Relying on anecdotal evidence in general and connecting the dots specifically, the Chinese have displayed a willingness to do deals before regulatory clarity has been made transparent, and this appears to be the case with Provectus too.
There may be strings attached, "ifs, ands or buts," etc. in any prospective deal structure between the interested Chinese party and the company to reflect future uncertainty or condition precedents.
The prospective partner in an eventual China regional transaction (at least, most likely, China, Hong Kong, Macau and Taiwan, and potentially certain other Asian countries and geographies) appears to have been narrowed to two companies: Hisun-Pfizer Pharmaceuticals and Eddingpharm.
Hisun-Pfizer is the joint venture between Pfizer and Zhejiang Hisun Pharmaceutical, initially formed to sell low-price generic drugs but more recently desirous of selling branded ones.
Eddingpharm is a private venture-backed company (venture investors include OrbiMed Advisors Caduceus Asia Partners Fund, Domain Associates, and Sequoia Capital China Growth Fund) focused on marketing drugs of Western pharmaceutical companies in China and Asia. Eddingpharm's willingness to do a deal prior to regulatory clarity may be seen in its license agreement with Syndax for entinostat in China and other Asian countries in early-September. Syndax received breakthrough therapy designation from the FDA for entinostat one week later.
Recent Eddingpharm deals include Syndax for breast, lung and other cancer indications (September), GlaxoSmithKline China for a breast cancer drug (April 2013) and Chiesi Farmaceutici for two respiratory disease products (April).
It's unclear to me whether Peter met with both Hisun-Pfizer and Eddingpharm, or one of them, when he was in China the week of September 2nd. I think Pete's September trip was a follow-up meeting (e.g., pre-screen, due diligence, etc.) primarily or exclusively with Eddingpharm, which has offices in Hong Kong, Shanghai (where Peter visited, at least) and California. Hisun-Pfizer was introduced to the company by Pfizer's Dr. Craig Eagle.
I understand Peter may be in New York already (i.e., today).
He has made three trips to China thus far: November 2012, February 2013 and September. Will there be a deal signed and announced this week or soon ("yes"), will be have to return to China ("maybe"), or will there be no deal ("no")?
The lead indication for China appears to be liver cancer,
There has been speculation of a $10 million upfront payment,
There has not been much rumor mongering on milestone payments. If I had to speculate, perhaps $50-100 million, but it will boil down to what the company can negotiate and ultimately would accept, and
The net present value of the deal is $1 billion. Like any discounted cash flow analysis, you utilize a variety of assumptions to arrive a number that easily can be revised or changed by the practitioner undertaking it. I think the goal of this number is to reflect the level or percentage of royalty or sales, together with the term of the agreement.
Horse, beggars, turnips, bayonets...
It has been speculated Eddingpharm already extended terms to Provectus. Peter may be in New York to determine if Hisun-Pfizer will consummate a transaction, or then proceed to accept Eddingpharm's deal.
What Provectus says via 8-K filing and press release, or does not say, whenever (should ever) it says (say) so, if it has anything to say, will go a very long way to telling us what the future of the share price holds.
A China deal would entice some buyers off the sidelines, initially staunch and then hoover up the sale of convertible preferred stock that has been and currently is being dumped. Once the preferred stock is dealt with, it's more than likely the share price would gap up to the next level of share or warrant selling-induced resistance.
A. Fund raising. The company raised cash proceeds of $5.2 million in 2013 (see Subsequent Events of page F-33):
$2.6MM at year-end 2012 placed by Network 1, common stock priced at 75 cents (the share around the time may have been in the $0.50s), 1-for-1 5-year warrants struck at $1.00, and
$2.6MM in February 2013 also placed by Network 1, convertible preferred stock at 75 cents, 1.25-for-1 warrants struck at $1.00.
Raising more than $5MM was necessary, according to Peter, because BDO (Provectus' accounting firm) was more conservative regarding requirements of cash on hand.
B. Preferred Stock. The figure at 12/31/12 was 2.5MM shares. At 9/30/12 it was 2.9MM. I think this security, aside from what was issued in February, could be near or at zero at 3/31/13, as these holdings have been or are being converted this quarter (trading volume has been very heavy).
C. Lawsuit. There is a [presumably] shareholder lawsuit (see Legal Proceedings on page 21): "The Shareholder Derivative Complaint alleges (i) breach of fiduciary duties, (ii) waste of corporate assets, and (iii) unjust enrichment, all three claims based on the Plaintiff’s allegations that the defendants authorized and/or accepted stock option awards in violation of the terms of the Company’s 2002 Stock Plan (the “Plan”) by issuing stock options in excess of the amounts authorized under the Plan and delegated to defendant H. Craig Dees the sole authority to grant himself and other executive officers of the Company cash bonuses that the Plaintiff alleges to be excessive."
D. Warrants. A warrant reset related to the where the share price was in relation to the strike prices of certain warrants resulted in the issuance of 3.8MM 3-year warrants struck at $0.68 (see page F-26).
