PV-10, a novel oncology compound being developed by Knoxville, Tennessee-based Provectus Pharmaceuticals, Inc. ("Provectus" or the "Company") (OTC:OTCQB:PVCT), 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 readymade product inexpensively produced at scale, and a vast addressable market of unmet need that should be fully and very profitably met over time.
My thesis comprises compelling clinical, regulatory, business and stock value propositions in a pharmaceutical industry ravenous for safe and effective oncology solutions, with the prospect of annual market growth rates exceeding other therapeutic areas, that following approval(s) should deliver a lucrative monetization for shareholders.
PV-10, a 10% solution of small molecule Rose Bengal ("RB"), which already has an established FDA safety profile, is a very safe and efficacious therapy that when injected intralesionally into accessible cancerous lesions rapidly reduces local tumor burden and stimulates the immune system to systemically shrink or eliminate non-injected distant tumors and visceral metastases. Broadly applicable to a wide variety of solid tumor cancer indications, like metastatic melanoma ("MM"), liver cancer or hepatocellular carcinoma ("HCC"), lung cancer, breast cancer, bladder cancer, pancreatic cancer, and colorectal and other cancers that metastasize to the liver, this drug generates tumor-specific immunity tantamount to in situ vaccination against cancer.
PH-10, Provectus's lead dermatology compound, a topical gel that shares PV-10's active pharmaceutical ingredient ("API") of RB (0.001% to 0.01% RB), also is a very safe and efficacious therapy when applied to the skin for inflammatory dermatoses for which clinical trials have been conducted, such as psoriasis and atopic dermatitis. PH-10's unique lack of toxicity allows for the gel to be regularly and continually applied to affected areas until skin disorders are manageable or eliminated.
My investment thesis begins and ends with RB's safety, for which there is no concern, as there is no concern about PV-10's (or PH-10's) safety. Critically, this is exemplified by the growth and what I characterize as the de facto regulatory acceptance of Provectus's compassionate use program ("CUP").
At a September 20th closing share price of $1.04, a market capitalization of approximately $134 million and an enterprise value of approximately $98 million (Source: PVCT, Key Statistics, Yahoo! Finance), the Company is an exceptional long idea.
Moffitt Cancer Center ("Moffitt"), a National Cancer Institute-designated cancer hospital in Tampa, Florida, described the innovation that is PV-10 in its August 22nd press release as "Single Injection May Revolutionize Melanoma Treatment, Moffitt Study Shows."
Investors often misjudge risk in the context of return. That a so-called safe asset or security should provide a safe return does not mean the expected return is commensurate (high enough) for the risk incurred. Conversely, a so-called risky security that may have the potential to generate a robust return does not mean the associated potential risk is commensurate (too high) for the amount of return expected. Provectus's stock's risk-reward profile is out of whack. The return opportunity is more than commensurate with its potential risk from here on out.
Nowhere is risk-reward better illustrated than by the drug itself. With a pristine safety profile and having robust efficacy, PV-10 metaphorically is an investment fund with a high Sharpe Ratio: low bond-like volatility (denominator) and high equity-like performance (numerator).
When regulatory clarity is achieved, it would be FDA validation of the local agent's systemic properties and benefit. When more clinical trials are conducted and regulatory clarity is achieved for other indications, regional and/or worldwide license transactions are consummated, and the investment community is more aware of the drug and the Company, Provectus's market capitalization should substantially increase from its current valuation. The share price should enjoy significantly more upside from there when acquisitive global pharmaceutical companies, having fully embraced PV-10's immense oncology value proposition for their respective business franchises, pay up for this unique, fully owned, cancer treatment asset.
Provectus has two related compounds that have completed early- to mid-stage clinical trials: PV-10 for oncology - Phase 2 melanoma, Phase 1 metastatic liver cancer and Phase 1 recurrent breast cancer - and PH-10 for inflammatory dermatoses - Phase 2 atopic dermatitis and Phase 2 psoriasis.
RB, the API in both PV-10 and PH-10, has an established safety profile with the FDA for prior human use as intravenous hepatic diagnostic Robengatope, approved by the Agency prior to 1982 (New Drug Application Number 016224), and topical ophthalmic diagnostics Rosettes and Minims®. RB has been used in liver function studies for more than 90 years.
Provectus's drugs have very strong clinical value propositions. Oncology compound PV-10 is very safe, is very efficacious locally and systemically, robustly stimulates the immune system locally and systemically, creates systemic anti-tumor immunity, is both a targeted therapy and immunotherapy, works on multiple solid tumor cancers, and could be used anywhere from a pre-neoadjuvant to a combination therapy with other cancer treatments.
Dermatology compound PH-10 is very safe, is efficacious, possesses a very high toxicity limit, and works on multiple inflammatory dermatoses indications.
