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Post by matt on Dec 11, 2016 8:21:30 GMT -5
You can certainly make money on a declining stock price by shorting, but you can do the same thing by constructing a portfolio of synthetic securities that give the same economic payoff without borrowing shares. Depending on the size of the position, the borrow cost, and other factors it may be more advantageous to play with synthetics than actually finding shares to borrow, so if you are looking at the reported short position you are only looking at one part of the story. A properly structured synthetic pays off exactly like a short sale, to the fraction of a penny, and has all the risks and benefits of an actual short sale; only the transaction process and fees are different.
However, I agree with your thesis that if shorts were willing to play the game in the 40 cent range they should be even more willing to play in the 60 cent range. Some good things happened in the past month or so that will extend the runway by around six months, but the underlying bet that the company will not generate enough scripts to remain in business has not changed much. If a short has manageable borrow costs and some patience, they have no reason to cover unless and until the trend line om script growth starts to move. Those without patience might have covered, those who have it will hang in there a while longer.
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Post by matt on Dec 10, 2016 8:07:39 GMT -5
You have to be careful when looking at aggregate "institutional" ownership because of the reporting requirements of the Investment Act of 1940. Two caveats:
1. The numbers are not close to real time. They are a snap shot of the holdings on the last day of the quarter, and are reported 45 days after quarter end, so the most recent numbers reflect what holdings looked like on September 30. A lot has happened since September, but you won't see subsequent changes until February 15 when the year end numbers are reported. A lot can happen in four and a half months so be careful with any number that reports so far in the past.
2. Institutions are allowed to aggregate all funds under common control. If you, as an individual shareholder, have a brokerage account at Fidelity then the purchases of MNKD you decided to make in your personal account show up as "institutional ownership" since, legally, Fidelity owns the shares and you have a claim against their value with Fidelity. Ditto with index funds; if MNKD's percentage share of the index fund value increases then the fund will buy more, and if the percentage value goes down the fund will sell. All index trading is driven by computer algorithms with no human involvement because they fund has to track the index. Note too that MNKD's percentage share of a value in a particular index is dependent on MNKD's stock price, but it also depends on every other stock in the index and the overall market demand for particular sectors. An index fund could increase or decrease MNKD holdings simply to match changes in the index value caused by OTHER companies.
That is quite different from a portfolio investment by a knowledgeable strategic healthcare funds where the fund managers are paid to make investment choices. About the only way to tell whether institutional ownership changes mean anything significant, is to learn which funds are actively managed and specialize in healthcare stocks and then look at the data for those specific funds to see if the numbers are going up or going down. The numbers from the big data aggregators contain so many pieces that it becomes impossible to know what is retail investment, algorithm driven investment, and true specialty fund management.
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Post by matt on Dec 7, 2016 10:14:51 GMT -5
Ultimately, when a drug business matures the PPS aligns with industry averages which tend to fall into a 6-8X earnings multiple. Pull out your calculator and figure out how much profit you think MNKD can produce on a sustainable basis and then do the math on total company value and what that translates into per share. I understand Market capitalization. I looked at GWPH yesterday trading over a hundred twenty us dollars, with an eps of - 3.95. A market cap of 2.89 billion. www.google.com/finance?q=NASDAQ%3AGWPH&ei=QRFIWKP6NYXcjAHPyayQCQ MNKD was running a market cap of 2.5 billion at 6-7 dollars. I get it. Thanks for the response. heh
Just be mindful of the first word in the sentence above; ultimately. I have been in healthcare for over 35 years and I have a very finely tuned sense of market potential in many product sectors, but I will be the first to admit that insulin is not one of them. In the case of MNKD, it will likely take 2 years (at least) to define a long-term trend line, and maybe a lot longer than that. So while the 6-8X earning rule will likely play out in time, it won't happen while the trend line is still being defined. I have seen lots of high growth companies trading at 60-80X multiples, and modest growth companies trading at 20X for several years. Investors who make a lot of money watch for the inflection point on the growth curve and take their profits then. Unless you are very close to a product sector, it is very difficult to translate "ultimately" into a quantifiable number of years. Companies with negative earnings and big market caps (like WWPH) are almost always bets on R&D pipelines and Big Pharma take-outs. Those were no-brainer bets in the 1980's, still fairly easy money in the 1990's, but betting on a take out has become a risky proposition since 2000 since Big Pharma had too many write-offs from reckless acquisitions in the 1990's. However, if you can find a novel drug that some Big Pharma simply must have in its portfolio then go for it. Just make sure it is a therapeutic sector where the company has announced its intention to focus in the future, and not one it dominates today. There are good economic reasons most Big Pharmas are deemphasizing metabolic drugs and investing their research dollars mostly in neurological indications, oncology, and Alzheimer's.
