAV (Series A Units). The Company will receive an additional 500,000 Series A Units for management and technical services associated with the programs described above to be performed by the Company for R-NAV pursuant to a services agreement. The Series A Units are convertible into common units at the option of the holder for a conversion price of $1 per unit, subject to broad-based weighted average anti-dilution rights. Navidea initially owned approximately 33.7% of the combined entity. In December 2014, the third-party private investors contributed an additional $570,000 in exchange for 570,000 Series A Units. Following the additional investment by the private investors, Navidea owns approximately 32.5% of R-NAV. Joint oversight over certain aspects of R-NAV is shared between Navidea, Rheumco, Infinity Capital, and the other investors; Navidea does not control the operations of R-NAV. Navidea has three-year call options to acquire, at its sole discretion, all of the equity of Subsidiary 1A for $10.5 million prior to the launch of a Phase 3 clinical trial for its development program, and all of the equity of Subsidiary 1B at fair value upon completion of radiochemistry and biodistribution studies for its development program. Warrant Exercises 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, Platinum 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, Platinum 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. Platinum Credit Facility In July 2012, we entered into an agreement with Platinum to provide us with a credit facility of up to $50 million (the Platinum Loan Agreement). Following the approval of Lymphoseek, Platinum was 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 highest rate of interest then payable pursuant to the Hercules Loan Agreement (discussed below) plus 0.125%. Through June 25, 2013, we drew a total of $8.0 million under the original facility. The agreement also provided for Platinum to extend an additional $15 million on terms to be negotiated. Principal amounts were due the earlier of two years from the date of draw or June 30, 2016. In June 2013, in connection with entering into the GECC/MidCap Loan Agreement (discussed below), the Company and Platinum entered into an Amendment to the Platinum Loan Agreement (the First Platinum Amendment). Navidea, Platinum, and GECC/MidCap also entered into a Subordination Agreement, providing for subordination of the Company’s indebtedness under the Platinum Loan Agreement to the Company’s indebtedness under the GECC/MidCap Loan Agreement, among other customary terms and conditions. Concurrent with the execution of the First Platinum Amendment, the Company delivered an Amended and Restated Promissory Note (the First Amended Platinum Note) to Platinum, which amended and restated the original promissory note issued to Platinum, in the principal amount of up to $35 million. The First Amended Platinum Note also adjusted the interest rate to the greater of (a) the U.S. Prime Rate as reported in the Wall Street Journal plus 6.75%; (b) 10.0%; or (c) the highest rate of interest then payable pursuant to the GECC/MidCap Loan Agreement plus 0.125%. In addition, the First Platinum Amendment granted Platinum the right, at Platinum’s option subject to certain conditions, to convert all or any portion of the unpaid principal or unpaid interest accrued on any future draw (the Conversion Amount), beginning on a date two years from the date the draw is advanced, into the number of shares of Navidea’s common stock computed by dividing the Conversion Amount by a conversion price equal to the lesser of (i) 90% of the lowest VWAP for the 10 trading days preceding the date of such conversion request, or (ii) the average VWAP for the 10 trading days preceding the date of such conversion request. The First Platinum Amendment also provided a conversion right on the same terms with respect to the amount of any mandatory repayment due following the Company achieving $2,000,000 in cumulative revenues from sales or licensing of Lymphoseek. 48 The conversion option applies to the Conversion Amount if the Company is prohibited from making such prepayment under the terms of the Subordination Agreement. Also in connection with the First Platinum Amendment, the Company and Platinum entered into a Warrant Exercise Agreement (Exercise Agreement), pursuant to which Platinum exercised its Series X Warrant and Series AA Warrant. The warrants were exercised on a cashless basis by canceling a portion of the indebtedness outstanding under the Platinum Loan Agreement equal to $4,781,333, the aggregate exercise price of the warrants. Pursuant to the Exercise Agreement, in lieu of common stock, Platinum received on exercise of the warrants 2,364.9 shares of the Company’s Series B, convertible into 7,733,223 shares of our common stock in the aggregate (3,270 shares of common stock per preferred share). In March 2014, in connection with entering into the Oxford Loan Agreement (discussed below), we repaid all amounts outstanding under the GECC/MidCap Loan Agreement and entered into a second amendment to the Platinum Loan Agreement (the Second Platinum Amendment). Concurrent with the execution of the Second Platinum Amendment, the Company delivered an Amended and Restated Promissory Note (the Second Amended Platinum Note) to Platinum, which amended and restated the First Amended Platinum Note. The Second Amended Platinum Note adjusted the interest rate to the greater of (i) the United States prime rate as reported in The Wall Street Journal plus 6.75%, (ii) 10.0%, and (iii) the highest rate of interest then payable by the Company pursuant to the Oxford Loan Agreement plus 0.125% (effective interest rate as of December 31, 2014 was 10.0%). Navidea, Platinum, and Oxford also entered into a Subordination Agreement, providing for subordination of the Company’s indebtedness under the Platinum Loan Agreement to the Company’s indebtedness under the Oxford Loan Agreement, among other customary terms and conditions. We drew a total of $4.0 million under the credit facility in each of the years ended December 31, 2013 and 2012. We did not make any draws under the credit facility during the year ended December 31, 2014. As of December 31, 2014, the remaining outstanding principal balance was $3.2 million, with $31.8 million still immediately available under the credit facility. Based on the balance as of December 31, 2014, annual principal and interest payments on the Platinum credit facility are expected to be $326,000, $327,000, $326,000, $326,000 and $3.3 million in 2015, 2016, 2017, 2018 and 2019, respectively. Hercules Debt In December 2011, we executed a Loan and Security Agreement (the Hercules Loan Agreement) with Hercules Technology II, L.P. (Hercules), pursuant to which we issued Hercules: (1) a Secured Term Promissory Note in the principal amount of $7,000,000 (the Hercules Note), 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 warrants). In June 2013, the Company used a portion of the proceeds from the GECC/MidCap Notes (discussed below) to pay the remaining $4.4 million of principal outstanding on the Hercules Note, as well as a $250,000 end-of-term fee and a $66,000 early payment penalty in accordance with the terms of the Hercules Loan Agreement. The Series GG warrants remained outstanding as of December 31, 2014. GECC/MidCap Debt In June 2013, we executed a Loan and Security Agreement (the GECC/MidCap Loan Agreement) with General Electric Capital Corporation (GECC) and MidCap Financial SBIC, LP (MidCap), pursuant to which we issued GECC and MidCap: (1) Term Notes in the aggregate principal amount of $25,000,000 (the GECC/MidCap Notes), and (2) Series HH warrants to purchase an aggregate of 301,205 shares of our common stock at an exercise price of $2.49 per share, expiring in June 2023 (the Series HH warrants). In March 2014, in connection with the consummation of the Oxford Loan Agreement (discussed below, we repaid all amounts outstanding under the GECC/MidCap Loan Agreement upon the receipt by GECC/MidCap of a payoff amount of $26.7 million, including $500,000 as a pre-payment fee and $1,000,000 as an end-of-term final payment fee. The Series HH warrants remained outstanding as of December 31, 2014. 49 Oxford Debt In March 2014, we executed a Loan and Security Agreement the (Oxford Loan Agreement) with Oxford Finance, LLC (Oxford), providing for a loan to the Company of $30 million. Pursuant to the Oxford Loan Agreement, we issued Oxford: (1) Term Notes in the aggregate principal amount of $30,000,000, bearing interest at 8.5% (the Oxford Notes), and (2) Series KK warrants to purchase an aggregate of 391,032 shares of our common stock at an exercise price of $1.918 per share, expiring in March 2021 (the Series KK warrants). We made monthly payments of interest only commencing on April 1, 2014, and continuing on the first calendar day of each successive month thereafter through and including the first calendar day of the month immediately preceding April 1, 2015 (the Amortization Date). Commencing on the Amortization Date, and continuing on the first calendar day of each month thereafter, the Company will make 48 consecutive equal monthly payments of principal and interest, in arrears, to the lenders then party to the Oxford Loan Agreement. All unpaid principal, and accrued and unpaid interest, with respect to the Oxford Notes is due and payable in full on March 1, 2019. We will also make a final payment to the lenders in an aggregate amount equal to the original principal amount of loan multiplied by 7.95%. The Oxford Notes are 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 Oxford Loan Agreement requires that the Company adhere to certain affirmative and negative covenants, including, without limitation, financial reporting requirements and a prohibition against the incurrence of indebtedness, or creation of additional liens, other than as specifically permitted by the terms of the Oxford Loan Agreement. As of December 31, 2014, we were in compliance with all covenants of the Oxford Loan Agreement. In July 2014, in connection with the formation of R-NAV, we entered into an amendment to the Oxford Loan Agreement that amended certain covenants to permit our investment in R-NAV, and R-NAV entered into a Subordination Agreement with Oxford to subordinate our indebtedness to R-NAV to our obligations under the Oxford Loan Agreement. During 2014, we recorded interest expense of $2.8 million on the Oxford Notes, which included amortization of the debt discount and issuance costs. As of December 31, 2014, the remaining outstanding principal balance of the debt was $30.0 million, and the Series KK warrants remained outstanding. Annual principal and interest payments on the Oxford Notes are expected to be $7.3 million, $8.9 million, $8.9 million, $8.9 million and $2.2 million in 2015, 2016, 2017, 2018 and 2019, respectively. In March 2015, in connection with the organization and initial financing of Macrophage Therapeutics, Inc., we entered into an amendment to the Oxford Loan Agreement that amended certain covenants to permit these actions and to consent to the grant of a license to Macrophage Therapeutics, Inc. for certain therapeutic applications of the Manocept technology, and Macrophage Therapeutics, Inc. became a co-obligor on the Oxford Notes. 2013 Public Offerings During 2013, we completed two public offerings resulting in issuance of 3,642,389 shares of the Company’s common stock. The net proceeds to the Company were approximately $9.3 million after deducting expenses associated with the offerings. The 2013 public offerings were made pursuant to the Company’s existing effective shelf registration statement on Form S-3. Additionally, in September 2013, we entered into a Securities Purchase Agreement with Crede for a registered direct public offering of 10,563,381 shares of our common stock at a price of $2.84 per share for total gross proceeds of $30.0 million. The net proceeds to the Company upon issuance in 2013 were approximately $28.8 million after deducting expenses associated with the Securities Purchase Agreement, including placement agent fees of $999,000 (3.3% of the gross proceeds). In addition to the common stock, we issued Series JJ warrants to purchase 3,169,015 shares of our common stock at an exercise price of $3.83 per share, expiring in September 2016. In November 2014, Crede exchanged their Series JJ warrants for 3,843,223 shares of our common stock in accordance with the terms of the Series JJ warrant agreement. 50 Summary Our future liquidity and capital requirements will depend on a number of factors, including our ability to achieve market acceptance of our products, our ability to complete the development and commercialization of new 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 required financial resources, and intellectual property protection. In May 2014, the Board of Directors made the decision to refocus the Company's resources to better align the funding of our pipeline programs with the expected growth in Lymphoseek revenue. This realignment primarily involves reducing our near- term support for our two neurological product candidates, NAV4694 and NAV5001, as we seek to secure a development partner or partners for these programs. The Company is also working to establish new sources of non-dilutive funding, including collaborations and grant funding that can augment the balance sheet as the Company works to reduce spending to levels that can be increasingly offset by growing Lymphoseek revenue. In particular, substantial progress on the Manocept platform has resulted in several promising opportunities, including our R-NAV venture, which we believe may further expand the Company's pipeline but requires less near-term funding from Navidea than the two temporarily suspended Phase 3 neurological development programs. We plan to focus our resources in 2015 primarily on increasing sales of Lymphoseek and development of products based on the Manocept platform. Although management believes that it will be able to achieve these objectives, they are subject to a number of variables beyond our control, including the nature and timing of any partnering opportunities, the ability to modify contractual commitments made in connection with these programs, and the timing and expense associated with suspension or alteration of clinical trials, and consequently we cannot assure you that we will be able to achieve our objective of bringing our expenses in line with our revenues, and we may need to seek additional debt or equity financing if we cannot achieve that objective in a timely manner. As stated above, we believe that our current cash balance, our credit facility with Platinum, our projected revenue derived from sales of Lymphoseek, our ability to control expenses, the potential for partnership funding, the potential to access debt or royalty instruments, and the potential to access capital markets through our shelf registration (though we have no current intention to raise additional equity capital using the shelf registration), provide us with adequate financial resources to continue to fund our business plan for the foreseeable future and enable us to reach break-even cash flow from operations in the first quarter of 2016. However, we cannot assure you that Lymphoseek will generate our expected levels of sales and cash flow. We will continue to evaluate our time lines, strategic needs, and balance sheet requirements. We cannot assure you that if we attempt to raise additional capital through debt, royalty, equity or otherwise, 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. Recent Accounting Developments In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, ASU 2014-09 requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be required to make more estimates and use more judgment than under current guidance, which will be highlighted for users through increased disclosure requirements. ASU 2014-09 is effective for public entities for annual periods beginning after December 15, 2016, including interim periods therein. Three basic transition methods are available - full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Early adoption is prohibited. We are currently evaluating the impact of our pending adoption of 51 ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017. In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation. ASU 2014-12 requires that a performance target included in a share-based payment award that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Therefore, under the existing stock compensation guidance in Topic 718, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. ASU 2014-12 is effective for annual periods beginning after December 15, 2015, including interim periods therein. Earlier adoption is permitted. Entities may apply the amendments in ASU 2014-12 either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying ASU 2014-12 as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. We do not expect the adoption of ASU 2014-12 to have a material effect on our consolidated financial statements. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern. ASU 2014-15 defines when and how companies are required to disclose going concern uncertainties, which must be evaluated each interim and annual period. ASU 2014-15 requires management to determine whether substantial doubt exists regarding the entity's going concern presumption. Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). If substantial doubt exists, certain disclosures are required; the extent of those disclosures depends on an evaluation of management's plans (if any) to mitigate the going concern uncertainty. ASU 2014-15 is effective prospectively for annual periods ending after December 15, 2016, and to annual and interim periods thereafter. Early adoption is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our consolidated financial statements, however it may affect our disclosures. In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. ASU 2014-16 does not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. Rather, ASU 2014-16 clarifies how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, ASU 2014-16 clarifies that an entity should consider all relevant terms and features - including the embedded derivative feature being evaluated for bifurcation - in evaluating the nature of the host contract. Further, ASU 2014-16 clarifies that no single term or feature would necessarily determine the host economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. In addition, ASU 2014-16 clarifies that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (that is, the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. Specifically, the assessment of the substance of the relevant terms and features should incorporate a consideration of (1) the characteristics of the terms and features themselves, (2) the circumstances under which the hybrid financial instrument was issued or acquired, and (3) the potential outcomes of the hybrid financial instrument, as well as the likelihood of those potential outcomes. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. Initial adoption should be applied 52 on a modified retrospective bases to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. We are evaluating the potential impact of ASU 2014-16, however we do not expect the adoption of ASU 2014-16 to have a material effect on our consolidated financial statements. Critical Accounting Policies Revenue Recognition. We currently generate revenue primarily from sales of Lymphoseek. Our standard shipping terms are FOB shipping point, and title and risk of loss passes to the customer upon delivery to a carrier for shipment from Cardinal Health’s national distribution center to another point of destination. We generally recognize sales revenue related to sales of our products when the products are shipped. Our customers have no right to return products purchased in the ordinary course of business. We earn additional revenues based on a percentage of the actual net revenues achieved by Cardinal Health on sales to end customers made during each fiscal year. The amount we charge Cardinal Health related to end customer sales of Lymphoseek are subject to a retroactive annual adjustment. To the extent that we can reasonably estimate the end-customer prices received by Cardinal Health, we record sales based upon these estimates at the time of sale. If we are unable to reasonably estimate end customer sales prices related to products sold, we record revenue related to these product sales at the minimum (i.e., floor) price provided for under our distribution agreement with Cardinal Health. We also earn revenue related to milestones as defined in our distribution agreements. Such revenue is recognized when the milestones are achieved with no future obligations and payments under the agreements become contractually due. We generate additional revenue from grants to support various product development initiatives. We generally recognize grant revenue when expenses reimbursable under the grants have been paid and payments under the grants become contractually due. 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, chemistry, manufacturing and control-related activities, and regulatory costs. R&D expenses are charged to operations as incurred. We review and accrue R&D expenses based on services performed and rely upon estimates of those costs applicable to the stage of completion of each project. 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: • 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 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. 53 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. • Inventory Valuation. We record 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. Regulations regarding use and shelf life, product recalls and variation in product utilization all impact the estimates related to excess and obsolete inventory. • 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, 2014. Contractual Cash Obligations Total 2015 2016 2017 2018 2019 Thereafter Payments Due By Period Purchase obligations Capital lease obligation $ 912,411 $ 912,411 $ — $ 5,317 3,039 2,278 — $ — Operating lease obligations 2,275,398 295,695 271,831 277,946 Principal and interest on long-term debt 41,379,377 Total contractual cash obligations 7,954,279 9,534,987 9,199,726 5,490,659 $ 44,572,503 $ 9,165,424 $ 9,809,096 $ 9,477,672 $ 9,483,973 $ 5,781,393 $ — $ — 284,247 9,199,726 — $ — — — 290,734 854,945 — 854,945 * This table does not include obligations such as license agreements, contracted services, or employment agreements as such obligations are dependent upon performance conditions. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk. As of December 31, 2014, our $5.5 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, 2014, the interest rate on certain of our debt obligations was based on the U.S. prime rate. Based on the amount of our variable-rate borrowings at December 31, 2014, which totaled approximately $3.2 million, an immediate one percentage point increase in the U.S. prime rate would increase our annual interest expense by approximately $32,000. 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. 54 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, 2014, 2013 and 2012, we recorded foreign currency transaction gains (losses) of approximately $87,000, $(8,000) and $(15,000), 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. As of December 31, 2014, we did not have any derivative liabilities on our consolidated balance sheet. 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 16, 2015 are set forth at pages F-1 through F-32 attached hereto and incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 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, 2014. 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. 55 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: • • • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; 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 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, 2014. 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 (2013). Based on our assessment we concluded that, as of December 31, 2014, 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 57. Changes in Internal Control Over Financial Reporting During the year ended December 31, 2014, 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. 