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Post by matt on Jun 27, 2017 14:17:49 GMT -5
1. What happened to these people who loaned out their shares? 2. What happens the naked shorts? And the fellow who bought the naked shorts? 1. A shareholder retains all attributes of ownership during the loan period. The borrower has to return to the entity making the loan exactly what was loaned out thus they are responsible for returning any dividends paid, split shares, or rights that accrue during the loan period unless the agreement says otherwise. 2. A naked short has to sell the shares to a broker, and that broker will expect the same as with a bona fide loan. Ultimately, the person shorting has to deliver exactly what they sold including subsequent dividends, split shares or rights that accrue. Overall, the rules of the game are pretty fair and there are not nearly so many naked shorts as you might think. Yes there are fails to deliver on T+3, but most of those are just delayed for some reason and they clear T+4 or T+5 without further action. Since the broker is ultimately responsible for returning the shares to their client, they will force a buy-in if the delivery is delayed too long.
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Post by matt on Jun 26, 2017 8:37:38 GMT -5
It is difficult to make an accurate calculation; you sort of need to track it for a period of time and then do some trend analysis. TRx is just the total number of scripts. Some are new and some are refills. NRx is the number of newly written scripts. Some are truly new (patients who have never been on Afrezza) and some that are renewal of expired prescriptions (more like refills in concept). The reporting services that aggregate the overall script numbers don't break out the truly new patients from the renewed script number (they will do that for an extra fee). The other complication is that some physicians will write 90 day fills with three refills (a year of product), some will only give six months, and most just starting a patient on a new medication will give just 30 days because they want to monitor the patient more closely at first. Likewise, some insurance companies that cover Afrezza, mostly on tier 3 or 4, will limit supplies to 30 days at a time. Given the mix of new patients, old patients with a new script, fill rates of 30, 60, and 90 days at a time, it is hard to come up with a simple calculation. Sanofi stated publicly that they saw a drop-out rate of 65% and that this was one of the reasons to discontinue the marketing relationship. That number is affected by free samples, co-pay programs, and other factors that hide the real economics to the patient. I don't think there is enough reliable data to know what the present drop-out rate is, and we won't know that for some months to come.
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Post by matt on Jun 24, 2017 11:32:34 GMT -5
The minimum cash covenant together with the agreement to subordinate the Mann Group loans was required to get Deerfield to go along with the last debt modification. Essentially they wanted the Mann Group to be on the hook for the first $25 million of loss should bad things happen. This is no different than a teenager having to have a co-signer when they want to buy a car on credit. That means of the remaining Mann Group credit, the company can really only spend $5 million, and every quarter the Mann Group accrues interest on the existing debt, which is charged against the remaining credit line, so the true number is something a bit less than $5 million.
The covenant is there to protect Deerfield, and by extension their fund investors, from a default by MNKD. We can't see the fund agreements that Deerfield has with its investors, but they likely specify a minimum debt to assets ratio and other requirements for each company Deerfield loans money to. As MNKD's credit quality has continued to deteriorate, it is very likely that Deerfield will be barred from offering more generous terms because of their contractual and fiduciary obligations to their bond investors (everybody has a boss!). Deerfield can't ignore their investors, especially since some of those investors are heavy hitters like pension funds and university endowments with professional money managers at the helm. Deerfield is probably precluded from lending MNKD a dime more because the asset write-down at the end of 2015 erased more than $200 million of assets, which caused a big increase in the debt to assets ratio. Loaning more would only make the ratio higher, and Deerfield's investors probably have a contractual covenant that Deerfield can't loan new money to a borrower with a high ratio.
The issue for MNKD is that they don't have enough cash to pay Deerfield the $10 million they owe in July, and to continue the present monthly burn rate, and still have $25 million on the balance sheet come September 30 to avoid defaulting on the Deerfield covenant. That is true even if the full amount available from the Mann Group is drawn down. Most security agreements have cross-default provisions so if Deerfield declares a default on their covenants, that will cause all lenders and creditors with cross-default language to automatically declare their credit in default as well, meaning that essentially all debt becomes due immediately with the first default.
What is likely to happen is:
1. Deerfield agrees to swap the $10 million coming due for equity at a big discount (which they will sell immediately), or
2. MNKD will find a PIPE investor who will buy shares at a big discount (which they will sell immediately) and MNKD will use the money they raise from the PIPE to pay Deerfield.