E. Regional licenses. In the last 10Q, the company wrote: "We are seeking to improve our cash flow through both the licensure of PH-10 on the basis of our Phase 2 atopic dermatitis and psoriasis results, and the geographic licensure of PV-10 on the basis of our Phase 2 metastatic melanoma and Phase 1 liver results in certain areas of the world, as well as pursuing a strategic investment strategy, including equity sales to potential pharmaceutical and or biotech partners, and continuing with the majority stake asset sale and licensure of our OTC products as well as other non-core assets."
In the 10K, Provectus wrote: "We are seeking to improve our cash flow through both the licensure of PH-10 on the basis of our Phase 2 atopic dermatitis and psoriasis results, and the geographic licensure of PV-10 on the basis of our Phase 2 metastatic melanoma and Phase 1 liver results in certain areas of the world, as well as pursuing a strategic investment strategy, including equity sales to potential pharmaceutical and or biotech partners, and continuing with the majority stake asset sale and licensure of our OTC products as well as other non-core assets. The geographic areas of interest for PV-10 principally include China, India, Japan and Middle East and North Africa (MENA)."
I will watch closely for information and/or PRs related to this item next week.
F. Placement Agreements. Also in Subsequent Events: "The Company entered into a Placement Agent’s Agreement dated March 11, 2013, with Network 1 Financial Securities, Inc. (“Network 1”) as placement agent, which allows for the sale of the Company’s common stock at a purchase price of $0.75 per share and 100% warrant coverage to purchase shares of common stock at an exercise price of $1.00 per share."
According to Peter, it was necessary to have an "open placement agent agreement" as a placeholder for BDO's going concern opinion. The placement agreement with Network 1 appears to be viewed by BDO much like it views the Lincoln Park equity line of credit agreement.
G. Global license. In the 10K, in addition to expanded and more specific language on regional PV-10 licenses, the company also added language on global PV-10 licensure: "We are also considering the global licensure of PV-10 as well since it has come to our attention that this is of interest to potential partners."
I do not think this refers to Pfizer, but rather several other competitors (at least 2 American and 2 European Big Pharma companies) including one in particular that continues to do clinical due diligence, but may well have wrapped up its business diligence.
Many commodity markets are deep (i.e., very liquid), like certain U.S. large cap equity names for example, and closing of positions (more often long, thus liquidation means selling) don't usually move prices much unless those positions were large to very large. Market participants in the know about such closings/liquidations often step out of the way until the fund(s) is(are) done.
Sizable positions in less liquid or illiquid assets or stocks can move prices much more. And knowledgeable market participants do the same thing. They wait, and then they act (if they desire to act at all).
I have written about Revelation, a formerly large shareholder of Provectus stock, converting its preferred shares into common and selling them. The firm's latest Form 13G filing indicated a dramatic reduction in beneficial ownership. Sometimes investors decide they've had enough and throw in the towel. It happens to institutional and retail investors alike.
Rumors are circulating about Revelation sold its Provectus warrants too. Sometimes investors sell because their closing down, and their selling has nothing to do with their investment thesis related to a particular holding. A hedge fund doesn't sell its warrants, digging around for the very last scrap in its larder, if it's throwing in the towel on its thesis. The situation arises because the fund and perhaps the firm itself are closing down.
A graph of Revelation's quarter-end 13F SEC filings from 12/31/11 to 12/31/12 is below.
The number of holdings (13F entries) and amount of assets under management related to these holdings (cash is not reported) for the period or quarter ending 12/31/12 are down considerably from, say, the last quarter-end of 9/30/12, let alone year-over-year.
We obviously don't know Revelation's fund terms and conditions (e.g., redemption notices, gates, etc.), but it is very possible the fund and maybe the firm is closing.
Short interest for the period ending February 15 is reported tomorrow. The large spike in short interest, perhaps attributed to the "fake short" caused by converting preferred shares into common shares, might fall and confirm Revelation was responsible for it. Rear-view mirror stuff.
If the Big Seller has been Revelation liquidating its Provectus holding, the loss of this downward pressure on the stock may permit natural buying interest to push the share up dramatically more.
Short interest at 1/15/13 (964K) increased by ~26% over
12/31/12 (766K), and was last seen two months ago at 11/15/13 (966K), the
aftermath of the now terminated PVCTP “IPO,” and three-and-half months ago at
9/28/12 (959K), the beginning of the “IPO” chaos.
I am a little surprised, yet perhaps not surprised, by the
uptick in short interest. I can understand why it is happening. There
probably is some modest shorting of the stock (why one would short a penny
stock mystifies me at a very low level; it's like rubber necking in some regard), say a couple of hundred
thousand shares, because of the share price run-up through January 11. It also
could be the balance of the short interest, above the historically
innocuous 400-500K level, is related to the continued conversion of
the preferred shares (hundreds of thousands of shares?) by funds like
Revelation and others.
These funds probably have sold more of their
since-converted-into-common shares earlier in the month and late last month (as
they look to complete their departure from the stock) when buyers from two
locales (one domestic, one international) bought shares. They probably also further
knocked the share price down to current levels, which were of course last seen
before the late-December/early-January share price run-up.
Despite management’s efforts to bring so-called “serious”
life sciences investors into the stock, these folks remain firmly on the
sidelines. I appreciate Peter’s tenacity and persistence.
