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Post by matt on Apr 11, 2016 16:37:56 GMT -5
This will be a credibility test for Matt and the rest of the team. When Sanofi killed the marketing deal, the price dropped. When MNKD reminded the market that they had assumed responsibility for Afrezza effective April 5, the price dropped. While the shareholders may still believe in MNKD, the market has voted in the opposite direction and has thrown the BS flag.
So this is a test of whether the company can come up with a believable marketing plan. If they come up with something more concrete and actionable than a Twitter campaign, the price will recover so long as the balance sheet can support the plan. If they can announce a partnership for foreign markets, that will be a huge plus. If all they do is reiterate the same low cost social media type strategies, that will not be good. I honestly think Matt is doing a decent job playing the cards that he has been dealt; if the ship sinks it won't be due to lack of effort by the captain.
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Post by matt on Apr 11, 2016 16:27:08 GMT -5
Couple questions.... Do shareholders who are lending shares to shorts need to pull them back to vote them? The proxy states that non voted shares are counted as NO votes. Isn't it normally the other way around? Non voted shares go with the bod? I'm sure they're non issues, between Manns shares and the inst who are on board they've got 50% covered. Two good questions. The answer to the first one is that voting rights belong to the registered holder, not the borrower. You do not need to pull back your shares to vote them.
The second question is a very important one, and it a matter of state corporate law. Most states word their law on share increases such that it requires an affirmative vote of the majority of all shares outstanding, while most corporate issues are decided by a majority of the shares that cast a vote. You see the difference? Most corporate actions have no requirement on the number of shares that actually vote, while increasing the authorized shares must have a certain number of actually cast "yes" votes. Brokers can give their proxies to management on many routine corporate votes (like confirmation of the auditing firm), but the exchanges and the SEC do not allow brokers to vote on non-routine matters, and an increase in authorized shares is a non-routine matter. Since shares that are never voted are still part of the total outstanding shares they have the same effect as a "no" vote in this case.
The brokers must forward the proxy and voting materials to the beneficial owner of the shares, and the beneficial owner must cast the vote. If your shares are in street name, your broker will be sending you the necessary paperwork. Foreign brokers, like those who deal with TASE traded shares, are under no legal obligation to forward the materials although many of them do. A lot of companies find that they cannot raise capital because they cannot collect the required number of "yes" votes simply because too many small shareholders throw the voting materials in the trash without acting on them. As you noted, the shares held by the Mann trusts are probably reliable votes, but the institutions cannot be relied upon since only beneficial owners can vote. In some cases the institution is an actively managed mutual fund that actually owns the shares, but in other cases the institution is a conduit to the beneficial owner and must forward the proxies.
If you agree with the proposal and you hold your shares in street name, be sure to vote when you get the proxy.
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Post by matt on Apr 10, 2016 14:41:56 GMT -5
You forget $200M paid to MNKD from SNY. Therefore the liability is NOT $477M You are correct, but neither of us has the right number. Of the $200 million from Sanofi, only $140 million remained as a liability as of December 31 and that should flow through the Q1 financials as realized gain (so essentially a reclass from liabilities to equity). That still leaves $337 million in true cash liabilities (plus the first quarter losses paid by Sanofi) against $126 million in assets (less any cash burned in Q1).
Those corrections do not change the fundamental conclusion; it is not possible to file Chapter 11 with a $200 million plus hole in the balance sheet so the case would convert to Chapter 7 immediately. Here is hoping that MNKD can raise the cash they need to stay out of court.
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Post by matt on Apr 10, 2016 7:22:11 GMT -5
Question about May 20th. Some people on this board believe the sp will be manipulated because of all the open contracts on this date. Can any of you offer opinions on this? Thank you. Stock prices can be volatile and volumes can be unpredictable as expiration dates for derivative contracts approach. Without bogging the explanation down in the underlying calculus, there is a mathematical relationship between the prices of stocks, bonds, calls, and puts. The price relationships are fluid early in the life of an option, but as the exercise date approaches this fluidity disappears and the mathematical differences converge on zero for options that are at, or close to, the exercise price.
Practically this means that if there are a lot of options outstanding with exercise prices very different from where the stock is trading come May, it really won't matter very much. On the other hand, if there are a lot of open options with exercise prices close to the trading price then you may see a lot of atypical price and volume movement. I would not characterize this as manipulation; it is merely the market responding to differences between the value of security portfolios which should, mathematically speaking, have identical prices. The price of the underlying basket of securities will increase or decrease until the market value of the portfolios is equal. If the market did not adjust prices in this way a clever investor could sell the overpriced portfolio and buy the underpriced portfolio thereby making a profit without taking any risk but, alas, there is no such thing as a free lunch.
