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Post by matt on Jan 10, 2019 11:25:14 GMT -5
It means there’s plenty of shares to short. Due to dilution. It is always a function of supply and demand. You are assuming that the borrow costs are low due to an excess of supply (which may indeed be true) but the alternative explanation is that those who have a stomach for uncovered shorting may have more interesting targets to pursue at the moment. The risk/reward trade-off was a lot more compelling in October 2017 when the PPS was over $5.00 than it is today. Even at $3.00, which was the price eleven months ago in February of 2018, there was a lot more room for a big decline than there is at $1.20. Meanwhile, there have been big downside moves in more actively traded stocks in the last quarter that provide short traders a more interesting return. If a retail short can only track a handful of shortable stocks, then MNKD might not be the best choice at the moment. The other thing to remember is that borrow rates from brokers mostly reflect sentiment in the retail segment of the market while institutions have other ways to create a net short position in their portfolio that doesn't necessarily involve borrowing share from Fidelity.
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Post by matt on Jan 4, 2019 17:09:14 GMT -5
Mike also mentioned that there would be a new direct way to buy afrezza without insurance. Could this be part of the One Drop partnership previously referenced last year? Or is it part of new card he mentioned? It is more likely a relationship with a mail order pharmacy, which is a regulatory requirement regardless if it includes OneDrop or any new payment options. Since only licensed pharmacists can accept prescriptions from physicians and dispense drugs, there must be one somewhere in the chain of commerce. If MNKD is having trouble getting traction with the PBM owned pharmacies, like CVS/Caremark, it makes perfect sense to go to a second tier mail order network as they can easily handle the volume.
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Post by matt on Jan 3, 2019 14:16:44 GMT -5
Cash flow from operations over the last four years has been negative $57 million, 78 million. 64 million, and around 92 million (Q3 YTD figure of $68.6 million annualized), and remember that the 2016 number would have been larger but for the extraordinary gains from the Sanofi settlement. Call it roughly $80 million a year or $20 million a quarter in funding requirements. That is roughly what the company consumes in cash each year to maintain operations, and since Afrezza does not make any contribution to profits at all (gross profit on Afrezza sales is negative), the negative cash flow has to be funded by issuing shares. RLS cash contribution so far has been a rounding error, and except for the initial payment from UTHR, most of the potential from licensing will be longer term money and not shorter term. UTHR has an option on the mystery second molecule, but development milestones are generally tied to R&D progress so while there may be money coming from UTHR there may well be increased research costs almost equal to the development milestones. Call it a wash.
How many shares are needed? Enough to fund approximately $80 million in negative cash flow plus any additional planned increase in R&D expense required to build a pipeline for future licensing deals. If the company doesn't want increasing share authorizations to be an annual event, they may ask for enough new shares to cover the expected need for two years or a bit more. I estimate that the company will need 200-250 million shares to get them through the end of 2021 absent any unexpected windfalls.
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Post by matt on Jan 3, 2019 8:58:42 GMT -5
Clear as mud. Why does it exist? What is it supposed to be measuring? Why is there a liability now for something anticipated to occur in the future? Some lenders, including Deerfield, offer lower interest rates or a cash infusion in exchange for a piece of the action later on. That is what created the liability in the first place; MNKD took their money and will have to repay it in the form of milestones if the specific triggers are reached. The company is expected to have a $5 million payment this quarter related to the $50 million in cumulative sales trigger. Generally accepted accounting principles require every entity to carry a liability on the books for any future payments that may come due. The underlying principle is that you have to match the costs of producing revenue with period in which revenue is realized. This is the same reason you do not expense a factory when built but instead it is depreciated over the life of the production line as product is made. Matching of revenues and expenses, whenever incurred, is the basic difference between accrual basis accounting and cash accounting, and all large business are required to follow accrual basis principles. Think of it this way. A bank offers you a mortgage with two payment plans: 1. You pay 5% per year in interest as with a conventional mortgage. 2. You pay 3% per year in interest, but when you sell the house the bank gets to keep 20% of any profit. That is essentially what lenders like Deerfield do; they give a lower cost form of financing that reduces the cash bite in the early years, but eventually the company has to pay the piper. In the hypothetical example above, if you take option 2 then you don't really own 100% of the house but rather 100% less 20% of any profit. That 20% is a liability that has to be paid to the bank eventually, and it would show up on your personal balance sheet. It is the same here; the shareholders do not own 100% of the future of Afrezza; they own 100% less any milestone payments that are likely to come due. If the company did not accrue and adjust the milestone liability, the balance sheet would be misleading.