What will it take to bring the life sciences folks in and
the generalist funds in and/or back? A
little more time: say, a month or two.
For the former, it is looking more and more like what is necessary is the revelation
of the highly anticipated Moffitt data (combined with profound statements like
“…the nearest thing to a cure for cancer we’ve seen.”) A China regional
oncology deal and the SPA will of course help a lot, too. Ironically, both of
these should arrive [very] roughly around the same time as Moffitt’s data, conclusions
and declarative statements begin to be and are fully unveiled.
For the latter, it will take more mass awareness and an
upward moving share price whose momentum-based vortex subsequently draws these
investor types into and back into the stock.
The mostly institutional, but non-life sciences, participants of Provectus' March 2010 private placement (1Q10) are likely mostly gone. I think nearly 85% of the preferred shares have been converted to date into common stock and sold over time. My assumption is that these folks either held the preferred to enjoy the coupon, or converted them into common share that they sold right away.
Click on the figure to enlarge it.
The preferred shares in the placement were issued at $0.75 per share. Most of the 85% -- about 60% of this number -- converted and very likely sold within 3 quarters of the placement. 15% gradually sold as the common stock share price stayed above the issue price (through 2Q12). Another 10%, I think, sold in last quarter (3Q) and are selling thus far this quarter (4Q).
Click on the figure to enlarge it.
Some funds took profit very quickly. Others held on to take profit more slowly or in hopes of greater but still faster return. I wonder if some of the recent pressure on the stock has been due to the departure of more of the remaining funds that participated in the placement.
Short interest as at October 31, reported today, was 1,072,941 shares -- down 13% from the October 15 reporting period (1,230,229), which was up 28% from the September 28 reporting period (959,298), which was up 48% from the September 14 period (650,550), which was up 34% from the August 31 period (486,559). See the graph below.
There is a pernicious inter-period short of 250-270K in October. You may recall I presented what I thought was a structural period-to-period short figure of 470-480K. The balance of 490K during the October 15 period could be related to the conversion of the preferred stock into common stock. 490K of preferred shares were converted in Q3 per the filing.
You mention that management believes the company is worth between $7-10 billion. At 113 million shares outstanding, that would indicate a price per share between $62 and $88. Is this plausible?
The figure you should use in the denominator is about 155 million shares fully diluted, which would includes preferred and common shares, stock options and warrants. Using, for example, the 2011 10-K:
3,531,665 preferred shares,
110,596,798 common shares,
14,890,956 options, and
25,119,247 warrants.
$7 billion ÷ 154 million = $45 per share. At $10 billion, $65.
Since there will be a difference between the strike or exercise price and the share price at the time either a stock option or warrant are exercised, as well as cashless exercises features, the total number of options and warrants included in the denominator typically would not be the figures above, but a lesser amount. So, the per share range is a rough estimate.
I think you approach the answer to plausibility in two ways by asking: at what price would management sell, and for what price would Big Pharma pay?
You won't pry the company out of Craig's cold dead hands for less than $50-60. That is the easy answer. If you think you have a/the near cure for a number of cancer indications (and can validate it as such), at what price would you sell?
As for what Big Pharma would pay, I think it ultimately depends on the intensity of the auction. The corporate development or M&A folks at a Big Pharma company will do their respective valuation work to arrive at a range of valuations for Provectus (e.g., Comparable Company Analysis, Discounted Cash Flows Analysis, Precedent Transactions). They will use this (and knowledge about the size of their respective checkbooks) in their discussions with the company, but also in the context of negotiating against other Big Pharma companies interested in buying Provectus. Management's valuation work along these lines informs their own expectations of value.
Why did they need the IPO for a Nasdaq listing if a derm or geographic deal was in the cards? Or the SPA, for that matter?
I think management thought they could secure a NASDAQ listing through the PVCTP "IPO" for the sake of the listing itself: the greater awareness it would bring the stock and company, and the greater accessibility to the stock for a wider swath of buyers. Management had a valuation threshold below which they would not consummate a deal (i.e., pricing) for the IPO. If they got the terms they wanted, they would do an "IPO." If they did not get acceptable terms, they would not do an "IPO," and continue exploring deals for dermatology or oncology in certain geographies. The latter, of course, is what transpired.
There is much to which to look forward. Looking back:
The finance industry can be the valuable grease that enables the gears of the global economy to operate more efficiently and effectively. A piece of the industry also is a cesspool. Investment banks, white shoe, boutique and, er, other, have bet against their clients since time immemorial (okay, that is hyperbole, but you get the idea). The "good" banks are not obvious about it. If you are going to bank Provectus (i.e., if you are going to provide, in this case, investment banking services like IPO underwriting and equity research coverage), could you not be more discrete about the other part of your bank trying to drive down the share price (for the betterment of prospective "IPO" buyers)? Allegedly, of course.
