Potential Catalysts & "Catalysts"

Caveat: I have been hilariously off-base in the past. See, for example, my August 31, 2014 blog post Potential Catalysts.

Updated (8/9/15): To reflect a longer period of pivotal melanoma Phase 3 site activation, and to include as a catalyst the potential approval of Amgen's intralesional agent for metastatic melanoma talimogene laherparepvec (T-Vec).

Updated (8/9/15): To reflect a year-end start to a Phase 1b trial combining PV-10 and an immune checkpoint inhibitor in patients with advanced melanoma.

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Potential Catalysts

Potential catalysts through 1Q15 could include:

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Commencing enrollment of its pivotal late-stage trial for melanoma (locally advanced unresectable/unresected cutaneous melanoma) is a key milestone and important catalyst for Provectus because the eventual outcome should provide clarity about the prospects for PV-10's regulatory validation (i.e., the drug's initial pathway to approval).

Securing a good-to-great regional transaction or two, in these cases for the world's two most populous countries, among other things (i) validates the drug's commercial prospects, (ii) more than bolsters Provectus' balance sheet with non-dilutive monies, (iii) brings partners to the fore that can facilitate late-stage trials in their respective geographies for primary liver cancer (and potentially breast cancer), further strengthening PV-10's multi-indication viability, and (iv) establishes a viable non-U.S. centric go-to-market strategy.

Moffitt Cancer Center's presentation of pre-clinical work underscoring their contention (initially conveyed at the 2014 annual meeting of the American Society of Clinical Oncology, and later at the 4th European Post-Chicago Melanoma & Skin Cancer Meeting) -- intralesional PV-10 may be rationally combined with systemic immunotherapy for the treatment of metastatic melanoma, and PV-10 would be a good candidate to evaluate in conjunction with available systemic therapies and new agents in development (respectively) -- could be the catalyst for a drug combination study of PV-10 and an anti-PD-1 agent like nivolumab or pembrolizumab. I think a study only materializes if (because) the data is sufficiently compelling to encourage one of the Big Pharmas to accede to more favorable non-clinical-related terms and conditions than to what other combo study partners have agreed. This data should be presented by Moffitt at the 2014 annual meeting of the Society for Immunotherapy of Cancer in early-November.

Notepad

1. DAMPs. Following up on my Damage-Associated Molecular Patterns, and Immunogenic Cell Death (August 21, 2014) news item, I'm curious (fascinated) by PV-10's potential role in immunogenic cell death, and thus the release and surface expression of damage-associated molecular patterns ("DAMPs"). DAMPs "..link the dying tumor cell with innate immunity, culminating in adaptive anticancer memory responses."

The recent paper by Panzarini et al. (2014), Rose Bengal Acetate PhotoDynamic Therapy (RBAc-PDT) Induces Exposure and Release of Damage-Associated Molecular Patterns (DAMPs) in Human HeLa Cells, observed that key DAMPs -- ATP, HSP70, HSP90, HMGB1 and CRT -- were exposed and/or released after treatment of cell lines with Rose Bengal acetate and photodynamic therapy. I understand this work involved using PDT and a functional RB derivative, and was carried out on cell lines; however, what interests me about it is the study's goal, which was to determine if RB could trigger apoptosis and autophagy -- cell death -- and thus expose and/or release pivotal DAMPs.

Very interestingly, in my view, the researchers also noted their data represented the fourth demonstration of the exposure of the HSP90 DAMP by indication and third demonstration by drug compound: "In fact, exposure of HSP90 was shown only in lung cancer [36] and myeloma [37] treated with Bortezomib and in bladder cancer cells treated with capsaicin [38]." Bortezomib is a proteasome inhibitor (Millennium Pharmaceuticals [Velcade]/Venus Remedies [Cytomib]). Capsaicin is a neurotoxin and active component of chili peppers.

Moffitt previously showed PV-10 (Rose Bengal) in their murine model work released HMGB1.

2. Innate and Adaptive Immunity. As I wrote above, DAMPs, or their impact once exposed and/or released, form a bridge between the body's innate and adaptive immune systems (or non-specific and specific, respectively). See my blog post PV-10 is not bigger than Mother Nature for a discussion of the immune system; "The immune system protects organisms from infection with layered defenses of increasing specificity."

In 1994, "[t]wo papers appearing in the same year presaged the deeper understanding of innate immune reactivity, dictating the subsequent nature of the adaptive immune response. The first...speculated...free radical-mediated reperfusion injury-was seen to contribute to the process of innate and subsequent adaptive immune responses. The second...suggested the possibility that the immune system detected "danger", through a series of what we would now call damage associated molecular pattern molecules (DAMPs), working in concert with both positive and negative signals derived from other tissues." {Underlined emphasis is mine}

• Land W, Schneeberger H, Schleibner S, et al. (January 1994). "The beneficial effect of human recombinant superoxide dismutase on acute and chronic rejection events in recipients of cadaveric renal transplants." Transplantation 57 (2): 211–7.
• Matzinger P (1994). "Tolerance, danger, and the extended family." Annu. Rev. Immunol. 12: 991–1045.

