Replies to post #62411 on Avid Bioservices Inc (CDMO)

[Protector]

Clarification of that first point.

I assumed that you where trying to calculate, using a number of estimation and possible new info from the board members, the research price of Cotara (and in the same document also Bavi which I ignore for a moment). Then that amount could be used in a number of other calculations or assumptions (such as the ask price if Cotara would be sold to a partner or partnership fees or what amount that must be written down per treatment in a forecast model).

The idea, to bypass the real research cost that only Peregrine know and that for strategic reasons they will want to keep to themselves) was to just take the total current financial situation, ignoring the real detail of the different programs (Bavi, Cotara, past and stopped projects, long term depths, income from military that should be book only on Bavi, eAvid production (for internal/3rd party use), etc) and divide it over the potential money makers (Cotara, Bavi, Avid), using a ratio, because in all cases they will have to bring up the money to cover depths (loans, etc) and the capital that has been spend (which is theoretically a depth against share holders which share holders can't claim from Peregrine on the way).

My suggestion of using 30% of that amount for Cotara was based on the overview of Clinical trials, Patents, etc.

That would then be:
Market Cap: 145.280.000 USD
EPS -.30 cent x 67.890.000 shares =-20.267.000 USD
Total: -145.280.000 + -20.267.000= -165.547.000 USD
Source Fundamental Data : Reuters Update 18 Mar 2011

It is this amount that in all cases must come back so that there is no more depth and the capital that has been spend over the last 10 to 20 years in research and the setup of Avid (fully owned) before there is a profit. Cotara will have to carry some of the extra weight that has been spend to it. Hence the ration of 30% which would be 50 Mil (rounded up).

I know this is not the research cost of Cotara but probably the amount management will want returned if they make deals with others and in all cases the amount needed to make the shares break even. So including some of the cost of the past into Cotara (and the others) is a must although not fair to qualify the cost/return ration for the product itself, but I guess the internal statistics are a lesser concern in this case.


The argumentation why I would, even without further medical input, use 2 treatments per patient is based on the fact that that input cannot be given by lack of trial data on double doses.
The median survival time is 81 weeks (that's between 1.5 and 2 years) for single dose and PURELY on that I made a logical assumption that has a good change to hold for a 2nd treatment.

The median is an average so most of the patients will see their lives prolonged between 12 and 24 months (the 10 year exceptional survival in Deepak's trial is not taken in consideration).
Everybody will be in favor of a second treatment and if not getting it leads to a certain death then these patients will not worry about radio active overdose (which from where I stand is next to affordability the only obstacle I can see why a second dose would in the majority of cases not be allowed to be applied). As a result this reasoning is not 100% water-tied but given the much larger amounts, and less targeted and localized, radio active exposure of other applications (e.g.: Radio therapy) and the related damage to healthy cells that has been accepted in these cases I made the assumption that a second dose would be more likely allowed then not.

Then why not a 3rd and 4th dose. Well their we don't know if a second dose maybe have an increased effect which would drastically change the median survival time or possible bring the tumor to a full stop. Given the way Cotara works the injection of it in whatever remains from the tumor after the first dose will continue to be destroyed from the inside out.

Based on that I would vote for 2 treatments per patient in forecast calculation with a latency of 18 months for the second treatment.

[RRdog]

Strangely, this is no time to rant at management.

I share the general frustration with this mgmt and BOD, and, if I had not mitigated the "waiting time' by trading, I would be even more frustrated. Part of this frustration is with my own "misunderestimation" (with a nod to George Bush) of the time lines in this investment. I'm sure others can see themselves in that error. However, IMHO it seems that this would be a very good time to be looking forward rather than backward. To this point, there is a general investment disclaimer to the effect that "prior track record is no guarantee of future success". The RRdog corollary to this disclaimer is:

"PRIOR FAILURE IS NO GUARANTEE OF FUTURE FAILURE".