The drugs' regulatory value propositions should be resolved in the near term. In the case of Provectus's lead oncology indication MM, Management has said the Company is pursuing multiple regulatory tracks: a special protocol assessment ("SPA"), accelerated approval ("AA"), and breakthrough therapy designation ("BTD"). Provectus's discussions with the FDA may be to request AA for Stage IIIB and IIIC patients with refractory, locally advanced disease, having sufficiently demonstrated to the Agency PV-10's ability to safely maintain loco-regional control of MM with minimal intervention and delay, reverse or prevent progression to life-threatening visceral disease, and also seek BTD for Stage IV patients, where "sped up" discussions with dedicated senior Agency staff could help design trials to show the immediate benefits of PV-10 in combination with approved MM drugs like ipilimumab (Yervoy) and vemurafenib (Zelboraf) for late stage or heavily diseased patients.
Provectus has a very strong business value proposition. Both oncology compound PV-10 and dermatology compound PH-10 are easily administered, should be readily reimbursed when approved, are very inexpensive to manufacture at scale, are inexpensively stored and shipped, and should have very high gross margins. The Company has a large, well-protected, intellectual property portfolio of U.S. and international patents that include a novel synthesis of RB in all important global jurisdictions and extends drug patent protection to 2031, and a combination therapy patent application jointly applied for with Pfizer, Inc. (NYSE: PFE) that protects the use of PV-10 in combination with a number of cancer drugs either approved or in development.
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 at 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).
A tremendous clinical value proposition
The crux of PV-10 is its inherent safety, unique specificity, topical delivery, and the manner in which it ablates. These characteristic attributes comprise a potentially generational opportunity for cancer patients. Safety results because the drug stays in the body for a short period of time. Specificity means only accessible (loco-regional) and inaccessible (systemic) cancerous tissue is destroyed; the former by ablation and the latter by the immune system. Topical (intralesional) delivery via injection into accessible tumors appears necessary for ablation to occur. Ablation occurs quickly, causing numerous antigens to be presented to T cells, and other immune system components, and the immune system to be safely and effectively stimulated.
Through early- to mid-stage trials, as well as the Company's CUP, Provectus's clinical results have been very impressive. In oncology the Company completed Phase 1 and 2 trials for MM (where Provectus received orphan drug status in January 2007) in August 2007 and September 2012, respectively, a Phase 1 trial for HCC (where the Company received orphan drug status in April 2011) in 2011 (and then expanded the trial's protocol in 2012), and a Phase 1 trial for recurrent breast cancer in October 2008.
Moffitt should complete an MM Phase 1 feasibility study by the end of 2013 and publish its results in early 2014. An investigator-initiated study combining PV-10 and radiotherapy is ongoing; it was based on observations of "impressive response without significant increase in radiation reaction" in three PV-10-treated patients.
It has been rumored about 80% of CUP patients are cancer-free. The CUP has enrolled and treated 78 patients as at December 31, 2012. It also has been rumored Moffitt's clinical trial results match, for both local and distant tumors, the essence of the title of the cancer center's August 22nd press release (i.e., revolutionary). There is no corroborating evidence for these rumors, save for anecdotal comments.
These clinical trial results, Provectus and Moffitt's respective murine model work, and, directionally at least, the rumored CUP and Moffitt trial results display, suggest and/or infer much better overall survival benefit, much higher levels of tumor destruction and disease reduction, beneficial local and systemic effects on cancerous tissues, the stimulation and harnessing of the immune system, multi-indication viability, and repeated reproduction of outcome in and across pre-clinical and clinical trials.
There are sufficient data generated, when considered in context and in total, to employ relative descriptors, such as "better," "higher" and "superior," above and elsewhere in this letter, and make comparisons to other approved and experimental oncology drugs, understanding no comparator clinical trials have yet been run with PV-10. Moffitt's work to repeat and reproduce the Company's work and independently confirm the foundation of PV-10's clinical value proposition - safety, efficacy, local and systemic benefit, and multi-indication viability - provides a good measure of risk mitigation for my investment thesis.
Is very safe. Rose Bengal is an FDA-approved API, with nearly a century of safe and successful use in humans as an intravenous hepatic diagnostic and topical ophthalmic diagnostic. Patients treated with PV-10 predominantly suffer only mild to moderate adverse events. There do not appear to have been either National Cancer Institute ("NCI") Common Terminology Criteria for Adverse Events (CTCAE) Grade 4 or 5 events or clinical trial insurance claims.
PV-10 has a thirty-minute "half-life," where half-life means "...the amount of time the compound is in the patient's bloodstream before it is excreted in the bile. Rose Bengal is actually very stable in the human biological system, and although the portion remaining in the bloodstream is excreted rapidly in 30 minutes, the portion that has been absorbed by the cancer tissue actually remains in its parent form for weeks until the dying cancer tissue is absorbed by the body and the remaining Rose Bengal is excreted" (Source: Amy Baldwin, comment section, Investment Choices For Melanoma Awareness Month).
