The Year In Review

While the share price closed 2011 at 81 cents, down from December 31, 2010's close of 94 cents, there is much more to 2011's story about the company than a 14% decline. Much more.

Management has been working on several programs (an apt name describing their work in a particular category or on a particular effort):

• Melanoma (value driver);
• Dermatology (value driver);
• Liver (value driver);
• Other solid tumors, through the melanoma and liver trials, the compassionate care program, and animal work/R&D (value driver); and,
• Immunology (value enhancer).

Now take a look at the illustration below, and keep it in mind as we progress together through the rest of this blog post:

The company achieved major breakthroughs in every program. Yes, the price at the end of the year is materially lower than the beginning of it. That's relevant to traders. It is not relevant to me. It should not be relevant to investors.

I could go on for pages and pages, but I want (need) to convey my comments as simply as possible (in keeping with Paulson's simplicity of presentation of and conveyance of his investment thesis, cogently explaining a very complex story).

Clinical data: Robust clinical data across the board. Reproducible. In the case of immunology, by a third party (Moffitt). Some data, of course, was generated before (melanoma, spin-offs), some in 2011 (liver, immunology).

Regulatory path: To create value, management must create clarity. To lower risk, management must create certainty. The essence of their work on the SPA has been and is to provide clarity of destination and certainty of journey for big pharma. TGA MM "pre-approval," FDA MM Phase 3 trial design, FDA liver Phase 2/Phase 3 trial design, psoriasis Phase 3 trial design, etc. They have done that, but several decisions remain to be made or announced.

Peer reviews/Publications: Need-to-haves early on, but, generally speaking, nice-to-haves. In my opinion not need-to-haves. In process, but not announced.

License/Sale/Launch: The essence of monetization. Deals turned down or contemplated (melanoma, liver). Term sheets awaited (dermatology). S-1s to be filed (spin-offs).

Many of the yellow boxes should turn green in 2012, based on decisions made or announced, and other pronouncements.

For 2012, the illustration below sums up my view of value certainty (the numbers relate to valuation ranges):