July 2, 2013

$PVCT: Moving On, Moving Up

It's now time for the blog to transition.

Let me start by reiterating my investment thesis. At a July 2nd closing share price of $0.64 and a market capitalization of $78 million, Provectus is an exceptional long idea.

When I consider any investment opportunity, I routinely explore risk, reward and the potential and likely relationship between the two.

From here, I think the company's risk-reward profile is very compelling, at a $0.33 share price on the downside with upside of $15-20 per share. This translates into a 50% downside/roughly 1,500-2,000% upside scenario, which for me is a sufficiently commensurate potential return for the potential risk I believe I am taking by owning Provectus stock.

To be clear, the 50% downside scenario is mostly if not exclusively theoretical. I don't think it is likely. Perhaps better put, I think it's an improbable outcome. It's not impossible, however, because there's no certainty in trading or investing (just ask Long Term Capital Management). Such additional dramatic dilution, the primary reason the stock would fall to or reach that price point, essentially assumes the company, for whatever reason(s), has no choice but to raise tens of millions of dollars primarily for trial work in order to arrive at sufficient regulatory clarity from the FDA to reach suitable commercial validation through licenses with prospective global and regional oncology and dermatology companies.

The 1,500-2,000% upside scenario is a tad illustrative. I've written about this price range before. So, just to be consistent, I'll stick with it. What this would mean, practically speaking, is I think Provectus' intrinsic value has more than outpaced stock dilution since I espoused this price range several years ago. Even at half that (say, an upside of 750-1,000%, or $7.5-10 per share), the stock's return potential still is more than commensurate with the risk one takes by owning shares from here.

Time, of course, is important to any investment outcome and its ROI (IRR). From here, the risk-reward profile is very attractive in, say, a 12-18 month timeframe, and sufficiently attractive in a 36-month outcome assuming the theoretical dilutive scenario noted above where management raises money and runs additional trials to arrive at sufficient regulatory clarity. At $7.5-$20, even those who've been in the stock for 8 or more years (depending on their respective cost basis) should exceed in IRR (time-based ROI) the biotechnology industry's WACC, the microcap equity risk premium or the market equity risk premium.

I think the stock's upside is much higher and the situation will resolve itself much sooner, but that's my own analysis and expectations.

The wisdom of crowds has been very useful. The blog's most popular post is entitled "The Wisdom Of Crowds." The governing premise is that a diverse collection of independently-deciding individuals is likely to make certain types of decisions and predictions better than individuals or even experts. The wisdom of crowds should not to be confused with crowd psychology.

I was first introduced to the company in 2006, which is when I began my due diligence on Provectus, and began buying shares in 2007. I've engaged key shareholders along the way, too. As much as I have regularly interacted with management over the last 4 or so years, I've also had the good fortune to communicate with nearly all large shareholder groups (with the exception, for example, of the Danish and Texas contingents). Their wisdom, or in certain rare cases lack thereof, has been useful. I've also had the pleasure, and in certain cases displeasure, of communicating with a number of smaller shareholders who also mostly have added to my knowledge. To all of you: Thank you.

Although I had read stock chat boards where the company was discussed, utilizing these venues among others to learn more about Provectus, I signed onto SiliconInvestor in 2008 as "pvct investor" to test (so as to further refine or refute) my investment thesis.

Unremarkably, the thesis' component parts effectively remain the same today as when I established them at the outset: The drug was (is) safe and effective, and could (can) be sold into a large addressable market.

As time elapsed, the drug has proven more effective, and is presented with a much larger market opportunity.

My posting on SiliconInvestor ended in 2011 (ironically in July), probably at least a year or more than it should have lasted, because the wisdom of that crowd was insufficient to refute my thesis, other than raising [what I believed then and still believe now to be true] non-fatal issues I already had surfaced: a non-traditional biotechnology company management team with flaws and weaknesses, and a less than typical path for the drug to regulatory clarity.

I have classmates, colleagues and friends in drug development and oncology, so backing an non-traditional team like Provectus' was an eyes wide open undertaking. I think innovation, intelligence and smarts (pragmatism) trumps small company challenges. Nevertheless, I did not fully appreciate how such a regulated industry, as the biopharmaceutical industry, puts an immense burden of proof on smaller companies to the advantage of Big Pharma behemoths.

In continuing to post beyond what time was needed, however, I realized then as I do now that furthering the knowledge of the community on Provectus' SI stock board had overtaken my initial goal/objective of testing (with the hopes of refining or refuting) my investment thesis.

Later, in 2011, I started the "Connecting The Dots" blog to further test my thesis. A blog structure and set-up allowed me to more easily post my thoughts, comments, observations, analysis and conclusions as well as store information about Provectus and my work, all as I continued my own ongoing due diligence of the company.

I also had another goal, which was to utilize a type of social digital media (in this case a/the blog) to measure company awareness, investor interest and other things; a measure of the wisdom of the crowd in another form or fashion. As an example, some Wall Street traders mine tweets to gain a trading edge. Blogging has provided me similar knowledge and in a different context.

Interestingly, I posted about 38 times a month on SI (from December 2008 to July 2011) and averaged 46 monthly blog posts (from November 2011 to June 2013); about a 20% increase, but in reality pretty much the same behavior on my part.

