MD Anderson, More Cash, Checkpoint Protein Inhibitor Combinations

MD Anderson surgical oncologist and Provectus principal investigator Dr. Merrick Ross' paper Intralesional therapy with PV-10 (Rose Bengal) for in-transit melanoma, published in peer-reviewed Journal of Surgical Oncology, was made broadly available by the company today.

Abstract: Rose Bengal is a novel injectable agent that has been evaluated as a rational treatment strategy for melanoma patients with recurrent unresectable local/regional metastases accessible for intralesional injection. PV-10 (10% Rose Bengal) has completed phase 1 and phase 2 multi-center clinical trials demonstrating significant local/regional disease control and also responses in non-injected regional bystander lesions and distant metastases. The published results of studies that have assessed PV-10 are presented, and the rationale for combining its use with recently approved immunotherapeutic agents is discussed.

See the link to the paper here. The digital version provided by Provectus on its website reached the maximum number of users/views allowed (i.e., too many views), however. The company will have to up this number for more folks to read it. I discussed the paper when it was first published online; see blog news item Journal Publication (February 11, 2014) under the Archived News tab.

A blog reader further highlighted his takeaways from Ross' paper:

• "In addition to an excellent safety profile, encouraging results were observed, including effective local tumor ablation, bystander responses in un‐injected lesions, and unexpectedly prolonged delays in disease progression, particularly in patients who were observed to have local tumor destruction. These latter observations suggested an induced systemic immune response elicited by the tumor ablation."

• "These observations suggest that tumor necrosis may lead to a robust specific anti‐tumor host immune response. The effects of released tumor antigens on nearby antigen presenting cells may facilitate the presentation of specific antigenic targets to circulating T and B cells. The potential for chemokine release and local inflammation in response to granulocyte destruction may enhance the host response. Interestingly, spontaneous involution of untreated tumors was observed in a mouse hepatocellular homograft model and closely correlated with effective ablation of injected target tumors. These observations support the induction of a tumor‐specific host immune response."

• "Furthermore, unexpected long‐term survival was observed in the patients achieving a response compared to similarly staged patients receiving other therapeutic modalities. These observations strongly support the concept that effective tumor ablation can elicit an effective anti‐tumor systemic response."

• "Because of easy access to the local/regional disease, intralesional agents have been studied, but only recently with the rigor of formal prospective trials. IL PV‐10, is well tolerated, easy to administer, and based on Phase 1 and 2 data has an established and excellent safety profile, and results in meaningful responses in injected lesions and untreated bystander lesions. IL PV‐10 compares favorably with the published experience with the vast majority of other injectable agents in terms of side effects and local disease control."

I also add:

Further study of PV‐10 is certainly warranted either in the context of a phase 3 trial, or as a phase 1/2 study in combination with the checkpoint blocking agents or vaccines. The goal of these phase1/2 trials would be to document the safety of these novel combinations and demonstrate enhanced local/regional response and disease control as well as an augmentation of the systemic anti‐tumor responses. The success of such trials would further advance the melanoma treatment landscape.

Dr. Ross has been involved with the company for several years, and MD Anderson has been a compassionate use program ("CUP") site on and off since about 2009. Interestingly, it only was since March 2014 (around the time Provectus announced it had submitted its breakthrough therapy designation application ["BTD"]) that the cancer center was named a CUP site on clinicaltrials.gov. See my blog post Provectus Submits Application to FDA for Breakthrough Therapy Designation. As I noted in blog news item Various (July 30, 2014), MD Anderson noted Provectus' CUP in its August 2014 Melanoma Horizons newsletter, following ASCO 2014 and BTD denial.

Per my blog news item Provectus increases cash balance (July 31, 2014) it would appear the company has increased the amount of cash on its balance sheet, by virtue [I believe] of management writing "Cash on hand supports planned operations until 2016" (rather than its previous comment as late as July 28th of "Cash on hand supports planned operations until 2015"). In my blog post 2014 Annual CEO Letter (pt. 1) I wrote:

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

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We should find out the source of the additional cash (I assume quarterly burn rate guidance has not changed of course) during the company's quarterly earnings conference call on August 7th. I speculate it originates from executive compensation repayment; however, the question is whether ~$4.5 million or $9 million was repaid. A lower projected burn rate (ex-pivotal melanoma Phase 3 trial expenses) than the $2.5 million quarterly figure [in order to compare apples-to-apples above] also could allow for the change in the corporate website presentation cash burn message (i.e., until 2015) without an increase in cash on hand. In blog news item Revisiting Cash On Hand (July 15, 2014) I wrote:

