October 25, 2012

Blog Reader Questions

You mention that management believes the company is worth between $7-10 billion. At 113 million shares outstanding, that would indicate a price per share between $62 and $88. Is this plausible?
The figure you should use in the denominator is about 155 million shares fully diluted, which would includes preferred and common shares, stock options and warrants. Using, for example, the 2011 10-K:
  • 3,531,665 preferred shares,
  • 110,596,798 common shares,
  • 14,890,956 options, and
  • 25,119,247 warrants.
$7 billion ÷ 154 million = $45 per share. At $10 billion, $65. 

Since there will be a difference between the strike or exercise price and the share price at the time either a stock option or warrant are exercised, as well as cashless exercises features, the total number of options and warrants included in the denominator typically would not be the figures above, but a lesser amount. So, the per share range is a rough estimate.

I think you approach the answer to plausibility in two ways by asking: at what price would management sell, and for what price would Big Pharma pay?

You won't pry the company out of Craig's cold dead hands for less than $50-60. That is the easy answer. If you think you have a/the near cure for a number of cancer indications (and can validate it as such), at what price would you sell?

As for what Big Pharma would pay, I think it ultimately depends on the intensity of the auction. The corporate development or M&A folks at a Big Pharma company will do their respective valuation work to arrive at a range of valuations for Provectus (e.g., Comparable Company Analysis, Discounted Cash Flows Analysis, Precedent Transactions). They will use this (and knowledge about the size of their respective checkbooks) in their discussions with the company, but also in the context of negotiating against other Big Pharma companies interested in buying Provectus. Management's valuation work along these lines informs their own expectations of value.
Why did they need the IPO for a Nasdaq listing if a derm or geographic deal was in the cards? Or the SPA, for that matter?
I think management thought they could secure a NASDAQ listing through the PVCTP "IPO" for the sake of the listing itself: the greater awareness it would bring the stock and company, and the greater accessibility to the stock for a wider swath of buyers. Management had a valuation threshold below which they would not consummate a deal (i.e., pricing) for the IPO. If they got the terms they wanted, they would do an "IPO." If they did not get acceptable terms, they would not do an "IPO," and continue exploring deals for dermatology or oncology in certain geographies. The latter, of course, is what transpired.

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