Disfigurement, Discomfort, Death

+273% 1-year stock performance, January 7, 2013 to January 7, 2014, no insider sales

+135% 1-month (roughly) performance, December 9, 2013 to January 7, 2014, no insider sales

-3% 1-week performance, December 31, 2013 to January 7, 2014, no insider sales

There are no sale-related Form 4 filings on the SEC website for Provectus filings through Tuesday, January 7th. For the previously provided link, check the “include” circle under “Ownership?” to bring up stock ownership-related filings. Another way is here, where I searched for filings using "4." I note Tuesday because filings must be made within two business days. It is theoretically possible management sold shares Wednesday or Thursday, with reporting of these transactions made via filings Friday and Monday, respectively. While I cannot write with certainty management have not sold shares, I’m going to go out on a limb and suggest they have not.

Historically, there have been no insider sales by Provectus officers and directors.* There only have been purchases.

You may recall Provectus' stock’s value proposition from my September 22^nd investment letter (the closing share price: “The Company’s stock value proposition is very compelling at the current share price. Provectus appears close to achieving regulatory clarity for its lead indication, appears close to consummating regional license transactions for PV-10 in China and India, appears to have as least the interest of Pfizer as well as the attention of other global pharmaceutical companies, has no historical insider selling and plenty of historical insider buying, and has low institutional ownership. The Company, on the other hand, has a stock that until this year was mired in a multi-year downward trend, a capital structure that historically has weighed on the share price, trades on a minor U.S. stock exchange, is led by first-time public company leadership with no prior experience bringing an oncology drug to market and of which Wall Street is very skeptical, and has no institutional or Wall Street sponsor (the lack of playing Wall Street’s game in a highly regulated and capital-intensive industry like biotechnology, together with some shortcomings, has restrained the share price heretofore).”

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.

A tweet from Thursday

I’m more interested, however, in management transactions. More specifically, and more to the point, there have been no sales ever by Craig Dees, Tim Scott, Eric Wachter and Peter Culepper.

Management has told us they await FDA guidance, per their December 18th Provectus Type C Meeting With FDAOncology Division Held December 16, 2013 press release. Presume management knew what went on in the meeting by being and participating in the meeting. Then:

• If the meeting went “bad,” would they not have sold shares by now? By not selling, are they, along with shareholders, planning to go down with the ship and stock? That's, um, noble...

• If the meeting (and, potentially, any follow-up**), however, was good or great, would it not make sense to continue to own stock, given now their view into FDA guidance that also might inform their view of PV-10's commercialization timeline. The founding principals and principal no. 4 are playing for tens and tens and tens and … of dollars, having historically eschewed a Wall Street or investment sponsor, and desirous of leading and controlling the company and the solving of a problem of global importance. Management is not playing for tens and tens of cents.

** It's clear from the thousands of pages of administrative and correspondence documents readily available on the Internet for drug approvals that sponsors (applicants) and the FDA routinely and regularly communicate and interact through the drug approval process.

From my investment letter: "PV-10, a novel oncology compound being developed by Knoxville, Tennessee-based Provectus Biopharmaceuticals, Inc., exemplifies innovation over incrementalism, meaningful over marginal, productized technology over hypothetical, and changing the world over accepting the status quo, with not an insignificant amount of serendipity over contrivance. In sum, these form the quintessential essence of a paradigm shift in the treatment of cancer.

This is where my investment thesis begins and ends: a novel drug compound with a pristine safety profile, a treatment well tolerated by and easily administered to patients, a ready made product inexpensively produced at scale, and a vast addressable market of unmet need that should be fully and very profitably met over time." Bold emphasis is mine. No one can call PV-10 a cure (or the Holy Grail), for now. I focus on the drug's ability, it's vast potential, to shift how doctors think about and subsequently act on treating cancer once found.

Cancer causes disfigurement through surgery, often the first solution considered by physicians (for those patients where surgery is a viable option) for many solid tumor cancers once discovered and diagnosed. PV-10’s tissue sparing ability, together with its safety and efficacy, eventually should eliminate the consideration of surgery first.

