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Post by mnholdem on Feb 3, 2017 9:03:23 GMT -5
How Does The Reverse Stock Split Work?
Think of a delicious apple pie you just baked. You can slice it up into 4, 6, 8 or 12 pieces. It doesn’t matter how many slices you cut. You still have the same amount of pie. The same concept explains stock splits. The reverse stock split creates nothing. But it does paints a very skewed picture of reality. Here’s why.
Let’s say you own 10,000 shares of MnHoldem Corporation (MNHO). Unfortunately, MNHO has had a rough couple of years. It's lead drug fell off the patent cliff and the formularies turned to generic equivalents. The stock price plummeted and is currently trading at $0.50 per share. Your 10,000 shares are worth only $5,000. The company has 100 million shares outstanding and with its shares trading at $0.50 the entire company is only worth $50,000,000.
As a long-term investor, you’ve witnessed MNHO share price dive from $10 to $0.50 a share. You know that, even though it has a new FDA-approved drug that is better than what they had before, the company is in real trouble. Other investors realize this as well, as evidenced by the low daily volume, and nobody is buying MNHO. It’s generally understood that once the share price of a stock dips below $5 the company's health starts to be questioned. Some institutions even have rules to prevent investors buying below this threshold. With its current $0.50 per share, this particular company is thought to be on life support. It is also in danger of being delisted from NASDAQ.
The board of directors realizes how critical the situation is, especially with the threat of delisting from a major exchange looming over them. In an effort to drum up some interest in the stock, they decide to do a reverse stock split. MnHoldem Corporation takes back your old shares and give you fewer shares of the new MNHO securities, calling in all the outstanding 10 million shares and issuing 1 new share for every 10 old shares investors hold.
At the end of these moves there are only 10,000,000 shares outstanding and they will be worth $5 per share. That’s because the “pie” hasn’t changed. It’s simply been cut up into fewer pieces. The company is still only worth $50,000,000. That being the case, why has the board of directors gone to all this trouble?
Smoke & Mirrors
The Board of Directors at MnHoldem Corporations know that stock market research reveals that that most investors are leery of buying shares that trade below $5 per share. By performing this bit of reverse stock split "magic", the price per share jumps from $0.50 to $5. As a result, new stock market investors perceive less risk in MNHO and they become more willing to invest.
Do you see the danger here? People think they are buying a $5 stock when in fact they are buying a $0.50 stock. The risks are much higher than most investors perceive. Stock splits are nothing more than smoke and mirrors. They don’t create any real value.
The MnHoldem Corporation now looks MUCH better to the stock market, even though those who do their DD understand that the company's situation hasn't changed at all.
MannKind Corporation
With its lead drug Afrezza having struggled through clinical trials to get FDA-approved and then later having struggled to gain market acceptance, MNKD share price has plummeted from $20 to $0.60 a share over a decade. Its Board of Directors and Management believe that they are on the verge of a breakthrough with commercializing Afrezza inhaled insulin. After intense negotiations, they recently landed some payer contracts with Express Scripts PBM and Aetna for unrestricted and lightly-restricted coverage, respectively. They responded to complaints about the complexity of titrating their new inhaled insulin by releasing two new Titration Packs, simplifying the titration process for both physician and patient, as well as reducing copays previously associated with having to prescribe multiple packages.
A significant label upgrade is currently being reviewed by the FDA, potentially making Afrezza a First-in-Class "Ultra-Rapid" Acting insulin, which has significant ramifications for marketing, payer coverage and potential re-assignment in the future Diabetes Standard of Care. A new sales force has been hired, with an incentive plan that rewards sales performance. The company has begun to gain the ear of key opinion leaders in the diabetes treatment space and believes that it is on the verge of a major turnaround.
A reverse stock split is really about perceptions. Yes, it is mostly smoke and mirrors, but the final decision on whether this decision to reverse-split MNKD is good or bad will depend entirely upon how Afrezza performs in the months ahead. Establishing a $5 a share price and following it up with sales growth could attract investment funds and other investors, driving share price higher.
