A China Tale, and Process

From the traditional folksong of Tiger Woman,
adapted by Laurence Yep

From Peter's first trip to China in November 2012 when he began to engage Chinese pharmaceutical companies for a regional partnership, to Eric and Peter's recent trip in August 2014 (the former's first) to sign a memorandum of understanding ("MOU") with one of them, Provectus principals have made five trips to China. These also include February, September and December 2013. 

The November 2012 trip comprised introductory meetings with companies of varying size and geographic scope. Subsequent follow-ups with some additional initial get-togethers too, essentially trips in 2013, comprised gradually more serious meetings with a short-list of more interested companies and increasing senior levels of their leadership. These introductions were facilitated by a number of individuals, agents and third parties that included strategic advisory board members, Network 1 Financial, and Maxim Group. Potential partners have interacted with Provectus in the interim via e-mail and phone, and conducted due diligence via the company's electronic data room. The culmination of these efforts and trips resulted in a first MOU for a China regional partnership with two subsidiaries of Sinopharm Group in August.

Generally speaking, an MOU is to a licensing deal or business relationship what a term sheet is to a venture capital investment and a letter of intent ("LOI") is to an acquisition: formalizations and acknowledgements of serious discussions towards the above mentioned ends, frameworks or outlines of business-investment-acquisition terms, conditions, rights, etc., and lists or mentions of other customary and perfunctory ifs, ands or buts.

Provectus noted in their press release:

During the next three months, the parties will seek to enter into a definitive licensing contract, subject to additional negotiation, due diligence, and any required regulatory and corporate approvals. The parties will further address the details of the license; the use of the technology from Provectus to Sinopharm A-THINK in China; the process for commercialization; and payments to Provectus (upfront, milestone and royalties). Provectus intends to manufacture PV-10 in the USA and Sinopharm A-THINK will distribute PV-10 in China. {Underlined emphasis is mine}

I'm reminded of our corporate venture capital process back in the day (our process flow is below), which I believe is a reasonable facsimile of Provectus' process and the process from Sinopharm's perspective in this situation.

Click to enlarge.

Preliminary analysis/assessment. Prior to Peter's trip, third parties introducers would have pre-submitted information about Provectus, PV-10, summary and previously public information about pre-clinical and clinical data, regulatory interactions, etc. to potential Chinese pharmaceutical company partners for their analysis and assessment, and to gauge any interest to learn more.

Management team meeting(s). The parties would have had an initial meeting, and potentially or eventually other more serious ones.

Due diligence. Although the graph above is linear and discrete in its steps, some actions are undertaken in parallel and are continuous, like due diligence, even after engagement is formalized. The potential licensee-investor-acquirer conducts due diligence in advance of and after the initial management team meeting, and as more meetings are conducted. As Provectus mentioned on several of its conference calls this year, Chinese companies (among others) have visited the electronic data room to review the various different types of documents stored there.

Due diligence of course goes beyond reading introductory collateral material, meeting management, and visiting data rooms. It extends to on-site visits of the business (Provectus), where clinical work is carried out (e.g., St. Luke’s Cancer Network, Moffitt Cancer Center) and with the people carrying this work out (e.g., Dr. Sanjiv Agarwala, M.D., Moffitt personnel), and other relevant and germane people, companies and institutions, and places. I imagine these due diligence activities are to come.

Term sheet negotiations. At some point, interest rises to a level where the parties can discuss price expectations and their associated structure, terms and conditions. If the parties can reach sufficient preliminary consensus they feel could ultimately lead to a transaction (but with no certainty nor obligation [unless they elect to bind themselves] to do so), they enter into or agree to an MOU-term sheet-LOI. As the jargon goes, MOUs are agreed to by the parties, while term sheets and LOIs are extended by one party to the other.

Negotiations of definitive agreements. When continuing due diligence is satisfactorily wrapped up, should the consensus remains the consensus, and if the broad and not so broad strokes of the MOU-term sheet-LOI are conveyed to definitive agreements, a definitive license-investment-purchase agreement may be struck for signing.

Deal closing. Documents are signed. Signatures are swapped. Money, securities, licenses, etc. change hands.

The process.

MOUs can be serious documents, and they can be far from serious. Sometimes also known as "Barney agreements" (i.e., "I love you, you love me") during the dot com era, Internet companies would enter into them with more established companies or other like venture-backed firms in hopes of demonstrating or simply giving the illusion of progress, business value creation, and rationale for increased valuation.

In the past management has garnered license and acquisition interest, in hand or through conversation, but nothing that rose to the level of both seriousness (met price expectations) and tangibleness (was on paper). For example*:

• Galderma's rumored 2010 interest in Provectus' dermatology business (on paper, but not serious),
• A Big Pharma's rumored 2011 interest to buy the intralesional drug compound company (not serious, and not on paper),
• Orbimed and Domain Associates-backed Eddingpharm's rumored 2013 interest to license PV-10 for sale in China and its territories (on paper, but not serious), and
• The above Big Pharma's rumored 2014 interest to acquire Provectus for twice its 2011 bid (still not serious enough, and still not on paper).

Provectus' MOU with Sinopharm is the first serious commercial interest the company has tangibly garnered. Tangibly serious because (i) it met management's price expectations as translated into potential payments to Provectus (i.e., upfront, milestone and royalties) and (ii) it was on paper.

