ECG, as I look at the shelf prep step, I consider how CDMO would spend the money. Some "needs"?:
1. Buy back of preferred shares. What sum is needed to do this? Payout at 10% is a strain on CDMO achieving positive cash flow. Otherwise, why buy back the shares?
2. Paying the bills until sales bring self sufficiency. Avid sales are projected to be down until new customers are found. How long can CDMO sell shares to prop up payroll to keep Avid production staff employed while awaiting the sales needed to keep Avid self sufficient?
3. Support Avid production capability while seeking new orders. If current Avid capacity of $100 million+ sales turns EBITDA of $33 million (a one third margin), assigning that 15 to 20 multiplier for shareholder valuation of $525 to $700 million. Figuring about 50 million shares, that is support for a $10 to $14 pps, which is a good reason for shareholders to support some carrying cost for production staff until sales can be realized. However, if it takes more than a year to fill the order docket, carrying costs need to be carefully monitored and staff size managed accordingly. Yet, which Pharma would give an order if production was not "ready to go" vs. the order must wait while Avid staffs up?
4. Build new Avid capacity. Lias suggested another $100 million in sales can be supported when the two 2000 liter reactors are added at the Myford facility, more as more capacity is added. Building a bridge to nowhere makes no sense, so customer order commitments need to be lined up to support the growth. Does capitalization need to be done to provide funding or are operational loans backed by the customer agreements a better path, shifting risk away from shareholders? At some point, increased sales need to fund expansions. Maybe the first expansion gets carried by shareholders, but after that, a growth reinvestment engine should be put in motion.
5. PPHM tech sale value. If CDMO is going to sell ATM shares, shareholder value growth from what the money gets spent on needs to occur to avoid simple dilution. Earlier posts tried to assign value to the PPHM tech, but current Avid sales don't appear to be delivering a positive cash flow relative to carrying costs for overheads and Avid production staff during periods of underutilized production. Obviously, a good Pharma deal for the tech solves the Avid cash needs without dilution if the ATM is practiced like Paul Lytle has shown can be done.
6. Role of Ronin Group, Dart etc. What is Ronin going to do to support the value of their investment during this CDMO transition in business plan to Avid mabufacturing growth? It seems they should act at least to head off abusive trading practices by supporting trading, when timely. I am not sure what that means, though. Will shorting into news that gets covered by ATM shares be all the help CDMO gets from its large shareholders? What will the owners % holdings look like (retail, hedge funds ??) if CDMO raises their $120 million at a cost basis of $4 pps, translating to the share count becoming 75 to 80 million (issue 30 million new shares)?
Best wishes and IMO.
KT
