What a $PVCT #Week, #Month and #Year Thus Far

What year-to-date performance for PVCT, and versus the iShares Nasdaq Biotechnology Index (to compare): +43% v. +9% (+6.5% for the S&P 500 Index).

One year. Different: -8% v. +25% (+11.2%)

Will $PVCT Peter Procure Provectus Peking Pork?

#China: A $30B #Pharma Opportunity for #Biotech $PVCT?

If you look at Provectus' most recent website presentation, which can be found here (n.b., this link will remain the same; however, the presentation to which it is linked will change as the presentation is changed), the bottom of slide/page no. 21 indicates management sized the company's opportunity in China (the four cancer indications of interest there being melanoma, liver, bladder and lung) as $30 billion.

How did they arrive at this number? Management used:

• Counsel and input from several key Big Pharma executives,
• A customary DCF calculation,
• A conservative 10-year time frame, and
• Conservative penetration rates.

"Conservative" above is the company's viewpoint, and not mine. Other assumptions, which Provectus has either not yet confirmed or not commented on, should include:

• A discount rate (for management's DCF analysis) of the company's WACC,
• A price of $5,000 per single use vial of PV-10 (although this may have changed),
• Upfront and milestone payments gross of the agent's* success fee, and
• A certain double digit royalty percentage, also gross of success fee.

The $30 billion is an NPV figure. Most folks, on first blush, probably would laugh not only at the perceived deal value but at management's attempt to secure anything remotely close. This topic, of the perceived value (among other valuation aspects) of a China deal, is a worthwhile blog thread to pursue further.

Management, if pressed, might simply say the China deal could be worth about $1 billion, with customary features:

• 4-5% upfront payment,
• 11-15% milestone payments, and
• 75-80% royalty payments (i.e., the balance of a $1B NPV value).

It appears Peter is traveling to China the week of February 25th. I imagine he could return with (i) no deal, (ii) a deal (reportable event) or (iii) an exclusive agreement (i.e., letter of intent) for a certain period of time (e.g., 60 days) with the chosen/target strategic partner to consumate a deal (reportable event, too). I plan to write more on this topic as his trip nears and as it progresses.

* Successfully entering, networking (guanxi), navigating and ultimately securing business in places like China often requires the use of experienced, well-connected and often in-country intermediaries and agents such as the one Provectus has utilized for China and India.

$PVCT: The Challenge. The Opportunity. The Total Addressable Market.

Source material: "Black swan theory," Wikipedia. "The black swan theory or theory of black swan events is a metaphor that describes an event that is a surprise (to the observer), has a major effect, and after the fact is often inappropriately rationalized with the benefit of hindsight. The theory was developed by Nassim Nicholas Taleb to explain:

• The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology
• The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
• The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs."

"Taleb regards almost all major scientific discoveries, historical events, and artistic accomplishments as "black swans"—undirected and unpredicted." Taleb introduced black swan events in his 2004 book Fooled By Randomness.

I think the pervasive use of PV-10 -- first, second, last and everywhere in between during the treatment of cancer patients -- as a potential black swan event.

Click figure to enlarge it. Source map here.

Assume:

• A PV-10 treatment price (for the necessary cycles of RB to treat a particular indication), using a number of injections per vial, a number of vials per cycle, a number of cycles per treatment (the number of cycles will vary from indication to indication), the price per vial of PV-10, etc.,
• The treatment of a percentage of annual, global, new incidences of cancer,
• An average annual royalty rate,
• Initial penetration rates that grow to their respective equilibrium levels, and
• Perhaps some fine tuning on a per indication basis (although I am fan of a McKinsey'ish 8-20 to garner a perspective of the size of the potential black swan event.

The result is a very large total addressable market.

My point is this: A dispassionate and objective case can be made for a good return on investment outcome for Provectus shareholders, including myself. My investment, while founded on this outcome, is, however, more focused and a play on the potential of a PV-10 black swan.

$PVCT: Immunologic Potential, and thus Value

"The holy grail for cancer would be to trigger the body's own immune system to fight off the cancer so that you somehow stimulate the anti-bodies in a way that that happens." Fareed Zakaria, CNN GPS, from a December 9, 2012 interview with Dr. Ronald DePinho, President, M.D. Anderson Cancer Center

The progression of PV-10 & Provectus potential value

Click figure to enlarge it.

My expectation (above) most certainly is a very lofty one.

The conclusions of the forthcoming immunologic mechanism of action characterization work by Moffitt Cancer Center could be profound. Will Moffitt researchers make full-throated statements regarding PV-10's immunologic potential?

PV-10: A robust (strong), durable (long-lasting), portable (vaccine-like) immune-mediated response.

$PVCT: 地理许可证

Provectus' share price has bounced above, below and around the 60-cent level following last month's terminated PVCTP "IPO." The SPA process has taken a toll on the stock in 2012. The market and life science investors' "certain" view the company will be forced to undergo substantial dilution to raise the necessary money for key and pivotal clinical trials (MM Phase 3, HCC expanded Phase 1 and Phase 2/3, pancreas Phase 1) weighs heavily on the share price too.

While management explored the opportunity to execute an "IPO," quarterly filings for Q2 and Q3 2012 indicated other avenues for seeking cash, such as from outlying geographic licenses (e.g., Australia, China, Japan,   MENA).

2Q12 10-Q Filing -- Click on the figure to enlarge it.

3Q12 10-Q Filing -- Click on the figure to enlarge it.

The horse race, which previously had a dermatology transaction and geographic-specific oncology deal in the lead (unless a company-friendly "IPO" could have been had to overtake them; in hindsight, it could not), now might see (for now at least) an outlying geography deal for oncology assume the lead. I am not sure if Provectus is in the homestretch in this regard, but we could shortly see if it is.

