January 30, 2013

$PVCT: The @adamfeuerstein-Ratain Rule

A good read is Oncology Micro-Cap Stocks: Caveat Emptor!, a September 2011 article in the Journal of the National Cancer Institute authored and researched by Adam Feuerstein, Senior Columnist at TheStreet, and Dr. Mark J. Ratain, MD, Leon O. Jacobson Professor of Medicine at the University of Chicago Medicine.

The "Feuerstein-Ratain Rule:" If a publicly traded company has a market capitalization under $300MM 120 days before the issuance of public announcements (e.g., press releases, etc.) of its oncology Phase 3 clinical trials results, the trial will fail.

A key paragraph in the authors' article summarizes the essence of their rule:
The difference in the market capitalization at day −120 most likely reflects publically available information regarding the phase I and II clinical trials (as well as other factors, including competition and management), which has been incorporated into the market value of a stock. The stock market is known to anticipate future events, as opposed to reacting to the past. Thus, it is not surprising that sophisticated investors are able to judge the probability of success, which is reflected in the share price.
The results of their analysis are stark:
...there were no positive trials among the 21 micro-cap companies (ie, companies with less than $300 million market capitalization..., whereas 21 of 27 studies reported by the larger companies analyzed (greater than $1 billion capitalization) were positive.
0% (micro-cap) vs. 78% (larger cap).

The rule was tested, for the first time, in 2012 on Keryx Biopharmaceuticals (NASDAQ:KERX) and its drug Perifosine. On April 2, shares of Keryx fell by more than 60%.

0-for-22 (micro-cap).

Up next, in 2013, is Celsion (NASDAQ:CLSN) and ThermoDox. The company has scheduled a conference call tomorrow to present the top-line results from its pivotal Phase III HEAT Study with ThermoDox in combination with radiofrequency ablation (RFA) in patients with intermediate hepatocellular carcinoma versus those patients receiving RFA alone. Celsion had a sub-$200MM market cap about 4 months (120 days) ago. Last week, Celsion announced a development deal with China's Zhejiang Hisun Pharmaceutical.

0-for-23 (micro-cap), or 1-for-23?

It is too early to apply the rule to Provectus because the company is not close to the commencement of its pivotal MM Phase 3 trial and, thus, not close to the public release or announcement of trial data (i.e., interim, preliminary or final).

Nevertheless, it is informative to explore the Feuerstein-Ratain Rule, and keep it in mind as Provectus and its market capitalization approaches public pronouncement time.

For the MM Phase 3 trial, management thinks the company can make at least an April 1 start date should the SPA arrive on or around March 15. Further, management thinks interim data could be available in Q3 or Q4. Enrollment will take some time. The Dacarbazine control arm is expected to collapse within 1 to 2 months or less.

Assuming there is a public announcement of interim results by Provectus in late-Q3 (late-August to September) or Q4 (October to December) 2013 because, for this thought exercise, I assume results are available to announce, where would the company's share price have to be 4 months earlier in regards to the Feuerstein-Ratain Rule?

4 months earlier is early-May to early-September. At least a $300MM market cap is about $2.65 per share.

Between now, essentially the end of January, and early-May to early-September (illustratively), several events are needed or necessary to get Provectus' market cap safely above $300MM, and not have it become fodder for potentially another statistic for the lack of success of oncology micro-cap stocks and their Phase 3 trials:
  • The receipt of the SPA around mid-March,
  • The closing of the currently contemplated China deal (which should be much larger than Celsion's, assuming the Chinese pharma company exercises its option to do its Celsion deal) in late-February, and
  • The release of highly anticipated Moffitt mouse and human data in early-April (e.g., "the closest thing we've seen to a cure for cancer," etc.).

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