Avid Bioservices Inc (CDMO)

[Protector]

The rotten prune fatality!

I've put this somewhat strange title above a post on PPHM because this post is about being invested in PPHM and the 'believe' curve that comes along with it over time (from when one steps in and when one gets out).

I walk into a field with prune trees and I think "Yummy prunes" And when I try to pick one I can't reach it and say, "bah those prunes were rotten anyway". Yet, it were the same prunes at the same moment. In general it says something about how humans think. We make up reasons for ourself and in so doing we bring a related 'Gestalt' to conclusion rather then carry it along with us. Not having the prunes is suddenly no issue any more because we concluded they were rotten.

It is not different with investing in PPHM. I will in this post concentrate on the retail investor in PPHM although also the pro's in the big firms are under psychological restrains when they trade too. Those interested can read more in The Disciplined Trader by Mark Douglas.

Why am I invested in PPHM? I will short-cut the story and start with the Steve King as CEO era and Bavituximab/Avid bioservices, although I invested in TCLN first and so as all of us that are here since that period I became automatically a PPHM owner. Funny, I got in because of Kramer that at the time was a fan and said he believed in TCLN but that it would easily take 10 to 15 years before we'd see something rolling out. That is about NOW since he said it!

The first reason I staid in in the King era was because I understood the concept behind what PPHM was about to do with Thorpe's lab. A CEO that is co-inventor of key patents and that is a scientist attracted me because I had seen several examples where the scientist/engeneers drive the company in the beginning and those often bode much better then the others (eg: Microsoft, Apple, Goolgle,...).

I also understood the MOA at the time, no matter how much less wide in application then with today's new understanding, but certainly already huge. And before all I recognized the non-pharma Monte-Carlo approach in the lab but a clear and undeniable biotechnological approach in engineering a molecule, that we today know as Bavituximab, that targets another molecule, that we know as phophatidylserine (PS).

Being aware that PPHM was a small cap biotechnology company I knew the huge risk and I knew the huge potential. It could go either way, with in the beginning certainly a much higher risk due to small cap financing of the endlessly long clinical trials biotechs/pharmas must go through.

I also understood that one of the balance breakers was exactly that financing risk because if the science would show promise (which it did quite early) the risk existed that PPHM would have breadcrumbed away the pipelines little by little as many others had been force to do before them. The high risk would then no longer stand against a high potential leverage because most of the part of the potential that could have been leveraged by the share holders would then be leveraged by some BP.

Then why on Earth did I stay in? Well PPHM was still cheap to average down and the potential (given the biotech approach and this being a multiple cancer and possibly viral drug at that time) was quite huge already and I expected that to be leveraged into pre-payments, mile-stones of somewhat more considerable size, while still breadcrumbs for what BP gets in return. So if that for me undesirable scenario would have deployed I'd still have some profit but in general would have call this PPHM investment a failure because I am not here for 10$ a share.

But my main reason was that the CEO was co-inventor, and Steve King granted to Peregrine Pharmaceuticals (here is an example of the so called BetaBody patent - see first (Thrope/Luster) and second (King) assignment) and secondly that PPHM was going to keep operating its fully owned subsidiary Avid Bioservices as an income generator (which is a way of funding the core PPHM business and also a Steve King supported plan) and as internal production unit (which lowers the cost of Bavituximab by not paying the profit margins to a 3rd party). Furthermore PPHM would have production planning/capacity and timing in hand. I didn't anticipate that they would themselves come up with new inventive ways to, as we know today, produce Bavituximab massively, cheap and fast.

I will not say that I didn't worry when BoD member Eric Swartz had to save the company with his own money or when we had to take the 5 milj$ loan with the patents as collateral (see 3rd and others assignments in above link). How far does one go with 5Milj$ in that industry? But if he was sure of getting that investment back then he must have had a ground reason to think so and I am insufficiently stupid to believe that he must have been thinking on just breaking even the next 20 years by cashing in 250K$ a year to sit on the BoD.

So in any case I preferred that over PPHM selling out parts of the IP or pipelines for breadcrumbs because that would have been giving away that huge leverage I was hoping for and which I assessed for myself as possible, and today as sure.

With the poison pill put in place and now clearly a BoD that was prepared (and had incentives) to guard it and will also trigger it for sure if needed (because that are the risks of poison pills - their dismantling or BoD not triggering them when needed) I was quite less worried.

With the excellent results of the Bavituximab Breast Cancer results and the survival in those trials all risk wasn't gone but a lot of it was in my mind at least. After-all, one wants to exclude the "by chance" results and we needed some more to really state with certainty that Bavituximab was not a placebo :).

The 2nd ln NSCLC took away that doubt completely, after a quite strange PR in the beginning of the year about 1st ln NSCLC based on 3rd party lab results. Bad tongues will say that the PR was at purpose to press the PPS down so one could fill up shares for the up-coming excellent 2nd ln NSCLC results.