$PVCT.OB: Trying to See Provectus' Forest For Its Trees

The SPA: The path to the SPA, from an investor perspective, like mine, has been an interesting and informative one. It also has been a difficult and impatient one. You may recall I linked to this article about pursuing an SPA: Special Protocol Assessment, a Blessing or a Bane? The author's take home messages certainly resonate:

• "Make sure you really need an SPA. It may take longer to obtain one than you think."
• "If you choose to pursue an SPA, be unambiguous in the questions you ask and meticulous in your filing. Be realistic about the timing."
• "Be prepared to explain your reasoning to investors and board members."

You probably have heard different versions, views and reasons of when the SPA will, might or could arrive. From:

• A "final" re-submission sometime in September or October [early- to mid-November], to
• Within 6 weeks or by December 15 [now through mid-December], to
• Foreshadowing by the October 2 PR's specifics regarding the trial design [mid-November], to
• Using math for the September 19 PR first indicating the MM Phase 3 trial would commence in late 2012 or early 2013 [mid-November through at least early-January].

You may recall A, which I blogged here, that ended in the January 18 PR; B, the 45-day count after the end of March and best case Q2; and C, base case Q3. I see A as demonstrating the potential upturn in the share price when the SPA arrives, B as the markets taking a wait-and-see attitude, and C as more increasing skepticism about the SPA rather than simply a commentary on timing.

The person on the management team who has had and continues to have the best perspective on SPA timing is Eric. Management had to waive off their base case Q3 expectations using their September 19 PR. The October 2 PR clearly was intended to affirm the SPA was on its way (using trial design specs and quotes by Eric), but no one knows exactly when the SPA will arrive including, I think, Eric.

"It's not a matter of if, it is a matter of when, and we are much closer to the end than we are to the beginning."

Your and my best bet is to keep an eye out for the SPA over the next few weeks, but do not be surprised if it arrives in December (maybe or possibly) or January (I highly doubt). When it does arrive, those who doubt the potential for the SPA to move the share price, thinking it has been priced into the share price (which I think is incorrect) might be surprised.

License deals. Management reminds us they currently are pursuing PH-10 and PV-10 geographic deals, which they think can happen at any time. They remain very confident one or more of these will happen.

More Moffitt data. The October 29 PR (more specifically, the poster included with the PR) noted more Moffitt data is expected in 2013 (the AACR annual meeting). Management is trying to get some information out about Moffitt's ground-breaking results sooner. Moffitt's Phase 1 MOIA human trial to elucidate the bystander effect should begin in November. Turnaround should be swift (i.e., a few months if that).

Surprises? Perhaps, including certain publications in play and other potential surprises, but we will have to wait and see.

$PVCT.OB: A Quick Post-Mortem On An Aborted $PVCTP "IPO"

There is much to which to look forward. Looking back:

• The finance industry can be the valuable grease that enables the gears of the global economy to operate more efficiently and effectively. A piece of the industry also is a cesspool. Investment banks, white shoe, boutique and, er, other, have bet against their clients since time immemorial (okay, that is hyperbole, but you get the idea). The "good" banks are not obvious about it. If you are going to bank Provectus (i.e., if you are going to provide, in this case, investment banking services like IPO underwriting and equity research coverage), could you not be more discrete about  the other part of your bank trying to drive down the share price (for the betterment of prospective "IPO" buyers)? Allegedly, of course.

• I have asked the company to open an investigation into the illegal solicitation (i.e., sell recommendations or "suggestions") and shorting of Provectus common stock: Claims of illegal recommendations by certain Maxim executives and retail reps to existing and prospective clients to (a) sell their common stock and/or (b) short the common stock in order to (c) profit from the subsequent share price decline and (d) ultimately benefit from their participation in the "IPO" from enjoying a better conversion ratio resulting from the premeditated driving down of the share price. There are undoubtedly much more productive uses of company time, resources and dollars; however, at a minimum, I hope FINRA knocks on a few Maxim doors.

• The PVCTP "IPO" process hurt management's credibility.

• Management's decision to terminate the offering helped its credibility.

• Bidirectional bridges between shareholders and management should be redesigned and then rebuilt.

Oh, I forgot. One more thing: Dear Maxim, yippee ki-yay, motherf@$#er!

$PVCT.OB/$PVCTP: Friday Can't Come Soon Enough

One of my most vivid capital markets memories was of my first introduction to market expectations. It was a Friday morning during late autumn, and I was sitting on the T-bill desk of a bank trade floor. As an apprenticing trader for this bank, I went through rotations on different product desks. It was non-farm payroll Friday. Chatter quieted to murmuring and then became silence as the clock approached 8:30 am EDT. At the designated time, non-farm payroll data burst across the newswire. The number greatly exceeded the consensus figure by (I think) several hundred thousand. As far as I can recall, the number caught nearly everyone by surprise. Traders and salespeople on a floor that housed hundreds of employees reacted differently (much more, more or less animated, or not at all) depending on how their respective books were positioned in advance of the number in accordance with their belief of whether market expectations were going to be exceeded, met or not met. The traders on the interest rate derivatives desk, where my eyes were fixed at the time, were jumping up and down, high fiving one another and slapping each other on the back.

Friday, ironically, cannot come soon enough. The negativity or negative energy I have experienced and felt since the beginning of the PVCTP "IPO" process is unproductive. There is so much to the science of and patient benefit from rose bengal and PV-10, and to the stock and its eventual purchase by Big Pharma that I wish to blog more about. The last several weeks seemingly have stolen attention (understandably) from more interesting, more substantive topics.

The market anticipates, generally speaking, a PVCTP "IPO" at company unfriendly terms (i.e., expectations). Potential outcomes for Friday essentially include:

1. A PVCTP "IPO" at company friendly terms (e.g., $15-20MM raise, a 2-to-1 or lower conversion ratio, 50% warrant coverage). The market does not expect this;
2. A PVCTP "IPO" at company unfriendly terms (e.g., $15-20MM raise, an at or near at market conversion ratio [i.e., 6- to 8-to-1], 50% warrant coverage). The market expects this and is pricing some or most of it into the current share price; or
3. The PVCTP "IPO" is killed. The market does not expect this.