Cancer causes discomfort of varying degrees, typically adverse to toxic, when chemotherapy, radiotherapy, and many immunotherapies with actual or likely black box warnings or detrimental short- and long-term effects are used. PV-10’s 30-minute “half-life” means the drug is in the patient’s bloodstream for 30 minutes before it is excreted in the bile. Much more effective than other therapies, PV-10’s pristine safety profile and paucity of side effects eventually should eliminate the need for considering chemotherapy, radiotherapy or immunotherapy before first using PV-10.

Cancer causes death, often because the patient’s tumor burden is too great for the immune system to effectively fight back. Cancer wins because it’s discovered too late. It wins because the immune system is overwhelmed by toxic therapies like chemotherapy, radiotherapy and many immunotherapies, rendering it unable to effectively fight back. Can PV-10 mitigate or eliminate death caused by cancer? Time, more study and research, etc. only will tell. In the case of heavily diseased or tumor burdened patients, PV-10 eventually might be injected into as many accessible tumors as possible with the drug, increasing the likelihood of as many antigens as possible being presented to T cells and other immune system components for the immune system to eradicate as many or all vestiges of cancer from the body. For those previously with no hope, patients with very heavily diseased burden and severely compromised immune systems, PV-10 still could be used in combination (to be further examined, strategized, optimized and ultimately decided) with other systemic therapies like chemotherapy, radiotherapy and other immunotherapies to reduce tumor burden sufficiently for PV-10 to then help stimulate the immune system to finish off the cancer.

A paradigm shift in the treatment of cancer

Indeed.

$PVCT's PV-10: A Targeted Therapy & An Immunotherapy

PV-10 works better, faster and longer.

It appears there's a lot of excitement coming out of ASCO 2013 regarding immunotherapies, such as PD-1 agents from Bristol-Myers and Merck, to name just a few.

In trying to synthesize key points, for me, of the tidal wave of comments -- Tweets, blogs, Instagram pics, e-mail, etc. -- I think an important realization emanates from an Adam Feuerstein tweet below about "why immunotherapy is winning over targeted therapy: Long survival tails."

The above figure is taken from this paper: New challenges in endpoints for drug development in advanced melanoma by Ribas et al. (2012).

Note two things, circled in pink by me.

First, the longer survival tail of immunotherapies, demonstrated by the presenter's black arrow (bottom up) showing the difference between the blue and red lines. Immunotherapies demonstrate a meaningful or material survival difference over a longer time period.

Second, the dramatic initial results of targeted therapies, demonstrated by the presenter's black arrow (rightward) showing the difference between the blue and red lines. Targeted therapies demonstrate a meaningful or material survival difference out of the gate, but the differential dissaptes over a longer time period.

This Feuerstein tweet thread, as one would expect, evolves into the following:

Combination therapies.

PV-10 is, itself, a combination therapy: it's both a targeted therapy and an immunotherapy in one.

PV-10 works better, faster and longer.

I think management wants to convey PV-10 produces dramatic initial results, like a targeted therapy, with a meaningful survival difference over a longer time period, like an immunotherapy.

PV-10 works better, faster and longer.

@PropThinker's Undervaluation of Vical’s Full Pipeline Allows A Cheap Bet on Cancer Trial (and $PVCT)

PropThink provides actionable analysis of publicly-traded, emerging growth companies in the healthcare sector to retail and institutional investors. Recently, the firm put out work on Vical (and Allovectin-7), taking (initiating, perhaps) a long position in VICL because: "The market is discounting Vical on the basis of underestimating the probability of Allovectin success and is completely overlooking a broad pipeline with shorter developmental timelines. These oversights have created what we consider a cheap call option on Allovectin data given the pipeline strength. In the context of the overall success rate of Phase III oncology studies, the existing data supporting a positive trial outcome for Allovectin is alluring."

A blog reader directed me to this. Thank you. It's an interesting article by PropThink, and very worth reading.

The investment thesis, buying Vical shares as a the "cheap call option," appears to be centered around (paraphrasing) the market significantly underestimating the probability of success of Allovectin's MM Phase 3 trial, which [in PropThink's view] creates a near-term, high-return opportunity coupled with a pipeline safety net.