Either way, default in July is not likely because the company still has enough cash; it just doesn't want to spend it if it doesn't need to. If MNKD can issue shares for the $10 million owed, they can continue operations as normal and reach September 30 with barely $25 million still on the balance sheet, thereby avoiding a September default as well. While that is mathematically feasible, suffice it to say that would be skating on extremely thin ice to head into Q4 that way. MNKD has no choice but to increase the number of authorized shares and tap the equity markets for funding, or to issue preferred stock since that has already been authorized. Praying for some deals to happen is a good idea, but the company cannot bet that an unsigned deal will happen in time to cover payroll and debt service for Q4, and sales aren't making enough of a cash contribution to move the needle.
So the company does have $30 million in credit, but they are very much handcuffed if they try to spend it for any reason other than to keep Deerfield happy.
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Post by matt on Jun 23, 2017 14:27:35 GMT -5
The point is that a significant increase in script sales (3x) means the cash burn rate will be offset by higher revenue. Doing the math in my head (and not accounting for varialbe/fixed costs), a 3x increase in sales is about $1 million/month, off of a $7.x million/month burn. Do you have any basis for thinking the PPS will stay near $3? Is there some metric you're looking at? I'd guess +200% sales growth in a couple months would take the PPS much higher. But I'm just guessing The key metrics are that sales is increasing at one rate, and the remaining cash on the balance sheet is declining at another (steeper) rate. So long as sales increase more slowly than the rate of decline in cash, the company must borrow more debt or dilute existing shareholders to remain in business. Ultimately, that is the math the drives the share price and it is what any company looking to acquire assets will look at. It is really hard to look at a single line like sales and decree that a change in sales will increase the PPS if you don't know what is happening to the right side of the balance sheet. Increasing sales should, logically, increase the share price if all else were equal, but all else is not equal if the company is not in a position to be self-supporting. If the next round of financing goes out at a 30% discount to today's price, that is about $1.12. That would undo a lot of positive sales traction which is why getting to cash flow break-even is such a big deal.
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Post by matt on Jun 23, 2017 10:53:39 GMT -5
In my view, pay the 10M, set up a rights offering and stop the debt game now. That is an opinion I cannot argue with. Just remember that to do a right offering to the shareholder base it will require a special meeting to authorize more shares, and that is what they should get moving on immediately since moving at warp speed it takes a minimum of 21 days to pull it off. Most companies need 4-6 weeks to pull it off start to finish. You said that you can invest in a private placement, presumably because you meet the definition of accredited investor. The problem with offering private placements to many people is that the SEC will deem that a "general solicitation" which is prohibited without a registration statement. A rights offering is also a general solicitation, but since the shares are registered and the offering is publicly filed that does not create a problem. You can even make the rights tradable so that if shareholders don't have the money to buy more shares, they can at least get some value by selling their rights in the market. Most PIPE transactions are done for speed and not for an exemption from registration. You need not be an accredited investor, but you do need to be able to take a huge chunk of the deal, like half or a third of the entire amount. Essentially companies are using the first purchaser in a PIPE to act as a distribution agent for the shares, something the company itself cannot do because they cannot be an underwriter of their own securities. Likewise I agree that more debt is not the answer. The balance sheet if overleveraged as it is, and I don't think Deerfield can take on more Mannkind debt because they will have problems with their investor covenants (which usually limit exposures based on percentage of fund assets or the security offered). So, absent somebody showing up with a bag of cash, an equity raise is the only logical way to go but that requires the share authorization I described whether it is a rights offering followed by a PIPE, or whether it is a straight offering. It is time to get the proxy out the door and start the process.
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Post by matt on Jun 22, 2017 18:29:12 GMT -5
But I've said this before and on this board - a rights offering to long term shareholders who've been in the stock at least 2 years would be a quick and a relatively painless raise. Mike can't do that. Legally, a shareholder is a shareholder regardless if they have held since the IPO or whether they picked up the shares this afternoon. Either the rights offering is for all or none. In any case, they need to authorize more shares to do a rights offering so there will be plenty of notice before it happens.
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Post by matt on Jun 22, 2017 11:04:08 GMT -5
How about you Google it and provide the link. You already sent me on a wild goose chase when you said to locate where the Mann Foundation bought 5 million more shares of MNKD after selling EYES stock. You still have not provided proof of that. Show me you're more than hot air Im pretty sure this is the first time since I've been invested that Al has been listed in more than one place. I wonder what changed ?? Institutional ownership is not as simple as adding up the number of shares one of these entities owns. Al Mann "owned" shares via options, while his "real" ownership was via the Al Mann Living Trust, and the trust was a controlling person of The Mann Group. As a result, the trust reports that it "owns" 114 million shares, but in fact it only really owns 21 million shares, plus the 3 million options, and is also credited with the 89 million shares owned in The Mann Group. If you add the two together (114 + 89), you will assume that the Mann entities own 203 million shares but that is not the case since the 89 million held by The Mann Group is a double count and the options have since expired. Unwinding all the ins and outs requires some work understanding the SEC attribution rules. You won't get there by a Google search. I think the confusion about the Living Trust acquiring more shares was due to transfer of options to the trust as of the data of death. Even though these were options, the SEC requires every entity that "owns or controls" the security to report it. Since options are not the same as shares, people saw the number change and assumed that there was some buying going on. In fact, it was the ownership of option securities changing from a living person to a trust due to a death, nothing more.
