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Post by hammer on Jul 30, 2014 16:20:17 GMT -5
Mannkind the contrarian analysis:
Many have suggested that my post valuing an all stock deal with Sanofi at 20 Billion to be a bit too high. You must understand that my initial premise placed mature sales at 14 billion a year at a max 35% capture of the type1 and type 2 markets. Admittedly that analysis is seen through MNKD’s eye so I took a few minutes to evaluate the deal as a partnership through the eyes of Sanofi in order to see if a 20 billion dollar buyout with stock is worth it to them so here we go.
The assumption is that MNKD and SNY partner at a 50/50 split. Yes MNKD receives upfront money to continue their operations. In my mind that upfront payment is of little consequence in the grand scheme to SNY. The partnership structure is still dependent on my assessment that for every 10% of both type1 and type2 markets equates to 4 billion in gross sales.
Furthermore, I must include a reasonable market share capture year over year.
Year 1=5 % market=2bil in sales
Year 2=10% market=4bil sales
Year 3=20% market=8bil sales
Year 4=30% market=12bil sales
Year 5=35% market=14bil sales
Since I consider 35% at market peak for years 6-10 each year gross sales are 14bil. Keep in mind the diabetic market is increasing 9-16% per year and I have not accounted for this but it only strengthens the analysis. After 5 years, SNY would have received 50% of gross revenues or 20billion. Over a 10 year agreement this works out to 55bil on sales of 110bill over 10 years.
How does this compare to my original thesis were SNY buys the rights and production associated for Afrezza for 20billion in stock plus royalty? Well with 10 year sales at 110bill less the stock purchase at 20bil, SNY is left with 90bill gross sales vs 55bill gross sales.
When you include the 5% royalty paid out over 10 years on 110bil gross sales that equates to 5.5billion in royalties you must deduct from 90bil gross sales leaving you with 84.5 billion gross sales on a buy versus 55 billion on partnership.
So if you were SNY would you pay 20bil now or partner up? It’s a no brainer for me. Once again, I do make assumptions on market share and sales but they are based on those which MNKD has given to us. In the end everyone gets screwed but everyone is happy with the buyout. When you look at it through the SNY lens maybe 20bil for buyout is too low.
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Post by gamblerjag on Jul 30, 2014 16:38:07 GMT -5
Thanks Hammer. So if you are thinking 20 billion are you saying one day when buyout is announced we wake up at approximately 40 bucks a share.. but in SNY stock and then we also have MNKD's new company receiving a dividend. Where you are an excellent poster, I'm very poor with extremely detailed/complex information.. Just the way I'm wired.. Thanks.
Gambler
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Post by hammer on Jul 30, 2014 16:41:16 GMT -5
In case your wondering what the royalty over ten years is worth. 5.5 billion / 400 mill = 13.75 share |
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Post by hammer on Jul 30, 2014 16:45:49 GMT -5
Thanks Hammer. So if you are thinking 20 billion are you saying one day when buyout is announced we wake up at approximately 40 bucks a share.. but in SNY stock and then we also have MNKD's new company receiving a dividend. Where you are an excellent poster, I'm very poor with extremely detailed/complex information.. Just the way I'm wired.. Thanks. Gambler Yes but you would receive 1.25 shares of SNY for every share of MNKD you hold, so its really worth 50/share. An additional $13.75 a share paid over 10 years if you hold the new Mannkind Technology stock for that period. Plus whatever appreciation SNY stock makes over the course in which you hold it.
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Post by sportsrancho on Jul 30, 2014 17:18:36 GMT -5
Thank you for posting! Very interesting and exciting! They are talking about SNY buying MNKD on ST (on the SNY sight.) They seem like they like the idea. ( if they only have to pay $20 a share!) LOL
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Post by gamblerjag on Jul 30, 2014 18:45:40 GMT -5
Hammer, thanks for stating that response in "stocks for dummies" terms.  |
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Post by mannmade on Jul 30, 2014 19:17:22 GMT -5
Thank you for the analysis. Also may want to factor in that wholesale cost of insulin is paid for completely for up to first 10B in product sales/revenue and Mannkind has a monster loss to carry forward which will have huge value the first few years...
And then let's not forget about other mnkd revenue streams outside of Afrezza...
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Post by dreamboatcruise on Jul 30, 2014 19:31:36 GMT -5
If they are acquired, what are the constraints on the acquirer using the accumulated tax losses? Anyone know how much they are?
