September 16, 2013

How China May Shape Up

Relying on anecdotal evidence in general and connecting the dots specifically, the Chinese have displayed a willingness to do deals before regulatory clarity has been made transparent, and this appears to be the case with Provectus too.

There may be strings attached, "ifs, ands or buts," etc. in any prospective deal structure between the interested Chinese party and the company to reflect future uncertainty or condition precedents.

The prospective partner in an eventual China regional transaction (at least, most likely, China, Hong Kong, Macau and Taiwan, and potentially certain other Asian countries and geographies) appears to have been narrowed to two companies: Hisun-Pfizer Pharmaceuticals and Eddingpharm.

Hisun-Pfizer is the joint venture between Pfizer and Zhejiang Hisun Pharmaceutical, initially formed to sell low-price generic drugs but more recently desirous of selling branded ones.

Eddingpharm is a private venture-backed company (venture investors include OrbiMed Advisors Caduceus Asia Partners Fund, Domain Associates, and Sequoia Capital China Growth Fund) focused on marketing drugs of Western pharmaceutical companies in China and Asia. Eddingpharm's willingness to do a deal prior to regulatory clarity may be seen in its license agreement with Syndax for entinostat in China and other Asian countries in early-September. Syndax received breakthrough therapy designation from the FDA for entinostat one week later.

Recent Eddingpharm deals include Syndax for breast, lung and other cancer indications (September), GlaxoSmithKline China for a breast cancer drug (April 2013) and Chiesi Farmaceutici for two respiratory disease products (April).

It's unclear to me whether Peter met with both Hisun-Pfizer and Eddingpharm, or one of them, when he was in China the week of September 2nd. I think Pete's September trip was a follow-up meeting (e.g., pre-screen, due diligence, etc.) primarily or exclusively with Eddingpharm, which has offices in Hong Kong, Shanghai (where Peter visited, at least) and California. Hisun-Pfizer was introduced to the company by Pfizer's Dr. Craig Eagle.

I understand Peter may be in New York already (i.e., today).

He has made three trips to China thus far: November 2012, February 2013 and September. Will there be a deal signed and announced this week or soon ("yes"), will be have to return to China ("maybe"), or will there be no deal ("no")?

If wishes were horses, beggars would ride. If turnips were bayonets, I would wear one by my side.

If rumors were dots I'd connect them too:
  • The lead indication for China appears to be liver cancer,
  • There has been speculation of a $10 million upfront payment,
  • There has not been much rumor mongering on milestone payments. If I had to speculate, perhaps $50-100 million, but it will boil down to what the company can negotiate and ultimately would accept, and
  • The net present value of the deal is $1 billion. Like any discounted cash flow analysis, you utilize a variety of assumptions to arrive a number that easily can be revised or changed by the practitioner undertaking it. I think the goal of this number is to reflect the level or percentage of royalty or sales, together with the term of the agreement.
Horse, beggars, turnips, bayonets...

It has been speculated Eddingpharm already extended terms to Provectus. Peter may be in New York to determine if Hisun-Pfizer will consummate a transaction, or then proceed to accept Eddingpharm's deal.

What Provectus says via 8-K filing and press release, or does not say, whenever (should ever) it says (say) so, if it has anything to say, will go a very long way to telling us what the future of the share price holds.

A China deal would entice some buyers off the sidelines, initially staunch and then hoover up the sale of convertible preferred stock that has been and currently is being dumped. Once the preferred stock is dealt with, it's more than likely the share price would gap up to the next level of share or warrant selling-induced resistance.

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