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Arguing For My $PVCT Investment Thesis (Pt. 1)

|Includes: Provectus Biopharmaceuticals, Inc. (PVCT)

Taken From Connecting The Dots...Provectus Pharmaceuticals (July 21, 2013).

Fundamentally, I believe the essence of PV-10, management and Provectus, and thus the stock, is innovation over incrementalism, robust over marginal, great technology & product over run-of-the-mill offerings, and changing the world over accepting the status quo. Is this not the essence of a paradigm shift?

The above is where my investment thesis begins and ends: a novel compound, a novel product, and a vast market of unmet need easily, profitably and fully met. No more, no less.

There's much more to consider, however, because technology does not always have to be great to have great impact, and great technology does not always achieve great impact.

In constructing an investment thesis for Provectus, like one would do for any asset (e.g., another stock, gold, a high yield bond, real estate, etc.), there should be a clear, asset-specific value proposition, which should align with a conducive macroeconomic environment, both of which then should set-up a clear trade or investment opportunity.

Starting out, my thesis comprised PV-10's high clinical and business value proposition, in a pharmaceutical industry ravenous for effective oncology product offerings, facing an addressable market whose annual growth rate exceeds other therapeutic areas, that when approved would provide a very lucrative outcome.

PV-10's value proposition is straightforward and compelling:

  • Very safe,
  • Very efficacious,
  • Broadly applicable to numerous cancer indications typified by injectable solid tumors,
  • Easily administered,
  • Easily manufactured and stored, and
  • Highly profitable.

Since then, PV-10's value proposition still is high, if not higher. The pharmaceutical industry still is hungry, if not starving. Market demand still grows, if not globally more. And while the industry has made clinical headway ("We are pretty good at shrinking tumors, but not good at getting rid of them. Immune therapy is a way to begin to approach that." (Merck senior vice president Gary Gilliland)), current offerings still remain marginal in their efficacy and still incur safety issues.

Part 1: At the outset, however, I did not fully appreciate how novel PV-10 was and would become. I did not fully grasp how much Craig indeed had innovated, although I take comfort in the company I keep: "Back in the preclinical days at Provectus, Craig Dees, PhD, theorized that ablation of tumors with PV-10 might lead to unmasking of tumor antigenic material. I don't think he anticipated that it would work as well as it does" (Eric, Cancer Watch, Vol 22, 21-23 (2013)).

PV-10's Novelty

The drug is a truly novel compound. Like saying or writing "XYZ is the Holy Grail of ABC," we often inaccurately, flippantly and lazily throw around words like novel, unique, special, etc.

PV-10 is novel across multiple dimensions:

  • It is very safe. The active pharmaceutical ingredient Rose Bengal ("RB") has a pristine safety profile,
  • It is very specific in its action. PV-10 is cytotoxic ("the quality of being toxic to cells") only to cancer cells,
  • It is very efficacious locally (or local-regionally ["loco-regionally"]). Local means, say, for breast cancer, the cancer is confined within the breast*. Regional means the breast cancer has spread to the lymph nodes*,
  • It is very efficacious systemically. Distant means the breast cancer has spread to other organs (parts) of the body; the cancer has metastasized*,
  • It robustly stimulates the immune system, both locally (loco-regionally) and systemically. Local and systemic immune effects are very evident with PV-10,
  • It creates systemic anti-tumor immunity. Cancer recurrence can be mitigated, dramatically reduced or, potentially, eliminated,
  • It is both a targeted therapy and an immunotherapy. Targeted therapies provide meaningful survival out of the gate. Immunotherapy wins because of long survival tails, and
  • It works on multiple cancers. Melanoma, liver, breast, colorectal, pancreas, bladder, etc.

* From Susan G. Komen for the Cure collateral material on types of breast cancer tumors.

Researchers at Moffitt Cancer Center published a paper this week in PLoS ONE, an open access peer-reviewed scientific journal published by the Public Library of Science, entitled "Intralesional Injection of Rose Bengal Induces a Systemic Tumor-Specific Immune Response in Murine Models of Melanoma and Breast Cancer," a follow-up to their poster presentation at AACR 2013.

