Wednesday, July 11, 2007

Defining Moments

Harry Potter can speak Parseltongue, the language of snakes. SEC Chairman Cox prefers Plain English, and has declared it the official language of executive compensation disclosure. But most CD&As this year remained in Proxytongue, making the Chairman hopping mad. “The SEC is dead serious about shedding 70 years of accumulated bad habits in writing,” he said not long ago.

Still, Proxytongue is far from a dead language. In a 10-K, for example, only certain parts must be in Plain English. For some reason, those parts do not include the “Business” section, where a company tells us what the heck it does all day.

Explaining your business is easy if you’re, say, Wendy’s International, Inc. (WEN), which according to its 10-K is “primarily engaged in the business of operating, developing and franchising a system of distinctive quick-service restaurants serving high quality food.” A simple (if optimistic) description.

But what if you’re a company doing pharmaceutical research? Here's one that filed its 10-K yesterday, Peregrine Pharmaceuticals, Inc. (PPHM). Peregrine’s business involves “two platform technologies: Anti-PhosphatidylSerine (“Anti-PS”) Immunotherapeutics and Tumor Necrosis Therapy (“TNT”), and they're testing a potential cancer fighter called bavituximab, which sounds like something Harry, Ron and Hermione stirred up in a cauldron.

Peregrine's year-over-year numbers ain't great, but it has a way with words, managing to explain the science behind its business in something approaching Plain English. The 10-K even includes a glossary, from which we learned that a "chimeric" is "a type of antibody that is mostly human and partially mouse." Cool.

Inspired, we looked at other recent 10-Ks (anecdotal research, not the best but the only kind we can afford) and while we didn't find another pharmaceutical outfit that was nice enough to throw in a glossary, slews of companies in the lingo-ridden oil, gas and mining industries do use them. The handy upfront glossary in the 10-K for gold and silver mining company Commerce Group Corp. (CGCO), sends us back to eighth grade earth science: (An "Outcrop" is "that part of a geologic formation or structure that appears at the surface of the earth.")

But it will take more than a few definitions for us to get what some companies do, whether described in 10-Ks or press releases. ("Integra LifeSciences Holdings Corporation (IART) announced today that it released the Uni-CP(TM) Compression Plating system, the latest addition to its extremity fixation product line." No, that will require a magic Plain English wand.