$PVCT: Asia - THE Hepatocellular Carcinoma Market

A $PVCT Volcano

Generally speaking, volcanoes are not good things. Just ask the citizens of Pompeii.

Aside from you (the reader of this blog) and I, no one in the capital markets really cares about Provectus. Yes, that statement was a bit of hyperbole, but it's reasonably accurate. To be specific, no institutional investor cares about the company's stock. Yahoo Finance! lists near zero institutional or mutual fund ownership.

MSN Money confirms the lack of interest.

Literally no one in the markets, except for you and I, cares about the stock, the drug, the data,... Adam Feuerstein's Biotech Stock Mailbag of last week had the very descriptive statement below about Celsion: "Wall Street largely shunned Celsion until the very end because no one believed its data..."

What did CLSN do in 2012? More than a 4x increase in share price. 2013 of course was another matter...

We're getting closer to a very significant test of the share price. Either there is a volcanic eruption or two in it, or there merely are puffs of smoke. Life sciences and other investors are supposed to buy after the SPA (around March 18th) and again after Moffitt (early-April). That's only 4 to 7 weeks off.

$PVCT's #China #Pharma Two-Step

In researching Provectus' China go-to-market strategy, I investigated Celsion's approach, among others. Other folks weighed in on their experiences and with their thoughts.

Celsion first partnered with local pharmaceutical manufacturer Zhejiang Hisun Pharmaceutical ("Hisun") in May 2012 on a commercial supply agreement. According to Celsion, Hisun would "...collaborate with Celsion around the regulatory approval activities for ThermoDox® with the China state Food and Drug Administration (SFDA). A local China partner affords Celsion access to accelerated SFDA review and potential regulatory exclusivity for the approved indication." An equity analyst covering the company noted "...partnering with a local company should foster
good relations with the government for Celsion." In January 2013 Celsion announced reaching terms with Hisum on a commercial license agreement. Step 1, commercial. Step 2, government.

Provectus did the China two-step in a more recognized fashion: Step 1, government. Step 2, commercial. It appears the company first established a strong, formal relationship with the government (e.g.,  Premier of the People's Republic of China, Ministry of National Defense, Ministry of Health, SFDA) directly and indirectly through Provectus' regional agent, culminating in Peter's November 2012 trip.

Peter's February 2013 trip should result in establishing a license relationship and agreement with a Chinese commercial partner and marketer, whether it is one of the companies in the table below or Hisun.

$PVCT: The @adamfeuerstein-Ratain Rule

A good read is Oncology Micro-Cap Stocks: Caveat Emptor!, a September 2011 article in the Journal of the National Cancer Institute authored and researched by Adam Feuerstein, Senior Columnist at TheStreet, and Dr. Mark J. Ratain, MD, Leon O. Jacobson Professor of Medicine at the University of Chicago Medicine.

The "Feuerstein-Ratain Rule:" If a publicly traded company has a market capitalization under $300MM 120 days before the issuance of public announcements (e.g., press releases, etc.) of its oncology Phase 3 clinical trials results, the trial will fail.

A key paragraph in the authors' article summarizes the essence of their rule:

The difference in the market capitalization at day −120 most likely reflects publically available information regarding the phase I and II clinical trials (as well as other factors, including competition and management), which has been incorporated into the market value of a stock. 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.

The results of their analysis are stark:

...there were no positive trials among the 21 micro-cap companies (ie, companies with less than $300 million market capitalization..., whereas 21 of 27 studies reported by the larger companies analyzed (greater than $1 billion capitalization) were positive.

0% (micro-cap) vs. 78% (larger cap).

The rule was tested, for the first time, in 2012 on Keryx Biopharmaceuticals (NASDAQ:KERX) and its drug Perifosine. On April 2, shares of Keryx fell by more than 60%.

0-for-22 (micro-cap).

Up next, in 2013, is Celsion (NASDAQ:CLSN) and ThermoDox. The company has scheduled a conference call tomorrow to present the top-line results from its pivotal Phase III HEAT Study with ThermoDox in combination with radiofrequency ablation (RFA) in patients with intermediate hepatocellular carcinoma versus those patients receiving RFA alone. Celsion had a sub-$200MM market cap about 4 months (120 days) ago. Last week, Celsion announced a development deal with China's Zhejiang Hisun Pharmaceutical.