To what, if anything, will/could the MOU between Provectus and the Sinopharm subsidiaries lead? The easiest way to answer this question of course is to wait and see if/when a license deal transaction is consummated between the parties. In the interim, I look at the situation this way: Provectus agreed to sign a document that formalized their discussions with Sinopharm towards the end of consummating a license deal and business relationship with the Chinese healthcare company under a framework of financial and business terms and conditions that may good to great [for Provectus], and we should know by mid-November or earlier if the parties ultimately do something together.

Finally, I wanted to comment on some of the verbiage in the MOU PR:

The MOU contains customary provisions regarding confidential information, publicity, and intellectual property, and is non-binding upon the parties (except for certain non-material provisions). The MOU shall continue in effect until the earliest of the replacement of the MOU with a definitive agreement, one month prior written notice by either Provectus or Sinopharm, or ninety days from the signing of the MOU.

In order to facilitate my comments, I also provided a sample or model venture capital investment term sheet below, which I utilized during my corporate venture capital investment days.

Click to enlarge. Sample venture capital investment term sheet, page 1.

Click to enlarge. Sample venture capital investment term sheet, page 2.

Click to enlarge. Sample venture capital investment term sheet, page 3.

Click to enlarge. Sample venture capital investment term sheet, page 4.

Click to enlarge. Sample venture capital investment term sheet, page 5.

Click to enlarge. Sample venture capital investment term sheet, page 6.

Click to enlarge. Sample venture capital investment term sheet, page 7. 

Click to enlarge. Sample venture capital investment term sheet, page 8.

Click to enlarge. Sample venture capital investment term sheet, page 9 (of 9).

Provectus' MOU PR naturally did not discuss "price," or payments to Provectus (upfront, milestone and royalties). Management would not have signed an MOU if those elements were neither to their liking nor codified (summarily or specifically) in the document. The first page of a term sheet (i.e., page 1 above) or the first paragraph of an LOI, aside from pleasantries, typically addresses the headline numbers of a prospective deal. I previously have commented on this blog about Provectus' price expectations for a China partnership. One wouldn't have expected the company to detail price agreements with Sinopharm in either the PR or the associated 8-K filing. Additional MOUs maybe forthcoming, and there may be competitive interest. Then again, there may not be dueling interest that pushes price upwards, and I would presume Provectus then would be comfortable with price as outlined in the Sinopharm MOU (with perhaps some further wrangling to finalize agreement on the timing of payments).

The MOU PR discussed "customary provisions regarding confidential information, publicity, and intellectual property," some of which find commonality with the venture capital investment term sheet (i.e., page 7, Confidentiality). Later versions of my terms sheets included sections dealing with publicity, and intellectual property (of the target company) as and when appropriate.

MOUs, term sheets and LOIs are broadly binding (i.e., material and non-material provisions) when the parties agree to be so bound, or when one party wants the other party to be bound and the other party agrees to such binding. Usually, as illustrated by the sample or model term sheet above, these relationship documents generally aren't binding in any meaningful way (to allow an out for either party, but many times the the one wanting to partner, invest or purchase). For non-material binding provisions see page 8, Binding Provisions. For outs, see page 7, Conditions to Closing.

As the MOU PR noted, the term sheet often references the definitive investment (or securities purchase) agreement that replaces the MOU or term sheet. See page 7, Purchase Agreement or page 1, introduction, for example.

Term sheets often include a target closing date (see page 7, Closing Date) by which time the parties hope or seek to complete their negotiations to consummate a transaction (i.e., finalize definitive agreements, sign them, exchange whatever). The parties mutually agree on a timeframe; however, the closing date is not set in stone and can be mutually modified through subsequent revisions to the term sheet (in large part to maintain exclusivity until a transaction is done). Provectus MOU PR noted a ninety-day period, which should be the target or contemplated closing date.

Exclusivity clauses almost always are part of terms sheets and LOIs to provide sufficient timing for the parties (especially the motivated one) to consummate a transaction. They may be part of an MOU in terms of the transaction (i.e., Sinopharm may exclusively negotiate with Provectus until such time as a deal is done, or the parties part ways). I imagine if the MOU had an exclusivity clause, the MOU PR would have mentioned it (not saying anything about it says something too). Exclusivity certainly may be part of the business terms; in this case it is: "Sinopharm-CSIPI and Sinopharm A-THINK desire to obtain an exclusive license to commercialize PV-10 within [the People's Republic of] China territory, and PVCT is willing to grant such license to Sinopharm."

* Listen to Provectus' echo chamber long enough, do some due diligence and, pardon the pun, connect some dots, and you eventually make out what the original voice that started the echo said or meant to convey. And while it doesn't mean a hill of beans if it's not translated into share price, the sound nevertheless is informative and instructive.

No insider/ex-insider sales, ever

Earlier, I wrote in my Disfigurement, Discomfort, Death post: "Historically, there have been no insider sales by Provectus officers and directors.* There only have been purchases...Buy/sell transactions by directors/ex-directors (chronologically, I believe, Fuchs, McMasters, Koe and Smith) provide information and sometimes knowledge. I believe I am correct in writing only Koe purchased stock as a director (part of the September announced private placements), already having considerable ownership prior to his election as a member of Provectus' board of directors. Fuchs’ ownership, I believe, derived from his early funding involvement with the company, with warrants and possibly stock that also may have come with it. All directors have been awarded stock options over time for their roles...* With Fuchs' departure from the board in July 2011, thus becoming an ex-director, he may have sold some or all of his shares thereafter."

