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Post by matt on Mar 7, 2016 11:01:18 GMT -5
The previous posters are correct; there are many potential members in the class but only one can be the lead plaintiff. The reason you see multiple firms advertising for clients is because if they find the lead plaintiff then they get to be the lead law firm and get most of the legal work. It used to be a lot more unstructured, but now the court anoints the lead plaintiff based on rules set into law. When the law was passed, it was done to reduce abuses of certain notorious attorneys in the hope that more institutional investors would become lead plaintiffs, but few institutions want to devote the time and effort so that hasn't happened. Most of the time the lead plaintiff is the individual investor with the largest loss.
The lead plaintiff has to devote a significant amount of time to the case as they are the class representative, and that person is compensated for their time if the case is settled or if it is successful at trial. Beyond that, there is no financial incentive for being the lead plaintiff due to restrictions in the law. In the bad old days there was plenty of room for attorney-plaintiff mischief, but those days are over.
Short of outright fraud (which is not insurable) these cases are more of an annoyance than anything. However, when you have a small company with a single executive playing both the CEO and CFO roles, dwindling cash, and about to have the sole product returned by the former marketing partner, Matt does not need to be dealing with the lawsuit. While it is true that lawyers will handle much of it, Matt will have to be heavily involved and that is time he simply does not have.
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Post by matt on Mar 2, 2016 8:43:29 GMT -5
Write-downs such as asset impairments are not considered "operating results" because they are normally taken below the operating income line, but above the pretax profit line as "Other income or loss" or sometimes broken out onto a special line item as is commonly seen with restructuring programs. The only things that would get you a change in operating results is misstated sales or operating expenses and there has been no hint of any material changes in those numbers.
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Post by matt on Mar 1, 2016 11:47:55 GMT -5
You can count on a "going concern" opinion. The standard is whether the company has enough cash on the balance sheet to survive the next operating cycle (operating cycle is accountant-speak for one year in most cases). Since Matt has publicly admitted that raising cash will be required the auditors will have to qualify the opinion accordingly.
That said, a very substantial percentage of small biotech and pharma companies have a perpetual going concern opinion so again don't equate accounting figures with real economics. Accounting opinions only affect companies and the market when they convey new or unexpected information, and neither the asset impairment nor the going concern opinion should be news to anybody that follows the stock. Unless there is something really ugly in the 10-K the price shouldn't move much.
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Post by matt on Mar 1, 2016 9:02:00 GMT -5
The accountants are justifiably concerned about giving a clean audit opinion on a company with a significant risk of a near-term bankruptcy. The last 10Q showed $191 million in property & equipment and $23 million in inventory. At current sales rates, that is many years of inventory in an industry that rarely holds more than what is required to supply the market for around six months. Similarly, a lot of the equipment is specific to production of Afrezza and resale value for pharmaceutical production equipment is normally about 10 cents on the dollar, and rarely more than 20 cents. The bottom line is that there are substantial investments shown on the balance sheet for a product that is not selling very well. While Matt has some strategies for reversing the weak sales trend the auditors are not going to give any credit for that when they revalue the assets at fair market value so expect some big write-offs.
This is just the accounting catching up with what the market has already decided about the company. It is hard to argue that as the share price has declined from $7 to $1 over the past twelve months the value of the assets should remain untouched. This isn't cash; it is just a few catch-up accounting entries that reflect the current economic reality that everybody knows about already. The upside is that to the extent that Matt is successful in turning the ship around it will be easier to show a profit if the production assets have be written down to a more reasonable value.
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Post by matt on Feb 26, 2016 8:20:01 GMT -5
What happens to the shares depends on how specific he was in his will. If, as the poster above says, most of the shares go to the foundation then it is up to the trustees, but it is not as easy as "Brian Mann sits on the board". Trustees have a fiduciary obligation to the trust and, indirectly, to the beneficiaries of the trust, and well as an obligation to follow the instructions of the grantor. If Al, as grantor, instructed the trust to hold the shares come hell or high water then that is what they will do. If he did not leave an explicit instruction to that effect, the trustees will be advised by the lawyers that concentration in a few securities is financially imprudent and that they must diversify the investment portfolio. That means selling some shares.
