Operator: Welcome to Navidea Pharmaceuticals First Quarter 2017 Earnings Call. My name is Charlotte, and I will be your operator for today's call. [Operator Instructions]

I will now turn the call over to Jed Latkin, Chief Operating Officer for Navidea Pharmaceuticals, Inc. Jed Latkin, you may begin.

Jed Latkin: Thank you, Charlotte, and welcome, everyone, to today's earnings conference call for Navidea. This call will cover Navidea's financial and operating results for the first quarter ended March 31, 2017, along with the discussion of our key upcoming 2017 milestones. Following my prepared remarks, we will open up the conference call to a question-and-answer session. Also on our call today is Dr. Michael Goldberg, M.D. and Chief Executive Officer; and Fred Cope, Head of Clinical Operations.

Before we begin our formal remarks, I would like to remind everyone that some of the statements on this conference call may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended that concern matters that involve risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in the forward-looking statements. Words such as expects, anticipates, intends, plans, aims, targets, believes, seeks, estimates, optimizing, potential, goals, suggests and similar expressions identify forward-looking statements.

These forward-looking statements relate to the effectiveness of the company's bodily fluid-based diagnostic tests as well as the company's ability to develop and successfully commercialize such tests platforms for early detection of cancer and other indications. The company's actual results may differ materially from those indicated in these forward-looking statements due to numerous risks and uncertainties.

For instance, if we fail to develop or commercialize diagnostic products, we may be unable to execute our plan of operations. Other risks and uncertainties include the company's failure to obtain necessary regulatory clearances or approvals to distribute and market product -- future products in the clinical IBD market; a failure by the marketplace to accept the products of the -- in a company's development pipeline or any other diagnostic products the company might develop; the company will face fierce competition and the company's intended products may become obsolete due to the highly competitive nature of the diagnostics market and its rapid technological change; and other risks identified in the company's recent annual report on Form 10-K and quarterly reports on Form 10-Q as well as other documents that the company files with the Securities and Exchange Commission.

These statements are based on current expectations, estimates and projections about the company's business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are made as of the date of this conference call, and except as required by law, the company does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances.

I'd now like to turn the call over to Dr. Michael Goldberg, our Chief Executive Officer, who will discuss our first quarter financial results and clinical activity as well as our key clinical and operational objectives looking ahead in 2017. Michael?

Michael Goldberg: Thank you, Jed, and thank you to everyone who has joined Navidea's first quarter financial results conference call. I would also like to thank all of you for taking an interest in Navidea at this very exciting time for us. The first quarter in 2017 marked an important event and now we completed the sale of the North American rights to Lymphoseek to Cardinal Health, first announced last year, and received approximately $83 million at closing. This transaction provides us with the financial freedom to fund our new business model, designed to maximize the value of the activated macrophage-targeting technology. As previously discussed, we now have the flexibility -- we now have the ability to focus our efforts on extending our world-class position in this very important and competitive imaging and therapeutics space. We have gone a long way in the past few months to reposition the company so that we can extend our intellectual property, develop new products and new applications for our platform technology. We have taken steps that we believe will improve our timing, marketing position and value for partnering our imaging and therapeutic programs to potential partners. Our strategic business model is to partner programs rather than to invest the significant resources, not to mention carry the large technical staff necessary to develop pharmaceutical products. We have seen sufficient results from our human and animal studies to support our belief that there are many significant applications for our products that would be developed quicker with less performance risk if carried out by an established therapeutic area team with experience, relationships with clinicians to conduct clinical studies in the therapeutic field and sufficient funding to ensure rapid in-parallel development of programs to maximize both the rate and probability of success. We will benefit from the value created by getting royalties on larger sales and more products than if we try to do this on our own, assuming we could even raise the money necessary to develop these complex programs on a global basis.

I'll now briefly review the Cardinal deal to summarize where that leaves us financially. The upfront cash allowed Navidea to pay off all of its existing debt, and we're able to close our commercial efforts, bringing up over $16 million per year in interest and personnel costs. This also removed the $52 million principal [indiscernible], which was due to begin in about 1 year. We are left with enough revenue and cash to fund the various imaging programs through key valuation inflection points, especially as they have been and should continue to be supported in part by NIH grants. We also have sufficient cash to continue to fund basic foundational work in MT, Macrophage Therapeutics, to enable partnering some programs, attracting investors who invest in earlier stage therapeutic assets and to spin out MT to our shareholders, so that MT can attract new investors which will be very valuable as it will help to unlock the value of the MT asset to the Navidea shareholders without putting Navidea's financial position into jeopardy.

