First, as always, I must apologize for the speed that I operate in. Slooooowwww….
Here is my response to two of your very well written posts:
I will respond to your third post after I return to NY on Thursday.
“. In addition, we find IHUB has some first rate contributors that are faster to the news than almost any other source and really dig deeply into various sources.”
I agree…This is the most informed and informative board I have found. I must say that your posts have raised the bar it the areas of assessment, logic and “corollaries” We appear to have similar views of management and the BOD. I made a similar "misunderestimation" when I invested in PPHM nearly 10 years ago, my first analysis was written to address that issue. I’ve also managed to do a little trading that allowed me to either take a little profit, average down or accumulate free shares; more on that later.
I hope everyone on this board read and then re-read your "thought experiment" I do not disagree with some posters on this board that feel that Eric Swartz has maintained tight control of this company and has surrounded himself with a BOD that are close friends. To me that is not the issue, the issue is, have they selected a management team that can bring home the bacon. I think at this stage the answer is yes. Opinion subject to change at any moment…With out advanced notice.
I would like to ask you a few questions and make a few comments:
From your first post:
“If mgmt cannot communicate the true underlying values in PPHM they should shift their strategic thinking about "earlier stage" partnering. There have been a number of early stage partnering deals that have been positive block busters Sure, PPHM may give up some front money but most of that can be made up in milestone payments. There are many ways to accomplish relatively non-dilutive financing without giving away the crown jewels. Two quick examples:
1. PPHM could make a "regional" sale for Japan or Europe in some part of the pipeline such as Cotara or one of the viral products.
Have they not done that with the APEC region Stason Cotara deal? Does the Affitech deal also apply?
Wouldn't a limited loss leader of this sort be better strategically than selling large percentages of the "whole" company at deep discounts. Again, the math is compelling so even the management thinking at PPHM may turn more flexible."
The answer would seem to be yes, in principle. It appears to me that that is the approach that management has taken. In my view the Affitech deal was a “Limited loss leader” and FWIW, IMHO…They had to sell it very cheep. The question is always…Is a dollar today better than 100 dollars next year. And, of course, it’s not that simple. If no one wants to pay more than pennies on the dollar for technology that is in early development. What would you suggest?
2. PPHM has huge untapped IP with literally hundreds of patents that were painstakingly applied for and the majority of which are not germain to PPHM core programs. If this IP were marketed intelligently to companies that do have special interest in the areas covered IMHO millions of dollars of value could be harvested. You think not?? Well consider the patents covering diagnostics. Dr. Thorpe believes that Bavi which adheres to the cell surface of tumors may lead to the finest three dimensional diagnostic imaging process ever developed. Diagnostic companies make a lot of money. This is an area that could be partnered and in our opinion worth tens of millions of dollars to PPHM, and, an excellent example of hidden value in this stock.
Have you discussed this with management? This is an area that I have not looked into. What would this diagnostic technology be worth today? To me your statement “Tens of millions” implies that some amount of analysis was performed. Can you elaborate on how you arrived at that? In addition would it be reasonable to assume that when Dr. Thorpe spoke about imaging during the last quarterly CC that in fact implies that the company is trying to move that forward?
"We can think of at least half a dozen other ways to obtain financing without large percentage dilution if mgmt cannot raise the price through better communication. Given the dirth of pipeline at big pharma this is almost a "no brainer" and we believe mgmt will wake up to reality.”
That would make us long time shareholders very happy. I am very interested in hearing about other ways of obtaining financing. Can you share that with the board?
“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.”
This brings me back to a statement I made awhile back. The first attempt by management to engage an investment banker (Rodman & Renshaw ) was in 2007. In the 12-20-07 Initial Coverage Report by Rodman & Renshaw, Navdeep Jaikaria said that he expected Peregrine to receive an “upfront payment of $30mm for Cotara in 2010” as well as an “additional milestone payment of $5mm two years later.” In addition they recommended selling Avid. IMHO selling Avid would have been a big mistake. In 2007 Avid revenue was $3.4M. What would the enterprise value be for a company with an EBTIDA of $3.4M? $15M -$18M? What would that have provided? Less that a years burn rate? In 2010 Avid revenue was $13.2M, this year revenue is projected to be between $8M and $10M. What is the enterprise value for Avid now?
Now, back to Cotara. PPHM did ink a regional deal with Stason on 5-3-10. The PR did not state the financial details; it only stated “Peregrine will receive from Stason upfront fees, annual fees, and milestone payments over the term of the agreements, as well as double-digit royalty payments on net sales.” …I have no idea what that equates to in real dollars…Painfully, we will know, quarter by quarter. I have posted my estimate of what I think a Cotara partnering deal would be worth this year. ($79M to $137M upfront and milestone. Plus 20% of sales) ClockedProtector provided an estimate of ~$50M. I suspect that we will know this year whether the wait and the regional approach was the correct road to take.
You seem to be very well informed. Do you have any insight as to what transpired during the R&R meetings?
"IMHO this management is positively phobic about early stage partnering."
Please elaborate.
"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."
I can understand that at some level…Not knowing the details, I would state the following…The value of that enterprise was, as bests as possible, determined by an intensive round of due diligence. That due diligence included much more than the value of the “forest lands that had not cleared environmental hurdles”. A paper company has assets that include mills, marketing, distribution centers and clients… perhaps more…The point I’m trying to make is…Buffet did not buy just “forest land”. He bought an enterprise that included an intangible…Called “forest lands that had not cleared environmental hurdles” the worth of all of the other assets were fairly well defined and I am sure the forest land was discounted based on its uncertain status.
"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 it’s worth two times revenue?? Maybe it’s 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??"
I call Bavituximab the “Big Enchilada” for a reason. I salute Eric Swartz and management for recognizing the potential of this Mab. It’s my opinion that this will bear fruit in 2 - 4 years. All of the current trials in so many indications leads me to believe that this Mab is potentially an unbelievable Blockbuster.
“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”
There is little doubt in my mine that Cotara will go first…In reality, with the Stason deal…It has already. The U.S. and E.U. markets remain. As an individual investor I do not have the resources that a group or firm has. But…If I were a part of a group or firm…THE FIRST QUESTION I WOULD ASK IS…WHAT IS THE POTENTIAL VALUE…???
Fruitless??? NO…Difficult…Absolutely…!!!
I look forward to reading your response
Regards,
Golfho
A.K.A. Mr. Slow
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