56 Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders Navidea Biopharmaceuticals, Inc. Dublin, Ohio We have audited Navidea Biopharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) 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, 2014, 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, 2014 and 2013, 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, 2014 and our report dated March 16, 2015 expressed an unqualified opinion thereon. /s/ BDO USA, LLP Chicago, Illinois March 16, 2015 57 Item 9B. Other Information None. 58 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 Peter F. Drake, Ph.D. Brendan A. Ford Michael M. Goldberg, M.D. Ricardo J. Gonzalez Perry A. Karsen Eric K. Rowinsky, M.D. Gordon A. Troup Age Committee(s) 61 56 56 44 59 58 61 Compensation, Nominating and Governance (Chairman) Audit (Chairman) — — Audit; Compensation, Nominating and Governance — Audit; Compensation, Nominating and Governance 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: • 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. • • 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. • 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. • 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 importance of particular agenda and oversight matters, and oversight of a changing mix of strategic, operational, and compliance-related matters. 59 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 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, 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. Perry A. Karsen has served as a director of Navidea since February 2014. Mr. Karsen is currently Chief Executive Officer of Celgene Cellular Therapeutics (CCT), Celgene Corporation’s placental stem cell research and development division. Previously, he was Executive Vice President and Chief Operations Officer at Celgene. Mr. Karsen served as President and Chief Executive Officer at Pearl Therapeutics, a privately-held biotechnology company that was subsequently acquired by Astra-Zeneca, from February 2009 until July 2010. From 2004 to 2009, Mr. Karsen was Senior Vice President and Head of Worldwide Business Development at Celgene and was also responsible for emerging businesses as President, Asia/Pacific Region. Mr. Karsen also held executive roles at Human Genome Sciences, Bristol-Myers Squibb, Genentech and Abbott Laboratories. In addition, Mr. Karsen was a General Partner at Pequot Ventures. Mr. Karsen is a member of the Board of Directors of the Biotechnology Industry Organization (BIO) and a member of the Executive Committee; he is a member of the Board of Directors for the Life Sciences Foundation; a member of the Board of Directors of Agios Pharmaceuticals; and a member of the Board of Directors of Aquilla, Inc. Mr. Karsen has a Masters of Management degree from Northwestern University’s Kellogg Graduate School of Management, a Masters in Teaching of Biology from Duke University, and a B.S. in Biological Sciences from the University of Illinois, Urbana. 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), 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 is also a member of several national healthcare trade organizations and is active in a number of not-for-profit organizations. Mr. Troup has a B.S. degree in Business Management from San Diego State University. 60 Directors whose terms continue until the 2016 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. Dr. Rowinsky has served as the Head of Research and Development and Chief Medical Officer of Stemline Therapeutics, Inc. since January 2012. From 2005 to 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. 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., BIND Therapeutics, Inc., and Coronado Biosciences, 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 2017 Annual Meeting: Michael M. Goldberg, M.D. has served as a director of Navidea since November 2013. Dr. Goldberg has served as a Managing Partner of Montaur Capital Partners since January 2007. Dr. Goldberg served as the Chief Executive Officer of Emisphere Technologies, Inc., from August 1990 to January 2007 and as its President from August 1990 to October 1995. He served as Vice President of The First Boston Corp., where he was a founding member of the Healthcare Banking Group. Dr. Goldberg is or has been a director of Alliqua, Inc., Echo Therapeutics, Inc., AngioLight, Inc., Urigen Pharmaceuticals, Inc., and Adventrx Pharmaceuticals, Inc. Dr. Goldberg received a B.S. degree from Rensselaer Polytechnic Institute, an M.D. from Albany Medical College of Union University in 1982, and an M.B.A. from Columbia University Graduate School of Business in 1985. Ricardo J. Gonzalez has served as President and Chief Executive Officer of Navidea since January 2015, and as Chief Executive Officer from October 2014 to December 2014. Prior to joining Navidea, Mr. Gonzalez held positions of increasing responsibility at Spectrum Pharmaceuticals, Inc. (Spectrum) from March 2008 to October 2014. While at Spectrum, Mr. Gonzalez led teams in the U.S. and abroad and played an active role in the evolution of the organization from a product development company to a global commercial enterprise. Most recently he was responsible for designing and leading the globalization and commercialization strategy for international markets including Europe, Asia, Middle East and Latin America. Of Mr. Gonzalez’s over 20 years of experience in the pharmaceutical industry, 14 years have been focused in specialty markets, including HIV/AIDS, Hematology and Oncology. Mr. Gonzalez’s prior experience includes roles in all aspects of product commercialization including sales, marketing, operations, distribution, managed markets, contracting, reimbursement, pricing and government affairs with several companies including Abraxis Oncology, Genzyme, Ligand Pharmaceuticals, Roche Laboratories and GlaxoSmithKline. Mr. Gonzalez earned his B.S. in Business Logistics from Penn State University. 61 Executive Officers In addition to Mr. Gonzalez, the following individuals are senior executive officers of Navidea and serve in the position(s) indicated below: Name Frederick O. Cope, Ph.D. Thomas J. Klima Brent L. Larson William J. Regan Age Position 68 43 51 Senior Vice President and Chief Scientific Officer Senior Vice President and Chief Commercial Officer Executive Vice President, Chief Financial Officer, Treasurer and Secretary 63 Senior Vice President, Global Regulatory Affairs and Quality and Chief Compliance Officer Cornelia B. Reininger, M.D., Ph.D. Thomas H. Tulip, Ph.D. 62 62 Senior Vice President and Chief Medical Officer President and Chief Business Officer Frederick O. Cope, Ph.D., F.A.C.N., C.N.S., has served as Senior Vice President and Chief Scientific Officer of Navidea since May 2013. Previous to that, Dr. Cope served as Senior Vice President, Pharmaceutical Research and Clinical Development of Navidea from July 2010 to May 2013 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. Dr. Cope also served as head of the Cancer and AIDS product development and commercialization program for the ROSS/Abbott Laboratories division, and head of human and veterinary vaccine production and improvement group for Wyeth Laboratories. 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. Thomas J. Klima has served as Senior Vice President and Chief Commercial Officer of Navidea since January 2015. Before joining Navidea, Mr. Klima served as National Sales Director/Head of Sales of Algeta from September 2012 to April 2014, when Algeta was acquired by Bayer AG. Mr. Klima led oncology strategy for Bayer from April 2014 to December 2014. Prior to that, Mr. Klima was Senior Director, Marketing at Dendreon Corporation from September 2009 to September 2012. From February 2000 to September 2009, Mr. Klima held positions of increasing responsibility at Eli Lilly, most recently serving as Director, Marking US Cymbalta Brand Team. Mr. Klima has a B.A. degree in Business Administration and Marketing from Western State College. Brent L. Larson has served as Executive Vice President of Navidea since May 2013, as Senior Vice President from July 2010 to April 2013, 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. 62 William J. Regan currently serves as Senior Vice President, Global Regulatory & Quality and Chief Compliance Officer. Mr. Regan joined Navidea in 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 led efforts to gain two major FDA label expansions for Lymphoseek and in addition has obtained EU regulatory approval for Lymphoseek during 2014. Mr. Regan has been an active member in the Society of Nuclear Medicine, Council on Radionuclides and Radiopharmaceuticals (CORAR), and Medical Imaging and Technology Alliance, and formerly served as the industry chair of the Regulatory and Clinical Practice committee on behalf of CORAR. Mr. Regan serves on the Mass Down Syndrome Congress Business Advisory Council and is a Managing Board Director for Turner Hill LLC. Mr. Regan holds a B.A. in Chemistry from Rutgers University. Cornelia 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’ Alzheimer’s and amyloid PET imaging 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 also served as President of Navidea from May 2013 to December 2014. Prior to joining Navidea, Dr. Tulip 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, 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 the 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. 63 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, 2014, except for: Frederick O. Cope, Ph.D., Brent L. Larson, Mark J. Pykett, V.M.D., Ph.D., William J. Regan, Cornelia B. Reininger, M.D., Ph.D., and Thomas H. Tulip, Ph.D., who each had one late Form 4 filing related to a January 2014 grant of stock options, and William J. Regan, who had one late Form 4 filing related to a May 2014 purchase of stock on the open market. 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.navidea.com. The code of business conduct and ethics may also be obtained free of charge by writing to Navidea Biopharmaceuticals, Inc., Attn: Chief Financial Officer, 5600 Blazer Parkway, Suite 200, Dublin, Ohio 43017. 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 21 meetings in the fiscal year ended December 31, 2014, 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 then-current members of our Board of Directors attended the 2014 Annual Meeting of Stockholders in person. 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), Perry A. Karsen, 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, 2014. 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. 64 Compensation, Nominating and Governance Committee The 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), Perry A. Karsen, and Gordon A. Troup. The CNG Committee held two meetings in the fiscal year ended December 31, 2014 to complement compensation-related discussions held by the full 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. 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. Philosophy and Goals of Executive Compensation Plans. The CNG Committee’s philosophy for executive compensation is to: • • 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. 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 while taking into account current market conditions and Company performance. This allows us to attract, hire, reward and retain senior executives who formulate and execute our strategic plans and drive exceptional results. To ensure our programs are competitive, the CNG Committee periodically 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: • Reward executives based upon overall company performance, their individual contributions and creation of stockholder value; 65 • Encourage top performers to make a long-term commitment to our Company; and • Align executive incentive plans with the long-term interests of stockholders. The CNG Committee reviews competitive information and individual compensation levels at least annually. During the review process, the CNG Committee addresses the following questions: • Do any existing compensation plans need to be adjusted to reflect changes in competitive practices, different market • circumstances or changes to our strategic initiatives? Should any existing compensation plans be eliminated or new plans be added to the executive compensation programs? • What are the compensation-related objectives for our compensation plans for the upcoming fiscal year? • 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 our 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. 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 July 17, 2014, approximately 74% 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 2015. 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. Mr. Gonzalez provides input for the CNG Committee regarding the performance and appropriate compensation of the other officers. The CNG Committee gives considerable weight to Mr. Gonzalez’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 (Pearl Meyer) as its independent expert to assist in the determination of the reasonableness and 66 competitiveness of the executive compensation plans and senior executives’ individual compensation levels for fiscal 2013. No conflict of interest exists that would prevent Pearl Meyer from serving as independent consultant to the CNG Committee. For fiscal 2013, 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, 2014 by an annualized rate of 3.0%, the expected pay increase in 2013 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 2013, the CNG Committee noted that our overall executive compensation was, on average, between the 25th and 50th percentile for an established peer group of companies. Peer Group Companies. In addition to the above survey analysis, in 2013 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. 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: OncoGenex Pharmaceuticals, Inc. ArQule, Inc. Progenics Pharmaceuticals, Inc. Threshold Pharmaceuticals, Inc. Curis, Inc. Hyperion Therapeutics, Inc. Keryx Biopharmaceuticals, Inc. Immunomedics, Inc. Targacept, Inc. EXACT Sciences Corp. Cell Therapeutics, Inc. Rigel Pharmaceuticals, Inc. ZIOPHARM Oncology, Inc. Delcath Systems, Inc. TG Therapeutics, Inc. GTx, 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 2014 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 2014, the CNG Committee considered published proxy data for similar positions at peer group companies. 67 The following table shows the changes in base salaries for the Named Executive Officers that were approved for fiscal 2014 compared to the approved salaries for fiscal 2013: Named Executive Officer Mark J. Pykett, V.M.D., Ph.D. (c) Ricardo J. Gonzalez (d) Frederick O. Cope, Ph.D. Brent L. Larson Cornelia B. Reininger, M.D., Ph.D. Thomas H. Tulip, Ph.D. Fiscal 2014 Base Salary (a) Fiscal 2013 Base Salary Change (b) $ 399,000 $ 375,000 279,130 260,000 300,000 314,000 437,750 — 279,130 279,575 300,000 339,625 (8.9)% N/A — % (7.0)% — % (7.5)% (a) The amount shown for fiscal 2014 is the approved annual salary of the Named Executive Officer in effect at the end of 2014. The actual amount paid to the Named Executive Officer during fiscal 2014 is shown under “Salary” in the Summary Compensation table below. (b) Based on the performance of the Company's stock during 2013, Drs. Pykett and Tulip and Mr. Larson agreed to salary reductions effective January 1, 2014, and Drs. Cope and Reininger did not receive salary increases in 2014. (c) Dr. Pykett separated from the Company effective May 30, 2014. (d) Mr. Gonzalez commenced employment with the Company effective October 13, 2014. The CNG Committee has not approved any changes to base salaries of Named Executive Officers for fiscal 2015. 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: • Attract, retain and motivate top-quality executives who can add significant value to the Company; • Create an incentive compensation opportunity that is an integral part of the employee’s total compensation program; • Reward participants’ contributions to the achievement of our business results; and • 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 in part on published proxy data for similar positions at peer group companies. The following are the key provisions of the cash bonus compensation plan: • 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. • All Company employees are eligible to participate. • 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. • 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. 68 In January 2014, the CNG Committee established the fiscal 2014 targets and performance measures for all Company employees. For fiscal 2014, the cash bonus for each executive officer was a function of the designated target bonus amount and certain business performance objectives, weighted as a percentage of the total target amount. The business performance objectives established for fiscal 2014 were as follows: • Achievement of various development and commercial goals for the Company’s Lymphoseek product, including: (cid:405) (cid:405) (cid:405) generation of specified revenue amounts derived directly from Lymphoseek during fiscal 2014, subject to a maximum 40% reduction of bonus if not achieved; approval of the sNDA for Lymphoseek for head and neck cancer, subject to a maximum 5% reduction of bonus if not achieved; and initiation of ex-U.S. commercial launch activities in select countries, subject to a maximum 5% reduction of bonus if not achieved. • Achievement of a specified percentage of the total target enrollment in the Company’s NAV4-02 Phase 3 trial for NAV4694, subject to a maximum 10 % reduction of bonus if not achieved. • Realization of a specified amount in revenue from ‘business development’ sources such as in-licensing or partnering milestone payments, subject to a maximum 15% reduction of bonus if not achieved. • Commencement of a Phase 1 or later stage clinical study for a Manocept platform product candidate, subject to a maximum 5% reduction of bonus if not achieved. • Discretionary bonus, equal to 20% of the total bonus objective. For the Named Executive Officers, the following cash bonus targets were established for fiscal 2014: Named Executive Officer Mark J. Pykett, V.M.D., Ph.D. (a) Ricard J. Gonzalez (b) Frederick O. Cope, Ph.D. Brent L. Larson Cornelia B. Reininger, M.D., Ph.D. Thomas H. Tulip, Ph.D. Target Cash Bonus (% of Salary) Target Cash Bonus ($ Amount) 50.0% $ 50.0% 25.0% 27.5% 30.0% 35.0% 199,500 187,500 69,783 71,500 90,000 109,900 (a) Dr. Pykett separated from the Company effective May 30, 2014, therefore no bonus will be awarded to Dr. Pykett for fiscal 2014. (b) Mr. Gonzalez commenced employment with the Company effective October 13, 2014. Any bonus awarded to Mr. Gonzalez will be pro- rated based on time served in his position. In March 2015, the CNG Committee determined the extent to which the Company’s goals were achieved during 2014. With respect to the first objective, (i) the Company did not generate the specified revenue amounts derived directly from Lymphoseek during fiscal 2014, resulting in a 40% reduction in the target bonus amount; (ii) approval of the sNDA for Lymphoseek for head and neck cancer evidenced successful achievement of that goal; and (iii) ex-U.S. commercial launch activities in select countries were not initiated to the degree expected, resulting in a 5% reduction in the target bonus amount. With regard to the second objective, the specified percentage of the total target enrollment in the Company's NAV4-02 Phase 3 trial for NAV4694 was not achieved as originally intended due to the May 2014 realignment of corporate objectives; however, the CNG Committee concluded that based on the accrual rate for brains that was achieved, there would be no reduction in the target bonus amount. With respect to the third objective, the Company did not realize the specified amount of revenue from ‘business development’ sources such as in-licensing or partnering milestone payments, resulting in a 15% reduction in the target bonus amount. With regard to the fourth objective, commencement of a pilot study in subjects with Kaposi's Sarcoma evidenced successful achievement of that goal. With respect to the discretionary portion of the total bonus opportunity, the CNG Committee concluded, primarily due to the successful achievement of a second sNDA that significantly expanded the Lymphoseek product label, that this component would be subject to no reduction of bonuses for non-executives, with the discretionary portion of executive bonuses to be determined on a case-by-case basis by the CNG Committee. After reviewing the business performance objectives and the related proposed payouts, the CNG Committee approved the total cash bonus 69 payouts for non-executive employees of the Company. The CNG Committee has not yet finalized the amounts of cash bonus payouts for the Named Executive Officers. 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: • Analysis of competitive information for comparable positions; • Evaluation of the value added to the Company by hiring or retaining specific employees; and • 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 full- time 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. 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). 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) 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 up to 5% of salary in the form of our common stock). 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 70 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 senior executive officers are generally 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 a senior executive officer is concurrently or subsequently terminated: • • • by the Company without cause (cause is defined as any willful breach of a material duty by the senior executive officer in the course of his or her employment or willful and continued neglect of his or her duty as an employee); by the expiration of the term of the employment agreement; or by the resignation of the senior executive officer because his or her title, authority, responsibilities, salary, bonus opportunities or benefits have materially diminished, a material adverse change in his or her working conditions has occurred, his or her services are no longer required in light of the Company’s business plan, or we breach the agreement; then, the senior 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: • • • • 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; 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; 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 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. Prior to his separation on May 30, 2014, Dr. Pykett was employed under a 20.5-month employment agreement effective through December 31, 2015. The employment agreement provided for an annual base salary of $399,000. For the calendar year ending December 31, 2014, the CNG Committee determined that the maximum bonus payment to Dr. Pykett would be $199,500. Ricardo J. Gonzalez. Mr. Gonzalez is employed under a 36-month employment agreement effective through October 13, 2017. The employment agreement provides for an annual base salary of $375,000. For the calendar year ending December 31, 2014, the CNG Committee determined that the maximum bonus payment to Mr. Gonzalez would be $187,500, to be pro-rated based on time served in his position. Frederick O. Cope, Ph.D. Dr. Cope was employed under a 24-month employment agreement effective through December 31, 2014. The employment agreement provided 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. Effective May 1, 2013, Dr. Cope’s annual base salary was increased to $279,130. For the calendar year ending 71 December 31, 2014, the CNG Committee determined that the maximum bonus payment to Dr. Cope would be $69,783. Although Dr. Cope's employment agreement expired on December 31, 2014, the terms of the agreement provide for continuation of certain terms of the employment agreement as long as Dr. Cope continues to be an employee of the Company following expiration of the agreement. Brent L. Larson. Mr. Larson was employed under a 24-month employment agreement effective through December 31, 2014. The employment agreement provided 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. Effective May 1, 2013, Mr. Larson’s annual base salary was increased to $279,575. Effective January 1, 2014, Mr. Larson agreed to a reduction in his annual base salary to $260,000. For the calendar year ending December 31, 2014, the CNG Committee determined that the maximum bonus payment to Mr. Larson would be $71,500. Although Mr. Larson's employment agreement expired on December 31, 2014, the terms of the agreement provide for continuation of certain terms of the employment agreement as long as Mr. Larson continues to be an employee of the Company following expiration of the agreement. Cornelia B. Reininger, M.D., Ph.D. Dr. Reininger is employed under a 21-month employment agreement effective through December 31, 2015. The employment agreement provided for an annual base salary of $300,000. For the calendar year ending December 31, 2014, the CNG Committee determined that the maximum bonus payment to Dr. Reininger would be $90,000. Thomas H. Tulip, Ph.D. Dr. Tulip was employed under a 24-month employment agreement effective through May 31, 2014. The employment agreement provided for an annual base salary of $325,000. Effective May 1, 2013, Dr. Tulip’s annual base salary was increased to $339,625. Effective January 1, 2014, Dr. Tulip agreed to a reduction in his annual base salary to $314,000. For the calendar year ending December 31, 2014, the CNG Committee determined that the maximum bonus payment to Dr. Tulip would be $109,900. Although Dr. Tulip's employment agreement expired on May 31, 2014, the terms of the agreement provided for continuation of certain terms of the employment agreement as long as Dr. Tulip continued to be an employee of the Company following expiration of the agreement. 