February 5, 2013

$PVCT: Please Vote on the Blog's Poll!

Below the blog's title bar and above where my posts begin, you will see a new feature of the blog, a poll. This poll asks you: What company achievement will have the greatest impact on share price in Q1?

Please vote! And share your opinion with fellow blog readers.

I chose "A China deal."

I think the SPA will have a material but limited impact on share price. Over time, I have heard the SPA was (i) for the benefit of investors and the stock market, (ii) necessary to clarify the regulatory path of PV-10 and Provectus' lead indication of melanoma for Big Pharma, and (iii) of critical importance to serious life sciences investors' decision to get off the sidelines and into the stock for the aforementioned reason of regulatory clarity. Now, it seems, regulatory clarity is the residual reason for continuing to pursue the SPA in the absence of business decisions that honestly could only have been made with the benefit of hindsight (and, thus, now are somewhat irrelevant). In the absence of anything else happening at the time it arrives, perhaps by or before mid-March, I think the SPA could push the share price to $1.25 or higher.
I don't think Moffitt's full effect will be felt this quarter. Moffitt's full data set and profound statements about PV-10's place in treating cancer patients should be available after quarter-end, even though the cancer center's abstract(s) and some portions of its data set may be revealed in February and March, respectively. I do not think these limited looks will be sufficient to move the share price meaningfully higher than where it is now. Some life sciences investors anticipating Moffitt's results might dip a toe or two into the water, but the vast majority of folks are more likely to wait for the conference presentation(s). Current wisdom appears to be that Moffitt's full set of data, observations and conclusions will be of overwhelming significance to Big Pharma and life sciences investors.

Dermatology needs more time. I do not think a first term sheet will be extended to the company for Provectus' dermatology business before quarter-end to trigger the formal hiring of the financial adviser/investment banker and start of the auction process to out-license PH-10, even though the annual meeting of the American Academy of Dermatology (where management and its world-class dermatology advisory team should be) occurs in early-March. I think a couple of additional steps are needed, such as (i) the completion and writing up of the immunologic mechanism of action and toxicity characterization work by the investigative dermatology laboratory of a renowned university and (ii) the setting of an end-of-Phase 2 meeting with the FDA.

China, China, China. While I don't think ultimately not consummating a China deal is the end of Provectus' world, I very strongly believe management must close a substantial regional license transaction such as the one being contemplated in China (in the absence of a global oncology license being consummated in its place). China is first up; India and Japan will take time and very likely not be completed this quarter. A China deal (i) provides the company with needed cash for pivotal and key clinical trials without equity dilution, (ii) helps management regain a substantial amount of credibility it lost from the sub-par execution and unfortunate outcome of the ill-fated preferred share PVCTP "IPO," and (iii) dramatically increases management's credibility, to nearly match their credibility as innovators, because of the size, scope and quality of the contemplated China deal. On balance, I am impressed with management's China deal process. Process comprises both transaction steps and outcome.

Adam Feuerstein tweeted the following today:

The Celsion (NASDAQ: CLSN) deal earlier in January was a call option-license transaction, with the option owned by Hisun. The option premium was $5MM. CLSN jumped 10-15% on the announcement of this pseudo-deal (about $25-30MM on a $250MM market cap). After poor ThermoDox Phase 3 results, Hisun walked away having lost the premium it paid.

Opexa Therapeutics (NASDAQ: OPXA) entered into a similar call option-licensing transaction with Merck Serono. Opexa receives a $5MM upfront payment for granting Merck the option to exclusively license Tcelna (imilecleucel-T) for the treatment of multiple sclerosis. OPXA jumped 160% today (about $10-11MM on a $7-8MM market cap).

Thus far, the substance of the contemplated China does not appear to have wavered. Structure seems customary, with no ifs, ands or buts. In the absence of anything else happening at the time a deal may be concluded, perhaps in late-February, I think the China deal could push the share price well above $2  (an increase of more than 200%, or about $150-160MM on a $70MM market cap) and keep it there.

The overhang of warrants at $1 (11MM), $1.12 (4MM+), $1.25 (5MM+) and $1.50 (~3MM) may create downward pressure on and several ceilings for the stock. Upward pressure may come from the SPA's arrival shortly after a China deal is inked, more than a hint of Moffitt's data and opinion around the same time, and the greater audience and buying that comes from a shift to a major stock exchange like the NASDAQ (5 consecutive days of greater than a $2 share price). Competing pushes and pulls will be resolved somehow, and perhaps we end the quarter closer to $5 than 60 cents.

Adam Feuerstein also wrote today about ZIOPHARM Oncology and the Feuerstein-Ratain Rule, and the likely outcome of this company's pending phase 3 sarcoma trial. With a market cap of $350MM, historical microcap oncology company data suggests a 17% chance of success, which is better than 0%, but a far cry from an ~80% success rate for $1B+ market cap companies.

Feuerstein's greater message is this: "The logic behind the F-R Rule borrows a bit from Occam's Razor. Good cancer drugs are scarce and valuable commodities, and potential Big Pharma partners and institutional investors are forever scouting for opportunities to buy, license or invest in companies with drugs that have a high probability of success. Said another way, there are very few, if any, cancer drugs that come out of nowhere to be big sellers."

A China-Moffitt combination can be very powerful, increasing Provectus' market value to the point where it "...can be a reasonably accurate proxy for the future success of a cancer drug in a phase III clinical trial."

I asked Pete, in his many meetings since SSO and, later, ESMO with Big Pharma, key opinion leaders, serious life sciences investors, etc., whether anyone had expressed skepticism about PV-10's efficacy, safety and benefit. He replied that literally no one has been skeptical, and attributed this lack of skepticism to the undeniable safety history of Rose Bengal as well as its obvious data sets of its use.

The issue for management from the beginning, I think, has been the necessity to show Rose Bengal delivered intralesionally or locally provides a systemic benefit. I also think no one initially and for some time believed Craig when he described his philosophy to curing cancer, the approach as manifested in the action of the drug itself, and the work he had done to demonstrate a Rose Bengal cure. Many more believe him today, after successful clinical trials, mouse work that is filling in more portions of his canvas' painting, and various and varied work by investigators and researchers around the world.

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