Should #1 or #3 occur, the common stock share price would jump higher to varying degrees (#1 > #3) on Friday, and ascend next week.

If #2 were to occur, I think any initial sell-off of the common stock (presumably or likely by retail investors) eventually should turn into an upward move later (J-curve effect) because the presumption of the "IPO" is a steady stream of news and media awareness following its launch (and the spectre of the punitive effect of the "IPO" on the common stock will have disappeared).

While it is possible we may repeat whatever this is one more week, this Friday cannot come soon enough.

$PVCT.OB: What we do in life echoes in eternity.

Fratres! Three weeks from now, I will be harvesting my crops. Imagine where you will be, and it will be so. Hold the line! Stay with me! If you find yourself alone, riding in the green fields with the sun on your face, do not be troubled. For you are in Elysium, and you're already dead! Brothers, what we do in life... echoes in eternity. -- Maximus Decimus Meridus in Gladiator

I want to:

1. Share my speculation about what I think happened towards the end of the third quarter and how it relates to the temporal nature of the PVCTP "IPO,"
2. Explain why I will invest a token amount of money in the "IPO" if it happens, and
3. Write about management's poker hand, the hand they have dealt shareholders, and how both of them might be played.

1. Speculation, Will Robinson. Speculation.

I think management was convinced the SPA would arrive by the end of Q3 and the PVCTP "IPO," which was supposed to have been in the right place at the right time, was being teed up to follow it.

As we know, Provectus and Peter have been working several financing options:

• The "IPO,"
• A dermatology license deal,
• One or more geography-specific oncology license deals, and
• A strategic investment from a Big Pharma entity like Pfizer as the sale of common stock at a premium to the share price (or, as mentioned above, an "IPO" led or co-led by a Big Pharma company).

Each of these has its own value proposition (i.e., pros and cons), but the propositions are temporal, having greater or lesser value as a function of time.

For example, the best option today for shareholders would be an optimally valued (i.e., net present value) and structured (i.e., upfront, milestone and royalty payments) dermatology or geographic-specific oncology license deal yielding an upfront payment sufficient to at least pay for the pivotal MM Phase 3 trial. Optimality, however, might be more likely to be achieved later rather than sooner, in November or December.

A sale of common stock to a Big Pharma company would be "more optimal" if the price at which these shares would be sold was much, much higher than Friday's close of $0.59, like at least $4. But why approach or ask a Big Pharma company like Pfizer for this kind of strategic investment unless you have or need to ask? In my view you ask after the SPA is in hand and if you determine (a) the PVCTP "IPO" is not feasible and (b) dermatology or mini-oncology optimality is later rather than sooner.

Up next is the PVCTP "IPO," which, for a certain period of time, provides attractive and pragmatic ways to begin driving company valuation dramatically upwards:

• Attractively: A NASDAQ listing would facilitate new buyers, who could not buy the common while it remained an over-the-counter stock, and more national media attention from major journalists and reporters, who would not cover Provectus until it traded on a major stock exchange and was in Phase 3 trials.

• Attractively: A smart IPO, led by Pfizer (and J&J or a life sciences investor like OrbiMed) and with a conversion ratio and warrant coverage good for existing common shareholders, would draw many more new buyers to the preferred stock listing itself over time.

• Pragmatically: A $15-20MM raise at an acceptably high valuation, while creating dilution that a dermatology or a so-called mini-oncology license deal would not, fully funds the pivotal MM Phase 3 trial. There would be no need to force or rush dermatology or oncology deals, nor completely rely on them to commence the MM trial. The trial could start within 30 days of the SPA PR and move Provectus and its shareholders closer to the interim analysis of at least the first half of the trial's patient population.

A smart PVCTP "IPO" is a better temporal option in October than a dermatology or mini-oncology license. In November, it might not be.

Back to the SPA PR. It was the first domino to have fallen in a hoped for series of them, whether the next temporally best one was a license deal or the "IPO."



But the SPA did not arrive by the end of September, despite very ernest and serious expectations set to the contrary by folks directly interacting with the FDA. It is coming, but it was not nor is not here yet.

To compound these missed expectations were:

• Shorting of the stock (end-of-September short interest was nearly 100% greater than the end-of-August figure) for whatever reason(s),
• Selling of shares (September's monthly amount of traded shares was nearly double that of August's) for whatever reason(s), and
• The PVCTP "IPO" process, and particularly the aspect undertaken by Maxim Group's retail banking side.

Th "alleged" sloppy "IPO" process was made much more so by "alleged" disgusting behavior by some Maxim retails reps spreading baseless "facts" about the "IPO's" details. I used "alleged" because, while Paul LaRosa from Maxim's capital markets part of business agreed Maxim reps should not have been saying what they were saying, the reps themselves probably would say they were doing nothing wrong. "Alleged?" I crack myself up.

The rep revenue model is predicated on the number of transactions they encourage and facilitate. The revenue model is not based on asset appreciation.

I now have what I think is a better handle on the increase in short interest, and will wait until October reporting dates to confirm this. In the interim, am I concerned? No. Am I annoyed and irritated? Yes.

There is the thought one very determined seller has been and is getting out of the stock. Could he/she/it have thrown in the towel for whatever reason(s)? Most likely yes. Does he/she/it know something we do not? I am betting my share ownership (note: no sales of any shares bought) the answer is "no."

Funds holding Provectus preferred and/or common shares have much different pressures than entities and individuals. The quarter-to-quarter reporting to investors and limited partners funds in this group (as opposed to a venture capital or private equity fund) are required to provide make it difficult to hold to an investment thesis because of complaints of poor performance by these very investors and LPs. Such theses turn into trading ones, if they did not start out as such. Did someone's patience runout? Probably.

So, here we are today, observing an IPO that keeps getting pushed out, from the week of:

• October 1st to
• October 8th to
• October 15th to, likely,
• October 22nd.