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Post by matt on Apr 8, 2016 15:24:29 GMT -5
What you need to understand about bankruptcy is that it is largely an administrative process where the rules of who gets what are set in stone. There is a judge but that judge does not render an opinion on what is "fair". The rulings are mostly limited to whether a claimant has a valid claim against the company (which pretty much comes down to principles of contract law) and whether the administrative process dictated by law has been followed. The simple answer is that shareholders would not be in good shape, and that the biggest winners would be the legal profession.
Secured claims are handled outside the bankruptcy. For example, if a bank holds a lien on some asset, lets say all the office furniture, the bank can seize the furniture and sell it to recover their loan. If the bank sells it for more than what they are owed, the excess proceeds go back to the company. If the proceeds are less than the loan, the bank has an additional unsecured claim for the difference. Sanofi has rights to the proceeds if the Valencia property is sold so I think they are secured to that extent. I haven't read the loan covenants in this case, but Deerfield normally secures their debt as well.
Any other debt is liquidated in strict priority order, according to the law, until the money is gone. In theory a company can reorganize but there has to be enough value left in the estate and in this case there simply is not. There is a near certainty that this would be a Chapter 7 liquidation because MNKD simply doesn't have enough cash to reorganize successfully. As of December 31 the assets are $126 million against liabilities of $477 million (a shortfall of $351 million), and we know the cash is going south every week so that gap has widened. To pull off a Chapter 11 a company needs money to keep operating, to pay off some of the credit, convert the rest of the credit to new equity, give a haircut to the common, and convince the court that the new business plan is feasible. That is a tall order.
The normal scenario is that the court approves an investment bank to shop the assets, the bank present a package to all the likely buyers, and bids are solicited; all within a period of a few months. Afrezza and the related patents would go to the highest bidder in a Section 363 sale, and the proceeds would get divided by the creditors according to their claims. I leave it to you to speculate how much somebody would pay for Afrezza, but a selling price anything less than about $500 million would leave the shareholders with essentially nothing and Section 363 sales rarely deliver a premium value to the estate.
All of which explains why bankruptcy is the worst possible option for MNKD and why just about anything else is better for shareholders and most of the creditors. If Matt has a rabbit in that magic hat of his, it is time for making more bunnies.
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Post by matt on Apr 8, 2016 9:38:47 GMT -5
Generally speaking, the market does not look kindly on the merger of medical device companies and pharmaceutical companies. The development times, manufacturing methods, regulations, product life cycles, call points, and other factors are so different that the synergies do not justify the acquisition premium. Once upon a time, like the 1970's and 1980's, a lot of pharma companies had device subsidiaries (Lilly owned Physiocontrol and Guidant, Pfizer owned Shiley, etc.). While there are exceptions, by the 1990's most pharmas had divested their investment in medical devices and biologic products produced from human or animal products (as compared with biologics based on cell culture).
As an idea it is certainly not crazy, but the hurdle would be explaining to Dexcom shareholders why they should pay a premium and take on risk to acquire an insulin product when they have been growing sales nicely without an insulin. That might be a tough story to tell.
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Post by matt on Apr 6, 2016 11:11:04 GMT -5
The big issue with banks, and in general, with regard to the topic IS that it is still illegal at the Federal level. That means FDIC, FDA, DEA, etc. IANAL, but I was taught that Federal trumps State by precedent.
The FDA has no issue with any particular molecule, including cannabinoids. Their concern over plant based marijuana and similar products is that there is no dose control unlike an approved pharmaceutical. Producing synthetic cannabinoids in the laboratory is not that difficult, and if there was a pharma company interested in those applications FDA would willingly give approval to produce the substance and run a clinical trial. However, such a product will have to comply with all the same regulatory hurdles as any other new drug and that is something that can never happen with the plant based material due to the costs and technical challenges associated with extracting and purifying the active ingredient.
Meanwhile, you are correct that federal law trumps state law. If the DEA had the resources and the willpower, they could shut down every medical marijuana dispensary in the country; whether or not that would be a wise action and an appropriate use of government resources it a political question best discussed elsewhere. |
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Post by matt on Apr 6, 2016 8:20:06 GMT -5
Sanofi only has (had) the rights explicitly recited in the original contract and, while it has been a while since I read it, I don't recall any rights of the form you describe. As to your other point, all contracts have an "effective date" which is sometimes the same as the notice date / signing date but it can also be any other date the parties may agree (past or future). Here the termination date was defined as the notice date plus 90 days so that is what it is.