72 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, 2014 and a stock price of $1.89, our closing stock price on December 31, 2014. Mark J. Pykett, V.M.D., Ph.D. Prior to his separation, Dr. Pykett was employed under a 20.5-month employment agreement effective through December 31, 2015. Pursuant to the employment agreement, Dr. Pykett served as our Chief Executive Officer until his separation from the Company. Effective May 30, 2014, the Company and Dr. Pykett entered into a Separation Agreement and Release. Following the termination date, Dr. Pykett was entitled to receive (i) a $750,000 severance payment, payable in two equal installments on June 9, 2014, and January 2, 2015, respectively; (ii) a single payment for accrued vacation and personal days; and (iii) reimbursement for certain other expenses and fees. Certain of Dr. Pykett's equity awards terminated upon separation, while others were modified in conjunction with the Separation Agreement and the Consulting Agreement described below. Effective June 1, 2014, the Company and Dr. Pykett entered into a Consulting Agreement pursuant to which Dr. Pykett was to serve as an independent consultant to the Company until December 31, 2014 with respect to clinical-regulatory activities, commercial activities, program management, and business development, among other services. Dr. Pykett was entitled to a consulting fee of $27,500 per month plus reimbursement of reasonable expenses. The Consulting Agreement also provided for a grant of 40,000 shares of restricted stock which were to vest upon certain service and performance conditions. Dr. Pykett terminated the Consulting Agreement effective September 8, 2014. Certain of Dr. Pykett's equity awards were forfeited upon termination of the Consulting Agreement, while others vested on December 1, 2014 due to achievement of certain goals during the period of the Consulting Agreement, in accordance with the terms of the award agreements. Ricardo J. Gonzalez For Cause Resignation Death Disability End of Term Without Cause Change in Control Cash payments: Severance (a) Disability supplement (b) Paid time off (c) Continuation of benefits (d) Stock option vesting acceleration (e) Total $ $ — $ — 7,212 — — 7,212 $ — $ — $ — $ 375,000 $ 375,000 $ 750,000 — 7,212 — — 7,212 $ — — 7,212 7,212 74,608 185,100 — 7,212 — 630,000 630,000 81,820 $ 266,920 $ 1,012,212 $ 1,086,820 $ 1,461,820 630,000 74,608 74,608 74,608 7,212 7,212 — — — (a) Severance amounts are pursuant to Mr. Gonzalez’s employment agreement. (b) During the first 6 months of disability, the Company will supplement disability insurance payments to Mr. Gonzalez 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, 2014. (d) Amount represents 34 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2014. (e) Pursuant to Mr. Gonzalez’s stock option agreement, 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 $1.89, the closing price of the Company’s stock on December 31, 2014, less the exercise price of the options. 73 Frederick O. Cope, Ph.D. For Cause Resignation Death Disability End of Term Without Cause Change in Control Cash payments: Severance (a) Disability supplement (b) Paid time off (c) 2014 401(k) match (d) Continuation of benefits (e) Stock option vesting acceleration (f) Restricted stock vesting acceleration (g) Total $ $ — $ — 5,368 5,200 — — — 10,568 $ — $ — $ — $ 245,000 $ 245,000 $ 367,500 — 137,165 5,368 5,200 5,368 5,200 18,528 18,528 — — — 5,368 5,200 — — — 10,568 $ — 5,368 5,200 — 15,960 — — 5,368 5,200 18,528 15,960 — — 5,368 5,200 18,528 15,960 94,450 290,056 $ 507,006 — — 29,096 $ 166,261 $ 271,528 $ (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 40 hours of accrued but unused vacation time as of December 31, 2014. (d) Amount represents the value of 2,858 shares of Company stock which was accrued during 2014 as the Company’s 401(k) matching contribution but was unissued as of December 31, 2014. (e) Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2014. (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 $1.89, the closing price of the Company’s stock on December 31, 2014, less the exercise price of the options. Amount does not include stock options with an exercise price higher than $1.89, the closing price of the Company’s stock on December 31, 2014. (g) Pursuant to Dr. Cope’s restricted stock agreements, certain unvested restricted stock outstanding will vest upon a change in control. Brent L. Larson For Cause Resignation Death Disability End of Term Without Cause Change in Control Cash payments: Severance (a) Disability supplement (b) Paid time off (c) 2014 401(k) match (d) Continuation of benefits (e) Stock option vesting acceleration (f) Total $ $ — $ — 5,000 5,200 — — 10,200 $ — $ — $ — $ 207,000 $ 207,000 $ 310,500 — 127,600 5,000 5,200 5,000 5,200 26,332 26,332 — 5,000 5,200 — — 10,200 $ — — 36,532 $ 164,132 $ 232,080 $ — 5,000 5,200 — 14,880 — 5,000 5,200 26,332 14,880 — 5,000 5,200 26,332 14,880 258,412 $ 361,912 (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, 2014. (d) Amount represents the value of 2,984 shares of Company stock which was accrued during 2014 as the Company’s 401(k) matching contribution but was unissued as of December 31, 2014. (e) Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2014. (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 $1.89, the closing price of the Company’s stock on December 31, 2014, less the exercise price of the options. Amount does not include stock options with an exercise price higher than $1.89, the closing price of the Company’s stock on December 31, 2014. 74 Cornelia B. Reininger, M.D., Ph.D. For Cause Resignation Death Disability End of Term Without Cause Change in Control Cash payments: Severance (a) Disability supplement (b) Paid time off (c) 2014 401(k) match (d) Continuation of benefits (e) Stock option vesting acceleration (f) Total $ $ — $ — 5,769 5,200 — — 10,969 $ — $ — $ — $ 300,000 $ 300,000 $ 450,000 — 147,600 5,769 5,200 11,652 5,769 5,200 11,652 — 5,769 5,200 — — 10,969 $ — — 22,621 $ 170,221 $ 328,129 $ — 5,769 5,200 — 17,160 — 5,769 5,200 11,652 17,160 — 5,769 5,200 11,652 17,160 339,781 $ 489,781 (a) Severance amounts are pursuant to Dr. Reininger's employment agreement. (b) During the first 6 months of disability, the Company will supplement disability insurance payments to Dr. Reininger 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, 2014. (d) Amount represents the value of 2,747 shares of Company stock which was accrued during 2014 as the Company’s 401(k) matching contribution but was unissued as of December 31, 2014. (e) Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2014. (f) Pursuant to Dr. Reininger’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 $1.89, the closing price of the Company’s stock on December 31, 2014, less the exercise price of the options. Amount does not include stock options with an exercise price higher than $1.89, the closing price of the Company’s stock on December 31, 2014. Thomas H. Tulip, Ph.D. For Cause Resignation Death Disability End of Term Without Cause Change in Control Cash payments: Severance (a) Disability supplement (b) Paid time off (c) 2014 401(k) match (d) Continuation of benefits (e) Stock option vesting acceleration (f) Restricted stock vesting acceleration (g) Total $ $ — $ — 6,038 5,200 — — — 11,238 $ — $ — $ — $ 325,000 $ 325,000 $ 487,500 — 154,600 6,038 5,200 — — 6,038 5,200 — — — 6,038 5,200 — — — 11,238 $ — 6,038 5,200 — 18,000 — — 6,038 5,200 — — 6,038 5,200 — 18,000 18,000 — — 354,238 $ 516,738 — — 11,238 $ 165,838 $ 354,238 $ (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, 2014. (d) Amount represents the value of 2,720 shares of Company stock which was accrued during 2014 as the Company’s 401(k) matching contribution but was unissued as of December 31, 2014. (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 $1.89, the closing price of the Company’s stock on December 31, 2014, less the exercise price of the options. Amount does not include stock options with an exercise price higher than $1.89, the closing price of the Company’s stock on December 31, 2014. (g) Dr. Tulip’s restricted stock agreements do not include provisions for accelerated vesting. 75 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) Perry A. Karsen Gordon A. Troup 76 Compensation, Nominating and Governance Committee Interlocks and Insider Participation The current members of our CNG Committee are: Peter F. Drake, Ph.D. (Chairman), Perry A. Karsen, and Gordon A. Troup, and each served as a member of the CNG Committee during the last completed fiscal year. Mr. Ford also served on the CNG Committee during 2014. None of these individuals were at any time during the fiscal year ended December 31, 2014, or at any other time, an officer or employee of the Company. No director who served on the CNG Committee during 2014 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 an 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 2014. 77 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. Named Executive Officer Mark J. Pykett, V.M.D., Ph.D. (e) Chief Executive Officer Ricardo J. Gonzalez (f) President and Chief Executive Officer Summary Compensation Table for Fiscal 2014 Year Salary 2014 $ 166,250 $ 2013 433,500 2012 425,000 (a) Stock Awards (b) Option Awards (c) Non-Equity Incentive Plan Compensation (d) All Other Compensation Total Compensation — $ 279,468 $ — 557,448 983,700 385,462 — $ 127,500 140,250 411,669 $ 6,749 13,808 857,387 1,125,197 1,948,220 2014 $ 82,452 $ 2013 2012 — — — $ 768,247 $ — $ — — — — — — Frederick O. Cope, Ph.D. Senior Vice President and Chief Scientific Officer 2014 $ 279,130 $ 2013 276,420 2012 271,000 — $ 144,067 $ — $ — 265,888 — 244,768 50,813 55,043 Brent L. Larson Executive Vice President and Chief Financial Officer 2014 $ 260,000 $ 2013 274,717 2012 265,000 — $ 134,318 $ — $ — 260,387 — 169,603 51,013 49,555 Cornelia B. Reininger, M.D., Ph.D. (g) Senior Vice President and Chief Medical Officer 2014 $ 300,000 $ 2013 300,000 — 2012 — $ 154,899 $ — $ — 220,045 — — 67,500 — Thomas H. Tulip, Ph.D. President and Chief Business Officer 2014 $ 314,000 $ 2013 334,750 2012 314,583 — $ 162,481 $ — $ — 319,066 — 314,151 71,094 75,075 — $ — — 6,173 $ 6,179 11,114 6,727 $ 6,847 11,404 13,652 $ 98,087 — 6,200 $ 6,000 9,615 850,699 — — 429,370 599,300 581,925 401,045 592,964 495,562 468,551 685,632 — 482,681 730,910 713,424 (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 as of the date this filing, and are disclosed for 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 separated from the Company effective May 30, 2014. (f) Mr. Gonzalez commenced employment with the Company effective October 13, 2014. (g) Dr. Reininger commenced employment with the Company effective November 1, 2012. 78 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. Named Executive Officer Mark J. Pykett, V.M.D., Ph.D. Ricardo J. Gonzalez Frederick O. Cope, Ph.D. Brent L. Larson Cornelia B. Reininger, M.D., Ph.D. Thomas H. Tulip, Ph.D. All Other Compensation Table for Fiscal 2014 (b) Reimbursement of Additional Tax Liability Related to Health Insurance Premiums (a) Payment for Unused Vacation (c) 401(k) Plan Employer Matching Contribution Year $ 32,277 $ 471 $ Other 375,000 (d) $ — — Total All Other Compensation 411,669 6,749 13,808 2014 2013 2012 2014 2013 2012 2014 2013 2012 2014 2013 2012 2014 2013 2012 2014 2013 2012 $ $ $ $ $ — 4,808 — $ — — — $ — 4,615 — 7,212 — $ — — — $ — 5,096 1,749 1,596 — $ — — 973 $ 1,179 1,018 — $ 1,527 $ 1,847 1,596 3,921 $ 5,000 5,000 — $ — — 5,200 $ 5,000 5,000 5,200 $ 5,000 5,000 $ $ $ — — — — — — — — — 448 $ 5,200 $ 112 — 5,000 — 8,004 (e) $ 92,975 (f) — — $ — — 5,200 $ 5,000 5,000 1,000 (g) $ 1,000 (g) — — — — 6,173 6,179 11,114 6,727 6,847 11,404 13,652 98,087 — 6,200 6,000 9,615 (a) Amount represents payment for unused vacation time in excess of the amount eligible for rollover in a fiscal year, or payment for unused vacation time upon separation from the Company. The amount paid is calculated based on the employee’s salary in effect at the end of the period 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) Amount represents Dr. Pykett's first separation payment in accordance with his Separation Agreement and Release dated May 30, 2014. (e) Amount represents Dr. Reininger's car allowance payments. (f) Amount represents Dr. Reininger's moving expenses to relocate from Germany to the U.S. of $58,827, reimbursement of additional income taxes on the value of the moving expenses of $12,857, immigration-related legal fees of $11,953 and car allowance payments totaling $9,338. (g) Amount represents Dr. Tulip's additional bonus paid for non-participation in the Company’s medical, dental, and vision plans. 79 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 2014. 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 2014 Estimated Future Payouts Under Non-Equity Incentive Plan Awards (a) Estimated Future Payouts Under Equity Incentive Plan Awards Grant Date Threshold Maximum Threshold Maximum All Other Stock Awards: Number of Shares of Stock All Other Option Awards: Number of Securities Underlying Options Exercise Price of Option Awards Grant Date Fair Value of Stock and Option Awards Named Executive Officer Mark J. Pykett, V.M.D., Ph.D. N/A $ 1/28/2014 $ Ricardo J. Gonzalez N/A $ 10/13/2014 $ Frederick O. Cope, Ph.D. N/A $ 1/28/2014 $ Brent L. Larson Cornelia B. Reininger, M.D., Ph.D. N/A $ 1/28/2014 $ N/A $ 1/28/2014 $ Thomas H. Tulip, Ph.D. N/A $ 1/28/2014 $ — $ — $ — $ — $ — $ — $ — $ — $ $ — — $ — $ — $ 199,500 — 187,500 — 69,783 — 71,500 — 90,000 — 109,900 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — $ 258,000 $ — $ — (a) 1.77 $ 279,468 (b) — $ 1,000,000 $ — $ — (a) 1.26 $ 768,247 (c) — $ 133,000 $ — $ 124,000 $ $ — 143,000 $ — 150,000 $ — $ — (a) 1.77 $ 144,067 (b) — $ — (a) 1.77 $ 134,318 (b) — $ — (a) 1.77 $ 154,899 (b) — $ — (a) 1.77 $ 162,481 (b) (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. For actual cash bonus award amounts, see the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation table above. (b) 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. (c) These stock options shall vest and become exercisable in three tranches, provided that Mr. Gonzalez has been an employee of the Company continuously from the date of grant through the date when such portion of the option vests. The first tranche of 300,000 options will vest and become exercisable on the first anniversary of the date of grant. The second tranche of 300,000 options will vest and become exercisable on or after the second anniversary of the date of grant, provided that the options will not be exercisable with respect to such shares unless and until the average closing price per share of the Company’s common stock for the ten trading days prior to exercise equals or exceeds $2.50 per share. The third tranche of 400,000 options will vest and become exercisable on or after the third anniversary of the date of grant, provided that the options will not be exercisable with respect to such shares unless and until the average closing price per share of the Company’s common stock for the ten trading days prior to exercise equals or exceeds $3.50 per share. 80 Outstanding Equity Awards The following table presents certain information concerning outstanding equity awards held by the Named Executive Officers as of December 31, 2014. Outstanding Equity Awards Table at Fiscal 2014 Year-End Option Awards Stock Awards Number of Securities Underlying Unexercised Options (#) Exercisable Unexercisable Option Exercise Price Option Expiration Date Note Equity Incentive Plan Awards Number of Shares of Stock that Have Not Vested Market Value of Shares of Stock that Have Not Vested Market Value of Unearned Shares (p) Number of Unearned Shares Note Named Executive Officer Mark J. Pykett, V.M.D., Ph.D. Ricardo J. Gonzalez — 1,000,000 $ 1.26 10/13/2024 (m) Frederick O. Cope, Ph.D. Brent L. Larson Cornelia B. Reininger, M.D., Ph.D. Thomas H. Tulip, Ph.D. 50,000 75,000 120,000 63,500 36,250 — 40,000 50,000 50,000 25,000 75,000 95,000 44,000 35,500 — 44,000 30,000 — 82,500 81,500 43,500 — — $ — $ — $ 63,500 $ 108,750 $ 133,000 $ — $ — $ — $ — $ — $ — $ 44,000 $ 106,500 $ 124,000 $ 44,000 $ 90,000 $ 143,000 $ 27,500 $ 81,500 $ 130,500 $ 150,000 $ 0.65 1.10 1.90 3.28 3.08 1.77 0.26 0.27 0.362 0.59 1.10 1.90 3.28 3.08 1.77 2.85 3.08 1.77 4.93 3.28 3.08 1.77 2/16/2019 10/30/2019 12/21/2020 2/17/2022 2/15/2023 1/28/2024 12/27/2015 12/15/2016 1/3/2018 1/5/2019 10/30/2019 12/21/2020 2/17/2022 2/15/2023 1/28/2024 11/1/2022 2/15/2023 1/28/2024 6/1/2021 2/17/2022 2/15/2023 1/28/2024 (e) (f) (g) (i) (k) (l) (a) (b) (c) (d) (f) (g) (i) (k) (l) (j) (k) (l) (h) (i) (k) (l) 50,000 $ 94,500 (n) 40,000 $ 75,600 (o) (a) 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. (b) Options were granted 12/15/2006 and vested as to one-third on each of the first three anniversaries of the date of grant. (c) Options were granted 1/3/2008 and vested as to one-third on each of the first three anniversaries of the date of grant. (d) Options were granted 1/5/2009 and vested as to one-third on each of the first three anniversaries of the date of grant. (e) Options were granted 2/16/2009 and vested as to one-third on each of the first three anniversaries of the date of grant. (f) Options were granted 10/30/2009 and vested as to one-third on each of the first three anniversaries of the date of grant. (g) Options were granted 12/21/2010 and vest as to one-fourth on each of the first four anniversaries of the date of grant. (h) Options were granted 6/1/2011 and vest as to one-fourth on each of the first four anniversaries of the date of grant. (i) Options were granted 2/17/2012 and vest as to one-fourth on each of the first four anniversaries of the date of grant. (j) Options were granted 11/1/2012 and vest as to one-fourth on each of the first four anniversaries of the date of grant. (k) Options were granted 2/15/2013 and vest as to one-fourth on each of the first four anniversaries of the date of grant. (l) Options were granted 1/28/2014 and vest as to one-fourth on each of the first four anniversaries of the date of grant. 81 (m) Options were granted 10/13/2014 and shall vest and become exercisable in three tranches, provided that Mr. Gonzalez has been an employee of the Company continuously from the date of grant through the date when such portion of the option vests. The first tranche of 300,000 options will vest and become exercisable on the first anniversary of the date of grant. The second tranche of 300,000 options will vest and become exercisable on or after the second anniversary of the date of grant, provided that the options will not be exercisable with respect to such shares unless and until the average closing price per share of the Company’s common stock for the ten trading days prior to exercise equals or exceeds $2.50 per share. The third tranche of 400,000 options will vest and become exercisable on or after the third anniversary of the date of grant, provided that the options will not be exercisable with respect to such shares unless and until the average closing price per share of the Company’s common stock for the ten trading days prior to exercise equals or exceeds $3.50 per share. (n) Restricted shares granted February 16, 2009. Pursuant to the terms of the restricted stock agreement between the Company and Dr. Cope, the restricted shares will vest upon the commencement of patient enrollment in a Phase 3 clinical trial in humans of NAV1800. 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. (o) 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, 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. (p) Estimated by reference to the closing market price of the Company’s common stock on December 31, 2014, 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, 2014, was $1.89. 82 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 2014. Options Exercised and Stock Vested Table for Fiscal 2014 Named Executive Officer Mark J. Pykett, V.M.D., Ph.D. Ricardo J. Gonzalez Frederick O. Cope, Ph.D. Brent L. Larson Cornelia B. Reininger, M.D., Ph.D. 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) — $ — $ — $ 96,433 $ — $ — $ — — — 235,100 — — 100,000 $ — $ — $ — $ — $ 13,418 $ 202,900 (b) — — — (c)(d)(e) — 26,780 (f) (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. (b) On March 17, 2014, 100,000 shares of Dr. Pykett’s restricted stock vested in accordance with the terms of his restricted stock agreement. The market price of the stock on the last trading day prior to the vesting date was $2.03 per share. (c) On January 7, 2014, Mr. Larson exercised options to purchase 70,000 shares of common stock at an exercise price of $0.30 per share. After canceling 34,308 shares to cover the exercise price and related taxes, we issued 35,692 shares of common stock to Mr. Larson. The market price of the stock on the last trading day prior to the vesting date was $1.93 per share. (d) On March 10, 2014, Mr. Larson exercised options to purchase 50,000 shares of common stock at an exercise price of $0.49 per share. After canceling 12,312 shares to cover the related taxes, we issued 37,688 shares of common stock to Mr. Larson. The market price of the stock on the last trading day prior to the vesting date was $1.99 per share. (e) On December 10, 2014, Mr. Larson exercised options to purchase 50,000 shares of common stock at an exercise price of $0.39 per share. After canceling 26,947 shares to cover the exercise price and related taxes, we issued 23,053 shares of common stock to Mr. Larson. The market price of the stock on the last trading day prior to the vesting date was $1.31 per share. (f) On October 6, 2014, 20,000 shares of Dr. Tulip’s restricted stock vested upon the partnering of Lymphoseek in two countries in Asia other than Japan. After canceling 6,582 shares to cover the related taxes, we issued 13,418 shares of common stock to Dr. Tulip. The market price of the stock on the vesting date was $1.34 per share. 83 Compensation of Non-Employee Directors Each non-employee director received an annual cash retainer of $50,000 during the fiscal year ended December 31, 2014. The Chairman of the Company’s Board of Directors received an additional annual retainer of $30,000, 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 2014. We also reimbursed non-employee directors for travel expenses for meetings attended during 2014. Each non-employee director also received 20,000 shares of restricted stock during 2014 as a part of the Company’s annual stock incentive grants, in accordance with the provisions of the Navidea Biopharmaceuticals, Inc. Fourth 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, 2015 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 Navidea do not receive any compensation for their services as directors. The following table sets forth certain information concerning the compensation of non-employee Directors for the fiscal year ended December 31, 2014. Name Peter F. Drake, Ph.D. Brendan A. Ford Michael M. Goldberg, M.D. Perry A. Karsen (f) Eric K. Rowinsky, M.D. Gordon A. Troup (a) Fees Earned or Paid in Cash or Stock $ 58,859 $ 61,359 50,000 45,755 50,000 85,000 (b),(c) Option Awards (d),(e) Stock Awards All Other Compensation — $ — — — — — 36,600 $ 36,600 36,600 37,400 36,600 36,600 Total Compensation 95,459 97,959 86,600 83,155 86,600 121,600 — $ — — — — — (a) Amount represents fees earned during the fiscal year ended December 31, 2014 (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, 2014, 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, 2014, the non-employee directors were issued an aggregate of 120,000 shares of restricted stock which vest as to 100% of the shares on the first anniversary of the date of grant. At December 31, 2014, the non-employee directors held an aggregate of 188,000 shares of unvested restricted stock. Drs. Drake and Rowinsky and Messrs. Ford and Troup each held 37,000 shares of unvested restricted stock, and Dr. Goldberg and Mr. Karsen each held 20,000 shares of unvested restricted stock. (f) Mr. Karsen was appointed to the board on February 17, 2014. 