I have asked the company to open an investigation into the illegal solicitation (i.e., sell recommendations or "suggestions") and shorting of Provectus common stock: Claims of illegal recommendations by certain Maxim executives and retail reps to existing and prospective clients to (a) sell their common stock and/or (b) short the common stock in order to (c) profit from the subsequent share price decline and (d) ultimately benefit from their participation in the "IPO" from enjoying a better conversion ratio resulting from the premeditated driving down of the share price. There are undoubtedly much more productive uses of company time, resources and dollars; however, at a minimum, I hope FINRA knocks on a few Maxim doors.
The PVCTP "IPO" process hurt management's credibility.
Management's decision to terminate the offering helped its credibility.
Bidirectional bridges between shareholders and management should be redesigned and then rebuilt.
One of my most vivid capital markets memories was of my first introduction to market expectations. It was a Friday morning during late autumn, and I was sitting on the T-bill desk of a bank trade floor. As an apprenticing trader for this bank, I went through rotations on different product desks. It was non-farm payroll Friday. Chatter quieted to murmuring and then became silence as the clock approached 8:30 am EDT. At the designated time, non-farm payroll data burst across the newswire. The number greatly exceeded the consensus figure by (I think) several hundred thousand. As far as I can recall, the number caught nearly everyone by surprise. Traders and salespeople on a floor that housed hundreds of employees reacted differently (much more, more or less animated, or not at all) depending on how their respective books were positioned in advance of the number in accordance with their belief of whether market expectations were going to be exceeded, met or not met. The traders on the interest rate derivatives desk, where my eyes were fixed at the time, were jumping up and down, high fiving one another and slapping each other on the back.
Friday, ironically, cannot come soon enough. The negativity or negative energy I have experienced and felt since the beginning of the PVCTP "IPO" process is unproductive. There is so much to the science of and patient benefit from rose bengal and PV-10, and to the stock and its eventual purchase by Big Pharma that I wish to blog more about. The last several weeks seemingly have stolen attention (understandably) from more interesting, more substantive topics.
The market anticipates, generally speaking, a PVCTP "IPO" at company unfriendly terms (i.e., expectations). Potential outcomes for Friday essentially include:
A PVCTP "IPO" at company friendly terms (e.g., $15-20MM raise, a 2-to-1 or lower conversion ratio, 50% warrant coverage). The market does not expect this;
A PVCTP "IPO" at company unfriendly terms (e.g., $15-20MM raise, an at or near at market conversion ratio [i.e., 6- to 8-to-1], 50% warrant coverage). The market expects this and is pricing some or most of it into the current share price; or
The PVCTP "IPO" is killed. The market does not expect this.
Should #1 or #3 occur, the common stock share price would jump higher to varying degrees (#1 > #3) on Friday, and ascend next week.
If #2 were to occur, I think any initial sell-off of the common stock (presumably or likely by retail investors) eventually should turn into an upward move later (J-curve effect) because the presumption of the "IPO" is a steady stream of news and media awareness following its launch (and the spectre of the punitive effect of the "IPO" on the common stock will have disappeared).
While it is possible we may repeat whatever this is one more week, this Friday cannot come soon enough.
Fratres! Three weeks from now, I will be harvesting my crops. Imagine where you will be, and it will be so. Hold the line! Stay with me! If you find yourself alone, riding in the green fields with the sun on your face, do not be troubled. For you are in Elysium, and you're already dead! Brothers, what we do in life... echoes in eternity. -- Maximus Decimus Meridus in Gladiator
I want to:
Share my speculation about what I think happened towards the end of the third quarter and how it relates to the temporal nature of the PVCTP "IPO,"
Explain why I will invest a token amount of money in the "IPO" if it happens, and
Write about management's poker hand, the hand they have dealt shareholders, and how both of them might be played.
I think management was convinced the SPA would arrive by the end of Q3 and the PVCTP "IPO," which was supposed to have been in the right place at the right time, was being teed up to follow it.
As we know, Provectus and Peter have been working several financing options:
The "IPO,"
A dermatology license deal,
One or more geography-specific oncology license deals, and
A strategic investment from a Big Pharma entity like Pfizer as the sale of common stock at a premium to the share price (or, as mentioned above, an "IPO" led or co-led by a Big Pharma company).
Each of these has its own value proposition (i.e., pros and cons), but the propositions are temporal, having greater or lesser value as a function of time.
For example, the best option today for shareholders would be an optimally valued (i.e., net present value) and structured (i.e., upfront, milestone and royalty payments) dermatology or geographic-specific oncology license deal yielding an upfront payment sufficient to at least pay for the pivotal MM Phase 3 trial. Optimality, however, might be more likely to be achieved later rather than sooner, in November or December.
A sale of common stock to a Big Pharma company would be "more optimal" if the price at which these shares would be sold was much, much higher than Friday's close of $0.59, like at least $4. But why approach or ask a Big Pharma company like Pfizer for this kind of strategic investment unless you have or need to ask? In my view you ask after the SPA is in hand and if you determine (a) the PVCTP "IPO" is not feasible and (b) dermatology or mini-oncology optimality is later rather than sooner.
Up next is the PVCTP "IPO," which, for a certain period of time, provides attractive and pragmatic ways to begin driving company valuation dramatically upwards:
Attractively: A NASDAQ listing would facilitate new buyers, who could not buy the common while it remained an over-the-counter stock, and more national media attention from major journalists and reporters, who would not cover Provectus until it traded on a major stock exchange and was in Phase 3 trials.
