January 1, 2014

Provectus’ Worth

When I’m asked the question “What do you think Provectus is worth,” more often than not the person asking wants to know at what price do I plan to sell our shares. Much less often does the person ask the question with the intent of wanting to understand my view of the company’s value, and share his or hers (and their underlying thinking and rationale) with me.

In the past I’ve written, albeit sparingly, about my view of Provectus’ worth. On the Silicon Investor stock board several years ago I wrote (under the handle pvct investor) the company was worth, generically speaking, about $15-20 per share. At the time the math worked out to a billion dollar value. Back then a simplified version of my investment thesis was management had created at least a billion dollar company when sufficient regulatory clarity was achieved and a commercialization timeline was set forth. Since then I’ve used the same per share figure in rare conversations on the topic, irrespective of increased dilution (i.e., more shares times the same dollar range) over time.

I think Provectus is worth a lot.

A lot more than its December 31, 2013 share price of $2.41. The company now sports a small cap valuation of $337 million (enterprise value is $197 million, per Yahoo! Finance). Think about that for a moment. Entering 2014 the company is a small cap one; "...a company with a market capitalization of between $300 million and $2 billion." 12 months ago, the share price entered 2013 at $0.56, making Provectus a micro cap company ($50-300 million), barely.
2013. What a year for the company, and for the stock. A one-year stock performance of +314%.
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Some perspective: A five-year stock performance of +150%.
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More perspective: The share price began to move in ernest in August (still, it was green throughout), going parabolic in December.
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August 22nd: Single Injection May Revolutionize Melanoma Treatment, Moffitt Study Shows

December 18th: Provectus Type C Meeting With FDA Oncology Division Held December 16, 2013

To value, or not to value. Up until this point I’ve been circumspect about blogging detailed posts about my views on Provectus’ value, valuation, per share price, worth, etc. The time has not been right. Although I have commented from time to time about relative valuation, such as the company’s market capitalization at a point in time compared to where I thought it might or should be (i.e., Provectus’ valuation at/compared to the so-called biotech valuation curve), the blog to date has been focused on the drug’s clinical and business value propositions, and market awareness and validation of them. Market in this instance speaks to a large set of constituents: the FDA, Big Pharma, medical community key opinion leaders, physicians, patients, life sciences investors, the generalist investment community, retail investors, media, etc.

All of this changed with Moffitt's August 22nd PR and Provectus' December 18th one; public declarations by the respective parties of important, milestone-like steps or achievements on the way to an eventual regulatory conclusion and accomplishment. It felt like two simple questions finally were being answered: Would the FDA acknowledge a local therapy could be a treatment for cancer? Would the Agency consider PV-10 for approval?

This time its different. Now, December 2013 entering January 2014, does have a different feel to it. Like the share price, awareness measured by blog visitation and readership statistics went parabolic in December, and correlated unsurprisingly with visitation to and readership of Provectus' website, www.pvct.com.
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December 2013. January 2014. 2,720 unique visitors (94% over the previous high), 10,040 visits (58%) and 20,085 page views (103%) from 50 U.S. states and the District of Columbia (11%), 894 U.S. cities (99%), 70 countries (59%) including the U.S., and  173 international (non-U.S.) cities (41%).
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I present these blog statistics merely to reinforce the seeming phase change in the stock and company awareness that appears to have taken place last month. More eyes than ever are turned towards Provectus. With their December 18th PR, management clearly is setting the table for and the market up for a key announcement about or much more insight into regulatory clarity. The signs appear to be there: "Official minutes expected by January 15, 2014," "The purpose of the meeting was to determine which of the available paths that Provectus' novel oncology drug PV-10 will take in pursuit of FDA approval and commercialization," "The minutes will clarify the available regulatory paths and, therefore, allow the Company to better estimate a time-line to commercialization of PV-10," no mention of a Phase 3 trial or the special protocol assessment that consumed shareholders' thinking (guessing) about regulatory clarity in 2012, and "This meeting with the FDA is a significant step forward in establishing a pathway to initial U.S. approval of PV-10 for the treatment of melanoma. There are different possible routes to approval of PV-10 such as a breakthrough therapy designation or accelerated approval, and each of these has different requirements and time lines."

