November 30, 2011

No SPA for you!

[George] "Um, excuse me, I - I think you forgot my bread."
[The Soup Nazi] "Bread, two dollars extra."
[George] "Two dollars? But everyone in front of me got free bread."
[The Soup Nazi] "You want bread?"
[George] "Yes, please."
[The Soup Nazi] "Three dollars!"
[George] "What?"
[The Soup Nazi] "No soup for you!"

Provectus issued a PR this week, reporting on the company's 3rd meeting with the FDA to achieve a consensus design suitable for an SPA for its pivotal MM RCT Phase 3 trial. No SPA for them!

The share price dropped 5% (with an intraday 10% drop) on higher than average trading volume. This continued a 6-month decline of more than 31%, lending credence, in my view, to the position that the market feels the company either will not get the SPA or requires much more time and interaction with the FDA before they get it.

Was I disappointed? Yes, of course. I view the SPA as a key valuation driver and an important waypoint on the journey to the end-game. With an SPA in hand, the regulatory path for PV-10 for melanoma is defined (or vastly narrowed), and provides the big pharma acquirer with a clear regulatory path. Given the requirement of at least a 4th meeting, achieving agreement with the FDA on the SPA before year-end seems unlikely. I will adjust my expectation for this to the end of the 1st quarter or 2012 (March 31st), which is a revision to my TiK ToK post revision of Q4 2011, which was a revision to my initial expectation of Q3 2011. This may seem like I am moving the goal posts, rather than relent to the markets' perspective: either Provectus will not get the SPA, which is a fail, or management requires much more time and interaction with the FDA before they get it, by which time the SPA is obsolete (i.e., PV-10 has been diminished by recently approved treatments and/or surpassed by up-and-coming ones).

Should I be disappointed? Let's explore this emotion and the answer. Management believes the key takeaways from the PR are:
  • The recognition of the substantial FDA reorganization; and,
  • The hand-off from one group overseeing the SPA process to another, which resulted from the reorganization.
Reorganization: Much has been written and opined on this topic, so there is no need for me to rehash it here, save for: The reorganization was fundamental (not incremental) and thus substantial. Many NDAs, BLAs and INDs for cancer drugs were reassigned to new divisions for "re-review" as part of the reorganization. The outcome for Provectus was delay: delay in the process from moving what had been expected to be the timing of the 3rd meeting from June to October, and delay in the process from having to reestablish a relationship with a new review team.

Hand-off: Management saw PV-10 handed-off from CDER to DOP2; a hand-off, they believe, was successful.

I view it this way:
  • The 3rd meeting, given the reorganization, effectively comprised "re-educating" or "re-doing" some part of the process with the new DOP2 team;
  • If the reorganization had not occurred, the 3rd meeting would have been used to finish the discussion to finalize the MM Phase 3 + SPA protocol;
  • The reorganization required n+1 meetings, as opposed to n meetings, where n typically is 3. Thus, again, the 3rd meeting was used simply and solely to get a new group up to speed in order for them to make and then own their decision.
Obtaining the SPA has been management's primary goal from the very beginning (together with their parallel efforts to obtain accelerated approval). As a result, while Provectus fully expects to arrive at the consensus design at the 4th meeting, if for whatever reason that it is not accomplished, a 5th meeting would occur. Getting the SPA is the ultimate outcome. The company expects the consensus design for SPA to be done every time they meet with the FDA. That is what they ask for, and the FDA knows this. Management contends the FDA is working with them, and not working against them. Shareholders should understand the FDA is on Provectus' side.

Industry insiders would tell you the typical number of meetings with the FDA that are required in order to secure an SPA is 3 to 4. And while the time it takes varies by situation, 12 to 36 months is a reasonable (yet wide) range. Provectus is at about 20 months, including the reorganization delay of several months. Vical, for Allovectin-7, took from 2004 to 2007 to get its SPA.

In this week's PR, "...melanoma, which is a rapidly evolving therapeutic area" means the FDA recognizes that the approvals of ipilimumab and vemurafenib address only part of the melanoma patient population and that other areas (i.e., the bulk of recurrent melanoma) still are unmet needs.

If you recall the PR from the meetings management had with the TGA last year, the mention this week of a potential second MM phase 3 trial in Australia should be viewed, I believe, of the company simply saying that the Australians want to proceed now. I do not believe this trial will go forth, as there are lots of good reasons for conducting one global study.

Finally, I leave you with a reminder of the point of the immunology/MOA efforts at Moffitt, which is to support Provectus' parallel effort to obtain accelerated approval for PV-10 for MM.

So, should I be disappointed? No.

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