Attractively: A smart IPO, led by Pfizer (and J&J or a life sciences investor like OrbiMed) and with a conversion ratio and warrant coverage good for existing common shareholders, would draw many more new buyers to the preferred stock listing itself over time.
Pragmatically: A $15-20MM raise at an acceptably high valuation, while creating dilution that a dermatology or a so-called mini-oncology license deal would not, fully funds the pivotal MM Phase 3 trial. There would be no need to force or rush dermatology or oncology deals, nor completely rely on them to commence the MM trial. The trial could start within 30 days of the SPA PR and move Provectus and its shareholders closer to the interim analysis of at least the first half of the trial's patient population.
A smart PVCTP "IPO" is a better temporal option in October than a dermatology or mini-oncology license. In November, it might not be.
Back to the SPA PR. It was the first domino to have fallen in a hoped for series of them, whether the next temporally best one was a license deal or the "IPO."
But the SPA did not arrive by the end of September, despite very ernest and serious expectations set to the contrary by folks directly interacting with the FDA. It is coming, but it was not nor is not here yet.
To compound these missed expectations were:
Shorting of the stock (end-of-September short interest was nearly 100% greater than the end-of-August figure) for whatever reason(s),
Selling of shares (September's monthly amount of traded shares was nearly double that of August's) for whatever reason(s), and
The PVCTP "IPO" process, and particularly the aspect undertaken by Maxim Group's retail banking side.
Th "alleged" sloppy "IPO" process was made much more so by "alleged" disgusting behavior by some Maxim retails reps spreading baseless "facts" about the "IPO's" details. I used "alleged" because, while Paul LaRosa from Maxim's capital markets part of business agreed Maxim reps should not have been saying what they were saying, the reps themselves probably would say they were doing nothing wrong. "Alleged?" I crack myself up.
The rep revenue model is predicated on the number of transactions they encourage and facilitate. The revenue model is not based on asset appreciation.
I now have what I think is a better handle on the increase in short interest, and will wait until October reporting dates to confirm this. In the interim, am I concerned? No. Am I annoyed and irritated? Yes.
There is the thought one very determined seller has been and is getting out of the stock. Could he/she/it have thrown in the towel for whatever reason(s)? Most likely yes. Does he/she/it know something we do not? I am betting my share ownership (note: no sales of any shares bought) the answer is "no."
Funds holding Provectus preferred and/or common shares have much different pressures than entities and individuals. The quarter-to-quarter reporting to investors and limited partners funds in this group (as opposed to a venture capital or private equity fund) are required to provide make it difficult to hold to an investment thesis because of complaints of poor performance by these very investors and LPs. Such theses turn into trading ones, if they did not start out as such. Did someone's patience runout? Probably.
So, here we are today, observing an IPO that keeps getting pushed out, from the week of:
October 1st to
October 8th to
October 15th to, likely,
October 22nd.
While the preferential path to financing might be a dermatology deal, the "IPO," for the reasons I presented above and others, is temporally better. I think, however, it needs an SPA PR to launch it, and I do not see the "IPO" occurring until after an SPA PR is issued. As such, if the "IPO" does not occur in October, management will probably pull the plug on it because other financing options would have become temporally better.
2.I got your initial public offering RIGHT HERE! (w/gesture)
If the PVCTP "IPO" goes off, I will participate in a very small way. I prefer buying common stock.
I work hard to maintain an objectively dispassionate investment case to buy and hold Provectus stock, but I am not always successful as emotion does creep in from time to time. I have an emotional attachment to this situation. Seriously folks, who blogs this much about one company or stock if they are not part of it? Participating in a token way in the "IPO" is something to add to "the box" that holds the collection of my life memories.
Emotion aside, however, the ROI from buying common stock should exceed the ROI of buying preferred stock (when compared together and presented as a choice of whether to buy the "IPO" or spend the equivalent amount of money buying the common stock), irrespective of what a Maxim retail rep tells you. Of course, you could always trust Chris Varick.
Let us make some assumptions to frame this analysis -- and please let me know if you disagree with my work below (as I am open to feedback and being corrected). I will toggle these later under certain circumstances to make some illustrative points. Nevertheless, the key assumption underlying my belief of a better common share ROI is that Provectus will not do a dumb IPO.
Let us assume you have $100,000 to either spend on the "IPO" or just buy common stock. In this analysis, you cannot buy both. Furthermore, since you do not know if and when the "IPO" goes off, you have to make a reasonably timely decision: wait for the "IPO" to happen or buy common stock before the SPA PR is issued. The SPA, which management surely knows they now have, should not affect the terms of the "IPO" but should increase the price of the common stock post-announcement.
Do you buy the "IPO" whenever it goes off, or do you buy common stock, say, starting Monday?
I assume about 150MM fully diluted number of shares of non-listed preferred and common stock, stock options and warrants. PVCTP deal terms then suggest some more shares. "As converted" means I used the conversion ratio above (i.e., 1) to convert the PVCTP shares and warrants on PVCTP shares into the appropriate but requisite number of common shares.