I found several aspects of the author's analysis interesting (aside from the discussion of Vical's non-Allovectin pipeline):

• The market opportunity and addressable market size there still exists to treat Stage 3/4 melanoma, including "Approximately one-third of all melanoma patients will experience disease recurrence. In patients with advanced metastatic melanoma, median survival typically ranges from six to ten months."
• Further recognition of Yervoy and Zelboraf's shortcomings: "Both drugs are associated with significant side effects, and neither is considered a cure for melanoma."
• Allovectin’s novel immunotherapeutic approach to metastatic melanoma: "...cause recognition of the tumor at the local site (break tolerance) to allow a then-sensitized (boosted) immune response to recognize un-injected tumors at distant metastatic sites" and "induces an immune response to multiple melanoma associated antigens."
• Phase II data is much better than top-line data suggests, because the "...key to the Phase II data is to understand the objective response rate of 11.8% on an intent-to-treat basis. This response rate is clinically meaningful on its own, but when analyzed in the context of the Phase II study and Phase III trial design it points to potentially stellar results."
• Response rate in context: "If the response rate for Allovectin of 11.8% were extrapolated to a trial population without a 60% dropout rate, then it would be at least 22-24%."
• Reasons why the Phase 3 trial be a success: "Patients are healthy enough to receive a minimum of two treatment cycles, Patients have functional immune systems, Patients on study for more than 2 treatment cycles, Designed to capture immunotherapy advantages"

The takeaways, among several, for me include:

• The continued recognition of the growing importance and value of intralesional immunotherapies (e.g., Amgen's T-Vec, Vical's Allovectin-7),
• The continued recognition of Yervoy and Zelboraf's shortcomings, and that there still remains a clear unmet need for melanoma,
• The more frequent an immunotherapy is applied, the more likely a better outcome (i.e., more than two treatment cycles in the case of Allovectin), and
• The still only incremental benefit Allovectin and T-Vec offer. Allovectin and T-Vec receive attention, in many respects rightfully so, because the drugs are in Phase 3 testing. Nevertheless, the drugs are incremental in their benefit when compared to PV-10.

Recall Dr. Andtbacka's comparison on these therapies and PV-10 at the HemOnc conference in New York in March:

PV-10 simply is superior. The above table compares Phase 2 trial data across therapies, where treatment was limited -- limited by the number of Allovectin treatment cycles and number of PV-10 injections.

The attention paid to Allovectin-7 and T-Vec is good for PV-10; however, not including a key intralesional therapy like PV-10 of which medical practitioners and key opinion leaders are fully aware and for which they are very excited makes me wonder about the depth and thoughtfulness of PropThink's Dr. Kotak's article's research or diligence.

Was Dr. Kotak ignorant or unaware of Provectus and PV-10, or unwilling to include an OTC stock in his analysis and article? He included OncoSec Medical (ONCS.OB).

Aside
As for the author's cheap call option description, the current Vical market capitalization (per Yahoo! Finance) is about $310MM ($3.58 per share). The author suggests "The Vical pipeline, excluding Allovectin and cash (~$75M at March 31), could support a valuation in the $200-250M range, thus we believe that Vical’s pipeline provides a real backdrop to the Allovectin trial." I read this as his description of downside protection, or down to $2.31-2.89 per share.

A Vical trial success, which many are betting against, raises the share price to, what, $6-8 per share? Higher?

From a risk-reward perspective, your downside is $0.69-$1.27 a share ($3.58 minus $2.31 or $2.89), while your upside could be $2.42-$4.42 a share ($6-8 minus $3.58), for a downside-upside multiple ratio of about 2-4x:3.5-6.5x. As a former currency derivatives (read: options) trader, that risk-reward is not endemic of a "cheap call option."

The notion of buying a call option, cheap or otherwise, is the upside if the option becomes in-the-money (or volatility rises to increase the value of the option) is many multiples of the option premium you pay (and are prepared to lose in its entirety if the trade goes awry). The risk-reward has to be worth it: the potential return you expect to generate is equal to or vastly higher than return commensurate with the risk you believe you are taking.

