I thought I would take some time and look at a few points, as always any input to my thought process is always welcome.
(This is my first post with the new HC functionality, so we will see if I have issues displaying images like many others.)
CHART
I created a simple 1 year chart of POH on a daily basis which includes the following moving averages:
20 Day - light green 8.7 cents
30 day - dark blue 8.6 cents
60 Day - black 8.8 cents
90 day - light blue 9.4 cents
200 day - red 10.4 cents
A minor support line is drawn at the low in May at 7.5 cents and a support line of some significance is drawn at 8.3 cents. This latter support region has held the June EOFY tax selling and also can be traced back to the lows last year of 8.4 cents post Esragate. This level can also be taken back to a congestion zone in late 2009 when the shares dropped through this level to bottom at 6 cents and then rise back through again after a couple of attempts in early 2010. In essence it shows an area that I call a gravity point as people gravitate to trade there and it acts as a "pivot" point (once broken either way the move can be extreme).
Looking at the moving averages we can see that people are now starting to pay up as the tax selling abates and I would asume this will quietly continue as more buyers are brought in by the higher averages being breached. The anticipation of upcoming news and depressed price has the bargain hunters out and the next two moving averages are the ones that count 90 & 200. In fact the 90 day is being looked at as I write. Assuming 10.5 cents goes then the pivot points are 12 and 16.5 cents and these will be the points to watch to gauge the significance of any moves. The later has been the cap for some time, so this is the one that really matters.
CASH
It seems fairly obvious that POH will need to raise some money sooner or later to pay the bills.
There have been many statements regarding this and to be honest some are just plain BS (Broker Speak). The CEO has roughly 6.5% of the company and he does not wish to dilute that and so will strive to ensure the SP is heading well North of current levels before he comes to the table, if at all. Other scenarios may play out here that mean dilution is not necessary.
SCENARIOS
1. All current studies fail and SP plummets, CR at 5 cents or less. Given the work and results to date this seems a very low possibility
2. Tretinoin trials are successful and SP rises to 12 cents. CR is undertaken at 11 cents meaning 15% dilution. A 15% slice would mean quite a hit in terms of ownership, though not necessarily in dollar amounts medium term assuming the market is calmed by a solid balance sheet and continued good clinical results. I assume this won't be Managements first option as the dilution is large and in all probability not necessary
3. Tretinoin trials are successful and Oxy PII are showing positive results, shares rise to 16 cents CR is undertaken at 14 cents meaning a 10% dilution. This seems the more palatable and realistic option but obviously requires good clinical results.
4. Tretinoin trials are successful and Oxy PII are showing positive results, shares rise to 16 cents Deal is done that brings in required cash thereby negating any capital raising and shares rise further. This is obviously the preferred option for Management and shareholders at this stage as it leaves all blue sky options open.
5. This is the one that no one has thought of and is a real risk in my opinion if one of those "at the table" is Novartis.
Big Pharma place 25 cents on the table and we lose the company. Why pay 100 million in up fronts and 12.5% in royalties for each area of development (Pain, insulin etc) when you can own the lot for double the price of one?. Markets are myopic, there is no such thing as "the efficient market" as it is full of scared cats and Brokers running around proclaiming the sky is falling in. If I saw a potential new drug delivery standard (think syringe OR capsule) and could buy the rights to sell drug A for $2.00, or buy the developer and owner for $4.00, thereby having a monopoly to 2030, I know what I'd be doing. Of course this would require a Novartis like player at the table.
SUMMARY
Whilst there are some large risks at present I believe the market is miss pricing this and may pay the ultimate price of loss of control.
(20min delay)