Avid Bioservices Inc (CDMO)

[golfho]

Wookie & Funworker1…Thank you for your kind words.

Dia…We seem to be of like mine. And thank you for your affirmation. I still regard your list of expectations…as a guide. I’ve borrowed it and modified it…But you first put it in perspective.

Keep Trying…

“In 6-8 years PS targeting (Bavi plus Betabodies?) may be applied to 25 cancer indications and 15 virus applications along with companion imaging. It may be a Standard of Care with radiation, chemotherapy and many immunotherapy combinations. It may be an important part of CURING many cancers and viral diseases.

These are the early days for PPHM. These are the early days for PS targeting technology. It is exciting to be part of this scientific revolution!”

I could not have said it better…

Now to the question of…”I find your risk weighted one chance out of six for success analysis worthy of a refinement.”

In fact I put forth a range of 30% to 15%. That is between one in three and one in seven.

One of the most profound statements you made was…

“Per risk management techniques, if the individual risk profiles are independent of each other, meaning that one external event doesn't effect them all, the company that has multiple business ventures underway exhibits a much lower risk for not achieving at least some of its targets than a company dependent on a single venture for success.”

Let me state this in no uncertain terms…I AGREE 100%...

I just felt that putting forth a more optimistic assessment would lead to a more cynical response.

I actually stated in several previous posts that I no longer considered PPHM to be a “High” risk investment…Your independent evaluation strengths that assumption.

“Analogies are never perfect, but I observe that the PPHM technology for anti-PS treatments has multiple applications and multiple products diversified sufficiently amongst different trials so that the risk of PPHM failure is much diminished from the sort of single trial outcome characterizations to which PPHM was vulnerable to a few years ago”

That statement almost made me replay the you tube presentation of Handel’s “Hallelujah Chorus”
You stated:
“The key value changer that is needed to resolve fundamental PPHM company valuation, per my observation, is whether PPHM will need to move its technology to commercial use without a partner or does PPHM get to grow their intellectual property aided by the financial and intellectual resources of a partner. A partner can choose to withhold their participation until an acceptable agreement is reached as can PPHM. However, applying more resources via partnering should accelerate the timeline to and extent of commercial success, just as rewards must be shared by more parties.”

Clearly this is the 64000 dollar question. My hope is that reason prevails and PPHM establishes at least one…preferable two partnerships…I hope soon…

“Have you worked in consideration of the portfolio of treatments for PPHM into your valuation base when discounting for risk and time?”

No…once I arrived at my current stated risk assessment of 15% to 30% I considered this investment to be relatively “Low Risk” and that was good enough for me.

“Which PPHM activities would you rate as independent for enhancing value and writing down risk?”

All of the ones you have annotated already…!!!




Enenon…

Before I respond to your points I would like to know more about the sorting tool that you are using. Is it available publicly? Can I get a copy of it?

Now in response to your points:
Please note in RED

1. USING THE CORRECT EV/EBITDA value when analyzing the Company

You are likely using the wrong Multiple Value for EV/EBITDA (of 11.54). This is why I do believe your value is incorrect:
1.1 You are using the industry average which also includes no-revenue generating Companies as well as sub $1b Mcap Companies.

The source I used was:
people.stern.nyu.edu/adamodar/New_Home_Page/datafile/vebitda.html
There are companies in that list that ”also includes no-revenue generating Companies” But you should be aware that any company that has no or less revenue than expenses will have a negative EV/EBITDA. Removing them from the list would only make the average go up not down.

1.2 Since at this stage we are assuming PPHM will succeed, we have also to assume PPHM in (as you said) 7 years or (as I said) 10 years from now will generate substantial revenues (i.e.> $1b). Of course, if you include the start-up / early stage Companies ... your multiple will be biased upwards. We are however assuming PPHM will be a "Mature" company in 10 years. This is why we should use the EV/EBITDA Multiple currently applying to Mature Companies.

There were two categories that apply; Biotechnology and Pharma/Drugs. I selected the more mature Pharma/Drugs (11.54) over Biotechnology (22.87). As I pointed out above; negative numbers make the average go down not up. I in fact agree that PPHM should be more in the Biotechnology sector than Pharma/Drugs in that Biotech’s profit margins are generally higher than Pharma/Drugs companies. Some of the companies in that list just stamp out pills at single digit margins.

1.3 You might want to use the Multiple of the Biotechnology Sector ... rather than the Pharma & Drugs Sector

See above.

1.4 You might want to use the EV/Sales Multiple rather than the EV/EBITDA Multiple. The former is way more stable / reliable ...