In Dr. Kotak's example, I ultimately see the risk-reward range as 2-6x (with 3.5x in the middle), which I do not consider cheap. A call option (speculating, where you get more leverage by buying the option rather than the underlying common stock) or cheap call option is smart or cheap at a number of at least 10x (for the risk you're taking).

$PVCT: Blog Reader Question

I really appreciate your posts. Please keep them coming. One issue that I am having with the continued lack of any licensing agreement or income, is if perhaps PVCT is pricing itself unrealistically? I have seen this happen to companies before, when they think they know what their product is worth, but no one else is willing to pay so much for it, and they just go on and on without ever signing anything. They go to their graves secure in the knowledge that no one has taken unfair advantage of them, but without ever cashing in their product which does have genuine value. You wrote that " license interest and discussions are heating up." If this is so, then what I am fearing is not a problem.

Great comments and question, and thank you.

I have had prior experience with management or [particularly] founding teams being unrealistic: about technology, the product, valuation, and other issues. It is frustrating as an investor and shareholder to see intransigence, derived from lack of realism or pragmatism (or both), overtake what started out as a great investment opportunity.

My interactions with Provectus management have not caused me to question their realism as it relates to valuation. Craig and Peter will tell you, quickly, often and repeatedly, they routinely seek out counsel in this area, and enjoy the benefit of several very experienced counselors.

While Craig strikes and has always struck me as fundamentally understanding the value of what the team has innovated, he does not seem to be ideological about valuation. While the check will have to be very large, I do not think him a person desirous of extracting every last dollar from a/the would-be acquirer.

That said, I am struck by management's perspective about the potential impact on valuation of PV-10's immunologic potential. Repeating a portion of a post of mine from a couple of days ago:

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?

$PVCT.OB: When Does PV-10 Fail?

"Put enough water onto the fire, and it goes out."

The compassionate use program, where doctors have significantly more flexibility than in the clinical trials to treat and re-treat patients revealed much to Provectus management about what the drug can truly accomplish when it enables the body's own immune system to cure cancer in a patient (and how to better design the pivotal MM Phase 3 trial). Put enough water onto the fire, and it goes out. Regularly treat the patient with enough PV-10 and, over time, the cancer goes away.

Constrained by treatment. As such, some trial failures of PV-10 are not actually failures. Some "failures" occur out of necessity because of the design of the trials. In both the dermatology and oncology studies, management was inhibited by the trial design per regulatory compliance. In the MM Phase 1 and 2 trials, principal investigators were only allowed to inject a few tumors. Nevertheless, you have to be impressed by how well the bystander effect worked given the trial constraints hamstringing the treatment approach. Injecting all accessible tumors with PV-10, of course, would be best. The impact of this is to (a) lower the tumor burden and, thus, the load the patient's immune system has to overcome, and (b) address tumor heterogeneity. Tumors are heterogeneous; that is, they are not all the same antigenically (i.e., what they present to the immune system). So, if the antigens the immune system needs to see are on in one tumor and not another, it is vital to inject PV-10 into as many tumors as possible.

Constrained by time of reporting. Some patients were fine at, say, week XXX; however, the trial design required observation at week X (XXX > X). Efficacy at week XXX, even if higher or better, goes unreported. The patient was listed as a failure.

Constrained by physician implementation. The trial design prevented tumors from being injected more than once: A doctor missed a tumor. There was no ability to retreat to correct the miss. The patient was listed as a failure.

Constrained by patient behavior. It is rumored a PV-10 trial patient flew from the U.S. to Australia in order to participate in the MM Phase 2 trial. His tumors were injected, and they went away. Apparently, it also is rumored that he broke his promise to stay and be observed, and returned home to the U.S. The patient was listed as a failure.

Our immune system can be overwhelmed. As with an infection, doctors use antibiotics to slow it down until the immune system itself can clear it away and cure the patient. If the host cannot help, there is no cure.

Provectus treats cancer like an infectious disease.

Thus, in the case of very late stage disease or very heavy tumor burden disease, more PV-10 is applied at the outset, the drug is applied again and again (i.e., re-treat or throw more water onto the fire), or PV-10 is combined with radiotherapy, chemotherapy or other immunotherapies to stimulate the immune system, reduce the burden and "hold the infection in place" and, eventually, allow the patient's immune system to takeover and finish the task of healing the body.

