Replies to post #119560 on Biotech Values

[DewDiligence]

MNTA Share Count for Valuation Purposes

By my calculation*, MNTA now has 52.2M diluted shares for valuation purposes. I’ve switched to a new calculation method that is simpler and fresher than the old method and is sufficiently accurate for investment purposes, IMO.

Under the new method, I include all options held by directors and executive officers (whether or not vested), but I exclude options held by rank-and-file employees. I ignore the anti-dilutive cash MNTA will receive from the exercise of officer/director options because this cash will be offset by dilution from option exercises by rank-and-file employees; although this offsetting effect will, of course, not be precise, I think it’s close enough for a first-order analysis.‡

An advantage of this method is that officer/director option holdings are updated in real time via Form-4 SEC filings, so the above count (unlike the total number of options outstanding for all holders) stays fresh.

Since all but a de minimis fraction of MNTA’s officer/director options have an exercise price less than $20 (http://sec.gov/Archives/edgar/data/1235010/000104746911004077/a2203592zdef14a.htm page 34), I include all of them in the calculation.

As of 3/31/11, MNTA had 49.7M basic shares outstanding (http://sec.gov/Archives/edgar/data/1235010/000110465911026306/a11-9210_110q.htm#CondensedConsolidatedBalanceSheet_074239 ). As of today, insiders hold 2.5M options (#msg-62863768). Thus, my diluted share count for valuation purposes is 52.2M.

(Note: In a prior post on this subject, I made an arithmetic error that caused the share count to be overstated by 4M. Thanks to ‘wealthyworker’ for catching the error.)

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*The number of diluted shares for valuation purposes is necessarily somewhat subjective because the arithmetic includes circular logic. I.e. the number of in-the-money options depends on the share price, and the share price depends in part on the potential dilution from options.

‡This simplifying assumption would not work well at companies such as CSCO and INTC that have a large number of options held by rank-and-file employees.