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Post by matt on Jun 22, 2017 9:30:47 GMT -5
I believe there is a good chance that Deerfield will exchange debt for equity and furthermore will provide MNKD with another $40 to $60 million through a convertible note with a conversion price of $2/share or higher. I partially agree with that statement, but not with all of it. Deerfield gains nothing by forcing Mannkind into insolvency so it is in their enlightened best interest to agree to a debt for equity exchange. If Deerfield refuses to do that, then Mannkind can sell shares to somebody else for cash and use the cash to pay off Deerfield so that is essentially the same transaction minus a 7% placement free from the bank. Either way, I expect shares to be issued to satisfy that $10 million of debt coming due. What I don't see happening is Deerfield loaning more money, and certainly not on a convertible. Mannkind is almost out of authorized shares, and an debt for equity deal on the $10 million will use up nearly all of the shares remaining. Remember that for every warrant, option, and convertible note already issued, Mannkind must legally reserve shares for those contingent issuances even if they are presently underwater with respect to the conversion or exercise price. Given that the authorized shares are almost gone, Mannkind can't do another convertible security without calling a special shareholders meeting to authorize an increase in shares. Similarly, Mannkind cannot sell equity in any significant amount without more authorized shares. It takes roughly a month to call a special meeting and to solicit proxies, so a meeting to authorize additional shares is a late July / early August event at the earliest. That aside, Deerfield is a debt fund that is already overexposed to Mannkind, and the assets securing the existing notes have been written down by the auditors. A bond fund has fiduciary obligations to protect their investors and, regardless of how well Deerfield have done in the past, prudential underwriting would preclude them from further increasing their exposure to Mannkind due to lack of collateral. A different bond fund that does not already have an exposure and different collateralization rules could step in, but given the seniority and security positions that Deerfield and The Mann Group have, that new money would be junior subordinated debt which would come with very tough terms and a high interest rate. The shareholder equity was already negative $198 million as of the last 10-Q, and will surely be negative by more than $200 million by June 30, so getting more debt on commercially acceptable terms is not realistic.
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Post by matt on Jun 22, 2017 6:11:40 GMT -5
Could there be a deal contingent on an IRS determination that the acquiring company can utilize MNKD's massive NOL? If you were a buyer of MNKD, you'd surely want to know that, if it were a close question. If there's no chance to use it, doesn't mean no one would want MNKD, but look at how a deal where the NOL is available would sound to the Board and shareholders of an acquiring company? Allowing an acquirer to use the NOL used to be permitted, but not since the early 1980's due to perceived abuses. There were several railroads that suddenly became industrial or consumer conglomerates on the backs of the railroad losses. Along came Section 382 of the tax code and the end of that strategy. Some NOL does carry over, but typically the value is only 1-2% of what it was. The exception is when the company is acquired in a Type G reorganization which is a special type of merger permitted with a bankrupt company. The details are complex if you don't know the reorg rules, but because the company must first be in bankruptcy it benefits the creditors more than the shareholders. Dendreon had more than $2 billion in losses, and Valeant bought all the tax assets with a present value of around $800 million for $15 million.
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Post by matt on Jun 21, 2017 7:49:44 GMT -5
My question: Would Castagna have taken the CEO position if either of those two scenarios was inevitable? Why not? The company was already saddled with a difficult balance sheet when Mike stepped in, so if the company fails financially that does not reflect poorly on the guy who just took the job. On the other hand, if Mike manages to turn things around then he can take the credit for what will be a major victory and his options will be worth a lot of money. The other reason to take the job is because CEO jobs at public companies churn constantly with the average CEO remaining in the job just four years. Headhunters are always looking for replacement CEOs and people to sit on boards of directors. The problem is that it is nearly impossible to land a job as CEO or to join many boards unless you have prior experience as a public company CEO. Mike just checked the "public company CEO" box on all future job searches, and he will probably never have a normal sales job again. That is worth a lot whether he fully realizes it or not.