Failure? Perhaps not so much.

$PVCT.OB Blog Reader Question

I read an old interview (2010) with Craig Dees where he explained the novelty of their
approach in targeting the tumor as opposed to just using a systemic agent that is
(hopefully) more active on the tumor than on the healthy cells. What I was not clear on
is: is this a new philosophic approach, or is it expressed in chemistry? Do they have
some chemical delivery system that is being used to deliver Rose Bengal to the
tumors? Is the novelty of their approach that they are looking for something to target
the tumors directly as opposed to the approach used up to now?

Craig frames Provectus' approach to treating cancer in the following way: the harder you punch the immune system, the greater the response. He references a lecture by a veterinary virologist Carl Olson who showed a picture of a cow with a basketball-sized papilloma hanging from its stomach. The professor said (paraphrasing): "Cut that off aseptically and cleanly, and it will grow back every time. Tear it off, make it bleed, kick dirt into the wound, and it will never come back." Shock the heck out of the immune system with tissue destruction (wake it up), break tolerance and encourage a large-scale release of tumor antigens into the system so they can be seen in context.

Dirt, in the story above, like a vaccine adjuvant, riles up the immune system causing it to attack. Much of what Provectus is doing is treating cancer like an infectious disease, and recruiting immune system help. There's another explanation, besides "PV-10 did not work," for non- or poorly responsive injected lesions and bystander lesions that responded poorly or did not respond at all. PV-10's mechanism of immune response is an autophagy-induced, systemwide antitumor one.

Sufficiently inject the lesion (or tumor); induce autophagy and shrink or eliminate the lesion; and, induce the immune system, via the antigens released from successfully treating the injected lesion(s), to successfully treat bystander lesions and remote cancerous locations. In other words, effectively punch the target lesion enough so the immune system can more effectively punch cancer around the patient's body enough. Proper action. Beneficial reaction.

Rather than a new philosophic approach, Craig views Provectus' work as the creation of a new paradigm. See The Structure of Scientific Revolutions by Thomas S. Kuhn. "Kuhn argued for an episodic model in which periods of such conceptual continuity in normal science were interrupted by periods of revolutionary science."

People have tried the intra-tumoral route with little or no success. Some approached getting the immune system to act in the manner described above by Dr. Olson. Still others discovered tumor-killing autophagy induced specific, system-wide, antitumor immunity.

Why did others fail to do it well? In Provectus' view, other drugs killed cancers through toxicity rather than tumor tissue specificity, and thus had poor efficacy and problematic side effects. The drugs killed normal tissue, leaked out and systemically poisoned patients, preventing the proper and effective stimulation of the immune system.

PV-10 kills by autophagy and is very much focused only on diseased tissue. According to the company, stimulation of help by the host's anti-tumor defenses appears to be mediated by T-cells and direct actions on antigen-presenting cells. Management thus believes the approach to treating cancer with PV-10 is a new paradigm: Treat cancer like it is an infectious disease. Of course, don't use systemic poisons. Ultimately, however, components of Provectus's approach include pieces of other knowledge assembled to form a whole new approach: A therapy that functions.

$PVCT.OB: Blog Reader Questions

Would a repeat of the study with HCC and melanoma cell lines make sense using pancreatic and breast cancer cell lines? If so, would that be significant to Big Pharma when these 4 studies are viewed collectively?

I think there are some technical challenges, especially with breast cancer. Cancers have to be Major Histocompatibility Complex-matched to the host. Cancer, including mouse cancer, should immediately be killed by the immune system. That is why organ transplants have to be matched as closely as possible. Anti-tumor immunity does not reason. It kills what is not identical to the host.

I do not know of mouse breast cancers lines that would match an immuno-competent host. I think Provectus already has successfully treated naturally occurring breast cancers in mice, and killed human breast cancers produced in mice deficient of anti-tumor immunity (nude mice). I recall Craig showing these pictures in past presentations. I think naturally occurring breast cancer has been treated in dogs. Breast and prostate cancer markets are very hard to penetrate except in very late stage disease, which makes success expensive for Provectus to pursue and achieve in small markets at this tine. Target markets like liver cancer are more accessible.

