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Cash
Oct 17, 2016 14:44:29 GMT -5
prvs likes this
Post by esstan2001 on Oct 17, 2016 14:44:29 GMT -5
Guess we are all banking on a material RLS milestone.
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Cash
Oct 17, 2016 16:25:34 GMT -5
Post by sophie on Oct 17, 2016 16:25:34 GMT -5
It's a plausible post for bankruptcy. But Mnkd knew it's cash would dwindle by 2017, 1st quarter, no? Mnkd has a contingency plan I bet, I hope.....right?! This will be a good gauge of whether they have learned from any of their past mistakes or whether they still were caught thinking there was no way their plan could fail. I would hope for all of our sakes that they learned their lesson... and that Plan B is also favorable enough for us all.
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Oct 17, 2016 23:37:25 GMT -5
prvs likes this
Post by surplusvalue on Oct 17, 2016 23:37:25 GMT -5
I have more than a bit of experience in bankruptcy cases, as a buyer of distressed assets for a former employer, as a consultant and expert witness for a distressed company that filed bankruptcy, and as a consultant and expert witness for a group of shareholders. Each case and the surrounding circumstances are unique but if I had to put a number to it I would guess that MNKD needs $50-60 million to make it through a reorganization. Let me break that down.
First, there is the expense of the attorneys. This will be a complicated case with lots of parties and there will be a lot of legal work. Bankruptcy attorneys are used to dealing with clients that are insolvent and will demand their estimated fees up front I the form of a retainer. While the fees are ultimately something that is approved on motion to the court, it gets paid out of that retainer. If assets are to be sold, there will be an asset liquidation firm appointed to write an offering memorandum for the saleable assets and that firm will be due a sale commission if successful. The company needs to file a detailed plan of reorganization with the court and there is typically a work-out firm that specializes in preparing those plan documents. If there is litigation between the bankruptcy estate and other parties, that creates another layer of legal fees. The Office of the US Trustee charges fees to administer the case. There are other costs of bankruptcy as well that I won't go into, but the debtor pays for most of it. The various retainers and expert fees will easily be in the ballpark of $10 million. Easily.
If the company is to reorganize life must go on during the pendency of the case. Afrezza has to be manufactured, salesmen have to call on physicians, financial reports have to be filed (although not with the SEC), and the office manager has to pay for lighting and air conditioning. We know the company is burning something like $8-10 million a month over and above what Afrezza sales bring in so over the course of a typical bankruptcy (120-180 days) the company will need to fund that operating burn. Additionally, all the accounts payable get frozen the instant the company files in court, which is good because creditors can't bring collection suits while the company is protected by the court, but at the same time a lot of vendors will put the company on cash terms. Prepaid deposits will have to be provided to all the utility companies to keep the lights, Internet, and telephones on. Any fudging that might have been possible by extended credit terms will be gone and MNKD will effectively turns into an all cash business. Quite literally you will have truck drivers demanding a check before they will unload supplies needed to continue operating.
So a monthly cash burn of $8-10 for 4-6 months plus the cost of the experts gets you to my estimated need for cash. On the supply side, the remaining Mann Group loan facility is $30.1 and the remaining ATM is restricted by the number of shares to a value of around $7 million at today's share price, so that is a total of $37 million of financing plus whatever is left on the balance sheet. As of June there was $63.7 million on the balance sheet and if we assume $8 monthly burn (it averaged $7 million in the first half of the year before the marketing effort) the balance sheet will be down to about $32 million by the end of October. If you use the $10 million monthly burn the cash remaining at the end of October is $24 million. For sake of argument lets use the midpoint of $28 million. Add the $28 million in cash remaining to the $37 in financing capacity and it comes to $66 million.
Without access to the books I can't be more precise that this, but it seems likely that at some point in November the cash required to operate the business as it goes through a bankruptcy reorganization will dip below the remaining cash assuming all the available sources of financing are tapped. There are potential surprises, both good and bad, that could change the math (like an RLS payment) but those are impossible to estimate.