I've written that PV-10 harnesses the immune system, rather than restraining, blocking, manipulating, etc. parts of it. Note that Chen & Mellman (2013) title step 3 of their cancer immunity cycle illustration "Priming and activation." {Underlined emphasis is mine}

3. It's A Small World. The authors of the RBa-PDT paper come from Italy's University of Salento, and do not appear to have any disclosures related to Provectus. While the company has engaged certain principal investigators and their respective hospitals in Australia and the United States, as well as Moffitt Cancer Center, there is a body of work from researchers espousing Rose Bengal's potential as a cancer therapeutic who are currently or not at all unaffiliated (or appear to be unaffiliated) with the company. They are, among others (representative papers below):

• The "Italians" (2014): Above,
• The "Iranians" (2014): Rose Bengal suppresses gastric cancer cell proliferation via apoptosis and inhibits nitric oxide formation in macrophages, Updated (8/23/14): One of the Iranian authors co-published work with Provectus in 2006,
• An "American" (2012): Selective toxicity of rose bengal to ovarian cancer cells in vitro, and
• The "Japanese" (1986): Induction of thyroid tumors in (C57BL/6N x C3H/N)F1 mice by oral administration of 9-3',4',5',6'-tetrachloro-o-carboxy phenyl-6-hydroxy-2,4,5,7-tetraiodo-3-isoxanthone sodium (Food Red 105, rose bengal B).

4. Amgen's talimogene laherparepvec ("T-Vec"). Related to Amgen's T-Vec, the FDA announced a November 6th advisory committee ("AdComm") meeting (Cellular, Tissue and Gene Therapies Advisory Committee) to discuss the draft guidance for industry entitled "Design and Analysis of Shedding Studies for Virus or Bacteria-Based Gene Therapy and Oncolytic Products." Does this bode well or poorly for T-Vec in regards to its ease of administration and use, or lack thereof?

5. Info. An interview with Peter formed the basis for today's Seeking Alpha article Provectus' Latest Developments Spark Investor Interest -- CFO/COO Culpepper Explains Why. Of note to me was his answer to the interviewer's question "What is the anticipated market trajectory for PV-10?"

Peter: "We anticipate PV-10 phase 3 for melanoma to be one path for PV-10 approval. We anticipate also combining PV-10 to treat patients with disease inaccessible to direct injections. We also anticipate treating primary liver cancer patients in an upcoming randomized phase 2 study and seeking an expedited approval path in that important indication as well."

Taking this response at face value would suggest the upcoming (anticipated) liver Phase 2 trial would be for primary liver cancer (hepatocellular carcinoma), and not include cancers metastatic to the liver. A subsequent or concurrent study might examine this aspect of liver cancer, but the contemplated Phase 2 trial would not, or so it seems to me. Liver cancer of course is a very large unmet need in Asia. One would hope Eric garnered the feedback he required [from his recent Asia trip] to finalize and file the liver Phase 2 trial protocol.

Why Pfizer Will Try to Acquire Provectus in 2014…

…And ultimately may not succeed.

Having, among other things, engaged in share buy backs (four in the past two plus years), sold off dietary supplement capsule business Capsugel in August 2011, sold off its nutrition business in November 2012, and spun off global animal health business Zoetis in June 2013, Pfizer announced in July it would reorganize. All of this would appear to be consistent with CEO Ian Read’s strategy of restructuring and reforming the business. The share price responded favorably since 2011, nearly doubling the advance of the broader market S&P 500 index.

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Presumably, Pfizer’s long-term growth strategy (because squeezing more out of less and buybacks don’t necessarily contribute to long-term, sustainable, price-to-earnings (“PE”) multiple expansion) is to effect a break-up of the company along the lines of the previously announced reorganization, where one share of Pfizer held by an investor today might be three different shares “tomorrow” (i.e., by or before 2017) after each of the respective businesses floats on its own (or cash if one or more of the three is acquired).

The three businesses, for the moment called “groups,” would be (sourced from FiercePharma):

• A variety of therapeutic areas including immunology and metabolic diseases, with products that won't go off patent until after 2015,
• Vaccines, cancer and consumer healthcare, again with products that boast at least a few more years of patent life, and
• Products that have already have gone generic, as well as branded drugs set to go off patent through 2015.

Different P-E ratios would apply to each group. Very roughly speaking, Pfizer today trades at a P-E ratio in the 20s. A ratio around there, give or take, likely would be applied to the first and third groups above, while the hope is a higher, Celegene-esque ratio (e.g., 30s, 40s, etc.) would be applied to the second.

Pfizer would begin reporting financial results and statements for each business/group starting in 2014. Such standalone reporting is a staple for evaluating businesses, and determining and projecting their valuations.

There’s a lot written, opined and prognosticated about Pfizer’s reorganization, strategy behind it, likely success, etc.

This blog, however, is about Provectus. The seller (Provectus management, company shareholders), at some in order to achieve full monetization, needs a buyer (Pfizer or another Big Pharma company). More importantly the buyer needs to really need Provectus so as to generate a transaction whose valuation is commensurate with PV-10's (and PH-10’s) innovation.

Pfizer overt history with Provectus includes:

• Dr. Craig Eagle, a Pfizer executive, joining the company’s corporate advisory board (“CAB”) in August 2011,
• In March 2012 (but really starting some time in 2011), the filing of a combination patent (however, it would have taken time to write it and have it go through Pfizer's legal department), and
• Robert (“Bob”) Miglani, another Pfizer executive, joining the CAB in December 2013.

Management thinks Eagle has been a very helpful, insightful, supportive adviser. It’s always a good (great) thing when an advisory board member adds value. Casual shareholders and observers will not appreciate the dynamic that exists. Shareholders paying attention to this “relationship,” however, do understand the nature of the dynamic.

