September 20, 2015

Special Proxy Vote

A blog post also known as Special Meeting/Proxy Vote, part 5 (Sunday version).

Image source

Provectus is seeking shareholder approval of a proposed increase in the number of the company's authorized common shares from the current figure of 300 million to 400 million. The special meeting of stockholders by which time voting would be completed takes place on October 1st. According to the electronic ballots we received, shareholders appear to have until 11:59 pm EDT on September 30th to digitally cast their votes.

My Ballot
Click to enlarge.

I will vote our shares for the proposal because:
  • First, it would be prudent for the company to have enough authorized shares available for issuance to potentially satisfy the company's accounting firm BDO (in regards to maintaining Provectus' going concern status) and the New York Stock Exchange (NYSE) (in regards to maintaining the company's listing status). In additiion, it is possible management could require some of these newly authorized shares to advance their business and corporate development efforts. Resources necessary to further advance the company's clinical development program goes without saying, and
  • Second, it is possible-to-probable under certain assumptions that management does not need to raise money until after the interim analysis data readout of Provectus' pivotal melanoma Phase 3 trial. The readout is projected in early-3Q16. The trial's interim analysis is a key catalyst for the company and its share price.
The above decision was based on my analysis of/reflections on discussions with:
  • Management in recent days and weeks,
  • Two individuals from two different PVCT shareholder groups, who themselves are distinct and different. I believe them to be intelligent and pragmatic with extensive, substantive and relevant experience. They have been involved with Provectus for a long time, have maintained intelligent long-term perspectives for the company and its drugs' prospects (notwithstanding certain management limitations), and also have had discussions with management in recent days and weeks. As an aside, their direct share ownership and influence over additional ownership in sum are greater than what we own, and
  • A few shareholders with smaller share ownership who I believe to be intelligent, pragmatic and experienced, have maintained intelligent long-term perspectives too, may or may not vote in favor of the authorized share proposal, and whose views over time I very much appreciate and value (and sincerely thank them for continuing to share and debate such opinion).
Tactical and Strategic Share Availability. I previously wrote the reasons management has given for their proposal are possibilities that may turnout to be potentialities (or even realities). Simply put, I believe, Provectus requires more authorized shares (whether they issue them or not, whether they issue some, most or all of them) for the company to remain viable and relevant to BDO and the NYSE, and provides management more flexibility and less headache & heartburn as they seek to optimize Provectus' extrinsic valuation as peak investibility approaches.

Becoming unviable or irrelevant under this scenario, however, does not mean the end of the world for shareholders or the end of Provectus, or the end of the potential for a good investment return. See Special Meeting/Proxy Vote, part 3 (September 4, 2015) on the blog's Current News page. As such, I question whether management really needs to increase the authorized share number by one hundred million more common shares at this time. What about 50 million or another smaller number? I also don't put much if any stock (pardon the pun) into management's possible anti-takeover effects rationale. Nevertheless, the proposal in front of shareholders is what has to and will be voted upon.

Flexibility for management to make Big Pharma pay, and pay dearly for Provectus' fully owned cancer asset, is reason enough [for me] to vote for the proposal. As the company approaches peak investability, I agree it's not worth distracting management or detracting from their potential business and corporate efforts (i.e., it's not worth voting no [in my view]).

Catalysts, Key and/or Otherwise. Flexibility, less headache & heartburn, few or fewer distractions, not detracting, etc. are all well and good, but they mean nothing if management cannot execute or executes weakly or poorly. Execution specifically means the timely generation of randomized [controlled trial ("RCT")] data, whether randomized data (or RCT data) means data generation in the context of a pivotal trial or data generation in the context of Phase 1b trials that would lead to pivotal ones.

In 2013/14 management established an initial pathway to approval for their advanced investigational
oncology drug PV-10, a new category of ablative immunotherapy and made from active pharmaceutical ingredient Rose Bengal: treatment of [unresectable or unresected] locally advanced cutaneous melanoma — that is, cancer in Stage III melanoma patients. Execution here requires a successful interim analysis data readout in early-3Q16, which requires a sufficient number of patients to be recruited, enrolled, treated, observed and clinically assessed in order to demonstrate statistical significance of progress-free survival curve spearation between the PV-10 treatment arm and the systemic chemotherapy control arm. That is not to say successful execution does not preclude an earlier positive outcome that could result via regular safety & efficacy looks into the data by the trial's indepedent data monitoring committee.

In 2015 I believe Provectus may have established at least two other pathways to approval for PV-10. As noted above, the first pathway is the use of PV-10 as a montherapy for the treatment of Stage III melanoma patients. The second pathway would be the use of PV-10 in combination with an immune checkpoint inhibitor for the treatment of Stage IV melanoma patients. The third pathway would be the use of PV-10 for both hepatocellular carcinoma (HCC) and cancers metastatic to the liver.