However, if sales of Afrezza continue to disappoint then share price will continue to plummet.
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Will MannKind Corporation bring about a major turnaround, bringing relief to its long-suffering shareholders?
I think they will.
I think that 2017 will witness the beginning of wide-spread market acceptance of Afrezza inhaled insulin, which is arguably the best prandial insulin to hit the market since the initial discovery of insulin nearly a century ago.
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So what is your opinion?
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Post by tarheelblue004 on Feb 3, 2017 9:10:55 GMT -5
I agree with everything you said. I'm hoping that 2017 is a good year, but am more certain that 2018 will be a great year. Certain being relative since I'm always wrong with MNKD.
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Post by promann on Feb 3, 2017 9:18:18 GMT -5
I hope when we get to 50.00 per share we can do a forward split of 10 shares for every one and begin at 5.00 again and make it more affordable. That's what I want to see....
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Post by bradleysbest on Feb 3, 2017 9:28:30 GMT -5
I like the ground work being done (payer coverage; awareness, label change, etc) but if MNKD does not find the money for a major DTC advertising campaign in 2017 it will be just another disappointing year! Once again the only thing I can see that will save the day is a major scripts increase. PWD do not know about Afrezza & if they do not become aware of it in 2017 .... GAME OVER! Remember folks, romance without finance is a nuisance!
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Post by oldfishtowner on Feb 3, 2017 9:33:34 GMT -5
In light of today's unexpectedly good NRx, hypothetically, say scripts improve over the next month and into March and the stock price increases to $0.90. With stockholders having approved the reverse stock split, expecting that the stock price to punch through $1 in another month or two, does Matt wait for the delisting letter and ask for an extension or does he go ahead with the split?
The only reason I ask is that if perception matters and the higher stock price will attract more buyers for a company whose revenues and stock price are increasing, in the case where there is still a relatively high number of shares shorted, would reverse split increase the pressure on those with short positions to cover? Wouldn't the reverse split also reduce liquidity adding to the problem for shorts? If so I would favor a 1 for 10 split.
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Post by Deleted on Feb 3, 2017 9:35:18 GMT -5
Afrezza has the potential to be a mega-blockbuster, what is needed is time. Anything that will buy additional time and avoid bankruptcy is fine with me.
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Post by matt on Feb 3, 2017 9:41:17 GMT -5
In light of today's unexpectedly good NRx, hypothetically, say scripts improve over the next month and into March and the stock price increases to $0.90. With stockholders having approved the reverse stock split, expecting that the stock price to punch through $1 in another month or two, does Matt wait for the delisting letter and ask for an extension or does he go ahead with the split? If the price is still below $1 come March 3 the company will execute the reverse split. The NASDAQ has criteria for granting extensions but MNKD does not meet those and there is no particular reason to expect that the appeals panel will grant an exception to this company, especially if NASDAQ knows that a reverse split has been authorized by the shareholders. It would be irresponsible of Matt to solicit permission for a reverse split, incur the share price impact that has occurred, and then play chicken with the appeals panel by not triggering the split thus daring them to delist the company (there is no way back from a misjudgment). NASDAQ holds all the cards here, MNKD does not. |
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Post by Deleted on Feb 3, 2017 9:46:55 GMT -5
matt you don't know if MannKind will or will not be granted an extension so why continue to beat the fear drum? Pfeffer would have been irresponsible not receiving approval of a reverse split to prevent delisting.
