I am reiterating my STRONG SELL rating on shares of Provectus (NYSEMKT:PVCT), as I still believe this stock has $0 intrinsic value and the fundamentals appear to be deteriorating.
My opinion is that shares of PVCT, when unhalted, could gap down substantially, before ultimately dribbling down to my long-term price target of $0, just like PVCT management's last company, Imcor Pharma.
- PVCT has definitively been denied its Breakthrough Therapy Designation (BTD) application by the FDA.
- According to the May 23 call, PVCT received notice of BTD Failure on Wednesday, May 21, the same day it stated in a PR, "The FDA has not reported back to the Company".
- Why was PVCT stock halted all day Friday, May 23, when the BTD failure 8K was out by 2:18 pm?
- The FDA letter highlights prior concerns in 4 separate communications going back to April 2010.
- PVCT shareholders looking forward to an ASCO "catalyst" could be disappointed, as I believe that is a "non-event", and I explain why below.
- Was PVCT selling stock to the public last week, while shareholders did not possess this critical BTD failure information that was with the company?
The Suspicious Timeline of Provectus' BTD Failure Announcement and Stock Halt
On Wednesday, May 21st, I released a report detailing how, based on changes PVCT made to its website on May 20th at what appeared to be the 60-day BTD deadline, I believed it was likely Provectus had already received a negative BTD decision. Later that day, 5/21/14, Provectus issued a press release where it said:
The article alleges that the Company's oncology drug PV-10 "appears to have failed their Breakthrough Therapy Designation." This statement is completely false. The FDA has not reported back to the Company with respect to the Company's application for Breakthrough Therapy Designation.
We now know that actual FDA correspondence about Provectus' BTD failure was dated Friday, May 16th - apparently five days before I issued my first report. In my opinion, it is troubling how Provectus has attempted to spin this.
On its May 23rd conference call, Provectus claims to have received the FDA response on Wednesday 5/21, the same day its press release stated "The FDA has not reported back to the Company," but appears to have withheld this information from shareholders until it formally announced the BTD failure on 5/23. On the call, management states they were out of the office and did not receive the FedEx from the FDA, as they were ringing the NYSE opening bell on the 5/22.
PVCT Celebrating at NYSE on 5/22
Why was PVCT Stock Halted ALL DAY on Friday 5/23 Before a Long Weekend?
Once management released the BTD failure news, why was the stock halted? Before the stock market opened but after the BTD failure was announced, PVCT stock was halted the entire day of Friday before the 3-day long Memorial Day weekend. I find this very confusing. With this extremely bad news now public, why was it necessary for PVCT stock to be halted ALL DAY, when its 8-K with the full disclosure had been filed by 2:18 pm EST?
FDA Letter Discloses Additional Concerns
The FDA letter is a "must-read" for any PVCT shareholder, and I believe some of the other issues mentioned in the FDA BTD failure letter are even more concerning than the BTD failure.
I believe the most important part of the FDA letter that all PVCT shareholders need to focus on is this quote below direct from PVCT's BTD failure letter (emphasis mine):
preliminary clinical data do not demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. This determination is based on the paucity of data on endpoints indicative of clinical benefit"
This is a direct statement from the FDA about PV-10, based on the clinical data they've been shown that is about as clear as I can imagine.
Furthermore, in my first report, I provided source material supporting my estimate that the BTD response in recent years was in excess of 90% negative (refusal) by the FDA.
We also know, quoted directly from the FDA's BTD failure letter to PVCT below (emphasis mine), that:
FDA previously communicated concerns regarding the development program and provided advice regarding the type of data that should be systematically collected to investigate the clinical benefit(s) of an intratumoral treatment of a subset of individual lesions in a systemic disease (malignant melanoma), as previously discussed at the April 8, 2010, March 7, 2011, and October 18, 2011, end-of-Phase 2 meetings and the December 16, 2013 General Guidance teleconference.
Provectus management knew well in advance - in fact 4 years ago, on April 8th, 2010 - that the FDA had significant concerns about the data regarding PV-10 drug.
What has PVCT Been Doing Clinically the Last 3+ Years?
