What We Are Forgetting With Our International Partnerships

[centralcoastinvestor]

While we wait and watch for weekly script numbers and revenue to grow, I wanted to focus some attention on our international partnerships for a moment. It occurred to me that there is a lot going on here and not many are paying attention. There are many positives that are being overlooked and I think an examination of those positives will give longs further confidence in Afrezza and MannKind over the long haul.

Many have complained that it is taking far too long to obtain approval to launch Afrezza in Brazil. Me included. And who knows how long it will take to launch in India. However, there is a huge positive that comes with the time it is taking to get approval from the drug agencies in Brazil and India. What would that be? I’m glad you asked.

1. Learning From Mistakes
As a long time investor, (I began investing in 2007, ouch), it has been painful to endure all of the mistakes made by MannKind and for a short time Sanofi (I still hate that company).  However, mistakes are only a problem if a company quits trying or goes bankrupt. Under our new management, these mistakes are being turned into lessons learned to the benefit of future launches in Brazil, India and other soon to be announced countries. I am highly confident that MannKind management are working closely with their partners in Brazil and India. Here is a short list of lessons learned:

    a. Proper titration

    b. Less SKUs – more simplicity in the distribution and prescription supply chain

    c. Robust scientific journal publishing

    d. Building solid relationships with the medical community

    e. Building early, solid relationships with insurance companies

2. The Benefit of Time
For a wide variety of reasons, the initial launch of Afrezza by Sanofi was terrible. Once the FDA approved Afrezza, it took time for MannKind to partner with Sanofi. Sanofi didn’t have a whole lot of time to formulate an effective marketing plan. Once the CEO was fired by Sanofi, any chance of a good launch was over. However, while we have been waiting for approval in Brazil and now India, that has provided the necessary time for our partners to do a good job in preparing for an effective launch. This would include building a solid marketing strategy custom made for that country. MannKind will work diligently with the partners not to repeat mistakes made in the US.   Once Afrezza is approved in that country, the partner should be able to hit the ground running.

3. Funding
Admittedly, up front cash from the international deals have been less than spectacular. However, it is very very important to remember that MannKind will not have to fund a dime for marketing and distribution in the partner countries. That could be worth tens of millions of dollars or more in value to MannKind over time.

4. Potential For Quick Adoption
We may find much less resistance to Afrezza in other countries as our partners will avoid the many mistakes made in the US. This could provide a much quicker uptake in prescriptions. Now the profit margin will be much lower. But any significant uptake in volume will help lower COGS for MannKind and that will help the overall bottom line.  Who knows, we may be pleasantly surprised at the profit gained from other countries if sales is large enough.

In closing, what I find reassuring about the growing list of international partnerships is the fact that while MannKind pushes hard to establish Afrezza in the United States as the standard of care, other well established companies are pushing for large scale adoption of Afrezza in other countries. They are doing this with better knowledge from mistakes that Sanofi and MannKind made and it isn’t costing us a dime. That is a very good thing from my perspective.

[joeypotsandpans]

So when is the centralcoast radio show, now that I would listen to You hit on some key points namely the better capacity utilization of the manufacturing and obviously the better plan of attack via better/titration, SKU's, and wrapping their hands around the pull through (getting Kendall so key on the last point and why Mike IS now the CEO of the year IMO. Nice summary CC

[joeypotsandpans]

Jun 2, 2018 14:27:42 GMT -5 dreamboatcruise said:

Jun 2, 2018 14:09:45 GMT -5 joeypotsandpans said:

So when is the centralcoast radio show, now that I would listen to You hit on some key points namely the better capacity utilization of the manufacturing and obviously the better plan of attack via better/titration, SKU's, and wrapping their hands around the pull through (getting Kendall so key on the last point and why Mike IS now the CEO of the year IMO. Nice summary CC

I thought Mike won that honor because all of us on proboards kept voting for him over and over again.

Well, who would know better than the members here that are shareholders correct? So I take that included a vote from the chameleon? and to be honest, getting Dr.Kendall and the story behind it as told by the good Dr. at the ASM was a total coup by Mike and IMO a big reason when looking back down the road as to why he would ultimately have deserved it and the votes by the members of the board that did in fact vote for him

[mannmade]

CCI, I also agree with you on what you mentioned. What investors should really appreciate about the overseas deals is that while revenue per script will likely be significantly lower internationally, the revenue generated by foreign sales will likely ramp much quicker based on larger volume potential of bigger d pops and likely faster adoption in other countries.

For example, with 75m diabetics in India, if mnkd made only $100.00 per year per patient (NOT script sold) but was able through Cipla to acquire just 1m patients out of 75m diabetics, that would be $100m in revenue per year and basically be Mnkd's break even number as it stands today plus/minus a few million.

