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Post by matt on Oct 22, 2016 14:57:42 GMT -5
To me, the biggest and most significant issues facing the success of MannKind is the lack of time and trajectory of the script count. Time is the problem. If there was enough runway then script trajectory could take a bit longer and, while people would no doubt bitch, it would be less of an issue. Money is the real issue and you cannot expect that scripts will suddenly take off like a rocket ship for a drug that has been on the market now for more than twenty months. If there was that much pent up demand for an inhaled product then Sanofi would have done better with it. Insulin is not an unmet clinical need, perhaps it is one that could be better met, but that is a different dynamic that rarely leads to exponential market growth.
Which leaves the financing quandary. Financing needs to happen before the cash balance runs too low (and by cash I include the $7 million or whatever is left of the ATM and the $30 million from the Mann Group), because once the balance runs too low a failed financing becomes a self-fulfilling prophecy. The time to pump up the cash is upon us now and it really can't wait longer. If Mannkind reaches Thanksgiving week without a deal, then I think it is game over.
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Volume
Oct 21, 2016 9:28:52 GMT -5
Post by matt on Oct 21, 2016 9:28:52 GMT -5
with all due respect, did you see script numbers? down again.... Yes, we are all happy about stock going up without news, but, will keep going? I wouldn't say no news; it looks like the Fox coverage has driven a lot of small retail buyers into the stock. Just because it is not news to regular posters on this forum, does not mean it is not news for somebody else. Still, the story is largely the same as before. Scripts are tepid and the cash burn continues which, eventually, will drive the PPS back to where it was unless there is a big positive surprise hiding in the shadows.
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Oct 20, 2016 10:40:41 GMT -5
Post by matt on Oct 20, 2016 10:40:41 GMT -5
I am not sure the job listings mean much, positive or negative. I most cases people join Publicis as a temporary solution to unemployment while they continue to interview for permanent jobs, in pharma or elsewhere. The turnover in contract pharma sales is pretty substantial, and with Afrezza selling only modest amounts the commissions can't be large enough to keep the sales force interested. Publicis, from their end, has committed to use best efforts to fill a certain number of jobs in certain territories so I would expect them to advertise any openings so long as the contract in its present form remains intact; they really can't do anything else. This seems like business as usual from both sides.
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Post by matt on Oct 19, 2016 14:43:08 GMT -5
Rights offerings have a long history, especially in some countries, but they work better on a high growth stock with lots of demand and a shortage of public shares. The problem is that you can't issue a right with "use it or lose it" terms because that takes value away from cash poor shareholder and gives it to cash rich shareholders. The fix for that is to make the rights themselves tradable, they are essentially a special type of warrant, but if there are a large number of shareholders unable or unwilling to use the right it creates a discounted market for the warrants.
If you don't like short sellers, imagine what happens if you create a downward spiraling market for soon to expire warrants to buy preferred shares with rights superior to that of the common. Besides, the new class of stock would have to be authorized and registration statements filed on both the shares and the warrants. I think Matt is dealing with enough business issues at the moment; he doesn't need the additional distraction of a few months of SEC paperwork hell.
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Post by matt on Oct 18, 2016 12:43:47 GMT -5
Matt, ATM - if they have been recently or are currently tapping it for the purposes of funding ch 11 any risk of fraud? Most people / institutions buy equity with the assumption of going concern or is it caveat emptor? Mann Group - no idea what fine print says but if the Mann family or Claude specifically is in charge of the Mann Groups activities since Al's passing, is it possible that she could pull the LOC or once in place, is it typically irrevocable? That said, is it possible to go directly to 7 vs 11? I appreciate your comments. Whatever your opinion of management, I don't think these guys do anything that smacks of fraud. The financial situation is no secret and they are up-to-date on their SEC filings. In the last 10K the company noted that if they are unable to raise money they may not be able to continue as a going concern, and the auditor wrote a going concern opinion. If, after being explicitly warned by both management and the auditor that the company has a going concern issue, if somebody chooses to make an investment then that is on them. The SEC is there to make sure investors have all the pertinent information they need to make prudent investment decisions,, but if an investor reads the warnings and still chooses to roll the dice then the SEC will not get involved. The legal assumption is that we are all big boys and girls and, empowered with truthful information, can take care of ourselves. If the information is not truthful that is a different matter, but I don't think that is the case here.
I have looked at the Mann Group note some time ago. Originally there were some escape clauses, but Deerfield Partners insisted on some changes before they made their facility loan. While I did not spend a lot of time on it, my reading is that the Mann Group is on the hook for the full amount should the company attempt to draw on the loan.
