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Post by cjc04 on Aug 14, 2014 18:02:54 GMT -5
It's a shame that Sanofi's earnings call is so far off. One would think they are going to have to have some answers for analyst questions along the lines of "You just committed to spending nearly a billion dollars on the rights to Afrezza... can you provide some insight into sales and when this will be accretive?" Here is one guess at a scenario. The deal was purposely held off until after Sanofi's last earnings so that they could get an extra quarter in without having to face questions, thus being able to keep spending, timeline, etc. secrete and giving competitors less time to react once they, hopefully, give some insight into how great this deal will be for both them and MNKD when they next have an earnings call. Though I don't discount the possibility I'm merely engaging in the 3rd stage of grief by creating a back story to avoid progressing to depression. Well, here it is.... my first post... and it was your last line that got me to do it.. "Though I don't discount the possibility I'm merely engaging in the 3rd stage of grief by creating a back story to avoid progressing to depression". Not sure where I'm at, maybe stage 4, which could be believing such scenarios are reality, and completely dismissing the possibility of, or need for, said depression. The actual depression probably doesn't kick in til stage 5 or 6...... (I would note that stage 4 also includes removing the ice bag from your crotch and being able to walk again)..... Being serious now, I think there may be something to what you said. I've been wondering what the 6 to 8 week delay was for this entire time, and I often wondered if it had to do with the partners Q2 cc... whether to let them announce it, or let them not have to talk about it..... It seems pretty obvious to me now, especially when you factor in how often Matt couldn't comment for competitive reasons. While I'm here,,,, one more comment/idea that I haven't seen mentioned..... In regard to the idea of MNKD being made whole for X dollar figure related to the cost of R&D to bring Afrezza to this point. it's easy to take the comments Matt made either way, although his third statement at the start of the 5:00 cc is VERY interesting... There's also a retrospective aspect as well. It recognizes Sanofi for the substantial investment and involvement has made building a market-leading commercial infrastructure and also recognizes MannKind's investment in the product today [to date]."So here's my comment,,,, I think it's an ingenious way to pay MNKD back for the money and time spent bringing Afrezza to market. Instead of just paying MNKD an extra $billion up front, incorporate it, over time, into the COG sold. This way MNKD gets made whole, but to protect Sanofi it's based on Afrezza actually selling. This deal seems to have many layers of protection for both parties and they're all based on sales AND motivation to sell, from both parties. If any of this is true, and I'm not just suffering from stage 4, then MNKD's balance sheet is going to look real good real quick without Afrezza being profitable for years to come. |
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Post by BD on Aug 14, 2014 18:07:31 GMT -5
Yup, I think I can safely boast that we have the best collection of first-time posters here of any board anywhere!  |
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Post by liane on Aug 14, 2014 18:17:30 GMT -5
Matt did say (I believe it was in the AM cc - no transcript) - that he expects the financial statements to change dramatically.
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Post by dreamboatcruise on Aug 14, 2014 18:25:59 GMT -5
There's also a retrospective aspect as well. It recognizes Sanofi for the substantial investment and involvement has made building a market-leading commercial infrastructure and also recognizes MannKind's investment in the product today [to date]."So here's my comment,,,, I think it's an ingenious way to pay MNKD back for the money and time spent bringing Afrezza to market. Instead of just paying MNKD an extra $billion up front, incorporate it, over time, into the COG sold. This way MNKD gets made whole, but to protect Sanofi it's based on Afrezza actually selling. Hate to say it, but my take on that comment is Mannkind trying to say "we know some people may be surprised by a lower upfront and cut for Mannkind than many hoped for, but we did this deal because it gives us access to something incredibly valuable... 'market-leading commercial infrastructure' for diabetes." Mannkind was basically saying there was a balance with both companies bringing something of high value, therefore we didn't get some HUGE payment. Instead both parties are counting on HUGE sales to provide the upside for all. The interpretation you bring to this is picking out half of it and saying that Sanofi, contrary to specifics announced, will pay Mannkind for past sunk costs. If that were true and you're hanging it on this statement, why do you not think the "partnership" accounting would need to reimburse Sanofi for the billions it's spent building up that "commercial infrastructure"... after all they are both stated clearly in the same context... the same breath. |
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Post by papihoyos on Aug 19, 2014 9:16:15 GMT -5
There has been a lot of discuss about whether MNKD will be reimbursed for its investment in Afrezza. I listened to the CC call and it made perfect business sense to me that MNKD will be credited in the new JV with the investment it has made to date in Afrezza. Otherwise, its a foolish deal. Why would someone spend $B's on a developing a product to only recover 35% of the profit?