Having left the board, I did not know whether Fuchs had sold shares, either personally or from his firm/fund Gryffindor Capital Partners. In response to this blog post Stuart reached out to me to address the topic. Since he is not bound, I believe, by SEC reporting requirements regarding buy/sale transactions like management and current directors are, some could feel there is room for skepticism.

I take the gentleman at his word.

From Stuart to me on 1/10/14: "FYI, Gryffindor Capital Partners, the private equity fund that I co-founded in 1999, was the very first institution to declare its confidence in the unique potential in PV-10 as a safe and effective alternative to traditional treatments of cancer, the benefits of which were all too often accompanied by serious adverse events. In November 2002, we invested $1,000,000 in Provectus by purchasing its Secured Convertible Note. We subsequently exchanged that note for common stock of Provectus. In response to your most recent posting, I wanted to inform you that to date I have never sold a single share of PVCT owned either directly or indirectly by me or my family prior to, during, or after my service as Director of the Company, and more recently as a member of its Corporate Advisory Board. By the way, neither has Gryffindor.  Like you, we believe that our patience will soon be rewarded." Bold underlined emphasis is mine.

No insider sales by management to date.

No insider sales by current directors to date.

No insider sales by a former director, and his firm/fund to date.

Navigating Connecting the dots...Provectus Biopharmaceuticals

Updated September 9, 2014.

The blog has several pages.

Disclosures. These, of mine, can be found here. Additions, changes and/or revisions, if any, are updated as of the end of each month.

About Provectus. This is an information tab about the company and related topics, which you may find here.

PVCT. An overview presentation on Provectus' lead oncology drug PV-10 is here.

The Blog. My posts can be found here.

News. I blog shorter snippets here.

Archived News. News items dating from July 21, 2013 to May 28, 2014 can be found here.

Why I'm Long Provectus Biopharmaceuticals. My investment letter written September 22, 2013 is here.

A View on Worth. An estimate of my views of the company’s intrinsic value may be found here.

PV-10, and the Cancer Immunity Cycle. Positioning PV-10 in Chen & Mellman's 2013 view of the cancer immunity cycle may be found here.

Blog Readership Statistics. I use Google Analytics to measure blog visitation and readership statistics, which you may find here. Stats are updated as of the end of each calendar quarter.

About the Blogger. A brief bio can be found here.

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Phase Change

Noun

1.

phase change - a change from one state (solid or liquid or gas) to another without a change in chemical composition

Today, notwithstanding the swoosh from the open through (blue rectangle below), the stock, measured by several metrics, has changed phases in December (particularly since about mid-December), compared to previous months as well as the company's past. From active pre-market trading to a share price above $2 to daily multi-million share trading volume to much more blog visitation, it seems clear the situation has changed from one state to another.

Yesterday, we traded 50,000 shares in the pre-market, nearly 2 million by 10 am EST, and had more visitors to and readership of the blog before 10 am EST than it normally receives in a day before December. Phase change.

Click to enlarge the figure.

I updated readers through the blog's News tab about growing visitation and readership. The share price closed at $0.94 on December 2nd.

• On December 8th I wrote blog readership, on a weekly basis, reached new highs for the period December 1st to 7th (e.g., 544 unique visitors, versus the last high of 502 for the week September 15th to 21st when on September 13th the closing price of $0.80 increased to $1.14 on September 20th before closing at $1.04 on the same day); the share price closed at $0.99 on December 6th,
• Weekly readership set a new high for the period December 8th to 14th (e.g., 771 unique visitors); the share price closed at $1.54 on December 13th (the special shareholder meeting was held on December 16th),
• A third new high for the period December 15th to 21st (e.g., 799 unique visitors); the share price closed at $1.50 on December 20th (Provectus issued two press releases, Provectus Announces Name Change to Provectus Biopharmaceuticals, Inc. and Reincorporates in Delaware on December 17th and Provectus Type C Meeting With FDA Oncology Division Held December 16, 2013 on December 18th), and
• A fourth consecutive new high for the as yet not completed the period December 22nd to 28th (e.g., 1,002 unique visitors as of this writing, with a day to go); the share price closed at $2.18 on December 27th (no press releases or news).

Click to enlarge the figure.

Click to enlarge the table.

Yes, share price has increased dramatically in the month over previous months and years. Volume, however, increased as dramatically. Eight of the top ten highest daily volume days have been in December, including the top seven. The last four days ranked #6 (23rd), #3 (24th), #4 (26th) and #1 (27th), respectively. Eleven of the last twelve days have seen daily volume exceed one million shares. Volume exceeded two million shares for each of the last four days. three million shares for each of the last three days.

Daily "dollar volume," where I multiplied the daily volume by the closing price [that day] has increased dramatically for the month of December, too, when compared to prior months.

Click to enlarge the figure.