RB, PV-10 and PH-10's historical and ongoing safety should mean no real surprises in future clinical trials or from further patient use once approved.
Is very efficacious locally and systemically. Clinical results indicate for MM and HCC and suggest for recurrent breast cancer and indications treated in the CUP materially superior results for objective response, complete response and progression free survival, taken alone and compared with the results achieved by standards of care, competing approved drugs and experimental ones. Results infer such for durable response. Understanding the caveats of clinical trial result comparisons, which do not permit survival advantage inferences unless actually compared in a trial, PV-10's response rates for injected lesions, non-injected lesions and non-injected systemic lesions substantially exceed those of other intralesional therapies, such as Vical's Allovectin-7 and Amgen's talimogene laherparepvec ("T-Vec"), formerly BioVex's OncoVEX GM-CSF, and state-of-the-art treatments.
Save for PV-10 and Allovectin-7's numbers, the results in the table above are from a March 2010 BioVex presentation entitled OPTiM Trial in Stage IIIb/c and IV Advanced Melanoma (slide number 7). Interim results from T-Vec's MM Phase 3 trial presented at ASCO 2013 were well received and encouraging but not overwhelming. Allovectin-7 failed its MM Phase 3 trial in August 2013.
Response rates do not necessarily translate into nor predict long-term survival. Complete response informs tumor destruction or elimination, however, while partial response informs tumor reduction or regression, particularly when viewed in the context of treatment safety and response durability. Merck & Company's anti-PD-1 agent lambrolizumab, among the "next generation of immunotherapies" (Yervoy being the prior generation), displayed a 10% complete response and 52% objective response in one study presented at ASCO 2013 (highest dose level).
Moffitt noted PV-10 engendered a higher quality of tumor-infiltrating lymphocytes ("TILs") in its murine model work (Source: Cancer Watch, Vol 22, 21-23 (2013)). Immune cell infiltrate may be prognostic and a predictor of long-term survival. See, for example, Prognostic and predictive value of the immune infiltrate in cancer (2012) or Tumor-infiltrating immune cells and prognosis: the potential link between conventional cancer therapy and immunity (2011). Moffitt appears to be assessing whether this connection has veracity in further murine model work and the cancer center's ongoing human trial.
In the Company's abstract for its poster presentation at ECCO 2013 (search Author for "Wachter"), Provectus concluded that, for its MM Phase 2 trial patient population refractive to other local treatments such as surgery and radiation, PV-10 provided a viable strategy to maintain, with minimal intervention, loco-regional control of the disease with the potential to delay, reverse or prevent progression to life-threatening visceral disease. The Company thinks it definitively has shown the FDA that PV-10 can forestall metastatic disease for melanoma.
A fair criticism of PV-10 is that it has yet to demonstrate systemic efficacy in a clinical trial. Provectus's MM Phase 2 trial was designed for a locally oriented label. Moffitt had demonstrated PV-10's systemic properties and benefit through its murine model work (some of this work has since been published). When Moffitt discusses its Phase 1 feasibility study in more detail (or publishes the study's results in early-2014), this criticism should be countered.
Stimulates the immune system locally and systemically. The Company should provide proof PV-10 elicits a robust local immune response at ECCO 2013. Thus far, the Company has described this response as a specific reaction of loco-regional blistering, which "…generally occurred within seven days of PV-10 injection but with no clear pattern of incidence."
Moffitt previously concluded PV-10 elicited a systemic immune response based on murine model work: "PV-10 chemoablation results in both a direct effect on injected melanoma lesions as well as a systemic response that leads to regression of synchronous lung metastases." The cancer center may show this response in humans when it publishes the results of its clinical trial.
Creates anti-tumor immunity. Moffitt independently demonstrated PV-10 induces tumor-specific T cell-mediated immunity. Provectus referred to the application of PV-10 as tantamount to in situ vaccination. Publications include work presented at the Society of Surgical Oncology ("SSO") (Moffitt) in March 2012, European Society for Medical Oncology ("ESMO") in September/October 2012 (Provectus), Society for Immunotherapy of Cancer ("SITC") in (Provectus) October 2012 and American Association for Cancer Research ("AACR") in April 2013 (Moffitt and Provectus).
It would seem to me the creation of broad spectrum anti-tumor immunity - that is, immunity derived from introducing thousands and thousands of antigens for the immune system to react against - would go a long way to mitigating or preventing cancer recurrence.
Is both a targeted therapy and an immunotherapy. PV-10 is itself a combination therapy: It is a targeted therapy via the drug's chemoablation, and an immunotherapy because it stimulates the immune system.