Many companies can access debtor-in-possession (DIP) financing to access additional cash in bankruptcy, but DIP lines have to be secured by assets. Since Sanofi has a first priority security interest in the Valencia headquarters, and Deerfield Partners has a first priority security interest in Danbury, obtaining DIP finance is going to be extremely difficult. Getting around those security agreements will be almost impossible so I think the roughly $66 million MNKD can access is also close to 100% of what they can potentially access. More than anything else, I think that explains why the stock is trading where it is trading. Matt is running out of options and the market knows it. It's a plausible post for bankruptcy. But Mnkd knew it's cash would dwindle by 2017, 1st quarter, no? Mnkd has a contingency plan I bet, I hope.....right?! Contingency plan? There sure is a lot of hopium to go along with all the negativity and bashing that is surfacing as the financial situation gets worse. I guess that is to be expected under the circumstances. Ask yourself the question as to whether MNKD had a contingency plan if Sanofi withdrew from the partnership. The possibility was written into the agreement. MNKD sat with Sanofi in joint meetings presumably throughout 2015. What were they doing ? Did you see a contingency plan kick in after Sanofi's announcement? Did MNKD under the astute direction of its CFO raise funds as part of any contingency situation when they were in a much better position to do so like every other right thinking company in biotech does? I think the answer to these two questions is pretty clear. Based on past performance then the odds are not looking that good but that's all we have to go by at the moment. If I could just see a burning bush or something then I might, if I believed in such things, just might feel a little better.
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Oct 18, 2016 6:58:30 GMT -5
Post by Deleted on Oct 18, 2016 6:58:30 GMT -5
Matt, you and said that management, should they decide that ch 11 is the only option needs to file at a point in time where there is enough cash left to take the company through the process. In your opinion, how much cash would MNKD need to complete a ch 11? I cannot access Mannkinds website now but if they are still burning $10 mm / mo and they have enough cash to get the to Q1 '17 (per Matt P), my guess is that today, they have around $30 - $33 mm. Trying to get a handle on how much cash they have to run company and drop dead date they would need to file by. Per your earlier comments, you indicated that if the filing is inevitable, they would likely do so in conjunction with the next PR for the Q. Thanks, I have more than a bit of experience in bankruptcy cases, as a buyer of distressed assets for a former employer, as a consultant and expert witness for a distressed company that filed bankruptcy, and as a consultant and expert witness for a group of shareholders. Each case and the surrounding circumstances are unique but if I had to put a number to it I would guess that MNKD needs $50-60 million to make it through a reorganization. Let me break that down.
First, there is the expense of the attorneys. This will be a complicated case with lots of parties and there will be a lot of legal work. Bankruptcy attorneys are used to dealing with clients that are insolvent and will demand their estimated fees up front I the form of a retainer. While the fees are ultimately something that is approved on motion to the court, it gets paid out of that retainer. If assets are to be sold, there will be an asset liquidation firm appointed to write an offering memorandum for the saleable assets and that firm will be due a sale commission if successful. The company needs to file a detailed plan of reorganization with the court and there is typically a work-out firm that specializes in preparing those plan documents. If there is litigation between the bankruptcy estate and other parties, that creates another layer of legal fees. The Office of the US Trustee charges fees to administer the case. There are other costs of bankruptcy as well that I won't go into, but the debtor pays for most of it. The various retainers and expert fees will easily be in the ballpark of $10 million. Easily.
If the company is to reorganize life must go on during the pendency of the case. Afrezza has to be manufactured, salesmen have to call on physicians, financial reports have to be filed (although not with the SEC), and the office manager has to pay for lighting and air conditioning. We know the company is burning something like $8-10 million a month over and above what Afrezza sales bring in so over the course of a typical bankruptcy (120-180 days) the company will need to fund that operating burn. Additionally, all the accounts payable get frozen the instant the company files in court, which is good because creditors can't bring collection suits while the company is protected by the court, but at the same time a lot of vendors will put the company on cash terms. Prepaid deposits will have to be provided to all the utility companies to keep the lights, Internet, and telephones on. Any fudging that might have been possible by extended credit terms will be gone and MNKD will effectively turns into an all cash business. Quite literally you will have truck drivers demanding a check before they will unload supplies needed to continue operating.
So a monthly cash burn of $8-10 for 4-6 months plus the cost of the experts gets you to my estimated need for cash. On the supply side, the remaining Mann Group loan facility is $30.1 and the remaining ATM is restricted by the number of shares to a value of around $7 million at today's share price, so that is a total of $37 million of financing plus whatever is left on the balance sheet. As of June there was $63.7 million on the balance sheet and if we assume $8 monthly burn (it averaged $7 million in the first half of the year before the marketing effort) the balance sheet will be down to about $32 million by the end of October. If you use the $10 million monthly burn the cash remaining at the end of October is $24 million. For sake of argument lets use the midpoint of $28 million. Add the $28 million in cash remaining to the $37 in financing capacity and it comes to $66 million.