To put the explosion in blog visitation and readership (a proxy for company/drug/stock awareness, interest in the company/drug/stock, etc.) in perspective, as of this writing, blog stats for # of Unique Visitors, # of Page Views, # of Visits, # of U.S. States (from where visitors came), # of U.S. Cities, # of World Cities, # of Countries, and Total # of Cities increased anywhere from 11% to 70% over their respective previous high.

December, with four days to go: 2,326 unique visitors, 16,778 page views and 8,467 visits from 51 U.S. states and the District of Columbia,  807 U.S. cities, 136 non-U.S. or international cities and 59 countries.

Click to enlarge the figure.

More awareness of the company, drug and stock.

Sure, there are more day and momentum traders (reflected in an increasing price, and larger price swings). Price increases, price above certain levels, volume increases, etc. have drawn attention to the company on stock screeners and filters. There are also more buyers (investors) too (reflected in a higher share price). PVCT's one-year stock performance of 294.21% (Yahoo! Finance, 12/27/12-12/27/13) would rank it ninth (Finviz stock screener) on a biotechnology company list.

Click to enlarge the figure.

In truth, with the recent increase in the share price, Provectus' market capitalization, as a post-Phase 2/pre-Phase 3 is beginning to reflect where its valuation might be along the so-called biotech valuation curve. I cannot locate the source now (it's lost somewhere in mounds of written and digital notes), although I can reference a prior stock chat room post of mine from March 2010, but there was a "rule of thumb" (n.b. the market has a way of cutting your thumbs off when you're wrong) regarding valuation and phase of trial:

• Phase 1: <$50 million (including research, preclinical)
• Phase 2: $100-250 million
• Phase 3: $500 million-$1 billion (risk-reward inflects between Phase 2 & Phase 3)
• Approval: >$1 billion (including launch)

Yesterday's close yields a market capitalization of about $305MM (an enterprise value of about $249MM). Provectus' intrinsic value, I believe, is much, much higher, but at current public company valuation levels it's not unreasonable to think the company is not unreasonably valued.

All manner of low life, high life, and lives in between are looking at, buying and/or shorting the stock. More so than ever before. That much is clear.

To be sure, Craig, Tim, Eric and Peter have set some expectations with the company's December 18th press release Provectus Type C Meeting With FDA Oncology Division Held December 16, 2013 (linked above): "The minutes will clarify the available regulatory paths and, therefore, allow the Company to better estimate a time-line to commercialization of PV-10." Not to mention a capitalized (why is management shouting?), "line in the sand" byline: "OFFICIAL MINUTES EXPECTED BY JANUARY 15, 2014." What they're saying seems pretty clear to me.

Which brings me back to yesterday's morning swoosh. I've long believed there would be a significant, if not dramatic, turnover in the share holder base between $2 and $3 per share. I think some of the volatility over the last few days reflects this, in part. Large buyers moved in. Earlier in the morning, from the open through about 10 am, Citadel (broker) stepped back from the bid, allowing the price to collapse, before buying it back up (blue rectangle above). There is a belief Citadel was facilitating a large buyer's activity. From there, for 6 hours until the close, the share price range traded as volume steadily increased to an all-time high of 4.5 million shares. Some 14 million shares over the last four days.

As I note under the blog's disclosure tab, I have not sold any of the shares we have accumulated thus far.

Peter confirmed earlier today, directly from his NASDAQ listing agent contacts, that the exchange's listing standards are 90 days/$2 and 5 days/$3 (so, no change since last year when it relaxed their listing standards to the current ones).

More buying interest in advance of a January 15th (or 16th/17th) press release regarding regulatory path and commercialization timeline may take the stock onto the NASDAQ. Announcement of inbound (received) term sheets from China and/or India, let alone a consummated transaction, may do so as well. Other assorted news (e.g., a new member of the board of directors, a liver trial update, a PH-10 update, more Moffitt words about revolutionizing, etc.) may contribute, too.

After reading thousands of pages of administrative and correspondence documents between the FDA and applicants in regards to the latter's drug approvals, it's not a surprise how the process generally works. The specifics vary, but the process is the process. Minutes...are the instant written record of a meeting or hearing. Reading the aforementioned documents, you'll easily understand the nature, construct, purpose, review, revision, use, etc. of Agency meeting minutes.

In my June 2013 post For $PVCT, it's the FDA's move I wrote about Peter's Provectus' game theory "rules:"

• No one moves unless they have to move.
• Everyone moves when somebody moves.

"No one" and "everyone" includes Big Pharma, life sciences investors and, as importantly, Provectus. If we're then waiting for the FDA to move -- to provide regulatory clarity -- then why would global players, regional players and Provectus itself all not simply wait until the FDA moves by making a decision (all potential outcomes being positive), whatever that decision turns out to be?

January 15th, or thereabouts (i.e., whenever Eric can finalize the press released based on what the minutes say, and what the company wishes to say about them), is a "binary" event. Rather than a 1 or 0, win or loss, success or failure, etc., its more of a 1 or 0.75, best or better, AA or BTD (plus a pathway); otherwise known as "it's all good." It is quite possible we hear about the regulatory path and commercialization timeline from management before the 15th.

Deals often crystallize before such events.

I wonder about Pfizer in all of this; the Big Pharma company with the biggest nose under the tent for the longest time.

