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Post by matt on Aug 22, 2016 13:56:30 GMT -5
Aren't some institutions restricted from buying shares trading below $5? Getting back above that might make a reverse split worthwhile. Funds can only invest in what their fund documents say they can invest in. Some funds just buy oil and gas, some do REITs, some do foreign stocks, etc. Indeed many of the mutual funds have a $5 price limit that prevents them investing in most small cap stock. However, these tend to be mutual funds that are heavily weighted towards blue chip stock and they shy away from anything that even hints of speculative, which frankly is most of the biotech sector. They might throw money at an Amgen or a Gilead with billions in revenues, but Mannkind would still be a stretch.
The reason to reverse split to stay on the NASDAQ has a lot to do with SEC regulations. There is a legal term of art "national securities exchange" which consists entirely of NYSE, AMEX, and NASDAQ. The OTCBB, pink sheets, and others are not national exchanges for that purpose. Since each exchange has a strong regulatory function, corporate governance rules, and listing standards the SEC has different sets of capital raising rules for companies that are listed, and while some funds have that $5 minimum reference above there are others that have a national exchange rule without regard to the share price. Once a company drops to the OTCBB the discounts and warrant coverage (i.e. dilution) get much, much worse.
So yes, doing a reverse merger is going to cause some considerable shareholder pain but companies do it because the alternatives are even more painful. Improving the balance sheet for Mannkind is a bit like removing an adhesive bandage; it hurts a lot less if you just man up and rip it off quickly. The sooner the dilution overhang is gone the sooner the discussion can return to growing sales, but until that problem is solved everybody will be counting the days until zero cash.
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Post by surplusvalue on Aug 22, 2016 14:09:41 GMT -5
In MNKD's case I think we are referring to using a RS to artificially raise the sp to be able to attract investors to raise funds (nothing to do with the exchange).This is what my comments on this topic are directed towards. Don't see how that would work, at least beneficially. Let's take a simplified scenario: Share price is $1, and MNKD does a 2:1 reverse split that raises the share price to $2 (and we'll assume that increase sticks). It also halves the numbers of shares outstanding, however. So to raise any given amount of money through a stock issue, the proportional dilution remains the same. The only reason for Mannkind to do a reverse split would be to stave off de-listing. That prospect is so far off in the future, though, that if it were to come to pass it would mean that Afrezza had failed and the company was doomed anyway. Forget about it. The approach taken by some stocks that are in financial straits whose SP is too low to raise funds without driving the SP dangerously low (which is the case for MNKD at $1) is to RS. At a RS of 1 to 5 MNKD stock would be at $5 after the split (artificially raised by the RS with no change in fundamentals ) enabling MNKD to offer stock at a discount to the buyers without a the kind of negative results that doing this at a $1 would entail. But as I said the usual result given these conditions is to see the SP being driven back down again so that the company ends up back or worse than where they started. My point exactly is that it wouldn't be beneficial, as you too recognize, but a manifestation of desperation that everyone can see. I have even seen companies do a RS to uplist to a better exchange, raise funds at or above the $5 level only to be driven back down again to penny land. Only under very different conditions does an RS work well as I explained earlier. Not so sure why there is so much general discussion about splits in general here. The notion of a RS was raised in the context of this thread about raising funds (capital).
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Post by saxcmann on Aug 22, 2016 14:11:08 GMT -5
You really think Al's trust and BOD would consider reverse split?? I don't.
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Post by surplusvalue on Aug 22, 2016 14:30:08 GMT -5
You really think Al's trust and BOD would consider reverse split?? I don't. Don't know. I didn't raise the idea of a RS but have been responding to those at the beginning of this thread that did; presenting my reasons that under the existing circumstances that it's a terribly foolish idea.
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Post by surplusvalue on Aug 22, 2016 14:57:42 GMT -5
Aren't some institutions restricted from buying shares trading below $5? Getting back above that might make a reverse split worthwhile. Funds can only invest in what their fund documents say they can invest in. Some funds just buy oil and gas, some do REITs, some do foreign stocks, etc. Indeed many of the mutual funds have a $5 price limit that prevents them investing in most small cap stock. However, these tend to be mutual funds that are heavily weighted towards blue chip stock and they shy away from anything that even hints of speculative, which frankly is most of the biotech sector. They might throw money at an Amgen or a Gilead with billions in revenues, but Mannkind would still be a stretch.
The reason to reverse split to stay on the NASDAQ has a lot to do with SEC regulations. There is a legal term of art "national securities exchange" which consists entirely of NYSE, AMEX, and NASDAQ. The OTCBB, pink sheets, and others are not national exchanges for that purpose. Since each exchange has a strong regulatory function, corporate governance rules, and listing standards the SEC has different sets of capital raising rules for companies that are listed, and while some funds have that $5 minimum reference above there are others that have a national exchange rule without regard to the share price. Once a company drops to the OTCBB the discounts and warrant coverage (i.e. dilution) get much, much worse.
