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.
5. 424B5, a prospectus supplement (to the prospectus dated July 20, 2012, filed pursuant to Rule 424(b)(5), and related to this series of filings). Provectus entered into a Cantor branded, $50 million "Controlled Equity Offering" sales agreement, or an at-the-market ("ATM") offering. Adam Feuerstein provided comments about these offerings in a July 2012 article. While I have yet to complete my review of the Cantor agreement, the company entered into similar arrangements (but with at least one noticeable difference, the then counter parties were would-be purchasers of stock rather than agents in the case of Cantor) with Lincoln Park Capital in December 2010 and Alpha Capital Anstalt in July 2013. Provectus did not draw down on these $30 million facilities in the past; however, the share price rarely if ever exceeded their $0.75 price threshold.
Three months later, presumably after considerable documentation provision to and other due diligence by NYSE Euronext, Provectus may soon up-list. By doing so the company would shed, after twelve years almost to the day, the vestiges of its OTC existence (e.g., a reverse merger into a public shell, a minor exchange, Network 1, Maxim Group, etc.) and hopefully put the bad and ugly but not the good behind it to begin and end life on a major stock exchange (e.g., Roberti+White, Cantor, breakthrough therapy designation, ASCO, etc.).
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