Moffitt establishes intralesional ("IL") PV-10 therapy induces tumor specific immunity in multiple indications (in this paper, melanoma and breast; previously, lung; and elsewhere, colorectal and pancreas).

They support the concept of combining PV-10 therapy with immunotherapy for advanced malignancies (as Provectus proposed on its AACR 2013 poster presentation).

Moffitt suggests PV-10 may be safer than Bacillus Calmette Guerin ("BCG") for local treatment and disease control. I think this conclusion derives from contrasting rose bengal's safety with BCG's efficacy, and RB's efficacy with BCG's [lack of] safety. Recall Dr. Andtbacka's slide from HemOnc Today 2013 where he compared IL therapies IL-2, BCG, Allovectin-7, T-Vec and PV-10. PV-10's non-injected lesion and non-injected systemic lesion response rates trumped those of the other IL therapies. IL-2 and BCG, however, trumped the reported injected lesion response rate for PV-10. Interestingly, PV-10 surpasses BCG locally when enough is used (this observation will be the subject of the data presented at September's ECCO 2013).

They verify PV-10 resulted in regression of untreated bystander lesions in breast cancer and melanoma mouse models, thus verifying the so-called "bystander effect" for multiple cancer indications. The bystander effect occurs because of PV-10's systemic anti-tumor immune response.

Moffitt does not yet know how PV-10 induces systemic immunity. They hypothesize tumor ablation by PV-10 leads to the release of large amounts of tumor debris that is taken up by antigen-presenting cells ("APCs") such as dendritic cells ("DCs"). "DCs are immune cells that form part of the human (mammalian) immune system and whose main function is to process antigen material and present it on the surface to other cells of the immune system. DCs act as messengers between the innate and adaptive immunity" (Adapted from Wikipedia's dendritic cell entry).

They currently are undertaking further studies into the effect of PV-10 on DCs and immune cell infiltration, which should enable Moffitt to understand how PV-10 induces systemic immunity (if they don't already know, as their SSO 2012 poster presentation, the AACR 2013 poster presentation and the PLoS One paper represent the beginning of the work on PV-10 they expect to publish). Immune cell infiltrate has been documented as a predictor of prognosis and long-term survival.

Moffitt verifies PV-10 therapy alone is capable of inducing an effective systemic anti-tumor immune response.

They support the belief of the combination of PV-10 therapy with other forms of immunotherapy may lead to enhanced responses (as Provectus conjectured at AACR 2013).

Moffitt demonstrates systemic anti-tumor immunity in untreated tumor-bearing mice could be mediated by the adoptive transfer of T cells isolated from PV-10 treated mice. Moffitt hypothesized PV-10 therapy may be combined with adoptive cell therapy to boost the immune response in patients subsequently undergoing adoptive cell therapy. Adoptive cell therapy can be an effective treatment for some patients with advanced cancer.

They conclude PV-10 therapy leads to a robust anti-tumor T cell response.

Finally, Moffitt concludes PV-10 should be used to treat metastatic melanoma and breast cancer. Given their work with other cancer indications, this should extend to lung cancer, liver cancer, colorectal cancer, bladder cancer, etc.

PV-10 is very safe. What's left to argue on this point? Rose Bengal has a long and pristine safety profile.

"…Rose Bengal…has been…known for [8]0 years as an a liver diagnostic agent…[T]he founders…realized that being a diagnostic agent [Rose Bengal] was already FDA approved for IV therapy and at much higher doses than what would be needed for cancer. Furthermore, thru decades of use, its safety is well established and all preclinical and animal toxicity studies have already been performed historically and are on-file at the FDA. …[T]heir FDA dossier will be significantly easier than if [Rose Bengal]was a brand new agent" (Adapted/quoted from a December 2011 OneMedPlace research coverage report). For example, prior to 1982, the FDA approved Bracco Diagnostics' Robengatope, which used Rose Bengal Sodium.

Such fundamental safety forms a key foundation and floor under the investment thesis because there should be no or de minimis adverse event surprises when additional clinical trials are run.

