The difference in the two versions resulted from me having to accede to SA editor comments in order to get the letter accepted. They wrote: "You do a fairly good job outlining the risks associated with the stock, but are dismissive of most of the risks you outline specifically. We'd like to see you take a more balanced approach in this section, as we see a balanced presentation of the risks as an integral component of any SA article, but most especially biotech coverage."
For the Seeking Alpha version, I wrote:
But what if I'm wrong?
What if I am wrong? What would that scenario look like?
Could there be unexpected adverse events in the future? Possibly, but given RB's near century of historical safety, PV-10's pristine safety profile in clinical trials and the CUP, and no clinical trial insurance claims related to adverse events, it may be unlikely.
Could there be poor clinical results in the future? Possibly, but given the repeatability, reproducibility and veracity of historical pre-clinical and clinical results, it may be unlikely.
Could more time be required to confirm the regulatory path for MM? Possibly, and this is the likely scenario if I am wrong. I am prepared for more time to elapse for regulatory clarity to be achieved. Management may have to raise additional capital to fund operations until such time as this ambiguity is resolved to their satisfaction. This, however, is finite and can be bounded by several millions of dollars or several percentage points of potential dilution. This downside risk, however, is more than commensurate with the upside return when the regulatory ambiguity is resolved.
Shareholders may incur further dilution if management has to conduct a pivotal MM Phase 3 trial. I am prepared for this outcome because the dilution caused by raising capital to carry out the trial should be made up by a higher valuation resulting from Phase 3 trial results that are projected to exceed Phase 2 results. Dilution may be mitigated or unnecessary if upfront and milestone payments from consummated regional license transactions in China and/or India materialize beforehand. Casual observers overestimate the cost and potential duration of a trial.
Could Management be unable to monetize the Company at a valuation commensurate with their innovation. Possibly, even though in the recent TWST interview Management said they believe they "…could potentially do something along the lines of a Celgene-Abraxis type transaction, where Celgene acquired Abraxis for $2.9 billion upfront…" Bridging the valuation gap between a $134 million market capitalization and a multi-billion payout should require definitive regulatory clarity, sizeable commercial validation, and a copious amount of stock market exuberance.
There are common risks most if not all biotechnology company stocks face: dealing with the FDA can be at times a complex and opaque process, clinical trials fail, seeking funding can be a long, arduous and dilutive process, and the industry itself is prone to bubbles and busts that contribute to generically rising and falling share prices.For the blog version, I wrote:
Could there be unexpected adverse events in the future? Likely no, given RB’s near century of historical safety, PV-10’s pristine safety profile in clinical trials and the CUP, and no clinical trial insurance claims related to adverse events.
Could there be poor clinical results in the future? Likely no, given the repeatability, reproducibility and veracity of pre-clinical and clinical results.
Could more time be required to confirm the regulatory path for MM? Possibly; this is the likely scenario if I am wrong. I am prepared for more time to elapse for regulatory clarity to be achieved. Management may have to raise additional capital to fund operations until such time as this ambiguity is resolved to their satisfaction. This, however, is finite and can be bounded by several millions of dollars or several percentage points of potential dilution. This downside risk, however, is more than commensurate with the upside return when the regulatory ambiguity is resolved.
Shareholders may incur further dilution if management has to conduct a pivotal MM Phase 3 trial. I am prepared for this outcome because the dilution caused by raising capital to carryout the trial should be made up by a higher valuation resulting from Phase 3 trial results that are projected to exceed Phase 2 results. Dilution may be mitigated or unnecessary if upfront and milestone payments from consummated regional license transactions in China and/or India materialize beforehand. Casual observers overestimate the cost and potential duration of a trial.
The key downside risk could be Management being unable to monetize the Company at a valuation commensurate with their innovation. In the recent TWST interview, Management said they believe they “…could potentially do something along the lines of a Celgene-Abraxis type transaction, where Celgene acquired Abraxis for $2.9 billion upfront…” Bridging the valuation gap between a $134 million market capitalization and a multi-billion payout could require definitive regulatory clarity, sizeable commercial validation, and a copious amount of stock market exuberance.I highlight the differences in these two versions as underlined text.
While I appreciate SA's feedback, the nature of most investment letters, which effectively are the respective authors "talking their books," is to, frankly, have an imbalanced approach to the presentation of potential or likely risks. I'm an investment manager with a discernibly one-sided viewpoint about a company whose stock I am quite long.
As I began in the letter's Preface, even though Provectus is a biotechnology stock that typically are known for their "high risk-high return" makeup, I assess the company's stock's risk-reward profile to be out of whack. The return opportunity is more than commensurate with its potential risk from here on out. I endeavored to highlight the likely risks, and then provide my assessment of their likelihood. PV-10's pristine safety profile goes a long way in mitigating risk.
