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Post by matt on Sept 14, 2016 8:00:20 GMT -5
No, I don't think that. Big has nothing to do with product success; the company must have the right call points in the hospital or physician offices. Bristol Myers Squibb, to take an example, is a powerhouse in oncology but they would fail miserably with Afrezza because diabetes is not their franchise. Pfizer and several other large companies decided to exit metabolic drugs to focus on other therapeutic indications, but the result of that decision is a greatly reduced sales force that can call on the RIGHT decision makers. A new company could jump in, but asking to launch an entire sales force on the back of a single drug is a tall order although that is what Mannkind has been forced to do out of necessity.
So who does that leave that still has an established diabetes franchise worth talking about? Eli Lilly, Novo Nordisk, and Sanofi. Sanofi had their chance with Afrezza and we all know how that worked out. Lilly is rightly focused on launching Basalglar in 2017, and it is positioned to turn Sanofi's Lantus into a commodity product within about six months. If I worked at Lilly I wouldn't even look at Afrezza until 2018 because it is hard to do a good launch on more than one product at a time. Could Novo do better than Sanofi? Probably, but in doing so they would have to cannibalize much of their other insulin business so the economics are not there for either Lilly or Novo.
Those are also the same reasons why Afrezza would be extremely tough as an acquisition target. The cost to buy Mannkind at a price that wouldn't send long shareholders over the nearest cliff is something around $2 billion (including assumption of the liabilities and transaction/integration costs). The acquirer would be looking for a return on investment that is, at a minimum, about 9% pretax. That implies that the product would have to contribute about $180 million to the pretax profit of the acquirer's income statement for them to break even. Big companies will eat some modest earnings dilution in year one, but most acquisitions are expected to be accretive to shareholder returns in year two. Run the numbers on how many scripts it would take to generate that level of pretax earnings, not revenue but earnings, and it should become obvious why Mannkind does not have a line of potential acquirers queued up outside the office in Valencia.
As avichen says, if somebody can pick up the business on the cheap then they might. If MNKD were forced to auction its assets in court, the total price would go from $2 billion down to a much lower number, and earning 9% on a much lower acquisition cost is more feasible.
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Post by matt on Sept 13, 2016 15:37:03 GMT -5
Looking for help trying to understand why we still have so many short positions. To me it seems shorting this stock is extremely risky at this point. Few shorts are simply short. If somebody had gone short when the stock was at $1.00, took the proceeds and bought long-term call options with a strike price of $1.00, and then watched the share price fall you would not think that is risky because if the share price went down by more that the cost of the call option, the short could exit and lock in a gain. Nobody should care what they make on any particular long or short position in the stock, or on any particular call or put option. If your portfolio of securities is gaining in value, you should be happy.
Are there other shorts that are little more brave than that? Sure, some just look at the balance sheet and the script growth and compute the probability that the company will become insolvent in the next six to 12 months. If you bet that five biotechs with Mannkind's balance sheet are going to become insolvent, four of them will and the fifth will not gain so much in value as to wipe out the profits. Again, most people playing the short game are playing a portfolio of short positions, not just one, and nobody cares about the gains and losses on individual components so long as the overall portfolio is gaining.
The risk you mention, that the company will get bought out, is not much of a risk. You need to see this from the perspective of a pharma buyer looking for growth and/or product diversification. Most acquirers look for the acquired entity to be neutral to their income statement (their shareholders don't like dilution either) or at least neutral by year two. What do you think the minimum acceptable take-out price would be for most shareholders? Lets say $3.00, which means that with paying off the acquired liabilities and transaction / integration related costs you are looking at a $2 billion investment. The acquirer will be looking for at least a 9% return, pretax, on that investment which means that Mannkind has to be contributing $180 million to the pretax income of the acquirer versus the current loss rate of roughly $100 million. It would take a very brave acquirer to assume that Mannkind could turn from a $100 million loss to $180 million gain in 24 months time, and if that buyer had a diabetes franchise (like Lilly or Novo) the $180 million it would have to be net of any cannibalization of their current insulin sales.
So that leaves only shorts who are totally unhedged with the risk that Mannkind will reach cash flow breakeven before they run out of access to capital. If that happens, the shorts will lose a few bucks on Mannkind and that will cause them a loss. That is their own fault for not hedging the downside.
