So, I don't think anyone on the board thinks that it's cheap or good to be giving away equity. In fact, I think that most folks have been vocally against the terms on which the company has been selling shares.
Aside from that, I have some thoughts on our financing situation, and maybe you can help me point out flaws in my thinking...
At this point, I don't think that anyone is going to give us either a) significantly better terms on equity, or; b) debt in the absence of a pending deal. The equity piece I feel is pretty simple. The stock price is in the high $0.50's, and seems pretty much stuck there until a catalyst. Historical terms (recent) have been $0.50/share with some level of warrant coverage. I just can't see anyone paying significantly more than that for new shares until the share price itself moves. Why would anyone give us $2/share or something at this point? If they wanted the exposure, there are much cheaper ways to get in. So, I think we're stuck on the equity front until the valuation moves organically.
That leaves debt, but first, a bit more about equity. Let's use round numbers for the sake of simplicity, and say that we have about 150mm authorized shares not issued, or about 25% of total AS, assuming OS and warrants of 450mm. These numbers aren't exact, I know. Let's also say we're looking for $50mm. According to the investor presentations, that's probably enough to finish all planned trials, submit the BLAs, and have a little cushion. As it turns out, based on recent equity issuance terms, $50mm would get you about 150mm shares (100mm shares, 50mm warrants). That would max out our AS, and be worth 25% of the company. The problem with debt at this point is that the default profile on debt would look very, very similar to the return profile on equity. If the drug and/or test gets approval and can be monetized, equity is going to do very well (and debt could be paid back); if not, equity is going to do very poorly (and debt will likely default). So the risk on each looks very, very similar. But the payout structure? Much different. Using an optimistic but not crazy future market cap of $10b if all goes well with HIV and cancer, O/S of 600mm shares, and a cost basis of $0.385/share (roughly what you come out to with 50% warrant coverage on $0.50 shares...), you would end up with a share price of $16.67/share for a return of over 43x (4300%). So when you compare that with debt, which would have a similar "default profile", even something like an exorbitant 100% annual looks puny when comparing both absolute and risk-adjusted returns. Of course, this changes if there is some sort of deal imminent and it's a true bridge financing situation, but right now we don't know that.
So where is my thinking wrong? Why would anyone give us equity on better terms currently, and why would anyone give us non-dilutive debt (i.e. not convertible)?
This is why share price freedom is likely to come from licensing the prostate test. When there's no funding more funding need, it's possible to break this capital structure trap that we're in. Could also come from a partnership based on early returns on cancer data, but I think they license the test first because it'll be a simpler deal and clear the path for leronlimab development.
Until one of those things happens... I believe we'll continue to see small raises from Paulson. Which ironically may actually end up being the best deal, because I strongly doubt we'll have to max out our authorized shares.
Thoughts from you or anyone else?