Without access to the books I can't be more precise that this, but it seems likely that at some point in November the cash required to operate the business as it goes through a bankruptcy reorganization will dip below the remaining cash assuming all the available sources of financing are tapped. There are potential surprises, both good and bad, that could change the math (like an RLS payment) but those are impossible to estimate.
Many companies can access debtor-in-possession (DIP) financing to access additional cash in bankruptcy, but DIP lines have to be secured by assets. Since Sanofi has a first priority security interest in the Valencia headquarters, and Deerfield Partners has a first priority security interest in Danbury, obtaining DIP finance is going to be extremely difficult. Getting around those security agreements will be almost impossible so I think the roughly $66 million MNKD can access is also close to 100% of what they can potentially access. More than anything else, I think that explains why the stock is trading where it is trading. Matt is running out of options and the market knows it. Matt, ATM - if they have been recently or are currently tapping it for the purposes of funding ch 11 any risk of fraud? Most people / institutions buy equity with the assumption of going concern or is it caveat emptor? Mann Group - no idea what fine print says but if the Mann family or Claude specifically is in charge of the Mann Groups activities since Al's passing, is it possible that she could pull the LOC or once in place, is it typically irrevocable? That said, is it possible to go directly to 7 vs 11? I appreciate your comments.
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Post by mnholdem on Oct 18, 2016 7:20:25 GMT -5
Nobody publicly knows what the CEO has up his sleeve related to financing continued operations. In the face of repeated dire predictions of imminent bankruptcy, allow me to point out that there are several options that do not involve restructuring or diluting shares. Here is one such example:
Revenue-based Financing (aka Royalty-based Financing)
Revenue-based finance (RBF) is a new type of financing structure where a company “sells” a set percent of its future revenues to the investor in exchange for a capital investment. The simplest way to think about it is as a revenue share between the company and the investor. RBF is something of a blend between bank debt and venture capital, and a company should expect the cost of capital to fall within that range as well. RBF, sometimes also known as royalty-based finance, is a financing structure that’s historically been used in drug development, mining, and film production, but as the early-stage funding landscape has shifted, funding growth with revenues is gaining a lot more interest – from entrepreneurs and investors alike!
How it works
Instead of a business being required to pay fixed interest payments like a typical bank loan, a revenue- or royalty-based financing loan is paid with a percentage of revenues. In that case, monthly “interest” payments will fluctuate if a company has lumpy cash flows or seasonal revenues. As software, infrastructure and other business costs evolve into “-as-a-service” to adjust with the ebbs and flows of a business needs, revenue-based payments naturally adjust up and down along with a business. The built-in variability of RBF makes the structure so compelling. Potentially if a company’s revenues drop to zero one quarter the loan payment drops to zero in lock-step, and when revenues come back up (hopefully) loan payments increase by the same percent. Instead of a fixed monthly expense regardless of business performance, RBF turns a loan payment into a variable expense.
When it works
Companies with hard assets (property, equipment) should usually qualify for a typical bank loan, but what if your business doesn’t have that? Revenue-based loans are, by nature, most appropriate for companies already generating revenues but have no assets with which to collateralize a traditional bank loan. It’s useful for companies that have hard to predict revenues.
For entrepreneurs, revenue-based loans are attractive to founders who are allergic to dilution and loss of control. The structure of RBF is often non-dilutive to founders and does not require a board seat. The financing is obtained without having to agree to a valuation, which leaves management in control of the company and typically requires no personal guarantees from management.
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I'm posting this as ONE example to illustrate to fellow shareholders that bankruptcy protection is NOT the only path forward. MannKind Corporation has always had balance sheet concerns and for over a decade there have been many who have predicted near-term bankruptcy that has never come to fruition.
I don't think you'll see bankruptcy this time either. Al Mann wasn't the only billionaire entrepreneur on the planet, you know. The sad fact that he is gone today does not mean there are none left - whether individuals or groups - who are interested in the survival of this company and the technology it has brought to market.
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Post by Deleted on Oct 18, 2016 9:44:49 GMT -5
MN, creative financing is always of interest and your comments are always level headed and insightful. That being said, with current growth rates, if you did a NPV on the next 12 quarters revenue, given the current risks, the number I suspect would not be that great. As always, the question remains is MNKD on the verge of much stronger growth in NRx and corresponding TRx. Even with a small sales team, if the right endos were to start to Rx heavily for Afrezza, Rx growth would accelerate, the burn rate would drop, prospects for success and sentiment would improve. That being said, we may be too far gone. A $25 mm injection from the RLS might buy us a bit of time to try to get the house in order, but right now, to continue, someone is going to have to thread a needle that has an incredibly small eye.