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Post by matt on Sept 12, 2016 10:20:41 GMT -5
I don't know if we longs can win. It doesn't make sense to short a stock when it sits at 0.69 cents. Especially when most shorts have made a lot of money by shorting this stock. The thing is, how do the shorts get out when there are 8I million shares shorted. The only way out for them is dilution, reverse split or bankruptcy. Does anyone else have ideas how the shorts can unwind their positions? Dilution certainly helps the shorts if they buy into the new offering since they can deliver those shares to close out their position. Reverse splits don't help because if somebody has shorted 100 shares and the reverse split ratio is 5:1, then they still owe 20 shares and those shares will be the same proportion of the total outstanding. Bankruptcy, if the existing shares are cancelled, is a home run because those shares never have to be repaid; you cannot repay something that no longer exists and that is the legal effect of a bankruptcy cancellation of a class of equity claims. Some people also take a position that since there is no offsetting transaction there is no need to pay tax on the theoretically open short until death when it has to be included on their final return.
The other way shorts can exit is via options. If a long sells calls against their position, the shorts can exercise in the money calls and deliver the shares to close the position, or they can use more complex portfolios of derivative securities to create a synthetic long position that economically neutralizes the short position and effectively leaves them with no exposure.
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Post by matt on Sept 6, 2016 13:10:19 GMT -5
Allegations in a pleading are just that, allegations, and are no more legal proof than comments abstracted from this forum, SeekingAlpha, StockTwits or any other source because the witness has neither been identified nor have they been cross-examined. A lawyer cannot put facts he knows to be false in a pleading, but since this is a preliminary step in bringing a case any good faith belief will normally do.
What we do know, for a fact, is that MNKD's 35% share of the joint profit and loss accumulated to $70 million, meaning that Sanofi spent a total of $200 million on this project, in addition to the up-front payment. There may be disagreements about whether that money was well spent, or whether Sanofi spent enough, but to claim that Sanofi made no attempt to market Afrezza is a little over the top. Sanofi provably spent a minimum of $350 million to acquire the rights and to promote Afrezza and, at the time they withdrew from the agreement Afrezza had generated a total of $10 million in sales. It would be an uphill battle to convince a court that spending more than $200 million for a product launch with disappointing revenues was either prudent or required by the agreement.
This is not a case Mannkind can win, and it is a distraction that Matt and his team can do without. With the company running low on cash, starting a lawsuit against a major multinational is not a good use of the remaining resources.
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Post by matt on Sept 5, 2016 9:03:36 GMT -5
I am not sure you can tell who works for the company based on patent filings. All inventors who contribute to a new technology must be listed on the patent application or else the patent can be invalidated. If somebody does work on a technology but the application is not filed until two years after they leave the company, their name would still appear as an "inventor" even if they assigned all rights to their former employer.
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Post by matt on Sept 4, 2016 13:54:03 GMT -5
A substance doesn't have to have a direct cause and effect relationship (i.e. cigarette smoking) to increase the incidence of cancer. There are numerous biological signaling pathways in the human body, too many to list, and some of those control apoptosis (programmed cell death) which control which older cells will die so that they can be replaced by healthier young cells. Apoptotic pathways can be upregulated to downregulated by an equally numerous set of proteins, peptides, and other signaling molecules, and without large and longer-term studies it is impossible to exclude the possibility that any particular drug or delivery method, if different from what nature intended, will not increase the incidence of cancer. At the end of the day without high quality data from long-term trials EVERYBODY is just guessing.
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Post by matt on Sept 1, 2016 11:15:54 GMT -5
I speculated several days ago that management was experimenting with how much cash they could raise with the ATM. Since the ATM essentially puts a lot of new shares out into the market at the bid price, this could be MNKD itself reducing the PPS. Adam Feuerstein yesterday posted a tweet that MNKD was attempting to raise $10 million via the ATM facility, which if true, would be consistent with the trading pattern. He is not everyone's favorite blogger, but his trading information is usually right.
Usually new shares coming into the market under Rule 415 programs are sold in largish chunks early in the day. If you look at the volume by minute (Yahoo interactive charts is good for this) you can see multiple big sells on Tuesday starting right at the open and continuing until about 11:00, with some others hitting in the afternoon. There were no big trades early Wednesday, but some big sells were made when the price spiked and this morning it was more of the same with several big sells in the early hours, stopping around 10:30. This is typical of Rule 415 activity; the big sells hit the market until it starts to depress the price at which point the broker pulls back and lets the price stabilize before resuming the sells. If you see blocks of roughly the same size at multiple time points, that is another clue that it is Rule 415 activity.