The drug is very specific in its action. The specificity of only targeting cancer cells, via lysosomes, is a critical feature of PV-10 (along with its safety and topical route delivery).

There is no denaturing of the cell. As Haas et al noted in their abstract and presentation at July 2013's 8th Melanoma Congress entitled "Rose Bengal - Phototoxicity versus Intrinsic Cytotoxicity," rose bengal "effects cell death of both proliferating and invading cells, and exerts its toxicity through necrosis without perturbation of the cell cycle" (Adapted from the abstract's text).

"The cell cycle, or cell-division cycle, is the series of events that take place in a cell leading to its division and duplication (replication)...The cell-division cycle is a vital process by which...hair, skin, blood cells, and some internal organs are renewed" (Adapted from Wikipedia's cell cycle entry).

It is this novel specificity of the compound that the average pharmaceutical industry constituent still cannot wrap his or her head around, while key opinion leaders ("KOLs") already have and now heartily embrace. Peter remarked about the sophisticated understanding of PV-10 and Rose Bengal pharmaceutical companies have displayed in his meetings with them, from the U.S. to Europe to India to China to Japan.

It is a very efficacious local therapy. The company demonstrated PV-10's loco-regional disease benefit.

Focusing on the originally desired target group for the sought after label, metastatic melanoma ("MM") Stage IIIb and IIIc patients, Provectus' final MM Phase 2 results presented at ESMO 2012 yielded:

  • Target lesion response rates of 32% complete response ("CR"), 60% objective response ("OR") and 79% loco-regional disease control,
  • Bystander (non-injected systemic) lesion response rates of 33% CR, 40% OR and 53% disease control, and
  • Mean progression free survival ("PFS") of more than 9.7 months (median PFS was not reached during the 12-month study interval).

The company will report substantially higher target and bystander response rates on both individual tumor and RECIST bases at September's ECCO 2013. Earlier this year, PFS was reported to be longer.

Management is highly confidant the agreed upon MM Phase 3 trial endpoints will be achieved should this trial, presumably under a special protocol assessment ("SPA"), be run. It's not hard to concur when assessing historical trial results in the context of greater Phase 3 trial flexibility already agreed to by the FDA, and thus even better CR, OR, disease control and PFS.

Surgery, which is performed to remove a tumor, and radiation, which uses x-ray beams to destroy or shrink tumors, are considered local therapies because they direct treatment to the area where cancer has developed*. We should eventually glean from Moffitt and their Phase 1 feasibility study that they will establish PV-10 is a viable alternative to surgery, and support what other surgical oncology KOLs already have voiced.

Allovectin-7 is an also ran compared to PV-10. Top line data from Allovectin-7's MM Phase 3 trial should be released in Q3 2013, nearly 7 years after the trial began. T-Vec, which entered its MM Phase 3 trial in 2010 and whose interim results were released this year, is closer in comparable value (and trial design outcome), although still marginal relative to PV-10. Some think T-Vec will be approved because of the drug's significant durable response rate (defined differently from that of the Allovectin-7 trial) and PFS results.

PV-10 and other local agents have had to overcome the skepticism local agents are not supposed to deliver systemic benefit, in addition to the local benefit they provide.

On both relative and absolute bases, by comparing favorably to both Vical's Allovectin-7 and Amgen's T-Vec, the floor of the investment thesis rises again. T-Vec, when it was OncoVex and fully owned by BioVex, was acquired for a top line figure of $1 billion (upfront and milestone payments) in early 2011. I've long established numerically an intrinsic valuation floor for Provectus is $1 billion (in no small part due to management's view they won't sell the company or do a deal below at least this figure). Now, Amgen has been in contact with Provectus. Hearsay would have you believe Amgen would readily challenge Pfizer's purported and supposed pole position when the time comes (i.e., when regulatory clarity arrives).

