Curious about the deal

[Deleted]

Anyone have thoughts to how the deal will be structured? I'm specifically interested in how cash will flow in the next few quarters.

Will we see SNY buy afrezza inventory from MNKD or will it be some sort of consignment account? I'm thinking about nov to march.

Will SNY be saying "provide 50,000 patients worth of product deliverable feb 1", only to have MNKD give it to them "at cost" (what is at cost anyway?) and then have to wait until the next quarter before MNKD is given their 35% cut of it?

Thoughts?

[hammer]

I will try to answer this best I can as I understand the deal.

MNKD is only responsible for manufacturing the product going forward.

As SNY needs product, MNKD will sell the product at cost. Cost means the cost of production and will include any cost associated with Afrezza. These cost will include just about any physical commodity with the exception of prior research cost already expensed. Research cost going forward as well as plant and machinery cost both prior and going forward will be worked into the at cost product. Certainly, they must agree on a formula over time to address these prior expenditures associated with Afrezza. As the product goes out the door, SNY will reimburse MNKD in a standard invoice manner.

As SNY sells the product to suppliers, MNKD will then have to wait for their share of revenue split. MNKD is entitled to 35% after SNY deducts their expenses with marketing, distribution etc.

Per Matt the deal equates to a mid 20's royalty deal, so this is how I perceive the numbers

Royalty:

SNY sells to suppliers at DWAC (direct wholesale acquisition cost) currently known to be about 2000/pt/yr when compared to pen delivery.

Under a royalty agreement MNKD would garnish 25%(mid 20's) or 500 per patient/yr income

65/35

SNY sells to suppliers at DWAC less expenses (IMHO 30%)= 2000-30%=1400

MNKD income = 1400(35%)= 490 income per pt/yr

At a 24.5% royalty these numbers are exact.

The first 2.4 Billion to MNKD is also tax free

Hope this helps

[Deleted]

Ok, thanks. I figured the deal would place mnkds cut at roughly $400-500 per patient per year.

Any idea how much mnkd will be selling to SNY at cost? Reason I ask is that the insulin, equipment, etc that will be used to produce the first quarter or two of product will have already been expensed, therefore even this at cost product will show up as positive cash flow 4Q14-1Q15. The first one or two milestones as well as the upfront will be showing up too

Just feels like with all of this, the books are going to be a bit surprising to most out of the gate? Am I being too positive and missing too many "costs" or just this sound reasonable?

[mannmade]

Am not sure about SNY paying for past costs to develop Afrezza. I believe that is not going to happen. As for future costs will have to wait and see how this subject is specifically outlined in the the deal structured.

I do know that SNY is paying mnkd for product at cost in order to cover all of mnkd's production related expenses to develop and maintain an inventory consistent with demand. However, remember SNY will recapture 35% of the production costs n the other side when they subtract from revenue as part of the 65/35 split.

[Deleted]

It's not a matter of sny paying for past costs that im referencing. The insulin that's all been purchased has already been expensed, so it's going to show positive cash flow when they sell it to sny. I'm curious what that order of magnitude cost will be

[mannmade]

It has to be FDA certified first and that is not a lock... To purchase equivalent I believe it would cost about 300m if I am not mistaken on past figures quoted...

[Deleted]

So where's the insulin coming from in November? Amph?

Also if you listen to the last cc (or maybe it was Morgan stanley) Matt mentions the positive cash flow in 4q

[mnholdem]

Sept 20, 2014 20:14:14 GMT -5 @fugacity said:

So where's the insulin coming from in November? Amph?

Also if you listen to the last cc (or maybe it was Morgan stanley) Matt mentions the positive cash flow in 4q

Amphastar is currently the only FDA-approved insulin for use in Afrezza and, according to the terms MannKind's recent purchase agreement Amphastar will be supplying insulin until 2019.

Matt's mention of "our current supply" also refers to the stockpiled Pfizer insulin, which was purchased (for pennies on the dollar...one of Al's brilliant deals) as part of the bid for Pfizer's Frankfort insulin production facility, which Sanofi now owns after exercising their right to acquired the facility. Makes you wonder if Sanofi has been working with MannKind for years to set up the Afrezza deal.

Back to point, it sounds like Matt was saying that MannKind intends to eventually use the Pfizer insulin, along with any Amphastar insulin in stock. The benefit of the Sanofi deal is that until that insulin is consumed by production, it will generate positive cash flow and after the insulin stock is depleted, new insulin purchases will be returned to the costs side of the books.