As for Chapter 7 versus Chapter 11, most people don't understand about bankruptcy. Bankruptcy courts are not a part of the Justice Department (i.e. an Article III court) but rather part of the Executive Branch as a division of the Commerce Department (Article I). Bankruptcy is largely an administrative court empowered to adjust debts in accordance with the provisions of the bankruptcy code. The judge is essentially applying a fairly rigid set of administrative procedures to the facts at hand rather than making judgments in equity. If the company doesn't have enough money to continue in business, the code sets forth who gets paid first and in what amount which, when the money is gone, also determines who is left with losses. The process is far more mechanical that virtually any other administrative proceeding and the process is detailed and specified by federal law. Exceptions are not possible.
The form to declare bankruptcy is just that, a form, that is about three pages long. Somewhere on that form are two check boxes, one that says Chapter 11 and one that says Chapter 7. Whichever box gets ticked is where the case starts out. However, bankruptcy allows any party in interest (i.e. any creditor or any shareholder) to enter an appearance before the court and make a motion to convert the case from 7 to 11, or from 11 to 7, depending on the rules. So, as a practical matter it doesn't matter where the case starts out but rather where the case ends up. The court is pretty flexible about allowing conversions into Chapter 11 and will only forcibly convert a case to Chapter 7 if there is no hope of reorganizing. The purpose of the court, as part of the Commerce Department, is to support the economy by preserving damaged but still viable businesses when possible and to save jobs. The mandate is to complete the cases very quickly because the companies have no money so there are few bankruptcies that turn into legal marathons.
The statutory requirement for submitting a reorg plan is 120 days (possible, but difficult, to extend) so that does not give a lot of time for navel gazing. Arguments like "hey judge, lets wait another six months and see where script numbers are then" will be summarily dismissed. One the case is filed, the clock starts ticking and there is little anybody can do to control the process at that point which is why you never, ever, want to be in court unless all else has failed. Keep in mind that a successful reorganization does not mean that the shareholders get anything at all. If the business can stay alive, but the creditors exchange their claims for 100% of the stock in the newly reorganized company, then that counts as a success to the Commerce Department even though that is a disaster for shareholders. The goal is to preserve the business and the jobs, it is not to preserve ownership. Keep that in mind and you will understand more about the bankruptcy process than 95% of investors.
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Post by matt on Oct 17, 2016 14:13:49 GMT -5
Matt, you and said that management, should they decide that ch 11 is the only option needs to file at a point in time where there is enough cash left to take the company through the process. In your opinion, how much cash would MNKD need to complete a ch 11? I cannot access Mannkinds website now but if they are still burning $10 mm / mo and they have enough cash to get the to Q1 '17 (per Matt P), my guess is that today, they have around $30 - $33 mm. Trying to get a handle on how much cash they have to run company and drop dead date they would need to file by. Per your earlier comments, you indicated that if the filing is inevitable, they would likely do so in conjunction with the next PR for the Q. Thanks, I have more than a bit of experience in bankruptcy cases, as a buyer of distressed assets for a former employer, as a consultant and expert witness for a distressed company that filed bankruptcy, and as a consultant and expert witness for a group of shareholders. Each case and the surrounding circumstances are unique but if I had to put a number to it I would guess that MNKD needs $50-60 million to make it through a reorganization. Let me break that down.
First, there is the expense of the attorneys. This will be a complicated case with lots of parties and there will be a lot of legal work. Bankruptcy attorneys are used to dealing with clients that are insolvent and will demand their estimated fees up front I the form of a retainer. While the fees are ultimately something that is approved on motion to the court, it gets paid out of that retainer. If assets are to be sold, there will be an asset liquidation firm appointed to write an offering memorandum for the saleable assets and that firm will be due a sale commission if successful. The company needs to file a detailed plan of reorganization with the court and there is typically a work-out firm that specializes in preparing those plan documents. If there is litigation between the bankruptcy estate and other parties, that creates another layer of legal fees. The Office of the US Trustee charges fees to administer the case. There are other costs of bankruptcy as well that I won't go into, but the debtor pays for most of it. The various retainers and expert fees will easily be in the ballpark of $10 million. Easily.
If the company is to reorganize life must go on during the pendency of the case. Afrezza has to be manufactured, salesmen have to call on physicians, financial reports have to be filed (although not with the SEC), and the office manager has to pay for lighting and air conditioning. We know the company is burning something like $8-10 million a month over and above what Afrezza sales bring in so over the course of a typical bankruptcy (120-180 days) the company will need to fund that operating burn. Additionally, all the accounts payable get frozen the instant the company files in court, which is good because creditors can't bring collection suits while the company is protected by the court, but at the same time a lot of vendors will put the company on cash terms. Prepaid deposits will have to be provided to all the utility companies to keep the lights, Internet, and telephones on. Any fudging that might have been possible by extended credit terms will be gone and MNKD will effectively turns into an all cash business. Quite literally you will have truck drivers demanding a check before they will unload supplies needed to continue operating.
