Shorts' Strategy

[brotherm1]

Looking for help trying to understand why we still have so many short positions. To me it seems shorting this stock is extremely risky at this point.  Why would the shorts think the reward risk ratio is favorable to shorting at this time?  It seems to me MNKD has had partnership offers and even at least perhaps a serious buyout offer higher than the current share price, and possibly others we've not heard about.  Why take a chance on shorting now to possibly make 10, 20, or even a greater percentage gain when at anytime a buyout offer could quickly double, triple, quadruple.... the current share price and burn the shorts? Are the shorts somehow hedged with call options?  Perhaps hedged in some other investment (e.g., a hedge fund that might be long one or more biotech companies that would benefit by purchasing MNKD at a very low price)?  I am baffled. Perhpas there are some experienced investors here with some insight into why we still have a large short position?

[cretin11]

This topic is addressed on multiple other threads on this board, with plenty of opinions shared.

But you mention a "serious buyout offer higher than the current share price" - what are you referring to there?

[nadathing]

There is no serious interest from BP in MNKD. I had thought there would be some TS deals after approval and there has been none that involved any real cash. We can't even find a partner for the epi application. This surprises me and depresses me. I hate to think that the only thing we have is increasing script numbers, because they may not increase fast enough to impact the pps. There seems to be absolutely no interest from new investors in MNKD. I am totally depressed over the entire situation.

[mnkdnewb]

I'm not long anymore and can honestly see this more clearly than any time while owning the stock. Mnkd needs money and they need Afrezza sales to get it or a large milestone payment (which is possible, but I don't think $100,000,000 would even be enough at this point). The other option is dilution. At this price, diluting to receive the funds needed would Imo cut the sp to about 0.35 (maybe that is where the analysts come up with their 0.10 / 0.20 target). Obviously they need to stay listed, so a reverse split would be necessary (which changes the price per share but not the market cap value). Epi? That is a ways off IMHO unless they partner with someone but I'd have a hard time believing anyone will pay any meaningful amount of money after watching what happened to afrezza and all the difficulties it has and still faces. Yes I've lost $65,000 (would have been about $75,000 if I hadn't sold at $1 a month or so ago), so take my thoughts with a grain of salt, but the amount of unrealistic pumping here makes me sick thinking others are hanging on to their shares because of what some people here say.

[sportsrancho]

They play both ways. IMO, a little traction that proves Afrezza will take market share and they will all turn around and go long. It's not so much about the money. We have never had a good balance sheet. It's about if we or someone else can market Afrezza successfully.

[matt]

Sept 13, 2016 13:50:52 GMT -5 brotherm1 said:

Looking for help trying to understand why we still have so many short positions. To me it seems shorting this stock is extremely risky at this point.  

Few shorts are simply short. If somebody had gone short when the stock was at $1.00, took the proceeds and bought long-term call options with a strike price of $1.00, and then watched the share price fall you would not think that is risky because if the share price went down by more that the cost of the call option, the short could exit and lock in a gain.  Nobody should care what they make on any particular long or short position in the stock, or on any particular call or put option.  If your portfolio of securities is gaining in value, you should be happy.

Are there other shorts that are little more brave than that?  Sure, some just look at the balance sheet and the script growth and compute the probability that the company will become insolvent in the next six to 12 months.  If you bet that five biotechs with Mannkind's balance sheet are going to become insolvent, four of them will and the fifth will not gain so much in value as to wipe out the profits.  Again, most people playing the short game are playing a portfolio of short positions, not just one, and nobody cares about the gains and losses on individual components so long as the overall portfolio is gaining.

The risk you mention, that the company will get bought out, is not much of a risk.  You need to see this from the perspective of a pharma buyer looking for growth and/or product diversification.  Most acquirers look for the acquired entity to be neutral to their income statement (their shareholders don't like dilution either) or at least neutral by year two.  What do you think the minimum acceptable take-out price would be for most shareholders?  Lets say $3.00, which means that with paying off the acquired liabilities and transaction / integration related costs you are looking at a $2 billion investment.  The acquirer will be looking for at least a 9% return, pretax, on that investment which means that Mannkind has to be contributing $180 million to the pretax income of the acquirer versus the current loss rate of roughly $100 million.  It would take a very brave acquirer to assume that Mannkind could turn from a $100 million loss to $180 million gain in 24 months time, and if that buyer had a diabetes franchise (like Lilly or Novo) the $180 million it would have to be net of any cannibalization of their current insulin sales.