Given PV-10's safety profile, Rose Bengal's safety history, the lack of clinical trial insurance claims, etc., I think it is unlikely there would be unexpected adverse events in the future.
Given a growing portfolio of good to great preclinical, clinical and non-clinical results being generated by Provectus, Moffitt, other investigators and researchers, and veterinarians, all independent of each other, I think it is unlikely there would poor clinical results in the future.
Could more time be required to confirm the regulatory path for metastatic melanoma? Possibly, and therein lies the crux of the situation. From an existing shareholder/prospective investor's perspective, understanding the "other side" is crucial in testing and determining how solid one's investment thesis is.
On the one hand, one can argue there are limited clinical trial data for PV-10: an 80-patient Phase 2 trial for melanoma that's several years old, a 6-patient Phase 1 trial for HCC, and a Phase 1 trial for breast cancer where results seem to have up and vanished like a fart in the wind. CUP? What CUP? As for Moffitt, all they've produced is a pre-clinical data set. There is no published clinical evidence yet of a robust stimulation of the immune system by PV-10. Given this, it's not unreasonable to think more time is needed to confirm the drug's regulatory path. This view might require a Phase 3 RCT ("randomized control trial") such as what Provectus had been pursuing since 2010 in the special protocol assessment ("SPA"), together with of course accelerated approval ("AA"). While it certainly would be a disappointment if management were to walk away from their FDA discussions only with an SPA, the risk -- "Could more time be required to confirm the regulatory path for metastatic melanoma?" -- is definable and can reasonably be bounded in terms of cost, time, outcome and path forward. Regulatory clarity of any kind, in this case the SPA, should trigger, at a minimum, worldwide license discussions and allow for consummation of regional ones such as China and India (if either or both of them don't materialize sooner, like with India in particular). This risk also is a near-term one, too. Whether this month, next month or by the end of 2013 (as management guided in May's CEO newsletter), we will know sooner or later. I consider this is one side of the trade, and not a bad or negative outcome for the share price, but merely a longer period of time (than what I outline below) for the end-game, and thus the acquisition of the company, to play itself out.
On the other hand, management contends that published clinical trial evidence of PV-10's stimulation of the immune system and, thus, systemic immune response is not necessary for the FDA. They believe they've provided what information the FDA needs -- from past clinical trials to CUP results to pre-clinical work -- to make a higher order decision (than agreeing to a pivotal MM Phase 3 trial under an SPA): breakthrough therapy designation ("BTD") with the details of what that comes with or means subsequently sorted out, with a path to regulatory approval sped up in some form or fashion.
Or, something much more specific like what I wrote in my investment letter: AA for Stage IIIB and IIIC patients with refractory, locally advanced disease (having sufficiently demonstrated to the Agency PV-10’s ability to safely maintain loco-regional control of MM with minimal intervention and delay, reverse or prevent progression to life-threatening visceral disease) and BTD for Stage IV patients (where “sped up” discussions with dedicated senior Agency staff could help design trials to show the immediate benefits of PV-10 in combination with approved MM drugs for late stage or heavily diseased patients).
If downside risk is just an SPA, and upside return either is BTD only, which is better, and/or some form of accelerated or outright approval, which is best, I think the Company and share price is in good, maybe great, shape.
One way or the other, I think the situation is promising. Moffitt, having a global reputation and being instrumental via Dr. Jeffrey Weber in the approvals of Yervoy and Zelboraf, seems an ardent supporter of PV-10. Earlier today, Dr. Weber shared his perspective with me of PV-10's potential as an immune modulator and in combination with checkpoint inhibitors.
The key downside risk could be management being unable to monetize the Company at a valuation commensurate with their innovation. I think PV-10's value proposition is immense, but the situation still requires management to execute in order to have the chance of reaching Celegene-Abraxis money. The degree of regulatory clarity for MM certainly will drive the depth of global pharmaceutical company interest, as will the under-the-radar (I believe) efforts by Provectus to gain or accelerate regulatory clarity for HCC (which is the indication of interest for both the Indians and the Chinese).
As I wrote in my investment letter, bridging the valuation gap between a $100+ million market capitalization and a multi-billion payout requires definitive regulatory clarity, sizable commercial validation, and a copious amount of stock market exuberance. Which thus brings me back to management. It is unclear to me if or that there is a homogeneous understanding for and appreciation of the role a management team plays as public company managers, particularly as it relates to the company's share price, among Provectus principals.
Far from hyping their innovation, however, management has given the appearance of being overly conservative, restrained or even circumspect in their communication of information and progress. As a result, far from promotion, management would seem to prefer to run silent and run deep. The lack of such appropriate sharing where reasonable does not provide shareholders with a true perspective of management's strategy and tactics.
The share price has enjoyed a nice run. There should be an even nicer run to come. I hope the company can, appropriately, without contrivance, forthwith share the progress it has made on several fronts.
No comments:
Post a Comment