Short Term Dilution Cost

To get past the PDUFA date (18 months times $10MM per months) and pay back the $115 convertible due in December 2013 will require $295MM.Let’s say we need $400MM just in case there are delays and so that the company has enough money to negotiate a partnership agreement without being in distress.This is not counting the $283MM due to Al Mann on 7/1/2013, which could be a very big problem.

If we further assume that shares are issued at $2.00, the dilution will be 200MM shares.This is a 29% discount to the current share price of $2.80.Post funding, the firm value will be $1,455MM, so equity will be worth $957MM.Divide the equity by 399MM shares and the new share price is $2.40, which is a 14% discount to the current share price.

If you think the funding uncertainty is worth more than 14%, the share price should go up after the funding, otherwise the price should go down.

Please ignore the underbar (_) characters in the chart below.I could not get the numbers to align without them.

_____________Current_______Funding__________Post Funding

__________Capital Structure________________Capital Structure

Assets:_______ 1,055__________400______________1,455

Liabilities________498____________________________498

Equity__________557____________________________957

Shares_________199__________200_______________399

Share Price_____2.80_________2.00_______________2.40

Discount to Current Share Price__29%______________14%

If shares are issued at $1.50, the post funding share price is $2.06, a 27% discount to the current share price.If shares are issued at $1.00, the post funding share price is $1.60, a 43% discount to the current share price.

If instead, the company needs to raise the funds to pay back the $283MM owed to Al Mann, total funds required will be $683MM.Under these funding requirements, if shares are issued at $2.00, the post funding share price is $2.29, a 18% discount to the current share price. If shares are issued at $1.50, the post funding share price is $1.90, a 32% discount to the current share price.If shares are issued at $1.00, the post funding share price is $1.41, a 50% discount to the current share price.

All calculations ignore the impact of the warrants.