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Post by matt on Apr 28, 2017 7:03:36 GMT -5
Not sure what agreement we are in. If a company can acquire losses and credits with an economic value of $1 billion (give or take) then it significantly lowers the risk for them making an investment because that is $1 billion less they have to recover through future sales, or $1 billion more they can afford to pay. Economics doesn't care where the money comes from, just so long as it comes and you can't ignore a major source of value.
There was a booming business around 1980 where several companies (principally passenger railroads) were acquired precisely because they had tax losses, and the economic opportunity that provide allowed the acquirers to buy cash rich businesses because they would pay no taxes for many years. Congress decided that was an abuse, which is why Section 382 was passed as part of Reagan's tax reforms. The aforementioned bankruptcy exception was added back during the dark days of Detroit as a favor to the automobile unions when GM was facing bankruptcy; until that happened the losses were just gone.
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Post by matt on Apr 27, 2017 16:50:46 GMT -5
This is a very complex question, and you need to read Section 382 of the tax code to truly understand it, but the short answer is that the losses are for all practical purposes worthless unless acquired in a Type G reorganization under Section 368(a)(1), which in turn requires Mannkind to go bankrupt via Chapter 11. There is a provision to retain a very small portion of the loss to an acquiring company outside of bankruptcy, but it is very small and most acquiring companies don't both doing the math as it doesn't change what they are willing to pay.
As an example, Dendreon went bankrupt and sold their core business at auction for $400 million to Valeant and then, at the last minute, Valeant sweetened their bid by $10 million and restructured the deal as a Type G reorg. That let them keep up all the tax losses and tax credits (Dendreon had over $2 billion in tax losses and about $70 in unused R&D credit). Essentially, Valeant recovered more than 100% of their purchase price in tax benefits alone so the business was free; Valeant later sold the drug business onward for a nice profit and kept any still unused tax benefits for themselves.
None of that helps Mannkind shareholders. There is one way the losses can benefit shareholders, but the shareholder group has to be organized and they have to have access to significant capital. This is almost never the case in an insolvency situations, so unless somebody has deep pockets and the money to pay a law firm to structure it properly (think $5 million for starters) the losses have essentially no value that can help shareholders.
Anybody who tells you different doesn't understand how Section 382 works; I do. My eyeballs bled for days after reading the associated regulations!
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Post by matt on Apr 27, 2017 12:14:10 GMT -5
When is the next time we have a scheduled call from management? Earnings? Does anyone have that date? First quarter earnings are due on or before Wednesday, May 10. Presumably there will be an earnings call when that happens.
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Post by matt on Apr 26, 2017 15:03:55 GMT -5
CTO treatment is routine any time pricing data is disclosed that one or both parties don't want in the public domain. Imagine how easy it would be for the next Amphastar customer to look up the pricing that Mannkind obtained and used that as a negotiation tool to get a better price. CTO treatments are also common in royalty and milestone agreements for the same reason. Nothing sinister here, just normal business practice.
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Post by matt on Apr 26, 2017 13:35:12 GMT -5
I posed the question to the Board, If there were benefits for a company in Mannkind's position to steer the ship towards a Bankruptcy as a way to save their jobs and possibly to restructure the company and also of course to keep control of the drug and continue to try to bring the drug to market with a new partner AFTER all us shareholders are wiped out. That is possible but it is a very risky course of action. Nobody in their right mind wants to be in bankruptcy court unless there is a prepackaged deal arranged with all creditor groups, and those are pretty rare. Once a company gets into bankruptcy court, the rules of the game change significantly and nothing is guaranteed except an eight figure legal bill. If an executive team wanted to align themselves with a group with significant financial backing to take over the operation (essentially make it a private company and still be running it) then they would need to resign now and watch the ship sink from the sidelines as collusion on that scale would be a clear breach of their fiduciary obligation. Even then, unless somebody is prepared to pay off all the debt and all the creditors along the way, there is no guarantee that any particular party can control the case. The rules in bankruptcy are very rigid and the only thing the court listens to is those who show up carrying a certified check with lots of zeros on the end. There have been cases where a company has wiped out shareholders, a third party has come in and bought the operation, and then hired most of the management team, but if you were Matt and Mike, would you want to bet your futures on that just happening? The most likely outcome of a bankruptcy in this industry is cessation of operations, significant losses for debt holders, pennies on the dollar or nothing for unsecured creditors, and upset shareholders. As noted, the lawyers will be happy as they will be able to run the meter and will certainly make a large contribution to this year's billable hours requirement. It isn't a pretty process and once it starts there is nothing anybody can do to stop it unless you happen to have eight or nine figures sitting in the bank collecting dust.