While the preferential path to financing might be a dermatology deal, the "IPO," for the reasons I presented above and others, is temporally better. I think, however, it needs an SPA PR to launch it, and I do not see the "IPO" occurring until after an SPA PR is issued. As such, if the "IPO" does not occur in October, management will probably pull the plug on it because other financing options would have become temporally better.

2. I got your initial public offering RIGHT HERE! (w/gesture)

If the PVCTP "IPO" goes off, I will participate in a very small way. I prefer buying common stock.

I work hard to maintain an objectively dispassionate investment case to buy and hold Provectus stock, but I am not always successful as emotion does creep in from time to time. I have an emotional attachment to this situation. Seriously folks, who blogs this much about one company or stock if they are not part of it? Participating in a token way in the "IPO" is something to add to "the box" that holds the collection of my life memories.

Emotion aside, however, the ROI from buying common stock should exceed the ROI of buying preferred stock (when compared together and presented as a choice of whether to buy the "IPO" or spend the equivalent amount of money buying the common stock), irrespective of what a Maxim retail rep tells you. Of course, you could always trust Chris Varick.

Let us make some assumptions to frame this analysis -- and please let me know if you disagree with my work below (as I am open to feedback and being corrected). I will toggle these later under certain circumstances to make some illustrative points. Nevertheless, the key assumption underlying my belief of a better common share ROI is that Provectus will not do a dumb IPO.

Let us assume you have $100,000 to either spend on the "IPO" or just buy common stock. In this analysis, you cannot buy both. Furthermore, since you do not know if and when the "IPO" goes off, you have to make a reasonably timely decision: wait for the "IPO" to happen or buy common stock before the SPA PR is issued. The SPA, which management surely knows they now have, should not affect the terms of the "IPO" but should increase the price of the common stock post-announcement.

Do you buy the "IPO" whenever it goes off, or do you buy common stock, say, starting Monday?

I assume about 150MM fully diluted number of shares of non-listed preferred and common stock, stock options and warrants. PVCTP deal terms then suggest some more shares. "As converted" means I used the conversion ratio above (i.e., 1) to convert the PVCTP shares and warrants on PVCTP shares into the appropriate but requisite number of common shares.

On an as converted basis, your $100,000 gets you (a) 35,000 PVCTP-derived common shares or (b) 166,500 common shares.

Let us assume the company is acquired for, among other things, a $1B upfront payment (i.e., the preferred shares you bought when converted into common stock or your common shares you bought are exchanged for your pro rata share of $1B) on December 17, 2013. Let us also assume the IPO still happens: you either participated in it, or you bought common shares and did not. I make this assumption only to simplify the analysis in some ways. If you buy common stock and the IPO does not go off (i.e., it is November and Provectus completes a license deal), the fully diluted shares outstanding figures remains at $150MM and your common stock ROI is higher.

Let us also assume you convert & exercise/sell your preferred shares and warrants, or your common stock, when the acquisition transaction occurs.

The outcome makes sense. A smart IPO implies a healthy valuation at which PVCTP "IPO" shares were sold and, thus, a substantial uptick (about an order of magnitude) from today's market capitalization. Under this scenario, one should of course buy the common stock, say, starting Monday, then wait and buy the IPO.

Hold on a second! Didn't your stock broker, er, Maxim retail rep "allegedly" tell you to flip the preferred shares and hold onto the warrants as "a lottery ticket?"

The flipping-your-preferred-shares ROI is less than the hold-your-preferred-shares ROI, which should be much less than the buy-common-stock ROI.

Maxim's "alleged" story only works -- that is, you make out like a bandit by indeed cashing in a lottery ticket -- if the conversion ratio and, to a lesser extent, warrant coverage is very punitive to existing common stock shareholders, such as 6- or 7- or 8-to-1 and 60%, respectively. That is, the "IPO" is a dumb "IPO."

A 2-to-1 conversion ratio (and, say, 50% warrant coverage), worse than my initial example above but far from punitive more than doubles your return from buying the "IPO;" however, one makes more money, again, by just buying common stock soon.

To be fair, a dumb IPO produces a result where buying PVCTP and eschewing the common stock is the better course of action.

3. "Poker is not a game of cards played with other people, it is a game of people played with cards."

Right now, Provectus only needs money to literally keep the lights on and the water running (note: hyperbole). Fixed costs are low. The burn rate can be turned down and compensation deferred, with a focus on those activities, and whatever variable costs are associated with them, that drive value (e.g., the end-of-phase 2 meeting with the FDA for psoriasis, remaining toxicity study parameter elucidation, etc.) until money targeted for key, pivotal and other trial work is raised or obtained.

In this game of poker, management will play the hand they think they have the way they see fit. I think:

• The company's hand is very strong,
• Management thinks the hand is a royal flush (I think the hand is a royal flush, too),
• Provectus has enough chips (cash on hand, and temporal cash needs) to play it well, and
• Management will play it well (i.e., not raise money in a dumb way).

I am betting my share ownership on this. Of course, I could be quite wrong (note: the usual economist's conviction of "on the one hand, ..." but "on the other hand, ...," which is why we need more one-armed economists).

Now, what kind of poker hand do you think it is: a straight flush, four of a kind, a full house, worse or one that can be beaten? Which hand you have is up to you to determine. How you play it also is up to you.

There is no doubt of the battering the share price has taken since the beginning of September, let alone this year or over the last several years. I see it. I feel it. I understand it.

You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run. 
You never count your money when you're sittin' at the table.
There'll be time enough for countin' when the dealin's done.

The company needs money, but not in the way the markets and most observers think Provectus does. Management has indicated they will do a smart IPO if they do one at all, and that raising money below $1.12 is not in the cards (pardon the pun). Anonymous wrote "[p]oker is not a game of cards played with other people, it is a game of people played with cards."

Playing your poker hand requires you to ask yourself how management will play their hand.