There are quite a few standard measurements available to the investor. If you use the same assumptions on the same entity you should arrive at a somewhat similar EV. Please justify the statement that EV/Sales is more “Stable/Reliable” than EV/EBITDA or for that matter EV/R. A quote from Investopedia “Generally the lower the EV/sales the more attractive or undervalued the company is believed to be.”
P/S
www.investopedia.com/terms/p/price-to-salesratio.asp
EV/EBITDA
http://www.investopedia.com/terms/e/ebitda-ev-multiple.asp
And here’s another way to evaluate an enterprise EV/R
http://www.investopedia.com/terms/e/ev-revenue-multiple.asp

In reference to your two screen shots; in order to compare apples to apples…As I stated in the beginning of this post, I would love to be able to use your sorting tool.
I note that you summary contains a company who’s EV/Sales is .92
With the above quote from Investopedia and this one “The EV/sales measure can be negative when the cash in the company is more than the market capitalization and debt structure, signaling that the company can essentially be bought with its own cash.” YOUR SELECTION OF EV/SALES WOULD BE THE WORST POSSIBLE CHOICE. THE QUESTION WAS NOT…WHAT IS A GOOD CANDIDATE TO BUY ON THE CHEAP.




2. Estimating the Correct Market Potential / Addressable Market.

I’m OK with using the CITIGroup estimate. I noted their number as well in my post.

5. To Estimate the BAVI Platform (all indications) today you need simply to guess the Market Share BAVI products will get in the Immune system cancer drugs market & the Probability of Succeed.

OK…a simple difference of opinion. Your 20% vs. my ~30%...And not that much…!!!

Unfortunately even with reading glasses I find the font too small but the question remains: What is the formula/macro in the cells that produce those results?

Assuming a Outstanding share basis of 200m (10% additional dilution) the fair PPS would be:

I used the total authorized share count of 325M…


So, if you consider that pphm (as you also said bofore) ... does have a 20-25% probability of succeeding. Then the fair value per share ... today ... should be between $10.62 and $13.28

Which is why I requested clarification & detail in the last post “Please justify the $20B valuation and the 10 year time frame” And “2 – “3. The probability weighted value of PPHM is therfore $3b in 10 years.

Please explain”

This is where our views differ the most. I think that it would be very useful to amplify and dissect these numbers and mine.



1. You mixed up sales and EBITDA ... you used the Sales Figure when according to your formula you should have used the EBITDA Figure.

We both may be wrong…!!! Based of Investopedia’s definition perhaps we should be using EV/R

2. The valuation model you presented does not exist anywhere. If are able to quote any Academic/practice source ... using this model ... I will be more than willing to have a look at it. I think it is just in your mind. Do you have any link where I can study this model?

Such a model .. .simply does not exist ... this is why it is wrong (and not only IMO).

You are correct that this model does not exist. It is a simplification of Discounted Cash Flow Approach. Defined below (Not for you but for those that are reading this and wanting a clearer understanding the process)
The Discounted Cash Flow (DCF) Approach
In this approach, the value of the company is measured by estimating the expected future cash flows, and then "discounting" those future flows by the desired rate of return in order to determine the "present value" of the future cash stream.

True economic value is better measured by more objective net cash flows. Valuation focuses on the risk-adjusted discounted stream of future cash flows.
The DCF approach measures the value of a company by estimating the expected future cash flows, and then “discounting” those future cash flows by the buyer’s required rate of return in order to determine their present value.
Two important aspects of DCF analysis include:
• How an appropriate discount rate is determined; and
• How the value beyond the short-term forecast period (“residual value”) is determined.
The discount rate must be such that it will reflect the relative levels of business and financial risk. An appropriate discount rate can be derived from two factors: the “risk-free” rate of return (as with government securities) and some premium for investing in the risk of a business venture. Individuals who purchase businesses that have a high potential for success will usually look for opportunities with a minimum of 6% to 8% premium over risk free investments. Why? Because they are usually borrowing money at risk-free rates plus 2% or 3%. The spread between their cost of money and required rate of return then becomes very small.
Half way through my assessment I realized that I am not trying to evaluate a company to determine if I would buy it and assuming that I would need to borrow money in order to buy it and that I needed to account for that borrowing in my calculation and there’s more. The two thing that I wanted to do were and still are:
1 – Try to estimate the value of PPHM in the future and
2 – Determine whether the current price in undervalued or over valued.


3. A B C D? ... please compute all the operations so that I can see how your valuation model works.

After looking at it again I can understand the confusion. I’ll try to be clearer. I originally wrote:

The equation looks something like this: $138B X .2 = A, $138B – A = B (7 years away EV), B X .2 = C, B – C = D (6 years away EV)…You get the picture…!!!

In English…Take the projected EV or Revenue (In my case $138B) and discount it by 20% (The product is the value A ($27.6B) Next step subtract that 20% discount (A = $27.6B) from the start point ($138B) the result is the discounted by 20% EV for the previous year (B ($110.4B) in this formula. Now start with B ($110.4B) and do it all over again until you get to you current year.

I thank you for your responses and look forward to receiving some of the details I requested.

Regards
golfho