So that leaves only shorts who are totally unhedged with the risk that Mannkind will reach cash flow breakeven before they run out of access to capital.  If that happens, the shorts will lose a few bucks on Mannkind and that will cause them a loss.  That is their own fault for not hedging the downside. 

[sophie]

Thank you for an educated response. I was looking for someone who is knowledgeable to chime in. I don't know if you know what you're talking about, but you have always been correct on what I do know, so I tend to trust your opinion. 

I'll still try to look around, but I kind of feel like a fish out of water in this department. I'll talk to my account manager and see what he thinks. Thank you matt!

[broncolife]

Matt gave a very eloquent and detailed response. I believe it is very simple, if you follow the money. MNKD has a very disruptive treatment and a very novel delivery system. Remember a lot of money is at stake, not just in the treatment but in needles, the sharp/needle containers, the collection of the hazard materials, treatment of hypos caused by inferior insulin, etc, etc.

Let's look at acquistion/buyout.
Matt again is correct, but you would think a company would say we can get access to a disruptive treatment/delivery for 2 billion, wow! However if that comes at an expense to the majority of your inferior products, not including your R&D costs why would you buy it when you can kill it so much cheaper.

How is it all done by BP? Through shorting/naked shorting like dark pools. The share price to most people is reflective of the company. So back to the point, keep people confused, keep the product from selling well, keep the investment community calling for your demise, share price gets depressed, financing gets harder to obtain if at all, offerings are almost impossible because share price is to low and the amount of shares needed to provide financing would be to big/dilution, let's not forget your debt covenant clauses, etc. Now I have effectively killed your company.

And if I already know the rules we are playing by, why would I ever cover my short position, when I can wait for 0.00.

[mbracket123]

"They" don't really care about making money, at least not on the trade position.  "They" basically want to kill the company and sideline Afrezza for as long as possible to keep the money-makers going in their camp.  Pure and simple.  

[mnkdnewb]

Sept 13, 2016 16:16:08 GMT -5 broncolife said:

Matt gave a very eloquent and detailed response. I believe it is very simple, if you follow the money. MNKD has a very disruptive treatment and a very novel delivery system. Remember a lot of money is at stake, not just in the treatment but in needles, the sharp/needle containers, the collection of the hazard materials, treatment of hypos caused by inferior insulin, etc, etc.

Let's look at acquistion/buyout.
Matt again is correct, but you would think a company would say we can get access to a disruptive treatment/delivery for 2 billion, wow! However if that comes at an expense to the majority of your inferior products, not including your R&D costs why would you buy it when you can kill it so much cheaper.

How is it all done by BP? Through shorting/naked shorting like dark pools. The share price to most people is reflective of the company. So back to the point, keep people confused, keep the product from selling well, keep the investment community calling for your demise, share price gets depressed, financing gets harder to obtain if at all, offerings are almost impossible because share price is to low and the amount of shares needed to provide financing would be to big/dilution, let's not forget your debt covenant clauses, etc. Now I have effectively killed your company.

And if I already know the rules we are playing by, why would I ever cover my short position, when I can wait for 0.00.

Thinking like this should be kept to yourself as it is all complete opinion and no facts at all. Investors can and do get sucked in by this verbal junk. No proof of BP conspiring to kill Mannkind, no reason for naked shorting (for the last 4-6 months at least) as there are plenty of shares available to short, and i have a difficult time believing a dr would not prescribe something they think is truly beneficial that doesn't have any risks.

[cjm18]

Sept 13, 2016 16:51:44 GMT -5 mnkdnewb said:

Sept 13, 2016 16:16:08 GMT -5 broncolife said:

Matt gave a very eloquent and detailed response. I believe it is very simple, if you follow the money. MNKD has a very disruptive treatment and a very novel delivery system. Remember a lot of money is at stake, not just in the treatment but in needles, the sharp/needle containers, the collection of the hazard materials, treatment of hypos caused by inferior insulin, etc, etc.

Let's look at acquistion/buyout.
Matt again is correct, but you would think a company would say we can get access to a disruptive treatment/delivery for 2 billion, wow! However if that comes at an expense to the majority of your inferior products, not including your R&D costs why would you buy it when you can kill it so much cheaper.

How is it all done by BP? Through shorting/naked shorting like dark pools. The share price to most people is reflective of the company. So back to the point, keep people confused, keep the product from selling well, keep the investment community calling for your demise, share price gets depressed, financing gets harder to obtain if at all, offerings are almost impossible because share price is to low and the amount of shares needed to provide financing would be to big/dilution, let's not forget your debt covenant clauses, etc. Now I have effectively killed your company.

