2014 Annual CEO Letter (pt. 1)

On Tuesday Provectus management published their annual CEO letter.

SUFFICIENT CAPITAL ON HAND 

Our financial position and corporate governance are such that we expect to continue to meet the relevant listing requirements of NYSE MKT. We believe our efforts to obtain regulatory clarity will be helpful to facilitate such transactions with potential partners. Additionally, the existing and forthcoming clinical and nonclinical mechanism of action data for both PV-10 and PH-10 are expected to further aid in both regulatory clarity and transactions with potential partners. The Company's current cash position is sufficient to meet our obligations. In addition, management is returning $8.96 million to the Company as a result of the previously announced settlement of a shareholder derivative lawsuit (subject to a 2:1 credit to the executives, such that total actual repayment by the executives may be $1.12 million per executive) and further enhanced our strength by management's recent exercise of options. In total, we have adequate funds to operate without a further injection of capital through mid-2015.

The relevant verbiage of the paragraph, "[i]n total, we have adequate funds to operate without a further injection of capital through mid-2015," is inartful when one (or two, both Peter and Eric) previously said the company has adequate capital to reach the point of an interim data readout of the Phase 3 trial for unresected locally advanced cutaneous melanoma. "Previously" would refer to the conference calls (e.g., May 23rd, June 3rd, June 19th), yet we have the above from the July 8th CEO letter. If we take Eric's previous comment Provectus would have interim data as early as 15 months after the Phase 3 study starts accruing patients, and previous guidance of a 3Q14 trial commencement (say, September 2014), data would (could) be available five quarters later starting in 4Q15 (say, November 2015).

Quarterly cash burn has trended downward, and the company projects a go forward, 12-month annual expense run rate (not including Phase 3 trial expenses) of $10 million (an average of $2.5 million a quarter), which would include salaries, overhead, PV-10 and PH-10 mechanism of action study costs, liver study costs (expanded Phase 1), FDA regulatory affair consulting costs, etc.

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Without consideration of the melanoma Phase 3 trial, the projected cash balance should look something like the below. At a projected $2.5 million average quarterly burn, Provectus would approach its accounting firm BDO LLC's minimum cash threshold figure of about $4 million in the 4Q15 timeframe (potential fund raising would occur before that so the threshold is not met of course).

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Now, layering on potential expenses related to the Phase 3 trial -- e.g., per patients costs of $25-50K, pay-as-you-go CRO expenses, enrollment of about 12 patients per month, a September 2014 start to enrollment -- the company would approach BDO' threshold (the purple colored lines below are Phase 3 trial adjusted cash balance scenarios) in 3Q15 timeframe.

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With a 210-patient study (N), 105 progressions (i.e., 50%) [P] are required to occur before the data are examined by the independent data monitoring committee. The study would be deemed a success if the necessary differential occurred in the events between the two arms. The greenish line above tabulates cumulative patients enrolled; consider 1 progression event occurrence per patient and 1 progression for every 2 patients accrued/enrolled/treated. An interim readout (interim meaning half of the patients) would require half of the above mentioned progressions (P1 would equal about 53), which would suggest accrual/enrollment/treatment of about 103 patients (N1).

When Eric said interim data would be available as early as 15 months after the study started accruing, I think he meant interim data on N=210 (I could be wrong of course), and not N1=103:

• Assume about 12 patients are enrolled per month (about 36 per quarter), which comes from a 210 patient figure and an accrual/enrollment period of 18 months (210 ÷ 18 = 11.67),
• Assume all patients irrespective of arm would progress, and
• 105 progressions requires 105 patients accrued, which would take about 9 months (105 ÷ 11.67 = 9).

If there is a non-normal distribution of events (e.g., a substantial fraction of patients in one arm are not progressing within the projected timeframe) or an unexpected distribution of events (e.g., patients in one arm are faring much better than predicted), the time to accumulate the necessary number of events could be delayed. To address this possibility I imagine Eric would have designed the study to trigger a review of the data upon the first of (i) accumulating the necessary number of events or (ii) reaching a prescribed period of time after which said events would be expected (e.g., two or three times the predicted progression free survival ("PFS") for the last patient in the PV-10 arm).

Predicted PFS for the PV-10 arm would derive from the projected hazard ratio ("HR") of the Phase 3 trial, which we do not know; however:

• Assume the projected HR is 0.545 (from the 180-patient, SPA-designed Phase 3 trial), or 0.6-0.65 (if the HR inched upward to reflect the increased number of patients). See my Trial Math: Meeting the Primary Endpoint, Pt. 1 blog post,
• Assume a projected comparator (DTIC) PFS of 1.5 months,
• Calculate a projected PV-10 trial PFS of 2-3 months (1.5 ÷ 0.545 = 3, rounded, or 1.5 ÷ 0.636 = 2, rounded) and
• Calculate a prescribed period of time after which the necessary number of events would be expected of 6 months (PFS of 3 months × 2 = 6, or PFS of 2 months × 3 = 6).

15 months, for N, then should comprise 9 months of accrual time and 6 months of time as the prescribed period after which the necessary number of events would be expected.