So yes, doing a reverse merger is going to cause some considerable shareholder pain but companies do it because the alternatives are even more painful. Improving the balance sheet for Mannkind is a bit like removing an adhesive bandage; it hurts a lot less if you just man up and rip it off quickly. The sooner the dilution overhang is gone the sooner the discussion can return to growing sales, but until that problem is solved everybody will be counting the days until zero cash.
Sorry, I disagree. A RS (not merger) without relatively stable finances and an already existing sales or growth condition is asking shareholders to suffer for no reason since this likely will result in conditions not much different. There has to be something already solid or impending that backs the RS up. To alter your analogy. this would be like asking shareholders to believe that we can stop a gushing financial wound by using a bandaid. Besides, who would invest in MNKD on the basis of an RS without any real indication of increasing sales in the first place given its recent history and Sanofi's poisoning of the well. In MNKD's case the proof of the pudding is in the eating i.e. sales. So realistically sales indicators have to precede raising more funds and if so a RS would not necessarily be needed at that point.
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Post by Deleted on Aug 22, 2016 15:35:34 GMT -5
You really think Al's trust and BOD would consider reverse split?? I don't. No, at this point, Mannkind needs to do one thing and one thing only, move the metal. If Afrezza sales don't start to pick up, everything else is a non-issue. You get 5-6 weeks of solid W/W NRx growth (above 15%) it will start to impact SP. This would be proof of concept that Mike and his team are on the right path. Once we know the model works, a big piece of uncertainty is off the table. 5-6 weeks doesn't get us to the promise land, but thats enough to wake things up and assuming it continued after that, money and time would be the only other resources needed. While the former would not be inexpensive, it would not be as expensive as it is currently.
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Post by audiomr on Aug 23, 2016 11:38:31 GMT -5
My understanding is that reverse splits can be strategically applied to boost the stock price if they are concurrent with very positive news. This isn't always an attempt to cause a short squeeze, but it can be an outcome. MNKD has too many shares outstanding for their own good. We have seen the manipulation that can occur when market makers can control share price by shuffling around 5 dollar bills (or dollar bills now-a-days). Such a small portion of the float can be passed around between a few players to direct the share price in the way they want. With a greater atomic unit price the fundamental cost and risk of these manipulative tactics goes up. A 10:1 reverse split initiated with very good news such as entering favorable foreign distribution/partnership could have a compounding effect that is greater than just the announcement of a partnership. It can starve the unhedged shorts, for which I think the management still has a (very legitimate) grudge. If the news is solid and positive, the reverse split shouldn't have any lasting negative effect. Any foreign progress or big news is likely a ways off, so I would expect any reverse split to be as well. Interesting point. Thanks.
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Post by akemp3000 on Aug 23, 2016 12:16:41 GMT -5
There are several possibilities that exist for MNKD to increase cash between now and the end of the year. These include: 1) The increase in scripts Matt and Mike said would come starting about now, 2) RLS milestone payment Matt said would come before the end of the year, 3) Sanofi resolution payment(s) expected before the end of the year, 4) Drawing on the loan and 5) a new partnership such as an agreement with VDex if it were to launch. The best scenario would be a solid increase in scripts as that would lead to phone calls and interest coming in from interested companies, investors and countries. It would reduce future borrowing rates. It's doubtful a reverse split is even being discussed internally...IMHO
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Post by nylefty on Aug 23, 2016 12:25:54 GMT -5
There are several possibilities that exist for MNKD to increase cash between now and the end of the year. These include: 1) The increase in scripts Matt and Mike said would come starting about now, 2) RLS milestone payment Matt said would come before the end of the year, 3) Sanofi resolution payment(s) expected before the end of the year, 4) Drawing on the loan and 5) a new partnership such as an agreement with VDex if it were to launch. The best scenario would be a solid increase in scripts as that would lead to phone calls and interest coming in from interested companies, investors and countries. It would reduce future borrowing rates. It's doubtful a reverse split is even being discussed internally...IMHO Agree with possibilities 1 through 4, but not with a Vdex "partnership." What sort of agreement with Vdex could MannKind legally make? Don't see that happening.
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Post by matt on Aug 23, 2016 15:48:20 GMT -5
Sorry, I disagree. A RS (not merger) without relatively stable finances and an already existing sales or growth condition is asking shareholders to suffer for no reason since this likely will result in conditions not much different. I agree with your sentiment, that a reverse merger is desirable only if there are other conditions present, but if it doesn't happen the options for fundraising get very difficult. While PIPE transactions are expensive under these conditions, you can still get a PIPE done if you are listed on a national securities exchange. If a company moves to the OTC most are stuck having to do Rule 415 offerings, which almost always result in a death spiral leading to bankruptcy. It is a bit like driving off a cliff; you know what the result will be and the only question is how long the screaming goes on until the car hits bottom.
