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Post by matt on Aug 24, 2016 8:18:52 GMT -5
Why would they pay taxes earlier than required? Could it be because they expect the value of those stocks to increase? Exactly correct. When you exercise an option or fulfill a holding period for restricted stock linked to your employment, any gain or loss as of that date is ordinary income and the value on that date becomes your stepped-up tax basis. Any future change in value is capital gain. If those executives had options that were marginally in the money (value at exercise of a few pennies) and they thought the price was going to go way up, then it makes sense to pull the trigger and pay tax on the pennies to lock in the lower tax basis for future gains.
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Post by matt on Aug 23, 2016 15:48:20 GMT -5
Sorry, I disagree. A RS (not merger) without relatively stable finances and an already existing sales or growth condition is asking shareholders to suffer for no reason since this likely will result in conditions not much different. I agree with your sentiment, that a reverse merger is desirable only if there are other conditions present, but if it doesn't happen the options for fundraising get very difficult. While PIPE transactions are expensive under these conditions, you can still get a PIPE done if you are listed on a national securities exchange. If a company moves to the OTC most are stuck having to do Rule 415 offerings, which almost always result in a death spiral leading to bankruptcy. It is a bit like driving off a cliff; you know what the result will be and the only question is how long the screaming goes on until the car hits bottom.
The financial and operational conditions of the company are what they are, and hoping that they were better will not make it so. The only question now is whether you want to add the additional challenge of trying to raise survival capital to the long list of rabbits management has to pull out of the Mannkind top hat. If you have never tried to raise money for a company on the OTC then you don't appreciate just how different market conditions will be. I have done raises for companies on NYSE, NASDAQ, and the OTC (never AMEX) and have the battle scars to prove it. Life on the OTC is a bitch and shareholders have greatly reduced liquidity because the volume drops. If you think the computer driven trades are bad, just wait until some parasite decides to manipulate MNKD price in an environment without competing market makers. Regaining NASDAQ compliance once a company delists is not a matter of getting the bid price above $1; it is an entirely new listing with a complete review and requires a $4 minimum bid.
At any rate, you will have lots of fair warning. With the exception of a few states, and Delaware is not one of them, an absolute majority of the shareholders must vote for the reverse split (meaning brokers cannot vote for shares in street name). If it comes to that, think long and hard before you vote no.
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Post by matt on Aug 22, 2016 13:56:30 GMT -5
Aren't some institutions restricted from buying shares trading below $5? Getting back above that might make a reverse split worthwhile. Funds can only invest in what their fund documents say they can invest in. Some funds just buy oil and gas, some do REITs, some do foreign stocks, etc. Indeed many of the mutual funds have a $5 price limit that prevents them investing in most small cap stock. However, these tend to be mutual funds that are heavily weighted towards blue chip stock and they shy away from anything that even hints of speculative, which frankly is most of the biotech sector. They might throw money at an Amgen or a Gilead with billions in revenues, but Mannkind would still be a stretch.
The reason to reverse split to stay on the NASDAQ has a lot to do with SEC regulations. There is a legal term of art "national securities exchange" which consists entirely of NYSE, AMEX, and NASDAQ. The OTCBB, pink sheets, and others are not national exchanges for that purpose. Since each exchange has a strong regulatory function, corporate governance rules, and listing standards the SEC has different sets of capital raising rules for companies that are listed, and while some funds have that $5 minimum reference above there are others that have a national exchange rule without regard to the share price. Once a company drops to the OTCBB the discounts and warrant coverage (i.e. dilution) get much, much worse.
So yes, doing a reverse merger is going to cause some considerable shareholder pain but companies do it because the alternatives are even more painful. Improving the balance sheet for Mannkind is a bit like removing an adhesive bandage; it hurts a lot less if you just man up and rip it off quickly. The sooner the dilution overhang is gone the sooner the discussion can return to growing sales, but until that problem is solved everybody will be counting the days until zero cash.
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Post by matt on Aug 22, 2016 9:33:35 GMT -5
Splits and their price effect on stocks has been studied to death and the universal conclusion is that splits make no fundamental changes in the corporation, but that such events convey new information to the financial markets and the information effects drive the observed price behavior in almost all of the cases.
Simply put, when a growing company splits its stock it is signaling the market that they anticipate further growth and that by splitting to a lower PPS then the company can continue to be owned by a broader group of shareholders. The anticipated, but unstated, growth results in a price pop. Conversely, when a stock reverse splits management is indirectly saying that there is not enough organic growth available to achieve the desired PPS. The information effect is a sharp knife and it cuts both ways.