Navidea will have the opportunity to earn up to $227 million of contingent consideration milestones through 2026 with $17.1 million guaranteed over the next 3 years based on sales in the North American markets. As we will discuss shortly, we have continued to generate valuable data that will help Cardinal, and ultimately our other regional partners, increase market penetration and thus improve our chances for more rapidly receiving the contingent payments as well as royalties from global sales. As a result of this closing, all liens on Navidea assets have been released, all frozen accounts transferred to our control and the unsecured loan to Platinum Partners has been repaid. This was absolutely essential for attracting institutional investors and potential partners to our products.

We have continued to make progress in our clinical trials with our imaging agents, which supports both the expansion of our imaging agent portfolio products as well as our therapeutic programs by demonstrating the depth and [indiscernible] of our technology. As previously disclosed, we have worked with researchers from Harvard Medical School and Massachusetts General Hospital to evaluate the performance of our imaging agent to detect emerging atherosclerotic plaque at a stage impossible to image with existing imaging modalities. Results from this study were presented and published in the first quarter. These provided strong support for our initiatives in cardiac imaging and therapy and support the use of our technology in M1-mediated diseases, where we can diagnose and theoretically treat early enough in the patient's life to prevent long-term irreversible complications.

Navidea has been selected to present 2 main papers at the annual meeting of SNMMI in Denver, Colorado, June 10 through 14. Both of these programs confirm the value of the remarkably high binding of our products to the mannose receptor, otherwise known as CD206.

Both cardiovascular disease and rheumatoid arthritis are caused by overactive M1 macrophages. It is well-known that CD206 is much more highly expressed in M2 macrophages. The ability to get the type -- this type of activity with our CD206 binding agent in M1-mediated disease is a truly differentiating attribute of our technology, especially as compared to monoclonal antibodies. In fact, one prospective partner is now testing our agents in their animal models because they had developed an antibody to CD206 and could not get sufficient binding to image M1 macrophages. They are a therapeutic company and accept our basic concept that if you can image a disease by targeting the cells that cause the disease, you should be able to treat -- to use the target to treat the disease. We have numerous new initiatives in both cardiovascular and rheumatoid arthritis, which are designed to not only advance both programs, but to showcase this performance for prospective partners who made the interesting applications outside of RA and CV but require M1 targeting. These initiatives include different modes of administration and different modes of detection.

At the end of the first quarter, we completed a sentinel node biopsy evaluation in cervical cancer. This was a multicenter 20-patient study in cervical cancer evaluating technetium 99 tilmanocept in localization of the CD206 targeted agent to reveal bilateral drainage of cervical cancer tumors to sentinel nodes in women with moderate stage cervical cancer. The results of this study are currently under evaluation by an independent statistician. We anticipate that the results will be released in the next few weeks.

We also completed a collaborative study of technetium 99 tilmanocept versus filtered sulfur colloid in a head-to-head study in breast cancer. This was a double-blind, 40-patient study in breast cancer, comparing technetium 99 tilmanocept with filtered sulfur colloid, evaluating key specific performance characteristics in sentinel node biopsy. The results of this study have been unblinded and evaluation of the results is now complete. Results will be published in the near future.

All of these studies will support Cardinal's efforts to expand the use Lymphoseek as well as to provide European partners and other prospective partners in other regions around the world with data to expand their potential sales.

Navidea has been selected by the National Institute of Arthritis and Musculoskeletal and Skin Diseases, a component of the National Institute of Health, to present its rheumatoid arthritis program to investors at the 2017 Bio International convention. Navidea was selected from more than 1,000 recipients of NIH SBIR grants to present clinical results and its commercial strategy in regards to the development of tilmanocept, technetium targeted for the diagnostic imaging of RA.

We also completed in the first quarter the third therapeutic animal study in NASH. Taking together the 3 therapeutic evaluations of both MT1002 and MT2002 in an in vivo model clinically predictive of the potential for these agents to modify the disease course in human subjects provides us very encouraging data on multiple levels. We evaluated 2 different agents with different mechanisms of action, multiple dosing regimens and different points of initiation in this progressive disease. The results of select data sets of this work were recently presented at the NASH Summit in Boston, Massachusetts on April 10 through 12. The results strongly suggest that both MT1002 and 2002 can modify key assessments of the natural history of NASH in the animal model. We are continuing this work to evaluate additional parameters inherent in the designs of the MT1002 and 2002 agents.

NASH is both an M1 and M2-mediated disease. It is a metabolic disease which shares common etiology with cardiovascular disease and type 2 diabetes, therefore, is unlikely to be cured. In the vast majority of people, it will require a lifelong therapy. This creates an ideal demonstration of certain critical elements in the performance of our technology and places us at a very advantageous position as compared to other anti-inflammatory approaches being actively explored in this space.