Following injection of RB into a cancerous lesion or tumor, PV-10's two-step mechanism of action ("MOA") begins with chemoablation where, because RB is selectively toxic to cancer cells, these cells undergo a form of cell death that mimics the features of both necrosis and apoptosis. The activity PV-10 induces in diseased cells causes antigenization or the "showering of antigens," where antigens are shown to antigen presenting cells ("APCs") that then choose which of the antigens to show (present) to the body's T cells, natural killer T ("NKT") cells, TILs, etc. The result of PV-10's chemoablation of injected tumors is to robustly stimulate the immune system to very effectively attack and kill cancer (and to naturally enable the body to prevent recurrence of the cancer(s) it destroys). Provectus coined an MOA moniker of "immunochemoablative" for PV-10. PH-10's MOA is that of a non-steroidal anti-inflammatory agent. Both compounds are immunomodulatory agents: PV induces anti-tumor immunity, while PH is anti-inflammatory.
Is viable on multiple cancer indications. The Company, its principal investigators ("PIs"), Moffitt and other third-party researchers have conducted pre-clinical and clinical work on a wide range of solid tumor cancer indications. Indications successfully treated with PV-10 by Provectus Chairman, Chief Executive Officer and co-founder Dr. Craig Dees, Ph.D., PIs and CUP physicians include:
· Murine models: HCC, renal carcinoma, melanoma, human gallbladder, human breast, human prostate, human basal cell carcinoma, human small cell lung, pancreas, colorectal,
· Animal tumors: equine sarcoids, equine melanoma, feline sublingual, squamous epithelial, canine fibrous histiosarcoma, canine bladder, canine mast cell, canine breast, murine breast, murine papilomas, equine squamous cell,
· Human clinical: recurrent breast (Phase 1 ["P1"], CUP), metastatic melanoma (P1/2, CUP), liver (P1), squamous cell carcinoma (CUP), scalp sarcoma (CUP only), colorectal, pancreatic metastasis to the liver (P1 liver), ocular melanoma metastasis to the liver (CUP), neuroendocrine tumors metastatic to the liver (CUP), and
· Bystander effect: human melanoma (P1/2, CUP), human HCC (P1), mouse HCC, mouse papilloma, mouse renal carcinoma, canine mast cell, colorectal metastasis to the liver (P1).
The above indications may be found on the slide entitled Cancer Indications for PV-10 in the Company's website presentation. Information in brackets is from public sources and statements, and my due diligence.
Dees has treated dogs and horses with self-described great success. He contextualizes his confidence in PV-10 as a safe, effective, broadly applicable [to solid tumor cancers] oncology therapy because the foundation of PV-10's clinical value proposition - safety, efficacy, local and systemic benefit, and multi-indication viability - has been repeated and reproduced in mice, and then in animals like dogs and horses, and then in humans. Australian veterinarian practice East West Veterinary Group has documented their success in treating invasive malignant cancers in dogs using RB, where they "…have seen good longevity in more that 50% of cases."
Indications successfully treated by Moffitt and other researchers include:
· Human: melanoma (P1 feasibility study).
PV-10 may be able to treat soft tissue and blood cancers based on Dees's prior research; however, more work would be required to establish both the viability and veracity of these prospects.
May be used as a pre-neoadjuvant, neoadjuvant, monotherapy, adjuvant and combination therapy. Management thinks PV-10 can and should be used early, late, in between and often in the treatment of cancer. This makes sense from several perspectives. First, the drug is safe. If one may either assume or agree PV-10 has a non-trivial level of efficacy, its pristine safety profile would suggest user friendliness for oncologists and their patients as the first instrument out of a physician's tool kit.
Second, it would seem to me the earlier as many as possible accessible solid tumor cancers are injected with this drug, the greater 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 all approved and experimental immunotherapies, it would seem earlier use has greater potential for success because the immune system is less burdened by disease.
Third, in the instances of patients with heavy disease burden and severely compromised immune systems, Management thinks using PV-10 in combination with other systemic therapies like chemotherapy, radiotherapy and other immunotherapies may help reduce a patient's tumor burden sufficiently for PV-10 to then help stimulate his or her immune system to finish off the cancer.
Provectus's drug's orthogonality where, because PV-10's distinctive adverse effect profile and pharmacology minimizes potential for drug interaction, other drugs may be combined with PV-10 for the ultimate benefit of patients at lower doses than otherwise would have been used when the drug was employed alone. "PV-10 murine research demonstrated unambiguously, [Provectus Chief Technical Officer and co-founder] Dr. [Eric] Wachter [Ph.D.] noted, that tumor burden is a critical variable in predicting response to a combination therapy. It has been suggested that earlier research into therapeutic melanoma vaccines faltered because tumor burden grew beyond the immune system's capacity for control before the vaccine could develop its full effect. 'We think that the combination of PV-10 with something like a kinase-inhibitor has the potential to dial back or reduce tumor burden even better than an anti-CTLA-4 agent while the systemic PV-10 immunologic effect is developing. The kinase inhibitor would do the early work against visceral disease until PV-10 can catch up and take the baton across the finish line'" (Source: Provectus white paper PV-10 Moves Forward).