On an as converted basis, your $100,000 gets you (a) 35,000 PVCTP-derived common shares or (b) 166,500 common shares.
Let us assume the company is acquired for, among other things, a $1B upfront payment (i.e., the preferred shares you bought when converted into common stock or your common shares you bought are exchanged for your pro rata share of $1B) on December 17, 2013. Let us also assume the IPO still happens: you either participated in it, or you bought common shares and did not. I make this assumption only to simplify the analysis in some ways. If you buy common stock and the IPO does not go off (i.e., it is November and Provectus completes a license deal), the fully diluted shares outstanding figures remains at $150MM and your common stock ROI is higher.
Let us also assume you convert & exercise/sell your preferred shares and warrants, or your common stock, when the acquisition transaction occurs.
The outcome makes sense. A smart IPO implies a healthy valuation at which PVCTP "IPO" shares were sold and, thus, a substantial uptick (about an order of magnitude) from today's market capitalization. Under this scenario, one should of course buy the common stock, say, starting Monday, then wait and buy the IPO.
Hold on a second! Didn't your stock broker, er, Maxim retail rep "allegedly" tell you to flip the preferred shares and hold onto the warrants as "a lottery ticket?"
The flipping-your-preferred-shares ROI is less than the hold-your-preferred-shares ROI, which should be much less than the buy-common-stock ROI.
Maxim's "alleged" story only works -- that is, you make out like a bandit by indeed cashing in a lottery ticket -- if the conversion ratio and, to a lesser extent, warrant coverage is very punitive to existing common stock shareholders, such as 6- or 7- or 8-to-1 and 60%, respectively. That is, the "IPO" is a dumb "IPO."
A 2-to-1 conversion ratio (and, say, 50% warrant coverage), worse than my initial example above but far from punitive more than doubles your return from buying the "IPO;" however, one makes more money, again, by just buying common stock soon.
To be fair, a dumb IPO produces a result where buying PVCTP and eschewing the common stock is the better course of action.
3."Poker is not a game of cards played with other people, it is a game of people played with cards."
Right now, Provectus only needs money to literally keep the lights on and the water running (note: hyperbole). Fixed costs are low. The burn rate can be turned down and compensation deferred, with a focus on those activities, and whatever variable costs are associated with them, that drive value (e.g., the end-of-phase 2 meeting with the FDA for psoriasis, remaining toxicity study parameter elucidation, etc.) until money targeted for key, pivotal and other trial work is raised or obtained.
In this game of poker, management will play the hand they think they have the way they see fit. I think:
The company's hand is very strong,
Management thinks the hand is a royal flush (I think the hand is a royal flush, too),
Provectus has enough chips (cash on hand, and temporal cash needs) to play it well, and
Management will play it well (i.e., not raise money in a dumb way).
I am betting my share ownership on this. Of course, I could be quite wrong (note: the usual economist's conviction of "on the one hand, ..." but "on the other hand, ...," which is why we need more one-armed economists).
Now, what kind of poker hand do you think it is: a straight flush, four of a kind, a full house, worse or one that can be beaten? Which hand you have is up to you to determine. How you play it also is up to you.
There is no doubt of the battering the share price has taken since the beginning of September, let alone this year or over the last several years. I see it. I feel it. I understand it.
You got to know when to hold 'em, know when to fold 'em, Know when to walk away and know when to run. You never count your money when you're sittin' at the table. There'll be time enough for countin' when the dealin's done.
The company needs money, but not in the way the markets and most observers think Provectus does. Management has indicated they will do a smart IPO if they do one at all, and that raising money below $1.12 is not in the cards (pardon the pun). Anonymous wrote "[p]oker is not a game of cards played with other people, it is a game of people played with cards."
Playing your poker hand requires you to ask yourself how management will play their hand.
Disclaimer:This blog is neither intended to be nor is investment advice. The author of this blog (the "Author") is not a registered investment advisor. Under no circumstances should any content from this blog be used or interpreted as a recommendation of a trade or investment in Provectus Pharmaceuticals, Inc. Trading and investing can be hazardous to your wealth, health or both. Any investment decision must, in all cases and without exception, be made by the reader or by his or her registered investment advisor. This blog is only and strictly for educational and informational purposes. The Author may have a position in Provectus Pharmaceuticals, Inc. at any given time that is not disclosed at the time of publication. All opinions expressed by the Author are subject to change without notice. You, the reader, should always obtain current information and perform the appropriate due diligence before making any investment or trading decision. All efforts are made to ensure the information contained in the blog and/or a blog post is factual and accurate; however, the Author does not guarantee its accuracy under any circumstances.
It seems that the plan is to present a series of good news next week in order to drive the SP above USD 2 and keep it there for the 5 days needed to be listed on NASDAQ. How do you see this?
Whether this week or next, a series of PRs (e.g., SPA, liver, ESMO, Moffitt, etc.) could drive the common stock share price onto the NASDAQ.
This news-driven common stock share price rise may be insufficient to effectively raise $20-30MM (via the existing shelf filing) to conduct pivotal, key and other trials. Getting onto the NASDAQ via the common stock is good and important, but a company's currency is its stock and dilution could be substantial or large (a $30MM raise at $2.50 per share is something like a 10-11% dilution).