Disclaimer: This blog is neither intended to be nor is investment advice. The author of this blog (the "Author") is not a registered investment advisor. Under no circumstances should any content from this blog be used or interpreted as a recommendation of a trade or investment in Provectus Pharmaceuticals, Inc. Trading and investing can be hazardous to your wealth, health or both. Any investment decision must, in all cases and without exception, be made by the reader or by his or her registered investment advisor. This blog is only and strictly for educational and informational purposes. The Author may have a position in Provectus Pharmaceuticals, Inc. at any given time that is not disclosed at the time of publication. All opinions expressed by the Author are subject to change without notice. You, the reader, should always obtain current information and perform the appropriate due diligence before making any investment or trading decision. All efforts are made to ensure the information contained in the blog and/or a blog post is factual and accurate; however, the Author does not guarantee its accuracy under any circumstances.

$PVCT.OB's PVCTP "IPO:" Maxim (update)

The current Maxim presentation of some of the deal terms. Like many of you, I expect to receive another update from them Wednesday:

• Still, an "at market" conversion ratio, where the ratio is based on the common share price at closing/final pricing of the PVCTP "IPO" 

• Not accurate.

• 40-50% warrant coverage, but no higher than 60%

Some new information about firms to whom the company has presented itself and as having interest to invest:

• Vivo Ventures,
• Tavistock,
• Deerfield Capital Management, and
• RA Capital.

$PVCT.OB Short Interest

In context, short interest is not a big percent of float, but a 35% period-over-period increase to a new high is notable.

$PVCT.OB's PVCTP "IPO:" Maxim Edition

Maxim reps have been calling around to solicit interest to invest in PVCTP's "IPO." Offering details (e.g., lead investor(s), offering amount, offering price, conversion ratio/price, warrant coverage & exercise price, etc.) do not appear to be established yet. We should learn more later this week. The goal seems to be an "IPO" pricing/closing next Wednesday or Thursday.

Blog Reader Statement About $PVCT.OB

As a followup to the blog question just posted, I can't help but wonder, if an SPA and a derm deal, and an onc mini deal are around the corner, why would the this potentially preferred share offering be offered in the first place, if the putative purpose is to get the stock onto the NASDAQ, which only takes a stock price of 2 for 5 days. Also, I had thought there was going to be basically no more dilution, and yet, we're hit with this out of the blue. I'm not sure there's anything either you or management can say at this point to make me feel happier about holding this stock for 6ish years.

It has been a brutal September thus far. The share price has dropped 17% on extremely heavy volume. 8 trading days into an 18-day month, total monthly volume (1.9MM) nearly equal August's (2.2MM) and is on track to double it by month's end (4.3MM).

What to make of this selling? One view, from an investor and shareholder I highly respect, is the selling is technical in nature, meaning it is coming from nervous shareholders concerned the preferred stock filing will dilute their interests, Dr. Adams (speculation, of course, but based on past experience), larger shareholders who are done waiting, and nervous nellies.

Shareholders like yourself need an explanation of the preferred stock filing, the concept, strategy and rationale behind it, and the minimum requirements for listing the PVCTP security on the NASDAQ.  Such factual information about this security and the minimum listing requirements should allay some fears, potential misunderstanding and lack of understanding that may exist.

But selling is selling. And as traders and investors, it is stating the obvious it is well within out right to offer shares for sale or hit the bid, begrudgingly or angrily acknowledge losses, and move on. Still, the share price is the result of the decisions, inefficient as they are, of market participants engaged in the buying and [mostly] selling of the stock; essentially, the behaviorally-motivated meeting of supply and demand.

The goal of the blog is not to make you feel happy about holding Provectus stock. I think the SPA is around the corner, and I think there is promising opportunity in potential dermatology and mini-oncology deals, but I do not know when these will occur exactly, or if they will occur (although I highly suspect they will).

The goal is equal parts writing a story, sharing information, creating or fostering a community of those invested financially and emotionally in the stock, blogging history, testing and re-testing and re-re-testing my investment thesis, etc. I could (but I won't) point to more than 10 separate, specific and substantive data points that make me think Pfizer, without any doubt, wants to do a transaction with the company. But, I do not know for sure if they will (although, again, I highly suspect it).

If you think the company and drug's value proposition no longer holds, there is no logical reason to continue to hold shares of the company. The best decision you can make is to acknowledge this failure [in your view, although I am not saying this is your view] and re-invest those monies elsewhere.

From a clinical value proposition, nothing has changed. Referring to Peter Culpepper's slide number 17 from his Rodman & Renshaw presentation this week (which I created and developed for the company at of course no cost to them) remains:

• Very efficacious,
• Very safe,
• Local regional and systemic benefits,
• Multi-indication viability,
• Repeatable, reproducible and veracious results, and
• Further efficacy from combination therapies.

The risk-reward profile remains, in my view, the same (if not even more tilted in the direction of return rather than risk) :

• The potential or probable upside from current share price levels ($0.63 closing price as at September 14) is much more than commensurate downside risk (adjusted for possible future dilutions).

At its most basic, if I am wrong, and the drug only has utility as a local-regional treatment, the stock is worth $3 to $7 per share (i.e., the present value of acquisition payment milestones). If I am right, and the drug is accepted for its systemic benefit, the share price should exceed a present value of at least $15 to $20.

Could the share price go lower? Sure. Could it take longer to monetize the above figures? Sure.

But the downside risk of, perhaps, 10% to 20%, primarily driven by nervous nellie selling, is acceptable in my view given the at least 500% upside return from here (if I am wrong, and the stock maxes out at $3 per share). Our cost basis, while higher than Friday's closing price, has a comparable risk-reward profile (i.e., at least 300% upside return potential).

The greater point you raise is that this story (with thanks to a regular blog reader and someone who regularly e-mails me with questions and comments about Provectus) is not new. If it were, you, he and I would be rich, beautiful or handsome, and always right.