Fourth, the nature of PV-10's ablation spares healthy tissue. Diseased tissue is removed by the body, and over time, is naturally replaced. Management believes "…there's significant promise in breast cancer because PV-10 can function in the tissue-sparing capacity, much like in the Moffitt study treating melanoma patients."
It has been rumored Moffitt successfully treated a Stage I melanoma patient in its ongoing clinical trial, obviating the need for surgery. Even if true, such anecdotal evidence, and promising Company pre-clinical result combining PV-10 and anti-CTLA-4 antibody therapy presented at AACR 2013, arguably would not be sufficient for some investors to conclude such wide ranging use of PV-10.
Dual mechanisms of action
PV-10 causes antigenization. Antigenization causes immunization. Antigenization is the expression of antigens, in a tumor into which PV-10 has been injected, in context. Immunization is "the process by which...[the] immune system becomes fortified against an agent." PV-10 facilitates the relationship between antigenization and immunization. "In medicine, ablation is the same as removal of a part of biological tissue..." "Biological ablation is the removal of a biological structure or functionality." Chemoablation is a process whereby "cells undergo a form of cell death that mimics features of both necrosis and apoptosis." PV-10 is an immunochemoablative agent. The process of immunization (immuno-) is unlocked by PV-10 chemoablation (-chemoablative), which causes the rapid, durable necrosis of tumor lesions. PV-10 is both a metabolic agent (a chemoablative, and in the same general class as inhibitors) and also an immunotherapeutic agent (in the same general class as immunomodulatory agents like ipilimumab (Yervoy), tremelimumab, anti-PD-1s, anti-PD-L1s, etc.). PV-10 elicits cell destruction naturally; that is, apoptosis-like, which Provectus refers to as autolysis. Unlike like necrosis, "which is a form of traumatic cell death that results from acute cellular injury," "apoptosis" is the process of programmed cell death." Autolysis, "more commonly known as self-digestion, refers to the destruction of a cell through the action of its own enzymes." The key to PV-10 is cancerous tissue cells are destroyed the way the body intended to destroy deficient or unnatural cells in the first place. PV-10 neither denatures these cells nor changes their DNA. The activity PV-10 induces in diseased cells causes antigenization, or the showering of antigens, whereby a multitude of antigens are shown to APCs. These APCs then can choose which of the antigens to show (present) to the body's T cells, NKT cells, TILs and other immune system components. This work is done, thus, in situ, or in the tumor.
Another nice description of PV-10's mechanism of action is: "In the Provectus treatment regime, these lesions are injected with PV-10, a very specialized version of the red dye, Rose Bengal, that ophthalmologists use to test for corneal scratches because it is preferentially absorbed by damaged cells. The smooth lipid layer of healthy cell membranes excludes the Rose Bengal product like wax paper sheds water. Cancerous cells are often physically or chemically irregular and the PV-10 penetrates into the cell as water would find its way through the thinner creases in wax paper that has been tightly crumpled. Because of PH differences, the cancerous cells continue to uptake more and more PV-10, which is further pulled into lysosomes (cell stomachs) until these rupture, leading to a complete rupture of the cancer cell.
The cold cell rupture casts whole cancer protein fragments adrift that have not been chemically modified by heat, chemicals or radiation. These unaltered cancer fragments in the otherwise healthy tissue excite an immune response to those cancer proteins in the lesion location. When a piece of cancer protein is passed to a killer T-Cell, that T-Cell will spend the rest of its days bouncing through the blood stream looking to match up that protein once more and attack.
If the T-Cell does find another matching cancer protein on the surface of a Melanoma cell that has slipped away, it latches on. Then the T-Cell secretes perforin, which punches holes in the cell membrane allowing the cytoplasm to ooze out. Enzymes are injected that dissolve the mitochondria that power cell functions, and finally, granzymes are injected that chop up the DNA in the nucleus like a molecular Pac-Man." (Source: Mentor Capital)
Moffitt commented that "[w]hile PV-10 is known to be excluded from normal cells, it accumulates in the lysosomal membranes of cancer cells. There it subsequently triggers lysosomal release and complete autolysis of tumor cells relatively quickly-within 30-60 minutes of the injection. Importantly, this acute necrosis of the treated tumor does not appear to denature tumor antigens, potentially allowing acute exposure of antigenic tumor fragments to antigen-presenting cells" (Source: Cancer Watch, Vol 22, 21-23 (2013)). The cancer center subsequently wrote "[i]t is possible that tumor ablation by PV-10 leads to the release of large amounts of tumor debris that is taken up by antigen-presenting cells such as [dendritic cells or "DCs."] The effect of PV-10 on DCs and immune cell infiltration into treated tumor lesions is currently being explored."
A regulatory path that should reveal itself shortly
The Company has sought regulatory clarity since its first end-of-Phase 2 ("EOP2") meeting with the FDA for MM in April 2010, routinely asking for AA from the FDA based on what Management believed were robust efficacy results combined with an immaculate safety profile, while also pursuing an SPA from the Agency for a pivotal MM Phase 3 trial involving Stage IIIB and IIIC melanoma patients as supported by Provectus's Phase 2 response data. Agreed upon trial parameters may be found in the Company's ESMO 2012 press release.