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Post by matt on Dec 7, 2016 7:29:06 GMT -5
That is a pretty accurate summation. The market it betting no more rabbits, but the market is sometimes wrong. Root for the bunnies. Matt, How will the unwind work if MNKD succeeds? Just asking.
It depends exactly what you mean buy succeed. If MNKD manages to get enough scripts to stay in business but there is still no widespread adoption, then the company will become a zombie of sorts. If the drug ever does get reimbursement and can prove superior results, then the insulin product may get acquired by Novo or Lilly. Everyone loves to talk about China and India, but from what I can see the manufacturing cost numbers are not there for a big move into such price sensitive markets. Which leaves licensing of TS. That is a tough way to make money because some other company control your fate based on sales of their drug. The only company that ever made a nice profit promoting drug delivery solutions was Alza who had a huge library of ways to get drugs into various parts of the body; they were really innovative. If you take a long-acting pill of any type, you can thank Alza. The only way to monetize TS in a significant way is to put novel drugs into the delivery system, but that means MNKD must become a full scale drug developer and must find novel drugs that are best delivered via inhalation. For that they need much more capital and a very different management team because in any license deal 95% of the profits go to the company that developed the drug and 5% to the provider of the delivery system. Simply repackaging existing drugs (insulin, EPI, etc.) is not going to be that profitable because TS is not the only inhalation delivery system around, it is one of many, and there is no proprietary interest in existing drugs that are or will soon be off-patent. Ultimately, when a drug business matures the PPS aligns with industry averages which tend to fall into a 6-8X earnings multiple. Pull out your calculator and figure out how much profit you think MNKD can produce on a sustainable basis and then do the math on total company value and what that translates into per share.
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Post by matt on Dec 6, 2016 14:47:51 GMT -5
Success has many fathers? Interestingly, not a single mother listed. That should be changing given that we now have more women getting degrees in biological sciences than men. Maybe that will be the case, but maybe not. Mannkind is not so much a biological science company as a medical engineering company which is not surprising since Al Mann was a medical device engineer (and a very good one). While women certainly have adequate smarts for it, they are not going into engineering schools in the numbers you see for medicine and life sciences. We need more female engineers if patents are to have more mothers.
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Post by matt on Dec 4, 2016 6:39:20 GMT -5
There are still plenty of old men -- Sessions, for example -- who genuinely believe that marijuana is itself a dangerous drug not to mention a gateway to even worse. You'd think the battles of the '60s would have subsided by now, but I guess my generation is a tenacious lot. Mr. Sessions is right, at least in part. Cannabis used improperly can be a dangerous drug, but you can say the same about many, many prescription drugs; that is why they are not available to the general public without a prescription. Cannabis is, and remains, a Schedule I drug which means that 99% of physicians writing scripts for "medical marijuana" are breaking federal law and could find themselves without a license to prescribe drugs (most drug licenses are for Schedules II and higher, but not Schedule I). Given the sheer explosion of the medical marijuana business where state law had made it legal either a whole lot of people in California and Colorado have cancers or other serious illnesses, or else there are a lot of recreational users with a friendly physician. It is not that FDA is against the active agents in cannabis, it is that they haven't been formulated and proven to be consistently effective. Some company will take the next step and do the testing, and that company will get an approved NDA indicated for all sorts of diseases. Either we operate with a properly regulated pharmaceuticals market, or we need to go back to the days before the FDA was created and let anybody sell what they want (that didn't work so well). You can't have it both ways.
