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Post by matt on Jul 10, 2017 8:49:50 GMT -5
2. If that works, your doctor will not want to change. That, in one sentence, is the Afrezza story. Diabetes, like most metabolic diseases, is difficult to control simply because when you administer a drug to control one symptom, it has effects on two or three other variables as well, resulting in a medical game of whack-a-mole. When a physician finds a drug, or a combination of drugs, that work for a patient, and that the patient is willing to take as prescribed, they are very reluctant to change the treatment. Regardless of whether Afrezza has benefits not available with other forms of insulin, the fact is that the other insulins work for many, many patients. Physicians practice by the "If it ain't broke, don't fix it" school of thought because experience has taught them the wisdom of that approach. Ultimately, that is the behavior that MNKD is trying to change and it is a tall order.
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Post by matt on Jul 9, 2017 9:47:38 GMT -5
Because Deerfield knows that MNKD has no cash and requiring them to keep 25 mil in reserve would run them dry? I don't think it has anything to do with news coming, but rather them allowing a lower reserve to keep them out of bankruptcy. I think that is a fair assessment. Once MNKD is in bankruptcy court a lot of unexpected things can happen that are out of the control of MNKD, Deerfield, the Mann entities, and shareholders alike. Unless there is a prepackaged deal on the table, nobody ever wants to go to court. Deerfield is likely underwater with respect to this debt; in a UCC Article 9 sale they are unlikely to get enough value out of their security to break even. By keeping MNKD alive they can grab a few shares here and there, convert them to cash, and soften the eventual loss if the company does not turn around. Shareholders play offence, looking to push hard and score the biggest gain, but lenders are only entitled to recover what they loaned plus interest so they play defense looking to avoid loss. Their behavior is entirely pragmatic. As the primary lender, Deerfield does not want to have their liens "primed" or their notes equitably subordinated. Those actions let the bankruptcy judge upset the established priority of debt and let other parties rise to a more senior level than Deerfield. That rarely happens, but when it does it is usually because the lender was too aggressive and helped contribute to the bankruptcy of the debtor. Here Deerfield has taken shares in lieu of cash that they could have demanded for the May payment, has agreed to lower the cash covenant, and has extended time for the July payment. If it comes to bankruptcy, Deerfield can walk into court and argue that they tried to cooperate to keep the debtor solvent, but the situation was too far gone. Their cooperative posture protects from the risk of losing their first lien position in a bankruptcy which, if it comes to that, is their best chance to recover their loan. Regardless, Deerfield would rather just have the money, or even a known fraction of the money, rather than deal with a liquidation scenario.
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Post by matt on Jul 5, 2017 16:47:03 GMT -5
If the Mann Group does not deliver on the money then the Deerfield deal is off and everything goes back to how it was ten days ago, except that the credit line is now $10 million less.
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Post by matt on Jul 4, 2017 7:44:58 GMT -5
If warrants are issued with exercise dates more than 1 yr in the future, then the shares required to cover the warrants do not need to be issued and registered until such time that they are considered a current liability, with an exercise date of < 1 yr. Most investors (unlike underwriters who have their own set of rules) will insist that shares be reserved against future issuance at the time of the deal regardless of when the warrant expires. In this case the warrants were registered under the S-3 dated April 18, 2016 which was declared effective as of April 27, and the company issued the required 424B5 prospectus supplement on May 10. That should have been the end of it. All I can figure out is that there was some defect in the 424B5 that rendered it inaccurate so it had to be amended. May of 2016 did not seems to be a good time for MNKD compliance since that is the same period where the director warrants went unreported. I suspect the two events are related and that this is truly just correction of minor reporting errors. Why fix the errors now when the warrants are so far underwater? One reason to get the ducks in a row (and this is pure speculation) because the the company may be preparing to reprice the outstanding warrants. A number of companies that have needed to raise capital unilaterally reduced the exercise price of their outstanding warrants in order to stimulate immediate exercise. That might involve a repricing deal that lowers the exercise price so something in the money, say $1.20 per share but only if exercised by July 15, instead of the face value of $7.50. Since the shares are already registered and reserved this would not require additional securities filings other than a one-page 8-K, and it may be the fastest way to get some quick cash. It would be dilutive in the sense that the issued and outstanding shares would increase, but the company can claim they didn't increase authorized shares or sell any new securities which would also be true. The original deal was done by Rodman & Renshaw and this is exactly the kind of transaction they, and their clients, would jump on. If there are 9.7 million warrants outstanding and they get repriced to $1.20, that is potentially $11.6 million in proceeds (less some fees), good for about 45 days of additional runway.
