I am okay with this financing. It gives them more leverage to negotiate a partnership. By my calculations, they are running out of money very early in 2014. Al’s line of credit comes due in January and the convertible is due in October. While 20% funding costs may seem high, considering the risk, it does not seem out of line. You have to ask yourself, would you invest for a possible 20% return over 6 years, or would you rather buy shares with their increased risk and increased possible return?
If the share price is above $6.67, there will only be another 6MM shares issued and they will be sold at the average price over the 20 preceding days. So, it will raise at least an additional $40MM assuming the price is above $6.67.
Having this cash on hand also reduces the amount of upfront cash that a partner has to contribute, which could lead to better partnership terms. The more upfront cash that a partner has to contribute, the worse the royalty arrangements might be.
Under a partnership, it is envisioned that Mannkind will be responsible for manufacturing and the ramp up will burn a significant amount of cash.
The way I look at this, this remove a large portion of the near-term funding risk. So, I think it is a good thing.
