Did anyone do an Analysis of Reported Sales

[otherottawaguy]

Wondering if anyone has the time to take a look at the reported sales in the Q1 report and compare this against the script numbers reported on Fridays for the same quarter? Would like to see how closely they are aligning. If it hasn't been done, and time is avail today, I will make an attempt.

OOG

[matt]

Yes, you can just take the last column off the spreadsheet that Liane updates weekly for the last date in each quarter.  Liane's spreadsheet is week to week so the cutoff dates don't match exactly with the accounting cutoff dates, but a few days shouldn't make much of a difference.


Prior to Q4 2016 there was a mix of Sanofi and Mannkind product, phasing in of MNKD sales force, etc. so I figure those numbers are not comparable to later periods:

Q3, 2016

Per Symphony          $2,215
As reported 10Q          $553
Ratio                        25.0%

For subsequent periods the numbers should be comparable:

Q4, 2016

Per Symphony          $2,350
As reported 10K        $1,322
Ratio                        56.2%      


Q1, 2917

Per Symphony          $2,322
As reported 10K        $1,196
Ratio                        51.5%         

So between Symphony and accounting, there is about a 45% discount.  In other words, for each $1 million reported by Symphony expect that Mannkind will report around $550 thousand in revenue from commercial sales.  As sales grow, that discount percentage should shrink.  For example, freight from Danbury to the distributing pharmacy is a certain amount, but if ten times the product is shipped in the future the freight cost would still be there but it  would be less than ten times.  Most pipeline costs will exhibit similar increases in efficiency as volume grows.

[cjm18]

So divide the weekly burn rate (7.2m? / 4.333) by 60 or 65% and divide by 225k from symphony to get how many more times sales we need to break even? Need 12x more.

[matt]

May 31, 2017 9:39:20 GMT -5 cjm18 said:

So divide the weekly burn rate (7.2m? / 4.333) by 60 or 65% and divide by 225k from symphony to get how many more times sales we need to break even? Need 12x more.

Not quite that easy because as sales increases so does cost of sales.  Right now, the cost of manufacturing exceeds the sales revenue so the more sales the larger the loss.  This is accounting artifact due to underabsorption of fixed costs in the plant, since some costs like depreciation are static while others like labor and materials change with volume.  I don't think two quarters are enough to take an intelligent guess at those cost dynamics; given the relatively low volumes I think something like four to six quarters of data is needed.  This is aggravated by the big Q4 write off in 2015 so a lot of costs going through the P&L in 2016 and 2017 are at zero when in fact those items will have a positive cost when they need to be replaced (i.e. items carried at zero accounting cost will be used up at some point).  Something similar happens with sales and marketing expense; as sales increase so do support costs, commissions, and so forth.

My best guess on cash flow break even is somewhere around 15,000 scripts per week, but given the limited data on which to estimate the actual number is probably in a range of 10,000 to 20,000..  At that level sales will generate a positive gross profit because of better manufacturing cost absorption, and positive gross profit will start to cover general, administrative, sales, marketing, and R&D expenses.  Don't forget that growing sales also requires growing accounts receivable and inventory, both of which require cash and which are only partially offset by accounts payable.  There are a lot of moving parts and it is impossible to forecast them accurately with a handful of reported numbers.

[cjm18]

May 31, 2017 10:16:42 GMT -5 matt said:

May 31, 2017 9:39:20 GMT -5 cjm18 said:

So divide the weekly burn rate (7.2m? / 4.333) by 60 or 65% and divide by 225k from symphony to get how many more times sales we need to break even? Need 12x more.

Not quite that easy because as sales increases so does cost of sales.  Right now, the cost of manufacturing exceeds the sales revenue so the more sales the larger the loss.  This is accounting artifact due to underabsorption of fixed costs in the plant, since some costs like depreciation are static while others like labor and materials change with volume.  I don't think two quarters are enough to take an intelligent guess at those cost dynamics; given the relatively low volumes I think something like four to six quarters of data is needed.  This is aggravated by the big Q4 write off in 2015 so a lot of costs going through the P&L in 2016 and 2017 are at zero when in fact those items will have a positive cost when they need to be replaced (i.e. items carried at zero accounting cost will be used up at some point).  Something similar happens with sales and marketing expense; as sales increase so do support costs, commissions, and so forth.