84 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, 2014, 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. (1) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (2) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Equity compensation plans approved by security holders (a) 4,345,764 $ Equity compensation plans not approved by security holders (b) 1,000,000 Total 5,345,764 $ 2.37 1.26 2.16 (3) Number of Securities Remaining Available for Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (1)) 4,713,375 — 4,713,375 (a) Our stockholders ratified the 2014 Stock Incentive Plan (the 2014 Plan) at the 2014 Annual Meeting of Stockholders held on July 17, 2014. The total number of shares available for awards under the 2014 Plan shall not exceed 5,000,000 shares, plus any shares subject to outstanding awards granted under prior plans and that expire or terminate for any reason. (b) The Board of Directors awarded 1,000,000 options to Mr. Gonzalez as an inducement to employment effective October 13, 2014. Pursuant to NYSE MKT rules, such inducement options do not require shareholder approval. 85 Security Ownership of Principal Stockholders, Directors, Nominees and Executive Officers and Related Stockholder Matters The following table sets forth, as of February 28, 2015, 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 Frederick O. Cope, Ph.D. Peter F. Drake, Ph.D. Brendan A. Ford Michael M. Goldberg, M.D. Ricardo J. Gonzalez Perry A. Karsen Brent L. Larson 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 (13 persons) Platinum-Montaur Life Sciences, LLC Number of Shares Beneficially Owned (*) 532,331 (a) 77,829 (b) 188,633 (b) 296,325 — (c) 37,528 940,334 (d) 141,645 (e) 237,484 (f) 209,755 (g) 392,141 (h) 3,246,384 (i)(l) 12,168,434 (j) Percent of Class (**) — — — — (k) (k) (k) (k) (k) (k) (k) (k) (k) (k) (k) — — — — — — 2.1% 8.1% (*) 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 28, 2015, plus the number of shares the person has the right to acquire within 60 days of February 28, 2015. (a) This amount includes 446,000 shares issuable upon exercise of options which are exercisable within 60 days and 10,517 shares in Dr. Cope’s account in the 401(k) Plan, but it does not include 50,000 shares of unvested restricted stock and 204,000 shares issuable upon exercise of options which are not exercisable within 60 days. (b) This amount does not include 17,000 shares of unvested restricted stock. (c) This amount does not include 1,000,000 shares issuable upon exercise of options which are not exercisable within 60 days. (d) This amount includes 503,000 shares issuable upon exercise of options which are exercisable within 60 days and 95,097 shares in Mr. Larson’s account in the 401(k) Plan, but it does not include 186,000 shares issuable upon exercise of options which are not exercisable within 60 days. (e) This amount includes 139,750 shares issuable upon exercise of options which are exercisable within 60 days and 1,895 shares in Dr. Reininger’s account in the 401(k) Plan, but does not include 211,250 shares issuable upon exercise of options which are not exercisable within 60 days. (f) This amount includes 73,764 shares issuable upon exercise of options which are exercisable within 60 days, but it does not include 17,000 shares of unvested restricted stock. (g) This amount includes 20,000 shares issuable upon exercise of options which are exercisable within 60 days, but it does not include 17,000 shares of unvested restricted stock. (h) This amount includes 329,250 shares issuable upon exercise of options which are exercisable within 60 days and 4,473 shares in Dr. Tulip's account in the 401(k) Plan, but it does not include 40,000 shares of unvested restricted stock and 267,750 shares issuable upon exercise of options which are not exercisable within 60 days. (i) This amount includes 1,672,264 shares issuable upon exercise of options which are exercisable within 60 days and 113,861 shares held in the 401(k) Plan on behalf of certain officers, but it does not include 258,000 shares of unvested restricted stock and 2,122,500 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 386,236 shares of 86 common stock. The 13 persons referenced in this disclosure include each director and named executive officer listed in the table as well as two additional executive officers who are not named executive officers. (j) Based on information filed on Schedule 13D with the Securities and Exchange Commission on February 20, 2015. The number of shares beneficially owned by Platinum-Montaur Life Sciences, LLC (Platinum), 250 W. 55th Street, 14th Floor, New York, NY 10019, does not include 14,777,130 shares of common stock issuable upon conversion of 4,519 shares of Series B Convertible Preferred Stock. The Certificate of Designation of the Preferred Stock provides that the holder of shares of the Preferred Stock may not convert any of the Preferred Stock 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. (k) Less than one percent. (l) The address of all directors and executive officers is c/o Navidea Biopharmaceuticals, Inc., 5600 Blazer Parkway, Suite 200, Dublin, OH 43017. 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. Effective November 13, 2013, the Company appointed Michael M. Goldberg, M.D., to serve on its Board of Directors. At the time of his appointment, Dr. Goldberg was Portfolio Manager of Platinum-Montaur Life Sciences, LLC, a Delaware limited liability company (Platinum). Dr. Goldberg accepted his appointment to serve on the Company’s Board of Directors in accordance with the provisions of a Director Agreement, dated November 13, 2013, between the Company and Dr. Goldberg. Pursuant to the terms of the Director Agreement, Dr. Goldberg has acknowledged and agreed that, for as long as he is a member of the Board of Directors, he will not, directly or indirectly, have any power to direct or cause the direction of the voting or disposition of any securities of the Company directly or beneficially owned by Platinum or its affiliates. Dr. Goldberg has advised the Company that he is in the process of completing his withdrawal from any ownership or management position with Platinum, but he has not advised the Company of the specific terms or timing of completing such separation. SEC disclosure rules regarding transactions with related persons require the Company to provide information about transactions with Dr. Goldberg as a related person, even though Dr. Goldberg was not a related person at the time the Company entered into the transactions described below. As of February 28, 2015, Platinum beneficially owned approximately 12,168,434 shares of our common stock, excluding 14,777,130 shares of our common stock issuable upon the conversion of 4,519 shares of Series B Convertible Preferred Stock. In March 2014, in connection with entering into a Loan and Security Agreement (the Oxford Loan Agreement) with Oxford Finance LLC (Oxford), providing for a loan to the Company of $30 million, we entered into a second amendment to the Platinum Loan Agreement (the Second Platinum Amendment). Concurrent with the execution of the Second Platinum Amendment, the Company delivered an Amended and Restated Promissory Note (the Second Amended Platinum Note) to Platinum, which amended and restated the First Amended Platinum Note. The Second Amended Platinum Note adjusted the interest rate to the greater of (i) the United States prime rate as reported in The Wall Street Journal plus 6.75%, (ii) 10.0%, and (iii) the highest rate of interest then payable by the Company pursuant to the Oxford Loan Agreement plus 0.125%. Navidea, Platinum, and Oxford also entered into a Subordination Agreement, providing for subordination of the Company’s indebtedness 87 under the Platinum Loan Agreement to the Company’s indebtedness under the Oxford Loan Agreement, among other customary terms and conditions. During 2014, the largest aggregate amount of principal outstanding under the Platinum credit facility was $3.2 million, and as of February 28, 2015, the amount of principal outstanding was $4.7 million. In March 2015, Macrophage Therapeutics, Inc. (MT) entered into an agreement to sell up to 50 shares of its Series A Convertible Preferred Stock (MT Preferred Stock) and warrants to purchase up to 1,500 common shares of Macrophage Therapeutics (MT Common Stock) to Platinum-Montaur Life Sciences, LLC (Platinum) and Dr. Michael Goldberg for a purchase price of $50,000 per share of MT Preferred Stock. On March 13, 2015, we announced that definitive agreements with the investors had been signed for the sale of the first tranche of 10 shares of MT Preferred Stock and warrants to purchase 300 shares of MT Common Stock to these investors, with gross proceeds to Macrophage Therapeutics of $500,000. Under the agreement, 40% of the MT Preferred Stock and warrants are committed to be purchased by Dr. Goldberg, and the balance by Platinum. The full 50 shares of MT Preferred Stock and warrants to be sold under the agreement are convertible into and exercisable for MT Common Stock representing an aggregate 1% interest on a fully converted and exercised basis. In addition, we entered into an Exchange Agreement with the investors providing them an option to exchange their MT Preferred Stock for our common stock in the event that MT has not completed a public offering with gross proceeds to MT of at least $50 million by the second anniversary of the closing of the initial sale of MT Preferred Stock, at an exchange rate per share obtained by dividing $50,000 by the greater of (i) 80% of the twenty-day volume weighted average price per share of our common stock on the second anniversary of the initial closing or (ii) $3.00. To the extent that the investors do not timely exercise their exchange right, we have the right to redeem their MT Preferred Stock for a price equal to $58,320 per share. We also granted MT an exclusive license for certain therapeutic applications of the Manocept technology. 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, Karsen and Troup, and Drs. Drake and Goldberg, meet the independence requirements. 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, primarily related to the audit of the Company’s annual consolidated financial statements for the 2014 fiscal year, the audit of the Company’s internal control over financial reporting as of December 31, 2014, the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for the 2014 fiscal year, and consents related to the Company's registration statements during the 2014 fiscal year, were $249,500 (including direct engagement expenses). The aggregate fees billed for professional services rendered by BDO USA, LLP, primarily related to the audit of the Company’s annual consolidated financial statements for the 2013 fiscal year, the audit of the Company’s internal control over financial reporting as of December 31, 2013, and the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for the 2013 fiscal year, were $227,075 (including direct engagement expenses). Audit-Related Fees. No fees were billed by BDO USA, LLP for audit-related services for the 2014 or 2013 fiscal years. Tax Fees. No fees were billed by BDO USA, LLP for tax-related services for the 2014 or 2013 fiscal years. All Other Fees. No fees were billed by BDO USA, LLP for services other than the audit, audit-related and tax services for the 2014 or 2013 fiscal years. 88 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. 89 PART IV Item 15. Exhibits, Financial Statement Schedules The following documents are filed as part of this report: (1) The following Financial Statements are included in this Annual Report on Form 10-K on the pages indicated below: Report of Independent Registered Public Accounting Firm BDO USA, LLP Consolidated Balance Sheets as of December 31, 2014 and 2013 Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2014, 2013 and 2012 Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012 Notes to the Consolidated Financial Statements F-2 F-3 F-5 F-6 F-7 F-8 (2) Financial statement schedules have been omitted because either they are not required or are not applicable or because the information required to be set forth therein is not material. (3) Exhibits: Exhibit Number 3.1 3.3 4.1 10.1 10.2 10.3 Exhibit Description 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, January 5, 2012, and June 26, 2013)(filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K filed March 14, 2014, and incorporated herein by reference). Amended and Restated By-Laws dated July 21, 1993, as amended July 18, 1995, May 30, 1996, July 26, 2007, and November 7, 2013 (filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed November 12, 2013, and incorporated herein by reference). Amended and Restated 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 26, 2013). Navidea Biopharmaceuticals, Inc. 2014 Stock Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement for the Company’s 2014 Annual Meeting of Stockholders, filed June 6, 2014). ^ Form of Stock Option Agreement under the Navidea Biopharmaceuticals, Inc. 2014 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed November 10, 2014). ^ Form of Restricted Stock Award and Agreement under the Navidea Biopharmaceuticals, Inc. 2014 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed November 10, 2014). ^ 90 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 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). ^ 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). ^ 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). ^ Navidea Biopharmaceuticals, Inc. 2014 Cash Bonus Plan (incorporated by reference to the Company’s Current Report on Form 8-K filed February 3, 2014). ^ 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). 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). 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). 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). 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). 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). 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). 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). Amendment to Loan Agreement, dated June 25, 2013, between Navidea Biopharmaceuticals, Inc. and Platinum- Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed June 28, 2013). Second Amendment to Loan Agreement, dated March 4, 2014, between Navidea Biopharmaceuticals, Inc. and Platinum-Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 7, 2014). 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). 91 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 10.29 10.30 10.31 10.32 10.33 10.34 Amended and Restated Promissory Note, dated June 25, 2013, made by Navidea Biopharmaceuticals, Inc. in favor of Platinum-Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed June 28, 2013). Second Amended and Restated Promissory Note, dated March 4, 2014, made by Navidea Biopharmaceuticals, Inc. in favor of Platinum-Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed March 7, 2014). Warrant Exercise Agreement, dated June 25, 2013, between Navidea Biopharmaceuticals, Inc. and Platinum- Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed June 28, 2013). 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). 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). 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). 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). 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). 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). Securities Purchase Agreement, dated September 24, 2013, by and between the Company and the Crede CG III, Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 24, 2013). Placement Agent Agreement, dated September 19, 2013, by and between the Company and JMP Securities LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 24, 2013). Director Agreement, dated November 13, 2013, by and between Navidea Biopharmaceuticals, Inc. and Michael M. Goldberg, M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 19, 2013). Manufacturing Services Agreement, dated September 9, 2013, by and between Navidea Biopharmaceuticals, Inc. and OSO BioPharmaceuticals Manufacturing, LLC (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 September 12, 2013). Office Lease, dated August 29, 2013, by and between Navidea Biopharmaceuticals, Inc. and BRE/COH OH LLC (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 September 5, 2013) Manufacturing Services Agreement, dated August 16, 2013, by and between Navidea Biopharmaceuticals, Inc. and PETNET Solutions, Inc. (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 22, 2013). 92 10.35 10.36 10.37 10.38 10.39 10.40 10.41 10.42 10.43 10.44 10.45 10.46 10.47 10.48 10.49 Loan and Security Agreement, dated June 25, 2013, among General Electric Capital Corporation as agent, the financial institutions party thereto as lenders, and Navidea Biopharmaceuticals, Inc. as borrower (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 June 28, 2013). Series HH Warrant to purchase common stock of Navidea Biopharmaceuticals, Inc. issued to GE Capital Equity Investments, Inc., dated June 25, 2013 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 28, 2013). Series HH Warrant to purchase common stock of Navidea Biopharmaceuticals, Inc. issued to MidCap Financial SBIC, LP, dated June 25, 2013 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 28, 2013). Subordination Agreement, dated June 25, 2013, among Platinum-Montaur Life Sciences LLC, General Electric Capital Corporation, and Navidea Biopharmaceuticals, Inc. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed June 28, 2013). [123I]NAV5001 Clinical Supply Agreement, dated May 10, 2013, by and between Nordion (Canada) Inc. and Navidea Biopharmaceuticals, Inc. (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 May 16, 2013). Underwriting Agreement, dated April 23, 2013, by and between Navidea Biopharmaceuticals, Inc. and Ladenburg Thalmann & Co. Inc. as the sole underwriter (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 24, 2013). Loan and Security Agreement, dated March 4, 2014, among Oxford Finance LLC, as collateral agent, the Lenders listed on Schedule 1.1 thereof or otherwise a party thereto from time to time including Oxford in its capacity as a Lender, and Navidea Biopharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 7, 2014). Subordination Agreement, dated March 4, 2014, by and among Platinum-Montaur Life Sciences LLC and Oxford Finance LLC, and consented to and acknowledged by Navidea Biopharmaceuticals, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 7, 2014). Form of Series KK Warrants to purchase common stock of Navidea Biopharmaceuticals, Inc. issued to Oxford Finance LLC on March 4, 2014 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed March 7, 2014). Second Amendment to Loan Agreement, dated March 4, 2014, between Navidea Biopharmaceuticals, Inc. and Platinum-Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 7, 2014). Second Amended and Restated Promissory Note, dated March 4, 2014, made by Navidea Biopharmaceuticals, Inc. in favor of Platinum-Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed March 7, 2014). Employment Agreement, dated April 21, 2014, by and between Navidea Biopharmaceuticals, Inc. and Cornelia B. Reininger, M.D., Ph.D. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 24, 2014). ^ Employment Agreement, dated April 23, 2014, by and between Navidea Biopharmaceuticals, Inc. and Mark J. Pykett, V.M.D., Ph.D. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed April 24, 2014). ^ Separation Agreement and Release, effective May 30, 2014, between the Company and Mark J. Pykett (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 2, 2014). ^ Consulting Agreement, effective June 1, 2014, between the Company and Mark J. Pykett (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 2, 2014). 93 10.50 10.51 10.52 10.53 10.54 10.55 10.56 10.57 21.1 23.1 24.1 31.1 31.2 32.1 32.2 Series A Preferred Unit Purchase Agreement, dated July 15, 2014, among the Company, R-NAV, LLC, and the other Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 16, 2014). Promissory Note, dated July 15, 2014, between the Company as Maker and R-NAV, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 16, 2014). Amended and Restated License Agreement, dated July 14, 2014, between the Company and the Regents of the University of California (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 Quarterly Report on Form 10-Q filed August 11, 2014). Termination of License Agreement, dated July 14, 2014, between the Company and the Regents of the University of California (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2014). License Agreement, dated July 14, 2014, between the Company and the Regents of the University of California (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 10.3 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2014). Employment Agreement, dated October 13, 2014, between Navidea Biopharmaceuticals, Inc. and Ricardo J. Gonzalez (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 15, 2014). ^ Stock Option Agreement, dated October 13, 2014, between Navidea Biopharmaceuticals, Inc. and Ricardo J. Gonzalez (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed October 15, 2014). ^ Securities Exchange Agreement, dated November 12, 2014, by and between Navidea Biopharmaceuticals, Inc. 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 November 13, 2014). Subsidiaries of the registrant.* Consent of BDO USA, LLP.* Power of Attorney.* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 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.* 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 * ^ Management contract or compensatory plan or arrangement. * Filed herewith. 94 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 16, 2015 NAVIDEA BIOPHARMACEUTICALS, INC. (the Company) By: /s/ Ricardo J. Gonzalez Ricardo J. Gonzalez 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 Chairman, Director March 16, 2015 /s/ Ricardo J. Gonzalez Ricardo J. Gonzalez Director, President and Chief Executive Officer (principal executive officer) Executive Vice President and Chief Financial Officer (principal financial officer) /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 Director Director /s/ Michael M. Goldberg* Director Michael M. Goldberg /s/ Perry A. Karsen* Perry A. Karsen /s/ Eric K. Rowinsky* Eric K. Rowinsky Director Director *By: /s/ Ricardo J. Gonzalez Ricardo J. Gonzalez, Attorney-in-fact 95 March 16, 2015 March 16, 2015 March 16, 2015 March 16, 2015 March 16, 2015 March 16, 2015 March 16, 2015 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 NAVIDEA BIOPHARMACEUTICALS, INC. FORM 10-K ANNUAL REPORT As of December 31, 2014 and 2013 and for Each of the Three Years in the Period Ended December 31, 2014 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, 2014 and 2013 Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2014, 2013 and 2012 Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012 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 and Stockholders Navidea Biopharmaceuticals, Inc. Dublin, Ohio We have audited the accompanying consolidated balance sheets of Navidea Biopharmaceuticals, Inc. as of December 31, 2014 and 2013 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, 2014. 