If you add up all the big sells in the last three days, you get something in the range of 7 million shares at an average price of about 71 cents or a little less than $5 million in fresh cash raised (net of the banking fees). If there really is a plan to raise $10 million from the ATM, it is about halfway complete. We won't really know the reason until November when the next 10Q is filed, so this is all an educated guess.
Alternatively, there was this footnote in the last 10Q "We have been informed by the trustees for the Mann Affiliated Entities that the trustees may seek to dispose of some or all of the shares beneficially owned by the Mann Affiliated Entities, pursuant to one or more trading plans under Rule 10b5-1 of the Exchange Act or otherwise." While Al Mann may never have sold under these conditions, the trustees with legal obligations to the estate and the various beneficiaries may feel compelled to act differently.
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Post by matt on Aug 30, 2016 16:05:45 GMT -5
I don't agree with your statement that a financing is coming "soon". Every statement by the company has said they have enough cash available to make it through until Q2 of 2017. That would be the earliest if Afrezza sales do not take off. Please break out your calculator and tell me how Matt and team have been misleading us in their quarterly calls. Every one of your posts is a soft bash of this company. I have yet to see you say anything positive regarding Mannkind at all. My background is finance and biotech, and I have seen way too many companies crash and burn due to weak balance sheets. I know what Matt has said, but his statements simply are not credible when the stock is trading at these levels. We know how much money the company had as of June 30, and you can make your own guesses as to what the current burn is but I make it about $9 million a month. The $30.1 million in credit from the Mann Group is real, they don't have the option to pull the plug on that facility (Deerfield Partners made sure of that), but the ATM is a different matter. The last few days have shown exactly how weak the demand is for this stock, and use of an ATM facility means that the company has to dump new shares into the market, essentially all at the bid price. If the company does that, it will further crush its own stock price. Until demand for shares improves considerably the ATM is more a theoretical source of financing than a real one. So Matt is not exactly lying when he say he has access to enough cash to get to Q2, but you wouldn't like to know what the stock price will be if he pulls the trigger on the ATM.
I will concede that other payments might magically appear, like an RLS milestone, but since that contract was redacted we don't know what the milestones are or their magnitude. Those other payments can't be guaranteed, or even assessed given the information that is in the filings. As I said, use your own numbers but I put the cash at around $18 million at the moment (net of the $25 million requirement from Deerfield) plus the $30 million from the Mann Group makes it $48 million. At a burn of $9 million a month, that leaves about five months of cash or late January before the tank runs completely dry. I have done lots of raises for NASDAQ traded companies, and I can tell you that it is darn near impossible to get a deal closed between Thanksgiving and New Year's, and the company does not what to be raising money in January when they are down to the last last nickels and dimes. So yes, I do believe there will have to be a money raise before Thanksgiving, which is less than three months away. To me a window of less than three months is "soon".
As for my opinions of this company, you must not read my comments very closely so let me repeat them here. I think management is doing an excellent job given the resources they have at their disposal. Introducing any new technology is tough, and without a large sales force it is very hard to do. I have run biotechs and I have been where Matt and Mike are, and right now they probably feel like General Custer at the Little Big Horn. They inherited a weak label and a weaker balance sheet, neither of which is their doing. The drug works and it is helping a lot of patients, and anything that helps diabetics is good.
Telling the truth like I see it is not a soft bash; nobody has every accused me of having a soft opinion anything. My very firm opinion is that the company has a real issue with its cash position and that is why the shorts have not covered even though the stock is trading at 70 cents. Matt needs to fix the balance sheet if he wants to buy enough time to make the drug successful. This drug is not going to skyrocket in the next few months so it will take some time to get there, but time costs money.
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Post by matt on Aug 30, 2016 11:45:51 GMT -5
The reason the price is dropping is that the market has not seen any compelling data that it should go the other direction. Anybody that owns a calculator can figure out that a financing is coming soon, and that is causing an overhang on the share price. The only upside to the scenario as this point is robust revenue growth and that has not happened. While I agree with Mike that you can't run a company looking at week to week script numbers, you can run an investment portfolio that way and that is precisely what some people do. Personally, I would get the financing done and over with before the price drops so low that even doing a financing is called into question. There is an old saying in biotech "take money when you can get it, not when you need it". The company can probably still get it at this point, but soon they will need it and that is when the real bottom feeders will show up.