Management has long and repeatedly stated its desire to achieve a narrow (focused) approval label centered around Stage III patients metastatic melanoma, where there is no standard of care, according to the NCCN Practice Guidelines in Oncology (v.2.2009) for Melanoma, include:

  • For sentinel node positive: lymph node dissection or clinical trial,
  • For clinically positive nodes: wide excision of primary tumor plus complete lymph node dissection, and
  • For in-transit: complete surgical excision, hyperthermic perfusion/infusion with melphelan, clinical trial, intralesional injection of IFN or BCG, local ablation therapy, radiotherapy, systemic therapy (e.g., clinical trial, DTIC, TMZ, high dose IL-2, DTIC- or TMZ-based combination therapy, paclitaxel, paclitaxel/cisplatin, paclitaxel/carboplatin) or topical imiquimod.

PV-10 has the opportunity to become the standard of care for patients with Stage III metastatic melanoma. Should this happen, the value derived from such use over time would be immense. But while PV-10's superior local efficacy provides a foundation for Provectus' monetization value, this value seems somewhat illusory because this path, the path of the SPA, is not what I believe to be the path management seeks despite the thoughtful strategy and good intentions of cultivating multiple regulatory pathway options.

According to management, KOLs and other top clinicians have told Provectus they will readily use it, when the drug is approved for MM Stage IIIb/c patients, for Stage IV metastatic melanoma and other solid tumor indications because the drug is very user friendly (i.e., it's safety profile). This, of course, ties into PV-10's systemic efficacy and disease benefit.

I understand the history of management's pursuit, and cultivating multiple options; however, it's clear accelerated approval ("AA"), whether directly asked for or via breakthrough therapy designation ("BTD"), is the outcome they have been and are seeking first and foremost. The SPA is a consensus design based on the parameters management specified for the appropriate patient population. AA is based on evidence of PV-10's systemic benefit, or its mechanism of action in this case. As management will tell you and will tell you they've told you, they have always simultaneously pursued the SPA (Phase 3) and AA since their first end-of-phase 2 ("EOP2") meeting with the FDA in April 2010 (and the same team: first CDER and now DOP2).

Hearsay would have you believe the FDA told Provectus in 2010 to return with proof of PV-10's systemic properties and benefit in order for PV-10 to be considered for AA. Further hearsay then would have you further believe the FDA affirmed for Provectus, at least after AACR 2013 (and perhaps earlier), that such proof had been achieved.

The construct of BTD now significantly increases the likelihood of getting AA.

For what, then, is Eric waiting, if the FDA told Provectus to submit a BTD application either sometime last year or early this year?

In excavating the remains of the failed PVCTP "IPO," I wrote in my "The Beginning of the End[-game] for $PVCT" post that as early as July 2012 (in my estimation) management must have been assured the FDA would agree to or provide the SPA sometime in Q3 2012. Provectus used the second half of the ESMO 2012 press release to highlight SPA trial design parameters to which they had agreed with the FDA.

As a matter of good process, whether the FDA or Provectus': No SPA three quarters after management first thought they would receive it, and based certain activities, like the "IPO," on this calculation. Current guidance is that it should arrive in the next two quarters. Five quarters. Still more questions, more information requested, more application iterations, more something related to the SPA? Was/is something "wrong?" Management could do better than: "While preparation for submission of our SPA has taken longer than expected, it is crucial to remember that oncology presents a moving playing field." Taking nearly 8 quarters (starting from when the FDA informed Provectus no further EOP2 meetings were necessary and ending in 2013) to "[f]ine tun[e]...the study design...to mitigate clinical efficacy risk, optimize patient accrual, and increase FDA's confidence that the study design and protocol...ensures the best possible outcome for...[their]...pivotal trial" seems uncharacteristically excessive, ineffective and inefficient, unless you're not really focused on that pathway.

Nevertheless, cultivating multiple pathways is about risk (and risk management). Focusing on what you think you can or should get is about return.

Were/are there different questions, different information, something different, etc. related to the BTD application from the same CDER/DOP2 team reviewing the SPA application? Did BTD, which was signed into law as the Food and Drug Administration Safety and Innovation Act ("FDASIA") in July 2012, ultimately supersede the SPA process at the FDA's behest?

The investment thesis has a foundation in the SPA. It rises dramatically with AA.

