Good Evening to all,
I have viewed with great interest the debate on the board regarding the authorization of additional share cap. For me the decision is obvious. I will vote all three of my accounts a resounding "NO". I put no credence in all the wild theories about this vote and prefer to address it on the merits. I will try to keep my reasoning as straight forward as possible in the hope that I can convert all shareholders to this point of view.
1. This is your moment as shareholders. Through arcane Delaware law PPHM has blocked shareholders from voting opinions on almost all other issues including composition of the board. Once, every couple of years, shareholders are dealt a "strong hand" and it has to do with the share cap authorization. Shareholders should realize this is a multi-handed poker game. BP has a hand, mgmt and BOD have a hand and in this one instance shareholders have a hand. MGMT IS NOW TRYING TO TAKE AWAY THE ONE CHANCE SHAREHOLDERS HAVE TO ASSERT AN OPINION BY CHANGING THE VOTE TO 'ROUTINE'. Remember, shareholders are more than deserving of a strong voice in corporate affairs since by and large they are financing the whole operation..
2. Shareholders really need to think specifically and independently on this vote. It can't be "vote with the board right or wrong because I am a loyal shareholder". This is not a loyalty test. This is a vote about reasonable business decisions. Mgmt has done some very good things that I doubt any shareholder could have done much better. Among these are the hiring of Dr. Garnick, a terrific patenting job, a good clinical program over all, MSK and AZN collaborations, and a miraculous revamping of PH II debacle into a PH III FDA approved test with "fast track". I am not a shareholder because I am anti mgmt. But, we can not be simplistic or "broad brush" about this. MGMT HAS DONE A MISERABLE JOB AT GETTING ANY 'TRANSLATIONAL' VALUE FOR THEIR WHOLE PROGRAM IN TERMS OF MARKET CAP.
3. In reference to above point #2--PPHM is selling for approx one sixth to one eighth of dozens of early stage biotech comps that have lesser IP, smaller target markets, earlier phase trials, and zero manufacturing. Imagine--mgmt is actually selling stock for a small fraction of comp value while at the same time maintaining that PPHM has a paradigm shifting technology, that we are late stage PH III and we have a burgeoning manufacturing component with a huge gross profit.
4. The vote to increase share cap is really misdirected. IT IS NOT THE AUTHORIZED SHARES THAT ARE SO IMPORTANT AS THE PRICE PPHM GETS FOR THOSE SHARES. This is not just an opinion. This is simple arithmetic. If you get comp value for the shares (6-8X) you need far fewer shares for financing the corporate program. If you inflate the cap authorization (similar to a Weimar Republic paper inflation) and you get less than a dollar per share then, of course, PPHM will need a lot more shares to finance the program. If, as an extreme example, PPHM gets 10 cents per share for 175mm new shares that is only 17.5mm--hardly enough for a biotech experiment. Once again, IT IS NOT THE AMOUNT OF SHARES AUTHORIZED THAT IS AS IMPORTANT AS THE PRICE PPHM GETS FOR THE SHARES THEY SELL.
5. If shareholders authorize this increase it is "final". If shareholders vote "no" it is only a DEFERRAL and can be voted on again at any time for de minimus cost if there is a specific good reason to increase. A " yes" vote now takes away all shareholder voice, leverage, flexibility. Why would a shareholder do that to themselves. This is negotiation 101--it is really obvious.
6. Mgmt has been advised for years now by many shareholders (inlc myself) as to a number of simple measures that might help the cap value (price) they get for financing. They continue to be tone deaf in this area. In all fairness, Mgmt has improved financing with the pref (also a shareholder suggestion) and shareholders should encourage mgmt to do more in this direction.
7. Mathematically it does not make sense to keep trying for a better and better deal while selling large percentages of PPHM for dollar range prices. Other biotech companies are demonstrating they can make PH I multi-billion dollar milestone deals. Milestone deals are how companies bridge the gap between bid and ask. PPHM has shown some knowledge of milestone negotiation in the 2012 discussion with ABBV as detailed in the legal documents. PPHM NEEDS TO REVISIT THIS TECHNIQUE as an alternative to giving away large percentages of the company for fractional comp values.
8. A "no" vote now (which can be altered later if for good cause) sends a powerful anti dilutive message to Wall Street which (along with some good PR in the pipeline) may actually cause the price to rise. Imagine, shareholders have a real chance to positively affect the price and get higher prices for already registered shares and pref shares. Isn't that a better alternative than constantly complaining on this board about every penny down??!!!!!
8a. A "no" vote now also "gently" informs management and BOD that shareholders are interested in controlling expenses and being a "tad" more aggressive about raising capital through some form of regional deal, milestone deal, paid for collaboration, or partnership.
9. If a shareholder has possession of their shares they can vote no by simple abstention. If an institution holds your shares you must inform that institution of your no vote by proxy. This is not difficult.
Best Regards,
IMO but, also supported by the simple arithmetic.
GLTA
RRDOG