As for the Mann group financial commitments, I don't see that his death changes anything. Contracts that are valid during life remain valid after death and become an obligation of the estate. To the extent MNKD has room left on the credit line, it should still be there. Depending on how the estate is structured and how much time it spends in court, it may be difficult to obtain more credit from the same source in the near term.
Financial concerns aside, when a founder who has been the guiding light and moral compass of an enterprise passes away the company is never quite the same. Al was a great innovator that believed in what he was doing, and he put his own money where his mouth was. Those kinds of men are few and far between and the world is a little worse off today with his passing.
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Post by matt on Feb 25, 2016 14:21:30 GMT -5
Fiduciary obligations are not as easily created as you might expect and, in the absence of a fiduciary obligation, trading on non-public information is not illegal. Consider the case of the New York taxi driver who overheard details of a pending deal as it was discussed by investment bankers in his cab. He invested all he had and made a killing when the deal happened a few days later. The court ruled that while the bankers had an obligation not to trade on the information, just because they happened to get into his taxi that obligation did not extend to the cabbie. He got to keep the money.
Sanofi would be a closer question because it was predictable that their decision to end the deal would hurt MNKD in a significant way. But if they had bought long-term puts on MNKD back before the product launched, as a way to hedge their downside, that would likely have been kosher.
The bottom line is that pharmaceutical companies make their money flogging pills (and inhalers) and not from playing the markets. Almost every securities play made in the industry has some relation to a past or present investment exposure, such as hedging foreign currency risks or holding some remaining shares in a spun-off subsidiary or past venture capital investment.
If you want to make your living speculating on financial securities, you go into investment banking. If you want to make it marketing healthcare products, you go into pharma. Rarely do the two mix.
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Post by matt on Feb 23, 2016 17:49:21 GMT -5
You need sign off from the auditors before you can release. Given all that has happened in recent months, the auditors may be taking their time finalizing the audit report. A lot more goes into the audit report than just the earnings and they don't sign off piece by piece.
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Post by matt on Feb 21, 2016 18:08:16 GMT -5
Rights offerings are used precisely because the typical discount that comes with secondaries is "unfair". The rights offering gives shareholders the choice between investing more or letting somebody else dilute them. Not a pleasant choice, but a choice. The fact that the company is short on cash is no secret, so this may be the best way to handle it.
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Post by matt on Feb 20, 2016 12:21:06 GMT -5
At a minimum, there will be a required change in label copy and packaging designs related to the end of the marketing partnership. Routine stuff.
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Post by matt on Feb 19, 2016 10:11:35 GMT -5
Probably not Monash. They are a well-respected university, but Australia has it own fairly active and reasonably well-funded biotech sector so it would be strange to commercialize university research in the United States, at least not until they get to Phase II.
Distance and time zones matter when doing research and Australia is one heck of a long flight from Seattle!
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Post by matt on Feb 19, 2016 9:23:00 GMT -5
As we take it back, I am hoping that the protocol can be amended in some manner to allow a test for superiority, to get a better indication on the label ASAP. Usually a superiority outcome is shown with the same protocol used with different products in a randomized trial. With such a small sample (and 46 is very small) MNKD will be unable to show superiority.
Trials that show superiority have to go head to head against some other treatment that is known to work (insulin pens for example). We all know injected insulin works pretty well so to prove statistically at the 95% confidence interval (the same as p < 0.05) there must be enough patients that do substantially better on Afrezza than the comparator arm. While HbA1c is an important test, you are not going to get a label change simply by showing a difference in one test parameters. The reason you need such a large trial is because injected insulin does work pretty well, and the trial is all about showing the patients that do worse on injections but do better on Afrezza (minus the patients that do better on injected versus worse on Afrezza), as measured on a number of test and functional parameters. Most metabolic disease trials have 2,000+ patients simply because of the inherent statistical noise factor, and that gets expensive.
