director option sales and immediate exercise

I haven't posted my thoughts re the investor presentation as I thought that dcheckers post was quite comprehensive and reasonably consistent with what was said.

I actually tried to ask a few questions, particularly about the SpringTree financing facility but they weren’t allowing anyone from the phone through (even though the operator twice instructed me just to press *1 to get put through to the floor, which I did to no avail).

Whilst I can see great value in PRR if they successfully get CVAC through phase III pivotal trials my only major concern remains funding and where it will come from and at what cost. Todays announcement regarding Directors selling options reinforces this concern.

As dcheckers has pointed out PRR management have stated that the SpringTree facility should cover the cost of a phase IIb trial by 2.5x. That assumes a cost of the IIb of $10m.

Management have stated that interim data should be available 18 months into the trial and that the study will take about 24 months to complete (late 2011/early 2012).
The phase III trial is due to commence in late 2010 however. The key question I see here is where is PRR going to access this substantial funding requirement from as no data will be available before the pivotal trial’s planned commencement? I imagine that such a trial would cost upward of US$50m and maybe closer to US$100m if Dendreon is any guide.

Infact, let’s just forget about where the funds will come from for the pivotal trial as I think we really need to ask management for a better understanding of the robustness of the SpringTree facility that will fund the IIb trial.

Point 4 of the disclosure of the SpringTree facility states that any $700k drawdown cannot result in in excess of 3.0% of PRR’s market cap being issued.

Before today’s option exercise with 448.5m shares on issue this meant that a PRR share price lower than 5.78c would result in this barrier being broken. Yesterday PRR closed at 5.7c.

Today after the option exercise that barrier share price has been lowered to 5.58c.

We are obviously in or about to commence a pricing period for the next $700k drawdown.

My question therefore is what was the reason behind management selling their options and Paterson’s exercising them immediately?

Also why would an option holder exercise their options which they paid 4.2c for and which had a 2c exercise price at a time when the share price is 5.8c?

Assuming that this premium of 0.5c was for the options time value why would they exercise them the following day? It just doesn’t make any sense to me.

This is why I have concerns about the robustness of the SpringTree financing.

I see real value in PRR if they can get CVAC through phase III but my concerns and questions still revolve around the financing of the company.

Does this make sense or am I jumping at shadows here?

Happy to hear others thoughts.

Rgds

Prof

PS. Whilst my profession is in oncology I actually topped my year in year 12 maths and I am fairly confident that my arithmetic here is correct. If anyone wants to work it out for themselves just to check my numeracy you just use the Goalseek function in Excel, it’s pretty simple.