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Post by matt on Apr 5, 2016 10:46:27 GMT -5
This line jumped out at me: This does not preclude foreign partners, Sanofi can distribute globally, although pricing may be a problem. It seems that in reality we do not get Afrezza back until Q3 given this and the later comment about how long plans will take to be made. The sole change is likely to be marketing but again that seems from the press release to be delayed at least slightly. As a practical matter, drugs packaged and LABELLED for the US market generally cannot be sold abroad due to lack of foreign registration and lack of compliance with foreign label rules. For example, even though Sanofi might hold salable inventory they cannot sell it off in France due to lack of a French language package insert and no EMA approval. The red tape required to get compliant simply isn't worth the effort in most cases. |
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Post by matt on Apr 4, 2016 16:45:24 GMT -5
Whether or not Al Mann's various trusts will invest depends on how the trust documents read on the day he died. Most trusts, even if they are irrevocable, allow the grantor to change the beneficiaries until the time of death, so what he told the NY Times in 2007 has no bearing on what the documents say today. They might still provide for investment into MNKD, they might not. Unless you have a copy of the indenture you can't really know.
As for the rest of the discussion, the company will need money. The biggest challenge is that secondary offerings on a company like this always come with a discount and, possibly, warrants. The heavier the warrant coverage, the less of a discount is needed and vice versa. The problem is that many investment funds have restrictions in their charter that do not allow purchase of shares below a $5 price, and many of the rest have a $1 requirement. Those without any price requirement are not nice people to do business with, and if you think the shorts are evil, then you haven't seen anything relative to the vulture investors that go after biotechs. There is money out there, but it will be very unpleasant to go into the market at this price range.
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Post by matt on Apr 3, 2016 10:51:14 GMT -5
Needles are an inexpensive commodity product with thin margins, and the competition is fairly brutal. The big industry players (BD, Sherwood, Terumo, etc.) have enough volume to make some profit contribution, and the commodity products help pull through other new items, but nobody is getting rich off standard syringes and needles. More sophisticated devices, like prefilled pens, are a way to get some extra margin for the insulin (which is where the money is).
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Post by matt on Mar 31, 2016 14:22:48 GMT -5
Products are always non-inferior, until they aren't. The reason so many products come to market with a non-inferiority label is because it is easier to prove that A is not statistically different from B, while it is harder to prove that A is better than B with 95% confidence. The statistical formulas are not on your side when trying to prove superiority so it takes a very large trial with very many subjects to prove that A is better than B, and small companies with modest balance sheets are not in a good position to fund such trials which are a prerequisite to getting a label change. It may yet happen, but not for the next several years unless Matt can plant a fast-growing money tree. |
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Post by matt on Mar 30, 2016 15:41:18 GMT -5
The company has admitted that they need more cash to continue operating so that is a given. The list outlined in the first post is fairly comprehensive and any additions would be variations on the themes already identified. None of the sources identified are cheap money, and many are probably not even feasible, but it is the list.
The bottom line is that NOBODY on this message board has a clue what the cash position really is, and we won't know until early August. Whatever happened before the Sanofi divorce isn't relevant to the future, and the future doesn't begin until April 5th. The first glimpse of cash usage and sales results as a stand alone company won't come until the 10-Q for the second quarter which gets published in early August. Until then there are too many unknowns to say whether the company needs cash, needs cash soon, desperately needs cash, or is as good as bankrupt. A lot can happen in the next six months, both good and bad.
It serves no purpose to debate rumors; the company may have a partnership in the final stages of negotiation just like the dealer might have 16 and will have to hit it when he shows the hole card or maybe he has 21. You place your bets with imperfect facts and wait for the result.
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Post by matt on Mar 30, 2016 8:44:05 GMT -5
mind, 'quick 2 minute live Afrezza spots on local TV newscasts' Interesting. Are they on youtube or Sanofi's afrezza hub at 'meet Afrezza'? I once saw this 'videoclip' of 2.5m with about 10s of people saying something like 'I like that idea', just holding the inhaler in their hands. The rest of the time it was links or warnings. Ridiculous. The whole site is one big box warning. That is precisely the problem with DTC advertising. If a drug company is going to market to consumers, it must also given equal time to the risks and contraindications. Physicians know how to find those things when the prescribe a new drug because the organization of the package insert and product information is standardized, but consumers do not. The company cannot be expected to use channels such as Twitter because there is simply no way to describe the benefits of Afrezza and the warnings in 140 characters. Drugs with "black box" warnings have even more stringent requirements on advertising and MNKD knows there are limits to what they can do without running afoul of the FDA (it is never a good idea to upset your regulator). |
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Post by matt on Mar 29, 2016 11:13:11 GMT -5
The other moral of the story is that bare patents are frequently worthless but the "know how" protected as trade secrets is the valuable knowledge. Most process engineering in manufacturing plants is closely guarded know how, but frequently unpatented. The two problems with patents is that they expire after a relatively short period (at least for the pharmaceutical industry where the approval process is long) and to get the patent you must disclose your methods. Often disclosure of methods is enough for a competitor to copy and tweak the process so as to be non-infringing.
Which is why I have said Technosphere and its patents are likely worthless, but the manufacturing know how may not be. As any burglar knows, the most valuable jewels are the ones kept hidden.
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