As a long time shareholder with significant experience in this space, it pains me to see this happen to the company, Afrezza and most importantly, the millions of people with diabetes who would live a better life sans many of the long term health complications of this debilitating disease. Heartbreaking to see a diabetic day after day tend to a foot wound that won't heal and gets so deep, the bone is visible. Even more heartbreaking for that patient to hear that they have no options left but to undergo amputation. For the patient who works their ass off everyday to try to control their blood glucose levels with minimal success only to undergo regular laser treatments on their eyes for retinopathy knowing in the back of their mind the end game will be loss of vision. I cannot imagine any people whose greed would be so great to inflict these types of horrors on their fellow man yet here we are today. Afrezza is the single greatest advancement in the treatment of diabetes, no ifs ands or buts about it.
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Post by matt on Oct 18, 2016 12:43:47 GMT -5
Matt, ATM - if they have been recently or are currently tapping it for the purposes of funding ch 11 any risk of fraud? Most people / institutions buy equity with the assumption of going concern or is it caveat emptor? Mann Group - no idea what fine print says but if the Mann family or Claude specifically is in charge of the Mann Groups activities since Al's passing, is it possible that she could pull the LOC or once in place, is it typically irrevocable? That said, is it possible to go directly to 7 vs 11? I appreciate your comments. Whatever your opinion of management, I don't think these guys do anything that smacks of fraud. The financial situation is no secret and they are up-to-date on their SEC filings. In the last 10K the company noted that if they are unable to raise money they may not be able to continue as a going concern, and the auditor wrote a going concern opinion. If, after being explicitly warned by both management and the auditor that the company has a going concern issue, if somebody chooses to make an investment then that is on them. The SEC is there to make sure investors have all the pertinent information they need to make prudent investment decisions,, but if an investor reads the warnings and still chooses to roll the dice then the SEC will not get involved. The legal assumption is that we are all big boys and girls and, empowered with truthful information, can take care of ourselves. If the information is not truthful that is a different matter, but I don't think that is the case here.
I have looked at the Mann Group note some time ago. Originally there were some escape clauses, but Deerfield Partners insisted on some changes before they made their facility loan. While I did not spend a lot of time on it, my reading is that the Mann Group is on the hook for the full amount should the company attempt to draw on the loan.
As for Chapter 7 versus Chapter 11, most people don't understand about bankruptcy. Bankruptcy courts are not a part of the Justice Department (i.e. an Article III court) but rather part of the Executive Branch as a division of the Commerce Department (Article I). Bankruptcy is largely an administrative court empowered to adjust debts in accordance with the provisions of the bankruptcy code. The judge is essentially applying a fairly rigid set of administrative procedures to the facts at hand rather than making judgments in equity. If the company doesn't have enough money to continue in business, the code sets forth who gets paid first and in what amount which, when the money is gone, also determines who is left with losses. The process is far more mechanical that virtually any other administrative proceeding and the process is detailed and specified by federal law. Exceptions are not possible.
The form to declare bankruptcy is just that, a form, that is about three pages long. Somewhere on that form are two check boxes, one that says Chapter 11 and one that says Chapter 7. Whichever box gets ticked is where the case starts out. However, bankruptcy allows any party in interest (i.e. any creditor or any shareholder) to enter an appearance before the court and make a motion to convert the case from 7 to 11, or from 11 to 7, depending on the rules. So, as a practical matter it doesn't matter where the case starts out but rather where the case ends up. The court is pretty flexible about allowing conversions into Chapter 11 and will only forcibly convert a case to Chapter 7 if there is no hope of reorganizing. The purpose of the court, as part of the Commerce Department, is to support the economy by preserving damaged but still viable businesses when possible and to save jobs. The mandate is to complete the cases very quickly because the companies have no money so there are few bankruptcies that turn into legal marathons.
