Avid Bioservices Inc (CDMO)

[Protector]

Dilution, the new kid in town!

There has been a lot to do about dilution of Peregrine shares because of the usage of the ATM. For starters let's make it clear that dilution is not proper to the ATM usage, any increase of capital for which a company creates shares fits the dilution theory. The ATM is just a program allowing to bring these shares to the market At the Money using the open market exchange or with all kinds of deals based on market average prices of a given period.

But why is it dilution? Well, all of us hold a little part of Peregrine, and therefore a little part of it's current and potential value. If a company is in depth and you create more shares then you redistribute that depth over the new total amount of shares. The other way around, if new shares are created and there are no depths then your shares stand for a smaller percentage of the book value and potential value when realized.

What does this have to do with the price per share. In essence, at this stage, not much. The pps can go up and down based on nothing or according market sentiment and that is not necessarily, even not often, in direct relation to any company value but it is rather the expression of expectation or manipulation. Remember the .COM bubble.

Why then all that fuss about dilution? Well if you buy the shares to acquire voting power, or to prepare an acquisition, or to earn dividends when the company starts to make profits, then, and only then, dilution is of importance to you. Each newly created share gives you less voting power, or less dividends value because profits are spread over more shares, or a smaller part of the company to acquire.

From a pps perspective only, you probably wouldn't care less whether your and another 100Milj of PPHM shares go up 10 cent or whether 130Milj shares go up 10 cent together with yours.

One could argue that with a difference of 30milj shares the liquidity will be different and therefor the 10 cent may only be 9 cent (10% dif), but these days and on this amount of shares that is a non issue. And by the way, more liquidity can as well results in better price rise opportunity because you need sellers in the Ask. Furthermore everything depends on how many of these PPHM shares are shelved and do not participate to the daily market.

What is important is whether the leverage of the capital that Peregrine receives outweighs that capital itself. If Peregrine attracts 10Milj dollar from the market and spends it in such a way that it increases the companies potential value that at least compensates for the percentage that you get less then you are a winner.

Often this is not the case and companies, although their intentions may be as such, do not succeed to realize that leverage. In biotechnology just running a couple of times in an FDA wall can be sufficient for 'game-over'. In other industries the capital may be used to cover losses or sponsor large reorganizations which bring no value to the company or share holders but at least save a substantial part from there investment keeping the from a total loss (eg: car industries).

With Peregrine we are with the happy few. Peregrine used the ATM to stay out of the hand of the bankers and investment capitalist and avoided having to enter early clinical trial sponsoring. In both cases Peregrine would have been submitted to many restrictions, pay interest or promise parts of future profits, which accordingly the principal of 'the earlier the higher' could have eaten a substantial part of the profits that we will now see in early payments, licensing money and production and as a consequence rise of the price per share.

Peregrine actually realized that leverage and under the current circumstances even 200 Milj outstanding shares would still results in much more leverage for our individual investments then whether the ATM or other forms of capital increase wouldn't have been used.

All this was only possible because the science worked and we passed the FDA clinical trials. In all other cases it would have been a different story. That is where 'believe in the science' comes in because it is that science, the resulting Cotara and Bavi platforms and the protection of the intellectual property and owning both 100% that actually achieved this!

And as the science, the platforms and the IP are not physical persons we can only give credit to all those that not only came up with the science, protected it, sponsored it with that ATM keeping us out of bankers hands and put us in a strong negotiation position, but also those that setup that overall strategy.

The poison pill, the reduced 4 people BoD, the ATM, the cheap options, the building of a TOP scientific team, the strategic planning of clinical trials, the covering and risk spreading over oncology, viral, and digital imaging, it's was all orchestrated by Peregrine's BoD/Management, and run as a tied ship since the King period, whether we like that or not.

If you don't see all the cards in the deck is easy to criticize, but then again those who did are forgiven because what where the odds that you would be dealing with the Microsoft of Biotechnology!