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Threshold Pharmaceuticals Inc. Message Board

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  • tredleon tredleon Jul 10, 2008 7:32 PM Flag

    We have 5 years to get this above ?? cents?

    This is what you call extreme dilution, which is not good for the existing shareholders. Here is the way to think about it - before this offering, the company had 37M shares outstanding and the "market" valued the company $13 million ($0.35 per share). If you were long THLD, you believed the market was wrong - i.e. that in the long run the pipeline would generate a successful cancer treatment and the company would be worth alot more. Say you thought it could be worth $100M down the road - if they didn't issue any more shares, the 37M shares would someday be worth $2.70 - a nice multiple on $0.35. Now with these new shares (54M) and warrants (21M), the value of the company gets split among 112M shares, so it is your leverage as an existing shareholder is diluted. In theory, all other things being equal, the same pipeline value of $100M would be added to the proceeds of the offering ($18M) and proceeds from warrant exercise (21M * $0.39 = $8M), so the pie is bigger ($126M), but each individual slice is smaller ($126M total value / 112M total shares) = $1.12.

    This is why I was saying the best thing this company could do for the existing shareholders is a partnership or sale of the company, because issuing new shares is so punishing to the existing shareholders. The short-term implications of this offering are that this stock is not going anywhere in the near-term - it will be stuck below $0.30 for some time to come. I was hoping a partnership could push it above $0.50 or a sale of the company could get $1, but apparently the clinical data they have on hand is not that impressive to any other companies out there - we'll never know what kind of offers they may have gotten, if any?

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    • Tredleon, I agree with your assessment to some extent (although I wish they did a secondary or shelf offering when the stock was $4).

      However, I'll take this as a good thing:
      1. Sutter et al already had a huge stake, they must see a LOT of potential to take another huge stake (perhaps they know something?)

      2. This is better than a slow bleed to bankruptcy.

      3. We'll all see this through to the end. What if TH-302 cures cancer and THLD goes to $10? I'll take the dilution at that level.

      4. How was your "partnership" going to work anyway? Wouldn't the partner want a big chunk of the profits?

      5. What if a big pharma scooped up this company for 50 cents, say. That would have been far worse.

      That said, this deal does nothing to existing shares, correct? Please tell me that's correct.

      Thanks

      • 1 Reply to SMAC693
      • SMAC -

        1,2) No dobut, the fact that they raised money validates the value of the pipeline to a certain extent, so it is better than bleeding to BK.
        3) For THLD to go to $10, you are implying the company will be worth over $1 Billion someday - it is not out of the realm of possibility, but unlikely?

        4) A typical partnerhsip deal would involve some combination of an upfront payment, future payments based on clinical and/or sale milestones and a royalty (% of sales). So for example, if some company believed that TH-302 could be worth the theoretical $100M+ 3-5 years out, they might give THLD $10M -$20M today, take over all development costs, pay another $5M-$10M upon approval and then pay a royalty of $5%-15% on sales. Ultimately, there is a trade-off between upfront money, milestones and royalties. The problem THLD had is that they don't have that deep of a pipeline, so if they partnered TH-302, they wouldn't have much left to work on, so it made more sense just to sell the company.
        5)I was hoping for a sale at $1+ per share, but I'll put it on the shelf and see what happens?

 
THLD
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