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Investment in R-NAV, LLC
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9 Months Ended | ||||||||||||||||
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Sep. 30, 2014
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| Investment in R-NAV, LLC |
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:
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 8. 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 recognize 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 owns approximately 34% of the combined entity. Joint oversight of R-NAV is shared between Navidea, Rheumco, Infinity Capital, and the other investors. 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 will be recognized as those services are provided. Navidea's equity in the loss of R-NAV was $262,000 for the three-month period ended September 30, 2014.
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