The FDA has moved. Its move clearly will affect regional, worldwide and end-game transactions. No one (global players, regional players) moved because they did not have to move. The FDA moved, so everyone (global players, regional players) now must move.

$PVCT: A Slow, Hot, Smoky Summer Monday

I appreciate the comments and e-mails from blog readers I received over the last week. Thank you. I realize some of you would visit once or a couple of times a day, while others would visit 15-20 times during their daily waking hours. I'm still blogging, but not nearly as much as I used to (as I transition the blog per my "$PVCT: Moving On, Moving Up" post).

A blog reader commented, in regard to my "For $PVCT, it's the FDA's move" post, that although I wrote the ball is now in the FDA's court, Craig's recent remarks, including his letter to shareholders (May 13) and reported comments at the annual general meeting (June 27), suggest Provectus has not yet made an application to the FDA for some process that would result in an approval, whether for an special protocol assessment or breakthrough therapy designation ("BTD"). The reader went on to write: So, in a sense, the ball in is the company's court to first file [some application] with the Agency. I say it's the FDA's move because regulatory clarity is what is needed by Provectus, and I think the company has provided answers to all of the Agency's questions. Of course, the FDA cannot move if the company has not submitted an actual application for which a decision from the Agency is required. A consensus of opinions I solicited over the last couple of months pointed to the belief management had submitted an application for BTD sometime during that period. Recent information purports to suggest that, as late as last week, more time was needed to submit the application.

I've been trying to wrap my head around the role(s) Maxim Group's Dr. Echo Yinghui He, MD, PhD is playing for/with the company. Her position with Maxim is as an equity research analyst, and she provides coverage of Provectus. Dr. He's last company update note was dated January 29, and she is expected to provide another one after Moffitt's peer-reviewed article is published. It appears she has an additional role of some sort with the company as it relates to Provectus' efforts to seek and secure a regional transaction in China.

For $PVCT, it's the FDA's move

Just the weekend is left in the month of June. Saturdays and Sundays typically are historically low visitorship days for the blog. Yet, it's on track for another record high in unique visitors. The number of visits should fall 10% from May because I blogged about 40% less in June.

As a refresher for those who might not know, I speak to Peter on a monthly basis. During these conversations, which last between one and two hours, we cover a lot of ground and discuss a number of topics. I also routinely communicate with Craig and Peter via e-mail; 10,403 as of this post (about 2,600 a year), and counting...

I caught up with Peter earlier in the week for one of these monthly calls. There's a lot that can be written about.

In this post, I want to write about whose move it is.

When I ask Peter why Big Pharma, particularly Pfizer, has not moved on a global license with the company, he responds by framing the situation this way: No one moves unless they have to move. Everyone moves when somebody moves.

While Craig will say Pfizer only will move after interim metastatic melanoma ("MM") Phase 3 results of a contemplated trial under a special protocol assessment ("SPA") with the FDA, when the SPA was the more likely path, and which I get and understand (now, and given the implications of breakthrough therapy designation ("BTD")), I want to be "more macro" or "big picture."

Let's look at this using game theory. According to Peter, the "rules" are:

1. No one moves unless they have to move.
2. Everyone moves when somebody moves.

Essentially, in a two-player game, a player moves or doesn't move, as in the matrix or table below.

Click on the figure to enlarge it.

At any moment in current time, with no impetus to act (i.e., no one moves unless they have to move), the optimal outcome for the players is the fourth quadrant (bottom-right) Doesn't Move-Doesn't Move, where the players expend no money (0,0). Because everyone moves when someone moves, Provectus enjoys the best outcome (-3,-3) because the ensuing auction drives up the price of the target.

{No one moves unless they have to move, Everyone moves when someone moves} This is circular, is it not, in the absence of an exogenous event?

Because if no one will move unless they have to move, at the moment no one will move, what event, outside this system, causes someone, and thus everyone, to move? No one wants to move until there is regulatory clarity.

The event is the FDA providing that clarity for a metastatic melanoma ("MM") indication. Clarity comprises:

• An MM Phase 3 trial under SPA,
• Accelerated approval ("AA"), for which the company regularly asks the FDA, which means skipping the P3 trial altogether (a post-marketing study, however, would be required),
• BTD, which then translates into AA, followed by a post-marketing study
• BTD, and a truncated P3 trial (i.e., shorter, in some form or fashion, such as a smaller number of patients),
• BTD, and a modified P3 trial (i.e., a single-arm study),
• BTD, and a quicker response on the above mentioned SPA-designed/agreed upon trial, or
• Outright approval of PV-10.

That's a lot of choices, the range of which suggests a different FDA perspective for each one. If you consider it historically, the range of options reflect the data provided by Provectus over time to make the case for PV-10 (I think we can rank some higher than others, and I'll get to that later).

It seems clear the path to regulatory clarity has put questions about safety and efficacy to rest. If you think about the drugs the FDA has evaluated and approved over time, they've had increasingly incremental benefit (although, over time, increments add up), where the approval decision really does appear to boil down to weighing the side effects of a drug in the context of the incremental efficacy it may provide. PV-10 has a pristine safety profile, and efficacy never seen before.