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Post by matt on Jan 1, 2019 9:52:34 GMT -5
To truly understand the executive compensation you have to dive into the DEF-14A to see the breakdown. The link above showed that Mike earned $1,333 in 2017, but that was made up of:
Salary $458 Option Awards $606 Bonus $247 401(k) match $ 21
I can tell you that $450K in salary is pretty average pay for a CEO in the industry for a company of this size and stage of development (VPs of a company typically make $300K and up, especially the CFO). Bonuses usually top out at 50% of base salary for the CEO, so the bonus may be a little high but only a little (VP's usually get 20-35% of base salary in bonus).
The options award is likely worthless given the stock price performance, but the SEC makes the company include it anyway. So yes, according to SEC rules Mike's total compensation was $1,333 but he only received about half of that in cash. MNKD will not get an experienced and competent CEO with pharma experience for less. Some of the VPs look overpaid to me (especially the general counsel) but the other numbers are within the average range for the industry.
Bottom line, the option and restricted stock awards skew the executive compensation numbers. Matt Pfeffer "received" $3.4 million in total compensation for 2016, but $2.7 million was option awards that likely expired unexercised. So did Matt P. make $3.4 million that year or did he make closer to $700 thousand? The SEC says $3.4 million, but Mrs. Pfeffer looking into their joint checking account would say he earned less than $400 thousand after taxes (which is all she cares about when buying groceries, making the mortgage payment, and paying the electric bill). Whether any given number is excessive depends on your perspective.
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Post by matt on Dec 30, 2018 11:25:11 GMT -5
I don't think MNKD C Levels will buy any more shares until shares (if ever) get well above the reverse split range. Would you? The job of management in any company is to develop an operational strategy, have it approved by the board of directors, and then to execute on that strategy to the best of their ability. If they fail to perform adequately, then it is the responsibility of the board to replace management. It is not the job of management to buy shares regardless of the performance of the company any more than it is the responsibility of shareholders to double-down on their investment if the price does not move in the direction they hoped. Managers exchange their labor for a salary and it is not for the shareholders to dictate how that salary is spent. Again, if you don't like the result of their efforts then you can sell your stock or lobby the board to hire new managers. Do not be so naïve as to look at the annual salary figure as reported in the 10-K and assume that the managers receive that amount of compensation; they don't. The figures in the 10-K and DEF-14A are computed according to rules promulgated by the SEC that only an accountant could love (I have a CPA and I still don't love them). When an executive gets options, the full value of those options is reported as income in the year granted whether or not those options are so far underwater that you need a submarine to find them. Most of the sky-high executive compensation numbers you see consist of phantom income that never turns into cash, and stock brokers do not accept phantom income for the open market purchase of shares. The truth of the matter is that most companies in the biotech / pharma space use a report that breaks down compensation for every job at a company, stratified by the size and market value of the company. A firm can either pay the going rate for a CEO, CFO, or medical director or they can expect to have their executives hired away by a competitor willing to pay more. If MNKD wants competent executives, they have to pay the market rate or do with inferior talent. None of that excuses the horrible optics of some recent actions (Hawaii trip, deeply discounted share issuance just before year end, etc.). I don't think management of MNKD does a particularly good job of expense management and some of their decisions make me scratch my head, but don't expect management to spent their personal wealth to prop up the stock price; it doesn't work that way. The reason the SEC started requiring disclosure of insider transactions years ago was to give shareholders some insight into what management thinks about the prospects of the company, and if senior managers are not buying shares in the open market then maybe that is a hint that those with perfect information know that the company still has some very steep hills to climb before things turn around.