0-for-23 (micro-cap), or 1-for-23?

It is too early to apply the rule to Provectus because the company is not close to the commencement of its pivotal MM Phase 3 trial and, thus, not close to the public release or announcement of trial data (i.e., interim, preliminary or final).

Nevertheless, it is informative to explore the Feuerstein-Ratain Rule, and keep it in mind as Provectus and its market capitalization approaches public pronouncement time.

For the MM Phase 3 trial, management thinks the company can make at least an April 1 start date should the SPA arrive on or around March 15. Further, management thinks interim data could be available in Q3 or Q4. Enrollment will take some time. The Dacarbazine control arm is expected to collapse within 1 to 2 months or less.

Assuming there is a public announcement of interim results by Provectus in late-Q3 (late-August to September) or Q4 (October to December) 2013 because, for this thought exercise, I assume results are available to announce, where would the company's share price have to be 4 months earlier in regards to the Feuerstein-Ratain Rule?

4 months earlier is early-May to early-September. At least a $300MM market cap is about $2.65 per share.

Between now, essentially the end of January, and early-May to early-September (illustratively), several events are needed or necessary to get Provectus' market cap safely above $300MM, and not have it become fodder for potentially another statistic for the lack of success of oncology micro-cap stocks and their Phase 3 trials:

• The receipt of the SPA around mid-March,
• The closing of the currently contemplated China deal (which should be much larger than Celsion's, assuming the Chinese pharma company exercises its option to do its Celsion deal) in late-February, and
• The release of highly anticipated Moffitt mouse and human data in early-April (e.g., "the closest thing we've seen to a cure for cancer," etc.).

$PVCT: $CLSN? It's Time...

The Conservative Party must make its choice. Every leader is leader only with the support of his party. That is true of me too. That is why I am no longer prepared to tolerate the present situation. In short, it is time to put up or shut up. -- Sir John Major, Former British Prime Minister (c 1995)

Celsion announced today it "had signed a technology development agreement with a Chinese company by the name of Hisun in an effort to manufacture and market its lead-drug candidate better known as ThermoDox in China, Hong Kong and Macau." CLSN, a sub-$250MM market cap company prior to today's announcement, saw its share price increase more than 10%.

A regional oncology deal in China between Provectus and a Chinese Big Pharma company has been in the works for several calendar quarters, the makings of which emerged in the fall. Provectus has, together with its agent, worked through a considerable process of due diligence, evaluation and negotiation to arrive where it is today and where it might be in February.

Zhejiang Hisun Pharmaceutical ("Hisun"), Celsion's strategic partner in China, did not appear on a 1Q2011 list of the top listed local (Chinese) pharmaceutical companies according to market capitalization.

Celsion's two-pronged agreement with Hisun deal break down this way (source: Roth Capital Partners):

• Part 1: Hisun pays Celsion $10 million divided into two parts:
• $5 million immediately as a technology development agreement with Hisun to further advance Hisun's manufacturing initiatives for ThermoDox, and
• $5 million to be paid (following Chinese regulatory approval) where Hisun pays for a 60-day exclusive option to sign a commercialization agreement with Celsion for China (including Hong Kong and Macau).

• Part 2: Pending positive HEAT Phase III data:
• A $25 million non-refundable upfront payment, less the $10 million paid in Part 1 of the agreement.
• $55 million in upfront and regulatory milestone payments, which if HEAT is successful, are anticipated to be received over the next 18 months.
• $45 million in sales milestone payments
• Escalating double-digit royalty payments on net sales of ThermoDox in China projected to top out in the mid-20% range.

Twitter awareness, discussion, excitement and skepticism of the Celsion-Hisun deal was prolific today. This story still has to play itself out.

Provectus' potential China deal appears to compare very favorably to Celsion's, not the least of which is all of Provectus' potential strategic partners are on the above list.

Provectus management is keenly aware of the critical importance of closing a good to great deal transaction of the scope, size and scale currently being contemplated in China: a much higher share price, greater market credibility, more funding resources for key and pivotal trials, and an increased market capitalization in the direction of management's end-game valuation expectations.

Follow China by deals of comparable scope, size and scale in India and Japan (as Craig communicated in his Noble presentation today), and the perception, conversation, and seriousness of Provectus' situation changes immediately, immensely and very dramatically: "Champagne would fall from the heavens. Doors would open. Velvet robes would part."