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, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, 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, 2014, based on criteria established in Internal Control(cid:237)Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2015 expressed an unqualified opinion thereon. /s/ BDO USA, LLP Chicago, Illinois March 16, 2015 F-2 Navidea Biopharmaceuticals, Inc. and Subsidiaries Consolidated Balance Sheets ASSETS Current assets: Cash Accounts receivable Inventory, net Prepaid expenses and other Total current assets Property and equipment Less accumulated depreciation and amortization Patents and trademarks Less accumulated amortization Investment in R-NAV, LLC Other assets Total assets Continued December 31, 2014 December 31, 2013 $ 5,479,006 $ 816,544 932,385 1,371,210 32,939,026 1,150,626 2,232,436 1,009,094 8,599,145 37,331,182 4,124,028 1,614,320 3,609,059 1,483,676 2,509,708 2,125,383 219,558 38,725 163,302 26,448 180,833 136,854 241,575 388,919 — 723,098 $ 11,920,180 $ 40,316,517 F-3 Navidea Biopharmaceuticals, Inc. and Subsidiaries Consolidated Balance Sheets, continued LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: December 31, 2014 December 31, 2013 Accounts payable Accrued liabilities and other Notes payable, current, net of discounts of $829,019 and $743,062, respectively $ 1,477,499 $ 3,234,120 4,383,472 2,422,349 4,772,963 4,095,650 Total current liabilities Notes payable, net of discounts of $1,530,804 and $856,746, respectively Derivative liabilities Other liabilities Total liabilities Stockholders’ deficit: Preferred stock; $.001 par value; 5,000,000 shares authorized; 4,519 and 7,565 Series B shares issued and outstanding at December 31, 2014 and 2013, respectively Common stock; $.001 par value; 200,000,000 shares authorized; 150,200,259 and 135,919,423 shares issued and outstanding at December 31, 2014 and 2013, respectively Additional paid-in capital Accumulated deficit Total stockholders’ deficit 9,095,091 11,290,962 29,539,135 — 3,089,420 23,572,603 7,692,087 1,770,452 41,723,646 44,326,104 4 8 150,200 323,030,301 (352,983,971) 135,919 313,111,788 (317,257,302) (29,803,466) (4,009,587) Total liabilities and stockholders’ deficit $ 11,920,180 $ 40,316,517 See accompanying notes to consolidated financial statements. F-4 Navidea Biopharmaceuticals, Inc. and Subsidiaries Consolidated Statements of Operations Revenue: Lymphoseek sales revenue Lymphoseek milestone revenue Grant and other revenue Total revenue Cost of goods sold Gross profit Operating expenses: Research and development Selling, general and administrative Total operating expenses Loss from operations Other income (expense): Interest income Interest expense Equity in loss of R-NAV, LLC Change in fair value of financial instruments Loss on extinguishment of debt Other, net Total other expense, net Net loss Preferred stock dividends Net loss attributable to common stockholders Net loss per common share (basic and diluted) Years Ended December 31, 2014 2013 2012 $ 4,233,953 $ 300,000 1,740,896 6,274,849 1,586,145 4,688,704 16,779,589 15,542,071 32,321,660 614,423 $ — 516,207 1,130,630 332,815 797,815 — — 78,738 78,738 — 78,738 23,710,183 15,525,946 39,236,129 16,890,482 11,177,559 28,068,041 (27,632,956) (38,438,314) (27,989,303) 16,102 (3,706,170) (523,809) (1,342,389) (2,610,196) 72,749 (8,093,713) 18,838 (2,778,780) — (112,073) (1,372,266) (16,863) (4,261,144) 25,044 (1,166,332) — 32,110 — (58,723) (1,167,901) (35,726,669) (42,699,458) (29,157,204) — — (43,333) (35,726,669) $ (42,699,458 ) $ (29,200,537) (0.24) $ (0.35 ) $ (0.29) $ $ Weighted average shares outstanding (basic and diluted) 148,748,396 121,808,986 99,059,997 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, 2011 10,083 $ 10 95,398,961 $ 95,399 $ 266,393,645 $ (245,357,307) $ 21,131,747 Issued restricted stock Canceled restricted stock Issued stock upon exercise of stock options, net Canceled 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 (2,145) (1,000) 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) (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 — — — — — — — — — — — — — — 455 (596) 743,295 (100,875) 50,272 1,978,601 — — 1,146,000 496,671 45,473 2,304,118 (43,333) (43,333) (29,157,204) (29,157,204) Balance, December 31, 2012 6,938 7 113,018,772 113,019 273,039,442 (274,557,844) (1,405,376) 14,205,770 14,205 Issued stock in connection with public offerings, net of costs Issued stock upon exercise of stock options, net Issued restricted stock Canceled stock to pay employee tax obligations Canceled forfeited restricted stock Issued stock upon exercise of warrants Issued stock to 401(k) plan Issued stock for payment of milestone fee — — — — — 2,365 — — — — — — — 2 — — 39,649 73,500 (194,077) (29,250) 3,000,000 22,126 100,000 Conversion of Series B preferred stock to common stock (1,738) (1) 5,682,933 Issued warrants in connection with debt issuance Issued warrants in connection with public offering Stock compensation expense Net loss — — — — — — — — — — — — 40 74 (194) (29) 3,000 22 100 5,682 — — — — 38,117,267 (9,201 ) — (610,362 ) — 6,158,330 66,755 165,900 (5,681 ) 967,115 (7,686,046 ) 2,908,269 — — — — — — — — — — — — — 38,131,472 (9,161) 74 (610,556) (29) 6,161,332 66,777 166,000 — 967,115 (7,686,046) 2,908,269 (42,699,458) (42,699,458) Balance, December 31, 2013 7,565 8 135,919,423 135,919 313,111,788 (317,257,302) (4,009,587) Issued stock upon exercise of stock options, net Issued restricted stock Canceled stock to pay employee tax obligations Canceled forfeited restricted stock Issued stock to 401(k) plan — — — — — — — — — — 299,360 380,250 (6,582) (300,000) 36,455 Conversion of Series B preferred stock to common stock, net (3,046) (4) 9,960,420 Issued warrants in connection with debt issuance Issued stock upon exchange of warrants Issued stock in payment of Board retainers Recovery of shareholder short swing profits Stock compensation expense Net loss Balance, December 31, 2014 — — — — — — — — — — — — — 3,843,223 67,710 — — — 300 380 (6) (300) 36 9,960 — 3,843 68 — — — (51,669 ) — (8,813 ) — 100,007 (9,956 ) 464,991 7,682,930 89,307 17,554 1,634,162 — — — — — — — — — — — — (51,369) 380 (8,819) (300) 100,043 — 464,991 7,686,773 89,375 17,554 1,634,162 (35,726,669) (35,726,669) 4,519 $ 4 150,200,259 $ 150,200 $ 323,030,301 $ (352,983,971) $ (29,803,466) 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 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of property and equipment Amortization of patents and trademarks Loss on disposal and abandonment of assets Provision for inventory obsolescence Amortization of debt discount and debt offering costs Stock compensation expense Equity in loss of R-NAV, LLC Change in fair value of financial instruments Loss on extinguishment of debt Issuance of common stock for payment of milestone and sublicense fees Other Change in operating assets and liabilities: Accounts receivable Inventory Prepaid expenses and other assets Accounts payable Accrued liabilities and other liabilities Net cash used in operating activities Cash flows from investing activities: Purchases of equipment Patent and trademark costs Investment in R-NAV, LLC Net cash used in investing activities Cash flows from financing activities: Proceeds from issuance of common stock, net Payment of common stock issuance costs Payment for common stock repurchased from executives Payment of tax withholdings related to stock-based compensation 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 Cash, end of year Years Ended December 31, 2014 2013 2012 $ (35,726,669) $ (42,699,458) $ (29,157,204) 487,906 12,277 31,794 539,027 844,250 1,634,162 523,809 1,342,389 2,610,196 — 150,761 334,082 761,024 (476,860) (944,850) (1,250,047) (29,126,749) (1,114,448) (77,184) (333,334) (1,524,966) 87,984 — — (130,537) — 30,000,000 (1,763,526) (25,000,000) (2,226) 3,191,695 (27,460,020) 32,939,026 400,304 198,822 3,877 1,160 — 765,263 2,908,269 — 112,073 1,372,266 166,000 71,209 (1,042,280) (1,934,936) 84,493 1,003,515 3,176,170 1,400 2,534 — 544,517 2,304,118 — (32,110) — 1,146,000 61,928 6,499 524,049 (385,125) 736,109 125,144 (35,612,075) (23,923,319) (1,239,666) (52,701) — (663,348) (8,460) — (1,292,367) (671,808) 41,303,750 (1,752,932) — (659,018) — 29,000,000 (1,177,293) (5,982,155) (7,448) 2,724,189 — (100,875) (8,765) (100,000) 4,000,000 (153,949) (1,285,046) (5,867) 60,724,904 5,069,687 23,820,462 (19,525,440) 9,118,564 28,644,004 $ 5,479,006 $ 32,939,026 $ 9,118,564 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 precision medicine company focused on the development and commercialization of precision diagnostics, therapeutics and radiopharmaceutical agents. Navidea is developing multiple precision-targeted products based on the Manocept™ platform to help identify the sites and pathways of undetected disease and enable better diagnostic accuracy, clinical decision-making, targeted treatment and, ultimately, patient care. Navidea’s Manocept platform is predicated on the ability of the chemical backbone of the tilmanocept molecule to specifically target the CD206 mannose receptor expressed on macrophages. The Manocept platform serves as the molecular backbone of Lymphoseek® (technetium Tc 99m tilmanocept) injection, the first product developed by Navidea based on the platform. Lymphoseek is a novel, receptor-targeted, small-molecule radiopharmaceutical used in the evaluation of lymphatic basins that may have cancer involvement in patients. Lymphoseek is designed for the precise identification of lymph nodes that drain from a primary tumor, which have the highest probability of harboring cancer. Lymphoseek is approved by the U.S. Food and Drug Administration (FDA) for use in solid tumor cancers where lymphatic mapping is a component of surgical management and for guiding sentinel lymph node biopsy in patients with clinically node negative breast cancer, melanoma or squamous cell carcinoma of the oral cavity. Lymphoseek has also received European approval in imaging and intraoperative detection of sentinel lymph nodes in patients with melanoma, breast cancer or localized squamous cell carcinoma of the oral cavity. Building on the success of Lymphoseek, the flexible and versatile Manocept platform acts as an engine for the design of purpose-built molecules offering the potential to be utilized across a range of diagnostic modalities, including single photon emission computed tomography (SPECT), positron emission tomography (PET), intra-operative and/or optical- fluorescence detection in a variety of disease states. Recent preclinical data being developed by the Company using tilmanocept linked to various therapeutic agents also suggest that tilmanocept’s binding affinity to CD206 receptors demonstrates the potential for this technology to be useful in treating diseases linked to the over-activation of macrophages. This includes various cancers as well as autoimmune, infectious, cardiovascular, and central nervous system diseases. Thus, in January 2015, the Company formed a new subsidiary, Macrophage Therapeutics, Inc., to further explore therapeutic applications for the Manocept platform. In addition, over the last year, the company’s Board of Directors made the decision to reduce our support while seeking to partner or out-license two of our development programs: • NAV4694 is a fluorine-18 (F-18) radiolabeled PET imaging agent being developed as an aid in the diagnosis of patients with signs or symptoms of Alzheimer’s disease and mild cognitive impairment. NAV4694 is in Phase 3 clinical development. • NAV5001 is an iodine-123 (I-123) radiolabeled 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. NAV5001 is in Phase 3 clinical development. The company is in discussions with potential parties interested in sublicensing and/or assuming financial responsibility for the ongoing development of these two neuro tracer compounds and is currently evaluating term sheets. Other than Lymphoseek, none of the Company’s drug product candidates have been approved for sale in any market. In December 2001, we acquired Cardiosonix Ltd. (Cardiosonix), an Israeli company with a blood flow measurement device product line in the early stages of commercialization. In August 2009, the Company’s Board of Directors F-8 decided to discontinue the operations and attempt to sell Cardiosonix. However, we were obligated to continue to service and support the Cardiosonix devices through 2013. The Company has not received significant expressions of interest in the Cardiosonix business and as such, we continue to wind down our activities in this area until a final shutdown of operations or a sale of the business unit is completed. 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. Navidea owned 90% of the outstanding shares of Cira Bio with the remaining shares being held by the principals of Cira LLC. In October 2013, Cira Bio was dissolved in its entirety after several years of inactivity. 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 and our wholly- owned subsidiary, Cardiosonix. Our consolidated financial statements also include the accounts of our former wholly- owned subsidiary, Cira Bio, through the date of dissolution in October 2013. All significant inter-company accounts were eliminated in consolidation. Navidea's investment in R-NAV is being accounted for using the equity method of accounting for investments and is therefore not consolidated. c. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. d. Financial Instruments and Fair Value: In accordance with current accounting standards, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining the appropriate levels, we perform a detailed analysis of the assets and liabilities whose fair value is measured on a recurring basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3. See Note 2. 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. F-9 (2) Notes payable: The carrying value of our debt at December 31, 2014 and 2013 primarily consists of the face amount of the notes less unamortized discounts. See Note 9. At December 31, 2014 and 2013, certain notes payable were also required to be recorded at fair value. The estimated fair value of our debt was calculated using a discounted cash flow analysis as well as a probability-weighted Monte Carlo simulation. These valuation methods include Level 3 inputs such as the estimated current market interest rate for similar instruments with similar creditworthiness. Unrealized gains and losses on the fair value of the debt are classified in other expenses as a change in the fair value of financial instruments in the consolidated statements of operations. At December 31, 2014 and 2013, the fair value of our notes payable is approximately $37.9 million and $29.9 million, respectively. (3) Derivative liabilities: Derivative liabilities are related to certain outstanding warrants which are recorded at fair value. No derivative liabilities were outstanding as of December 31, 2014. The assumptions used to calculate fair value as of December 31, 2013 included volatility, a risk-free rate and expected dividends. In addition, we considered non-performance risk and determined that such risk is minimal. Unrealized gains and losses on the derivatives are classified in other expenses as a change in the fair value of financial instruments in the statements of operations. See Note 11. e. Stock-Based Compensation: At December 31, 2014, we have instruments outstanding under two stock-based compensation plans; the Fourth Amended and Restated 2002 Stock Incentive Plan (the 2002 Plan) and the 2014 Stock Incentive Plan (the 2014 Plan). In addition, we have stock options outstanding that were awarded as an employment inducement in connection with the appointment of our new CEO in October 2014. Currently, under the 2014 Plan, we may grant incentive stock options, nonqualified stock options, and restricted stock awards to full-time employees and directors, and nonqualified stock options and restricted stock awards may be granted to our consultants and agents. Total shares authorized under each plan are 12 million shares and 5 million shares, respectively. Although instruments are still outstanding under the 2002 Plan, the plan has expired and no new grants may be made from it. Under both plans, the exercise price of each option is greater than or equal to the closing market price of our common stock on the day prior to the date of the grant. Stock options granted under the 2002 Plan and the 2014 Plan generally vest on an annual basis over one to four years. The stock options that were awarded as an employment inducement in connection with the appointment of our new CEO will vest in three tranches based on certain service and market conditions as defined in the agreement. Outstanding stock options under the plans, if not exercised, generally expire ten years from their date of grant or up to 90 days following the date of an optionee’s separation from employment with the Company. We issue new shares of our common stock upon exercise of stock options. 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 on the date of grant. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities are based on the Company’s historical volatility, which management believes represents the most accurate basis for estimating expected future volatility under the current circumstances. Navidea uses historical data to estimate forfeiture rates. The expected term of stock options granted is based on the vesting period and the contractual life of the options. The risk- free rate is based on the U.S. Treasury yield in effect at the time of the grant. The assumptions used to calculate the fair value of stock option awards granted during the years ended December 31, 2014, 2013 and 2012 are noted in the following table: Expected volatility Weighted-average volatility Expected dividends Expected term (in years) Risk-free rate 2013 60%-71% 65% — 5.0-6.2 1.0%-1.9% 2012 63%-72% 65% — 5.0-6.3 0.6%-1.2% 2014 61%-67% 65% — 5.3-7.4 1.6%-2.0% F-10 The portion of the fair value of stock-based awards that is ultimately expected to vest is recognized as compensation expense over either (1) the requisite service period or (2) the estimated performance period. Restricted stock awards are valued based on the closing stock price on the date of grant and amortized ratably over the estimated life of the award. Restricted stock may vest based on the passage of time, or upon occurrence of a specific event or achievement of goals as defined in the grant agreements. In such cases, we record compensation expense related to grants of restricted stock based on management’s estimates of the probable dates of the vesting events. Stock-based awards that do not vest because the requisite service period is not met prior to termination result in reversal of previously recognized compensation costs. See Note 3. f. Cash and Cash Equivalents: Cash equivalents are highly liquid instruments such as U.S. Treasury bills, bank certificates of deposit, corporate commercial paper and money market funds which have maturities of less than 3 months from the date of purchase. g. Accounts Receivable: Accounts receivable are recorded net of an allowance for doubtful accounts. We estimate an allowance for doubtful accounts based on a review and assessment of specific accounts receivable and write off accounts when deemed uncollectible. At December 31, 2014, approximately 99% of accounts receivable were due from Cardinal Health, and there was no allowance for doubtful accounts. We do not believe we are exposed to significant credit risk related to Cardinal Health based on the overall financial strength and credit worthiness of the entity. We believe that we have adequately addressed other credit risks in estimating the allowance for doubtful accounts. h. i. j. k. Inventory: All components of inventory are valued at the lower of cost (first-in, first-out) or market. We adjust inventory to market value when the net realizable value is lower than the carrying cost of the inventory. Market value is determined based on estimated sales activity and margins. We estimate a reserve for obsolete inventory based on management’s judgment of probable future commercial use, which is based on an analysis of current inventory levels, estimated future sales and production rates, and estimated shelf lives. See Note 5. Property and Equipment: Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is generally computed using the straight-line method over the estimated useful lives of the depreciable assets. Depreciation and amortization related to equipment under capital leases and leasehold improvements is recognized over the shorter of the estimated useful life of the leased asset or the term of the lease. Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized. Intangible Assets: Intangible assets consist primarily of patents and trademarks. Intangible assets are stated at cost, less accumulated amortization. Patent costs are amortized using the straight-line method over the estimated useful lives of the patents of approximately 5 to 15 years. Patent application costs are deferred pending the outcome of patent applications. Costs associated with unsuccessful patent applications and abandoned intellectual property are expensed when determined to have no recoverable value. We evaluate the potential alternative uses of all intangible assets, as well as the recoverability of the carrying values of intangible assets, on a recurring basis. Impairment or Disposal of Long-Lived Assets: Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment was recognized during the years ended December 31, 2014, 2013 or 2012. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. l. Deferred Debt Issuance Costs: We defer costs associated with the issuance of notes payable and amortize those costs over the term of the notes using the effective interest method. During the years ended December 31, 2014 and 2013, we incurred $120,000 and $881,000 , respectively, of debt issuance costs related to notes payable. During 2014, 2013 and F-11 2012, we recorded amortization of $94,000, $309,000, and $296,000, respectively, of deferred debt issuance costs. Other assets at December 31, 2014 and 2013 includes net deferred debt issuance costs of $90,000 and $691,000, respectively. See Note 9. m. Leases: Leases are categorized as either operating or capital leases at inception. Operating lease costs are recognized on a straight-line basis over the term of the lease. An asset and a corresponding liability for the capital lease obligation are established for the cost of capital leases. The capital lease obligation is amortized over the life of the lease. For build-to-suit leases, the Company establishes an asset and liability for the estimated construction costs incurred to the extent that it is involved in the construction of structural improvements or takes construction risk prior to the commencement of the lease. Upon occupancy of facilities under build-to-suit leases, the Company assesses whether these arrangements qualify for sales recognition under the sale-leaseback accounting guidance. If a lease does not meet the criteria to qualify for a sale-leaseback transaction, the established asset and liability remain on the Company's balance sheet. See Note 16. n. 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 11. o. Revenue Recognition: We currently generate revenue primarily from sales of Lymphoseek. Our standard shipping terms are FOB shipping point, and title and risk of loss passes to the customer upon delivery to a carrier for shipment from Cardinal Health’s national distribution center to another point of destination. We generally recognize sales revenue related to sales of our products when the products are shipped. Our customers have no right to return products purchased in the ordinary course of business. We earn additional revenues based on a percentage of the actual net revenues achieved by Cardinal Health on sales to end customers made during each fiscal year. The amount we charge Cardinal Health related to end customer sales of Lymphoseek is subject to a retroactive annual adjustment. To the extent that we can reasonably estimate the end- customer prices received by Cardinal Health, we record sales based upon these estimates at the time of sale. If we are unable to reasonably estimate end customer sales prices related to products sold, we record revenue related to these product sales at the minimum (i.e., floor) price provided for under our distribution agreement with Cardinal Health. We also earn revenue related to milestones as defined in our distribution agreements. Such revenue is recognized when the milestones are achieved with no future obligations and payments under the agreements have become contractually due. We generate additional revenue from grants to support various product development initiatives. We generally recognize grant revenue when expenses reimbursable under the grants have been incurred and payments under the grants become contractually due. Lastly, we recognize revenue from the provision of services to R-NAV, LLC and its subsidiaries. See Note 7. p. Research and Development Costs: Research and development (R&D) expenses include both internal R&D activities and external contracted services. Internal R&D activity expenses include salaries, benefits, and stock-based compensation, as well as travel, supplies, and other costs to support our R&D staff. External contracted services include clinical trial activities, manufacturing and control-related activities, and regulatory costs. R&D expenses are charged to operations as incurred. We review and accrue R&D expenses based on services performed and rely upon estimates of those costs applicable to the stage of completion of each project. q. 