Avid Bioservices Inc (CDMO)

[jbainseky]

Why I am, and you should vote yes for Proposal #3 and BCS Paladin is probably correct that some entity/group owns a huge block of PPHM stock. If you want a partner, then you should vote yes.

First some clarifications. I believe PPHM is not going to do anything that is illegal or improper, there is too much at stake due to the sensitivity of shareholders and if there were a lawsuit that revealed questionable things like no paper trail between shareholders and brokerage for instructions on how to vote shares, things would not be pretty. Secondly, I have confirmed that with a major brokerage house that they never vote for clients unless explicitly instructed to do so, and while they can’t speak for any other brokerage firm, they can think of no reason why a firm would put themselves in such a position because clients can always find out from the company after the vote, how their shares were voted, and that would be detrimental to the brokerage.

More background

The recent history of PPHM authorized shares is (as found in the proxy statements on the PPHM website):

2002 increased from 150M to 175M
2003 increased from 175M to 200M
2005 increased from 200M to 250M
2007 increased from 250M to 325M

There have been no increases in authorized shares since 2007, but in 2008, the 5:1 reverse split meant one would not be needed for some time.

ALL of these proposals were treated as if they were non-routine where broker non-votes were not counted and had no effect (consistent with SEC’s rule 452 “generally” guidance). And each of these proposals successfully passed. In each case, PPHM “insiders” owned approximately 5% of the voting stock, however, in 2002 and 2003, Mr. Legere, himself owned nearly 8%. We don’t know his current holding, but should be below 5% since it is not reported.

Starting in 2010, PPHM started reporting the ASM voting results via the 8K immediately following the meeting. The approximate (within 1%) percentage of broker non-votes compared to the total votes that could be voted were:

2010 -- 52%
2011 -- 41%
2012 -- 38%
2013 -- 53%
2014 -- 54%

SO NOW WHAT IS DIFFERENT WITH THE 2015 PROXY?

Most important, Proposal 3 does not follow the SEC guidance that says “generally” proposals that increase the number of authorized shares are considered non-routine, because you don’t want the POSSIBILITY of brokers voting WITHOUT explicit direction from clients. It is acceptable this time because they add that all broker non-votes will be counted as AGAINST the proposal. PPHM further gives as rationale that Proposal 3 is routine: “hence we do not expect that there will be a significant number of “broker non-votes” on such proposals”. SO SOMETHING HAS TO CHANGE BECAUSE SINCE THEY STARTED REPORTING VOTING RESULTS, THERE HAS ALWAYS BEEN A SUBSTANTIAL NUMBER OF BROKER NON-VOTES!!!

A smaller change is in the reason for the proposal, the line is “Based on the current market price of our common stock, we believe that the current number of unreserved shares of our common stock is insufficient to fund our operations for the foreseeable future.” In all previous proposals, they said “for the next fiscal year”. A small, but important change, because we all know they have more than enough funds for the next year, probably 2 between the $50M just registered and the money already in the bank.

Now combine these things. If the postings on IHUB are any indication, proposal 3 is widely unpopular, and that is obviously understood by PPHM because they fundamentally changed how the votes will be counted. PPHM sets up the vote so that a historically significant portion of the stock that is in broker’s hands, that HAS NOT been voting in the past, now has to vote and has to vote yes. And PPHM expects there will not be a significant number of broker non-votes this time.

If PPHM had positive news to release that would make the proposal likely to pass, they wouldn’t have needed to make the proposal routine with broker non-votes counted against them. If PPHM thought this proposal was so important that nearly everyone was going to vote, why would it have to be routine, and why would the sentiment of those be different? The sentiment is not different, but BROKERS ARE ONLY ALLOWED TO VOTE WITHOUT EXPLICIT INSTRUCTIONS FROM SHAREHOLDERS ON ROUTINE MATTERS. Those instructions are the proxy cards, filled out and can't be a simple phone call. If you are an entity or a “family”, you are not going to want to take the effort, nor have that paper trail. If this proposal is to pass, there HAS TO BE A HUGE SWING FROM BROKER NON-VOTE TO A “YES” vote, and it is not going to be brokers acting on their own!

OH YEA…. I almost forgot!

ANOTHER BIG change….. Each of the 2002, 2003, 2005 and 2007 proposals included a section very similar to this one issued in 2007 – NO SUCH SECTION IN THE CURRENT PROXY.

Does The Company Plan On Issuing Additional Shares?

At the present moment, we do not have any plan, arrangement, commitment or understanding, whether written or oral, to issue any additional shares of Common Stock that would be authorized by the proposed amendment.

Moving forward, it is extremely difficult for us to reasonably estimate our future revenue, expenses, required funding, stock price, and thus, the number of shares that we may need to issue in order to obtain any necessary funding, based on a number of uncertainties, which include, but are not limited to:

•? The uncertainty of the amount of revenue our contract manufacturing business, Avid Bioservices, Inc., can generate beyond our current customers;
•? The uncertainty of all future research and development costs associated with each of our technologies due to the number of unknowns and uncertainties associated with pre-clinical and clinical trial development; including the uncertainty of future clinical trial results, the uncertainty of the number of patients to be treated in any future clinical trial, the uncertainty of protocol changes and modifications in the design of our clinical trial studies, among others, which may increase or decrease our future expenses;
•? The uncertainty of future partnering or licensing revenue, including potential equity investments into the Company whereby the Company would possibly issue stock directly to a strategic partner; and
•? The uncertainty of the Company's access to the capital markets and its cost of capital.

The above uncertainties, including the uncertainty of the market price of our Common Stock, will make it difficult for the Company to estimate the number of shares of Common Stock that may be issued at any time.

NOW WHAT DO YOU THINK THE SHARES ARE GOING TO BE USED FOR???

If this proposition passes, we should see a substantial reduction in the percentage of broker non-votes, the vast majority voting yes.

Also remember that the shareholder's rights plan was not voted on by the shareholders, it was approved by the BOD. That is why we have the BOD we do.

Now I expect a Belgian response to all the flaws in this theory.

Let the games begin

FFTT

JBAIN