PV-10’s value proposition, and thus its potential to create immense value for its eventual acquirer/owner, is remarkably simple and comprehensive: safety, efficacy, multi-indication viability, use, cost, and pricing.

The drug is:

• Very safe,

• Very effective, both loco-regionally (local-regionally) and systemically,

• Highly applicable to solid tumor cancers (and, with time to more fully demonstrate, very likely applicable to soft tissue and blood cancers too),

• Beyond safety and efficacy, highly useful as a cancer treatment because of its tissue sparing benefit (with time to more fully demonstrate, use before, instead of, and after surgery, as well as in combination with other therapies to further enhance effectiveness),

• Very inexpensive to manufacture, store and ship,

• Highly flexible in its pricing because of its low development cost, and

• Well protected from an intellectual property (“IP”) perspective.

For any acquirer, PV-10 presents a self-contained, ready-made, good-to-go, sustainable, competitive advantage, business strategy and revenue model for decades to come.

Interestingly, while PV-10’s compelling value proposition and vast potential for value creation very lucratively would accrue to its acquirer, its potency bodes darkly for those companies who lose out on an auction process for Provectus. Unlike anti-CTLA-4, -PD-1, -PDL-1, -etc. agents where relatives reside with different Big Pharma companies, PV-10 is sufficiently unique so as not to have molecularly similar peers.

As a result, only one Big Pharma will possess it and, by virtue of strong IP kung fu, its relatives. As PV-10 use proliferates, and begins its march towards pervasive use, think of the resultant pharmaceutical industry fracturing as a very profitable hedge fund pair trade: Long acquirer, short pick-your-non-acquirer.

As an investor I wrote in my September 2013 investment letter: “PV-10, a novel oncology compound being developed by Knoxville, Tennessee-based Provectus Pharmaceuticals, Inc. (“Provectus” or the “Company”) (OTCMKTS: PVCT), exemplifies innovation over incrementalism, meaningful over marginal, productized technology over hypothetical, and changing the world over accepting the status quo, with not an insignificant amount of serendipity over contrivance. In sum, these form the quintessential essence of a paradigm shift in the treatment of cancer.

This is where my investment thesis begins and ends: a novel drug compound with a pristine safety profile, a treatment well tolerated by and easily administered to patients, a ready made product inexpensively produced at scale, and a vast addressable market of unmet need that should be fully and very profitably met over time.

My thesis comprises compelling clinical, regulatory, business and stock value propositions in a pharmaceutical industry ravenous for safe and effective oncology solutions, with the prospect of annual market growth rates exceeding other therapeutic areas, that following approval(s) should deliver a lucrative monetization for shareholders.”

I have very high expectations for the company’s monetization. While a portion of this monetization should come from higher share prices, the vast majority should arrive when Big Pharma acquires the company.

How does one value a paradigm shift? A start might be Trust Intelligence’s Alan Ross’ Provectus Pharmaceuticals: Small Cap, Huge Upside where (based on certain assumptions he makes) he values Provectus at $100 per share or thereabouts.

For me, valuation is a combination of fundamental analysis and “what the market gives you.” In the case of the latter, “the market” is the stock market and Provectus’ eventual acquirer. There’s much to be written on the topic of valuation.

When I think about potential themes for Provectus in 2014, Pfizer undoubtedly is near or at the top of the list, which also includes the FDA, liver, China, India, etc. I really haven’t answered the “question” posed by the attention grabbing title, and the byline, of this post. I’d like to see how January plays out before delving into this topic in much more detail.

And the decision(s) is(are)...

I read through Provectus' recent 3rd quarter 2013 10-Q filing (filed on November 12th) and prospectus supplement (November 12th). The changes in and additions of language from/to the 2nd quarter filing (August 8th) and previous supplement (August 8th) are several and, in my view, notable. See my underlining below.

1. 10-Q: Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources 

We are also considering the global licensure of PV-10 as well since it has come to our attention that this is of interest to potential partners. We have provided data on a confidential basis to both potential global and geographic partners for both PV-10 and PH-10 via a secure electronic data room that is monitored 24 hours a day, seven days a week and houses formal data submissions to the FDA as well as various corporate governance related documents. 

We also expect to continue with the majority stake asset sale and licensure of our non-core assets. However, the primary objective of the Company is to strategically monetize the core value of PV-10 and PH-10 through various transactions, leveraging value creation up to and including an appropriate merger and acquisition transaction that includes upfront cash and acquirer stock in exchange for Company ownership as well as a contingency value right to facilitate potential upside post-acquisition. We believe regulatory clarity is determined by specifying the expected approval pathways of both PV-10 and PH-10. This may include the potential for breakthrough therapy designation for PV-10 to treat metastatic melanoma and an accelerated approval path for PV-10 to treat refractory recurrent melanoma. Such clarity will help facilitate transactions with potential partners. Additionally, the existing and forthcoming mechanism of action related clinical and nonclinical data for both PV-10 and PH-10 will further aid in both regulatory clarity and transactions with potential partners.

