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PVCT > SEC Filings for PVCT > Form 10-Q on 12-Nov-2013All Recent SEC Filings

Show all filings for PROVECTUS PHARMACEUTICALS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for PROVECTUS PHARMACEUTICALS INC


12-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion is intended to assist in the understanding and assessment of significant changes and trends related to our results of operations and our financial condition together with our consolidated subsidiaries. This discussion and analysis should be read in conjunction with the accompanying unaudited financial statements, our Annual Report on Form 10-K for the year ended December 31, 2012 ("2012 Form 10-K"), which includes additional information about our critical accounting policies and practices and risk factors, and Item 1A of Part II of this report, which updates those risk factors. Historical results and percentage relationships set forth in the statement of operations, including trends which might appear, are not necessarily indicative of future operations.

Plan of Operation

We have implemented our integrated business plan, including execution of the current and next phases in clinical development of our pharmaceutical products and continued execution of research programs for new research initiatives.

Our current plans include continuing to operate with our four employees during the immediate future, as well as four primary consultants and various vendor relationships, and anticipate adding additional personnel if necessary in the next 12 months. Our current plans also include minimal purchases of new property, plant and equipment, and increased research and development for additional clinical trials.

We believe that our prescription drug candidates PV-10 and PH-10 provide us with two products in multiple indications, which have been shown in clinical trials to be safe to treat serious cancers and diseases of the skin, and important immunologic data has been corroborated and characterized by institutions such as Moffitt Cancer Center in Tampa, Florida and another leading research facility. We continue to develop clinical trials for these products to show their safety and efficacy, which we believe will continue to be shown based on data in previous studies, and which will result in one or more license transactions with pharmaceutical and or biotech partners. Together with our non-core technologies, which we intend to sell or license in the future, we believe this combination represents the foundation for maximizing shareholder value this year and beyond.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2013 and September 30, 2012

Revenues

We had no revenue during the three and nine months ended September 30, 2013 and 2012.

Research and Development

Research and development costs of $1,296,654 for the three months ended September 30, 2013 included payroll of $411,119, consulting and contract labor of $451,024, legal of $93,515, insurance of $61,049, lab supplies and pharmaceutical preparations of $258,756, rent and utilities of $19,641, and depreciation expense of $1,550. Research and development costs of $1,129,921 for the three months ended September 30, 2012 included payroll of $302,064, consulting and contract labor of $670,449, legal of $62,568, insurance of $60,228, lab supplies and pharmaceutical preparations of $13,122, rent and utilities of $19,864, and depreciation expense of $1,626. The decrease in consulting and contract labor is due to decreased costs of current preclinical and clinical trial activity. The increase in lab supplies and pharmaceutical preparations is the result of securing drug substance and drug product for pivotal clinical studies with the newly patented synthesis of Rose Bengal.

Research and development costs of $2,815,519 for the nine months ended September 30, 2013 included payroll of $1,135,095, consulting and contract labor of $1,006,049, legal of $174,539, insurance of $148,549, lab supplies and pharmaceutical preparations of $290,921, rent and utilities of $55,716, and depreciation expense of $4,650. Research and development costs of $4,352,940 for the nine months ended September 30, 2012 included payroll of $2,258,622, consulting and contract labor of $1,737,376, legal of $178,236, insurance of $85,228, lab supplies and pharmaceutical preparations of $32,564, rent and utilities of $56,335, and depreciation expense of $4,579. The decrease in payroll is the result of no bonuses being paid during the nine months ended September 30, 2013. The decrease in consulting and contract labor is due to decreased costs of current preclinical and clinical trial activity. The increase in lab supplies and pharmaceutical preparations is the result of securing drug substance and drug product for pivotal clinical studies with the newly patented synthesis of Rose Bengal.


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General and Administrative

General and administrative expenses decreased by $110,881 in the three months ended September 30, 2013 to $2,185,756 from $2,296,637 for the three months ended September 30, 2012. General and administrative expenses were very similar for both periods, although investor relations expense decreased slightly in the three months ended September 30, 2013.

General and administrative expenses decreased by $363,360 in the nine months ended September 30, 2013 to $6,864,865 from $7,228,225 for the nine months ended September 30, 2012. General and administrative expenses were very similar for both periods, although payroll expense was lower for the nine months ended September 30, 2013 versus the nine months ended September 30, 2012 as a result of no bonuses being paid during 2013.

Investment Income

Investment income was insignificant in both the three and nine months ended September 30, 2013 and 2012.