The way I understand it and I modeled in a thread I posted (link) on this subject, MNKD will be credited with there cost to date in developing Afrezza + $925M. These costs will run through the P&L of the new JV and MNKD will receive reimbursement as sales are realized and Only from sales.
It’s a win for MNKD and a win for SNY. Assuming success of the product, MNKD is reimbursed for it’s investment (don’t get caught up on GAAP reporting) + $925M from sales of the product. Very little risk for SNY other than advance payments and their share of on-going costs from the inception of the partnership.
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Post by ezrasfund on Aug 19, 2014 9:29:33 GMT -5
Remember that MannKind's investment in Afrezza was (and still is to the market, apparently) a very high risk investment. If you invest in something that has a 10% chance of success recouping your initial investment when you succeed is not exactly a home run.
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Post by esstan2001 on Aug 19, 2014 11:16:45 GMT -5
if understanding of the deal ultimately crystallizes like this (thru the deal disclosure or anal-ysts analysis), I think the s.p. will adjust upward a buck or 2 IMO (worth roughly 600 mil to market cap to the Co.?) to move us in hte 8-9 area.
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Post by jpg on Aug 19, 2014 12:16:17 GMT -5
As far as I am concerned it doesn't matter that much how much we really get back on 'sunk Afrezza cost'. Establishing a linear relationship between Mannkind being paid a bit more (or less) is, to me unimportant. It would not in any meaningful way change my view of the deal we have with Sanofi.
The important part of this deal is will Sanofi have the proper incentives to sell Afrezza and will the market want it? The answer to both questions I believe is yes and this is why I am more then happy that Sanofi gets a bigger share of the profits going forward.
JPG
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Post by noonen on Aug 19, 2014 14:09:30 GMT -5
There's also a retrospective aspect as well. It recognizes Sanofi for the substantial investment and involvement has made building a market-leading commercial infrastructure and also recognizes MannKind's investment in the product today [to date]."So here's my comment,,,, I think it's an ingenious way to pay MNKD back for the money and time spent bringing Afrezza to market. Instead of just paying MNKD an extra $billion up front, incorporate it, over time, into the COG sold. This way MNKD gets made whole, but to protect Sanofi it's based on Afrezza actually selling. Hate to say it, but my take on that comment is Mannkind trying to say "we know some people may be surprised by a lower upfront and cut for Mannkind than many hoped for, but we did this deal because it gives us access to something incredibly valuable... 'market-leading commercial infrastructure' for diabetes." Mannkind was basically saying there was a balance with both companies bringing something of high value, therefore we didn't get some HUGE payment. Instead both parties are counting on HUGE sales to provide the upside for all. The interpretation you bring to this is picking out half of it and saying that Sanofi, contrary to specifics announced, will pay Mannkind for past sunk costs. If that were true and you're hanging it on this statement, why do you not think the "partnership" accounting would need to reimburse Sanofi for the billions it's spent building up that "commercial infrastructure"... after all they are both stated clearly in the same context... the same breath. Apologies in advance for the ramblings, this started just as my thoughts on the development costs and cogs, but then it became a (stage 12?) release of shyte from the last weekish or so. My understanding of accounting may be just enough to be dangerous so any CPAs out please tell me where my assumptions are wrong. Reimbursement of past costs:
I want to believe that mnkd is explicitly being paid back for its development costs, but there's just no way (imo). I will gladly scream from the hilltops "I was wrooooong!" if they do get paid back on top of the announced deal. In a simplified version, if sny was reimbursing mnkd for all past costs (using -$2b of retained earnings as my afrezza accumulated costs) the value of the mnkd would immediate be valued at ~$2b higher. That's $4/share, IN CASH, coming soon into the company (conservatively, using 500mm sharecount). Mgmt would be screaming from the hilltops with that headline. Instead, they talked a bit cryptically about a retroactive aspect of the deal. I think the statement by Pfeffer means only that mnkd is being paid back for its past development costs by: $1B: Milestones are reached (low-risk early development/manufacturing milestones to mid-high risk sales milestones). Overall moderate risk of recouping. $1B: to be recouped from 35% profit split. Overall