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Post by oldfishtowner on Feb 3, 2017 10:02:24 GMT -5
In light of today's unexpectedly good NRx, hypothetically, say scripts improve over the next month and into March and the stock price increases to $0.90. With stockholders having approved the reverse stock split, expecting that the stock price to punch through $1 in another month or two, does Matt wait for the delisting letter and ask for an extension or does he go ahead with the split? If the price is still below $1 come March 3 the company will execute the reverse split. The NASDAQ has criteria for granting extensions but MNKD does not meet those and there is no particular reason to expect that the appeals panel will grant an exception to this company, especially if NASDAQ knows that a reverse split has been authorized by the shareholders. It would be irresponsible of Matt to solicit permission for a reverse split, incur the share price impact that has occurred, and then play chicken with the appeals panel by not triggering the split thus daring them to delist the company (there is no way back from a misjudgment). NASDAQ holds all the cards here, MNKD does not. Then let me rephrase my question another way. If MNKD stock price recovers to $0.90 by the beginning of March and scripts have been growing nicely and MNKD does a reverse split as you suggest would happen, does this make a short squeeze more likely in the event there is still a large short position outstanding? The premise here is that, as mnholdem also suggested, a higher stock price will draw even more buyers to the stock. Just trying to determine if there is a potential play here. |
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Post by silentknight on Feb 3, 2017 10:13:04 GMT -5
If you read the delisting regulations and the conditions that determine whether or not a extension is possible, then no, MNKD is not eligible for an extension. If MNKD were eligible, I highly doubt the company would be requesting authorization for a R/S. Of course, the Nasdaq could completely ignore their own regulations and issue the extension but does anyone really believe that is happening? Really?
No, nobody knows if MNKD will or will not be granted an extension. Nobody can also say whether or not MNKD will effect the R/S, but an independent look at things would tell you that one is just as assured as the other at this point, barring a miracle.
All that aside, I agree with mnholdem's post. If MNKD executes, the R/S will become an afterthought. Execution is what is needed. MNKD has had plenty of time already and hasn't been able to get the job done.
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Post by agedhippie on Feb 3, 2017 10:15:14 GMT -5
If the price is still below $1 come March 3 the company will execute the reverse split. The NASDAQ has criteria for granting extensions but MNKD does not meet those and there is no particular reason to expect that the appeals panel will grant an exception to this company, especially if NASDAQ knows that a reverse split has been authorized by the shareholders. It would be irresponsible of Matt to solicit permission for a reverse split, incur the share price impact that has occurred, and then play chicken with the appeals panel by not triggering the split thus daring them to delist the company (there is no way back from a misjudgment). NASDAQ holds all the cards here, MNKD does not. Then let me rephrase my question another way. If MNKD stock price recovers to $0.90 by the beginning of March and scripts have been growing nicely and MNKD does a reverse split as you suggest would happen, does this make a short squeeze more likely in the event there is still a large short position outstanding? The premise here is that, as mnholdem also suggested, a higher stock price will draw even more buyers to the stock. Just trying to determine if there is a potential play here. A short squeeze would be no more likely post R/S than pre R/S under those circumstances. The trigger would be a supportable price rise rather than the R/S. The people for whom the $5 limit matters tend to be more conservative so they would wait until the price has held a while before they jumped in. |
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Post by kc on Feb 3, 2017 10:17:23 GMT -5
I like the ground work being done (payer coverage; awareness, label change, etc) but if MNKD does not find the money for a major DTC advertising campaign in 2017 it will be just another disappointing year! Once again the only thing I can see that will save the day is a major scripts increase. PWD do not know about Afrezza & if they do not become aware of it in 2017 .... GAME OVER! Remember folks, romance without finance is a nuisance!
Very hard to go it alone when you are underfunded. You get squashed like a bug by the big 3 big pharma's who are already destroying you with their funding of their hedge funds who are probably the ones shorting MannKind in their blind Venture funds that they all run.