For traders and investors alike, buying is easy. Too easy. Selling (i.e., closing one's position) -- the why and when -- is much, much harder, and what distinguishes us from everyone else.

Investment management is the profession to which I find myself having devoted the last 15 to 20 years. It is the craft I have endeavored to hone.

When do we sell, and why? Selling occurs because we have captured the upside we expected to materialize, or because our thesis failed. I started my capital markets career in the trader and salesperson intake program for a global Canadian commercial bank. I wanted to be a trader. It was cool, and what I thought I wanted to do. With the benefit of growing older, I now know that investment management is all I ever wanted to do -- all day, every day -- as I recalled sifting through the stock market pages of the local newspaper every morning as a child to see whether "my stocks" had gone up or gone down.

I knew it all: Two degrees from MIT (engineering, public policy), one from The London School of Economics (economics), a Rhodes Scholar nomination, etc. I made money (or succeeded) easily, sometimes with more effort, at every stop in the program: currencies, interest rates, commodities, derivatives, quantitative analysis, retail, corporate, institutional, etc.

When I finished the program and landed in Chicago on the currency derivatives desk (the head of which I had lobbied very hard over many months to accept me as a team member), a proprietary trading desk (both in actuality and for all intensive purposes given the lack of significant customer flow), my knowledge met for the first time (but not the last) its limits. I found myself not being able to short the Canadian dollar. I made money as a junior trader apprenticing the seniors traders of the mark, pound and yen books, or managing the secondary currency books. But I could not consistently make money trading CAD. No way, no how.

When the head of our desk discussed this lack of success was tantamount to, er, inevitable future lack of employment, but more specifically separating love of country from love of currency, betting against the currency as proprietary traders in the currency asset class are wont to do, I found consistent sustainable success. I then knew, at the time, when and why to sell (i.e., much more often than not when and why to close an initiated position).

Following this experience, I left for Wharton to pursue my MBA. It was a very "interesting" time: the Internet, online trading, cell phones, Mary Meeker, Henry Blodget, IPOs, sock puppet spokespeople, bricks and mortar businesses, b-to-b (business-to-business), b-to-c (business-to-consumer), Goldman Sachs, Morgan Stanley, McKinsey, Wilson Sonsini, Kleiner Perkins, Sequoia, eyeballs, valuation in per engineer units, virtualizing any kind of business (like funerals), exchanges, etc. Oh, and I got married to my wife @Wharton.

During the run-up in the NASDAQ and the subsequent run down, I turned a mid six-figure principal amount into a near mid-seven figure number (who didn't, really?) into a low six-figure number (who didn't, really?). On the way up (i.e., buy-sell, buy-sell...), I made money, but a rising tide raises all boats. On the way down, I could not sell. I did not know why, and I certainly did not know when.

I graduated, and began work with a privately held operating company that was responsible for one of the largest Internet-based company IPOs in history at the time. As an aside, through an IPO, two follow-ons and the merger with another company, our portfolio ballooned in size because of this security (together with the appreciation of other public and private securities) to nearly $20B. During my time with this company, I ultimately co-managed investment activities, carrying out deal sourcing, due diligence, structuring, negotiations, transaction execution, portfolio company management, and securities monetization. I led or helped lead investments in more than $100 million in more than 20 companies in communications and enterprise software, healthcare and life sciences, nanotechnology, network infrastructure and security, and wireless software and systems. Overall, our team invested several hundreds of millions of dollars. When the dust settled, we enjoyed a materially positive cumulative return on investment.

From this experience, I began to learn how companies were built, both superbly, well and badly:

• Bottom up, when I focused on functional areas, like research, product development, sales, marketing, finance, etc., and worked with management, like the CEO, CFO, CIO, SVP of fill in the blank, VP, salesperson, engineer, etc.; and

• Top down, as a board member or observer.

Although it can take more time to sell a private company -- private securities are illiquid -- I continued learning when to sell and why: If someone offers you a check, think about (i.e., consider) selling, because (i) you might not get a bigger or any size of check later, (ii) your competition might eventually eat all or most of your lunch and, later, no one might find you interesting enough to buy, (iii) it is a lot of money, and you want it (there is nothing wrong with that), etc. If someone offers you a check, you could turn it down because (i) you are objectively, thoughtfully confident you can get a much bigger check later, (ii) you think you can build a sustainably successful company with more time and you do not want to sell right now (that is okay, too), etc.

I saw "bull" and "bear" markets through the cyclical ups and downs of currencies. Most of the equity portfolio managers of my vintage had never seen a vicious bear market in stocks (unless they were actively aware during the popping of the NASDAQ bubble, and appropriately scarred but still viably functional). The financial crisis of 2008 and 2009 was a seminal moment in my capital markets career. I knew when to sell, and I knew exactly why. We moved almost entirely into cash in late-2007 and early-2008 and waited very, very impatiently until March 2009 before going nearly all-in with the aforementioned cash. I knew when to buy and why.

Here is a great example: I knew Teck Resources, weighed down by an excruciatingly large amount of debt from its acquisition of Fording Canadian Coal Trust. Such debt was held nearly exclusively by Canadian commercial banks. Teck was not going to go bankrupt, and its equity was not going to zero. First, and remember the time and what talking heads were shouting and parroting on CNBC, the world suddenly was not going to stop ALL use of ALL commodities (i.e., the world as we knew it was not going to end). Second, the Canadian commercial banks were not going to be overly punitive to a major Canadian company in their collective backyard.

So, I bought. A lot. I knew when to buy and why. And I made a lot of money. I sold the entire position in late-2009. Did I know when to sell and why?

Well, maybe not so much.

The point here is not to top-tick a particular capital market or a stock's share price. The point is I did well, and I could have done better. Investment management is a craft at which we spend our entire adult lives trying very hard to become better and better. But there also is the point we spend a lot of this time trying to become better and better sellers. At least that is what I am doing with my time.

