Avid Bioservices Inc (CDMO)

[golfho]

There are a few points I would like to make:

Finance:

The value of AVID:

I’ve gone over this several different times and used several different assumptions. Here are my latest thoughts and assumptions:

The Enterprise Value (EV) will be determined as it relates to the total PPHM EV and not how it would be valued if it were to be sold.

There is some difficulty in determining the EV/EBTIDA for AVID. AVID is a CMO and PPHM is a Biotechnology company. The most inclusive list that I have found is this one:
http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/vebitda.html
The sector that I thing AVID fits into the best is “DRUGS” with 223 firms listed and an EV/EBITDA of 8.93.

If you chose too, there is a link in the above website that allows you to download the full list of firms.

NOTE: The Biotechnology list of 214 companies with an EV/EBITDA of 22.46 includes…PPHM.

Management has indicated that AVID’s revenue could exceed $20M this FY so I will use the range of $20M to $22M for my calculations.

On Thursday the EV of PPHM @ $1.33 per share was ~$182.4M
AVID’s EBITDA this year is projected to be between ~$20M & $22M X 8.93 = ~$178M to $196M…

So…as of Thursday AVID’s contribution to the EV of PPHM is…100% of PPHM’s value…The IP is valued at…Zilch, nada, zippo, niente, niets, nichts, rien…Got it…???

If PPHM were valued using the Biotechnology sector EV/EBITDA of 22.46 and AVID’s revenue, then PPHM should be valued at: ~$20M & $22M X 22.46 = ~$449M to $494M

That is fairly close to the value before Sept. 24th

This, in my view, speaks loudly to what RRdog and many others on this board have stated…There is a disconnect between the value of PPHM and its current price.

What are the negative factors weighting on PPHM:
1- The gold standard PII trial “Tampering” causing the results to appear less impressive. (To the untrained eye)
2- The delay of that trial.
3- The potential impact on FDA PIII approval
4- The potential impact on AA and BTD
5- The impact on partnering talks
6- The minimal results of the pancreatic cancer trial (To be clarified later)
7- The need for additional capital (Dilution)

ALL OF THE ABOVE DOES NOT BRING THE IP TO ZERO…!!!

Here are my thoughts on dilution, capital needs & burn rate.

From the latest CC & 10-Q we know that the company had ~$26.2M on 1-31-13 and added another ~$4.8M as of 3-12-13…That’s `$31M less expenditures from 1-31-13 to 3-12-13. I calculate expenditures to be ~$27M to $33M for this current FY. That averages out to ~$2.25M to $2.75M per month (1.4 X $2.25M to $2.75M) = ~$3.15M to #3.85M
Leading me to conclude that at the time of the CC PPHM had ~$27.15M to $27.85M…OK…OK…There is a possibility that revenue was also realized during that period…Geez…!!! This is how engineers drive themselves crazy…!!!

Going forward I will use quarterly numbers.
As of 1-31-13 cash on hand $26.2M
Plus equity sales $4.8M
Plus AVID revenue 4th quarter $3M to $5M
Minus expenditures $6.75M to $8.25M
Estimated cash on hand end of FY $25.75M to $29.25M

The above estimate of $25.75M to $29.25M compared to all of the previous cash on hand, for the last 3 years, of between $16.5M (7-31-11) to $26.2M (Most recent quarter)implies to me that the company may be very close to eliminating the “Going Concern” clause in the next 10-K…You heard it here first…!!!

The burn rate:

I can see no reason for the burn rate to increase dramatically for the next quarter or so. Expenditures should remain relatively flat and AVID revenue will continue to be lumpy but in my view, increase on an annual basis.


Partnerships:

This is what I think happened. A BP and PPHM were close to an agreement in September. What I mean by that is I think that they agreed in principal to a range of up front money and royalties. Then the second line NSCLC implosion occurred, followed by a, not overwhelming, pancreatic trail results that gave the BP an opportunity to “adjust” their numbers; to which PPHM replied…No thank you.

I believe that this is why PPHM is re-pursuing the regional concept. Interesting game of chicken…No…???


There was a fair amount of discussing concerning the question from George Zavoico during the CC about post treatment of the first line NSCLC after the trial and how that might affect the results of the trial. In my view; as stated in an earlier post; that it was my opinion that this issue is an issue for every trial that has survivors…So why the question…From someone that is very familiar with clinical trials…IMHO it was to preempt the critics if great results were reported.

Alas…
It’s Easter Sunday…
And the wine has been uncorked…

So I end this post here…

By wishing everyone a Happy Easter, Happy Passover…Happy to all things…


Good health to you Karkonos and everyone on this board.

Regards,
Golfho