Did An #Institutional #Investor in $PVCT Close Its Shop?

Funds blow up and/or close down all the time. Natural selection. Darwinian evolution. Call it what you want. The recent depression in certain commodity prices was attributed by some to the blow up of a couple of funds and the liquidation of their positions.

Many commodity markets are deep (i.e., very liquid), like certain U.S. large cap equity names for example, and closing of positions (more often long, thus liquidation means selling) don't usually move prices much unless those positions were large to very large. Market participants in the know about such closings/liquidations often step out of the way until the fund(s) is(are) done.

Sizable positions in less liquid or illiquid assets or stocks can move prices much more. And knowledgeable market participants do the same thing. They wait, and then they act (if they desire to act at all).

I have written about Revelation, a formerly large shareholder of Provectus stock, converting its preferred shares into common and selling them. The firm's latest Form 13G filing indicated a dramatic reduction in beneficial ownership. Sometimes investors decide they've had enough and throw in the towel. It happens to institutional and retail investors alike.

Rumors are circulating about Revelation sold its Provectus warrants too. Sometimes investors sell because their closing down, and their selling has nothing to do with their investment thesis related to a particular holding. A hedge fund doesn't sell its warrants, digging around for the very last scrap in its larder, if it's throwing in the towel on its thesis. The situation arises because the fund and perhaps the firm itself are closing down.

A graph of Revelation's quarter-end 13F SEC filings from 12/31/11 to 12/31/12 is below.

The number of holdings (13F entries) and amount of assets under management related to these holdings (cash is not reported) for the period or quarter ending 12/31/12 are down considerably from, say, the last quarter-end of 9/30/12, let alone year-over-year.

We obviously don't know Revelation's fund terms and conditions (e.g., redemption notices, gates, etc.), but it is very possible the fund and maybe the firm is closing.

Short interest for the period ending February 15 is reported tomorrow. The large spike in short interest, perhaps attributed to the "fake short" caused by converting preferred shares into common shares, might fall and confirm Revelation was responsible for it. Rear-view mirror stuff.

If the Big Seller has been Revelation liquidating its Provectus holding, the loss of this downward pressure on the stock may permit natural buying interest to push the share up dramatically more.

$PVCT: March Madness 2013

March Madness 2013 begins on Tuesday, March 19 and ends on Monday, April 8. The Final Four will be played in the Georgia Dome in Atlanta, Georgia. I contend this period (including leading into it) will be an important time for the company, its more mainstream awareness, and the share price.

There is a lot of information to digest, from Craig's presentation at the Noble Financial Capital Markets Ninth Annual Equity Conference to Peter's trip to New York City.

PV-10
Most of Pete’s time lately, probably more than anything else it seems (save for another effort), is focused on communicating PV-10's unique immunotherapeutic characteristics in the context of global oncology. You see this manifested in discussions with Big Pharma (as Craig commented at Noble: "interactions with potential global license partners," and by that he does not include just Pfizer) and continued visiting with life sciences investors (trying to get them off the sidelines and into the stock).

PV-10 + “other stuff”
I think Craig et al.’s SITC work (PV-10 + systemic chemotherapy), their upcoming AACR work (PV-10 + systemic immunotherapy), Foote et al.’s expanded work (PV-10 + radiotherapy), and Craig’s skunk works work on more combinatory explorations (e.g., intra-tumoral GM-CSF, systemic interleukin, anti-PD-1 antibodies/agents, etc.) is opening a lot of eyes at Big Pharma and the FDA very wide.

Management is contemplating an MM Phase 1 trial combining PV-10 and ipilimumab (while Craig mentioned this in his Noble presentation, I also followed up). Perhaps the protocol might include the assessment of safety and efficacy in a number of patients with metastatic melanoma (Cohort 1 receives PV-10) and in a number of patients who are taking ipilimumab, an approved treatment for MM (Cohort 2).