Provectus has been met with historical skepticism on two fronts. First, prior to founding the Company, Management had neither significant public company leadership experience nor meaningful experience managing the regulatory approval process for oncology drugs. Second, and germane to PV-10's regulatory value proposition, it has taken considerable time (since 2010) to fully demonstrate and definitively prove this local agent has systemic properties and benefit.
Management has described its interaction with the FDA as collaborative. The regulatory path to date, however, has been one of expected and unexpected delay, a moving oncology playing field, and likely correct and potentially questionable decision-making and choices by Management (with input from regulatory affairs consultants).
Following completion of the expanded HCC Phase 1 trial, which compares sorafenib (Nexavar) and sorafenib plus PV-10, Provectus should submit an application for BTD, based on a very promising six-patient Phase 1 trial and the treatment of at least fifteen patients in the expanded one, with the goal of asking the FDA approve a Phase 2 randomized control trial ("RCT") suitable for AA (it is not clear to me whether a final clinical study report for the expanded trial is necessary). The FDA organization reviewing the Company's HCC trials and other data, and also considering Provectus's BTD request for MM, is the Division of Oncology Products 2 ("DOP2"), which is the same organization that would weigh in on the Company's regulatory request(s) for both MM and HCC.
Although Provectus completed a recurrent breast cancer Phase 1 trial that demonstrated efficacy, according to Management, and Moffitt's preclinical work supported the use of PV-10 to induce systemic anti-tumor immunity for the treatment of breast cancer, Management previously said their strategy was to conduct sufficient preclinical and/or clinical trial work to apply for BTD for ocular melanoma metastasis to the liver and pancreatic cancer. In a recent interview by The Life Sciences Report, paid for by the Company, Management said, "Following HCC, we have enabling data against breast cancer. We believe there's significant promise in breast cancer because PV-10 can function in the tissue-sparing capacity, much like in the Moffitt study treating melanoma patients. Down the road, we are interested in additional indications, including refractory scalp sarcoma, squamous cell carcinoma, and both pancreatic cancer and ocular melanoma metastasized to the liver."
It may well be that, beyond certain progress towards regulatory approval for PV-10 and MM and HCC, the clinical value proposition of the drug, together with certain regulatory clarity and commercial validation, is sufficient for Provectus to be acquired. As a result, said acquirer would be responsible for further clinical trial work and regulatory interactions with the FDA.
The completion of Rockefeller's report on PH-10 should be sufficient for the Company to request an EOP2 meeting with the FDA.
A very profitable business value proposition
PV-10 has the potential to be an extremely profitable drug. It is easily administered and should be readily reimbursed. Provectus and its eventual acquirer should have significant treatment pricing flexibility because PV-10 has a very low manufacturing cost. The cost to scale manufacturing is very low. The Company has a large, well-protected, intellectual property portfolio.
Is easily administered. A medical or surgical oncologist makes treatment decisions. For melanoma, PV-10 would be injected into target lesions by interventional oncologists in outpatient settings. An appropriately trained nurse practitioner or nurse could provide the same service. Injections into tumors on organs inside the body would require an imaging assist and more elaborate clinical setting set-up. Effective administration of the drug does not require a meaningful change to a physician's current practice and practice behavior. There is no pre- or post-treatment care, nor is co-treatment needed.
For dermatology, patients may apply PH-10 as a topical gel to the targeted area of skin as necessary and as needed.
Has a low treatment price. For the purposes of their valuation models, equity research analysts who followed Provectus assumed a treatment price of $20,000 to $30,000 (this assumes several cycles using one to two vials per cycle at a cost of $5,000 per single use vial), which is not necessarily what the Company and its eventual acquirer could or would charge. At these prices, however, PV-10's gross margin would be more than 80%. It would be in excess of 99% should a sales return-type allowance not be included. Pricing flexibility should be a sustainable competitive advantage.
Physicians should be readily reimbursed for PV-10 treatments. It is anticipated treatment would be reimbursed as chemotherapy or a procedure, and a potential crosswalk to other reimbursed interventional oncology procedures, such as image-guided therapy. Treatment price and reimbursability should be key drivers of adoption.
Has a low manufacturing cost. It costs very little to manufacture PV-10. Synthesis of the API to modern pharmaceutical standards is well defined. RB has a well-behaved, fully characterized impurity profile. Provectus owns the only formulation that meets International Conference on Harmonization ("ICH") guidelines, and is protected by its recently issued synthesis patent. The cost to scale the production of PV-10 is very low. Critical process parameters and best practices are complete. PV-10's formulation utilizes standard equipment.
