CP,
Can't help notice your long, long piece on the potential uses of Bavi platform. It is well done as far as it goes.
Unfortunately, most of it is in the distant future of label expansion. Currently Bavi is in PH III for one indication in 2nd line NSCLC. Equally unfortunately, we live and die in the short term. The future can be rosy but if you get hit by a truck today -- not so good.
The two ton truck in the room is "dilution". What do we do about dilution while PPHM proves out the value of the platform??? Just looking at the math, the following alternatives look better than giving mgmt carte blanche on 175mm new share cap authorization:
1. "Defer" the authorization until a very defined use of proceeds with a "no" vote. A "no" vote is a deferral while a "yes" vote is irrevocable.
We all should understand by this time that a "no" vote can be changed for de minimus cost should good reason arise. This gives voters huge flexibility.
1a. "Defer" Prop #3 with a "no" vote until mgmt shows the ability to get value for the equity. The "price" PPHM gets for the equity is more important than the amount of shares available for sale. Selling shares for 10 cents on the dollar vs "lesser comp values" is a bad deal.
Selling shares for fractional value vs "discounted future value adjusted for risk" in a PH III broad platform biotechnology (as described by CP) is a very bad deal.
2. Raise non dilutive capital through a milestone "regional" deal. (A very good option and talked about by PPHM mgmt for years)
3. Leverage Avid for 50-100mm. Debt is much cheaper than equity in the current environment. According to my sources, IP need not be encumbered. Avid is a growing and valuable asset on its own with a high gross profit margin. (IMO there is no prohibition in the preferred prospectus regarding debt)
4. Do a sale/leaseback of Avid (200mm) with a long term lease and the right to rebuy the asset at a TBD premium should a large cash deal be accomplished. Again, IP need not be encumbered. If the leaseback is for 20mm/ year or less it is better than Preferred interest and is a lease payment not debt. The 20mm per year becomes easier to bear as Avid expands. Such a sale/leaseback would buy PPHM years of non dilutive capital to pursue the commercialization of the platform.
5. Sell preferred when possible as PPHM gets more value for equity. (If necessary have K and L Gates paper up a series F preferred without the worst case 29:1 anti-dilutive clause that devours cap space)
6. "Defer" prop #3 until Mgmt submits a smaller cap authorization. A smaller cap authorization would cover all mgmt needs to back options for new hires and to retain existing personnel.
7. Bring in an overall partner for "milestone" deal.
Almost any solution is better than selling large percentages of PPHM for $1+ or giving mgmt 175mm shares worth of room to proceed unchecked. That is truly a horrendous deal.
The really "insidious" part of this whole vote is the change from "non routine" to "routine" vote. Forgetting the arcane legalities for a moment---this is anything but a routine vote. This legal change by mgmt was a clear indication IMO that they had no confidence in winning a vote for a continuation of current fiscal policy under normal circumstances and based on their poor record for creating fair comp value.
Lastly, I would be remiss if I did not thank the board for the pleasant comments on my last article. I don't post often on the board because it is easy to be misinterpreted, but whichever way you vote, I appreciate that so many of you gave my remarks a fair hearing.
PPHM $1.10
Best Regards,
RRdog
