June 7, 2013

$PVCT's Empire State of Mind

New York
Concrete jungle where dreams are made, oh
There's nothing you can’t do
Now you’re in New York
These streets will make you feel brand new
Big lights will inspire you
Let's hear it for New York
(Empire State of Mind by Jay-Z, featuring Alicia Keys)

First, now, I want to blog about Peter's week in New York (with a particular focus on Pfizer), which ends today (although I don't know if he'll return to Knoxville tonight or tomorrow morning). There are some items that should be discussed. Others require further explanation.

Second, on Saturday, perhaps, I'll blog about Craig's presentation here in town Wednesday night. I learned several interesting things.

Third, on Sunday, I'll blog about the FDA's pending regulatory decision about the SPA, accelerated approval, and breakthrough therapy designation that translates into either accelerated approval or a truncated Phase 3 trial. In my mind, it's good, better, best. The FDA's validation, at this point, is more important than the validation of a regional or worldwide deal, transforming (or nearly so, depending on the outcome) disbeliefs overnight.

There lies, or will lie, a common thread in these blogs, and the thread is "disbelief."

Since April 2010, when Provectus held an end-of-Phase 2 meeting with the FDA regarding PV-10's regulatory pathway for metastatic melanoma, the share price has lost nearly 60% of its value.

Dilution, on a fully diluted basis (i.e., preferred stock, common stock, stock options, warrants), from December 31, 2009 to December 31, 2012 [to make the math easier], totals nearly 70% (although warrant net exercises might, in due course, reduce comparable dilution to 60%).

Yet, in the intervening period, from April 2010 to June 2013, PV-10's efficacy has increased, the drug still maintains a pristine safety and adverse event profile, PV-10's mechanism of action is understood, and there now is proof of the drug's systemic properties and benefits.

I posit, that despite the above mentioned dilution, shareholders are better off in 2013 than 2010. Depending on the assumptions one uses for intrinsic value then and now, you should come up with a reasonable, objective increase in value or valuation (5-15x).

Again, to make the math easier, I used 2012 and 2009 year-end numbers from Provectus' 10-K. A $2.5B intrinsic value is, in reality, emblematic of a post-AACR PV-10.

But, for most shareholders, what matters only is the change in their share price (or market capitalization), and that's been downward, a lot (-60%).

The stock market, some/many in the Wall Street community, some/many potential investors and some/many existing shareholders do not believe in nor trust management, and thus do not believe in the data. If they did, they would buy or buy more shares. These disbeliefs, the first more problematic and resulting in the second, have led to the obscuring of value that clearly exists in Provectus and that Big Pharma very much sees and desires.

Although disbelief in or lack of trust in management mostly results from self-inflicted wounds, these wounds are far from fatal, and there should be no doubt about the immense value management has created in its innovation of PV-10.

Simple, angelic or divine regulatory clarity will transform disbelief in both management and PV-10 overnight.

Peter is in New York this week working with various parties regarding regional license transactions in India, China and Japan, as well as having follow-up meetings with shareholders, analysts and Big Pharma.

Peter has had and will have meetings with Pfizer and Pfizer-related people. Eric is NYC on Friday to join Peter in Pfizer-related, and perhaps Pfizer, meetings. It is unintelligent to think Pfizer is not interested in PV-10 and Provectus. I think more pertinent questions are when, under what circumstances and for how much Pfizer will buy, rather than why or for what reason.

Pfizer's M&A strategy [subscription to The WSJ is required to access the preceding link] is more likely to comprise "biotech bolt-ons and small tie-ups" (like acquiring Provectus) rather than "megamergers" or the ilk (like acquiring Celgene).

Pfizer's threshold for these smaller purchases is $4B. That is, it won't pay more than $4B in an upfront payment for a biotech bolt-on or small biotechnology company like Provectus.

Healthcare investment bankers suggest the acquisition premium paid for public companies in the space range mostly from 30-50%, but can be as high as 100%. "Premium" means the per share price paid for a company in excess of its then current, pre-acquisition announcement, share price.

Pfizer is not unwilling to pay a 100% premium. For example, if Company XYZ's current share price is $4, Pfizer may be willing to pay $8 per share.

Celegene bought Abraxis BioScience for a $2.9B upfront payment (net of Abraxis' cash on hand). Provectus management has the expectation of at least a Celegene-Abraxis value for its acquisition by, say, Pfizer. Should Pfizer be willing to pay a 100% premium for Pfizer, Provectus' market capitalization must reach at least $1.45B, through regulatory clarity (the greater the better) and, more than likely, regional license deals, before Pfizer might consider bidding $2.9B for the company (using the Celgene-Abraxis example).

If Provectus seeks a $4B payment from Pfizer, the market cap must reach $2B.

Peter utilizes Pfizer, when he discusses this Big Pharma, as a proxy for significantly increased Big Pharma interest in Provectus post-AACR. He also brings up Pfizer because of the recent focus on immunomodulatory agents and the company's joint patent application with Pfizer for these agents in combination with PV-10.

Pfizer is captivated by PV-10. Among a variety of other touch points and situations, Craig Eagle first engaged Provectus when he traveled to Australia for Dr. Agarwala's presentation preliminary MM Phase 2 trial data in November 2010. Pfizer and Dr. Eagle proffered a unique deal to Provectus that ultimately did not materialize. Craig joined the company's corporate advisory board in August 2011. The joint patent application worked its way through Pfizer in 2012 before being filed in October of that same year. Eric and Peter spent time with Dr. Eagle at ASCO 2013. Which brings us to this week, where topics of discussion and meetings include China.

There should be no doubt about Pfizer's interest in Provectus. Of course, there is no certainty that Pfizer will buy Provectus, or buy it at a Celgene-Abraxis-like valuation.

There also should be no doubt about other Big Pharma and Big Biotech's interest in the company as well. Of course, there is no certainty that any of these companies will buy Provectus, or buy it at a Celgene-Abraxis-like valuation.

Regulatory clarity awaits. Disbelief must be transformed.

There is, however, without a doubt, in front of your eyes, significant Big Pharma interest in Provectus.

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