June 8, 2012

Contribution Margin

First and foremost, a product should have a good-to-great product value proposition. How good or great is it? In the case of PV-10, there are clinical and business pieces:
  • PV-10's clinical value proposition has been repeated and reproduced by management, principal investigators and Moffitt in murine models, animals and people for multiple cancers: very efficacious, very safe, and both local regional and systemic benefits.
  • The drug's business value proposition: easily administered (PV-10 is injected into target lesions by interventional oncologists in outpatient setting by a physcian or appropriately trained nurse practitioner or nurse; injections into tumors on organs inside the body require an imaging assist).
PV-10's product value proposition is great. So, now, consider a product's potential profitability.

How profitable can a product be when it's sold? In the case of PV-10, extremely. With margins in excess of 99% (assuming no consideration for sales returns) even at prices as low as $5,000 for a course of treatment, PV-10 is a very profitable drug.

If a product is profitable, what's the payback period before each incremental sale of a treatment course of PV-10 drops to the bottom line? That is, when does pure profit kick-in? In the case of PV-10, very soon.

If the Company brings this to market, the payback period is measured in months to a couple of years (depending on the ramp of use, and thus market share penetration). Although the expected outcome is for Provectus to be acquired by Pfizer, J&J or some other Big Pharma, I draw your attention to this scenario simply to emphasize the efficiency of management's use of capital (as compared to industry norms and averages).

If Pfizer brings this to market, and we focus on the payback period on the allocation of the acquisition price to metastatic melanoma (of $1.5B), said payback period, based on the likely price range of a treatment course, is measured in several years (again, depending on the the ramp of use, and thus market share penetration). Depending on Pfizer's global price point, the payback period might be even less than a few years before each incremental sale drops to the corporation's bottom line.

In other words, PV-10's contribution margin is spectacular.

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