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. F-12 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, 2014 and 2013. Current accounting standards include guidance on the accounting for uncertainty in income taxes recognized in the financial statements. Such standards also prescribe a recognition threshold and measurement model for the financial statement recognition of a tax position taken, or expected to be taken, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company believes that the ultimate deductibility of all tax positions is highly certain, although there is uncertainty about the timing of such deductibility. As a result, no liability for uncertain tax positions was recorded as of December 31, 2014 or 2013 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, 2014, tax years 2011-2014 remained subject to examination by federal and state tax authorities. See Note 14. r. Recent Accounting Developments: In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The core principle of ASU 2014-09 is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, ASU 2014-09 requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be required to make more estimates and use more judgment than under current guidance, which will be highlighted for users through increased disclosure requirements. ASU 2014-09 is effective for public entities for annual periods beginning after December 15, 2016, including interim periods therein. Three basic transition methods are available - full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Early adoption is prohibited. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017. In June 2014, the FASB issued ASU No. 2014-12, Compensation-Stock Compensation. ASU 2014-12 requires that a performance target included in a share-based payment award that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Therefore, under the existing stock compensation guidance in Topic 718, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. ASU 2014-12 is effective for annual periods beginning after December 15, 2015, including interim periods therein. Earlier adoption is permitted. Entities may apply the amendments in ASU 2014-12 either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying ASU 2014-12 as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing F-13 the compensation cost. We do not expect the adoption of ASU 2014-12 to have a material effect on our consolidated financial statements. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern. ASU 2014- 15 defines when and how companies are required to disclose going concern uncertainties, which must be evaluated each interim and annual period. ASU 2014-15 requires management to determine whether substantial doubt exists regarding the entity's going concern presumption. Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). If substantial doubt exists, certain disclosures are required; the extent of those disclosures depends on an evaluation of management's plans (if any) to mitigate the going concern uncertainty. ASU 2014-15 is effective prospectively for annual periods ending after December 15, 2016, and to annual and interim periods thereafter. Early adoption is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our consolidated financial statements; however, it may affect our disclosures. In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. ASU 2014-16 does not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. Rather, ASU 2014-16 clarifies how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, ASU 2014-16 clarifies that an entity should consider all relevant terms and features - including the embedded derivative feature being evaluated for bifurcation - in evaluating the nature of the host contract. Further, ASU 2014-16 clarifies that no single term or feature would necessarily determine the host economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. In addition, ASU 2014-16 clarifies that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (that is, the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. Specifically, the assessment of the substance of the relevant terms and features should incorporate a consideration of (1) the characteristics of the terms and features themselves, (2) the circumstances under which the hybrid financial instrument was issued or acquired, and (3) the potential outcomes of the hybrid financial instrument, as well as the likelihood of those potential outcomes. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. Initial adoption should be applied on a modified retrospective bases to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. We are evaluating the potential impact of ASU 2014-16, however we do not expect the adoption of ASU 2014-16 to have a material effect on our consolidated financial statements. 2. Fair Value Hierarchy Platinum-Montaur Life Sciences, LLC (Platinum) has the right to convert all or any portion of the unpaid principal or unpaid interest accrued on any draws subsequent to the second quarter of 2013 under the Platinum credit facility, under certain circumstances. Platinum’s option to convert such subsequent draws into common stock was determined to meet the definition of a liability and is included as part of the value of the related notes payable on the consolidated balance sheets. The estimated fair value of the Platinum notes payable is $5.6 million at December 31, 2014, and will continue to be measured on a recurring basis. See Note 9. In September 2013, in connection with a Securities Purchase Agreement with Crede CG III, Ltd. (Crede), we issued warrants containing certain features that, although they did not require the warrants to be settled in cash, did require the warrants to be classified as liabilities under applicable accounting rules. As a result, the Company recorded derivative liabilities with an estimated fair value of $7.7 million on the date the warrants were issued. Crede exchanged their warrants for common stock in November 2014. See Notes 11 and 12. F-14 The following tables set forth, by level, financial liabilities measured at fair value on a recurring basis: Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2014 Quoted Prices in Active Markets for Identical Assets and Liabilities Significant Other Observable Inputs Significant Unobservable Inputs (a)(b) Balance as of December 31, Description Platinum notes payable (Level 1) (Level 2) (Level 3) 2014 $ — $ — $ 5,615,764 $ 5,615,764 Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2013 Quoted Prices in Active Markets for Identical Assets and Liabilities Significant Other Observable Inputs Significant Unobservable Inputs (a)(b) Balance as of December 31, Description Platinum notes payable Derivative liabilities related to warrants (Level 1) (Level 2) (Level 3) 2013 $ $ — $ — $ — $ 7,692,087 $ 4,268,062 $ — $ 4,268,062 7,692,087 a. Valuation Processes-Level 3 Measurements: Depending on the instrument, the Company utilizes discounted cash flows, option pricing models, or third-party valuation services to estimate the value of their financial assets and liabilities. Valuations using discounted cash flow methods and certain option pricing models such as Black-Scholes are generally conducted by the Company. Valuations using complex models such as Monte Carlo simulation are generally provided to the Company by third-party valuation experts. Each reporting period, the Company provides significant unobservable inputs to the third-party valuation experts based on current internal estimates and forecasts. b. Sensitivity Analysis-Level 3 Measurements: Changes in the Company’s current internal estimates and forecasts are likely to cause material changes in the fair value of the liabilities. The significant unobservable inputs used in the fair value measurement of the liabilities include the amount and timing of future draws expected to be taken under the Platinum Loan Agreement based on current internal forecasts, management’s estimate of the likelihood of actually making those draws as opposed to obtaining other sources of financing, and management’s estimate of the likelihood of those draws ultimately resulting in Platinum exercising their conversion option under the Platinum Loan Agreement. Significant increases (decreases) in any of the significant unobservable inputs would result in a higher (lower) fair value measurement. A change in one of the inputs would not necessarily result in a directionally similar change in the others. There were no Level 1 liabilities outstanding at any time during the years ended December 31, 2014 and 2013. There were no transfers in or out of our Level 2 liabilities during the years ended December 31, 2014 and 2013. The net increase in the estimated fair value of our Level 3 liabilities was $1.3 million, which was recorded as a non-cash change in fair value of financial instruments during the year ended December 31, 2014. 3. Stock-Based Compensation For the years ended December 31, 2014, 2013 and 2012, our total stock-based compensation expense was approximately $1.6 million, $2.9 million and $2.3 million, respectively. We have not recorded any income tax benefit related to stock- based compensation for the years ended December 31, 2014, 2013 and 2012. F-15 A summary of the status of our stock options as of December 31, 2014, and changes during the year then ended, is presented below: Year Ended December 31, 2014 Outstanding at beginning of year Granted Exercised Canceled and forfeited Expired Outstanding at end of year Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value 2.38 1.56 0.48 2.53 0.53 2.16 7.8 years $ 1,502,921 Number of Options 4,866,602 $ 2,534,605 (468,000) (1,467,443) (120,000) 5,345,764 $ Exercisable at end of year 1,960,554 $ 2.23 6.1 years $ 713,078 Following a review undertaken by the Company’s Board of Directors and senior management in June 2013, the Company determined that the Board had inadvertently granted stock awards in February 2012 to the Company’s Chief Executive Officer, Mark J. Pykett, in excess of the amount then authorized under the 2002 Plan. Consequently, the Board canceled options to purchase 50,000 shares of the Company’s common stock issued to Dr. Pykett (the amount by which the grants to Dr. Pykett in February 2012 exceeded the 2002 Plan’s share limitation), and Dr. Pykett agreed to the cancellation. The weighted average grant-date fair value of options granted in 2014, 2013, and 2012 was $1.56, $1.81 and $1.86, respectively. During 2014, 468,000 stock options with an aggregate intrinsic value of $582,000 were exercised in exchange for issuance of 299,360 shares of our common stock, resulting in gross proceeds of $70,000. During 2013, 60,000 stock options with an aggregate intrinsic value of $126,000 were exercised in exchange for issuance of 39,649 shares of our common stock, resulting in gross proceeds of $39,000. During 2012, 1,232,001 stock options with an aggregate intrinsic value of $3.4 million were exercised in exchange for issuance of 1,225,271 shares of our common stock, resulting in gross proceeds of $752,000. In 2014, 2013, and 2012, the aggregate fair value of stock options vested during the year was $4,000, $36,000 and $460,000, respectively. A summary of the status of our unvested restricted stock as of December 31, 2014, and changes during the year then ended, is presented below: Year Ended December 31, 2014 Number of Shares Weighted Average Grant-Date Fair Value 634,250 $ 380,250 (216,250) (300,000) — 498,250 $ 2.73 1.48 3.08 2.26 — 1.91 Unvested at beginning of year Granted Vested Forfeited Expired Unvested at end of year F-16 In February 2014, 49,000 shares of restricted stock held by non-employee directors with an aggregate fair value of $96,000 vested as scheduled according to the terms of the restricted stock agreements. In March 2014, 100,000 shares of restricted stock with an aggregate fair value of $205,000 vested as scheduled according to the terms of the restricted stock agreement. In May 2014, 175,000 shares of restricted stock held by our former CEO with an aggregate fair value of $278,000 were forfeited in connection with his separation from employment. In September 2014, 125,000 shares of restricted stock held by our former CEO with an aggregate fair value of $166,000 were forfeited in connection with termination of his Consulting Agreement. In October 2014, 20,000 shares of restricted stock with an aggregate fair value of $27,000 vested upon reaching a milestone defined by the terms of the restricted stock agreement. In November 2014, 12,250 shares of restricted stock held by a non-employee director with an aggregate fair value of $15,000 vested as scheduled according to the terms of the restricted stock agreement. In December 2014, 15,000 shares of restricted stock held by our former CEO with an aggregate fair value of $19,000 vested as scheduled in accordance with the terms of the restricted stock agreement. Also in December 2014, 20,000 shares of restricted stock with an aggregate fair value of $26,000 vested upon reaching a milestone defined by the terms of the restricted stock agreement. In February 2013, 100,000 shares of restricted stock with an aggregate fair value of $308,000 vested as scheduled according to the terms of a restricted stock agreement. In March 2013, the Company received FDA approval to market Lymphoseek. As a result of the Lymphoseek approval, 560,000 shares of restricted stock vested with an aggregate fair value of $1.8 million. In April 2013, 85,000 shares of restricted stock held by non-employee directors with an aggregate fair value of $224,000 vested as scheduled according to the terms of the restricted stock agreements. In July 2013, 29,250 shares of restricted stock with an aggregate fair value of $83,000 were forfeited as a result of a non-employee director departing from the Board. During 2014, 2013 and 2012, 216,250, 745,000 and 30,000 shares, respectively, of restricted stock vested with aggregate vest date fair values of $387,000, $2.3 million and $85,000, respectively. During 2014, 2013 and 2012, we paid tax withholdings related to stock options exercised and restricted stock vested of $131,000, $659,000, and $9,000, respectively. As of December 31, 2014, there was approximately $1.9 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 1.95 years. See Note 1(e). 4. 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, 2014, 2013 and 2012: Net loss Preferred stock dividends Net loss attributable to common stockholders Weighted average shares outstanding (basic and diluted) Loss per common share (basic and diluted) $ $ $ F-17 Years Ended December 31, 2014 (35,726,669) $ 2013 (42,699,458 ) $ — — 2012 (29,157,204) (43,333) (35,726,669) $ (42,699,458 ) $ (29,200,537) 148,748,396 121,808,986 (0.24) $ (0.35 ) $ 99,059,997 (0.29) Diluted earnings (loss) per common share for the years ended December 31, 2014, 2013 and 2012 excludes the effects of 19.0 million, 32.2 million and 38.4 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, 498,250, 634,250 and 1,335,000 shares of unvested restricted stock were excluded in determining basic and diluted loss per share for the years ended December 31, 2014, 2013 and 2012, respectively, because such inclusion would be anti-dilutive. 5. Inventory The components of net inventory at December 31, 2014 and 2013, net of reserves of $539,000 and $0, respectively, are as follows: Materials Work in process Finished goods 2014 — $ 495,449 436,936 $ 932,385 $ 2013 652,818 1,073,568 506,050 2,232,436 $ $ During 2014 and 2013, we capitalized $110,000 and $2.4 million, respectively, of inventory costs associated with our Lymphoseek product. During 2014 and 2013, we wrote off $198,000 and $298,000, respectively, of previously capitalized Lymphoseek inventory due to the consumption of the Lymphoseek material in product development activities. 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 2014, we recorded an obsolescence reserve for $539,000 of Lymphoseek inventory related to a specific lot that was originally produced for commercial validation purposes and that is nearing its product expiry and therefore is no longer expected to be sold. 6. 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 $ 2014 1,446,551 $ 2013 1,239,834 3 – 5 years 7 years 3 years Term of Lease 602,974 670,567 476,530 927,406 4,124,028 $ 658,860 439,715 544,254 726,396 3,609,059 $ * We amortize leasehold improvements over the term of the lease, which in all cases is shorter than the estimated useful life of the asset. Property and equipment includes $9,000 of equipment under capital leases with accumulated amortization of $5,000 and $3,000 at December 31, 2014 and 2013, respectively. During 2014, 2013 and 2012, we recorded $488,000, $400,000 and $199,000, respectively, of depreciation and amortization related to property and equipment. F-18 7. Investment in R-NAV, LLC In July 2014, Navidea announced that it formed a joint enterprise with Essex Woodlands-backed Rheumco, LLC, to develop and commercialize radiolabeled diagnostic and therapeutic products for rheumatologic and arthritic diseases. The joint enterprise, called R-NAV, LLC (R-NAV), will combine Navidea’s proprietary Manocept CD206 macrophage targeting platform and Rheumco’s proprietary Tin-117m radioisotope technology to focus on leveraging the platforms across several indications with high unmet medical need: R-NAV Subsidiary 1A: Detection of RA initially using Tc-99m tilmanocept, commercially known as Lymphoseek, R-NAV Subsidiary 1B: Combination of the Manocept platform with Tin-117m for detection and treatment of RA, Detection and treatment of human and veterinary osteoarthritis (OA) using the Tin-117m R-NAV Subsidiary 2: technology, and Treatment of pediatric hemophilic arthropathy (PHA), a rare rheumatologic condition. R-NAV Subsidiary 3: Both Rheumco and Navidea have contributed licenses for intellectual property and technology to R-NAV in exchange for common units in R-NAV. Each of the licenses has grant-back provisions with respect to inventions and other intellectual property developed in these programs outside of the exclusive fields of use specified in the license. The contributions of these licenses were recorded using the carryover basis. R-NAV was initially capitalized through a $4.0 million investment from Infinity Capital III, of Houston-based McRay Money Management, and other third-party private investors, and the technology contributions from Rheumco and Navidea. Navidea has committed an additional $1.0 million investment to be paid over three years, with $333,334 in cash contributed at inception and a promissory note in the principal amount of $666,666, payable in two equal installments on the first and second anniversaries of the transaction. The note will bear interest at the applicable federal rate, currently 0.31% per annum. See Note 9. In exchange for its capital and in-kind investment, the Company received 1,000,000 Series A preferred units of R-NAV (Series A Units). The Company will receive an additional 500,000 Series A Units for management and technical services associated with the programs described above to be performed by the Company for R- NAV pursuant to a services agreement. The Series A Units are convertible into common units at the option of the holder for a conversion price of $1 per unit, subject to broad-based weighted average anti-dilution rights. Navidea initially owned approximately 33.7% of the combined entity. In December 2014, the third-party private investors contributed an additional $570,000 in exchange for 570,000 Series A Units. Following the additional investment by the private investors, Navidea owns approximately 32.5% of R-NAV. Joint oversight over certain aspects of R-NAV is shared between Navidea, Rheumco, Infinity Capital, and the other investors; Navidea does not control the operations of R-NAV. Navidea has three-year call options to acquire, at its sole discretion, all of the equity of Subsidiary 1A for $10.5 million prior to the launch of a Phase 3 clinical trial for its development program, and all of the equity of Subsidiary 1B at fair value upon completion of radiochemistry and biodistribution studies for its development program. Navidea's investment in R-NAV is being accounted for using the equity method of accounting for investments. In accordance with current accounting guidance, the Company's contributions of cash and note payable totaling $1.0 million were allocated between the investment in R-NAV and the call option on Subsidiary 1A based on the relative fair values of the assets. As a result, we recorded an initial equity investment in R-NAV of $727,000 and a call option asset of $273,000 as non-current assets at the time of the initial investment. The Company's obligation to provide $500,000 of in-kind services to R-NAV are being recognized as those services are provided. Navidea's equity in the loss of R-NAV was $523,809 for the year ended December 31, 2014. F-19 8. Accrued Liabilities and Other Accrued liabilities and other at December 31, 2014 and 2013 consist of the following: Contracted services Compensation Accrued interest Other 9. Notes Payable Hercules Technology II, L.P. 2014 1,880,376 $ 979,296 213,457 160,991 3,234,120 $ 2013 3,325,391 1,124,976 204,792 117,804 4,772,963 $ $ In December 2011, we executed a Loan and Security Agreement (the Hercules Loan Agreement) with Hercules Technology II, L.P. (Hercules), pursuant to which we issued Hercules: (1) a Secured Term Promissory Note in the principal amount of $7 million (the Hercules Note), 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% and (2) Series GG warrants 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 warrants). The Hercules Loan Agreement provided for an interest-only period beginning on December 29, 2011 and expiring on July 1, 2012. The principal and interest was to be repaid in 30 equal monthly installments, payable on the first of each month following the expiration of the interest-only period. 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 Hercules Note based on the market price of the Company’s stock on the date of the Loan Agreement. In addition, the Series GG warrants were 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 warrants. The estimated fair value of the Series GG warrants was recorded as a discount on the Hercules Note. 