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Post by matt on Aug 22, 2016 7:07:08 GMT -5
Just remember to read the fine print on the third line down from the quote price where it specifies the currency of the quote. You have to divide by the shekel to dollar exchange rate and then divide that answer by 100 because TASE quotes in cents. TASE normally tracks within a fraction of a penny of the NASDAQ quote.
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Post by matt on Aug 20, 2016 7:54:51 GMT -5
Mike C said MNKD would start posting the scripts. He didn't say when, but if the owners of Symphony and IMS are going to start withholding the information, now would be a good time to start. I find it a little suspicious that they aren't coming out now that everyone has said that MNKD lives or dies depending on script numbers. Lets not get too paranoid. IMS and Symphony are both part of huge publishing houses that produce hundreds of database updates weekly, and they could care less what the numbers say about Mannkind. However, it is August and lots of people are on vacation so they may well be running short-handed. It is far better for them and their reputation to be one business day late with a database update than to hurry up the process and put out incomplete or inaccurate data.
The numbers are what they are, and everyone will see them in due course.
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Post by matt on Aug 19, 2016 8:11:52 GMT -5
Not sure I get the anxiety about financing as they said they can go to early 2017. If so, either they significantly outperform sny (thus demonstrating a trajectory to profitability in which case financing will be no problemo) or they don't significantly outperform sny (and they demonstrate that sales of afrezza will be insufficient to sustain this company) and in such a case I would suspect financing will be impossible and afrezza gets sold for less than debt outstanding and the equity gets wiped out. The anxiety is that waiting until 2017 makes any future financing very expensive, and while many believe that MNKD can outperform SNY given enough time, the end of Q3 is not enough time to accomplish what needs to be done. Waiting to grab more financing only makes your alternative significantly more likely.
As to the others who commented on my post, you can't count on anything big happening. While various forms of partnerships, a termination payment from Sanofi or a milestone payment from RLS are all theoretically possible, there is nothing theoretical about payroll, utility bills, and so on. It is financially reckless to assume away a dilutive offering based on events that have a realistic probability of happening far below 50%. Management must behave as though those other things are not going to happen and, if one of them does happen, then they have the luxury of uncorking the champagne and dancing around the office. We all know what Plan B is if the company runs out of money, and prudent management teams and boards of directors do whatever they can to avoid that.
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Post by matt on Aug 18, 2016 16:53:22 GMT -5
It all comes down to how well any new technology works and whether the patients can afford it. Historically is has been easy to get a physician to change ONE OR TWO patients to a new therapy, then they sit on their hands for a while to see how it works. If the few patients who try it have a good experience, and the new product has mostly positive articles in the medical journals, then the physicians switch everybody over, but until then the old reliable methods are considered the best.
Afrezza has plenty of time to get traction in the market before artificial pancreas technology works properly. Virtually no first generation product works as well as it needs to, but second and third generations do. Just remember that device manufacturers can introduce a new generation of products with many fewer hurdles than a pharmaceutical company. We might see third generation AP devices within five years, but in five years either Afrezza will have gained traction and carved out a niche in the market, or else it will have gone the route of Exubera.
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Post by matt on Aug 18, 2016 11:04:14 GMT -5
This is not a company that can do a public secondary offering, so Mannkind will need to go the PIPE route. Investors in PIPEs are looking for a deal, which means they are not going to pay market price, but rather something less than market. There are different ways to discount the stock to create the incentive to buy, but normally it is either a discount on the price, warrants, or, most commonly, a bit of both. When a deal is announced at a discount, the price can be expected to drop to that new price (give or take a penny) because if the company just sold shares for 70 or 80 cents why should anybody buy in the market at $1.00? We can debate that logic all you want, but few offerings go out at a discount without immediately reducing the price.
I don't think the ATM is a viable financing vehicle at this time. When shares are sold ATM, the company is essentially putting new shares into the market at the bid price. The weekly burn rate is roughly $2.5 million, and I don't know that there is enough demand to soak up 2.5 million new shares every week without moving the bid lower. If the bid price moves, more and more shares need to be issued to yield the same amount of cash and that scenario is not sustainable. We may see a little ATM activity, but nothing close to the $50 million.
Whatever it does, the company should move sooner rather than later because the closer the cash is to zero, the more expensive the next financing round will be. There may be little difference between doing a raise in August and doing one in early October, but as we get into the holiday season the markets slow down. The markets are essentially closed between Thanksgiving and New Year's. January the cash start to run low and that is when the predators come out of the woodwork and the discounts get larger. The only reason to wait is if Q3 results are going to be so impressive that it will be easier to raise money in mid-November after the 10Q is published. Shareholders might not know what Q3 will bring until the 10Q is published, but management will have a very good idea of how the quarter will look by mid-September.
