I titled the blog "Connecting the dots..." because so much of the process of investing simply boils down to gathering information about a company. We collect small and large bits and bites of information from different sources, both public and private. We glean as many pieces of data as possible to determine if they tell a story that makes sense.
Why has Eric Wachter exercised so many stock options? Why haven't the others exercised nearly as much? What, if anything, do these option exercises, or lack thereof, tell us?
Let's focus of Dr. Wachter, and connect the dots:
- He oversees all Provectus' clinical trials;
- All sorts of clinical data flows through his laptop. Dr. Wachter analyzes thousands and thousands of pieces of data;
- He's a very smart man. If you won't take my word for it, at least you might agree he's "only" smart given his national labs background; and,
- Dr. Wachter knows math. He knows how to use spreadsheets.
The combination of management, as a whole, (a) not having sold a single share and (b) exercising a significant amount of stock options over time is a great sign. I don't think the timing of their option exercises is significant as it relates to predicting a monetization event. The exercises relates to tax efficiency. The lower the share price, or the closer the share price is to the option's exercise price, the lower amount of taxes paid (at income tax levels).
The skeptic in me or anyone else could wonder why Dr. Wachter has exercised so many options while Dr. Dees, Dr. Scott and Mr. Culpepper have, on a relative basis, exercise so much less. Let's explore the differences between the management team members:
- Is there a disparity in liquid net worth? It costs money to exercise stock options;
- Have one or more of them contributed in kind assets, such as supplies? How recoverable are such assets? A low or high recovery ratio would have a significant impact on the decision to exercise options;
- Do they have children and/or other animals in their care? Such organisms require daily, weekly, monthly and yearly fodder;
- What are the views of their spouses on this entrepreneurial venture that is Provectus? How much risk do these women feel their husbands are taking? The future is by no means certain. Option exercises cost money. That money must come at the expense of another household purchase or need, or out of the rainy day fund. The answers to these questions and queries, together with the respective spouse's risk profile, is undoubtedly a strong influence.
In the end, in my view, Dr. Wachter's stock option exercises are a very telling sign. Option exercises by the other management team members are important as well. And, so too, is the lack of stock sales.
That some members of the team have exercises less options than others is not meaningful.