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Post by matt on May 22, 2016 8:04:03 GMT -5
As a benchmark, look at the Sanofi deal which was thought to be a very sweet deal at the time. That yielded $150 million for WORLDWIDE rights but imposed 35% of the launch costs on MNKD. Anything now would be less attractive than Sanofi.
The problem with thinking about an international deal is that a deal that encompasses ex-US in total is not going to happen. Pharmas are global businesses for the most part, the regional players that were once common had been swallowed up by the end of the 1990's and what is left is truly niche players that have a presence in only a handful of countries, and none of them very interesting countries from a marketing standpoint. The smaller the region and the less attractive the pricing, the smaller the payment if any payment at all can be extracted. The regional / local players are not deep pocketed companies like the multinationals and won't write big checks simply because they don't have the money. Once you get past the big pharmas and big generic companies, sales of more than a few hundred million is a big number. There are biotechs that do better, but insulin is a pharma product that would be a very poor fit with biotech.
So the better question to ask is what would a deal for Country X or Y mean, since that is what you are really talking about. Once the question is focused you can think about reimbursement rates, who funds the healthcare system, government practices, and so on. Those factors are all over the place, even in a region you might think of as a single place (like Europe). Compare the healthcare systems in a country like Spain, where pricing is very poor and vendors wait up to 18 months before paying, with that of Germany where pricing is strong and wholesalers pay their bills on the 20th day after the invoice date without exception. The only thing the EU markets have in common is a single drug regulator that can approve a product. Take it the next step and compare practices across widely dispersed geographies, say those in China versus Brazil, and you will rapidly understand why it takes a large multinational to manage the level of complexity.
Quit thinking overseas deal (singular) and start thinking overseas deals (plural). Anybody large enough to take on marketing of Afrezza in every international market will want the US as well and I think that ship has sailed. The question is how many international relationships can MNKD handle given that they have relatively thin management capabilities, because each relationship will pose challenges that need to be managed. The danger is taking on too many, not too few.
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Post by matt on May 19, 2016 8:57:02 GMT -5
Don't confuse pharmacokinetics (how quickly a drug gets to where it needs to be) with pharmacodynamics (how long the drug takes to have its effects). Afrezza is absorbed very quickly so it has an extremely short PK, but its onset of activity (PD) is not significantly different from injected insulin. In other words, despite being absorbed into the blood stream more quickly than injected insulin, it acts on the cells at about the same rate as injected insulin does.
All drugs have to go through ADME testing (absorption, distribution, metabolism, excretion) and the information I describe above is included in the prescribing information that is approved by the FDA. If you read the Afrezza label in detail (and physicians certainly do) it does not describe a mechanism of action that is any different from injectable insulin, or a reduced risk of hypoglycemia. While the drug still has the advantage of inhalation versus needle pricks, the data is not there to support any other conclusions and ultimately if the data is not reflected on the label copy is cannot be used as a marketing claim by the sales force.
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Post by matt on May 18, 2016 10:26:29 GMT -5
"Good hands" is an excessively vague phrase that can mean practically anything. The reality of the financial markets is that investors are looking for a return, and that return might not depend solely on holding shares and waiting for long-term accretion of value. A "good" investor might be one that bought at a discount and sold into the market after the closing versus the "not so good" practice of shorting at the moment the investor signs a subscription agreement and then delivering the new shares to close out the short. If the buyers were really long-term investors they could have bought restricted shares subject to Rule 144, which are always priced lower than registered shares due to the six month minimum holding period, but that is not what happened; they bought registered securities with immediate liquidity.
Once a "good" investor has sold their new shares, anything can happen. While the "good" investor may have kept their promise to refrain from shorting, the subsequent buyer of those share may have other ideas about how to maximize their return. Since one share is exactly like every other share it becomes impossible to track the flow of any particular share held in street name.
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Post by matt on May 17, 2016 14:55:40 GMT -5
This situation is precisely why the big pharmas use Publicis and companies like them. When a pharma needs extra bodies for something like a product launch, a group of experienced salesmen are just a phone call away (most have been let go in downsizings from other pharmas). Similarly, when it is time to reduce heads it is the contract resources that go first. Most of pharma is a mix of permanent employees and mercenaries from the contract agencies for just this reason.
Unless the contract between AZ and Publicis prevents recycling of the downsized salesforce to work for an AZ competitor, you know where MNKD will get most of their talent. Usually there are some territory based non-competes, but if AZ does not view Afrezza as a competitive product they might choose to waive their rights.
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Post by matt on May 17, 2016 14:48:22 GMT -5
I read the opinion cover to cover and whether it helps or not depends on a host of factors. The issue in the case is whether the suit could be brought in state court under state law or whether it had to be heard in federal court under federal law. Under federal law, shareholders have recourse to sue for material misstatements (or omission of statements) of material facts and that is it; suits for all other violations of federal securities law can only be brought by the SEC and that happens rarely. Naked short selling is actionable by the SEC as a violation of Regulation SHO but they are not very aggressive as we all know.