Hearsay would have you believe Eric was waiting for approval of the manuscript of the PLoS One Moffitt paper above before finally submitting the BTD application. Is the question simply "what more information does the FDA need?" At this point, management says "nothing more."

* Taken from NCCN.com (NCCN Guidelines for Patients).

PV-10 is very efficacious systemically. As we know from Moffitt's AACR 2013 poster presentation and the paper above, they verified PV-10 therapy alone is capable of inducing an effective systemic anti-tumor immune response.

Provectus' final MM Phase 2 results already had established that bystander (non-injected systemic) lesion response rates of 33% CR, 40% OR and 53% disease control were achieved by Stage III metastatic melanoma patients.

Focusing on MM Stage IV patient results from the Phase 2 trial presented at ESMO 2012:

  • Target lesion response rates of 0% CR, 22% OR and 33% loco-regional disease control,
  • Bystander (non-injected systemic) lesion response rates of 8% CR, 17% OR and 40% disease control, and
  • Mean PFS of 3.1 months.

Late stage patients are where the FDA and the pharmaceutical industry mostly focus.

Chemotherapy, which sends cancer-fighting drugs throughout the bloodstream to all parts of the body, is referred to as "systemic" therapy. Hormonal and biological therapies, other big guns in the cancer arsenal, are also considered systemic therapy*.

While not nearly as impressive as the results for Stage III patients, Stage IV patient results compare very favorably to alternative approved (e.g., DTIC, TMZ), soon-to-be-approved (e.g., Yervoy, Zelboraf) and under investigation compounds, particularly considering the inflexibility of the Phase 2 trial design. When more PV-10 is injected more frequently into as many accessible lesions and tumors as possible, the results appear to be astounding: up to 80% of compassionate use program patients are cancer free (hearsay).

Provectus' June 2013 white paper entitled "Evidence for Systemic Effects Moves PV-10 Toward Further Clinical Trials" further expanded on PV-10's systemic benefit for later stage patients. The paper describes that PV-10 works very effectively by stimulating the immune system. When stimulation is less effective or ineffective, it is primarily due to excessive tumor burden, an assist is needed to reduce such burden until PV-10 can stimulate the immune system. It is possible, however, that enough PV-10 to further chemoablate could be enough without the need for an assist even in the heaviest tumor burden situations, but more trials likely would have to be run to maximize PV-10's utilization on its own through the entire race.

Moffitt's PLoS One paper establishes PV-10's systemic benefit, as their previous work already had done.

Which returns me to the discussion of the SPA vs. AA. Hearsay would have you believe management thinks they have a material probability of achieving AA. I've heard the perceived likelihood is as high as 75%.

What comprises the other 25%? If 25% is reflective of the probability of not getting AA, then what the related probabilistic outcome? The SPA (and a "regular" Phase 3 trial), a truncated P3 trial (i.e., shorter, in some form or fashion, such as a smaller number of patients), a modified P3 trial (i.e., a single-arm study), quicker response on the SPA trial facilitated by BTD, outright approval, or yet something else?

These discussions with the FDA mean conversation has moved beyond the benefits of a local agent. AA is based on evidence of PV-10's systemic benefit. Thus, the discussion with the FDA is about PV-10 as a systemic agent, which, as a shareholder, is a great conversation for management to be having.

The floor of the investment thesis rises again.

* Taken from NCCN.com (NCCN Guidelines for Patients).

The drug robustly stimulates the immune system, both locally and systemically. Moffitt clearly and unequivocally writes PV-10 therapy alone is capable of inducing an effective systemic anti-tumor immune response. There's more to this story that has to be written and told.

As for the observation and evidence of a local immune response (i.e., blistering) caused by PV-10, this also should be the subject of the data presented at September's ECCO 2013.

In my "$PVCT: Florey, Chain & Heatley" post -- "The development of penicillin for use as a medicine is attributed to the Australian Nobel laureate Howard Walter Florey, together with the German Nobel laureate Ernst Chain and the English biochemist Norman Heatley" -- (Quoted from Wikipedia's penicillin entry) -- I quoted Fareed Zakaria, in a December 10, 2012 interview on Fareed Zakaria GPS of Dr. Ronald DePinho, M.D., President of MD Anderson's cancer center, said "The holy grail for cancer would be to trigger the body's own immune system to fight off the cancer, so that you somehow stimulate the antibodies in a way that that happens."

