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Post by matt on May 10, 2016 6:51:23 GMT -5
I think this is an argument of semantics. Loan covenants specify cash balances to protect the lender in a worst case scenario and while the Mann Group loan can be tapped to get that cash, it would have to be in the form of cash. If the company did ever go into BK without the credit line having been tapped to fund the cash requirement, the unsecured creditors would object to borrowing an additional $25 million to give Deerfield a better payout. Deerfield wants to see cash in the bank because that is the only thing that protects their position and, failing that, would declare the company in default.
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Post by matt on May 9, 2016 15:24:08 GMT -5
Just got the PR. Cash & Cash Equiv 12-31-15 were $59.1 mm Cash & Cash Equiv 1-31-16 were $27.7 mm I thought they had to keep $25 mm on hand and if so, should they have not needed some cash the first week of April? If they tapped some of the $30mm line from the Mann Group, would they have had to do a PR? Explanations appreciated. Usually debt covenants for public companies are tied to quarterly reporting so the company must be compliant on the last day of the quarter. While you are correct that cash probably went below the threshold for compliance some time in April, that does not trigger the default provisions until June 30. If enough money is raised during the quarter so that the June 30 balance is in compliance then there is no issue.
As for tapping the Mann Group credit line, the SEC does not require a PR for draws against a previously disclosed financing vehicle.
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Post by matt on May 9, 2016 14:41:11 GMT -5
Just for a point of reference Anybody can ask a question on a CC Call. You just have to dial in at the number and state your name, and company if any. Then you will be placed in the line to ask questions. It is not just the analyst's that can ask a question. I have never heard them take a question from Investors What nobody tells you is that the company can pick and choose who they take questions from. The conferencing service has a moderator that records the names and affiliations of the callers in queue, and the client company (MNKD in this case) can tell them how to prioritize the calls. My investor relations person used to be walking around with a portable phone and keeping track of the queue, moving favorite analysts to the top of the batting order and moving troublesome shareholders to the bottom. Since calls are limited in length, generally to one hour, after management covers results and analysis that only leaves time for four or five substantive questions and almost all of those go to the analysts. Conference calls are incredibly scripted to the point that management typically reads directly off a script that has been reviewed by the outside law firm and auditors. Deviations from the scripted flow are very rare.
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Post by matt on May 7, 2016 17:08:26 GMT -5
The reason script counts are declining is a well-known marketing response. A product gets to a point where no amount of extra advertising and promotion will increase sales, but a decrease in advertising and promotion will decrease sales. There is no magic method to finding the equilibrium level of advertising required to maintain a market.
I am not saying the Sanofi effort was optimal, but by now they have taken their foot off the gas and the Afrezza car is coasting to a stop. That will change when MNKD gets a sales force knocking on doors, but until then scripts will decline. There are lots of salespeople trying to sell lots of drugs to physician offices and until the MNKD sales presence is felt a few loyal prescribers will continue to write but the most will forget about Afrezza. It is true what they say about out of sight, out of mind.
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Post by matt on May 6, 2016 7:03:19 GMT -5
Interesting, I may actually be at the Wynn that day, does anyone know if I'd be able to listen in on this without being invited to the actual conference? I used to go to around eight such conferences a year so I can tell you that practices vary widely. Some are very well protected and if you don't have a badge you are not getting through the door, while others have essentially no security at all. The conferences are always crowded in the early morning and Matt is presenting at 8:00 so you have a good chance especially if you are dressed in a suit and tie and pretend to be having a heated discussion via your cell phone with a colleague in New York.  |
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Post by matt on May 5, 2016 7:37:32 GMT -5
There are actually three hurdles you have to jump through to sell shares:
1. There must be enough authorized, but unissued, shares. This is a state law requirement and increases must be approved by the shareholders.
2. The shares must be registered to be sold to normal investors. This is an SEC requirement under federal law.
3. If the shares issued in any six month period exceed 20% or more of the outstanding shares, then shareholders must approve the deal. This is a NASDAQ market requirement.
The SEC filing you see are to comply with item 2. The proxy for the annual meeting addresses item 1. At the moment, item 3 does not apply.
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Post by matt on May 3, 2016 10:08:32 GMT -5
Predict a press release next Monday morning before the market opens. Wonder if they will halt TASE? I think it more likely that they will release a few minutes after the US market close, which still gives an hour before the call. Halting trading on a market is normally done only for MAJOR news and a quarterly earnings report does not rise to that level. Most companies with dual listings try to find times where both the exchanges are closed to make news releases. |
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Post by matt on May 1, 2016 8:17:56 GMT -5
It could be that the major wholesalers are not stocking product. Virtually all of the supplies in the US healthcare system are on an automatic replenishment system; the wholesalers report sales, returns, damaged goods, and other dispositions by product code by lot number by warehouse in almost real time. If the warehouse in Los Angeles is supposed to have 50,000 units on hand and the inventory drops below some trigger point, say 45,000 units, the manufacturers automatically send more product. Manufacturer driven "push" logistics work better than wholesaler driven "pull" systems for a host of reasons. If there is a recall of a certain lot, everyone knows where the product is stocked or to which customer it has been shipped. Everybody in the supply chain all the way back to the raw material suppliers and manufacturing shop floor have visibility to the inventory at an incredible level of detail, and that allows the manufacturing plant to produce in time to avoid stock outs while minimizing inventory investment.