My best guess on cash flow break even is somewhere around 15,000 scripts per week, but given the limited data on which to estimate the actual number is probably in a range of 10,000 to 20,000..  At that level sales will generate a positive gross profit because of better manufacturing cost absorption, and positive gross profit will start to cover general, administrative, sales, marketing, and R&D expenses.  Don't forget that growing sales also requires growing accounts receivable and inventory, both of which require cash and which are only partially offset by accounts payable.  There are a lot of moving parts and it is impossible to forecast them accurately with a handful of reported numbers.

Ouch. Ouch. Don't let the shorts know this.

[peppy]

adding to this discussion are these numbers.
Math by OOG.

Current Burn Rate: 10M / month
Annual Burn Rate: 120M

30 Day Patient Cost: 600
Profit to Mannkind: 150

30d Prescriptions Required for breakeven: 120M/150 = 800K
90d Prescriptions Required: 267k (annually)
Weekly TRX Required: 267 / 52 = 5128

Roughly speaking MNKD needs 5200 total prescription per week to break even at current price structure.

This corresponds to approximately 67700 patients using Afrezza.
Note: Danbury plant with 3 lines has current max capacity of 500k annual patients.

Additionally: paraphrasing by memory, Matt, when making afrezza for sanofi.

"When all lines are working are cost of product decreases."

[hopingandwilling]

Peppy,

We could only wish that your numbers were correct--as it would give investors some hope for getting their investment back.  I afraid that Matt's projections are closer to the real numbers.  Your calculations would only generate about $40 million in revenue, where we need $120M just to break even.  If I understand your calculations--you are assuming $150 profit per prescription.  Big difference in Gross Revenue and Net Profits.

[otherottawaguy]

Clarrification (I looked at it twice again also)

MNKD needs the following to breakeven:

Option1: 5128 90 day prescriptions per week

Option2: 15384 30 day prescriptions per week.

May be as much as 20% lower as we know the burn rate is closer to 8M / month, math above is using 10m as the burn rate.

OOG

[brotherm1]

Thanks OOG. Those are more in line with my numbers also. Cost of sales might go up slightly but we currently have more in fixed costs. Economies of scale wil also kick in with higher production. And partering with the right company(s) - given they already would have a sales and distribution infrastructure in place for related goods - would be a boon to lowering costs.

[brotherm1]

I think if we get our current scrip numbers up to 6K per week we'll be getting close with some tweeking

[ezmit]

Pretty sure it's lower than all of that. At that point in scripts we can assume more insurance companies will be on board. More coverage = less discounts from mnkd.

Also, I remember Matt stating somewhere that the more Afrezza they can make the better their margins become.

[alethea]

May 31, 2017 10:59:05 GMT -5 hopingandwilling said:

Peppy,

We could only wish that your numbers were correct--as it would give investors some hope for getting their investment back.  I afraid that Matt's projections are closer to the real numbers.  Your calculations would only generate about $40 million in revenue, where we need $120M just to break even.  If I understand your calculations--you are assuming $150 profit per prescription.  Big difference in Gross Revenue and Net Profits.

120 million is NOT correct.

Current Cash Outflow is 7.4 million per month per the most recent call.

$7.4M x 12 months = $89 million per year.

$89 million is significantly less than $120 million.

[mytakeonit]

Slight correction to Matt's statement ... fixed costs go down with added sales. Labor and materials are considered variable costs. Fixed costs will always be there until depreciation is used up for plant and equipment. The variable can eat you up because you need labor to be around even if the plant isn't running. (just an example) Hopefully they can vary shifts to minimize labor costs and still keep labor from quitting.

I remember the last call saying $7.4M burn rate also.

Trying to figure out how we stand by using script numbers is almost impossible at this point. Does Vdex also add to the scripts? Are we really doing foreign location shipments yet? Was that UAE hospital ad real? Think we have to just look at quarterly statements for now.

[mytakeonit]

Wow ... that Brazil news made record response time for my inquiry.