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Post by matt on Apr 26, 2017 9:33:38 GMT -5
To be fair to Matt and friends, realize that the burn has always been high (although not $10 million) but that it did not impact Mannkind's cash flow because Sanofi picked up 65% of the marketing cost and loaned Mannkind the money to cover their 35%. Much of the expense was always there, but the cash flow impact of marketing was neutral until Sanofi pulled the plug.
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Post by matt on Apr 25, 2017 15:34:56 GMT -5
The history on Deerfield is pretty clear and they do what is best for their investors as is their fiduciary duty; they don't act like Santa Claus. MNKD can definitely come up with $10 million in cash in July, either by borrowing it from the Mann Group or else Deerfield can take more discounted shares in an exchange transaction. Deerfield has been involved in a number of bankruptcies, including Dendreon, and by securing their note with the production facility they essentially lock up the company. Any buyer of the technology has to settle with Deerfield to get the manufacturing assets back.
Deerfield isn't looking to take over the company, they just want to get paid. They are a lender that gets some milestone-based upsides, which juices their return, but they like secured debt and their financing costs for THEIR balance sheet reflects that they take a secured debt level of risk, not equity risk. If they walk away whole or with a small loss they will be happy. Generally, they have not acted like a private equity firm that goes in and buys up a company so that it can be turned around. That is not their forte, and every company should stick to what they are good at.
Don't expect the Mann Group to act like a private equity fund either. The Mann trusts have to be run according to the trust documents Al Mann left behind, and the trustees have a legal obligation to follow those trust indentures for the benefit of the named beneficiaries. Unless Al specifically provided that the trusts could be drained for the benefit of keeping MNKD alive, and to the financial detriment of the other intended beneficiaries, then the trustees cannot let that happen. That is not likely.
We know that company has about $31 million in cash as of today, we know $10 million is owed to Deerfield in July, we know the burn rate is about $10 million a month, that the remaining Mann Group credit is $30 million, and that the number of unrestricted authorized shares available to issue absent a shareholder vote to authorize more is about 25 million shares, which would net between $10 and $14 million in cash proceeds depending on discounts and warrant coverage. Anybody with a calculator can figure out that crunch time has arrived.
Beyond that everything is speculation. Nobody knows if Matt is days away from pulling another rabbit from the hat or whether he has finally run out of bunnies.
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Post by matt on Apr 25, 2017 7:36:41 GMT -5
I don't know where CNBC get their numbers from, but the NASDAQ numbers are from the filed 13F so they are accurate if outdated. I doubt the CNBC numbers simply because other than a 13F there is no way to know what an institution is doing unless they hit a 13D/G limit which is rare for a stock like Mannkind. Exactly correct; the only accurate numbers are from Form 13 filings which are horribly out of date (even when first filed). Secondly, and I can't emphasize this too much, don't take too much comfort in institutional ownership unless you understand where those numbers come from. Any company subject to reporting under the Investment Act of 1940 (which is basically all funds and brokerages, but excludes family offices) is a filer, and they aggregate all their holdings. Fidelity, for example, has mutual funds that they actively manage, picking and choosing the stocks, but they also have individual accounts like self-directed IRAs and 401(k) plans where Fidelity technically and legally owns the shares, but holds them as a fiduciary on behalf of the individual beneficial owner. The same is true for every brokerage account with shares held in street name; the account holders no longer "own" the shares, they just have a right to the beneficial interest. FMR (the legal entity that ultimately owns all the Fidelity funds and shares in individual brokerage accounts) is allowed to report a single number for each stock they hold. When you see a company with high institutional ownership don't assume that a lot of smart money managed by professionals is pouring into the company. That might be the case, but it might also be that a lot of retail holders with street name accounts are buying up the shares. The only way to know is to track the handful of healthcare funds that only invest long-term in healthcare stocks, funds like Orbimed Advisors, since they are true institutional holders with professional managers that can be considered smart money. When you see the numbers for a huge company, like FMR or Goldman Sachs, you can't tell what the composition is because that is not public information, but be assured that most of the reported transactions are simply flowing through their clearing operations.