Today the scientific risk is gone. Bavituximab performed BETTER then the announced results 113% (133% cj) SOC improvement on Sept 7th 2012 and certainly excrementally better then the still excellent 60% SOC improvement we took to the FDA's EOPII meeting due to the dose switching. This was confirmed by Dr. Rolf Brekken at NYAS 2014 in the Q&A with an authorising nod from Shan in the presence of Steve King and an older man :) standing next to him saying to King "Now they are coming for you".
I do not have to make a point about one other main FDA requirement: safety. Bavi is amongst the safest immuno drugs out there and has an about 500 (and currently with the PIII enrolling probably much more) patients safety database to prove it.

With our new way of financing through the PPHMP preferred shares that stopped the use of the ATM and the considerable and stable revenue growth, on an about 50% gross margin, from Avid Bioservices, and with between 70 and 80 mil$ cash on the bank on last reporting, no creditors and so no BK risk, no going concern and 100% unencumbered ownership of all our pipelines and related IP (patents) all my worries are completely gone.

It is clear that the complete BoD/Management/employees are going after that IP and pipeline leverage and that if we are lucky PPHM will not make early acquisition deals, nor to large partnerships but will partner smaller chunks. The at least 24, if not more, collaborations will certainly work that in the hand because PPHM must now realize that all those parties don't suddenly want a collaboration for the fun of having one. Each of them enters it with a goal that at some point leads to revenue, and PPHM will in some way, be it via patent lics or Bavituximab production or sales revenue sharing, part in that. It is no longer just PPHM and the KOl's that believe in bavituximab but plenty of other companies or they wouldn't be there. And that was the goal for the past fiscal year about which is this upcoming annual meeting. Spread the word, get others interested in Bavituximab and I think it is a success and possibly explains why such a small company as PPHM managed to open 140 clinical trial sites world wide in less then 9 months.

So I am currently in "WHEN" mode and can now do TWO things:

- I can push on the BoD/Management to make them advance faster. But that is against my expectations/hopes that they would not partner BEFORE end of 2nd ln NSCLC or any other break through that would FULLY empower them. And furthermore it would be stupid because nobody is going to tweak the hand of the FDA anyway, a clinical trials takes the time a clinical trial takes and with more then 140 centres opened world wide in the last 9 months (which is an achievement for such small cap biotech) you can certainly not blame PPHM for not having done everything possible, and more, to drive that CT to its conclusion ASAP. And with Dr. Garnick that has negotiated two early look-ins and a data monitoring committee that can end the trial early on good results, DEC 2016 is really the worst case scenario.

- Or I can support the company and make sure the current policy isn't interrupted, even if even I would rather see a good PR this Friday then one in H1/2015. But as Warren Buffet said, patients is what channels wealth towards you with good investments. Furthermore why would I EXACTLY NOW when PPHM is in its BEST POSITION EVER (scientific, financially, production/revenue wise, ...) start acting like a spoiled child that needs attention and contribute in raising resistance against the company.
I won't, I will not, I never will EXCEPT in case of fraud or flagrant crime, etc, by its members. Not based on 'wishful' doom being spread around.

Just like before the Sept 7th 2012 events there is a high pressure on our stock. Normal, I posted it repeatably: Either the PPS goes upfront in the opposite direction of the news to come OR the PPS includes the news already at the moment of its announcement, meaning the PPS drops by those selling the news. I prefer the first scenario, which we are in, although I understand this is psychologically hard for the weak long hands and even harder for the strong long term long hands because they are always dragged in that movement first.

This year I told the people in my surroundings that I would NOT vote (which is an implicit 'yes' vote) so that we could see how many other explicit yes votes there would be, given the enormous increase in shares since last annual meeting. This would also allow the explicit 'no' votes (I call them protest votes because they don't have any impact anyway) to express themselves. So I stay vote neutral and still in support of the BoD.

There is nothing at stake anyway and all the rest, such as keeping our BoD in place is automatic with one vote and there are no alternative/additional members proposed anyway. In the end that is all that matters, keeping the poison pill guardians in place and keeping a BoD/Management that needs the leverage into the PPS at some point because they are so loaded with shares and/or options that they would need to sit in the BoD or be CEO for 20 years before even wheeling in what they can wheel in with a simple 10$ PPS increase.

This strategy behind this AGENDA of mine is simply explained: I need the leverage of the pipelines and IP to be converted into PPHM PPS too! And I am not going to be very happy with 10 or 50$ in the long run. But I don't have ANY doubt any more that it would only to 10 or 50$.

So now let's get NCSLC Lung Cancer patients enrolled in the SUNRISE trial rather then trying to put sticks in the wheel of a bike that crushes those sticks with ease.

Peregrine Pharmaceuticals the Microsoft of Biotechnology!