Has a broad and deep intellectual property portfolio. The Company has a large, well-protected, intellectual property portfolio of comprehensive U.S. and international patents that notably include a near composition of matter patent, issued in September 2013, that covers the synthesis of RB in all important global jurisdictions and extends drug patent protection to 2031, and a combination therapy patent application jointly applied for with Pfizer, published by the U.S. Patent and Trademark Office ("US PTO") in October 2012, that protects the use of PV-10 in combination with a number of cancer drugs either approved or in development.
PH-10: Substantial value too
PH-10, as a treatment for inflammatory dermatoses, may be as disruptive to dermatology as PV-10 should be to oncology, and as lucrative for Provectus (or its eventual acquirer, or licensee of the dermatology business). In dermatology the Company completed Phase 1 and 2 trials for atopic dermatitis and psoriasis in September 2009 and September 2012, respectively.
The Company, its PIs and Rockefeller University ("Rockefeller") have conducted pre-clinical and clinical work on PH-10 for inflammatory dermatoses. Additional pre-clinical work has been conducted by Provectus for severe acne vulgaris. Rockefeller has explored the compound's MOA and unique lack of toxicity, and may publish its results in 2013, but more likely in 2014.
PH-10 has a similar MOA to PV-10 that also includes a mechanism of immune response. PH-10's high limit on toxicity and paucity of side effects would allow it to be regularly and continually used by patients for their dermatology afflictions.
It may be appropriate to consider PH-10 for a second therapeutic area of anti-infection for such indications as wound healing, methicillin-resistant Staphylococcus aureus ("MRSA") treatment, etc.
PH-10 has not been the focus of the Company's effort since PV-10 grabbed the spotlight in recent times due to greater interest in Provectus's oncology asset. Nevertheless, the foundation of the dermatology drug's clinical value proposition is as comparable and compelling as the oncology drug's: safety, efficacy, and multi-indication viability.
A stock value proposition with a lot of room to run
For a company on the cusp of both a pivotal Phase 3 trial for its lead compound, or either accelerated or outright approval of it, the stock is remarkably cheap.
Provectus has an independent board of directors that includes Alfred E. Smith IV. The Company's corporate advisory board ("CAB") includes Pfizer oncology executive Dr. Craig Eagle, M.D. and Doug Ulman, President and Chief Executive Officer of LIVESTRONG. Provectus should add a Fortune 50 company executive to the CAB in the near term.
Provectus's stock does not trade on a major stock exchange. Reduced requirements to list on the NASDAQ (e.g., market value of listed securities standard, net tangible asset minimum, minimum $2 bid for five consecutive days), however, present a lower bar to clear. Corporate governance requirements to list on the NASDAQ have been met and currently are maintained.
Equity research coverage is sparse.
Provectus has not yet entered into a license deal for either of its lead compounds. The Company appears close to regional license transactions with pharmaceutical companies for PV-10 in China and India. There also is interest from firms in Japan. Regulatory clarity of any sort for Provectus's lead indication of MM should trigger worldwide license discussions with global pharmaceutical companies.
There has been no historical insider selling and plenty of buying. Insider exercising of options and purchasing of underlying common stock totals several million dollars to date. Wachter, who also may be the largest individual shareholder, has done most of these exercises. Dees, Scott and Culpepper have made small to moderate purchases.
Institutional ownership is nearly nil. According to Management, serious life sciences investors first want to see the Company manage the regulatory approval process.
The Company has a modest balance sheet (with cash on hand at this writing likely to be several million dollars), and committed and structural access to capital through an equity line of credit tied to Provectus's $100 million mixed securities shelf. The Company's accountants, BDO USA, LLP ("BDO"), require them to have in excess of $4-5 million on hand at any point in time to maintain BDO's going concern opinion. As Provectus approaches the end of the quarter, it may have to raise some money to meet this requirement.
A management team I support
Provectus is the story of an old molecule, a business scientist (Dees), two scientists (Dr. Tim Scott, PhD and Wachter), a businessman (Peter Culpepper), more than a decade of clinical development and a journey that began in the 1990s. Dees, Scott and Wachter are the Company's founders (the "Founders"). The Founders and Culpepper comprise the management team ("Management"). This four-man team has been together for nearly ten years, and should remain together through Provectus's acquisition.
The Founders previously were part of failed public company Photogen Technologies, Inc. ("Photogen"), which traded on the NASDAQ under the ticker symbol PHGN. Information on the Founders' Photogen involvement is available on the Internet, such as this December 2000 The Wall Street Transcript ("TWST") interview of Taffy Williams, President and Chief Executive Officer of Photogen. The Founders (and others) separated from Photogen in July 2002. Collectively referred to as the "Tennessee Stockholders" in the preceding linked separation agreement, they exchanged their Photogen stock for the rights to what was referred to at the time as "PH-10," which now are Provectus's lead oncology and dermatology compounds and their derivatives.