2. Prospectus Supplement #3: Cautionary Note Regarding Forward-Looking Statements

Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements include those discussed in our filings with the Securities and Exchange Commission (including those described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, and elsewhere in this Quarterly Report on Form 10-Q), and the following:

• Our ability to license our dermatology drug product candidate, PH-10, on the basis of our Phase 2 atopic dermatitis and psoriasis results, which are in the process of being further developed;

• Our determination, based on guidance of the Food and Drug Administration (FDA), whether to proceed with or without a partner with a Phase 3 trial of PV-10 to treat recurrent melanoma and the costs associated with such a trial, unless the path to approval of PV-10 is accelerated, and whether Breakthrough Therapy Designation acceptance is viable and enables an accelerated path;

• Our determination whether to license PV-10, our recurrent melanoma drug product candidate, and other solid tumors such as liver cancer and cancers metastatic to the liver, if such licensure is appropriate considering the timing and structure of such a license, or to commercialize PV-10 on our own to treat recurrent and metastatic melanoma and other solid tumors such as liver cancer and cancers metastatic to the liver; and

• Our ability to raise additional capital if we determine to commercialize PH-10 and/or PV-10 on our own, although our expectation is to be acquired by a prospective pharmaceutical or biotech concern prior to commercialization.

3. Prospectus Supplement #3: Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources 

We are also considering the global licensure of PV-10 as well since it has come to our attention that this is of interest to potential partners. We have provided data on a confidential basis to both potential global and geographic partners for both PV-10 and PH-10 via a secure electronic data room that is monitored 24 hours a day, seven days a week and houses formal data submissions to the FDA as well as various corporate governance related documents. 

We also expect to continue with the majority stake asset sale and licensure of our non-core assets. However, the primary objective of the Company is to strategically monetize the core value of PV-10 and PH-10 through various transactions, leveraging value creation up to and including an appropriate merger and acquisition transaction that includes upfront cash and acquirer stock in exchange for Company ownership as well as a contingency value right to facilitate potential upside post-acquisition. We believe regulatory clarity is determined by specifying the expected approval pathways of both PV-10 and PH-10. This may include the potential for breakthrough therapy designation for PV-10 to treat metastatic melanoma and an accelerated approval path for PV-10 to treat refractory recurrent melanoma. Such clarity will help facilitate transactions with potential partners. Additionally, the existing and forthcoming mechanism of action related clinical and nonclinical data for both PV-10 and PH-10 will further aid in both regulatory clarity and transactions with potential partners.

The company provided new, seemingly prospective "bullish" language before. In Provectus' 2nd quarter 2012 filing (August 8), management wrote in the report's MD&A section:

We are seeking to improve our cash flow through both the licensure of PH-10 on the basis of our Phase 2 atopic dermatitis and psoriasis results, and the geographic licensure of PV-10 on the basis of our Phase 2 metastatic melanoma and Phase 1 liver results in certain areas of the world, as well as pursuing a strategic investment strategy, and continuing with the majority stake asset sale and licensure of our OTC products as well as other non-core assets.

These additions reflected the beginning of discussions with potential partners for regional transactions (China, at the time), and [I can only assume] discussions about a minority equity investment from Big Pharma (Pfizer, at the time, I believe, but Johnson & Johnson purportedly was interested too). No deal for China has materialized yet, and Pfizer's investment in the company's PVCTP "IPO" did materialize either. So, while these quarterly filing or prospectus statements neither predict nor portend the future, they do, however, give us insight into management's regulatory affairs, and business and corporate development activities.

Given how careful management and/or their lawyers are with their language (at times, careful borders on unintelligent), the new language in this week's filing and prospectus is striking when taken in the context of what many shareholders expect, which is a regulatory clarity decision from the FDA. Here's what jumps out at me:

• The reference to the electronic data room. While discussions with global (e.g., AstraZeneca, Amgen) and regional partners (e.g., several in China, India and Japan this year and last) are one thing, entering a data room is another and typically means certain partners have entered into a confidential disclosure agreement ("CDA") with Provectus in order to enter and gain access to substantially more and often very sensitive information. I am not saying any global pharmaceutical company has entered into a CDA with Provectus yet; however, several regional pharmaceutical companies very likely have. The Agency reference likely refers to the kind and amount of data being provided to the FDA in support of whatever the company has asked of it, and thus would be available to prospective partners to review, such as Moffitt pre-clinical (i.e., combination trials involving PV-10 and various checkpoint inhibitors like anti-CTLA4, -PD-1 and -PDL-1 agents) and clinical data in a reporting format acceptable to the FDA, as well as copies of pertinent or germane regulatory communications. It's not lost on me that "formal submission" crops up, as it should be pretty clear by now the company has made an ask(s) of the Agency, for which we wait a decision(s).

• The reference to acquisition deal structure. Upfront payments and earn-outs paid later, when the company is not fully acquired only for cash, have been used on several transactions in the sector, such as Celgene's acquisition of Abraxis (a favorite example of Peter) or Sanofi-Aventis' of Genzyme. It may not be significant, or it might be, but there is no mention of payments achieved through clinical, regulatory and/or commercial milestones (or more simply, milestone payments). I am struck by the deal structure language only because it was used in this filing, rather than earlier or later. Like with the emergence of the strategic investment strategy in 2012, which I believe was mostly in reference to discussions with Pfizer, this M&A deal language might provide disclosure comfort (for Provectus management and representatives) should acquisition discussions have taken place, however "informal" they may have been (and may be).

• The specificity of clarity. This specifying of clarity seems like a "staged expansion of labels," with accelerated approval ("AA") or outright approval ("OA") being sought for Stage IIIB-C patients with recurrent melanoma refractory to treatment, and breakthrough therapy designation ("BTD") being sought for metastatic melanoma more broadly with more refinement or definition likely to follow the awarding of it.