The statutory requirement for submitting a reorg plan is 120 days (possible, but difficult, to extend) so that does not give a lot of time for navel gazing. Arguments like "hey judge, lets wait another six months and see where script numbers are then" will be summarily dismissed. One the case is filed, the clock starts ticking and there is little anybody can do to control the process at that point which is why you never, ever, want to be in court unless all else has failed. Keep in mind that a successful reorganization does not mean that the shareholders get anything at all. If the business can stay alive, but the creditors exchange their claims for 100% of the stock in the newly reorganized company, then that counts as a success to the Commerce Department even though that is a disaster for shareholders. The goal is to preserve the business and the jobs, it is not to preserve ownership. Keep that in mind and you will understand more about the bankruptcy process than 95% of investors.
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Post by me on Oct 18, 2016 13:19:48 GMT -5
Matt, ATM - if they have been recently or are currently tapping it for the purposes of funding ch 11 any risk of fraud? Most people / institutions buy equity with the assumption of going concern or is it caveat emptor? Mann Group - no idea what fine print says but if the Mann family or Claude specifically is in charge of the Mann Groups activities since Al's passing, is it possible that she could pull the LOC or once in place, is it typically irrevocable? That said, is it possible to go directly to 7 vs 11? I appreciate your comments. [snip] If the company doesn't have enough money to continue in business, the code sets forth who gets paid first and in what amount which, when the money is gone, also determines who is left with losses. The process is far more mechanical that virtually any other administrative proceeding and the process is detailed and specified by federal law. Exceptions are not possible.
Unless, of course, you're GM and the Justice Department operates lawlessly.
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Oct 18, 2016 14:14:53 GMT -5
Post by orlon on Oct 18, 2016 14:14:53 GMT -5
Basically the options are 1: Bankruptcy 2: Sell Afrezza to another pharma 3: Sell the company.
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Oct 18, 2016 15:10:55 GMT -5
Post by mockingjay on Oct 18, 2016 15:10:55 GMT -5
Basically the options are 1: Bankruptcy 2: Sell Afrezza to another pharma 3: Sell the company. you don't believe anymore the current option ? so the launch 2.0 will work ?
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Post by babaoriley on Oct 18, 2016 15:38:54 GMT -5
"Afrezza is the single greatest advancement in the treatment of diabetes, no ifs ands or buts about it."
Scotta, apparently there are some ifs, ands and buts about it, and unfortunately, by endos! And our co-poster mannmade is doing everything he can to address the skepticism of some endos, but he is only one mann!
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Oct 18, 2016 16:39:36 GMT -5
Post by orlon on Oct 18, 2016 16:39:36 GMT -5
And...to add to babaoriley's comment...it's trading at .45 cents! How can it be for the 'single greatest advancement in the treatment of diabetes, no ifs and or buts' be trading at .45 cents? I have been invested in the company for over eight years, primarily because the science and technology and the strong belief that AFREZZA would make a difference in people's lives. If you strike gold but don't have the wherewithal to get it out of the mine, the gold will remain worthless.
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Post by falconquest on Oct 18, 2016 17:06:23 GMT -5
I think the single best source of immediate revenue would be a cash settlement with Sanofi. Matt eluded to this having potential. Matt has also eluded to many things that haven't come to fruition. So we have to ask ourselves, what are the chances of a cash settlement from Sanofi?
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Oct 18, 2016 17:17:05 GMT -5
Post by mnkdorbust on Oct 18, 2016 17:17:05 GMT -5
I think the single best source of immediate revenue would be a cash settlement with Sanofi. Matt eluded to this having potential. Matt has also eluded to many things that haven't come to fruition. So we have to ask ourselves, what are the chances of a cash settlement from Sanofi? Personal opinion on cash settlement is it like almost everything relies on scrips. Would love to see it and it be more than debt forgiveness as that debt isn't due for years so doesn't really come into play. Cash is king and MNKD needs as much as they can get their hands on currently.
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Oct 18, 2016 17:45:30 GMT -5
Post by agedhippie on Oct 18, 2016 17:45:30 GMT -5
I think the single best source of immediate revenue would be a cash settlement with Sanofi. Matt eluded to this having potential. Matt has also eluded to many things that haven't come to fruition. So we have to ask ourselves, what are the chances of a cash settlement from Sanofi? Almost nil. Actually I think it is nil but I am being optimistic. My feeling is that the only reason Sanofi would make the payment is for PR purposes to reassure future partners, or because they are ordered to by arbitration. The issues are that for PR purposes you would want to do it quickly like Pfizer did to mitigate the bad impression, and arbitration will take some time and is unlikely to succeed. Sanofi are not doing well so I do not see them deciding throwing money at this at this point as a good idea.
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