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Post by matt on Sept 27, 2016 15:03:24 GMT -5
This is a registration statement, not a share grant. The company is free to make grants at 81 cents, or 70 cents or 20 cents or $2.00 or $5.00. However, when you register shares you have to pay the SEC a filing fee in order for them to review the document, so the practice is to use the actual price within a day or two of the filing for the sole purpose of calculating the fee, which in this case cost about $1,223 to register these 15 million shares. It doesn't mean the employees have been given grants for that amount, just that when grants are made for up to 15 million shares they are automatically registered for resale.
It works just the same as an S-3 registration, which is also called a shelf registration. It allows the company to sell new shares in registered form because potential purchasers don't want to wait until the shares are registered (otherwise the price will be lower) but it doesn't mean the company will sell those shares. Nearly every company that qualifies has a shelf registration, and most of them are never used. The main difference between an S-3 and an S-8 is that the S-3 is for shares issued during sales to the public market of new shares and an S-8 is for new shares issued pursuant to employee and director compensation plans.
Move along folks, nothing to see here.
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Post by matt on Sept 27, 2016 11:56:29 GMT -5
The timing is not as fast as many are making it sound. FDA categorizes changes to approved labels and has different approval standards for each. The 30-day category is for relatively minor changes, such as a new corporate logo of the color of ink used in printing the label. Those are considered minor changes and can go into effect on the 30th day unless FDA objects.
The kind of label change Mannkind is looking for requires a PAS (prior approval supplement) and there is no automatic time deadline for those. Internally the FDA targets approving 90% of all PAS submissions within six months, but 10% will take longer. Don't expect a substantive change in marketing claims on the label to be approved this year.
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Post by matt on Sept 27, 2016 9:27:40 GMT -5
Mannkind is going to need some and I understand it takes a bit of time to raise. So the question for the board, what is the most realistic scenario? Common Equity - at current SP, more dilution would mean SP below what, $0.44 or a bit lower and is this even a possibility for a company that has received a delisting notice? Debt - are there any assets to be used as collateral? Publicly Traded Debt - not sure what ramifications are. What Knight - business partner who kicks in a minimum of $50 mm Sanofi settlement - does not seem likely Company X (If profitable with positive Cash Flow) does a reverse merger into Mannkind - would this allow the losses to be used and is it even legal? Insulin Put - modest amount of money that would not provide much runway to continue operations. If anyone has other ideas as to how we raise $$, please share your thoughts. I know Matt P said there is enough to get us to Q1 '17. To me this means maybe mid-Jan but it would not surprise me if there is only enough to get us through early December. Either way, its not like any of this can be done in a week or two so realistic to think Mannkind is working diligently to address this. Last question, when do you think is the latest possible date we will hear something about additional cash being raised? At the risk of sounding like Negative Nancy, here is my view on those alternatives:
Common Equity - at current SP, more dilution would mean SP below what, $0.44 or a bit lower and is this even a possibility for a company that has received a delisting notice?
Possible, but with a sizeable discount and/or warrant coverage. If the listing is issue is fixed FIRST then I think you are looking at a minimum economic discount of 40% (cash discount + warrants). That may not be 40% from today's price since fixing the listing issue may cause some price increase so on a net basis it might be closer to 20-30% if the listing problem is off the table. If the listing issue is not settled first, then it is uncharted territory. Suffice it to say that the discount would be significantly larger, at least for a substantial raise.
Debt - are there any assets to be used as collateral?
Valencia is security for Sanofi's loans, and Deerfield is secured by Danbury. I think (emphasis on think) that there are unencumbered intangibles but those do not have much value in a secured lending scenario because secured lenders want something they can sell quickly and for a predictable price, and intangibles don't meet that definition.
Publicly Traded Debt - not sure what ramifications are.
Anybody can sell debt, but it will probably have to be convertible debt and thus potentially dilutive. Sanofi and Deerfield have first rights to their collateral, and will have equal priority for any excess loan balance not satisfied by a foreclosure on collateral. In theory convertible debt could be ranked as first priority, but that would require the other creditors to agree to subordinate their rights and that is so unlikely as to be nearly impossible. Deerfield, for sure, plays hardball and would not agree to subordination and there really is no mechanism to force them to agree. Sanofi is a maybe.
