MidCap Covenant Progress

[neil36]

Two random data points on the MidCap glide path in an attempt to gauge progress

July 31, 2020 Minimum Afrezza Revenue Threshold - $29.011 million

Retail sales in that particular 52-week look-back period so far: $36.268
Assuming 42% counts towards the revenue threshold: $15.233 million

Additional Revenue needed: $13.778 million, which would require roughly $33 million in retail sales between now and July 30, 2020

With 23 weeks between now and July 31, 2020, retail sales need to AVERAGE $1.435 million per week to stay compliant with the loan covenants.  


Sept 25, 2020 Threshold for the Third Tranche = $36 million

Retail sales in that particular 52-week look-back period so far: $27.421
Assuming 42% counts towards the revenue threshold: $11.517 million

Additional Revenue needed to qualify for the third tranche on Sept 25, 2020: $24.483 million which would require roughly $59 million in retail sales between now and Sept 25, 2020

With thirty-one weeks between now and Sept 25, 2020, retail sales need to AVERAGE $1.903 million per week to qualify for the third tranche




NOTE: These numbers do not include any past or future revenue, which would also count towards Afrezza revenue.
NOTE: I used a conservative 42% to calculate revenue from retail sales. On the conference call they estimated revenue will run in the 42-44% range. 

Other opinions and calculations welcome.

[neil36]

The first NOTE was meant to say that no past or future Brazil revenue is included in these numbers. So anything from Brazil would help lower the bar

[rfogel]

Thanks for your effort. I found that trailing revenue requirement difficult to follow.

[morfu]

I believe your 42% are too conservative!
Especially with higher Revenue numbers the cost should stay fixed so the ratio should improve

I18 II18 III18 IV18 I19 II19 III19 IV19

Afrezza net 3.4 3.8 4.4 5.7 5.0 6.1 6.4 7.8

liane´s table 6.5 8.4 10 11.5 12.2 13.2 13.3 17.2
Anet over table .52 .45 .44 .50 .45 .46 .48 0.45

[neil36]

Mar 1, 2020 12:01:13 GMT -5 morfu said:

I believe your 42% are too conservative!
Especially with higher Revenue numbers the cost should stay fixed so the ratio should improve

I18 II18 III18 IV18 I19 II19 III19 IV19

Afrezza net 3.4 3.8 4.4 5.7 5.0 6.1 6.4 7.8

liane´s table 6.5 8.4 10 11.5 12.2 13.2 13.3 17.2
Anet over table .52 .45 .44 .50 .45 .46 .48 0.45

Morfu:

If the levels you suggest were achieved, staying compliant is easily achieved and the third tranche isn’t a layup, but definitively attainable.

When I use a less conservative 46% (applied to all retail sales in the 52-week look-back) and add in $1.2 million for Brazil ($700,000 already received and adding $500,000) the math works out as follows:

With 23 weeks between now and July 31, 2020, retail sales would need to AVERAGE $1.06 million per week to stay compliant with the MidCap Loan

With 31 weeks between now and Sept 25, 2020, retail sales would need to AVERAGE $1.56 million per week to qualify for the third tranche

As in any analysis, the assumptions make all the difference.

[morfu]

Mar 1, 2020 16:02:31 GMT -5 neil36 said:

Mar 1, 2020 12:01:13 GMT -5 morfu said:

I believe your 42% are too conservative!
Especially with higher Revenue numbers the cost should stay fixed so the ratio should improve

I18 II18 III18 IV18 I19 II19 III19 IV19

Afrezza net 3.4 3.8 4.4 5.7 5.0 6.1 6.4 7.8

liane´s table 6.5 8.4 10 11.5 12.2 13.2 13.3 17.2
Anet over table .52 .45 .44 .50 .45 .46 .48 0.45

Morfu:

If the levels you suggest were achieved, staying compliant is easily achieved and the third tranche isn’t a layup, but definitively attainable.