So a monthly cash burn of $8-10 for 4-6 months plus the cost of the experts gets you to my estimated need for cash. On the supply side, the remaining Mann Group loan facility is $30.1 and the remaining ATM is restricted by the number of shares to a value of around $7 million at today's share price, so that is a total of $37 million of financing plus whatever is left on the balance sheet. As of June there was $63.7 million on the balance sheet and if we assume $8 monthly burn (it averaged $7 million in the first half of the year before the marketing effort) the balance sheet will be down to about $32 million by the end of October. If you use the $10 million monthly burn the cash remaining at the end of October is $24 million. For sake of argument lets use the midpoint of $28 million. Add the $28 million in cash remaining to the $37 in financing capacity and it comes to $66 million.
Without access to the books I can't be more precise that this, but it seems likely that at some point in November the cash required to operate the business as it goes through a bankruptcy reorganization will dip below the remaining cash assuming all the available sources of financing are tapped. There are potential surprises, both good and bad, that could change the math (like an RLS payment) but those are impossible to estimate.
Many companies can access debtor-in-possession (DIP) financing to access additional cash in bankruptcy, but DIP lines have to be secured by assets. Since Sanofi has a first priority security interest in the Valencia headquarters, and Deerfield Partners has a first priority security interest in Danbury, obtaining DIP finance is going to be extremely difficult. Getting around those security agreements will be almost impossible so I think the roughly $66 million MNKD can access is also close to 100% of what they can potentially access. More than anything else, I think that explains why the stock is trading where it is trading. Matt is running out of options and the market knows it.
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Post by matt on Oct 17, 2016 9:52:29 GMT -5
The holidays are coming and raising cash around this time of year is very problematic. So, they get something done now and extend the runway or they wait till early 2017, which I don't see how that would be possible pending a cash infusion from say RLS or SNY. That comment is exactly correct; if you try to play chicken with the financial market the market will win. The company has to raise money now and they cannot bet the future on concluding discussions on cash payments from RLS or Sanofi in time to avoid an insolvency event. In the world of every man for himself, both RLS and Sanofi have an incentive to stretch out the process as long as possible because that gives them maximum leverage over MNKD and the longer it goes on the more leverage they have.
The problem is that Matt may have waited too long to pull the trigger. Doing a significant raise at 46 cents may not be possible regardless of the terms.
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Oct 16, 2016 14:51:40 GMT -5
Post by matt on Oct 16, 2016 14:51:40 GMT -5
With the interllectual properties ! And state of the art manufacturing facilities ... Could this not be sold to more than one buyer ? A MNKD deal would come with a lot of complications that, quite frankly, aren't worth it for most companies. If a large company buys MNKD then they are taking on all the legacy contracts, shareholders, potential lawsuits, environmental history, debt obligations, and so forth while if the buyers wait until the company is under court protection they can grab the specific assets they desire without assuming any liabilities. Typical bankruptcy auctions go quickly, generally 21 days from the time the judge approves a sale order to closing, and the terms are normally all cash.
Under those conditions there are few bidders, and the bidders that do exist have usually been stalking the assets for a while. IP, in particular, requires some thought before making an offer and most companies just aren't willing to pay anything significant for patents without doing a lot of detailed diligence, and the speed of auctions prevents that. In any event, a buyer that wants the manufacturing facility will have to deal with Deerfield Partners since the manufacturing assets secure the Deerfield notes, and a court filing does not override the existing lien under the UCC so the plant will likely go in an Article 9 sale if it comes to that.
As I said above, if there is a rabbit in the hat now is the time to show the bunny!
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Oct 16, 2016 11:14:56 GMT -5
benh likes this
Post by matt on Oct 16, 2016 11:14:56 GMT -5
Even so the question now is about the survivability of the company itself (not just about afrezza). So even if scripts increase, the cash issue is paramount. I do not understand why management hasn't addressed this at all, why the silence is deafening? Even if MNKD isnt worried and they have something to deal with the cash issue why not tell the market? It's no secret that MNKD is in trouble so why keep any potential solution secret? Fair questions, but I think the silence may be reflective of the fact that the company has few options that it can pursue and any comment would tank the share price. Before you say anything, I agree that it is illogical that the share price should be affected if management just says what everybody already knows, but that is precisely what happens in the real world. If management does plan to use the ATM to any significant extent, the share price matters. There are 16.1 million shares left on the ATM registration statement and at the current price of 50 cents, that nets a maximum of $8 million in proceeds.
I am sure Matt has spoken to a small army of investment bankers, potential partners, creditors, and lawyers looking for any way he can to extend the cash runway but, given the silence, none of those have come to fruition and as the weeks pass any leverage MNKD had is going away. At some point the smart move for any company interested in the technology is to just sit on their hands and wait for a liquidity crisis that forces MNKD to seek court protection. At that point the desirable assets can be had for pennies on the dollar without taking on creditor claims, shareholders, or pending legal issues. That result would be terrible for shareholders of course, but this is business and a prudent buyer can get a better deal with lower risk simply by waiting.