higher risk of recouping. $2B total "payback". Clearly not guaranteed. SNY gets paid for infrastructure (regulatory, sales, etc) with it's 65% profit split. also not guaranteed. COGS and reimbursement of PAST costs:Nothing will be flowing through COGS from previous development costs. It's expensed, it's done. It only gets carried fwd through the negative retained earnings on the balance sheet. However, from partnership execution forward, anything r&d wise related to afrezza (bc it's now an approved drug), can then be capitalized and expensed out against sales in COGS once sales happen. COGS going forward and SNY reimbursement of MNKD Afrezza manufacturing costs:It's not a double dip/margin boost for MNKD. It's purely a cash issue. MNKD doesn't have boatloads of cash to front a larger scale launch of manufacturing (and is constrained by some debt convenants), so Sanofi reimburses mnkd (at cost) and then those costs show up again on the "partnership" income statement at the exact same value. Of which mnkd gets 35%. If there are zero or little profits at launch (expected), then mnkd will have to dip into their $175mm credit facility to cover their portion of the costs. example of the Afrezza income statement at launch (pulled numbers out of my ace): 100 sales 30 COGS (what it costs mnkd to make the afrezza sold for 100, this number comes from mannkind) 10 r&d (solely related to afrezza and new potential avenues, larger cartridge, studying it with toujeo etc) 160 sg&a (this number comes from sny, big in the beginning, hopefully shrinks as a % of sales with acceptance and recurring patient revs) -100 operating profit -35 MNKD portion (35%) -65 SNY portion (65%)MNKD cash: -30 for making afrezza (COGS) +30 COGS reimbursement from sny. 0 no net effect on mnkd cash (or income statement). -35 MNKD portion of Afrezza losses. +35 MNKD doesn't have 35, so it taps into $175mm credit facility. COSTS post partnership execution:
Who knows. sny cogs on an annual basis for the past few years is around 33%. Operating expenses are running a little higher than 50%. Maybe that will be lower with Afrezza. Maybe a 20% operating margin is a solid margin to expect from the partnership. again who knows. The only thing sticking out still in my mind is the comment that this is roughly similar to a mid-20% royalty deal. I think for that to be true the $995mm in milestones have to be assumed as definite. I'm not sure though. Now, after all that negativity, I'm still positive. This is a long-term play. Positives: 1) Nothing negative has happened (fundamentally) 2) Approval. 3) Badass partner. $45b in revs last year. $5b in net income. wow. 30,000 sales reps. THIRTY THOUSAND. 4) More cash in the door. 5) Diabetes market size (on a cold impersonal level). absolutely massive. and growing. Even without the basal. 6) "The Graph". minutes on the X-axis. Plasma Insulin on the Y-axis. Afrezza's curve. This graph is why I bought MNKD, and have continued to buy MNKD. It just seems to paint the clearest picture of the benefits. 7) Trials for kids down to 4 yrs old. Negatives: 1) We didn't get more cash. Full disclosure, this would be on my list even if they got $XX billion upfront. cash is king. 2) No sales (yet). 3) We will likely be taking on more debt in the near-term. 4) Maybe the insulin in storage has a higher % of unusable product than previously hoped Scare the crap out of me/want to hurl potential negatives: 1) SNY focuses more on its new basal bc basal still seems to be first intro of insulin to patients (and they don't give away 35% of that profit) 2) cancer threat. Even if it remains only a perceived and not real threat, the word is scary. 3) Overall market tanks, biotechs crash as people flee from risk. Overall, the positives have it for me. in the long term. I continue to look for other horrible hi-probability negatives to make me change my opinion, but I haven't seen them yet. The 3 above in the last category I keep in my mind, but they haven't made me sell. Even though the overall market correction has got to be coming at some point, no? We'll see what happens. Looking fwd to seeing the executed MKND/SNY partnership docs and maybe a little more color from SNY down the road. Best of luck to all.. |
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Post by papihoyos on Aug 19, 2014 22:00:56 GMT -5
Their retained earnings may be ($2B) but not all these costs are related to Afrezza. A portion is corporate overhead and a large part is the costs to develop Technophere. Let say that $1B relates to the development of Afrezza before the partnership is inked. I am assume that what ever this amount is, SNY will allow MNKD to amortize this as a component of the costs to manufacture the product. The only way MNKD realizes these amounts is through sales. That's my position and I'm sticking with it. Anything else just doesn't make sense and if I were negotiating this agreement, that what I would do.