The financial and operational conditions of the company are what they are, and hoping that they were better will not make it so. The only question now is whether you want to add the additional challenge of trying to raise survival capital to the long list of rabbits management has to pull out of the Mannkind top hat. If you have never tried to raise money for a company on the OTC then you don't appreciate just how different market conditions will be. I have done raises for companies on NYSE, NASDAQ, and the OTC (never AMEX) and have the battle scars to prove it. Life on the OTC is a bitch and shareholders have greatly reduced liquidity because the volume drops. If you think the computer driven trades are bad, just wait until some parasite decides to manipulate MNKD price in an environment without competing market makers. Regaining NASDAQ compliance once a company delists is not a matter of getting the bid price above $1; it is an entirely new listing with a complete review and requires a $4 minimum bid.
At any rate, you will have lots of fair warning. With the exception of a few states, and Delaware is not one of them, an absolute majority of the shareholders must vote for the reverse split (meaning brokers cannot vote for shares in street name). If it comes to that, think long and hard before you vote no.
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Post by joefred on Aug 23, 2016 16:44:42 GMT -5
Matt - any feel for how much it would cost MNKD in investment banking fees to accomplish a Reverse Split? Do you know if it is it a flat fee or based on the company value?
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Post by chuck on Aug 23, 2016 18:20:34 GMT -5
Matt - any feel for how much it would cost MNKD in investment banking fees to accomplish a Reverse Split? Do you know if it is it a flat fee or based on the company value? Correct me if I'm wrong but all I think you need to do is send out a proxy to shareholders, get them to approve the reverse split and effect the reverse split by calling up the Company's share transfer agent. Investment bankers have nothing to do with a reverse split as it has nothing to do with raising capital (although sometimes companies raise capital concurrent with a reverse split). Perhaps put another way, the raising of capital doesn't cost any more or less in i-bank fees if you do a concurrent reverse split.
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Post by surplusvalue on Aug 23, 2016 19:40:16 GMT -5
Sorry, I disagree. A RS (not merger) without relatively stable finances and an already existing sales or growth condition is asking shareholders to suffer for no reason since this likely will result in conditions not much different. I agree with your sentiment, that a reverse merger is desirable only if there are other conditions present, but if it doesn't happen the options for fundraising get very difficult. While PIPE transactions are expensive under these conditions, you can still get a PIPE done if you are listed on a national securities exchange. If a company moves to the OTC most are stuck having to do Rule 415 offerings, which almost always result in a death spiral leading to bankruptcy. It is a bit like driving off a cliff; you know what the result will be and the only question is how long the screaming goes on until the car hits bottom.
The financial and operational conditions of the company are what they are, and hoping that they were better will not make it so. The only question now is whether you want to add the additional challenge of trying to raise survival capital to the long list of rabbits management has to pull out of the Mannkind top hat. If you have never tried to raise money for a company on the OTC then you don't appreciate just how different market conditions will be. I have done raises for companies on NYSE, NASDAQ, and the OTC (never AMEX) and have the battle scars to prove it. Life on the OTC is a bitch and shareholders have greatly reduced liquidity because the volume drops. If you think the computer driven trades are bad, just wait until some parasite decides to manipulate MNKD price in an environment without competing market makers. Regaining NASDAQ compliance once a company delists is not a matter of getting the bid price above $1; it is an entirely new listing with a complete review and requires a $4 minimum bid.
At any rate, you will have lots of fair warning. With the exception of a few states, and Delaware is not one of them, an absolute majority of the shareholders must vote for the reverse split (meaning brokers cannot vote for shares in street name). If it comes to that, think long and hard before you vote no.
If you look back to previous responses to your posts you will see that I also share your sentiment that MNKD cant wait too long to obtain funds again otherwise they will be backing themselves into an even more undesirable corner. But the urgency doesnt make it ok to do something foolish like a reverse split (dont know why you keep calling it a reverse merger?) You make it appear that MNKD will soon will be faced with delisting and being on the OTC markets if they dont raise funds now. You know as well as I do that it can take almost a year for delisting to actually take place given the provisions for a company to obtain time to meet listing requirements (minimum share price and equity conditions) and even after that there is an appeal process.(ask me how I know this?). And I have had the unfortunate pleasure of experiencing companies who have raised funds on the OTC markets and the higher exchanges. OTC is a nightmare as you say but sometimes the parasites follow the same company to the uplist and the manipulation is almost as bad although not in terms of raising funds. You conveniently left out answering my question that was part of the same post. " Besides, who would invest in MNKD on the basis of an RS without any real indication of increasing sales in the first place given its recent history and Sanofi's poisoning of the well". And as well you left out a scenario (not a rabbit one) I mentioned in the same post "In MNKD's case the proof of the pudding is in the eating i.e. sales. So realistically sales indicators have to precede raising more funds and if so a RS would not necessarily be needed at that point. "Unfortunately MNKD needs to demonstrate an ability to grow its sales otherwise it will be a bad set of conditions for MNKD for raising funds even while on Nasdaq. (I dont think shareholders both retail and otherwise would back a RS anyways so my discussions here are to point out the reasons why it is a bad idea in the first place) And by the way, although I cant read minds, its likely that MNKD management also recognizes the the futility of a RS under the present conditions. As far as I am aware no one from MNKD has even mentioned such an idea as a viable solution;its only been suggested here. MNKD seems to be focused on building and accomplishing sales instead.
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