It could just be that Sanofi, being in wind down mode, is not sending replenishment orders because they themselves are running low of Sanofi labelled product in certain regions. The wholesalers track inventory of hundreds of thousands of items by product code and to their computer system Sanofi labelled Afrezza is an entirely different product from Mannkind labelled Afrezza, and Mannkind may not have set up distribution agreements with the wholesalers yet. It doesn't help that the weekly sales are dropping since the wholesalers use the same IMS and Syphony data to determine par stocking levels, but it will all work out. In the meantime, these are the sort of bumps in the road small companies experience when they have no commercial experience. They do get sorted out eventually.
Obviously a lot of logistics are highly data driven and each member of the supply chain must have the necessary computer systems to keep up. If Mannkind was set up on the assumption that Sanofi would handle supply chain management, the company might be scrambling to install the software required to manage wholesale push orders. Again, this is just a teething issue as Mannkind transitions to full responsibility for running the business but painful just the same.
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Post by matt on Apr 30, 2016 8:50:16 GMT -5
Stock has to be issued to vote; a company cannot vote shares in its treasury in Delaware or any other state that has adopted the language in the Model Business Corporations Act. Since the beneficial owner does not change when a share is loaned by the broker, there is no need to recall shares to vote since the broker is responsible for routing the proxy materials to the ultimate beneficial owner and not the most recent borrower.
Borrowing shares does not transfer ownership but rather grants a limited right as in an usufruct (strange word I know; blame the Romans for that). When a share is borrowed the usufructuary (the borrower) enjoys the gain or loss on the trading value of the stock, but they are not entitled to keep any dividends and have no other rights that normally accrue to a typical shareholder.
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Post by matt on Apr 30, 2016 8:38:56 GMT -5
The NASDAQ Limit Up / Limit Down rules are applied according to the closing price the trading day before, but many people ignore the tiers and assume the 5% and 10% change rules apply to all securities, but it does not. For stocks trading between 75 cents and $3.00, the price would have to move by more than 20%, or 29 cents, to trigger a halt. MNKD was far away from those prices yesterday. A 5% move triggers a temporary halt only for Tier 1 National Market Securities trading above $3.00.
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Post by matt on Apr 29, 2016 7:44:32 GMT -5
So if you found and largely fund a private company what percentage do you usually own? I never said that MNKD was turning on the ATM full speed, just that they were doing some testing of the waters. If Matt (the other Matt, not me) says that he has no immediate plans to use the ATM then I will take him at his word, but he also said that they hadn't used the previous one while the 10-K states that shares were sold off the ATM. As for what percentage does an inventor own, that is all over the place and depends largely on how much it costs to develop the idea. Medical devices are cheaper to design, often need minimal testing if they can be covered by a 510(k) registration, and are much faster to market which all adds up to a lower cost to market. Device inventors wind up with more of their company than pharma company founders, who rarely keep more than about 20% after the IPO. If they can sell earlier than an IPO, they do somewhat better than that. It also depends how compelling the idea is and whether the venture capital funds are competing with each other for a piece of the deal or not. I have seen founders wind up with less than 5% and others who kept 100%. Al did exceptionally well with most of his companies, and deservedly so. |
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Post by matt on Apr 28, 2016 16:53:21 GMT -5
management must be worried that this launch 2.0 is going to be too little to late?? I am worried - isn't anyone else worried? The only person who is not worried is Alfred E. Newman, but I think there needs to be more clarity on cash position and cash burn before shareholders start freaking out. I suspect that the price dive this morning around 11:00 was the start of the ATM activity, maybe just a dipping of a toe in the water to see how the market would react to a lot of shares hitting at once. Whether it was ATM activity or something else, it shows that price support at serious volume is very thin. If it was the ATM we will know that when the 10-Q is published and, if it was, we will know that the company used the ATM because they couldn't find an investment bank to do a private placement at a reasonable price. Use of the ATM should be in the "Subsequent Events" footnote, but if not we can compare the shares outstanding shown on the March 31 balance sheet and the shares outstanding on the first page of the 10-Q which must be accurate within four days. If there is more than a nominal difference in shares then it was the ATM, and if the company used the ATM to raise cash that is a signal that the dilution will be punitive when it comes. Even so, punitive dilution is still better than the alternative.