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Post by kc on Feb 3, 2017 10:19:25 GMT -5
In light of today's unexpectedly good NRx, hypothetically, say scripts improve over the next month and into March and the stock price increases to $0.90. With stockholders having approved the reverse stock split, expecting that the stock price to punch through $1 in another month or two, does Matt wait for the delisting letter and ask for an extension or does he go ahead with the split? The only reason I ask is that if perception matters and the higher stock price will attract more buyers for a company whose revenues and stock price are increasing, in the case where there is still a relatively high number of shares shorted, would reverse split increase the pressure on those with short positions to cover? Wouldn't the reverse split also reduce liquidity adding to the problem for shorts? If so I would favor a 1 for 10 split. They have to prove to NASDQ that they have a plan to do it if they need to do it. My guess is that NASDQ accepts the plan and the Board only does it if they have too. |
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Post by surplusvalue on Feb 3, 2017 11:08:43 GMT -5
How Does The Reverse Stock Split Work?
Think of a delicious apple pie you just baked. You can slice it up into 4, 6, 8 or 12 pieces. It doesn’t matter how many slices you cut. You still have the same amount of pie. The same concept explains stock splits. The reverse stock split creates nothing. But it does paints a very skewed picture of reality. Here’s why.
Let’s say you own 10,000 shares of MnHoldem Corporation (MNHO). Unfortunately, MNHO has had a rough couple of years. It's lead drug fell off the patent cliff and the formularies turned to generic equivalents. The stock price plummeted and is currently trading at $0.50 per share. Your 10,000 shares are worth only $5,000. The company has 100 million shares outstanding and with its shares trading at $0.50 the entire company is only worth $50,000,000.
As a long-term investor, you’ve witnessed MNHO share price dive from $10 to $0.50 a share. You know that, even though it has a new FDA-approved drug that is better than what they had before, the company is in real trouble. Other investors realize this as well, as evidenced by the low daily volume, and nobody is buying MNHO. It’s generally understood that once the share price of a stock dips below $5 the company's health starts to be questioned. Some institutions even have rules to prevent investors buying below this threshold. With its current $0.50 per share, this particular company is thought to be on life support. It is also in danger of being delisted from NASDAQ.
The board of directors realizes how critical the situation is, especially with the threat of delisting from a major exchange looming over them. In an effort to drum up some interest in the stock, they decide to do a reverse stock split. MnHoldem Corporation takes back your old shares and give you fewer shares of the new MNHO securities, calling in all the outstanding 10 million shares and issuing 1 new share for every 10 old shares investors hold.
At the end of these moves there are only 10,000,000 shares outstanding and they will be worth $5 per share. That’s because the “pie” hasn’t changed. It’s simply been cut up into fewer pieces. The company is still only worth $50,000,000. That being the case, why has the board of directors gone to all this trouble?
Smoke & Mirrors
The Board of Directors at MnHoldem Corporations know that stock market research reveals that that most investors are leery of buying shares that trade below $5 per share. By performing this bit of reverse stock split "magic", the price per share jumps from $0.50 to $5. As a result, new stock market investors perceive less risk in MNHO and they become more willing to invest.
Do you see the danger here? People think they are buying a $5 stock when in fact they are buying a $0.50 stock. The risks are much higher than most investors perceive. Stock splits are nothing more than smoke and mirrors. They don’t create any real value.
The MnHoldem Corporation now looks MUCH better to the stock market, even though those who do their DD understand that the company's situation hasn't changed at all.
MannKind Corporation
With its lead drug Afrezza having struggled through clinical trials to get FDA-approved and then later having struggled to gain market acceptance, MNKD share price has plummeted from $20 to $0.60 a share over a decade. Its Board of Directors and Management believe that they are on the verge of a breakthrough with commercializing Afrezza inhaled insulin. After intense negotiations, they recently landed some payer contracts with Express Scripts PBM and Aetna for unrestricted and lightly-restricted coverage, respectively. They responded to complaints about the complexity of titrating their new inhaled insulin by releasing two new Titration Packs, simplifying the titration process for both physician and patient, as well as reducing copays previously associated with having to prescribe multiple packages.
A significant label upgrade is currently being reviewed by the FDA, potentially making Afrezza a First-in-Class "Ultra-Rapid" Acting insulin, which has significant ramifications for marketing, payer coverage and potential re-assignment in the future Diabetes Standard of Care. A new sales force has been hired, with an incentive plan that rewards sales performance. The company has begun to gain the ear of key opinion leaders in the diabetes treatment space and believes that it is on the verge of a major turnaround.