When I use a less conservative 46% (applied to all retail sales in the 52-week look-back) and add in $1.2 million for Brazil ($700,000 already received and adding $500,000) the math works out as follows:

With 23 weeks between now and July 31, 2020, retail sales would need to AVERAGE $1.06 million per week to stay compliant with the MidCap Loan

With 31 weeks between now and Sept 25, 2020, retail sales would need to AVERAGE $1.56 million per week to qualify for the third tranche

As in any analysis, the assumptions make all the difference.

Well, I just want to add, that I do NOT suggest anything, I was just posting numbers from the earnings report and Liane´s table

mnkd.proboards.com/board/19/afrezza-script-counts-metrics

Okay, I did the division myself..

Thank you for redoing the analysis.. I was wondering about the impact, but too lazy to do it.. this numbers look a lot better!

[uflawdog]

Is anyone factoring in that people may begin to avoid doctors' offices due to COVID-19? What are peoples' thoughts on this? And yes, I understand that you will need insulin no matter what, but it may be less likely that folks will change to a new treatment, rather than sticking with what they currently have, because doing so would require doctor consultation, lung test, etc, which could increase the chances of being exposed.

[neil36]

The point of this post is that it gets to the heart of MNKD liquidity, particularly in relation to the anticipated revenue stream anticipated from TrepT in the second half of 2021 and beyond.  The third tranche from MidCap is a key pivot point in bridging the transition from Afrezza “deficit spending” to long term profitability. 

Right now, I am not overly confident that Afrezza revenue will meet the MidCap milestones. But we will have a much better picture over the next six to twelve weeks.  There appears to be no imminent “hockey stick”, but that could change. There are no indicators of hope from Brazil, other than a slew of Instagram posts.....but that could change also.

Once profitable, this company has always shown the potential to be wildly profitable.  But at every turn, the company has wildly disappointed, to the point that the market doesn’t give MNKD the benefit of the doubt on anything.  The only turning points going forward will be have to be based on rock solid tangible deliverables.  Everything else is just talk.

[pat]

Mar 1, 2020 18:06:07 GMT -5 uflawdog said:

Is anyone factoring in that people may begin to avoid doctors' offices due to COVID-19? What are peoples' thoughts on this? And yes, I understand that you will need insulin no matter what, but it may be less likely that folks will change to a new treatment, rather than sticking with what they currently have, because doing so would require doctor consultation, lung test, etc, which could increase the chances of being exposed.

No, Personally I am not extending the Corona hysteria to this stock - and trying not to do so in the rest of my life.

[matt]

I don't think a covenant miss, per se, will mean that MNKD cannot access the loan although this is certainly possible. With yields crashing due to market uncertainty, MidCap can probably borrow money at ever cheaper rates to loan to their clients like MNKD. What a covenant miss does mean is that MidCap is given an opportunity to extract more pain from MNKD in the form of free shares, a higher interest rate, or a cash penalty just a Deerfield did every time the company was cash poor. Hard money lenders rarely give ground on any covenant without imposing a cost on the borrower, but it is not in the interest of the lender to bankrupt their client either.

[thekid2499]

Mar 1, 2020 20:17:03 GMT -5 neil36 said:

The point of this post is that it gets to the heart of MNKD liquidity, particularly in relation to the anticipated revenue stream anticipated from TrepT in the second half of 2021 and beyond.  The third tranche from MidCap is a key pivot point in bridging the transition from Afrezza “deficit spending” to long term profitability. 

Right now, I am not overly confident that Afrezza revenue will meet the MidCap milestones. But we will have a much better picture over the next six to twelve weeks.  There appears to be no imminent “hockey stick”, but that could change. There are no indicators of hope from Brazil, other than a slew of Instagram posts.....but that could change also.

Once profitable, this company has always shown the potential to be wildly profitable.  But at every turn, the company has wildly disappointed, to the point that the market doesn’t give MNKD the benefit of the doubt on anything.  The only turning points going forward will be have to be based on rock solid tangible deliverables.  Everything else is just talk.

I think it is pretty clear that there is no hockey stick coming any time soon. Mike basically telegraphed that on the conference call when he said one of his goals for this year was to get scripts over 1,000. That certainly isn't hockey stick growth this year.