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Post by matt on Jul 3, 2017 10:40:52 GMT -5
Appears that today is the day for MNKD to bare their soul as for all the malfeasance that have allowed to happen with their legally required SEC filings----they just filed an amended Form 10-K/A for the annual report for 2016. Seems they failed to file the proper ownership reports for numerous individuals. Even the Mann Estate didn't file their disclosures. How can a responsible corporation over look something as basic as filing the information about the massive handout to insiders? Filing ownership reports is not the responsibility of the company; it is the responsibility of the individual. That said, a lot of companies handle that on behalf of their officers and directors to insure that it is all done timely and accurately, and because they have all the relevant records. However, they are required to make note of it in the 10-k if the company is aware that one or more reports have been missed, hence today's 10-K/A. The choice comes down to having reporting done by the CFO, who may have other things on their mind, or outsourcing it all to a law firm which isn't cheap and eats up scarce capital dollars. Given that the errors were not material, I am inclined to cut them a little slack. With limited dollars to spend I would rather they hire sales and marketing resources than compliance lawyers.
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Post by matt on Jul 3, 2017 8:22:52 GMT -5
"The warrants were issued by us on May 12, 2016 pursuant to a prospectus dated April 27, 2016 and a related prospectus supplement dated May 9, 2016. The warrants are exercisable at an exercise price of $7.50 per share at any time on or before May 12, 2018 for the Series A warrants and November 12, 2018 for the Series B warrants." If that is the case then these warrants have already been registered (or they should have been by the earlier filed prospectus supplement) in which case this filing is just a clean up of past paperwork deficiencies. Since the shares are underwater by a significant degree these warrants will not generate any near term cash proceeds absent a major event.
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Post by matt on Jul 3, 2017 7:18:42 GMT -5
The warrants at the terms stated in the S-1 bear no resemblance to fair market value. For reference, the last trade on a Feb 2018 warrant with a $4 strike price was five cents so a May 2018 warrant at a higher strike price is worth something less (without cranking the numbers this early in the morning without the benefit of coffee, it will be somewhere in the three cents range). The price stated may be a function of the rules for computing the registration fee under the Securities Act of 1933 and may not bear any resemblance to the price the company expects to yield (the company can sell at any price, they don't have to price the securities at $7.50).
The other alternative is that some entity has essentially agreed to make a gift to MNKD and buy the warrants regardless of the fair price. That would be highly unusual, but it could happen.
From a purely financial perspective, you can buy a fully paid share will all rights and privileges of a shareholder for $1.41 as of the last close. The worst case scenario for a shareholder is that you can lose that $1.41 plus the interest you could have earned on the strike price of $7.50 (about 7 cents at the risk free rate). Compare that to an option holder who is out $7.50. In the alternative, if the company recovers and to $7 in the next year, the person who bought a share at $1.41 would own a security worth $7 but the option holder is still out the cost of the option ($7.50) would own nothing. That payoff matrix is too asymmetric for the warrants to have any significant value.
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Post by matt on Jul 1, 2017 8:54:42 GMT -5
ATM sales aren't reported as they happen and won't show up until the quarterly report. Although, it does not appear that they are tapping the ATM at all with all the renegotiating and borrowing going on lately. I guess they are serious about trying to be al minimally dilutive as possible. Re the ATM If you say so... tapping the ATM would be about as much a "material event" as it gets. The existence of the ATM was disclosed when it was created and that is sufficient for SEC purposes in regard to advance notice; the next time you see anything will be in a 10-Q or 10-K footnote that sales have actually taken place. However, there is not that much they can still tap from the ATM. The registration statement contains this limit: "Shares having an aggregate offering price of up to $50,000,000, provided that in no event will we sell more than 25,000,000 shares in this offering" The share limit must be adjusted for the reverse split so the adjusted limit is 5 million shares. The company already issued 8.9 million shares (1.8 million post-split) in 2015, leaving 3.2 million shares usable on the registration statement. At yesterday's closing price of $1.41, the maximum dollar amount that can still be raised is $4.4 million (after fees), or less than two weeks of extra runway.
