January 4, 2015

The Emergence of PV-10, and Provectus Biopharmaceuticals

Sayaka Ganz, Reclaimed Creations, Silence
In several respects 2014 saw the emergence of Provectus Biopharmaceuticals, much as I as a long-time shareholder would have thought this development could have begun earlier, say in the 2010-2011 time period.

Nevertheless, PV-10's recent emergence reflects growing awareness of the drug—with the FDA, Big Pharma, key opinion leaders ("KOLs") and members of the medical community at large—and the role of dual mechanisms (one ablative, the other immunological) in the approaches to and outcomes of treating cancer, especially given the backdrop of cancer immunotherapy (or "immuno-oncology").

Figure 1
Of course the story is not just about the drug. It's also about the management team and publicly traded company and, thus, the stock and share price. PVCT's' historical performance (see Figure 1) remains the single most contrary point to arguing for the emergence of PV-10 and Provectus, and ostensibly challenges recognition of positive identifiers of progress last year.

The larger argument for the other side of the Provectus trade is that the market is always right ("...any one person can be wrong about the market—indeed, everyone can be—but the market as a whole is always right"). The efficient-market hypothesis ("EMH") "...asserts that financial markets are 'informationally efficient'" (Quote sources: Efficient-market hypothesis, Wikipedia). The price is what it is because the stock, company and drug are what they are, and the share price reflects it.

The larger argument against the argument of the other side of the trade is, "...it is hard to reject the claim that prices are right unless you have a theory of how prices are supposed to behave," which is a quote from an August 2009 article by Richard Thaler in The Financial Times entitled Markets can be wrong and the price is not always right. He also wrote:
"For many years the EMH was “taken as a fact of life” by economists, as Michael Jensen, a Harvard professor, put it, but the evidence for the price is right component was always hard to assess. Some economists took the fact that prices were unpredictable to infer that prices were in fact “right”. However, as early as 1984 Robert Shiller, the economist, correctly and boldly called this “one of the most remarkable errors in the history of economic thought”. The reason this is an error is that prices can be unpredictable and still wrong; the difference between the random walk fluctuations of correct asset prices and the unpredictable wanderings of a drunk are not discernable."
The above is a convenient way of rationalizing my very positive beliefs about the drug and its potential addressable market, positive views of the company and its management team, and extremely upbeat prospects of its stock with the current share price. It's sort of like saying, "I'm right because you can't prove I'm wrong, until I am [right] or you can [prove me wrong]."

When the "other side of the trade" arguers argue the argument in more detail—I have tried to actively curate the other sides since inception of my diligence on Provectus, PV-10 and management, and continue to do so—the intellectual honesty of their veracity ultimately dissolves into fragments I certainly acknowledge. Arguments for PV-10's irrelevance include:
  • The current generation of approved checkpoint blockade therapies (i.e., Merck's pembrolizumab or Keytruda, and Bristol-Myers' nivolumab or Opdivo) will make PV-10 obsolete,
  • Amgen's Talimogene laherparepvec ("T-Vec") is a better intralesional agent than PV-10, or
  • Next generation CAR T cell ("Chimeric Antigen Receptor T cell") companies (i.e., Bluebird Bio, Juno, Kite) will make PD-1s obsolete, which should make PV-10 doubly or squaredly obsolete.
Rather than use PV-10 to talk down these drugs and companies, there are more general counterpoints:
  • While PD-1s clearly have utility, are viable options for cancer patients, and backed by Big Pharma, they are limited (tumor immunogenicity is providing more knowledge about what does and does not work, and where and when it does) and expensive (on both absolute and relative [cost per unit success] bases). The FDA's approval letters for Keytrua and Opdivo (here and here, respectively) are not commensurate with the "excitement" for PD-1s.
  • T-Vec's success and Amgen's marketing muscle ("oncolytic immunotherapy") should help build the category of intralesional cancer agents. Any and all T-Vec success (i.e., approval as a monotherapy, clinical trials and data from combination with checkpoint blockades) is good for PV-10. An oncolytic virus engineered from herpes simplex 1 that is far from simple to store, handle, and use and reuse, however, does not sound like the ideal intralesional agent.
  • CAR T cell companies' multi-billion market capitalizations should be considered in the context of preliminary clinical results, likely high treatment price tags, likely product gross margins that probably will be comparable to if not less than Dendreon's Provenge, more articles about their offerings in the lay press than in scientific literature, and a focus only on T cells (what about NK cells, among other things?).
So, if PV-10 and Provectus management both are bad, well, then we're dealing with that intellectual honesty thingie. If the drug is bad, has no merit or lacks opportunity, it's reasonable to such a position ignores available data and commentary that, while not overly conclusive in some quarters, at the very least speaks to a greater medical and thus financial opportunity than the share price currently reflects. If the drug is good, has merit or presents opportunity but Provectus management is lacking, I would not disagree. They have strengths, weaknesses and blindspots. You may recall my comments about them in my September 2013 investment letter Why I'm Long Provectus Pharmaceuticals):
"Management historically has relied on the input of a stable of high and low quality advisors and consultants in its decision-making, making many good and several questionable decisions and choices along the way. Provectus has eschewed playing Wall Street's game for the most part, and has suffered to some degree because of it. Some company wounds, non-fatal as they are, however, have been self-inflicted. Management possesses a sufficient threshold level of competence and integrity to warrant my support, and seeks to sufficiently protect the economics of Provectus's innovation for shareholders to warrant my continued holding of Company stock."
Until recently, few could dispute management's overall lack of success in properly managing the FDA. Credible people now are entirely focused on the data and clinical development details, and on management's execution and generation of them. Wall Street promotes what it can sell. Provectus has been a difficult promotion for the Street for several reasons, some substantive, some superficial, but none fatal, and thus PVCT has not been sold. Wall Street's interest in the company should change as the immense opportunity of the drug and for the company more fully emerges in 2015. Both sides of the trade also could agree that no one of relevance and substance—neither the FDA, nor Big Pharma nor KOLs—truly spoke up meaningfully about the drug (in word or by action) until 2014.