I think management some pancreatic cancer data in mouse models, ablating pancreatic cancer tumors and again observing the bystander effect. Running more mechanism variants in animal models probably would not add value. One real problem with pancreatic cancer is diagnostic, as it often is very widespread when detected. The immune system can be overwhelmed. For now, it is an open question, and one only answered by trials, as to the value for the company for this disease. A combinational therapy approach probably would have the highest chance of success.

As I previously wrote, I think other types of cancer tumors also have been studied by Moffitt. Mechanism of action is not required for FDA licensure, only safety and efficacy. To secure permission to run trials in humans, Provectus has to demonstrate to regulatory authorities that PV-10 appears safe and has potential benefit, not how it works. The company has run most of its studies with that goal in mind. Other goals have included hoping to improve efficacy or expanding into new indication markets.

As for adding value to Big Pharma, the greatest additional value would be demonstrating safety and efficacy in humans. The vast majority of the melanoma market is not very late stage disease. In the melanoma studies, the majority of the market is lies between early stage 4 and earlier, which is where the MM Phase 3 trial was designed to target. A small percentage of the market is very late stage disease.

Part of Provectus' recent presentation at the SITC 27th Annual Meeting clearly was directed at expanding into the very late stage disease market area by using a combined therapy treatment protocol. I think management believes it is the right thing to do for ethical reasons even though it could gain little in market size.

Work with models should be expanded to and published data should be available for other chemo- and immunotherapy agents (e.g., anti-CTLA 4). The goal would be to demonstrate safety and efficacy in these models with the subsequent goal of asking regulatory authorities for permission to test the combined protocols in humans.

A similar path has been followed in expanding the liver studies in people for late stage disease or disease with heavy tumor burden that might be overwhelming the human immune system. Provectus should have data on the combined therapy (PV-10 + sorafenib) in mice and permission to test the combined therapy in humans, which I think would start as soon as the trial site is able to begin the study.

$PVCT.OB: The Orthogonality Paradigm

Yesterday's PR of Craig et al.'s poster at SITC highlighted additional data that demonstrated the use of PV-10 in combination with systemic chemotherapy. The combination cancer treatments, whether chemotherapy, radiotherapy or immunotherapy, is a growing theme within the medical community. In the case of the work presented at SITC, PV-10, the immuno-chemoablative therapeutic agent, was combined with a systemic chemotherapeutic.

Pre-clinical and clinical data has shown PV-10 generates immunity even in patients afflicted with very late stage cancer. The immune system, however, can be overwhelmed by cancer (and infections). Management thinks the key, for very late stage disease, is to use a chemotherapeutic or another systemic immunotherapeutic agent (like Yervoy/Ipilimumab) to wound the cancer (the infection) just enough so the PV-10-generated immunity can finish it off. Like antibiotics, PV-10 and the application of other therapeutic agents in this manner (i.e., to wound cancer, before PV-10 finishes it off) would not cure anyone. Rather, they hold or bound the infection until the body's natural immune mechanisms can do the job of curing it.

Next up should be the results of combining PV-10 and anti-CTLA-4 system immunotherapeutic agents like Yervoy/Ipilimumab.

Note the importance of Provectus joint patent application with Pfizer for combining local and systemic therapies for enhanced treatment of cancer. More questions arise: How good were the pre-clinical results from combining PV-10 and Yervoy/Ipilimumab? What would the beneficial impact be on very late stage metastatic melanoma cancer patients from this combination? What would the implications be for Bristol-Myers Squibb, and for Pfizer (which retained the right to certain combinations of therapies with tremelimumab?

This Provectus work foreshadows Moffitt's subsequent murine results, having initially reproduced Craig and the team's work and identified the quintessential immune response: a more complete assessment of PV-10's immune-mediated response, demonstration on multiple cancers and in combination with other therapies, and the durability of the immune response (through various challenge studies).

Ultimately, the “orthogonality paradigm” demonstrates PV-10 is orthogonal to (neither impacted by nor having an impact on) other therapeutic agents. This is important because PV-10 would be used first, second and at all times during patient treatment.