As I wrote earlier this week, this combination work of PV-10 + ipi  clearly targets and is in response to serious interest from Big Pharma: Bristol-Myers Squibb & ipilimumab/Yervoy and Pfizer/MedImmune-AstraZeneca & tremelimumab (MedImmune in-licensed tremi from Pfizer in 2011 for global development rights to the drug while Pfizer retained rights to specified types of combination therapies).

The liver trials
Let's segue from combination therapies to the expanded liver P1 trial, and what the likely results will mean for the design and very likely outcome of the liver P2/P3 trial. I think there is enough information to speculate (of course, the foundation of the speculation merely is a framework, and not overly substantial) or project success of PV-10 + sorafenib (a systemic drug, so see PV-10 + other stuff above) over the sorafenib-alone treatment arm. Interference studies and other work confirm PV-10 is orthogonal to sorafenib (and lots of other drugs, too): PV-10 does not interact negatively with sorafenib, and appears to enhance sorafenib's benefit by PV-10 first boosting the immune system.

When Provectus announces -- via an upcoming PR -- that patients have begun to be enrolled and treated in the expanded liver P1 trial, the timeline of results making their way to the FDA should not be lengthy. The same FDA group of folks reviewing Provectus’ pivotal MM Phase 3 trial design suitable for an SPA, Division of Oncology Products 2 (DOP2), are the same folks (i.e., DOP2) who will review the company’s liver Phase 2/Phase 3 trial design suitable for accelerated approval.

The hard work, time, energy, resources, expense, etc. exerted to get the SPA for MM should pay-off when it comes time for management to request AA for liver.

The SPA
Barring another eleventh hour request or issue, it appears the SPA should arrive around March 15.

While it certainly is possible that the SPA arrives earlier, I am setting my own expectations for the Ides.

Shelf filings
The pulling of the two $50MM common stock filings still are in process with Provectus’ attorneys. Management believes the act of pulling them is form over substance, since the company will not be using them. I think communicating their intended action to pull them and/or the actual act and notification to the market of pulling them is substantive.

The regional license deal for China
Work continues, and the process of arriving at and consummating a deal progresses. Should Pete travel to China again (he visited there in late-November 2012), it would be to close the deal, the announcement of which should follow via PR and 8-K filing.

In terms of setting my own expectations for this item, a deal could get done by or around late-February. If Celsion's China deal is worth several hundreds of millions of dollars (per the analysts and others commenting on valuation), by comparison I think you're looking at a Provectus China worth at least $1 billion (perhaps as much as $2 billion) with higher upfront, milestone and royalty payments.

India & Japan
As a result of a completed China deal, Provectus’ visibility should be much more pronounced. Deals in India and Japan could follow thereafter, but more of the deal process must progress before I would speculate about timing. India could be accelerate given the level of interest of the top Bio-Pharma players in the country. For now, I’m not setting any expectations.

Moffitt & Reproducibility
Craig expanded in some detail about Moffitt's work in his Noble presentation: their reproduction of his work, his reproduction of their work, their upcoming data release and presentation(s), etc. According to Craig, Moffitt's immunological MOA characterization work results (mouse and human) will be revealed imminently. I think Craig's comments related to reproducibility, particularly in the context of creating and making a product (i.e., PV-10, PH-10), were very important and very true.

I think it is easy, at this point, to connect the dots so as to speculate (identify) about which conference Moffitt will present their highly anticipated results. I still expect forthcoming visibility about these Moffitt results in late-January, and some data released in stages in March, prior to the full dataset being released at the expected conference in early-April.

More valuation-raising work to be done
When I wrote my blog post entitled $PVCT: Immunologic Potential, and thus Value, I set a very lofty valuation for the company, particularly as it related to the expectation of management for an upfront payment ($3 billion at last check) at the end-game. You don't get from $67.65 million (Google Finance's market capitalization for the company as at 1/25/13) to $3 billion in one leap.

Rather, Provectus arrives there in several leaps and bounds, together with perhaps some end-game auctioning momentum and exuberance: China, India, Dermatology, momentum share buying, etc.