Breakthrough therapy designation ("BTD") is not a pathway or route to approval. Past BTD grants have led to further steps in the processes of the respective grantees in regards to their own drug approval pathways. Accelerated approval ("AA") is a pathway, often comprising release of the drug, and some post-marketing requirement(s) by the FDA and post-marketing commitment(s) by the sponsor. There is no certainty with the Agency, as drug candidate evaluation for approval can be a long, arduous, shifting, intense, substantive, uncertain, persistent, collaborative process.

It's easy to treat January 15th (more generally, the week of January 13th) with skepticism or not the least amount of doubt, even as a blogger about Provectus, long-time shareholder, long-term investor like myself. It would disingenuous to say I have no trepidation about that date or week. What will the outcome be? What if anything will management say? How will what they do or do not say, via PR, affect my investment thesis? I admit to a little trepidation, but much more excitement. The December 18th PR, adjusting for there-are-no-certainties, appears to suggest two potential outcomes, A or B, and the always present but likely improbable [note, not impossible] outcome C.

You can't handle the truth! Today Adam Feuerstein is out with an article entitled Biotech 2013 By the Numbers: A Blockbuster Year, noting: "In a year where the markets outperformed, the biotech sector performed even better, posting returns not seen since 1999. Phenomenal. No wonder we saw a huge influx of generalist investors into healthcare stocks in 2013." Putting Provectus' 2013 stock performance in more perspective, Feuerstein also writes: "A single biotech and drug stock (Lannett) posted a six-fold bump in share price this year. Nine stocks increased in value by five times, 3 stocks quadrupled in value and 26 stocks tripled in value, according to S&P CapitalIQ."

A blog reader recently wrote to me: "Does it scare you that Adam Feuerstein tweeted this? I'm stunned he would make such an arrogant statement. He does have a lot of influence." 'This' refers to the tweet below on December 17th, following the company's PR Provectus Announces Name Change to Provectus Biopharmaceuticals, Inc. and Reincorporates in Delaware. No, it does not scare me. I also don't feel he is being arrogant but rather just superficial, cursory or dismissive in a passing way.

Feuerstein's business model is one of a skeptical, truth-telling, snarky, biotech journalist. I follow him on Twitter and regularly read his columns as part of my ongoing, situational due diligence of Provectus (my only biotech investment). As I've written a few times, and he routinely reminds his readers, it's important to thoughtfully and actively engage skeptics and the "other side of the trade" in order to ensure one's investment thesis, long or short, remains sound and relevant.

I'm not troubled by the essence of Adam's tweet's snark. It's not unreasonable to criticize management for a name change and a name change PR, however "better" the potential for future branding, when information releases about a host of other substantive topics and issues (reasonably within their control of or decision making for comment) go unaddressed, such as updates on or discussions about:
  • The publication of the final metastatic melanoma Phase 2 trial in a high impact cancer-focused journal or periodical,
  • The compassionate use program (HIPAA compliance notwithstanding),
  • The status of PH-10 (Rockefeller study progress or results related to completing additional research into the unique properties of PH-10 regarding its mechanism and lack of toxicity, so as to schedule an End-of-Phase 2 meeting with the FDA to review PH-10 for psoriasis and atopic dermatitis and plan a transition to Phase 3 testing, and to complete discussions with potential licensees, hire a financial advisor and sign a licensing agreement that covers dermatological indications for PH-10),
  • The expanded Phase 1 liver trial (in order to meeting with the Agency and begin Phase 2/3 clinical trials of PV-10 for liver carcinoma),
  • Investigating new oncology indications for PV-10, such as bladder cancer (what about pancreatic cancer?), and
  • Additional immunology studies at Moffitt Cancer Center regarding PV-10's mechanism of action.
I think the re-jurisdiction, while not overly crucial in my mind (Nevada and Delaware attorneys can agree to disagree), was an important signal from management, who remain very clinical in the legal dimension of their business practices and process (of which I am not critical for the most part, and do appreciate). A skeptic might dismiss the 8-K filing associated with the December 18th PR as nothing or next to nothing. I would not.