And if I already know the rules we are playing by, why would I ever cover my short position, when I can wait for 0.00.

Thinking like this should be kept to yourself as it is all complete opinion and no facts at all. Investors can and do get sucked in by this verbal junk. No proof of BP conspiring to kill Mannkind, no reason for naked shorting (for the last 4-6 months at least) as there are plenty of shares available to short, and i have a difficult time believing a dr would not prescribe something they think is truly beneficial that doesn't have any risks.

Same thing happened to satellite radio. Another disruptive technology. Naked shorting. It's an effective way to depress stock price.

[brotherm1]

Sept 13, 2016 15:37:03 GMT -5 matt said:

Sept 13, 2016 13:50:52 GMT -5 brotherm1 said:

Looking for help trying to understand why we still have so many short positions. To me it seems shorting this stock is extremely risky at this point.  

Few shorts are simply short. If somebody had gone short when the stock was at $1.00, took the proceeds and bought long-term call options with a strike price of $1.00, and then watched the share price fall you would not think that is risky because if the share price went down by more that the cost of the call option, the short could exit and lock in a gain.  Nobody should care what they make on any particular long or short position in the stock, or on any particular call or put option.  If your portfolio of securities is gaining in value, you should be happy.

Are there other shorts that are little more brave than that?  Sure, some just look at the balance sheet and the script growth and compute the probability that the company will become insolvent in the next six to 12 months.  If you bet that five biotechs with Mannkind's balance sheet are going to become insolvent, four of them will and the fifth will not gain so much in value as to wipe out the profits.  Again, most people playing the short game are playing a portfolio of short positions, not just one, and nobody cares about the gains and losses on individual components so long as the overall portfolio is gaining.

The risk you mention, that the company will get bought out, is not much of a risk.  You need to see this from the perspective of a pharma buyer looking for growth and/or product diversification.  Most acquirers look for the acquired entity to be neutral to their income statement (their shareholders don't like dilution either) or at least neutral by year two.  What do you think the minimum acceptable take-out price would be for most shareholders?  Lets say $3.00, which means that with paying off the acquired liabilities and transaction / integration related costs you are looking at a $2 billion investment.  The acquirer will be looking for at least a 9% return, pretax, on that investment which means that Mannkind has to be contributing $180 million to the pretax income of the acquirer versus the current loss rate of roughly $100 million.  It would take a very brave acquirer to assume that Mannkind could turn from a $100 million loss to $180 million gain in 24 months time, and if that buyer had a diabetes franchise (like Lilly or Novo) the $180 million it would have to be net of any cannibalization of their current insulin sales.

So that leaves only shorts who are totally unhedged with the risk that Mannkind will reach cash flow breakeven before they run out of access to capital.  If that happens, the shorts will lose a few bucks on Mannkind and that will cause them a loss.  That is their own fault for not hedging the downside. 

[


Any possibility a company that would purchase MNKD - or at least greater than 50% of MNKD to become a majority shareholder - would be able to write off several billion dollars of MNKD's losses which would add to the value of MNKD?

[longinvstr]

Sept 13, 2016 16:37:23 GMT -5 mbracket123 said:

"They" don't really care about making money, at least not on the trade position.  "They" basically want to kill the company and sideline Afrezza for as long as possible to keep the money-makers going in their camp.  Pure and simple.  

Also why "they" are made so uncomfortable by RLS.  It, and the potential do-good capital behind it, can not be black boxed or controlled.  I was irritated by the obvious recent FUDster push here until I consider that it is a symptom of their disease.  Being intelligent people, they know their efforts will have no real impact on outcome.  But, they have no other Rx for what ails them.  It is certainly not altruism that motivates countless posts.  So, upon further reflection, the harder they push, the better I feel.  Unfortunately for them, a superior drug that can improve/save thousands of lives and the company behind it, just might prevail.  I suspect that as we continue our sales ramp and approach the point at which their thesis will be proven incorrect, their symptoms will become more acute and postings accelerate.  Post away, as I am comforted by their discomfort.

[mbracket123]

You are absolutely spot on... Just hope we can pull out of the nose dive - going to be pulling a lot of G-force...

[mnkdfann]

Sept 13, 2016 16:56:59 GMT -5 cjm18 said:

Same thing happened to satellite radio. Another disruptive technology. Naked shorting. It's an effective way to depress stock price.

I'm not sure what you mean. AFAIK, no one killed satellite radio. But some of the satellite radio stocks were in bubble territory and inevitably fell to earth.