Provectus' June 12th 8-K detailing the settlement of the shareholder derivative lawsuit noted a date of July 24th for a hearing on the terms of the proposed settlement. Depending on how much is paid back by management (i.e., ~$4.5 million or ~$9 million), the additional cash should provide further runway for the company to reach the trial's interim readout and make its case to the Agency for filing the NDA. Below, for example, I assume these monies are paid back in 3Q14. Without consideration of the melanoma Phase 3 trial, the projected cash balance would look something like the below. At a projected $2.5 million average quarterly burn, Provectus would approach its accounting firm BDO LLC's minimum cash threshold figure of about $4 million in the 1Q16 timeframe, assuming repayment of the lower amount (the higher payment obviously provides at least an additional quarter of runway).

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With combining oncology drugs all the rage in 2014, FierceBiotech's John Caroll wrote this week in his article Immuno-oncology partnering-palooza continues with Genentech, AstraZeneca deals:

"AstraZeneca has managed to be included in the pioneering group of players working on immune checkpoint inhibitors, which prominently features competing teams from Bristol-Myers Squibb ($BMS) (nivolumab), Merck ($MRK) (pembrolizumab) and Roche ($RHHBY) (the rival PD-L1 drug MPDL3280A.) Merck has been the leader in the partnering arena, executing a long lineup of collaborations. But all the players see combo treatments as the big second wave in R&D, with immuno-oncology treatments dismantling the protective screen cancer cells use to hide from the immune system and other drugs spurring an attack."

Where is Provectus and PV-10 in this partnering-palooza? Management's plan A was and still is to pursue a monotherapy path for PV-10, which finally appears to be unresectable locally advanced cutaneous melanoma for which I think the Phase 3 trial should commence enrollment at the end of September.

The plan B path to approval, albeit a very reticent one in the past, was to allow PV-10 to be combined with checkpoint inhibitors, initially anti-CTLA-4 agents (early on tremelimumab before it was out-licensed by Pfizer to AstraZeneca/MedImmune in 2011, later following approval ipilimumab) but now anti-PD-1 agents (at the moment both Bristol-Myers' nivolumab and Merck's pembrolizumab). Moffitt Cancer Center as recently as ASCO 2014 said/wrote in/on their PV-10-related abstract/poster: "IL PV-10 may be rationally combined with systemic immunotherapy for the treatment of metastatic melanoma." Moffitt later repeated the statement at a presentation during the 4th European Post-Chicago Melanoma Meeting: Interdisciplinary Global Conference on News in Melanoma. One of management's reservations has been paying for or materially contributing to the expense of such a combination study. The checkpoint inhibitors range in cost from $100,000 to over $200,000; see my blog news item % CR per thousand dollars of treatment cost (February 6, 2014) under the blog's Archived News tab. The total cost of treatment for several treatment courses over whatever prescribed time period for a combination study would be much more (the above costs are for a single course). There also are investigator, site and other customary costs of running a trial. If management were to agree to combine PV-10 with, say, nivolumab or pembrolizumab, they presumably would require (unless their current stance is materially different from their historical one) the partner to pay for most if not all of the study's cost save for Provectus' contribution of PV-10 drug product.

Moffitt's Dr. Jeffrey Weber, M.D., Ph.D. is a notable proponent of combination therapy (quotes below are from a December 2013 interview/article):

• "If you use [BRAF drugs] sequentially, it isn’t as good as using them in combination. The way to deal with metastatic melanoma is to hit it hard upfront rather than treat them, wait for resistance, then try to overcome resistance. So the best way to approach treatment is to hit them hard, hit them quick, and hit them often. Melanoma is a difficult disease, and backing off is a sure-fire way to not benefit the patient."

• "I think community oncologists should also consider patients for combination BRAF inhibitor trials—not just treat them on vemurafenib, but consider them for a trial of combination therapy. The combination therapies are all investigational, of course. You can always treat someone with vemurafenib, but they are almost always going to progress. So why not try to do something where they may not progress? And I would send patients for combination ipilimumab/PD-1 trials, because it turns out that the combination, despite a fair amount of toxicity, has a very impressive response rate. Many patients become complete responders, which is very encouraging. I think there are many good combination therapy trials under way, as well as trials with adoptive cell therapy, that look very promising to me."