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Post by matt on Jun 29, 2017 13:54:13 GMT -5
matt "Mann Group holds a big block of shares which in the worst case can be sold to generate the cash" Nice innuendo! You think that 17 million shares hitting the market in the next 40 trading days is the best case? That would not be good for the PPS, and certainly if the Group has cash they can use it would be ideal, but all those solutions are better than not coming up with the cash because if they don't then the whole Deerfield arrangement falls apart (there is a covenant to that effect). Root for the money fairy to fly down and fix the problem if you like, but if Mann Group was that fairy then the deal would not have gone together they way it did. Be realistic about what is about to happen and you will be better positioned to take advantage of it when the time comes.
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Post by matt on Jun 29, 2017 11:19:19 GMT -5
Every little bit helps at this point. It looks like Deerfield is being cooperative, but very cautious, as they move forward and the 8-K suggests that perhaps Deerfield insisted that Greenhill be engaged to look at options. Likewise it looks like Deerfield is telling the Mann Group to "show me da money" or the deal is off. Taking shares at only a 10% discount to market was pretty generous on Deerfield's part, more aggressive funds would have insisted on a lot more. I would guess we can assume that Deerfield didn't dump the previous shares as someone stated, (I can't recall who made the comment, it doesn't matter at this point). I don't know that you can make that assumption at all. I think Deerfield probably did dump the earlier shares, and will likely do so with these shares. Deerfield is in the business of issuing debt; they are not a strategic equity investor that wants to hold long-term the way a healthcare fund does. Exchanging debt that is not due for several more years for shares that they can sell now reduces the amount they can lose on the loan, and shortens the duration of their debt portfolio. Converting the shares to cash now reduces Deerfield's potential loss if the company does not turn around and, like any lender, they want to maximize the upside while hedging the downside.
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Post by matt on Jun 29, 2017 8:55:19 GMT -5
Every little bit helps at this point. It looks like Deerfield is being cooperative, but very cautious, as they move forward and the 8-K suggests that perhaps Deerfield insisted that Greenhill be engaged to look at options. Likewise it looks like Deerfield is telling the Mann Group to "show me da money" or the deal is off. Taking shares at only a 10% discount to market was pretty generous on Deerfield's part, more aggressive funds would have insisted on a lot more.
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Post by matt on Jun 29, 2017 7:19:20 GMT -5
Is there really a discussion that the Trust is not going to come up with the money and Mike did not talk to them prior to the PR? It is a valid question to ask, but I think it is safe to assume that Mann Group will come up with the cash as agreed. The better question to ask is how will they come up with the money. Mann Group holds a big block of shares which in the worst case can be sold to generate the cash, and as noted, they have 60 days to make good on their funding commitment. If they have to sell shares to raise cash, that will affect the PPS for everybody. If they have cash squirreled away on the balance sheet, that is a better scenario. However, the fact that the company used up $10 million of their last credit line by voluntarily capitalizing accrued interest into the principal of the note suggests that writing a check for the whole $30 million was not feasible and that some share liquidation should be expected. How many shares is the question but even if they have to sell 100% of their holding I expect that they will come up with the money as promised. And of course Mike talked to them. You just don't make a demand for an eight figure sum from your largest shareholder without consulting them in advance.