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 Hercules Note of $545,366 and the debt issuance costs of $593,339 were being amortized as non-cash interest expense using the effective interest method over the term of the Hercules Loan Agreement. During 2012, we paid $1.3 million of principal payments on the Hercules Note. During the period from January 1, 2013 through June 24, 2013, we paid an additional $1.3 million of principal payments on the Hercules Note. On June 25, 2013, the Company used a portion of the proceeds from the GECC/MidCap Notes (discussed below) to pay the remaining $4.4 million of principal outstanding on the Hercules Note, as well as a $250,000 end-of-term fee and a $66,000 early payment penalty in accordance with the terms of the Hercules Loan Agreement. We recorded a loss on extinguishment of the Hercules Note of $429,000, consisting of the write-off of the remaining unamortized discount of $187,000 and unamortized debt issuance costs of $176,000, as well as the early payment penalty of $66,000. As of December 31, 2014, the Hercules Note was no longer outstanding. Platinum-Montaur Life Sciences, LLC In July 2012, we entered into an agreement with Platinum-Montaur Life Sciences, LLC (Platinum) to provide us with a credit facility of up to $50 million. Under the terms of the agreement, Platinum committed to extend up to $15 million in debt, which was 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 F-20 Hercules Loan Agreement plus 0.125%. In March 2013, the Company received FDA approval to market Lymphoseek. The approval of Lymphoseek resulted in an additional $20 million being made available to the Company under the Platinum credit facility. Another $15 million was potentially available on terms to be negotiated. Principal amounts were due the earlier of two years from the date of draw or June 30, 2016. No conversion features or warrants were initially associated with the facility. We drew a total of $4.0 million under the credit facility in each of the years ended December 31, 2013 and 2012. We did not make any draws under the credit facility during the year ended December 31, 2014. In June 2013, concurrent with entering into the GECC/MidCap Loan Agreement (discussed below), the Company and Platinum entered into an Amendment to the July 2012 credit facility between the Company and Platinum (the Platinum Amendment). Navidea, Platinum, and GECC/MidCap also entered into a Subordination Agreement (the GECC/MidCap Subordination Agreement), providing for subordination of the Company’s indebtedness under the Platinum credit facility to the Company’s indebtedness under the GECC/MidCap Loan Agreement, among other customary terms and conditions. In connection with the execution of the Platinum Amendment, the Company delivered an Amended and Restated Promissory Note (the Amended Platinum Note) to Platinum, which amended and restated the original promissory note, issued to Platinum, in the principal amount of up to $35.0 million. The Amended Platinum Note also adjusted the interest rate to the greater of (a) the U.S. Prime Rate as reported in the Wall Street Journal plus 6.75%; (b) 10%; or (c) the highest rate of interest then payable pursuant to the GECC/MidCap Loan Agreement plus 0.125%. In addition, the Platinum Amendment granted Platinum the right, at Platinum’s option, to convert all or any portion of the unpaid principal or unpaid interest accrued on any future draws (the Conversion Amount), beginning on a date two years from the date the draw is advanced, into the number of shares of Navidea’s common stock computed by dividing the Conversion Amount by a conversion price equal to the lesser of (i) 90% of the lowest VWAP for the 10 trading days preceding the date of such conversion request, or (ii) the average VWAP for the 10 trading days preceding the date of such conversion request. The Platinum Amendment also provided a conversion right on the same terms with respect to the amount of any mandatory repayment due following the Company achieving $2.0 million in cumulative revenues from sales or licensing of Lymphoseek. The conversion option applied to the Conversion Amount if the Company was prohibited from making such repayment under the terms of the GECC/MidCap Subordination Agreement. In accordance with current accounting standards, the Platinum Amendment was treated as an extinguishment of debt. The difference between the fair value of the new debt and the carrying value of the original Platinum loan balance was recorded as loss on extinguishment of $943,000. Platinum’s option to convert future draws into common stock was determined to meet the definition of a liability. The fair value of the new debt included the estimated fair value of the embedded conversion option. Also in connection with the Platinum Amendment, the Company and Platinum entered into a Warrant Exercise Agreement (Exercise Agreement), pursuant to which Platinum exercised its Series X Warrant and Series AA Warrant for 2,364.9 shares of the Company’s Series B Convertible Preferred Stock (the Series B Preferred Stock), convertible into 7,733,223 shares of our common stock in the aggregate (3,270 shares of common stock per preferred share). These warrants were exercised on a cashless basis by canceling a portion of the indebtedness outstanding under the Platinum Loan Agreement equal to $4.8 million, the aggregate exercise price of the warrants. In March 2014, in connection with entering into the Oxford Loan Agreement (discussed below), we entered into a second amendment to the Platinum Loan Agreement (the Second Platinum Amendment). Concurrent with the execution of the Second Platinum Amendment, the Company delivered an Amended and Restated Promissory Note (the Second Amended Platinum Note) to Platinum, which amended and restated the First Amended Platinum Note. The Second Amended Platinum Note adjusted the interest rate to the greater of (i) the United States prime rate as reported in The Wall Street Journal plus 6.75%, (ii) 10.0%, and (iii) the highest rate of interest then payable by the Company pursuant to the Oxford Loan Agreement plus 0.125% (the effective interest rate at December 31, 2014 was 10.0%). Navidea, Platinum, and Oxford also entered into a Subordination Agreement, providing for subordination of the Company’s indebtedness under the Platinum Loan Agreement to the Company’s indebtedness under the Oxford Loan Agreement, among other customary terms and conditions. As such, no payments may be made under the Platinum loan until the Oxford Notes have been paid F-21 in full and therefore, the current balance outstanding under the Platinum loan has been classified as long-term notes payable to coincide with the maturity of the Oxford Notes. The fair value of the Second Amended Platinum Note includes the estimated fair value of an embedded conversion option. The net increase in the estimated fair value of the Amended Platinum Notes was $1.3 million and $106,000, which was recorded as a non-cash change in fair value of financial instruments during the years ended December 31, 2014 and 2013, respectively. The estimated fair value of the Amended Platinum Notes was $5.6 million as of December 31, 2014. As of December 31, 2014, the remaining outstanding principal balance of the Amended Platinum Notes was approximately $3.2 million, with $31.8 million still available under the credit facility. General Electric Capital Corporation/MidCap Financial SBIC, LP In June 2013, we executed a Loan and Security Agreement (the GECC/MidCap Loan Agreement) with General Electric Capital Corporation (GECC) and MidCap Financial SBIC, LP (MidCap), pursuant to which we issued GECC and MidCap: (1) Term Notes in the aggregate principal amount of $25 million, bearing interest at 9.83%, (the GECC/MidCap Notes), and (2) Series HH warrants to purchase an aggregate of 301,205 shares of our common stock at an exercise price of $2.49 per share, expiring in June 2023 (the Series HH Warrants). The GECC/MidCap Loan Agreement provided for an interest- only period beginning on June 25, 2013 and expiring on June 30, 2014. The principal and interest was to be repaid in 30 equal monthly installments, payable on the first of each month following the expiration of the interest-only period, and one final payment in an amount equal to the entire remaining principal balance of the GECC/MidCap Notes on the maturity date. The outstanding balance of the debt was due December 23, 2016. On the date upon which the outstanding principal amount of the loan was paid in full, the Company was required to pay a non-refundable end-of-term fee equal to 4.0% of the original principal amount of the loan. The Company recorded a debt discount related to the issuance of the Series HH warrants and other fees to the lenders totaling $1.9 million. Debt issuance costs directly attributable to the GECC/MidCap Loan Agreement, totaling $881,000, were recorded as other assets on the balance sheet on the closing date. The debt discount and debt issuance costs were being amortized as non-cash interest expense using the effective interest method over the term of the GECC/MidCap Loan Agreement. The final payment fee of $1.0 million was recorded in other non-current liabilities on the consolidated balance sheet on the closing date. In March 2014, in connection with the consummation of the Oxford Loan Agreement (discussed below), we repaid all amounts outstanding under the GECC/MidCap Notes for a payoff amount of $26.7 million, which included payments of $500,000 as a pre-payment fee and $1.0 million as an end-of-term final payment fee, resulting in a loss on extinguishment of $2.6 million. As of December 31, 2014, the GECC/MidCap Notes were no longer outstanding. Oxford Finance, LLC In March 2014, we executed a Loan and Security Agreement (the Oxford Loan Agreement) with Oxford Finance, LLC (Oxford), pursuant to which we issued Oxford: (1) Term Notes in the aggregate principal amount of $30,000,000, bearing interest at 8.5% (the Oxford Notes), and (2) Series KK warrants to purchase an aggregate of 391,032 shares of our common stock at an exercise price of $1.918 per share, expiring in March 2021 (the Series KK warrants). We made monthly payments of interest only commencing on April 1, 2014, and continuing through April 1, 2015 (the Amortization Date). Commencing on the Amortization Date, the Company will make 48 consecutive equal monthly payments of principal and interest, in arrears, to the lenders then party to the Oxford Loan Agreement. All unpaid principal, and accrued and unpaid interest, with respect to the Oxford Notes is due and payable in full on March 1, 2019. We will also make a final payment to the lenders in an aggregate amount equal to the original principal amount of the loan multiplied by 7.95%. The Oxford Notes are 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 Oxford Loan Agreement requires that the Company adhere to certain affirmative and negative covenants, including, without limitation, financial reporting requirements and a prohibition against the incurrence of indebtedness, or creation of F-22 additional liens, other than as specifically permitted by the terms of the Oxford Loan Agreement. As of December 31, 2014, the outstanding principal balance of the Oxford Loan Agreement was $30 million, and we were in compliance with all covenants of the Oxford Loan Agreement. The Company recorded a debt discount related to the issuance of the Series KK Warrants and other fees to the lenders totaling $3.0 million. Debt issuance costs directly attributable to the Oxford Loan Agreement, totaling $120,000, were recorded as a non-current asset on the consolidated balance sheet on the closing date. The debt discount and debt offering costs are being amortized as non-cash interest expense using the effective interest method over the term of the Oxford Loan Agreement. The final payment fee of $2.4 million was recorded in other non-current liabilities on the consolidated balance sheet on the closing date. As of December 31, 2014, the balance of the debt discount was $2.4 million and the balance of the debt issuance costs was $90,000. R-NAV, LLC In July 2014, in connection with entering into the R-NAV joint enterprise, Navidea executed a promissory note in the principal amount of $666,666, payable in two equal installments on July 15, 2015 and July 15, 2016, the first and second anniversaries of the R-NAV transaction. The note bears interest at the applicable federal rate, currently 0.31% per annum, compounded annually. Also in connection with entering into the R-NAV joint enterprise, we executed an amendment to the Oxford Loan Agreement that amended certain covenants to permit our investment in R-NAV, and R-NAV entered into a Subordination Agreement with Oxford to subordinate our indebtedness to R-NAV to our obligations under the Oxford Loan Agreement. See Note 7. During the years ended December 31, 2014, 2013 and 2012, we recorded interest expense of $3.7 million, $2.8 million and $1.2 million, respectively, related to our notes payable. Of those amounts, $844,000, $765,000 and $545,000, respectively, was non-cash in nature related to amortization of the debt discounts and deferred financing costs related to our notes payable. Annual principal maturities of our notes payable are $5.2 million, $7.3 million, $7.6 million, $8.3 million and $5.4 million in 2015, 2016, 2017, 2018 and 2019, respectively. 10. Convertible Securities In June 2010, we entered into a Securities Exchange Agreement with Platinum which caused certain of Platinum's security holdings to be exchanged for 10,000 shares of Series B Preferred Stock, convertible into 32,700,000 shares of common stock. The Series B Preferred Stock is convertible at the option of Platinum 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), which caused certain of the Bupp Investors’ security holdings to be exchanged for 1,000 shares of Series C Convertible Preferred Stock (the Series C Preferred Stock), convertible into 3,226,000 shares of common stock. In December 2012, we entered into a Waiver Agreement (the Waiver) pursuant to which Platinum and Platinum Partners Value Arbitrage Fund (PPVAF), an affiliate of 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 was to remain in effect until December 31, 2013, upon which date all F-23 outstanding shares of Series B Preferred Stock were to automatically convert into common stock pursuant to the terms of the Certificate. In addition, we amended the terms of Platinum’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. As discussed in Note 9, in June 2013, the Company and Platinum entered into a Warrant Exercise Agreement, pursuant to which Platinum exercised its Series X warrant and Series AA warrant for 2,364.9 shares of the Company's Series B Preferred Stock, convertible into 7,733,223 shares of our common stock in the aggregate. Also in June 2013, we amended the Series B Preferred Stock to eliminate the date certain for automatic conversion. As a result of this amendment, all outstanding shares of Series B Preferred Stock will automatically convert into common stock of the Company at the conversion rate of 3,270 shares of common stock for each share of Series B Preferred Stock upon the earlier to occur of either of the following: (i) the closing of a firm commitment underwritten public offering of common stock of the Company pursuant to an effective registration statement under Section 5 of the Securities Act in which the gross cash proceeds to the Company (before underwriting discounts, commissions and fees) from such public offering are at least $10,000,000, or (ii) one hundred eighty (180) days following the first trading date upon which the price per share of the common stock equals or exceeds $7.00 per share, but excluding from such 180-day period any trading day on which the price is less than $5.00 per share. During 2012, Platinum 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 PPVAF, pursuant to which PPVAF exchanged 3,001,860 shares of our common stock owned by PPVAF for 918 shares of our Series B Preferred Stock. During 2013, Platinum converted 1,737.9 shares of the Series B Preferred Stock into 5,682,933 shares of our common stock under the terms of the Series B Preferred Stock. During 2014, Platinum converted 4,422 shares of the Series B Preferred Stock into 14,459,940 shares of our common stock under the terms of the Series B Preferred Stock. In November 2014, we entered into a second Securities Exchange Agreement with PPVAF, pursuant to which PPVAF exchanged 4,499,520 shares of our common stock owned by PPVAF for 1,376 shares of our Series B Preferred Stock. As of December 31, 2014, there are 4,519 shares of Series B Preferred Stock outstanding which are convertible into 14,777,130 shares of our common stock. 11. Derivative Instruments Certain embedded features of our convertible securities and notes payable, as well as warrants to purchase our common stock may be treated as derivative liabilities. We do not use derivative instruments for hedging of market risks or for trading or speculative purposes. As discussed in Note 9, 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 9. F-24 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. In September 2013, we entered into a Securities Purchase Agreement with Crede CG III, Ltd. (Crede) for a registered direct public offering. The Series JJ warrant issued in connection with the Securities Purchase Agreement was not considered to be indexed to the Company's stock due to certain features within the warrant, and as such, the warrant was required to be classified as a liability. As a result, the Company recorded a derivative liability with an estimated fair value of $7.7 million on the date the warrant was issued. In November 2014, Crede exchanged their Series JJ warrant for 3,843,223 shares of our common stock in accordance with the terms of the Series JJ warrant agreement. As a result of the exchange of the Series JJ warrant, we reclassified $7.7 million in derivative liabilities related to those warrants to additional paid-in capital. See Note 12. 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, 2014, 2013 and 2012 resulted in net (decreases) increases in non-cash (income) expense of $(5,000), $6,000 and $(32,000). The total estimated fair value of our derivative liabilities was $7.7 million as of December 31, 2013. No derivative liabilities were outstanding as of December 31, 2014. 12. Equity a. Common Stock Public Offerings: In February 2013, we completed a public offering of 1,542,389 shares of the Company’s common stock at a price of $3.10 per share (the February 2013 Offering). The net proceeds to the Company were approximately $4.5 million after deducting expenses associated with the February 2013 Offering. In April 2013, we completed another public offering of 2,100,000 shares of the Company’s common stock at a price of $2.43 per share (the April 2013 Offering). The net proceeds to the Company were approximately $4.8 million after deducting expenses associated with the April 2013 Offering. The February 2013 and April 2013 Offerings were underwritten by Ladenburg Thalmann & Co. Inc. and were made pursuant to the Company’s existing effective shelf registration statement on Form S-3. In September 2013, we entered into a Securities Purchase Agreement with Crede for a registered direct public offering of 10,563,381 shares of our common stock at a price of $2.84 per share for total gross proceeds of $30.0 million. In addition to the common stock, we issued Series JJ warrants to purchase 3,169,015 shares of our common stock at an exercise price of $3.83 per share, expiring on September 24, 2016. The net proceeds to the Company were approximately $28.8 million after deducting expenses associated with the Securities Purchase Agreement, including placement agent fees of $999,000 (3.3% of the gross proceeds). The common stock, warrants, and shares of common stock underlying the warrants were issued pursuant to the Company's existing effective shelf registration statement on Form S-3. b. Stock Warrants: At December 31, 2014, there are 1.8 million warrants outstanding to purchase our common stock. The warrants are exercisable at prices ranging from $1.92 to $3.04 per share with a weighted average exercise price per share of $2.27. F-25 The following table summarizes information about our outstanding warrants at December 31, 2014: Series BB Series EE Series FF Series GG Series HH Series II Series KK Exercise Price Number of Warrants 2.00 2.375 1.97 2.10 2.49 3.04 1.918 2.27 (1) 300,000 134,211 30,000 333,333 301,205 275,000 391,032 1,764,781 $ $ Expiration Date July 2015 August 2015 December 2015 December 2016 June 2023 June 2018 March 2021 (1) Weighted average exercise price. During 2012, Platinum 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, Platinum exercised 3,000,000 of their Series X warrants in exchange for the issuance of 3,000,000 shares of our common stock, resulting in gross proceeds of $1,380,000. In June 2013, pursuant to the Exercise Agreement, Platinum exercised its Series X warrant and Series AA warrant for 2,364.9 shares of the Company’s Series B which are convertible into 7,733,223 shares of our common stock in the aggregate (3,270 shares of common stock per preferred share). The warrants were exercised on a cashless basis by canceling a portion of the indebtedness outstanding under the Platinum Loan Agreement equal to $4,781,333, the aggregate exercise price of the warrants. Also in June 2013 and pursuant to the GECC/MidCap Loan Agreement, the Company issued to GECC/MidCap Series HH warrants to purchase an aggregate of 301,205 shares of our common stock at an exercise price of $2.49 per share, expiring in June 2023. In addition, in June 2013 we issued five-year Series II warrants to purchase 275,000 shares of our common stock at an exercise price of $3.04 per share to an investment advisory firm in connection with the GECC transaction. In September 2013, in connection with the Crede Securities Purchase Agreement, the Company issued to Crede a Series JJ warrant to purchase 3,169,015 shares of our common stock at an exercise price of $3.83 per share, expiring in September 2016. Crede could exercise the Series JJ warrant at any time at a strike price of $3.83. The warrant agreement also provided for the potential exchange of the warrant into Navidea common stock for no additional consideration starting six months after the date of the Securities Purchase Agreement if, at the time of the exchange, the closing bid price for Navidea’s common stock was below $3.83. The amount of shares issuable on exchange was based on dividing a Black-Scholes valuation of the warrants by the closing bid price for Navidea’s common stock on the date of the exchange. In November 2014, Crede exchanged their Series JJ warrant for 3,843,223 shares of our common stock in accordance with the terms of the Series JJ warrant agreement. As a result of the exchange of the Series JJ warrant, we reclassified $7.7 million in derivative liabilities related to those warrants to additional paid-in capital. See Note 11. In March 2014, in connection with the Oxford Loan Agreement, the Company issued Series KK warrants to purchase an aggregate of 391,032 shares of our common stock at an exercise price of $1.918 per share, expiring in March 2021. c. Common Stock Reserved: As of December 31, 2014, we have reserved 21,887,675 shares of authorized common stock for the exercise of all outstanding options, warrants, and convertible preferred stock. F-26 13. Reduction in Force In May 2014, the Company’s Board of Directors made the decision to refocus the Company's resources to better align the funding of our pipeline programs with the expected growth in Lymphoseek revenue. As a part of the realignment, the Company terminated a total of 11 employees, including the Chief Executive Officer, Dr. Mark J. Pykett. Effective May 30, 2014, the Company and Dr. Pykett entered into a Separation Agreement and Release. Following the termination date, Dr. Pykett is entitled to receive a $750,000 severance payment, payable in two equal installments on June 9, 2014, and January 2, 2015, respectively; a single payment for accrued vacation and personal days; and reimbursement for certain other expenses and fees. Certain of Dr. Pykett's equity awards terminated upon separation, while others were modified in conjunction with the Separation Agreement and the Consulting Agreement described below. Effective June 1, 2014, the Company and Dr. Pykett entered into a Consulting Agreement pursuant to which Dr. Pykett was to serve as an independent consultant to the Company until December 31, 2014 with respect to clinical-regulatory activities, commercial activities, program management, and business development, among other services. Dr. Pykett was entitled to a consulting fee of $27,500 per month plus reimbursement of reasonable expenses. The Consulting Agreement also provided for a grant of 40,000 shares of restricted stock which were to vest upon certain service and performance conditions. Dr. Pykett terminated the Consulting Agreement effective September 8, 2014. Certain of Dr. Pykett's equity awards were forfeited upon termination of the Consulting Agreement, while others vested on December 1, 2014 due to achievement of certain goals during the period of the Consulting Agreement, in accordance with the terms of the award agreements. The Company recognized expenses of $94,000 under the Consulting Agreement during the year ended December 31, 2014. The following table summarizes the remaining accrued separation costs, including estimated employer payroll tax obligations, related to the Company's reduction in force, which are included in accrued liabilities and other on the consolidated balance sheet as of December 31, 2014: Separation Estimated cost of continuing healthcare coverage As of December 31, 2014 $ $ 388,469 60,882 449,351 During the year ended December 31, 2014, the Company recognized approximately $557,000 of net expense as a result of the reduction in force, which includes separation costs, incremental expense related to the modification of certain equity awards, and the reversal of stock compensation expense for certain equity awards for which the requisite service was not rendered. The Company appointed Michael M. Goldberg, M.D., as interim Chief Executive Officer effective May 30, 2014. Dr. Goldberg currently serves as a member of the Board of Directors of the Company and did not receive any salary for his service as interim Chief Executive Officer, although the Company agreed to pay Montaur Capital Partners, LLC (Montaur), where Dr. Goldberg is principal, $15,000 per month to cover additional costs and resources Montaur expected to incur or redirect due to the unavailability of Dr. Goldberg's services resulting from his service as interim Chief Executive Officer of Navidea. During the year ended December 31, 2014, the Company paid Montaur a total of $53,000. Dr. Goldberg's service as interim Chief Executive Officer terminated with the appointment of Ricardo J. Gonzalez as the Company's Chief Executive Officer effective October 13, 2014. F-27 14. Income Taxes As of December 31, 2014 and 2013, our deferred tax assets were approximately $63.2 million and $49.2 million, respectively. The components of our deferred tax assets are summarized as follows: Deferred tax assets: Net operating loss carryforwards R&D credit carryforwards Stock compensation Intangibles Temporary differences Deferred tax assets before valuation allowance Valuation allowance Net deferred tax assets As of December 31, 2014 2013 $ $ 50,117,798 $ 8,394,408 1,849,847 1,931,193 910,354 37,191,826 7,388,463 1,962,472 2,206,593 455,767 63,203,600 (63,203,600) 49,205,121 (49,205,121) — $ — 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, 2014 and 2013. 