The possibility exists this near-term series of news could be insufficient to push the common stock onto the NASDAQ. As a result, raising money becomes more expensive.
Management has maintained their first choice to minimize dilution and secure necessary trial monies, obviously, is to use significant or sizable upfront payments from a dermatology deal and/or mini-oncology deals (e.g., China, Australasia, etc.). Getting the right deal (e.g., valuation, upfront and milestone payments, royalty percent, etc.) in the context of completed and contemplated regulatory meetings and clinical data may take more time.
Life sciences players currently not in the stock understand Provectus needs to raise capital soon to run certain trials. These investors want to see how this money is raised -- i.e., understand the risk-reward profile -- before jumping into the PVCT pool: sell common stock, do a license deal or two, sell part of PVCTP to a strategic investor, etc. Once the picture is clear, investors should buy.
The PVCTP preferred stock offering vehicle, if led by a less price/valuation sensitive strategic investor, provide several benefits at once: raises valuation, facilitates effective fund raising, brings some or many investors off the sidelines, gets a Provectus security on the NASDAQ, goes toward reducing dilution, etc.
What is management thinking and what situation(s) are they currently facing?
Maxim reps have been calling around to solicit interest to invest in PVCTP's "IPO." Offering details (e.g., lead investor(s), offering amount, offering price, conversion ratio/price, warrant coverage & exercise price, etc.) do not appear to be established yet. We should learn more later this week. The goal seems to be an "IPO" pricing/closing next Wednesday or Thursday.
The price is making me ill. Was the preferred share option a mistep by management? I emailed the company and they seemed to think it would raise the stock price, but this is clearly not true at this point. It's just extraordinarily discouraging after holding the stock for so many years to see it at this point.
I will have more comments later tonight (my evening in Hong Kong, and your afternoon in Europe or morning in the U.S.) after I return from a reception and dinner at Cafe Deco on The Peak.
The preferred share offering of PVCTP is a vehicle that would be (i) used to bring a name into the shareholder base, either a corporate (like Pfizer or J&J or another Big Pharma company) or financial (like a well-known life sciences fund) investor, (ii) led by said name, either corporate or financial investor and (iii) at acceptable terms to management that would be beneficial or not punitive or overly dilutive to existing shareholders -- all of which would lead to a NASDAQ-listed security.
The preferred stock offering may end up going unused for a variety of reasons, such as the common stock makes its way onto the NASDAQ by itself or potential terms of a PVCTP offering are not acceptable.
This is how humans are: We question all our beliefs, except for the ones that we really believe in, and those we never think to question. -- Andrew "Ender" Wiggin in Speaker for the Dead by Orson Scott Card
Recent selling:There was speculation again this week Dr. Adams, the large (formerly quite large) Southern California-based shareholder was undergoing more forced selling. It was speculated at the time he also was responsible for selling on July 16 and 17. Having spoken with people who actually spoke with Dr. Adams and his representative about acquiring all of his shares (but were subsequently turned down), I have greater appreciation for history and the current situation. Nevertheless, I am perplexed by the irrationality of the situation, but it is what is.
In the course of Maxim trying to garner indications of interest in (informally flog) the preferred stock offering this week, it is possible but by no means certain that some of this week's volume, such as Friday's, could be attributed to some of those folks receiving such calls. Traders and short-term investors (oxymoron?) are who we think they are. If they think a dilutive fund raising is imminent, it is not an unreasonable action for them to dump or short PVCT shares. Selling may continue next week from either or both of Adams and folks thinking they can get out in front of a preferred stock offering, which, as I wrote in my prior blog post, is not a certainty.
Lack of buying: Dr. Adams' and possible Maxim-induced selling of shares aside, one cannot ignore lack of buying. There are folks on the other sides of all of these trades. But, stating the obvious: if there is more demand than supply -- more buying interest than selling interest -- share prices go up. The opposite, as unfortunately in the case of Provectus, also is true. The share price has drifted downwards about 9% over the last month.
Life sciences investors still appear to be on the sidelines waiting for the SPA and/or more Moffitt data. I probably underestimated the historical level of skepticism PV-10 and management faced (circa 2008-2010) by these investors who really did not believe the drug (i) could do what it was doing loco-regionally and systemically and (ii) would be approved as a systemic agent. The dialog has changed dramatically since Moffitt's initial murine study work was released in March 2012. These same investors acknowledge the seriousness of Provectus' work to finalize the regulatory path and further demonstrate PV-10's systemic effectiveness. Nevertheless, they need to understand the very specific details of the trial design and Moffitt data.
PFE interest: I recently heard from several non-company sources the rumor Provectus rebuffed an overture from Pfizer to buy the company in the second half of last year for $7 per share. I am not certain, but I think this figure was all cash.