• The reference to cancers metastatic to the liver. The Phase 1 liver trial included successful treatment of colorectal cancer that had metastasized to the liver. In the blog's News tab, I noted in July that compassionate use program ("CUP") sites had treated treated ocular melanoma metastasis to the liver, and a neuroendocrine tumor ("NET") that had metastasized to the liver. Together with data from the expanded Phase 1 liver trial, I wonder if data from these cancers metastatic to the liver might form the basis for a liver cancer BTD application, possibly further advance regional transaction discussions for China, and point to an additional effort by management to raise overall valuation through a second indication and its variants.

Above, management wrote they believe regulatory clarity is determined by specifying the expected approval pathways of both PV-10 and PH-10. They further wrote this clarity may include the potential for BTD for PV-10 to treat metastatic melanoma and an AA path for PV-10 to treat refractory recurrent melanoma. Understood. Shareholders should take note.

While the SPA very likely was granted or made available to the company earlier this year, we now know from the 3rd quarter filing's language Provectus has asked for, generalizing, AA/OA for refractory recurrent melanoma, and BTD for metastatic melanoma. We could surmise with some non-trivial degree of certainty these asks were made in October, and might estimate decision timing as December or January, allowing for some holiday slippage.

Management is holding a special meeting of shareholders on December 16th to seek approval for the change of the company's name from Provectus Pharmaceuticals to Provectus Biopharmaceuticals, and the reincorporation of the company from Nevada to Delaware. There is a good amount of literature that weighs the pros and cons of incorporation in both states, and their comparative merits. There also is perhaps some benefit to the subsequent change in stock CUSIP, the alphanumeric code identifying the company's trading ticker or symbol, as it relates to mitigating short interest. Provectus started life in the early-2000s as a reverse merger into a public Nevada-incorporated shell (a so-called reverse IPO). Reincorporation into/as a "clean" Delaware entity might give both global and regional partners extreme comfort of whom they were buying or from whom they were licensing, as opposed to if the company had begun life as a privately held Nevada- or other state-incorporated company. Why change thing(s) now?

Management dramatically increased the expense of lab supplies and pharmaceutical preparations in this year's 3rd quarter (~$259K), "...the result of securing drug substance and drug product for pivotal clinical studies with the newly patented synthesis of Rose Bengal." The figure was ~$32K for 1Q13 and 2Q13 together. Let's say each 5 ml vial of PV-10 cost a few dollars, like $10, to manufacture its contents. Let's further say the average number of vials used by a melanoma patient or a CUP patient afflicted by melanoma or another indication is 6. In 1H13, ~3,215 vials may have been produced for the equivalent use of ~535 patients. In 3Q13, using the same artificial math, ~26K vials would have been for 4,315 patient equivalents. As an aside, I might be high on cost per vial, and number of vials per patient.

Let's explore if production was for pivotal clinical studies such as a pivotal Phase 3 trial. Assuming a 180-patient trial per the most recent SPA trial parameter slide, the above cost and patient use vial assumptions above, and the purported requirement of 3 production runs (for whatever Agency reason(s)). This would yield an expense of about $32K (3,240 vials, 540 patient equivalents), ~13% of the actual expense in 3Q13, which assumes the company conducted these runs in the 3rd quarter. I'm more inclined to think they did these runs in the 1st and 2nd quarters. Why so much product now?

As I wrote above, it seems to me [now] management often or typically utilizes certain MD&A language to provide a measure of disclosure comfort. Strategic investment strategy or M&A deal structure language are, in my view, some examples of this. Why discuss or reference end-game deal structure now?

The FDA may say "Only a SPA for you," or BTD, or AA and a post-marketing study, and BTD, or OA, and BTD.

The company has asked for AA/OA and BTD, and probably thinks they have a very good chance at attaining both asks. I'm not completely convinced they know what they'll get from the FDA, but I think they're confident of the outcomes based on their interactions with the Agency, the Phase 2 data, Moffitt's data, and the feedback from their regulatory affairs team.

Is "now" because they're prepping for what might happen after now? Anticipation among longtime shareholders who have closely followed Provectus, management and the situation is high, so high one easily could cut it with a proverbial knife. I am open to and prepared for disappointment, where disappointment is a full Phase 3 under an SPA, because that "negative" outcome clearly must exist on a Gaussian-like distribution of potential outcomes if management does not know what they'll get from the Agency. But the "positive" outcomes that populate the same distribution likely comprise much if not nearly all of it -- I assume, having pushed past the SPA for some time, management has delivered substantive datasets from their own work and Moffitt to advocate for something more -- provide the thought, belief and hope of something much, much more.

Boom!

Boom indeed.

You Gotta Do What You Gotta Do

Management raised approximately $5.2 million to provide for operating expenses and presumably maintain Provectus’ accounting firm BDO USA’s going concern opinion. Placement agents for the raise were Maxim Group and Network 1 Financial. Using information from the Q2 10-Q, the raise created about 8% dilution on a fully diluted basis.

The raise itself comes as no surprise to me. And while I initially was surprised by the timing of the closing, given what likely was going on in the background, I probably shouldn’t be.

You may recall I wrote, on the left hand side of the blog, on August 5^th under Fundraising?, before the Q2 10-Q came out on August 8^th, about a potential raise: “It's possible, perhaps likely, a Network 1 Financial-like small financing (i.e., several million dollars) is in the offing.” Peter has effectuated these like clockwork for at least the last couple of years.

Cash at June 30, 2013 was $4.6 million. Monthly cash burn in Q2 was about $656K; however, it had been $992K in Q1 2013 and $1.1 million in Q4 2012. BDO’s minimum threshold seems to be about $5 million. There is both a current and future feature of the going concern issue: It isn’t just about having $5 million on the balance sheet, but also establishing from where the next $5 million would come.