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Post by matt on Nov 30, 2016 13:34:17 GMT -5
I don't even know what to say to this. I'll take a stab at it. MNKD is alive and executing their strategy (regardless of opinions of said strategy)...and it will continue into Q3 of 2017. They will need cash. Is there another rabbit in the hat? Beats me - That is a pretty accurate summation. The market it betting no more rabbits, but the market is sometimes wrong. Root for the bunnies.
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Post by matt on Nov 25, 2016 7:37:24 GMT -5
Pretty much what akemp3000 said. A modern board does a lot, but most is behind the scenes and often done in committees (there are legal requirements for audit and corporate governance committees, and most also have an executive compensation committee). Because of the legal liability issues surrounding what boards do, or do not do, few records are available beyond the formal meeting minutes. This is by design because if board members had to justify every comment and recommendation there would be no board.
While you may think that you are a perfectly reasonably person, just look at some of the comments on this forum (which is populated by mostly rational and reasonable people) plus those on the Twitter stream and various message boards (ranging between somewhat less rational and absolutely crazy as a loon). Board members don't get paid enough to deal with the nut cases.
Mostly the board is there to approve the strategic plan and budget, make useful suggestions, and to introduce managers to outside resources that may be helpful. If Matt and Mike are executing on the strategic plan the board approved, they are mostly going to stay out of Matt's way unless he fails miserably. For the board, failure is the inability of management to execute on the plan as it was agreed and not based on whether the share price is up or down.
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Post by matt on Nov 19, 2016 14:16:20 GMT -5
I am still trying to get a better idea of what Mannkind is spending $11 million per month on when they only pay for 42 temps and have paid for zero ads (Buffalo Bills magazine excepted). OK, some rough math. For the quarter, MNKD reported $44.1 million in expenses, but $22.7 of that was already spent in prior periods. When Sanofi terminated the collaboration, MNKD got to recognize all the deferred revenue, but they also had to recognize the deferred expenses. That was a one time event and it will not reappear so that actual spend for the quarter was more like $21.4 million. There are other cash costs (inventory, receivables, etc.) that impact cash flow but are not expenses. As for the rest, cost of goods (essentially all manufacturing related costs) were $4.3 million. Since Afrezza is selling slowly, manufacturing is not running efficiently as there is some unfavorable manufacturing variance in there (i.e. the same fixed costs spread over fewer units). R&D was $3.9 million. Shareholders can't cheer about the pipeline, Epi, RLS milestones and so on unless R&D spending continues. When R&D spending stops, biotechs die. That leaves $13.1 million for everything else, and the company has said that they are spending an incremental $2 million on sales force expenses. The rest is overhead, office rent, audit fees, utility bills, salaries, benefits, regulatory costs (you want that new label, right), legal fees, travel, consulting, office supplies . . . you can go on. Could it be a different number? Perhaps, but probably not too much lower.
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Post by matt on Nov 18, 2016 13:56:15 GMT -5
It was only a few weeks ago that people on this board were saying that SNY wouldn't give us anything! That they or some other BP would just wait and pick us up in a fire sale after BK. What say you now....I say they knew they better settle up now or pay more later. I still don't think SNY had any legal obligation or risk of having to pay MNKD for the Afrezza launch, but as they prepare to do a major corporate restructuring of their own they figured it was better to be done with it. The $30 million on the insulin put was a pre-existing obligation that would have survived bankruptcy so they would have paid it one way or another. Given the near zero interest rates, paying now instead of over a few years is pretty much a wash. They use a different API to manufacture their insulin so they would have wound up discarding the insulin anyway, so not taking the insulin from MNKD saved them some money.