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Post by daduke38 on Jul 30, 2014 19:46:20 GMT -5
Hammer, Great post again. Only problem with this board is I don't feel as smart as I did on the YMB! And that is just kidding, but true, LOL  It is so refreshing to read a thesis that is thought out on a regular basis. And the "NO Bashing is nice, but the pumpers are just as bad! I won't make anymore comparisons, but there are some very sharp people on here! |
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Post by noonen on Jul 31, 2014 5:16:00 GMT -5
found this nugget on nol's. any cpa's out there? www.pepperlaw.com/webinars/so%20your%20thinking%20about%20buying%20a%20loss%20company%20webinar%20slides_12_13_07.pdfpages 8, 13, and 17 seem most interesting. not an accountant, but looks like significant limitations if a purchaser acquires with equity. It looks like if a purchaser takes preferred (non-voting, limited divs), it doesn't limit the use of the nols. As of Q1'14, accumlated deficit was $2.3b. Not sure how much of that can be used. Would a bp take non-voting preferreds to be able to use the $2b+ in nols? I don't know. maybe there is some arrangement that Greenhill has done before that could be signed so that the acquirer could take voting stake down the line after the nols are used up. who knows. just another factor that indicates the complexity of all this. |
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Post by daduke38 on Jul 31, 2014 6:36:54 GMT -5
Great point! This is a VERY complex negotiation. And so many ways to go with it. I do think there is a sense of urgency as I am sure diabetics as well as investors would love to see "A" on the Market as soon as possible!
Just an Opinion, but I think that by Mid to late August it will be wrapped up.
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Post by Chris-C on Jul 31, 2014 7:11:42 GMT -5
Hammer
Thanks for your thoughtful post on acquisition versus partnership. I do agree that the market potential is there, but I would add the following observation as potential threats to the assumptions you make about market share. Because of the size of the market, lots of development is going on in the Diabetes spectrum. Oramed claims to be working on an oral insulin (that company may not be on solid footing and there are legitimate questions about relationships among members of its board and founders) and I have no doubt that if the technology matures, an oral insulin might appear within a decade. The profile of its action through absorption in the digestive track will probably not make it suitable for prandial administration, so it may be more of a threat to existing basal insulins. There is also development of an artificial pancreas and further advancement of the GLP (glucogen like peptide) class of T2 drugs (such as Byetta, Bydureon and Liraglutide) used as longer acting injectables. The questions are collectively, how quickly will they be developed, how successful will they be in competing based on cost, convenience and compliance, and how rapidly will they be able to manage the regulatory barriers at the FDA? This is counterbalanced by the certainty that MNKD and its partner/acquirer will continue to refine and improve the efficacy and convenience of Afrezza. If they can find a way to keep the powder stable at extended periods without the need for refrigeration they will only add to the convenience benefit.
Lets face it, any acquisition is a gamble. Will Sanofi (or Merck, perhaps) bet that the sizable (but realistic) profit potential you describe is worth the risk? Perhaps the final outcome will depend on the valuation and potential of Technosophere, which many believe is also a benefit with sizable potential in a variety of markets for managing pain and perhaps boosting immune function. a $20B deal (of course with cash and stock) would be a head turner. It is also possible that there are several suitors, and competition always has a favorable influence on dealmaking. A total acquisition price of $50+ per share seems steep to most observers, who doubt Afrezza's ability to penetrate the market. I, however, agree with you and think it is possible (maybe even a bargain in the long run) if the conditions are right. Time will tell!
No question about it. These are interesting times!
Chris-C
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Post by mannmade on Jul 31, 2014 11:38:21 GMT -5
I encourage you to look up the stem cell post I started a week or two ago and look at a company call ViaCyte. They are 5 to 10 years away. I know anything can happen and this could fail, but I am told by a close friend that the early results have been extremely promising. I am also separately aware of the same research being done with "Pace Maker Cells" for the heart that are also looking very positive...
I am not saying this to discourage anyone here as I have always said on the record that Mannkind is currently a 3 to 5 year hold for me and will continue to evaluate during that time.
And I believe a whole lot of good can be done by Mannkind for however long Afrezza becomes and stays the "standard of care" for prandial needs. Also I believe Mannkind has a bigger plan in place for their future growth, not just with technosphere licenses, but other products. Before being shuttered to focus corporate resources on getting Afrezza to market they had one of the most robust oncology research labs in the country. And we have all heard of the flu vaccine, basal insulin patch and the non-opiet pain killer. GLTA!
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Post by mnholdem on Jul 31, 2014 11:56:24 GMT -5
I think cash will soon be a non-issue for Mannkind and the pipeline will start flowing once again. The patent finalized last week on Mannkind's new Technosphere Migraine drug delivered with a disposable Cricket will likely be a top priority.
I've only started probing the potential revenues that could result from having a rapid-acting inhalant within the global pain relief market. Most migraine meds take about an hour to dull the pain. Having a treatment option than takes 5-10 minutes? Huge potential.
So many are only beginning to realize the real future value of Mannkind lies in its Technosphere patents. |
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Post by daduke38 on Jul 31, 2014 13:20:14 GMT -5
Welcome over Chris! Slowly but surely Joey is getting the smart people over here. But he also got a nut like me in the bargain, LOL
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It is so refreshing to read a thesis that is thought out on a regular basis. And the "NO Bashing is nice, but the pumpers are just as bad!