Using a fully diluted share number of 145MM (taken from the most recent 10-K, but not adjusted for the strike and exercise price-based share adjustment from option and warrant exercises), $7 per share yields an approximate $1B valuation, which (if indeed broached in the fall of 2011) would have been consistent with two billion dollar deals and their makeup announced earlier in the year and that both others and I used as comparable transactions:
Amgen's acquisition of BioVex and OncoVex (now talimogene laherparepvec/T-Vec) for $1B ($425MM upfront, $575 in milestone payments) announced in January 2011, and
Daiichi Sankyo's acquisition of Plexxikon and PLX4032 (now vemurafenib/Zelboraf) for $935MM ($805MM upfront, $130 in milestone payments) announced in February 2011.
There is absolutely no doubt in my mind that Pfizer is interested in a transaction with Provectus. The questions, of course, are "what kind(s)" and "for how much." Keeping Provectus' options open: The company is entering a dynamic time that, finally, could result in its metamorphosis. While I do hope the SPA PR comes out soon -- please, pretty please, with sugar on top!!! --- it is going to come out. Management's guidance remains Q3 as its base case.
Management will present at several conferences in September and October, including at least two investor conferences (R&R, BioX) and two medical ones (ESMO and MD Becker).
Much more Moffitt data is coming this month and next.
The SPA PR provides complete clarity of the regulatory path. The receipt of the SPA is tantamount to approving PV-10, given the past efficacy performance of the drug. Moffitt data reinforces PV-10's immense systemic benefit, further increasing the scope of the drug's treatment applicability. From here, the company's negotiating leverage -- for a derm deal, a mini-oncology deal, a strategic investment from Pfizer or other Big Pharma company, etc. -- obviously would increase immensely.
I think the recently filed preferred stock facility is an example of Provectus keeping their options open as they progress through September and October.
As always, time will tell. Patience my young Padowan. Really?
The company didn't list "raising money" in the public market in any news release. They said possible dermatology deal or strategic investment. If this preferred is for the latter then why list it? How can we have a listed security if there is only 1 owner. I think you have to have 300 investors for a security to list on the NASDAQ. If that is the case then some of the details of this could be much less important. What are your thoughts?
Yes, the preferred stock offering (the "Offering" or PVCTP) must have at least 300 round lot shareholders to list on the NASDAQ, so there will be multiple initial owners of the Offering if and when it is utilized.
The NASDAQ requires an underwriter for a stock exchange listing, like Maxim. Any investment bank could be brought on as a co-underwriter ("co-manager") alongside or a secondary underwriter below Maxim.
I think the Offering facility is important for several reasons, and refer to it as a facility to mean a tool that can be used, as opposed to a live offering.
The PVCTP filing is a preliminary, placeholder document that does not specify the conversion ratio (i.e., the number of shares of common stock into which one share of preferred stock converts) or prospective warrant coverage, which help ascertain the valuation at which the deal will be done and the dilution that would ensue. Management, with feedback from Maxim and based on the interactions with and feedback from corporate and/or financial investors who subscribe to the deal, will set the conversion ratio. Maxim called prospective financial investors about the Offering at least beginning this past Thursday to gauge indications of interest to buy preferred stock.
As I wrote at the outset of this blog post, there is no certainty Provectus ultimately utilizes the Offering. It is an optional strategy. Being on NASDAQ enables much more visibility and awareness of the stock and company, an obvious observation on my part that refers both to PVCT.OB, when it trades on the major stock exchange, and PVCTP.
PVCTP is one of several plays that could be run. Some of these plays could be run standalone, and others in some kind of chronological order:
A. The SPA and/or more Moffitt data may be sufficient to propel the common stock to the NASDAQ. PVCT.OB requires 5 consecutive days above $2 to move to the major stock exchange.
B. The Offering could be used to "up list" the common stock onto the NASDAQ. PVCT.OB would trade higher (i.e., over $2 per share) if PVCTP were sold for $4 per share or higher with a favorable [to the company and existing shareholders] preferred stock conversion ratio. Perhaps the SPA and/or Moffitt PRs were insufficient to move the common stock as high as though, hoped for or needed. Life sciences investors who then would feel comfortable coming off the sidelines could buy a NASDAQ listed security. PVCTP then "drags" PVCT.OB onto the NASDAQ.
C. The Offering could be used to turbo charge the common stock once PVCT.OB trades on the NASDAQ. Management could offer PVCTP after the common stock lists on the NASDAQ. Buyers of the preferred stock likely would include life sciences investors, where the preferred stock conversion ratio probably is more favorable for the company than in B.
One of several securities could be sold to a Big Pharma company as part of a strategic equity strategy or program:
Common stock, likely when PVCT.OB trades on the NASDAQ. Like with J&J's JJDC deal with Genmab, there will be a premium to the then current common stock share price. J&J paid a 30% premium. The transaction price, however, will be anchored ultimately by where the common stock is trading. Duh!: The higher the common stock, the higher the transaction price;
A non-listed preferred stock security that either exists today or will be constructed; and
PVCTP. Since 300 round lot holders are required, any use of the Offering for a Big Pharma company or its development corporation also would include financial investors.
Do not dismiss the corporate governance and compliance housekeeping stamp of approval the NASDAQ provided Provectus by its PVCTP listing approval. The process management undertook to complete NASDAQ's process was non-trivial, and takes corporate governance (and all related matters) off the due diligence checklist for serious life sciences (and other institutional) investors.