After leaving my corporate venture capital job, but before going out on my own, I worked for an incredible entrepreneur making opportunistic venture capital and private equity investments from his large capital pool, and managing these investments (sometimes from the ivory tower, sometimes from rolling up my sleeves and reprising my role of facilitating business building). The lessons he taught me I use today and will continue use them until I no longer can. For example, the creation of true wealth is not making a 30% return on investment; rather, it is trying to make 300% or 3,000%.

Show me someone who says he consistently makes 30% or thereabouts day, week or monthly trading a stock or currency or another asset class, and you have just shown me a liar. Show me that someone who has become really wealthy doing that, and I will ask you why are you showing me this person.

Consistently making a lot of money as a trader, investor or fund manager is very, very hard. It is the exception that proves the rule. I am not talking about the management fees one can charge on a pile of OPM (other people's money). I'm talking about making 300% or 3,000% on an investment. If you are a hedge fund manager, you have made your investors and limited partners a lot of money, and 20% of a lot still could be a lot.

Making true wealth requires concentration (of one's time, resources and money), time, perseverance, a little hope and faith, and objectively and critically assessing and re-assessing your investment or business thesis.

Which brings me back to Provectus. This company, if/when I am successful, will be the seminal moment and investment in my investment management career to date. I have concentrated my money (don't tell my wife...). I am looking for a 2,000% return or more (actually, much higher). I certainly have some hope and faith. But mainly I have objectively and critically assessed and re-assessed and re-re-assessed my investment thesis. And I continue to do so.

Is it frustrating to watch what is happening with the stock of late? Absolutely.

When: Is it time to sell? I do not think so.

Why: Has anything changed for the negative in my thesis? No. Several items have changed for positive, and by a lot.

Blog Reader Statement About $PVCT.OB

A view from The Peak, Hong Kong

The price is making me ill. Was the preferred share option a mistep by management? I emailed the company and they seemed to think it would raise the stock price, but this is clearly not true at this point. It's just extraordinarily discouraging after holding the stock for so many years to see it at this point.

I will have more comments later tonight (my evening in Hong Kong, and your afternoon in Europe or morning in the U.S.) after I return from a reception and dinner at Cafe Deco on The Peak.

The preferred share offering of PVCTP is a vehicle that would be (i) used to bring a name into the shareholder base, either a corporate (like Pfizer or J&J or another Big Pharma company) or financial (like a well-known life sciences fund) investor, (ii) led by said name, either corporate or financial investor and (iii) at acceptable terms to management that would be beneficial or not punitive or overly dilutive to existing shareholders -- all of which would lead to a NASDAQ-listed security.

The preferred stock offering may end up going unused for a variety of reasons, such as the common stock makes its way onto the NASDAQ by itself or potential terms of a PVCTP offering are not acceptable.

$PVCT.OB Thoughts From Afar

Peter presented at Rodman & Renshaw's conference on Tuesday. If you have not had the opportunity to listent to it, you should (here). I thought the presentation was informative, and provided helpful confirmation (or "re-utterances") of what is in the works.

Wednesday's trading volume spiked significantly (the sixth consecutive day of >100K shares traded) as the share price continues to bounce around historical lows. Reasons may include Dr. Adams, fear of dilution from a PVCTP, concern of an SPA delay, investors losing patiences, Godzilla invading Tokyo again, etc.

While I think Pete did a good job, the presentation itself provided me no new information. Of course, my baseline for measurement is different than most existing and prospective shareholders.

I still am focused on, among several milestones and items in play, an SPA PR in Q3 until such time as management's guidance on this topic has changed.

Not So Random Thoughts About $PVCT.OB

This is how humans are: We question all our beliefs, except for the ones that we really believe in, and those we never think to question. -- Andrew "Ender" Wiggin in Speaker for the Dead by Orson Scott Card

Recent selling: There was speculation again this week Dr. Adams, the large (formerly quite large) Southern California-based shareholder was undergoing more forced selling. It was speculated at the time he also was responsible for selling on July 16 and 17. Having spoken with people who actually spoke with Dr. Adams and his representative about acquiring all of his shares (but were subsequently turned down), I have greater appreciation for history and the current situation. Nevertheless, I am perplexed by the irrationality of the situation, but it is what is.

In the course of Maxim trying to garner indications of interest in (informally flog) the preferred stock offering this week, it is possible but by no means certain that some of this week's volume, such as Friday's, could be attributed to some of those folks receiving such calls. Traders and short-term investors (oxymoron?) are who we think they are. If they think a dilutive fund raising is imminent, it is not an unreasonable action for them to dump or short PVCT shares. Selling may continue next week from either or both of Adams and folks thinking they can get out in front of a preferred stock offering, which, as I wrote in my prior blog post, is not a certainty.

Lack of buying: Dr. Adams' and possible Maxim-induced selling of shares aside, one cannot ignore lack of buying. There are folks on the other sides of all of these trades. But, stating the obvious: if there is more demand than supply -- more buying interest than selling interest -- share prices go up. The opposite, as unfortunately in the case of Provectus, also is true. The share price has drifted downwards about 9% over the last month.

Life sciences investors still appear to be on the sidelines waiting for the SPA and/or more Moffitt data. I probably underestimated the historical level of skepticism PV-10 and management faced (circa 2008-2010) by these investors who really did not believe the drug (i) could do what it was doing loco-regionally and systemically and (ii) would be approved as a systemic agent. The dialog has changed dramatically since Moffitt's initial murine study work was released in March 2012. These same investors acknowledge the seriousness of Provectus' work to finalize the regulatory path and further demonstrate PV-10's systemic effectiveness. Nevertheless, they need to understand the very specific details of the trial design and Moffitt data.

PFE interest: I recently heard from several non-company sources the rumor Provectus rebuffed an overture from Pfizer to buy the company in the second half of last year for $7 per share. I am not certain, but I think this figure was all cash.