With questions of safety and efficacy distant in the rear view window, the regulatory path approached and eventually cleared questions about mechanism of action ("MOA") with the help of Moffitt. Although it might have been said MOA never really was needed to secure the SPA, it became clear with a drug so novel and data so new (and never really seen before, in terms of how fundamentally better it was over other treatments) that understanding MOA was necessary. Nearly 3 years later, Provectus had fully answered the FDA's questions regarding proof of systemic properties and benefit for PV-10, thanks to Moffitt. The validation of this third party, with a world-class reputation, led by someone in Dr. Jeffrey Weber who had been responsible for the approval of drugs like ipilimumab and vemurafenib, appears to have been crucial to the FDA's consideration of PV-10.

What remains? Safety and efficacy established beyond question. MOA understood. Proof of systemic properties and benefit shown.

It's no longer about whether the drug should be approved, but rather how it should be approved. This brings me to the list of possible clarity options above. Any item on that list could be a potential and viable outcome, and I'd be happy with it because the company, the drug and the share price require regulatory clarity.

In truth, I think the company has moved well past the SPA. As I wrote before, I think any discussion between Provectus (Eric) and the FDA is about when to use it, in which situations, and in what combinations with other drugs. Having moved beyond safety and efficacy, beyond MOA and systemic-ness, I think we're now in a more nuanced discussion of how to maximize or optimize the use of PV-10: when to use it, in which situations, and in what combinations with other drugs.

A more likely outcome (but how probable I cannot yet assess) is accelerated approval to smaller or faster Phase 3 trials to, perhaps, outright approval of PV-10.

Let's return to Peter's Provectus' game theory "rules:"

1. No one moves unless they have to move.
2. Everyone moves when somebody moves.

"No one" and "everyone" includes Big Pharma, life sciences investors and, as importantly, Provectus. If we're then waiting for the FDA to move -- to provide regulatory clarity -- then why would global players, regional players and Provectus itself all not simply wait until the FDA moves by making a decision (all potential outcomes being positive), whatever that decision turns out to be?

When the SPA was the more likely pathway, an SPA, a Phase 3 trial, regional deals in China, India and Japan, interim Phase 3 results and stock market uptake seemed like the approach to raising valuation to management's expectations of a sizable upfront payment.

I'm not saying management is waiting to see the outcome of regulatory clarity to negotiate from an even better position. With BTD now the more likely pathway, with potentially accelerated approval or an accelerated (or, even, direct) path to market on tap, the choice of license suddenly becomes much different. The time value of money, as Peter would say, means a much more immediate path to market and thus sales dollars. Different players now have different levels of urgency to get a deal done with Provectus than under the scenario of "a plain old" SPA.

I'm not sure whether it's checkers or chess for management when you have drug like PV-10. Safety and efficacy established beyond question. A pristine safety profile. Efficacy never seen before. MOA understood. Proof of systemic properties and benefit shown. A unique MOA. A unique pathway.

No one, not Big Pharma, not regional players, not life sciences investors and, not least of all, not Provectus management has to move until the FDA moves. Then, I think, expect and suspect, everyone moves.

Horserace (updated)

In illustrating the horse race, I mean to convey or say "crossing the finish line" implies a funded transaction. So, while it will be interesting to watch if Provectus inks an MOU with Chinese pharmaceutical company Hisun-Pfizer (or another Chinese company) this week, the funding of this transaction might more likely occur within 30-60 days after the MOU is signed/announced.

The current perspective is an Indian company is more likely to consummate (i.e., fund) a regional transaction, and thus deliver the upfront payment to Provectus first, followed by a Japanese pharmaceutical company. At the moment, it would seem the Chinese upfront payment is viewed as arriving third behind the Indian and Japanese payments.

I will review the situation after Peter returns from Japan.

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The above written or said, a regional transaction may not occur until the FDA provides regulatory clarity to Provectus. As I wrote in my "$PVCT is Going for BTD. BTD is Tantamount to Approval." post, the company sought this clarity through its original, initial pursuit of accelerated approval ("AA"), followed by initiating a parallel path to pursue a special protocol assessment ("SPA") and eschewing a traditional "non-SPA" MM Phase 3 trial. While both paths, AA and SPA, remain viable, the breakthrough therapy designation ("BTD") arrived last year and now appears the more active or likely path to clarity.

While management certainly could be blown away by the pricing and structure of a regional transaction from an interested party, it is not unreasonable to think these companies, as do potential investors, also are waiting for regulatory clarity before they present Provectus with terms and conditions.

As I wrote in my "#PVCT's #China #Arbitrage Opportunity post," on the one hand, while many Western Big Pharma companies are very interested in the drug, they still desire to understand the story of how and why a very effective local agent can have as comparable systemic and immunologic benefit. Thus, we waited for Moffitt. On the other hand. the Chinese (and the Indians and the Japanese) are much more interested in understanding whether PV-10 works and works cost-effectively. Both hemispheres agree the drug is safe, and both acknowledge PV-10 is effective. It is possible, however, that cultural differences might contribute to each party's thinking and decision-making processes. One wants to know why and how, while the other wants to know how much.

But Moffitt arrived in early-April. So what gives?

It is not unreasonable to think these regional pharmaceutical companies are waiting for regulatory clarity before they present Provectus with terms and conditions. It's also not unreasonable to think management also is waiting for regulatory clarity before they accept any terms and conditions on regional and/or global license transactions.