• "If you combine blocking of CTLA-4 in the mouse with some sort of vaccine strategy, tumors could be cured. In fact this was seen in some tumors that otherwise were very difficult to treat in the mouse model. This was studied around 2001, and initial studies were at the National Institutes of Health and in Los Angeles, where I was at the time."

I think the "tough" part of any combination study is to finalize the sequencing of PV-10 and the partnered checkpoint inhibitor. I wrote about likely combinations in my blog post Combinations & Permutations, Sequencing. Weber's important Big Pharma relationships include Bristol Myers and Merck. For combination study relationships to be struck with Provectus for PV-10, I would presume Moffitt's pre-clinical work on combining the drug with checkpoint protein inhibitors will have to be front and center, Dr. Weber and Moffitt will have to play a key (primary) role in carrying the work out, there would have to be strong interest on the part of prospective partners, and small or little expense would have to be incurred by Provectus.

Provectus' Balance Sheet Should Be Flush With Cash

Provectus reported about $8.3 million on its balance sheet as at 9/30/13. I assume a fourth quarter cash burn of about $2.1 million or less (consistent with at least the prior two quarters). Management may have raised an additional $1.5 million in early-October (my guess, which may be entirely wrong). 12/31/13 cash on hand then should be $7.7 million.

The warrant "picture" as of 12/31/13 should look something like the below:

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There should be about 70 million warrants outstanding (or less), ranging in exercise price from $0.68 per share to $2.00 (a weighted average exercise price of $1.02). The supermajority of them (about 78%) have an exercise price of $1. It's believed the longer and higher the share price is above $1.25-1.50 (the "Threshold"), the more warrants would be exercised for subsequent sale of the underlying common stock. The Threshold is somewhat arbitrary; the essence here is that warrant holders contemplating exercise (to then sell the common shares) must feel the share price is sufficiently higher than their exercise price for a sufficiently long enough time to exercise & sell.

16 million warrants at exercise prices above or below $1 represent total cash to Provectus of $17 million if exercised on a cash basis. 55 million warrants at a $1 exercise price represent cash of $55 million if similarly exercised. Not all warrants would be exercised for cash; many, particularly the $1 kind issued recently, should be exercised on a cashless basis, where the holder receives a fraction of a share per one warrant depending on the exercise price and where the share price is at exercise.

Warrant holders in situations such as these (i.e., biotech companies like Provectus raising money via placements at below market prices with greater than one times warrant coverage), if they are inclined to exercise their securities in the first place, are more likely to exercise (with significant remaining time to expiration) and sell the resulting common stock. Finance theory would indicate exercising warrants just before expiry; however, a good number of Provectus warrant holders are more inclined to sell for quick (50 cents to 1-2 dollars per warrant or share) than for end-game (e.g., $20 per warrant or share) profit.

Through today the share price has been above the Threshold for 16 days, totaling (per Yahoo! Finance) nearly 43 million shares traded. Some people believe OTC volume prints are not accurate, perhaps by as much as 50%; so, perhaps somewhere between 21.5 and 43 million shares may have traded. This situation should have provided an opportunity for desirous warrant holders to exercise & sell.

How many warrants, converted only on a cash basis, have been exercised? Thus, what amount of money has Provectus taken onto its balance sheet in recent weeks from these exercises? Until or unless management issues a press release describing the cash position that must surely have materially increased as a result of warrant exercises, all we can do is speculate for now. I'm going to suggest (based on several diligence items) the cash balance "today" (e.g., now, this week, etc.) should be at least $20 million. If true, this would have resulted from the exercise of about 12 million warrants, or just 17% of the total number of warrants outstanding.

With $20 million or possibly much more on the balance sheet, and with no consideration given to additional cash that may accrue from China and/or India regional transaction upfront payments, Provectus should have more than enough cash on hand for whatever trial work is necessary going forward, whether melanoma (if at all) or liver.

We should know soon enough what the FDA will tell management about the pathway to PV-10 approval and commercialization for melanoma. I doubt any further trial work (if necessary or required) would be significant in terms of cost compared to the contemplated 180-patient special protocol assessment-designed Phase 3 trial once considered (and management costed at $12-15 million). Rather, the company likely would use some of its new capital to complete the expanded Phase 1 liver trial, where three additional trial sites may have been added to enroll patients.

Additional cash of this magnitude, with the potential of some more cash from some more warrants exercised for cash in the near-term, should mean a healthy balance sheet and no further or future punitive fund raising going forward.