What Knight - business partner who kicks in a minimum of $50 mm
Anybody with deep pockets can write a check, but what do they get for their $50 million? If somebody wanted to own MNKD there are better ways to go about it, but those strategies aren't helpful to longs. If the party writing the check was significantly more altruistic than business focused it would be possible, but it would have to be a private entity and not a public company.
Sanofi settlement - does not seem likely
Agree, not likely.
Company X (If profitable with positive Cash Flow) does a reverse merger into Mannkind - would this allow the losses to be used and is it even legal?
Go read Section 382 of the Tax Code (bring lots of aspirin and coffee). Essentially, Section 382 makes it nearly impossible to use acquired losses to yield a substantial economic benefit EXCEPT when the entity with the accrued losses is bankrupt AND the acquiring entity continues to operate the business for at least two years. That would require MNKD to declare bankruptcy and the acquiring company would have to want the insulin business. There is one other alternative scenario in a bankruptcy but MNKD is unlikely to qualify for that treatment, the relevant details are at 26 USC 382(I)(5)(a) for those that want to torture their brain, are well stocked with strong forms of alcohol, and who have access to eight-figure sums of cash.
Insulin Put - modest amount of money that would not provide much runway to continue operations.
I think this has already been counted in management's forecast of cash burn. If the company sells those rights, the short-term cash situation is improved but the longer-term cash situation is hurt; on a net basis this probably doesn't help.
This is a pretty good laundry list of ideas, but none of them are easy to pull off, and none are painless to shareholders.
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Post by matt on Sept 26, 2016 10:13:15 GMT -5
What if they sold off one franchise (not Afrezza) - say inhaled epi; totally sold off the right to develop and market it. Would that not bring in enough to float us at least a couple years? They can't legally sell off a piece of the company without using all of the money received to pay off creditors. Since the shareholder equity is so far into negative territory the intangible assets are the implicit security for all the creditors claims not otherwise secured by hard assets. If the company tried to sell off a single product when the debt claims are so large, a court would almost certainly rule that such a transaction is a fraudulent conveyance. That would create legal liability for Mannkind, the officers and directors, and the company purchasing the asset (who might have to make the creditors whole, essentially paying twice for the same asset plus legal costs). No competent corporate attorney would let their client buy such an asset without written releases from all creditors, or as part of a prepackaged bankruptcy because the court would approve the sale over any creditor objections.
Now if Mannkind sold a piece of technology at fair value and used the proceeds to pay down debt that is probably permissible since creditors get the money and would do no worse than in a bankruptcy sale, but that does not help fund Afrezza going forward. The company needs cash for the insulin business.
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Post by matt on Sept 26, 2016 7:42:14 GMT -5
Realistically, the price is not headed north until the delisting issue (which will almost certainly require a reverse split) and the next financing are completed. No prudent investor is going to load up on shares knowing that those two events are almost certain to happen in the next few months, and face it, these events are not exactly a secret to the market. Here is hoping that Matt pulls the trigger as soon as possible, because until he does any positive news is going to be overshadowed by the looming unknown, and when unknowns become reality they are rarely as bad as your imagination made them out to be.
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Post by matt on Sept 25, 2016 13:17:33 GMT -5
Does anyone know the status of Arbitration or if we have even applied for it? I am assuming Matt or surrogates are in negotiations for some form of "severance", but since we contractually can't sue we probably have to negotiate first to show good faith effort. It is painful to wait, but outcome of Arbitration would certainly be better after we have shown success where SNY didn"t Stuck between a rock and a hard place since we could sure use the money. Arbitration does not work the way you have described. Arbitration is not a court of equity; the arbitrators have the powers to interpret the contact as they find it based on what is generally known as the "four corners". If Sanofi was supposed to do something specifically described in the agreement (i.e. spelled out within the four corners of the written contract) then the arbitrators can find a default and apply a remedy. If there is not a specific requirement described in the contract, the arbitrators cannot create one because it is "fair" since the contract is presumed to be the definition of fair.. The fact is that Sanofi spent something on the order of $200 million on marketing of Afrezza, in addition to $150 million in milestone payments, so the theory that Sanofi made no effort simply isn't going to fly. The agreement gave Sanofi sole and absolute discretion to make decisions about how the drug was marketed so disagreements as to how much of that $200 million was spent on print DTC advertising, television, sales force efforts, which physician groups were called on, and so forth aren't going to get much attention. Shareholders may not like the results, but Sanofi performed the services in the manner they thought best and that approach was agreed by Mannkind. Buyer's remorse is not actionable.