If the path of clarity is a decision of "better" (a truncated MM P3 trial) or "best" (AA), with "good" (SPA) available but not chosen, it strikes me that all parties -- management, regional pharmaceutical companies, Pfizer and Big Pharma -- have their respective reasons and rationale to wait until regulatory clarity is made transparent.

Wouldn't you think the topic of what "we" (Provectus & Pfizer) do after BTD is attained (and then, more specifically, AA or a truncated trial) might have been discussed?

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Take for example the "non-unique" story of a fund that desires to put money into Provectus via an open market purchase of common stock (i.e., the shares you and I own), by dipping its toe in the water to establish an initial position of 1.5 to 4.5 million shares.

Without regulatory clarity, there's no clear exit for the fund and its managers. They cannot and do not buy, but merely wait on the sidelines. As do many others.

To most, including the above mentioned fund, the question of regulatory clarity -- in its mind and most others -- boils down to Provectus attaining the SPA from the FDA and then having to run a $30-$50 million Phase 3 trial. In the minds of this fund, dip its toes in the water now, at 63 cents, and following the clarity of an SPA, suffer 20-40% dilution (roughly) when Provectus raises aforementioned money to fund the trial. Better to wait and buy after the fund raising or, better, participate in it at the lower price with the prospect of warrant coverage too -- a much more attractive risk-reward.

As I previously wrote in my "With the FDA, It's Good, Better, Best for PV-10 and $PVCT," the closer you are to the company, the greater your awareness of Provectus' situation, the higher expectations or anticipation you have of an SPA, BTD or AA. The less familiar you are with the company or situation, the lower your level of expectations. The FDA's decision will validate Provectus and PV-10 in some form and fashion.

The above mentioned fund has done due diligence, but doesn't have the perspective Provectus watchers do. The fund, like its sistren and brethren, invests broadly across a variety of companies, diversifies risk, plays the numbers, is not early, and endeavors to generate alpha (which for the vast majority of such funds merely and actually is beta).

Provectus watchers would tell you they believe the situation now is an outcome between "better" and "best." The consensus view appears to be the company already has submitted a/the BTD application. Opinions vary as to when, from early-May to early-June, which would indicate a result as late as early-August (perhaps early-September if one leaves room for summer vacation and/or the dog days of summer) and as early as "now."

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An e-mail from a blog reader:

My PVCT buddies and I have long since learned to take your predictions with a handful of salt BUT - we're sure going to be prepared when that Great Day finally arrives and it will be because you have prepared us so well in advance. I don't think I need to tell you how very much I appreciate all that you put into the Blog. Reading it every day has made hanging on to this losing position this past year and a half almost a pleasure.

Yes, the forecast is always wrong, but I love receiving e-mails like this. Thank you.

$PVCT Blog Reader Question/Request

Thanks for coming up with "Connecting the Dots." I've had an investment in PVCT since 2010, so I am quite a bit underwater now, at least on my first tranche.  I was about to take my losses and move on when I came upon your blog. You are a great source of information about the company, so I decided to hold a bit longer.  Your blogs around the time of the IPO fiasco actually enabled me to enter a second tranche at a very nice price and recover some losses from the first. To date I have not sold any PVCT stock, but I am leaning toward turning part of my holdings into a trading account. The reason I am contemplating this is because of the trading range of the stock over the last few months. It does not seem to be able to break through the .75 mark no matter how good the news is. I believe the reason for this is succinctly stated in the subject Wharton magazine blog, which was referenced in an Adam Feuerstein tweet a couple of days ago. I would appreciate it if you would read the Sable blog and give your opinion as to whether PVCT is stuck in the same kind of "poor capital structure" that limits its share price and accounts for the high number of PVCT shorts.

The article the blog reader references is The Curse of the Poor Capital Structure by David Sable, W’81, M’86, Portfolio Manager, Special Situations Life Sciences Fund; Adjunct Professor, Columbia University. "Our author explores black-hole capital structures that drag down company share prices to the benefit of hedging portfolio managers."

Provectus suffers from the same or similar kind of capital structure that limits its share price, but I do not think one can explain the share price dilemma, that it cannot break through 75 cents (or that, more generally speaking, it is depressed) exclusively with Sable's capital structure comments.

Among them...

The company is an OTC stock. That does not help. Presence on a major stock exchange will of course be most welcome. And this will change.

Provectus' low profile -- which, in truth, probably allowed management to scoop Bristol Myers and several others by jointly patenting with Pfizer the combination of PV-10 with anti-CTLA-4, anti-PD-1 and anti-PDL-1 agents, among others classes of compounds (notably before such combinations were in vogue) -- has made it difficult for greater awareness to build around the stock. For example, the professor, his investigative dermatology laboratory and university conducting PH-10's mechanism of action and examining the drug's unique lack of toxicity remains labeled by the company as recently as the CEO letter/annual shareholder update as "...a leading research facility..." This professor is very well known by the FDA and the medical community (particularly key opinion leaders of which he is one).  And this will change.

Some market participants expect another dramatic round of dilution to fund the contemplated SPA MM Phase 3 trial. The consensus belief is Provectus needs upwards or $25 million or more to run the trial. Management budgets the expenditure closer to $15 million or less.  And this may not happen from the perspective of which or what scenario plays out vis a vis regulatory clarity and path to approval.