In addition, the $925M in milestone payment is also a component of COGS on the JV books, so SNY gets to recoup that as well, again only through sales. If the product is a hugh success, both parties win. SNY recoups 35% of its milestone payment and MNKD recoups 65% of the development costs for Afrezza.
Yes, I'm a CPA
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Post by noonen on Aug 19, 2014 22:40:15 GMT -5
Their retained earnings may be ($2B) but not all these costs are related to Afrezza. A portion is corporate overhead and a large part is the costs to develop Technophere. Let say that $1B relates to the development of Afrezza before the partnership is inked. I am assume that what ever this amount is, SNY will allow MNKD to amortize this as a component of the costs to manufacture the product. The only way MNKD realizes these amounts is through sales. That's my position and I'm sticking with it. Anything else just doesn't make sense and if I were negotiating this agreement, that what I would do. In addition, the $925M in milestone payment is also a component of COGS on the JV books, so SNY gets to recoup that as well, again only through sales. If the product is a hugh success, both parties win. SNY recoups 35% of its milestone payment and MNKD recoups 65% of the development costs for Afrezza. Yes, I'm a CPA thanks for your comments papihoyos and I absolutely hope you are right! Indeed there's other stuff in that retained earnings, oversight on my part. In my version above, $1b of previous afrezza costs reimbursement would just mean a $2 pop in value, not $4. I think the "through sales" aspect is the most important aspect of this cost reimbursement. mnkd isn't getting a check for $1b. The product must sell. If the costs (even some of them) get lumped in before the mnkd's 35% is applied, that would be absolutely awesome and I think a lot of people will get very comfortable very quickly. |
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Post by ezrasfund on Aug 20, 2014 1:11:22 GMT -5
In addition, the $925M in milestone payment is also a component of COGS on the JV books, so SNY gets to recoup that as well, again only through sales. If the product is a hugh success, both parties win. SNY recoups 35% of its milestone payment and MNKD recoups 65% of the development costs for Afrezza. Yes, I'm a CPA Ouch! Sanofi is going to recoup 65% of the milestone payments unless Afrezza is a bust? I think you flipped the 65/35 thing. Is that something you have gleaned from the conference calls, or just from GAAP? Remember this is not Accounting 101, but Business 101 where, for instance, just because an asset is fully depreciated doesn't mean that it is worthless. |
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Post by papihoyos on Aug 20, 2014 6:26:16 GMT -5
In addition, the $925M in milestone payment is also a component of COGS on the JV books, so SNY gets to recoup that as well, again only through sales. If the product is a hugh success, both parties win. SNY recoups 35% of its milestone payment and MNKD recoups 65% of the development costs for Afrezza. Yes, I'm a CPA Ouch! Sanofi is going to recoup 65% of the milestone payments unless Afrezza is a bust? I think you flipped the 65/35 thing. Is that something you have gleaned from the conference calls, or just from GAAP? Remember this is not Accounting 101, but Business 101 where, for instance, just because an asset is fully depreciated doesn't mean that it is worthless. No, I didn't flip it, SNY recoups the inverse of their interest. However, that's the one question I still have unanswered whether SNY gets to include the milestone payments into JV or whether these costs are outside. In other words, it there cost to buy into the deal. |
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