Provectus Biopharmaceuticals, Inc. (PVCT)

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1 RESEARCH REPORT: Published May 12, 2014 COMPANY BACKGROUND: Provectus Biopharmaceuticals, Inc. (PVCT) is a development stage biopharmaceutical company that is primarily engaged in developing oncology and dermatology therapies through its two predominant drug candidates, PV-10 and PH-10. The company is working to develop PV-10 for the treatment of several life-threatening cancers, including metastatic melanoma, liver cancer (also known as Hepatocellular carcinoma, or HCC), and breast cancer. Meanwhile, their other drug candidate, PH-10, is being developed to provide minimally invasive treatment of chronic severe skin afflictions such as psoriasis and atopic dermatitis (a type of eczema). Aside from the company s leading drug candidates, PVCT also holds patents and other intellectual property that may be used in over-the-counter (OTC) products. Some of these OTC products include GloveAid, Pure-ific, Pure-Stick, and Pure N Clear. GloveAid is a hand cream with both antiperspirant and antibacterial properties, and was developed in an effort to increase the comfort of users hands during and after the wearing of disposable gloves. In GloveAid, PVCT saw an opportunity to help the rising occurrences of chronic skin irritation in personnel across various industries that increasingly use disposable gloves daily in the performance of their jobs. Meanwhile, Pure-ific (and Pure-ific Kids) is essentially an antibacterial spray that kills up to 99.9% of germs on skin and prevents regrowth for six hours. Lastly, the company s Pure-Stick and Pure N Clear products cater to acne sufferers, and are applied topically to help decrease the production of fats, oils and sweat that create bacteria growth while also reducing the number of bacteria already present. The company also has other non-core medical device technologies that PVCT believes may address the two major markets of cosmetic treatments (i.e. in the reduction/elimination of wrinkles, spider veins, etc.) and therapeutic uses (including photoactivation of PH-10). Over recent years, the company has transferred all of their intellectual property related to these products and other non-core technologies to their subsidiaries in an effort to focus solely on developing PV-10 and PH-10. The company does eventually expect to further develop these assets through partnerships with or sales to third-party manufacturers. PRODUCT PIPELINE: Although the company s OTC products and non-core medical device technologies may provide some value, PVCT s future essentially rests with the results of PV-10 and PH-10 both of which are currently undergoing clinical trials in the US. 1

2 Source: PVCT Website, Product Pipeline, 2

3 Ultimately, the company believes that both of these drug candidates will be safer and more specific than currently existing products, driven primarily by their active ingredient Rose Bengal. Beginning with PV-10, the company is developing a sterile injectable form of Rose Bengal disodium for direct injection into tumors for the treatment of certain types of cancer, specifically recurrent melanoma, liver cancer, and breast cancer. One of the unique features of the drug is that PV-10 is retained in diseased or damaged tissue but quickly dissipates from healthy tissue. As a result, the company is hopeful that they can develop therapies that confine treatment to just the cancerous tissue while reducing the collateral impact on healthy tissue that is common in other cancer treatments. As illustrated above, PVCT has conducted Phase 1 and Phase 2 studies of PV-10 for the treatment of recurrent and metastatic melanoma, and Phase 1 studies for the treatment of liver and breast cancers. Both the company and investors alike are optimistic about the results of the Phase 2 trial of PV-10, which showed a 51% objective response rate among all 80 intent-to-treat melanoma patients of their injected study tumors. This 51% was broken down by complete response (26%) and partial response (25%) which indicates shrinkage by at least 30%. These, and other data released, showed that if a tumor is accessible to PV-10 injection, the drug is likely to destroy that tumor. 1 Following the positive results of the company s Phase 2 trial using the 10% solution of Rose Bengal disodium in PV-10, PVCT met with the FDA in December 2013 to discuss its desire to file a formal Breakthrough Therapy Designation (BTD) request. It is this action that caused shares of PVCT to spike at the end of 2013 and into January While receiving BTD approval would be beneficial to the company, it in no way guarantees overall FDA approval for the drug. A key feature of the BTD is that it is designed to accelerate approval for new drugs that show preliminary clinical evidence of a large treatment effect, and authorizes the FDA to take steps to ensure that the design of the clinical trials are as efficient as possible. Additionally, both PVCT and its shareholders are encouraged by the Moffitt Cancer Center s optimism who said in August 2013 that a single injection of PV-10 may revolutionize melanoma treatment. Though the statements were based on the positive results seen in mice with melanoma, investors welcomed the encouraging news at the time. It is here that optimism surrounding potentially life-changing data regarding cancer treatments should be kept in check as there have been lots of studies done that have seen different results in mice and humans, and investors should be reminded that PV-10 could exhibit similar results as those studies. The company has also stated its intentions of starting Phase 3 trials of PV-10 for treatment in melanoma, while also designing Phase 2 trials for treatment in liver and breast cancers with the potential for accelerated approval. Further, PVCT is also exploring the possibility of using PV-10 in other cancer treatments such as basal cell carcinoma, squamous cell carcinoma, and certain head and neck cancers. Meanwhile, PVCT s other leading drug candidate PH-10 uses an aqueous hydrogel formulation of Rose Bengal for topical administration to the skin for the treatment of psoriasis and atopic dermatitis (i.e. eczema). The company again believes their product is superior to other treatments for these skin disorders because it selectively treats diseased tissue with a smaller likelihood of potential side effects in healthy tissue. For example, the majority of people who suffer from psoriasis are treated with topical 3