The blog's growth in readers and readership still surprises me. Using Google Analytics statistics, from the blog's inception on November 16, 2011 through June 30, 2013, which is about 20 months:
  • The blog has hosted nearly 10,000 unique visitors, received about 70,000 visits, had about 100,000 page views (although the meter on the blog itself reads 163,000 views), and recorded an average visit duration of more than 2 and a half minutes,
  • Unique readership averaged 10.6% month-over-month ("MOM") growth in 1H13 and 15.2% over the last 12 months ("LTM"). In 1H13, the blog averaged about 730 unique visitors per month (approximately 660 per month LTM),
  • The blog saw readership from nearly 1,800 U.S. (1,333) and international (529) cities,
  • Readership in U.S. cities has grown steadily, averaging 7.4% MOM growth (in the number of cities where visitors originated) in 1H13 and 10.1% LTM. Visitors came from all 50 states, and
  • Readership from international cities has grown steadily too, averaging 8.1% MOM growth in 1H13 and 11.8% LTM. International visitors came from 93 countries.
U.S. and international city readership grew in tandem in 1H13. International growth exceeded U.S. growth over the last 12 months.

Provectus’ digital media footprint is not high, enabling the blog to capture digital awareness of the company and PV-10. Google “Provectus” and most other drug- or company-oriented terms, and the blog appears in nearly all top 10 search results returned (usually top 5). Blog readership, for all intents and purposes, is a proxy for Provectus and the drug’s mass awareness.

Google "Provectus." The blog, at this point, is the no. 7 search result returned.

Not all visits to the blog, however, pertain directly to Provectus and the pharmaceutical use of rose bengal, which means blog statistics do not capture readership purely related to the company and PV-10.

Blog readership grew steadily even as the company’s share price fell, which I find interesting, perhaps somewhat unsurprising, and reassuring.

I believe there is no refuting the science and technology anymore. As I wrote in my post entitled "For $PVCT, it's the FDA's move," it seems clear the path to regulatory clarity has put questions about safety and efficacy to rest.

Provectus has fully answered the FDA's questions regarding proof of systemic properties and benefit for PV-10, thanks to Moffitt.

I think any discussion between Provectus (Eric) and the FDA recently has been and now is about when to use PV-10, in which situations, and in what combinations with other drugs.

The blog is replete with information about PV-10 (and pH-10) and my analysis.

On balance, management's strengths sufficiently outweigh their weaknesses. In my post entitled "$PVCT's Empire State of Mind," I wrote the stock market, some/many in the Wall Street community, some/many potential investors and some/many existing shareholders do not believe in nor trust management, and thus do not believe in the data. If they did, they would buy more shares.

These disbeliefs, the first (disbelief in management) more problematic and resulting in the second (disbelief in the data), have led to the obscuring of value that clearly exists in Provectus and that Big Pharma readily sees and very much desires.

Although disbelief in or lack of trust in management mostly results from several self-inflicted wounds, these wounds are far from fatal, and there should be no doubt about the immense value management has created in its innovation of PV-10. I also wrote simple, angelic or divine regulatory clarity will transform disbelief in both management and PV-10 overnight.

I learned very early on, and have come to terms with the truth, that management will do this their way. As I have written on this blog a few times, Provectus is a public company that really is a private one (a private company that happens to be public). Management employs mostly very capable, but some incapable, advisors who appear to have mostly guided them the right way.

Management has made mistakes, some because they individually and collectively are who they are. I don't agree with all of their decisions, and have let them know when appropriate. Management will do what they will do: their strategy, their plan, their tactics. They'll do it their way.

And, generally speaking, I'm okay with that. They're the horse shareholders will ride across the finish line.

Provectus has innovated a drug that is a paradigm shift in the treatment of cancer. Peter told me it was fair to say, in his numerous meetings with key opinion leaders as well as regional and global pharmaceutical companies, there no longer was (is) any skepticism about PV-10 or PH-10.

He noted Moffitt, for PV-10, and a leading research facility, for PH-10, had brought a lot of credibility insofar as their respective work on MOA.

No one has seen a drug work so effectively systemically as PV-10. Not the FDA, not Big Pharma, both of whom have acknowledged this.

In striving to continually seek meaningful tests of my investment thesis, there's long been no knowledgeable or material pushback on the drugs' clinical value propositions. It's now time to move on.

There has been an evident shift in management sentiment. On the cusp of regulatory clarity, with whatever commercial validation should follow based on the specific clarity received, there has been a palpable shift in the sentiment emoted by the management team, individually and collectively. I noticed it over the last few months. Others have noticed it too.

For Provectus, it's the FDA's move now. The race to the end-game is far from over, but the finish line is in sight: "It's like in the final leg of the/a marathon where management is past any last remaining walls and it's a sprint to finishing with form, purpose and stamina."

So, the blog now transitions. Transition might mean I will blog less than I historically have. I expect my writing will be more sharply investor-focused, rather than merely blogging about all things Provectus.

I've achieved my initial goal/objective for the blog.

The value propositions that have sat on the blog's right hand side underneath the company's URL have been removed. You still can find the summary and individual propositions here -- summary, clinical, regulatory, business and stock -- updated as of February 2013. I plan to revise them after regulatory clarity is achieved, perhaps waiting until commercial validation also is achieved, or maybe just sometime in the fall or towards the end of the year.

I posted my cost basis of my/our holdings in December 2012. We've added to our position since then. As is regularly updated at the bottom of the blog, I have not sold any of the shares we have accumulated thus far. I commit to blogging (within 24 hours) when and about why I sell, as well as what percentage of the position was sold.

No comments:

Post a Comment