In this case New Jersey had some state laws covering certain securities law violations. Since the shareholder was a resident of New Jersey, the alleged violations took place in New Jersey, the state of New Jersey had a law prohibiting this activity, and federal law did not specifically prohibit or preempt state law in this matter, the court ruled that the shareholders could sue under state securities law without visiting federal court. Many other type of securities violations ARE preempted by federal law and actions MUST be brought in federal court.
Does this help MNKD shareholders generally? No, not unless you live in New Jersey and can prove that the naked shorting happened through a New Jersey enterprise. If you live in Florida, for example, then the suit would be removable to federal court under a different standard called diversity jurisdiction. Beyond that it would be a state by state discussion on whether naked shorting is actionable under state law in YOUR state and whether you can connect the illegal activity it to an enterprise doing business in YOUR state (answering those seemingly simple questions keeps a small army of lawyers employed). For these shareholders in this case the stars aligned properly to bring an action in New Jersey state court, but it will likely be the exception rather than the rule, at least for now, because New Jersey has some rather unique laws and not every financial institution has an office in every state.
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Post by matt on May 15, 2016 8:26:50 GMT -5
The so-called "institutional investment" numbers can be extremely misleading if you don't understand the regulatory framework. Any company that falls under the Investment Act of 1940 has to file quarterly reports detailing their holdings, and that includes a whole host of mutual funds, insurance companies, brokerages, and other financial intermediaries. A company, like Goldman, who has many different funds and subsidiaries is allowed to aggregate their numbers for reporting purposes.
As someone noted above, some individuals maintain brokerage accounts with Goldman and, while all investment decisions are taken by the individuals. if the securities are held in street name Goldman must report the holding as their own. Similarly, Goldman manages pension funds for some corporations and maintains index funds for investors. So long as MNKD is part of any of the indicies, then Goldman must hold the number of shares that corresponds to MNKD's relative value (i.e. if there is a NASDAQ fund where MNKD is 0.05% of the total NASDAQ capitalization, then every NASDAQ index fund will hold 0.05% of their assets in MNKD stock). Most of what you see as institutional ownership is driven by index funds where the fund manager is just mimicking the asset allocations seen in the market. A computer decides on all the trades following an algorithm with no human input whatsoever.
There are of course strategic investment funds where somebody with deep expertise in the field makes conscious decisions to invest. Actively managed biotech funds will often employ physicians and PhD scientists to dig into the technology and market dynamics (much like a venture capital firm), and those investments might be indicative of where the "smart money" is headed. However, to understand that dynamic you need to learn the investment criteria, track record, and professional staffing of each fund and that is a huge task. Suffice it to say that any of the major funds (Goldman, Fidelity (FMR), Blackstone, State Street, etc.) are all a very mixed bag of investment vehicles with very different strategies and investors. It is worse than comparing apples and oranges; it is more like comparing apples to a fruit cocktail.
Also keep in mind that 13F filings look backwards; they are a snapshot of the holdings on the last day of the quarter and the reports are not due until 45 days after quarter end. Until this last batch of 13F filings, the institutional ownership numbers were those of December 31. So depending on the calendar the reports are always out of date by least 6 weeks and can be as much as 19 weeks old; that is a long time in a fast moving biotech market. You don't drive your car down the highway looking into the rearview mirror and you shouldn't take investment cues from stale institutional data either.
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Post by matt on May 12, 2016 16:16:18 GMT -5
Mannkind cannot sell any returned Sanofi branded inventory, and neither can Sanofi. If Sanofi returns the inventory, it would have to be reworked which involves reinspection of each unit and repackaging with the correct details. Whether that is economic or not depends on the remaining shelf life and the cost to repackage versus producing new. In any case, Mannkind and Sanofi will not be splitting profits or costs after the 180 day wind-down period.
There is nothing in the contract that requires Mannkind to buy the old inventory but if they don't then Sanofi could sell it for whatever price they can get for it during the 180 day wind down period. However, just because Sanofi cannot sell it doesn't mean that its distribution system partners cannot, and it may not be in Mannkind's interest to have fire sale inventory in the hands of the national distributors just when they are trying to relaunch under their own name. I expect the parties agreed to some form of post-contract return policy that shares the burden of returned but unexpired product. Typically that would see Sanofi getting a credit for their original purchase cost minus the cost of reworking the product into Mannkind packaging; a better result for all concerned. |
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Post by matt on May 12, 2016 7:04:46 GMT -5
The reason you get those calls is because of how the law on increasing authorized shares is written (both Delaware and most other states). In order for most corporate actions to be approved by stockholders you need a simple majority of the votes cast, but to increase shares you need am absolute majority of all shares outstanding whether voted or not. In most cases if a shareholder doesn't bother to vote it doesn't matter because that is simply a vote that is never counted, but with share increases a non-vote is mathematically equivalent to a "No" vote due to the absolute majority requirement.