To Feuerstein's other comment about Provectus' crappy drugs, I take it as more general snark than specific opining on PV-10 (or PH-10). Even the most cursory evaluation of the publicly available pre-clinical and clinical data from the company and various third parties (e.g., Moffitt, other researchers in the U.S., the Middle East, Australia, etc.) should elicit at least an "interesting-but-I-need-to see/know-more" comment from an intellectually honest, industry savvy skeptic. Feuerstein's business model requires him to be aware of or superficially cover a lot of companies (more than a hundred?), approach tens of companies with some depth and, from time to time as the situation presents itself, focus on a handful of companies in great detail. Like other analysts (good journalist equals good analyst), including myself, he employs pattern recognition to discern good from bad (his pattern recognition is different from mine because of our respective professional experiences). If one doesn't have or take or require the time to diligence Provectus, it's not unreasonable to arrive at the same skeptical-flavored conclusion: PV-10 is or might be snake oil upon first impression (because it is so improbable with respect to conventional wisdom). Crappy, not so much. That the drug is too good to be true or snake oil was a nearly universal impression among the medical oncology community until recently (or at best that PV-10 was solely a local ablative agent), because no ablative agent had ever elicited significant systemic effect.

I’ve been loath to encourage blog readers only to focus or anchor themselves on share price when visiting and reading the blog. As I wrote under the blog's Disclosure tab, I of course “talk my book” by expounding on the merits of Provectus, the drug, management and the stock. The difference between what you may read elsewhere on the Web (mostly, but not exclusively) and “Connecting the dots…Provectus Biopharmaceuticals” is that I’ve told you who I am. I’m open to being corrected, and to being wrong (even though I don’t think or believe I am). I've not been able to incur transparent (i.e., not anonymous) debate and discussion on the pros and cons of the drug and stock sufficient enough yet to push back on my investment thesis, or make me re-think its core. That may well come in time with even more awareness. What makes a market are buyers and sellers. Stating the very, very obvious: If buyers are right, price goes and stays up. If sellers are right, price goes and stays down.

Revisiting the Feuerstein-Ratain rule, its essence (while constructed from the premise of the likelihood of success of large and small companies undertaking Phase 3 clinical trials) is this: "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." For the longest time, as Provectus lay mired as a nano or micro cap company, the market spoke that it judged management not to be successful, and not having a high probability of success. Moffitt's August 22nd PR changed some minds (the valuation went higher). Provectus' December 18th PR (give or take the actual date itself) changed many more minds (the valuation went even higher). The story is not over, and those minds are free to change them back again. Which leads us once more to January 15th (more generally, the week of January 13th).

China. Dalam Disember 18 PR, Craig mengulas "Di samping itu, perbincangan kami dengan beberapa rakan pelesenan antarabangsa yang berpotensi tidak terjejas dalam apa jua cara." Terdapat khabar angin dalam proses mencapai transaksi lesen serantau bagi China telah datang ke penghujungnya, dan kita dapat belajar lebih minggu depan.

A not-so-final word on worth. My estimation of Provectus’ worth is a large number. To what you’re asking of me? Assuming I am right (which, in truth, means if management is right) I hope to and think I will sell my shares for a very high price. Inevitably you take what the market or buyer gives you. More on this as the new year unfolds.

As I wrote in my September 22nd investment letter about why I'm long Provectus Biopharmaceuticals, the key downside risk (as for any investment, understanding risk and reward) at this point is management being unable to monetize the company at a valuation commensurate with their innovation. There undoubtedly are other risks, as I highlighted in the Seeking Alpha version of my investment letter: "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."


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