Similarly, if Mannkind can show better results than Sanofi that means nothing. Sanofi didn't warrant that their efforts would result in the best possible results, only that they would make reasonable commercial efforts and I think they can show that they did. Certainly Sanofi reduced their efforts after about nine months of trying, but I think it is fair for an experienced pharmaceutical manufacturing organization to look at sales data and growth patterns after nine months and make a judgment call that the launch is not going well and, that under the circumstances, it is commercially reasonable to focus their efforts elsewhere. Arbitration will not second guess judgments based on empirical data, especially when the aggrieved party negotiated to allow the other party to make such decisions, and courts are required to respect the arbitrator's decision unless they overstepped (such as looking beyond the four corners).
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Post by matt on Sept 24, 2016 9:57:26 GMT -5
You didn't say exactly which antianxiety drugs. The trick to any drug delivery system is to get the drug where it needs to go, in the form it needs to be in to deliver a therapeutic effect. What can be absorbed in any given part of the human body, whether the oral cavity, through the skin, the stomach, the upper GI tract, the lower GI tract, or in the lung, depends entirely on the specific molecule(s) or protein(s), its chemical stability, the pharmacokinetics, and its size. Suffice it to say that the question is complex enough that you are not likely to a satisfactory answer on a message board.
However, as peppy noted most of the current drugs on the market have high oral availability which means that pills work just fine for delivering the drug. It would be a hard sell to change the dosage form of an orally available drug unless the current drugs are not working.
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Post by matt on Sept 23, 2016 17:14:42 GMT -5
I have never needed Afrezza, but I have tried other inhalers. Sometimes it is not the medicine that tastes funny, but the other ingredients. Primatine mist, an inhaled epi, was not something you wanted to get on your tongue due to the bitterness. Still not sure if I was tasting the epi or the propellant, but with good technique you taste nothing. Problem is that it takes a bit of practice to get it right and I am sure some people just give up.
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Post by matt on Sept 23, 2016 17:11:53 GMT -5
I have had the pleasure(?) of dealing with the NASDAQ Listing Qualifications staff in a prior life. They can grant exceptions to any NASDAQ rule, but they are tough customers to deal with (regulatory lawyers) and they rarely play nice. The second grace period does require that the bid price is the ONLY exception to the continued listing criteria and the company is way deep into negative territory on the shareholder equity so I doubt an exception will be forthcoming.
All of that argues for fixing the problem promptly. The board should have a telephone meeting to approve calling a special meeting for the purpose of reducing the share count. I know it is painful, but not doing the reverse split will be more painful. The longer the issue is allowed to linger, the worse the price erosion will be so just get it over with and minimize the damage. I feel for Matt; at this point he must feel like General Custer at the Little Big Horn.
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Post by matt on Sept 22, 2016 12:53:25 GMT -5
So does this mean Avogadro's number is now 0?
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Post by matt on Sept 22, 2016 11:58:48 GMT -5
Doubt it, delisting really means little more than moving to a different, less "respectable" trading board. It is much worse to be an OTC stock. While it is true that the OTCBB is less respectable, there is also the matter of not being listed on a "national securities exchange" as that term is used. The only three exchanges that meet that criteria are the NYSE, AMEX, and NASDAQ and this is important because the SEC applies a different set of rules to companies on national exchanges because some of the regulatory oversight is assumed by the exchange listing qualifications panel. Having dealt with them personally, I can attest that the NASDAQ listing panel is a tough regulator. Also, most funds via their charter specify that they can only invest in securities traded on national exchanges, so if MNKD gets delisted those shares will get sold. For both those reasons, bid/ask spreads are larger and liquidity is reduced if the stock is listed on the OTC rather than NASDAQ.
If you think the MNKD share price is manipulated check out what happens to biotechs that lose their NASDAQ listing.