4 steroids which can have unpleasant side effects, while those with more severe cases are subject to more intensive drug therapies that include exposure to ultraviolet light which can increase a patient s risk of skin cancer. As in the company s PV-10 trials, the results of the trials for both psoriasis and eczema using PH-10 were also positive. With regard to eczema specifically, the treatments in general were well tolerated with no significant safety issues identified, and showed an improvement in the majority of subjects using the Eczema Area Severity Index as a guide. As such, the company is preparing for further trials (i.e. Phase 3) with the hope of preparing a New Drug Approval (NDA) filing for the FDA for use in both indications (psoriasis and eczema). MARKET POTENTIAL AND COMPETITION: Perhaps one of the aspects of PVCT that has investors most excited is the market potential for both of their primary drug candidates. Cancer is obviously big money, but especially so if you consider the market sizes of melanoma, liver cancer, and breast cancer. For example, primary liver cancer (HCC) is the fifth leading cause of death related to cancer in the world in men and seventh in women, with the world market for liver cancer drugs projected to exceed $2 billion by Meanwhile, GlobalData estimates the melanoma therapeutics market will grow to $1.4 billion by 2017 (a CAGR of almost 17% each year) 3, while the global market for breast cancer drugs should reach over $11 billion by If the company is successful with PV-10, they should be able to capture at least some of those markets. Moreover, the company has recently made strides in China as they entered into an advisory agreement with Tririver Capital, an investment banking firm in China dedicated to the biotech and healthcare sectors, in an effort to expand PVCT s reach through partnership opportunities. Considering the fact that nearly 55% of worldwide cases of liver cancer occur in China each year, it is no secret why PVCT is seeking the help of Tririver Capital to explore possible partnerships in that part of the world. Personally, I feel as though this is a step in the right direction for the company in an effort to help license PV-10 for use in China. Furthermore, the company could benefit greatly from PH-10 as the dermatology market is also very large in size, especially with regards to psoriasis. In fact, the National Psoriasis Foundation reports that approximately 125 million people worldwide have psoriasis, while GBI Research recently estimated that the global psoriasis market will grow from about $5 billion in 2013 to $10.4 billion in Additionally, GlobalData estimates the global eczema therapeutics market will double in size from over $2 billion in 2010 to almost $4 billion in 2018, representing a CAGR of over 8%. 6 A significant problem facing PVCT though involves the fact that competition within both the cancer and dermatology markets is intense, and there are currently many large and small companies developing drugs designed to treat melanoma, liver cancer, breast cancer, psoriasis, and eczema. Although the market can absorb more than one drug for the treatment of these indications, there are likely to be several drugs that are better than other drugs for the treatment of the same indication. Therefore, not only is PVCT at risk for not receiving FDA approval for its two drugs (PV-10 and PH-10), but they may not be as effective as other drugs in development and/or currently on the market. Ultimately, it comes down to both the safety and efficacy of PV-10 and PH-10 in treating their respective indications. However, it is here that PVCT believes they have an advantage. 4

5 RECENT CONTROVERSY: Ever since the company started issuing press releases following its December 2013 Type C meeting with the FDA to determine which of the available paths the company will take to pursue PV-10 s next steps, there has been a flurry of activity in the press mostly between biotech columnist Adam Feuerstein and PVCT s management. While I do not necessarily agree with one side or the other, both Feuerstein and PVCT s CFO and COO Peter Culpepper bring up some good points. The biggest thing in my mind that Feuerstein brings up is why the company has delayed starting Phase 3 trials in both drugs for so long. However, it is my belief that PVCT is waiting for the impending BTD decision from the FDA which is expected 60 days after the filing. Since the BTD was filed on March 24, 2014, a decision should be received within the next few weeks. While this decision will not make or break the company, it will certainly have an impact on shares one way or the other, as well as possible financing decisions going forward. Moreover, while the company may not be progressing as fast as most investors would like, they do appear to be making the right moves as of late, especially with regards to both the BTD filing and their recent advisory agreement with Tririver Capital. In addition, their strategy to focus primarily on their leading drug candidates PV-10 and PH-10 should also be viewed as a positive for shareholders. Lastly, the company s large cash position of almost $17 million at the end of March 2014 should certainly be viewed as a positive for shareholders. Although they recently entered into an agreement with Cantor Fitzgerald under which they may issue and sell additional shares of common stock (up to $50 million worth), the company has specifically stated the cash they have received subsequent to the end of Q will be sufficient to meet their current and planned operating needs until well into This should help alleviate some concerns of further dilution of shares at least for the near term. LITERALLY A SMALL COMPANY: Another of my concerns with the company stems from the fact that it is literally a small company as there are only four full-time employees at the firm, plus four full-time consultants, including a lab technician, a contract research associate, an analytical chemist, and an information technology consultant. Although not completely unexpected in the biotech industry, there is a considerable amount of risk in having such a small number of people working at a firm. Nonetheless, the company s management does seem capable, and appears to have shareholder interests aligned with their own as they own about 5% of the company s shares outstanding. Further, part of their business strategy includes an eventual sale of the company should PV-10 and PH-10 continue to show positive results and ultimately gain FDA approval. UPCOMING CATALYSTS: As mentioned earlier, the FDA s decision on the company s BTD filing should be announced in the next couple of weeks, which will likely move shares one way or the other. While this decision will not make or break the company, any upcoming news pertaining to the beginning of Phase 3 trials for either PV-10 or PH-10 will likely move shares as well. 5