Now if you were able to replicate this in Brazil with lesser numbers say 250,000 patients, for $25m, and China with say 2m patients for $200m in revenue you have just found $325m in revenue from 3 countries. Although I have no way of knowing whether or not this fits with Mnkd's projections as to why they have done these deals, it does seem fairly plausible, and may even be on the low end of such projections. If they made $200 per patient per year off of an average of 4 x 3months script per year per patient mnkd now has $650m a year in revenue.

I am not sure how long it would take to get the number of patients I have mentioned in this post but with lower cost to consumer, centralized distribution, no insurance issues, etc I am guessing it will only be a couple of years from the start of actual distribution.

I know this is all very speculative but I am writing this to suggest that the revenue potential for the foreign deals which mnkd should start to receive early next year with the launch of Brazil and (India to follow sometime in 2019) is very real.

One last add to this post just for fun... Let's say mnkd reaches $325m in international revenue within 3 years with no real additional costs as the distribution partners are picking up the sales and marketing costs etc... And lets say we have 200m shares outstanding at this time...

A plausibel valuaton on the $325m alone might be between $2.5B to 3.5B. (Please check my math here as I do not want to overstate the possiblity and I am gusseing on the metrics for valuating the company on this hypothetical.) With 200m shares outstanding that would be a share price between $12 to $17 pps based on international sales alone.

GLTAL's!!!!

[akemp3000]

Excellent post cci! The past has certainly been a painful lesson to both the company and us long-term investors but the future looks very bright if the current plan hits as expected. I'm excited about Dr. Kendall's SAB and goal to put better data in front of key industry publications and decision makers. I'm excited about the next marketing push and rising scripts which should follow the ADA. To your point, this should soon be followed in 2019 by international sales. I'm excited about other new partnerships yet to be finalized and announced. Everyone's aware of the current cash situation and challenges but the big picture looks promising indeed. GL

[babaoriley]

CCI, that is a very well written and thoughtful post! And some or all of the things you cite could happen. What I have found over the many years with MNKD, is that figures on paper, notwithstanding that they appear eminently reasonable, somehow never seem to work out (see my comment immediately below re MannMade's fine response to you).

MannMade, "A plausibel valuaton on the $325m alone might be between $2.5B to 3.5B." Not sure that 10X revenue is particularly plausible. Maybe three or four times, but it does depend on the growth rate of the sales and the profit margin. And, as you point out, that would only be from international sales. No question, we have a shot, Mike and David K need to continue their hard work, as does Sports...

In life, there are so many things from which we can derive pleasure, making a fistful of money is certainly one candidate. But being a part of a board like this is another. However, as Marilyn Monroe once sung, "A kiss on the hand may be grand, but it won't help pay the rental..."

Joey, you're positively giddy today, best of luck tonight, try to relax and enjoy, but I don't think that's possible - you're too intense a guy for that!

[thekindaguyiyam]

Great Post CC.

Add to the list Standardized Educational Material for the Physicians. Example: a short video that demonstrates how to use the Spirometer to get the best results. Seems simple enough; however, at my endo's practice there was no video and no demo by the person who gave me the test.  

[bioexec25]

Excellent post CCI. Thanks again for all you contributions.

[pat]

Mike made some comments in a recent presentation about fixed and marginal costs of afrezza. 

What I heard said is that the (upfront) fixed costs are significant but that the incremental costs of production of each unit are de minimus. 

The fixed costs are the production line, etc. 

So the more afrezza we sell, the more units we spread the fixed costs across. 

While the top line revenue from sales in India will be less than that of USA, each additional unit sold will act to boost the bottom line. 

[joeypotsandpans]

Jun 2, 2018 15:42:47 GMT -5 babaoriley said:

CCI, that is a very well written and thoughtful post! And some or all of the things you cite could happen. What I have found over the many years with MNKD, is that figures on paper, notwithstanding that they appear eminently reasonable, somehow never seem to work out (see my comment immediately below re MannMade's fine response to you).

MannMade, "A plausibel valuaton on the $325m alone might be between $2.5B to 3.5B." Not sure that 10X revenue is particularly plausible. Maybe three or four times, but it does depend on the growth rate of the sales and the profit margin. And, as you point out, that would only be from international sales. No question, we have a shot, Mike and David K need to continue their hard work, as does Sports...

In life, there are so many things from which we can derive pleasure, making a fistful of money is certainly one candidate. But being a part of a board like this is another. However, as Marilyn Monroe once sung, "A kiss on the hand may be grand, but it won't help pay the rental..."

Joey, you're positively giddy today, best of luck tonight, try to relax and enjoy, but I don't think that's possible - you're too intense a guy for that!