A reverse stock split is really about perceptions. Yes, it is mostly smoke and mirrors, but the final decision on whether this decision to reverse-split MNKD is good or bad will depend entirely upon how Afrezza performs in the months ahead. Establishing a $5 a share price and following it up with sales growth could attract investment funds and other investors, driving share price higher.
However, if sales of Afrezza continue to disappoint then share price will continue to plummet.
---
Will MannKind Corporation bring about a major turnaround, bringing relief to its long-suffering shareholders?
I think they will.
I think that 2017 will witness the beginning of wide-spread market acceptance of Afrezza inhaled insulin, which is arguably the best prandial insulin to hit the market since the initial discovery of insulin nearly a century ago.
---
So what is your opinion?
Yes we all know a reverse is just a "slicing of the pie" Except you conveniently left out some very important information as if we are all ignorant.Since most recognize a reverse is a sign of desperation, the share price falls. And since a reverse is usually followed by dilution which also causes the share price to fall (while the new purchasers -vulture financing-are protected) preexisting shareholders get slaughtered. That's why, if they can get out, most shareholders leave when a reverse is announced or just before it takes place.And if you are underwater when a reverse takes place the realistic possibility of even recovering your cost fast approaches nil. Finally, any institutions that are prevented from investing below $5 already know the stock's value is not $5 and are not fooled by the reverse so the smoke and mirrors doesnt work.So you can cut and spin the reverse and try to put a nice shiny happy face on it but any way you cut it its not good for shareholders. And in MNKD'S case the share price after the split and dilution will be driven back down well below $5 before MNKD's next stellar performance or any label change has had a significant effect and the chance to attract new investors will thus be very limited Now if they (MNKD) do a reverse (1 to 3) just to avoid delisting (no dilution) then that may be another story. See my discussion here mnkd.proboards.com/thread/7200/reverse-options-on-table. As for "widespread market acceptance" they will need widespread DTC marketing which they dont have the funding for. |
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Post by Deleted on Feb 3, 2017 11:35:35 GMT -5
Good post MN. Part of the issue is what gets a company to the point of needing a RS. In some cases, single product co with a trial that does not work out, mismanagement and then there is Mannkind who is in a class all by itself. The external attempts to destroy the company are likely unsurpassed and in hindsight, I think we all wish there was a better partner than Sanofi and that upon FDA approval, Al & Matt had a better crystal ball so they could have sold 20mm shares and put $200 mm in the bank. We are where we are.
A week from this Monday, 80+ sales reps hit the street. Some were previously selling Afrezza as employees with Touchpoint solutions. They know the product and key docs so they need no time to get up to speed. Many if not most of the new hires likely come from Sanofi or Novo. They know diabetes and the key docs. Getting them up to speed on Afrezza shouldn't take long. They may scratch their heads a bit as they unlearn what their former employers told them about RAAs but the light may come on quickly and they figure out what they were peddling in the past was crap compared to Afrezza. The better samples, titration packs, insurance coverage and a large team of PRN diabetes nurse educators should result in more NRx and a vastly improved refill rate.
The question remains, can this be executed fast enough to avoid the RS. At this point, MNKD does not need support from every endo in the country. They just need strong support from 300 - 500 to move the needle. Consider "Afrezzauser". His endo is part of a practice with 35,000 patients. Not all being diabetic but likely well north of 20,000 are. This is not the only mega endo practice in the country. You get a few hundred high volume endos on your side and the revenue stream will ramp.
Castagna is going to have to thread the needle on this one. His entry speed & angle, apex and track out have absolutely no room for error and without max exit speed, RS is a certainty. The boy has options on 1,000,000 shares of the company and a chance to make himself a legend and gain economic freedom so he never has to go back to the big Pharma circle jerk again. The good news is that wait is over. Its showtime.
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