Using a fully diluted share number of 145MM (taken from the most recent 10-K, but not adjusted for the strike and exercise price-based share adjustment from option and warrant exercises), $7 per share yields an approximate $1B valuation, which (if indeed broached in the fall of 2011) would have been consistent with two billion dollar deals and their makeup announced earlier in the year and that both others and I used as comparable transactions:

• Amgen's acquisition of BioVex and OncoVex (now talimogene laherparepvec/T-Vec) for $1B ($425MM upfront, $575 in milestone payments) announced in January 2011, and

• Daiichi Sankyo's acquisition of Plexxikon and PLX4032 (now vemurafenib/Zelboraf) for $935MM ($805MM upfront, $130 in milestone payments) announced in February 2011.

There is absolutely no doubt in my mind that Pfizer is interested in a transaction with Provectus. The questions, of course, are "what kind(s)" and "for how much."

Keeping Provectus' options open: The company is entering a dynamic time that, finally, could result in its metamorphosis. While I do hope the SPA PR comes out soon -- please, pretty please, with sugar on top!!! --- it is going to come out. Management's guidance remains Q3 as its base case.

Management will present at several conferences in September and October, including at least two investor conferences (R&R, BioX) and two medical ones (ESMO and MD Becker).

Much more Moffitt data is coming this month and next.

The SPA PR provides complete clarity of the regulatory path. The receipt of the SPA is tantamount to approving PV-10, given the past efficacy performance of the drug. Moffitt data reinforces PV-10's immense systemic benefit, further increasing the scope of the drug's treatment applicability. From here, the company's negotiating leverage -- for a derm deal, a mini-oncology deal, a strategic investment from Pfizer or other Big Pharma company, etc. -- obviously would increase immensely.

I think the recently filed preferred stock facility is an example of Provectus keeping their options open as they progress through September and October.

As always, time will tell. Patience my young Padowan. Really?

Blog Reader Question About $PVCT.OB

Regarding the new preferred stock issue on the NASDAQ, if and when it starts trading, which would have a price of 4.00, how does that affect the common stock?

[The source for this answer comes directly or paraphrased from material and text found here. There are other places on the Web to learn about convertible preferred shares. Look here.]

The market price and behavior of convertible preferred shares (the "convertible") is determined by the conversion premium, the difference between the parity value (or parity price) and the value of the preferred shares if the shares were converted.

Let's say Provectus issues 4MM convertible preferred shares priced at $4 a share (X), raising "net" proceeds of $16MM. Why $16MM? That's the likely cost of the pivotal metastatic melanoma Phase 3 trial. Management may elect to raise a lower or higher amount for certain reasons. My analysis ignores underwriter fees, the 8% dividend, and the preferred share's warrant coverage (which is not as yet known).

The conversion ratio (Y) is the number of Provectus common shares (PVCT.OB) investors in the preferred stock offering would receive for each convertible preferred share (PVCTP) they own. The conversion ratio is set by management prior to issue with guidance from Maxim (for now, the lead and only underwriter), although the demand or lack thereof from prospective investors in the offering strongly influences the conversion ratio. The greater the demand for the offering, the stronger management's negotiating position is in lowering the ratio (i.e., less common shares per [one] preferred share). Alternatively, if the demand is weak, management may induce investors to purchase preferred shares by raising the ratio (i.e., more common shares per [one] preferred share).

In addition, the warrant coverage, which typically is a sweetener in most any equity deals, is a positive influence on the conversion ratio, since management wave the warrant in front of a prospective investor as an inducement, rather than simply solely focusing on adjusting the conversion ratio to make them happy.

Since the conversion ratio is to be set, and no fund raising has yet occurred, we do not know the ratio (for now). At Friday's closing price of $0.693, the "gross pre-deal break-even" conversion ratio -- the point or ratio where raising money by selling common stock is equivalent to raising money by selling preferred shares (again, ignoring certain items) -- is $4 ÷ $0.693, or 5.77.

If management can strike a deal whereby the conversion ratio is lower (less dilutive) than 5.77, like 3 or 4 or less, great. If not, one would question why they would raise money via the preferred stock offering, unless there are qualitative or tangibly intangible reasons to do so.

The conversion ratio shows what price Provectus common stock needs to be trading at in order for the preferred stock shareholder to want to convert his, her or its shares into common stock, which they will do if they the conversion is profitable. This price, known as the conversion price (Z), is equal to the purchase price of the preferred share divided by the conversion ratio. Thus, Z = X ÷ Y. For this analysis, let's assume the conversion ratio is 4. For Provectus, the market conversion price is $4 ÷ 4, or $1.

PVCT.OB, at the time, then needs to trade higher than $1, or Z, for investors in the preferred stock offering to gain from conversion. If preferred shares convert, and PVCT.OB drops below $1, investors suffer a capital loss. If PVCT.OB rises above $1, investors enjoy a gain.

$4, or X, also represents the parity value of the preferred shares.

The value of the converted preferred share is equal to the market price of common shares multiplied by the conversion ratio. At a closing price of $0.693, the value of the preferred shares is $0.693 × 4, or $2.77. This is well below the parity value of $4. At $0.693, the conversion premium is 31% [($4 − $2.77) ÷ $4].

The lower the premium, the more likely the convertible's market price will follow the common stock value up and down. Higher-premium convertibles act more like bonds since it's less likely that there will be a chance for a profitable conversion.

Convertibles trade like stocks when the price of common shares moves above the conversion price. If the stock price slips below the conversion price, the convertible trades just like a bond, effectively putting a price floor under the investment.

First-Half 2012 Life Sciences Deal Trends

By Deloitte Recap LLC. The full report is here. A selection of slides is below.

Strategic Investment Strategy?

Provectus filed a prospectus to raise money through the issuance of Series A preferred shares and warrants on these preferred shares today. No announcement of the actual sale and, thus, fund raising, has been made.

These preferred shares will trade on the NASDAQ as PVCTP (see below).

More later...