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.