Ok, I think you are right that the first hint of efficacy could be demonstrated as soon as early to mid August.
And from the announcement dated 23rd of June:
"...the issue price will be determined by Benitec in conjunction with the underwriters of the IPO at the conclusion of an investor roadshow for the IPO to be conducted in the United States in late July 2015."
So, yes I agree that based on what has been previously announced there is a good chance the IPO will take place before any evidence of efficacy.
I also understand the implications of dilution caused by issuing additional shares and I'd have to say that I would also much rather the cash be raised at considerably higher prices so the dilution isn't so significant. I'd also agree that our market cap should be considerably higher after efficacy is demonstrated. So for existing holders, yes, raising after efficacy would appear to be the ideal outcome. However, I think there's much more complexity to raising cash that needs to be considered beyond just looking at how the value of our holding might be if we raised cash after efficacy as compared with before.
In order to raise the cash via IPO an underwriter has to be convinced that there will be enough investor interest to buy all the shares that they purchase. So for the IPO to be a success the timing has to align with when there is likely to be the most significant investor interest. So when is this most likely to be the case?
a) when a company is massively undervalued, on the verge of proving efficacy, and has a great story with multiple bagging blue sky potential, or
b) after efficacy is proved, and after the share price has multi-bagged and the company has a massive market cap around fair value?
I think (a) is the answer. And I think we are right about there at this point in time.
My biggest fear would actually be waiting for efficacy, reaching an astronomical share price, and then finding that no underwriters would want to get involved because there's nothing left in it for them. Despite a big market cap, we could end up in a desperate need of cash and struggling to obtain it with little bargaining power. At which point our massive market cap may not remain so massive.
Obtaining cash before efficacy is demonstrated also means that if things didn't turn out as we expect we'd still have the cash to pursue something else.
I trust that our management is much better placed to weigh up the risks associated with raising cash and make an informed decision regarding the pricing and timing of the IPO. Additionally I think we also have to accept that there's got to be some upside for the underwriter and the new investors (we can't have it all!). So whilst I agree raising at higher prices after efficacy would reduce dilution I think we've got to ask would this actually be a feasible and sensible alternative to the current proposal?
From my perspective management is making all the right moves and those who have been invested for considerable time will still reap some serious rewards for their patience. It might seem unfair that those getting in now are picking up a better deal, but we also have the opportunity to buy more if we want. And sometimes that's what life is all about - right place, right time.