Your idea to seriously drop the price is tempting, but the company does need to raise money. Showing product volume increases when you are practically giving away the drug is not how you encourage skeptical investors to take a position in your company; they are going to want hard financial results. The other problem is that dropping prices is easy but raising them later is much more difficult than you can imagine, because that is when managed care will push back. Sanofi was not totally crazy going to market at a premium price because they knew they could always drop it to increase volume if the demand was there, but maybe the 30% premium was a bit too aggressive.
Long-term, the marketing plan makes sense, and if the market still won't accept the drug then it was doomed as a commercial product from the start. The concern has to be having enough cash to last the short and medium terms.
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Post by matt on Apr 28, 2016 11:25:52 GMT -5
Price it cheaply for Health Canada. No reason not to price it right as we have the plant capacity to service it and it keeps production running. MannKind needs to have some really big successes to document the effectiveness of Afrezza in a big country. Canada would be the perfect place as they could really target the urban areas in a fast track manner. You do have to be a bit careful in pricing to gain entry to a single country. As noted above, Canada prices at or below the median price of a group of countries with decent pricing (UK and Italy are low). Japan caps reimbursement based on foreign average prices in US, UK, France, and Germany. Some others take a similar approach but include China and India. The point here is that a sweetheart deal for Canada can ripple though to pricing for other countries whether intended or not. You have to leave a few good markets where the company can charge an appropriate price because Afrezza costs more to manufacture. |
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Post by matt on Apr 28, 2016 9:49:12 GMT -5
Note that there are two barriers to selling new shares. The first is an effective SEC registration statement and that amount is stated in dollars, partially because the SEC charges a registration fee based on the dollar amount issued. Since nobody knows what the shares will sell for until the day they are sold, this is an estimated amount for the sole purpose for calculating the registration fee. MNKD can sell shares for more or less than the $500 million stated on the face of the S-3, or issue no shares at all. The other hurdle is the number of authorized shares and that is a matter of state law. Corporations are created under state law and so they are regulated by the secretaries of state; sale of securities to investors and orderly management of the financial markets is the regulatory business of the SEC; the company must keep both regulators happy.
If you do the math, MNKD has approximately 429 million shares issued, a further 40 million authorized shares which would issue upon bond conversion, warrant exercise, option exercise, or otherwise restricted (and therefore unusable for any other purpose). So, of the 550 million presently authorized shares, only 80 million or so are issuable under the S-3. This number will increase to 215 million if the proxy proposals are passed (80 million already authorized plus 150 million new shares minus 15 million new shares reserved for employee plans). That also gives you the bounds on possible dilution. Any new sales will likely involve some warrant coverage, both to the investment bank and the purchaser of the shares, and that will reduce the 215 million issuable because the company will have to reserve some shares for possible warrant exercise. If warrant coverage is one warrant for one share, the company can only issue about 100 million shares. If the warrant coverage is one warrant for each two shares, the maximum that can be issued is 140 million shares (excuse a bit of rounding), and the actual proceeds will only be 93% of the gross amount since an investment bank will take 7% in fees for the offering. The alternative is the ATM facility which only costs 3% and no warrants, but ATM sales tend to depress market prices any time they are used.
The point is that the $500 million S-3 does not give the company the ability to raise $500 million in fresh equity unless there are enough shares available. At current prices, even assuming the shareholder proposals are passed, the authorized share limit will be reached well before the $500 million amount on the face of the S-3 is achieved. Naturally, if the price rises on good news to $5 per share or more then the calculations all change, but for now the shares are the limiting factor. |
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Post by matt on Apr 26, 2016 15:29:20 GMT -5
But I am curious regarding what you are all thinking regarding where the PPS goes if or when dilution occurs . i know there are too many variables , but what like to know different opinions. do we go down to $1.00 ? Having done my share of fund raising for NASDAQ listed companies there is good news and bad news. The good news is that the average volume remains fairly strong, which means that a new investor can see a way to get out if they change their mind or are just buying into the deal for the discount. This helps limit the dilution. The bad news is that the stock is wounded and that doesn't help. Releasing non-material "good news", such as the RLS deal, just before issuing rarely works as the new money looks at the tread over a few recent months rather than yesterday's close. Announcement of some substantial partnership agreement without a lot of contingencies would help reduce the discount.
My ballpark figure is 20-40% discount, which might be partly in cash and partly in the value of warrants. Obviously the more warrants that are given the smaller the cash discount and vice versa. It is hard to get a significant deal done at less than 20% and MNKD is still attractive enough that they won't have to go lower than 40%. Figure that the placement agent is going to take another 7% in fees plus some legal expenses so the gross raise amount will be about 108% of the net raise. Finally, the larger the raise the larger the discount.
So to answer your question, will it get to $1? It may get close, but as of today I would say it probably does not go below $1.00. Can MNKD do a significant raise without material news and remain above $1.20? That is also unlikely, so the price will likely wind up in the middle. But this is today; it is a long way to the shareholder's meeting and authorization of the additional shares. A lot can happen in a few months to change those estimates in either direction.
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