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Post by matt on Jun 20, 2017 15:32:57 GMT -5
Virtually all executive compensation contracts call for a severance to be paid, either in case the executive is terminated for a reason other than cause or following a change in control. Either one will suffice to get a payout. The way "for cause" is defined in such contracts it is very, very hard to get fired for cause; simply underperforming is not sufficient. Usually the differences are that the change in control (as in a new majority shareholder) all option vesting is accelerated and the payout may be higher. If the options are underwater, there is essentially no difference.
The big announcement coming is how the company has settled with Deerfield. That is the only thing that materially affects the company in the short-term followed by the June 30 earnings announcement due in mid-August. Everything else will take a while to incubate before it affects results.
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Post by matt on Jun 20, 2017 7:35:29 GMT -5
The slides you linked to show what happens for an investigational drug, which Afrezza is not at this point. That process is what is needed to start a study on an experimental drug, not to import an already approved drug.
Brazil follows the Common Technical Document (CTD) format, which has five modules. Modules 2-5 are the same for most countries so essentially no work is involved with a submission. Module 1 has all the regional information, such as label copy, all of which is translated into Brazilian Portuguese. Despite Brazil accepting the quality tests from Module 3, they do require additional stability testing in conditions that mimic the hot and humid jungle climate in Brazil. FDA and EMA specify the temperature / humidity ranges for stability testing, but unless the sponsor has thought about this in advance they will not have the necessary data for Brazil. That takes time to develop.
The approval process seems to average about nine months once the complete CTD is submitted, and obviously the translation and additional studies have to be included. Most countries will allow submission module by module, so modules 2,4, and 5 can be submitted immediately while translation (module 1) and stability (module 3) are finished. Realistically, I would be thinking in terms of a year as the minimum time line.
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Post by matt on Jun 19, 2017 9:36:51 GMT -5
Mannkind is a sufficiently small for Mike to be able to deal with that workload. Mannkind is small, but there is a lot of administrative work involved in being the CEO of any public company that sucks huge amounts of time just keeping up. Any CEO would have his hands full with raising the money needed to keep this company afloat, and that is not a job for the CFO; investors want to sit face-to-face with the CEO and look him in the eye. Meanwhile, sales are improving at a glacial pace and shareholders are clamoring for more international deals which requires a lot of foreign travel and early morning / late night telephone calls due to time zone hell. If you put all that on one person, Mike will burn out and be ineffective in doing either job.
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Post by matt on Jun 16, 2017 11:05:10 GMT -5
For the RAAs why Sanofi wants to make generic Humalog I can't explain. This is pretty easy to understand. Pricing in the insulin market is headed south, due mainly to competition for the PBM market. PBMs don't make their money on discounts; they make the money on rebates which are paid at the end of the year. The way pharma companies get the PBMs to enforce formulary restrictions is by promising big rebates tied to market share figures; miss the market share target percentage for the preferred brand and the rebate takes a major hit. When Lantus was the only game in town, Sanofi did not have to play nice with the PBMs. Now that there are biosimilars, Lilly and Novo can enforce their sole source formulary placement much more effectively, and this has killed Sanofi's diabetes business. By adding new insulin options to the Sanofi product line, they can play a bit of catch-up and try to recapture lost market share. It is also the reason Afrezza will never make much of a dent in the PBM sector unless it becomes a widely prescribed product. With the way the rebates work, each fill of Afrezza hurts the PBM because it makes it that much harder to hit the necessary market share percentage to get the maximum rebate. Even if Mannkind priced Afrezza at $0, it still might be in the economic interest of the PBM to fill with the preferred brand rather than Afrezza. The rebate formulas are designed to achieve this precise result and there is a LOT of money on the table for the PBM.
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Post by matt on Jun 15, 2017 15:17:06 GMT -5
An FTZ generally allows components to enter the country duty-free, and for manufactured product using those components to leave without dealing with duties and taxes. This is useful for companies importing parts to be used in the manufacture of goods for export, and for shipping companies (like FedEx or ocean carriers) who might have goods just passing through their transportation hub on their way to a foreign country (the FedEx hub in Memphis, for example, is an FTZ as are most other sea and air ports). if goods leave the FTZ and enter the flow of US commerce then duty and taxes will attach to any value that was imported.
That is all they are good for; the FDA does not recognize the FTZ as different from any other part of US soil so all goods leaving the FTZ must comply with relevant FDA regulations. The FDA rules on this are a real pain in the butt if you handle goods specially manufactured for international locations as they must be FDA licensed in order to export them.
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