Note to Prima Biomed Shareholders…

By now, the proxy forms are in and the majority of shareholders will have already cast their vote regarding the five resolutions for the EGM meeting on Friday. Obviously a show of hands in a shareholder meeting is not going to be the deciding factor here.

I have been unabashedly clear in my position that Prima Biomed (ASX : PRR) is a company that does very poorly by its shareholders, and it needs to lift its game going forward. Historically, it vastly overstated the performance of CVac, to the point of essentially being misleading. Despite the formal position that CVac is “seeking partnerships”, in more relaxed environments members of the company are publicly disdainful, almost mocking, of CVac’s future.

Rightly so, it’s a dog. But dogs also deserve to be put down humanely and with dignity. Yet the company cannot bring itself to finally euthanise CVac and even the most recent SPP announcement continues to mention CVac in the company tagline. The company simply demonstrates, time and again, that it is weak and lacks a real commitment to reform.

Sadly, the same pattern behaviour of overstating its prospects has again been demonstrated with the IMP-321 program. For example, the communication regarding EMA’s “endorsement” of the LAG-3 program. This endorsement from EMA could simply have never happened. To be clear, the LAG-3 program is an unproven program, and an unproven construct. LAG-3 is a target of increasing interest, but a target is not a drug – and the biopharma world is littered with crap drugs against good targets. Prima’s presentation of the existing clinical development of LAG-3 is even marginally appropriate, as it suggests somehow that these were studies conducted under the “wing” of the company. Even more concerning for investors, there is almost no public (peer-reviewed or otherwise) presentation of the existing experience with the IMP-321 construct. When you consider that a couple of hundred patients have been dosed, this is a red flag.

Yet the punters love this equity because there is a US hedge fund involved and they have seen that a bit of noise moves the needle. Any noise. There are clearly bigger money sources making hay out of this equity and that makes it a roller-coaster for everyone else. This company is truly a day-trader’s dream.

I’m ambivalent about Resolution 5. Marc Voigt has done, to a first approximation, his job. Therefore Lucy’s lyrical praise of “round-the-clock” and “multiple time zones” doesn’t really elicit much sentimentality from me. He chooses to live in Berlin, not the US or Australia, so I don’t have much sympathy for the time zones. I also find it hard to forget the fact that last year at the JP Morgan healthcare conference, Immutep was flogging IMP-321 to anyone who would listen. So frankly, I don’t see any exceptional accomplishment there either. Then again (to be a bit kinder) the current turn-around strategy for the company certainly didn’t come from Prima’s underwhelming board.

Anyhow, vote away… if you value your CEO, better keep him incentivised. I guess …

However, resolutions 3&4 are an awful mess.  I’m still gobsmacked that ASIC hasn’t seemed to progress any sort of investigation around the remarkable turn of events in relation to the timing and execution of the SPP, but then the sector has clearly come to tolerate a mostly toothless regulator. I’m even more gobsmacked that the punters piled in for the SPP, knowing full-well that a week or so later, another entity is going to be able to buy shares at a 60% discount to what they paid.

I’m not saying all money is equal, it isn’t, and Ridgeback’s pay-to-play came with a risk premium. Sure, Wayne Holman is a “name” in healthcare investing but if Ridgeback Capital is the “key” to unlocking the US institutional investor landscape for the company (as has been suggested), then Prima’s corporate development strategy defeats the purpose of being dual-listed. It also means that either the executive team is the wrong team if it can’t effectively engage with US institutional capital (so go back to Resolution 5 and ask what you are really rewarding) or – and this is the more likely scenario – that US institutional capital recognises that this is a company to best stay well clear of.

I think you know my opinion, so I will not over-egg the pudding here.

I expect that Ridgeback will probably get their 2c shares because without the capital, Prima can’t effectively develop its clinical programs. This in turn implies that the SPP was really a way to buy time for the company. Or, put another way, the funds raised through the SPP offering will achieve no value inflection point for the company on their own. It also means, incidentally, that the Ridgeback funds are not enough by themselves to achieve a value inflection point either.

Think about that. It’s shocking.

Shareholders that jumped into the “over-subscribed” SPP are simply going to have to accept that there is an average cost of capital between the two financing events (in aggregate) and that they paid a premium to play. Fair enough. Hats-off to Ridgeback – they are either very brilliant or very lucky. Probably a bit of both, although based on the stock price shenanigans over the past couple of months, I am not really sure that luck plays all that much of a role.

What the 5c SPP means before the 2c vote on Ridgeback, is that if the Ridgeback deal doesn’t go through, the company will be screwed and would have (without the SPP) run out of cash. Therefore the SPP had to get done as a contingency plan. The problem is that the SPP didn’t raise enough cash to do anything useful and so this actually puts Ridgeback in a very strong position, and Prima in a very weak position. If, for example, the Ridgeback deal doesn’t go ahead, there is enough interesting evidence of short interest movement to expect that the company would get crushed.

Would that hurt Ridgeback?

Not at all. They would simply just buy in at a lower price after the stock does a free-fall. So, you see, the 2c that Ridgeback is going to pay for Prima shares is actually the maximum they are going to pay for Prima’s shares. If shareholders vote against Ridgeback on Friday, then Ridgeback is  going to be able to snaffle up Prima stock for a lot less. At least in concept.

The whole situation leaves a very bad taste in my mouth and really, when you take a step back and look at the big picture, is the type of idiosyncrasy indicative of a low-quality company keeping the gravy train running a little longer. Ridgeback will come in at 2c, double their money and offload their position in conjunction with some well-timed clinical program announcements. Just wait and see … I guarantee you that the smart money will sell every time there is news flow.

12-18 months from now, the average punter is going to be left standing when the music stops. 

But hey, it’s your company, and your vote.

Awesome Photo Credit: Ryan McGuire.

5 thoughts on “Note to Prima Biomed Shareholders…

  1. thanks, Chris.

    great to see you posting again.

    It must be painful being a PRR shareholder or a shareholder in lots of these biotechs that have to go the the market all the time to raise money to stay alive. As you’ve pointed out they are being fed “hope” — and it works.


  2. Does this post tell us you are back in business?

    I would love to see your PYC review again. If you could email it to me I would be indebted, if you are not able to post it that is.

    I cannot figure out what is up with the three(!) extensions on a NON-RENOUNCEABLE rights issue with the main shareholder selling out big time without letting the company know.

    If you have an opinion on this I would greatly appreciate it.


  3. Pingback: Ouch, Invion… | The Long Tail

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