[brotherm1]

or did he perhaps mean average over 1,000 for the year?

[neil36]

Mar 2, 2020 7:50:35 GMT -5 matt said:

I don't think a covenant miss, per se, will mean that MNKD cannot access the loan although this is certainly possible. With yields crashing due to market uncertainty, MidCap can probably borrow money at ever cheaper rates to loan to their clients like MNKD. What a covenant miss does mean is that MidCap is given an opportunity to extract more pain from MNKD in the form of free shares, a higher interest rate, or a cash penalty just a Deerfield did every time the company was cash poor. Hard money lenders rarely give ground on any covenant without imposing a cost on the borrower, but it is not in the interest of the lender to bankrupt their client either.

Matt,

Exactly.  Even if the royalty stream from UTHR is imminent later this year, MidCap can (and will) extract a couple extra perks out of the third tranche loan. If they know MNKD will be cash-flow positive in late 2021 and beyond, they will gladly improve the terms for themselves. They have little to gain by cutting off MNKD.

It would be really nice to see them make the thresholds just based upon Afrezza revenues, but I am giving that a probability of less than 50% at this point.

Neil

[Deleted]

I thought the 3rd tranche was contingent upon UTHR and TreT?   Also is your analysis based upon the original MidCap Deal or the Amended Deal?  I'm sure if MNKD falls short they will do another amendment and sweeten the deal for MidCap. 

[neil36]

Mar 2, 2020 11:49:28 GMT -5 @chuckbass said:

I thought the 3rd tranche was contingent upon UTHR and TreT?   Also is your analysis based upon the original MidCap Deal or the Amended Deal?  I'm sure if MNKD falls short they will do another amendment and sweeten the deal for MidCap. 

Casper 06,

Here is the verbiage from the amended agreement with MidCap:

2. Amendment to Original Credit Agreement. Subject to the terms and conditions of this Agreement, including, without limitation, the conditions to effectiveness set forth in Section 4 below, the Original Credit Agreement is hereby amended as follows:

(a) The “Applicable Funding Conditions” section in the Credit Facility #3 Schedule in the Original Credit Agreement is hereby deleted and replaced in its entirety with the following:

“Applicable Funding Conditions: means the following:
(a) (x) Agent has received evidence satisfactory to it, in its discretion, that United Therapeutics has received positive clinical data on the Phase 1b BREEZE trial and (y) Agent has received evidence satisfactory to it (in its discretion) that United Therapeutics definitively intends promptly to file or has filed Treprostinil Technosphere for approval by Food and Drug Administration of the United States of America for the treatment of Pulmonary Arterial Hypertension;

(b) Agent has received, on or after the Commitment Commencement Date, evidence reasonably satisfactory to it that Afrezza Net Revenue for the preceding twelve (12) calendar months ending on the last day of the month (commencing with July, 2020) for which Borrower delivered (or was required to deliver pursuant to Section 6.2(b) hereof) a Compliance Certificate (the “Tranche 3 Testing Date”) is greater than or equal to the amount set forth on the Tranche 3 Afrezza Net Revenue Schedule opposite the applicable Tranche 3 Testing Date;

(c) (x) Agent has received evidence satisfactory to it (in its discretion) that Borrower has received the full amount of all Milestone Payments (as defined in the United Therapeutics License as of the Closing Date) under the United Therapeutics License and (y) immediately prior to and after giving effect to the funding of the Credit Extension under this Credit Facility #3, Borrower is not in breach or violation (nor has United Therapeutics asserted any such breach or violation by Borrower) of the United Therapeutics License Agreement and United Therapeutics shall not have delivered any termination notice pursuant to Section 12.3 of the United Therapeutics License; and

(b) The Minimum Afrezza Net Revenue Schedule attached to the Original Credit Agreement is hereby deleted and replaced in its entirety with the Minimum Afrezza Net Revenue Schedule attached as Schedule 1 to this Agreement.

(c) The new Tranche 3 Afrezza Net Revenue Schedule attached to this Agreement as Schedule 2 is hereby added as the last Schedule to the Credit Agreement