I don’t think cash burn increased quarter-over-quarter (i.e., Q3-over-Q2), so let’s assume the same cash burn for Q3 and Q4 as in Q2. Provectus then should end the year with more than $5 million, sufficient to maintain BDO’s going concern opinion through year-end and for NASDAQ Capital Markets’ initial listing requirement (see page 9 of this link) related to a prospective listee's minimum stockholders’ equity. Stockholders’ equity is equal to total assets minus total liabilities. For example, as at June 30^th, Total Stockholders’ Equity (“TSE”), which you can find at the bottom of page 2 in the 10-Q, was $6.4 million. I’d estimate (without the benefit of seeing Q3’s 10-Q) TSE should exceed $5 million.

With a $4.6 million June-end cash balance, and assuming a monthly cash burn of $700K (rounding up Q2’s monthly burn), July could have ended with a cash balance of $3.9 million. August could have ended with $3.2 million. Through July, Provectus already would have fallen below [my estimate of] BDO’s minimum cash threshold for the month (let alone falling below it for August).

At the end of July, the share price was 64 cents. Prior to the Moffitt’s August 22^nd’s press release, the share price was 64 cents on the 21^st (it closed at 63 cents the day after). Taking subscriptions for the private placement around this time would have been consistent with prior raises that were done (strictly on a common stock component of the placement basis alone): at a premium to the then reported share price. That is, the 75 cents at which the common stock was priced (as part of the placement unit; a unit equals one share of stock and 1.5 warrants) would have exceeded the then share price of, say, 64 cents. When you include the warrant coverage, however, not so much, but that’s been the way of this fund raising world, and I won’t quibble with it.

I’m guessing Peter raised a couple of million dollars, give or take, in or through August (say, August 20^th, when the website presentation was updated). The company’s cash balance would have been around or back over $5 million.

Peter went to China the week of September 2^nd. He didn't return with deal he wanted (even though I think there was a deal to be had). Even if progress were made towards the one he wanted, no such deal materialized over the next week either (the week of September 9^th).

Maybe he went to New York the week of the 16^th in hopes of securing a deal with Hisun-Pfizer. And again, it did not get done. Another month of cash burn, this time in September, and Provectus falls below BDO’s threshold again.

With no deal done, and perhaps with no evidence to demonstrate it would be done forthwith, Peter raised what he needed that week and this week (the website presentations were updated on September 17th and 24^th), about $3 million plus or minus.

On the surface, it looked bad closing and/or announcing the closing of the round’s September 20^th (Network 1's, which had been open since earlier in the year) and 26^th (Maxim's, which seemed to be recent) tranches, on September 26^th, on the heels of interviews by The Wall Street Transcript (16^th) and The Life Sciences Report (19^th). The interviews provided nice information and opinion, but having them appear prior to making an SEC filing about fund raising gives the perception of being, well, you know, even if one did not intend to be so.

Dig a little deeper, and perhaps we find that Hisun-Pfizer decided to hold off for want of regulatory clarity (and Provectus did not want to deal with the other interested Chinese suitor).

In terms of strategy, rationale, process and timing, however awkward or unfortunate, Peter’s fundraising announced this week was consistent with prior ones.

Provectus should not have to raise more money through at least the end of 2013, by which time I imagine the company thinks they’ll achieve regulatory clarity to catalyze the end game and generate non-dilutive financing by securing a regional deal or two, some or all of which I’m sure they hope would help them up-list the company onto the NASDAQ CM.

The timing of the publishing of my Seeking Alpha investment letter was coincidental. It might not seem that way to some people, but I can’t do anything about their perception of it or me.

As of this writing, I have not sold any of the shares we have bought.

Awakening

Labor Day weekend kicks off what may well turn out to be a tumultuous September, historically the worst month of the calendar year for the stock market. On tap, among other things, are a decision on the new Fed chairman, the expected commencement of Fed tapering, the August’s jobs report, a possible government shutdown (in the absence of a new budget), the debt ceiling debate, a likely U.S. military strike on Syria, and the possible further crumbling of emerging markets like India, Indonesia, etc.

Then, there’s the fall and Provectus. I think anticipation of what the near-term holds for the company grows: FDA? BTD? What comes with it? China? India? Other? Etc. We simply have to wait.

Moffitt’s press release, in many ways, began a new chapter in the awareness of Rose Bengal, PV-10 and Provectus. The PR was well circulated, garnering attention and generating several nice headlines, among them:

• Moffitt Cancer Center study could offer hope to melanoma sufferers,
• Injectable dye could be agent to end melanoma,
• Single dose of injectable dye could help make melanoma history, and
• Injectable Dye PV-10 Could Reduce Tumors Size.

More discourse could be found on Twitter, here and here. As I most recently wrote, this is just the public discourse the company and stock need to and should have, as folks of varying influence following and opining about the biotechnology sector start, I hope, weighing in more frequently and regularly on PV-10, Provectus and the stock.

Click to enlarge.

"Connecting The Dots" blog readership stats are up. Readership of the blog hit new highs in August with unique visitors (1,182), number of U.S. visiting cities (414) and total number of visiting cities (497). Understandably, page views (7,421 in August) and visits (5,820) are down from May (8,578 and 6,178, respectively) when unique visitors set a previous high of 1,130. I wrote 59 posts in May, but only 7 in July and 9 in August (after averaging 36 a month from November 2011 to June 2013). I believe the blog is a proxy for awareness of the company.