Loss on change in fair value of warrant liability

Loss on change in fair value of warrant liability increased by $2,149,715 in the three months ended September 30, 2013 to a loss of $902,798 from a gain of $1,246,917 for the three months ended September 30, 2012. This activity results from accounting for the warrant liability described in Footnotes 4(c), 4(d), 4(e) and Footnote 7 to the financial statements.

Loss on change in fair value of warrant liability increased by $2,353,000 in the nine months ended September 30, 2013 to a loss of $917,102 from a gain of $1,435,898 for the nine months ended September 30, 2012. This activity results from accounting for the warrant liability described in Footnotes 4(c), 4(d), 4(e) and Footnote 7 to the financial statements.

Liquidity and Capital Resources

Our cash and cash equivalents were $8,253,591 at September 30, 2013, compared with $1,221,701 at December 31, 2012. The increase of approximately $7 million was due primarily to sales of common stock, preferred stock and warrants to purchase common stock in the nine months ended September 30, 2013.

By managing variable cash expenses due to minimal fixed costs, we believe our cash and cash equivalents on hand at September 30, 2013, together with approximately $6 million received in the three months ending December 31, 2013 due to sales of common stock and warrants, will be sufficient to meet our current and planned operating needs until 2015 without consideration being given to additional cash inflows that might occur from the exercise of existing warrants or future sales of equity securities, although we may, in our sole discretion, direct Alpha Capital Anstalt ("Investor") to purchase up to $30,000,000 of our common stock per an existing agreement with Investor.

We are seeking to improve our cash flow through both the licensure of PH-10 on the basis of our Phase 2 atopic dermatitis and psoriasis results, and primarily the geographic licensure of PV-10 on the basis of our Phase 2 metastatic melanoma and Phase 1 liver results in certain areas of the world, as well as pursuing a strategic investment strategy, including equity sales to potential pharmaceutical and/or biotech partners. In addition, the data now available and forthcoming from Moffitt Cancer Center in Tampa, Florida has been and is expected to be particularly helpful in supporting our development plans with both the FDA and prospective partners. The geographic areas of interest for PV-10 principally include China, India, Japan and Middle East and North Africa (MENA). We are encouraged by the interest in both PV-10 and PH-10 on a geographic basis and are continuing discussions with potential partners.

We are also considering the global licensure of PV-10 as well since it has come to our attention that this is of interest to potential partners. We have provided data on a confidential basis to both potential global and geographic partners for both PV-10 and PH-10 via a secure electronic data room that is monitored 24 hours a day, seven days a week and houses formal data submissions to the FDA as well as various corporate governance related documents.

We also expect to continue with the majority stake asset sale and licensure of our non-core assets. However, the primary objective of the Company is to strategically monetize the core value of PV-10 and PH-10 through various transactions, leveraging value creation up to and including an appropriate merger and acquisition transaction that includes upfront cash and acquirer stock in exchange for Company ownership as well as a contingency value right to facilitate potential upside post-acquisition. We believe regulatory clarity is determined by specifying the expected approval pathways of both PV-10 and PH-10. This may include the potential for breakthrough therapy designation for PV-10 to treat metastatic melanoma and an accelerated approval path for PV-10 to treat refractory recurrent melanoma. Such clarity will help facilitate transactions with potential partners. Additionally, the existing and forthcoming mechanism of action related clinical and nonclinical data for both PV-10 and PH-10 will further aid in both regulatory clarity and transactions with potential partners.


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However, we cannot assure you that we will be successful in either licensing of PH-10 or PV-10, any equity transaction, or selling a majority stake of the OTC and other non-core assets via a spin-out transaction and licensing our existing non-core products. Moreover, even if we are successful in improving our current cash flow position, we nonetheless plan to seek additional funds to meet our long-term requirements in 2014 and beyond. We anticipate that these funds will otherwise come from the proceeds of private placements, the exercise of existing warrants outstanding, or public offerings of debt or equity securities. While we believe that we have a reasonable basis for our expectation that we will be able to raise additional funds, we cannot assure you that we will be able to complete additional financing in a timely manner. In addition, any such financing may result in significant dilution to shareholders.

Critical Accounting Policies

Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our 2012 Form 10-K.

New Accounting Pronouncements

None.

Contractual Obligations - Leases

We lease office and laboratory space in Knoxville, Tennessee, on an annual basis, renewable for one year at our option. We have no lease commitments as of September 30, 2013. We are currently leasing on a month-to-month basis.

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