Don't get too obsessed about the NASDAQ delisting; that is far off. A reverse split is the easiest way to deal with that, but it also requires a shareholder vote and those can be expensive. If a reverse is needed, it is better to wait until the annual meeting when votes have to be taken for board seats and such anyway. While it is possible to call a special meeting at any time, that requires yet more SEC filings and a solicitation process that is not cheap. There is no reason to do it earlier than the annual meeting just to maintain NASDAQ compliance because there is a one year grace period.
No matter what happens, there will be more dilution coming, and no matter what more dilution is preferable to the alternatives. Dilution is your friend, not your enemy.
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Post by matt on Aug 16, 2016 16:21:39 GMT -5
The FDA however does not care about science, only about massive and expensive studies so I have no doubt they have made it prohibitively expensive for MNKD to prove that Afrezza is safe outside of the fridge (at least for a few weeks - maybe months). That is an uncalled for slander against the reputation of a the world's best drug regulatory agency. To say that you cannot have a reasoned scientific discussion with the FDA is simply not true, and I have sat in the office of more stubborn and bone-headed regulators around the world than I would like to think about. FDA is the best of them all, bar none. The people that work there cannot be compared to the stereotypical bureaucrat at the DMV; these are people with advanced degrees (many of them multiple advanced degrees) and they have spouses, children, and extended families affected by disease just like everybody else. Most are extremely contentious. FDA approves what the sponsor submits, and that is a molecule in a particular form. If the sponsor can show that the molecule is unaffected by temperature, humidity or other factors then the storage conditions on the label reflect that. Stability testing is a standard requirement for all drugs, and the tests are not particularly expensive to perform. In most cases it consists of taking a samples of a drug and putting it on a shelf in controlled conditions and periodically testing one of the samples to show the drug has not changed. Physical, chemical, biological, and microbiological tests, including particular attributes of the dosage form. In the case of Afrezza, that means that the drug is molecularly stable and atomizes as intended for delivery into the lung. It is not unreasonable to require a manufacturer to show that their drug works under various real world conditions. Why are there rules on stability testing? Because of the numerous examples of drugs that are ineffective for treating patients when the drug is unstable. FDA has a legal obligation to insure that all drugs sold in this country are both safe and effective, and it is Mannkind's responsibility to produce the data to show that Afrezza meets that standard. If Mannkind had good stability data at room temperature and uncontrolled humidity, they would be able to say so. Either they elected to take a short cut and didn't do the testing, or they did the testing and the results showed that Afrezza is not stable. Either way, it is up to Mannkind to address the issue.
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Post by matt on Aug 15, 2016 13:58:58 GMT -5
I thought this was illegal. They can't just give spirometers to doctors. Anybody can give anybody else anything of value without breaking the law. However, if the physician is required to give something in return for a "free" spirometer then it really isn't a gift but rather an exchange of value for value.
There are two ways a physicians commonly get tripped up:
If the lease or gift is contingent on writing a specific number of prescriptions, and those prescriptions are then reimbursed by Medicare, Medicaid or an insurance company, then the physician is violating the federal anti-kickback statute or one of the similar state laws.
- If the device is free, but the physician bills for the service. This is similar to when a drug company gives away samples to the physician, but the physician sells the sample to patients instead of passing them along as free samples.
If Mannkind is giving away the spirometers and the physician provided services using the spirometer are included in the standard office visit price, then this would be legal. If the physician is charging extra for doing the spirometry then that is likely a problem, certainly for the physician and probably for Mannkind as well. However, if the endo is following the billing rules and Mannkind is only giving free devices to high potential practices, then I can see where this strategy might work.
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Post by matt on Aug 14, 2016 9:03:19 GMT -5
Everybody goes to work in the morning expecting to get paid on Friday. For an executive, that pay is comprised of salary, bonus, and options. Matt P. does not go to work every day for his health; that is what he was promised in exchange for doing the job. For many other people, they have pay comprised of salary, health insurance, and some other benefits. In either case, people make what the market will bear and if another company offered a significantly better compensation package most of us would change jobs.