N1, however, might suggest a 10.5 month period (three-and-a-half quarters). Assuming a 3Q14 trial commencement (i.e., September 2014), such data could be available starting in 3Q15 (say, July 2015).

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Understanding that the above is a rough analysis, that there are ranges to every figures used (i.e., give or take, plus or minus), and that folks can have different starting points and assumptions, I think one could make a reasonable argument Provectus may have enough money to provide an interim readout (N1) without a further injection of capital.

In the year 2013

In Provectus' annual CEO letter published May 2013, management wrote under Regulatory Progress:

"Provectus is finalizing details for submission of a pivotal Phase 3 randomized controlled trial ("RCT") of PV-10 for metastatic melanoma, suitable for Special Protocol Assessment ("SPA"), to the Food and Drug Administration ("FDA"). While preparation for submission of our SPA has taken longer than expected, it is crucial to remember that oncology presents a moving playing field. Fine tuning of the study design is expected to mitigate clinical efficacy risk, optimize patient accrual, and increase FDA's confidence that the study design and protocol will ensure the best possible outcome for our pivotal trial. We have every reason to believe this key milestone will be achieved in 2013."

"Provectus is also considering applying for the new Breakthrough Therapy Designation for PV-10 to treat melanoma. This new regulatory pathway was announced with the passage of The Food and Drug Administration Safety and Innovation Act (FDASIA) in July 2012. Breakthrough Therapy Designation is intended to expedite the development and review of drugs for serious or life-threatening conditions. The criteria for breakthrough therapy designation require preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one clinically significant endpoint over available therapy. A breakthrough therapy designation conveys all of the fast track program features as well as more intensive FDA guidance on an efficient drug development program. However, because this program is relatively new, the potential impact of receiving such designation is still unclear, but could be pivotal in achieving an accelerated path for approval of PV-10."

It now appears Provectus has made its [final] submission of a pivotal Phase 3 RCT of PV-10 for metastatic melanoma ("MM"), suitable for SPA, to the FDA, and also submitted its application for BTD for PV-10 to treat melanoma.

Based on connecting some dots, the submission date very likely was after October 1st. Below is a table of CDER BTD requests from October 1-25, where I think Provectus' request is one of the eight the Agency received during this period:

The recent partial federal government shutdown ran from October 1-16, with operations resuming October 17th. Assuming Provectus hears within 60 days of submission of its BTD request, and adjusting for a delay of about half-a-month related to the shutdown (there might be an adjustment for when the FDA actually received the application itself), we should learn about this outcome around or before mid-December.

Updated 11/1/13: The next six weeks, maybe sooner or potentially later, may provide a fuller picture of the regulatory clarity path management has hoed the last several years and the final step(s) or finish line. I'm still foggy about how and the process by which management is requesting exactly whatever they're requesting.

The SPA is a step on the way to approval, albeit no guarantee of such upon completion. Accelerated approval ("AA") and outright approval ("OA") are steps too (but closer to being actual destinations). Fast Track, BTD and Priority Review, while designations, are processes that speed access to new important therapies by leading to subsequent steps. A good, recent article on BTD is FDA Speeds Things Up: Breakthrough Therapy Designation Is Changing How the Agency Operates (October 1, 2013, Genetic Engineering & Biotechnology News). Some of the article's quotes are striking:

• "...the designation’s greatest value was that it prompted an “all-hands-on-deck” mentality at CDER."
• "...the breakthrough designation can rely on preliminary clinical evidence demonstrating substantial improvement on a significant clinical endpoint, while the fast-track could be based on nonclinical data such as the drug’s mechanism of action."
• "Under breakthrough designation, he said, “everything is on the table” for discussion in order to move the process along as quickly as possible. Communications that might typically take weeks and months take minutes under the breakthrough pathway."

BTD and the SPA are two independent regulatory pathways, so it makes sense management has been cultivating multiple options (including pursuit of approval via AA). I'm not clear, however, if AA is another independent pathway or an outcome of BTD in this case. The Agency notes "...a drug that has received a breakthrough therapy designation or a fast track designation can be eligible for the accelerated approval pathway, if the relevant criteria are met."

Setting aside the parallel pursuit of the SPA, it would seem several outcomes are possible if BTD is awarded: the SPA (and a "full" Phase 3 trial), a modified version of the Phase 3 trial under the SPA, AA or OA.

What's the ask? Whether directly or unrelated to the BTD application, the first ask very likely is AA, or potentially OA, for Stage IIIb-IIIc melanoma patients refractory to treatment on the basis and strength of Provectus' multi-thousand page final MM Phase 2 clinical study report and Moffitt's PLoS paper Intralesional Injection of Rose Bengal Induces a Systemic Tumor-Specific Immune Response in Murine Models of Melanoma and Breast Cancer: compelling clinical data showing PV-10 can forestall the onset of metastatic disease, and the elucidation of PV-10's mechanism of action (and systemic benefit). The second ask, or perhaps the "other side of the coin" of the first ask, should be, of course, BTD.