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Post by matt on Dec 29, 2018 9:55:20 GMT -5
If I'm reading this right they'll likely hold onto these shares. Hopefully they'll keep the warrants, execute them later in the year and keep the resulting shares as well. Our short friends will have to cover at a much higher price after all. And that makes my day. Generally the hedge fund playbook works in the opposite direction. The fund buys a share/warrant "unit" at a deep discount to the market and then sits quietly while the price recovers a bit. When the price retraces to a higher price level, they quietly sell off the shares at a profit and keep the warrants. If everything works out as planned, the net proceeds from the stock sales offset the price paid for the unit and any transaction fees. At that point the hedge fund has recovered 100% of the cash they invested, and maybe even a little bit more, and they still own the warrants. The hedge fund can now do what they like going forward. If MNKD takes a huge upswing, they can sell or exercise the warrants to capture the price increase. If MNKD trades in a range with volatile price action, the fund can play the volatility by shorting the stock when high knowing that in the very worst case they can cover with new shares by exercising the warrant, essentially a covered short position. More likely, the very worst case does not happen and the stock price just bounces up and down in a volatile range, the fund can act like any other trader and take profits while still having the downside protection afforded by the warrants. Finally, if the MNKD price totally collapses the fund loses nothing because they have already recaptured 100% of their original cost through the early share sales. That is why they are called hedge funds; all the downside risk has been hedged away and only the neutral and upside payoffs remain. Hedge funds love these deals because the exact same equity can be used to buy up warrants in many companies. If the hedge fund sells the shares early in the process to recoup their cash investment, then the warrants are "free" is a sense. The fund can take the exact same capital and do a similar deal with company 2, company 3 and company 4. The fund doesn't much care which of the companies turns into a big winner just so long as one of them does. Do enough of these deals, and one of them always turns out to be a gem. Poster KC listed 41 other investments earlier in this thread so with MNKD in the mix that makes 42; if only 10-15% of those turn into big winners then there are 4-6 big paydays ahead for the fund and the fund doesn't care what happens to the other 36-38 companies; those are just battlefield casualties of the hedge wars. Finally, realize that a 13G filing is based on the investor's potential ownership and not their actual ownership. Hypothetically, if I owned zero shares in MNKD but 50 million warrants, I would have to file a Form 13 because of my "potential" ownership. Filing a Form 13, except in cases of a "street sweep" in pursuit of an acquisition, conveys no information about the true intentions of the purchaser. Normally a Form 13 doesn't tell you anything useful except that a particular new player has entered the field of play. The information comes later while observing the game. The first time you will know what the player is up to comes in mid-February when all institutional managers have to file Form 13F showing their holding as of the last day of 2018 (the report is due 45 days after calendar year end). If CVI holds an amount of shares that is different than what they just disclosed in the 13G filing, then you will have a hint as to what their true intensions are. Even more instructive will be the 13F they file in mid-May (45 days after calendar end of Q1).
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Post by matt on Dec 26, 2018 14:15:19 GMT -5
The EU process is essentially the same as the FDA process, about nine months to approval assuming the file is complete. Most drugs that get approved in the US have no issue in EU and vice versa, but as others have noted pricing is a different beast and that is done at the national level. Germany may give a reasonable reimbursement, albeit lower than in the US, but they will be the maximum price country. All others will be lower, and some places will have extremely dismal pricing (Portugal, Spain, Greece).
However, all the same issues facing Afrezza in the US like poor pricing, lack of formulary access, physician concerns, and three mega-competitors named Lilly, Novo, and Sanofi will be the same. If the company can't be successful in the US, Europe will be no easier to penetrate and in most countries harder.
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Post by matt on Dec 24, 2018 15:18:18 GMT -5
In general, it is up to the sponsor to decide what to submit and when. The agencies have gotten a little bit tougher on mandatory pediatric trials when a medication tested on adults might be used off-label in an unintended and untested population. In principal, there is no reason to disallow expanding the label gradually but FDA may not allow it because:
A. They want a proper pediatric trial and by gradually sneaking up on younger age groups it may increase the rate of off-label usage. B. There is still the matter of long-term safety data. Safety in young persons just reaching puberty, but who have immature bodies, may be an issue.
I would expect that FDA will want to see a lot more than primary outcomes, but if they are in a generous mood it might slide through. There is a lot of wiggle room on either side.
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Post by matt on Dec 21, 2018 9:49:20 GMT -5
What I dont understand is: Why now? It makes no sense to me! Is there any acute need for cash? I thought we just got that UTHR money!?
IMHO giving away shares at that price is close the theft of current shareholders money and the management should be called out for it!
What you are proposing is to play chicken with the US financial markets, and that is never a good idea. Anybody that knows a bit about financial statement analysis can take the numbers to date and come up with a forecast of future cash balance, and that says the company is out of money by the end of Q2 so a raise was in the cards. When a company runs the balance sheet dry, they are forced to go to the market under duress and take whatever terms are on offer no matter how bad they are. While this was a highly dilutive raise, the question you need to ask yourself is what would a similar sized raise look like if management had waited until April or May? The financial markets have been heading south the last two months, and better that valuations will return to Sept/Oct levels is no more likely than two or three more months of broad market decline. Yes, the company just got some money from UTHR but future money under that deal is tied to milestones, and the $30 million for the "second pipeline product" comes in two chunks of $15 million that is also tied to milestones. Those milestones aren't free to achieve; MNKD will have to spend some money on R&D to earn those payments. That is where a lot of the UTHR money is going. The real driver of cash burn continues to be Afrezza. While there has been progress this year, the fact remains that Afrezza and its related overhead expenses cost the company $63 million in cash through Q3. It still costs the company more to make the product than what it sells for, and the sales, marketing, and administrative expenses are running more than $20 million per quarter. Bottom line, the company has a lead product that costs its shareholders more than $80 million a year in cash to produce and sell. This week's raise was nominally $40 million, but after underwriter's fees, discounts and commission it will be more like $37 million net, so that represents less than two quarters of cash. Management cannot continue to spend $80 million a year to market a drug that makes no gross profit contribution unless it does periodic raises to offset the loss. Expect more of the same by the end of Q2.