Thus, while the key catalyst for PV-10 as a monotherapy in melanoma is the pivotal Phase 3 trial's interim analysis (a secondary but uncertain one [as it relates to probability and timing] is an earlier positive outcome), other catalysts for PV-10 could be:
  • The filing of a Phase 1b trial protocol of PV-10 and pembrolizumab for advanced melanoma (managament's prior guidance is by the end of 3Q15), and the commencement of this trial itself (the end of 4Q15), and
  • The filing of the relevant Phase 1b trial protocols for HCC and/or liver mestastses, and (perhaps) the commencement of one or more of these trials.
All of these point to more and more generation of randomized data necessary to potentially move the company valuation higher, of course, and where it needs to be to garner management's end-game monetization expectiations.

A key question for melanoma combination therapy must be, given Keytruda's (pembrolizumab's) reimursability, will management run their own Phase 1b trial?

Management's regulatory and clinical development approach to liver cancers also is not fully clear. Such approach would underscore the veracity of a pathway (or pathways) to approval for PV-10 in liver cancers in the U.S. and internationally. In regards to Asia, how will they approach Asia? We presume they will file an investigational new drug (IND) application in China. But, what geographies could or would be included in an Asian/Pacific Phase 1b trial protocol for HCC?

The expanded Phase 1 trial in the U.S. comprises study work on patients related to HCC and liver mets, and sorafenib. This trial for all intents and purposes seems to me to be a pseudo-Phase 1b trial. Will the outcome(s) of the expanded trial lead to one or more pivotal trials?

Other items on this topic from the blog's Current News page:
  • Special Meeting/Proxy Vote, part 4 (Saturday version) (September 12, 2015),
  • Special Meeting/Proxy Vote, part 3 (September 4, 2015),
  • Tuesday (September 1, 2015), item 3,
  • Special Meeting/Proxy Vote, part 2 (August 28, 2015), and
  • Pfizer's Just Not That Into You (August 21, 2015), item Mo' shares.
Other topics

H/t InvestorVillage poster Area51: Provectus' lawyers filed their Reply in Support of Motion to Dismiss on September 17th. See Tuesday (September 1, 2015), Item 2. Lawyers on the blog's Current News page. From Area51's post:
Introduction: Because Plaintiff has failed to state a colorable claim for securities fraud under the heightened pleading standards of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), this Court should dismiss this action with prejudice. Plaintiff’s Complaint fails for two reasons: (1) it does not identify a single actionable misrepresentation that Defendants allegedly made during the Class Period; and (2) it fails to allege facts to suggest that any purported misrepresentation was made with a “strong inference of scienter,” a requirement under the PSLRA. For these reasons, the Court should dismiss the Complaint with prejudice. 
As a preliminary matter, this is not a typical motion to dismiss governed by Rule 12(b)(6). In a standard motion to dismiss, a plaintiff must meet the “plausibility” standards espoused in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic v. Twombly, 550 U.S. 544 (2007). Class action claims for securities fraud under the PSLRA, in contrast, must satisfy a more stringent legal standard. Recognizing the potential for abusive, vexatious litigation from investors who lost money on risky investments, Congress passed the PSLRA to heighten the standards of securities fraud class actions. Under the PSLRA, a plaintiff must not only plead facts with particularly to show that the defendant made a false statement of material fact that caused injury. He must also plead specific facts that give rise to a strong inference that the defendant acted with a culpable state of mind with respect to each allegedly fraudulent or misleading act or omission. 15 U.S.C. § 78u-4(b)(2). Federal courts have explained this standard in the following manner: 
The plaintiff must allege and prove that the defendant acted with scienter, which means intent or severe recklessness. “Severe recklessness is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it.” Oppenheim Pramerica Asset Mgmt., S.A.R.L. v. Encysive Pharmaceuticals, Inc., No. Civ.A.H.-06-3022, 2007 WL 2720074 (S.D. Tex. Sept. 18, 2007) (quoting Southland Securities Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 366 (5th Cir. 2004)). 
When determining whether a plaintiff has alleged facts that give rise to the requisite “strong inference of scienter,” a court must find that, after considering all plausible, non-culpable explanations for a defendant’s conduct, a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference that could be drawn from the alleged facts. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007). The Complaint fails to meet this high pleading standard because Plaintiff cannot identify a single misrepresentation made by Provectus during the Class Period. Instead, Plaintiff attempts to construe Provectus’s truthful disclosures and optimistic opinions about PV-10 as fraudulent due to the fact that the FDA did not unequivocally endorse the Phase 2 data used to support PV-10’s BTD application. As discussed herein, and in the Motion to Dismiss, Plaintiff’s allegations do not rise to the level of actionable securities fraud. 
The FDA denied PV-10’s BTD application, which was unfortunate for Provectus and its shareholders. However, this does not entitle Plaintiff, an investor who knowingly invested in a development-stage micro-cap pharmaceutical company, to utilize the securities laws as a defacto insurance policy to recoup his investment losses. Plaintiff fails to state a claim for which relief can be granted under the heightened standards of the PSLRA. Accordingly, this Court should dismiss this entire action with prejudice.

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