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Saturday, December 19, 2020 1:43:15 PM
It’s heart warming to see some of the old timers pop up from time to time.
I don’t post frequently because there isn’t much I can add to the conversation. When we were PPHM it was about the potential of Bavituximab. But nefarious deeds set us back and we never recovered. I jokingly said that I was spending my days under my bed sucking my thumb.
The transition from PPHM to the mab-ufacturing company CDMO has taken longer than I liked...With several disappointing hiccups.
But I do fill that we have turned the corner...
Some things to unpack.
Let’s examine the expansion.
What we have learned from public records is the following:
The Myford facility is 84K sq. ft.
42K leased in ‘14
42K leased in ‘17
Current active projects:
0047: 13,060 sq feet - Description:T.I. consisting of 13,060 sq ft. "Avid Bioservices"; new partition walls, doors, roof equipment, foundation for future equipment.
This is about a third of the 42K sq ft. space leased in ‘17. It is overwhelmingly likely that this space will be used for manufacturing. I think that there is some decisions that still need to be made as to what size bioreactors are need to be purchased, 500L, 1000L or 2000L. That decision must be based on the type/quantity of production needs of our customers.
0062: 1400 sq feet - Description:Existing building with open warehouse, Convert approximately 1400 SQFT from floor storage into a mechanical room. This space will be enclosed with new lighting, new water distribution piping, & HVAC for the mechanical room. Water purification equipment will be added into the room and water storage tanks.
Simple...They need additional purified water capacity for the new bioreactors. The initial Franklin facility water purification system apparently cannot meet demand.
From the recent C. C.
"the first phase of expansion, which we estimate will take approximately 12 to 15 months to complete at an estimated cost of approximately $15 million. We expect that the first phase of expansion could increase our annual revenue generating capacity by up to $50 million, bringing the combined annual revenue generating capacity of our Franklin and Myford North facilities up to $170 million.”
It seems obvious that about one half of the money raised will go to the completion of the phase 1 expansion. That will potentially generate an additional $50M in revenue. They stated that the combined capacity could produce a “combined annual revenue generating capacity of our Franklin and Myford North facilities up to $170 million.” I estimated a few months back that between product development and manufacturing, the current facility was capable of generating revenue of ~$120M. The current revenue guidance is ~$84M - $88M that implies that we are operating at ~ 70% - 73% of max. capacity. We can generate an additional ~$34M before the need for additional capacity.
“The decision to commence the second phase of expansion will be dictated by revenue growth and projected customer demand. Based on preliminary conceptual plans, we estimate that the Myford South expansion will take 18 to 24 months to complete at a cost of approximately $45 million to $55 million. We estimate that the addition of the future Myford South facility will increase our annual revenue generating capacity by up to $100 million. "
Now the fun part…
According to this:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/psdata.html
The average Drug (Biotechnology) P/S is 6.88...
So…
Currently at the projected average revenue(sales) of ~$86M X 6.88 our market cap. should be $591.68M….It’s at $689.17M...That means that our P/S is ~8.63...
What that implies is that the MM’s are giving CDMO an above average P/S...Period.
Going forward…
The first phase of expansion will take ~ 12 -15 months. That puts us at around Dec. ‘21 to around May ‘22.
Grrrrr….
We will not be able to produce revenue above ~$120M MAX. until after 12/21 to around 5/22.
OK…
With increasing margins our P/S should; at the minimum remain at ~8.63…
I’ll assume that we will not get to max. potential revenue but, we might get to 90% so. $120M X 90% = $108M
$108M X 8.63 = $932.4M market Cap. Baring any further dilution...At 60.56M shares outstanding our share price could be $15.36...Between now and the next 12 to 15 months.
Not great but not crappy either.
After the completion of phase one expansion and using the same max. utilization of 90% we could be...$170M X 90% = $153M X 8.63 = $1320.39M (I’ll assume some additional dilution...Say 10% so our outstanding shares grows to 66M) $1320.39M / 66M = ~$20.00
A factor that is unknown is the potential of having advanced orders for the future added production capacity with firm commitments and deposits.
What about the Phase 2 expansion? More importantly when…???
Well this is were I go from a SWAG to pure science fiction...
I can still dream...Can’t I…???
Let’s just say that by mid year 2021 we start the phase 2 expansion. We have ~$15M available from the recent offering. That means that we will need to raise about $30M to $40M to complete the project. I have no idea how that will happen or what mechanism will be used.
But let’s just use some simple math...Another offering at $10 a share, and let’s use the higher number of $40M needed means that the dilution will be ~4M shares
But by mid 2024 we could have the added capacity that can generate an additional $100M...When will we get there…??? A year or two…??? That’s 2025 -2026
$270M X 8.63 / 70M shares = $33.29 per share by 2027
Good grief...I’ll be 80 when I break even...
Stay safe and Happy Holidays to all
Regards
golfho
"We must, indeed, all hang together, or most assuredly we shall all hang separately." - Benjamin Franklin
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