What nobody ever talks about is the pressures Matt is under. Does anybody think he works a 9-5 day? How about M-F? When your commercialization partner drops out, when you have to put an entire marketing team in place from scratch, when SEC filings are due, do you think maybe he puts in a little over time? I have been president of two NASDAQ traded biotechs, and in both cases there were many 70 hour weeks. That myth called Monday thru Friday, 9-5, was for actually running the day to day business, while early mornings and evenings, as well as most weekends, were spent on strategy, preparing communications for the board, interviewing candidates for management positions that couldn't interview during business hours, dinners with visitors, travel to conferences and meetings, etc. As companies downsize, it is often the CEO who has to pick up the slack because certain work, especially in a regulated industry, has to get done whether your staff has been cut in half or not. I am not bitching, that was the job, and I was compensated in line with industry practices but there were a lot of school plays, sporting events, and other things I missed.
If you think not buying shares in the open market is poor leadership, then you sir have not a clue about what leadership is. Leaders act prudently with money, theirs as well as their shareholder's, and investing the children's college fund into an economically fragile biotech just so shareholders get a pop on their shares is not prudent. In my last stint as a CEO I took over a company that had long been trading below $1, and was at constant risk of bankruptcy for a few years. The day I took over, the stock price was 72 cents and nine months later it was $4.45 with a significantly stronger balance sheet and record sales, yet I had shareholders claiming that if I had been doing my job properly the share price would be over $7.00. I guess 600% appreciation wasn't enough for those people, and during that period I had precisely ONE shareholder take five minutes out of his day to call me and let me know how much he appreciated the turn-around. One.
So no, it is not Matt's job to invest his personal wealth so that your investment looks better to Wall Street. If the company had expected that then Mannkind should have paid him a promotion bonus with the understanding that the after tax portion would be reinvested. Otherwise, that was not part of the deal. Matt is a hard working executive, not Mother Theresa.
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Post by matt on Aug 12, 2016 9:59:58 GMT -5
I know that:-) But it's not the people buying in. It's the fund managers. In many cases that "fund manager" is a computer. If $25 million comes into the fund today, the computer figures out what to buy depending on the index weights. If $25 million of redemptions hit the fund, the computer decides what to sell. For the big companies, like Vanguard, Fidelity (FMR), State Street there are multiple index and sector funds that own Mannkind just because they have to. The computer is unemotional and is as happy to buy shares as it is to sell them.
The only institutions that count to investors are specialized medical fundamental investors that buy and hold long-term (Orbimed for example), and I don't see any of those on the list.
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Post by matt on Aug 11, 2016 7:39:37 GMT -5
Warrants, unless very, very deep in the money, are worth more alive than dead so for that reason they tend to get exercised late in the option period if not on the expiration date itself. For that reason you might want to model the cash inflow later in the exercise period.
Also, don't forget to model costs. Most accountants (and Matt P is an accountant) refer to the expense of doing business (marketing, sales, management salaries) as expenses and those related to producing product as costs. Manufacturing cost for the first half of the year was nearly $2 million a month, and if scripts rise like everybody expects them to, that number will grow. Since we don't have the details on the components, it is hard to figure that number out but I might speculate that there is $9 million of fixed cost in that number (which won't change much as volume increases and $3 million that is variable. Likewise, don't forget to model the cash that goes out for finished goods inventory and accounts receivable since increases in working capital are cash flow items but do not hit the income statement. Once an operation is up and running, working capital is fairly static but during the growth phase it can suck more cash than most expect.
I don't think you need to worry about the debt, as that is likely to get rolled-over or refinanced, or a Sanofi termination payment. I know a lot of people have a fantasy of Sanofi paying out a huge settlement because the launch did not go as planned, but there is no legal basis for asserting such a claim and if you look at Sanofi's second quarter and forecast they are not going to be in the mood to write a check just to be nice guys, especially when they are already owed $70 million. Lantus, their only remaining blockbuster drug, goes generic in December.
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Post by matt on Aug 10, 2016 16:36:32 GMT -5
One difference is that a lot of pharmas are still living in the "share of voice" mindset where they have multiple sales forces selling the same drugs into the same offices, where the device world does not. Part of that is the life cycle and margins for medical devices, and part of it is stupidity (if annoying the physicians one a week is bad, they will love to see us three times a week). The other consideration is that in a lot of areas the reps won't get to speak to the physicians at all. Some areas have a very strict "no visit" policy from pharma reps, and there is no amount of sweet-talking that will get you past the receptionist. Mike must know this well and will have calibrated his expectations accordingly.
The other thing I hope everyone remembers is that sales growth like this is not going to be a straight line. It will look much more like a mountain road, with lots of ups and lots of downs. The important thing is the average slope of the road, not the slope of last week's segment. Tracking weekly scripts is interesting if you are a trader, but don't read too much into any given week. This is a marathon, not a sprint.
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