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Oct 16, 2016 15:38:20 GMT -5 @scotta said:

Matt, you and said that management, should they decide that ch 11 is the only option needs to file at a point in time where there is enough cash left to take the company through the process.  In your opinion, how much cash would MNKD need to complete a ch 11?  

I cannot access Mannkinds website now but if they are still burning $10 mm / mo and they have enough cash to get the to Q1 '17 (per Matt P), my guess is that today, they have around $30 - $33 mm.  

Trying to get a handle on how much cash they have to run company and drop dead date they would need to file by.  Per your earlier comments, you indicated that if the filing is inevitable, they would likely do so in conjunction with the next PR for the Q.  Thanks,

I have more than a bit of experience in bankruptcy cases, as a buyer of distressed assets for a former employer, as a consultant and expert witness for a distressed company that filed bankruptcy, and as a consultant and expert witness for a group of shareholders.  Each case and the surrounding circumstances are unique but if I had to put a number to it I would guess that MNKD needs $50-60 million to make it through a reorganization.  Let me break that down.

First, there is the expense of the attorneys.  This will be a complicated case with lots of parties and there will be a lot of legal work.  Bankruptcy attorneys are used to dealing with clients that are insolvent and will demand their estimated fees up front I the form of a retainer.  While the fees are ultimately something that is approved on motion to the court, it gets paid out of that retainer.  If assets are to be sold, there will be an asset liquidation firm appointed to write an offering memorandum for the saleable assets and that firm will be due a sale commission if successful.   The company needs to file a detailed plan of reorganization with the court and there is typically a work-out firm that specializes in preparing those plan documents.  If there is litigation between the bankruptcy estate and other parties, that creates another layer of legal fees.  The Office of the US Trustee charges fees to administer the case.  There are other costs of bankruptcy as well that I won't go into, but the debtor pays for most of it. The various retainers and expert fees will easily be in the ballpark of $10 million.  Easily.

If the company is to reorganize life must go on during the pendency of the case.  Afrezza has to be manufactured, salesmen have to call on physicians, financial reports have to be filed (although not with the SEC), and the office manager has to pay for lighting and air conditioning.  We know the company is burning something like $8-10 million a month over and above what Afrezza sales bring in so over the course of a typical bankruptcy (120-180 days) the company will need to fund that operating burn.  Additionally, all the accounts payable get frozen the instant the company files in court, which is good because creditors can't bring collection suits while the company is protected by the court, but at the same time a lot of vendors will put the company on cash terms.  Prepaid deposits will have to be provided to all the utility companies to keep the lights, Internet, and telephones on.  Any fudging that might have been possible by extended credit terms will be gone and MNKD will effectively turns into an all cash business.  Quite literally you will have truck drivers demanding a check before they will unload supplies needed to continue operating.

So a monthly cash burn of $8-10 for 4-6 months plus the cost of the experts gets you to my estimated need for cash.  On the supply side, the remaining Mann Group loan facility is $30.1 and the remaining ATM is restricted by the number of shares to a value of around $7 million at today's share price, so that is a total of $37 million of financing plus whatever is left on the balance sheet.  As of June there was $63.7 million on the balance sheet and if we assume $8 monthly burn (it averaged $7 million in the first half of the year before the marketing effort) the balance sheet will be down to about $32 million by the end of October.  If you use the $10 million monthly burn the cash remaining at the end of October is $24 million.  For sake of argument lets use the midpoint of $28 million.  Add the $28 million in cash remaining to the $37 in financing capacity and it comes to $66 million.

Without access to the books I can't be more precise that this, but it seems likely that at some point in November the cash required to operate the business as it goes through a bankruptcy reorganization will dip below the remaining cash assuming all the available sources of financing are tapped.  There are potential surprises, both good and bad, that could change the math (like an RLS payment) but those are impossible to estimate.

Many companies can access debtor-in-possession (DIP) financing to access additional cash in bankruptcy, but DIP lines have to be secured by assets.  Since Sanofi has a first priority security interest in the Valencia headquarters, and Deerfield Partners has a first priority security interest in Danbury, obtaining DIP finance is going to be extremely difficult.  Getting around those security agreements will be almost impossible so I think the roughly $66 million MNKD can access is also close to 100% of what they can potentially access.  More than anything else, I think that explains why the stock is trading where it is trading.  Matt is running out of options and the market knows it.