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Post by matt on Feb 18, 2016 10:35:44 GMT -5
The numbers show a classic option straddle, holding both puts and calls in approximately equal amounts. This is something an investor does when they recognize that a security is likely to experience high volatility, but the investor doesn't know whether the price will go up or down. So long as the price moves significantly, either the call or the put will be in the money and the other position will expire worthless. If, for example, you had a strong belief that MNKD would either go bankrupt or be acquired for $2/share, but you couldn't predict which of those outcomes was more likely, a straddle is the way to profit regardless of the outcome. The only way you lose with a straddle is if the price stays put around $1 (i.e. no big event) or if the price of the options becomes too expensive relative to the potential profit.
As for the long position in shares, GS has a lot of funds and some of those are trackers that follow the indicies. So long as MNKD remains in the indicies, the funds will hold those shares regardless of the price action. GS also manages a lot of 401(k) / IRA type accounts where the client has chosen to invest in MNKD and those show up in the GS numbers even though it is not Goldman that actually owns the shares because the shares are in street name but parked in a GS account.
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Post by matt on Feb 17, 2016 16:40:04 GMT -5
The only quiet period enforced by the SEC is the one that affects promotion of the company between the time a registration statement is filed and the time the SEC declares it effective. Normally this applies only to companies about to undergo an IPO and the quiet period is intended to keep issuers from pimping their IPO price. Most other restrictions were rolled back in 2005.
Companies self-impose a period of silence between the end of an accounting period and the time the auditor has signed off on the numbers, but this is intended to avoid embarrassment at disclosing one set of numbers and having to change them after the audit is finished. The SEC imposes no handcuffs on the discussion of routine business matters, including forward-looking statement, so long as new material disclosures are disseminated in compliance with Regulation FD. Matt will be free to discuss almost anything with the possible exception of the full year 2015 result if the audit has yet to be completed, and even then he can discuss ranges of numbers if those are tight enough.
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Post by matt on Feb 17, 2016 11:15:37 GMT -5
It can be trackers, or forced through an index but do not forget that GSCO also has private wealth management. One of the best posts on this topic I have seen. All the big financial services companies have index funds, proprietary funds, and also manage private accounts. The private accounts can be anything from very wealthy individuals to self-directed IRA or 401(k) plans. No matter, when quarterly reporting time comes all those funds get reported as a group. Most investors see an institution and assume there is some smart financial analyst looking at the fundamentals of a company and making informed decisions. While that is SOMETIMES true, more often it is not true; witness all the index funds in Israel that had to buy into the MNKD listing on TASE whether they liked the stock or not simply because the fund tracked the index and HAD to own the stock.
The bottom line is that the presence of SOME institutional investors is a positive sign if those funds are 100% fundamental smart money investors. There are a handful of funds specialized in healthcare that have teams of PhD and MD qualified analysts to scrub the science, and if you see some of the early VC funds remaining in the stock after the IPO you can bet they have thought through retaining their investment as well. Most of the other institutional swings are just noise and should be treated as neither a positive nor a negative sign. Institutional investors come in all flavors; research what each fund does and make informed decisions on whether to follow their lead or not.
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Post by matt on Feb 16, 2016 15:32:46 GMT -5
"The best laid plans of mice and men oft go awry" (Bobby Burns). What will be the affect on MNKD of those many class action law suits, that are announced almost on a daily basis, start happening. All those class action suits become one suit very shortly (which is why there is a competition to represent the "lead plaintiff" as there can only be one). Then there is some procedural wrestling over whether the suit can go to trial or not, with about 50% dismissed at a Rule 12 hearing. Then the rest happens over a period of months and years.
As noted above, the legal fees and damages up to a certain amount are covered by insurance so little cash impact. The biggest cost is management time which has to be diverted to managing the legal process when the time is better spent on managing the business. The lawyers handle a lot of the paperwork, but management has to invest a lot of time they may not have.
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