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Biotech Stock Mailbag: Delcath, Navidea, Affymax, Ziopharm

Outside the clinical data package for Melblez, Delcath management is displaying a significant lack of confidence with its non-stop dilution of shareholders via At-The-Market (ATM) equity offerings. The company announced another $50 million ATM on Wednesday night.

Allen N. asks, "Did you notice Navidea Biopharmaceuticals (NAVB - Get Report) got OK'd by the feds today? Any comment?"

FDA approved Navidea Biopharmaceuticals' lymph node mapping agent Lymphoseek on Wednesday. The approval was expected but did come early. Navidea shares fell on the news, which caused some consternation and furrowed brows among the bulls. Any FDA approval is a positive, but Navidea fans fail to recognize Lymphoseek's small commercial potential relative to the company's super-sized market valuation. This disparity, more than anything, explains why Navidea is selling off on the Lymphoseek approval.

Lymphoseek is only going to generate $20 million to $40 million in revenue for Navidea, by my calculations. I realize the company's own revenue forecast is significantly higher, I just don't believe it. I discussed Lymphoseek's commercial sales model in detail last September.

On Wednesday's conference call, Navidea set Lymphoseek's price at $300, which is below the $400 I was assuming. That's still a significant cost premium to cheap blue dye, which is what doctors and hospitals use today for lymphatic mapping procedures in breast cancer and melanoma patients. Lymphoseek works, no doubt, but does it work that much better than blue dye or other similar lymph node mapping agents to justify a higher price? I don't believe it does. But, again, even if you assume wholesale switching from blue dye to Lymphoseek, the numbers still don't pencil out in Navidea's favor, especially given the revenue-sharing agreement with Cardinal Health.

Navidea may have been able to differentiate Lymphoseek from current standard of care had FDA approved it for "sentinel" lymph node detection. FDA, however, did not grant that broader approval. [For savvy investors, this was another reason to sell the stock Wednesday.]

I rehashed a lot of my thinking about Navidea on Twitter Wednesday, which prompted a discussion with @bracketanalytix. He tweeted:

"Can't you even write something new? The hardest thing to detach from is your own beliefs."

My response: "Since I already assumed Lymphoseek approval (which came today), why would the 'low sales' thesis change?"
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