If this corollary were not true, there would be little or no success. Everybody fails and frequently multiple times. An "intelligent persistence" is the quality most to be prized in management. If this management has one trait, it is persistent. The management of PPHM reminds me of Winston Churchill's comment about his war time ally-- "The United States always gets the right answer after it has exhausted all the others." This management has gone through so many changes, down so many blind alleys and through delays and changes of delivery methods and changes of FDA approach it is positively dizzying. Again, IMHO they are finally getting smarter, more intelligent in approach.

RRdog corollary #2--Don't confuse "price" with "value"

Price is determined by buyers and sellers on the margin who act for a million reasons not necessarily relevant to our discussion. True value is a whole different matter. We want the price when it is way below where we perceive the value to be headed. Real value is frequently revealed by a large transaction. Imagine for example, the sale of the entire Cotara platform as the type of transaction that would begin to reveal value. If Cotara moved rapidly ahead at the FDA and PPHM were to get half a billion to a billion dollars (just to pick a number for purposes of discussion), what would that do to price???

The big winners in PPHM,-- if this whole adventure works at all (and we all know it is highly speculative)-- are going to be the investors who are as "fanatic as Japanese soldiers defending small islands in the Pacific after WWII is over". IMHO dig in "on your own little island" with an amount of stock you can hold. Prepare, if possible, to increase your position to offset any dilution. Play for a large move in cap size. Don't worry about the market as a whole as a success in PPHM would far transcend market action.

The more "shots on goal" a small biotech has the better we like it. It would be wise not to discount the latest shot on goal--- "imaging". While imaging is "diagnostic" and cheaper than treatment it has the advantage of not applying to just the small percent of the population that has cancer but, of applying to the whole population. If the PPHM diagnostic is also "predictive" as Dr. Thorpe posits, then its value is huge. If you can "predict", then it is only a short leap of imagination to "prevent". One thing that might be "preventive" would be Bavi to increase immune response to early stage cancer cell development as a form of vaccine. Diagnostics have a much less onerous path at the FDA than new drugs and a much shorter one. The opportunity for partnering in "imaging" seems quite real to us and the amount of money to be made in this area could really move the needle on a small company. The beauty of "imaging" is that PPHM doesn't even have to get past the FDA for a single new drug app in order to have massive cap upside.

Now that management is getting smarter in generating new shots on goal and with their regulatory approach and their clinical work it would behoove them to get over any fears of loss of control and grow up along with their own company. It is time for management to get much smarter about investment banking and financing, about board and management interconnectivity with the rest of the biotech world, about the quality of their communication, about early stage partnering or regional partnering where possible. There is no unwritten law that says PPHM has to be in this all the way alone. I don't even think PPHM makes more money ultimately if they retain 100% of the pie. Bigger partners and larger pie are always interesting. IMHO this management is positively phobic about early stage partnering. There are great early stage deals with massive milestones being made in the biotech world all around them. People that post on this board are better than I at digging up the many examples of this over the last two years. Partnering is "validation" and validation leads to up valuation.

In response to "golfho" question as to whether we have "modeled" a potential valuation for PPHM the answer in the specific is that we find that impossible to know. To paraphrase Buffett when he was acquiring a "paper" company and trying to evaluate their forest lands that had not cleared environmental hurdles-- "they were worth somewhere between zero and a whole lot." If everything went perfectly IMHO, PPHM could have a capitalization in the tens of billions divided by whatever amount of shares it takes to get there and tempered by the time it takes to get there which could be years.

We prefer to focus more finitely. S King is on record saying NSCLC could easily be a billion dollar drug?? I can live with that. A capitalization of one times revenues divided by 100mm shares would be about $10/ share. Maybe its worth two times revenue?? Maybe its a two billion dollar drug and Steve is just being conservative?? Maybe if Bavi works in one indication the marketplace starts to add value for multiple indications??

Cotara is probably ahead of NSCLC in timing. Do we sell European rights and retain the US?? Who knows??? Since these examples are only a small part of the story, you can see why it is fruitless to model on. One note is that markets frequently misvalue equity. IMHO the "efficient market " theory is mostly hogwash particularly in small companies. As much as a small biotech company can be undervalued for years, if it suddenly comes into vogue it can become way overvalued.

Stay focused on the big picture.