What are we worried about?? Those of us who are still here are prepared to go to zero with this stock and there's only about a point to go. So what is there really to worry about? The damage has been done.
Well, one thing I worry about is whether or not to keep averaging and increasing position slowly to offset dilution. (As an aside, one reason I accumulate so slowly is that I have not found one "alpha trading day" for months) Therefore:
Let's talk about "various" types of valuation-- just so we don't get too confused by market price.
1. There is the valuation set by the weak and strong hands "marginal" trader. This is where you set valuation, in a small stock with poor market making and sponsorship, by the last trade of the "weak handed" trader. We all suffer from this valuation aided and abetted by a recessive market and a "tone deaf" board and mgmt that have not grasped the fact that stock price is a "fundamental". While PPHM is still funding, "stock price" is one of the most important fundamentals.
(Note to mgmt. Since you will be presenting at JMP conference to "stock investors" not scientists, you might mention the dollar size of each of the markets in your product pipeline and what various percentages of each market could mean in future revenue to PPHM. In none of your presentations have you ever talked about the business implications of the scientific achievement. In none of your presentations have you ever discussed what comparable products have been partnered for in front money and royalties. This is an investment crowd so talk a little business. This goes double for possible business partners that may be in the audience or bankers of such partners.)
2. There is the "funding" valuation. This is the value PPHM can get through ATM sales and Pipe sales because PPHM is poorly financed and needs funding to continue their brilliant scientific program. Again, because of poor BOD, mgmt and poor planning we all suffer from this valuation.
The players that funded the last pipe are very sophisticated and because there is great uncertainty as to FDA, partnering, time to commercial events, illiquidity , and there is uncertainty to ultimate dilution-- these players extract a very deep discount to value #3
3. Value #3 is the "current" straight line discounted future value adjusted for risk. PPHM is currently trading somewhere between one fifth and one tenth of this value. We know this value is "theoretical" because it assumes many milestones at FDA and commercial partnering and success. Since this message board is sophisticated it knows we suffer from this valuation because the stock does not trade as an ascending straight line but trades as a "parabola" with long tails and jumps in step functions up or down vs milestone events.
4. Value number 4 is the commercial value of various products being developed by PPHM. Paradoxically, some of these products can have more value than multiples of the whole market capitalization. These values are unfortunately hidden until revealed by certain milestone events. We all suffer from this opacity.
5. Enterprise value. This is normally not a very important value. The "small version" of this value might be the assets minus the liabilities. PPHM has next to zero liabilities, about 28mm in cash and I guess about a 60mm value in Avid. (Avid's value , without getting too detailed, is some function of profitable outside sales and the 10-15mm / year it saves PPHM in burn--60mm sounds conservative). The only thing that is interesting about the "small version" of enterprise value is that the stock is trading close to this value.
5 b. Enterprise value writ larger-- if you include the entire IP platforms and patents. You can put your own valuation on this one. Recently, we have seen what the market can value IP for in some of the acquisitions.
The key issue from here is how much dilution will we have to take getting from point A to point B where point B = zero ongoing capital dilution? A subset of this question is: will management be able to find any other method of finance (such as leverage, or earlier stage product sale, or sale of non-core assets as examples) that will be non-dilutive to capitalization even though possibly dilutive to future cash flow??? So far mgmt and BOD have been unimaginative, and uncreative in this area so this is difficult to answer. The one positive in lower stock price is that even sub par mgmt can see the dilution trap and begin to think about Plan B financing ideas.
To give you a good example of how bizarre this particular PPHM situation really is I offer the following "thought experiment" leading to valuation #6
6. Theoretical "new issue" value (IPO) assuming a qualified BOD with Wall St and Biotech connectivity and a reasonably flat market place at time of IPO. I.E. what if PPHM were private and for the first time came public now??? Again, assuming such a BOD would be able to tell the remarkable pipeline story and find a major IB, it wouldn't surprise me if they could sell 30% of this company for $300mm and proceed to finish clinical trials and find commercial partners. This is just "theoretical" but, it gives you something to think about. (If you think this is crazy just think about the valuations many biotech companies have come public for with much less pipeline. AS an example look at the valuation and limited pipeline of VRUS)
Remember, this is just IMO re value #6 and I might be high but , most of you would probably agree with me if I used 300mm-500mm as such an IPO valuation. (These are valuations that even PPHM as we know it used to trade)
Even after fully acknowleging all the flaws at PPHM that have been very eloquently discussed on this board (and I am in agreement with most of this discussion):
IMO, future dilution may be tempered by improving sales at Avid and by product sales and partnering at various early stages and in various regions of the globe. Dilution also may be tempered by milestones that upvalue the stock and allow for funding at higher prices. IMO I do not anticipate so much dilution as to divert PPHM from reaching a value many, many multiples of current price. You can pick your own valuation targets. I am sure my own targets will be revised milestone by milestone. IMO I would stay the course but, you don't need my advice since you are already doing just that.
Best Regards,
RRdog