If there is a rabbit in the hat, now is the time to pull it out.
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Post by matt on Oct 15, 2016 16:40:32 GMT -5
Careers with Publicis and its competitors are definitely inferior to pharma sales with the large companies. Most of the employees were former sales people with a large company but who were eliminated in a downsizing due to merger, loss of patent protection, or similar event. There is no shortage of displaced pharma sales people and Publicis hires them when they are needed, and will fire them when no longer needed. For most contract reps it is a place to make some money while they look for a better gig whether in or out of pharma.
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Post by matt on Oct 14, 2016 15:00:02 GMT -5
It was not a big deal; the CTO covered a now defunct supply agreement between Mannkind and Organon Technica with a value of $16 million. Since the contract recited quantities received for that price, Organon likely did not want their pricing exposed in a public forum so confidential treatment was allowed. If you want to see the unredacted material, you can request it from the SEC.
Virtually all CTOs are matters of this type where a third party does not want to disclose pricing or other contract terms. They are pretty routine.
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Cash
Oct 14, 2016 9:38:37 GMT -5
Post by matt on Oct 14, 2016 9:38:37 GMT -5
Scotta, that is a realistic view of the world and I think your option 1 is the only one likely to happen, if at all. While scripts are doing better they need to be on an exponential trajectory and they are not. Dilution is the only way to lengthen the runway sufficiently to have a chance at survival without a trip through BK court, but that raise will have to come from some "hard money" sources and they will be increasingly reluctant to play as the weeks go by.
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Post by matt on Oct 12, 2016 13:40:29 GMT -5
The next 4 weeks are huuuggge (d. trump) for mnkd: script counts, 3Q results and conference call, reverse split/dilution, RLS, label change application, partnerships, pipeline advances, etc. Does anyone think management will produce? I think we need to be realistic about what management CAN produce. Q3 is over and the numbers are going to be ugly. We know the script counts have been tepid and that there a lot of new costs that didn't exist when Sanofi was doing the sales. Label change is not going to happen either, management may have submitted the request by now, but FDA has six months to decide on material changes to labels and everyone should expect that FDA will take their time. Partnerships only move as quickly as the slowest of the two partners, and most companies are busy putting together their 2017 budgets at the moment. Matt can't force any partner to go faster.
What Matt can do is:
Address the script trend such as it is by the end of October. Patience is good, but end of the month will have been 120 days and there should be some positive trend in the numbers by then.
Explain how the company will remain funded, and saying that they have enough cash and credit to get through Q1 is not an answer.
This company has a significant bankruptcy risk whether people want to talk about it or not, and a company cannot enter into a bankruptcy after all the money is gone because of the need to keep the company running as it restructures plus the legal costs of the case. The company is perilously close to that tipping point, and it would not surprise me if the company began a chapter 11 case on the same day they publish the 10Q (a lot of companies do that for disclosure and legal liability reasons). However, assuming they don't pull the trigger then Matt needs to explain how the cash drain can be supported in the face of a delisting and continued negative cash flow.
As soon as the Q3 numbers are published, everyone will be updating their balance sheet forecasts and estimating how long the cash will last, but prospective investors will be doing the same thing. Insolvency is a like a game of musical chairs; when the music stops nobody wants to remain standing. The reality may not be nice, but shareholders deserve to hear exactly where the company is with the financing options, and vague answers aren't going to cut it. If Matt doesn't deliver on those two points, then I think it is because he has run out of options.
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Post by matt on Oct 11, 2016 10:17:30 GMT -5
I don't give a rat's arse what RLS is working on - All I care about is "WHERE IS THE MILESTONE PAYMENT" = SHOW ME THE MONEY! The milestone payment will come when the milestone is reached, but we don't even know what the milestone events are. In biotech deals, the early milestones, which are always modest in size, are tied to clinical trial events and the later milestones, where the big dollars are paid, are tied to commercial sales of an approved product. MNKD was clear that the payments would be for development and commercial events. It would not be unusual for the first milestone to be payable when the IND for Phase I human clinical trials is cleared, and that could be some years away.
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Post by matt on Oct 11, 2016 8:12:19 GMT -5
The person is no longer looking up a tree. RLS had 6 months to answer whatever about their API. Time is up?
Don't expect any answers from a privately held company regarding their API or APIs. Eventually every pharma company will disclose what drugs they are working on as it is a necessary step when starting human clinical trials, but even for those on a fast track development cycle that is two to three years. A head start on your competitors of two or three years is a valuable commodity in the industry and despite RLS having licensed a delivery system from MNKD, neither the company or its shareholders have a right to know all the details of RLS' projects.
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