It creates systemic anti-tumor immunity. Doesn't "systemic" mean "body-wide?"

After all, chemotherapy, which sends cancer-fighting drugs throughout the bloodstream to all parts of the body, is referred to as "systemic" therapy. Body-wide immunity would suggest, within context and, I presume, with caveats, cancer does not come back. No cancer recurrence. No cancer recurrence?

The floor of the investment thesis rises again, in my view.

PV-10 is both a targeted therapy and an immunotherapy. How novel is it for a drug compound to be both?

Targeted therapies demonstrate a meaningful or material survival difference out of the gate, but the differential dissipates over a longer time period. Immunotherapies demonstrate a meaningful or material survival difference over a longer time period.

I previously highlighted Ribas et al's slide at ASCO 2013 illustrating the effects of immunotherapy and targeted therapy on melanoma, quoting Adam Feuerstein: "This isn't a chart of real data but it's the best slide of the ASCO meeting because it explains why cancer immunotherapy is winning over targeted therapies, particularly in melanoma. It's the long survival tail! Targeted therapies work fast but responses tend to be transient as cancer cells develop resistance. This means that early, impressive survival benefit aren't sustainable. Cancer immunotherapy, on the other hand, works slower. It takes time for the patient's immune system to identify and kill cancer cells. But once a patient's T-cells get a taste for cancer cells, their appetite is insatiable. That means tumor responses that are more durable and (hopefully) sustained and prolonged survival."

PV-10 is an immuno-chemoablative agent. The process of immunization (immuno-) is unlocked by PV-10 chemoablation (-chemoablative), which causes the rapid, durable necrosis of the 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, tremelimumab, PD-1, PD-L1, etc.).

The drug works on multiple cancers. Thus far, Provectus has generated clinical trial data for metastatic melanoma (publicized), liver (publicized, but more data available under CDA/NDA) and breast cancer (not publicized in detail, but available under CDA/NDA), and pre-clinical data (not yet publicized in detail) for bladder cancer, pancreatic cancer and several other solid tumor indications.

Moffitt has generated clinical trial data for metastatic melanoma (not yet publicized), and pre-clinical data for metastatic melanoma (publicized), breast cancer (publicized) and lung cancer (publicized), and several other solid tumor indications (not yet publicized). In the paper above, Moffitt concluded PV-10 should be used to treat metastatic melanoma and breast cancer. Given their work with other cancer indications, presumably this extends to lung cancer, liver cancer, colorectal cancer, bladder cancer, etc.

Should or when Provectus achieve BTD for metastatic melanoma, management would seek BTD for liver cancer and other indications (like Pharmacyclics did with ibrutinib). This would assume that CDER/EOP2 finally would have become comfortable with PV-10's MOA and the plethora of data Provectus provided the FDA about the drug. These applications will take time and effort, however.

The floor of the investment thesis rises again.

Is it a delivery system or facilitator, too? Management has not yet spoken in great detail about PV-10 and orthogonality.

Orthogonality, where PV-10 can be combined with literally any other treatment for the benefit of patients, clearly has enthralled KOLs like Moffitt's Dr. Jefrrey Weber.

Questions arise for me from Moffitt's paper, such as the prognostic and predictive (of long-term survival) nature of PV-10-generated immune cell infiltrate, a PV-10-version of adoptive T cell therapy, etc.

Remind me. What floor are we on now?

NEXT POST: The Magnitude of PV-10's Economic Opportunity. At the outset, I also did not fully appreciate the magnitude of economic opportunity PV-10 would present. I did not understand nor grasp that Provectus has an opportunity bigger than anyone has surmised insofar as harnessing the immune system.

Disclosure: I am long PVCT.

Additional disclosure: I am a large shareholder of Provectus Pharmaceuticals, have not sold any shares as of this Instablog submission, and also author the blog "Connecting the dots...Provectus Pharmaceuticals."