If you are the beneficial owner of a stock held at your brokerage in "street name", then your broker is supposed to forward you the proxy and the voting materials (brokers are prohibited from voting street name shares on your behalf), but some shareholders toss the materials as junk mail or don't bother to cast a vote, especially if they have quit following the stock. The phone calls are to make sure that you got your materials and that you have cast your vote. Since Al Mann related entities control a big chunk of the stock, I expect MNKD will have little trouble getting an absolute majority for the share increase but a lot of other companies have had to adjourn the shareholders meeting while they tried to round up more "Yes" votes. I have seen several cases where the votes cast were 70% in favor of an increase in authorized shares, but there were so many non-votes the company couldn't get to the required majority they needed. As the voting rules are a matter of state law there is no work around. |
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Post by matt on May 11, 2016 15:44:19 GMT -5
Yes. But you don't have to exercise the warrant you can sell it instead. The A and B pair together are worth about 50 cents (less after the pps drop today!) Your thesis is generally correct, but the warrants are worth more like 18 to 20 cents. The closest traded comparable is the January 2018 call options with a $1.50 strike price which closed today at 21 cents. Those are options to buy a full share, the warrants MNKD just sold are fractional warrants so they are not equivalent to a call option on a full share (you can combine warrants to buy full shares of course). Finally, when a warrant is in the money it creates a form of self-dilution because you are paying $1.50 for something worth more than $1.50. That dilution comes from the existing shareholders and from yourself when exercising because the number of shares is increasing, while a call option does not change the number of shares outstanding. Thus a call option with similar terms is always slightly more valuable that the equivalent warrant so the fair value today is somewhat less than the call, which is at 21 cents. At any rate, the warrants should start to trade in a day or so and the price will be readily observable in the market data. As to whether this is a buying opportunity or not, from a purely arbitrage pricing aspect the shares have a bit further to fall to reach the equilibrium price. The new issuance was $1.03 and that included a share and the warrants. I just described how the warrants are worth approximately 20 cents, which implies a fair price on the share of 83 cents. I am primarily a capital markets guy so I would not be surprised to see the PPS drop another nickel or so before forming a new base price. From there it is upward based on the business improvements. |
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Post by matt on May 11, 2016 9:51:06 GMT -5
My understanding is an international deal requires approval to sell afrezza in that country. In Europe for instance my understanding is the cost of the application to ask for approval in Europe from the European Medical Agency is @ $250,000. (Among, The reasons Sanofi never applied? Along with Sanofi would never get the price it was charging for afrezza in the USA in Europe and they knew it. Sanofi playing America for the fools we are? 5% world population using 75% of the world prescription drugs? )
Is that application cost information more or less correct?
Are all international partnerships the same, "if you want to play, you have to pay?"
Just asking
www.ema.europa.eu/ema/
I haven't done one in a while, but I think your stated price for an EMEA approval is correct. As I recall, if you are an SME (small or medium enterprise) they cut you something of a discount, but do you really want a partner that is an SME? I doubt it was the 250,000 Euro cost to apply that dissuaded Sanofi; it might have been some of the other EMEA requirements such as completion of a separate pediatric trial that perhaps MNKD could not fund and Sanofi did not want to fund. International partnerships are like people; they come in all colors, shapes and sizes. As a general rule, the markets with the lightest regulatory hurdles (i.e. show us a copy of your FDA approval and fill out this form) are also the ones with the smallest markets. New Zealand comes to mind. Those with high regulatory bars are those with larger populations and high prices. Japan for example. In all cases there are costs to be managed and the only question is which partner is going to write the check. It comes down to the choice of whether you want MNKD to write the check and get better pricing from the partner, or whether you want the partner to write the check and take it out of MNKD in a higher profit share. There is no free lunch.
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Post by matt on May 10, 2016 15:28:46 GMT -5
Warrants are an option allowing the holder to buy in the future at a fixed price; they are not an agreement to buy and the warrant holder has no obligation to buy.
If the price goes over $1.50 the warrants will be exercised. If the price remains below $1.50, they will expire worthless like a call option.
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Post by matt on May 10, 2016 15:24:21 GMT -5
They are all funds that do a series of deals with Rodman & Renshaw. Since they are buying off an S-3 registration the names will not have to be disclosed as "Selling Shareholders" as would be the case with some other registrations, but suffice it to say that these funds make a quick couple of dimes and move on. They are not long-term strategic investors that care about MNKD or its business; they are in it for a quick hit.
