ITF, you CANNOT know dilution without knowing the value of PPHM.
If PPHM is worth a theoretically 100$ BOOK value and there are 1000 outstanding shares then the pro-rata BOOK value of each share is 0.10$ (10 cent) NO MATTER WHAT THEY QUOTE (PPS) on the stock market.
Dilution ONLY occurs in TWO cases:
1) The BOOK value of the company decreases
2) The number of shares increases
Now you wake up and PPHM has 2000 outstanding shares and you did NOT increase your position. What is the BOOK value of the shares?
--> 100$+ 1000*PPS = new BOOK value if all the rest remains the same.
Is this DILUTION?
A) When the PPS (price) paid was higher then 10 cent then NO. The new share holders paid MORE then the BOOK value of the already outstanding shares. In that case we say PPHM is over-valued because new share holders paid more.
B) When the PPS (price) paid was lower then the 10 cent then YES. The new share holders paid LESS then the BOOK value of the already outstanding shares. In that case we say PPHM is under-valued because new shareholders paid less.
As an example, if new shareholders paid 15 cent x 1000 then PPHM is worth 250$ now because they have 150$ cash on the bank they didn't have BEFORE they issued shares with the ATM or PPHMP, etc. 250/2000=12.5 cent, so existing share holders have a 2.5 cent per share profit. One can immediately see why ever sales of PPHMP (at 3$ share) is not only a vote of confidence but also good for current share holders. PPHM's assets (excluding potential value) are for sure not worth 600 Mil$ IMO (again, I counted the Bavi pipeline as 0$ in that).
But it doesn't stop there. The BOOK value is one thing, the potential is another thing. All that has to do with leverage. If PPHM invests the 150$ new dollars into high leverage things such as IP and the Bavituximab pipeline, and make at least 100$ revenue with the 150$ they raised, then EXISTING shareholders would STILL have 10 cents per share! But if as with small cap biotech companies that make it the revenue is 1000$ then 1000-150=850$ or an increase of 42.5 cent or a times 4 of the initial 10 cent value.
No some will say, HEY wait a moment. Without the 1000 new shares we would have had 85 cent extra per share! Yes, absolutely true, but without the 1000 new shares you wouldn't have had the 150$ fresh dollars to invest and hence not the related leverage of 1000$, so actually you would have 0 cent out of that.
And for the supporters of the dilution theory here is a simple reasoning:
IF ONE CLAIMS THAT THE ATM IS DILUTION then that SAME ONE CLAIMS that new share holders are getting shares BELOW the price of what these shares are REALLY WORTH in BOOK value. Today that is saying that PPHM has about 1.28 x Outstanding shares (let's round) 600Mil$ in BOOK value assets except potential. ??? I don't think so.
So ACTUALLY that is the SAME as saying PPHM is UNDERVALUED and even better, the higher that one claims the dilution caused by share issuance is, the HIGHER the claim of undervalue.
Real dilution is high spending with NO out-look on related revenue and wrong or forced spending of the raised cash into activities without leverage (such as class action damages for tobacco industry , or massive lay-off and factory reorganisations in the car industries (eg GM) or as for Eastman Kodak under chapter 11, etc). That is immediate dilution.
For everything invested in POTENTIAL, dilution is only a fact when it becomes CERTAIN the potential will NOT be realized.
For PPHM specifically dilution can only be in our BELIEVES! I believe the Bavituximab potential is so high that it is a shame people can buy this stock at 1.28$. But then again, if I buy myself I am happy with that. An hypocrite position? No, just opportunity and because I can. In my head all raised cash well invested in PPHM IP/Pipelines is a high leverage potential cancelling out any possible dilution. It is so high that it can even largely compensate for investments in Cotara if Cotara would NEVER EVER bring in 1 cent.
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