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Post by matt on Sept 22, 2016 8:46:38 GMT -5
Would there be enough buyers for that number of shares without some empirical data that 2nd launch will be more successful than first? I think it is pure guessing game as to when and at what price dilution will occur. I just don't have that sort of feeling that enough people would have a grasp on probabilities to have anything meaningful "baked" into current price. We've held steady at levels before only to crash through them. There are always buyers but it won't be at 70 cents. I have seen a lot of biotechs go through this kind of situation, looming delisting notice with scarce cash, and there are never any "good" buyers. The true healthcare investment funds (Orbimed, Atlas, etc.) will not touch MNKD because it is not the kind of stock they invest in. The good funds want biotechs with novel drugs, preferably first in class, that have a strong marketing partner and a clear playing field. Insulins have become a commodity and even big players like Sanofi are about to feel the pain of the PBM and managed care companies trimming their formularies. Yes, I know you will all say that Afrezza is the best rapid acting insulin and that it should not be compared to other insulins, but it is the market perception that counts and not the reality of the drug. Venture capital firms spend the time to get into details on their investments on private companies, but funds that trade public companies do not so the details aren't relevant to the investment decision.
So what you are left with is the other funds (several adjectives come to mind but this is a family friendly forum so I will refrain from using them). These guys invest to get the discounted shares and sell them quickly, usually within 20-30 days. They don't care if Mannkind sells insulin, mobile telephones, solar panels, or t-shirts; a discount is a discount and in any case they are not hanging around for more than a few weeks so why care about the product. Their primary metrics for whether they will make an investment is the size of the discount, the average daily volume of shares traded (they need somebody to buy the shares they plan to sell), and the volatility since they want an extra pop on the warrants they will demand. The level of analysis is rarely more sophisticated than that.
As for the dilution being built-in to the present price, there is some of that to be sure. When the market knows that a company will have to raise more funding the price inevitably starts to drop and when the funding actually hits there is another drop (because the new buyers want their discount from whatever the market price is as the time). The worst mistake companies make is to wait; the longer Matt goes without pulling the trigger the more the PPS will decline due to the looming dilution which will only make the share price that much lower for the new deal. Had Mannkind stepped up and done a funding when the share price was $1.00, it might have dropped the PPS to 70 cents, but by waiting the overhang and uncertainty let the price move to 70 cents anyway and now the next funding will almost certainly drop it below 50 cents. The price also takes a hit on reverse splits, and one of those is in the near future as well. None of that is a secret to the market.
Time to rip off the Band-Aid. Go ahead and man up, tell the shareholders the bad news that a reverse split is coming (personally I would do something like 1 for 20), conduct the shareholder vote to authorize it, and get back in NASDAQ compliance. Then do the funding with more like a $10 price (less discounts and warrants) and hope for the best. The balance sheet is not going to fix itself, and doing incremental steps with a stock trading under $1.00 is only going to end badly. It might end badly anyway, but at least there is a fighting chance with an investable price.
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Post by matt on Sept 21, 2016 13:08:13 GMT -5
Peppy, the data you quoted is just what is says it is: non-clinical toxicology. While these are acceptable tests for FDA approval, both 104 week and especially 26 week studies on carcinogenicity are extremely short periods. A lot of smokers die of lung cancer, but only after long periods of usage. Most smokers start in their teens, but there are very few smoking related cancer deaths in the under 20 population. If a physician does not prescribe Afrezza out of an abundance of caution, you cannot quarrel with that because it is a reasonable professional judgment. However, if the patient decamps to a different physician, you cannot quarrel with that either.
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Post by matt on Sept 21, 2016 11:28:22 GMT -5
Looks to me it's all computer simulation. Exactly right, " in silico" is Latin for "in silicon", hence the reference to virtual patients. Computer models are helpful to stimulate discussion in the academic community and to plan research studies, but FDA is going to want to see in vivo data from real patients before accepting a label change. The model presumes that all the human factors and the pharmacodynamics of each substance are fully known, but there is still a lot we do not know with any degree of certainty.
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Post by matt on Sept 19, 2016 8:06:29 GMT -5
One reason can simply be that the stock price is in a funk. If an analyst values the company at $XXX million and the share price is $1.50, that might trigger a sell recommendation. The same company with the same $XXX million valuation with shares trading at 70 cents might be a buy simply because the price has gone down.
A lot of times the valuations only get updated once or twice a year, because doing a proper valuation job is a major effort, while share prices bounce around constantly. A professional healthcare analyst wouldn't do it that way, but there are very few that really know what they are doing. The others have to keep forecasts updated on hundreds of biotech companies, without the time and staff needed to do it properly, so they have to take a few shortcuts. Since Zacks and other composite analyst scores are a mix of good and bad analysts, never put much faith into those numbers.
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