There are some readers of my MannKind (NASDAQ:MNKD) articles that seem to think that the Nasdaq listing issue is not a very critical one for the company. I beg to differ. There is a reason that any company seeks to be on the bigger exchanges. The most basic and fundamental reason is that companies on the main exchanges are viewed as companies that meet certain criteria on a financial and reporting issues.
MannKind finds itself in a situation that many upstart companies find themselves in. MannKind has a product it believes in, but lacks the capital to effectively sell that product. What MannKind needs to do is convince investors that funding the re-launch of Afrezza carries the potential for future rewards.
MannKind has enough cash left to finance existing operations for about seven more moths. The company has a credit line that can finance an additional three months. Lastly, the company has an ATM facility that allows it to sell stock to qualified institutions in order to raise needed money. A critical caveat in this mix is that existing debt covenants require MannKind to have $25 million in cash, or $25 million in its credit facility at the end of any quarter.
Essentially, absent a deal of some sort or a sale of assets, MannKind is on the cusp of having to go to the street to get much needed cash. It is one thing to walk into an investment bank with Nasdaq-listed stock as your currency. It is another thing entirely to walk into an investment bank with pink sheet stock certificates. In fairness, there are institutions that will dabble in OTC stocks, but as one might expect, they require a hefty premium in order to absorb the added risk.
Being outside of Nasdaq compliance is never a good place to be. Being forced to conduct a reverse split is never viewed as a good thing, and in point of fact does nothing to change the underlying issues that have the stock in trouble in the first place. What a reverse split does accomplish is maintaining Nasdaq compliance.
Think of it this way. Being listed on Nasdaq is like having American dollars in your pocket. The alternative is having pesos. Certainly one could always exchange pesos for dollars, but that is a tedious process, and you always pay a fee to accomplish the task. The big institutions that MannKind wants to attract as investors want a currency that they can go to the street with and sell. A reverse split allows you to still deal in dollars.
The number of institutions that MannKind can deal with as a Nasdaq-listed company are more numerous and offer better terms in a negotiation. This is a simple and widely known concept. It is the reason that companies seek out Nasdaq or NYSE listings in the first place.
The second critical reason that remaining on Nasdaq is critical is that this allows the stock to be traded in various funds, indexes and trackers. An index, a fund, or a tracker typically has certain rules and criteria that dictate the types of equities that are included. A pretty basic and simple rule is that the most desirable of these require major index listing. When an institution buys into an equity, it is representing a certain level of quality to its clients. An institution like BlackRock can have many funds that involve a single equity. If MannKind were to move to an OTC status, the potential sell-off by institutions would be disastrous.
Simply stated, the Nasdaq listing issue is a critical issue for MannKind if it wants to have any chance at finding success, cash, or even a partner. The company has very little leverage, and loses a bit more with each passing day. If the company waits until the last minute to act on its Nasdaq listing issue, it could find itself between a rock and a hard place. At the moment this is a traders and speculators stock. Remaining on Nasdaq will not change that overnight, but it could at least help change that over time. I am not a fan of reverse splits, but feel that a reverse split is far better than the alternatives that are most probable. Stay tuned!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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