The part that they did leave on the table was the value of the building. In a worse case bankruptcy situation they would have been able to see the building for whatever amount they could get for it, and the difference would have been an unsecured claim like any other creditor. After marketing, real estate brokerage, property taxes, insurance and other costs while they sold the building, it is not clear how much they would have realized, as the building has been sitting unsold with a price tag of $25 million. They may have simply decided that it wasn't worth the trouble.
As for what anybody would pay for MNKD in a bankruptcy, that remains to be determined. The value of the patents will rise and fall with market demand for the products they protect, so unless sales increase enough to at least cover manufacturing costs, the offers will be insultingly small. Danbury is security for Deerfield so that value is outside of the bankruptcy estate.
The story continues to be traction in the market. If the product catches fire, so will the share price and financing options.
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Post by matt on Nov 18, 2016 8:04:18 GMT -5
One additional question is: what is the chance to get a regional partner for China market before the label change? China and Japan, like most Asian countries, are based on relationships to a much greater extent than the US. You work to form the relationship first, then the business comes later. The relationship development process generally takes a year, or more, but then the business discussions can go rather quickly. The problem is that MNKD does not have somebody at a sufficiently high level that can make six to eight trips to the Far East in the coming months to get the relationship piece out of the way.
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Post by matt on Nov 15, 2016 11:22:28 GMT -5
Need to get over the shorts -- not a long-term issue. China is a difficult market. If Mannkind can get in, great, but the best future markets are Canada, Europe, and Japan. China and Japan are both difficult markets. I spent five years living and working in Japan and I have lots of battle scars. The upside is that Japan has some good pricing, although the price will get knocked down on a regular schedule so the launch price is the best MNKD can ever achieve. They also have to be very careful if they enter Japan with a partner as most pharma companies there play hard ball. In any Asian market, the only thing that can happen quickly is failure. Japan is not a short term option unless by short term you mean a minimum of two years until market entry.
Canada and Europe are the best bets. EMA, for all their bureaucracy, it at least predictable. Don't expect pricing to be favorable except in a few northern countries and remember that Novo is Danish and Sanofi is French; both think that Europe belongs to them and will do all they can to keep it that way.
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Post by matt on Nov 15, 2016 10:59:26 GMT -5
They will short it again, they are just waiting for it to go up. They have made a killing over the last two years or so shorting Mannkind on a regular basis so they are not likely to stop now. They probably already have. Remember that 13F forms only show a snapshot of the holdings as of the last day of the quarter, and the forms come out 45 after quarter end. They might have loaded up after the conference call pop and shorted it already, but you won't see that until mid-February when the December 31 holdings are published.
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Post by matt on Nov 10, 2016 15:06:11 GMT -5
I am glad they got the insulin put accelerated, as that gives the company much needed runway and takes away the imminent danger of bankruptcy. Losing the Sanofi LT debt was a nice trick, one that I would be mighty upset about if I were a Sanofi shareholder (Matt gets lots of brownie points for that one), but it sure helps especially if they can now find a buyer for Valencia as that can probably provide another quarter of runway. Long term though, while it is nice to not have the Sanofi debt it wasn't due for another 7 years or so the cash situation is just back where it was in June or so.
So it comes down to what it has always come down to; growing scripts fast enough to incentivize the financial markets. That means getting pricing to stick without the large gross to net adjustments, driving unit volume, and getting the manufacturing cost in line so that the gross margin is positive. If they do that, Mannkind will survive and if they don't this was just a temporary reprieve.
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Post by matt on Nov 9, 2016 10:47:19 GMT -5
"There are no future obligations to Sanofi." what does it mean matt? I read that to mean that the obligations of the collaboration agreement are over, which is what allows the company to take the unearned income off the balance sheet and into income. The balance sheet still has the $71 million secured loan from Sanofi that will have to be repaid, and Sanofi still has the insulin put obligation. Those will continue on until paid in full.
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