Management historically has relied on the input of a stable of high and low quality advisors and consultants in its decision-making, making many good and several questionable decisions and choices along the way. Provectus has eschewed playing Wall Street's game for the most part, and has suffered to some degree because of it. Some company wounds, non-fatal as they are, however, have been self-inflicted. Management possesses a sufficient threshold level of competence and integrity to warrant my support, and seeks to sufficiently protect the economics of Provectus's innovation for shareholders to warrant my continued holding of Company stock.
Management is innovative, having repurposed an old diagnostic compound as an anti-cancer and dermatology agent. They are intelligent, understanding the value of the molecule's safety history while working through the regulatory process.
Company principals are competent, getting this far while posting, as at June 30, 2013, a $125 million deficit accumulated during Provectus's development stage. Multi-indication success should put Management at the top, or at the bottom in the case of Forbes's Matthew Herper's How Much They Cost: R&D Spending Per New Drug table, of drug development success.
Hard work has increased the probability of success of execution.
Management are a non-traditional, atypical and unrecognized biotechnology company management team without significant drug development experience and no prior drug approvals under their collective belts, prior to Provectus. Backing Management was undertaken with eyes wide open because I believe innovation, intelligence, pragmatism and integrity ultimately trump inexperience.
I have been critical of some Management choices, the most notable among them being compensation, the PVCTP "IPO," and the Company's ongoing communication strategy.
I remain supportive of Management, believe they are focused on and capable of fully monetizing their innovation for the benefit of shareholders and themselves, and would not advocate changing horses as the finish line approaches.
But what if I'm wrong?
What if I am wrong? What would that scenario look like?
Could there be unexpected adverse events in the future? Possibly, but given RB's near century of historical safety, PV-10's pristine safety profile in clinical trials and the CUP, and no clinical trial insurance claims related to adverse events, it may be unlikely.
Could there be poor clinical results in the future? Possibly, but given the repeatability, reproducibility and veracity of historical pre-clinical and clinical results, it may be unlikely.
Could more time be required to confirm the regulatory path for MM? Possibly, and this is the likely scenario if I am wrong. I am prepared for more time to elapse for regulatory clarity to be achieved. Management may have to raise additional capital to fund operations until such time as this ambiguity is resolved to their satisfaction. This, however, is finite and can be bounded by several millions of dollars or several percentage points of potential dilution. This downside risk, however, is more than commensurate with the upside return when the regulatory ambiguity is resolved.
Shareholders may incur further dilution if management has to conduct a pivotal MM Phase 3 trial. I am prepared for this outcome because the dilution caused by raising capital to carry out the trial should be made up by a higher valuation resulting from Phase 3 trial results that are projected to exceed Phase 2 results. Dilution may be mitigated or unnecessary if upfront and milestone payments from consummated regional license transactions in China and/or India materialize beforehand. Casual observers overestimate the cost and potential duration of a trial.
Could Management be unable to monetize the Company at a valuation commensurate with their innovation. Possibly, even though in the recent TWST interview Management said they believe they "…could potentially do something along the lines of a Celgene-Abraxis type transaction, where Celgene acquired Abraxis for $2.9 billion upfront…" Bridging the valuation gap between a $134 million market capitalization and a multi-billion payout should require definitive regulatory clarity, sizeable commercial validation, and a copious amount of stock market exuberance.
There are common risks most if not all biotechnology company stocks face: dealing with the FDA can be at times a complex and opaque process, clinical trials fail, seeking funding can be a long, arduous and dilutive process, and the industry itself is prone to bubbles and busts that contribute to generically rising and falling share prices.
Provectus Pharmaceuticals, Inc. is an extremely undervalued company whose share price does not reflect clear, compelling safety, pre-clinical, clinical and multi-indication viability data for oncology and dermatology indications, a large and growing addressable market hungry for effective solutions, ease of drug administration, low drug production costs, high gross margins, a large intellectual property portfolio, and a management team focused on monetizing their innovation.
As additional trials are conducted, further regulatory clarity is sought, regional and/or global license transactions are consummated, dermatology compound PH-10 is licensed, and there is greater awareness of the Company and stock in the investment community, Provectus's market capitalization should increase substantially from here.
The share price should enjoy dramatically more upside when global pharmaceutical companies fully embrace PV-10's oncology value proposition, paying a premium for this fully owned, multi-indication, cancer treatment asset.
This letter is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein should constitute a solicitation, recommendation or endorsement to buy or sell any security by the author. The author owns shares of stock of Provectus Pharmaceuticals, Inc. He has no obligation to update the information contained herein and may make investment decisions in the future that are inconsistent with the views expressed in this letter. The author makes no representation or warranties as to the accuracy, completeness or timeliness of the information, text or other items contained in this presentation. The author expressly disclaims all liability for errors or omissions in, or the misuse or misinterpretation of, any information contained in this letter.
Additional disclosure: I have not sold any shares as of this article submission, and also author the blog "Connecting the dots...Provectus Pharmaceuticals."