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Post by matt on Jun 28, 2017 15:21:25 GMT -5
Ahhh...didn't notice you had a link...thx The link provided was to the Alfred Mann Foundation for Scientific Research. Then there is The Mann Group LLC, a Delaware LLC (who is the lender in this case) and also the Alfred Mann Living Trust (who is the managing member of Mann Group LLC). Those are three separate legal entities. The entity that sold stock in EYES was the Living Trust, not the Mann Group LLC. Also, The Mann Living Trust is the sole member and manager of The Mann Group, meaning that it is a for-profit privately held corporation that is not required to report publicly, and in that sense it is black box to us. If you know how to do it you can track down the registration to Delaware, but there the trail will end. As near as I can tell, the Mann Group LLC is the successor to The Mann Group Inc., a Delaware Corporation. A corporation and an LLC are similar entities, both providing limited liability, but the LLC is cheaper and easier to administer so most closely held corporations are not incorporated anymore and exist in the LLC form. The structure suggests that Al used this entity for many years prior to his death to hold his interests in various companies. As those companies were sold, spun-off, the shares donated to charities (like the foundation), and other dispositions happened, most of the assets could have been drained off (or not). Since the LLC was accountable to one man during life, and to his estate following his death, absolutely anything could have happened to the underlying assets, and that would be a matter that is between the LLC and the IRS. As a matter of good estate planning, I expect the LLC was stripped clean of anything valuable with the proceeds shifted to the trust prior to Mr. Mann's death. That is the entire purpose of separate legal entities as they build a legal wall between your personal assets and your business affairs. Since Mannkind was the only significant holding in which Mr. Mann was active (after EYES was sold off), I suspect that the LLC remained solely to manage the credit line and the related obligations. At any rate, the trustees of the Living Trust are there to protect the interests of the beneficiaries of the trust and they will not be risking a penny to prop up Mannkind when their fiduciary obligation is to the beneficiaries.
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Post by matt on Jun 28, 2017 11:50:23 GMT -5
My question to experts on this board is: can Mann Group actually refuse this request from MNKD? I wondered about that as well. Saying they submitted the request seems to imply that it could be rejected. Can Mann Group refuse the request? Probably not. Since Deerfield agreed to substitute the credit line for actual cash in their covenants, I presume that they reviewed the note to insure that the contractual terms are legally binding. Can Mann Group simply refuse to perform on the contract notwithstanding the fact that it is a valid agreement? Sure, anybody can breach a legally binding contract if they are willing to suffer the economic consequences of doing so, but I doubt that a deliberate breach is in their best interests. As for the "request" the agreement reads as follows: "Whenever Borrower desires an Advance hereunder, Borrower shall notify Lender by facsimile with a transmission confirmation or by electronic mail as long as a read receipt is requested and received no later than 4:00 p.m. Pacific time, sixty (60) calendar days prior to the date on which the Advance is requested to be made."
Under the terms of the note, Mann Group has until Monday, August 28th to actually fork over the cash.
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Post by matt on Jun 28, 2017 10:45:51 GMT -5
A comment someone left on SA says that shares in MNKD are the Mann Group's only (significant) asset. Is that true? If I read it correctly, it says that 10.6 million of the money will be used to repay Mann Group debt interest; so MNKD nets only 19 million dollars? I think these two questions are related. The poster on SA has posited that the Mann Group assets consist principally of MNKD shares. When the Mann Group was created years ago, the price of MNKD was much higher and so the value of the Mann Group, but after the reverse split the 89 million shares (as reported in the March proxy) are now 17.8 million shares. Those are not worth $30.1 million if they were sold today, so one easy way to "use up" the credit line is to capitalize the interest on the balance sheet into the principal balance. To answer the second question, the company only nets $19 million in new cash. This begs two questions: 1. Where is Mike going to get the money to meet the Deerfield debt covenant come September 30? This transaction pretty much destroys the possibility of making it to September without a default if no additional money is raised since it would have been a squeaker even if the full $30.1 million were still available in cash. 2. Does the Mann Group have the $19 million in cash needed to fund this draw-down, or will they have to sell some or all of their MNKD stock to raise it? As a private entity we really don't know what the rest of their balance sheet looks like, but if they are cash poor they may have negotiated to roll the accrued and unpaid interest into the note as that does not require cash from either side. There could be a lot of shares hitting the market in the coming days if they need to raise the rest of the cash. What is clear is that the company needs some new financing options to materialize very quickly. It seems Deerfield has drawn a line in the sand and there will be not more money coming from that source, and now the Mann Group is tapped out as well.
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