[rak5555]

I'm afraid the Pfizer Insulin supply is in the same category as MNKD buyout, short squeeze, Easter Bunny, and Santa Claus. Fun to believe, but don't count on it for portfolio value.

[mannmade]

The Mannkind Insulin supply purchased from Pfizer after the Exhubera shutdown was bought for a mere $3m and has an open market value of approximately $300m give or take if it were to be replaced. However it has dart in storage for quite a while now and no one actually knows how long insulin can be maintained in storage so first step is to get the FDA to certify it for use. Second step lis to decide if it is worth the risk to a new product to use an ingredient with a bit of an unknown which is the storage life span...

May to matter much when Sanofi gets certification to supply insulin for Afrezza. Although would be a nice unexpected benefit to the early cost and revenue numbers if it were deemed appropriate for use and certified by the FDA. I believe the original intention was to purchase with it's use in mine for Afrezza, but no one knew how long the process of FDA approval would take so now we have this dilemma.

[hammer]

Another caveat of the bulk insulin in storage. If its certified and useable great. If its not, it is useless since it cannot be used and even if still potent cannot be sold. One of the stipulations of the deal is that the bulk supply could only be used for inhaled insulin. But hey, it only cost 3 million. It was well worth the risk!

[Deleted]

It's amazing how little is known about this whole affair after all this time.  What is the deal?  Is there a deal?  Has the FTC approved it?  This is like watching grass grow.  No wonder the shorts are having their way with the stock!!  My plan is to give this till the end of September and if the situation has not changed, I'm cutting or eliminating my position.

[biotec]

Sept 21, 2014 13:47:48 GMT -5 avogadro said:

It's amazing how little is known about this whole affair after all this time.  What is the deal?  Is there a deal?  Has the FTC approved it?  This is like watching grass grow.  No wonder the shorts are having their way with the stock!!  My plan is to give this till the end of September and if the situation has not changed, I'm cutting or eliminating my position.

Why end of September? We need to see sales, Mid summer next year at the earliest. If great sales PPS goes up, If weak sales we go way down. What news do you expect by the end of September to move the stock? This is not a 2 or 3 bagger stock for a long time. If at all.Time will tell.

[BlueCat]

(Biotec) Don't agree for a few reasons:

1. Market seems effectively broken - doesn't typically reward good business - sales and solid ERs for quarters. More interested in projections and estimates.

There are plenty of examples to be had where a company has a solid, even exceptional, quarter, and the market still tanks the stock. More so if the forward-looking projections aren't exceeding expectation and hopes - or they exceed, but not by enough. Only meeting expectation seems to merit punishment or sideways at best.

And then there's the opposite - where ER is so-so or even off, projections are overly optimistic, and SP goes up.

Either way, seems like the trend this past year is that projections are more important than proven results. And the MM, HF etc want a stock in a particular place in most cases, and will use whatever news or results necessary to put the stock where they want it. Just like reading statistics - make 'em say what you want.

So - I am skeptical the first positive ER, or even a series, will yield the result. I think the forward projections and investment (e.g. by SNY) will have stronger impact - and hence, possibly before Q1. Should SNY and MNKD speak up with something positive to share.


2. Bio tech stocks are largely event driven, right?

BOs happening before approvals, and so on - just about anything could actually happen here. While its been around awhile, I don't think this company or its main product meet the criteria of a stock that will follow the standard, long haul process. And Old Mann is in fact, 89, and is one shrewd, business-selling guy.


3. This stock is so heavily manipulated.

It appears to defy logic - no news sparks movement. Then we have bipolar reactions to binary events that are only announced after-hours, and then with some apparently under-handed tactics. While solid sales would make the push down harder, see again #1 and #2.



I appreciate the conservative approach - sure - better to under promise and over deliver in this case. But I don't see this stock stuck for an entire year where it is today, or if nothing positive - following the path to $1 prediction.

And if you are right, I think this would qualify as a poor long-term investment - such a long time to hold, with high risk, and low reward.

Based on the basic business case, I think a more bullish view is merited - though I await, and hope, to see the business execution to make this successfully come to fruition.

Regards.

[BlueCat]

To clarify though - I agree with .. "Why the end of September?"

I would at least go through the next reporting period, or even November when hopefully more insight into production and marketing plans have solidified ...