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Post by matt on Apr 24, 2017 10:49:56 GMT -5
That we've hired an investment bank to explore all options at this time to include selling the company. Unless the board and outside legal counsel are totally, completely, and negligently asleep at the switch, this has happened some time ago. The fact that the board suddenly approved golden parachutes for the seven top executives is a hint that this may be happening. It is common for struggling biotechs to quietly hire investment banks to advise on next best steps, financing strategies, and to shop the company for some form of deal whether that is a purchase or a marketing arrangement. Such engagements generally take 45-60 days between compiling an information package, shopping to the list of potentially interested parties, and getting expressions of interest or lack thereof. Plenty of time has gone by so either there are no takers under the current conditions, or there is somebody getting ready to finalize an offer, but shareholders have no way to know if an offer is happening or not until it lands on Matt's desk. The trouble with getting a deal is that Afrezza has to fit into the product portfolio of the acquiring company, meaning that he company must be heavily engaged in the diabetes segment with established call points and reimbursement relationships. That pretty much limits the list of potential suitors to Lilly, Novo, and Sanofi. Sanofi has had their bite at the apple and found it not to their liking, and Lilly and Novo might not want to pay up for a drug that potentially cannibalizes their existing products. Of course some third company might decide to jump into the cold and deep water of the insulin market, despite rapidly declining profit margins and two strong competitors and one weaker one, but that seems less likely. Announcing that a bank has been hired to shop the company is tacit admission that the company cannot make it on its own, but board generally like to keep that quiet even if it is evident to the market. If the board announces that a bank has been hired to shop the company and there is no deal 60 days later, negative rumors start and that creates additional problems.
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Post by matt on Apr 22, 2017 9:25:31 GMT -5
...just hope they are not just cutting their loses with the stock and have a real game plan in our interest . The best way to evaluate any lender is to research the other deals they have done and see how they have behaved in similar circumstances. All investors (venture capital, private equity, hedge funds, etc.) all put some fluff text on their web pages about how they structure deals in the interest of the company to make it a win-win situation with both sides sharing the upside. Don't believe it for a second; institutional investors are in it for the bucks because their managers are compensated on total fund return, and anything that lowers total return is anathema to a fund manager. Go ahead and look at the Deerfield deals that have gone sideways, and there have been plenty of those, and see how they have behaved. If you think they have a game plan other than minimizing their loss then I think you will be disappointed. Small town banks will bend over backwards to support a local business that runs into trouble, partly because they are answerable to the community they serve; Deerfield is a multi-billion dollar hedge fund answerable to their investors. Calibrate your expectations accordingly.
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Post by matt on Apr 22, 2017 7:13:21 GMT -5
That is not a fair characterization of Provenge and why it failed. The drug was delayed for years by poorly designed trials and by the time it finally got to market it was no longer a choice between Provenge and chemical castration, but among Provenge, Zytiga, and Xtandi with the other two drugs being much easier to administer, cheaper, and all had a similar survival benefit.
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Post by matt on Apr 21, 2017 8:27:21 GMT -5
1. If the company sells for $1B, then all the creditors get paid off first which leaves about $700MM for shareholders. However, a $1B deal for a company with a market cap of $100MM isn't going to happen in the real world. Remember always that huge takeover numbers, while fun to fantasize about, have to be justified to the board and shareholders of the acquiring company. The executives of the acquirer want to keep their jobs and explaining to their bosses why they just paid a huge premium for a stock with a sustained downward trajectory is essentially impossible.