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, 2014. As of December 31, 2014 and 2013, we had U.S. net operating loss carryforwards of approximately $153.1 million and $118.5 million, respectively. Of that amount, $15.3 million and $15.2 million relates to stock-based compensation tax deductions in excess of book compensation expense (APIC NOLs) as of December 31, 2014 and 2013, 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, 2014 and 2013, we had U.S. federal R&D credit carryforwards of approximately $8.0 million and $7.4 million, respectively. F-28 U.S. net operating loss carryforwards of $20.8 million and R&D credit carryforwards of $1.1 million expired during 2014. There were no expirations during 2013. The details of our U.S. net operating loss and federal R&D credit carryforward amounts and expiration dates are summarized as follows: As of December 31, 2014 Generated Expiration 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 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 28,541,353 36,840,453 34,576,527 Total carryforwards $ 153,105,438 $ 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 1,950,744 468,008 374,406 648,252 8,036,715 The Tax Increase Prevention Act of 2014 (the Act) was signed into law by President Obama on December 19, 2014. The credit for certain research and experimentation expenses expired at the end of 2011. The Act extended the credit through the end of 2014. During the years ended December 31, 2014, 2013, and 2012, Cardiosonix recorded losses for financial reporting purposes of $15,000, $13,000, and $14,000, respectively. As of December 31, 2014 and 2013, 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, 2014 and 2013. Under Sections 382 and 383 of the IRC of 1986, as amended, the utilization of U.S. net operating loss and R&D tax credit carryforwards may be limited under the change in stock ownership rules of the IRC. The Company has previously completed a Section 382 analysis and does not believe that a Section 382 ownership change has occurred that would impact utilization of the Company’s net operating loss and R&D tax credit carryforwards. F-29 Reconciliations between the statutory federal income tax rate and our effective tax rate for continuing operations are as follows: Years Ended December 31, 2014 2013 2012 Amount % Amount Benefit at statutory rate $ (12,147,068) (34.0)% $ (14,517,816) Adjustments to valuation allowance 12,925,380 36.2 % 15,399,021 Adjustments to R&D credit carryforwards Permanent items and other (340,886) (437,426) (1.0)% (1.2)% (842,414) (38,791) % (34.0)% $ 36.1 % (2.0)% (0.1)% Amount % (9,913,450) (34.0)% 8,604,147 29.5 % 1,064,623 244,680 3.7 % 0.8 % Benefit per 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 $300,000, $666,000, and $939,000 for the years ended December 31, 2014, 2013 and 2012. As of December 31, 2014, we have no purchase orders outstanding under the manufacture and supply agreement with Reliable. In May 2013, we entered into a clinical supply agreement with Nordion (Canada) Inc. (Nordion) for the manufacture and supply of NAV5001 clinical trial material. The initial three-year term expires in May 2016. Navidea may terminate this agreement without cause or penalty upon 180 days prior written notice to Nordion. Upon such termination, Nordion will be entitled to retain all amounts paid by Navidea, and Navidea shall pay to Nordion any undisputed, unpaid amounts due or earned by Nordion. Either party may terminate upon material breach by the other party which is not cured within 30 days from the date of written notice of the breach. Total purchases under the manufacturing agreement were $505,000 and $771,000 for the years ended December 31, 2014 and 2013. As of December 31, 2014, we have issued purchase orders under the agreement with Nordion for $317,000 of our products for delivery through June 2015. In August 2013, we entered into a manufacturing services agreement with PETNET Solutions, Inc. (PETNET) for the manufacturing and distribution of NAV4694. The initial three-year term of the agreement expires in August 2016. The agreement will automatically renew for additional one-year terms, unless either party gives written notice to the other at least 60 days prior to the end of the initial term. Either party may terminate upon material breach by the other party which is not cured within 30 days from the date of written notice of the breach. Total purchases under the manufacturing agreement were $2.2 million and $1.4 million for the years ended December 31, 2014 and 2013. As of December 31, 2014, we have issued purchase orders under the agreement with PETNET for $132,000 of our products for delivery through February 2015. In September 2013, we entered into a manufacturing services agreement with OSO BioPharmaceuticals Manufacturing, LLC (OsoBio) for contract pharmaceutical development, manufacturing, packaging and analytical services for Lymphoseek. The initial term of the agreement expires in December 2016, and automatically renews for additional two-year periods unless written notice is provided at least 12 months prior to the expiration of the initial term. 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. During the term of agreement, OsoBio will be the primary supplier of the manufacturing services for Lymphoseek. In consideration for these services, the Company will pay a unit pricing fee. In addition, the Company will also pay OsoBio a fee for F-30 regulatory support services. Total purchases under the manufacturing services agreement were $96,000 and $1.2 million for the years ended December 31, 2014 and 2013. As of December 31, 2014, we have issued purchase orders under the agreement with OsoBio for $463,000 of our products for delivery through March 2015. b. Research and Development Agreements: In January 2002, we completed a license agreement with the University of California, San Diego (UCSD) for the exclusive world-wide rights to Lymphoseek. The license agreement was effective until the later of the expiration date of the longest-lived underlying patent. In July 2014, we amended the license agreement to extend the agreement until the third anniversary of the expiration date of the longest-lived underlying patent. Under the terms of the license agreement, UCSD has granted us the exclusive rights to make, use, sell, offer for sale and import licensed products as defined in the agreement and to practice the defined licensed methods during the term of the agreement. We may also sublicense the patent rights, subject to certain sublicense terms as defined in the agreement. In consideration for the license rights, we agreed to pay UCSD a license issue fee of $25,000 and license maintenance fees of $25,000 per year. We also agreed to make payments to UCSD upon successfully reaching certain clinical, regulatory and cumulative sales milestones, and a royalty on net sales of licensed products subject to a $25,000 minimum annual royalty. In addition, we agreed to reimburse UCSD for all patent-related costs and to meet certain diligence targets. Total costs related to the UCSD license agreement for Lymphoseek were $353,000, $273,000 and $33,000 in 2014, 2013 and 2012, respectively, and were recorded in cost of goods sold following the U.S. commercial launch of Lymphoseek in 2013, or in research and development expenses prior to the product launch. In April 2008, we completed a second license agreement with UCSD for an expanded field of use allowing Lymphoseek to be developed as an optical or ultrasound agent. The license agreement was effective until the expiration date of the longest-lived underlying patent. Under the terms of the license agreement, UCSD granted us the exclusive rights to make, use, sell, offer for sale and import licensed products as defined in the agreement and to practice the defined licensed methods during the term of the agreement. We could also sublicense the patent rights, subject to certain sublicense terms as defined in the agreement. In consideration for the license rights, we agreed to pay UCSD a license issue fee of $25,000 and license maintenance fees of $25,000 per year. We also agreed to make payments to UCSD upon successfully reaching certain clinical, regulatory and cumulative sales milestones, and a royalty on net sales of licensed products subject to a $25,000 minimum annual royalty. In addition, we agreed to reimburse UCSD for all patent-related costs and to meet certain diligence targets. Total costs related to the UCSD license agreement for the use of Lymphoseek as an optical or ultrasound agent were $25,000, $29,000 and $31,000 in 2014, 2013 and 2012, respectively, and were recorded in research and development expenses. The license agreement for the use of Lymphoseek as an optical or ultrasound agent was canceled in July 2014. In July 2014, the Company replaced the license agreement for the use of Lymphoseek as an optical or ultrasound agent with an expanded license agreement for the exclusive world-wide rights to all diagnostic and therapeutic uses of tilmanocept. The license agreement is effective until the third anniversary of the expiration date of the longest-lived underlying patent. Under the terms of the license agreement, UCSD has granted us the exclusive rights to make, use, sell, offer for sale and import licensed products as defined in the agreement and to practice the defined licensed methods during the term of the agreement. We may also sublicense the patent rights, subject to certain sublicense terms as defined in the agreement. In consideration for the license rights, we agreed to pay UCSD a license issue fee of $25,000 and license maintenance fees of $25,000 per year. We also agreed to make payments to UCSD upon successfully reaching certain clinical, regulatory and cumulative sales milestones, and a royalty on net sales of licensed products subject to a $25,000 minimum annual royalty. In addition, we agreed to reimburse UCSD for all patent-related costs and to meet certain diligence targets. Total costs related to the UCSD license agreement for tilmanocept were $25,000 in 2014, 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 F-31 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 $81,000, $5,000 and $14,000 in 2014, 2013 and 2012, respectively, and were recorded in research and development expenses. In July 2012, we entered into an agreement with Alseres Pharmaceuticals, Inc. (Alseres) to sublicense NAV5001, an Iodine-123 radiolabeled imaging agent being developed as an aid in the diagnosis of Parkinson’s disease and other movement disorders, with a potential use as a diagnostic aid in dementia. Under the terms of the sublicense agreement, Alseres granted Navidea an exclusive, worldwide sublicense to research, develop and commercialize NAV5001. The terms of the agreement required Navidea to make a one-time sublicense execution payment to Alseres equal to (i) $175,000 in cash and (ii) 300,000 shares of our common stock. The sublicense agreement also 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 $42,000, $366,000 and $1.8 million in 2014, 2013 and 2012, respectively, and were recorded in research and development expenses. Cardiosonix’s research and development efforts were 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 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 2014, we have paid the OCS a total of $84,000 in royalties related to sales of products developed under this program. As of December 31, 2014, we have no accrued obligations for royalties. c. Employment Agreements: As of December 31, 2014, we have employment agreements with five of our senior officers. In addition, although certain employment agreements expired on or before December 31, 2014, the terms of the agreements provide for continuation of certain terms of the employment agreements as long as the senior officers continue to be employees of the Company following expiration of the agreements. The employment agreements contain termination and/or change in control provisions that would entitle each of the officers to 1.2 to 2.0 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, 2014, our maximum contingent liability under these agreements in such an event is approximately $2.9 million. The employment agreements also provide for severance, disability and death benefits. F-32 16. Leases We lease certain office equipment under a capital lease which expires in 2016. We also lease office space in Ohio under an operating lease that expires in October 2022 and office space in Massachusetts under an operating lease that expires in March 2015. The future minimum lease payments for the years ending December 31 are as follows: 2015 2016 2017 2018 2019 Thereafter $ Less amount representing interest Present value of net minimum lease payments Less current portion Capital lease obligations, excluding current portion $ Capital Leases Operating Leases 295,695 271,831 277,946 284,247 290,734 854,945 2,275,398 3,039 $ 2,278 — — — — 5,317 $ 613 4,704 2,550 2,154 Total rental expense was $357,000, $400,000 and $211,000 for the years ended December 31, 2014, 2013 and 2012, 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 $125,000, $104,000, and $71,000 during 2014, 2013 and 2012, respectively. 18. Supplemental Disclosure for Statements of Cash Flows During 2014, 2013 and 2012, we paid interest aggregating $2.9 million, $1.9 million and $647,000, respectively. During 2013, we issued 100,000 shares of our common stock as partial payment of a milestone fee. During 2014, 2013, and 2012, we issued 36,455, 22,126 and 17,390 shares of our common stock, respectively, as matching contributions to our 401(k) Plan. During 2012, we issued 300,000 shares of our common stock as partial payment for the execution of a sublicense agreement. During 2012, we prepaid $267,000 of insurance premiums through the issuance of a note payable to a finance company with an interest rate of 2.8%. During 2012, we purchased equipment under a capital lease totaling $9,000. During 2013, the Company and Platinum entered into an Exercise Agreement, pursuant to which Platinum exercised its Series X Warrant and Series AA Warrant for 2,364.9 shares of the Company’s Series B Preferred Stock. These warrants were exercised on a cashless basis by canceling a portion of the indebtedness outstanding under the Platinum Loan Agreement equal to $4.8 million, the aggregate exercise price of the warrants. Also during 2013, in conjunction with the GECC/MidCap Loan Agreement and the Crede Securities Purchase Agreement, we issued warrants with estimated fair values of $631,000 and $7.7 million, respectively. Additionally, $1.0 million of the debt discount fees related to the GECC/MidCap Loan Agreement have been deferred through the maturity date of the loan. F-33 During 2014, in connection with the Oxford Loan Agreement, we issued warrants with an estimated relative fair value of $465,000. In addition, $3.0 million of the debt discount fees related to the Oxford Loan Agreement have been deferred through the maturity date of the loan. Also during 2014, in connection with entering into the R-NAV joint enterprise, Navidea executed a promissory note in the principal amount of $666,666, payable in two equal installments on July 15, 2015 and July 15, 2016, the first and second anniversaries of the R-NAV transaction. See Note 7. 19. Contingencies We are subject to legal proceedings and claims that arise in the ordinary course of business. We are not presently involved in any material litigation. In accordance with ASC Topic 450 - Contingencies, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Although the outcome of any litigation is uncertain, in our opinion, the amount of ultimate liability, if any, with respect to these actions will not materially affect our financial position. 20. Selected Quarterly Financial Data (Unaudited) Quarterly financial information for fiscal 2014 and 2013 are presented in the following table, in thousands, except per share data: 2014: Net sales Grant and other revenue Gross profit Operating expenses Operating loss Net loss attributable to common stockholders Basic and diluted net loss per share (1) 2013: Net sales Grant and other revenue Gross profit Operating expenses Operating loss Net loss attributable to common stockholders Basic and diluted net loss per share (1) $ $ $ $ March 31 For the Quarter Ending June 30 September 30 December 31 627 $ 125 559 9,138 (8,579) (11,741) (0.08) $ — $ — — 7,004 (7,004) (7,341) (0.06) $ 1,046 $ 28 804 10,020 (9,216) (10,222) (0.07) $ 128 $ 67 90 8,546 (8,456) (10,300) (0.09) $ 1,101 $ 1,149 1,442 6,805 (5,362) (6,899) (0.05) $ 144 $ 257 325 10,250 (9,925) (11,306) (0.09) $ 1,460 738 1,884 6,360 (4,476) (6,865) (0.05) 343 192 383 13,436 (13,053) (13,752) (0.10) (1) Net loss per share is computed independently for each of the quarters presented. Therefore the sum of the quarterly per-share calculations will not necessarily equal the annual per share calculation. F-34 21. Subsequent Events a. Platinum Credit Facility: Between January 1, 2015 and the filing date of this document, we drew a total of $3.0 million under the Platinum credit facility. b. Sublicense Agreement: In March 2015, we announced that we had entered into an exclusive sublicense agreement for the commercialization and distribution of Lymphoseek 250 microgram kit for radiopharmaceutical preparation (tilmanocept) in the European Union with SpePharm AG (an affiliate of Norgine BV), a European specialist pharmaceutical company with an extensive pan-European presence. Under the terms of the exclusive license agreement, Navidea will supply Lymphoseek product to Norgine; however, Navidea will transfer responsibility for regulatory maintenance of the Lymphoseek Marketing Authorization to Norgine. Norgine will also be responsible for pricing, reimbursement, sales, marketing, medical affairs, and regulatory activities. In connection with entering into the agreement, Navidea is entitled to an upfront payment of $2 million, milestones totaling up to an additional $5 million, and royalties on European net sales. The initial territory covered by the agreement includes all 28 member states of the European Economic Community with the option to expand into additional geographical areas. c. Macrophage Therapeutics, Inc.: In March 2015, Macrophage Therapeutics, Inc. (MT) entered into an agreement to sell up to 50 shares of its Series A Convertible Preferred Stock (MT Preferred Stock) and warrants to purchase up to 1,500 common shares of Macrophage Therapeutics (MT Common Stock) to Platinum-Montaur Life Sciences, LLC (Platinum) and Dr. Michael Goldberg for a purchase price of $50,000 per share of MT Preferred Stock. On March 13, 2015, we announced that definitive agreements with the investors had been signed for the sale of the first tranche of 10 shares of MT Preferred Stock and warrants to purchase 300 shares of MT Common Stock to these investors, with gross proceeds to Macrophage Therapeutics of $500,000. Under the agreement, 40% of the MT Preferred Stock and warrants are committed to be purchased by Dr. Goldberg, and the balance by Platinum. The full 50 shares of MT Preferred Stock and warrants to be sold under the agreement are convertible into and exercisable for MT Common Stock representing an aggregate 1% interest on a fully converted and exercised basis. In addition, we entered into an Exchange Agreement with the investors providing them an option to exchange their MT Preferred Stock for our common stock in the event that MT has not completed a public offering with gross proceeds to MT of at least $50 million by the second anniversary of the closing of the initial sale of MT Preferred Stock, at an exchange rate per share obtained by dividing $50,000 by the greater of (i) 80% of the twenty-day volume weighted average price per share of our common stock on the second anniversary of the initial closing or (ii) $3.00. To the extent that the investors do not timely exercise their exchange right, we have the right to redeem their MT Preferred Stock for a price equal to $58,320 per share. We also granted MT an exclusive license for certain therapeutic applications of the Manocept technology. d. Oxford Finance, LLC: Also in March 2015, in connection with the organization and initial financing of Macrophage Therapeutics, Inc., we entered into an amendment to the Oxford Loan Agreement that amended certain covenants to permit these actions and to consent to the grant of a license to Macrophage Therapeutics, Inc. for certain therapeutic applications of the Manocept technology, and Macrophage Therapeutics, Inc. became a co-obligor on the Oxford Notes. e. Reduction in Force: On March 12, 2015, the Company initiated a reduction in force that will include seven staff members and three executives. The three executives will continue as employees during transition periods of varying lengths, depending upon the nature and extent of responsibilities to be transitioned or wound down. As of the filing date of this document, the specific terms of the executive transition and separation were still being determined, and therefore the impact to our first quarter 2015 financial statements is not yet known. We expect the financial impact to be material, but anticipate that the initial cost will be offset with savings in compensation expense in the longer term. F-35 47007cvr_Layout 1 5/19/15 2:50 AM Page 2 Financial Highlights Amounts in thousands, except per share data Years Ended December 31, 2014 2013 2012 2011 2010 Revenue $ 6,275 $ 1,131 $ 79 $ 598 $ 617 Operating expenses 32,322 39,236 28,068 24,702 13,294 Loss from operations (27,633) (38,438) (27,989) (24,104) (12,677) Income (loss) attributable to common stockholders (35,727) (42,699) (29,201) 5,513 (58,172) Basic income (loss) per share (0.24) (0.35) (0.29) 0.06 (0.72) As of December 31, 2014 2013 2012 2011 2010 Total assets $ 11,920 $ 40,317 $ 11,972 $ 31,194 $ 10,863 Stockholders’ equity (deﬁcit) (29,803) (4,010) (1,405) 21,132 4,132 Corporate Headquarters 5600 Blazer Parkway • Suite 200 • Dublin, Ohio 43017 Investor Relations Navidea Biopharmaceuticals, Inc. • www.navidea.com • Phone: 614-793-7500 • Fax: 614-793-7520 • E-Mail: info@navidea.com Stockholder Meeting The annual meeting of stockholders will be held at The Conference Center at OCLC, 6600 Kilgour Place, Dublin, Ohio 43017, 614-764-6000, on July 16, 2015, 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. Troup1,2 Peter F. Drake, Ph.D.2 Brendan A. Ford1 Chairman of the Board, Navidea Biopharmaceuticals, Inc.; Retired President of Nuclear Pharmacy Services, Cardinal Health, Inc. Founder and General Partner, Longevity Growth Partners Partner, Talisman Capital Partners Michael M. Goldberg, M.D. Managing Partner, Montaur Capital Partners Ricardo J. Gonzalez Perry A. Karsen1,2 President and Chief Executive Ofﬁcer, Navidea Biopharmaceuticals, Inc. Chief Executive Ofﬁcer, Celgene Cellular Therapeutics Eric K. Rowinsky, M.D. Chief Medical Ofﬁcer and Head of Research and Development, Stemline Therapeutics, Inc. 1 Audit Committee 2 Compensation, Nominating and Governance Committee Corporate Ofﬁcers Ricardo J. Gonzalez Brent L. Larson President and Chief Executive Ofﬁcer Executive Vice President, Chief Financial Ofﬁcer, Treasurer and Secretary Thomas H. Tulip, Ph.D. Executive Vice President and Chief Business Ofﬁcer Frederick O. Cope, Ph.D. Senior Vice President and Chief Scientiﬁc Ofﬁcer Thomas J. Klima William J. Regan Senior Vice President and Chief Commercial Ofﬁcer Senior Vice President, Global Regulatory Affairs and Quality and Chief Compliance Ofﬁcer Cornelia B. Reininger, M.D., Ph.D. Senior Vice President and Chief Medical Ofﬁcer David S. Casebier, Ph.D. Stephen B. Haber, Ph.D. Vice President, Chemistry, Manufacturing and Controls Vice President, Development Michael B. Tomblyn, M.D. Executive Medical Director 47007cvr_Layout 1 5/19/15 2:49 AM Page 1 5600 Blazer Parkway • Suite 200 • Dublin, Ohio 43017 Phone: 614-793-7500 • E-Mail: info@navidea.com www.navidea.com Navidea, Navidea logo, Lymphoseek, Manocept and Macrophage Therapeutics are trademarks of Navidea Biopharmaceuticals, Inc. © Navidea Biopharmaceuticals, Inc. 2015 2 0 1 4 | A N N U A L R E P O R T

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