Avid Bioservices Inc (CDMO)

[Protector]

geocappy, that is not how it works.

You only pay 25$ on NEW offerings, in all other cases you pay the at the market price (which of course can some days be 25$ too but most often is not).

The conversion is always 8.33 based on 25$= 3$ per share.
Your REAL price is what you paid at the market divided by 8.33.

So, using Fridays close of $23.895 your price per share would be 2.86$ per share (versus 1.46$ if you buy the common shares directly). So if you are (or have to) convert when the pps is below 2.86$ you'll make a capital loss. At the current price you would lose (2.86$-1.46$)*8.33=11.66$ per PPHMP.

However your interest in the above example will be HIGHER then 10.5%. Not because PPHM pays more but because you bought below 25$, base on which the interest of 10.5% has been calculated. PPHM pays ALWAYS 2.625$ per year, no matter the PPS of PPHMP or PPHM shares.

So 2.652$ on 23.895$ yearly is 11.09%.

Supposing PPHM doesn't go BK, because that is the only risk and the PPHMP are preferred shares in that case - they get paid from left-overs first - then you will get that interest until the end of times if the pps of PPHMP/PPHM will never go up. PPHM if they buy back MUST pay you 25$ even if PPHMP quotes 20$ at that moment. That would give you a extra profit of 1.105$/8.33=0.13$ given you didn't pay 25$ but only 23.895$. Furthermore PPHM cannot buy back until 2017 or unless the pps of the common stock PPHM is 3.90$ or above.

So now there is a simple decision making algo which for institutionals and fund managers and even companies investing part of their reserves is completely different then for individual retail holders.

In the above example 2.86$ is our conversion value (not 3$ as for all those buying the NEW offerings). So the interest must sponsor 1.40$ if we compare with buying the common share at the market. You get 0.31$ per year per common share, so 1.40$/0.31$=4.5 years interest breaks you even if the pps doesn't move. At that point you could convert without losses but you would have had ZERO profit.

And this is where the pro's and retailers have different needs. The pro likes that, for him this may go on for 100 years because he cannot easily get such high interest on the placement of those 25$. If the pps goes up that is a bonus BUT if it goes does it doesn't matter AT ALL. As said PPHM must pay back the capital (25$) or keep paying interest or go BK. And any acquirer would have to carry that. So the capital risk, at this moment in PPHM's existence, is nearly ZERO because they have something and the clinical trials and fast tracks prove it. And it needs only to be worth 5milj x 25$ (125Milj$) on top of any BK. At that price all BP's will line up for the patents and pipelines even bidding up to get it. On top of that PPHM has no creditors and owns its pipelines and IP 100% unencumbered. So extreme low risk, hence offerings of PPHMP sold out almost the day they become available.

For the individual that may be a different story. No way to get out with a profit if the PPS of the common doesn't reach 2.86$ the first year and 31 cent less each year thereafter up to 4.5 years OR one must sell the PPHMP at the market (which will probably create more loss in that scenario).

So, no matter how you turn this the PPHMP is a great investment for pro's that must present a certain return on investment to their boards, or for someone that has a lot of money and sees this as a living revenue because this is a SAFE placement where one could get steady revenue from or minimal 0.90$ bonus on 2.86$ if bought out which represent 3 years interest. In all that one must not forget taxes of course where applicable.

However if you believe PPHM will do its thing within the coming 4.5 years
(be above 3$ steady that is) then you will ALWAYS give your first 4.5 years interest back, 100%. The straight common share holder will have about 100% profit at 2.86$ the first 4.5 years while you will at the best break even and at the worst loose 1.40$ (or 50% of your capital).

Above that price it is the same for both give the PPHMP share holder can convert at EVERY moment. The 1.40$ you pay above the common stock price today you can NEVER win back, never ever, compared to the straight PPHM holder unless PPHM buys you out when the PPS of the PPHM share is at 1.46$ (and partiality up to 2.86$). That is at the earliest possible in 2017 and at that price PPHM will not do that. For them the 4.5 year buy back would still mean they paid only 50% of the capital back in interest (1.40$ on 3$). So that would still be INCREMENTALLY more interesting then a loan.

However, AFTER 4.5 years you will EACH 3 months, have the interest as EXTRA in your pocket and their you start having an advantage on the common share holder, one that the common share holder will NEVER EVER be able to catch up. All this of course under the assumption that both keep their positions. If the common share holder sells and buys back, then he is trading but then he also increases his risk of falling between the table and the chair if he times it bad.

Conclusion
If you think PPHM will not do its thing the following 4.5 years PPHMP may be a good investment compare to the common PPHM. If you are a pro it is ALWAYS a good investment because you have time to either keep getting big interests or get your capital back. If you believe PPHM will do its thing the common years then every purchase under 3$ will depending on the timing of purchase bring you extra profit.

OH, and PPHMP DOES NOT HAVE VOTING RIGHTS UNTIL CONVERTED INTO COMMON PPHM :)

All IMO not advising anyone, just how I see it.