Our ability to target both the M1 and M2 with a technology that only targets the activated disease-causing immune cells and does so for both early stage, which is predominantly M1, and later stage, which is a combination of M1 and M2, with a skew towards M2, makes this plausible for treating all stages of the disease. Also, there's no practical way to diagnose and monitor progression of this disease. Currently, the only acceptable tool to do so is liver biopsy, and this is probably only going to be acceptable for the regulatory agencies and will be unlikely to be paid for, therefore, usable for reimbursement by payers. That is why we are in parallel running imaging studies in rodents as well as planning imaging studies in humans where we can use the same product that we are using in imaging CV and RA to develop a 3-dimensional picture of the liver. We anticipate that we will be able to provide a complete picture of the distribution of inflammation that can be readily scored. This can potentially provide a simple, reliable, minimally invasive, especially as compared to liver biopsy, method of measuring progression of the disease and provide pharmaceutical companies a desperately needed tool to gauge the performance of their various experimental products in real time.

During the first quarter, we have also completed 5 cohort -- a 5-cohort dose-escalation study in rheumatoid arthritis using IV administration. The results to date provide strong clinical evidence of Navidea's ability to image active M1-mediated inflammation and supports our growing enthusiasm for the potential to use this approach to diagnose, monitor and eventually treat RA and all other M1-mediated diseases. We have also tested the use of the old Neoprobe device, developed for intraoperative use, for use in quantifying the level of activated M1 macrophages in a joint, simply by holding the device next to the given joint after dosing the agent's IV. We have [indiscernible] to generate quantifiable measurements of levels in affected joints as compared to unaffected joints. This can be a very useful tool in the initial diagnosis of disease as well as a simple inexpensive tool to monitor progression of the disease.

Also, in the first quarter, we have completed initial in vitro testing of therapeutic MT1000 and MT2000 lines against Zika virus and Dengue virus with positive results. Testing included infectivity and viral replication inhibition effectiveness as well as dose-finding studies and mechanisms of actions, the latter based on conjugate structures. The results from these evaluations are positive and have provided a basis for moving forward in, in vivo testing of the selected conjugates. Navidea has already selected a collaborator for these in vivo studies. These additional studies will take place over the next few months.

We also completed preliminary in vivo testing of our therapeutics in a leishmaniasis infectivity model with positive results. Testing included host cell targeting and killing effectiveness as well as dose-finding studies and mechanisms of action. Results of these evaluations are positive and have provided a basis for moving forward with additional in vivo testing of the selected conjugates. These additional studies will take place over the next few months.

We want to emphasize that we have not developed IO products to behave any differently with any of these infectious agents. The reason we have seen the same results with very different infectious agents is because we target the cellular host, not the infectious agent. As long as we treat while the infectious agent is being hosted by a macrophage that expresses CD206, we fully expect the same results no matter what the virus -- what virus is incubating in the macrophage. As we have previously reported, we have also seen similar results, HIV and a herpes virus, in earlier studies.

In the first quarter, we completed an additional in vitro testing and fulfillment of FDA requirements for expansion of IV administration for use in diagnostic imaging. Specifically, we completed additional drug transporter and CYP testing, demonstrating additional data support to safety profile for tilmanocept-dosed IV. These results are being prepared for filing with FDA.

Finally, we have completed the preparatory work to enable initiation shortly of an imaging study in colorectal cancer patients with synchronous liver metastasis. In collaboration with the University of Alabama at Birmingham Comprehensive Cancer Center, we will begin an imaging study looking at the localization of IV-administered tilmanocept in metastatic colorectal cancer. This is a follow-on study to the study completed at Maimonides Hospital last year. The study will evaluate discriminatory localization of tilmanocept for colorectal cancer and localization in liver foci. This will expand our database of imaging agents in M2-mediated diseases. We have previously generated results in KS patients, which also is an M2-mediated disease. This further supports the continued efforts we have with using our imaging agents to deplete the -- with our therapeutic agents to deplete the predominantly M2 macrophages that make up the TAMs, or tumor-associated macrophages, enabling improved combination therapies in many solid tumors. We have completed a number of animal studies with our agents as both a stand-alone and in combination with an antibody targeted to a tumor-expressed receptor. We have been impressed with the results to date and we are expanding our studies to enable publication of these results.

Jed will now discuss our Q1 financial results in more detail.