LOL! If you think I'm intense, take a look at the side by side graphic in the scripts section, that's INTENSE!! Then look at the picture of you and Sports underneath it LOL   Thanks, Baba about 2 1/2 hrs. from faceoff figuring we'll split these next two and regain home ice advantage....that side by side graphic IS SOOO INTENSE!!

[thekid2499]

Jun 2, 2018 15:12:18 GMT -5 mannmade said:

CCI, I also agree with you on what you mentioned. What investors should really appreciate about the overseas deals is that while revenue per script will likely be significantly lower internationally, the revenue generated by foreign sales will likely ramp much quicker based on larger volume potential of bigger d pops and likely faster adoption in other countries.

For example, with 75m diabetics in India, if mnkd made only $100.00 per year per patient (NOT script sold) but was able through Cipla to acquire just 1m patients out of 75m diabetics, that would be $100m in revenue per year and basically be Mnkd's break even number as it stands today plus/minus a few million.

Now if you were able to replicate this in Brazil with lesser numbers say 250,000 patients, for $25m, and China with say 2m patients for $200m in revenue you have just found $325m in revenue from 3 countries. Although I have no way of knowing whether or not this fits with Mnkd's projections as to why they have done these deals, it does seem fairly plausible, and may even be on the low end of such projections. If they made $200 per patient per year off of an average of 4 x 3months script per year per patient mnkd now has $650m a year in revenue.

I am not sure how long it would take to get the number of patients I have mentioned in this post but with lower cost to consumer, centralized distribution, no insurance issues, etc I am guessing it will only be a couple of years from the start of actual distribution.

I know this is all very speculative but I am writing this to suggest that the revenue potential for the foreign deals which mnkd should start to receive early next year with the launch of Brazil and (India to follow sometime in 2019) is very real.

One last add to this post just for fun... Let's say mnkd reaches $325m in international revenue within 3 years with no real additional costs as the distribution partners are picking up the sales and marketing costs etc... And lets say we have 200m shares outstanding at this time...

A plausibel valuaton on the $325m alone might be between $2.5B to 3.5B. (Please check my math here as I do not want to overstate the possiblity and I am gusseing on the metrics for valuating the company on this hypothetical.) With 200m shares outstanding that would be a share price between $12 to $17 pps based on international sales alone.

GLTAL's!!!!

We won't get close to 100% of revenue though. We don't know the terms of these deals but we are likely getting less than 50%, right?

[mannmade]

Agree we don't know the terms. However, for purposes of my post i have made two assumptions as follows:

1. We will have minimal if any additional expenses on our end in these deals since the upfront money is so little to non exstent, and;

2. The $100.00 per patient per year is a guess but is it was meant to be net to mnkd.

So the the total revenue is based on a net number to mnkd no matter what the split is for purposes of my post.

[traderdennis]

Jun 2, 2018 19:40:41 GMT -5 mannmade said:

Agree we don't know the terms. However, for purposes of my post i have made two assumptions as follows:

1. We will have minimal if any additional expenses on our end in these deals since the upfront money is so little to non exstent, and;

2. The $100.00 per patient per year is a guess but is it was meant to be net to mnkd.

So the the total revenue is based on a net number to mnkd no matter what the split is for purposes of my post.

1.  There is variable costs associated with packaging, shipping overseas, and at some point using more insulin than the guaranteed levels of the amphastar contract.  

The average per capita income in India is $1861 per tradingeconomics.com/india/gdp-per-capita .  $100 per year equates to over 5% of their yearly income as a yearly recurring expense.   Income alone would eliminate 50% of the bottom earning income from receiving Afrezza.  India's healthcare is not a socialistic model and does not have a single payer. 

[gcozz]

Since it hasn't been mentioned for a while, I just thought I'd throw this out there.

Could the stockpile of insulin that MNKD purchased some time ago, figure into international sales? For those new to the Board see:

www.youtube.com/watch?v=8PcEHw5P71Y&t=41m17s

[phantomfj]

Jun 3, 2018 11:27:49 GMT -5 traderdennis said:

Jun 2, 2018 19:40:41 GMT -5 mannmade said:

Agree we don't know the terms. However, for purposes of my post i have made two assumptions as follows:

1. We will have minimal if any additional expenses on our end in these deals since the upfront money is so little to non exstent, and;

2. The $100.00 per patient per year is a guess but is it was meant to be net to mnkd.

So the the total revenue is based on a net number to mnkd no matter what the split is for purposes of my post.

1.  There is variable costs associated with packaging, shipping overseas, and at some point using more insulin than the guaranteed levels of the amphastar contract.  

The average per capita income in India is $1861 per tradingeconomics.com/india/gdp-per-capita .  $100 per year equates to over 5% of their yearly income as a yearly recurring expense.   Income alone would eliminate 50% of the bottom earning income from receiving Afrezza.  India's healthcare is not a socialistic model and does not have a single payer.