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Post by matt on Dec 20, 2018 15:23:00 GMT -5
I don't think that is necessarily true. They may have indications of interest, but the deal didn't close yet. I believe they could change terms if they forced to, or maybe close without being fully subscribed. Hopefully they had interest from strong hands. Yes, that is necessarily true. There are two kinds of placements, fully underwritten and what is normally called "best efforts". In an underwritten offering MNKD sells the shares to the underwriter and it is the underwriter's problem to find investors to take the shares. The price is fixed and the underwriter has all the risk of subsequent price movements. As is typical in underwritten offerings, there is more than one bank involved and the other banks will take a chunk of the deal and find buyers among their clients. Contrast this with best efforts offerings where all the bank promises to do is to try and find buyers. Of course the bank only gets paid on a best efforts offering if they actually find buyers, so banks only sign up for those if they think they have a very good chance of getting the deal done. In both cases, the banks will have a list of likely investors. The could be family offices, deep pocket individuals, or most likely, hedge funds. Since the price terms are locked and loaded, the bankers were out peddling the securities today and will continue to do so until their allocations are gone. When MNKD closes with the underwriter, the shares will trickle down to the new buyers within hours if not minutes. As for what the securities are worth, the market has already voted on that. As I write this message the stock is trading at $1.10 which gives an implied value to the warrant of $0.40. Since the securities will trade separately, you can go back at any point and see if the new buyers got a good deal or not as the market value of the unit is always the stock price plus the warrant.
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Post by matt on Dec 20, 2018 10:20:43 GMT -5
well, I'm buying $1 calls over a number of expiries. Either the deal goes through at $1.50 and it helps the share price or it doesn't and we don't have dilution. Talk about deep analysis! Anyway, I'm happy to play the contrarian and accumulate. This is an underwritten offering so it will close unless something catastrophic happens to MNKD, and that is less than a small fraction of 1% probability. Besides, there is nothing like investment bankers that need to close a deal before December 31 so they can maximize their 2018 bonus.
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Post by matt on Dec 20, 2018 8:54:45 GMT -5
I don't think you can complain about this funding. Afrezza continues to be sold at a very substantial loss and the increase in scripts required to make that a break-even proposition are still far away. Meanwhile, MNKD is attempting to pivot its strategy more towards the TS opportunities, but the company built to commercialize Afrezza is not the same company you need to do development in drug delivery technologies. That requires a lot of investment.
I have often stated in the past that management waited too long to pull the trigger on financings, essentially telegraphing to the market that the company was running on fumes. That is a recipe for deep dilution and while nobody likes dilution, the choice is dilution today or a lot more dilution later. Better to bite the bullet and be done with it.
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Post by matt on Dec 14, 2018 13:18:04 GMT -5
from the earnings call on Nov 1, speaking of the UTHR deal:
"the next compound we're working on, that's got to be a big priority, which they paid us $10 million to start quickly, and that can bring another $30 million just right off the bat. "
Mike C stated that on Nov 1 -->> $30 million coming in soon What is soon? Company goes out of Deerfield compliance end of first quarter. Is There are stated milestones in the agreement that have to be reached in order to trigger payment. The company will not be getting a single payment of $30 million, but rather two milestone payments of $15 million each. That much you can see if you go back and read the agreement from EDGAR, but what you cannot see is what the milestones are as the text has been redacted pursuant to a confidential treatment order. Typical milestones have to do with completion of formulation work, production of clinical trial quantities, acceptance by FDA to commence human testing on a patient population (i.e. not healthy volunteers in a Phase I but real patients in a Phase II), and many others. Your guess is as good as mine, both as to timing and milestone requirements. However, expecting to hit both sets of milestones before the end of Q1 might be optimistic, hitting one set is probably realistic.
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Post by matt on Dec 2, 2018 12:08:14 GMT -5
Not much will happen, these milestones of “700” or “800” only exist in our heads. Reality is, even if we hit 800 relatively soon, that isn’t good enough at this point in time. Agree. There is considerable volatility in the script numbers week to week so a single data point, no matter how much improved it may be, will launch the stock to the moon. Similarly, if the scripts come in at 400 it should not tank the stock for the exact same reason. Now if there was a 800 week followed sequentially by 900, 1,050, and 1,200 that might be considered a permanent upward change in the trend line and the stock price might react accordingly. Single data points won't help, multi-week line segments with a distinctly positive slope might. Keep in mind that the market looks at MNKD's script numbers and revenue figures along side those of Humalog and Novolog. When MNKD starts to trend toward $58 million in weekly sales, which is what Lilly and Novo report every week (each of them), then the market will think something has changed in a material way.
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