6 BOTTOM LINE: In general, I am personally wary of biotech companies, especially ones such as PVCT where so much of the company s future is dependent upon just two drugs. However, given the positive results surrounding both PV-10 and PH-10, and their applications in some of the most heavily watched and highly lucrative cancer and dermatology markets, the risk-reward profile is rather favorable at the moment. Shares are well off their highs from January, and there are some short-term catalysts on the horizon for the company. I am anxious to see the results of the BTD from the FDA which is expected by the end of this month, as well as the company s plan on physically starting Phase 3 trials for both of their drugs. SOURCES 1 PVCT Form 10-K. 31 December Page 4. 2 Ibid. Page 5. 3 GlobalData. Melanoma Therapeutics Pipeline Assessment and Market Forecasts to January BCC Research. Breast Cancer Diagnostic and Drug Technologies: Global Markets. June GBI Research. System Psoriasis Therapeutics in Major Developed Markets to February GlobalData. Eczema Therapeutics Pipeline Assessment and Market Forecasts to October PVCT Form 10-Q. 31 March Page 14. Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it, and I have no business relationship with any company whose stock is mentioned in the article. The information contained herein is not intended to be investment advice and does not constitute any form of invitation or inducement by Michael Maggi, CFA and Money by Maggi to engage in investment activity. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Securities, financial instruments, strategies, or commentary mentioned herein may not be suitable for all investors and this material is not intended for any specific investor and does not take into account an investor s particular investment objectives, financial situations or needs. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only current as of the stated date of their issue. Prices, values, or income from any securities or investments mentioned in this report may fluctuate, and an investor may, upon selling an investment lose a portion of, or the entire principal amount invested. Past performance is no guarantee of future results. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. This report may contain certain forward-looking statements and information, as defined within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and is subject to the Safe Harbor created by those sections. This material contains statements about expected future events and/or financial results that are forward-looking in nature and subject to risks and uncertainties. Such forward- looking statements by definition involve risks, uncertainties and other factors, which may cause the actual results, performance or achievements of mentioned company to be materially different from the statements made herein. COMPLIANCE PROCEDURE Content is researched, written and reviewed on a best-effort basis. This document, article or report is written and authored by Michael Maggi, CFA. An outsourced research services provider represented by Michael Maggi, CFA, 6

7 provided Small Cap Specialists, LLC this article or report. However, we are only human and are prone to make mistakes. If you notice any errors or omissions, please notify us below. Small Cap Specialists, LLC are not entitled to veto, interfere or alter the articles, documents or report once created and reviewed by the outsourced research provider represented by Michael Maggi, CFA. All parties responsible for the creation and dissemination of this report do not engage in high frequency trading. NO WARRANTY OR LIABILITY ASSUMED PVCT has not compensated Small Cap Specialists, LLC or Michael Maggi, CFA for the creation or dissemination of this report. Small Cap Specialists, LLC is not responsible for any error which may be occasioned at the time of printing of this document or any error, mistake or shortcoming. Small Cap Specialists, LLC does not hold any positions in PVCT. No liability is accepted by Small Cap Specialists, LLC whatsoever for any direct, indirect or consequential loss arising from the use of this document. Small Cap Specialists, LLC expressly disclaims any fiduciary responsibility or liability for any consequences, financial or otherwise arising from any reliance placed on the information in this document. Small Cap Specialists, LLC does not (1) guarantee the accuracy, timeliness, completeness or correct sequencing of the information, or (2) warrant any results from use of the information. The included information is subject to change without notice. Small Cap Specialists, LLC is the party responsible for hosting the full analyst report and Michael Maggi, CFA, is the author of research report. Small Cap Specialists, LLC has compensated Michael Maggi, CFA two hundred dollars and fifty dollars for the right to disseminate this report. Information in this report is fact checked and produced on a best efforts basis by Michael Maggi, CFA. CFA and Chartered Financial Analyst are registered trademarks owned by CFA Institute. 7