Jed Latkin: Thank you, Michael. This financial discussion focuses on describing the results of our operations as if we had not operated discontinued operations during the periods being disclosed. In addition, since our remaining pharmaceutical product candidates are not yet generating commercial revenue, the discussion of our revenue focuses on the grant and other revenue and our operating variances focused on our remaining product development program and supporting general and administrative expenses. We recorded a net gain on the sale to Cardinal Health 414 of $88.7 million for the first quarter of 2017, including $16.5 million in guaranteed consideration, which was discounted to the present value of future cash flows. The proceeds were offset by $3.3 million in estimated fair value of warrants issued to Cardinal Health 414, $2 million in legal and other fees related to the sale, $800,000 net balance sheet dispositions and writeoffs and $4.6 million in estimated taxes. Our consolidated balance sheets and statement of operations have been reclassified as required for all periods presented to reflect the line of business sold to Cardinal Health 414 as a discontinued operation. Total revenues for the quarter ended March 31, 2017, were $580,000 compared to $948,000 in the first quarter of last year. As noted earlier, these revenues only reflect grant-related revenues, and while we anticipate revenues from our European partner, we have not yet started disclosing those as our European partner continues to ramp up its rollout in various regions in Europe.

Total operating expenses for the first quarter of 2017 were $3.7 million compared to $4.7 million in the first quarter of last year. Research and development expenses for the first quarter of 2017 were $705,000 compared to $2.1 million in the first quarter of last year. The net decrease from 2016 to 2017 was primarily a result of decreases in NAV4694, Tc 99 tilmanocept and NAV501 development costs, offset by increases in Manocept and therapeutic development costs, coupled with decreased compensation and related support costs. Selling, general and administrative expenses for the quarter of 2017 were $3 million compared to $2.6 million in the first quarter of last year. The net increase was primarily due to increased legal and professional services, offset by decreased investor relations services, compensation and related support costs.

Navidea's net income attributable to common stockholders for the quarter ended March 31, 2017, was $85.6 million or $0.53 a share compared to a net loss of $3.7 million or $0.02 per share for the same period in 2016. Navidea ended the quarter with $13.4 million in cash.

I'd now like to turn the call over to Michael to have some final remarks.

Michael Goldberg: Thank you, Jed. With the completed sale of Lymphoseek, we are now fully devoted to the development of our clinical stage imaging programs and improving the intellectual property as well as the performance of our therapeutic agents to improve their commercial value as out-licensed viable drug candidates. The remainder of 2017 will enable initiation, and hopefully, completion of additional imaging studies in cardiovascular and NASH. We hope to have a plan fully developed for RA approval and a time line for its execution. We are also developing new formulations for improved delivery of our agents, both imaging and therapeutics, including oral and topical. This will allow us to file new patents and provide a better total package for prospective development and commercial partners. We have a number of ongoing evaluations of our technologies' performance, conducted by prospective partners that are anticipated to read out over the next few months, and if successful, we may have negotiate partnership deals in 2017.

Before we open the call to questions, I want to comment on a question we have received for many investors over the past 2 days regarding the recently released proxy where we included a motion for a vote by our shareholders regarding providing the board with the option to conduct a reverse split. The board has not made any decisions on the reverse split. My personal opinion is generally very negative on reverse splits. NASDAQ companies trying to maintain their listing do most reverse splits. Almost all of those don't work, and I would not support taking that action for that reason. But we are an AMEX/New York Stock Exchange listed company and we have no such listing concerns. We have been told by bankers and institutional investors that certain funds cannot invest in "penny stocks" by their mandate. And research analysts who focus on institutional accounts will not cover companies that are not investable by their institutional clients. We remain optimistic that now that we are free to speak directly to investors and communicate the exciting data we have generated over the past close to 2 years, where we have been [ silent ] to new investors, combined with the strategic focus on the proprietary activated macrophage-targeting technology and the dramatic improvements in our capital structure, we can improve the share price by attracting new investors. That being said, we do not want to issue stock at these prices to attract new investors and having the ability to do a reverse split, if done in conjunction with bringing in pre-committed institutional investors is an option that we believe is something that helps, not hurts our chances of attracting quality institutional investors, which are critical to getting a better performing stock that properly reacts to the types of progress we expect to report. I would only support a reverse split if it brings with it new high-quality institutional investors.

So with that, we'd like to open the call to questions. But again, I want to just reiterate our objective is to identify new institutional investors and to bring on new research. And we will work with them to determine the best path going forward and rely on experts, like we do with our drug development efforts, to help us in this manner.

So with that, if there are any questions, we'll take them. If not, we're available, as you know, to respond to questions directly.

Operator: [Operator Instructions] And at this time, I'm not showing any questions on the phone lines.

Michael Goldberg: Okay. Well, that means we must have done a comprehensive job in making the prepared remarks. So look, we're very happy to be participating in such an exciting field with the technology that we believe allows us to stand out. And we are -- a very, very exciting next few months. And we look forward to updating you as we make progress. Thank you all for taking time this morning for the Navidea first quarter conference call.

Operator: Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.