There may be another near-term raise of money via Network 1 to maintain accounting firm's BDO's going concern opinion until regularity clarity is transparent and commercial validation is achieved. Having about $5MM in cash at March, Provectus is burning about $1MM in cash per month. It is possible another N1 placement, together with likely expensive warrant coverage, may be undertaken in June, or shortly after quarter-end (i.e., early- to mid-July). As such, there may be shorting in advance of this further but minor dilution, or a reluctance to buy until transacted. And while there is no certainty this fund raising will occur should events in June raise the share price sufficiently for either Lincoln Park's warrantless equity line of credit to be drawn down or a portion of the shelf to be used at much higher share price levels, it is nevertheless a possibility.

Most importantly, there has been no buying from life sciences investors, firms and funds because there is need for regulatory clarity (e.g., SPA, BTD-AA, BTD-truncated P3) and, additionally for some of them, commercial validation (e.g., regional license deal(s), PH-10 deal, global license deal). Regulatory clarity is necessary because these life sciences investors will not invest until they understand the "exit," PV-10's drug approval path. Commercial validation inevitably presents the market with proof that someone or something is desirous of the compound. For example, with regard to regulatory clarity I think (speculate) Provectus has officially submitted its requests/applications for the SPA and breakthrough therapy designation, perhaps in early-May. For commercial validation I think (speculate) the company is close to consummating an MOU for China, perhaps by early- or mid-June.

News of material progress on the fronts of regulatory clarity and commercial validation will cure the share price malaise. The news expected to come should be vastly more than sufficient to breakthrough the 75 cent level and well beyond.

So, while Sable's capital structure perspective is germane and understood, it should become largely irrelevant or immaterial at the point in time Provectus announces, say, an SPA and a regional license deal in China.

As for Sable, his concluding statement is obvious: "This should be preventable. The five-year duration is an industry standard for no obvious reason. Limiting the duration of warrants to six or 12 months would remove this unintended derivatization of the company’s stock."

It's also not particularly insightful, both from the limited perspective from which he proffers it and basic statistics.

Folks like him suffer from Golden Rule-itis. I know. I did too.

The Golden Rule is "those who have the gold make the rules." I'm not talking about the real Golden Rule that "one should treat others as one would like others to treat oneself." I'm referring to the Wall Street-hedge fund-investment management version.

It doesn't look like Sable has been involved, as a principal, in raising money, either for a fund or a corporation/company.

If you've only invested (i.e., you have the gold), it is difficult (at times, very) to appreciate being on the other side of the table asking for it. Try raising money. Try asking for the gold. It changes your perspective. A lot. I have been asked for gold. I also have asked for it.

Now, try raising money at terms better than everyone else (i.e., greater than extrinsic value, company friendly warrant coverage, etc.). By definition, the far right hand side of the bell curve (i.e., two and three sigma) will be/are successful -- they will raise money at better or much better terms than the population of those raising money -- for both substantive and stylistic reasons and attributes.

As you move left, you approach the region around the mean, where most folks find themselves able to raise money at average or so-called "industry standard terms."

Moving further left, they're less or much less successful. Sometimes, they fail all together.

$PVCT: Bristol-Myers Visits The Blog, [Yet] Again

Bristol-Myers Europe (specifically, France) visited, looking at a blog post I had written about intralesionally-delivered local agents with potential systemic benefits: PV-10, Allovectin-7 and T-Vec (formerly OncoVEX).

There has been extensive recent media coverage of and discussion about the combination of ipilimumab (Yervoy) with anti-PD-1 (and anti-PDL-1) agents, with Bristol-Myers believed by some to hold the catbird seat when it comes to combining therapies, particularly immunotherapies, together (i.e., ipi + "other stuff").

You will recall Dr. Weber presented in Paris about combination therapies. He is very enthused about PV-10 as both a monotherapy and a combination therapy. Moffitt currently is conducting murine study work into the combinations of PV-10 and {anti-CTLA-4 agents, anti-PD-1 agents, anti-PDL-1 agents, etc.}.

$PVCT: National Institutes Of Health (NIH) Visits The Blog

A quick visit, so don't read too much into it at this point.

$PVCT: Bristol-Myers Visits The Blog, Again

The Princeton, NJ office visited, looking at a blog post I had written discussing Vical/Allovectin-7 and Provectus/PV-10.

Since the release of final MM Phase 2 trial data at ESMO 2012, through the presentation of systemic immune response data at AACR 2013, Western Big Pharma visitors to the blog have included, in no particular order, AstraZeneca (I think), Daiichi Sankyo, Amgen (I think), Merck, Bristol-Myers, and Johnson & Johnson.

The blog is just a proxy, producing different kinds and types of valuable data from which one variously can make observations and draw conclusions. While I would not rely too heavily on either of these, the data nevertheless have value.

If I easily can observe Big Pharma interest in PV-10 through staff members visiting my blog, the actual inbound interest via the company very likely is more substantial and substantive.

There really is a simple takeaway from all of this: Interest in PV-10 from Big Pharma is materially growing.

Don't hate Provectus. Hate PV-10.