Entering 2015 I believe my investment thesis not only remains intact, but has grown stronger (below, from my September 2013 investment letter):
"PV-10, a novel oncology compound being developed by Knoxville, Tennessee-based Provectus Biopharmaceuticals, Inc., exemplifies innovation over incrementalism, meaningful over marginal, productized technology over hypothetical, and changing the world over accepting the status quo, with not an insignificant amount of serendipity over contrivance. In sum, these form the quintessential essence of a paradigm shift in the treatment of cancer. 
This is where my investment thesis begins and ends: a novel drug compound with a pristine safety profile, a treatment well tolerated by and easily administered to patients, a readymade product inexpensively produced at scale, and a vast addressable market of unmet need that should be fully and very profitably met over time. 
My thesis comprises compelling clinical, regulatory, business and stock value propositions in a pharmaceutical industry ravenous for safe and effective oncology solutions, with the prospect of annual market growth rates exceeding other therapeutic areas, that following approval(s) should deliver a lucrative monetization for shareholders." {Bold emphasis is mine.}
One simple way to assess emergence merely could be to measure the growth of PV-10's digital awareness over time, in this case by counting visitation to and readership of this blog. See Figures 2 and 3 below.
Figure 2
Figure 3
(Average session duration is measured in seconds.)
Another way to consider emergence would be to assess view points and behavior of key constituencies over time: the regulator, the immune system, KOLs and Big Pharma. See Figure 4 below.
Figure 4, click to enlarge
The Regulator (The FDA): The company seemed be mired in its regulatory trek in 2012, with no agreement with the FDA on indication and patient population, nor clinical trial endpoints. See, for example, Provectus' May 23, 2014 conference call transcript, which in hindsight helped explain Eric's cryptic "oncology presents a moving playing field" comment from the May 2013 annual CEO letter. In 2013, the company seemed to reach an important mile marker towards the end of the year with its December Type C FDA meeting, which established locally advanced cutaneous melanoma as PV-10's initial path to licensure. In 2014 the May BTD denial letter revealed key Agency acknowledgements as well as the need for more data:
"We have reviewed your request and while we have determined that treatment of “locally advanced cutaneous melanoma” meets the criteria for a serious or life-threatening disease or condition, the preliminary clinical evidence you submitted does not indicate that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Therefore, designation as a Breakthrough Therapy cannot be granted at this time. 
The preliminary clinical data provided in your request for Breakthrough Therapy designation are indicative of drug activity in the treatment of local, satellite or in-transit recurrence of malignant melanoma; however, the preliminary clinical data do not demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. This determination is based on the paucity of data on endpoints indicative of clinical benefit (e.g., pain, infection, significant bleeding) and our inability to determine the clinical significance of the reduction in the size in one to 10 target lesions in patients with locally advanced melanoma, who may have additional untreated cutaneous, subcutaneous, or visceral sites of disease." {Bold emphasis is mine.}
The FDA then announced in October the opportunity for public comment related to the Agency's patient-focused drug development initiative that nominated "Melanoma, specifically unresectable loco-regional disease" to the preliminary list of candidates. In December the Phase 3 trial was accepted by the FDA.

The Immune System (Immuno-Oncology): In 2012 Moffitt Cancer Center began publishing their pre-clinical work on PV-10 that revealed the production of tumor-specific interferon gamma (IFN-γ). In 2013 this work expanded to show T cells played a critical role. In 2014 the cancer center began publishing their clinical work that discerned the involvement of different T cell populations (e.g., CD3+, CD4+ and CD8+), including NK T cells.

Key Opinion Leaders (Moffitt Cancer Center): While Moffitt started their work on PV-10 in 2011, 2013 provided a quizzical press release, quizzical because there has been no comparable public follow-up: Single Injection May Revolutionize Melanoma Treatment, Moffitt Study Shows. In 2014 Moffitt opined further and nearly as boldly. Dr. Jeffrey Weber, M.D., Ph.D. saying PV-10 might offer the perfect way to prime the immune system (at ASCO). Dr. Vernon Sondak, M.D. said [in a conference presentation] PV-10 was the ideal intralesional agent (at the 4th European Post-Chicago Melanoma Meeting).

Big Pharma (Pfizer)

In 2012 Provectus had one Pfizer executive on its strategic advisory board ("SAB"), who joined in 2011. By 2014 the company had three of them.

Image source

For Provectus' emergence in 2014 to more fully translate into a more reflective share price, there are clear milestones that clearly must be achieved:

1. Commence enrollment of the pivotal Phase 3 trial for locally advanced cutaneous melanoma.

2. Consummate a China regional transaction. If there is a China deal, there will be an Indian one.

3. File the Phase 1b/2 protocol for liver cancer. Enrollment should begin this year; however, a China transaction likely would be a condition precedent to a trial start.

4. File a Phase 1b/2 protocol for a combination therapy of PV-10 and a checkpoint blockade for advanced melanoma. If Pfizer's first touchpoint was its first SAB member, the second was the joint patent application for combination therapies involving PV-10, and the third and fourth were the second and third SAB members, then the fifth could be a co-development arrangement to combine Pfizer's PD-L1 agent with PV-10.

5. File a Phase 1b/2 protocol for triple negative breast cancer. Maybe...?

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