Peer-based management compensation proposal coming
As management noted in a previous filing, a peer company-based bonus compensation structure should be part of a new compensation plan that management should introduce with Provectus' next proxy filing likely in late-April.

PH-10
From a review of history, it appeared Provectus was on the cusp of securing a deal to license its dermatology business (i.e., inflammatory skin disorders) in early-2011. Up to that point, management's valuation expectations, on a net present value (NPV) basis, were about $500 million.

No term sheet materialized from the most serious prospective partner, which would have triggered the official hiring of the financial adviser (Bank of America Merrill Lynch) and an auction process involving the other prospective partners. I think the lack of certain desired information at the time, since fulfilled by the Psoriasis Phase 2c trial, created a valuation gap between the prospective lead and Provectus that prevented the parties from coming together on suitable top-line term sheet parameters. Hence, the prospective lead declined to extend a term sheet it knew would be turned down management.

As time progressed (i.e., as the psoriasis Phase 2c trial was completed), a process appears to have been established that paralleled Moffitt's work on PV-10. Namely, a world renowned cancer research center engaged in work, initially at their own expense, to explore and characterize the immunological mechanism of action of Provectus' oncology drug.

In addition to better understanding PH-10 immunologic MOA, and on a related note, more insight into the drug's distinct lack of toxicity is necessary to better inform the FDA and assist in the design of the eventual Phase 3 trial.

It is not unreasonable to analogize PV-10's path to PH-10's, and thus potentially explain the delay in getting to a dermatology license or sale transaction. Immunologic mechanism of action characterization work is being done on PH-10 by a world-class institution to complete the understanding of certain prospective dermatology licensees before they fully commit to jumping into the pool. I think management's NPV figure for the dermatology business has increased significantly to at least $750 million (perhaps as much as $1 billion).

As for expectations, Craig did note in his Noble Presentation that we should look for the company to request a end-of-Phase-II (EOP2) meeting with the FDA. Presumably this announcement, if one is made by the company, or step precedes or signals the extension of a term sheet for dermatology is imminent, inbound or at least very close at hand.

$PVCT: Numbers

Short interest has fallen (currently available: the period ending December 31, 2012).

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Today's trading volume seems true to recent form.

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Let's see what next week brings.

$PVCT: Something Wicked[ly Good] This Way Comes?

Trading volume and price have behaved like opposite from December 27-January 9 compared to, say, November 7-December 26.

Volume has nearly tripled, and price has gone from a "flat" range to close to vertical.

This volume/price action is not disimilar from behavior about a year ago that preceded the company's announcement about FDA guidance on the SPA. See my blog posts here and here.

Is (are) something(s) being anticipated? Or is Provectus simply receiving more investor love?

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In my blog post $PVCT: China Process, I wrote the first step would be the signing of a term sheet between Provectus and a Chinese pharma company. I also wrote such a signing may or may not be an 8-K event, depending on Provectus' counsel's interpretation or advice.

I don't believe a signing is an event, since there is too much uncertainty related to ultimately whether a/the deal is consummated. Rather, the 8-K event will be something closer to the consummation of definitive agreements (the license transaction itself). I dug out some of my old term sheets that may be applicable to the situation (and would be different from Letters of Interest or Intent for M&A transactions).

There are customary and not-so-customary conditions to closing. The party extending the initial term sheet (i.e., the Chinese company) sets certain conditions for the transaction to close. The receiving party can and usually does counter to some extent.

Term sheets typically are not binding. I never put a binding term sheet (binding on terms and most conditions) on the table when I was making venture capital investments. There was the safety valve (usually due diligence to our satisfaction) that could be utilized to walk away from the deal. A China pharma company simply extending a term sheet to Provectus (which both parties eventually sign some negotiated and mutually agreeable version) does not mean there is a likely probability of a transaction being closed.

There usually is exclusivity; that is, a period of exclusivity. This clause (exclusivity) and period (exclusivity period) with the party that extended the term sheet allows the parties to negotiate, finalize and consummate the deal (and enable one of the lucky parties, eventually, to get money!).