Awareness continues to grow. There is no denying it. This of course must, and ultimately should translate into a higher share price when regulatory clarity is made transparent.

Nevertheless, it's informative to see Big Pharma, Big Biotech, Regional Pharma and well-known U.S. hospitals (e.g, Amgen, Memorial Sloan-Kettering Cancer Center) continue to visit the blog. Even Moffitt folks are regularly visiting now.

Judging by their Google search, it would seem the Amgen folks are carrying out due diligence on PV-10's mechanism of action.

As an aside, I re-calculated readership stats on a month-to-month basis using Google Analytics, which resulted in different and higher numbers. Previously, when I lasted presented data through June 30, 2013, I used cumulative figures to determine monthly ones (i.e., August monthly figures = August cumulative figures - July cumulative figures), rather than simply tabulate numbers each month.

It seems to me management's strategy is to let Moffitt do the talking about PV-10, at least now. Discussions and perspectives like Dr. Philippe Aftimos, MD above are relevant dialogue, and can be more substantive and constructive when appropriate clinical data is available for him and others to further comment on and critique. This will happen when Moffitt starts talking more about PV-10. There also is ECCO 2013, where a poster presentation will be made (the abstract should be available mid-month for review).

For example, at the end of September, Moffitt is hosting a one-day educational and scientific meeting entitled Update for Clinicians on Diagnosis and Treatment of Melanoma and Other Cutaneous Malignancies. According to the program's description, the meeting will "...focus on key clinical topics in the management of melanoma and other cutaneous malignancies, including evolving standards of care and current guidelines, as well as the most promising novel chemotherapeutics and targeted agents currently undergoing clinical trial evaluation." Co-chaired by Moffitt' Drs. Vernon Sondak and Jeffrey Weber, with financial support by Delcath Systems, Genentech and Provectus, there is expected to be commentary on and inclusion of PV-10 at the meeting.

Moffitt's publication of its Phase 1 feasibility study is expected in early-2014. Anecdotally, a Stage I patient, for whom it was planned to undergo surgical resection, was treated with PV-10 and required no surgery. One such patient, of out at least 15, is an observation, not a conclusion, but it would seem fair to write, based on the balance of information accumulated thus far, there is no denying the Moffitt folks' excitement about PV-10.

Views of Moffitt's PLoS paper were up more than 80% month-over-month. That's a good thing, but more is better: more data, observations and conclusions about the pre-clinical and clinical work Moffitt has done but has not yet fully revealed.

Peter should be traveling to China this week. Of the two lead parties, one appears very motivated to get a deal done. The question, then, is whether Pete returns with an MOU or better, or not.

At least one Indian party also is very motivated to do a deal.

In the cases of both China and India, I trust the company is balancing the need, value and import of commercial validation, in these cases regional in nature, with the opportunity of regulatory clarity that is accelerated or outright approval via breakthrough therapy designation ("BTD").

The share price faces capital structure-oriented headwinds as it tries to make a sustained move upward. There was a rumor of Network 1 Financial-based selling last week into the buying interest sparked by Moffitt's PR and Agora Financial's newsletter.

If true, one would imagine the rationale for such was something to the affect of selling the common stock portion of the private placement units and keeping the warrant portion. Network 1 and their clients are an important constituency because of the number of shares and warrants they cumulatively hold. These shareholders, both the firm and its clients, can help or thwart a rising share price around these levels (recent placements were priced at 75 cents per common share) and higher (according to Provectus' corporate presentation, the net exercise price for warrants is $1.05). I expect these folks to do what's in their respective own best interests, which is to sell now and sell later, as the share price attempts to breach higher and higher levels before the $2 up-listing threshold and shortly thereafter.

It's also possible there was conversion and sale of Provectus' preferred stock. Whether common or preferred, this selling will continue to weigh on the share price as it endeavors to rise, until it doesn't.

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The BTD application should have been submitted by now.

I took down the blog's poll on August 25, which was earlier than I had intended. By then, the poll had served its purpose, which was to gauge shareholder sentiment about the prospects for and timing of regulatory clarity, albeit based on the offered choices.

There is great anticipation of BTD, followed by the expectation of accelerated approval coming with it (concurrently or subsequently), most likely in October.

What's not to like, or love, about the fall?

School. University. College football. The NFL. Pumpkin spice lattes (for my mom, when she visits). The changing colors of the leaves.

And, for me, anticipation of the company's next stage in its development.

A More Aggressive Pathway To Approval for $PVCT

A meme making the rounds yesterday relates to an August 2010 article in knoxvillebiz.com about Provectus entitled "Knox company enters clinical trial stage for cancer drug." In it, Eric is quoted as saying of the FDA "If we had an ironclad explanation of this bystander effect that they could understand that it was…real and…why it was occurring, they would be more amenable to a more aggressive pathway to approval."

There was a great deal of consternation regarding my comment in my "$PVCT: A Slow, Hot, Smoky Summer Monday" post that recent information purports to suggest that, as late as last week, more time was needed to submit the breakthrough therapy ("BTD") application. Related frustration later was voiced by some shareholders about the special protocol assessment ("SPA"), the process for which appeared further elongated when management wrote in May in the annual CEO letter that it had every reason to believe the SPA would be achieved in 2013. As recently as March, in Dr. Andtbacka's presentation at the HemOnc Today conference in New York, a presentation slide indicated the MM Phase 3 trial under SPA would begin enrolling patients in mid-2013.

