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There is an old saying in the biotech world - "Raise cash when you can, not when you need it".  The world is unpredictable and when something unpredictable happens the financial markets can close up on small companies before they can react.  COVID-19 is but one example, the explosion of the "dot com" bubble and the housing crisis of 2008 were others.  Would a second wave of COVID infection, perhaps from an even more virulent strain of the disease, cause the financial markets to react even more negatively?  That is not a bet a prudent management team wants to make because with a company with an on-going cash burn that is literally a life or death decision; a wrong guess about events totally outside the control of the company can lead to bankruptcy court.

So yes, the company will need more money.  You can model all the scenarios you like with UTHR and the SBA loan to determine timing, but the need for cash will become more visible in the coming months.  MNKD was a bit coy in the way they worded the disclosure that they did not take the second tranche of Midcap money, but the 10Q disclosure is more precise:

    "$10.0 million was available to the Company until April 15, 2020, provided that the Company had achieved Afrezza net revenue of at least $30.0 million on a trailing twelve month basis by that date     (which was not achieved)" [emphasis added]

The dual conditions for the third tranche, which is only available until June, 2021, are tied to hitting the UTHR milestones and increased Afrezza net revenue.  If the company missed on the $30 million Afrezza net revenue target for the second tranche, it is unlikely they will satisfy the $46.25 million Afrezza net revenue requirement for the third tranche.  Even if the company meets the UTHR milestones, they will likely miss the Afrezza net revenue target which means there will be no third tranche available under the terms of the current facility.  That implies the need for a cash raise sooner rather than later.

Most biotechs find it extremely hard to raise money during the summer months even in a normal year which is why there are so many investor financial conferences held in September and October.  That seems the most likely time for the next raise, although it could come sooner.

Normally when patients are on a trial, especially one where the drug is already approved (like Afrezza) or one that is about to be approved, the patients have the option to continue on the trial therapy if they and their physician agree.  This is provided as a way to entice patients to participate in enrollment, and for much the same reason you see some study protocols that allow cross-over from one test arm to another.  When the cross-over arm involves increasing the number of patients exposed to an entirely novel test drug that is usually documented in the results, especially if it improves the efficacy results for the tested drug.

I cannot recall a single study that documented which therapy patients chose at the end of a study when both drugs were already approved.  That doesn't mean it has never happened, PubMed adds more than 2 million new articles a year and I rarely read more than about 600 in a year, but it certainly isn't typical.  Every study tests a hypothesis, but which drug patients prefer is generally not considered when formulating the hypothesis. 

In one case you are dosing healthy subjects without impaired lung function, and in the other you are dosing PAH patients with a high degree of functional impairment.  Would it be surprising to discover that equivalence can be achieved in the healthy group but not in those with impaired function? 

FDA generally wants to see the kinetics on healthy volunteers because if something goes wrong in the trial it is much easier to reverse the side effects in healthy subjects.  While adverse events are rarely seen in a healthy Phase I cohort, it can and does happen because animal data is not always predictive of what is going to happen in humans and in rare cases those effects have been severe and life-threatening.  Once the basic data has been established in healthy subjects, the company needs to show equivalence in patients with the disease.  That is the ultimate test of whether a new medication will work for the intended population, and FDA will not let the sponsor simply assume that because it worked in healthy subjects that it will be the same in patients with the disease.  The burden to prove safety and efficacy is on the sponsor, not the regulatory agency.

The latest SBA documents make clear that the borrower must certify “. . .current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  Given that MNKD continues to qualify for additional tranches of debt from Mid-Cap and that script revenue has not declined materially from Q4, I think that is an impossible certification to make in good faith.

Essentially the law requires each borrower to show that the uncertainty caused by the COVID crisis makes it impossible for the company to continue its normal operations.  Certainly MNKD has its share of business challenges, from poor script numbers to taking money from hard money lenders, but arguably those conditions existed well-before the COVID crisis and those conditions have not deteriorated further due to COVID.  If an earthquake suddenly destroyed MNKD headquarters this afternoon that would be unfortunate, but that too would be a business risk that has nothing to do with the virus.

The other thing to consider is what happens if MNKD does not repay the money by May 7th.  SBA has indicated that they will audit 100% of the loans over $2 million, and if MNKD is found to have made a false certification then there is the potential for treble civil damages, and criminal fines on top of that.  It might also trigger the cross-default language in the Mid-Cap loan documents which would make those loans immediately repayable.  Are those prudent risks worth taking given that Mid-Cap calling their loan would either render the company insolvent or else open the Mid-Cap terms up to renegotiation on much worse terms?  Mid-Cap would not want the company in bankruptcy court any more than the shareholder would, but they are precisely the type of lender that will threaten to do so if it gives them the leverage they need to impose even tougher terms for the existing debt.  SBA has to make an example of somebody and MNKD is an easier target than the LA Lakers.

The exact quote from the Treasury is that it is “unlikely that a public company with substantial market value and access to capital markets” would be able to demonstrate a good faith need under the program.  Mid-cap is a hard-money lender, but the company has access to the financial markets and a market cap of almost $300 million so MNKD will be hard pressed to not return the money.  Sure, the government money is attractive and carries a better interest rate but that is not the point.  The SBA is supposed to be a lender of last resort and MNKD has options even if those are not attractive options.

As I said in my earlier post, jobs are jobs, and any loan that saves a lot of jobs is better than cranking up the unemployment check machine.  However, since Mike has publicly stated that he is not worried about staying funded in 2020, the Treasury guidance will put the company squarely between the proverbial rock and a hard place.  Does MNKD really want to go on record with the government that the company is approaching insolvency right when they are attempting to increase the share authorization?  I think the smart move is to pay the loan down by May 7th as Treasury has requested.

Just because you have a large market cap does not mean that you have ready access to public money.  MNKD, for example, does not have many authorized shares remaining and the balance sheet is already heavily leveraged.  The purpose of the PPP loans is to keep people employed and off unemployment, plain and simple. 

If a public company employs a lot of people that would otherwise be laid off absent a PPP loan, then I don't think there is an issue with a company getting funded just because they are public.  There are plenty of "private" companies owned by the large private equity managers than are getting plenty of cash below the radar, and I would argue that is not right.  If a company has alternative forms of financing readily available or would not be laying off employees even in the absence of PPP funding, they should not be taking public money.

Yes. they should be eligible.  The about is limited to two months of average payroll plus 25% and the funds can only be spend to defray payroll and related expenses over the eight weeks following approval of the loan.  The program is intended to keep people employed, which is why the amounts are tied mostly to payroll expenditures going forward; the money cannot be used to pay down debt or other fixed costs of running a business.  The upside is that if MNKD can cover payroll for two months, that frees up other cash and every little bit helps.