Remember, PVCT was a tiny penny stock trading for $0.60 per share recently. It would have been difficult to fund Provectus' substantial cash burn with a share price of $0.54 at the end of 2013, and may have been difficult to obtain the necessary shareholder votes to change the company's Certificate of Incorporation. On January 15th, PVCT released a press release hyping a Type C meeting with the FDA in December. Why now, after 4 years, with no additional clinical support?
And why did several paid research reports follow after this announcement?
The initial Small Cap Street paid research report was issued on January 21st, 2014 - just days after the Type C meeting. Provectus still has not answered questions raised in my initial report about why this report was issued and how it was paid for. We know the Small Cap Street report was paid for by Hunter Marketing, but who paid Hunter Marketing? Was it Provectus?
Path Forward? PVCT needs an expensive Phase III Trial just to apply for approval, but has just $19mm of cash left, while already burning ~$1m per month.
As I discussed in my initial report, Provectus has survived by repeatedly executing highly dilutive capital raises with some of Wall Street's shadiest investment banks. According to CapIQ data, PVCT has executed no less than 19 dilutive financings, while producing lifetime revenue of zero and losses since inception of $153 million. During this time period, management has personally earned stated compensation of ~$49 million. More shocking still, $24 million of this stated compensation was been paid to executives between 2011-2013, according to PVCT proxy statements. This is the same time period in which Provectus management apparently disregarded trial advice from the FDA that could have positively impacted the BTD decision.
The company has $16.6m of cash on hand as of its latest 10-Q balance sheet, which apparently increased to ~$19m in the mean time, despite the cash burn (per the update call). Given I estimate PVCT will need to maintain $4-5m in cash, this $19m is enough to cover a little over one year of operations, considering the company's trailing 4-year average free cash flow burn of $13m per year.
Including fully diluted warrants, the company's share count today is ~245 million shares. The Provectus Certificate of Incorporation allows a maximum share count of 250 million shares. Provectus is currently attempting to raise this limit to 300 million shares at the company's June 16, 2014 annual meeting. What will the company do to raise capital if it is unable to increase its maximum share count?
ASCO Event a PVCT "Non-Event" In My View
Some PVCT shareholders seem to believe the upcoming ASCO conference is an important "catalyst" for PVCT stock, based on PVCT's "presentation" there. I want investors to be clear that, as far as I can tell, the hyped PVCT "ASCO Presentation" listed here is identified as a "Poster Highlight Session". This is not a Keynote speech presenting some groundbreaking information. In fact, when checking the implications of this on the ASCO website here, the "Poster Highlight Session" description is explained down near the bottom as:
"Poster Highlights Sessions feature selected abstracts of clinical research in poster format. The posters are grouped by topic and are on display for a specified time"
Is PVCT simply putting PV-10 information on a cardboard poster somewhere at the conference? It seems so to me, and if this is true, for a drug with no large pharma partner, which the FDA has stated has a "paucity of data" and "clinical data do not demonstrate substantial improvement over existing therapies", with Phase II trials done years ago and with no Phase III trials, I do not see how a poster at a huge conference for a drug whose trial happened years ago will have any material impact or could be considered any sort of catalyst. I believe ASCO is a "non-event" for PVCT.
Was PVCT Selling Shares to Investors Last Week?
On April 30th, 2014, Provectus entered into a controlled equity offering with Cantor Fitzgerald, with a total maximum offering value of $50m. Those unfamiliar with this type of offering can learn more here - the gist is that through Cantor, PVCT can sell shares directly into the market and book the proceeds as PVCT cash. This differs from a traditional equity offering, where all of the shares are placed at once in a structure transaction. In other words, if you buy a share of PVCT, there is a chance that you might be buying it directly from the company.
With that in mind, I find it very interesting that PVCT management appear to have said on the call they now have ~$19m in cash. Given PVCT has zero revenue, where did this additional cash come from? Was management selling stock to public investors in the open market via the Cantor Fitzgerald equity tool prior to them releasing the BTD failure news? I believe management needs to clarify this issue immediately.
I tried contacting management since the update call, and have been unable to get in touch with them yet. I look forward to them publicly clarifying the issues at hand for investors.
Disclosure: I am short PVCT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.