Peter would neither address Craig's comments about BTD (and other topics) after the annual general meeting in June nor my comment above (when other shareholders queried him about it). He also sidesteps SPA and BTD application submission questions, pointing out to shareholders (and the general public) that Provectus will not discuss specifics of the SPA process beyond what management has said in press releases and various corporate and investors presentations on the website and elsewhere.

More specifically, Peter will not address the topic of whether Provectus has or has not applied for the SPA and BTD. He did communicate Provectus expects to work with the FDA to get the SPA, and that the company is considering and very optimistic about BTD because management has been speaking with the FDA all along about accelerated approval ("AA").

I'm not convinced Provectus has submitted the BTD application, but I think the delay is due more to reconfiguration than having to fill a substance gap. When I recently asked Peter if the company had all the information and data necessary to complete the BTD application (i.e., did management feel it had answered all of the FDA's questions about PV-10), he replied it did. In truth, Eric is the only person at Provectus with a "real-time" view on the situation and process with the FDA, but I take Peter's reply to me to be as much of a current snapshot as one could obtain.

Is the right question to ask "when will the SPA and BTD submissions be made" (or, has the SPA and/or BTD application been submitted)? These are questions on the minds of most shareholders. It's clear to me management understands they have not completed the SPA process as quickly as they or shareholders would have liked. Everyone wants the ultimate milestone reached; namely, the SPA and, now, BTD.

I think the better question is to ask "what's needed (or what's left information- or data-wise) to get PV-10 approved." In my "For $PVCT, it's the FDA's move" post, I queried what remains. Safety and efficacy has been established beyond question. MOA, at least from a murine model perspective, has been explained and is understood. Proof of systemic properties and benefit has been shown. I also spelled out potential regulatory clarity outcomes: the SPA, AA, BTD (several options) and outright approval. It's no longer about whether the drug should be approved, but rather how it should be approved.

Segue to another Provectus article that also recently made the rounds again, February 2013's Cancer Watch's "Back to Phase 1: Understanding Systemic Effects of PV-10." In it, Moffitt's Dr. Amod Sarnaik said the cancer research center's focus "...is on discerning the presence of immune cell infiltrate in untreated tumors after PV-10 injections into other lesions. “We are really interested in harnessing immune cell infiltrate as a form of treatment,” he said, noting also that while creating cancer vaccines has been thought of traditionally as one of the Holy Grails of cancer research, cancer vaccines have turned out to be not strong enough to generate an adequate immune response." The literature suggests a a link between the immune infiltrate in several human carcinoma types and prognosis and response to therapy (2011). Later, the potential prognostic and/or predictive role of the immune infiltrate in this setting attracted attention (2012). The concept here is that tumor-infiltrating leucocytes ("TILs") may possess true predictive potential in cancer patients, where in some clinical settings the immune infiltrate can reliably predict if a specific patient will respond to therapy or not (Senovilla L et al. Oncoimmunology [2012, 1(8):1323-1343]). Later, in the same Cancer Watch article, Dr. Sarnaik said of Moffitt's Phase 1 feasibility study, "This is a straightforward study that will give a yes or no answer," which simply means Moffitt and he want to confirm what they already have seen pre-clinically (Moffitt's posters at SSO 2012 and AACR 2013) and in Provectus' prior clinical studies. One wonders if Moffitt's quantification of the significance of the immune-mediated response might further the belief in the independent predictive quality of PV-10-derived immune cell infiltrate for long-term survival of cancer patients.

Which brings me back to the meme I used to open this post. By completing the feasibility study, it would seem Moffitt would have provided the FDA with the "ironclad explanation of the bystander effect" sought by Provectus in 2010. Which then leads to contemplating the resulting "more aggressive pathway to approval." AA, BTD or outright approval? It's no longer about whether the drug should be approved, but rather how it should be approved. When Craig presented in town to biotech and life sciences industry folks, and some investment management people, in early-June, he said the FDA had asked Provectus to submit a BTD application.

If it's not a question of when was the SPA and/or BTD submitted, I think it's a question of when was (and what proportion of) Moffitt's feasibility study data (was) transmitted to the FDA. This remaining item should be what's left, or what remains. Interim results already have been generated. By early-June, before ASCO, the bulk of the work had been completed.

I read Peter's "very optimistic" stance by Provectus about BTD relates to the outcome management thinks is possible or probable. Perhaps they know the outcome, or at least have a good to very good idea about it. As of June 28, the FDA's CDER's performance on breakthrough requests was 98%, where where action was taken within 60 days of receipt of a request for BTD. It's possible for the so-called clock to be shorter than the planned time frame.

If, at best, management surmises the regulatory clarity outcome, or range of outcomes -- outcomes that in all likelihood clearly define the path and time to approval (the "time value of money" to both Big Pharma and life sciences investors) -- it would seem rational to not strike a regional transaction until the regulatory veil has been lifted. Two Chinese, one Indian and one Japanese pharmaceutical companies very recently entered into confidential disclosure agreements ("CDAs") with Provectus. I don't have a sense at the moment about the names of the Indian and Japanese firms, but I think one of the Chinese companies is Hisun-Pfizer Pharmaceutical. China economics for Pfizer continues to interest me: 25% of PV-10 sales if Provectus strikes a deal with a Chinese pharmaceutical company by virtue of owning/receiving that royalty figure, 49% if the Provectus partners with Hisun-Pfizer, and 100% if Pfizer goes it alone in China (since Hisun-Pfizer was established to produce branded generics).