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Post by matt on May 10, 2016 15:21:23 GMT -5
The way this game is played, especially by Rodman & Renshaw, it that they circulated an offering memorandum yesterday. As soon as one of the buyers had signed an irrevocable offer to participate, they can short the stock and that does not count as a naked short. Since they are economically exposed the second they signed the offer the short is a true hedge of their economic exposure. If the buyers shorted before yesterday's close, after hours, or immediately at the open, they can deliver the new shares they just bought at $1.03 to close the position. This gives investors an instant profit of up to 30 cents.
Since the warrant units will trade separately, those can be sold off as well. The 18 month calls with $1.50 strike are selling for 24 cents and a warrant has slightly less value than a call option, say 21-22 cents, but that is still a nice additional profit. Added to the profit if they shorted into the transaction, a savvy investor can pocket up to 50 cents over the course of 3 days with zero risk and no exposure to MNKD and its business.
The types of investors that buy into these deals don't really care if MNKD is going up, going down, or moving sideways. They grab their dimes and nickels within a few days and move on to the next deal, and so long as they buy into EVERY Rodman & Renshaw deal without question they will always get a bite of the next apple.
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Post by matt on May 10, 2016 8:22:15 GMT -5
Since it is essentially equivalent to a LEAP a warrant can be priced by a variant of Black-Scholes that allows for the cost of dilution. That will put the price of the warrant at about 50 cents. You can now trade that warrant for 50 cents and that is the end of your interest. The price is not affected by whether or not the warrant is ever exercised. At first I was going to disagree with you on pricing, but then I looked at the options chain and the implied volatilities. The January 2018 calls with a $1.50 strike trade for about 55 cents, although that will drop when the market opens, and the fair market value of a warrant is lower than the price of a call option since warrants increase the shares outstanding, thereby diluting existing holders, while exercise of an option does not change the number of shares outstanding. If I was more awake I would crank the numbers properly, but for now 50 cents is in the ball park but maybe a tad high (but only a tad).
Because the warrants will be separately tradable securities, when those price in the market on Thursday we can see just how dilutive this issuance was. My guesstimate, without the benefit of more and stronger coffee, is that residual value of the $1.03 issue price (which is the implied share value) will be around 65 cents. If premarket stays above $1.00, this is a money machine for the investors. Of course, screwing over small biotech companies is a Rodman & Renshaw specialty. Selling the warrants on a "when issued" basis and shorting the stock against delivery of new shares at the close seems like a no-brainer for the institutions lucky enough to have gotten in on this deal. |
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Post by matt on May 10, 2016 7:07:07 GMT -5
......and that's the point right there. They have a good plan. They have the people in place to execute the plan but they keep saying it will be Q3 before it ramps up. Cash burn is $10M/month, they have ~$27M on hand so how do we even get to the plan let alone sustain it? A great plan is one thing buit paying for it is essential! We will know soon enough. Proceeds in Mankind's pocket from the raise announced yesterday will be $47.5 mm If all we have is this + the $30mm from The Mann Group, then we have to run with the $77.5 mm starting week of April 11th. With all the new hires and more to come, burn is going up from $10 to $12 and as of close of business May 31st we could have $55 left leaving us with enough cash to get us to around middle of October. Without the $30 from The Mann Group, a lot more precarious. Only raising $47.5 to me means they will close a deal or two shortly. The raise is interim financing. If Matt has misrepresented a potential deal or two (I do not believe he has) and nothing else in the pipeline, then it is just a matter of time but again, I do not believe that to be the case. My guess is an attorney was seated next to Matt during yesterdays call and told him to zip it. Any comments on Sanofi supposedly being required to buy back $50mm of insulin from Mannkind? I think the reason the raise was the size it was is because the company is out of authorized shares; that is why an increase is on the agenda at the shareholder's meeting. Your math is in the ballpark but they can't close on another raise until they have more legal shares to sell and, at this moment, they do not. Frankly I am surprised the terms were as good as they were; I would have forecast a slightly bigger discount even with 100% warrant coverage.
As for the buyback of insulin, I think that is quid pro quo for the purchasing agreement that they entered into to assure Sanofi that they would have enough Afrezza to sell. Since Sanofi uses a lot of insulin in their products, changing the supplier of an active pharmaceutical ingredient is probably not a big deal for them and it gets MNKD out of a "take or pay" requirements contract.
As for Matt, who knows what the pregnant pause during the conference was all about. Maybe they had a buyer lined up at a different price, but that buyer changed the terms half-way through the call (that kind of brinksmanship happens all the time) and Matt had to scramble to save the deal. We may never know all the facts, but the company was certainly headed for BK court without a cash infusion. Matt did what he had to do to keep the company viable for four more months regardless of how painful it was, and he is going to use up most of the 150 million in newly requested shares before the company can turn the corner. Either vote your proxies for the new shares, or exit the investment at this time. The company may or may not get fixed, but the only thing that can happen quickly is failure.
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