As for diabetic neuropathy, I have looked at more nasty pictures of that than I care to remember (I have done multiple clinical trials with multiple therapeutic approaches). Diabetics develop microvascular disease of all types which is why they also have a higher incidence of heart disease and cerebrovascular stroke. When the pipes get clogged, oxygen and nutrients cannot reach the tissue and it dies, and the first place this happens is in the toes, then the foot, then the lower leg. Most diabetics are not athletes to begin with, but when they lose a foot they are forced to become 100% sedentary for the rest of their life and their overall health status declines.
At that point there is really not a cure that will help them, which is why everyone needs to keep their HbA1c under 6.5%. No amount of insulin will clear the pipes once they are clogged, but diet, exercise, and medication can help prevent the problem.
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Post by matt on Aug 30, 2016 8:41:54 GMT -5
Can anyone tell me when anyone from MNKD did ANYTHING to combat the hit pieces that come out left and right from the short sellers at SA and The Street? "Wow, that Internet argument changed my fundamental belief system" said no one, ever.
Shorts are going to short, and longs are going to buy. Hit pieces will come and go; some of them will be right, some will be wrong, and most will be a mixed bag. What matters is getting the product into the hands of the patients and driving market acceptance. If you want to shut the shorts up for good, nothing will do the trick like a couple of quarters in a row with sustainable sales growth and reaching cash flow break-even. Anything else and the great Internet pissing match will continue, and there is nothing anybody can or should do to try and stop it.
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Post by matt on Aug 29, 2016 8:51:50 GMT -5
Since the redacted portions are highly confidential, I doubt they will ever be "un-redacted." That is not to say that at some point MNKD might not give us a flavor for the expectation of sales with SNY, but I don't see the agreement being released in the clear. I agree with that. Redaction occur because one of the parties does not want confidential and proprietary information in the public domain. Normally obligations of confidentiality survive termination of an agreement for some defined period, with three and five years being the most common periods, so it would require the legal waiver of the other party to disclose their confidential information.
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Post by matt on Aug 29, 2016 7:40:45 GMT -5
I agree, the simple answer is that it depends. Some healthcare networks won't let their physicians see drug reps, period. You can bang on those office doors all day long, but the rep will have more chance to see a Big Foot than they will an elusive physician.
Others will only see reps during lunch or early hours, never during clinic times. Likewise, it is hard to generalize how to translate visits into doctor interactions. My primary care physician is part of an internal medicine group practice, and there are about eight physicians practicing out of the office I visit and something like 60 physicians across all their offices. So if a rep gets through the door, how many physician interactions is that? The group is also very good at checking the formulary for insurance before they ever write any script so that I don't have to pay more out of pocket. In general, you can't generalize.
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Post by matt on Aug 25, 2016 15:19:31 GMT -5
They won't appeal. Their law firm, Rosen, specializes in this kind of case and since tweaks were made to the Private Securities Litigation Reform Act more than 50% of all class actions get dismissed at the pleading stage. The problem is that to win a private securities suit the plaintiff must plead fraud, but the fraud must be screamingly obvious because the plaintiff can't get discovery until after the Rule 12(b) hearing, so the fraud has to be obvious when the 12(b) hearing is held.
This was a weak case as these things go, and made even more difficult because it didn't allege false statement but rather omission of additional statements required to revise past statements. Stick a fork in this one.
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Post by matt on Aug 24, 2016 14:50:32 GMT -5
A hypothetical question: Let's say that over the past 10 years, not one shareholder loaned out their shares to shorts. Where would MNKD be at this time? I would say about $8.00 per share, making the interest gained by those loaning shares real fool's money. As long as there is a derivatives market with sufficient volume, you don't need any shareholders or institutions to loan their stock in order to short. If you are familiar with synthetic securities, you can easily duplicate the returns on a stock using a portfolio of calls, puts, and US treasury securities. Reverse the algebraic signs on that portfolio and you can be short the stock instead of long. So long as you can buy and sell three of the securities, you can perfectly replicate the returns on the fourth.
Since the options are derivatives of the underlying stock, their price movements are perfectly synchronized with the price movements on the underlying. Once you understand how those interrelationships work, it is some simple algebra to build a synthetic security.
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Volume
Aug 24, 2016 13:45:38 GMT -5
Post by matt on Aug 24, 2016 13:45:38 GMT -5
The other entirely plausible explanation is that management decided to test the waters and see what grabbing $1 million in financing from the ATM facility would look like. Since newly issued ATM shares hit the bid, there has to be willing buyers at volume on the other side of the trade to prevent the market makers from moving the bid price south. If this was a test of whether the ATM could actually be used as a practical method to extend the cash runway, we have the answer.
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