I read very few posters on IHUB and respond infrequently. One of the posters I like is CP because occassionally he has something very interesting to suggest. Conversely, when I think he says something I consider silly, I tend to come down hard on him because I am "expecting" more and "expecting" him to be smarter. Usually, the issue in debate has to do with "dilution".
Another poster I consider very clear eyed, specific and generally knowlegable in his responses is "Bungler". However, I think Bungler has caught the "inanity" IMO re "dilution" from CP. What's worse, several additional posters are actually praising his analysis. Obviously, they don't know any better but, it is important to understand this issue as it is key and it will be carefully questioned at the ASM---so listen for it.
Let's take one more crack at the "essence" of this issue rather than the dictionary definition. "Value", at the end of the day, is what PPHM is going to get for its IP in the form of buy out or partnering with milestones. "Dilution", in terms of ATM shares and mgmt options has to do with the cost and efficiency and time in getting to the final value.
Let's say, for example, that at the end of the day, PPHM gets in one form or another 2 billion dollars of value for its IP. That number may be high or it may be billions of dollars low but, it is convenient for example.
Based on todays capitalization of aprox 156mm shares, that means a shareholder would get (2 B / 156mm) or roughly $12.82/ share (actually a bit less when you figure all these options in but we will leave that out for example).
Under this scenario, most shareholders would do pretty well if this 2 B deal were cut today. However, if it takes a long time to get there and PPHM has to go the very expensive route of PH3 on their own, then shareholders may not do as well. If , for clarity of example, it takes another 3-4 years and PPHM continues with the self defeating ATM and gets to the 2B valuation but now has 312 mm shares, then each shareholder would only get $6.41 cents for each of their shares and that is not nearly so good.
Well, what if during that period PPHM creates a lot more value--that would be good. However, PPHM might not create more value and BP may have moved on to a completely different solution to the same problem and PPHM IP might be worth less. The universe is dynamic and expanding and conditions change.
So "time" is very important. That's why the expression "a good deal today may be worth a lot more than a great deal tomorrow".
Also, "how you finance" the creation of value is important. Some ways are much more "efficient" than others. If the only thing you know is ATM because you have been addicted to it for over a decade, things can get plenty expensive. This is especially true when the market "KNOWS THE DILUTION IS COMING" and is going to suppress the price and make PPHM pay through the nose regarding the number of shares it must sell to reach their goal if ever.
All PPHM shareholders are intimately acquainted with price suppression.
If PPHM chooses a more efficient method of financing (something other than artificially low price issuance of ATM) then there will be fewer shares and the price shareholders will get for the IP value will be higher. "Efficiency" in getting to a corporate goal is key.
Among the many methods that might lead to greater "efficiency of finance" are the following:
1. Professional PR that really gets the story across to the market place so that the market affords PPHM a fairer present discount value for its efforts. If the share price is $4.50/ share then, even if PL can't figure anything else out but ATM, your dilution rate is cut by two thirds. PPHM PR/IR has been a disaster for over a decade. They have the biggest biotech story to tell in the hottest biotech area (IT) and nobody understands them. I submit there are many IHUB board members that could tell this story better.
2. PPHM might hire a top IB to professionalize their "book" and broaden their partnering search, improve the market making, improve the research, and improve the structure of financing. I submit that such an IB might also add a few points of "credibility" to the price and cut dilution by two thirds.
3. PPHM could consider "well structured" debt vs their Avid asset which is growing both in revenue and free cash flow. A reasonable amount of debt is more efficient financing than selling ATM at one twentieth or less of future discounted value.
4. PPHM could consider a sale leaseback of Avid, maintaining control of the asset and the right to re-acquire.
5. PPHM could do a smaller deal, or regional deal for a non-core piece of IP. This would allow funding for the core platform with more efficiency and no ATM. Such a deal might be for Cotara or for liver cancer in Asia (as has been suggested).
Cotara is a particularly egregious example. PPHM has a paid in capital deficit or cumulative loss of nearly 400mm. Best estimates are that Cotara accounts for 25-37% of this overall deficit that has been funded by ATM primarily. In additiion, PPHM has spent over 10 years of man hours developing this technology. During Dr. Garnicks' tenure PPHM spent many millions more completing the technology and then Dr. Garnick spent most of a year getting "everything he wanted" from the FDA protocols.
Not to be able to capitalize on this asset in some way that is more efficient than ATM is a staggering Mgmt failure.
These are just some examples of ways to become more financially efficient and less dilutive but, the actual list is much more extensive.
Supposing PPHM succeeds over a long number of years in creating 10 billion of value but by then it has 2.5 billion shares. (Don't think that's impossible. Some of these drugs are hugely expensive to create in ultimate form and when the market "KNOWS THE MASSIVE DILUTION IS COMING" they make it even more expensive.) In this example of fabulous value creation the shareholder only gets $4/ share for their holdings. I don't expect this to happen but I use it as an extreme example to demonstrate how insidious dilution can be.
Let's use a more "real world" example since long term and long suffering shareholders in PPHM are in this for the big hit. Supposing the ultimate value for PPHM is 5 billion dollars. A year ago at 100mm shares in the cap you would have gotten $50 a share for your holdings. Today, at 156mm share cap, you would get approx $32/ share for that same IP. Quite a difference. At 200mm sh cap you get $25/ share for your smashing success and at 300 mm share cap you get $16.66/share. That is some whopping difference on the back end and the "back end" is what most knowlegable shareholders are here for.
So the next time some poster like Bungler tells you something really stupid like:
"I submit that unless you are concerned about loss of voting power, do not fret over dilution through ATM sales, because it has no effect on the price per share."
You will know that he has taken short term leave of his normally very sensible nature and you will disregard such statements and press mgmt to become "ever more financially efficient".
Best Regards,
RRdog