2. Could happen, but unlikely. Deerfield is not a private equity firm that acquires companies, turns them around, and takes them public again. They like to place debt, get some contingent rights if the product is a success, and exit. That strategy has not worked so well for them in the past, but that is how they are structured. They operate more similar to a hedge fund than to private equity.
3. If the company goes bankrupt, there is a 99% chance the assets go up for auction. Those which have been pledged as security for debt (like the Danbury plant) will be foreclosed upon and disposed in a UCC-3 sale, which happens in parallel but separate from the bankruptcy, by the owner of the debt (Deerfield can bid the amount of what they are owed and will likely keep the asset). The other unpledged assets go to auction and are sold to the highest bidder. If the high bidder wants to keep on making Afrezza, they have to cut a deal with the new owner of the plant or they have to build a new plant themselves.
Keep in mind the role of a bankruptcy judge. They are not normal "Article III" judges, but rather a special class of judge placed there to administer the bankruptcy code. The judge is not there to decide what is "fair"; their main job is to insure that the rules as codified in the bankruptcy code are applied as Congress intended, and they largely let the market decide on prices (i.e. through the auctions). Once a case gets to bankruptcy, the process moves very quickly because the company doesn't have any money to keep running and the value of the assets declines by the day. If there is money left over after all the creditors are paid what they are owed, shareholders get the rest, but in most cases there isn't anything left. If MNKD files either Chapter 11 or Chapter 7, it will likely be the end of the road for shareholders.
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Post by matt on Apr 20, 2017 12:37:10 GMT -5
Deerfield Management is subject to the reporting requirements of the Investment Act of 1940 so they file a quarterly report of their quarter-end holdings, 45 days after the end of the quarter, just like any other institutional investor. Unless they make significant additional acquisitions (i.e. enough to go over the 10$ line) they are not required to do more with respect to Mannkind. You might argue that not finding out what Deerfield did with those shares until mid-August is fairly worthless, especially with another $10 million in interest due in July, but that is the reporting calendar.
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Post by matt on Apr 20, 2017 10:47:07 GMT -5
All this talk of Deerfield shorting MNKD. Can Someone show me evidence that Deerfield is shorting MNKD. I don't get the talk of them shorting when they speak on thier website good things about MNKD and how they want to help them succeed. If you understand how to construct synthetic securities, then it should be evident that the combination of a debt exposure plus some options is economically equivalent to being short the stock. If you are economically short it doesn't matter whether that short is synthetic or real because the payoffs are identical.
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Post by matt on Apr 20, 2017 10:42:24 GMT -5
with MNKD now at 100 million market cap......the Valencia property sale represents basically 17 percent of that number .....Wow......so the Danbury plant ...what is that worth? We have to be getting to a ridiculously low Market cap even intrinsically speaking I guess barring BK......where creditors are very secure in that collateral i would have to think. I think there is a lien on that property but not an outstanding note? That state of the art facility is owned outright by MNKD? Just creating more discussion The lien on Danbury secures the Deerfield notes, so it is essentially like a mortgage. The problem with pharmaceutical manufacturing plants is that they have very little value in the resale market because they are designed and constructed to produce a particular product, and reconfiguring a plant and validating a new production line is time consuming and expensive. There is no shortage of nearly new, and a few absolutely brand new, pharmaceutical plants that you can buy for pennies, and gently used manufacturing equipment has a resale value in the range of 10 to 15 cents on the dollar. That seems like a ridiculously low number, but since a pharma manufacturing process are designed and validated with particular equipment, most companies won't buy used equipment unless it is exactly the same brand and model number as what they already have because revalidating is more expensive than the extra cost of buying new equipment. Danbury only has significant value in the hands of the entity that owns the patents needed to make Afrezza, provided however, that they want to continue making Afrezza in that location. In the hands of any other owner the facility is just another commercial structure looking for a new use.
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